McKinsey Projects Business Value of Social Business at a Trillion Annually

For the third year in a row, McKinsey has offered us some interesting and thought provoking data on the business impact of social media, both inside and outside the enterprise.  In 2010 they reported, Enterprise 2.0 finds Its Payday. Similar results were found in 2011. In both cases, they found significant quantified benefits from the business use of social media.

Now they offer new research, The Social Economy: Unlocking Value and Productivity through Social Technologies. They found, “that social technologies, when used within and across enterprises, have the potential to raise the productivity of the high-skill knowledge workers that are critical to performance and growth in the 21st century by 20 to 25 percent.”

It is these knowledge workers that are producing an increasing amount of value within the enterprise and have long passed tangible assets as the main source of wealth for organizations (see  (see Daum’s Intangible Assets and Value Creation).

When I refer to “knowledge workers”, I am referring to all types in a typical corporation – from the technical writers, the web masters, corporate bloggers, and even engineering and product management that work transparently, documenting their visions, requirements, and efforts in shared organizational collaboration systems.

However, McKinsey also notes that businesses are not yet fully taking advantage of this potential for new wealth. The consumer Web led the way with social technologies and these tools are now being widely adopted for business use across industries. McKinsey found that by 2011, “72 percent of companies surveyed reported using social technologies in their businesses and 90 percent of those users reported that they are seeing benefits.”

In this early stage of mass adoption, McKinsey notes that, “businesses have only just begun to understand how to create value with these new tools.”

This is not unusual for a new disruptive technology. They estimate this potential to be more than $1 trillion annually. The opportunity is by no means limited to the market facing uses that have led adoption, such as Facebook and Twitter collaborations that sparked the trends, and showed how the value can be further proliferated and realized across an organization’s value chain.

I find productivity enhancements beyond marketing to be some of the more transformative aspects of social technologies, as they do not simply change they way we market, but fundamentally change the way we work.

Technology, via the Web, has made us more social, increasing the connections between people. This has affected individuals, extended families, and even whole societies, as several revolutions have been realized through the use of social media. Now the potential to make businesses more social offers the same transformative potential. McKinsey noted a number of years ago that the value within enterprises lies more in the interactions between people than the transactions.

This is even more true today, as intangible assets account for an increasing amount of corporate wealth. They offer several specific ways this wealth could occur. First, there is increasing customer engagement and harvesting of customer insights. This extends to crowd-sourcing new ideas and products, as well as providing better communication and collaboration with business partners.

Diving further inside the enterprise the socialization of business lowers barriers between functional silos, and even redraws “the boundaries of the enterprise to bring in additional knowledge and expertise in extended networked enterprises” while extending the capabilities and reach of highly skilled workers.

McKinsey notes that the potential is almost limitless as “almost any human interaction that can be conducted electronically can be made “social,” but only a fraction of the potential uses have been developed (e.g., online content sharing). Today, only 5 percent of all communications and content use in the United States takes place on social networks.”

They add that “social” is a feature, not a product so social features can be applied to almost any technology that involves interactions between people. Social technologies provide a means for employees, partners, and customers to publish, share, and consume content within a group. In doing this, the social tools create a record of interactions and/or connections that can serve a variety of uses.

McKinsey estimates that over 60% of the value creation opportunity offered by social technologies lies in improving communications and collaboration within and across enterprises. However, obtaining such gains – that could be as high as a 25% productivity improvement – requires significant transformations in management practices, organizational behavior, as deployed platforms and integrations.

A large part of this requires treating workers as people and not as tasks or assets. The network mentality needs to be based on both technical and behavioral transformation in order to create the truly networked enterprise. Creating a sense of trust is one foundation for this change as discussed on this blog (see Doing Well by Doing Good: Humanizing the Enterprise).

The McKinsey report offers ten concrete ways to generate the trillion in increased annual wealth including:

  • deriving customer insights,
  • co-creating products,
  • distributing business processes,
  • offering enhanced customer support, and,
  • improving collaboration and communication to better match talent to tasks.

I would add to also share insights, and focus the collective intelligence of the enterprise on all aspects of the business. There is much more in the report.

One of the foundations for the increased social nature of technology is the ability for applications to share content. Application integration is a cornerstone of this new wealth creation. This is one of the driving principles at AppFusions, as we develop faster and more efficient ways to enable application integration with our partners’ collaboration technologies to better build the networked enterprise that McKinsey describes.

McKinsey concludes that “the benefits of social technologies will likely outweigh the risks for most companies. Organizations that fail to invest in understanding social technologies will be at greater risk of having their business models disrupted by social technologies.”

It is a matter of either riding the wave or being ridden over by those that harness this new means to make better use of human potential to create value. Obviously, we agree.