Social Network Effects on Performance and Layoffs: Evidence from the Adoption of a Social Networking Tool

By studying the changes in employees’ networks before and after the introduction of a social networking tool, I find that a structurally diverse network (rich in structural holes) can generate two types information benefits that are theorized to improve work performance: information diversity and social communication. Analyzing their effects on two types of work outcomes: billable revenue and layoffs, I find that information diversity is more correlated with generating billable revenue than is social communication. However, the opposite is true for layoffs. Friendship, as approximated by social communications, is more correlated with retention than is information diversity. Field interviews suggest that friends can serve as advocates in critical situations, ensuring that favorable information is distributed to decision makers. This, in turn, suggests that having a structurally diverse network can drive both work performance and job security, but that there is a trade-off between either mobilizing friendship or gathering diverse information.

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