As many people have said above, it is not a good idea to ban social networking sites/chats totally. I do agree that there are some employees who waste too much time on these things, but an intelligent HR or a line manager has the responsibility to find out what tasks can be given to each employee to increase his or her productivity. If the company decides to block or ban these sites completely, then there is also a negative effect: demotivation and lack of concentration towards work. Like it is said - everything is great in balance. As an HR professional, we should understand that the company doesn't pay employees based on time, but based on the work done or tasks achieved; hence, performance should be the only factor to determine productivity.
Nowadays, there are many teenagers who can multitask between SMS, chats, Facebook, Twitter, and also win a 'certificate of excellence' at their job. Such employees actually drive the projects much faster and make better relationships with clients via these sites. If social networking is blocked completely, all this social rapport with clients and vendors also gets destroyed. Hence, we are always aware of the concept of 'Performance-based Pay' which HR always has control over. Compensation is the motivation for employees to do good work, and boring tasks assigned to employees lead to them accessing time-wasting sites.