Businesses and organisations risk losing their competitive edge if they fail to adopt web 2.0 technologies, according to new research.

However, firms face critical issues around privacy and information security, and possible legal action, if they adopt web 2.0 technologies without thinking through the risks.

Web 2.0 is a catch-all term for making websites as interactive as possible. Among the best known examples are Facebook, YouTube and Flickr.

Independent consultancy IT Governance noted that all manner of companies are starting to adopt web 2.0 by encouraging employee blogs, customer forums, greater use of multi-media content and self-created wikis.

IT Governance warned that firms that do not use these strategies to engage with customers, partners, suppliers and employees risk jeopardising these relationships and wasting the technology's competitive potential.

However, companies rushing into web 2.0 need to consider how empowering their employees, or inviting more outside comment on their sites, could lead to litigation or other privacy and data protection problems.

The need for clear thinking about the right way to move to web 2.0 is highlighted by a recent survey by IT Governance, which showed that over 40 per cent of respondents use web 2.0 sites for more than an hour a day, a markedly higher proportion in the 'Generation Y' (16 to 25 year-old) demographic.

The message is that smarter organisations will adopt and adapt web 2.0 technologies while safeguarding themselves against risks such as breach of privacy, financial costs and security and regulatory compliance.

Doing this will enable them to offer staff and customers a more information-rich and agile way of working and operating at less risk.

Alan Calder, chief executive of IT Governance, said: "Company leaders have for too long been burying their heads in the sand when it comes to the importance of social networking.

"Web 2.0 is now a business reality, and CEOs need to get a proper understanding of its risks and benefits so as not to miss out on the opportunity."