The Social Exchange Theory In Retail
Last week I had the pleasure of speaking with some awesome “emerging adults” about the retail industry – how it is evolving and the incredible opportunities that exist within it. It was a great time and the group was extremely smart and engaged in the topic as 52% of them were currently working in an entry level position in retail. My 60 minute presentation ended up being an almost 120 minute presentation with the Q&A portion. There were so many great questions and lively dialogs, I left them with my contact information. Over the last several days I received some great texts and IM’s from the attendees…most of them about the social exchange theory that I briefly covered in my presentation as it related to millennials and how job longevity is changing and why. So, I thought I would share how this theory applies to how we perceive our roles, our retail organization, and our career path inside our chosen industry.
The Social Exchange Theory proposes that social or workplace behavior is the result of an exchange process that seeks to ‘maximize benefits’ and ‘minimize costs’ of a specific relationship. According to the SE theory, people always weigh the potential rewards and risks (costs) of relationships. When risks consistently outweigh rewards, then people tend to terminate or abandon that relationship. Costs involve things that are seen as negative to a person (or the organization from the employer perspective), such as; time and effort in the relationship and lack of growth/results. Benefits are the thing that a person (or organization) receives from the relationship, such as; compensation, career planning, respect, support, opportunity, growth, reputation. Essentially, the SE theory takes the benefits minus costs in order to determine how much a relationship is worth and what potential it has. Positive relationships are those in which the benefits outweigh the costs, while negative relationships occur when the costs are greater than the benefits or rewards.
All organization/individual relationships require give and take but the balance of the exchange is rarely equal. So, again, people weigh the benefits against the costs to determine the viability of continuing the relationship through assessing a couple of points:
- Are you getting reward [benefit] for the effort and results you are putting forth [cost]?
- Is the your relationship with the organization the one you think you deserve?
- What are your chances of finding a better balance of benefit/cost with another retail organization?
- Do you see the company reciprocating the benefits in the near future based on your costs/investments right now?
According to Caryl Rusbult, investments serve to stabilize relationships and from this perspective a employee becomes an investment for the organization, but if the employee decides to move to another company, then the investment is lost. Often people (or retail organizations) try to salvage a relationship by investing additional resources into it, which puts the ‘benefit-versus-cost’ further out of balance, and that over time leads to failure. Realistically, the additional investment usually comes from the employee side with increased effort, elevated results, additional time invested – hoping to gain a reward for their effort and investment.
Casey Reader outlines: “Social exchange 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 evaluate their relationships by analyzing the benefits they feel they might receive through them. They then make decisions about the relationships in their lives by comparing alternatives. Social exchange theory has been fruitfully applied to the workplace to explain employee interactions”:
Rationality: Social exchange theory posits that people make choices about their relationships based on rational decision-making. They evaluate their decisions by ordering their priorities. The priority sets of different employees will make a great difference in the kind of workplace relationships they have.
Rewards: One way of reinforcing positive relationships in the workplace is by providing incentives and/or recognition that reward employees for skills [results, organizational values, customer experience delivery, etc.]. According to the understanding of social exchange theory, people will be more likely to seek out relationships if they feel there will be rewards for doing so. The investment that a person puts into his relationships will be directly proportional to what he feels they can get out of them for himself.
- Workplace Relationships/Friendliness: Social exchange theory also theorizes the importance of maintaining a friendly atmosphere in a workplace. If people feel that an environment will be hostile to them in any way, it gives them much less of an incentive to be engaging and seek out relationships. According to the understanding that is introduced by social exchange theory, people are fundamentally social animals. People orient themselves to the world through the relationships they have, and depend on social interaction. The extent to which employees will be satisfied in a workplace and wish to continue working at a company will be predicated to a large extent on the kinds of relationships they form. Fostering positive relationships is crucial to employee retention.
Typically, retail organizations that have taken the time and initiative to create a productive culture and positive social exchange environment, generally, display these characteristics:
- Decision making: Done through consensus and the utilizing the guiding principles of the business
- Transparency: All information is shared honestly without any manipulation of the facts [good or bad]
- Focus: Company goals and objectives are communicated with clarity and consistentcy
- Innovation: Employees are not afraid to take calculated risks or overcome obstacles through creative process
- Accountability: Employees feel connected and responsible for the results they produce do not want to disappoint their business partners
- Reward & Recognition: Understanding that people want to be recognized for effort and results company’s create platforms to encourage and support this.
Gillian Fournier identifies that “Social Exchange Theory is kind of like the mathematical and logical side of a relationship” Objectively you can identify 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 more suitable relationship? So, if an employee feels that their company takes advantage of them or they are not appreciated for their results then, the worker might view their current company as a “dead end” for them and go out and find another job that will produce benefit in exchange for their costs – at least in theory.
Social exchange theorists see every interaction, essentially, as a reciprocal transaction. When a person takes any action or puts forth effort, is done so with hope of gaining benefit for themselves. Frequently, it’s an intangible benefit like a sense of accomplishment, satisfaction, respect of peers, pride, etc. At times effort is made for a tangible benefit such as; promotion, compensation, title elevation, etc.. Social experts theorize that any human relationship requires effort from both individuals involved like the time needed to maintain a relationship is a cost that might be spent on other matters that are also important but that relationship outweighs those things, in that moment, for both entities. The cost is worth it because the reward can be a feeling of fun and excitement, personal/emotional satisfaction, belonging, recognition, and/or emotional support.
The social exchange is fluid and the theory states that as people and their organizations interact over time, they experience the need to reciprocate the support and assistance of each other – if they wish to preserve the relationships and that is called the norm of reciprocity. 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. Then, both entities must faithfully and in, ideally, equal measure, practice the mutual action of reciprocity for the, hopefully, to the ultimate benefit of each party. Again, when one side breaks down and continually incurs more costs than benefit, the relationship will erode and fizzle out after a period of time. Here are some examples of the SE theory in action in the workplace:
- Employees Realize They Are In A Terrible Workplace Atmosphere:
- Retail Leaders Have A Highly-Productive Employee, But They Can’t Get Along With Their Coworkers:
- Employees Work Extremely Hard But Aren’t Recognized For Effort or Results:
The Social Exchange Theory is a constant assessment for retail employees and retail organizations. It’s something that needs to be looked at when a company is experiencing a high level of turn and can absolutely be measured through the employee retention. With the time spent with companies shortening with the millennial generation, it is worth understanding and discussing how retail organizations can do a better job matching the reward for their top performers, high-productivity, and high-potential employees to ensure there is a mutual benefit in the working relationship.