Return on Investment with Enterprise 2.0

Return of Investment (ROI) is a way of considering and measuring profits in relation to investment. ROI may be suited for some areas of business, but in terms of measuring the implementation Enterprise 2.0 this form of analysis is neither as accurate or straight forward to use, compared to measuring conventional solutions.

Return of Investment is used by organisations to calculate potential losses or gains before a project is started, implemented or major financial decision is made. ROI comes from the activity and the actual collaboration of its users, not from the technologies themselves.

Over the past few years, many companies and organisations have spent a large amount of time and money to try and identify and perfect a “ROI Model” in terms of Social Media. These include Wikis, Blogs, Micro-blogs and other Social Media’s. The problem arises, as there is no real definitive way to create a ROI equation for the implementation of Enterprise 2.0 tools. How does one go about measuring the effects of better organisation, increased productivity and less email overhead?

How do we measure it?

How are they going to measure it though? Well first it is important know what exactly you want to achieve. With this, an appropriate formula can be used to calculate the ROI. There are several different formulas, all of which measure difference aspects.

1.ROI = (revenue – investment) + targeted engagement (new clients) / investment * 100.
This will establish new leads attained from the project, though however can be used in measuring conventional advertisement campaigns as well as social media sources.

2.ROI = (revenue – investment) + employee retention / investment * 100. 

With employees, profitability and productivity will increase and means employees are less likely to leave. This can be compared against how much it would cost to train a new employee.

3. ROI = (revenue – investment) + customer engagement and idea generation / investment * 100.

Engaging customers build customer loyalty and brand awareness. It also makes customers feel they are more connected and that they are dealing with real people.

Below are some concepts that can help demonstrate the benefits and ROI within Enterprise 2.0 Technologies, and some of the ways and difficulties of measuring them:

ROI Breakdown

1. Increased Employee Engagement.

We’ve talked about Employee Engagement in my previous post Benefits and Risks of Enterprise 2.0. Enterprise 2.0 technologies bring the staff together and get them involved in something much larger than themselves. It leads to better internal communication with in the company, and with it also comes a more effective learning and deployment environment due to bringing such fast amounts of technology together.

How to measure: though surveys which most companies already conduct anyway.

2. Turnover

Social media in the workplace helps new employees adapt into the workforce a quicker rate as opposed to workplaces with no enterprise 2.0 technologies. Employees are also more likely to stick around a workplace, which takes advantage of enterprise software. An employee turnover is estimated at 100%-150% of the annual salary and reducing the amount of turnovers even by 1% in a larger company can save millions.

This is measured by observing the amount of turnover before and after the implementation of the enterprise 2.0 software.

3. Organisation Agility:

Organisation Agility is the idea of self-actualisation, and includes being able to see changes in markets faster, shifting resources in response to new opportunities and needs, and moving on from initiatives such as programs, markets and products that no longer work or are failing; The ideology of a company being more “Agile”.

ROI in Enterprise 2.0 is a hard thing to measure, though when organisations set out goals of what they wish to achieve, how to reach those goals, and ways to measure those goals, they can create models to suit their own company to help justify the use of Enterprise 2.0 tools, and calculate the Return of Investment.

I would like to end with a great Slideshow on the ROI of social media

References

Carpenter, Hutch. (2010). Retrieved September 10, 2011 from Maslow’s Hierarchy of Enterprise 2.0 ROI.
Kim, Aaron. (2011). Retrieved September 10, 2011 from ROI 2.0, Part 3: We don’t need a Social Media ROI model.
Hinchcliffe, D. (2009). Retrieved September 10, 2011 from Determining the ROI of Enterprise 2.0.
McCarnan, Jacquie. (2011). Retrieved September 11, 2011 from Social Media ROI for Idiots.
Wikipedia. (2011). Retrieved September 10, 2011 from Return on Investment.
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  1. #1 by Abdullah Alsaleh on October 15, 2011 - 1:01 pm

    Hi Daniel, that’s great structured blog post. It is scary for organisations to see those mathematical equation since there is a chance of losing a lot money. However, I have one question: When do you think organisations calculate their ROI?
    Thanks mate and keep up the good work

    • #2 by danielcosovan on October 16, 2011 - 7:34 am

      Hi Adullah, Thanks for the comment, i agree with you that it is scary, but in every situation with implementing Enterprise 2.0 within an organisation there is always that risk of losing out, but thats if the ROI is able to be calculated in terms of a definitive $dollar figure. I believe ROI should be an ongoing calculation due to that after the implementation of Enterprise 2.0 it will be continually used within the organisation and the benefits (or loss) will follow on.

  2. #3 by bkb90 on October 16, 2011 - 3:41 pm

    Hey Daniel,

    That’s a really well structured post. I really like how you have provided the examples of how to calculate the ROI in regards to Enterprise 2.0. I like the ROI Breakdown section, this gives a clear understanding of how Enterprise 2.0 can positively affect the areas of Employee Engagement, Turnover, and Organisation Agility. I would suggest one thing – try not to have such long reference links. Feel free to have a look at how I have done mine.

    Feel free to visit my blog @ http://bkb90.wordpress.com/

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