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ROI or no ROI? The answer depends on which side of the business case you sit at:  asking for the investment or holding the purse. Last month, I covered the subject of personal ROI in the realm of enterprise social networking: how sustained adoption requires individual buy-in similar to long-term commitments to special diets or exercise routines. The topic of Social Media ROI, due to its complexity and scope, would be better discussed in a book than in a blog, so here are some themes to think about, as opposed to being a comprehensive analysis of this somewhat controversial area.

Discussions on the ROI for Social Media tend to be very polarized. Many early adopters, social media thinkers and so-called evangelists tend to dismiss the need to articulate ROI for innovation, with arguments ranging from quick–and shallow–”nobody asks for the ROI of email or phones” to some elaborated points of view. Andrew McAfee, a Harvard Business School professor and a recognized thought leader in Enterprise 2.0, wrote a blog post way back in 2006 about the challenges of building business cases to justify IT investments using ROI or NPV figures. He quotes the book Strategy Maps, by Bob Kaplan and David Norton, who said:

“None of these intangible assets has value that can be measured separately or independently. The value of these intangible assets derives from their ability to help the organization implement its strategy… Intangible assets such as knowledge and technology seldom have a direct impact on financial outcomes such as increased revenues, lowered costs, and higher profits.  Improvements in intangible assets affect financial outcomes through chains of cause-and-effect relationships.”

On the other side, there seems to be a strong demand by the ones holding the money–often the decision makers–to better articulate the financial returns on social computing initiatives. Pat LaPointe, from MarketingNPV, stated in a blog post he wrote in September 2008:

“(…) we marketers don’t do ourselves any favors by trying to disconnect [Social Media] from financial value just because it’s hard to make the links. Maybe we should take a page from how our companies decide to invest in R&D – with clarity of purpose, explicit assumptions, and rigorous experimentation in escalating risk scenarios. In the end, that will accelerate corporate adoption of social media much faster. So rather than trying to spin the tangential metrics, help those grounded in the P&L to “get it.” Remember, if they don’t “get it,” neither will you. Budget, that is.”

John T. Gourville, associate professor at Harvard Business School, writing about the psychology of new-product adoption for the Harvard Business Review (Eager Sellers and Stony Buyers), described a similar conflict between product developers and consumers. The former group, like innovators, is likely to see a need for their product and see them as essential, while the latter group is reluctant to part with the incumbent product, and is unable to see the need for a change.

As in any polarized discussion, the arguments quickly escalate to become very dogmatic, and no real dialogue takes place. Which side is right, the innovators or the bean counters? Both, to some extent, as it’s often the case. ROI models are far from perfect and benefits derived from social computing are hard to measure. But in a corporate world of limited resources and high scrutiny, investments on social media or enterprise social networking compete with more ordinary needs such as employee compensation and basic infrastructure improvements, so if you don’t have a business case, chances are that you won’t get much funding either. Hype will only take you so far. Past the smoke and mirrors, if there is real net value in social media, it must be clearly articulated.

To get this conversation started, both sides need to focus on their common objectives: a solution that will benefit both the individuals and the companies they work for. That’s why, at this point of the social media evolution, we need more bridges than evangelists.

Originally published on The Bamboo Raft

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Aaron Kim

About Aaron Kim

Aaron Kim currently heads the Digital Social Collaboration Centre of Excellence at RBC. In the past, he tried his hand as solutions architect, Basel II consultant, performance engineer, Java programmer, Unix administrator, and environmental biologist. He’s married to Tania and they have a son, Lucas.

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