What Sells CEOs on Social Networking

Six years ago, MIT Sloan’s Andrew McAfee coined the term “Enterprise 2.0″ as shorthand for what collaboration and sharing tools such as blogging and wikis (and, today, Twitter) would mean for enterprises. In a Q&A, he talks about how CEOs see this world today — and what really sells them on the tools.

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From his base at the Center for Digital Business at MIT, Andrew McAfee‘s job these days is, he says, to “try to understand all the different things that technology is doing to the business world, all the different ways that it’s changing innovation and productivity and process execution, and then, at a higher level, try to understand how it’s affecting the work force and how it’s affecting competition.”

McAfee wrote the seminal piece “Enterprise 2.0: The Dawn of Emergent Collaboration” for MIT Sloan Management Review in 2006, and went on to expand on those ideas in our magazine and in the book Enterprise 2.0 (Harvard Business Publishing, 2009).

In a new Q&A with David Kiron, executive editor of Innovation Hubs at MIT SMR, McAfee looks back at the past six years and what he’s learned about the triggers that generate CEO interest in social networking, what he misread and why the idea of controlling information flows is becoming obsolete.

In 2006, you coined the term “Enterprise 2.0.” How did you come up with it?

I started to get interested in the phenomenon when I started to hear this phrase “Web 2.0” getting thrown around. For me, this was in 2004-2005. I thought it was just silly hype from the Web community at first, because it’s a really strong claim: There is a new version of the Web out there, 2.0.

But then I started to go look at the things that the Web 2.0 advocates were talking about. I started to use Wikipedia for the first time, and I saw that thanks to blogging platforms, we didn’t need to be tech geeks or have any money to put our opinions up there on this worldwide library and printing press that was the Web. This really was different from the first generation of the Web.

I wanted to think about what these tools and the communities and processes and philosophies that came along with these tools meant for good old-fashioned companies trying to get their widgets out the door every day. So I used the phrase “Enterprise 2.0” as the shorthand for what the Web 2.0 tools and that world meant for enterprises.

In retrospect, I should have anticipated that we’d be hanging the “2.0” suffix off everything, but I didn’t. We hadn’t yet been bombarded with “Everything 2.0


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In the midst of the “wait and see” economy, companies are holding onto cash at historical levels – an estimated 11% of total assets.  Investments in new products or services are low, as companies anticipate and feel especially vulnerable to shocks that could put them out of business.  This practice of hibernation, however, could serve to destroy companies once economic growth begins.  Without new ideas, which require capital investment now for tomorrow’s launch, economic growth for the companies is at risk.  We may also find very little differentiation between companies, as each is reluctant to invest in ideas.

Our survey (Gary Carini and Mark Dunn @ Baylor University) of over 240 C-level executives indicated that innovation advancing the vision of the company is not occurring.  In fact, three out of four respondents revealed ideas usually remain department-centric.  Potential interdepartmental innovations, or those that would have a positive impact on the corporation, are neither vetted nor rewarded.  No process exists that looks at innovations across the corporate spectrum ensuring no good ideas are left behind.  Clearly, a few, company-destroying phenomena are at work.  The flow of ideas has been halted by the lack of investment through cash and employees.
We know that the counter intuitive way to improve our individual performance is to turn outward.  What does this outward focus look like?  How can companies, one unit at a time, get out of this rut – now? Word and concepts becoming part of the vernacular are “open innovation,” “open systems,” and “ecosystems” to name a few.  While there are several complex questions that remain unanswered, getting our minds around these concepts is a worthy pursuit.  These notions are about creating new systems of communication that stir innovation.
Engaging the interactive nature of an entrepreneurial ecosystem (EE), we believe, holds compelling promise for idea generation.  Two major tenets present in a thriving ecosystem are: 1) diversity promotes stability and 2) freedom within boundaries.  Diversity spreads the risk by assuring that each component of the ecosystem seeks to prosper while simultaneously enabling other components to thrive.  For ideas to surface in an increasingly uncertain environment, the risk must be dispersed among a diverse set of stakeholders.  The ecosystem, though, is grounded in rules that encourage symbiotic relationships such as mutualism and commensalism.  We suggest strong consideration of the EE concept and believe the increasing intensity of global interdependence will facilitate the ease of implementation.

Gust, with offices located in midtown Manhattan, provides the intellectual anchor for the entrepreneurial ecosystem concept.  After interviewing its Founder and CEO, David S. Rose, we confirmed that we were talking to an individual who is passionate about entrepreneurship and has a keen insight about the future.  He is a visionary with a passion to develop the platform for unlocking the entrepreneurial spirit and power of our economy.
Rose recognizes that technology is the key to developing and shaping the appropriate platform for exchanging ideas and resources.  With exponential growth, technology is impacting everything, moving at a rate that is almost incomprehensible.  As important, the cost of technology is decreasing at an increasing rate making the power of technology affordable to almost anyone.  Tailoring and adapting technology to an organization has the potential to decrease vulnerability and unshackle the dormant ideas residing in the minds of employees.
In the recent past, Rose viewed an asymmetric world where entrepreneurs had ideas, but not money.  Angel investors had money, but no ideas.  While supply and demand existed, there was no marketplace.  He identified a need for a collaborative space where maximum transparency between current and future stakeholders could occur at any time about any aspect of inventing.
Consider the ecosystem that David S. Rose is building with Gust. An inventor, Sue, needs an investor because she has developed a revolutionary CRM business model that she believes will provide solutions to customers’ yet-to-be-identified problems.  But, what if she, an inventor (and this could be an employee within a company) needs an investor?  What if the inventor needs more than one investor?  Sue would then share her idea through an Internet-based platform with angel investor groups seeking new ventures to fund.  Rose’s company has created a site for all inventors to be able to collaborate with all investors, regardless of geography.  Angel investors in Mumbai can easily find inventors in Granada Hills, California.
Why limit it to angel groups?  What about venture capital funds?  Now any inventors can be linked to any investors.  Rose also asked “who else would be interested in funding inventions?”  What about foundations and grants from philanthropic organizations?  What about clients who talk to their accountants who are thinking about investing?  Could they link to the ecosystem Gust has created?  Yes.  What about adding a job posting board?  In this instance, Sue has three positions that will need to be filled quickly if she were to receive funding.  Could she post these at the moment funding was confirmed?  Yes. Could there be a way to identify recently funded companies’ need for ancillary or supporting services?  Yes.  Gust then considered adding more to this ecosystem. On the early stage side, how about supporting business plan competitions that showcase the latest technology? On the later stage side, how about adding connectivity to a marketplace where strategic purchasers or private equity investors could find later stage companies to be acquired? Along the way, what about working with the new breed of incubators and accelerators, who provide mentoring and support for young entrepreneurs?  The Gust platform can connect all of these stakeholders – globally. Now.

Every player in the entire ecosystem is really working in a three-dimensional environment that is updated continuously.  Each has a vested interest in maintaining the integrity of its own information, thus ensuring that all information on the platform is current and accurate.  Each player chooses the level of transparency that is exposed to any other stakeholder, and that level could, conceivably, change over time.  Gust’s dashboard for each participant tracks the nature of the interactions and the behavior of the “marketplace” over time.  Gust enables the creation of value spontaneously.  The minute Sue hit the “share” button; her information populated 15 different stakeholder groups.  She gave permission for each of these stakeholders to share the information as well.  Where historically it has taken many months to finance even the fastest-moving start-ups, Gust can potentially reduce that time frame to weeks. In the future, as the number of connected participants increases and government regulations catch up with technological possibilities, it is possible to envision a fluid marketplace where innovation is funded in hours.
Recognizing the barriers that existed in the angel investing market, David S. Rose set out to create an ecosystem that encourages and supports entrepreneurial thinking and development.  The angel world before Gust was closed, static, hierarchical, disconnected, opaque and asymmetrical.  With the introduction of Gust, the angel investing world has the potential to become transparent, dynamic, creative, symmetrical, and integrated.  Technology is playing a critical role.  As important, David S. Rose serves as its major champion, motivating others to create something extraordinary.  The goal for corporate leaders is to develop a similar platform and establish a culture within their company similar to the one that Rose created for the angel investing/entrepreneurial market.

What lessons can we learn from Gust and its EE to unleash ideas across organizations?

First, look to implement an EE to close the gap between the level of innovation you want versus what exists.  The transparency and non-cumbersome nature of the ecosystem increases the likelihood of idea generation.

Second, a platform has to exist that fosters the candid sharing of ideas.  Resources must be expended to develop the platform that supports the system.  Technology holds the key to previously “hard to obtain” information and ideas.

Third, mutualism and commensalism are reinforced by the right amount of transparency.  Parasitism suggests too much transparency.  We observe, then, a curvilinear relationship between transparency and performance: minimum and maximum transparency is negatively correlated with performance, while moderate transparency – that which we observe in an ecosystem – yields the highest performance.
Rose left our interview with him with two additional thoughts:  risk increases by not having ideas surface.  For ideas to surface, we have to be willing to destroy ourselves.
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[...] - ”If only HP knew what HP knows, we’d be three times more productive.” - “Your weak-tie network is an extremely valuable thing for you.” - “Yeah, the other one that’s big is that all the executives that I talk to are aware that their kids are working very differently than they are.” Interview mit Andrew McAfee, MIT Sloan Management Review, 7. Februar 2012 [...]
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