A few weeks ago I was in Zurich presenting at Somesso. Part of my talk was around ROI where I had the opportunity to speak about why ROI is so difficult for social software.

First, it’s always worth checking whether or not your ROI case is needed to convince people that social software is a good thing, or to get your social project formally approved.  If you’re trying to use an ROI case to convince people that they should undertake a social software project it’s unlikely to work – Larry Hawes puts this best:

“No business case will sell social software to a firm that doesn’t already value collaboration in its culture.”

However, an ROI can be used to get a social software project approved. When I was working with Portal products several years ago, we often sold them on the basis of collaboration and productivity, but got them approved by making a case that due to single sign on the number of calls to the (outsourced) technical help desk would be reduced. An approval ROI can be very different from trying to convince a client of a project’s value. Social software can often be approved on the basis of time saving, even if the true value is innovation.

Second, it is easier to make ROI cases for social software projects which involve collaboration between people who know each other, as opposed to projects designed to help you find people you don’t know. This is because the former is more measurable, you know how many attachments you send to your team and how often documents are reviewed. Social software discourages attachments from being sent, which reduces storage cost, and speeds up the document review process, reducing inaccuracies due to poor version control. IBM, for example, believes it has saved $16.5m per year by moving email “conversations” on to instant messaging.

Third, there is a good reason why social projects to help you find expertise and innovate with people you might not otherwise know have such trouble with ROI. Traditional IT projects have an ROI because they help speed up business processes. They might allow a client to sign up over the web, for example. An organisation knows how many clients they sign up per month, how long that would take their staff over the phone, and what that cost is in terms of salary. They can therefore work out how much they would save if 50% of their clients signed up over the web instead. You can do similar calculations with IT solutions that improve a manufacturing process, or speed up invoicing. Social interaction is different. Whereas traditional IT supports business processes, social software helps you when the business process breaks. But you don’t necessarily know how often the process breaks, it’s not as predictable as number of invoices processed per month, or new clients signed up per week. You don’t know what benefits could be realised if Joe in Finance talked to Sarah in HR. It might be absolutely nothing. On the other hand it might fundamentally change the company for the better. Social software is a serendipity lubricant that increases the chances of valuable interactions occurring - but it makes no guarantee on their frequency or their value.

So what’s the best way to proceed? To quote my friend Euan Semple on ROI, “if you make the ‘i’ small enough, no-one will care about the R” – certainly helps. You can start with pilots at very low cost and low risk. As roll-outs get bigger, try to get the ROI approved on something more tangible, such as time saved on email, even if this isn’t the focus of the project. And finally as Larry says, if the ROI is needed to convince an organisation that collaboration is “a good thing” – then ROI is the least of your problems…

Blog post after my own heart by Penny Edward of Headshift on the death of ROI for improvement and innovation.

Here’s another ROI case study of social software from IBM - in short social tagging saves the average user 12 seconds when searching for information.  As there are 286,000+ searches every week, this equates to 955 hours per week resulting in productivity savings of $4.6million per year.

This is similar to the ROI approach I examined earlier where you take the average time saving and extrapolate it across an organisation.  Does it really make sense to talk about 12 seconds worth of savings?  Do those 12 seconds really add up to enough time for an individual to do something else more useful for your company – or do they take an extra minute on their coffee break?

Social tagging’s benefit is not that it helps you find information more quickly, but that it helps you find things that otherwise you would be unable to find

From a company such as IBM’s perspective, the benefit is not that a sales rep can find a compelling reference 12 seconds faster, it’s that they can actually find that compelling reference at all!

The productivity gain is less about how quickly you find information but the quality of information you find, which leads to a more compelling sales proposal which means you win the deal that otherwise you would have lost.

Extrapolate that across the company and you may end up with much more than $4.6m

Another day, another article which looks at making the case for Enterprise 2.0 ROI.  The premise is:

• the average amount of productivity lost due to ‘distraction’ is 2 hours per day,
• the average hourly salary of a knowledge worker is $21
• therefore the monthly productivity loss is 21 * 2 * 20 = $840 / month / knowledge workers.
• therefore $100 – $200 / month / knowledge worker is a not unreasonable price to pay for an Enterprise 2.0 platform

I’ve looked a fair bit at wiki ROI and other ROI subjects around Enterprise 2.0 - and there are definitely two approaches.  One is the above approach, but I still can’t help but feel that it has an abstract and not particularly measurable feel to it.  Is this something you would be comfortable approaching your CFO with?

The other way is to start with a small pilot that costs so little it doesn’t need approval.  Get positive stories around its success and start to grow and spread useage of the system.  Then you have a provable ‘ROI’ based on metrics and success within your own company.  It may not be a case of “we can save each employee 37 minutes and 21 seconds a day” but more of “if we didn’t have it that team wouldn’t have won that contract” - therefore we’ll get more wins of similar sizes if it is rolled out to other teams.

The best course of action will always depend on the personality of your CEO / CFO / decision maker.  But the low entry cost of Enterprise 2.0 allows you to ask for forgiveness rather than permission, and avoid having to have an all or nothing conversation with unenlightened decision makers.

Came across a presentation by Mike Kavis on how to sell SOA. It’s a great presentation and worth registering to listen to.

I was struck by the parallels between how we try to position Enterprise 2.0 or Web 2.0 and his story around implementing SOA. His view on how they had been successful was:

• They engaged the business in their language – profit and loss rather than technology. This key getting sponsorship for Enterprise 2.0 which is vital for successful projects. Even if we evangelists don’t like ROI, the people who sign the cheques do.
• The business doesn’t care about governance. When implementing SOA the business wanted functionality implemented as soon as possible. Wikis and blogs are so easy to start up if an organisation is not careful they may end up relying on multiple unsupported technologies for business critical applications. IT has to get involved at some point to consolodate and standardise.
• They now spend more time on cultural change rather than technology. Cultural change has always been the X-factor in any Enterprise 2.0 engagement.
• My favourite quote from the presentation “it’s not about the technology, it’s about the people” would be at home in any Enterprise 2.0 presentation.

So SOA faces similar challenges around cultural adoption as does Enterprise 2.0. The irony was that they used Enterprise 2.0 tools, blogs and wikis, to overcome their cultural challenges around SOA. These tools were seen as a way to spread knowledge around how to use a new business process management system to automate what had previous been paper based workflow.

Wikis and blogs were not part of the cultural problem, they were part of the solution. It seems more and more likely that a compelling reason to use Enterprise 2.0 software, such as familiarity with a new system as in this case, or information that can help you sell more as discussed previously, is the silver bullet for adoption.

Was at the Web 2.0 Strategies forum today and took part in a social software ROI discussion. The discussion wandered quite easily onto the ROI of blogging or the ROI of wikis, and the features and functions of the tools. This has never really helped develop the ROI case for Web 2.0 or Enterprise 2.0 and didn’t in this case. It got more interesting when we turned our attention to a problem that Web 2.0 could solve (maybe using blogs or wikis).

For example, if a software company has a problem where support calls cost too much, a wiki may be a good tool to lower the cost of fielding support calls. Jive Software recently quoted an organisation where phone support cost the organisation $12 per incident, whereas wiki support cost $0.25. A wiki therefore supports the ROI case for the reducing the cost of providing support – there’s no ROI for the wiki in it’s own right. It’s just that organisations that adopt Enterprise 2.0 can improve the ROI’s on many different projects.

The conclusion I took away was that ROI only makes sense when applied to a specific business problem – then you piggy-back on the ROI of that business problem, rather than trying to make a generic ROI case for widespread wiki, blog, or social software adoption.

I attended a webinar last night hosted by PBwiki titled “Growing in a down market with PBwiki“. All in all it was very interesting. Here are the main points:

The webinar went very smoothly. This is not to be underestimated, I’ve lost count of the number of webinars where there are problems with sound/video but this was great. Slides/screenshare and question submission was handled by GoToMeeting - and I was very happy to find out I could stream the audio via Ustream rather than have to pay for a 60 minute international call to the States. Video was snappy, and audio was crystal clear, made the experience much more enjoyable.

The case study was RMC Vanguard, a mortgage company in the States which is experiencing the slowdown of the US mortgage market. The benefits they obtained from the wiki were as follows:

• Time saving – wiki pages with frequently asked questions, links to important websites (with usernames and passwords where appropriate) were all included on the wiki
• Productivity – with four underwriters serving fifty loan officers, and a habit of loan officers to keep asking a question until they got the answer they wanted, having a place where underwriters could post information rather than having it asked of them constantly made both the loan officers and the underwriters vastly more productive, which resulted in more time spent with clients which ended up with increased sales
• Retention – there is a strong attrition rate in the loan officer role. Many role officers worked from home and struggled to remember the details to access internal systems once they returned to their home office, and felt isolated. How-to’s on the wiki increased their productivity when they first joined, which meant they earned more, which meant they were happier, which meant they didn’t leave
• Improved customer experience – in a down market you need to retain customers. By providing loan officers with a single point of reference where they could obtain information in a fast changing market meant that they could answer clients’ and potential clients’ questions on the phone there and then. This led to a significantly improved customer experience and increased customer retention, which is essential in a down market.

What was really interesting is that this successful wiki implementation hit nearly all of our principles of wiki adoption:

• Targeted – there were clear reasons for the wiki – internet passwords, How-To’s for working from home and market information. There were also clear audiences who would use it slightly differently, underwriters (generally content contributors) and loan officers (generally content seekers). The motivations of each were addressed differently – for the underwriters posting wiki content stopped them being asked the same questions several times a day. For the Loan Officers using the wiki as a first point of call allowed them to provide an improved customer experience and therefore sell more.
• Sponsorship – the wiki manager worked for the President of the company. Interestingly, he commented that during a ‘down’ period was actually a good time to introduce new technology, as people actually had some time to get used to it!
• Marketing/communcations – a lot of company communications were pushed out on the wiki. A catchphrase developed in the office when people asked “where is…?” with the response “it’s on the wiki!”
• Champions – there was a clear champion for the wiki who spent a great deal of time educating and working with users to ensure that the adoption was successful
• Support – a lot of support was provided. Effort went into ensuring that templates were available so that people were not presented with a blank page when creating new content. Effort was put into ensuring the wiki was searchable so that people could find what they needed quickly. The wiki champion spent time one-on-one with staff to ensure they knew how to use it
• Accessible – the wiki could be accessed by those who worked from home, which was key to driving adoption with the loan officers
• Enforcement – people started to say “it’s on the wiki” when asked a question rather than providing the answer
• Get rid of the old – the wiki champion slowly started to take away the old sources of information. After one week of information being posted into the wiki and one on one training showing the users how to find it, it was removed from its original source
• Measure – this is the one principle not followed. Any measurement was word of mouth and anecdotal. Given adoption was so high, however, I can see why this was not a priority.

When asked what the number one benefit that provided growth in a down market, the strong response was that it was the improved customer experience. RMC Vanguard won best customer experience award for mortgage providers in the US – and the wiki is seen to be key to this, and allowing them to cope with the downturn in the US mortgage market.

Many thanks to both PBwiki and RMC Vanguard - it was a great webinar!

Continuing on a theme of ROI for various Web 2.0 tools, I started thinking about the ROI of blogging.

Part of the problem is that blogs, being tools, can be applied to multiple problems. So the ROI of ‘blogs’ is somewhat misleading. In the same way that wiki ROI studies get confused when they try to address the tool itself, they should instead address the problem the tool is trying to solve, and then do an ROI study on that problem. For example, a blog could:

• Show a different side to an organisation, or reinforce a current perception/image (eg Microsoft’s Channel 9 or GM’s Fastlane)
• Showcase expertise around an industry or subject matter (eg the English Cut)
• Generate an honest dialoge with customers (eg Ed Brill of IBM)
• Perform market research (Dell’s IdeaStorm)

So, when organisations come to address the ROI of a blog they should look at its purpose, and use their traditional methods. For example, if GM is trying to change its public image using a blog, the same ROI methods should be applied as if they were engaging a consultancy on a re-branding or re-launch exercise. If market research is key, then the ROI follows the same pattern of how we measure the ROI of focus groups today. I worked with one customer who wanted to use their corporate blog to increase their brand awareness. So their measure of success was to sample brand awareness using phone polling before and then a few months after launching their blog. The ROI calculation was done on their traditional brand managment ROI metrics (so it could be compared with previous exercises). The fact that we are using an IT tool to get to the same end result shouldn’t change how we measure ROI, it should (hopefully) help us end up with a better ROI result!

However, measuring return is not the only tricky part of measuring the ROI of a blog. The costs are pretty low in turns of financials, but the real cost is time. How many hours per week are you going to budget for blogging and how does this impact your ROI? It’s even more difficult as it is not a one-off cost, as would an IT project to automate business processes where you pay a lump some for software, hardware and services and watch the returns come in. Blogging requires a certain time commitment every week, or sometimes every day. You need to work out the opportunity cost of your bloggers spending time blogging (or, more accurately, spending time performing market research, talking to customers or showcasing their expertise) into your calculations.

Of course, all the above only address external blogs. What about organisations which provide employees with blogs within the firewall? Again, go back to the problem that blogs are trying to solve.

If your internal blogging platform is meant to be a searchable knowledge repository, how have you previously measured the value of employees having speedy access to information?
If it is for employee feedback, what was the ROI of previous feedback schemes? One that I think will become increasingly important is retention. How much does it cost it replace an employee and how much will lack of blogging facilities be a reason for leaving as a new generation with new expectations comes into the workforce?

Let’s try and put some numbers around this. Say we have a £20m turnover company with 100 employees. Let’s say they have an industry speicalist, their super-star consultant who is usually chargeable but equally is expected to help close deals, which I hope is a fairly typical scenario. Let’s say that he ‘gets’ blogging, is really keen, and spends four hours a week blogging. Assuming he charges at £150/hour that’s £600/week = ~£30k per year lost revenue (0.15% of turnover). So his blog, showcasing his expertise and therefore giving his organisation authority, has to pull in probably between 1-2 clients per year to break even. How do you measure this? Quite simply the same way as you measure any marketing tool, you ask your customers whether it had an impact on their decision!

However, there’s another way of looking at it. Blogging champions are funny people, the chances are that the consultant would blog out of hours, because they are so enthusiastic about what they do. Even if it is done during time which would be otherwise chargeable, the consultant would be expected to attened sales meetings to convince the client of the organisation’s delivery capability anyway. By blogging, he or she is doing this for an unlimited audience, as opposed to the two or three people they might meet during a sales presentation. Because of the blog, it may not be necessary for the consultant to attend so many of these meetings. So the actual cost would be much lower than £30k per year, and it is still opportunity cost, not real cash going out the door. Anyway, all if this is measurable – hours spent on chargeable time, hours spent on sales presentations and hours spent blogging and number of new customers who recognised the blog as a factor in their decision (and number of customers who found the blog a value added service which they recognised, and decreased the likelihood of going elsewhere – this is a question that should be asked too). The key however, is not to look at the ROI of the blog, but the ROI of the business problem the blog is addressing (in this case increased sales) and treat the blog as an input into that ROI.

Finally, I noticed two great statements whilst looking at this, one from SearchCIO which suggested that the potential business upside of blogging was so great that we should expect to see a lot more attempt by analysts and MBA-types to formally calculate the ROI. My favourite though was from Jeremiah Owyang who is someone who sees the ROI as so obvious that there is little value in calculating it. This is an interesting observation when replayed at corporate level. If you see day to day the anecdotal and intangiable benefits of blogging (or any other Web 2.0 tool, wikis, instant messaging etc.) then why spell out the ROI for your competition? If they want to spend the next five years thinking about it while you get on with it and enjoy the benefits that is a distinct competitive advantage!

IBM have recently published an ROI study about their own internal use of instant messaging. I was initially quite excited about this, I am a huge instant messaging fan, and sometimes I think the fact that it seems like such a no-brainer to me in terms of corporate use I struggle to articluate why people should use it (almost like having to justify why phones are useful for businesses).

I was somewhat disappointed with their report. They reckon they have saved $16.5m per year “in phone usage alone“. This is based on 380,000 users, 200,000 concurrent users and 4 million messages sent per day. They then estimate the number of times instant messaging is used instead of the phone, the average number of minutes per call and the phone rate.

So far, so good. But then we get the following which have also “factored into the calculation”:

• Quick access to expertise
• Allow more employees to go mobile

And further cost savings are available from “the cost benefits of high productivity”.

How did IBM measure the benefit of quick access to expertise and allowing employees to go mobile in a way that they managed to combine it into the $16.5m number? How would they go about measuring high producitivity? These are the really interesting metrics, measuring usage of instant messaging at the expense of phones is relatively easy and straightforward, but positions the corporate use of instant messaging firmly as a cost saver.

Now, from a sales point of view this may be the best way to get instant messaging into an organisation and past the CFO, but I am convinced that instant messaging can help generate revenue. For example:

• Did quick access to expertise allow IBM to get the right subject matter expert to contribute to a proposal which led them to win a multi-million dollar contract they would have otherwise lost?
• Did allowing employees to go mobile increase sales face time with customers by x% resulting in $y extra revenue?

This revenue generating activity is how instant messaging can help an organisation which embraces it fully (which I know that IBM does!) but is also where examples of ROI are sorely lacking. It would have been great if IBM could have provided some insight here, even if they were isolated examples rather than figures that could be applied across different industries.