Social Media is one of the hallmarks of our digital age, enabling individuals and communities to create and share user-generated content. Starting about a decade ago with the rise of Web 2.0, we have seen the explosive growth of social media technologies, - e.g., blogs, wikis and podcasts, - as well as platforms like Twitter, Facebook and YouTube with hundreds of millions of users. Social media is giving individuals unprecedented influence over business and governments, - causing Netflix to reverse its business strategy in October of 2011, and helping to topple governments in the Arab Spring.
But, despite the widespread success of public social networks, many companies have been slow to embrace social media as an integral part of their workplace. This is a problem, particularly for younger employees who are extensively using social media technologies in their personal lives, but cannot properly do so at work.
The Social CIO, a recently published study by Forrester Research, concludes that the number of businesses that are truly executing social initiatives remains surprisingly small. Companies are making investments in social platforms and technologies, but, in general, their efforts remain haphazard and disjointed. They may succeed within individual silos of the business, but they are not fully realizing the potential power of becoming a social business, - which Forrester defines as: “removing the barriers between people (employees, customers, partners) and information while making it easier for people to work together using that information to solve business problems.” The report observes that:
The Forrester report argues that CIOs should take the lead and help their organizations integrate the various disjointed silos into a company-wide social business initiative that fully achieves its potential. Such a company-wide initiative should include: access to all information about employees, partners and customers; the ability to scale pilots across the broad workforce, ecosystem and customer base; adherence to government and industry regulations; careful management of security to avoid serious breaches; and a focus on reducing the costs and complexities that result from duplication of systems and information. The Social CIO recommends that:
“The office of the CIO must take control of the disparate social initiatives and create a uniform strategy that lays out the necessary people, process, and technology changes to make a social business work. In so doing, the CIO will help her business create an information advantage by helping the knowledge workers in her organization work more productively, be more efficient, advocate for the business, act resourcefully to solve problems, and create positive customer outcomes.”
Why is it that many of the same companies that have successfully reengineered their processes, reduced their costs and increased their productivity over the past twenty years are having a tough time implementing social business strategies? This is a very intriguing question, that I believe goes to the root of the major transformations underway in the very nature of business.
What is the primary responsibility of a business? Renowned management consultant, educator and writer Peter Drucker gave a succinct answer to this question in his 1954 book The Practice of Management: “A company's primary responsibility is to serve its customers . . . Profit is not the primary goal, but rather an essential condition for the company's continued existence.”
But twenty years later, Drucker’s simple principle started to fall out of favor with many companies, management consultants and business schools. Shareholder value replaced customer value as their key business objective. On the positive side, companies became significantly more efficient over the next few decades, embracing advances in information technologies to improve their productivity while leveraging globalization to better manage their supply chains and reduce their costs. But, many companies also became overly focused on raising the price of their stock through short term profits and financial engineering practices, a likely result of putting shareholders over customers.
The last few years have seen a backlash against the view that maximizing shareholder value should be the overriding business objective. For example, a 2006 study co-sponsored by the Business Roundtable and the CFA Institute concluded that: “the obsession with short-term results by investors, asset management firms, and corporate managers collectively leads to the unintended consequences of destroying long-term value, which decreases market efficiency, reduces investment returns, and impedes efforts to strengthen corporate governance.”
The question of shareholder versus customer value was the subject of a January 2010 excellent article in the Harvard Business Review: The Age of Customer Capitalism, written by Roger Martin, dean of the Rotman School of Management at the University of Toronto. His central premise is that: “For three decades, executives have made maximizing shareholder value their top priority. But evidence suggests that shareholders actually do better when firms put the customer first.”
This renewed focus on customer value, customer service and customer experiences is what becoming a social business is all about. Many companies are still struggling with this major cultural transition. For the past few decades, process reengineering, productivity improvements and cost reductions have been the most prominent features of their company’s culture. These are hard, quantitative, measurable, task-oriented management competencies, focusing on technology, logistics, operations and controls.
Customer value is different. It requires a complementary set of management competencies, much softer or people-oriented in nature, including a focus on human capital, strategy, decision making, innovation and social skills.
After analyzing data from surveys conducted by the US Department of Labor with more than 8,600 managers, a 2007 study found that there was a significant gap between the skills that companies are now looking for and the competencies being taught in business schools. The schools continue to produce graduates that are primarily strong in some hard, quantitative, functional area, like finance or accounting. But, what companies generally now want from the top students in MBA programs, - as well as from top students in engineering and other disciplines, - are graduates who are strong in innovation, strategy, communications and leadership and have good social skills, so they can work well in teams with clients, colleagues and partners.
In other words, it is no longer enough for graduates to excel in functional, analytical and technical areas. Increasingly you also want them to have broad, multi-disciplinary, social skills, which are needed in general management as well as in strategy and innovation. These are the skills that you need to effectively implement customer-centric social business initiatives, competencies that many current senior executives did not acquire either in school or early in their careers.
For the past ten years, Dean Martin has been advocating the need to teach business students to think more holistically and creatively, as much as we need to teach them discrete skills like finance, accounting and marketing. He believes that to become successful general managers, students need to learn how to think about the complex problems they will encounter in business from many different perspectives, which will better help them find innovative solutions to whatever immediate problems they are facing, as well as to formulate the overall strategy of the business. This is a radical shift from the prevailing views of the past several decades.
Forrester’s Social CIO study further argues that four major business trends are driving the shift toward customer value as the highest priority of business in our 21st century knowledge economy.
- As the line between products and services blurs into holistic customer experiences, companies are finding that their past focus on optimizing labor costs through automation and outsourcing finds them ill-equipped to design and build the required end-to-end customer experiences.
- The continuing expansion of the service economy requires a talented work force to create and deliver a good customer experience.
- Companies need the close collaboration of employees and partners around the world to successfully deliver the proper experience to their far flung local customers, and
- Implementing this customer-centric vision requires the growth of knowledge jobs, while task-oriented back office functions are declining.
In its concluding paragraphs, the report summarizes the case for social business to help organizations respond to change:
“A business’ ultimate success in the age of the customer is its ability to respond to the needs of
its partners and customers. Employees expect to be a respected colleague whose opinions are acknowledged. Clients want the business to be responsive to their need for meaningful innovations in products and services that address their needs. Time and again, history has shown that businesses that fail to be responsive to these types of market changes suffer over the long term: steam-powered plants, railroads, and, most recently, traditional imaging companies and media firms.”
“With the advent of social technologies and the unifying vision of systems of engagement, businesses needn’t follow this pattern. However, it requires business leaders to set aside historical resistance to open information sharing and acknowledge that the bottom line for the business is solving the problem - and it doesn’t matter where the idea came from in the organization to do so.”