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A new article in Strategy+Business argues the banking crisis arose not from individual actions, but a flawed, quixotic approach to risk. Actually, businesses that engage in social networking may well help those same businesses reinvent how they manage risk management.

(Read the original article at http://www.strategy-business.com/article/00019?pg=all)

Risk management is part of every business: how to identify the best products/services; finding the best employees; and so on. But traditional risk management has not been transparent, and many of our biggest problems have come from small problems that silently grew until they were too big to ignore, too big to dismiss, too big to fail. 

For example, part of the banking crisis arose because CEOs were no longer able to understand the instruments their “quants” were developing. At the same time, businesses increased their reliance on third parties for their “professional” judgment. Plausible deniability allowed individuals to detach themselves — legally and morally — from the system in which they were working. 

Social media will allow businesses to better manage risk by fostering insight, accountability, and culture: 

(1) Insight - just as Twelpforce allows Best Buy to deploy the right employees with the right expertise to consumers with specific issues, businesses will be able to put the right information in the hands of those making a decision, cumulatively eliminating much of the variance from poor decisionmaking. 

(2) Accountability - Google employee DeWitt Clinton recently shared some interesting insights from her first few days using Google Buzz. Likewise, organizations will be able to “keep score” by finding ways to quantify heretofore unquantifiable interactions. Insight will enable firms to find ways to push personal accountability down to those who are closest to the action.

At many five star hotels, concierges are often the keepers of information. Meeting planners often don’t have access to certain information, like what local restaurants might be able to host smaller, satellite meetings. As information silos break down and answers are more easily shared, guests will be able to get timely, useful information from any employee. 

(3) Culture - Organizational silos have historically led to rigid job descriptions and hence tasks tended to be compartmentalized — i.e., “That’s not my department!” Social networking encourages employees to look across the boundaries of their jobs and to understand the implications their work has for others. Unlike corporate-driven initiatives, which are based on the executive suite’s perception of the environment, social networking shifts to real-time consumer insights, providing employees with real challenges and hence a more authentic sense of urgency that comes from understanding that where there is smoke, there is fire. 

Social media has shown that the poor judgment shown by juvenile employees can lead to international derision and real consequences. The banking crisis, instead of being a complete loss, provides a rich context for understanding where risk management goes wrong and how it can be improved. While banks clearly overextended themselves, the root cause was not individual bad judgment, it was formalization: the institutional bad judgment that comes from habitual reliance on regulations and structures (or, as Max Weber defined it, bureaucracy) to control activity. When employees can connect the dots between their actions and consumer activity, stakeholders win.

Borrowing a page from Buddhism, the quality of relationships on Twitter, like any relationship, are based on three things:

• First, an honest understanding of one’s own capabilities.
• Second, the ability to listen and learn.
• And those two factors, put together, determine the ultimate potential of the relationship.

I’ve worked on “search as a retail support tool” projects for close to 20 years. I’m not a PR person, I’m not a brand manager, nor am I a social media expert. But I try to add value, and here’s how:

• As a perpetual student. I follow people who demonstrate domain expertise. I read their tweets, sometimes follow their links, and occasionally I ask a question (after trying to find the answer first).  Between following people and using search, Twitter has made me much more aware of the back story behind many of today’s headlines.
• As a curator. I’m a voracious reader and I try to share links to interesting things. I also try to connect like-minded people together. I hope to add value and demonstrate domain expertise to people who either follow me or discover me via search.
• As an analyst. I review the revenue opportunities of new approaches and new technologies, as well as the potential pitfalls. I know a single morning of angry phone calls can wipe out six months of hard effort from dedicated team members. Why take stupid chances?
• As a demo platform. With attention spans getting shorter than ever, I believe more and more people are from Missouri, the “Show Me” state. People want to see demonstrations and explanatory videos to help them become more comfortable with technology.
• As a contact center. I could not manage the same number and diversity of conversations if each one were done over the phone. While I have many short discussions with people using Twitter, it’s useful to shift some of those conversations to DM, and if warranted, to email or phone. Businesses who track their contact center costs use a similar strategy to shift less-profitable yet important conversations.
• As product research. You may notice many of my links are “go.twavl.com” links instead of “bit.ly” or “ow.ly”. I’ve been working with Google for over a year on a project that turns any domain into its own short link namespace. Also, after noticing the success @jbernoff and @pogue had with using @reply to unlock the value of their followers (Josh’s example here, David Pogue’s example here), I developed Private @ Reply, a way for organizations to get instant replies from lists of followers even if those followers are not hardcore Twitter users. Using Twitter along with tools like Clicktale let me go beyond what people say and understand more about what people do.

A few people have noted that I tweet too often - or sometimes change direction on them unexpectedly. There’s a simple solution. Although I would hate to see it happen, one can simply opt-out. In the future, you’re going to see more people opt out, as people learn how to improve their Twitter listening skills.

I hope to see you on Twitter. If you like what you’ve seen so far, please add me as a contact either on Twitter, LinkedIn or (surprise!) Google. (I’m also on Facebook but I’m trying to track down a bug where vanity URLs don’t work if you’re not logged in.) Also, one of the keys to Twitter is to not only add people you know, but add people you’d like to know. I work with Jeremiah Owyang on his “Corporate Social Managers” and Melissa Hourigan on “MediaOnTwitter”, you should check them out.

So, how do you use Twitter?

I like sports metaphors when describing social media. We’re in the early innings of learning how to use social media, and while there are a lot of blog posts on what to do as the game begins, there are few examples of how to manage the game during later innings.

I’ve distilled our experience into the following chart. The chart describes an organization’s natural progression through the early stages of using social media to later phases, when it’s more important to engage consumers on an ongoing basis.

• The chart reads left-to-right, starting with the conceit that customers will become more and more demanding. Initially, organizations try to attract followers, viewing social media as an extension of loyalty programs. Items in boldface are initiatives we’re working on.
• As organizations become more sophisticated, they’ll use the Internet’s ability to conduct A/B research to test offers before going to the masses. Google’s recent TV ad on the Super Bowl was a great example of this. For months countless people clicked on the “Parisian” ad over all the others, so Google knew people would like it before it made its buy.
• As organizations get smarter they shift from “one size fits all” and start targeting by geography and occasion. @WholeFoods and @RitzCarlton are just two of dozens of brands that are rolling out local accounts after determining a single presence inadequate. In the next week, @MGMGrand is launching individual Twitter accounts for each restaurant at the popular Las Vegas resort.
• As the number of accounts proliferate, organizations face serious challenge scaling their efforts. @BestBuy has attempted to address this using SMS text messaging to give employees the ability to look up information on individual SKUs, and using @Twelpforce to manage employee knowledge.
• As @BestBuy scales its workforce, it will use insights from thousands of consumer interactions to challenge its vendors to do more. In this regard, it is no different than the relationship between Wal-Mart and Coca-Cola. Organizations will find ways to help their customers sell more effectively to consumers.
• The destination is a point where many organizations know where their consumers are, and they orchestrate their employees and partners around the highest-value opportunities.

What do you think?