Tag Archives: ROI

Enterprise 2.0 ROI: A Sticky Discussion

10 Sep

Enterprise 2.0 returns are hard to evaluate

Implementing an Enterprise 2.0 strategy has many benefits. Fostered collaboration, increased productivity, and improved brand image are examples of positive returns Enterprise 2.0 tools provide to businesses that deploy them.

However because these assets are highly intangible it is hard to actually measure their impact on financial outcomes. It is even harder to know which one is truly responsible for the increase in revenues or profits. Is it the organizational improvement? The smoother exchange of information? Or a combination of both of them?

The long cause-and-effects chains that comes with IT implementation tends to blur this relationship even more. Let’s say that a new Web 2.0 tool enables employees to better share knowledge within the company, this knowledge could help employees better address their customers requests which may lead to an increase in customers loyalty and therefore an increase in sales. With another fixed asset, such as a new machine tool, the cause-and-effect chain is much shorter. A new machine tool leads to an increase in production capacity and to an increase in sales, which is easier to measure.

How do we measure ROI of an Enterprise 2.0 strategy then?

Increasing expenditure on technological resources is risky if you don’t know the financial benefits you can derive from it. Being able to measure a return on investment is therefore critical to make decision about wether or not to implement a new IT tool.

First of all you need to define your different variables, i.e. your expected returns (R) and your initial investment (I).

Investments: Using social media or any other Web 2.0 tools is not free. It requires people, technology and time. These resources can be defined in terms of monetary costs (e.g. cost of a new software, cost of  maintenance of the software), and in terms of time value (e.g. IT implementation, staff training and staff learning how to use the technology).

Returns: To measure your returns, you must first express your goals as a numeric value. They can be expressed as a reduction in internal email exchange (%), an increase in customers communication (number of comments, number of likes…), a decrease in search times for information (minutes)…

However the achievement of these goals only express a non-financial impact. Non-financial impacts such as word-of-mouth, comments, fans and followers, clicks-through or retweets are critical but doesn’t translate in ROI yet. A proof must be established that these impacts are actually translating into increased sales and profits.

The data collected must therefore be interpreted and  correlated with your financial performance. Questions such as “Does my increase in likes correlates with my increase in sales of the product advertised?” must be answered. This can be done through the use of tools for measuring web traffic such as Hootsuite or Mycommetrics that help you keep track of your customers’ clicks and see if they go to the ecommerce section of your website.

One thing to remember: the key in measuring ROI is to find trends (e.g. increase in sales of product X) and discover where they come from (e.g. we distributed coupons in conjunction with a twitter campaign. We can calculate how many coupons were used to determine the effectiveness of the campaign).

Socialnomics’ following video showcases companies that have thrown themselves into social media and gives examples of social media ROI on campaigns:

This video also shows that the Whopper sacrifice campaign (if you remember one of my previous post) generated $400,000 of media value against $50,000 investment. This clearly shows the limitation of ROI measurement since it doesn’t take into account the damage on the brand image. What do you think of this paradox? I’d like to hear your thoughts about it.
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