Although social media is transforming how most companies operate, most boards have yet to establish a clear link between its use and improving financial returns.
Social media is transforming how most companies operate, affecting how they communicate with customers, test out new products and monitor their reputations. Over a billion people are registered on Facebook, and Twitter and LinkedIn attracts millions. Nonetheless, a 2012 Conference Board and Stanford Graduate School of Business survey of 180 senior executives and corporate directors in North America reveals that only a third of companies use social media to develop their corporate strategy and risk management practices. Why are companies not tapping into this fertile resource? It could be because most boards have yet to establish a clear link between the use of social media and improving financial returns.
David Larcker, co-writer of the survey and professor at the Stanford Graduate School of Business, says most companies are aware that social media is altering their business in terms of branding, customer feedback and reputation risks. Boards haven’t found a strategic way to use data compiled by social media, however, because ‘the value proposition hasn’t been nailed’. Since social media can produce a massive amount of data while tracking millions of customers, it can be quite overwhelming. ‘The key question,’ Larcker says, ‘is how can you synthesize from the mass of conversations something that is useful?’
Since metrics are critical to how boards operate and make decisions, companies need to decide which strategic decisions they want to derive from social media, says Matteo Tonello, managing director of corporate leadership at the Conference Board. Will the data be used for brand positioning, new product development or new market opportunities? Financial gains can potentially be achieved in all of these areas.
Some companies use social media as a way to connect with customers, but that doesn’t necessarily mean the board and CEO are using it to develop business strategy. Some of the resistance to using social media to fuel corporate strategy is generational, Tonello explains. Many board members are in their sixties or seventies, and though some subscribe to LinkedIn and are familiar with Facebook, ‘they are skeptical about the validity of information provided by social media as a real commercial vehicle,’ he says. Advertising campaigns, market research and focus groups produce specific metrics that boards are familiar with. Ironically, Tonello argues, ‘Social media can provide a way to access customers or customer perspectives that is much more precise than a TV commercial.’
The 2012 IBM study ‘Leading through connections’ surveyed 1,700 chief executives. According to the report, these CEOs ‘discussed how the whirlwind of social change they’ve witnessed, in Facebook, Twitter, Foursquare and other technology updates, has stormed across markets and industries.’ CEOs in different industries view these changes differently: about 70 percent of CEOs in education and telecommunications expect social media to play a major role in customer engagement, compared with only 34 percent of industrial product CEOs. These findings suggest that companies more involved in social media in areas like telecommunication and education are more aware of how it can have an affect on generating revenue.
Barry Libert, author of Social nation and founder of Boston-based consulting firm OpenMatters, considers social media a critical way to generate business intelligence. If customers are discussing what they like and dislike about products or services at Best Buy or Amgen, for example, he says the CEO and board must ask themselves why they are ignoring the feedback and conversations. His experience speaking with boards leads him to conclude that many are threatened by the emerging influence that customers now wield over companies. He contends: ‘Boards want control; they don’t want transparency. They think social media is the flavor of the month, but it’s not going away.’
Greg Hedges, a Chicago-based managing director at business and IT consulting firm Protiviti, says that when he broached the subject of employing social media as a business tool at a recent conference, many executives resisted. Many emphasized the risks involved in social media, including relinquishing control of the company’s message. In the past, executives controlled the firm’s image and brand through advertising campaigns in print and on TV. Nowadays, empowered by Facebook and Twitter, consumers are often driving the conversation.
One company that has listened to consumer feedback is Starbucks. After CEO Howard Schultz resigned in 2000, the firm lost touch with its customers and made the decision to close almost 900 stores, mostly in the US, in 2008-09. Schultz returned as CEO in 2008 and launched a campaign to connect with Starbucks’ clientele. My Starbucks, a website designed to allow customers to offer ideas for improving how the company operates and suggest new products, was launched. Customers submitted over 32,000 suggestions, ranging from concocting new frappacinnos and reintroducing the chewy molasses cookie to eliminating automatic receipts (saving the environment). Starbucks got its mojo back and raised its revenues, proving that listening to customers boosts sales.
Another board that has shown an interest in incorporating social media into its business strategy is that of Hartford-based healthcare company Aetna. Dan Brostek, head of member and customer engagement, prepared background for a board presentation by senior vice president of marketing Robert Mead which detailed Aetna’s social media strategy and how it handles the torrent of unstructured data (also called ‘big data’). Aetna uses a software program that collects data on its mobile app, where customers can find a doctor or healthcare facility, obtain drug prices, access their claims history, see their coverage and benefits and view their personal health records. If a customer is concerned about a claim not being paid, an Aetna customer service rep can address the issue quickly using social media.
Brostek sees social media not as replacing focus groups or market research, but as adding to them. Since the collected data arrives in real time, Aetna can tap into it and adjust marketing strategies, reacting to immediate customer feedback. Aetna can now ‘shape campaigns based on how it’s trending, and change media buys in real time,’ Brostek says.
When Apple was ready to introduce the iPhone 5 in August 2012, it was concerned whether existing iPhone users would buy the new model and how much sales of the old one would be cannibalized. Vincent Schiavone, CEO of San Jose-based analytics firm ListenLogic, told Digital Journal that by analyzing six million social media conversations on Facebook, Twitter, blogs, news forums and micro-blogs – even though Apple wasn’t a client – he found that 82 percent of people intent on buying the latest iPhone already owned one. Many parents were going to upgrade their devices and give their old iPhones to their children. Surveys often interview a mere 300 or 400 users, so ListenLogic’s data collection of several million people could have helped Apple determine when to introduce the product and boost bottom-line results.
Still, many board members prefer receiving data that is formal, concrete and measurable. When Gallup or Harris present statistics on customer attitudes toward a company or an outlook on buying new products, their percentages are clear-cut and measurable. When presented with social media data, board members still wonder if internet chatter produces distinct enough responses to warrant influencing executive decisions.
Libert contends that data presented on social media is more powerful than intelligence gathered from polls and surveys because it’s conveyed in real time and is not influenced by any bias from pollsters. It’s faster, cheaper and more authentic. Social media offers voluntary, honest feedback – sometime laudatory and sometimes critical – on a company’s culture, products and customer service. Most companies that hire outside polling or consulting firms wait several months for the results. Companies spend considerable amounts of money on this, and by the time the data is received, consumer tastes have changed.
Social intelligence companies like New York-based Tracx help clients capture social media data. Erin Collopy, Tracx’s director of marketing, says her firm ‘mines social data to provide sales opportunities and product research and to offer business intelligence.’ Tracx provides summaries of what people are talking about on various blogs and social media sites and identifies key influencers such as popular Facebook users who mention a product.
For example, Tracx has informed Nikon that 66 percent of its audience on social media is male and only 33 percent is female, and that the age group discussing its products is between 20 and 30 years. It lets Nikon know which users have recently enrolled in a photography class so Nikon can target its marketing toward its younger male audience and send personalized offerings to jump-start sales.
Rod Smith, vice president of emerging technologies at IBM, says that at his company, ‘We look at social media as part of our business.’ By obtaining data from Facebook, Twitter and 100 different analysts who write blogs and talk about products, IBM can synthesize information that comes from millions of posts. For example, if Home Depot wanted to know what downtown New Yorkers needed as a result of being affected by Hurricane Sandy, its senior managers could use IBM’s services to track chatter on social media and anticipate what products to stock, says Smith.
In addition, IBM has created Social Business Jam, a social media website, as a way to ‘harness people’s ideas, both customers and IBM employees, in new and emerging areas.’ The chief information officer studies sentiment analysis, which categorizes the dominant feedback on social media, to devise strategies that help IBM’s clients.
Smith cites a host of examples of how IBM’s social analytic data is improving bottom-line results at many companies. ‘These new applications are putting power in the hands of C-suite executives,’ he says. For example, Hertz used IBM analytics software to scrutinize customer data, including text messages, in order to improve customer service. Hertz established a ‘Voice of the Customer’ analytics system that automatically captures customer experience in real time and then helps managers transform the data and respond. What’s not clear, however, is exactly how IBM’s board is using social media to drive its internal strategy.
Armed with this new knowledge of consumer tastes and insight into changing habits, says Libert, the board can use the information to execute one of its most important roles – deciding on a firm’s capital allocation. Tracking responses from customers on social media and staying tuned in to their tastes can guide board decisions on where to allocate investments. One of the board’s key roles is to understand customers and employees, and social media enables boards to fine-tune and grasp how key constituents are responding to the company.
For example, bookstore Borders wasn’t listening when scores of readers were buying electronic Kindle readers from Amazon. Borders was stuck on selling hardcover books the traditional way, and as a result lost touch with its audience’s changing tastes, while Amazon seized the day and raised its e-book sales. Not coincidentally, Borders is now defunct.
Larcker sees social media as presenting a new form of information to board members and CEOs that wasn’t available in the past. Most board members rely on information from management, but social media presents data on employee morale and customers’ views of the company that is unbiased, genuine and unfiltered.
To understand the language of this new social intelligence, senior leaders may need a guide or even subtitles. Digital marketing companies use phrases like ‘the stickiness of your existing customers’, ‘identity unification’ and ‘sentiment analysis’.
Indeed, many board members see social media as a risk – a force as uncontrollable as a tsunami. Employees can spew out confidential information about new product development or company initiatives to friends on Facebook without even thinking that it might damage the company’s prospects. While companies can’t limit personal use of social media, they can set guidelines on what can be communicated and not communicated about their products and services, Tonello says.
Companies that ignore social media do so at their own peril. ‘The risk is falling behind and then having to catch up and make a larger investment down the road,’ Tonello says. If the world continues to change from being focused on mainstream media to emphasizing social media, companies will lose ground to competitors if they fail to tap all the opportunities on Facebook, Twitter and blogs. Libert notes that customers are telling boards what they want on social media, whether it’s e-books or pumpkin frappuccinos. ‘You don’t need researchers or consultants,’ he says. ‘Customers are talking directly to you.’
Tips on incorporating social media into corporate strategy
• The first step is overcoming any negative prejudgments about social media and instead viewing it as a new source of information, says Professor David Larcker of the Stanford Graduate School of Business.
• Consider appointing an advisory board who are paid an annual fee and can offer expertise in social media, monitor sites, point out any red flags (like feedback on accounting irregularities) and help establish policy.
• Boards can receive monthly social media updates from the general counsel, the investor relations or marketing department, or any area that monitors and concentrates on eliciting customer feedback.
• Every board should be asking how the company can use social media to acquire and retain customers, says Greg Hedges of IT firm Protiviti.
• Boards should take an inventory of what social media strategies are in place, monitor them and track their return on investment, just as they would with an advertising campaign.
Dealing with legal issues
It’s imperative that general counsel and legal staff participate in drafting, executing and updating social media policy, explains Sean Chinski, Chicago-based director of US small and medium-sized business sales at Marketwire. Issues of confidentiality and disclosure are critical in establishing what can be revealed and what must be withheld when communicating on any social media sites. ‘The general counsel’s input is critical because much of this is unclear and it’s not going away,’ Chinski says.
Other tips to keep in mind include:
• Often, establishing social media policy is a matter of collaboration between marketing, the chief information officer, the chief financial officer and legal. Some CEOs who use social media play an active role; others serve a more subordinate role.
• Disclosure is critical. At pharmaceutical companies, for example, employees must be informed that trade secrets are proprietary and cannot be disseminated on social media sites.
• Training employees to ensure that they know what the social media policies are and how to adhere to them is critical.
• Consider the employee’s view, Chinski reminds boards. Most staff members write freely on Facebook and other sites and must be told exactly what the limitations are on disclosing information.