ROI – Enterprise 2.0

10 09 2011

Return on Investment (ROI) is “A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.” ROI in enterprise 2.0 can be used to calculate the return on investment of incorporating social media and web 2.0 technologies.

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Return of investment can sometimes be a difficult concept because there are always risks with employers not trusting the use of enterprise 2.0 in there corporation such as giving all users access to social media tools like facebook. It is also quite difficult to measure return on investment having to calculate both sides of ROI being the cost and the return.

ROI is calculated by subtracting the costs from the gains of the investment and dividing it by the cost to achieve a percentage. The trouble lies in working out what the costs and returns are including putting these into quantifiable data.

Costs can include:

  • Software – Platforms that allow the business to incorporate enterprise 2.0. This may include sharepoint software and other licenced products.
  • Hardware – Servers to support the software if needed.
  • Lag in Activity – Once the technology has been installed there will be a down time before it achieves its full functionality.
  • Training – Training of employees to use the web 2.0 technologies.

Before a company implements enterprise, to incorporate ROI they should establish their expected benefits from the implementation and the cost they are willing to pay.

Few Common Principles

  • if you are highly networked you are going to make more money and be more successful, it improves your chances of being known to the web
  • if customers are important and there are more that 800 million active users on facebook isn’t it clear that social networking can help build client base.
  • employers are after a system that will grow and exponentially make the business more profitable
  • Instead of just introducing a technology such as wiki start it up and use it and test it, apply it to a specific area and see if it increases productivity.

Calculating ROI

The main way to calculate the ROI in enterprise 2.0 is by working out the time saved by  implementing the product and calculating this into how much money is saved. This data is usually shown through a graph depicting the money saved over time.

“It is estimated that the cost of employee turnover is 100% to 150% of the employee’s base salary.  Suppose the average salary in your organization is $45,000 annually and you have 5,000 employees.  If introducing collaboration software reduces your turnover by even 1%, then that equates to a saving of at least $1M annually (calculation accounts for an implementation/management cost of about $100,000).” [1]

Not only can the rate of return be calculated via the income it brings to the company by saving time but also for engaging employees. In one of my previous blogs I discussed the importance of engaging employees and showed how widely this is effected by the introduction of enterprise 2.0. An example can include a user that is on an individual computer with no outside access to other employees other than email. Say we were to give this user access to enterprise 2.0 tools such as wiki, social networking and chat the user will be more engaged with the computer and work related interaction with other employees. This change in engaging the employees can make vast difference to the return on investment. These values can be shown through the graph on the left. Most corporate companies use annual surveys to gauge the level of engagement. To calculate the difference it is a simple as comparing the engagement from before and after the tool was implemented. At Best Buy, a 0.1% increase in employee engagement at the store level is worth a $100,000 increase in annual operating income per store. [2]

A further way to measure the ROI is from the point of view of sales. The implementation of web 2.0 technologies may increase the rate of sales which can be used to calculate the change in profit.

Furthermore below is a video depicting ROI with enterprise 2.0

Extra References:

[1] http://blog.socialcast.com/how-to-calculate-the-roi-of-enterprise-2-0/

[2] Harvard Business Review October 2010, Competing on Talent Analytics, By Thomas H. Davenport, Jeanne Harris, and Jeremy Shapiro

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