Measurement and ROI
SteveI read an excellent article earlier in the week on the Chief Learning Officer site on the inability of the traditional definition of ROI to adequately assess the importance and value to the organization of its employee's networks and the value that is derived from these internal and external network interactions, and by extension the technologies and processes that support these interactions.
The essential point of the article was that these network benefits are intangible in nature, do not 'fit' the classic ROI model (that was developed to understand how tangible activities like buying a new factory, or upgrading an assembly line) of measurement. It really is a riff on the 'what is the ROI of e-mail' argument that is often used when folks are attempting to justify time and expenditure on new tools and processes designed to increase workforce collaboration.
Flickr - Darren Hester
Can the organization really accurately estimate the ROI of 'increased network activity'? Does it even make sense to try?
Unlike the new industrial machine, that is built to precise specifications for productivity, output, and operating costs, it is just about impossible to predict how new technologies and processes for collaboration will be embraced inside the organization. You may be able to apply typical benchmarks on participation rates and utilization statistics, but I have to believe its just about impossible to intelligently make an argument to senior management that a specific 'return' is likely to be generated, at least prior to the introduction of these tools.
In many ways organizations that embrace these projects, and the new ways of communicating, collaborating, and working that they introduce have to take somewhat of a leap of faith that there will be sufficient 'return' on the investment (which for all but the largest organizations is chiefly employee's time, the technologies that are most frequently utilized tend to be low cost, sometimes even free). It is very easy for management to constantly drive the focus back to the traditional 'ROI' measure, and it gives many leaders a convenient 'out' from having to address and show true skill and even courage.
But just like communication and collaboration advances like voice mail, fax, e-mail, and personal and network computing all moved from experiments to critical business infrastructure mostly without any idea of traditional ROI, so it will be for social networking and collaboration technologies. The smart and leading organizations have already embraced this concept, and I do not think it long before these technologies also become essential components of the modern organization.
Reader Comments (3)
ROI traditionally has only one purpose: to compare two "opportunities for investment" to determine where a company should invest its limited resources. There are a number of problems with this concept (see my book, Boiling the IT Frog, for more on this subject), but probably the most important is that it's an attempt to make a rational numeric comparison of things that in many cases aren't rational or numeric.
ROI works fine as long as you're comparing two concrete projects that are equally strategic and that both offer the primary advantage of cost-savings. But while cost-savings was enough back in the days of simple businesses who competed on equal footing, today's markets are far from simple and in many cases cost-savings should be the least of your concerns.
In spite of all its faults, ROI is still used by most companies because the company executives can't agree on any other measure. They would be better off just asking, "Is this project of strategic importance?" or "Is this project essential for us to succeed in the future?" If so, then do the project. If not, then don't.
Using those questions as substitutes for ROI, they would all answer "yes" to email, and I believe most of them would agree that social networking has some sort of role in their company's future.
In my opinion, those companies which continue to use old measures of success are destined to fail when their companies are measured by their customers using new measures of success.
Harwell - thanks very much for you comments. I think you are right on the money about firms that continue to try and apply old measures of success in a clearly, very different environment that we are in today. Excellent observations and thanks for reading and sharing your thoughts.
Agree completely. The simplest ROI test for a communication/collaboration tool is, "are the people using it." Employees, who have the intentions of doing their jobs well, will naturally use tools that best help them succeed on a day-to-day, minute-to-minute basis. Any cost of such tools, in a competitive market, will be dwarfed by the benefits. (i.e. improved effectiveness for an employee that costs $3,000 or $7,000 or higher a month using a tool that cost less than a McDonald's big mac meal a month).
When companies find software that their highly paid people are actually using to communicate and collaborate, the ROI is a no-brainer, and anyone still intent on calculating it does not understand the new economy.