Winning by Sharing

BP opens up. Not.

Image by ixtlan via Flickr

Way back in 2004 my first post here on Typepad was entitled Big Oil Companies Open up.  It's about Shell reaching out to stakeholders and the launch of it's 'conversation' platform called Tell Shell. 

It starts with;

It’s not often that a company publishes accusations of murder on its website, especially when the accusations are directed against the company. 

At that time it was a functional online forum although heavily moderated.  Now this is what you get;

Thank you for taking the time to send us your comments. Your message will be sent to our Customer Service Centre. A Shell representative will contact you soon.

It obviously didn't work out and was very quickly replaced with a citizen's alternative tellshell.org which documents how pointless and futile it is to attempt open, transparent conversations with oil companies.  

BP's recent oil spill disaster reminded me of the Jean Francois Noubel's statement about the survival of companies;

The future of a company is less about the nature of its issues, and more about its capacity to invent social structures able to solve them.  In other words, an ability to create and nurture networks.

Someone, somewhere on this planet has a solution to BP's oil spill disaster.  But because BP like every other large multinational is organised in command and control structures, it stands no chance of harnessing the wisdom crowds.  What do companies need to survive?

This form of organisation is unsustainable, and we all know it.  BP, where are your super connectors?

Change comes from within

Hotel Technology Next Generation (HTNG) is a membership association comprised of companies that provide technology services to hotel groups around the world.  I was invited to speak at their European Members meeting in Lisbon on the wider implications of Social Media.

My biggest frustration with social media commentary is that it’s almost always focused on the latest functionality from Twitter, Facebook, Google and the plethora of other Web 2.0 platforms, gadgets and services.  Very few industry pundits provide an insight into the impact of social media on business and society, and even fewer explore the end game.  So the purpose of this presentation was to provide some thought leadership in these areas backed up with some practical insights drawn from personal experience in deploying social media platforms with British Airways and Mornflake.  The key theme is based on what I describe as the biggest untold story of the 21st Century being played out right under our noses – the increasing irrelevance of command and control organisation as a the default structure for the production of goods and services, and why social media is most transformative inside the company.

Change Comes From Within

View more presentations from Leon Benjamin.

I’ve done a lot of public speaking over the years and I have to say that HTNG is easily the most well organised event I’ve spoken at.  Spanning three days located at the Lisbon Marriott (a hotel of course!) it combined the best aspects of an exhibition, a standalone networking  event, formal presentation and knowledge exchange (by way of break out and workshop sessions). 

HTNG just struck me as being a particularly good example of a Community of Practice, led by CEO, Douglas Rice with a small army of highly competent technicians and administrators.  I was well looked after by Sara Pardo and Merry Marwig before, during and after the event and was really touched by the personally written card pushed under my hotel door the evening I arrived, wishing me luck with my presentation the next day.  This is customer service.  Big thank you to everyone at HTNG.  I enjoyed the experience immensely.

The case for social media inside the company

Are customers suffering from ‘Work Rage’?  This phenomenon hit the news as far back as 2001 when Gallup surveyed 1.4 million workers via 100,000 divisions in North America and Europe they discovered that 17% found work satisfying, 63% were not committed and actively looking elsewhere
20% were disenchanted, disaffected and often militant in expressing dissatisfaction.  Also reported at this time, 80% of men and 71% of women are unhappy with the number of hours they work (source: Economic and Social Research Council, 2001) and 72% of managers are criticised by family and friends for overwork. (source: Institute of Management).  All this resulting in a one in five chance of a customer interacting with a disaffected employee, and crucially, the loss of a valuable customer relationship.

A few years later the UK Work Foundation conducted an applied research programme with Sainsbury’s to discover the impact on P&L of a highly satisfied employee work force.  It focused almost exclusively on customer facing employees in the store and in contact centres.  The research unequivocally demonstrated a bottom line impact in profit terms to a business with ‘happy’ employees. 

In both these scenarios, there’s a common thread around the value of interactions, of customer interactions, of relationships formed, or what our accountants define as relationship capital or intangible assets.  These assets contribute as much as 70% to the share price of a company and yet there is no widely accepted way of measuring them.  A prolific amount of academic research is being done in this area, partly driven by mandates in the US Sarbannes-Oxley Act, created to er, prevent collapses like Enron and Andersens from happening again.  Interestingly, post mortems following Enron et al revealed ‘chatter’ in online groups predicted the collapses as far back as two years before with stunning accuracy of the people and companies involved.  What is the value of these intangible assets (‘markets are conversations’) given the cost of the company collapses to people’s individual wealth and careers?

Social media is most transformative when deployed inside the company and the implications of its use are far reaching because it creates network centric forms of self-organisation.  The financial savings derived from the removal of ‘organisation and management overhead’ are extraordinary. People forget that Google, Amazon, Facebook and Yahoo could not exist without Open Source software. Open Source software has been made possible because contributors are peers arranged   as a ‘flat’ democratised self-organising, self-directed network.   The single biggest story in 21st century ‘industry’ is the tectonic shift from command-and-control to peer-to-peer forms of production and collaboration which by definition, changes the very nature of capitalism.  Actually, to collaborative capitalism, but that’s another story. 

The tension that exists between these two models will continue for many years with a great deal of resistance from the incumbents for whom this kind of change is a step too far.  But globalisation between individuals rather than companies and nation states is unstoppable and some people will need to be dragged kicking and screaming; "The traditional theory of the firm is about the unitary, rational actor that more or less controls all the pieces of the puzzle that it needs in order to produce its outputs. Today global companies are a part of a huge set of interlinked networks across the planet.” Paul Kleindorfer, Director, Risk Management and Decision Processes Center, Wharton Business School.  In other words, value is being created by any means necessary, no longer dictated by organisational relations and boundaries.

It should be obvious by now to most people that social software changes people’s behaviour.  Most large companies try to mould employee behaviour in a wide variety of ways all of which try to raise productivity levels because higher productivity means more profit right?   With some intelligent, authentic approaches, companies can develop and design new ways of working, new models of work that massively raise levels of productivity by making layers of management surplus and irrelevant and at the same time, removing the primary cause of workplace stress. By enriching the employee experience with imaginative social media platforms, interactions and relationship capital can be measured, customers get the benefits of employees’ new levels of energy and enthusiasm, and the bottom line impact on P&L is dramatic.

I was told a story about BT’s response to an earthquake in Pakistan a few years ago.  There was a mission critical need to restore telecommunication transmitters that served both business and government in the entire region.  There was no time to implement formal project management disciplines.  A leader was appointed and given carte blanche permission to select the resources needed and manage an open ended budget.  This leader built a network of expert volunteers from around the company, devolved decision making right to the edges of the project and gave groups of people permission to make decisions ordinarily made by weekly steering meetings.  BT in effect, adopted a network model of project organisation and delivery, a peer-to-peer model of working.  It was at that time, BT’s most successful project in every department; under budget, delivered early, few errors, no re-work, operationally stable.  After this, BT were quite happy to continue with prevailing project management practices; over-budget, late delivery, scope creep, and so on.  Why does it take a crisis to perform this well, and is it possible to make this way of working the norm?

Well consider this.  “The future of a company depends less on the nature of it issues, and more on its capacity to invent social structures able to solve them”, Jean Francois Nobel. The adoption of social media in the workplace is of such strategic importance that it must start with discussions about behaviours and models of trust and end with debates about software and platforms.  That’s the point.

Corporate & Confused

Twitscoop - Search twitter, see what's hot right now.  Corporate & Confused are major themes of conversation in Twitter.  Random coincidence or causal links?

How to solve the current financial crisis

Email written by Frank Dunn, 8th October 2008.  Reproduced with permission and for the record.

Since I was asked this question yesterday by Mike Toogood, CEO of Square Mile estate agents; I have put some effort into collecting the important issues together. 

Short Selling per se is the wrong villain; naked short-selling, especially intraday is what needs to stop.  The short-selling ban for financial stocks was always slightly clumsy, a temporary expedient to solve an immediate problem.  Its effect was similarly temporary: street-savvy traders would always work out ways to circumvent the ban; & they have.  I alluded to a few ways in a previous bulletin.

The ban also never was going to address a key part of the problem: intraday trading.  Many Hedge Fund managers are former ‘prop traders’ (Proprietary Traders who used to work at investment banks trading ‘the book’ – the bank’s own money - for the bank).  As such they learnt not to hold positions overnight unless they were absolutely sure of them.

Instead they dive in & out of the markets, using very short-term trading ‘signals’, nowadays mostly from software, but built around chart patterns; known as Technical Analysis.  Having designed a lot of this software personally, I can tell you a great deal about its strengths & weaknesses.  The flaws of the software are nevertheless not the biggest threat.  It is the timescale at which everyone is now trading; namely building up massive positions during the trading day; and then ‘closing out’ and going home all-square,

Intraday trading like this is normally permitted at very high gearing. This means very little capital is required for moderate positions; but more importantly very large bets can be placed with only modest capital.  The effect of this is to exaggerate & exacerbate very short-term trends; in other words it creates volatility and uncertainty by its very nature. This needs to be prevented.

Moreover, the same traders that pursue high volumes of intraday trading also hold what are called naked positions, or raw or uncovered holdings: large one-way bets for longer periods that a particular price movement is on the way.  This is completely contrary to the original spirit of hedge fund management; whose name implies that you offset any large positions by counterbalancing investments to reduce risk.
Naked holdings are a similarly destabilising influence and need to be prevented.

Solve the problem at source

The rewards for Hedge Funds in performance fees are enormous.  Estimates for the overall size of the business vary widely; but it runs to trillions of dollars.

Yet most of them do not have a clue how to offset risk.  I suggest that they either learn or go back to the less rewarding world of conventional long-only fund management.

The way to make them learn is to make them file nightly reports, via their broker as I have suggested previously; justifying the positions they are taking, in terms of counterbalancing holdings in their portfolio.  No report; no trades; the reports can be forwarded anonymously to the academic world for verification by postgraduate economists; just like an exam marking scheme. (Bernanke could surely set his up in a jiff?)

Of course in the real world, zero net risk exposure is an impossible ideal.  How much exposure should we permit?  My suggestion is that they pay for risk exposure by depositing funds pro rate with their regulatory body: 5% net exposure means you deposit 5% of your fund with the regulators.

This means those that are the most destabilising influence have to cough up the most; which seems fair?  The funds they deposit can be used to offset instabilities yet further (see next section)

Funding a secondary market for interbank trading; using robot Market Makers

The problem with the interbank market is that it is rife with rumour, as we have so recently seen; and those rumours make everyone vulnerable.  What is needed is a secondary market where the borrowers remain anonymous from the general market.  For such a thing to operate requires market makers; that is organisations that offer ‘prices’ (interest rates in the case of loans) that they guarantee to meet, rather than the indicative ones of the interbank market.

Market maker software is now sufficiently advanced to outstrip the capabilities of any human: the spreads that are offered need to be adjusted, not just in relation to the order book of the market under question; but with respect to the dynamics of related markets.

I suggest market-making be a non-profit function; run by the regulators & central banks in conjunction with the larger banks.  Competing market maker models can be used; to measure their effectiveness of a continuous basis.  Funds for the scheme would be obtained from the Hedge Funds who are destabilising the system; as explained in the previous section

There are many other proposals, but these 2 are urgent.  Long-term, I would like other investors to ‘do as I do’; and pursue investment schemes that are deliberately designed to contribute to the efficiency of markets; rather than detract from it.  This is a big ask; and will take some time.  Nevertheless I am happy to report that recent tests of my new smoothing software show we could have traded through the last few weeks; hardly noticing the volatility.  Like Noah, I am prepared for the next big storm: will anyone come & join me?

Finally, I should stress that no-one can solve this alone; not even the US cavalry of the Paulson/Bernanke team.  It has to be a team effort across the globe; something that we all solve together.  So I should stress that my suggestions should be regarded as additional ingredients to be put into the mix; and that they assume the frantic & furious labours of our leaders will get the global co-ordination they need.

Moreover, they are only proposals.  Like all ideas, if they are to be any good; they too need the contribution of others to work.  The time for heroes & saviours is over; everyone has to do their bit.

Frank Dunn is a professional commentator on Hedge Fund strategies & advisor to numerous financial professionals. Along with many noted academics, he has argued for some time that risk models need updating; to reflect the dynamic nature of sentiment risk; that is the changing behaviour of market participants.  He uses a variety of highly mathematical techniques to model this; built upon the theory of Social Networks.

Ideal lists transform IBM

Image via Wikipedia

Interesting piece of research from an internal IBM project called BeeHive. Headline conclusion is that shared lists are highly successful at stimulating social interactions and are an untapped means of connecting people through content suggesting Metrotwin design is strategically sound (shared bookmark lists).

IBM has deployed a social sharing application for its employees based around the use of shared lists. Although the focus of the research is around specific business benefits there are some very useful ideas here;

• Enabling re-use of the lists of other people had a high take up
• Comments on lists stimulated debate and more UGC
• Enabling user defined categories had a high take up
• Unsurprisingly 62% of the users (selected for this research, not the total number) created a list called “about me”
• People who had their lists re-used the most influenced others to do the same, driving more UGC
• Fascinatingly, “about me” lists were the most commonly re-used list types

Worth a read if you get time.

Outsourcing relationships

Michael Wolff of ki work sent me a quick round up of 'news from the front' surrounding LinkedIn's recent valuation.  He says;

• Linkedin raises another $53m valuing the company at around $1 billion.
• About 23 million people in 150 countries have set up profiles on Linkedin so far, with another 1.2 million members signing up each month (growth rate 5.2% per month compared to facebook 12.5% per month)
• Ning currently valued at $500 million.
• On recent series C funding for oDesk of $15m, I suspect this would be on a valuation of $100m +

So, pretty hot area for investors.

It occurred to me a long time ago that companies are outsourcing their relationships to LinkedIn.  One area where this is having a profound impact is in recruitment, where the relationships recruiters form with prospective candidates are managed outside company boundaries and on other platforms.  Small, smart recruiters like Fred do all their candidate generation on Facebook, Twitter (the 140 charcater CV) and LinkedIn.

Large corporations who have not woken up to the demands of Generation Y, and the innate need for people to form groups and communities of practice, are missing an opportunity to create organisations as productive as the open source community.  Years ago there was an active community of Air India pilots on CommunityZero because the company just couldn't (and probably still doesn't) provide an online environment for its people to exchange professional experiences.  Large programmes of change taking place in big companies to this day do not even consider building collaborative, social architectures of participation on which they can execute change. 

Thnk about this for a moment.  LinkedIN and a number of other business networks could conduct an analysis on their data to derive a social graph of a large percentage of people from a single organisation.  The graph would show the frequency and strength of inter-relationships and identitfy Influencers and connectors, in real time. 

Maybe this unintentional transparency is a good thing? Maybe knowing what these inter-relationships are is worth much more than $1 billion?

Generation Y

There's been a lot of debate about the way enterprises are preparing for Generation Y employees.  These people were born between 1982-1997 having enjoyed the luxuries of digital technology their entire lives, so called digital residents or digital natives. 

Two years ago when web 2.0 was entering mainstream media and culture I remember reading an article arguing for an overhaul of the user experience provided by enterprise applications.  It predicted that companies will only be able to attract the best people by providing devices and applications that are as well designed as iPods and Facebook.

The Journal of Quebec has a different view, as it were!