ROI 2.0, Part 1: Bean counters vs Innovators – The need for a real exchange of ideas

11 12 2008

This year I’ve been talking to a very large number of clients around the globe and across multiple industries about the business value of Web 2.0 and Social Computing, and inevitably the topic of ROI surfaces. It seems to be more the subject of a book than a blog post due to its complexity and scope, and it’s also a dry subject, not as flashy as talking about Twitter or cool beer ads. Nonetheless, blogging is my way of thinking out loud, so I’ll give it a try here, but breaking it down into manageable chunks.

Discussions on the ROI for Web 2.0 and Social Computing tend to be very polarized. Many early adopters, enterprise 2.0 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, Associate Professor with the Harvard Business School and a recognized thought leader in Enterprise 2.0 wrote a blog post 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 say:

“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, like innovators, are likely to see a need for their product and see them as essential, while the latter are reluctant to part with the incumbent product, and are 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 Web 2.0 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 Enterprise 2.0, 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.


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4 responses

11 12 2008
Larry Hawes

Thanks for seeking some middle ground, Aaron. I’m clearly in the first camp, being an E2.0 thought leader, but I also see the need to demonstrate ROI in social software in some cases. As I mentioned in a blog post yesterday, organizations must first understand which strategic initiative(s) can be supported and enhanced by social software. Then they can define the granular metrics that will lead to a meaningful and credible ROI analysis. Trying to convert soft benefits to currency doesn’t work; tying investment to business strategy does!

Looking forward to Part 2 of your “thinking out loud” on ROI in social software!

11 12 2008
Aaron

Thanks Larry, just visited your blog and read “Why We Struggle With Social Software ROI”. I like the list of questions you posted there and agree that any attempt to define metrics needs to start with articulating what the business benefits are. I’ll also will be following your blog more closely from now on!

15 12 2008
ROI 2.0, Part 2: Storytelling and Business Cases « The bamboo raft

[…] here for Part 1 of this ROI 2.0 Series: Bean Counters vs Innovators – The need for a real exchange of […]

19 02 2009
ROI 2.0, Part 3: We don’t need a Social Media ROI model « The bamboo raft

[…] ROI 2.0, Part 1: Bean counters vs Innovators – The need for a real exchange of ideasROI 2.0, Part 2: Storytelling and Business Cases Possibly related posts: (automatically generated)The Personal ROI of Social MediaLinked In Answers: What are the most important web analytics to track (for…How to Measure Social Media ROI for BusinessEntrepreneur’s Journal: Is social media really worth it? […]

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