Social Networking in the Enterprise: What’s the ROI?

By Len Rosen Feb 23, 2010

3 comments

Before we answer the "what" question on social networking ROI it is important to understand why organizations are interested in embracing social networking. In this article I explore both the motivations for enterprise social networking and how one might think about enterprise social networking ROI.

In much of the Western World we face the challenge of our aging demographics. Our work force is getting older. A lot of our collective expertise, invested in the “Baby Boom” generation, is about to enter retirement age. The demographics are unrelenting. Since 1965 birth rates in the United States and Canada have decreased by a third. The workforce population is decreasing even though the economy has continued to expand. Something has got to give!

How have organizations addressed this growing gap — a declining workforce versus a growing economy? One way has been through outsourcing to areas of the world where there is an abundance of credentialed workers to fill jobs. Another has been through encouraging immigration from these areas. And yet another is the implementation of social networking to create a community of shared expertise within an organization where experienced and new workers can interact through communication and knowledge exchange.

That is why organizations today are looking increasingly at ways to use social networking both outside and inside the firewall. Outside the firewall it is hard to ignore the Facebook Nation, a global community of close to 400 million. But there are enormous issues in using a public social network space as a platform for creating collective wisdom within an organization.

[Editor's Note: See related article Business Social Networking: Public and Private — There is a Place for Both.]

A public social network is by its very nature open and security is fairly loose. So instead organizations can look at inside the firewall social networks where privacy can be maintained while information freely flows throughout the business with reasonable assurance of security. But how do you measure the effectiveness of deploying such a social network? What is the ROI? We can measure two ways: by looking at the cost of retaining staff and by measuring the value of retaining the collective knowledge essential to the running of the business.

Retention of Staff

In assessing the value of your employees there are a number of activities every organization undertakes. These include planning, acquiring, maintaining, developing and retaining people. Human resource specialists apply numbers to each of these activities. One can measure inputs and outputs and determine a per employee cost for each activity.

The cost of employee retention has been studied for years. I recently read an article that stated a minimum wage employee being paid $8.00 an hour costs an employer $3,500 to replace. In that same article sources were quoted indicating that the replacement cost of an entry-level employee represents 30-50% of annual salary, whereas a middle level employee represents a 150% cost, and a senior staff member as much as 400%.

In that same article the author goes on to calculate the cost of replacing 10 supervisors earning $40,000 per year. The number turns out to be 125% of the total annual salaries with a bottom line impact 10 times the replacement cost, or $5,000,000.

So when looking at the cost of implementing a social network that can be used to help retain employees one very good measure is to apply that cost against the replacement costs associated with the loss of personnel.