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White paper: A sceptics guide to social media

Social media is a hot topic in business strategy, resulting in an avalanche of advice and best practice recommendations, perhaps swamping busy executives with more noise than signal. Even the term social media itself can lead to conflicting ideas as it has many definitions1, but for this paper it refers to a set of applications and technologies that allow sharing and interacting between people on the internet. There are many types of social media, such as social networks (e.g. Facebook), micro blogging (e.g. Twitter), blogs, discussion forums and more. The purpose of this paper is to analyse social media using sound business logic to help those looking to make more use of it but are weary about its real value.

Social media: where are you at?

Taking some time to reflect, try this questionnaire from Forrester, a market research company, by picking the statement that applies most to your organisation2: 1. My company currently has a social media strategy. 2. My company is thinking about developing a social media strategy. 3. My company is trying to defend why we dont have a social media strategy. 4. My company is currently trying to understand what social media is. If you selected options 2, 3 or 4, this paper should help you to evaluate the importance of social media for your organisation.

Market focus
For any busy executive considering using social media, the first question might be, why should I be looking to evaluate something so new, perhaps a fad, when my business is strong already? Well, it is important for organisations to keep questioning the strength of their position in the market, and to be prepared for change. Peter Drucker, an influential management consultant, once stated that companies often get into trouble not by doing things poorly or doing the wrong things, but by doing the same things, fruitlessly. The problem is that the environment changes and the assumptions the business makes need to be updated. Theodore Levitt, a Harvard professor, highlighted that some organisations suffer from marketing myopia, where they define themselves and the market too narrowly, thus not identifying changes around them. Risk aversion can be a key contributor to this myopia. Levitt suggested that firms should adopt a customer- or market-focused approach, rather than thinking in terms of their own products. Over the years there have been several heroic stories of CEOs who turned around organisations in response to changing environments. Lou Gerstner transformed IBM by taking a customer-centric approach to improve product offerings and customer service. Andy Grove steered Intel from selling computer memory to processors, in response to market saturation. His motto was that only the paranoid survive.

Social marketing trends

So, what are the trends that support the wave of social media? Fundamentally, new technology has enabled consumers to behave the same way online as they would in the real world, but at even greater reach. The growth of consumerism since the 1950s has led to a large population of people buying products for leisure. Also the dissemination of power from institutions (e.g. churches) to individuals (e.g. celebrities) combined with social technologies (e.g. Facebook and web forums), encourages more peer to peer communication than ever before. Nielsen, a market-research firm, has shown how customers listen to the recommendations of their friends more than any other source3. McKinsey claim that word of mouth recommendation is the primary factor behind 20-50% of all purchasing decisions4. Also, friends who readily advocate tell twice as many people about their purchases than nonadvocates. Social media is a platform which enables personal recommendations on a global scale. Marketing research has shown that loyal customers are more profitable over time, and now social media allows companies to develop their relationships with customers by interacting with them more than ever, before and after sales (an advancement of the transactional model). By listening to customers in social media channels which they are already engaging with, and publicly demonstrating improved customer service5, companies help fight against the main reason why customers quit them - an attitude of indifference6. Traditional strategy frameworks (e.g. Porters 5 forces, circa 1971, or resource-based view, circa 1993) are being replaced or complemented with the paradigm of Open Innovation which assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market.7 Proctor and Gamble, who are key innovators in this space, estimated that by 2015 external collaboration programmes to be responsible for more than $3bn per annum in new business.8 is another flagship example company here. Social media is, in fact, proving so valuable that some companies now put social at the forefront of what they actually do. Zopas online peer-to-peer lending has led to rapid growth, and the default rate of their loans is the lowest of any unsecured loan book in the UK.9 Zopas refer-a-friend program encourages customers to virally spread news of the service. Also, for the current Imperial MBA 2012 cohort a Twitter account is one of the first things set up for each entrepreneurial venture, to enable communication with customers and suppliers. Small companies can amplify their messages on the internet and develop an engaged market.

How social media is being used

So social can help drive sales, but how are firms actually controlling their destiny, rather than relying on benevolent customers? One exciting area is by leading the efforts of engaged customers. Seth Godin, a marketing thought-leader, talks about tribes (a group of people connected to one another, connected to a leader, and connected to an idea) to explain the social change underpinned by new technology. He believes that focusing on growing the tribe is incorrect, leaders and companies should help increase the effectiveness of the tribe and its members by transforming the shared interest into a passionate goal and desire for change and providing tools to allow members to tighten their communications. Lawrence General Hospital (LGH), in Massachusetts, is an interesting social media success story. One can imagine healthcare being a slow adopter of social media because of regulation, bureaucracy and the maturity of the sector. There is some truth to that, so LGH

started small: by finding an internal social media expert, targeting a specific form of social media first, rather than all at once, and focusing on responding quickly to their audience. LGH was at one point ranked as third highest hospital in the US for fan engagement (although now overtaken10). But most importantly, their CEO noted how they instituted a vibrant, exciting external mind-set. The efforts probably also gave some pride to employees as they saw patients engaging with the company publicly online. First Direct, the internet and phone-only bank, brings their customers together on a Facebook fan page, and uses it as a place to have conversations about non-banking topics, such as holidays11. As a result the page has a thriving community and hundreds of public recommendations - a great social proof for anyone interesting in opening an account with them. They receive complaints as well however, but do their best to deal with them effectively. Intuit, the financial software company, identified on Twitter that there were three main types of tweets from people working on their taxes. To demonstrate their expertise to their customers, they internally brought together highly skilled employees to spend some of their time helping people on Twitter with tax and financial matters. The team eventually grew to 40 people because of its success.

Social media objectives

In case you are wondering how to start developing objectives for a social media strategy, lets consider a framework from Forrester, who have lead corporate thinking around social media with the book Groundswell. They advise clients that there are five basic objectives a company can hope to accomplish with social media12 Listening - for research and to better understand customers. This goal is best suited for companies that are seeking customer insights for use in marketing and development. Talking - to spread messages. Choose this goal if you are ready to extend your current digital marketing initiatives (banner ads, search ads, email) to a more interactive channel. Energizing - find the most enthusiastic customers, and supercharge the power of their word of mouth. This works best for companies that know that they have brand enthusiasts to energize. Supporting - set up tools to help your customers support each other. This is effective for companies with significant support costs and customers who have a natural affinity for each other. Embracing - Integrate customers into the way the business works, including using their help to design your products. This is the most challenging of the five goals, and it is best suited to companies that have succeeded with one of the other four goals already.

Back to strategy
There are some key questions to look at: 1) What is the return on investment on each initiative? Some people believe that every social media initiative needs a clear ROI plan, and others believe the ROI is too hard to measure as the impact is often large but intangible. It is probably wise to go on a case-by-case basis, but organisational culture will influence this too. Some cultures are data-driven, which could hold them back on the intangible projects but ensure rigorousness, and others are less so

and may be happier to start projects without an easily measurable return but broader benefits. 2) How is a social media campaign driving the business? The key point is probably that social is generally not a strategy in itself, but it should help executives to execute their strategy, which itself should have KPIs that are measurable. Executives should analyse where social media can best be applied. 3) What team manages social in the company? If social media is aligned with strategy it should not be something that can be left to one team! People from different parts of the business can all contribute and a market-focused organisation needs to have an external focus throughout.

The universe of social media research can be daunting, but, as this white paper shows, it is possible to bring the concepts back to sound business logic.

About the author

Niall graduated from Brunel University with a B.Sc. (Hons) in Computer Science. After working as a project manager in logistics then in product development at a consultancy that designed and distributed psychometric tests, he joined Microsoft where he worked on the development of MSN. (MSN was once a simple internet access service for Windows 95, and now is one of the top 20 sites on the Internet with over 500 million users.) To shift his career from programme management to strategic management, Niall is currently enrolled on the Imperial MBA 2011, enjoying working with a top international cohort on projects such as VC pitches and external consulting to the charity sector.

Special thanks to Alan Newman (Chairman at The Finance IT Network for his reviews and input.

1 2 3 4 McKinsey Quarterly, April 2010 5 6 How to Win Customers and Keep Them for Life 7 8 9 10 11 12