Back when social networking first infiltrated our workplaces, it was greeted with scepticism and ultimately prohibition. But for a growing number of companies, enterprise 2.0 represents an opportunity to revolutionise the way their organisations interact, innovate and develop

When he created Facebook back in 2004, Mark Zuckerberg's goal was to connect college students, not companies. In fact, Zuckerberg's social networking website was seen as so dangerous to corporate activity that half of all UK companies banned it. Social media, it seemed, was bad for business. A large number of companies still ban the use of social networking sites in the workplace. According to research commissioned in April, 79 per cent of bosses admit to disciplining staff for accessing them on company time. But a small band of businesses is beginning to pull in the opposite direction. If you strengthen the links between employees, argue the directors of such firms, you effectively strengthen the business.

Two years after Zuckerberg launched Facebook from his Harvard dormitory room, the university's business school professor Andrew McAfee coined the term "enterprise 2.0" to describe what he saw as an emerging, low-cost form of collaborative knowledge management—effectively social networking for business. It was, he wrote, an efficient and immediate method of spreading a company's most useful information to all its employees, much in the same way that Web consumers access information on Wikipedia, or Facebook. Enterprise 2.0, said McAfee, was "freeform, emergent, social software" that could significantly improve the ways that employees in all organisations work and collaborate together.

Improved links between disparate employees, who might be sitting not just in different offices, but different countries, seemed an obvious gain. But McAfee had spotted something else: the potential for a more "democratic" organisational structure. Used constructively, he said, social media could help alter the shape of the organisation, from a tall hierarchy to a flat, fully-networked team of decision makers. Because the flow of information in an enterprise 2.0-powered company was more efficient, and because all employees with a vested interest could add their input, employees would begin to trade solely on their knowledge, not on their job titles. Hierarchy would effectively become irrelevant.

This was some claim for a piece of software. Many technology bloggers immediately questioned whether we needed more democratic decision making, whether the sum of an entire company's knowledge was really greater than what its directors already knew, whether increasing employees' opportunities to socialize wouldn't just lead to lower productivity rather than greater efficiency, and of course whether the most knowledgeable people in any company actually had the inclination to share that knowledge with fellow employees. Maybe knowledge was power, and the suppression of valuable information was the best way to wield that power?

Even if a company's brightest sparks wanted to share with the rest of us, did they really have the time? As technology writer Nicholas Carr put it: "Managers, professionals and other employees don't have much spare time, and the ones who have the most valuable business knowledge have the least spare time of all." On top of all that, if this was enterprise 2.0, where were all the enterprises? McAfee had cited the investment bank Dresdner Kleinwort Wasserstein as an early adopter—the firm was using a wiki-style database, built by the US start-up Socialtext, to inform far-flung parts of its business efficiently and quickly—but examples of other companies using social media tools seemed few and far between.

Fast-forward a couple of years and the atmosphere is altogether more positive. Enterprise 2.0 tools are being trialled by all kinds of different companies and some believe it is affording these early adopters a completely different view of their businesses. "Organisations have dashboards that can give them an insight into their transactional history, but they don't have a dashboard that gives them an insight into the emotional state of the business," says Richard Edwards, information management practice director at Butler Group. "Enterprise 2.0 is about [gaining an] insight into what your employees are thinking."

And what they are thinking is invariably of use to the bottom line, says Edwards. "All your employees have something to offer. Organisations need to hook into that in order to make the difference. If you have somebody in accounts but they have an insight into a particular industry vertical, how do you leverage that knowledge, rather than just their expertise as an accountant?"

Among the companies leading the charge are Microsoft, which as well as using, makes and markets its own collaborative software—Sharepoint—and recently partnered with venerable French enterprise 2.0 provider BlueKiwi; IBM, which markets collaborative software called Connections and uses its own internal social network called Beehive; Sun Microsystems, which has trialled a Second Life style network platform called Project Wonderland; SAP, whose Americas CEO Bill McDermott recently described the technology as "a trend that is here to stay"; and an assortment of corporate clients, such as Mastercard, John Lewis, O2, Pfizer, Lockheed Martin, UNICEF, BNP Paribas and Nokia, which have all recently implemented third-party products. And it isn't just large corporations taking a punt on enterprise 2.0. Small and micro businesses, particularly people working independently, are increasingly turning to networking tools, such as LinkedIn and Twitter, to gain footholds in new markets and to widen their contacts books.

But despite such broad support, the nagging doubt surrounding enterprise 2.0's transformative powers remains. Some companies, it seems, just aren't willing to be transformed. This is partly down to scepticism, of course: enterprise software providers are not exactly famed for their reticence in the field of product development—and each "development" tends to be as time-consuming as it is expensive. But even so, "very few are currently prioritising this sort of cultural change to anything like the extent that they're focusing on other people management challenges, such as recruiting and developing talent," says HR consultant Jon Ingham. "[Many] are unconvinced and very suspicious. They're seeing it from a perspective that's 20 years out of date—from a command and control perspective, rather than one that I'd describe as human capital focused; that is, one in which they're truly focused on developing and liberating each person's human capital for the good of the organisation."

Enterprise 2.0 is very much about "liberating human capital," according to BT, one of the UK's strongest proponents of the technology. BT has introduced a raft of social media tools, including a huge Wikipedia-style database called BTpedia, a central blogging tool, a podcasting tool, project collaboration software and enterprise social networking. They are "business tools", according to BT's head of knowledge management strategy Richard Dennison, that allow employees to work more flexibly and more efficiently.

He scoffs at the suggestion that allowing people to connect with each other impacts negatively on their productivity. "We think that personal information is still business information. We think mixing the two provides context for you as an individual, it allows people to connect and it allows people to develop deeper personal relationships. Without it we're all one-dimensional suits," he says. "We're trying to get away from that attitude that you have to be a different person at work."

Dennison believes passionately in enterprise 2.0's transformative powers. "This is about changing the whole way that we work. Things that happen have to happen in one place, once only." It's about "driving out duplication and driving out costs." A more networked organisation certainly has the capacity to be more efficient, but for Dennison it goes much deeper than that. "It's obvious that the reason the [traditional] hierarchy is supported is because there's a box at the top," he adds. "There is no top-box in a social network." Dennison says BT's enterprise 2.0 tools are "the first step" to supporting how a company actually functions. "I envisage over time the hierarchical structure becoming less important. For me it would be better if it disappeared completely and an organisation in effect was a self-managing organism."

Not everyone agrees with this apocolyptic scenario. But most agree that effective use of enterprise 2.0 requires a huge shift in thinking. Benjamin Ellis, CEO of communication technology start-up Redcatco, says that the more a company improves its internal communications, the more honest it ultimately has to be with itself. "Social media use in business means accepting very open conversations across the business, and from top to bottom. Many businesses have accidentally dragged the world of PR inside the company walls. They, consciously or unconsciously, look to steer and shape 'the message' between departments and management layers." Dennison agrees: "It's now about authentic communication," he says.

Although enterprise 2.0 was born in the US, there are also notable players this side of the Atlantic. London-based Huddle is one. Managing Director Alastair Mitchell, who started the company alongside product strategy director Andy McLoughlin, says the challenge was to produce a product unlike any of the current enterprise software currently on the market. "Traditional software almost mimics the traditional organisation," he says. "You have department, department, department—there's little communication outside those silos. 2.0 tools break down those constrictions. They let groups form naturally, and everybody connects to everybody else."

Those connections can take place anywhere, allowing employees to work remotely if they wish. Huddle even offers a product that plugs directly into Facebook, allowing the site's "news feeds" to reflect corporate activity instead of say, what users got up to over the weekend. Mitchell says the software taps into the need to develop a workplace that fits the needs of a new generation of worker. "When we sell this into our clients, we say: 'how old are your kids? Do they use Bebo, Myspace? How would they like to come in and do work experience in your office, using your systems?"

Not all of Huddle's customers are large, commercial organisations. The charity Care for the Family started using the service in November last year. Executive development officer Jon Mason says the hosted platform was beneficial in helping the company to reorganise after switching from one central office in Cardiff to a number of decentralised bases across the UK. "The more you decentralise, the more valuable a system like this becomes," he says.

Another of Huddle's customers, Kerry Foods, uses the platform as a central database for its marketing materials. The food manufacturer uses up to eight agencies at any one time and managing that process can be cumbersome, especially keeping track of files during a particularly busy period of promotional activity. Marketing controller David Warren says that Huddle has supplied him with a hosted system that allows the company to house all of its artwork, images and video files on one platform, offering remote access to all stakeholders. "It allows us to manage—from the very first brief right through to the final [product] packs—from one location. Is it not better that I, the client, house all the material rather than house it in seven different places through seven different agencies?"

The issue of control is right at the centre of enterprise 2.0. From the IT director's point of view, is the company ready to admit tools based on the software it so recently banned? Can so much user-generated content be properly managed? And from the CEO's point of view, is the company ready to become flatter, leaner and less hierarchical? Is middle management ready to cede control? Cisco CEO John Chambers reckons his company is ready. But he doesn't underestimate the size of the task at hand. Addressing last year's IT Forum in Las Vegas, Chambers said: "The hard part about collaboration is [that] we don't like change. Nor did my organisation and nor did I. I love command and control and I'm pretty good at it: 65,000 people; I say turn right, we turn right. I very rarely have to say it twice." But, he added, command and control wasn't the future. "The future is the ability of groups to think together, to combine knowledge and experience." It's a question of trust.