Friday, September 21, 2012

Use Social Media to Develop Emotional Capital with Your Employees

Many organizations have started using social media tools internally to interact with their employees.  However, the majority of companies have either stayed away from using these tools or failed to see satisfactory results. In fact, in our survey of 1060 global executives, only 30% said that they work for companies that benefited from the internal use of social media.

Why do so many companies either avoid using social media or fail to make it work? In an article with Quy Huy which just came out in the MIT Sloan Management Review ( we find that to be successful, internal social media initiatives must focus first on the development of EMOTIONAL CAPITAL  that represents the quality of the emotional connection between a company and its employees. Executives who use social media to build emotional capital in the communities of their employees reap real benefits, in terms of improved information flows, collaboration, lower turnover and higher employee motivation.

The reason social media works well in one company and can be totally ineffective in another can be seen by looking at the experience of two companies – a technology company Tekcompany [i] and the European Nordic branch of Tupperware, a U.S. based kitchenware company that sells the products through direct sales channel.

Tekcompany's executives mobilized expensive experts to develop internal applications that mirrored the functionality of Facebook and Twitter, and built a platform that allowed for the creation of internal wiki pages. In the end, however, the company had little to show for all that effort. Tupperware Nordic, by contrast, invested less than $50,000 in social media initiatives, but obtained much more impressive results. Between 2008 and 2011, the turnover rate of Tupperware’s predominately part-time sales consultants—one of the most important cost drivers and indicators of morale in a direct sales industry fell dramatically. Furthermore, both the ease at which best practices diffused throughout the company and the company’s revenues increased.

Tekcompany followed an implementation approach that reflected a traditional information technology mindset. When asked about the most important factors that accounted for success of social media communities, TEKCO executives told us only about technological aspects (e.g. the ease of use and availability of social media tools), without any hint that they had also considered emotional capital.

In a stark contrast to  Tekcompany , Stein Ove Fenne, managing director at Tupperware Nordic, had an intuitive understanding of the importance of creating positive feelings through social media tools. Through his actions he has demonstrated the four pillars of emotional capital:  authenticity, pride, attachment, and fun.

A major source of authenticity is the senior executives’ ability to show that their statements in the “virtual” world are consistent with their behaviour in the “physical” world. For example, Fenne began by establishing personal relationships with many consultants by visiting all major centers of activity. He started to invite consultants to Tupperware’s headquarters on a regular basis and roll out a long red carpet in front of them. Many of his colleagues were shocked by this treatment in the low key and egalitarian Scandinavian business culture. Yet, precisely because this symbolic gesture was so unusual in that local business context, consultants noticed it, greatly appreciated it and discussed it extensively in their physical and virtual conversations.

Pride is a feeling experienced when one’ achievements are recognized and appreciated, and this helps motivate people to continue achieving in the future. Fenne uses social media to provide an inexpensive platform for generating non-monetary rewards for consultants. He frequently organizes webcasts from his office, where he and his staff play the role of talk show hosts. Consultants’ teams from different countries connect and observe what is going on in headquarters through WebTV and post their live comments on a Facebook-type “wall” seen by all participants. During the show, Fenne calls on every sales team, publicly asks them to report their results and thanks them for their achievements.

Employees’ attachment to the company is generated when employees feel that they belong to community with shared values and interests. Some of these values go beyond direct work-related interactions. Fenne created a Tupperware Nordic page on Facebook to which consultants can link their personal pages. Some consultants indicate that they enjoy cooking, others enjoy music, and still others enjoy reading/writing blogs on burning social issues. When consultants visit the company’s Facebook page (or Fenne’s personal page), they can identify other consultants who share the same non-work interests and connect with them directly.

Fun is particularly important in an organization that wants to encourage innovation. When Tupperware’s consultants discover particularly effective ways of product demonstration, they produce best practices videos. Sometimes these videos gently make fun of the persons in those videos, for example, showing a competition among Danish men who (somewhat clumsily) compete in cooking using Tupperware products. These videos are shared through social networking websites. Funny elements in these videos attract viewers’ attention and show that deviance from “corporate” ways of getting things done not only is tolerated, but encouraged.

You can read more about this research at:

[i] A company’s identity is disguised.

Thursday, March 15, 2012

Benefit from the networks of your lost employees

Is losing employees bad for your firm? An intuitive answer would be a straight “yes” because by losing employees, your organisation seemingly loses not only its human capital (i.e. their skills and tacit knowledge accumulated over the years) but also its social capital (i.e. all the internal and external connections your employees have made over their career inside your firm). In other words, conventional wisdom suggests that by losing employees, companies lose both brains and address books. This idea is out of date.

The late 1980s spawned the War for Talent mantra: in essence, firms have to make sacrifices and be very creative to retain talent. Hence management should attract the best, make sure they grow, keep them as long as possible and make sure they do not leave. Twenty years ago, these were considered insightful and thought-provoking ideas. Talent was seen as a scarce resource in an increasingly competitive and globalised world. We think that the rules of the game have changed. Fighting to get the best talent is still important, but having the courage to let them go is also crucial because there are benefits in letting people go, whether in good or in bad economic times.

My research at INSEAD, together with Frederic Godart and Kim Claes focusing on the antecedents and consequences of performance in creative industries, shows that firms can actually benefit from losing employees. To back our claims, we conducted an intensive study of the global fashion industry, including dozens of interviews with senior industry executives, and collected information on the careers of thousands of fashion professionals. Using this wealth of data, we analysed the impact that losing designers to competitors has on the performance of fashion houses.

Surprisingly, we found that designer departures can actually lead to greater performance of fashion houses that lose them. This can be attributed to the ability of source fashion houses to benefit from the social capital of departed designers. First, gaining information about what competitors are doing is critical, because this is how houses can gain insights into the newest and hottest trends. When designers go to work for another fashion house, they maintain contacts with their former employers, while creating new connections in the new place of employment. These contacts result in an informal communication bridge between the two houses and through this bridge the ‘source’ house can learn what is going on at competitors. The insights collected from different competitors can enable source houses to generate new ideas and produce more creative and critically-acclaimed fashion collections. In the fashion industry, famous designers pay a lot of attention to where their assistants and apprentices go and maintain close relationships with them. This holds also true in many other industries where alumni maintain close relations with their former employees: both the international consulting firm McKinsey & Company and global consumer products manufacturer Procter & Gamble (both unequivocal leaders in their respective fields) maintain strong networks of departed employees that feed their former organisations on the whereabouts of clients or competitors.

Second, departed employees can be a basis of a source house’s influence in the industry. This is because departed employees expose competitors to the house’s operating philosophy and principles, which increases the industry’s perception of the house’s creative thought leadership. Thus, fashion houses such as Prada or Marc Jacobs have become ‘platforms’ of recognised creativity. Designers join these houses for a while, learn the trade of fashion there – generally with a clear focus, for example, on knitwear or leather – and move on to work for the other fashion houses spreading the positive buzz about their prior employers. Other top fashion houses such as Lanvin are generally well known to expand their influence in the fashion industry by letting designers work at other places: for example in the case of their recent collaboration with H&M, a way for the company to grow its market. In other industries, companies like GE also rely on their past employees to showcase their thought leadership and spread their management methods, such as renowned quality management methodology Six Sigma, which leads to new business for these companies.

Third, designer departures enable organisational turnover. When designers leave, they provide room for new designers to come into the fashion house and bring their unique experiences from the outside. This brings in fresh ideas, positively impacting creative performance. Moreover, some fashion houses purposefully let some of their people go to work for competition in order to help them develop their careers and not feel upset from the lack of personal development opportunities. As one of the fashion executives interviewed for this article put it: “If our company cannot provide room for a designer to grow, we would prefer that he or she goes work for the competition as opposed to staying with us and feeling unhappy.” As it turns out, unhappy designers are also not very good contributors to organisational performance, but a designer who left to work for a competitor might return at some point to the source fashion house with newly-acquired expertise. Top consulting companies know this and do not hesitate to ask their young analysts to leave for a while, before coming back as associates. This is also the raison d’ĂȘtre of MBA programmes: provide high-potential employees with new horizons. Let them come back if they wish; some degree of turnover is good for employers and for employees.

Whole industries, beyond fashion, are based on the premise that letting people go is not necessarily bad. Think about how high-tech firms in Silicon Valley rely on personnel exchanges to grow and get new ideas. This is also true of the Hollywood and ‘Bollywood’ movie industries where temporary teams of actors, movie makers, producers, technicians and script writers assemble temporarily and move across projects. In banking, analysts and investment bankers do not hesitate to move around, to the benefit of their employers who can get them back later with better skills.

Letting some people go is healthy and the biggest beneficiaries of talent loss will be firms which recognise that departed employees and their networks are important drivers of competitive advantage. Except that, in this case, competitive advantage is obtained not from the physical assets possessed by the firms, but rather from the social networks of the departed employees. The bottom line is that in the 21st century the whole global economy should learn how to benefit from well-managed professional mobility.

Monday, February 20, 2012

Social media improves internal communication!

This is the final installment of the presentation of our survey results on the impact of social media on the competitive advantage of organizations.

In the survey, we asked about the impact of organizations' using social media for internal communication (e.g. internal blogs, internal wikis, internal social networking) on three processes:
a) speed of decision making
b) vertical communication (i.e. communication between different levels of organizational hierarchy, for example between CEOs and employees)
c) horizontal communication (i.e. communication across different functional areas, such as sales and marketing)

What we learned, surprised us:

Internal social media use had a dramatic positive impact on the vertical and horizontal communication in organizations. In other words, different functional departments inside companies talk better to each other as a result of using social media use.

CEOs in companies that use social media appear to have easier time communicating with lower level employees (and vice versa) than in companies where social media is absent.

However, if companies used social media to increase their speed of decision making, well, there is a negative surprise for them. In most cases, internal use of social media did not improve the speed of decision making.

Ultimately, social media is just another tool in the box of a company's strategist. It will not solve all organizational problems, contrary to what some evangelists might propose.

Social media will help information flow better in an organization, but it will not make an organization faster is making its decisions.

However, the increase in the quality of information exchange across functional areas might lead to the increased organizational innovation and creativity. So, this is good news.

Wednesday, February 15, 2012

The impact of social media on industry structure

In the previous post, I discussed some results of a survey where we asked about how companies can use social media to achieve competitive advantage.

In that survey, Prof. Quy Huy and I, also asked participants to tell us how the structure of their industries was affected by the introduction of social media tools.

We conceptualized industry structure by using the well known Porter's 5 Forces framework. Essentially, we asked about the impact that the introduction of social media had on barriers to entry in the respondent's industry (i.e. did the barriers to entry increase, decrease or remain the same), intensity of competition (i.e. did it increase, decrease, remain the same), power of buyers (i.e. did this power increase, decrease or remain the same), power of suppliers (i.e. did this power increase, decrease or remain the same) and the threats of substitutes (i.e. did these threats increase, decrease or remain the same).

The results of the survey are presented in the slide below. To our surprise, social media did not change either barriers to entry, or suppliers' power or the power of the buyers. The majority of our respondents chose "did not change" answer for these three elements of industry structure.

Yet, the biggest effect of social media was on substitutes, i.e. most of the respondents told us that the introduction of social media in their industry increased the threat from substitutes. When we asked them what substitutes meant to them, many gave us examples of competing products or services (e.g. air travel operator claiming that the use of social media by other air travel operators increased the threat of substitutes). This tells us that even though we explained in the survey that substitutes were actually different products or services that served the same function (e.g. a bus is a substitute for air travel, while another air travel operator is actually a direct competitor) , our respondents still mixed the two.

Ultimately, if we add up the impact of social media on the intensity of competition with the threat of substitutes in the slide below, then we can say that social media did increase the threat from both.

Thus, social media did not change barriers to entry, power of buyers or suppliers, but it did increase the competition/threats from substitutes within the industries. The interesting part about these findings was that we expected social media to change everything: lower barriers to entry, increase the power of buyers and lower the power of suppliers, but this did not happen. So, the impact of social media on the industry structure is not as large as some might predict.

In the final part of the survey, we also asked about the impact of companies' internal social media use on the exchange of information between different functional units (e.g. R&D talking to marketing) and across different levels of hierarchy (e.g. bosses talking to employees and back). What was the response? Stay tuned, I will add one more post this week...

Monday, February 6, 2012

Use social media to connect to your... suppliers!

Last year, an INSEAD professor Quy Huy (who also has a separate INSEAD blog), and I collected data on how companies used social media to achieve competitive advantage. We are currently working on a major thought piece using the most useful insights, but given that the journal review process takes a very long time, I thought that I could sharesome results in their general form.

We asked close to 1000 executives worldwide. About 50% said that their companies did not use social media at all, which was an interesting finding in itself.

The graph below shows which social media tools (video sharing, blogs, social networking, wikis, podcasts, microblogs) the companies that did use social media relied on and for what purposes. What is interesting is that companies use social networking as a principal social media tool, while they use microblogging and podcasts to a substantially lesser extent.

One of the more surprising findings was that social media tools are mostly used to interact with customers, as one would have expected, but they are used very infrequently for communicating with suppliers.

But this strikes us as a missing opportunity! Why do companies use social media to communicate with customers? Because they want to know more about customers, to build informal communication channels and build their brands with customers.

Why don't companies want to use social media with their suppliers to build collaborative communities with them? Using social media to build communities with suppliers could help customers exchange information with them, enabling suppliers to serve these customers better and make suppliers feel more attached to their customers.

One executive we interviewed told us an interesting story. A research and development department in his company used social media to build a collaborative community with a research and development department in a supplier's company. The engineers from both companies really enjoyed being members of this community. One day, the supplier's senior management decided to stop working with this company and start serving the company's competitors. Once the supplier's R&D engineers learned about this, they went to these executives and pushed really hard to continue working with their current customer, so that they could continue being members of the inter-firm collaborative community. Faced with this surprising revolt, the executives had no other choice than to stay with this customer.

So, our learning from this is the following: just like we want to connect to our customers with social media because we have a fundamental human need to be connected, we should do the same with our suppliers. In the networked world, connections to both customers and suppliers are important for the companies' competitive advantage.

Another interesting learning for us was that companies also used social media to improve horizontal communication across different functional units inside their organization (e.g. helping R&D departments to talk to Marketing) as well as to improve vertical communication across the levels of hierarchy (e.g. senior executives talking to lower level executives and the other way around). More on that usage of social media for competitive advantage in the next post...

Click on the image to enlarge:

Sunday, January 29, 2012

Innovation Networks: a la Google or a la Apple?

A recent article in International Herald Tribune entitled "Yin and Yang of corporate creativity" describes two approaches to innovation, one of Apple and another of Google. The Google approach is a bottom up, open innovation which is based on rapid experimentation and receiving quick customer feedback. The Apple model is more top down model where the company achieves close to perfect integration of different elements in the product and then pushes it down to customers (remember a now famous comment from Jobs: it's not the consumers' job to know what they want).

This dichotomy is very much relevant to the issues of managing innovation networks in an organization or across organizations. Such network can consist of individual collaborators (if this is an inter-personal network) or partner companies (if this is an inter-organizational network). Google's approach is similar to a network where the central member in a network relies on the peripheral members for insights into the environmental dynamics and then works with them to find a solution to the environment's needs and then constantly make small adjustments to the resulting product.

Apple's approach is similar to a network where the central member controls the network and imposes its views on the peripheral members. In such network, innovation occurs in discrete steps with major adjustments embedded in different generation products.

Which network is better for generating innovation? The answer is that it depends on the environment these networks are facing. If success in a given environment depends on coordination of very different elements (e.g. hardware and software) or connecting ideas from very different domains (e.g. music and technology), then top down model of network management a la Apple makes a lot of sense. If success in an environment is based on coordination of similar elements (e.g. only hardware or only software) or ideas from similar domains (e.g. technology only) then the model a la Google makes more sense. Ideally, of course, innovation networks should probably combine two approaches- top down and bottom up- it seems to me that this was the Microsoft's approach in the 1990s.

Tuesday, January 24, 2012

How to benefit from closed networks?

Let's continue reviewing basic topics in inter-personal networking. We learned that an individual with open inter-personal network is a person whose friends don't know each other. This individual is considered to be a broker, because he or she can combine information and knowledge from some of his/her network contacts and create something new and innovative. We also know that some people are simply hardwired in their brains to become brokers, because they are more manipulative with their network contacts than the others (see the previous post on self-monitoring).

Closed network is an alternative to an open network. An individual who has a closed network is someone whose contacts all know each other. Most of us tend to exist in closed networks, as it is simpler to maintain them. Why? Because we tend to hang around with people who know each other and if some of our friends don't know each other it is easier for us to let them meet one another, than to keep them separated. Put simply, it is far easier to organize one big party and invite all friends there (so that they get to know each other), than to organize multiple small parties where we invite groups of people who don't know each other.

If all of your friends (or acquaintances) in an organization know each other, then you are likely to be in a closed network and you are unlikely to be able to generate many innovative ideas. However, closed networks are better at providing emotional support and enforce the norms of collaboration. That is, if your friends know each other, it is more difficult for one of them to cheat on the others and not to provide you with help when you request it.

Open and closed networks are useful for different things. Open networks provide access to new information while closed networks provide you with emotional support and help. Ideally, one's network should combine the elements of open and closed networks. You should build the networks such that some of your friends know each other, while the others don't. You get help and support from the part of your network that contains the contacts who know each other, while you get innovative ideas from the people who don't know each other.

In other words, you need to be strategic in how you build your personal networks within your firm and only then you can derive your own personal competitive advantage from them.

Sunday, January 15, 2012

Who is more likely to become a broker [in a network]?

Some blog posts ago we started talking about individuals who occupy brokerage positions in open networks, a.k.a. brokers. These are the people whose network contacts are not connected to each other. We also learned that brokers were more likely to generate good ideas, be promoted faster and get better salary raises.

But who is likely to be a broker? As it turns out, part of the inclination to engage in brokerage behavior is personality-related. There is a classic psychological scale with which one can measure a pre-disposition of an individual to change/adapt his or her behavior to the situation in a chameleon like fashion--this scale is called "self-monitoring". If you want to take a self-monitoring test, here is a link to do that, you will find out to what extent you are chameleon like in dealing with people:

High self monitors are more likely to build open networks (i.e. become brokers) than low self monitors. Because high self-monitors often tell people what they want to hear (and behave the way they think people want them to behave), these individuals are initially quite likable by the others. At the same time, these individuals are also strategic in building their networks to become brokers in them. This is what a recent study in the Administrative Science Quarterly has found.

If you are high self monitor, chances are you are also likely to be a broker in your workplace network and get all the benefits from it.

If you are low self monitor, beware of your friends, some of them might be high self monitor brokers who absorb your knowledge, recombine it with the knowledge of the others and benefit from it. What should you do? If you are a low self monitor, then you need to make an extra effort to meet new people from different departments, different work groups, etc. who are not likely to know the same things as the people you usually hang around with. In this case, you will increase the "openness" in your network and hopefully get some brokerage benefits out of it.

Good luck!

Wednesday, January 11, 2012

Networks and Job Search

The never-ending financial crisis has sadly cost many people their jobs. It is well-known that networking can help people find jobs, but what is the most effective way of networking? Are you likely to get better job leads from people whom you know very well (your close friends) or from people whom you don't know very well (your distant acquaintances)?

Conventional wisdom says that your friends should provide you with better job leads, yet just like many other conventional "wisdoms" it is wrong.

In an influential paper "The strength of weak ties" a sociologist Mark Granovetter showed that, at least in the Western societies, people are unlikely to get great job leads from people they know well. Your close friends are likely to know what you know, and these people are likely to exist within the same social spheres as you do. Hence, their job leads are likely to be those that you know of as well or at the very least are likely to be very close to what you already know.

The best job leads come from acquaintances, ties to whom Granovetter called "weak" (as opposed to "strong" ties to friends). People to whom you have weak ties exist outside of your social sphere, you don't meet them often, they know things and people you don't know. Hence, these people have information about interesting job leads that you have never thought of.

So, what should be your job hunting strategy? Talk to acquaintances about your job search and sooner or later they will provide you with useful leads. This is where responding to the usual "Hi, how are you?" question from a person you last saw six months ago with " Great, I am looking for a job" might prove to be very useful.

Tuesday, January 3, 2012

What networks are good for what?

There are two extreme types of network structures that are good for different things—open networks and closed networks. This post will describe advantages and disadvantages of an open network.
Open networks are networks where your partners are disconnected. For example, you may know 5 people and if these people don’t know each other, you are in an open network.
This network is great for generating innovative ideas. Because these people don’t talk to each other, you can get information from each one of them, combine them and produce your own idea that none of these people had. What made Steve Jobs so creative? One explanation is that he was able to speak to people who did not speak to each other. By talking to technology people (and being a technology person himself), he knew how computers worked. By talking to designers of electronics, he knew what designers knew; by talking to music executives he knew what they knew. But because technology people did not often talk to designers and neither designers nor technology people often talked to the music executives, no one of them was able to generate great ideas such as ipods, ipads and itunes. This description is a bit simplistic, of course, but helps illustrate the point: if you talk to people who don’t talk to each other you can access information that none of them has on their own and then you can create something that none of them was able to create on his/her own.
A person in an open network can refer to him/herself as a broker. This is not in the financial sense, of course, but rather in the sense of being able to broker information across different people.
A lot of academic research done, for example, by Ron Burt at the University of Chicago, shows that people who occupy positions in open networks are more likely to be perceived by their supervisors as generating good ideas, these people are promoted faster and are given better salary raises.
The disadvantage of such a network is that it is difficult to maintain. If you want to keep your partners unfamiliar to each other, you need to make sure you meet with them separately. It would have been much easier to maintain relationships with them if you invited them all to the same party, but then they would get to know each other and come to know what each one of them knows. So, your information advantage will be reduced. The more these people talk to each other, the more likely is your information advantage to be eliminated completely.
It is also difficult to verify the quality of information you receive. If one of your partners tells something to you, you have no idea whether this is true or not. Had your partners been connected, you could have verified by talking to another partner whether this person receives the same information as you are.

What is a network?

This blog is for people (and companies) who are interested in how to benefit from social networks. I will share results of research that examined how network positions can provide benefits to individuals and companies. I will also discuss what to do in order to build better networks[I1] .

I was studying, teaching and researching about social networks for the past 12 years. In this blog, I want to de-mystify the concept of social network as a source of competitive advantage for individuals and organizations. I also want to discuss how positions of social networks can be linked to good things for an individual (or for the individual’s company). For example, certain network positions are likely to make an individual more innovative, receive better performance evaluations or be promoted faster. Hence the title of this BLOG: Networks and Innovation.

What is a social network [and how it can be useful]?

Inter-personal social networks are links that connect individuals. Social networks doesn’t just mean virtual ties in Facebook, social networks mean your “physical” ties such as friendship, advice seeking or support. If you went to an organization and asked everyone “give me the names of people with whom you exchanged information”, you can use this information to build a picture of what social relationships look like in that organization.

Here is a picture of social connections in a hypothetical firm. There are nine individuals working in this firm. The links emerge as a result of them answering questions about information exchange. For example, individuals G and E said that they exchanged information, but no one exchanges information with A. If A were the CEO, I would be worried… No one talks to the guy.

You will note that there are solid and dashed lines. Solid lines represent “strong ties”—frequent relationships between individuals. Dashed lines represent “weak ties”—these are less frequent relationships.

Oftentimes people don’t exchange information across formal boundaries in their organizations. These boundaries are represented by ovals. You will see that there is only one “weak” tie between E and B across two departments.

Is this picture unrealistic? After all, how is it possible that there are so few connections between people and across departments in such a small company? Funny enough, this happens very frequently. People tend to specialize, they talk to others in their departments, but very often this means that they don’t talk to people across departments.

An individual’s position in an inter-personal network will affect this individual’s ability to innovate. What is innovation? It is often a novel [and useful] combination of elements that were not combined before. Imagine that individuals A, E, G, H and F are in the R&D department while individuals B, C, D and E are in the marketing. Because E talks to B, they can have ideas that combine what marketers know with what R&D people know. With all due respect, in many organizations I know of, R&D people mostly talk to R&D people and marketers talk to marketers. When you can combine information from R&D and marketing, you can generate good (and useful ideas). How can you do that? You need to have friends in R&D if you are a marketer and friends in marketing if you are working for R&D.

A useful test to find out about your network concentration in your functional unit, ask yourself:

a) How many people in my organization did I ask for work-related advice in the past three months?

b) Of these people, how many work in my own department?

c) Of these people, how many work outside of my department?

The more people you ask for advice in your department (in proportion to the total number of people you ask for advice), the more is your network concentrated on your department. If most of your contacts come from your department, you need to be worried because you are missing many different opportunities to innovate (or at least to come up with great ideas). If that is the case, make sure your next lunch (or “catch-up” meeting) is with someone from a different department.


Subtheme/ tagline [build competitive advantage with social networks]