If the answer is yes – then you are in good shape and probably already think of yourself as a digital corporation with a clear understanding of today’s technologies and the economic value they create and enable.  If the answer is no – then you are are probably a traditional business that has not yet crossed the digital chasm to success.   And you would not be alone.

Today, less than 70% of CEO’s use social media and 93% of boards do not receive information – big data – that is derived from today’s technologies.   Further, very few leaders understand the value that social and mobile technologies create and as such continue to avoid in investing  in people, processes and technologies that either hamper value or worse, destroy it.

But its clear, today’s digital enterprises are eating the world – including the companies, industries and products and services produced by more traditional organizations.   If you don’t want to be eaten by Digital Corporations, its time to rebalance your company’s investments.  How do you do that you are wondering.  Simply, follow four steps below:

1. CALCULATE:  Identify the investments that are most likely to create new sources of value – e.g. social technologies that enable on-line communities that can share their experiences, provide your feedback and crowdsource your next product or service;
2. ANALYZE:  Select those investments that enhance what you are doing already -e.g. big data and analytics capabilities – and those that are creating undue risks – so you can better understand what your customers and employees are saying and their interactions;
3. REBALANCE:  Target investments that are marginal (on-premise technologies) and think about how you can shift capital away from them to more efficient technologies – e.g. SAAS solutions such as Salesforce.com;  and
4. ELIMINATE:  Agree on investments that although have long created value for your company, like RIM’s operating system and Best Buy’s Big Box Stores, and either eliminate them or at least pare them back, even though they may have been the core of your past successes.  Remember, old dogs die hard.

When used correctly, investments should create value and mitigate risks.  In addition,  great investors know when to BUY, HOLD and SELL.   The same is true for the captains of America – your fellow leaders.

The bottom line:  Every organization needs to think like and investor AND recognize that they need to reorient their strategy, operations (including people, processes and enabling technologies) and finance towards becoming a digital corporation.  That requires capital reallocation!   Like seeing China as the leading growth engine of the world, its also now time to see that the same is true is for digital.

So reallocate your capital and prosper as a digital corporation.

The post It’s Time To Become a Digital Corporation appeared first on OpenMatters.

Now the SEC has approved tweeting by the C-Suite and Board for investor communications.  All that is necessary now is for the leaders and board to start using social media to drive their brand and improve their relationships with all their stakeholders.   The article below appeared in NACD’s Directorship on-line magazine.

New SEC Guidance OKs C-suite Tweets

Disclosure via social media steps up pressure on directors for effective digital oversight.

By Cheryl Soltis Martel

The Securities and Exchange Commission’s (SEC) approval of social media as a form of disclosure may be good news for companies looking to communicate with shareholders quickly and frequently, but for directors it’s another disclosure channel to scrutinize. The new guidance, released Tuesday by the SEC, allows companies to disclose pertinent information on social media channels, provided investors have been told which channel will be used to share information.

To read the SEC’s social media guidance, click here.

Netflix Reed Hastings at the Apple Worldwide Developers Conference in 2010. (AP Photo/Paul Sakuma)

The release of these guidelines stems from a 43-word Facebook post Netflix CEO Reed Hastings typed in July 2012, noting that subscribers had watched 1 billion hours of video in June. The day after Hastings’ post, Netflix stock rose 6 percent, leading the SEC to investigate whether the the company may be violating the Regulation Fair Disclosure rule. Reg FD requires all investors to receive information that could affect company stock at the same time. The SEC ultimately did not initiate an enforcement action against Hastings or Netflix, but the commission did note that personal social media accounts of executives would generally not be considered the appropriate channel for disclosure, unless investors are expressly told this channel may be used in that manner.

In the guidelines, the SEC suggests companies could note on websites and press releases that they will use social media to make key announcements and also provide web addresses for their social media pages so investors can prepare.

“The SEC ruling just confirms what we already know—social media is here, and here to stay.  It’s just another channel of information, like the World Wide Web before it and faxes and mailed press releases before then,” said Anne Sheehan, director of corporate governance at CalSTRS, when asked for her reaction to the new guidelines. “As long as it’s open and democratic, available for all to see, we’re all for it. Hash-tag, CalSTRS!—and friend us, too.”

[Photo of Cindy Fornelli]

The Center for Audit Quality (CAQ) Executive Director Cindy Fornelli commended the SEC’s guidance in a statement released Tuesday, noting that while she was deputy director of the Division of Investment Management when the SEC first allowed an electronic-only variable annuity offering, “I observed firsthand how quickly unprecedented change in providing access to information can be accepted as the status quo.

“Adapting new technologies such as social media to provide increased information in real time to investors from Wall Street to Main Street is in the best interests of all capital market stakeholders,” Fornelli said.

While the SEC’s embrace of social media for disclosure may be good news for investors, directors may need to step up their pace of adaptation to such digital channels. According to a 2012 study by The Conference Board and the Rock Center for Corporate Governance at Stanford University that surveyed more than 180 senior executives and directors of North American public and private companies, more than 90 percent of survey respondents say their companies do not have a board committee that is responsible for social media oversight.

Before a board can consider delegating social media responsibilities to a committee, it must first find a place on the agenda, notes Fay Feeney, CEO of Risk for Good, an advisory firm focused on helping the C-suite close information gaps on emerging issues for their board. “The board has some listening to do on where and how social media is being used by customers, investors, and employees,” she explains. “This is a full board exercise to understand how and who is speaking for and about the company. Once the board understands the context for social technology for their company the can take on governing.”

[Photo of Barry Libert]

While having a committee to specifically address technology and social media may not be necessary for every company, having a board member with digital expertise may be useful. “Just like boards have experts in financial management, operations, and strategy, they now need to recruit directors with deep expertise in today’s disruptive technologies—social, mobile, big data, and cloud,” suggests Barry Libert, CEO of advisory firm OpenMatters. “These technologies—when taken together—are fundamentally transforming industries, companies, and business models, and boards need to ensure they have the skills among their ranks—not just as consultants—to interpret and respond to these new digital realities.”

Although directors have been hearing about the risks of not utilizing social media to monitor what is being said about their organizations and industries, they have yet to fully embrace these platforms and often are skeptical of the information provided, The Conference Board and Rock Center report noted. Forty-four percent of the survey respondents say the quality of information they receive on social media risks is mediocre or poor with 1 percent claiming it is excellent.

From an oversight perspective, this lack of knowledge about what their stakeholders (employees, customers, suppliers and investors) are saying and doing in today’s social world is creating undue risk, Libert notes. “Many organizations, and their boards, are just beginning to realize the power of their connected customers to influence their financial and operating results as they use these new technologies to ‘showroom’ (real time comparative pricing with peers) as a simple example,” he says. “As a consequence of this emerging reality, the SEC’s recent announcement now enables boards to take a more proactive role in a hyper-connected, social world.”

The post SEC Ok’s C-Suite Tweets appeared first on OpenMatters.

For a moment, think of the sheer number of past, present and prospective customers that your organization has and is about to interact with and ask yourself – do you have a data base of them or a map of their connections?   Keep going:  can you inventory or map your past, present and prospective employees.  Next, try your suppliers and partners.  Finally, your investors and lenders.  If you can, that is great news – and you are among the very few organizations that can.   If not, you may want to do the following:

1. Inventory all your relationships like you do your products and assets;
2. Map all the interactions between all your relationships;  And
3. Calculate their value to your firm (e.g. the potential discounted cash flow to your business).

Regardless, of where you stand in the above process, knowing the size of your network and the ways that you have historically interacted with them should change your view of your enterprise’s potential value and opportunity for growth in today’s social, mobile and big data age for a number of reasons.

• Network relationships can help you innovate by creating new products and services;
• Knowledge of your networks interactions, sentiments and engagement is critical to your business;  and
• Network mapping shows you whether your relationships are healthy and growing or unhappy and shrinking.

For example, ask yourself:  Do you know how many of your customers tell other existing or potential customers about your products or services (and if that word of  mouth referral was positive or negative).   Or for that matter, are employees actively referring potential prospect for employment with your enterprise or not.  The same is true for investors and partners.

As the saying goes,  “It’s a small world.”  And with today’s technology, the distance between one customer and another, let alone one employee, partner, and investor is too. The result:  networks are becoming the critical currency for all businesses if you want to grow and prosper in our mobile and hyper-connected world.

But is the world actually that connected?  

The answer is yes.

‘Psychologist Stanley Milgram and his student Jeffrey Travers found that it is. In fact, it’s smaller and more interconnected than the occasional surprising mutual acquaintance might suggest. In 1967 they conducted a study in which they asked a couple hundred people in Nebraska to mail a letter to someone they knew personally who might in turn know a target stockbroker in Massachusetts. Travers and Milgram tracked how long it took for the letter to pass hands and reach its destination. On average, it took six different stops before it showed up at the stockbroker’s home or office in Massachusetts. In other words, the original sender in Nebraska sat six degrees apart from the recipient in Massachusetts. It was this study that birthed the Six Degrees of Separation theory, and the credible idea that you share mutual acquaintances with complete strangers on the other side of the world.’ according to Founder Reid Hoffman.

Here’s where the caveat to the Six Degrees of Separation means to your business if you are going to really understand the sources of risk and reward for your enterprise based on social network analysis.

• First:   think in terms of sales and referrals - when a customer of a company makes a recommendation to a second or third degree of connection to buy something.   The answer is almost immediately visible.  You want that referral because it is probably the least expensive way to  grow your top and bottom line.  After all, why would a stranger (4th degree of separation) bother introducing your products or services to a total stranger (even if that stranger is a friend of a friend of a friend) if he or she didn’t have a relationship with you (and I mean relationship, not transaction).

• Second, building a networked based business has numerous benefits.   For example, no matter how big your business is – your network of relationships can and should be larger than your current customer or employee base.  Once you truly understand that, you can also understand that you can call on that network to help your firm innovate, expand to new territories as well as create your next product or service.   Let’s use an example of the power of a network to your business. Suppose you have 1000 customers, and assume that each of your customers has 35 relationships to which they could recommend your business.  Now let’s see the power of the network effect —  If you do the math (1000 × 35 × 45), that’s one mighty big number that you can reach to grow your business.

• Third, understanding the sheer size of your network is only part of the journey.  Not only do you need to chart the number of their connections (as noted in the points above), but also the number of their interactions (or lack thereof), the quality of their interactions (e.g. what was your last sale, your last communication. their last interaction, etc.) and the sentiment of their interactions (e.g. positive,  negative, neutral)  Why you wonder do you need all this information – simple:  If you have treated any one badly in the network – ‘forget it’.  As the saying goes – the weakest link in the chain will create risks for your enterprise and its potential growth potential.

 So how and where do you get started with this information?  

Simply, follow the next steps. 

FIRST:   Map your network – that is first chart your customer network including your first, second and third degree of separation against past, present and prospective customers.   Next, do the same for employees, partners and investors.  Finally, chart the overlaps – you might be surprised by what you find;

SECOND:  Chart their interactions – that is once you see all your networks links (only do first, second and third degree of separations) – determine the amount of times that you have interacted with them and them with you.   Hopefully, like for the point above, you are using some of today’s technologies – like CRM, ERM or ERP – so that you can gather the right information you need from this assignment from your heads of Marketing, HR and Supply Chain and Finance.  If not – time to contact your local technology for a solution to learn what you need to get started.

THIRD:  Plot their overlaps – understanding the true power of your network is also determining what customers could also be potential investors because they love your product.  The same is true for suppliers, partners and employees.  But be careful.  In today’s social, mobile and cloud world – you need to make the connections before your stakeholders do where you have not treated them well.  Once they see the connections, they might just gather together, connect and create strategic risks for your stock price, employment picture and sales pipeline.

In the socially networked world – ‘what is good for the goose (your company) is good for the gander (your stakeholders).  So start calculating the size of your network as soon as possible to understand what you need to do to harness their collective power and wisdom or risk that they will tap into their own and unseat your company and its future growth potential.  The choice is yours – network or not to build a great enterprise.

The post Calculate the Value of Your Social Network appeared first on OpenMatters.

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Editors Note:  The below article originally appeared in 2008 in Mckinsey Quarterly.    It is being republished as the impact of crowds and the cloud continues to impact the risk and rewards for corporate directors in today’s social world.

The year was 2005, and each day we witnessed our children experimenting with either Facebook or MySpace.  But it was not their use of these socially oriented, online communities that really caught our eye. Instead, it was leading organizations like Wikipedia, TripAdvisor, Procter & Gamble and eBay, all of which appeared to be benefiting from social interactions.  Was there a new business model emerging around an entirely new form of outsourcing, we wondered?  And was the future of outsourcing “right-sourcing,” where companies turned not to India or China for expertise and labor, but to anyone and everyone, whether affiliated formally or not with the firm, to produce products, services and ideas faster, better and less expensively than before by socially connecting with them?

In addition, as we considered these questions, we watched online interactions grow exponentially as broadband and Web 2.0 technologies such as blogs, wikis, discussion forums and prediction gained traction both in our personal and business lives.  Would these interactions and emerging technologies also sweep the corporate landscape, we wondered?  And would this revolution in interactions change the way businesses created and exchanged products, services and ideas – enabling them to create durable advantage along the lines referred to by McKinsey?

Background

With this as our backdrop, we decided to explore the operating principles of such online ventures as MySpace, Facebook, Wikipedia and Trip Advisor, which were leveraging the interactions of people outside the firm’s boundaries.  We wanted to find out whether the technologies they were using and the social interactions they were creating could be applied to most, if not all, traditional business processes. In essence, could a traditional business effectively apply the same principles that these enterprises were using to improve the way they research, market, sell, innovate, train, and deliver customer support?  Further, could social interactions, when combined with Web 2.0 technologies, create what has come to be known as a “networked” company – or as we labeled it, a “WE” company – to improve top- and bottom-line performance?

From this vantage point, we decided to build an online community that would enable a group of individuals to collectively and collaboratively author a book, versus the traditional approach of individual authorship.  In addition, we decided to market our community-created book using word-of-mouth marketing and social media, rather than relying on traditional marketing methods.   We called the community wearesmarter.org.

While this was a new endeavor, building and managing online communities were not altogether new for us.   But we recognized that our generation of peers was not trained in building and managing socially enabled business processes using Web 2.0 technologies.  For that matter, neither were our partners – Wharton School of Business, MIT’s Sloan School and Pearson.

To kick things off, we established a wiki-based, Web 2.0 community.  We recruited critical personnel:  a community project manager, a community facilitator and a community software engineer.  Together, we started the journey of building, marketing and moderating our “We Are Smarter” community.  To help foster and stimulate collaboration, we also recruited community activists (e.g., early adopters) and publicized the community through our partner organizations.  We sought traditional experts, including leading consultants, visionaries, editors, authors and university faculty members to seed the community’s conversations and interactions.

Eventually, more than 4,200 people joined “We Are Smarter Than Me.” They contributed nearly 1,000 wiki and discussion forum posts over a six-month period.  More than 300 bloggers followed our progress, along with many traditional media outlets, including The Wall Street Journal, National Public Radio (NPR) andBusinessWeek.

Lessons Learned

Wearesmarter.org achieved many of its original goals, but not all of them.  In addition, all of us learned some hard lessons, including a sobering realization that many consultants, authors and faculty members had no interest in participating in our experiment.  Our assumption is that in the end, this group perceived this new way of sharing information as a threat to their traditional “firm-based” business models.  We also learned a lot about creating and sharing intellectual property in this new world of interactions, including the emerging rules of monetization and management.Looking back on the last three years, we can summarize what we learned in five key lessons.  We believe these lessons can help any organization reap tangible business benefits from social interactions and Web 2.0 technologies.

Lesson One

Strategy: Choose a traditional business process to reinvent.

Our challenge and stated strategy was to create, market and distribute a book using social technologies and a community of peers.  As one might imagine, problems arose immediately, beginning with the agreement we received from Pearson.  The contract language suggested that we personally indemnify everyone involved – including Pearson, MIT and Wharton – for the actions, words and interactions of the community. But we knew this would be impossible because there would simply be too many actions and interactions within our community for us to deliver on such a promise.Furthermore, we needed a framework for thinking about the intellectual property that the community would generate.  With hundreds, maybe thousands, of contributors involved, how would any royalties be split?  The most intense battle was between those of our sponsors who wanted to own all of the content created by the community – a “firm-based” or “Me” approach – and our contributors, who wanted the community to benefit from their activities and contributions – or a “We”-based mind set.

Prescription for organizational success:  Pick a process such as customer support, sales, marketing, product innovation, employee training or alumni management that you currently conduct using traditional methods.  Think about what interactions may be occurring in or around that business process, whether you are harvesting them or not.  These interactions can be as simple as water-cooler discussions, blogging or customer-to-customer dialogues.  Once you pick the process, you can then encourage your company’s participation in, but not control of, these interactions by investing in social networking technologies and community moderators who can foster and channel existing and new interactions for your benefit and the benefit of the community.  Finally, and most importantly, implement a set of guiding principles, or terms of services, so everyone involved understands how the intellectual property will be managed and monetized.  This is crucial as it will help you mitigate corporate liability.

Lesson Two

People: Recruit individuals interested in reinventing a traditional process.

Our challenge was to identify and recruit individuals who would become the foundation of wearesmarter.org.  They were not our friends or colleagues.  In fact, we knew very few of the project’s 4,200 contributors.  To find people interested in joining our Wikipedia-like, write-a-book-by-community experiment, we pitched the adventure to members of our partner organizations – Pearson, Wharton and MIT.  For outreach, we leveraged e-mail, articles and physical and virtual events that they were already conducting.  Our efforts ultimately attracted a group of early adopters who were at the forefront of using social technologies and who wanted to change the current business and academic landscape.  These contributors brought with them great ideas, experiences, and a thoughtful approach that we used in building “We Are Smarter.

Prescription for organizational success:  Assemble a group of interested participants. This can include current and prospective customers, employees, partners and investors.  In fact, virtually any group of people interested in improving the existing process you have targeted to improve (market research, new product development, customer support and sales) are possibilities.  They don’t need to be experts, nor do they need to be homogeneous. They should, however, be passionate about the community you are building and have a genuine interest in giving you authentic and honest feedback. Remember, neither the level of education, business acumen nor technical expertise of the community participants is the core criterion.  What matters most is that they all share a common willingness and desire to share their knowledge and experiences with other members of the community to improve your business process.

Lesson Three

Technology: Provide social technologies AND community support

Our challenge was to build and deliver the right social technologies for wearesmarter.org.  We knew that social and business interactions among and between people take place all the time in the physical world, and our preliminary research and experiences clearly indicated that Web 2.0 technologies would accelerate those interactions within an online environment.  Given our experience with similar technologies, we were able to build a Web 2.0 community platform that accomplished most of our goals, and we supported it with an experienced community manager. However, we didn’t anticipate the onslaught and the variety of demands that we received from our community members.  They requested and expected multiple ways of interacting, and their preferences ranged from in-person and phone meetings to robust technology capabilities, including online blogging, text messaging, social profiling, discussion boards and prediction-market tools.  We also didn’t foresee the extent to which our community would require moderation and customer support.  In short, we needed more than one person to ensure the viability and growth of the community and its complex interactions.

Prescription for organizational success:  Do not underestimate the requirements of social technologies, community moderation and ongoing community management.  To gain valuable insights from your community’s interactions, you will need strong community moderation.  In fact, we learned that the deeper, richer and more frequent the community’s interactions, the greater the requirement of an organization to support those interactions with well-documented and highly trained community people who know the underlying community processes and technologies that ensure successful and ongoing interactions.

Lesson Four

Process: Encourage Community Interactions and Criticism

One of the biggest challenges we faced with ”We Are Smarter” was learning how to share control with our community and encourage ongoing interactions.  From reading James Surowiecki’s “The Wisdom of Crowds,” Thomas Friedman’s “The World Is Flat” and Robert Scoble’s “Naked Conversations,” we understood that we should encourage, facilitate and accept the wisdom that our 4,200 members were contributing.  What we did not fully realize was the extent of control that we would have to relinquish if we wanted the community to be fully engaged and willing to share their expertise and connections with us.  In fact, we struggled with letting others drive the community.  Giving up, or at least sharing, control was especially true when it came to management and monetization of the community’s output.  In addition, we underestimated the amount of support we needed to provide to encourage their interactions, including scheduling regular conference calls, online discussions, podcasts and blogs.

Prescription for organizational success:  Deputize a community of managers that includes representatives from your business and from people in the community.  You will find that you get back what you put into the community.  If you want to leverage the community to help your business succeed, you will need to commit the time, effort and resources to achieve your goals, especially since the results are a product of the interactions of others.  At eBay, for example, more than a thousand professionals are responsible for facilitating the interactions of its customers.  The same is true at Wikipedia, where active members spend endless hours ensuring the quality and consistency of the posts on the site.

Lesson Five

Measurement: Quantify the community’s contributions, including your own.

The challenge we faced from the beginning was how to align our own activities with those of our community.  In essence, we should not have had different expectations of our members than we did of ourselves.  If we were not going to actively participate in the dialogue of wearesmarter.org as bloggers, discussion leaders and wiki contributors, then we should not have expected anything different from our community members.   For our partners and us, our lack of familiarity with Web 2.0 technologies or social interactions in the business context caused us not to fully embrace this reality.  As a result, our community members began to suspect that we were not fully invested in the project.  Consequently, we created less value from our experiment than we could and should have, had we been more fully committed and lived by the same high standards to which we were holding our community’s participants.

Prescription for organizational success:  Walk the walk.  As part of encouraging open and continuous contributions from a community, you need to align your own behavior with what you expect from your community.  If your company’s personnel are not prepared to freely blog, join discussion boards (not just launch them), contribute to the conversation, and enable open innovation while at the same time refraining from trying to promote and sell your company’s products and services to the community, you cannot expect to reap the full benefit of your efforts.  However, if your company and leaders can personally participate, you will be able to measure the results.  Depending on your target objectives, you will be able to achieve greater employee loyalty, generate new and innovative product ideas, and enhance customer support by facilitating peer-to-peer support among community members.

The Definition of ME and WE

To help companies benefit from our journey from ME to WE, we created a set of definitions, assessment tools and best practices, beginning with a clear definition of “ME” and “WE.”  In simple terms, a “WE” organization is one that is “networked” – that is, dependent upon coordinating the activities of external people, processes and technologies to accomplish many of the other processes, including manufacturing, marketing, sales, research and customer support, that were traditionally done by the organization.  In addition, “WE” organizations use today’s enabling, social technologies and rely on the interactions of their community to help them reduce the cost of goods, services and ideas they create and deliver.

Finally, “WE” organizations seek to take advantage of the ”network effect” that results from connecting more and more people to their businesses in open and dynamic ways. In contrast, a “ME” company, or “firm-centric” organization, is one that is reliant on doing most of its processes internally with its own resources.  These organizations rely predominantly on internal people, processes and technologies.  As a result, “ME” companies do not benefit from the network effect that comes from connecting people and their interactions to the company.  Rather, ME companies hope that the connected, global economy with empowered customers and employees won’t hinder their traditional and still-successful business models, despite research that shows that all goods, services and ideas become commoditized and standardized over time (Bloomberg’s impact on the bond markets is one example and Gerson Lehrman Group’s increasing effect on the consulting markets is another).

To help companies benefit from these lessons learned, we developed a simple acronym called SCORE, which stands for Social, Co-creative, Open, Reward-based and Evaluative.  The social element refers to how “WE” companies use social technologies to recruit and engage their community members in both business and personal interactions.  They are co-creative because they join with other community members to produce better products, services and ideas faster and at a lower cost than their more monolithic “ME” counterparts.  Being open refers to the authenticity with which they conduct their business processes and accept criticism from their community constituents.  Reward-based refers to how “WE” companies reward their community members (including personally, professionally and financially) for their contributions, and evaluative refers to how “WE” companies enable their community members to rank and review their products, services and ideas in open and honest dialogue.

To put these types of firms in context, our team also created a framework that leaders can use to evaluate their companies’ business models and help them determine whether they are WE- or ME-centric (see illustration at left).

In using this framework, our team recognizes that few, if any, companies will use social technologies and online interactions to reduce the cost of writing and publishing a book.  After all, “We Are Smarter Than Me: was an experiment to see if the benefits outlined by the authors of the McKinsey Quarterly article could be realized by us and other companies in their day-to-day operations.  Our experience proved that they could.  But other examples continue to surface even as we author this article.For instance, coffee purveyor Starbucks exemplifies the power of “WE” and the network effect in their approach to innovation.  The company launched an online community this spring in an effort to obtain feedback and insights from its current and prospective customers on changes Starbucks should make to revive its struggling U.S. operations.  Starbucks’ chief information officer said he hoped to receive a few hundred ideas in the first few days after the community went live.  Instead, hundreds of coffee-obsessed consumers chimed in during the first few minutes of the “WE-oriented” experiment, and three hundred suggestions were posted within the first hour.  By the end of the week, more than 100,000 suggestions had been submitted.  Wall Street analysts, hungry for details about the company’s turnaround plans, paid close attention to this new form of complex interaction using Web 2.0 technologies.Just as Starbucks discovered, our experiment taught us the following:

Prescription for Organizational Success:  there is a powerful shift taking place as community input and contributions become increasingly more valuable to businesses around the world.  More importantly, organizations of all sizes and shapes can join the “WE” movement and leave behind their “ME” roots by taking advantage of the growing interest in online interactions, which are enabled by Web 2.0 technologies.In summary, the journey for us was worthwhile.  We learned the difference between“ME” and “WE” companies.  And we discovered certain best practices along the way – including the difference between outsourcing (China and India) and right-sourcing (community contributors).  Lastly, we found that even though there was, and continues to be, more research to be done, social and business interactions can “well generate durable competitive advantages…[and] companies that get it right will build…competitive advantages that competitors won’t be able to duplicate easily – if at all.”   Now all that is left is for your company to start the journey from “ME” to “WE” to gain the competitive edge “WE” offers.

About the authors

We Are Smarter Than Me: The New Competitive Advantage of “We”
Mckinsey Quarterly:   Alumni Thought Piece
July 08, 2008

We Are Smarter Than Me: The New Competitive Advantage of “We”
By Barry Libert (CLE 78-79) and Jon Spector (BOS, HKO, NYO, TAI 80-00)

Aaron Strout, Vice President of Social Media at Mzinga, also contributed to this article.

The views and opinions expressed in this article are those of the authors, Not Mckinsey & Company.

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This original post appeared in NACD:

The result: It is time for directors to think anew about the meaning of corporate governance in the social age.  In addition to all their existing roles, boards now have the added responsibility of shepherding their leaders and organizations into today’s digital world. Boards that avoid this obligation risk having their organizations fall prey to the speed and might of today’s social networks as they seek corporate reform and accountability. The boards and executives of Best Buy, Kodak, Blockbuster, Hewlett Packard, and Susan G. Komen have all learned this reality the hard way.  So did the 12 nations of the Arab Spring.

So how does a corporate director think anew about his or her role?  First, start with the facts.

• Social Technologies Change Performance:  Enterprises that fully deploy social and mobile technologies to engage their crowds (customers, prospects, and alumni) in the cloud produce 9 percent more revenues, 26 percent more profits, and a 12 percent higher market valuation than their peers, according to research by MIT and Cap Gemini.
• Social Technologies Change Engagement:  Less than 30 percent of CEOs use social media according to recent research, despite the fact that more than one billion of their customers, employees and investors do.  Furthermore, The Conference Board and the Rock Center for Corporate Governance at Stanford University report that 93 percent of boards do not use social intelligence to make informed decisions about their networks’ sentiments or engagement.
• Social Technologies Change Investor Relations:  Finally, research at University of California at Berkeley and MIT reveals that social media is a leading indicator of stock price movement.  As such, directors of publicly traded companies need to be receiving this information in real time or risk not knowing what their institutional investors know and how they will act based on insights derived from social and cloud networks.

Given the above, there are seven rules for corporate governance in today’s connected age:

1. Rethink Strategy
Boards need to align their strategy with where value is found today.  In the industrial age, value was based on the amount of an organization’s physical assets and manufacturing capabilities. In the services age, it was based on how many people the firm employed and its billable hours. In the information age, it was software code and data.  In the social age, value is a function of the size and vitality of an organization’s network and how well it is connected both inside and outside the company.

Corporate strategists are thinking anew about how to use technologies and people with common interests and passions to improve their performance.  For example, Unisys created  “mission-critical” computing environments.  It did this by leveraging social technologies to significantly improve productivity, collaboration, and knowledge-sharing among its 20,000 global employees. The result: Unisys launched 10 social circles based on “communities of excellence.” Over, time more than 16,000 employees joined to solve technical challenges, answer questions, and share relevant content and company best practices.

2. Rethink People
As corporate directors, board members need to fully understand that an organization’s next big idea may come from anywhere and anyone. As such, corporate directors need to ask their management teams and HR directors how they are leveraging the collective wisdom of not just their own employees, but also the organization’s crowds.  From them, companies cannot only find solutions to their most difficult problems and, with them; companies can create new products and services.

HR departments are developing new thinking in a growing number of companies.  For example, original programs at Starbucks and Dell look beyond their own people for innovative ideas.  In addition, Red Hathas shaken-up the software industry by partnering “with the world” (and not just their internal R&D department) to create new solutions. It even crowd-sourced its own corporate strategy. Another great example is Apple. Apple inspired 345,000 members of its crowd outside the organization to develop apps that deliver billions of dollars of revenues and market value to the company.

3. Rethink Processes
Yesterday, companies focused on their internal processes to maximize execution and improve efficiency. That “inside-out” focus worked in a supply-constrained world in which customers had few choices.  But today, consumers can buy from anyone and everyone, both online and off. As such, boards need to ask management how they are shifting their focus from inside-out to outside-in to drive growth and innovation.  And for good reason, social networks are most often outside the company, and to tap into their wisdom, an organization needs to shift its focus from inside to outside. Without helping management teams think anew about their business processes, the future may be at risk.

Based on the increasing size and power of social networks, Nike reinvented its marketing processes to outside-in in order to capture the capabilities and insights of their fans and followers.  To do this, Nike built Nike Digital Sport in order to develop products that allow the firm to be with and where its customers are 24/7/365. This became the focal point of transforming Nike into a social company that has dramatically increased its revenues, while cutting expensive television advertising costs. The result has been a large increase in earnings before interest, taxes, depreciation and amortization, according toFortune Magazine.

4. Rethink Technology
Technology is not just about IT policies; it is also a strategic asset that can be leveraged for success.Boards need to play a prodding, if not active, role in ensuring that management think anew about its technology strategy and how it can add value and minimize risks by actively integrating today’s social, mobile, cloud, and big-data technologies into everything it does.  Research from Cap Gemini shows that social enterprises (versus traditional businesses) shift market and operating risk to other less-tech savvy companies that still think the connected and web world will not affect their business models.

For example, on Jan. 10,  Kenneth I. Chenault, CEO of AmEx, announced that the company would change its travel service business strategy and investment in technologies, cutting 5,400 people as it reallocates its capital to online initiatives. In making this announcement, Chenault said that the travel industry had been “fundamentally reinvented” by technology.   In support of this change, AmEx noted that more than half of its corporate customers book trips using online e-commerce sites and their mobile phones rather than call an Amex Agent. “Because customers are using tools directly online [using mobile, social and web technologies], we need less customer-facing people, such as travel counselors who take reservations and bookings,” said Kim Goodman, president of AmEx’s global business travel unit.

5. Rethink Leadership
The concept of traditional, top-down management is quickly losing steam in a world in which everyone has a voice—including customers, employees, partners and investors. Social technologies allow people to say and publicly share whatever they want about an organization, its leadership, and culture.  In the context of increasing demand for accountability, transparency and open approaches involving all stakeholders, corporate directors need to think anew about their board composition and competencies.  Although many have done a good job diversifying their board, most still lack members with today’s technology and strategy skills according to research by Spencer Stuart.

To make sure that his board contained an expert in social and mobile technologies, Harold Schultz, Starbucks chairman, announced on Dec. 14, 2011, that Clara Shih, CEO of Hearsay Social, was elected to the Starbucks board of directors.  “Clara is a true technology leader….We could not be more thrilled about the social-media expertise and ideas Clara will bring to our business as we continue to amplify the online experience and interactions Starbucks has with our customers, partners and communities.”

6. Rethink Finance
Boards and leaders hold a number of historical and framing biases that make it a challenge for them to see and invest in today’s “intangible” and unmeasured sources of value, such as social network membership and intelligence. This is especially critical given that less than 25 years ago, physical and financial assets constituted about 80 percent of corporate market value. Today, that amount is less than 20 percent, according to research by Ocean Tomo.  As such, leaders need to think anew about their capital reallocation strategies, especially given research by McKinsey that indicates that most companies continue to invest in the same things that they invested in last year.

As corporate directors, it is critical to ask CFOs to go beyond traditional accounting treatments of such valuable intangible “assets” as employees and customers. To ensure that the latent and real value of an organization’s social network is properly presented, directors need better and more complete reporting.  Infosys and others are already creating new measurement and reporting systems that more fully capture the value of their organization and capital allocations to intangible assets.

7. Rethink Governance
The future for boards is less about traditional governance and regulatory compliance, and more about network alignment, capital reallocation to new sources of value and technology, and business model strategies. Looking backward through the lens of financial reporting will only go so far. Today, boards and CFOs require social intelligence about the future desires and needs of their stakeholders. Leveraging real-time data from social technologies and mobile networks offers a more complete view on what is coming next.

Directors and management teams who are questioning whether social media is relevant to their companies should ask Netflix CEO Reed Hastings for his thoughts on the matter. “A 43-word Facebook post Hastings penned in July noting that subscribers had watched one billion hours of video in June made Netflix the subject of a Securities and Exchange Commission probe. The commission is concerned the Internet subscription giant may be violating the Regulation Fair Disclosure rule, or Reg FD, which requires all investors to receive information that could affect company stock at the same time.”  While the debate on this issue is just beginning, boards must be proactive in understanding the critical impact of social media.

Questions to Ask
Corporate directors who are in the process of reviewing their company’s 2013 business plan with their management teams should take a moment and ask the following questions of themselves and their leaders:

• Social Technology:  How do we view social, mobile and cloud technologies?  Do we see them as simply Facebook, Twitter, and LinkedIn, or do these technologies play an integral role in every aspect of our business?

• Business Performance:  Are we viewing our next year’s business plan and financial forecasts through the lens of last year’s finances or, more importantly, in the context of todays research by companies like Cap Gemini, Deloitte, and McKinsey?

• Technology Skills:  Do we have the right board members with the right skills including social, mobile, and cloud experience, to insure our company’s future? In addition, does our management team members have the skills they need to insure success?

The bottom line: Boards need to think anew about their role in the social and mobile world. For corporate directors, there is no time to waste.  Directors must join the social and mobile ranks. New board members must be recruited, and new business models must be fashioned based on these technology realities.  Social enterprises are here to stay and they are faster, better, and more competitive than traditional businesses.

Barry Libert, CEO of OpenMatters, is a technology investor, corporate director, and strategic advisor to boards and their leaders seeking to become great social enterprises. Sally Ourieff is a partner at OpenMatters.

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Looking back, I can clearly affirm this insight, despite the fact that strategy (economic thesis) drives results, not structure.  In fact, the wrong structure can hamper innovation, growth and social interactions – the engine of new products and services in our connected world.

When you look at the various structures that now rule some of the most well-known companies in the tech space, you can see that structure is ruling the economic results of these companies.  If however, leaders of these, and most other, companies really wanted to change their financial results – like Microsoft and Oracle – they  need to change their structures – from top down and hierarchical to flat and nimble.

Slowly but surely, today’s social, mobile and cloud world is forcing how leaders think about their organizational structures as the nature of how business is done and and governments are run comes under-attack.  If your board and leaders want to minimize risks and be relevant in the connected age, they  need start today and let strategy drive structure and not the reverse.  The results will be well worth the journey.

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How can CEO’s and boards in today’s connected world not realize the importance of becoming a social enterprise?   Mckinsey’s research is clear.  So are the sheer numbers: 1.5 billion customers and employees use social media to share what they know and who they know and 5.2 billion use mobile devices to collaborate and do commerce. Said differently, the ‘old days’ theories of  Jack Welch’s days at GE – ‘execution’ and ‘inside-out’ thinking/focus – are over.  In today’s world, everyone is connected  and ‘engagement’ and ‘outside-in’ strategy and focus are king, queen and jack of clubs.

It’s clear from all the mishaps of 2012 – Netflix, Bank of America, Best Buy, you name it – Boards and leaders can not afford to be focused ‘internally’ on ‘processes’ (e.g ReEngineering the corporation) while leaders and winner’s of today’s markets are focused ‘externally’ and on the size and vitality of their ‘networks’.

To get started, boards and CEO’s need to join the social and mobile revolution and understand the two types of risk that they face:

1. Strategic risks to their business model — ‘outside in’ risks from the network’s power like what is happening to Best Buy due to Show-rooming. OR
2. Operating risks to their financial performance —  ’inside out’ risks from the lack of collaboration and connectivity like what happened to Kodak.

The research is clear – see IBM, KPMG, Deloitte, and Mckinsey – you name it.  It’s time for boards and CEO’s to recruit digital directors and managers that  can help your organization become a social and mobile enterprise.  Your financial success depends on it regardless if you are B2B or B2C organization.

My recommendation for a new year resolution:  Start now on your social journey, or before you know it, 2013 will be over and your firm’s future may be less bright than it is today.

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