Andrew McAfee on measuring social media (and ROI) ~ Management 2.0 developing social capital

Friday 6 November 2009

Andrew McAfee on measuring social media (and ROI)

money The other section of his book that I think McAfee has written very well is the one on measurement.

I haven’t always been a fan of his approach on measurement which, like his general conceptualisation of Enterprise 2.0, seems to me to focus too much on activities (use of web 2.0 tools) and business benefits with very little focus on the intermediary stage of outcomes (social capital) which I consider to be the most important aspect of this field. See for example this quote from one of his blog posts:

“Why not measure instead what we’re really interested in – innovativeness, productivity, service levels, etc.? For one thing, they can be hard to measure… So I advocate measuring and evaluating people based on their contributions to E2.0, and have some faith that E2.0 helps with innovation, productivity, service, etc..”

However I do like the way that, in the book, McAfee suggests organisations should measure progress, not ROI:

“It’s possible to quantify many things about an Enterprise 2.0 initiative: the number of blog posts and comments; the number of wiki edits, editors and new pages; the population of tags created; the volume of trades and traders in prediction markets; the number of members in a technology-facilitated social network and the volume of updates they share with one another; the popularity of all these ESSPs as measured by the number of times they’re viewed; and so on.

It’s also both possible and smart to collect case studies; anecdotes, and examples over the course of the effort to demonstrate the values of ESSPs.

I do not, however, advocate that decision makers should ask for quantitative ROI analyses, either before approving an Enterprise 2.0 effort or to assess its progress.”

To support this view, McAfee includes a quote from Kaplan and Norton that I also include in my own book (p145) to explain the same point:

“Improvements in intangible assets affect financial outcomes through chains of cause-and-effect relationships.”

These relationships mean that valuing benefits is always going to incur “estimates, at worst pure speculation”, particularly in separating impacts from “contemporaneous individual-and organisation-level changes”.

McAfee recommends that instead, Enterprise 2.0 advocates put together a business case that has three main elements:

Stages in my value chain	McAfee elements
Input	“Cost and time lines: The cost portion of the cost-benefit analysis.”
Activity	“Technology footprint: A technology’s footprint is its geographic, divisional, and / or functional reach.”
Outcome Impact	“Benefits expected: When describing benefits, it’s often useful to include short case studies or examples of the results of other ESSP deployments.”

McAfee concludes:

“A discussion of whether it’s worthwhile to pursue Enterprise 2.0 should revolve around whether these benefits are worth the cost, not whether the ROI figure for the project clears some hurdle rate. I have never spoken with a leader or participant in a health Enterprise 2.0 initiative who wishes that she had calculated an ROI figure, whereas I have spoken with many people who have described their ROI exercises as unproductive uses of time and effort.”

I agree 100% with the conclusion, although I retain my concerns about not splitting out Outcomes and Business Impacts to make these benefits clearer still.

Photo credit: At.morey.tota