Chapter 3: Shift Forward

A Google executive: “This business model is right for a company selling Purina Dog Chow, circa 1970.” A Cisco executive: “There’s no way we could ever be this collaborative.”

Obvious, or unachievable? When we’re talking about reorganizing for a fast, fluid, flexible way of doing business, the responses to the new rules seem to fall sharply on one side or the other.^[1]

The companies thriving today are operating by a new set of rules. Companies like REI, Kickstarter, Kiva, Twitter, Starbucks—they get it. They live it. And to them, notions like distributing power to everyone, working in community to get things done, or allowing innovation to happen at all levels are, well, ridiculously obvious. But too many major companies—Bank of America, Sports Authority, United Airlines, Best Buy, and Walmart—that need to get it, don’t. These organizations—all of which I’ll talk about later—and others continue to follow the operating rules and ethos of Traditional Strategy. They haven’t seen the obituary. This is why organizations that think their status as an “800-pound gorilla” gives them an edge are struggling to survive, let alone thrive.

Too many still see social as the purview of two functions: marketing and service. It’s either “Like us on Facebook!” or “We’re so sorry you’re having a problem.” While a few have figured out that they can use social to listen to the market—sort of like putting a stethoscope to the market heartbeat—there is more to this social thing.

But before we can explore it, we need to disaggregate two words—social is not always attached to the word media. Social can be and is more than marketing or communications-related work.

These 800-pound gorillas are feeling the Social Era all around them, but are failing to notice how significant a change it has produced. Perhaps that is because it has shown up in bits and pieces, sometimes wrapped up in technology whiz-bang-ness. You might have seen it arrive via freemium models, crowdsourcing, online communities, virtual workforces, social networks, co-working locations, and so on. Each of these on its own is interesting but not the central idea; each on its own is only an example of how value is created with others, allowing seemingly disparate individuals to create value in a way that once only centralized organizations could.

When we look at all the parts together, we can see how it affects everything.

Yet, it would be easy, if someone had an already-successful enterprise to run (or even a struggling one to resurrect), to miss how much the overall context has changed for the way value is created. The reasons that firms first had leverage—economies of scale and information efficiency—have changed.^[2] The Social Era dramatically decreases the cost of communication (e.g., finding people and collaborating with them), changing one of the fundamental reasons that centralized scale could create strength. We’re at an inflection point where we can see that some early social components add up to more than tools, information-enabled efficiency, products, services, or processes. It is not that we have more ways to be social, it is that the net difference of all these different ways to be social allows for the ability to scale in an entirely new way—through and with connected individuals. Clay Shirky, in his book, Here Comes Everybody, says the social urge to share isn’t new, but that before, the hurdles to do so were so big that it couldn’t happen easily. The improvement in what is possible creates new economic effects of increased socialness that add up to a new business model, which is the way an organization creates, delivers, and captures value. They also shift the ethos by which we lead and work.

It’s helpful to call this new context the Social Era to emphasize a point: while in the industrial era, organizations became more powerful by being bigger, in the Social Era, companies can also be powerful by working with others. While the industrial era was about making a lot of stuff and convincing enough buyers to consume it, the Social Era is about the power of communities, of collaboration and co-creation. In the industrial era, power was from holding what we valued closed and separate; in the Social Era, there is another framework for how we engage one another—an open one. In this framework, powerful organizations look less like an 800-pound gorilla and more like fast, fluid, flexible networks of connected individuals—like, say, a herd of 800 nimble gazelles.

Here’s the simplest way to define the Social Era: the industrial era primarily honored the institution as a construct of creating value. And the information age (inclusive of Web 1.0 and Web 2.0 phases) primarily honored the value that data could provide to institutional value creation. It allowed for greater efficiency to do the same things that were done in the industrial era. The Social Era honors the value creation starting with the single unit of a connected human. That shift in focus has profound implications for business, and those implications are the subject of this book.

The exact parameters of this shift are still underway and rapidly evolving. It would be foolish to suggest that a few years into a new era, we’re all clear on exactly where we’re going and what is going to happen. I’m much more interested in what business can do about these shifts, which is why I’m trying to capture the early qualitative direction. In my experience, first working for Apple, then GoLive (bought by Adobe) and Autodesk, being an entrepreneur and adviser to many Fortune 500 organizations, advising start-ups at Stanford University, and now as a corporate director, I understand something important: if we wait until we can document the shift with a 10-year longitudinal study, most of the companies we know and work with—perhaps yours—will be gone. 

You might wonder why I’m not using Enterprise 2.0 (E2.0) or social business (#socbiz) terminology. Enterprise 2.0 primarily focused on the tools necessary to create information flow, based on the idea that we can do better if we share information freely. Social business (#socbiz) was a term first created by Mohammed Yunus, but more recently has been a popular way to describe the way companies function and generate value for all the constituents (stakeholders, employees, customers, partners, suppliers)—the idea being that we add a social overlay to the existing structural framework. Here, I pose a new question with the notion of Social Era: inwhat ways can we structure things entirely differently to create more value in the context of our times, to be fast to market, to be fluid in mind-set, to be flexible in how we organize, deliver, and create value?

In the Social Era, organizations can do things entirely differently if we let social become the backbone of their business models. At the organizational level, we will shift from hierarchies to networks and thus free “work” from “jobs” (the subject of chapters 4–7). At a human level, power will be distributed instead of centralized in the hands of a few (chapter 8), which will allow groups to self-organize through shared purpose (chapter 9). At a philosophical level, this will mean a shift from closed and separate approaches to open and connected ones (chapter 10). At a symbolic level, the shift is from being the 800-pound gorilla to a herd of 800 gazelles, where communities—made up of singularly unique individuals—create value. 

Despite the provocative first chapter, this thesis is not meant to be exclusionary, meaning the old constructs completely die, replaced entirely by a new set. Yes, some frames are outdated, but this set of ideas needs to be considered as on par with old constructs. For instance, I will argue that where power was once mostly centralized, power can be equally shared, but I still believe there is a place for centralized power. Rather, we have an expanded frontier: ways to create value such as how a McDonald’s or Exxon does and ways to create value as how a PatientsLikeMe, Etsy, or Kickstarter does.

Now some of you might be skeptical of this idea. And you would be in good company. After I first wrote about this thesis on Harvard Business Review’s blog, some leaders of Fortune 500 organizations—the 800-pound gorillas of their markets—called. One was the chairman of a major bank, another the CMO of a nationwide retail firm, another the corporate director of a huge insurance product company.

All were interested in what the Social Era could mean for their businesses. But within minutes, all these conversations came down to the same fundamental question. It went something like this: “I agree that things that need to change . . . but does any of this social stuff actually scale?”

As in: How would “co-creating” work across a global supply chain? How would community work across some one thousand stores? How transparent can you really be when there are billions of dollars at stake? What are the success metrics? How long will it take? And, what is the ROI?

These are good questions, and I understand that any organization has to think of how to avoid one-off solutions. There are performance numbers to hit and growth to manage. Scale is necessary to give innovation impact.

But here’s the problem with asking, “does it scale?” as the first question: before you can know if it scales, first you have to know what “it” is. When I asked each of these successful and very smart executives that question—“What does the application of these Social Era Rules look like, for you?”—they had no answer. These leaders, however well intentioned, have started with the wrong question. (Now you know why I left out their names when I first started the story.) By asking first, “does it scale?” they have skipped past the more important question, which is, “what could it be for us?”

A friend of mine who runs a venture capital firm in Silicon Valley suggests to me that the gorilla versus gazelles tension is an issue of big versus small. He tells me to ignore the big enterprises, that they are not the future; instead, he says, focus on start-ups, which are naturally gazelle-like to begin with. It reminds me of Joseph Schumpeter, the noted economist, saying in 1909 that small companies were more inventive than large ones. But I’m not willing to give up on large firms. (And in fact, in 1942, Schumpeter reversed himself and argued that big companies had more incentive to invest in new products.) Today, people assume that small companies are creative and big firms are slow and bureaucratic, but I think both are oversimplifications. The key is to figure out how to consistently create value in a demanding, ever-changing market. That is hard no matter what size you are. It is not enough to have start-ups act gazelle-like in their early formation but then get lethargic and stuck as they age because they follow the rules of T.S.

I believe we can get the 800-pound gorillas of our day to act more like nimble gazelles—fast, fluid, flexible. It’s not that we’ll do what we did yesterday a little faster. We will not tweak our way to the new. It will be wholly insufficient to put the word social in front of existing business models and expect things to change. Instead, we need to reimagine the enterprise for the Social Era. We need to use business models that will allow connected humans with shared interests and goals to work together to produce returns.

Thus far, organizations have been focused on tacking social elements onto their current operations. Social has been adopted programmatically, rather than strategically. Use a community here, consider doing a freemium strategy there, and then, of course, engage on Twitter. All that has done is get our old models to move a little faster, and they (and our organizations) are straining with the effort of maintaining that speed. It doesn’t allow them to actually be fast, fluid, and flexible even though that is what market conditions warrant.

Before diving into the specifics, I want to point out the macro-shifts you’ll see along the way.

1. Scale can be achieved through communities. You can create value through openness. Here’s an example from technology. Most organizations used to do their own development. Within the last ten years, open source software went from being a programming lark that organizations like Oracle or Microsoft made fun of to one that is the default choice for corporations from IBM to Google. Even Microsoft has found a way to open its Xbox Kinect controller so it can be a platform for artists and roboticists. As a result, the platform contributions have far surpassed what Microsoft could have created alone.

Openness is more than “open source”—it is a way to engage ideas.

The value created by platforms that enable many people to contribute can surpass the value created by organizations trying to control each piece. What is created by individuals (without pre-approval, or vetting, or even by defining the exact outcome) can both surprise and delight. Instead of companies trying to achieve scale by all by themselves, scale can be achieved through community.

2. Consumers can be sources of value creation. Fifteen years ago, The Cluetrain Manifesto was prescient when it taught us that markets are conversations, and that was a great starting point. “Conversations” can go deeper if an organization allows them to become central to how you work, rather than leaving them on the perimeter. How many companies have figured out how to shift from old-school “supply chain management” to the more modern idea of capturing insights and integrating them directly into product design, distribution, and delivery? Because that’s the point. Instead of a buyer at the end of a value chain, more and more companies are embracing consumers as “co-creation” partners in their innovation practices. This collaborative model fundamentally shares power, improves speed, and shifts the value equation.

3. Purpose can become an alignment system. When companies think of social media, they hope to get consumers to “like” them or “fan” them, as if that increased connection is meaningful. Again, that captures the marketing aspect but completely misses the strategic point. The social object that unites people isn’t a company or a product; the social object that most unites people is a shared value or purpose. When consumers “love” Apple, they are saying they love great design and the shared idea that “thinking differently” is valuable. By “loving” Firefox, the Web community is saying that it believes an open Web browser is valuable to the world. By loving TEDx, a volunteer army of people is saying it believes that smart ideas that get people to think more about their world is a cause worth putting energy into.

Collaborating with people through social purpose creates advantage because it allows everyone to work toward shared goals. When people know the purpose of an organization, they don’t need to check in or get permission to take the next step; they just create value. When people know the purpose, they are not waiting to be told what to do. With social purpose, alignment happens without coordination costs. Social purpose makes customers and team members more than transactions and payroll recipients. It allows us to “tear down that wall” between who is in or outside the firm, creating a more permeable organization that unleashes the inherently collaborative nature of work—like a herd of gazelles running leaderlessly, but in perfect unison, across a plain. Social purpose is a fundamental way to create value in the Social Era.

These shifts mean that, in the Social Era, we have the ability to reconstitute value. Reconstitute. That word implies that we can disaggregate the components and remix them as needed. Like having units that can be formed and reformed into the functional construct that works best. Each of the component pieces matters. And so does the formation of how they come together. Each unit’s ability to be connected is central to how the value is created. Most importantly, what value creation looks like for any one organization is not the same as what it would look like for another organization. (It is not the same with traditional methods, so why would it be any different with social variables?)

How does this work? What are the rules? What does it mean for all parts of your business?

What follows in chapters 4–6 are some new value levers for the Social Era business model:

• How does social affect how we organize our resources to create value?
• Second, how does social influence what we create and distribute to deliver value?
• Third, how does it affect our ability to sell and market to capture value? (While this has been discussed most in the Social Era, ideas have not been fully adopted. I’ll explain why that is so and what new perspective might be needed.)

From there, I’ll discuss what it’s like to lead and work in the Social Era; then I’ll capture the philosophical “ethos” of the Social Era and finally send you on your way with some exercises to consider what the Social Era can mean for you and your organization.

As you enter this work, I ask that you not judge any of what follows as “right” or “wrong,” but ask how much of this could apply, where might this work, and what ways are there to try it out. However much I’d like them to be, these ideas are not 100 percent neat and tidy; they are certainly not a formulaic or even a prescriptive set of ideas. To be perfectly transparent, I have as many questions as answers. So I put this forward as fuel for a richer conversation (in part, because open questions and ongoing conversations are how this era operates). Together, let’s challenge assumptions we’ve all been taught.

What we create in the end will be a different type of organization, one that embodies a culture of constant innovation.

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