Social Exchange Theory Shaping Organization Culture: Relationships Value– Comparison of Benefit-versus-Cost…

Social exchange theory proposes that social behavior is result of an exchange process that ‘maximize benefits’ and ‘minimize costs’… According to the theory; people weigh potential benefits (rewards) and risks (costs) of social relationships: When ‘risks (costs)’ outweigh ‘benefits (rewards)’, then people tend to terminate or abandon the relationship. Here ‘costs’ involve things that are seen as negative to a person (or organization), such as; having to spend money, time, effort… in a relationship…

‘Benefits’ are the thing that a person (or organization) receives from the relationship, such as; money, prestige, support, friendship… Essentially, social exchange theory takes– ‘benefits’ minus ‘costs’ in order to determine how much a relationship is worth. Positive relationships are those in which the benefits outweigh the costs, while negative relationships occur when the costs are greater than the benefits…

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All relationships have give-and-take, but balance of the exchange is not always equal… Hence, in deciding what is fair or worthwhile a person (or organization) develops a comparison level against which they compare the give-and-take ratio (benefit-and-cost ratio). This comparison level will vary between relationships with some being more giving and others being more receiving from the relationship. They also vary greatly in terms of what is given (type or level of costs) versus, what is received (type or level of benefits)…

In workplace, exchanges may be very different both in balance and content, e.g.; one person may give valuable work support… whereas, another reciprocates by just being a social friend… Social exchange theory explains how a person might feel about a relationship with another person (or organization) in workplace or social setting, and that typically depends on their perception of the following:

  • Balance between what you put into the relationship and what you get out of it…
  • Kind of relationship you think you deserve…
  • Chances of having a better relationship with someone, or some things else…

Social Exchange theory has served as a theoretical foundation to explain different situations in business practices, e.g.; it contributes to the study of organization-and-stakeholder relationships… According to Caryl Rusbult; investments serve to stabilize relationships and from this perspective a customer becomes an investment, but if a customer decides to choose another competitor, then the investment is lost…

Often people (or organization) try to salvage a relationship by investing additional resources into the relationship, which puts the ‘benefit-versus-cost’ of the relationship out of balance, and over time that leads to failure.  According to Lambe, C. Jay, C. Michael Wittmann, Robert E. Spekman; organizations evaluate economic and social outcomes from each transaction and compare them to what they feel they deserve… The initial transaction between companies is crucial to determine if the relationship will expand, remain the same, or dissolve…

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In the article Culture Shaping by Tim Felmer writes: Corporate cultures are the byproduct of its social exchange framework, e.g.; behaviors, attitudes, values… Culture directly impacts the trust, engagement, confidence… at ‘grassroots’ level (e.g., workers) for their leadership; and it can be the most powerful asset for the organization, or it can be its greatest weakness…

Leaders often make the mistake of believing that an organizations results can only be elevated merely by implementing strategic planning, or enhancing revenues, or re-organizing its internal organizational structure… While all of these are very important for success… experience validates that focusing on only these areas and ignoring the social exchange and culture shaping of the organization is akin to delaying an organization’s ultimate failure…

Cultures are the fuel that propel companies, e.g.; praise workers rather than treating them as a necessary business resource… Companies that have emphasized culture shaping and positive social exchange, generally, display the following characteristics:

  • Safety:  Workers feel respected, valued, and are treated with dignity…
  • Consensus: Worker input is sought actively and considered as part of the decision-making process…
  • Transparency: Information, both bad and good, is shared without spin, or manipulation of facts… Workers trust their leaders because their leaders trust them with information…
  • Focus: Workers understand clearly the major priorities of the organizations…
  • Accountability: When workers are engaged appropriately in the decision processes, they feel responsible for the results of the company.  Positive peer pressure enables workers to fulfill their commitments to high standards…
  • Innovation: Workers are not afraid to take risks and are encouraged to fail forward…

In the article Social Exchange in the Workplace by Casey Reader writes: Social exchange theory is a model of human behavior that has been developed to explain the processes by which people make relationships and maintain them. According to social exchange theory; people (or organizations) evaluate their relationships by analyzing the benefits they feel they might receive through them and comparing it to alternatives… Social exchange theory is often applied to the workplace to explain employee interactions, for example:

  • Rationality: Social exchange theory posits that workers make choices about their relationships based on rational decision-making. They evaluate their decisions by ordering their priorities. The priorities that different employees embrace makes a great difference in the kind of workplace relationships they have. If you have a group of employees who are prioritizing factors, such as; group achievement, teamwork… it’s much more likely that the organization will be successful and achieve positive results…
  • Rewards: One way of reinforcing positive relationships in the workplace is by providing incentives that reward employees for skills, like; teamwork, creativity… According to the understanding of social exchange theory, workers are more likely to seek out relationships if they feel there are rewards for doing so. The investment that a person (or organization) puts into relationships is directly proportional to its payoff…
  • Friendliness: Social exchange theory also posits the importance of maintaining a friendly atmosphere in a workplace. If workers feel that an environment is hostile to them in any way, it gives them much less of an incentive to be engaging and seek out relationships. The motivation that workers have for seeking out relationships is directly proportional to the payoff…
  • Socialization: People (or organizations) orient themselves in the world through the relationships… The extent to which workers are satisfied in a workplace and wish to continue working in an organization is predicated to a large extent on the kinds of relationships they form. Fostering positive relationships is crucial to employee retention and organizational success…

In the article Social Exchange Theory by Gillian Fournier writes: Social exchange theory can be viewed as the– mathematical and logical side of relationships, e.g.: You add and subtract points for the following: How much effort are you putting into the relationship, versus: How much effort the other party is contributing. Or, What you feel you deserve in the relationship, versus: How likely is it that you could find a better relationship…

Often if a worker feels that their organization takes advantage of them or they are not appreciated… then, the worker might go out and find another job; that is, if they think they deserve it… or, if they think they could find a better alternative for same amount of effort…

Core assumptions embedded in the social exchange framework are about the nature of people (or organizations) and about nature of relationships, e.g.; people seek rewards and value self-worth… When interacting with others, people seek to maximize benefits for themselves while minimizing costs… However, since it’s not possible to know the actual rewards and costs involved in interacting with another person (or organization) before the interactions occur, people guide their behavior through their expectations for rewards and costs…

Social exchanges are characterized by inter-dependence, that is; the ability to obtain benefits in a relationship is contingent on the ability to provide others with same rewards. Social exchanges are regulated by norms, e.g.; reciprocity, justice, fairness…

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Social exchange theorists see every interaction as a transaction, i.e.; ‘something for something’it’s the ‘theory of individual self-interest’… when a person takes any action, they  does so with the prospect of gaining benefit for themself. Often it’s the intangible benefit, such as; respect, satisfaction… Social expert postulate that people measure relationships based on weighing the costs and rewards that might result. They also argue that any human relationship require efforts from the individuals involved, e.g.; the time needed to maintain a friendship is a cost that might be spent on other matters, such as; work, study… On the other hand; relationships also give its parties rewards: A reward can be a feeling of belonging to a group, emotional satisfaction, and support whether it’s; financial, moral, social…

According to social exchange theory; as people (or organizations) interact over time, they experience the need to reciprocate the support and assistance of each other, if they wish to preserve relationships, and that is the ‘norm of reciprocity’…

Hence the basis for a trusting and loyal relationship is founded; first, each party must know and understand their own self-worth, and protect their own self-interest… second; each party must faithfully and in equal measure, practice the mutual action of ‘reciprocity’…