A Critical Realist Framework for Explaining Changes in Entrepreneurial Relationships

In a previous paper we set out an approach towards network analysis and explanation that used social capital as a key concept. In the research reported here the focal social actors are entrepreneurs and the social capital is that which is involved in the relationships they have with other actors on whom they rely for resources. One unusual aspect of the research was that it focused upon changes in social capital. In this way it was possible to relate social capital to the processes that create, maintain and destroy it. The major innovation offered in this paper is an attempt to use a form of critical realist explanation. A number of entities were induced from the data and deduced from theory and related to one another in a causal mechanism framework in an attempt to explain why social capital changed in the case of two relationships entered into by a single Canadian entrepreneur. The paper concludes by emphasising the opportunities that arise in using a critical realist approach and being able to use a variety of different mechanisms in causal explanation. Introduction In a previous paper we set out an approach towards network analysis and explanation that used social capital as a key concept (Araujo, Bowey and Easton (1998)). Social capital has become a widely used notion in a variety of different economic and social fields. It is particularly attractive to economists and management scholars because it offers a way of making manifest, and even to quantify, the rather elusive notion of the stock of what might be called goodwill in and among social / economic actors in a system. In the research reported here the focal social actors are entrepreneurs and the social capital is that which is involved in the relationships they have with other actors on whom they rely for resources. Such relationships are of various types and can involve family members, partners, suppliers, customers, competitors, financiers and government departments. They included dyads and larger groups of alter actors. One unusual aspect of the research was that it focused upon changes in social capital. Fundamentally this meant studying the build up of social capital in cases where relationships were formed and its depreciation in cases where it was disappearing. In this way it was possible to relate social capital to the processes that create, maintain and destroy it. In the original paper a number of factors were adduced in an attempt to explain the nature of social capital. This list has been added to in the intervening years and can be seen in the diagrams presented later in the paper. In essence they provide an analytical framework for the explanation of changes in social capital in the entrepreneurial situations researched. The major innovation offered in this paper is an attempt to operationalise a critical realist explanation using this framework as a basis. Actors – ResourcesActivities and Critical Realist Explanation In our original paper we argued that the Actor – Resources – Activity framework provided a useful way of understanding and explaining changes in social capital. In doing so we hoped to support and explicate one of the key conceptual developments in the field. In the current paper we take this framing a stage further by explicitly using a critical realist approach to explanation. This offers a chance to operationalise one of the key models in the IMP tradition, without recourse to positivist measurement paradigms. In order to apply the modified A-R-A framework to the case data, it was decided to underpin the analysis with the tenets of a critical realist approach to explanation (Easton (2002)). The key components of a critical realist explanation are the bodies or entities that exhibit causal powers or liabilities, the necessary and contingent relationships that they have with one another and the mechanisms by which particular events are caused to happen in particular situations (see Easton (2002)). Necessary relationships are those that exist by virtue of the conceptual terms we apply to the entities concerned and the relationships between them. Buyers have a necessary relationship to sellers and to what they exchange. However there is more to this framework than simply definition. In using these concepts and the relationships between them we are claiming a priori theoretical weight for them. They comprise a model, framework, set of hypotheses or theory that we believe will provide ways of first characterising and then understanding and provide a basis for particular forms of knowledge. Contingent entities are the related conditions, sets of conditions or related structures that help to activate a particular causal power (Sayer 1999). They differ from necessary relationships since they may affect events but do not necessarily do so. Contingent entities can be internal to entities (e.g. the psychological structures of entrepreneurs) or external (the social network within which the focal buyer – seller relationship exists. What is crucial in understanding contingent entities is to ask what is it about them that helps cause events not the use of some opaque label. For example it could be argue that small firms are more likely to form strong relationships but what is it about smallness that causes this to happen. As Sayer suggests, the juxtaposition of necessity and contingency is complex and sometimes several causal mechanisms may be only contingently related to one another. Merely identifying these contingencies is an important step forward towards outcome explanation. These contingencies include co-determined mechanisms that might not otherwise be identifiable or understood (Sayer 1999). In these case studies the events to be explained are empirical outcomes that can be measured and recorded i.e. the creation or destruction of a resource, social capital in a relationship. Entities with causal powers are the focal entrepreneurial actor and the other actors with whom social capital (a resource) is being created or destroyed. Social capital itself is an entity since it also has causal powers and liabilities as well as contingent form and nature. Actors’ causal powers relate to their ability to create and destroy social capital as well as other powers that relate to the particular type of relationship involved. Contingent relationships are both internal (which relate to the entities and relationships within each entity e.g. actor interests) and external (which are concerned with the other entities in non necessary relationships but which may affect the entities concerned e.g. the nature of the resources involved). Mechanisms are the particular configurations of entities, their relationships and the activities they undertake which operate in a particular empirical situation and which constitute an explanation. Case Study Analysis The case studies described here refer to two different situations involving the same entrepreneur with two different actors. In one case social capital increased and in the other it declined. The case studies were originally written up using the following ARA compatible template comprising two focal actors and the social capital that they shared. This became the format for structuring the episode data into case narratives. Both relationships were described including a detailed description as follows: (1) the changes in social capital (2) how these changes in social capital occurred (activities) and (3) a first attempt to suggest why these changes in social capital occurred (the underlying mechanism). Not only did this provide a consistent structure for developing the entrepreneurial relationship activity (including the various contextual descriptions), but there was also a consistent platform for comparing and contrasting the outcomes. By employing this template, the case narratives become an important part of the analysis in their own right. Once each relationship was analysed according to this structure, further analysis was used to probe deeper into the explanation(s) for the changes in social capital. Identifying and categorising the specific entities and their underlying components became a crucial analytical exercise. They emerged inductively and deductively by going back and forth between the relationship descriptions and the literature. From this analysis a six entity (social capital, focal and other actor, resources exchanged, net social capital and actor interests compatibility) framework emerged and became the basis for further causal explanation. The relationship among them is shown in a rather schematic fashion in figure 1 below. The components or internals contingent entities within social capital have already been discussed. The focal actor was deemed to have 3 internal / contingent structural entities (ideology, relationship criteria and interests) and the alter actor had one (interests). Resources exchanged and net social capital were designated as external contingent entities and each, as will be see, also had internal contingent structure. Actor interest compatibility is an interesting entity since it is a contingent relational entity. It measures the extent to which the two actors were in pursuit of compatible goals in the relationships. The importance of this entity to the mechanisms involved will be discussed later in the paper. The next section briefly discusses each of the entities and their internal contingent structures. Framework Entities Social capital We begin with the central entity of interest, social capital. It emerged from the research as a more nuanced way in which to characterise the nature of relationships between entrepreneurs and the other actors with whom they exchanged various forms of resource. Since we were convinced that only by studying changes in such relationships would we begin to understand them the key focus of the research became to try to discover how social capital changed and why it did so. Figure 1. Theoretical Framework for Social Capital Change