The rise of the networked enterprise
New McKinsey research shows that an elite group of companies are increasing their market share and operating profits by using Web 2.0 both to connect their own employees and to extend and deepen their ties to customers, partners, and suppliers.
McKinsey’s researchers call this new kind of company the networked enterprise. Results from their analysis of proprietary survey data show that the Web 2.0 use of these companies is significantly improving their reported performance. In fact, 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.
McKinsey’s researchers have analyzed the shared characteristics of groups of organizations and clustered them according to the magnitude of the business benefits respondents reported from the use of Web 2.0 tools and technologies. They identify three types of organizations that 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.
- 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.
- 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 partners.
According to the report 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.
- Apply Web 2.0 technologies to interactions with customers, business partners, and employees. External interactions are correlated with self-reported market share gains. So are internal organizational collaboration and flexibility, and the benefits appear to be multiplicative. Fully networked organizations can achieve the highest levels of self-reported benefits in all types of interactions.