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Why traditional organizations fail to leverage Web 2.0 technologies
Raj Sheelvant
Wednesday, February 6, 2008
Recent findings by CIO.com show that traditional organizations have difficulty in adapting Web 2.0 technologies. Though the term ‘Web 2.0’ is often abused, all the various technologies, products, and sites grouped together as ‘Web 2.0’ do have one thing in common: interactivity. With the success of YouTube, MySpace, Facebook, and Wikipedia business executives have begun taking advantage of online collaborative and interactive technologies.

Executives and CIOs seem enthusiastic about wikis, blogs, and social networking and have shown willingness to embrace this new development. Many organizations are jumping into the bandwagon of Web 2.0 by adapting the technology to their advantage. Now, ‘2.0’ is slapped on everything conventional: Terms like Enterprise 2.0 and Marketing 2.0 have become common place, and executives are pounding their chest as to how they have unshackled new ways of harnessing collaborative power within their organization. However, Web 2.0 technologies are radically different from the other IT applications. Traditional organizations are not structured to take advantage of these emerging technologies. There are three main reasons why Web 2.0 will have difficulty in penetrating the traditional corporate world.

Flow of ideas
In traditional organizations, ideas flow in a ‘unidirectional’ fashion. It’s the management that decides on a business strategy and motivates the employees to implement or work towards the realization of that strategy. Information flow is also ‘controlled’ by the management. Conventional corporate wisdom says that employees do not need to understand all the complexities of running the business. It’s revealed on a ‘need to know’ basis. By managing the flow of information, the management maintains its control.

Web 2.0 challenges the core assumptions about information in the corporation — who gets it, who owns it, and who gains power by ‘having’ it. And that is scaring the people in the organizations normally used to controlling information, according to Diann Daniel who elucidates the matter in her article ‘Is Enterprise Afraid of Web 2.0’ published in CIO.com. In the Web 2.0 world, ideas do not flow in any rigid preset course. The information ‘freely’ flows and that in turn generates relevant and big ideas. Any individual with a great idea can galvanize and create an ecosystem as well as momentum around that idea, attracting the right resources to execute and implement it. There is no need for control. This self-organizing, self-correcting and ever-growing nature does not need to be controlled.

Power structure
In traditional organizations, the power structure is ‘vertical and top down’. The manager can influence how and what employees work. Hierarchy is mainly predisposed. Top executives are presumed to be smarter than middle management and the middle management is supposed to be smarter than individual contributors. This hierarchical power structure gives the management a sense of direction as to where to take the organization. Ronald Coase, the British Economist, talks about the need for command and control within a firm to help reduce the ‘transaction’ cost in his essay ‘The Nature of Firm’.

In the Web 2.0 world the power structure is ‘horizontal’ and there is no concept of hierarchy. The person with a good idea can influence how and what to work on. A community of resources that are in alignment with that idea will come together to self organize and execute the idea. In fact, the lack of hierarchy makes the Web 2.0 world all the more powerful. The command and control based resource management is not required because the Internet dramatically reduces the transaction cost. With the Internet lowering the distribution cost of anything digital, more ‘crowds’ get drawn towards it and begin collaborating in a new form of boundary less organization. The explosive growth of Wikipedia is an example of how the crowds can collaborate with no power structure in place.

Employee incentives
In traditional organization, the employee who is smarter or better gets promoted. That generates an environment of ‘competition’ between the employees. This pyramid structure in the organization leads to vicious politics. Power and financial incentives are the only ways the employer can reward an employee. Also, in a traditional organization, there is no inherent incentive to collaborate.

The Web 2.0 technology induces people to ‘collaborate’ rather than ‘compete’. The best ideas come as multiple people come together to cooperate and add value. Instant international recognition is what motivates individuals in the Web 2.0 culture. In the McKinsey study ‘How companies can make the most of user-generated content’ the author Jacques R. Bughin found that 65 percent of respondents collaborate to seek fame and that is the primary motivation for people to participate in collaborative technologies. The study also reports that only 20 percent cited the possibility of financial bonus as their main driver. Hence fame, rather than financial gain and power, is the main driver behind the growth of Web 2.0.

These three diametrically opposite forces between traditional organizations and the Web 2.0 technology are the main reasons why the traditional organizations struggle to use it successfully. Not only they have to reorganize themselves internally, but they also need to deal with the following external changes:

* On a competitive landscape, new competitors will emerge from unconventional places and it will be difficult for the traditional companies to keep track of their new competitors. Lowering of barriers due to new collaborative technology and globalization will exponentially increase the complexity of a typical ‘competitive intelligence’ and ‘marketing intelligence’. Did any of the traditional media (print, TV, and radio) ever imagine that bloggers and podcasters would be their new competitors? Some blog sites attract regular visitors in a number far greater than publications in the traditional print media.

* The roles of ‘producers’ and ‘consumers’ are beginning to overlap and merge because of the collaborative Web 2.0 technology and a new breed of ‘prosumers’ is created. These prosumers are more proactive and want their needs to be incorporated in the product or service. Using collaborative technology, these prosumers are forcing the traditional organizations to reprioritize their work. Traditional organizations need a new way to deal with the rise of these prosumers. Dell now provides Linux laptop and PC because of a very active community of Linux enthusiast prosumers who are actually not any volunteers offering their time to perfect the Linux software but are consumers who buy boxes with Linux software. Dell’s decision was swayed by these vocal Linux prosumers.

Thus, the combination of the above mentioned external and internal pressures due to the Web 2.0 technologies is going to challenge the managements of traditional organizations to adapt and make some dramatic changes. These organizations have to radically restructure to fully leverage the Web 2.0 technologies or they will become irrelevant soon.

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