Return On Investment (ROI) The Social Conundrum

Final blog!... Yay!!

Over the last 6 or so blogs I have looked at different aspects of Enterprise 2.0 and while there is evidence that correctly using enterprise 2.0 technologies and tools is beneficial to companies, putting a dollar value is a much harder proposition. One of the ways businesses puts a dollar value on investment is to use Return on Investment (ROI).

There are two major problems that I see with using this formula for Enterprise 2.0 tools:

A lot of the benefits are qualitative in nature and are intangibles.

How can you measure ROI by connecting with customers on Facebook, Twitter etc.? I have seen a few clumsy attempts to correlate these connections with customer retention and sales but unless the people that are being connected with explicitly say I was going to leave company X but because that last Tweet they made was pure unadulterated Twitter nirvana I will stay. 

Kogi BBQ food van

Or there is a heralded case of the Kogi a BBQ Korean food van in Los Angeles started twitting their location and has seen anywhere from 300 to 800 people each time it stops, several times a night (Gelt, 2009 feb 11). I’m not debating that engaging with customers is bad, after all it is a foundation of Enterprise 2.0 and there is enough qualitative data to encourage every company to engage with all their stakeholders. BUT! Is connecting with Twitter the only reason BBQ company has seen such growth? What if a friend sees the tweet, then posts it on Facebook, then my friend sees that post and tells me via a message? How much % of the credit do we give the Twitter strategy? All? Half? Quarter? This leads me to the other problem.

Cascading effect.

Hinchcliffe (2009, para. 8) proposes that many of the Enterprise 2.0 technologies have a cascading effect due to the complexities and intangibles that these technologies bring. In classical investment terms ROI was calculated on technology that could be quantified (assembly lines and industrial automation) as their effect was direct and measurable (Hinchcliffe, 2009, para. 8). 

Lego Assembly Line

When business invested in a new tool the ROI was delivered more or less straight away and there was a direct monetary correlation between investment and the return. With Enterprise 2.0 tools this line of thinking is flawed as there is a cascading effect or as Hinchcliffe (2009, para. 8) says a cause and effect chain from implementing new tools to actually seeing the return.

TransUnion is a credit report company that has managed to quantify part of their Enterprise 2.0 strategy. Murphy explains that they have saved $2.5 million USD by investing $50000 USD on an internal social media platform, Socialtext, in simple terms that’s a 50x ROI!

The way that the ROI is calculated is that traditionally at TransUnion when problems occurred employees would ask for more hardware, a software tool or more processing capacity, Socialtext has led to employees looking for solutions internally via collaboration rather than just ask for more IT resources, so the savings come in the way of TransUnion spending less (Murphy, 2009, para. 1).

While the ROI does look impressive there are two factors that I would like to highlight:

• The reason why they can quantify Socialtext’s impact is that the savings that TransUnion has made is on tangibles, IT equipment has a price tag!
• The cascade effect; Originally employees at TransUnion had asked permission to set-up an employee Facebook group, due to the sensitive nature of TransUnion’s business it was decided to implement an internal social networking solution behind the company’s firewall for greater information protection (Murphy, 2009, para. 3).

TransUnion implements Socialtext – How do you calculate a ROI on that?

Cascade: Socialtext is used for solving problems in a collaborative environment – ROI calculated based on savings made from not purchasing IT resources, basic but works to an extent. While there I a dollar figure attached to IT equipment it fails to take into account a ROI on having a collaborative environment for other aspects not just problem solving, the intangibles.

Cascade: Within Socialtext there are tools that collate the best answers and make them part of an internal database of answers – ROI on collective intelligence.

Cascade: The tools that allow for this database also monitor who is good at problem solving etc. So TransUnion is looking to create new job descriptions based on this information e.g. Jim Jones Logistics Problem Solver. – ROI on complex problems.

Cascade: This could also lead to employees being moved to a department better suited to what they are good at. – ROI on employee retention.

Ultimately the real ROI is unknown and may even be way higher than the 50x that has been quoted. This is the problem with calculating ROI on enterprise 2.0 technologies; the actual return may not be apparent for several cascades and may not even match up with the initial intentions. Enterprise 2.0 technologies can also throw up intangibles that are hard to quantify and figures that are thrown around in case studies are at best educated guesses with a myriad of assumptions, and we all know about assumptions!

References:

Los Angeles Times - Kogi Korean BBQ, a taco truck brought to you by Twitter.
Zdnet - Determining the ROI of Enterprise 2.0
Internetevolution.com - Transunion Finds Cost Savings, Seeks More