One thing bothers me and that is that huge numbers of people, evangelists if you like, have enthusiasms for things like â€™social computing.â€™ Their enthusiasm isnâ€™t for particular products, more for improving the communication experience, but they have no clear destination in mind. Not one that makes any sense to the sponsors theyâ€™re seeking anyway (e.g. the board).
You can’t realistically apply accounting type measures to blogs because they don’t fit. Instead you need a blend of measures that reflect the blog’s purpose so in other words you need to seek measures that cross departmental boundaries.
Early attempts at this are not going to be easy. How for instance do you define a measure for ‘idea generation?’ What are the value measures needed? Do we have the historical data that allows us to develop assumptions about value created from great ideas and even if we do, how well might that relate to today’s situation?
I absolutely don’t accept it’s not do-able. The problem as I see it is we have no historical framework of the kind we’d usually apply and HCM metrics are a relatively new and as yet not fully baked science. Which means we’re inevitably faced with a loss of precision. We can overcome that by applying degrees of confidence variables so we can say there is a range of possible ROIs.
Charlene’s written an interesting post on Calculating The ROI of Blogging, worth a read, and, if you can, do look at the comments as well.
I think the nature of the debate is indicative of the challenges we face when we seek to implement social software in enterprises. I have carefully kept away from the specific subject of the ROI of social software for some time now, choosing to concentrate instead on the organisation’s immune system responses. Now, with the happenstance of the comments and posts above, I feel it’s time to break my silence.
So here goes.
Nearly ten years ago, in an article headlined Strategy Under Uncertainty in Harvard Business Review, November/December 1997, the authors said a few things that greatly influenced how I think about ROI. Here’s the summary from archives.gov (my apologies, that’s the best I could find on the web, and my hardcopy is now packed away in storage):
It is important not to underestimate uncertainty when shaping strategy, according to the authors, who present a framework for determining the level of uncertainty surrounding strategic decisions and for tailoring strategy to that level of uncertainty. In practice, they have found that the uncertainty facing most strategic-decision makers falls into four broad levels: a clear-enough future, alternate futures, a range of futures, and true ambiguity wherein it is virtually impossible to predict. The authors introduce a basic vocabulary for talking about strategies: three strategic postures including shaping, adapting, or reserving the right to play; and three types of actions to implement strategy: big bets, options, and no-regrets moves. The choice of a strategic posture and accompanying actions can be highly dependent on the level of uncertainty facing the organization. This article offers scenarios illustrating the range of strategic challenges.
That’s the background. So here’s what I think:
1. ROI is not the only game in town, you have portfolio analysis and option pricing models as well
If we restrict ourselves to measuring investments by ROI alone, we run the risk of weakening our capacity to survive, much less thrive, in an age of strategic uncertainty. Big Bets are like early stage investments, you have to work out what percentage of your investment portfolio you want to expose to those risks and returns; that percentage could be zero, but you then give away the right to receive hockey-stick returns. Big Bets are measured like early-stage VC portfolios. Options are just options, the price you pay for a place at the table, and you decide which tables you need to sit at. Options need option pricing and suffer time decay. No-Regrets Moves, in contrast, are all about ROI. You have to do something, now all you’re working out is the best something. Build Or Buy. Which Build. Or Which Buy. And there’s probably no better tool than ROI to work this out.
2. You have to be able to value human capital before you can value social software. Social is about human.
We talk a lot about valuing human capital. I’m not planning to venture into the esoteric and nascent science of measuring it right now, this is neither the time nor the place for it. But there are some leading indicators that suggest we don’t value human capital. We send people on training courses, apparently paying to add to their innate talent, acquired institutional domain knowledge and relationships, and nurtured abilities . But we never seek to measure that value added, or try to “land” that value on a balance sheet. So, no surprise, when the going gets tough, the training budget bids goodbye. We “plan for attrition”. Wow. We work out replacement costs for assets but never really for humans, our most precious assets. Read Peter Drucker at random if you want to find out more. He knew more about management and knowledge than anyone else I have had the pleasure of reading.
3. The plumbing for social software is not expensive, that’s just a lie.
Even if I’m completely wrong about the first two points, this one stops the show. Somehow we are allowing ourselves to fight the social software fight on infrastructure grounds. Unit costs for implementing social software are trivial, almost negligible. It’s just a classic immune system response. Moore and Metcalfe and Gilder have seen to it by now, the cost of tin and wire is not what it used to be. And you have every flavour you want: FLOSS software, commercial adaptations of opensource, fully featured COTS applications. You can start small and cheap, and segue into large and cheap. It’s not about the plumbing. No point figuring out the ROI of angels dancing on the heads of pins.
4. Current accounting processes are not precise either, but at least they don’t lie. They just reflect one of many possible conventional representations of truths.
I have seen far too many sausage machines in my time. Cost centres till the cows come home. Allocation cycles built in Byzantium. Allocation keys that could be used to run the National Lottery. Inconsistent application of conventions and philosophies. Arguments about what a person is, what a man-year is, what software is, what maintenance is, what anything is. Roundings and smoothings and straightenings and what-have-you. It’s not anyone’s fault; I think that traditional accounting theory, as implemented in software, did not allow for the pace of change inherent in organisational structures and strategies. And rather than accept that and change how we view things, we continue to work on past-predicts-the-future models and 15th century practices, somehow finding ways to shoehorn today’s realities into them. Different ways. Different even within a single enterprise.
5. We will be able to place value on social software, but we’re not there yet. The destination is clear, though.
I have a passion for social software. [You’ve noticed? Great :-) ]. And while trying to do something about it, I’ve been accused of many things. Being a VC darling. A wannabe A-lister. An A-list groupie. A time-waster. A moron. A rootless academic. Many things.
So why do I do it? Because I believe we have a real problem to solve. A War for Talent. Because I believe we have a real solution to that problem. One that provides transparent communication and thereby creates trust. One that leverages the wisdom of crowds and thereby reduces process cycle time and improves customer satisfaction. One that embeds strategy in process and helps us understand our value drivers and levers and how to use them. One that reduces attrition and increases stickiness, be it staff or customer or partner. One that simplifies workflow. One that minimises rework by reducing the opportunity for misinterpretation or mishearing. One that enfranchises everyone. One that reduces the time to train. One that simplifies the process of education. One that helps people learn how to do their jobs, and get better at doing their jobs.
But all that is hot air, when I can’t prove it on a balance sheet. Because the tools to prove it aren’t here yet. In the meantime, we need to keep looking at proxies. Proxies such as customer satisfaction metrics. Retention rates. Process cycle time reductions. Time to market improvements. Error reduction and consequent rework minimisation. Avoidance of duplication and its related wastage. Consistency in global processes. The list is long.
The trouble is, these things are hard to measure as well. Every investment made in an organisation has sponsors seeking to attach credit to their decision, and I have seen too many “value turf wars”. Unseemly attempts to hoover up any improvement in anything.
Until I find a static organisation with a stable structure and zero money for investments, I probably won’t have a decent test case. If there was such an organisation, then we could have the Petri dish for social software, and watch all the proxies move in the right direction as if by magic. And nothing to point to as the reason. Except social software.
So I have to live in hope. Continue with my passion. Because I believe.
I think it was Howard Schneiderman at Monsanto who said, many years ago, something along these lines:
When you turn down a request for funding an R&D project, you are right 90% of the time. That’s a far higher rate of decision accuracy than you get anywhere else, so you do it.
And that’s fine. Except for the 10% of the time you’re wrong. When you’re wrong, you lose the company.Â
My apologies if I haven’t paraphrased him with precision, but the tone and essence is for sure what he said. Call it an acceptable conventional representation of the truth, if you will.
There is a destination. One that values human capital and relationships and institutional knowledge. And we will get there. So I will continue to track the conversations on the blogosphere looking for signposts that will make it easier to get to the destination.