Innovation in Large Companies – The Use of Web 2.0 as an Innovation Pathway

By: Marta Domínguez

The impact of Web 2.0 has lived up its early buzz and has produced a new ‘economy’ based on sharing. Many firms recognize that these new technologies facilitate innovation but are unsure about how best to exploit them. Marta Dominguez looks at how to enable innovation through Web 2.0.

What do executives fear from innovation through the use of social platforms? Over the past decade many firms have worked closely with disruptive technologies, such as the Internet and mobile, that caused not only a major market change but also challenged the traditional organization structure of companies. Web 2.0 however has introduced productivity concerns around the use of the Internet.

Just as with the Internet and the mobile, social platforms enabled by Web 2.0 are personal tools that have been brought to business after a period of success outside the firm. Have not executives learned how to adapt to that sort of innovation in the workplace as well as to adapt their  business models?

Yet talking to companies there is a clear feeling that it is not cost or expertise requirements that block Web 2.0 from growing inside the business. It is the lack of confidence in how social platforms can work in business and become something more than a new way to get publicity of their brands.

Innovation with Web 2.0: the core levers

In the previous article of this series we argued that establishing a formal strategy with goals for how a company or an organization is going to exploit Web 2.0 is crucial. This means focusing on an area for improvement – be it customer services, customer loyalty, expanding the knowledge market, or rethinking business models.

But how can executives make social platforms work in business? There are links between the answer to that question and the elements that govern the process of innovation with social tools.

Web 2.0 as an innovation path that they can manage as a process.

We will deal with them in this article. Executives’ fear is rooted in the assumption that social tools are not business tools which in turn links them to arguments around security and productivity concerns. Examples also show however that real innovation can be achieved when executives go far beyond those arguments and think of Web 2.0 as an innovation path that they can manage as a process.

In my consulting work and research on the field I have found that gaining traction in the process of innovation with Web 2.0 inside businesses is significantly influenced by 1) adequate technology integration 2) managers finding their role in an internal ‘market economy’ and 3) employees opting-in to the ‘socialization of business’.

Lever #1: Adequate technology integration of Web 2.0 tools

All Web 2.0 technologies (blogs, wikis and communities, social recommendation systems…) share similar technical features that allow the engagement of social groups (with previous ties or on the contrary no ties at all the the enterprise) in a task by interacting with one another, using, mixing and linking information. It is the task that organizations and companies define in pursuit of their enterprise goals that eventually adds purpose and value to those features.

Executives from larger companies usually approve the deployment of technologies specifically designed to fit with their legacy systems (IT from Microsoft or IBM) rather than using technologies off the shelf by independent vendors of social platforms.

BBVA case with social recommendation: choosing the right technology

An interesting case shows how large Spanish bank BBVA rewrote the business model for online banking with social-based recommendation and wisdom of crowds. Thus, the tool (Tu cuentas, the Spanish phrase for “you count”) provides information to bank managers about the spending their customers have made on bank bills, utility bills and the like. Customers can check their actual spend against the average budget of those in a particular age or income range. The bank uses several technology applications to do that. The design of the core technology was outsourced to a Silicon Valley based start-up who co-developed an on-request application for the bank. The bank in turn funded the start-up – becoming one of their principal private investors.

The vast majority of  users of Web 2.0 are consumers. Less than 4 out of 10 are to be called true creators..

The central idea of social recommendations is that there is a sufficient number of customers who have previously shared information about themselves and the services they use. So, how can managers prove the innovation enabled by such technology before officially releasing it? The answer to that question is in itself a significant change in the process of introducing business applications in a firm.

On one hand, for the principle of Web 2.0 to function properly pilot testing has to address a bigger sample (groups of customers and groups of employees) than that used in the pilots for the roll-out of business applications such as CRM. Besides it is important to understand that participation must not be taken for granted. Findings from the on-line social life show that Internet users are not as participative as we may think. According to several reports, the vast majority of  users of Web 2.0 are consumers. Less than 4 out of 10 are to be called true creators commenting, mixing and linking.

P&G case with social knowledge markets: the importance of size

This is also an important idea for P&G and its community involving  innovation in the knowledge market with the co-creation of new products in an open network across designers, customers and developers from outside the company. Precisely because of its enormous size, similarly this firm needs to increase its reach to create bigger communities and work out how to attract more and insightful ideas.

The differences with regards to the way other business applications are introduced is also noted in enterprises that phase the release of  Web 2.0 projects following a philosophy of ‘agile releases’, i.e. the release to market of beta versions that evolve with agility with the feed of customers and social groups – in a similar fashion to most well known Internet-based services.

Lever #2: Managers finding their role in an internal ‘market economy’

It is clear that managers at P&G have experienced the so-called ‘market economy’ that characterize Web 2.0 social life and  projects enabled by social platforms. They must have learned to deal with situations in which resources, expertise and employees were not assigned or pre-set by formal authorities in the organization. Those groups of people were attracted to participate in a given task. A task that they felt attached to because of self-interest, a challenge matching their expertise, or because they found an intrinsic reward in its achievement.

Furthermore, as in any market,  social groups can go anywhere else where they feel their interests are best served. This in turn produces an abundance of ideas in which hierarchies are natural i.e. based on credibility gained from peers rather than from general managers or any other authority within a firm –the traditional pyramidal model.

The growth of natural hierarchies might make it seem as though executives have little to say in this self-functioning social reality. But the truth is they do.

Leaders who thrive in Web 2.0 by wrestling against constraints

Executives who have become leaders in innovation with Web 2.0 have not left it to chance. For example they have thoroughly worked out on the constraints that would negatively impact the smooth functioning of the social philosophy in their firms.

1)     Veto from social communities. Just as crowds may bring benefits – an abundance of ideas – crowds also may impact the online reputation of firms (e.g. negative reviews of products, claims against service repair, etc.). The straightforward solution is to establish a ‘blog policy’ so that employees and managers grow awareness of what to do when sharing information or debating in company blogs or corporate communities.

Wells Fargo corporate blogs are designed to increase customer loyalty on the grounds that interacting with customers to know how a bank can best support their activities (business projects and personal projects like a new house) will make the bank business grow.

Their blog policies, which are aimed at safeguarding on-line reputation, offer an excellent example of how to keep control of the brand (as designed by their marketing department) without being coercive in the actual repercussion on people out there (reputation).

Other big brands such as Coca Cola have pioneered the introduction of community managers, now a profession on the rise. Their role is to act as a sort of PR reporting on web activity at times and be a technical support the rest of time by taking an overview of their brand across communities and blogs, for example cutting off flame wars.

2)   Security of business applications: Large banks and FCMG firms have a track record of being especially conservative when a new technology application may compromise their customer data base as the implications are profound if they ever appear in news headlines. The introduction of Web 2.0 as a business application has led those firms to adopt technical solutions that mean adapting the firewall settings of the company intranet and extranet so that new social uses of Internet are possible.

3)   Legal and regulations: Firms in regulated markets have added public disclaimers about the information that goes on social platforms.

Executives at those firms have liaised with the legal department to work on topics such as IPR (Intellectual Property Rights) with regards to collective intelligence to devise new formulas that would enable the deployment of projects and business models involving social platforms, the use of creative commons or protection of data provided by customers (for example to feed a social platform that makes recommendations based on their crowd).

In those cases, managers have focused on explaining the benefits not just warning about the risks.

Lever #3: employees opting-in socialization of business

If employees of a firm were polled about whether they would use social tools outside work some would give a positive answer saying those technologies are fun whilst other employees –the eldest – would give it a thumbs down – simply not interested! Becoming part of the social life of the Internet is an opt-in thing. As mentioned above this has important implications in fostering participation, a key element in the success of Web 2.0 in business.

Firms that are innovators with blogs, on-line communities or with wisdom of crowds have also empowered their employees to use social networks like Twitter at work. They have no ban or warnings against the loss of productivity in the workplace or the like. Instead, executives at those firms reinforce their use among employees along with self-responsibility.

Zappos case with Twitter: employees that tweet

One of my favourite cases shows how online shoe-shop Zappos changed their CRM with Twitter. Zappos executives are social believers that have put forward the idea of flexibility in their interaction with customers. Employees and customers alike are encouraged to introduce themselves and share freely in that media on the grounds that it is good for increasing sales.

That is perhaps an extreme example. Returning to the P&G case with their social community for co-creation of products, their designers, marketers and developers do not need to have the broad use of Twitter by Zappos employees. However they have been trained about the use of those technologies in a business environment and how they link to the business processes of their firm.

Next chapter: What if failure happens?

In the previous article we have mentioned that a survey of global executives on Web 2.0 shows 22%  are dissatisfied with results. What happens when an early trial fails? Would those firms embark on a second trial to exploit Web 2.0? If so, what sort of changes would they make?

The greatest risk with Web 2.0 is not overspending in IT. The greatest risk -and thus sums up to an executive fear- is getting frustrated and discouraged because no results whether distinctive innovation or better performance is achieved. We’ll return to these issues in a future article.

By Marta Domínguez