Companies using social media are making more money, says McKinsey

Interesting research from McKinsey suggests that companies using social media  or “collaborative Web 2.0 technologies” are achieving higher profits.

This will clearly not come as a surprise to some, but this basically makes the case for ROI and social media. It seems to show that companies that are starting to do it well are being rewarded for their efforts. More than that, it says those that fail to implement social media could be making a “critical mistake”.

McKinsey says these “networked enterprise” are gaining significantly improved performance and 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.

“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.”

Going forward – four key steps

McKinsey rights says that the “imperative” for business is clear: if you fall behind in creating these internal and external social networks it could well be a “critical mistake”. McKinsey suggest executives take four steps to push their organisations forward:

1.  Integrate the use of web 2.0 into employees’ day-to-day work activities. This is the key success factor in all of its research.
2.  Continue to drive adoption and usage. Benefits appear to be limited without a base level of adoption and usage. Those who reported the lowest levels of both also reported the lowest levels of benefits.
3.  Break down the barriers to organisational change. Fully networked businesses 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.
4. 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.