(Photo by Asa Mathat)
Senior Partner, McKinsey & Company
What is the emerging role of social media in business? Read the full transcript below, or download as a PDF.
Kirkpatrick: Next we have another great McKinsey presentation on the role of social in business from McKinsey’s senior partner Hugo Sarrazin. Welcome to the stage.
Sarrazin: Thank you. It’s a pleasure to be back. I’m going to spend 10 minutes talking about a fascinating topic: how the enterprise is becoming more social. We hear a whole lot about the consumer side, the Facebook, the Twitter. And there’s an equally transformative revolution that’s happening on the enterprise side.
And to get the right context, I’m going to step back in time, because we need to get grounded on a few management principles that are used and will continue to be used moving forward. But as we think about using technology and social technology, we need to adapt.
So not to belabor the point, we have the Industrial Revolution. We went after production workers. We found ways to substitute labor for capital. And we went after economies of scale, specialized work, and then we found a whole slew of management practices to take advantage of that. A lot of the hierarchies, a lot of the concept of accountabilities, responsibilities, the way to keep score, the way we do financial management, accounting—a lot of it came out over time from the Industrial Revolution. It was all about substituting labor for capital.
Then technology came along and we found a way to use technology to replace labor. We went after stuff that could get automated, that was repeatable, that was predictable, and we deployed a lot of good technology to do this.
It was fantastic. It was a new revolution and it introduced a whole slew of new productivity inside the organization. We reengineered stuff and we began to think about processes.
Now, we have new technology. The same one we have been talking since yesterday. It’s the mobile; it’s the social; it’s the big data; it’s the cloud. And we can bring that inside the company. And there is a lot that has been said about this, but I think we’re on the cusp of a change. And the reason is more and more of our clients, at least as we see it, more and more of our clients are asking basic questions. How do I change my business model to take advantage of this? What can we do differently to compete? How do I empower our employees?
And it’s no longer just about the technology. It’s about the management principles that go with it. It’s about the culture. And that’s really exciting. And we’re going to create a whole slew of new management principles and new management practices, new ways of keeping score to take advantage of these technologies. And we’re going to change the way we do things, change management to take advantage of these technologies.
So let’s first talk about defining social enterprise. There are many, many, many ways to do this.
I’m going to do it a simple way. We will now empower the end-users with the ability to make decisions in real time, take the unstructured data, collaborate in new ways, and make new decisions.
We’re going to work across the organizational boundaries. Remember, in the first era we created functions and economies of scale. Then in the second era we created these wonderful processes. Now we’re going to create networks that can collaborate and do things together. And not only within the company, but with their partners, to engage in new ways with their customers. And now we’re going to do it faster.
Again, all the management principles work: yearly planning cycle, forecasting quarterly, etc. Now, we have the ability to make decisions in real time. We have the ability to reallocate resources in real time. And that’s going to change the way management is going to be thinking about using these resources moving forward.
So at McKinsey, for more than five years, we have studied the adoption of these technologies. And there’s lots of wonderful news to report. I encourage all of you to go to the McKinsey Quarterly and read it. And we survey people. It’s great. You see that a lot of these technologies get adopted.
But as I’ve said, over the last two years, there are more and more questions around “How do I change my business model?” So we went out and we studied this. And we did case studies and we complemented the usual surveys we’ve been doing with some very, very deep macroeconomic and bottom-up economic analysis to understand where the value is going to come from. I’m not going to do justice to the 187-page report, but it’s online. So go for it! Read it, download it. I’m going to show you four charts.
The first one, boring. People use it more and more and more. Okay. We expected that. People, if you put technology out there, there’s going to be a lot of folks that are going to use it. This is a survey of VPs and above in large, established organizations.
Second, is it adding productivity? The answer is hell, yes. And if you do time-in-motion analysis of how these knowledge workers, the ones that have all these unstructured tasks, how they spend their days, there’s a lot of time that could be improved with all these wonderful technologies we have been talking about. Provided the right context, provided the right culture, provided the right incentives.
Now, how they choose to reinvest that time, different companies will make different choices. But there is a productivity opportunity there that’s really, really exciting. If you look at processes, the class, the same ones that we have been IT-enabling— sales, supply chain—there is also an opportunity to collaborate in new ways, to use information.
Let’s remember, most of these processes are made for repeatable—were automated for predictable tasks. And around it, we have people to handle exceptions. You have a mortgage and then, whoops, it kicks out of the process. And all sorts of people get involved and do things. Now we have technology to facilitate how that work gets done.
Finally, this was very fun and exciting to do. We stepped back and did a real macro analysis of what could be the impact for entire industries if these technologies were applied fully. And the numbers, it doesn’t take long to get to hundreds and hundreds of billions of dollars. It’s in the report. The first person who comes and tells me the number after will get a nice bottle of wine.
So all of this is wonderful. It is new technology. And there are a lot of questions around the right way to deploy it. What’s the right way to think about it?
There’s a bit of a cautionary tale, though. And I want to finish with that because we need to think differently about how to use this technology. Technology is just one component. We need to step back. In the good old days we said: We’re going to reengineer a process. We’re going to put some really smart people top down, they are going to look at a process, they are going to follow it, and they are going to make it more efficient. They are going to work top down, they’re going to hire a nice system integrator, and we’re going to get a better answer.
This is not what this technology enables. It’s a series of networks. It’s leveraging data in new and unusual ways. It will change over time. So what we need to do is find a way to empower the end-user. We’re dealing with the end-user as the power user. In the same way Excel spreadsheet transformed how business analysts spend their time, we now have technology that allows end-users to automate work flows, to get data, to aggregate data to do new analysis. And that’s really exciting, but we need to give them the context. We need to give them the right culture, the right mindset for them to use this technology and transform the way this unstructured work gets done.
Finally, we need to create an environment where tests and learning are accepted and the norm. It’s no longer a big IT project where you kind of go and get the requirements and then you go away and 18 months later you have this big ironclad answer. This is not the way we will be designing the corporation of the future. It will be a series of really exciting, agile work flows. We’re going to take the agile methodology that exists in IT, we’re going to bring it to all the projects that get done, and there’s going to be a real opportunity to transform.
Now, three last things that I want to touch on. The first one is all these social technologies. Contrary to the previous two eras that replaced labor with capital, that replaced labor with IT, this is complementing the knowledge worker. And that changes the value equation. Because everything we know and everything we’ve learned is how to calculate a wonderful ROI because we eliminate X people in this task and we found a way to reduce the number of tasks.
This is not how to add value. We’re going to make better decisions. We’re going to let people work in groups in ways they couldn’t before. And we’re going to need to do it faster. There’s going to be a new premium put on time-to-value. Return on human capital. Return on knowledge.
So we’re going to need a new vocabulary to be able to get comfortable inside the corporation and show we’re making the right decision around deploying these technologies, which will in many ways be horizontal and will enable new decision makers.
When we went to the IT-enablement revolution, the CIO was the gatekeeper. He got the ability to make—or she got the ability to make—some fantastic decisions around where we would put automation. Now it’s different. You have a new partnership that needs to emerge.
The CMO, many analysts are predicting, will be the biggest spender of IT in the next three years. Let’s think about that equation. Who are the new decision makers and how do we empower them? What kind of CMO do we need to make this kind of decision? So there’s a new type of role and new type of skill set that will be required moving forward.
And again, as I have said, there’s the power user, the one that will be configuring and programming all these wonderful things at the end of the road.
The last thing that we need to think very carefully about is how to change management. Changing management in the past had to be done through training, through some very, you know, thoughtful training—and the tools and techniques that were developed were very well adapted to what we were doing at the time. In this case, we’re distributing the power. We’re giving technology to new users.
So we need to be able to create the right context for this to get done. We need to drive adoption. Throwing technology out there is not going to be sufficient. We need to find a way to empower the end user, train them and empower them to get excited around the kind of analysis, the ability to make decisions in real time.
So I’m done with my 10 minutes. As I’m hopeful you saw, I’m excited about what the potential of social in the enterprise. It does require new management practices. I think a lot about the stories to be built moving forward.
Kirkpatrick: Thanks, Hugo. As I told Hugo, I was writing about social and groupware and internal collaboration in the ’90s and the problem always is managerial resistance. So if we can get rid of that in this next phase, I will be very impressed.