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D EC EM B ER 2010




              m c k i n s e y    g l o b a l   i n s t i t u t e



              The rise of the networked enterprise:
              Web 2.0 finds its payday


                                McKinsey’s new survey research finds that companies using the
                                Web intensively gain greater market share and higher margins.


                                Jacques Bughin and Michael Chui
2




    Every new technology has its skeptics. In the 1980s, many observers doubted that
    the broad use of information technologies such as enterprise resource planning (ERP) to
    remake processes would pay off in productivity improvements—indeed, the economist
    Robert Solow famously remarked, “You can see the computer age everywhere but in the
    productivity statistics.”1 Today, that sentiment has gravitated to Web 2.0 technologies.
    Management is trying to understand if they are a passing fad or an enduring trend that
    will underwrite a new era of better corporate performance.

    New McKinsey research shows that a payday could be arriving faster than expected. A new
    class of company is emerging—one that uses collaborative Web 2.0 technologies intensively
    to connect the internal efforts of employees and to extend the organization’s reach to
    customers, partners, and suppliers. We call this new kind of company the networked
    enterprise. Results from our analysis of proprietary survey data show that the Web 2.0 use
    of these companies is significantly improving their reported performance. In fact, our data
    show that fully networked enterprises are not only more likely to be market leaders or to
    be gaining market share but also use management practices that lead to margins higher
    than those of companies using the Web in more limited ways.

 Over the past four years, McKinsey has studied how enterprises use these social
 technologies,2 which first took hold in business-to-consumer models that gave rise to
 Web companies such as YouTube and Facebook. Recently, the technologies have been
 migrating into the enterprise, with the promise of creating new gains to augment those
 generated by the earlier wave of IT adoptions.3 The patterns of adoption and diffusion
 for the social Web’s enterprise applications appear to resemble those of earlier eras: a
 classic S curve, in which early adopters learn to use a new technology, and adoption then
 picks up rapidly as others begin to recognize its value. The implications are far reaching:
 in many industries, new competitive battle lines may form between companies that use
 the Web in sophisticated ways and companies that feel uncomfortable with new Web-
 inspired management styles or simply can’t execute at a sufficiently high level (see sidebar,
“Managing the Web-based organization”).

    The findings
    Our annual surveys of Web 2.0 use in the enterprise provided the basis for the findings
    in this article. The present survey, our fourth, garnered responses from 3,249 executives
    across a range of regions, industries, and functional areas. Two-thirds of the respondents
    reported using Web 2.0 in their organizations. As in past surveys, we asked respondents

1
    Robert M. Solow, “We’d better watch out,” New York Times, July 12, 1987.
2
    See “How businesses are using Web 2.0: A McKinsey Global Survey,” mckinseyquarterly.com, March 2007; “Building the Web
    2.0 Enterprise: McKinsey Global Survey Results,” mckinseyquarterly.com, July 2008; “How companies are benefiting from
    Web 2.0: McKinsey Global Survey Results,” mckinseyquarterly.com, September 2009; and Michael Chui, Andy Miller, and
    Roger P. Roberts, “Six ways to make Web 2.0 work,” mckinseyquarterly.com, February 2009.
3
    Andrew McAfee, Enterprise 2.0: New Collaborative Tools for Your Organization’s Toughest Challenges, Boston, MA: Harvard
    Business School Press, 2009.
3




Managing the Web-                          Respondents report that a variety of                   corporate sources, and discretionary

based organization                         organizational structures and units                    funds at the business unit level.
                                           manage Web 2.0. This year’s results
                                           show that the IT department is most                    The social nature of most Web
                                           likely to oversee internal Web initiatives             technologies, of course, opens
                                           (61 percent of respondents). For                       companies to greater interaction with
                                           customer-facing initiatives, 74 percent of             the outside world. To manage this
                                           respondents say that oversight falls to                change, a slim majority of respondents
                                           the marketing department. For Web 2.0                  (51 percent) say their companies have
                                           initiatives involving external suppliers               adopted formal social-media policies;
                                           and partners, roughly equal numbers                    companies with higher levels of Web
                                           of respondents cite the IT, marketing,                 2.0 adoption are likelier to have them. In
                                           and business-development functions.                    most cases, only a few employees are
                                           Financing comes from a variety of                      authorized to speak on behalf of the
                                           places, including the IT function, central             company.




                         about their patterns of Web 2.0 use, the measurable business benefits they derived from
                         it, and the organizational impact of Web technologies. We also inquired about the market
                         position of the respondents’ companies, whether their market share had changed, and how
                         their operating margins compared with those of competitors in the same industries.

                         Web 2.0 technologies are now more widely used
                         The share of companies where respondents report using Web 2.0 technologies continues
                         to grow. Our research, for instance, shows significant increases in the percentage of
                         companies using social networking (40 percent) and blogs (38 percent). Furthermore,
                         our surveys show that the number of employees using the dozen Web 2.0 technologies
                         continues to increase. 4 Respondents at nearly half of the companies that use social
                         networking say, for example, that at least 51 percent of their employees use it. And in 2010,
                         nearly two-thirds of respondents at companies using Web 2.0 say they will increase future
                         investments in these technologies, compared with just over half in 2009. The healthy
                         spending plans during both of these difficult years underscore the value companies expect
                         to gain.

                     Among respondents at companies using Web 2.0, a large majority continue to report that
                     they are receiving measurable business benefits—with nearly nine out of ten reporting
                     at least one. These benefits ranged from more effective marketing to faster access to
                     knowledge (Exhibit 1).

                     4
                         For more details, see “Business and Web 2.0: An interactive feature,” mckinseyquarterly.com, December, 2010.
4



             MoBT 2010
             Web 2.0
             Exhibit 1 of 3




Exhibit 1    A majority of respondents say their companies enjoy
             measurable business benefits from using Web 2.0.
                 % of respondents whose companies are achieving specified benefits from their use of Web 2.0 technologies1
                 Median improvement, %

             Internal purposes,                               Customer-related                         Working with external
             n = 1,598                                        purposes, n = 1,708                      partners/suppliers, n = 1,088

             Increasing                                                                                Increasing
                                                              Increasing effective-
             speed of access                    77     30                                  63          speed of access                57   20
                                                              ness of marketing
             to knowledge                                                                              to knowledge
                                                                 Awareness                      20
             Reducing                                            Consideration                  15     Reducing
             communication                     60      10                                              communication                  53   15
                                                                 Conversion                     10
             costs                                                                                     costs
                                                                 Loyalty                        10
                                                                                                       Increasing satisfaction
             Increasing speed                                                                          of suppliers, partners,    45       20
                                                              Increasing customer
             of access to                      52      30                              50       18     external experts
                                                              satisfaction
             internal experts
                                                                                                       Increasing speed
                                                                                                       of access to               40       25
             Decreasing                                       Reducing                                 external experts
                                            44         20                              45       15
             travel costs                                     marketing costs
                                                                                                       Reducing travel
                                                                                                                                  38       20
             Increasing                                                                                costs
                                                              Reducing
             employee                      41          20                             35        10
                                                              support costs
             satisfaction                                                                              Reducing time to
                                                                                                       market for products/      28        20
                                                                                                       services
             Reducing                                         Reducing
                                           40          10                             29        20
             operational costs                                travel costs
                                                                                                       Reducing supply
                                                                                                                                 22        10
                                                                                                       chain costs
             Reducing time to                                 Reducing time to
             market for                   29           20     market for              26        20
             products/services                                products/services                        Reducing product-
                                                                                                                                 22        15
                                                                                                       development costs
             Increasing number                                Increasing number
             of successful                                    of successful                            Increasing number
                                          28           20                             24        15     of successful
             innovations for new                              innovations for new                                                20        15
             products or services                             products/services                        innovations for new
                                                                                                       products/services

             Increasing revenue           18           15     Increasing revenue      24        10    Increasing revenue         16        11
            1 Includes   respondents who are using at least 1 Web 2.0 technology.




            Toward the networked enterprise
            We analyzed the shared characteristics of groups of organizations in our survey and
            clustered them according to the magnitude of the business benefits respondents reported
            from the use of Web 2.0 tools and technologies. Our analysis revealed striking differences.

            Among respondents who say their companies are using Web 2.0, most (79 percent)
            achieved a mean improvement of 5 percent or less across a range of business benefit
            metrics (Exhibit 2). Respondents at the companies in this group report the lowest
            percentages of usage among their employees, customers, and business partners; say that
            Web 2.0 is less integrated into their employees’ day-to-day work than respondents at other
5



             MoBT 2010
             Web 2.0
             Exhibit 2 of 3




Exhibit 2    Different types of networked organizations
             achieve different benefits.
                                                                         Organizations by type of Web 2.0 usage
                                                                         Developing,          Internally          Externally           Fully
                                                                         n = 1,711            networked,          networked,           networked,
                                                                                              n = 287             n = 100              n = 76
             Benefits, mean              Employee benefit
                                                                           5                         19               9                         31
             % improvement              metrics
                                        Customer benefit
                                                                           4                     8                        19                24
                                        metrics
                                        Partner benefit
                                                                           5                     10                    17                   27
                                        metrics
             Degree of                  % of employees
                                                                                 33                       42                   47                    47
             usage                      using Web 2.0
                                        % of customers
                                                                                 31                         50                  59                    62
                                        using Web 2.0
                                        % of partners
                                                                                     42                     53                  59                        66
                                        using Web 2.0

             Integration, % of          Web 2.0 integrated into
                                                                                21                          49                  53                        70
             respondents1               day-to-day work
             Organizational             Increased information
                                                                                21                          52                 43                    55
             impact, % of               sharing
             respondents2
                                        Less hierarchical
                                                                                17                        40              25                         49
                                        information flows
                                        Collaboration across
                                                                            10                         31             14                         41
                                        organizational silos
                                        Tasks tackled in
                                                                            9                        24                15                        39
                                        project-based way
                                        Decisions made lower in
                                                                           5                      14                      19                25
                                        corporate hierarchy
                                        Work performed by mix of
                                                                            8                        21                15                       29
                                        internal and external people

            1 Specifically,   respondents who reported Web 2.0 being very or extremely integrated into employees’ day-to-day work activities.
            2Specifically,    respondents who strongly agreed that these characteristics applied to their companies.




             companies do; and are least likely to report high levels of collaboration or information
             sharing across the organization. We call these companies, still learning the ropes of Web
             2.0, the “developing” group.

             Three types of organizations, however, seem to have learned how to realize a much higher
             level of business benefits from their use of Web 2.0.

             Internally networked organizations. Some companies are achieving benefits from
             using Web 2.0 primarily within their own corporate walls. The survey results indicate
             that companies in this group—13 percent of those using Web 2.0—derive substantial
6




            benefits from deploying these technologies in employee interactions. Respondents at such
            organizations report a higher percentage of employees using Web 2.0 than respondents
            at developing organizations do. Respondents at half of the internally networked
            organizations reported that Web 2.0 is integrated tightly into their work flows, for
            example, compared with only 21 percent of respondents at developing organizations. Web
            2.0 also seems to promote significantly more flexible processes at internally networked
            organizations: respondents say that information is shared more readily and less
            hierarchically, collaboration across organizational silos is more common, and tasks are
            more often tackled in a project-based fashion.

            Externally networked organizations. Other companies (5 percent of those deploying
            Web 2.0) achieved substantial benefits from interactions that spread beyond corporate
            borders by using Web 2.0 technologies to interact with customers and business partners,
            according to survey results. Executives at these organizations reported larger percentages
            of their employees, customers, and partners using Web 2.0 than respondents at internally
            networked organizations did. But the responses suggest that the internal organizational
            processes of externally networked organizations are less fluid than those of internally
            MoBT 2010ones.
            networked
            Web 2.0
            Exhibit 3 of 3
            Fully networked enterprises. Finally, some companies use Web 2.0 in revolutionary ways.
            This elite group of organizations—3 percent of those in our survey—derives very high levels
            of benefits from Web 2.0’s widespread use, involving employees, customers, and business



Exhibit 3   Statistical analyses offer insight into the relationship between
            use of Web 2.0 tools and three core self-reported corporate-
            performance metrics.
                                      Web 2.0-related factors significantly correlated               Correlation         P-value (less
                                      with corporate-performance metrics                            coefficient          than 0.05 =
                                                                                                    (higher = greater   statistically
                                                                                                    correlation)        significant)

            1. Market share gains     Externally networked organization                                  .427              .001

                                      Fully networked organization                                       .344               .019
                                      Organizational collaboration: cooperation across                   .065              .026
                                      organizational silos, more project-based handling of tasks,
                                      less hierarchical information flows, and increased
                                      information sharing

            2. Operating margins   Distributed decision making and work: decision-making power           .075              .029
               compared with those situated lower in corporate hierarchy, more working teams
               of competitors      composed of employees and people outside organization

            3. Market leadership—     Internally networked organization                                  .182              .038
               ie, first in industry
               market share           Organizational collaboration (see explanation above)               .077               .011

                                      Externally networked organization                                 –.362              .008
7




partners, according to the survey. Respondents at these organizations reported higher
levels of employee benefits than internally networked organizations did and higher levels
of customer and partner benefits than did externally networked organizations. In applying
Web 2.0 technologies, fully networked enterprises seem to have moved much further along
the learning curve than other organizations have. The integration of Web 2.0 into day-to-
day activities is high, executives say, and they report that these technologies are promoting
higher levels of collaboration by helping to break down organizational barriers that impede
information flows.

Capturing competitive advantage
Executives at the more highly networked companies in our survey reported that they
captured a broad set of benefits from their Web investments. A key question remained,
however: do these benefits translate into fundamental performance improvements,
measured by self-reported market share gains and higher profits?

We performed a series of statistical analyses to better understand the relationship between
our categories of networked organizations and three core self-reported performance
metrics: market share gains, operating profits, and market leadership. Exhibit 3 shows the
results.

Market share gains reported by respondents were significantly correlated with fully
networked and externally networked organizations. This, we believe, is statistically
significant evidence that technology-enabled collaboration with external stakeholders
helps organizations gain market share from the competition. They do this, in our
experience, by forging closer marketing relationships with customers and by involving
them in customer support and product-development efforts. Respondents at companies
that used Web 2.0 to collaborate across organizational silos and to share information more
broadly also reported improved market shares.

The attainment of higher operating margins (again, self-reported) than competitors
correlated with a different set of factors: the ability to make decisions lower in the
corporate hierarchy and a willingness to allow the formation of working teams comprising
both in-house employees and individuals outside the organization. These findings suggest
that Web technologies can underwrite a more agile organization where frontline staff
members make local decisions and companies are better at leveraging outside resources
to raise productivity and to create more valuable products and services. The result, the
survey suggests, is higher profits.

Market leadership, which we ascribed to those organizations where respondents reported
a top ranking in industry market share, correlated positively with internally networked
organizations that have high levels of organizational collaboration. Self-reported market
8




leadership also, however, correlated negatively with externally networked organizations.
We believe it is unlikely that better interactions with external stakeholders lead to a decline
in market position. A more likely explanation for the data is that market leaders use Web
2.0 to strengthen internal collaboration, seeking to enhance the organizational resiliency
required to maintain their leadership positions. Market challengers, by contrast, may be
more focused on external uses of Web 2.0 to win customers from industry leaders.

Overall, we found that respondents at 27 percent of the companies in our survey reported
having both market share gains against their competitors and higher profit margins. That
kind of performance clearly makes these companies profit consolidators in their industries,
with earnings growing faster than the rest. Highly networked enterprises were 50 percent
more likely to fall in this high-performance group than other organizations were. This
finding suggests that the fully networked enterprise could become the benchmark for more
vigorous competition in many industries.

Moreover, the benefits from the use of collaborative technologies at fully networked
organizations appear to be multiplicative in nature: these enterprises seem to be “learning
organizations” in which lessons from interacting with one set of stakeholders in turn
improve the ability to realize value in interactions with others. If this hypothesis is correct,
competitive advantage at these companies will accelerate as network effects kick in,
network connections become richer, and learning cycles speed up.

Going forward
The imperative for business leaders is clear: falling behind in creating internal and
external networks could be a critical mistake. Executives need to push their organizations
toward becoming fully networked enterprises. Our research suggests some specific steps:

• Integrate the use of Web 2.0 into employees’ day-to-day work activities. This practice
  is the key success factor in all of our analyses, as well as other research we have done.
  What’s in the work flow is what gets used by employees and what leads to benefits.

• Continue to drive adoption and usage. Benefits appear to be limited without a base level
  of adoption and usage. Respondents who reported the lowest levels of both also reported
  the lowest levels of benefits.

• Break down the barriers to organizational change. Fully networked organizations appear
  to have more fluid information flows, deploy talent more flexibly to deal with problems,
  and allow employees lower in the corporate hierarchy to make decisions. Organizational
  collaboration is correlated with self-reported market share gains; distributed decision
  making and work, with increased self-reported profitability.
9




Related thinking               • Apply Web 2.0 technologies to interactions with customers, business partners, and
                                 employees. External interactions are correlated with self-reported market share gains.
“Clouds, big data, and
                                 So are internal organizational collaboration and flexibility, and the benefits appear to
 smart assets: Ten tech-
 enabled business trends to
                                 be multiplicative. Fully networked organizations can achieve the highest levels of self-
 watch”                          reported benefits in all types of interactions.

“How companies are
 benefiting from Web 2.0:
 McKinsey Global Survey        The authors would like to acknowledge the important contributions of Angela Hung Byers and Martin Rouse.
 Results”
                               Jacques Bughin is a director in McKinsey’s Brussels office; Michael Chui, based in the San Francisco office, is a senior
                               fellow of the McKinsey Global Institute. Copyright © 2010 McKinsey & Company. All rights reserved.
“How Web 2.0 is changing
 the way we work: An
 interview with MIT’s
 Andrew McAfee”

“Rethinking knowledge
 work: A strategic approach”

“Six ways to make Web
 2.0 work”

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McKinsey Quarterly Dez 10

  • 1. 1 D EC EM B ER 2010 m c k i n s e y g l o b a l i n s t i t u t e The rise of the networked enterprise: Web 2.0 finds its payday McKinsey’s new survey research finds that companies using the Web intensively gain greater market share and higher margins. Jacques Bughin and Michael Chui
  • 2. 2 Every new technology has its skeptics. In the 1980s, many observers doubted that the broad use of information technologies such as enterprise resource planning (ERP) to remake processes would pay off in productivity improvements—indeed, the economist Robert Solow famously remarked, “You can see the computer age everywhere but in the productivity statistics.”1 Today, that sentiment has gravitated to Web 2.0 technologies. Management is trying to understand if they are a passing fad or an enduring trend that will underwrite a new era of better corporate performance. New McKinsey research shows that a payday could be arriving faster than expected. A new class of company is emerging—one that uses collaborative Web 2.0 technologies intensively to connect the internal efforts of employees and to extend the organization’s reach to customers, partners, and suppliers. We call this new kind of company the networked enterprise. Results from our analysis of proprietary survey data show that the Web 2.0 use of these companies is significantly improving their reported performance. In fact, our data show that fully networked enterprises are not only more likely to be market leaders or to be gaining market share but also use management practices that lead to margins higher than those of companies using the Web in more limited ways. Over the past four years, McKinsey has studied how enterprises use these social technologies,2 which first took hold in business-to-consumer models that gave rise to Web companies such as YouTube and Facebook. Recently, the technologies have been migrating into the enterprise, with the promise of creating new gains to augment those generated by the earlier wave of IT adoptions.3 The patterns of adoption and diffusion for the social Web’s enterprise applications appear to resemble those of earlier eras: a classic S curve, in which early adopters learn to use a new technology, and adoption then picks up rapidly as others begin to recognize its value. The implications are far reaching: in many industries, new competitive battle lines may form between companies that use the Web in sophisticated ways and companies that feel uncomfortable with new Web- inspired management styles or simply can’t execute at a sufficiently high level (see sidebar, “Managing the Web-based organization”). The findings Our annual surveys of Web 2.0 use in the enterprise provided the basis for the findings in this article. The present survey, our fourth, garnered responses from 3,249 executives across a range of regions, industries, and functional areas. Two-thirds of the respondents reported using Web 2.0 in their organizations. As in past surveys, we asked respondents 1 Robert M. Solow, “We’d better watch out,” New York Times, July 12, 1987. 2 See “How businesses are using Web 2.0: A McKinsey Global Survey,” mckinseyquarterly.com, March 2007; “Building the Web 2.0 Enterprise: McKinsey Global Survey Results,” mckinseyquarterly.com, July 2008; “How companies are benefiting from Web 2.0: McKinsey Global Survey Results,” mckinseyquarterly.com, September 2009; and Michael Chui, Andy Miller, and Roger P. Roberts, “Six ways to make Web 2.0 work,” mckinseyquarterly.com, February 2009. 3 Andrew McAfee, Enterprise 2.0: New Collaborative Tools for Your Organization’s Toughest Challenges, Boston, MA: Harvard Business School Press, 2009.
  • 3. 3 Managing the Web- Respondents report that a variety of corporate sources, and discretionary based organization organizational structures and units funds at the business unit level. manage Web 2.0. This year’s results show that the IT department is most The social nature of most Web likely to oversee internal Web initiatives technologies, of course, opens (61 percent of respondents). For companies to greater interaction with customer-facing initiatives, 74 percent of the outside world. To manage this respondents say that oversight falls to change, a slim majority of respondents the marketing department. For Web 2.0 (51 percent) say their companies have initiatives involving external suppliers adopted formal social-media policies; and partners, roughly equal numbers companies with higher levels of Web of respondents cite the IT, marketing, 2.0 adoption are likelier to have them. In and business-development functions. most cases, only a few employees are Financing comes from a variety of authorized to speak on behalf of the places, including the IT function, central company. about their patterns of Web 2.0 use, the measurable business benefits they derived from it, and the organizational impact of Web technologies. We also inquired about the market position of the respondents’ companies, whether their market share had changed, and how their operating margins compared with those of competitors in the same industries. Web 2.0 technologies are now more widely used The share of companies where respondents report using Web 2.0 technologies continues to grow. Our research, for instance, shows significant increases in the percentage of companies using social networking (40 percent) and blogs (38 percent). Furthermore, our surveys show that the number of employees using the dozen Web 2.0 technologies continues to increase. 4 Respondents at nearly half of the companies that use social networking say, for example, that at least 51 percent of their employees use it. And in 2010, nearly two-thirds of respondents at companies using Web 2.0 say they will increase future investments in these technologies, compared with just over half in 2009. The healthy spending plans during both of these difficult years underscore the value companies expect to gain. Among respondents at companies using Web 2.0, a large majority continue to report that they are receiving measurable business benefits—with nearly nine out of ten reporting at least one. These benefits ranged from more effective marketing to faster access to knowledge (Exhibit 1). 4 For more details, see “Business and Web 2.0: An interactive feature,” mckinseyquarterly.com, December, 2010.
  • 4. 4 MoBT 2010 Web 2.0 Exhibit 1 of 3 Exhibit 1 A majority of respondents say their companies enjoy measurable business benefits from using Web 2.0. % of respondents whose companies are achieving specified benefits from their use of Web 2.0 technologies1 Median improvement, % Internal purposes, Customer-related Working with external n = 1,598 purposes, n = 1,708 partners/suppliers, n = 1,088 Increasing Increasing Increasing effective- speed of access 77 30 63 speed of access 57 20 ness of marketing to knowledge to knowledge Awareness 20 Reducing Consideration 15 Reducing communication 60 10 communication 53 15 Conversion 10 costs costs Loyalty 10 Increasing satisfaction Increasing speed of suppliers, partners, 45 20 Increasing customer of access to 52 30 50 18 external experts satisfaction internal experts Increasing speed of access to 40 25 Decreasing Reducing external experts 44 20 45 15 travel costs marketing costs Reducing travel 38 20 Increasing costs Reducing employee 41 20 35 10 support costs satisfaction Reducing time to market for products/ 28 20 services Reducing Reducing 40 10 29 20 operational costs travel costs Reducing supply 22 10 chain costs Reducing time to Reducing time to market for 29 20 market for 26 20 products/services products/services Reducing product- 22 15 development costs Increasing number Increasing number of successful of successful Increasing number 28 20 24 15 of successful innovations for new innovations for new 20 15 products or services products/services innovations for new products/services Increasing revenue 18 15 Increasing revenue 24 10 Increasing revenue 16 11 1 Includes respondents who are using at least 1 Web 2.0 technology. Toward the networked enterprise We analyzed the shared characteristics of groups of organizations in our survey and clustered them according to the magnitude of the business benefits respondents reported from the use of Web 2.0 tools and technologies. Our analysis revealed striking differences. Among respondents who say their companies are using Web 2.0, most (79 percent) achieved a mean improvement of 5 percent or less across a range of business benefit metrics (Exhibit 2). Respondents at the companies in this group report the lowest percentages of usage among their employees, customers, and business partners; say that Web 2.0 is less integrated into their employees’ day-to-day work than respondents at other
  • 5. 5 MoBT 2010 Web 2.0 Exhibit 2 of 3 Exhibit 2 Different types of networked organizations achieve different benefits. Organizations by type of Web 2.0 usage Developing, Internally Externally Fully n = 1,711 networked, networked, networked, n = 287 n = 100 n = 76 Benefits, mean Employee benefit 5 19 9 31 % improvement metrics Customer benefit 4 8 19 24 metrics Partner benefit 5 10 17 27 metrics Degree of % of employees 33 42 47 47 usage using Web 2.0 % of customers 31 50 59 62 using Web 2.0 % of partners 42 53 59 66 using Web 2.0 Integration, % of Web 2.0 integrated into 21 49 53 70 respondents1 day-to-day work Organizational Increased information 21 52 43 55 impact, % of sharing respondents2 Less hierarchical 17 40 25 49 information flows Collaboration across 10 31 14 41 organizational silos Tasks tackled in 9 24 15 39 project-based way Decisions made lower in 5 14 19 25 corporate hierarchy Work performed by mix of 8 21 15 29 internal and external people 1 Specifically, respondents who reported Web 2.0 being very or extremely integrated into employees’ day-to-day work activities. 2Specifically, respondents who strongly agreed that these characteristics applied to their companies. companies do; and are least likely to report high levels of collaboration or information sharing across the organization. We call these companies, still learning the ropes of Web 2.0, the “developing” group. Three types of organizations, however, seem to have learned how to realize a much higher level of business benefits from their use of Web 2.0. Internally networked organizations. Some companies are achieving benefits from using Web 2.0 primarily within their own corporate walls. The survey results indicate that companies in this group—13 percent of those using Web 2.0—derive substantial
  • 6. 6 benefits from deploying these technologies in employee interactions. Respondents at such organizations report a higher percentage of employees using Web 2.0 than respondents at developing organizations do. Respondents at half of the internally networked organizations reported that Web 2.0 is integrated tightly into their work flows, for example, compared with only 21 percent of respondents at developing organizations. Web 2.0 also seems to promote significantly more flexible processes at internally networked organizations: respondents say that information is shared more readily and less hierarchically, collaboration across organizational silos is more common, and tasks are more often tackled in a project-based fashion. Externally networked organizations. Other companies (5 percent of those deploying Web 2.0) achieved substantial benefits from interactions that spread beyond corporate borders by using Web 2.0 technologies to interact with customers and business partners, according to survey results. Executives at these organizations reported larger percentages of their employees, customers, and partners using Web 2.0 than respondents at internally networked organizations did. But the responses suggest that the internal organizational processes of externally networked organizations are less fluid than those of internally MoBT 2010ones. networked Web 2.0 Exhibit 3 of 3 Fully networked enterprises. Finally, some companies use Web 2.0 in revolutionary ways. This elite group of organizations—3 percent of those in our survey—derives very high levels of benefits from Web 2.0’s widespread use, involving employees, customers, and business Exhibit 3 Statistical analyses offer insight into the relationship between use of Web 2.0 tools and three core self-reported corporate- performance metrics. Web 2.0-related factors significantly correlated Correlation P-value (less with corporate-performance metrics coefficient than 0.05 = (higher = greater statistically correlation) significant) 1. Market share gains Externally networked organization .427 .001 Fully networked organization .344 .019 Organizational collaboration: cooperation across .065 .026 organizational silos, more project-based handling of tasks, less hierarchical information flows, and increased information sharing 2. Operating margins Distributed decision making and work: decision-making power .075 .029 compared with those situated lower in corporate hierarchy, more working teams of competitors composed of employees and people outside organization 3. Market leadership— Internally networked organization .182 .038 ie, first in industry market share Organizational collaboration (see explanation above) .077 .011 Externally networked organization –.362 .008
  • 7. 7 partners, according to the survey. Respondents at these organizations reported higher levels of employee benefits than internally networked organizations did and higher levels of customer and partner benefits than did externally networked organizations. In applying Web 2.0 technologies, fully networked enterprises seem to have moved much further along the learning curve than other organizations have. The integration of Web 2.0 into day-to- day activities is high, executives say, and they report that these technologies are promoting higher levels of collaboration by helping to break down organizational barriers that impede information flows. Capturing competitive advantage Executives at the more highly networked companies in our survey reported that they captured a broad set of benefits from their Web investments. A key question remained, however: do these benefits translate into fundamental performance improvements, measured by self-reported market share gains and higher profits? We performed a series of statistical analyses to better understand the relationship between our categories of networked organizations and three core self-reported performance metrics: market share gains, operating profits, and market leadership. Exhibit 3 shows the results. Market share gains reported by respondents were significantly correlated with fully networked and externally networked organizations. This, we believe, is statistically significant evidence that technology-enabled collaboration with external stakeholders helps organizations gain market share from the competition. They do this, in our experience, by forging closer marketing relationships with customers and by involving them in customer support and product-development efforts. Respondents at companies that used Web 2.0 to collaborate across organizational silos and to share information more broadly also reported improved market shares. The attainment of higher operating margins (again, self-reported) than competitors correlated with a different set of factors: the ability to make decisions lower in the corporate hierarchy and a willingness to allow the formation of working teams comprising both in-house employees and individuals outside the organization. These findings suggest that Web technologies can underwrite a more agile organization where frontline staff members make local decisions and companies are better at leveraging outside resources to raise productivity and to create more valuable products and services. The result, the survey suggests, is higher profits. Market leadership, which we ascribed to those organizations where respondents reported a top ranking in industry market share, correlated positively with internally networked organizations that have high levels of organizational collaboration. Self-reported market
  • 8. 8 leadership also, however, correlated negatively with externally networked organizations. We believe it is unlikely that better interactions with external stakeholders lead to a decline in market position. A more likely explanation for the data is that market leaders use Web 2.0 to strengthen internal collaboration, seeking to enhance the organizational resiliency required to maintain their leadership positions. Market challengers, by contrast, may be more focused on external uses of Web 2.0 to win customers from industry leaders. Overall, we found that respondents at 27 percent of the companies in our survey reported having both market share gains against their competitors and higher profit margins. That kind of performance clearly makes these companies profit consolidators in their industries, with earnings growing faster than the rest. Highly networked enterprises were 50 percent more likely to fall in this high-performance group than other organizations were. This finding suggests that the fully networked enterprise could become the benchmark for more vigorous competition in many industries. Moreover, the benefits from the use of collaborative technologies at fully networked organizations appear to be multiplicative in nature: these enterprises seem to be “learning organizations” in which lessons from interacting with one set of stakeholders in turn improve the ability to realize value in interactions with others. If this hypothesis is correct, competitive advantage at these companies will accelerate as network effects kick in, network connections become richer, and learning cycles speed up. Going forward The imperative for business leaders is clear: falling behind in creating internal and external networks could be a critical mistake. Executives need to push their organizations toward becoming fully networked enterprises. Our research suggests some specific steps: • Integrate the use of Web 2.0 into employees’ day-to-day work activities. This practice is the key success factor in all of our analyses, as well as other research we have done. What’s in the work flow is what gets used by employees and what leads to benefits. • Continue to drive adoption and usage. Benefits appear to be limited without a base level of adoption and usage. Respondents who reported the lowest levels of both also reported the lowest levels of benefits. • Break down the barriers to organizational change. Fully networked organizations appear to have more fluid information flows, deploy talent more flexibly to deal with problems, and allow employees lower in the corporate hierarchy to make decisions. Organizational collaboration is correlated with self-reported market share gains; distributed decision making and work, with increased self-reported profitability.
  • 9. 9 Related thinking • Apply Web 2.0 technologies to interactions with customers, business partners, and employees. External interactions are correlated with self-reported market share gains. “Clouds, big data, and So are internal organizational collaboration and flexibility, and the benefits appear to smart assets: Ten tech- enabled business trends to be multiplicative. Fully networked organizations can achieve the highest levels of self- watch” reported benefits in all types of interactions. “How companies are benefiting from Web 2.0: McKinsey Global Survey The authors would like to acknowledge the important contributions of Angela Hung Byers and Martin Rouse. Results” Jacques Bughin is a director in McKinsey’s Brussels office; Michael Chui, based in the San Francisco office, is a senior fellow of the McKinsey Global Institute. Copyright © 2010 McKinsey & Company. All rights reserved. “How Web 2.0 is changing the way we work: An interview with MIT’s Andrew McAfee” “Rethinking knowledge work: A strategic approach” “Six ways to make Web 2.0 work”