Social Media? 

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Raveena Mital's picture

Social Media?   Published June/15/2012

Are Twitter  “tweets” or Facebook “posts” things that only relate to our individual daily lives? No; social networking sites like these have larger implications. On the whole, social media has changed not only the lives of people, but even multinational corporations. Consider Amazon.com or eBay- they would not have been possible without the social media technologies. Moreover, stores such as Walmart have opened online bookings alongside with their physical warehouses to make lives easier. All this is due to the change brought over by social media.

The same applies to financial firms. Their business models also need to evolve with the changing social media. In fact, as the article by Taylor in The Financial Times mentions, financial firms are very quick to adopt social media changes. This is because such networking sites are a great tool for these institutions to meet and communicate with prospective clients & personnel. It is in other words, a very efficient window between a firm’s internal parties and external parties. It can also be used to improve services. For example, Zecco is an online stock brokerage, which allows customers to trade through Facebook, while Amex has launched the OPEN forum and stays connected with Facebook pages and an official Twitter account with others.1 Thus, the positive changes are everywhere. This essay seeks to analyze how social media impacts financial firms’ business models. It specifically uses the “Triple S” Approach to highlight how social media will bring about a change in three key areas: Strategy, Structure & Security.

To begin with, social media will likely call for changes in a financial firm’s strategy. Before, the emphasis was on providing quality service or expertise to a client in a closed office; but now that focus is broadening. Firms have to be able to serve clients from all over the world in their business models. Moreover, the concept of speed must be incorporated in everything a company does; this is because time is of great essence and thus the speedier a firm is in providing its quality products or services, the better its client portfolio. An example would be Credit Suisse; its “ClientView” program gives its clients the opportunity to access accounts and get cost information before liquidating positions online.Hence, it can be seen that through this personalized website, Credit Suisse has actually broadened its reach to a range of customers; people can sign up for this service and access information no matter where they are.

To continue, another key change that social media brings to financial firms’ business models is in the area of Structure. That is, how the company designs its organizational structure to deliver maximum value to its clients. Traditionally staff recruitment processes were very localized; in other words, companies would advertise job openings in newspapers and then interview possible candidates personally with the appropriate qualities. This was considered to be the best way to reach people of the highest caliber within the local territory. However, this has now changed because of social media. Through open informal forums and networking sites such as “LinkedIn”, companies can expand their spectrum to search for employees all over the world. Hence, local territories hold no meaning in financial firms’ business models/organizational structure. Candidates can easily upload their CVs and important details online and companies can then select the most appropriate ones from a large pool. Thanks to the growing information technology, even if the chosen candidate lives abroad, he/she can easily work for the office from overseas electronically through the Intranet. An example of this would be Apus Investments, which is a type of hedge fund founded in 2007. Upon interviewing the founder and CEO of the company, Mr. Peter Sin Kim, one finds that although this firm has less than ten staff members, many of them are dispersed across the world. Instead of working tightly together in the head office in Korea, many of the top officials communicate and work electronically. Instead of fearing such a web-based organizational structure, Mr. Kim actually quotes its benefit; he feels that being able to pick the finest of the fine employee for his company through social media worldwide is much better than working with only the ‘local talent’ in a particular country.3 Yes, even though he has to break the rigid traditional organizational structure, the benefit a financial firm gets from the immense talent of world markets from the staff members and instantaneous response by each, makes it worth it.

However, financial firms do not always have to search on networking sites to find the right employees. They can also create an official Facebook page to let possible candidates know of all the latest happenings relating to recruitment. An example would be Ernst & Young’s Facebook page on recruitment talks and events in Hong Kong (http://www.facebook.com/EYHKcareers?ref=ts). The page not only provides details on important events, but also posts pictures of possible candidates to showcase the culture and job “life” of the Hong Kong office. This really gives users who “like” this page a good overview of what to expect. Since the team is also quick in responding to queries, this page is also used as a forum to ask basic questions. By giving out the standard before hand, Ernst & Young can not only attract many more candidates to its Hong Kong office, but also reduce frictional unemployment problems that may arise when people select the jobs that do not match their characteristics. Clearly, social media is a big help here.

 Moving on along the “Triple S” Approach, social media can impact another major sector of financial firms’ business models: security. One must not forget that there are two sides of the same coin. Although the speed and quality of electronic social networking sites makes work more efficient, it also brings with it cyber-crime. As many nameless, faceless users enter into the online world, cyber-crime has skyrocketed over the years and is expected to further increase in 2012 as analyzed by Support Squad company.4 This is a serious issue since Internet crimes lead to a chain of serious incidents that include abuse, fraud, and even murder. For financial firms that deal with stocks, options, or services relating to peoples’ savings and huge investments, security measures are a must. Even one fraud or misuse of a client’s account can scrap the image of the entire firm. In fact, this is the reason that many firms use Twitter more than Facebook because the latter is considered as “unsafe”.5 Hence, financial firms have to invest more into security systems, along with new information technology in order to keep up with this new trend of social media. This heavy investment may cause it to modify its business model since it may now not be able to spend more on physical aspects (such as maintaining a luxury office environment) to spend more on the cyber world. However, this one issue does not undermine the positive changes the social media brings since there is now great help available for firms to learn and adjust security. An example would be the global organization, ICSPA (International Cyber Security Protection Alliance), which works closely with businesses and other actors to fight back online crime.6 Financial firms can work with such kinds of organizations to make the most of social media.

 Overall, as it has been explored, social media has brought upon many changes to the society, impacting the business models of many firms. Among them are financial firms, who have taken a number of steps in the Strategy, Structure & Security sectors of their business models in order to adapt with this style. However, the changes do not end here. Firms have to grapple with many factors when adopting social media- an example would be making the tradeoff between technological advancement to promote social networking, and environmental preservation. Moreover, these financial firms have to make sure that these new steps to evolution do not hurt the company culture and staff morale- otherwise that can hurt the firm itself. The technology of social media must really be weaved into the business model at all steps, instead of forced in like an external factor. An example would be Credit Suisse’s business model. Currently, it has a triangular relationship between itself, its asset manager and the client.7  The figure below shows its current model:

 

 

However, with the change brought upon by social media, the business model would have to look like: 

 

As the above picture shows, technology is a center aspect that needs to be incorporated in each step of the Credit Suisse process. Social networking sites, open external forums, and client-employee intranets are just some of the forms that will enable the firm, its asset managers and the customers to come together on a platform for easy communication. This will benefit the company in terms of maintining better relationships with clients and the customers through improved service. Hence, it can be seen that the impact of social media on the business models of financial firms is largely positive.

References: 
  1. Paul Taylor, Financial services firms embrace social media, Financial Times, http://www.ft.com/intl/cms/s/0/5218321c-85a7-11e1-90cd-00144feab49a.html... (May 30, 2012).
  2. ClientView Login Screen, https://www.credit-suisse.com/us/privatebanking/en/demo/index.jsp (May 25, 2012).
  3. Peter Sin Kim, personal interview, February 27, 2011.
  4. Fort Lauderdale, Cyber Crime Expected to Increase in 2012 – SupportSquad Offers New Hacker Protection, http://www.prweb.com/releases/2011/12/prweb9024005.htm (May 16, 2012).
  5. http://www.ft.com/intl/cms/s/0/5218321c-85a7-11e1-90cd-00144feab49a.html....
  6. About Us, https://www.credit-suisse.com/about_us/en/ (May 27, 2012).
  7. Our Business Model, https://www.credit-suisse.com/externalassetmanagers/en/organisation/gesc... (May 30, 2012).
  8. Dyer, Pam. (Aug 14, 2011). “10 Tools for Measuring Your Social Media Influence.” Retrieved Jun 2, 20120, from http://www.pamorama.net/2011/08/14/10-tools-for-measuring-your-social-me....
  9. Kiousis, Spiro., Popescu, Cristina., & Mitrook, Michael. “Understanding Influence on Corporate Reputation: An Examination of Public Relations Efforts, Media Coverage, Public Opinion, and Financial Performance From an Agenda-Building and Agenda-Setting Perspective.” Journal of Public Relations Research, Vol. 19, No. 2 (Jan 07, 2011), p. 147-165.
  10. Kotler, Philip., Armstrong, Gary., Ang, Swee Hoon., Leong, Siew Meng., Tan, Chin Tiong., Hon-Ming, Oliver Yau. (2009). Principles of Marketing: A Global Perspective. Singapore: Pearson Education South Asia.
  11. Laudon, Kenneth C., & Laudon, Jane P. (2010). Management Information Systems: Managing the Digital Firm. United States: Pearson Prentice Hall.
  12. McLaughlin, M. (Jun 07, 2011). “Social Media: Financial Firms Embrace Social Media.” CNBC. Retrieved May 25, 2012, from http://www.cnbc.com/id/43257669/Financial_Advisors_Tiptoe_Into_Social_Media.
  13. Scholte, Jan Aart. (2005). Globalization: A Critical Introduction. New York: Palgrave Macmillan.
  14. Social Media Influence. (Jun 01, 2012). “Fearless and connected : what it takes to succeed in digital business.” SMI: Intelligence in Social Media. Retrieved Jun 02, 2012, from http://socialmediainfluence.com/2012/06/01/fearless-and-connected-what-i....