Klout, Influence, and the Future of Business

Lots of people are talking about Klout these days, and it’s not just Wired and The New Yorker; I’ve recently had some pretty animated conversations on Google+ about the service that have got me thinking about what Klout and influence tracking are telling us about the future of business.

Economic Signaling

I remember the day my micro economics professor explained why I was really getting my MBA back in 1991. Using one of those old-fashioned overhead projectors, and beaming the words “economic signaling” on the screen in front of us, he noted that our fancy degrees were really nothing more than a signal to help companies decide whether to hire us when we graduated.

Economic signaling is a bigger idea than academic degrees, of course, but my professor telling us that companies outsource part of their recruiting to business schools by using academic degrees to filter job candidates. Companies use the MBA as an economic signal to shape their recruiting efforts, and when they do, it changes the kinds of employees they hire, which in turn, deeply shapes the nature of the firm itself. Whether to positive or negative effect is a matter of debate.

Social Signaling

I believe that Klout is now emerging as a new type of economic signal for businesses, and like the MBA, this economic signal will eventually shape the nature of our firms – both positively and negatively.

To be clear, I have some real issues with Klout. I don’t believe it’s healthy to centralize on one definition of influence. Nor do I like the new social media “hamster wheel” it’s helping to create. But let’s put those issues aside for now to try to understand the real need that the company is filling in the marketplace.

Klout is currently the closest thing businesses have to a standardized signal that a prospective employee “gets” social media and has influence on social networks. In short, a high Klout score is a simple, convenient proxy for social media savvy.

Like other forms of economic signaling, Klout doesn’t have to be perfect; just good enough. Lots of graduates from top-tier MBA programs don’t make the greatest leaders, or even the best employees. But corporate recruiters still use the MBA as a convenient, scalable filter for focusing their searches.

Are recruiters actually using Klout scores in this same way? I’ve yet to see research that shows a real trend here, but I’ve heard and read plenty of anecdotal evidence that when it comes to marketing and other outward-facing jobs, Klout is becoming an increasingly relevant recruiting tool.

To understand how all this might affect the future of businesses, let’s look a little closer at how the field of marketing is currently evolving.

Engaging The New Customer

In the glory days of the Mad Men, customers were something you could manipulate like passive objects, sitting on the living room couch, watching Leave It to Beaver. Those days are now long gone; fewer and fewer customers still respond to old-fashioned TV and radio mass marketing techniques.

Today, more and more customers want companies to be more than just nameless, faceless entities. They like dealing with real people inside the firm, even if their points of contact with employees are heavily mediated by technology. Customers increasingly expect to be able to reach right into the firm and quickly and easily get what they need. Sometimes that means using a website that’s tied to the company’s internal databases; sometimes that means communicating with exactly the right employee who can get them what they need. Sometimes it means both technology and people.

When employees understand how to use social media to engage customers personally and at scale, they become such valuable assets to an organization. And this is one of the main reasons why Klout is becoming so relevant to marketing recruiters.

“Organizational Permeability”

Dealing with these new customer expectations doesn’t just mean rethinking the bright lines that once separated marketing, sales and customer support within companies. What we’re talking about is something even bigger: the notion of “organizational permeability” – and it is a driving force in the future of companies.

Organizational permeability is the very antithesis of “vertical integration,” that old-fashioned view that organizations needed to control all the inputs to creating economic value. Permeability turns vertical integration on its head, transforming fixed organizational boundaries into a “permeable membrane” to optimize the exchange of resources and information with the outside world.

This “organizational membrane” is actually a composite of people and technology, and permeable organizations know how to use it to engage customers, partners and a host of other stakeholders, who were once seen as ‘external’ to the organization.

Today, these ‘external stakeholders’ play an increasingly critical role creating economic value. I call this phenomenon “third-order engagement.”

“First-order engagement” is the firm engaging employees in its work. “Second-order engagement” is employees engaging customers and partners in the work of the firm. “Third-order engagement” is when customers and partners engage other customers and partners in the work of the firm.

Third-order engagement takes many forms. When you spend time posting information on Facebook, it makes the service more valuable to me. That’s third-order engagement. We engage one another on Facebook, and through those very acts of engagement, we build the service. The same thing happens when I share my “wish list” with friends on Amazon, and when I organize friends to gather at a local restaurant.

Third-order engagement isn’t just about customers engaging one another by using a company’s products or services though – it’s also about customers marketing to other customers on behalf of the business.

Third-Order Marketing

We all know that the public sentiments of customers are now greatly amplified by social networks. Happy, engaged customers with social media influence can now propagate powerful waves of objective, credible endorsement that can dwarf the impact of traditional marketing messages. Of course, these same customers can also badly hurt a brand’s reputation when they aren’t happy.

Knowing your customers’ capacity to influence social networks is obviously extremely valuable, and this is where Klout’s value as an economic signal expands beyond identifying influential marketers within the firm to now focus on “third-order marketers” outside the firm.

Klout and Third-Order Marketing

If you’re trying to track customer influence using Klout, you can use its website to look people up one at a time. That’s hard to do with lots of customers though, so, the service makes its data available to third-party apps and web services. Klout reportedly now has more than 6,000 third-party developers – up from 2,000 last year, and its API (the “Application Programming Interface” used by third-party software developers to access Klout data) is now accessed 30 billion times a month. That is a lot of usage.

One of Klout’s more interesting partnerships is with tool provider, Radian6 (now part of Salesforce), because it integrates Klout metrics right into a company’s Customer Relationship Management database. Social media influence is valuable customer data and now it’s becoming increasingly tied to the other important customer relationship information.

Klout is also working directly with companies through features like the “brand squads” idea that Klout is testing with Red Bull. It’s a public page recognize people who are influential about Red Bull on social media sites. Yep, it sounds bizarre, but by giving exposure to people who “third-order market” for Red Bull, Klout may be helping to create a virtuous cycle reinforcing more and more attention for Red Bull. Think about having a “squad” of customers motivated in this way to become influential about your work.

Are “brand squads” really what companies need? I’m not sure, but what is clear is that things like this represent a significant change from that passive “Leave-It-to-Beaver consumer“. Welcome to the world of third-order marketing. It flips much of what we thought we knew about marketing on its head.

From Customers to Partners

When I feel good about a company, I’ll occasionally say so in public. The company can’t buy that public endorsement from me; it’s not for sale because I’m not for sale.

Effective third-order marketing starts with customers who genuinely value the services a company has to offer. Without that, there is no honest, voluntary endorsement. 

This is a critical point. If the customer connection isn’t genuine, endorsements don’t tend to fan out on the social web. People can smell affiliate marketing a mile away; they know when someone’s being paid to promote something versus when they genuinely value it and believe they’re helping others by telling them about it.

So what does this say about the future of marketing? For one thing, it says that it’s going to get harder to market lack-luster products. More than that though, it says that it’s no longer good enough to simply satisfy customers. In a world of third-order marketing, products and services need to deeply engage, and transform people from customers into partners in the value-creation process.

The Future of the Firm

As I’ve said, I think it’s a mistake for companies to try to standardize on one measure of influence. Different business strategies call for different approaches to influence mapping. In the end, Klout is less interesting as a “standard of influence” than as a symbol of a growing need to track signals of influence, whatever those may be for a particular business. These new economic signals are now shaping the firm into something much more permeable than in its past.

As companies better understand the importance of influence, they now more frequently hire employees who know how to build and engage networks of people outside the firm – and this drives organizational permeability.

More importantly though, services like Klout are now also helping companies see the influence of their customers and other stakeholders in sharper detail. A subset of these organizations, those who will be tomorrow’s market leaders, are now learning how to more fully tap the influence of these people to build powerful partnerships in creating economic value.

These up-and-coming market leaders understand the need to fully and deeply engage people as partners – not just passive consumers. That deeper engagement will take a variety of forms. For example, it might mean looking for more and more ways for customers to engage one another by using the firm’s products and services. It also means ensuring the firm’s brand remains resonant with its customer/partner’s self-image. Apple’s “think different” culture helps customers project a certain desirable image, for example, but that self-image has gotten muddied by its new association with labor problems in China.

As companies better understand the influence their employees, customers and other stakeholders truly have, they invest in these relationships in ways that strengthen the permeable membrane that connects the firm to the world. This is shift to permeability, and it is the future of the firm. How strange that it’s being brought to focus through the unlikely lens of a tool like Klout.

 

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Images:

Hypnotist image: http://www.flickr.com/photos/mastrobiggo/2341517672/

Graduation image: http://www.flickr.com/photos/whatcouldgowrong/4608963722/

Juggling imaged modified from: http://www.flickr.com/photos/daniele_sartori/4570109735/

Sponge image: http://www.flickr.com/photos/darwinbell/334788152/

Mad Men image: http://www.flickr.com/photos/pr3/4556090560/

Three-legged Race image: http://www.flickr.com/photos/kyra__m/5639664172/

Telescope image: http://www.flickr.com/photos/durentu/376175590/