The Proof is in the Profits: Integrated Web 2.0 Pays Off

Loraine Lawson
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Collaborative, Web 2.0 investments can pay off in reduced costs, increased profits and even increased market shares - if companies are fully integrating these technologies internally and externally, according to a recent study published by McKinsey Quarterly. Among other things, the report states:

The imperative for business leaders is clear: falling behind in creating internal and external networks could be a critical mistake. Executives need to push their organizations toward becoming fully networked enterprises.

The key word here is "integration"-particularly, integrating collaborative capabilities into the existing workflow and spaces used by employees, partners and suppliers.


The survey is the fourth conducted by McKinsey examining the use of Web 2.0 technologies in organizations. The research firm queried 3,249 executives across a range of regions, industries and functional areas and found that two-thirds of them were using Web 2.0.


When the survey separated those organizations by how the collaborative software was used-internally, externally with partners/suppliers or fully (meaning in both spaces)-it found that the biggest payback is realized in organizations where it's fully deployed. McKinsey calls these companies "fully networked" or "the networked enterprise." It says:

Results from our analysis of proprietary survey data show that the Web 2.0 use of these companies is significantly improving their reported performance. In fact, our data show that fully networked enterprises are not only more likely to be market leaders or to be gaining market share but also use management practices that lead to margins higher than those of companies using the Web in more limited ways.

The findings reminded me of a recent prediction by Informatica's Chief Marketing Officer Chris Boorman:

In the coming year, companies will move from using social media and networks for business management-or conducting transactions-to brand management, where the data is about interactions. It seems like these fully networked companies have moved even further into using social networks and collaboration for growing the business.

The report is full of charts and statistics for your perusal, including a look at whether these investments translated into increased market share-overall, 27 percent of companies surveyed reported both market share gains against competitors and higher profit margins. More interesting: The highly networked enterprises were 50 percent more likely to fall into that group than others; although, I do have to wonder whether that translates into a cause-and-effect or whether high performing companies just have more money to invest in the first place.


Perhaps more interesting is that the externally networked companies saw the next biggest gains. It's worth noting, too, that 9 out of 10 organizations say they've seen some business benefit from their Web 2.0 investments.


But if you read the full report, it becomes clear that integration is the key here, as Rawn Shah, a business transformation consultant for IBM's Social Software Adoption team, points out in a recent Forbes post. Shah writes:

The only driving factor that I can see from the second table in their report is the level of integration into the various day-to-day tasks of the constituents in each category. Seventy percent of fully networked organizations indicate that Web2.0 is integrated into their day-to-day tasks, compared to 53 percent for externally and 49 percent for internally networked organizations. I cannot declare this as a correlation without doing the analysis on the original data, but on face value it appears so.

Right now, he points out, most enterprise systems such ERP, CRM, HR and e-mail do not have built-in collaboration. Trying to add these capabilities to an existing system raises a key question about IT infrastructure: Should collaboration be achieved with a vertical stack of tools or a horizontal, integrated layer?


His post explores the pros and cons of each option and is well worth a read.


Thanks to Phil Wainewright for pointing out both the McKinsey report and the integration angle in Shah's post in his recent post on the connected world.

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