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Social Networks Improve Business Performance

Wednesday, November 23, 2011

McKinsey says that social networks are “extending the organization;” that’s a key take-away from their fifth annual study of the use of technology in organizations.

They continue to identify the key benefits of effective use of technology as increasing speed to access both internal and external knowledge, reducing communication costs and both increasing customer satisfaction and decreasing marketing costs. In terms of technology usage, they identify 4 types of firms: developing, internally networked, externally networked and fully networked. It should come as no surprise that few enterprises identify themselves as fully-networked while the largest number identify themselves as externally networked.

In this chart they collapse the benefits into internal, customer and partner/supplier benefits. Fully networked organizations have seen the greatest increase in payback from social technology. McKinsey warns, though, that it can be difficult to scale the benefits in a large enterprise. It is clearly worth the effort. They found improvements in market share, operating margin and market leadership from the use of specific technologies. See that detail in Exhibit 5 of their report. See an interactive version, showing changes over the last 4 years, here.

The report also features a chart showing what kinds of technologies are being used for what purposes. Again, it’s no great surprise to see social networks, blogs and video at the top of the list in terms of most overall usage. Many of the firms are using wikis; more than you would see if the emphasis was solely on external audiences. This reinforces the point that you need to select technologies carefully, based on use and audience, before you invest time and effort in them.

The McKinsey report has some data on adoption of technology by industry. Dion Hinchcliffe has an excellent post that includes data from a similar study by IBM and examples of success in healthcare, manufacturing, finance and insurance. He makes the point that across industries have examples of increased worker productivity and efficiency through the use of social networks.

Why is that? Business Intelligence expert Ken Chow has a provocative answer. Writing in the Information Management newsletter he says:

the next evolutionary force that will impel the BI market will come by way of technologies that overcome these limitations [heavy architectures, long development cycles and high costs] and deliver high-value information to people in much more productive ways. Information delivery of the future will include the collaborative and social mechanisms that already dominate our personal interactions.

We are familiar with these social tools and we already know how to use them. Chow continues:

Tools built into social media sites allow users to convey opinions, emotions, share data and interact with greater abundance, speed, transparency and collaboration, making the pros of this approach in BI readily recognizable.

I remember in the “early days” giving the advice that businesses should test social tools internally, learning to use them before deploying them to interact with their customers. That advice has now been upended. Firms are making extensive use of social platforms to deal with their customers, and rightly so. Now they need to take a strategic look in how to use some of those same tools internally to create a more efficient and effective business.

Article first published as Social Networks Improve Business Performance on Technorati.
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