Tag Archives: business_case

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.

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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

letter-xBurton 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.

Why We Struggle With Social Software ROI

money_bag_with_dollar_signOne of the prominent themes in any discussion of social software in the enterprise is Return on Investment (ROI). I opined in a previous post that all too often ROI is a hurdle put in place by opponents of a project to prevent it from happening or succeeding. I also said that organizations that have collaboration hardwired into their culture understand and accept the value of social software without a demonstration of ROI. Conversely, even a reasonable, positive ROI projection isn’t likely to get a proposed social software project approved in an organization that doesn’t “get” collaboration. I stand by those statements and have another observation to add:

The primary reason organizations are struggling with ROI in social software is because they have little or no idea what they want to accomplish by using it. There’s no link to business strategy and tactics.

To calculate ROI, one must define specific, measurable metrics, for which annual financial benefits can be projected out over 3-5 years. The rub is in developing the metrics. Defining appropriate metrics requires knowing what the organization wants to accomplish by making an investment. We all know this. Yet too many seem to forget this basic principle of ROI when contemplating an initial social software project. They get caught up in the hype of the newest fad and forget that technology must be deployed in support of a well-defined strategic goal or objective. They focus on the “soft” benefits of social software use that are widely communicated today instead of on how using social software in support of a specific business strategy or tactic can lead to revenue increases and cost reductions in the business.

Before you and your organization get too enamored with the shiny new toys presented by social software, or get caught up in the hype cycle, take a step back and ask questions like:

  • What specific strategic imperative(s) could be enabled by social software?
  • Where could social software help us increase revenue and/or reduce operating costs?
  • Why are some of our employees using social software despite our reservations about it?
  • Who might we be able to create new and valuable business relationships with by using social software?
  • What differentiation for our company and it’s offering(s) could be built using social software?
  • How could social software be used to increase trust inside and outside of our organization?

The answers provided by asking these kinds of questions will provide the purpose behind your social software project and investment. Knowing the purpose will make it possible to define metrics that can be quantified in dollars (or whatever currency your organization operates in) and demonstrate potential ROI.

Are you having trouble defining questions that reveal your organization’s purpose for investing in social software? Please contact me so we can discuss ways that I can help.

Culture Trumps ROI

Talk about signs of the times!  Lately, there’s been a rapidly growing number of posts declaring the need to demonstrate return on investment (ROI) in social software, but lamenting our inability to do so.  Just today, I read three posts on the topic and noted that a fellow IBMer has launched an internal virtual event to brainstorm the issue and potential solutions.

My take on ROI of social software is pretty much along the lines of Jon Mell’s and Gia Lyons’ — don’t bother!  Trying to demonstrate business value created by the deployment and use of collaboration tools, regardless of what label we use to describe them, is a misguided effort.  Too much of the evidence is anecdotal and difficult, if not impossible, to translate into credible and compelling currency amounts.

I spent too much time around the Millennium trying to devise clever ways to show ROI on investments in software that supported knowledge management.  I learned that it is fruitless to try to sell collaboration technology to an organization that does not want to collaborate — or is not ready to do so.  Those types of organizations are very likely to demand a detailed business case demonstrating ROI on social software, or any other collaboration technology.  It’s one of the ways they can maintain status quo and kill grassroots efforts to improve collaboration.

So let’s not spend countless manhours trying to develop metrics that will help us demonstrate ROI in social software.  Better to spend the time, energy, and money qualifying and quantifying potential customers’ willingness and readiness to collaborate.  Knowledge audits, Social Network Analysis, and other consulting services are what we should be selling to organizations that don’t understand the instrinsic value that collaboration software can produce.  No business case will sell social software to a firm that doesn’t already value collaboration in its culture.