By publishing my thesis in parts on my blog i received much feedback in the reactions and on twitter. Special thanks to Michiel Hartman for pointing out that the evolution of web 1.0 to 2.0 hasn’t been a linear process.

You can download the ‘The alignment of web 2.0 and social media with business strategy’ (van der Weel, A. T. ,2009) pdf here.

For those who want to read the short summery and conclusions I included them here at the end of the blogpost. I also added the references for those who are interested in finding more academic research papers on social media and business strategy.

Research questions

Corporations trying to adopt and use web 2.0 and social media applications in their business, raises the question of how organizations can use these in extend to their strategies.

• How should web 2.0 and social media be approached and how can organizations align these web 2.0 and social media developments with their organization strategy?

To answer this question the following sub questions need to be answered:

• What is web 2.0 and social media and what are good definitions?
• How can social media be approached and used by organizations?
• How can social media be aligned with the business strategy of organizations?

Short summary

I expanded existing academic theory on ‘Possible uses of the World-Wide Web for business’ by adding customer service as the main new opportunity offered by web 2.0 and social media.

My literature research identified two frameworks that can be used to analyze web 2.0 and social media. One is the ‘Technology-Centric view of IT in Business’ (Dhar & Sundararajan, 2007), which presents technological invariants and consequences in business. This framework can be used for fundamental analysis of the building blocks and consequences of web 2.0 and social media.

The ‘Strategic alignment model’ (Henderson & Venkatraman, 1993) indicates the importance of a functional and strategic fit between business and IT. Together with the the ‘Value Disciplines’ framework (Treacy & Wiersema, 1993) these frameworks can be used to align organization business strategy with social media and web 2.0.

The Value Discipline that express the business focus on organization or department level can be used to guide the focus of the social media strategy. While the thesis mainly looks at the business strategy of the organization as a whole, it can also be used for departments to align their social media strategy.

In the end the researched frameworks come together to present my ‘social media governance framework’ which looks at the internal and external dimensions and the usage channel of social media in the organization. It can be used to align new social media projects with business strategy or to analyze the strategic fit of current social media projects in the organization by placing them in the matrix.

Conclusions

Web 2.0 was identified after the dot-com crash and is a collection of technologies, services and platforms. Key to business in web 2.0 is the ‘harnessing of collective intelligence’ often also called the ‘power of the crowd’. Social media can be defined as ‘the collective goods produced through computer-mediated action on web 2.0 services and platforms’. When focusing on the business uses social media encompasses these services and platforms that can be used by organizations. Social media and web 2.0 are greatly driven by modularity and result in the creation of large IT platforms and computer-mediated spaces.

Like internet, social media can be used for: Publicity, marketing and advertising, direct online selling, research and development, communication, collaboration and customer service. E-services helped identify the customer service path as a new business use after the dot-com crash and rise of web 2.0. Enterprise use of social media mostly focuses on reaping benefits from internal communication and collaboration cross traditional organizational hierarchies. Social media can be approached from an inward(internal) e-commerce perspective or from an outward(external) e-service perspective e-strategies depend on the approach.

For investments in social media to be effective corporations need to have an alignment between social media (IT) and business strategy. Also the strategic fit between the internal and external IT domain needs to be considered. The social media governance framework I present helps identify how different types of organizations should deploy social media applications depending on the purpose and business strategy in the internal or external domain. Alignment between the social media (IT) and business strategy occurs by using the value disciplines of an organization to formulate social media strategies. I argue that operational excellence organizations should have a focus on internal use of social media and that customer intimacy organizations should have a focus on the external use of social media. With the growing importance of social media in organizations, social media should become part of IT governance in organizations top management to support the alignment.

References

• Anderson, Paul (2007). What is Web 2.0? Ideas, technologies and implications for education. JISC Technology and Standards Watch, Feb.
• Brzozowski, Michael J., Sandholm, Thomas and Hogg, Tad (2009). Effects of Feedback and Peer Pressure on Contributions to Enterprise Social Media. GROUP‟09, May 10–13, Sanibel Island, Florida, USA.
• Cockburn, C. and Wilson, T. D (1996). Business Use of the World-WideWeb. Vol. 16, No. 2, pp. 83-102.
• Dhar, Vasant and Sundararajan, Arun (2007). Information Technologies in Business: A blueprint for education and research. Information systems research, vol 18, No. 2, pp. 125-141.
• Eichen, Marc (2006). Value disciplines: a lens for successful decision making in IT. EDUCAUSE Quarterly, Vol. 29, No. 2. pp. 32-39.
• Gartner research (2008). The Enterprise Social Software Market Continues to Expand. 30 May.
• Gurbaxani, Vijay and Whang, Seungjin (1991). The Impact of Information Systems on Organizations and Markets. Communications of the ACM, January Vo1.34, No.1.
• Henderson, J.C. and Venkatraman, N. (1999). Strategic alignment: Leveraging information technology for transforming organizations. IBM systems Journal 38, 2/3 pg. 472.
• Lai, Vincent S. and Wong, Bo K (2005). Business types, e-strategies, and performance. Communications of the ACM, May Vol. 48, No. 5
• O’Reilly, Tim (2007). What Is Web 2.0: Design Patterns and Business Models for the Next Generation of Software Communications & Strategies no. 65, 1st quarter.
• Hoegg, Roman, Meckel, Miriam, Stanoevska-Slabeva, Katarina and Martignoni, Robert (2006). Overview of business models for Web 2.0 communities, Proceedings of GeNeMe: 23-37
• Kochan Thomas A., Useem, Michael (1992). Transforming organizations. Oxford University Press US http://books.google.nl/books?id=qU96bV4OtdgC.
• Raghupathi, W. RP (2007). Corporate governance of IT: A framework for development. Communications of the ACM , August Vol. 50, No. 8.
• Rai, Arun, Patnayakuni, Ravi and Patnayakuni, Nainika (1997). Technology Investment and Business Performance. Communications of the ACM, July Vol. 40, No. 7.
• Rust, Roland T. and Kannan, P.K. (2003). E-service: a new paradigm for business in the electronic environment. Communications of the ACM, June Vol. 46, No. 6
• Smith, Marc, Barash, Vladimir, Getoor, Lise and Lauw, Hady W. (2008). Leveraging Social Context for Searching Social Media. SSM‟08, October 30, Napa Valley, California, USA.
• Tracy, M. and Wiersema, F. (1993). Customer intimacy and other value disciplines. Harvard Business Review 71 (1), Jan/Feb, pp. 84-93
• Valacich, Joseph and Schneider, Christoph (2009). Chapter 6 Enhancing Collaboration Using Web 2.0 in Information Systems Today: Managing the Digital World, Prentice Hall; 4 edition (March 13)

Internal and external business approach to the electronic environment

The strategic alignment model states that strategy must be addressed in an Internal and external domain. The research that follows on electronic strategies and business types also indicate organizations can have an internal or external focus.

E-service: a new paradigm for business in the electronic environment

Rust & Kannan (2003) argue that the traditional path of e-commerce has largely failed after the dot-com crash, and that organizations must learn to embrace the e-service paradigm that can offer new forms of competitive advantage. Putting the firm in a position attending to the needs of the customer by providing software service in addition to selling products

The transformation of physical products to service products is enabled and hasted by electronic networks. For firms to garner long-term customer relationships they must take full advantage of the e-service opportunities that these electronic networks can offer. They predict that product-centered orientated firms that resist the call of the customers for control are not likely to survive in this electronic environment and give the example of record labels.

The traditional path is focused on automation and efficiency to reduce costs. While the e-service path is focused on enhancing service and building profitable customer relationships to increase revenues. There is a shift form focusing on technology and systems towards focusing on understanding the customer. While the new path offers new forms of competitive advantage both can still be used by organizations to perform successfully.

The electronic environment enables both this inward and outward-looking view of e-commerce. The e-service paradigm identifies a new use of internet for improved customer satisfaction as opposed to increased efficiency and productivity. The e-service paradigm takes advantage of the nature the online environment with its flows of information to learn about customers, communicate and engage in long-term relationships to build customer equity (Rust & Kannan, 2003). E-services identify customer service as an important new approach of businesses in electronic environments.

According to Rust Kannan (2003): “Dell Computers is a good example of how a firm selling products in an increasingly commodity market can follow an e-service orientation to build its customer equity.“ Organizations as IBM, HP and Sun are also undergoing this shift and increasingly focus on their services as prime revenue source.

Business types, e-strategies, and performance

After the dot-com crash IT developments continued shaping towards web 2.0 and new services emerged (Hoegg et al. 2006) creating new business opportunities (Rust & Kannan, 2003)  and new e-strategies emerged. Lai & Wong (2005) mention that the companies that survived the dotcom crash needed to device innovative e-strategies and restructure around new business models. After reengineering efforts some companies recuperated from the debacle.

In their research they look at companies after the EC crash and investigate the influence of different business types(B2B & B2C) and non-EC on the company performance. Also the e-strategies from the different companies are identified and their effectiveness correlated with the company performance.

The results indicate a moderating the relationship between business type and e-strategy performance.

Findings indicate that many EC companies used four different types of e-strategies. Savings-related strategies were most effective for B2B and B2C companies, while marketing-related strategies were only effective for non-EC companies. The business type that benefited the most from the e-strategies were B2B companies and also performed better than their B2C counterparts.

Conclusion: How to approach social media

E-strategies further help identify how organizations approach the electronic environment and which strategies they use. The four main types of e-strategies are identified as: savings-related, structure-related, policy-related and marketing-related. These identified strategies can also be subdivided between internal and external strategies. Savings, structure and policy-related are inward focused strategies while marketing-related strategy is focused outwards.

Rust and Kannan (2003) identify two different paths of e-commerce. The traditional path focused on automation and efficiency to reduce costs and the e-service path focused on enhancing service and building profitable customer relationships to increase revenues (Rust & Kannan, 2003). The traditional e-commerce path and e-service path help identify two approaches of businesses to the electronic environment. One focused inwards on processes and the other focused outwards on customer satisfaction. Organizations can adopt an internal as well as an external focus.

Both papers indicate the existence of an internal and external focus for organization strategies and are in line with the strategic alignment model that was presented and help identify how different organizations can use social media and web 2.0 in their (electronic) strategies.

I argue the same strategies can be used when formulating strategies for the use of social media in organizations, because social media operates in the same electronic environment on web 2.0 services and platforms. Also the e-strategies theory can be connected to e-commerce or e-service paths by making a distinction between internal and external focus.

Functions of web 2.0

Possible uses of the World-Wide Web for business

Having answered what web 2.0 and social media is and developed definitions for both, now the possible use of social media by organizations can be researched. Cockburn and Wilson (1996) present a list of applications for which businesses are using the WWW. While their paper was written at the beginning of the internet era, it can still be used to identify the purposes and goals of businesses on the internet. They identified the following application areas:

Publicity, marketing and advertising:  the WWW appears to be an ideal medium for businesses to promote themselves and their products. Gaining access to millions of people can be achieved by a small fraction of the costs of conventional methods.

Direct online selling: can revolutionize the way in which people shop. Virtual shops and catalogues are available on the web where customers can directly buy products.

Research and development: especially companies involved in research and development can use the internet as an additional resource for collecting information. Many databases are available and discussion boards that can be searched and queried for information and data.

Communication: use of low-cost electronic mail(and other ways of online communication )that allows many companies to link together and communicate internal and external  in an easy and fast way.

Collaboration: fast and easy forming of links and collaboration over the internet instead of using private (network) links.

After the dot-com crash new web business characteristics were identified as web 2.0 (O’Reilly, 2007) and businesses had to understand the new rules for success on that new platform (Valacich & Schneider, 2009). The survey was done in 1996 before the dot-com crash and new developments have led to new approaches and use of the internet. Modern web 2.0 business uses like e-commerce can be seen as part of Direct online selling. Crowd sourcing that makes use of the collective intelligence of web 2.0 (O’Reilly, 2007) can be seen as part of Research and development and Collaboration.

Internal enterprise use of social media focuses reaping the benefits from internal collaboration and communication and makes use of web 2.0 services to achieve this. The free broadcasting platform that social media offers, helps to circumvent traditional organizational hierarchies (Brzozowski et al. 2009).

While the list of applications for which businesses use the internet still is valid, I argue that one business application is missing that was identified after the dot-com crash. Customer service is the main new business application that originated from the paradigm shift after the dot-com crash (Rust & Kannan, 2003) and should be added to the list. Zappos.com is an example of a company that mainly focuses on using internet to offer customer service, with the use of a blog, chat and other messaging services. These are used as a support function on their e-commerce services that are used for direct online selling.

Conclusion: How organizations can use social media

The possible uses of the Internet for business were identified by Cockburn and Wilson (1996) in their survey that presented a list of applications for which businesses were using the internet. I identified one main application that was missing and updated the list. The business uses of internet are: Publicity, marketing and advertising, direct online selling, research and development, communication, collaboration and customer service.

The list of possible business applications of the internet helps identify the use of social media for organizations. I argue that these applications can also be applied to the use of social media that operates on top of web 2.0 services and platforms. Web 2.0 and social media that operates on top of it offer new opportunities, but I argue that the same goals on the web remain. One of the new opportunities that arrived with the rise of web 2.0 and e-services is customer service that can be a goal of businesses on the internet, and was added to the list.

These possible uses of the internet overlap with the possible uses of social media. Only now web 2.0 and social media has really enabled the possibilities to achieve these uses and goals on the internet while at the start of the internet era the possibilities were still limited. These uses will be important for the model that is presented later on in this paper.

Aligning business and IT strategy

Now that we have definitions of web 2.0 and social media and the importance of them for organizations we continue the research on how organizations can approach these and align them with their organization strategy.

Organizations can adopt an internal or external focus, for their business strategy as well as their IT strategy. This chapter will present evidence that IT, electronic and social media strategies should also be formulated in internal and external dimensions and how these strategies should be governed by organizations.

The strategic alignment model

Strategic alignment model, Oxford University Press US (1992)

IT strategy should be articulated in terms of an external domain and an internal domain. Where the external domain focuses on the position of the firm in the IT marketplace and the internal domain focuses on how the internal Information Systems should be managed. To acquire an adequate fit that delivers benefits to IT investments a strategic fit between internal and external domains is needed. Benefits can be realized by finding a fit between internal and external IT applications and platforms.

Between IT strategy and business strategy there is also a need for functional integration that takes note of the impacts each has on another (Henderson et al. 1993). This way, more value can be realized from investments in IT as they take note of the business strategy and goals the organization has. IT effects on business performance varies across organizations, because of the ability to achieve a link between business and IT strategy (Rai et al. 1997).

The need for strategic alignment of IT

IT has evolved from an administrative role towards a strategic role that can support and shape business strategies. Yet sometimes there seems to be an inability to realize value form IT investments. Henderson et al.(1993) argue that this is due a lack of alignment between business and IT strategies in organizations.

Trying to achieve strategic fit between the dynamic internal support structure and the external product-market is a continuous process of adoption and change. Exploiting IT functionality on a continuous basis can deliver sustained competitive advantage. Organizations try leveraging their IT capabilities to differentiate operations from their competitors and use these capabilities to shape and support their business strategies. This underlines the importance and value of aligning both strategies in organizations.

Technology Investment and Business Performance

Rai et al. (1997) argue that when calculating the return on corporate IT investments focus must lie on the links between IT, business strategy and competitive context.

While IT likely improves organizational efficiency the effect on business performance varies across organizations, because of the firm’s management processes links with IT strategy. This emphasizes the need for linkage between IT and business strategy.

IT investments are often not well measurable with ROA or ROE. This paper suggest to break down IT investments, not treating as a whole entity and following an justification process that considers specific objectives of the proposed investments. For example investments aimed at reducing labor costs can be justified on the basis of cost savings

Corporate governance of IT

Raghupathi (2007) recognizes the value of internal and external strategic fit (Henderson et al.1993) and argues that modern IT governance should formulate strategies according to this model.

IT Governance can be defined as: “The organizational capacity to control the formation and implementation of IT strategy and provide direction to achieve competitive advantages for the corporation”. IT is critical for supporting and enabling enterprise goals. Effective ITG can generate real business benefits like reputation, trust, product leadership, time-to-market and reduced costs. These benefits all increase stakeholder value.

This emphasized the alignment of IT objective with business strategy. IT governance cannot be an isolated activity and must be part of top management. IT Governance is changing: ”Boards of directors are beginning to look beyond the accounting roots of IT governance toward the risk of legal liability and harm to product brand and corporate reputation.”

Conclusion

Inability to realize value from IT investments is due to lack of alignment between business and IT strategies in organizations (Henderson et al.1993).

There is a need for strategic fit between internal and external domain of IT and a functional integration between business and IT strategy (Henderson et al.1993). To achieve this alignment IT governance cannot be an isolated activity and must be part of top management (Raghupathi, 2007). Modern IT governance should formulate strategies according to this model that recognized the value of internal and external strategic fit (Raghupathi, 2007).

I argue that social media strategy should be aligned with the business strategy of organization to achieve successful investments. With the growth of social media importance in organizations it should become part of IT governance. Where the ”Boards of directors are beginning to look beyond the accounting roots of IT governance toward the risk of legal liability and harm to product brand and corporate reputation (Raghupathi, 2007).”

Organization strategy formulated in value disciplines

Treacy and Wiersema(1993) presented the value disciplines model that describes three value disciplines that can help define the main focus of an organization’s business strategy, helping the organization to make strategic decisions. Choosing one will shape strategy and operational decisions in a company. These value disciplines are guidelines for organization strategy and in order to be competitive organizations need to maintain an acceptable level on all three disciplines while excelling in one. The three value disciplines are:

Operational excellence:  Aims at offering the best total cost. Optimizing internal and external processes to minimize costs. The focus in the organization is on standardization and streamlining of operations, efficiency and low total cost. Most large international corporations like McDonald’s, Wal-Mart and Dell focus on this discipline. (Marc Eichen, 2006)

Product leadership:  Aims at offering the best product or solution. The focus in the organization is on R&D, design and innovation. Organization structure and culture need to be flexible to stay ahead of competition and offer cutting-edge solutions to customers.

Customer intimacy: Aims at offering the best solution and focus on customers to maintain long-term relations and growth. Continuously tailoring and shaping products and services to fit customer needs. Organization structure needs to be flexible, close to the customer and solving the customer’s problem has to be put above all.

Marc Eichen (2006) argues in his article “Value disciplines: a lens for successful decision making in IT” that the value disciplines are a good method for IT strategy decisions to be aligned with the institutional goals of organizations.

Conclusion: Value disciplines: a lens for successful decision making in IT

Formulating organization strategy in terms of choosing one value disciplines gives and clear view on the business strategy of an organization. Having this clear definition helps communicating the strategy to the rest of the organization.

Operational excellence, product leadership and Customer intimacy can all be used to formulate the goals of IT strategy and shape strategic decisions. I argue they should be used by organizations as a starting point from which to formulate their social media strategy. This way the social media strategy will have a basis that is aligned with the business strategy of the organization.