A New Proxy for ROI in Collaboration and KM?

I had an interesting conversation this morning with a leader of internal collaboration and knowledge management (KM) services inside one of the large audit/consulting firms.  We were discussing alternatives to demonstrating hard, currency-based ROI in KM and collaboration efforts.  He was experimenting with alternative valuation methods because calculating credible ROI is always extremely difficult, if not completely impossible, in the “prove it conclusively” culture of an audit firm.

His organization is experimenting with ways to assign value to KM and collaboration projects by proxy.  My conversation partner described one such proxy as follows (in my words, not a quotation of his):

What if the KM and collaboration functions could be outsourced?  How much would it cost our firm to have someone else manage those activities?

The idea is that by calculating a hypothetical, but provable, cost for how much a third party would charge to manage your organization’s KM and collaboration infrastructure, applications, and activities, you can determine a proxy, expressed as currency, for how valuable those assets are to your company.  Hosting charges for infrastructure and applications can easily be determined by floating an RFP for those services to potential providers.  Much of the cost of KM and collaboration management activities are bundled in the salaries of staff assigned to lead and support those functions.  So, yes, it is possible to come up with a hypothetical cost to outsource these support processes.

But is it desirable?  I don’t think so.

First, discussing a hypothetical outsourcing of collaboration and KM functions sends the wrong message to the organization.  It says that these things are not very important to success; they are commodities that provide relatively little value, no matter in what terms that value is expressed.  It also ignores that these functions are embedded in an organization’s culture, which is impossible to value definitively, but undeniably important to the long-term success of the company.

Additionally there are a couple of mathematical problems with the approach.  The proxy doesn’t include the cost of contributing and reusing knowledge, or of collaborating, accrued by each and every employee of the firm; only the avoided costs of staff managing those functions is recognized.  Even worse, potential bottom-line benefits (or penalties) resulting from conducting effective (or ineffective) KM and collaboration activities are not recognized.  This is the return, whereas the proxy described above only determines the (avoided) investment, and only partially does that.

So, as I see it, this proposed valuation method sends a death-wish message to the organization, understates actual incurred costs, and fails to recognize performance benefits (or penalties) to the organization.  Is that right?  Have I missed anything else?

To be fair to the individual who shared this approach with me, he’s no dummy.  In fact he has great experience and understands KM, collaboration, and ROI better than most practitioners.  I’m sure he realizes all  of the limitations that I’ve stated.  What is interesting to me is that we’ve reached a point in the ROI debate where someone of his stature  would be suggesting such an approach to proxy valuation for KM and collaboration in the first place.

Please let me know how you feel about the use of a hypothetical outsourcing cost as a proxy for value added to a company by it’s KM and collaboration programs.

Work 2.0 Shifts Gears

Journalist and editor extraordinaire Tina Brown wrote today, on The Daily Beast, that “No one I know has a job anymore. They’ve got Gigs.” In her rather negative post, she correctly notices the plethora of laid-off workers that are now trying to pay their bills by doing freelance project work. Tina seems to tie this condition to the battered state of the economy. While she’s right in doing so (and I like her term “The Gig Economy”), Tina (and many others) misses the bigger point.

The growing number of freelance workers represents a long-term structural shift in the economy, not just an inevitable immediate outcome of a global recession.

This new work model, which I call Work 2.0, is rapidly becoming the new reality. Yes, the economic downturn has accelerated the trend toward knowledge workers being employed on-demand to complete discrete projects, but the trend was already in place and is not likely to reverse itself. One of the lasting legacies of this Great Recession will be the transition to freelance, rather than regular, employment by many knowledge workers.

Venkatesh Rao illuminates a clear distinction between the old and new models of work on his blog. He uses the term “Organization Man” to describe the worker that is employed with the same company for many years, climbing the proverbial corporate ladder. He calls the freelancers “Cloudworkers” — human resources that can be called upon when needed to complete a specific task, much like one would consume a Web service hosted remotely. Like me, Venkat believes that cloudworking is rapidly displacing the organization-centric way of working, and that this is not just a temporary result of tough economic times.

What force is driving this transition to Work 2.0? The great disrupter called the Internet. As numerous authors (including Thomas Friedman and Daniel Pink) have noted, it is now easy and economical to divide work into digital bits and push it — and the information and knowledge needed to complete the task — to others outside of the company and/or geographic region for completion. Increasingly, corporate employees exist to synthesize the various work pieces into a complete product as they are completed and returned to the company.

There’s one other point that Tina Brown did not make explicitly, but must be noted.

The success of the Work 2.0 model ultimately depends not only on the infrastructure that enables it (the Internet), but also on healthy, collaborative relationships between the players in the game.

Making an acceptable living as a freelancer requires developing and maintaining an expansive professional network. Without a strong and active network, it is difficult, if not impossible, for a freelancer to piece together enough work opportunities and income to pay the bills. Tina noted (twice) the frantic number of things her freelancer friends were working on, but she didn’t talk about how they were able to garner so many opportunities. Tina is a well-connected individual and, undoubtedly, so are many of her friends. That high degree of connection will be required of more and more of us as we transition to Work 2.0.

As a way of summarizing, I’ll reprint another statement from Tina’s post.

“To people I know in the bottom income brackets, living paycheck to paycheck, the Gig Economy has been old news for years. What’s new is the way it’s hit the demographic that used to assume that a college degree from an elite school was the passport to job security.”

That “hit” is not temporary; it’s a long-term shift in the foundation of work. Better get networking…

The Multiplier Effect of 3C Technologies

Burton Group’s Craig Roth has written a very interesting post on The Role of Communication, Collaboration, and Content Technology Investments during Tight Economic Conditions. One passage in particular grabbed my attention:

“While [3C technologies] can be deployed to improve vertical business processes (such as order-to-cash or communicating design specifications updates to partners), they are also used to bolster horizontal business processes. These horizontal business processes are some of the most common and fundamental to businesses, such as collaboration, expertise location, notification, searching, and documentation. These horizontal processes do not have ROI of their own, but rather act as multipliers when they are applied to initiatives to improve specific instances of business processes.”

That is absolute truth in my experience. Why then has no one ever figured out a way to apply such a multiplier as part of an ROI calculation? Probably because it is difficult to assign a value to activities such as collaboration, search, etc. Data on pre- and post-3C technology deployment activity would have to be collected for the specific horizontal process in question. For example, average search time for a subject matter expert would need to be measured both before an expertise location tool was deployed and after it had been launched. Then the multiplier effect of the new technology could be calculated and applied to a specific vertical business process ROI calculation.

This scenario immediately suggests a couple of things:

1. Communication, Collaboration, and Content technologies should be deployed in support of key vertical business processes and not for their own sake. Too often, organizations deploy 3C technologies because of a perceived need to improve functionality, but one that is not explicitly tied to a core business process. The right question to ask is “how will using this [specific Communication/Collaboration/Content] technology improve the performance of our [specific key, cross-functional] process?”

2. Calculating a believable, currency-based ROI in a 3C technology is difficult if not impossible. Measuring a process time reduction value for the technology and applying that value as a multiplier to a core business process redesign ROI is both viable and believable.

Perhaps what is needed is a research study that would allow us to develop a numerical sense of the value of those multiplier activities. Are you willing and able to contribute data so we can reach a consensus on the multiplier value of collaboration, search, expertise location, and other knowledge/information management technologies? Are you aware of any similar efforts that have been documented? Please let me know. Discovering accepted multiplier effects for specific 3C technologies would be a great aid for many professionals attempting to justify related investments in their organizations.