Why your business should embrace web 2.0

Book excerpt: And why it's not always so easy

Web 2.0 technologies can be a boon to businesses - find out how in this excerpt from Throwing Sheep in the Boardroom by Matthew Fraser and Soumitra Dutta.

The web 2.0 revolution has been frustrated by a powerful irony. The one place where web 2.0 tools hold out the most promise to transform social organisation is precisely the location where there has been the most resistance to change. That place is the corporation.

Online social platforms are revolutionising the way we interact with others, build social capital, and even achieve fame and riches. Yet when web 2.0 social technologies permeate corporate bureaucracies, they are often regarded as invasive and potentially threatening.

This should not be surprising. The fundamental dynamic of social networking is essentially horizontal and open. The classic design of corporate bureaucracies, by contrast, is based on the opposite dynamic. Traditionally, the social architecture of corporations has been vertical and closed. Corporate cultures are characterised by rigid hierarchies managed as top-down organisations. Corporations are not cocktail parties. The idea of open-ended wikis or Facebook Fridays would be a non-starter in most companies. Indeed some employees are getting dismissed or disciplined when caught logged onto social networking sites at the office.

Say what?

Bust through the jargon with these Cheat Sheets:
♦ Social networking
♦ Web 2.0

Web 2.0 evangelists nonetheless believe that an imminent social revolution is about to transform corporate bureaucracies. The buzzwords employed to describe this e-ruption are numerous: mass collaboration, self-organisation, open innovation, distributed co-creation, bottom-up management, networked organisation, virtual corporation. When web 2.0 adoption reaches a tipping point, the major impact in corporations will be a diffusion of power towards employees and consumers.

C.K. Prahalad, arguably the world's most prominent management guru, wrote a decade ago about this new economy power shift towards consumers. "Thanks largely to the internet, consumers have been increasingly engaging themselves in an active and explicit dialogue with manufacturers of products and services," wrote Prahalad in the Harvard Business Review. "What's more, that dialogue is no longer being controlled by corporations. Individual consumers can address and learn about businesses either on their own or through the collective knowledge of other customers. Consumers can now initiate the dialogue; they have moved out of the audience and onto the stage."

The companies that understand this, and adapting their organisational behaviour accordingly, are adopting so-called 'enterprise 2.0' models. The generally accepted definition of enterprise 2.0 is a corporation that - thanks to web 2.0 software tools like wikis and blogs - encourages horizontal collaboration and harnesses the power of collective intelligence to boost productivity, foster innovation and create enhanced value. It also signifies a company where software tools allow top management to have a unified view of the entire operations, instead of managing disparate corporate silos that don't communicate with one another. In its broader definition, enterprise 2.0 encompasses a vision advocating new modes of capitalist production and social organisation.

In some respects, the enterprise 2.0 vision is old wine in new bottles. It was trumpeted several decades ago by Alvin Toffler, who in his bestselling book Future Shock predicted that archaic corporate bureaucracies would be replaced by dynamic horizontal adhocracies. At the end of the counter-culture 1960s when Toffler's book was an international bestseller, this was exciting stuff. Toffler's concept of adhocracy captured the spirit of the times. Adhocracy was proclaimed as a new form of organisation that would kick down bureaucratic walls and bring people together to capture opportunities and find innovative solutions.

The same vision found eloquent expression in a 1988 book, In the Age of the Smart Machine, by Harvard business professor Shoshana Zuboff, who described how information technology was leading to new networked forms of corporate organisation. Zuboff was a leading evangelist in the 1980s for computer-based technologies that she believed would topple rigid corporate hierarchies and encourage horizontal information flows and power-sharing among employees. A decade later, however, Zuboff was forced to acknowledge that her social vision of the workplace was not happening.

"The paradise of shared knowledge and a more egalitarian working environment just isn't happening," she said. "Knowledge isn't really shared because management doesn't want to share authority and power."

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In 2003, Zuboff and husband Jim Maxmin published a new book, The Support Economy: Why Corporations Are Failing Individuals and the Next Episode of Capitalism, which argued that the potential of information technology failed because of resistance by the corrupted culture of "managerial capitalism".

"Managers are at the centre, preoccupied with their own interests," said Zuboff. "But their path has become corrupted, they are insulated and have become a source of governance catastrophes."

So is the enterprise 2.0 model for real this time? Many CEOs are intrigued by the business case for enterprise 2.0. Surveys conducted by consulting firms like McKinsey and Forrester Research reveal that executives are showing openness to web-based collaboration and social networking tools. Forrester forecasts robust corporate spending on web 2.0 software - including blogs, mashups, podcasts, RSS, widgets and wikis. It projects consolidated web 2.0 spending growth at 43 per cent annually - from $764m in 2008 to $4.6bn in 2013.

Still, it can hardly be claimed that Fortune 500 companies - with the exception of a small clutch of leading-edge giants like IBM - are stampeding to join a web 2.0 juggernaut. Moreover, while $4.6bn looks like a big number, it's only a tiny fraction - less than one per cent - of global corporate spending on enterprise software.

Companies have tended to invest mainly in back-end technologies that enable web-based automation, while remaining paranoid about losing control if social networking tools like wikis and blogs become standard work tools. For many corporate executives, the enterprise 2.0 model means profoundly rethinking how they structure, organise and manage their organisations. And that challenge is potentially destabilising.

How can we explain the lag between the bold ambition of the enterprise 2.0 vision and the slow pace of its adoption?

One possible explanation is that corporate executives simply don't understand enterprise 2.0. Corporate executives, in other words, just don't get it. Many senior managers mistakenly believe enterprise 2.0 is a product, like the latest Microsoft Office suite. They don't understand that enterprise 2.0 is not a cost centre, but rather a state of mind - a revolutionary new way of managing companies and conducting business. Enterprise 2.0 evangelists believe that old-style, hierarchical corporations have a 'DNA problem' with web 2.0.

Harvard business professor Andrew McAfee, who has written extensively about enterprise 2.0 issues, attributes resistance towards social technologies to the fact that they have little regard for organisational boundaries, hierarchies and job titles. "They facilitate self-organisation and emergent rather than imposed structure," he notes, adding that web 2.0 tools require a "re-examination and often the reversal of many longstanding assumptions and practices."

A second possible explanation is that executives consider enterprise 2.0 to be little more than a trendy buzzword. Whatever the promise of web 2.0 tools, many corporate mangers regard blogs, wikis and social networks as an intriguing distraction at best, and a serious security risk at worst. Employee dismissals for spending work time on sites like Facebook are, as noted, becoming disturbingly frequent. In Britain, a survey of 3,500 firms revealed that using Facebook and other social networking sites costs the national economy roughly $255m per day in "wasted time".

It's not difficult to find an internet security firm that, hoping to boost sales of its web 2.0 blocking software, strongly urges corporations to crack down on online social networking. The list of potential downside risks is indeed alarming: virus and spyware infections, data leaks, illegal activities, reputational damage, to name only a few. Web security specialists have made a business from playing on the worst fears of corporate managers.

A third possible explanation is that corporate executives understand enterprise 2.0 only too well - and that's precisely why they fear it. This theory interests us most here, since we are examining the web 2.0 e-ruption's implications for power relationships - specifically, the diffusion of power from vertical hierarchies towards horizontal networks. From a strictly structural point of view, corporate executives used to managing top-down hierarchies naturally distrust horizontal networks because they are difficult to control. Try telling a senior executive that, going forward, there will be no more job titles, reporting lines and organisational boundaries in the company.

There is evidence however that resistance to web 2.0 tools doesn't come from top executive suites but from middle managers and corporate IT departments. In a paper titled "Enterprise 2.0: Fad or Future?", Gary Matuszak of KPMG International notes that, apart from familiar concerns about security risks, the real problem is corporate culture. "Just as damaging are institutional cultures or norms that work against sharing information, either because of concerns about confidentiality or because of hierarchical structures," observed Matuszak.

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When the US Defense Intelligence Agency introduced Intellipedia, senior and junior officers embraced the wiki. Mid-level bureaucrats, on the other hand, actively resisted Intellipedia. One reason middle managers oppose information sharing and open collaboration is because these innovations usurp their traditional role as information gatekeepers and drafters of internal reports.

Information Week meanwhile has noted that, while social technologies are being deployed innovatively in some companies, IT departments often feel threatened. Why? Because like middle managers, they fear that web 2.0 tools will threaten their monopoly over specific functions. When information flows are democratically diffused, the monopoly 'expertise' of IT managers is effectively disintermediated. No wonder IT managers have worked hard to find persuasive arguments to alarm their corporate bosses about the downside risks of web 2.0 - productivity losses, security threats, liability issues and so forth.

Say what?

Bust through the jargon with these Cheat Sheets:
♦ Social networking
♦ Web 2.0

Given these three factors, it shouldn't be surprising that, in many large-scale corporations, web 2.0 is still an intriguing concept to study, not a business strategy to execute. Information Week concluded that enterprise 2.0 will be more enthusiastically embraced by young companies "without legacy systems to integrate". Business transformation isn't likely to be embraced in established organisations with entrenched power structures and conservative corporate cultures that can easily thwart web 2.0 adoption in order to neutralise its threat. Corporate bureaucracies are not designed as bottom-up democracies.

Corporate strategy guru Gary Hamel has analysed this democratic deficit and where it inevitably leads. "In an autocratic system, there are few mechanisms for bottom-up renewal," noted Hamel in his book The Future of Management. "As a result, change tends to come in belated, convulsive spasms, via revolutions and insurrections. In democracies, change usually starts at the grass roots, and compounds upwards as interest groups and political activists amass support for their policies. With change constantly bubbling up from below, democracies are able to avoid the periodic rebellions that typify political life in totalitarian regimes. The same, unfortunately, can't be said for most large companies, where it usually takes a financial crisis and a shareholder revolt to provoke a chance in leadership and strategy reboot."

The financial crisis is now here, is it now finally time for the reboot?

Hamel calls the Enterprise 2.0 model a thoughtocracy. He notes regretfully that web-based diffusion of power, which has transformed the media industries by fostering the emergence of 'citizenship' journalism, has not occurred inside corporations. "While the web was founded on the principle of openness," he notes, "the most honoured virtue among senior executives seems to be control. Most companies have elaborate programmes for top-down communication, including newsletters, CEO blogs, webcasts and broadcast emails; yet few, if any, companies have opened the floodgates to grassroots opinion on critical issues."

Hamel's thoughtocracy is based on values, not software systems. The question, therefore, is whether web 2.0 software tools can empower an essentially value-based democratic revolution.

Web 2.0 sceptics caution us against excessive optimism about the likelihood of a value-based transformation in corporations. They argue that enterprise 2.0, while a noble organisational vision, fails to grasp the raw dynamics of power.

One of these sceptics is management thinker Tom Davenport, author of Thinking for a Living. While he praises enterprise 2.0 as an admirable vision founded in democratic beliefs, Davenport argues that it's fundamentally naïve. "Such a utopian vision can hardly be achieved through new technology alone," he says. "The absence of participative technologies in the past is not the only reason that organisations and expertise are hierarchical. Enterprise 2.0 software and the internet won't make organisational hierarchy and politics go away. They won't make the ideas of the front-line worker in corporations as influential as those of the CEO. Most of the barriers that prevent knowledge from flowing freely in organisations - power differentials, lack of trust, missing incentives, unsupportive cultures and the general busyness of employees today - won't be addressed or substantially changed by technology alone."

Enterprise 2.0 evangelists are nonetheless gaining momentum. Their arguments find support in a big push by major software giants rolling out web 2.0 applications for corporations. Major high-tech giants have been ramping up their rollout of enterprise 2.0 software solutions. Among them are Microsoft's SharePoint Server, Intel's SuiteTwo, and IBM''s Lotus Connections (dubbed 'MySpace-for-the-Workplace'). Other players in the Enterprise 2.0 software market include Contact Networks, Leverage Software, SelectMinds and Oracle's Visible Path. Google meanwhile has launched OpenSocial, which brings open-source social networking tools to the enterprise market. For corporations, OpenSocial holds out the attraction offering web 2.0 tools with no need to make major investments in knowledge-management systems. At the same time, however, it presents the risk of information flows on wide-open software systems. The dilemma is between the efficiency advantages of sharing and the impulse to maintain tight organisational controls.

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Many corporations, facing growing pressures to innovate to remain competitive, actually have no choice but to embrace the enterprise 2.0 model - especially in the new context of economic crisis. Pressures in favour of organisational change are coming not only from thought leaders and software vendors but from markets - investors, shareholders, stock prices. If shareholders push for profitability, management pushes for productivity, and employees push for participation, the convergence of these three P's may create the conditions for the enterprise 2.0 revolution.

Two areas where web 2.0 tools are already proving that social media can make a strong bottom-line case are peer production and open innovation.

Peer production is a form of mass collaboration popularised by Wikipedia. Enterprise 2.0 advocates argue that, by diffusing power downwards and outwards (even beyond the firm), companies no longer need managed hierarchies to organise production. In the corporate world, the most widespread form of peer production is the wiki. Wikis harnesses the wisdom of crowds to solve problems and foster creativity to come up with new ideas. They are, in a word, a form of crowdsourcing. Wikis therefore require network effects to work: their value increases with the number of people participating. Otherwise, you might as well go back to face-to-face meetings.

Say what?

Bust through the jargon with these Cheat Sheets:
♦ Social networking
♦ Web 2.0

Wikis can be valuable as a mass collaboration tool because they are highly effective at seeking out the best expertise to solve problems. Wikis are increasingly being deployed both internally and externally to improve productivity and build social capital. IBM launched its WikiCentral in 2005 as a vehicle for internal expertise. A year later Big Blue organised a brainstorming platform called InnovationJam which was soon attracting more than 150,000 participants inside and outside the company to help identity emerging business opportunities.

Peer production can offer competitive advantages to firms in sectors where innovation produces winners and losers. Corporate executives are becoming increasingly aware that innovation should not be conceived as restricted to walled-off R&D departments, but promoted as a dynamic social process - or open innovation. Proctor & Gamble famously outsourced its R&D through sites like InnoCentive, which crowdsources product development and problem-solving for its clients. InnoCentive, an R&D braintrust spinoff from drug maker Eli Lilly, demonstrates that, more often than not, the best brains are somewhere outside the corporation. A G Lafley, P&G's chief executive, has said he wants 50 per cent of the company's product development crowdsourced outside the company.

As a McKinsey Quarterly report published in June 2008 noted: "Executives in a number of companies are now considering the next step in this trend towards more open innovation. For one thing, they are looking at ways to delegate more of the management of innovation to networks of suppliers and independent specialists that interact with each other to co-create products and services. They also hope to get their customers in to the act." McKinsey cited the well-known example of LEGO, which invited its customers to come up with new product models and paid for the best ideas.

Other global corporations that have integrated social networking into their organisational strategies include FedEx, Shell Oil, Motorola, General Electric, Kodak, British Telecom, Kraft Foods, McDonald's and Lockheed Martin.

Management gurus like Gary Hamel believe corporate management will change radically over the next few decades due to the combined impacts of technology, competitive pressures to innovate, and what he calls a "revolution in expectations" by younger generations. "Take a look at our kids - the first generation that has grown up on the web," notes Hamel. "Their basic assumption is that your contribution should be judged simply on the merits of what you do rather than on the basis of your title or your credentials or providence or anything else. This is the lesson they've drawn from the experience with what I call the 'thoughtocracy' of cyberspace."

Tom Davenport agrees that demographics may be the key driver to the web 2.0 revolution. Having expressed doubts about the utopian evangelism driving enterprise 2.0, Davenport nonetheless believes young people may see things differently. "It's going to be very interesting to see what happens when the young bucks and buckettes of today's wired world hit the adult work force," he says. "Will they freely submit to such structured information environments as those provided by SAP and Oracle, content and knowledge management systems, and communication by email? Or will they overthrow the computational and communicational status quo with MySpace, MyBlog, and MyWiki?"

While we are waiting for that demographic tipping point, we can say that the success of the enterprise 2.0 model will depend on the values of openness - open-source software, open collaboration and open innovation. If these can be achieved, enterprise 2.0 may one day be open for business.

This is an excerpt from the book Throwing Sheep in the Boardroom (hardback , £15.99) printed with permission from publisher Wiley.