The Hidden Risks of Social Networks

Not to throw cold water on anyone’s exuberance, but social networks could destroy your sales strategy, and your company along with it.

Why? Because technology and the Internet propel unplanned situations and events at unprecedented speed. So it’s important to recognize that the same social forces that create significant value also have the power to annihilate it. How you manage the risks will determine whether history will judge you to be a New Media Ninja or another unprepared victim. While new media and social networking present boundless opportunities, no discussion is complete without asking what could go wrong, and what actions should be taken.

Risk Silos

Consider the catastrophic outcome that Bob Furniss shared in which a disgruntled 15-year-old started a FaceBook group called "ACME Tied to Kill Me."

As he described it, “She outlined her dissatisfaction. Suddenly, there were others who joined the group. Soon there were hundreds of links to personal and business blogs and complaint sites.” Twenty years ago, an unhappy teenager would have limited capacity to disseminate a product grievance, and would not have posed a measurable threat. That was then. This is now. The CRM breakdown likely led to a significant financial problem for the company. How many times do you think Acme’s Director of Customer Support said “Woulda . . . Coulda . .. . Shoulda” when he met with the company’s board?

How did ACME blow it? By failing to manage risks across the organization. CRM risks ARE financial risks. Unfortunately, many organizations like ACME silo risk management in the same way as they do business processes and information. Could this problem have happened if ACME’s VP of Customer Experience warned their CFO that through the Internet, an unhappy customer could singlehandedly undermine her best cash flow projections? Or, if the CFO had considered how events outside of market cycles and interest-rate fluctuations might put her imperil her financial planning? What preemptive actions could ACME have taken? In the absence of such strategic planning, the unprepared ACME managers must have appeared like deer in the headlights to this media-savvy kid.

For companies that value brand identity, social networks create unique risks as well. For example, a vexing trend is for consumers—not marketers—to use social networks to define product and brand attributes. While social media create the opportunity for products to better match required consumer outcomes, this shift in information power underscores the importance of asking the right risk-related questions:

• If we lose control of product designs and life cycles, what strategic risks would we face?
• What if the resulting product design or image is one we don’t want, can’t support, or both?
• What operational challenges could occur if we can’t manufacture the desired products in the right quantity at the right time?

While the operational questions highlight risks that companies have faced and managed for many years, social networks have rendered past mitigation strategies obsolete, so new strategies must be developed.

Strategy risk

In his article, Like On-Demand, the Social Web May Have Unintended Consequences for Businesses, Denis Pombriant highlighted another set of risks. He writes, “My bet is that social computing will provide us with an avalanche of new data from customers that must be analyzed, and that's where I think we can look for unintended consequences.”

Those unintended consequences are the associated risks of implementing the wrong strategy, or implementing the right strategy the wrong way. According to Denis, one risk is “that we take the new information we collect too seriously and that we fail to perform analysis and challenge the results. If that happens, look for companies running off in strange directions chasing what amounts to unicorns. The odds are that some companies will fall into this self-baited trap...”

Reputation Risk

If you’ve worked in sales for few years, you’ve probably heard a manager in your company say “If we can just get meetings with the right people, our product sells itself.” Clearly, the best products in the world can’t be widely sold if influential people don’t know about them.

Based on that imperative, it’s easy to understand why social networking tools are vital for reducing sales risk.

John Todor explained why in his CustomerThink article, Social Networks and Online Communities Create Elastic Ties and Surprisingly Powerful Pay-Offs: “The power of online social networks comes, not from whom you know directly, but from the people the people you know know. People who actively pursue weak-tie relationships stand to gain substantial benefits. They can quickly take advantage of emerging opportunities, find collaborators, find jobs, find employees and build a pool of advocates.”

Barry Trailer’s blog provides empirical proof:

“For a test, 30 sales executives were selected to interview. Using LinkedIn members of our network were asked to facilitate an introduction to these people we had never met. Surprisingly, 29 of these individuals accepted the request and passed it on to their contacts with a personal note of introduction. More surprising, 23 of those targeted executives (including people in Europe and the Far East) accepted our request, and offered to consider helping our research effort.
In follow up, 18 of the 23 participated – a 60% hit rate! A much more favorable result compared to cold calling.”

But these discussions don’t tell the risk part of the story. As I’ve learned the hard way, prospects hold very high expectations from social connections, and underperformance in the sales process causes backfires that can remain ugly. For example, one company I worked with believed its account executive was so well connected in a prospect’s organization that they didn’t apply customary rigor to navigating the steps to the sale. “No need for account qualification, value propositions, or financial justification because we know Joe through Steve,” they said. They were wrong. Not only was Joe disappointed, but he called Steve and asked “How did you ever get involved with these guys?” Beyond the introductory social connection chit-chat, somebody still needs to sell something. Complacency gets in the way.

Further, I was struck by a certain irony as I read Barry’s findings. Although we admonish our school-age children to be wary of social networking tools on the web, the high ratio of invitation acceptance he describes suggests that executives don’t exercise similar caution (albeit they need to do so for different reasons). Does the risk of a damaged reputation seem so remote that executives readily accept requests from cyber-strangers to endorse them? Will the current success ratio Barry discovered diminish as social networking becomes more mature, and executives learn how carefully-built reputations can become damaged? Will we see a similar wave of caution as we did with chat rooms, FaceBook, and MySpace?

Stay tuned.

(Apologies to Rob Cross for corrupting the title of his excellent book, The Hidden Power of Social Networks.)