It’s Not About the ROI

It is the million dollar question for social media and social computing efforts. “What is the ROI (Return of Investment) for social media?”  I just got asked this for the gazillionth time last week.  According to Wikipedia, ROI is the “ratio of money gained or lost on an investment relative to the amount of money invested.”  On the flip side, business value is defined as an “informal term that includes all forms of value…expands concept of value beyond economic value to include other forms of value such as employee value, customer value, supplier value…many forms of value are not directly measured in monetary value.”  What I and  the rest of my peers in the industry have discovered is the actual monetary investment necessary to deploy 2.0 technologies is very trivial.  So why do some many executives ask for up front ROI?  Why not ask what is the business value? What is the value being created? Caution: Business value isn’t ROI in sheep’s clothing but is intrinsically implied by exec’s questioning.   To add to the “why” questions….”why is it that nobody asking for the ROI of current collaborative and/or 1.0 technologies such as your external website or email or instant message….better yet – the phone sitting on your desk?  Why does social media get held to a different standard?

In a recent Information Week Global CIO Virtual Event, one executive stated that the cost of providing social computing is so “trivial” that it is not difficult to say the ROI of infrastructure is guaranteed.  I agree with that.  If we really want to dwell on ROI, then the discussion could be very quick.  You literally would only need to “return” very little back to the company.  Depending on if you use Open Source or commercial grade technologies, your investment could be as low as picking up a case of “two buck Chuck”.   Let’s run a scenario for a mid-size company (50,000 employees).

  • $500,000 invested for four to five technologies (heavier emphasis on commercial grade software)
  • Industry average employee burden rate is $100,000
  • Then, break even ROI is the efficiency or savings of 5 people or less than half of one percent of your workforce power

In most companies that I have worked for over my career, senior executives typically don’t bat an eye at this degree of expenditure.  Heck, for some corporations, the $500k is what they spent just for the first day of their annual sales conference.

Toby Redshaw, Global CIO, Aviva, made a recent statement during the Information Week Global CIO Summit,  that IT gets “trapped by accountants”.  He advocates to look at the bigger picture, even go beyond productivity measurements.  Toby states that investing in and utilizing 2.0 technologies isn’t about productivity. It is about solving business challenges such as staying ahead of the competition, accelerating speed of decisions & quality of decisions. Social technologies have the capacity to stop un-innovation.

So if the financial investment and monetary return is trivial, than what is really going on? My theory is that it is not about the ROI.  Decision makers use ROI as a blocker.  Your executive is exhibiting several anti-patterns. Fear. Control. Intangible Means Unmeasurable.  Jen Okimoto from IBM did a great job of laying out the classic anti-patterns for web 2.0 during the Enterprise 2.0 conference in Boston (see Jen’s: Anti-Patterns slide deck).

Knowing that you are dealing with classic anti-patterns, what can you do? 

  • Focus on the business value, but be cautious to clearly lay out that business value is not always, nor likely to be  monetized in the near future.
  • Do benchmarking of your peers and the industry.  If few industry peers have mastered the ROI, then likely you won’t either. This can “normalize” your efforts.
  • Become close partners with your controller or finance person. Jointly work on a proposed business value model.  Let your credible finance person deliver the message that monetized ROI for social media is currently elusive.
  • Identify potential business challenges and focus for the emerging technologies.  Partner with line of business stakeholders to align early use cases to test and prove out the delivery of desired value/results.
  • Work with your security and HR teams to do a risk assessment. The assessment will  identify the associated risks for deployed solutions AND also the risk of inaction. Knowing the risks in advance allow for informed vs. fear based  business decisions to be made. 
  • Reverse mentoring for executives who fear and want to control social media.  The next generation work force can help shed light on the use and value of the tools.  Executives will better understand that it isn’t a matter of “if” but “when” your workforce will evolve the way they work. They may have an “a-ha” moment that the change has already occurred at the grassroot level.
  • Get external 3rd party validation.  Yes, I know you are THE expert.  But sometimes a resident expert is viewed as a biased evangelist.  Get your CxO on the horn with a peer over at another company deploying & reaping value from 2.0; call in your favorite analyst to talk about emerging technologies and why to embrace vs. fear them; leverage the number of super duper consultants out there.  My experience is that light bulbs go off when someone else repeats exactly what you have been saying for the past 6 months.
  • Lastly, have patience.  In order to survive this journey you must be in it for the long haul.  Make sure you are surrounded by peeps that can be your emotional support team. You will ask yourself numerous times “WHY am I bothering?”  Getting a regular pow-wow with people just like you at other companies. It  helps keep you refreshed, renewed and potentially find new avenues to achieve success.  You are a change agent.  A pioneer.  It will be challenging.  In the long run- you will succeed!
  • Laurie Buczek

    @Sharon- I like your Return on Interaction. Nice!

  • http://jragsdale.wordpress.com/ John Ragsdale

    Boy, I have a lot of reactions to this topic!

    First of all, anyone who says companies aren’t agonizing over ROI of phone, email and web channels is completely out of touch. Our members have these numbers down cold, with a great example of Cisco Linksys eliminating the email channel last year because it was not cost effective. New channels should be held up to the same scrutiny.

    The other reason ROI is important is because vendors have been grossly overstating the ROI of the tools. If you are buying them specifically to receive the cost savings touted by a vendor, and have factored those numbers into next year’s budget, there is risk in the project.

    I agree there is often a difference between business value and ROI. It is hard to put a dollar figure on having an engaged, collaborative community. But as long as vendors continue to tout huge costs savings for these deployments (in most cases unsubstantiated), I can’t blame executives for expecting a bulletproof ROI.

    –John

  • Sharon Greenfield

    I like to call ROI, the ‘Return On Interaction’ as it helps people (IT many times *grin*) get a better sense of what the metrics they gather could be.

    I’ve been using the term since 2003 when I first heard Kelly Goto use it:
    “ROI (return on interaction) as we see it differs from traditional ROI (return on investment) by focusing on customer experience and metrics of satisfaction and success rather than traditional spreadsheet formulas.”

    I actually was phone interviewed for a position at Intel in late 2008 and used this as an example of the kind of data one can get – research from an ethnographic perspective. Qualitative data. (No, I didn’t get the job, heh.)

    Thanks for the thought provoking post Laurie!

  • http://lehawes.wordpress.com Larry Hawes

    Good for you for differentiating between ROI and business value! I like the latter term much better than “soft benefits” and think it has a more positive impact on executives.

    Also, thanks for presenting some specific, proven ways to deal with executives trying to block social software investments by playing the ROI card. The Enterprise 2.0 movement needs more posts like this!