It’s not what you know, but who you know. We often hear this phrase in business, where an extensive contacts network can lead to better deals, promotion, inside information, and even a better job.
Thanks to this line of thinking, having a massive contacts book, or impressive number of LinkedIn connections, is something people flaunt. And the power of networking isn’t just responsible for what people boast about when trying to impress friends, colleagues and their boss. Organizations tend to look for well-connected employees, while managers tend to believe lots of contacts are a good thing for the bottom line.
Simply put, building networks is widely encouraged as a means to improving productivity and profits. But does having an extensive contacts book really result in better performance for the organization?
When looking at the data-rich world of the National Basketball Association (NBA), my research colleagues and I were surprised to find that the answer is no.
We looked at every NBA player transaction from 1977 to 2010 and worked out which managers used their contacts to sign players and which managers didn’t. For those teams that used their manager’s contacts to sign players, we found that they performed five per cent worse than those who didn’t, and that was after factoring in the quality of the team, club budgets and a host of other influences.
That doesn’t sound like a lot, but for 64 per cent of the seasons we studied that five per cent would have been the difference between landing a playoff spot and missing out. And the fact that the simple act of signing a player through a contact could have cost some NBA teams a title shot is a startling thought — especially since we found that NBA managers were 32 per cent more likely to acquire players through contacts at their former teams.
Think about it. Relying on contacts saves time and money, at least in the short term, but it can also be seriously unhealthy on and off the basketball court.
When you rely on contacts, you draw on the same well time and again, accessing the same ideas and talent. When hiring from within a network, you are not conducting an objective search of all the talent that exists out there, so you are not seeking the best result for the organization.
Relying on contacts also can lead to performance bias. After all, cozy relationships make it easy to overlook people who put in weak effort or cut corners because you trust them.
When entering a business transaction, managers need to objectively seek the best people for the job at hand with the long-term interests of the firm in mind. That means they must be able to step back and weigh their contacts against outside competitors in every situation. Building in time for a proper tendering process often saves on costs in the long run by producing better outcomes for the company. So if you find your managers relying on contacts to save on search costs, then make sure you later assess that decision.
Keep in mind that a fresh perspective is often needed when assessing the value of someone’s network. (In our NBA study, we found that new owners of clubs monitored their managers’ decisions much more closely, with 48 per cent of pre-existing managers being replaced by new owners in the first year.) So make sure you actively monitor how your team members use their contacts. It may cost time and money, but it could also mean the difference between being a market champion or just an also-ran.