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Social Commerce and the Supply Chain

August 6, 2010


Facebook recently made headlines by announcing that it had surpassed 500 million users and appears to be on its way to securing one billion users. I suspect that there is a growing gap between those who understand the power of the social web (Web 2.0) — mostly Generation X folks and younger — and those who don’t. Those who don’t “get it” still see services like Facebook and Twitter as a way for giggling young teenage girls to pass the time with their friends. There is a growing sense among analysts, however, that businesses that don’t jump aboard the Web 2.0 bandwagon and become Enterprise 2.0 organizations will find themselves losing their competitive edge [“Enterprise 2.0 is vital for business,” by Andrew McAfee, Financial Times, 10 December 2009] McAfee, a principal research scientist at the Center for Digital Business at MIT, insists that “real benefits await successful adopters of new online tools.” He continues:

“Every day, more companies are deploying the technologies of Web 2.0, and also adopting the approaches to teamwork and interaction that have made Wikipedia, Facebook, Twitter, and other Web 2.0 resources so phenomenally popular. I call this trend Enterprise 2.0 (E2.0), and have made it the subject of much of my research since 2006. Corporate executives ask three excellent questions about E2.0. What, if anything, is so novel about it? What are the benefits? And the risks?”

McAfee might have added one additional question: Do Web 2.0 services represent a passing fad? A popular YouTube video addresses that question.



McAfee certainly doesn’t believe that social media and the commerce that it can generate are passing fads. He continues:

“Enterprise 2.0 is actually something new. It is enabled by technologies that were not widely available 10 or even five years ago. These include blogs, wikis, social networking software such as Facebook, and ‘microblogging’ utilities such as Twitter. All of these tools share three fundamental properties. First, they are ‘frictionless’ – easy to learn and make use of. Second, they are free-form, meaning that they do not have pre-defined workflows and do not place users into categories. Instead, everyone starts as equals, contributing to a blank slate. This sounds like a recipe for chaos, but it is not. The third property shared by all 2.0 technologies, and the most remarkable, is the emergence of patterns and structure in a system without central coordination. To make this concept concrete when I’m speaking, I ask audience members to raise their hands if their organization’s intranet is easier to search and navigate than the public internet. Very few hands go up, even though intranets are designed and maintained by professionals whose job it is to build navigable web environments. The internet works better because even though it is radically decentralized and uncoordinated it is not unstructured. It has a dense structure defined by all the links between pages. This structure changes continuously and actually becomes more refined as the net grows. It is emergent, rather than imposed.”

Although McAfee is correct that the internet is “radically decentralized and uncoordinated,” it is important to remember that it does adhere to standards. Without standardization, the internet would be chaotic and nearly useless. Returning to how Web 2.0 technologies can help businesses, McAfee writes:

“The technology-enabled communities of Enterprise 2.0 work the same way. Beyond better intranet navigation, what benefits can an organization expect from E2.0? The consultancy firm McKinsey has conducted three annual surveys on this question. In the most recent, published in September [2009], respondents reported benefits that included better access to knowledge and internal experts, greater employee and customer satisfaction, and higher rates of innovation. The magnitude of the gains was striking, ranging from 20 per cent (innovation rates) to 35 per cent (access to internal experts). These self-reported and subjective data must be interpreted with caution, but are still compelling. They indicate that real business benefits await successful adopters of emergent tools and work practices. Such improvements arise because E2.0 brings much-needed technological support to the informal organization.”

Long-time readers of this blog know that I believe good things come from connectivity. The McKinsey results only confirm my beliefs. It doesn’t surprise me, therefore, that innovation rates are perceived to improve significantly if people from different disciplines can easily access each others’ ideas. Enterprise 2.0 organizations should compete more successfully because they have a better chance of breaking down the silos that often define more traditional organizations. McAfee explains:

“The formal organization is characterized by hierarchical organizational charts and standardized, repeatable business processes. It received a technological shot in the arm in the mid 1990s when large-scale commercial applications such as ERP and CRM became available. Research suggests these applications significantly boosted productivity and performance. They did so primarily by allowing companies to standardize best practices and by making huge amounts of structured data available for analysis. These tools, however, did not do as much to support the less formal and structured work of an organization. And as we all know, the informal organization is tremendously important. It is where many exceptions are handled, questions answered, and connections made. It is also often where novel ideas are sparked and new threats and opportunities identified. Yet until now, the informal organization has been almost entirely unsupported by IT.”

I’m all for breaking down silos; but, doing so is not as easy as it sounds because, as McAfee points out, an individual who needs to contact someone with specialized knowledge may not know who that person is. Social media can help overcome that challenge. He continues:

“E-mail works when you know who you want to send a message to, but what about when you do not – when you are not sure who has the knowledge or expertise you are looking for? The first generation of knowledge management systems attempted to address this challenge, but they were too structured; they did not match the emergent nature of the informal organization. E2.0 technologies do. When they get going, it becomes easy to find a bit of knowledge, or a knowledgeable person. It also becomes easy to learn what others are working on, and to be helpful to them. And it becomes possible to float a question to the entire organization. As Eric Raymond, the open source software advocate, says: ‘With enough eyeballs all bugs are shallow.’ Enterprise 2.0 delivers benefits because it brings all of a company’s eyeballs to bear on challenges and opportunities rather than assigning them only to the ‘proper’ authorities.”

Obviously, the larger a company is the more important it is that it adopts an Enterprise 2.0 approach to information sharing. In small- and medium-sized companies where everyone knows everyone else, it is much easier to break down potential barriers that separate internal divisions. Large companies need help doing that. McAfee concludes his op-ed piece by examining an often-raised concern of business executives. What are the risks of letting employees use social media tools at work? Will they waste time? Will they get the company in trouble? Can they destroy the business? McAfee answers:

“Now for the final question: what are the risks of E2.0? I find that they are actually quite small. The tools themselves are comparatively cheap, so financial risk is minimal. The biggest potential threat is that people will misuse the new technologies, either by putting up inappropriate material or by inadvertently revealing secrets. This very rarely happens in practice, however: my collection of E2.0 horror stories is essentially non-existent. There are two main reasons for this. First, contributors in corporate environments are almost always identifiable. Without the cloak of anonymity, bad online behaviour is much less common. Second, people know how to behave at work, and most are inclined to do so. I believe that we are in the early phases of another era of technology-fuelled business improvement. Enterprise 2.0 is bringing significant gains to companies of all sizes, and in all industries. Given the mismatch between its benefits and risks, and given the competitive imperative to seize all possible sources of advantage, sitting this one out seems like a very bad idea.”

Before simply dismissing the risks of social media as being negligible, I would add a caveat: reputations can be and have been harmed by items posted on the internet. Although the problem is more severe when it comes to individual reputations, corporate reputations can also be at risk. Smart companies will have a strategy for dealing with social media attacks on its reputation. Risks aside, McAfee is not the only business analyst who thinks staying off the social media bandwagon is a bad idea. Noted supply chain analyst Lora Cecere asserts that social media has started to shift the power from the retailer to the shopper [“The Rise of Social Commerce,” Supply Chain Shaman, 21 June 2010]. She writes:

“Tags on Wheaties boxes. iPhone applications at the shopper’s fingertips. Focused communities on Facebook. The voice of the customer is rising: blogs, customer reviews, and community dialogue. The shopper dial-tone is rising. They want to belong. All want to be heard. They crave a better buying experience. The power is shifting from the retailer to the shopper. Social commerce is filling the void between clicks and bricks to deliver a personalized experience. … Why social commerce? Social commerce redefines the buying experience. When it is done right, customers have a voice. They are connected in new and exciting ways. Brands become more personal. The supply chain response is tailored and personalized. Mobile offers shape demand in new and exciting ways. Guided shopping and virtual reality become a new reality. New technologies are emerging to answer the challenge. Point of Presence (POP) is combining with Point of Sale (POS) to influence, persuade, and guide shopping. Artificial reality and virtualization is enhancing interaction. Social media is evolving to social commerce to improve the in-store experience.”

Procter & Gamble, the world’s largest consumer goods company, certainly believes that social commerce defines the future. The company has begun to sell its merchandise directly to the consumer online [“P&G starts direct sale of brands online,” by Jonathan Birchall, Financial Times, 20 April 2010]. Birchall reports:

“Procter & Gamble has started to sell brands direct to US consumers online for the first time, in a sign of how digital commerce is shaking up relations between retailers and their suppliers. The launch of P&G’s ‘eStore’ site is part of the company’s drive to increase its total online sales. … P&G, the world’s largest consumer goods company, argues that the initiative represents a direct challenge for retailers, describing it as a ‘living learning lab’ that will ‘help us listen, learn and collaborate with online shoppers’. Kirk Perry, vice-president of its North America operations, said the site ‘will help deliver new tools, services and features that can ultimately be shared with retailers’ to the benefit of shoppers. … Bob McDonald, P&G’s chief executive, … [said] ‘We want to maximize our sales through retailers but we also want to be where the consumer wants to shop.’ … P&G said the site would also support online brand building through social networks, such as Facebook. The Facebook page of Pantene is currently using the eStore site to offer its more than 300,000 fans the opportunity to buy promotional bundles of its products.”

You have to admit that it’s a good deal when more than 300,000 people sign up to receive your advertising and also call themselves “fans.” The fans are happy because they get special deals and P&G is happy because it benefits from a robust word-of-mouth advertising campaign. Another social media technology that is beginning to blossom is mobile coupons [“Mobile coupons help retailers track customers,” by Ariana Eunjung Cha, Washington Post, 27 June 2010]. Cha reports:

“Last month, Tara Kuczykowski walked into a Target store in Columbus, Ohio, pulled out her mobile phone and handed it to the cashier. The cashier scanned the digital coupon on the phone’s tiny screen, and Kuczykowski got $1 off sandwich-size Ziploc bags. Target got something, too: another entry in its database about her.”

Cha notes that coupons have been around for over a century, but using them to track customers (both generally and specifically) is something relatively new. She continues:

“Although they might look similar to the ones in Sunday newspaper circulars, many of today’s digital versions use special bar codes that are packed with information about the life of the coupon: the dates and times it was obtained, viewed and, ultimately, redeemed; the store where it was used; perhaps even the search terms typed to find it. A growing number of retailers are marrying this data with information discovered online and off, such as guesses about your age, sex and income, your buying history, what Web sites you’ve visited, and your current location or geographic routine — creating profiles of customers that are more detailed than ever, according to marketing companies. The department stores, grocery stores and fast-food outlets that have begun to use mobile marketing say this information will allow them to provide customers with truly useful, personalized offers in a world where they are constantly bombarded with advertisements.”

Not everyone is excited about the commercial potential of social media (like privacy advocates); but, as the above articles clearly demonstrate, social commerce is here to stay. Companies that master this space are likely to thrive while those who resist getting involved are likely to languish. Supply chains will have to adapt as social media campaigns affect how and where goods get to consumers. As Lora Cecere noted, the customer is gaining more influence as the power of social media grows.

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