Echoing the Business Case for Enterprise Social Software

Socialtext’s Ross Mayfield blogged today about the ROI of Social Networking for TransUnion.  In spite of the title, the real news in the post is not the amount of ROI, which, in the case of TransUnion’s Socialtext deployment, has only been estimated, not proven.  Rather, the most powerful messages are echoes of two ideas that were expressed in my last post on this blog.

First, organizations are wary of employees using public social software to discuss business.  Companies are deploying enterprise social software to keep confidential information behind the firewall.  In Mayfield’s post, TransUnion CTO John Parkinson said he saw the need “to defend against too much of this [employee social networking] going on in public.”  Mayfield further underscores Parkinson’s mindset by writing,

“Since the company deals in credit reports, it wasn’t keen on employees gathering to talk shop on the public Web. So the IT team set up Socialtext inside the company firewall.”

Clearly, corporations view the use of public social software as a risk to the confidentiality of their business information.  I think we will see many more examples of this risk avoidance behavior in the future, and it may end up being the most compelling business case for deploying enterprise social software in the near term.

The second bit in Mayfield’s blog that echoes my previous post is the other reason TransUnion bought and deployed Socialtext software.  According to Mayfield, TransUnion’s ROI estimate is based on cost savings of avoided additional software purchases.  Fine, but what were those purchases (and the Socialtext investment as well) intended to do?  Provide new tools to help employees work around existing ones that didn’t allow them to perform productively!

“TransUnion knew it was time to provide an internal social networking tool when people started asking for permission to set up an employee group inside Facebook.”

Why did these employees want a Facebook group?  I do not know for sure, but I am confident that it was because Facebook would allow them to achieve a business objective that they could not meet using existing TransUnion applications and systems.  Bravo to Socialtext for providing a solution that will likely meet those employees’ needs in a more secure fashion.

This TransUnion example affirms what I stated in my previous post.  The real value employees gain by using enterprise social software is shown in their ability to get work done when other corporate systems fail them.

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.

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.