Developing a social media strategy framework for financial enterprises
March 14, 2023
Financial institutions require innovations to sustain their businesses. In the current business scenario no organization can survive without innovating and firms can no longer manage knowledge autonomously. This essay outlines a stepwise process that is based on the principles of open innovation, which can be adopted by financial firms in order to develop social media strategies. Processes and diverse experiences gained from open innovation initiatives studied across three continents (Asia, Europe and Australia) during my PhD in management make me believe the ideas need to be shared for creating a global perspective and model for innovation management.
What is Social Media?
Before discussing how social media can influence organizational business models and how organizations can leverage social media to gain direct access to its customers, I will provide a direct and clear definition of what is Social Media and will also provide a definition closest to the usage of Social Media in this essay. Web 2.0 and user developed content refers to the usage of World Wide Web (WWW) in which the end users continuously create or modify the contents and its no longer just usage of published information or data. Social Media is a group of Internet-based applications that build on the ideological and technological foundations of Web 2.0, and that allow the creation and exchange of User Generated Content (Kaplan & Haenlein, 2010). Kaplan and Haenlein (2010) also classify Social Media into six categories based on the social presence and presentation level of the media.
Social Media enable joint and collaborative creation of information that is relevant to many end users and from the perspective of corporate, they should be aware that the collaborative information created is becoming the main source of information for decision making for their end customers. Now I introduce the concept of open and collaborative innovation in business models and how this can be effective used in a step wise process by the financial enterprises to create a direct relationship with their customers.
Introduction to Open Innovation
Open innovation is based on the concept of abundant knowledge. Open innovation strategies develop outcomes that are able to traverse the firm's boundaries rather than being held within the firm’s boundaries. Open Innovation is defined as a “paradigm that assumes that firms can and should use external as well as internal ideas, and internal and external paths to market, as they look to advance their technology” (Chesbrough, Open Innovation: Researching a New Paradigm, 2006). Apart from the internal technology base and ideas an organization possesses, there is a huge unknown/inaccessible external idea base outside the boundaries of organizations. Open Innovation strategies give access to such technologies and also provide provisions to share internal technologies and ideas when the business prospects are higher in a collaborative environment.
Social Media provide opportunity for organizations to directly connect with their customers. Discussion forums, blogs and even profiles of clients can provide information to organizations on their requirements. In the same way, the social media can help organizations be more open to their clients and provide information in a faster and informative way. Few of the recent studies, re-iterates how social media are being effectively used by financial firms to provide clear messages to the clients1, providing provisions to trade in Social Media platforms like Facebook, and providing customized financial advisory through platforms like Twitter and LinkedIn. The question we address here is
Do you have/want a Social Media Strategy and if yes, how to effectively do so?
We now discuss a step-wise process in developing and implementing a Social Media Strategy framework for financial enterprises
Step I: Business Model Transformation
The functions of a business model are to articulate the value proposition, identify a market segment, define the structure of the value chain within the firm required to create and distribute the offering, and determine the complementary assets needed to support the firm’s position in this chain; estimate the cost structure and profit potential of producing the offering, given the value proposition and value chain structure chosen; describe the position of the firm within the value network linking suppliers and customers, including identification of potential complementors and competitors; formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals (Chesbrough & Rosenbloom, 2002), (Chesbrough, 2003). The initial step in gaining value from the open framework will be the transformation from traditional business models. The value network in your business model is going to change, and hence the organization should be willing to share revenues and risks with the partners and also this will lead to a direct connect to your value chain partners including clients.
Step II: Identifying the Appropriate Strategy
Once the firm is ready to go open, the second step should be identifying the appropriate strategy on which of the areas or functions the organizations is going to open up. Are the financial products going to be revamped according to client requirements? Are the advisory platforms going to transform? Are you going to create new products? Is the organization going to create a roadmap for future growth by better understanding of the external environment and client requirements?
Firms will have to perform proper research on these questions or create more, and then finalize the areas which are going to be opened to its customers and other value chain partners. Three pointers in this stage would be
Knowledge strategy (Exploration or Exploitation): Exploration when organizations are searching for a new opportunities and exploitation when an opportunity is already identified.
Innovation objective (Differentiation or Revenue Generation)
Step III: Strategic Alliances with Complementary Firms and Customers
This step ensures the right degree of openness has to be created. Each of partnerships can develop a particular kind of benefit for the firms along with divergence from current models. Strategic alliances will help in developing niche products and markets by partnering/acquiring other financial service providers, creating an entirely new market though research partnerships, etc. Alliance with customers can lead to better understanding of their requirements and thereby improving product and service diversity, predicting customer need changes and environmental uncertainties. The partnerships should bring in complementary assets to the firm. Hence, step III should ensure right degree of openness, i.e. right number of partners, their variety and stages at which these partnerships have to be created and this has to be linked with strategies developed in stage II.
Step IV: Right Choice of Social Presence
As mentioned in Table 1, firms have a choice of social presence in six different categories based on the richness of media and presence/disclosure level required. Financial firms should have a direct connect with their clients. Hence the Disclosure Level should be high. Clients once they get to know they get personalized services and their inputs are getting implemented will be more satisfied and at the same time their level of participation and commitment will increase. At the same time, the Media Richness should also be high or moderately high. Social Networking sites like Facebook, Twitter etc can be used for forum or connect creation. A medium creation (such as a virtual world of financial services and products created by the community members) would be the right choice. Getting access to the community should also be simple (can be provided through connection in the existing platforms like Facebook or Twitter).
Right choice of media and content creation will be the most important investment and step in ensuring the Social Media strategy is appropriate.
Step V: Creation of an Ecosystem
Next stage in the innovation process is the creation of an ecosystem for managing partnerships and creation of success stories. Policies, mechanism for accessing and managing knowledge across organizational boundaries, and sharing the results of innovations are essential aspects of a good ecosystem for innovation. The roles to be played by every stakeholder, expected results, project guidelines and stand-by measures to handle unexpected outcomes should be set before the start of the process.
Step VI: Publish the Outcomes
Once the firm has the right social image and right degree of openness, publishing the outcomes and receiving feedback will ensure periodic changes in the process are appropriate and will also attract new segments of clients. The publishing process can also lead to standardization of the policies and mechanisms used in the sector.
Innovation is an essential aspect of organizational success and growth which is often requires a good connect with the end users of the innovation. This essay outlined the principles of open innovation and social media strategies along with a set of guidelines that can help organizations create a proper channel to connect with clients and create an appropriate social media presence.
Chesbrough, H. (2003). Open Innovation: The New Imperative for Creating and Profiting from Technology. Boston: Harvard Business School Press.
Chesbrough, H. (2006). Open Innovation: Researching a New Paradigm. New York: Oxford University Press.
Chesbrough, H., & Rosenbloom, R. S. (2002). The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology spin-off companies. Industrialand Corporate Change , 529–555
Kaplan, A. M., & Haenlein, M. (2010). Users of the world, unite! The challenges and opportunities of Social Media. Business Horizons , 59-68.