Here are a few of our thoughts about how social networking is changing business excerpted from the book "PR 2.0: New Media, New Tools, New Audiences." Deirdre Breckenridge, the author and PR 2.0 guru, interviewed Neal Gorenflo, our U.S. executive, for her book's "Ask the Experts" section.  This is the first in a series of posts that will excerpt the interview.

Deirdre Breckenridge: How is social networking changing the way companies do business?

Neal Gorenflo:  It’s changing the way companies do business in a fundamental way, but we’re still in the early stages of what I think will be a fairly comprehensive restructuring of our society brought on by social media and the culture of participation that it’s fostering.  So it’s not just business that will be changed, it’s everything.  My perspective is that communications systems are foundational, that when a society shifts from one communication model to another, then all institutions in society get reinvented according to the logic of the new medium.

This is happening as we shift from the broadcast paradigm epitomized by TV to a network model of communication epitomized by social networking.  Identity, law, politics, culture, and business models are actively being reinvented as we speak.  And while I believe we are early in this transformation, it’s obvious that businesses take social networking seriously.  We already see social networking and social media applications supporting businesses in a wide range of functional areas including sales, public relations, customer service, product development, human resources, and knowledge management.

I think the key thing to focus on here is how social networking shifts power, and in the business context that means shifting power from producer to consumer.  The flattening of organizations and the decentralization of power brought about by earlier forms of network communication technologies like e-mail is being radically extended by Web 2.0 technologies like social networking and Blogs, to the point that the distinctions between producer and consumer are dissolving and consumer power is being radically enhanced.  Technologies like LANs, e-mail and intranets enabled companies to push power to the edges of the organization, but with the advent of Web 2.0, it being pushed beyond the formal boundaries of the organization to consumers.  The organizational pyramid is being turned upside down.

And this will be hugely beneficial for business.  I think the power shift will result in better and, even more importantly, more relevant products.  For instance, businesses are adopting the practice of engaging customers in deep and meaningful ways in every stage of the product lifecycle. This is borrowed from the software development community.  And social media robustly enables the process.

The Firefox web browser is a radical example of this model.  It was an open source software community that created Firefox, a volunteer effort with support from the Mozilla Foundation.  Like all open source projects, building Firefox relied on social media to coordinate volunteer efforts.  Naturally, it was promoted in a way consistent with open source production methods – the promotional work was distributed to volunteers using social media, and each doing their little bit added up to a whole lot of promotion.  The Spread Firefox campaign was a hugely successful, volunteer powered marketing campaign that helped catapult Firefox to roughly a 15% market share, second only to Microsoft’s Explorer browser.  This was like David taking on Goliath, except the battle is not over.  In any case, Firefox shows how using social media and engaging customers in a meaningful way in the whole product lifecycle can create serious competitive advantages in product quality, cost, and marketing efficiency.

In this environment, companies that employ authentic leaders - leaders that foster a culture of participation and earn their authority by their skill in facilitating many diverse stakeholders in creating value - will have a big advantage over companies that employ autocrats.

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