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What CEOs Need To Know About Social Media
MARCH 5, 2009--Far from representing a threat, the rise of Facebook, Twitter, blogging and other forms of social media create opportunities for chief executive officers to alter their organizations and communicate far more effectively with key constituencies, says Matthew Fraser, research fellow at INSEAD in Fountainebleau, France. He is co-author with Soumitra Dutta of “Throwing Sheep in the Boardroom: How Online Social Networking Will Transform Your Life, Work and World.” (Wiley, 2008) “Throwing sheep” is a term used to describe how one attracts the attention of a friend on Facebook. Here are excerpts from a conversation conducted in New York:
Q. What do CEOs need to know about these new forms of social media?
A. CEOs are really intrigued. They’re listening much more than middle management. CEOs care about improving shareholder value and return on investment (ROI). The whole debate about Web 2.0 platforms in the corporate world often revolves around the questions, “Can you make an ROI case for deploying Facebook, wikis or podcasts in my company? Is this going to boost my productivity or enhance innovation?” Generally, CEOs are open, but where there is resistance is from middle management and Information Technology departments.
Q. What is the reason for their resistance?
A. Middle management largely consists of gatekeepers. They take information from below, they package it and they move it up. When you’re dealing with wikis and social media and everyone comes in and contributes, you’re talking about blowing away silos and layers of hierarchy. So middle managers feel threatened by that. Likewise, the function of IT departments is to be centralized gatekeepers of information flows and that role is also somewhat threatened by social media. In many companies, middle managers and IT departments are saying, “Don’t go near this stuff.” They talk about major liabilities such as privacy invasion or allowing people to hack into our systems or security risks. If somebody on a corporate blog defames someone else, then they warn about having a $60 million lawsuit. They ask, “How do we control this stuff?”
Q. And what about the argument that social media saps productivity?
A. Until now, that’s been the main argument—time wasting. Employees shouldn’t be sitting around looking at YouTube and on FaceBook all day. They should be working. There are all kinds of studies in Britain about the impact of FaceBook costing 600 million pounds a year because of time wasted.
Q. So who’s pushing the use of social media to CEOS?
A. There are many so-called evangelists, especially management consulting firms like Forrester and Gartner. They’re promoting the Web 2.0 vision. They generally go into Fortune 500 companies and meet with the same CEOs who have heard from their middle managements and IT departments not to go near this stuff and say, ‘Well, hold on. There are powerful software tools made by Microsoft and others that will allow your company to boost productivity and spur innovation and research and development.”
Q. In fact, can these tools spur innovation or is that hype?
A. Let me give you an example. The pharmaceutical business is going through a very turbulent time at the moment. So how do they develop new products? They’ve got R&D departments in corporate silos. Inside they’ve got a bunch of guys in white frocks inventing drugs. But by using open innovation that goes horizontal, it sounds revolutionary, and it is. You bring everyone into the new product development process through wikis. They all may be scientists, but at Procter & Gamble or in the auto sector, the process can include customers and suppliers. You go beyond your corporate boundaries. What we’ve discovered is that corporations are actually denying themselves or thwarting the optimization of productivity and innovation simply by having these closed corporate silos. There’s no proof that the guys in your company are the smartest and have the best ideas.
Q. But don’t CEOs have to maintain control of very important types of information that might benefit their competitors?
A. The information flows in the innovation model should be totally open. Anybody can join the dialog, but then the corporation is still going to make its decisions later about what kind of products they are going to develop. We’re not just talking about whacky Silicon Valley leading edge companies. P&G has been leading the charge on this. One of the biggest companies in the world, it’s almost entirely dependent on new product development for toothpaste or detergent. P&G now uses open collaboration for more than 50 percent of its new products. This is real.
Q. What about financial information?
A. Issues of disclosure are still important and there are laws like Sarbanes-Oxley. The law is the law in America. You can’t just put everything out. But my whole point is that it’s not so much what you’re putting out; it’s what you’re bringing in.
The best example of someone who is leading the charge on the financial front to advocate a less restrictive environment is Jonathan Schwarz, the CEO of Sun Microsystems. He has a blog and blogs every day. One bee in his bonnet is the obligation to release financial statements and release his quarterly earnings reports through these old mechanisms like a news wire and press conferences. ‘Who says I have call a press conference on this day,” he asks. “Why can’t I release my earnings when I want to?” Leading edge CEOs are pushing for reform in this area. The momentum is moving toward blowing away these old systems and structures.
Q. What are the implications for how CEO think about the structure of their organizations?
A. It’s headed toward a much flatter structure, moving a lot of middle management out the door, and less reliance on multiple layers and a corporate hierarchy to move information around. We use the anagram B-E-L-L. B is for branding. A CEO can brand himself by having a blog, by using podcasts, by putting corporate videos out on YouTube. He can brand the company directly, like Barack Obama did.
E is for engaging. CEOs have many stakeholders but they don’t have much time to meet with suppliers and employees. Podcasts directly engage with them. If there’s one thing a lot of middle managers don’t like, it’s when CEOs try to cut through and engage directly. Press handlers and the vice president of corporate communications want to call press conferences and they want to control that environment. If the CEO says, “I’m going to talk directly on my podcast,” everyone goes, “Whoa! You’re going to do what?” They want to stop it. They want to intermediate and control the script.
Q. What are the other elements of B-E-L-L?
A. L is for learning. CEOs are often cut off. They’re in these little worlds with a chief financial officer and vice president of communications and a few other guys filtering and mediating all the information. They don’t know what’s going on. So these tools provide feedback and allow the CEO to learn what’s going on in his own company.
The other L is for leadership. The CEO can use these tools to establish thought leadership but also to lead the company by communicating directly with employees and customers.
Q. Most CEOs in their late 40s or 50s today have worked their way up through finance or manufacturing and don’t have the right skills to use all these tools. Are you suggesting we need different kinds of CEOs?
A. Not all CEOs are natural communicators. But a new kind of CEO is emerging. That kind of CEO will be the CEO of the future. What we will discover over the next 20 years is that this style of communicating will be second nature to them. They were raised with this. The model won’t be old media, but rather new media. It will be the CEO 2.0.
