Social media reinventing how business is done

The 460-restaurant chain used an internal social network that resembles Facebook to teach its managers everything from the recipes to the best, fastest way to make them. Instead of mailing out spiral-bound books, getting feedback while executives' sporadic store visits and taking six months to act on advice from the trenches, the network's freewheeling discussion and video produced results in days. Red Robin is already kitchen-testing recipe tweaks based on customer feedback -- and the four new sandwiches just hit the table April 30.

The largest

Facebook's initial public offering Friday -- the largest by a research company -- is a watershed moment for the consumer side of the Web, however social networking's real economic impact might be ahead as companies learn how to harness "social business" tools.

Beyond advertising on Facebook or Twitter, companies are using social networks to build teams that solve problems faster, share information better among their employees and partners, bring customer ideas for new product designs to market previously, and redesign all kinds of corporate software in Facebook's easy-to-learn style.

Very basic level

"At a very basic level, Facebook is the most popular application ever, with a billion people who know how to use it," said Marc Benioff, chief executive of salesforce.com, whose Chatter social-networking tools are used by 150,000 companies. "The ability to access information is much better because it's easier to get to it."

After a slow start, Big Business is embracing social media in a big way. Forrester Innovation says the sales of software to run corporate social networks will grow 61% a year and be a $6.4 billion business by 2016.

Two-thirds of big companies surveyed now use Web 2.0 tools just as social networks or blogs, with use of internal social networks up 50% since 2008, according to a survey by McKinsey & Co. Near 90% said they have reaped for the moment one measurable business benefit, although most say the improvements have been modest.

Statistically significant correlation to profitability

Heavy use of social tools has a statistically significant correlation to profitability, said Michael Chui, senior fellow at the McKinsey Global Institute. Nevertheless it's early: Only about 3% of respondents used social business tools for all three major uses -- reaching clients, connecting employees and coordinating with suppliers, McKinsey said.

The Social Web seems to be doing a different job in Corporate America than the first-generation Web. In the late 1990s, companies just as Wal-Mart used the Internet to streamline supply chains and better manage inventories to hold down prices. Banks used the new research to cut the cost of processing mortgages by as much as two-thirds, by eliminating clerical workers and substituting e-mail for expensive overnight deliveries. If Web 1.0 automated routine processes and warehouses, Web 2.0 is about organizing design work and creativity, said Andrew McAfee, professor of research and operations management at Harvard Business School.

"We asked ourselves where would social networking go once everyone had a Facebook account?" said David Sacks, president of San Francisco-based Yammer, whose software runs Red Robin's internal social network. "Big ideas always move from the consumer market into the enterprise market."

Two-way street

"Technology is a two-way street," said Chris Laping, Red Robin's senior vice president for business transformation. "When people see things, they feel things. And when they feel things, they change."

Using social networks to foster connections lets companies match the skills of people working all over the world who wouldn't easily find each other, said Eric Lesser, a innovation director at IBM's Institute for Business Value. It's especially valuable for companies built by acquisition, whose managers in different divisions often don't know each other, he said.

Take SuperValu, a collection of supermarket chains ranging from Shaw's in Boston to Albertsons in California. SuperValu last year used Yammer to build a network to connect 11,000 executives and store managers, chief information officer Wayne Shurts said. They've organized themselves into more than 1,000 groups to talk about specific challenges.

For example, 182 managers from different chains joined a group to mull common problems of running markets in college towns. Another 153 banded at the same time to talk about running stores in beach communities, where business is seasonal. Those didn't replace any other process, because there was no way to do it earlier: The managers couldn't all be pulled from their stores for retreats or meetings, and the cost of getting them at the same time would have been prohibitive, Shurts said.

Companies can as well use blogs and social sites to bring clients into their product-design process, said Barton George, director of the Dell computer division that sells to Internet-based companies. Through its IdeaStorm site, Dell has taken in more than 17,000 ideas for new or improved products, and has adopted near 500, including backlit keyboards that are better for working on airplanes.

Other times, Dell puts its own ideas on IdeaStorm, in what it calls a Storm Session, to get feedback previously going ahead. On May 6, Dell posted a plan on IdeaStorm describing a proposed specialty laptop, upgrading an existing machine to target people who write wireless apps and other Web-based software using a variation of the Linux operating system called Ubuntu, George said.

So far, the social Web hasn't boosted U.S. productivity growth the way the first-generation Internet did in the late 1990s. Nevertheless economists just as MIT's Erik Brynjolfsson say it takes about five years for a new research to show its full impact on companies that deploy it. Social networking is about two or three years in at the most companies, McAfee said.

The research

Companies are tinkering with the research and their own business processes, trying to find ways to match them up to get the most impact and learn how to interpret all the unorganized data users disclose about themselves on the sites, Lesser said.

In the meanwhile, the trend has already generated one IPO for a smaller company, Jive Software, that sells social-networking tools to companies. Jive went public at $12 a share in December and now trades around $19.50, achieving a $1.2 billion market value, even though it's not but profitable.

The social business market

Facebook hasn't actively pursued the social business market. It let companies just as Yammer and Jive mimic its look and feel, because making Facebook-like features an industry standard helped cement Facebook's leadership in consumer social networks, Yammer's Sacks said.

Social media has the potential to be as important to the broader economy as more clearly business-related information technologies just as mobile phones and cloud computing, said Stacey Bishop, a venture capitalist at Scale Venture Partners, in Foster City, Calif.

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