How Social Tools Can Help Your Company Avoid Strategic Failure

Nilofer Merchant, author of 11 Rules for Creating Value in the Social Era (Boston: Harvard Business Review Press, 2012)

Most people think social media when they hear about “social” as a new communication technology, says author and business executive Nilofer Merchant. However, in order to fully understand social’s potential in the enterprise, companies need to think of the concept well beyond its common “media” association, she says.

Merchant is both a past entrepreneur — she started her own strategy firm to help various high-technology companies like Logitech, HP, Yahoo and others develop new products and business strategies and enter new markets — as well as an executive and board member for both public and private companies. She is also a speaker on innovation, board governance and marketing at Stanford University.

She has authored two books on collaboration in the enterprise, The New How (O’Reilly, 2010), as well as her latest work, an ebook titled 11 Rules for Creating Value in the Social Era (Harvard Business Press, 2012), on how companies can leverage social to reinvent themselves. By doing so, Merchant says they can obtain both direct benefits from collaboration as well as more indirect benefits in areas ranging from human resources to the value chain.

In a conversation with Robert Berkman, contributing editor of Innovation Hubs at MIT Sloan Management Review, Merchant talked about findings from her work and books and expanded some of her views on the advantages that occur to businesses that embrace the social era.

Your book discusses how companies need to think about the value of social well beyond what is implied by the common “social media” term. If a company has been convinced by your argument and wants to get started, is there one best place or strategy to begin with?

The place to start is to let go. While management often pays lip service to the notion that good ideas can come from anywhere and everywhere, in practice almost every organization says there are a few who decide and the rest are execution arms. This constraint not only limits the potential for anyone to contribute value, it creates bottlenecks in how fast one can innovate. This elitist belief creates an Air Sandwich in the organization, where the top tells the bottom what to do and all the stuff in the middle — the debates, trade-offs and necessary discussions — are missing. This Air Sandwich is the source of all strategic failure and bureaucracy and slowness. Instead of centralized decisions, we need distributed input and distributed decisions.

We need to go from a closed, exclusive concept of who can participate to an open and inclusive approach.

And right now, most organizations think of power as a binary thing — like, we decide or it’ll be a free-for-all. But we need to stop making it so binary by discussing what areas need which controls. Then examine how more, if not most, areas and decisions can be distributed (and thus made radically more flexible). For the purpose of the exercise, I ask organizations to aim for 50% or 70% of all decisions to be free of permission seeking and check-ins and then to figure out what they would need to do differently.

You focused on the value of the fully enabled social company, but is there a particular function that really should be on board right away? Does it matter if one chooses internal or external operations to begin?

Merchant blames strategic failure on something she calls the “Air Sandwich” — the disconnect between the top-level strategy and bottom-level implementation.

The social era will reward those organizations that realize they don’t create value all by themselves. If the industrial era was about building things, the social era is about connecting things, people and ideas. Networks of connected people with shared interests and goals create ways that can produce returns for any company that serves their needs. The question is what it looks like for all the different functional areas and parts of the value chain — which lever makes sense for you and your firm to make social? And you’ll know the answer to that when you think about which lever when shifted to social lets you and your organization be fast/fluid/flexible by the very way in which you do work … not just by working harder.

Are the primary benefits accruing to a social company those that directly relate to the value of collaboration per se, or are there some new and indirect benefits that will accrue to the socially enabled firm that go beyond collaboration — for example, better marketing data, understanding of market trends, leadership view to how the firm operates?

There will be both direct and indirect benefits. In the Social Era book, I’ve talked about the levers of value — how social can be used to organize how to create, what to deliver and the ways to interact in the marketplace. And I’ve drawn three conclusions:

Work is freed from jobs. This means that human resources change when most of the people who create value are neither hired nor paid by you. And competition has changed, so that any company can achieve the benefits of scale through a network of resources: for example, designing a product from anywhere, producing it through a 3-D printer, financing it communally and distributing it from anywhere to anywhere.

The value chain has changed. The customer is no longer just the buyer but also a co-creator. Things like co-creation and crowdfunding and customization can lend a deeper value to the pricing. For example, when Burberry or Etsy lets me co-create a product, to design something the way I want it, then the value of the product fundamentally changes from “shirt” to “my shirt.”

With, not at. It used to be that capturing value was about hiding price or appearing perfect when, in reality, we return to a truly social construct of how connection happens. Instead of sales and marketing, exchanges follow the arc of relationships: romance, struggle, commitment and co-creation. Connection supersedes control. Capitalization changes when a community invests in an idea; it also co-owns its success. In other words, it’s not just socially funded; it’s socially meaningful, which of course changes the value proposition.

Do you see companies move through different phases as they develop more capabilities with social? If so, are these phases best described by a maturity curve or by some other framing?

We’re in the early innings of a sophisticated new direction. This body of work was about naming the core components and encouraging leaders to move in this direction. Remember that most companies are not clear that social can be used for all parts of the business model. Most people hear the word “social” and immediately add the word “media” to the end of that idea. I’m using it in sort of a capital-S, bigger way. The fact that they are joined at the hip in so many people’s minds means that marketing agencies are thriving — but that the rest of our organizations are not. Social media just doesn’t go nearly as far as it could for actually allowing us to create value in all parts of the business. HR, product development, distribution and of course the more obvious ones of marketing and sales can be affected by social in the big-S way.

Let’s get that idea heard and get the 11 rules more clearly understood, and we can circle back to an adoption curve.

How important is it for companies to think about measurement of results from social?

It is an important question, but it needs to be done in sequence to other questions. After I first wrote about this thesis on Harvard Business Review’s blog, some leaders of Fortune 500 organizations — the 800-pound gorillas of their markets — called. One was the chairman of a major bank, another the CMO of a nationwide retail firm, another the corporate director of a huge insurance product company.

All were interested in what the Social Era could mean for their businesses. But within minutes, all these conversations came down to the same fundamental question. It went something like this:

“I agree that things that need to change . . . but does any of this social stuff actually scale?”

As in: How would “co-creating” work across a global supply chain? How would community work across some 1,000 stores? How transparent can you really be when there are billions of dollars at stake? What are the success metrics? How long will it take? And what is the ROI?

These are good questions, and I understand that any organization has to think of how to avoid one-off solutions. There are performance numbers to hit and growth to manage. Scale is necessary to give innovation impact.

But here’s the problem with asking, “Does it scale?” as the first question: before you can know if it scales, first you have to know what “it” is. When I asked each of these successful and very smart executives that question — “What does the application of these Social Era rules look like for you?” — they had no answer. These leaders, however well-intentioned, have started with the wrong question. By asking first, “Does it scale?,” they have skipped past the more important question, which is “What could it be for us?”

Then where, if at all, does relying on hierarchy still work and make sense in an organization?

If we define hierarchy not as titles but as a superior guiding principle or vision for the company then, yes, hierarchy still matters. Leaders today focus on telling people to do this and then that, and to enter this market and so on because they cannot explain in a way everyone can hold what the end goal or directional horizon is. And so leadership shifts from telling other people what to do — leaders don’t have to own the day-to-day in the same way — because they need to trust the team to figure out the best way to get there. But you better know where “there” is.

What companies to you are the best examples of ones that have changed operations to reflect the social era? Were they special in any way, or did they just “get it”?

Peter Diamandis started Singularity University several years ago using a great construct. Singularity University flips the concept of organization around. Unlike most universities that focus on locked-down curriculum, full-time faculty and buildings, they organized for latest thinking, no built-in overhead and flexibility in design. With that design in mind, Singularity delivers 300 hours of lectures with only seven full-time staff.

The seven full-time employees form a nucleus or core group to handle program management, operations and communications. They also recruit the next rung of talent, 10 thought leaders, one for each domain area in which SU teaches. These experts are highly briefed on the purpose and goals of the SU organization. These leaders then act as curators for the rest of the university, assembling 10 to 20 domain specialists each from around the world. Virtual work teams form as needed to coordinate curriculum intersections using Skype and other online tools. While the core group maintains the mission and continuity, the curators act as talent recruiters for the next layer: the extended outer circle of specialized talent that adds topical expertise and content delivery. The talent ratio is 5% core, 15% curators and 80% specialists. As market needs change, SU is in a unique position to fluidly respond.

Instead of being about organizing in a hierarchical way that focuses on “getting the right people on the bus,” this model is about building concentric circles of talent that change and resize as needed. People get on and off the bus, take turns driving, change the bus route: the construct of circles rather than hierarchies allows the organization to tap into a shifting global pool of just-in-time talent.

In 2005, some 30% of the U.S. work force participated in the freelance economy, and some measures suggest it could be as high as 50% in 2012, accelerated, in part, by the recession. I remember both Daniel Pink and Tom Peters first talking about free agents as part of the future, but today we live it. And the point for organizations is that this freelance workforce is not a fad or a trend. And using it fully is a way to design organizations for fluidity and flexibility.

I loved the notion of the object of customers’ engagement as a shared value or purpose. What, though, if the company’s product is really boring — say, a maker of wallboard or asphalt. How can you, at least externally, get people excited about a shared purpose?

I think we can get excited about many things if we reframe the question. I will just look to one of the biggest uses of property in my little town — our banks. They own a ton of property and there’s all of seven people working in there for about eight hours a day. The rest of the time, the space is unused. And it doesn’t serve a function that benefits the community — I would argue that in most cities, other than the local bank president belonging to Rotary, there is little “shared purpose” with that bank and its local base. But imagine using the facility in the evening as an events space or allowing community roundtable or [doing] what ING bank did by saying we should replace the traditional bank lobby with a coffee spot so people can have a space to work.

Let’s talk a little more about your new book. Who is it targeted toward in terms of size of firm, function, level, etc?

Funnily enough, I wrote the book for a rather narrow audience, as I believe these 800-pound gorillas can adapt and that group is the least likely to read new ideas. But, as Fast Company, Forbes and other publications have shown, there is a real thirst for this framework — and it makes sense to lots of people. Cool kids get value because they get language for what they intuit (and can finally share it with others), and the old guard is finding the stepping stones for the future.

Finally, what is the most important new or underarticulated insight from your book that you’d like people to take away?

It depends on who we are talking to.

To entrepreneurs, you know that scale is not just about being big. You know that being lean gives you an edge. But now you know that as you grow, you don’t have to use the rulebook of the 800-pound gorilla. With this set of rules of Social Era, they now know they can “scale” through community and with purpose — in other words, grow without giving up their soul.

To those that are using social media and thinking it’ll help them get faster and more fluid, we need them to understand social can be much more than that; they can use social for every part of their business. I think of IBM, Nike and other companies that really want to embrace their communities, to create purposefully and to do so in a way that makes sense for the long haul.

For those organizations that are scared and hiding in the corner, I encourage them to realize this only gets worse if they hide.

For those organizations that think no one can tell they are using all the right words but neglecting to create value in the process — we can tell. I am thinking of United Airlines or AT&T, who keep using social tools but who seem to hate their own customers. You think pretending works, but humans are smarter than that.