Where’s my ROI for Web 2.0????
During a recent conversation with a mate regarding Enterprise / Web 2.0, the dreaded question of ROI came back haunting us. While being a proponent on the benefits of Enterprise 2.0 is very simple, substantiating the need for Enterprise 2.0 in terms of $$ and cents may seem difficult, for now.
ROI/Rate of Return (for some) is a critical component in a project. It measures the ratio of money gained/lost in an investment in a project. In short, it finds out whether your project has failed (lost money) or succeeded (gain money). ROI analysis and study is a very typical part of every consultant’s job, albeit perhaps most important.
To put all this into perspective, the following thought process went through our discussions:-
- How do we measure ROI and convince the C-levels that Enterprise/Web 2.0 will save them money?
- The perceived benefits related to Enterprise/Web 2.0 are not yet quantifiable scientifically. In another words, the benefits are intangible and unsubstantiated.
- If 1 and 2 above is correct, how can we ever market Web 2.0 solutions to the market strictly through the eyes of the dollar? Is there no other way rather than a ROI?
While all the questions above are valid, I am very doubtful if a satisfactory answer can actually be found. It boils down to the philosphical question of “How do you measure the value of an idea, or tacit knowledge that has been captured in an exchange”?
Enterprise/Web 2.0 offers a whole new world of principles and tools, unto which the flow of an enterprise information landscape will change significantly. This has direct impact on the business model of an organization. Closer collaboration internally and externally will have a significant impact to the traditional way businesses have been run for centuries.
Instead of asking the above questions, I would like to propose taking a radical stance, and turn around the questions above to the following :-
- How agile is your current business information landscape? Can you access critical information quickly? Knowing the right person to ask for ideas is not good enough, and definitely not an efficient and agile way to capture knowledge. Useful knowledge should be available anytime, anywhere.
- How well are you harnessing your talents within your organization (a key metric associated would be the employee attrition rate)?
- How well are you managing innovation, and how closely are they tied to what your customers desire?
- With smaller niche market players appearing with more dynamic and agile business models that has the capability to erode parts of your revenue streams, can your organization afford not to keep up and protect the piece of your pie in the market segment?
- Enterprise/Web 2.0 is social, and that means human interactions. It’s principles are based on the social element of everyday life, instead of numbers. How do you extract dollar amount from human interaction? How do you scientifically measure and quantify knowledge? The end answer will always be fluffy, and intangible at best.
- Enterprise 2.0 promises to break down silos in organizations to foster efficient collaboration, and increases social productivity. No more unnecessary political escalation and tons of emails just to get the basic fact to a working question in point. Faster turnaround of information and intel gathering leads to faster and more efficient planning. Good and quick planning then enables quicker strategy execution. For some organizations, this means shorter time-to-market for product releases or making fundamental shifts to the corporate strategy and staying ahead of the competition curve.
- Enterprise/Web 2.0 platforms (such as Clearspace) provides an interactive channel for the organizations to engage customers directly. As I mentioned in my other blog post, customer is always right and they should have a part in driving product development as much as the internal engineers in an organization does. As Clay Shirky puts it in his presentation on Cognitive Surplus in this year’s Web 2.0 summit, “The Media TVs that doesn’t include you are not worth watching”. Note: This is just a paraphrase of what he said.
I could go on and on, but I decided to stop here. In short, I think the whole ROI equation needs to be looked at when it comes to Enterprise/Web 2.0. The fundamental assumptions underlying the need of a ROI calculation as a basic quantifiable unit towards profitability calculation may need to be re-looked for substantiating Web 2.0.
As usual, most welcome to comment on what you think. 
Yeah, the ROI question drives me nuts. Any attempts to come up with a real number are bogus.
A few years ago, I wrote this article: “Projecting ROI for your intranet: Don’t bother” (http://snurl.com/28nsz). As you indicate above, too many variables exist to accurately forecast the future effect of any Enterprise 2.0 implementation.
Looking at successful case studies of other E2.0 implementations can help convince the C-levels. Cases2.com is a good source. We have a case study of a $500,000 tip that a construction manager shared on his ThoughtFarmer intranet: http://www.cases2.com/?intrawest_wiki_intranet.
Hi Michael, Great post! The ghoul of ROI for Enterprise 2.0 keeps on cropping up:-
This blogger has been talking about it:
(http://richarddennison.wordpress.com/2008/05/14/how-do-you-measure-the-roi-of-social-software/),
I have been banging on about it:
(http://nickpoint.co.uk/2008/04/29/refocusing-less-on-numbers-and-more-on-quality-creation/)
Susan Scrupski has touched on it: (http://susanitsa.wordpress.com/2008/03/16/stranger-in-a-strange-land/).
Even AIMM has been attempting to tackle the ROI argument in their E2.0 in their recent customer quantitative report on Enterprise 2.0:
(http://www.aiim.org/article-industrywatch.asp?ID=34464)
For me ROI is a tactical cost saving measure and the E2.0 philosophy is a strategic approach to work collaboratively. E2.0 has the potential to bring efficiently and productivity as you say within your post. E2.0 enables a firm to survive and grow through being closer to its most important assets, its employees and customers. An analogy is the difference in attitude between Accountants and Entrepreneurs
I’m pleased to find another blogger who thinks in the same vein and will follow your future posts.
Nick
Hi Nick,
I absolutely agree with you that ROI is the best measure/indicator when a tactical solution is applied within the Enterprise.
Being close to customers / knowledge assets a.k.a employees are one of the key survival kits for companies, given that we have all entered into the digital age, where information flow plays a vital role in an organization.
One of the revenue stall points for companies (conducted and published in Harvard Business Review, April Edition 2008) is innovation management, and I believe Enterprise 2.0 will enable companies to collaborate in a whole new spectrum to manage innovation within a firm.