We face two major measurement problems when trying to measure the impacts of social business software: demanding stakeholders and intangible outputs. To grant project sponsorship, the C-Suite wants to see how you will measure return on investment (ROI). Meanwhile, from a human perspective we can inherently understand the value of engagement, dialog and innovation in the workplace, but it's very difficult to measure these intangibles in dollars and cents.
How do we begin to quantify the impacts of social business software on organizations or are we simply trying to chase a proverbial unicorn?
In 2006, Andrew McAfee, associate director of the Center for Digital Business at the MIT Sloan School of Management, coined the phrase "Enterprise 2.0" to describe the phenomenon of "web 2.0" concepts, wikis, blogs and web based social communities being adopted within corporations to improve dialog, innovation, business processes and employee engagement. Some of this shift happened at the hands of innovators who saw the potential of these technologies to change business, while another segment panicked at rank and file employees disruptively using social technologies that existed outside the corporate firewall. Others saw it as a passing fad to see out.
Since that time the corporations implementing these tools have progressed through the Technology Adoption Lifecycle from bleeding edge Innovators, into Early Majority and perhaps Late Majority adopters as well. Certainly the organizations that approach us for our ThoughtFarmer social intranet product have changed a lot in the last five years. The terminology has also matured. After years of hype and hyperbole, no one calls anything "2.0" anymore. "Social business" is the current winner on the label front.
But the one thing that is not progressing as social business becomes widely adopted is the constant fretting over social business ROI. Perhaps majority adopters are naturally more conservative and therefore crave solid numbers for their business case? If this is true, then the notion of social business ROI will remain an issue throughout late adoption as well. While the roots of social business ROI date back at least as far as 2004, arguably enough case studies exist today that those asked to take up the social business ROI challenge now have firm ground to tread on.
Let's examine five key approaches to social business ROI that are being applied both at the business case stage and in reviewing social business project success.
1. Hard ROI
Hard ROI refers to classic Return On Investment that any business person would be comfortable with. If you can invest $100 and see $1,000 in your wallet in a reasonable timeframe, you've got hard ROI.
There are three major things that make hard ROI unique and the preferred choice of finance departments everywhere:
- It is quantified in dollars and cents or the currency of choice.
- There is a direct cause and effect relationship between the investment, its result and the return observed.
- The benefit needs to be realized — that is, new money must appear in a real bank statement somewhere, or costs must actually disappear from the balance sheet.
During the first wave of corporate web enablement projects in the late '90s and early 2000's, portals and intranets delivered hard ROI in two main flavors — Digitization and Automation.
Digitization was the reduction of physical goods and/or shipping costs. Instead of ordering a palette of paper each month, we now order one box. Instead of printing the Benefits manual every November, staff download a PDF version. Instead of shipping software on a CD, it is downloaded. Instead of issuing paychecks, everyone gets direct deposit and electronic pay stubs. These costs actually disappeared from the balance sheet.
Anywhere manual labor in business functions or process could be eliminated, Automation ROI could be found. For example, instead of clerks entering expenses into a spreadsheet for reimbursement, companies built expense applications that downloaded corporate credit card charges right from the credit card company, allowed cost codes to be assigned in an ordinary web browser, and submitted for approval online. This allowed companies to manage expenses with fewer staff (again, hard ROI needs to be realized).
As most companies completed web enablement programs years ago, there is less and less hard ROI to be reaped. As Adjuvi Chief Strategy Officer Dion Hinchcliffe pointed out, social business benefits are two to three cause and effect steps from the effort and investment, making it difficult to quantify the dollars, link to the initiative and realize the benefit.
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