by Joe McKendrick
July 31, 2007 at 5:40 pm
· Filed under Barriers, Enterprise 2.0, Enterprise Software, Mashups, SaaS, Web 2.0
All major technology projects require a Return on Investment calculation that presumably shows the company making more money as a result of the implementation than it put into it. Of course, the “hard-dollar” numbers make for an easier sell to the C-level executives.
The problem with Web 2.0 and Enterprise 2.0, of course, is that the benefits delivered are “soft” benefits; there are few examples of hard numbers to show ROI.
New research out of Forrester says these hard numbers are hard to come by. (InformationWeek report here, InfoWorld report here.)
As I noted in a previous post, the vice president of engineering of Google and the CIO of McKesson both acknowledged at a recent presentation that Web 2.0 is, at this stage, unmeasurable — but that doesn’t mean it isn’t delivering value to the organization.
The Forrester report acknowledges as much, noting that there have been some tangible business benefits seen, such as a drop in support center calls because of rich Internet applications or a database system replaced by a corporate wiki. But the greatest advantages are seen in softer benefits, such as business efficiency and competitive advantage.
Forrester’s survey of 275 executives finds that 63 percent of those surveyed use total cost of ownership, ROI, or internal rate of return to measure the value of Web 2.0 tools.
The executives rank instant messaging as having the most value to their organizations. At the bottom of the list is blogging. IM was rated by 37 percent as delivering “substantial value,” while only 11 percent rated blogging as such.
One potential flaw in the study (at least from what the articles say) is that it limited its area of study to RSS, podcasting, wikis, social networks or blogs. These are the important communication tools of Web 2.0.
However, it would be interesting to see a study of the perceived value of the information processing platforms engendered through Web 2.0 — such as mashups or Software as a Service. Are executives having more success determining hard-dollar ROI from these approaches?
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Great post. I agree with your point about the need to look at tools such as mashups or compositie applications. I think that blogs and wikis have grabbed the headlnes. While they are very useful, I think that mashups might have the most impact in the long run - for the reason you raise - ROI - rapid lower cost development.
Two thoughts:
1. To quote Shel Holtz, how much “R” do you need when the “I” is next to nothing?
2. If companies treat social software as a “major technology project” then it is going to fail anyway.
Niall
Joe, good post. I agree with the potential flaw you cite in the study. Tools like RSS, podcasting, wikis, blogs, etc. are the communication tools of Web 2.0. Of course these tools are going to show little to zero ROI. What do they do to drive more value from a server farm, the processing power on individual PCs, or even find more meaningful projects for your exisiting development organization?
In the interest of full disclosure, I work for Nexaweb and we have an Enterprise Web 2.0 Platform. That said, take a look at some of our customer case-studies (http://www.nexaweb.com/home/us/index.html@cid=1232.html). Companies like Aflac, SunGard, Ameripath, Bank of Tokyo Mitsubishi have deployed previously client/server apps using our platform. They speak for themselves. Average ROI is 60% code re-use, 90% reduction in network traffic, and 75% faster app dev over traditional C++ or the like programming. This is ROI.
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.
Niall Cook nails it: if the wiki costs $4,000, or I’m paying $100/month for a hosted wiki, or I install and modify Mediawiki for labor costs, how much return do you need? If I have three project teams collaborating on the wiki, how much value is there in measuring the reduction in email or shared drive files?
“All major technology projects require a Return on Investment calculation” [Again, hats off to Niall for spotting this] is precisely what enterprise 2.0 software is _not_ about. 2.0 means lightweight, easy to install or hosted, easy to use, and far, far less expensive.
The more relevant question might be: what 2.0 software is really be used aggressively by enterprises? What has demonstrated adoption and for what uses? If you consider things like RSS a feature, then the list of successfully adopted 2.0 technologies is short.
Hope this doesn’t sound too cranky because I am actually glad you blogged the topic. Thanks - Jeffrey http://www.radiowalker.com
Great comments, thank you. Agreed that “ROI” doesn’t always stand up as a true measure of true value to a business. I’ve heard it said that ROI is the set of numbers managers come up with AFTER they’ve started a project to continue justification to management. For the most part, Web 2.0 deployments have probably been under the radar, and therefore not subject to the politics of ROI. But as they gain more visibility, they gain more scrutiny. And that means Show Me The Money.
Thanks for the post Joe. When I saw the research from Forrester pop-up in my inbox, I was hoping it would provide some insight into ways to calculate ROI for 2.0 type of systems, but alas, it was as you’ve blogged, reinforcing the difficulty with ROI. Then when I saw the topic of this post, I again was hopeful….
Being a practitioner in this area, I am constantly being asked for what’s the ROI?. What I will say is that it’s easier to prove business value after the fact than it is before implementation. If you include social computing type systems such as Dell’s Ideastorm, you can start to justify the investment after you’ve hit a creative breakthrough brought to you through the collaborative technologies. It’s not sure fire, as you still need to dodge the, “Well… It would have happened anyways…”.
In addition to the comments about complexity, the “rigor” of financial measures as a qualifying step, can actually go counter to innovation, especially disruptive innovation. Clayton Christensen’s work has clear examples of how companies are “trapped by their customers and shareholders” who are looking for the sure-thing, a solid return on their investment.
It would sound as if I was completely against ROI, which I am not, I do think it forces one to think through why they are doing something and helps avoid the “technology for the sake of technology” syndrome. Just don’t use it as the sole means to gate an initiative/project.
We need to understand better the ROII … Return on Investment in Interaction of putting social software to purposeful use (whether highly designed or implemened somewhat organixcally), in terms of metrics about how knowledge is created, made available and usable and then the process of how it is accumulated and used as levers for improvement, innovation and greater responsiveness.
What kinds of work benefit most from interactive flows of knowedge, and why ? And how are those flows turned into actionable intelligence that accumulates … what kinds of quantifiable knowledge assets and outputs wherein ongoing interaction is the source, the necessary ractant ?
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