Companies should not dismiss staff who use social networking sites such as Facebook and Bebo at work as merely time-wasters, a Demos study suggests.
Attempts to control employees' use of such software could damage firms in the long run by limiting the way staff communicate, the think tank said.
Social networking can encourage employees to build relationships with colleagues across a firm, it added.
However, businesses are warned to be strict with those who abuse access.
Firms are increasingly using networking software to share documents and collaborate in ideas, the research found.
And while more work-specific systems, such as LinkedIn or bespoke in-house software tended to be used for work matters, the likes of Facebook, Bebo and MySpace still had a place, said Peter Bradwell, a Demos researcher and the report's author.
"They are part of the way in which people communicate which they find intuitive," he said.
"Banning Facebook and the like goes against the grain of how people want to interact. Often people are friends with colleagues through these networks and it is how some develop their relationships."
Using technology to build closer links with ex-employees and potential customers could also boost productivity, innovation and create a more democratic working environment, Mr Bradwell added.
"In today's difficult business environment, the instinctive reaction can be to batten down the hatches and return to the traditional command-and-control techniques that enable managers to closely monitor and measure productivity.
"Allowing workers to have more freedom and flexibility might seem counter-intuitive, but it appears to create businesses more capable of maintaining stability."
The popularity of social networking showed that there was a desire to connect with others and socialise, said Mark Turrell, chief executive of Imaginatik, which develops bespoke networking software.
"Being able to see a photo of colleagues, or knowing what they are up to, can be incredibly useful for businesses, especially if a firm employs thousands of people," added Mr Turrell, whose firm took part in the study.
But he argued the use of networking sites "must be tied to a business goal".
He said his customers used the software to set out problems which they faced and then threw them open to employees.
"The first people to respond might not know the answer, but they could suggest somebody who does," he said.
"Within a few days, they are able to get enough people from across the organisation with the right expertise to work on it.
"And by focusing the minds of a group of people on a specific task, you can find a solution much more quickly than you would do otherwise."
Younger employees who have grown up with e-mail, mobile phones and social networking want their employers to adapt to new technology, he added, saying this put pressure on older employees to adapt.
"The key questions are, how do you get the brightest people to work for you, and then, how do you get the most out of them," Mr Turrell said.
"Organisations need to give their employees physical and virtual space to grow and explore their ideas.
"In today's new world, employees expect and require sophisticated enterprise social networking tools to shine."
'Aware of tensions'
The report's authors said that clear guidelines needed to be set out about appropriate use of social networking.
And there should be no hesitation in telling employees who spent "unreasonable" amounts of time using technology for non-work related activity that their behaviour must change, they added.
Mobile phone and broadband firm Orange, which commissioned the research, is currently building its own in-house social networking platform for staff.
"The profile and significance of social networking is increasing now, because of the proliferation of new technologies that enable us to connect to each other in our personal and professional lives," said Robert Ainger, Orange Business UK.
"But it is also good for companies to be aware of the tensions and look at deploying practical guidelines which will protect the positive impact of networks, not hamper it."