As social media tools are increasingly embraced inside corporations, the vaunted Enterprise 2.0 model is gaining momentum. Yet, if senior executives remain nervous about the downside risk of Web 2.0, their fears are frequently stoked by valid arguments: security breaches, confidentiality issues, legal liabilities, even simple “time wasting” on social networks like Facebook. These concerns, even if alarmist (and sometimes motivated by the prospect of security software sales), cannot be casually dismissed.
The best counter-argument to alleviate these anxieties is the famous “ROI” case. If Web 2.0 tools can enhance value and produce measurable results, what intelligent CEO would not champion them?
True, there are some exceptional cases where specific Web 2.0 campaigns -- usually in marketing -- have boosted sales. Dell Inc. (Nasdaq: DELL), for example, sold more products thanks to a Twitter marketing campaign. For most Web 2.0 strategies, however, the metrics remain vexingly soft. It’s difficult to put a hard measure on how wikis, social networks, RSS feeds, blogs, and other Web 2.0 tools add to the bottom line.
Web 2.0 evangelists argue that “ROI” is the wrong issue. Who called for hard ROI proof when the telephone and email first appeared as office tools?
Perhaps the best question is based on an alternative ROI test: return on information. The virtue of the Google-friendly return-on-information question is that it shifts focus from hard measures of profitability toward equally important goals of efficiency and effectiveness.
An excellent return-on-information case study can be found, ironically, in the rigid world of government bureaucracy -- in particular, armed forces and intelligence agencies.
A few years ago, when Web 2.0 social networks like Facebook and MySpace first exploded onto the scene, governments were among the first to ban them outright. This reaction was not surprising: The vertical logic of bureaucratic hierarchies was fundamentally opposed to the horizontal social architecture of online social networks.
And yet, today, many government agencies are actively embracing Web 2.0.
Governments, admittedly, don’t face the same return-on-investment pressures as corporations. But that’s the point. It’s precisely because governments are primarily under pressure to increase efficiency and improve effectiveness that they are seizing on Web 2.0 tools to harness their upside return-on-information benefits.
The secrecy-obsessed Central Intelligence Agency does not seem, at first blush, to be an ideal candidate for a Web 2.0 project. But when you think about it, the CIA’s effectiveness depends on the efficiency of its information-gathering operations. This fact was not lost inside the CIA itself. The famed intelligence agency was, in fact, an early Web 2.0 adopter when it launched its Intellipedia wiki in 2005.
Intellipedia is a collaborative information-sharing wiki with three levels of security: “unclassified,” “secret,” and “top secret.” By most accounts, it’s both efficient and effective, boasting more than 100,000 user accounts, nearly 1 million pages, and as many as 5,000 page edits a day. The “top secret” network is the most used, with nearly 60,000 user accounts and some 450,000 wiki pages. We may never know just how vital Intellipedia is to global security.
The U.S. defense forces, too, are actively deploying Web 2.0 tools, though official positions are conflicted depending on where you look. In August, the U.S. Marine Corps imposed a 12-month ban on Twitter, Facebook, MySpace, and other social media, citing concerns about security leaks. Yet the Marines have their own Facebook page and operate social networks for internal use. The U.S. Army, by contrast, has ordered Facebook access to all personnel, and even top generals are blogging.
Web 2.0 tools, meanwhile, have been enthusiastically embraced at the highest ranks of the Pentagon. Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff, is an outspoken advocate of Web 2.0 tools who not only tweets, but also has his own Facebook page.
Fittingly, the Website for the U.S. Department of Defense features all the Web 2.0 bells and whistles. And like armed forces in many countries, the agency understands that Facebook and other Web 2.0 networks are invaluable recruitment tools.
This advantage has not escaped many executives in the private sector. Paradoxically, the same HR departments that ban Web 2.0 networks at the office are frequently those that actively mine networks like Facebook during recruitment initiatives. If companies are indeed only as valuable as the people they employ, it can logically be concluded that the bottom-line value of good information produces material benefits.
In short, there clearly is a return-on-information ROI factor.
It may be counter-intuitive, but as the debate about Web 2.0 in corporations continues to be fraught with fears about downside risks, perhaps CEOs and senior managers should start by asking the right ROI question first.
— Matthew Fraser is a Web 2.0 strategist, an adjunct professor at the American University of Paris, and senior fellow at INSEAD.
I agree with you in concept about the ROI Mantra. But the practical matter is that the business people convert everything to $$.
So what we need to do is evolve the metrics on Web 2.0 to make them translatable into ROI calculations. Perhaps the best way to start is from a marketing perspective. That's probably the "softest" business area to calculate an ROI on in a standard company--there's still a bit of voodoo and witchcraft done (suitable, at this time with Halloween approaching) to get ROI numbers from that group...
But I think that Web 2.0 will actually give Marketing some good quantifiable numbers for things like:
Market buzz (and especially meme propagation)
Viral marketing
Thought leadership
User feedback
Customer support feedback
These have always been desirable marketing statistics to gather but hard to quantify, even with statistical sampling. Maybe Web 2.0 will turn it sideways: you have plenty of statistics, now put some relevance on the data and mine it properly.
This could lead to a new approach to Market Theory and applications, which is something VCs would love to have to calculate their ROI for throwing their $$ into ventures.
Many companies, large and small, have experimented with Web 2.0/social networking. Some have succeeded, and some have let their efforts drift into the oblivion that they deserved to be in. Let's not diss the "beancounters"--because at the end of the day, all IT efforts that support a company--whether good or bad, contribute to the expense load. When the expense load exceeds the income, you have, well, the government...
I think we do have to look at the return that IT gives us, and of course traditional models don't work--perfectly. I can remember helping large companies try and justfify their first large email systems--and most of the time, it was considered a net balance. The productivity gains were offset by the productivity losses as people began to use a tool they didn't understand. Remember the wasted time of everybody flooding the network with reply-alls on trivial or even urban legends? Remember Craig Shergold? I've even been around long enough to help install PBX systems in companies--in some cases, the first time a telephone was placed on some worker's workstation.
I think it was said best in some other posts--the right way forward with these technologies isn't blanket acceptance, it is well thought out, measured use of the new technologies. Tout the successs--but even more importantly, learn from the failures. If a company doesn't have some of this experimentation going on, they are probably missing out on some winning uses.
Or not. I gotta go update my status on Facebook now. Seeya.
It seems to me that really, whether it is the CEO or next employer, a list of results is what anyone would want to show as their body of work. Dell's Twitter promotion is certainly a result that it's marketing managers should tout.
But if the idea is to cast a thumb up or down on Web 2.0 activities, I think that's totally missing the point. Individual initiatives--with customers, revenue, those types--are what should be evaluated, with Web 2.0 as part of the marketing mix, tweaked and adjusted like any other lever, such as advertising or media placement.
We've all seen corporate blogs and websites that were created because others were doing it. And, we've seen those blogs and sites fade away. Those were things developed without any end in mind.
I do believe there needs to be some element of experimentation and learning with new media tools. But if they are consuming enough of someone's time for that reason only, that experimentation seems destined to be a short-lived initiative without anything to show for it.
Eventually someone, whether it's the CEO or someone from outside the organization (perhaps your next employer?) is going to ask the question: Has the investment of your time, energy and money resulted in a tangible benefit? That's why it's important to set measurable, achievable objectives for your Web 2.0 initiatives before you embark on them. Dell's use of Twitter is an easy one: a unique promo code delivered via tweet can be directly tied back to an increase in sales volume.
Even when it's not as easy to directly quantify the benefits, you still can by comparing the cost of gathering information/feedback about your company and its products by traditional means vs. Web 2.0. E.g. - pose questions to your followers on Twitter & Facebook, vs. spending tens of thousands of dollars asking the same questions of focus groups.
What do employees in a 21st century corporation do really? Many of the processes are web automated or about to be...finance, evaluations, materials handling. Factory processes become more automated.
What's left except to become more creative, thinking of the next new products or engaging yourself deeply with the customer base through social networks?
Companies shouldn't be filtering Facebook -- they should be sending their employees to seminars telling them how to use it!
Corporations can be their own micro-townships in the Web Urbosphere, having a flavor, a characteristic, a way of speaking, that is brand-identified. Coca-cola people who social network (on company time) will always mention having a coke...or using their Coke umbrella during a rainstorm at their kids playground.
GE, IBM, EMC, and other companies with sizeable social media networks don't hassle too much about traditional ROI for those nets -- at least not in public, because I've asked all of them. I think if you're making money, it's probably a lot easier to point to the social networks as helping that effort. If you're in debt, anything is going to get the beancounters upset.
Isn't it about time we get some leadership involved that realizes that everything is not about Return on Investment??
What ever happened to the "Cost of Doing Business" charges?...
Sure, I could save mega-bucks removing ALL desktop phones, but would the loss of contact not override the savings???
If you're looking for more advanced ways to make your customers aware of your business' goals, products, and future direction then maybe you need to just consider the efficiency and effectiveness improvements as a "cost of doing business" and not get caught up in all this Investor ROI nonsense...
We need a new generation of leadership that thinks more like the leaders of a time that seems to be slipping away -- I hope we're not too late!!
in my view, a lot of IT is about ROI (as in Information) and needs to be treated as a Cost of Doing Business -- the gains come from better efficiency, effectiveness, customer awareness, etc, etc.
You can't put a $$ on most of this stuff, you need instincts to tell you it's right -- not some pretty little wall chart!!...
Thanks for your riveting blog. Just last week, i was chatting with Alan Reiter, who is alos a Thinkernneter on this forum about Corpoare weblogs. And one of the foremost issues we discussed was the ROI for a corporate weblog. One of the question i put to Alan was this: "is it realistic for a CEO to demand a definitive ROI before giving the orders to start a weblog or do corporate firms just have to take a leap of faith as things stand at the moment?
and here was Alan's asnwer:
"It's realistic for a CEO to ask about metrics and discuss the weblog's goal -- it's reasons for existing. It's certainly a good idea to consider ROI and come up with some parameters. But once the basics are discussed, it's important to see how the weblog does over, say, at least six months, to give it time to build an audience".
I think your blog has correctly address the issue in its correct perspective and those CEOs still demanding a traditioan estimate of ROI before embracing web 2.0 tools may just have been missing on some Return on Information value!!!
Matthew: Thanks for your perspective on how ROI really pans out for social nets in the enterprise. The government examples are compelling, because as you note, the policies of these agencies surely resonate with skeptical execs in hierarchical private sector firms.
But these days, it's got to be clear even to a lot of old-fashioned types that the Internet doesn't fit the business-school models and requires a different set of evaluation tools.
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