Clay Shirky – business author, professor of interactive telecoms and adviser on the social and economic impact of internet technologies to a client-base that spans Lego, the US Navy, Nokia and the Libyan government – likes an epithet coined by one of his colleagues at New York University to characterise the tension between the old and new world order of the web.

“We’re talking about ‘The People Formerly Known as the Audience’,” he says of the many millions of individuals participating in the different forms of social media. The audience he has in mind have not just left their previously passive behaviour in their seats but stormed the stage, the studio, the publishing house, and the grounds of any number of other closely controlled institutions and political structures. A glance at Wikipedia, YouTube, Facebook, countless blogs or product reviews is proof enough of that.

His 2008 bestseller Here Comes Everybody opened many eyes to the sheer breadth of Web 2.0 activity. Now the follow-up, Cognitive Surplus, shows just how far-reaching and profound the impact of social media is going to be, as nothing less than “the wiring of humanity lets us treat free time as a shared global resource, and lets us design new kinds of participation and sharing that take advantage of that resource.”

The upshot, according to Shirky, is social production, “the greatest opportunity of our age”.

A revolution in the enterprise

What most observers of Shirky’s work overlook, however, is that he is by no means confining such arguments to consumer participation. Far from it. The combination of the interactive internet and individuals’ willingness to get involved represents as much a revolution-in-the-making for business and the public sector as it does in the consumer setting.

When he highlights “free time”, Shirky is not only talking about the switch by many people from TV and other passive media to online social environments and active contribution, but also the latitude increasingly afforded to employees to use social tools during work time – whether to overcome technical issues, identify a potential new recruit, engage with customers in a shared environment or other tasks that are best fulfilled through a networked effort.

Take the example of how the “ownership” of technical product information is changing. “Just compare the value of something like the HowardForums mobile phone community website with a Samsung, Nokia or any mobile phone company’s service desk,” he says.

“The value of what the public as a whole knows and contributes about the thousands of phones, their features and problems, over what is known inside these companies that made them, istruly enormous. In fact carriers and handset manufacturers [now often] refer people with tricky phone problems to such community sites. Even if each individual contribution there is very small and the cost of capturing that contribution is very, very small, in aggregate they nevertheless create an enormous, enormous collection of value.”

For businesses, the challenge is to ensure they are part of that value-chain. Engaging in the conversation by getting technical support agents – even senior engineers and CTOs – to contribute advice and fixes to such communities is just one option. But there is also the opportunity to corral the discussion too, says Shirky.

“I think the largely unexamined opportunity is where [organisations] can actually act in a convening role, whether it’s for their employees, customers, vendors or partners. Businesses have an opportunity to host those kinds of conversations,” he says. A strong example might be TUI Travel’s Thomson website where customer reviews and ratings (both good and bad) are not only featured but run alongside wholly independent reviews of the same holidays from Trip Advisor.

For Shirky, the 20th century belief, that the best customer is the one who is kept in the dark about detailed knowledge of your product or service,   is dead. “If you create a situation where a group of your customers can get smarter [about your products] they naturally become more loyal,” he argues, by dint of the fact that their expectations are set appropriately, their purchases are being correctly installed and used, and their complex problems solved.

“To the astonishment of businesses everywhere – from digital camera makers to enterprise CRM companies – people are perfectly accepting of complexity as long as there are lots of others who are quite happy to tell them what they need to know about dealing with that complexity.”

Communities of practice

Reaching out to customers is just one aspect of how the “cognitive surplus” can be used by business and public sector organisations. Since the dawn of professions, individuals have always sought to communicate with their peers – often across organisational structures – to solve common problems, either casually, through associations or the encouragement of their employers. What is different now is that the ability to find a solution is scaled enormously by the scope of the network and erosion of formal or geographical boundaries.

Sociologist Etienne Wenger calls such groupings “communities of practice” – where learning and knowledge exchange is not confined or integrated to the context of an institution or workplace. “Essentially, organisations are waking up to the possibility that many of their challenges will be solved by cross-organisational conversations,” Shirky observes. As such, what only a few quarters ago was a source of paranoia – the prospect that individuals would use social media to divulge business information to outsiders – is now regarded as a boon.

Not just for problem-solving. Why not, as Shirky suggests, take it a step further to engage in “social production”? And IT executives need look no further than their software development department for one of the  best examples.

Collective action

“Open source is perhaps the oldest example of this [digital-age] model for co-ordinated, voluntary participation,” says Shirky. Famously, the GNU Compiler Collection, first released in 1987, emerged out of programmers’ frustration with the lack of a portable C compiler for Unix environments. “That pushed groups of programmers to explore how they could get work done both individually and collaboratively,” he says. The result was a compiler that made most of their jobs a lot more productive and creative.

The release of the GCC under an open source licence may have destroyed the market for compilers as a standalone feature, he says, but in doing so it opened up an incredible range of new opportunities both for vendors and consumers, as, “Without GCC the revolution in integrated development environments would be 10 years behind.” The same goes for Linux, he says, without which Google data centres and even cloud computing would be unthinkable.

The dynamics of open source show up some of the misunderstandings of what is underway elsewhere too, believes Shirky. “One of the first things I would say to business is that anybody thinking about [the wider applications of social media] needs to make an absolute distinction between ‘amateur’ in the sense of someone who’s not very good at what they’re doing, and the ‘amateur’ who is doing something for reasons other than managerial or market motivation.”

It’s a spectrum that draws on behavioural economics, he says. “For anybody doing anything cognitively more complicated than completely rote work, there are two different motivations. One is to get paid and to enjoy the regard of their boss; and the other is to feel autonomous and competent and to earn the respect of their peers.” And those peers are as likely to be outside professionals as in-house colleagues.

Professional re-grouping

In the past, when people have turned to their peers, that has often been through professional associations. Shirky sees a tension building between traditional organisations and the looser forms where people come together to solve problems as those problems present themselves.

“We’ve got a host of organisations who are the national association of this profession or the national association of that,” he says. “They have the largest and most visible convening power available in their industry and they have spent the last few decades saying to their people, ‘You give us money once a year, we’ll give you a newsletter once a quarter and an annual conference to discuss big issues.’ The culture of those places often means they are about as close to helping people help themselves through collaborative functions as a Politburo bureaucracy.

“And so the great tension there right now is the realisation that the value of convening the knowledgeable people, even if they don’t work for you, is high. And membership organisations are struggling to extend that convening function to more collaborative groups – groups who are already doing it themselves.”

The fundamental issue is that knowledge is by no means evenly distributed. “No matter who you are, most of the smart people work for somebody else,” says Shirky.

“So if together you get a problem right, your industry benefits without you as an organisation necessarily suffering. Zero-sum economic calculations would suggest that is impossible, but there are bunches of cases that say otherwise – bug-fixing in widely used software is just one. Some people might call that crowdsourcing. But for me that term evokes too many comparisons with outsourcing and the negative associations of replacing commoditised elements of labour.

“In any case, the idea that you can turn a problem over to your users is not always sensible. Sometimes the users either don’t want to help or can’t help, or in some cases are actually resentful you are doing so.” The key is not simply stating the problem but motivation design, he says. “It’s giving people some sense of why they would want to participate. Crowdsourcing has led several businesses to believe that just by saying out loud what their problem is, they’ll automatically get help from ‘the crowd’. And that’s by no means true.”

Social production is a much better term, he says. “To use ‘social’ rather than ‘crowd’ suggests to me that there really is some question of mutual regard among participants. The thing that keeps people involved in all of these environments is this sense of being part of some community. And so that’s the tough design challenge for many businesses.”

Focus on business value

At this stage, the jury is still out on what aspects of corporate social media work and which don’t. “It is the curse of our tribe that we get into these kind of love affairs with the latest, ‘just-add-water’ technologies,” says Shirky. “Five years ago, we decided everybody’s got to have a blog, everybody’s got to have a wiki. Now it’s everybody’s got to have a Twitter feed, everybody’s got to have a Facebook fan page.

“But there’s no technology that’s so generically good that you should adopt it without some sense of what you’re going to achieve with it. If I’m a shareholder all I want to know is: is it worthwhile for the business? The solution is to get the hell out of the executive suite and look at what your own employees are doing.

“The personal computer did not come into the enterprise because anybody in the C-suite decided its time had come. It came in because the accountants hated talking to the mainframe guys, and once the VisiCalc spreadsheet came along they could drag their own PCs into the office and get stuff done.”

Whether an executive is part of a Global 1000 business or a government agency, they have got to accept the new reality, he argues. “People are out there in the real world trying to get things done, so one of the best optionsfor your organisation is to invite the People Formerly Known as the Audience into the conversation.” In other words, failure to treat the cognitive surplus as a potent business asset would be a serious error.

Do you agree with Shirky? Have your say by commenting below. And for a radically different take on the impact of internet technologies, see our interview with controversial business author Nicholas Carr.

Photograph: Jake Chessum