There's a debate among business leaders about the impact of social networks on social enterprises and innovation. At the World Economic Forum in Davos last week, Don Tapscott, a strategy consultant and an author of books on the so-called Net Generation and corporate transparency in the Digital Age, predicted sweeping changes in the way companies operate. What follows are excerpts of his remarks during a hot-ticket workshop co-led by the top executives of Twitter, Facebook, LinkedIn, MySpace, and Ning, among others.
How do you think social networks will impact businesses and social innovation?
I think we're at an inflection point where social networking is changing and becoming a new mode of production. It's becoming what I call "social production." And social networks within the enterprise are becoming the new operating system of a business. Best Buy, for example, has a social network (Blue Shirt Nation) that involves tens of thousands of people, and this changes the way Best Buy operates its business. It has a link to its social network, as part of broader collaborative platform, to an electronic water cooler of 70,000 people that come up with all kinds of fantastic new ideas. It uses prediction markets to better understand what's really happening within the company. This is changing the way you run a business. It's no longer about hooking up online or creating a garden community for your products.
The more important opportunity for business is using these new collaborative platforms that are built around social networks to change the deep structure and architecture of the company; to orchestrate their capability to innovate and create value. I used Ning to run a contest for a book I'd written recently [Grown Up Digital], where I asked kids around the world to give me a two-minute video that says what's wrong with the education system and how they'd fix it. I had a person working on this for two weeks. I got hundreds of videos from dozens of countries and it changed the way that I, as a company, relate to the rest of the world.
What other examples can you share?
InnoCentive is basically built on a social network. I'm Procter & Gamble and I'm trying to find a molecule that will take red wine out of a shirt. I've got 9,000 people inside the company but there are 200,000 outside on the InnoCentive network, and sure enough, there's a retired chemist in Taipei or a grad student in London that comes up with a molecule. I pay them $200,000 for the fix and I have a product that ends up being a billion-dollar product.
Or take Goldcorp Inc., a gold mining company. The CEO there was very frustrated that his geologists couldn't tell him where to go into production -- where the gold was. So he ran a contest on a social network and collaborative platform. He offered $500,000 in prizes for anyone who could tell him whether he had any gold in his company, and if so, where it was. He got 77 submissions from all over the world. They used techniques that he'd never heard of. And for his $500,000 of prize money, he found $3.4 billion worth of gold. The market value of his company went from $90 million to $10 billion. He's my neighbor, and I can tell you he's a happy camper. Social networks are changing the way we innovate and the way we get capability.
What are the risks?
One big problem has to do with moving to this new paradigm. There's a crisis of leadership in companies and enterprises typified by this popular habit that some companies have of banning social networks like Facebook within the enterprise. I was talking to the CIO of a state where the governor had banned Facebook and I asked, 'Why do you do that?' And he said the governor felt the people were wasting their time on the job -- to which I replied, 'Well, if young people are wasting time, is that a technology problem? Do you fix that by banning the technology? Maybe it has something to do with work flow, or job design, or performance evaluations.' I asked what the effect was of banning Facebook, and he said that everybody went to MySpace. Another youngster, 27 years old, had a different answer. He said it was the single most demoralizing thing management has ever done. It said to him that management doesn't get collaboration, doesn't get his generation's tools, doesn't understand his generation, and doesn't trust him. So there is a crisis of leadership emerging.
...The whole theme of Davos this year is that the world is bust and we need to rethink, redesign, and rebuild our institutions. The current model of nation-states coming together to fix things isn't working very well. The model we are exploring now at Davos is to create new multi-stakeholder networks to solve problems, so that while world leaders get stalled at Copenhagen coming up with a climate change deal, for example, there are something like 10 million people organizing on the Web around this issue. This is the first time in human history where we're all pretty much on the same side as citizens on an issue like this. To me, this presents a new opportunity to change the way we collaborate in the world and in the way we solve problems.
Nike has just launched something called the GreenXchange, where companies are going to contribute their intellectual property and put it in the commons and use social networking to do this. Nike is giving away 440 environmental patents and placing them in the commons. It's not just on the idea that a rising tide lifts all boats but we have big environmental problems in the world and need to move toward more open innovation and competitive strategies. Social networks give us a platform that radically drops innovation costs. This is a big change.
...Transparency is a new force that's causing companies to be more open, truthful and honest. Now, it's true. You don't always see it. But that's the general trend. Companies that are honest can use transparency as a friend.