ROI is so Business 1.0: not

As social computing technologies start to make their presence felt in larger enterprises, the ROI question looms large in people's minds. Or rather the CFOs mind. Like it or not, any enterprise project is going to require a check cutting and unless it is something that goes under the departmental budget radar then it needs financial justification.

In the past, enterprise applications have been sold on TCO - a now defunct measure except for utility computing technologies. New technologies almost always have to come up with an ROI measure. The question on social computing advocates lips is whether this is the right way to look at how applications are acquired. Jeffrey Walker, a fellow Irregular and president of Atlassian says:

ROI? Wrong question. That may not be a popular thing to say in a CFO’s office, or perhaps a CIO’s office, but these people are not the ones driving 2.0 adoption, or buying 2.0 tools, in the vast majority of instances.

What’s the ROI on email? What’s the ROI on IM? If there’s a study, I guarantee it’s crap. ROI studies on any software are famous fiction.

Jeffrey may well be right but at this stage of development I'd venture he is making an incorrect comparison. We accept email as a necessity for which the cost is lost in other applications. It has become a utility although I'm sure another Irregular Vinnie Mirchandani will argue about delivered cost. The same cannot be said of social computing technologies because although cost is one dimension, it is not the only one.

Adoption costs are not trivial once you step beyond the enthusiast level. One one large project with which I am engaged, the training costs designed to help the community self start run many $,000s. That's not consulting greed but a recognition there is a lot of work associated with overcoming cultural norms as precursors to the project being rolled out to a large community. Simply declaring social computing to be a 'good' is not good enough. There is much to be done that has associated cost.

The moment you step beyond small scale implementations ROI is something you can't avoid. The difficulty I have is the reasons most frequently given by the social computing mavens. They appear as attempts to sweep the topic aside. Take this from Luis Suarez:

If social computing is supposed to revolutionalise the way we share our knowledge, connect with others, collaborate, communicate and innovate, then I think it is about time we move into the 21st century, progress further in that Knowledge economy and try to figure out how to get the most value out of it, because figuring out its ROI, in my opinion, is going to be a waste of time, energy and resources.

I know that Luis is a very smart guy and I don't have a problem with value delivery. But this is not the way to approach the topic. The assumption is that ROI is always about payback. While that is often true, you need a value figure with which to develop the calculation. Forrester has already tripped up over this one, concluding, as do many others, that the benefits (are these the same as value?) are 'soft' and therefore difficult to measure. The fact something is difficult is not an excuse yet this is how ROI is positioned.

In his discussion, Luis references Jay Cross who talks about social computing from the learning perspective. He suggests three broad measures:

Sales force readiness. You think you have a problem keeping sales people up to speed? Consider Cisco. On average, Cisco acquires a new company every month. If systems engineers tried to learn via traditional methods, they would have no time left for customers. Instead of training, Cisco “Googe-ized” product knowledge, sales presentations, and competitive information, making it available on demand throughout the company. Sales people learn by using that information, not by being trained.

Benefits: better-informed sales force, more competence on sales calls, more cross-selling, better presentations, easier to bring partners up to speed, avoid cost of product training.

Eliminate bureaucracy. Knowledge workers waste a third of their time looking for information and identifying the right people to talk with. They often spend more time recreating information hidden in someone else’s file cabinet than creating original material. I just heard about a company where the workers think doing their email is the work; that’s how they spend almost all of their time. Expert locators, bottom-up knowledge management, instant messaging, organization-wide wikis, and organizational network analysis all attack this plaque in the organizational arteries.

Benefits: speed flow of information, cut time wasted searching for answers, streamline organizational process, cut email by half, cease re-inventing the wheel, increase worker throughput 20% to 30%.

Conversation. Conversation is easily the most important learning technology ever invented. Conversations carry news, create meaning, foster cooperation, and spark innovation. Encouraging open, honest conversation through work space design, setting ground rules for conversing productively, and baking conversation into the corporate culture spread intellectual capital, improve cooperation, and strengthen personal relationships.

Benefits: faster cycle time, improved problem-solving, more time on mission, higher morale, lower turnover…

While I can argue with the detail (who says knowledge workers 'waste a third of their time?') the basic premises are eminently reasonable as value indicators that could form part of an ROI equation. Unfortunately, Jay then goes on to alienate the very people the social computing crowd should be wooing:

Hold your breath a moment, for some of you will choke on this one: ROI and accounting are inappropriate measures of performance. ROI is a relic of the industrial era, when assets were tangible and repetition was the path to success in the factory. Today, the intangible assets you cannot see are far more valuable than those you can.

It doesn't matter that ROI may appear to be a relic. As a partially reconstructed ex-CFO I have some sympathy with Jay's view, but he seriously misunderstands the ability of CFOs to understand value beyond tangible assets. His declaration is something that MBA students have known for as many years as Paul Strassmann has been talking about Google although I sense the world has moved on from Strassmann's view that CFOs and CIOs are disconnected by different mindsets. CFOs routinely spend time with those on Wall Street analysts who are arbiters of intangible corporate value. Jonathan D. Becher who authors Managing By Walking Around (an HP mantra) points the way of the future where he suggests:

As most of you probably know, I think that CFOs should stop thinking of themselves as just finance executives and instead recognize that they are charged with the overall performance of an organization. I’ve often joked that we should rename the position Chief Performance Officer.

In making this assertion, Jonathan is drawing upon one of many consistent surveys that demonstrate a need and desire on the part of CFOs to become more engaged with the business. This is something I see in my everyday life where CFOs and senior finance professionals wrestle with the 'how' of engagement.

Instead of panning CFOs as looking at the 'wrong' stuff and generally pillorying them as retarded, social computing pundits might ask how the flat world of which many profess becomes a reality. The current tone is one of erecting walls and not pulling them down. It won't win friends and it won't persuade those who need to review ROI that alternative if more difficult measures have equal if not better utility.