Web 2.5: The Social Enterprise - Part II

The Software technology industry is curiously different from most other large industries, in the sense that large Enterprises in this space often lag behind small startups and even individuals in adopting cutting-edge technologies.

It is hard to see this happening in, say, automobile manufacturing, where it was the large companies that first deployed robots; or in industrial process control, where refineries for the large oil companies first employed sophisticated techniques in plant-wide management; or airplanes, where commercial pilots for the large carriers routinely have access to tools denied the general-aviation enthusiast. A primary reason is the cost of new, cutting-edge technology, which is often very expensive for the early adopters until it gets mass-produced, so that only large companies can afford it. On the other hand, it is often the other way around in software development; individuals and small companies show widespread early adoption, usually before the large Enterprises.

Here are some examples to illustrate:

• Instant Messaging: it was initially widely used by the younger set; now it's commonly used for internal communication within companies
• Web Browser: at the beginning, using a brower was actually forbidden in large software companies because it would "reduce productivity" - now even my bug tracking tool uses a browser, as do many of my other corporate tools
• Cheap, rapid development using the LAMP Stack and Ruby on Rails: admittedly, this approach is not quite there yet, but the concept of rapid iterations is definitely percolating in the Enterprise
• Online Office software to replace MS Office - certainly this not there yet, either, but the price differential for online (or other) free Office suites is so large, I'm guessing it's a matter of time; this is also true for the ASP model in general

Root Causes

Why does this happen? Why do the IT Departments of large software companies inevitably fight new technologies, while small, aggressive startups (and forward-looking individuals) jump in with both feet?

The answer lies in the differing risk profile and focus for these two groups:

1. The risk profiles are exactly opposite: the big enterprise, in the form of their IT Department, sees large risk and little to gain by embracing new, "unproven" technology and often doesn't encourage innovation; the small, aggressive startup sees exactly the opposite - a possible competitive advantage, and little to lose. For a startup, the real risk is in NOT being disruptive!

[This is analogous to classic strategies used in the game of chess: if you're playing against a much weaker opponent, the best approach is to try to keep things as simple as possible and avoid making any serious mistakes; by keeping things steady, you're very likely to win in the long run. Conversely, the exact opposite is true when playing against a much stronger opponent - the best strategy is to try unusual approaches or disruptive moves, in an attempt to get your opponent off-balance; if you can force a blunder, your chances of winning improve significantly.]

2. The focus is different as well. Small organizations value efficiency, effectiveness and convenience - indeed it's their life-blood; in a large enterprise, employees get paid anyway even if their processes are inconvenient or inefficient.

Opportunity Gap

Thus, this is a recurring opportunity gap - if you can find technologies that are peaking at the top of their individual adoption trend, then there's a stong likelihood that they are just starting on their adoption curve in the Enterprise.

Which brings us to the present: if Social media is indeed topping out - if the web 2.0 window is closing for small startups - then if the above theory is accurate, we should see a strong upswing in 2007 in the adoption of Web 2.0 principles and social media by large Enterprises, especially in these areas: Collective Intelligence, Tagging / Folksonomies for sharing common knowledge, communication tools based on internal Wikis, blogs, feeds and managed mashups. This trend should become clearer in the next couple of years.

On the other hand, major barriers to the adoption of "Enterprise 2.0" persist: its perception as "sheer hype" (see Paul Kedrosky's presentation ), management fears about the risks of this new set of technologies and most important, the mindset change required for its application and effective use.

Can the Enterprise change?

This theory also invites the question: Is it possible to provide a safe, low-risk environment inside the enterprise where employees are encouraged to try and fail? This is where the game-changing ideas will come from, the concepts that are revolutionary rather than evolutionary. Does Google's 20% time fit here? (How about Yahoo's Brickhouse ?) Equally important: how long will the 20% strategy last when profits start falling? Time will tell ...

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Comments

[Bart Stevens]

The big challange for the current enterprise sofware providers is how to scale down the immense list of features they have today, and make it into something extremly easy to use. By doing so you make the barrier to entry lower, cheaper and with less risk. Once this taking of you can start with bronze, silver and gold subscription upgrades. But the hardest part is which features to skipp and which one not ... Very difficult ...
The company I work for is doing a similar exercise. If you are interested look at http://www.somethingiscooking.com/

[Andy C]

Nice writeup. I've always liked the idea of treating your internal groups like micro-companies. They need to be self sufficient and can take loans out against the great org. The greater org will provide basic services like an incubator, etc. Then your costs are marginalized, hopefully supported by well run business units and everyone can be responsible. If a business unit doesn't work out, you collapse the unit and re-appropriate the teams based again off some metrics.

If you raise the right culture then you're probably going to have more success than less and maybe it's all idealistic though..

In the end once people achieve success they (generally) don't like to change. You need to grow your overarching principles early or the next CEO will just march to the tune of the profit line and if not careful will kill any company for being too nearsighted. My mind goes back to the Southwest Airlines style examples.

-a