FT: A brave new networked world

July 18, 2011 11:15 pm
A brave new networked world
By Philip Delves Broughton
http://www.ft.com/intl/cms/s/0/2fe38490-b176-11e0-9444-00144feab49a.html#axzz1SSrsjjWo
We are under siege by social networks, from Facebook to LinkedIn to school, university and even corporate alumni organisations, which are ever more aggressive and sophisticated in their networking efforts.
Facebook has more than 750m users, LinkedIn 100m, and Twitter is handling 1bn tweets a week. Technology-driven social networks have been credited with propelling the revolutionaries of the Arab spring.
Marketers and venture investors salivate over any company promising to identify and assemble networks of like-minded consumers. Social network analysis software has become a fast-growing sector of IT services. IBM alone has spent $11bn in the past five years buying makers of such software.

But there are sceptics questioning the power of these networks. Malcolm Gladwell wrote in The New Yorker last year that the impact of new forms of communication in fomenting political change was exaggerated. He distinguished between the strong ties that bind groups of revolutionaries and the weak ties that link 1m Facebook fans.

“The platforms of social media are built around weak ties,” he wrote. “Twitter is a way of following (or being followed by) people you may never have met. Facebook is a tool for efficiently managing your acquaintances, for keeping up with the people you would not otherwise be able to stay in touch with. That’s why you can have a thousand ‘friends’ on Facebook, as you never could in real life.”

While the significance of social networks for political activists may be open to question, companies are starting to find real value in mapping and analysing the strength and frequency of connections between employees and customers, and their behaviour.

Social network analysis is being used to measure job performance and forecast turnover, to rate employees for promotion, monitor their ethical standards and improve the systems for collaboration. It is now a standard diagnostic and prescriptive tool for management consultants advising companies.

By measuring who talks to whom, when and for how long, companies can uncover hidden stars. They can develop an index that reveals where real power lies – and it may not be with the people who hold the grandest titles. When the US was tracking Saddam Hussein it mapped the networks of his former chauffeurs, which led to his hideout. The Iraqi elite had no idea where he was.

Businesses also use social network analysis to help categorise customers. Nike tracks bloggers to find out whose posts most influence sales of their shoes. Telecoms companies seek out the “influencers”, those thrifty types who shop around for the best plan and take their Facebook friends and Twitter followers with them when they switch.

Rob Cross is a professor of management at the University of Virginia’s McIntire School of Commerce and a consultant on corporate social networks to companies ranging from American Express to Intel. Through web-based surveys, he maps “who creates enthusiasm within organisations and who drains it. This turns out to be wildly predictive of success or failure in innovation”.

Prof Cross also finds that social networks can create another level of work for employees. “Due to the recession, people’s workloads and spans of accountability have increased, the tools of collaboration have multiplied, and we’re seeing people can’t keep up with collaborative demands any more,” he says.

Social media tools have only made this worse. Much of his work is therefore about reducing unnecessary collaboration. Organisations can benefit from protecting key people, such as research scientists or top salespeople, from the deluge of fruitless networking and information sharing.

Social network sites, Prof Cross says, are good for creating interest groups or sharing tactical information, but in situations where you need to solve a problem it is necessary to resort to old-fashioned means of developing trust and sharing information.

At agribusiness Monsanto, executives spread across the world who were forced to implement a new global transaction system were much more productive, more quickly, when they had previous experience of collaborating.

Another useful aspect of social network sites is in reactivating dormant ties. In research published in MIT Sloan Management Review, Daniel Levin, Jorge Walter and Keith Murnighan have shown that we underestimate the power of our dormant relationships.

People we once knew well but have not seen for a while turn out to be delighted to hear from us. They also have novel insights and are happy to help. Social network sites make these dormant relationships easier to rediscover and resume, but they are only a start.

“People who haven’t seen each other in a while are delighted to e-mail, until something goes beyond expectation in a negative way,” says Prof Murnighan. “Then they might realise why the relationship was dormant.”

For substantive interactions, you still need to get on the phone or meet in person. But the lesson of his research into dormant ties, he says, is that “people move on with their lives, but they don’t forget each other. An awful lot of substance remains”.

No amount of e-mailing or Facebook poking can substitute for extended time spent with others.
Lauren Cohen and Christopher Malloy of Harvard Business School have written a series of papers on the continuing importance of old-fashioned ties in investment performance. They found mutual fund managers and sell-side analysts made much better investment returns and recommendations in companies where they had strong university alumni connections.

In the US, they found that before new regulations came into effect in 2000 to limit selective disclosure of corporate information, the return premium from the old school tie was 8.16 per cent a year. Since 2000, it has fallen to zero. But in the UK, where the rules about selective disclosure are less rigorous, the old school tie premium persists.

Prof Cohen says that the premium is explained by the many clubs and networking events laid on by universities and the informal networks and gossip shared among old friends.

People who went to the same university, she says, are “more likely to have met each other or have common acquaintances. They understand what it means if a person belonged to a certain club or participated in a specific study programme. They may know people who hired them previously. All this helps them better assess executives’ potential as leaders and business owners”.

Technology may have made everyone accessible, but it has not yet made all social networks equal.
Harnessing networks
Not all networks are equal but all have their uses. So it is important to identify the differing strength of connections within a network in order to determine how best to use it.

Weak ties Good for forming groups around shared interests, hobbies and projects as well as tactical information sharing. Twitter hashtags and Facebook groups can cluster people with similar interests, but not for long unless strong ties can be developed.

Strong ties Vital for trust-based activities and complex collaboration among remote groups. Monsanto found that executives who had worked together in the past, even though now dispersed around the world, were much more effective at complex, collaborative tasks.

Dormant ties People whom we once knew well are happy to be “reactivated”. They can be great sources of new information and perspectives.

Old school ties Alumni networks still provide access to information which can affect hiring and improve investor returns.