A new McKinsey Quarterly report, The rise of the networked enterprise: Web 2.0 finds its payday, released just this week is proving to be a treasure chest of information on the value of collaborative technologies. This new release of a series of similar studies from McKinsey over the years comes out of a survey of over 3000 executives across a range of regions, industries and functional areas. It provides detailed information on business value and measurable benefits in multiple venues of collaboration: between employees, with customers, and with business partners. It also examines the link—and finds great correlations—between implementing collaborative technologies and corporate performance.
[Note: There was quite a bit of discussion on Twitter about the report. You can follow the discussion across the many participants by searching on Twitter on #McKWeb2]
One statement from the report highlights the key message of the results: “The implications are far reaching: in many industries, new competitive battle lines may form between companies that use the Web in sophisticated ways and companies that feel uncomfortable with new Web-inspired management styles or simply can’t execute at a sufficiently high level”
Surveys of this kind help to normalize the decision factors, issues and value statements across a wide variety of implementations. They are often based on each executive’s opinion of their implementation which may be biased, but as a whole, this approach is still quite valid, and a widely accepted practice.
This McKinsey Quarterly report focuses on three main categories or areas of application: Internal purposes, Customer-related purposes, and Working with External partners and suppliers. For Internal purposes, what we also refer to as Enterprise 2.0, the top three measurable business benefits lie in increasing speed of access to knowledge (77% of respondents agree on achieving value), reducing communications costs (60%), and increasing speed of access to internal experts. In fact, survey respondents agree that the first and third items produce a median improvement of 30% over existing means—this is the highest level of improvement across all the categories.
Going down the list, top-line results of increasing revenue ranks the lowest in all three categories. The focus is primarily on gaining operational efficiencies in the internal environment, improving customer relations, and efficiencies through improved partner access.
The report distinguishes several states of being a networked organization: developing, internally networked, externally networked, and fully networked. Looking at the number of respondents (n=1711) compared to the other levels—where n=287 and even less for the others—most organizations still consider themselves at an early stage of adopting these practices and implementing these systems. A fully networked organization showed the highest degrees of improvement several times over the internally and externally networked organizations, and about fives times more than those still in the early developmental stage.
Also interesting to note is even among the fully networked organizations, the mean percentage of employees using this collaborative technology is only 47%. It is similar for externally networked (47%) and internally networked (42%) organizations. This follows another statement that I heard from my own organization’s research: you don’t need everybody in your company to be using the collaborative environment to gain significant value from it.
The report indicates: “Respondents at half of the internally networked organizations reported that Web 2.0 is integrated tightly into their work flows, for example, compared with only 21 percent of respondents at developing organizations.” This agrees with other discussions of the subject: you need to make it part of how employees do their work. More precisely, adding collaborative technologies is not about adding incremental work to their existing load, but transforming how they do their existing tasks to drive additional value.
One interesting observation, in terms of organizational impact more respondents from Internally networked organizations versus externally networked ones indicated that the work is performed by a mix of internal and external people—21% in internally network vs. 15%. That is counterintuitive to me—internally networked organizations focus on employee connectivity and externally networked ones should focus on connecting with external people.
This paragraph speaks to me personally in my day job: “[the] elite group of organizations—3 percent of those in our survey—derives very high levels of benefits from Web 2.0’s widespread use, involving employees, customers, and business partners…. In applying Web 2.0 technologies, fully networked enterprises seem to have moved much further along the learning curve than other organizations have.” I can see this happening all around me at work, but it is difficult to understand the degree without some comparison relative to other organizations. After all, this transformation affects the organization as a whole, and that has a strong dependency on the organizational culture.
All organizations develop their own officially defined and, in parallel, a working culture. It is part of the fabric of the organization, and just like in national or racial cultures, one cannot claim superiority of culture as an advantage; it is different for every organization. There are elements that contribute to better collaboration particularly towards openness of communication and interaction, but you cannot simply replace a culture, only guide or evolve it towards a goal. I would have liked to see more on this subject of organizational culture as a factor, but it may be beyond the purview of this report.
The report also did fantastic work in their correlational analysis between corporate performance metrics and web2.0 tools. Per the report, “Market share gains reported by respondents were significantly correlated with fully networked and externally networked organizations. This, we believe, is statistically significant evidence that technology-enabled collaboration with external stakeholders helps organizations gain market share from the competition.” In the Twitter stream, Michael Chui, Senior Fellow at McKinsey and co-author of this report, indicated: “The #McKWeb2 research suggests that fully networked enterprises could be learning faster, and lengthen their competitive leads.”
Furthermore, it also works on the inside: “Respondents at companies that used Web 2.0 to collaborate across organizational silos and to share information more broadly also reported improved market shares.” Internally networked organizations also correlate with being market leaders. It is easier to see how collaborative technologies can improve market share externally, but the latter two statements towards the value of internal collaboration are quite eye-opening (and smile-inducing to me). Furthermore, it also provides supporting evidence that distributed decision making and pushing that capability lower in the organizational hierarchy correlates to improved operating margins.
These findings together become compelling evidence for the value of social business. The evidence is there but I still hold the question: Can this apply to your business? To answer that requires a deeper dive into the specifics of each organization, its work culture, its business processes, and its customer-, partner- and employee-engagement strategies. The cultural transformation itself can be quite difficult; per Mr. Chui on Twitter: “… [there is] great value data flowing thru org. But getting participation can be surprisingly hard.” Through a close examination of these specific factors in your organization, you can better understand where it will find its value through getting connected.
[Incidentally, I missed much of the Twitter conversation due to a client meeting, but I was able to learn much more beyond the report itself because of the discussion stream itself. To me, that is unanticipated yet much desired value.]
