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Relative ROI

by Paula Thornton

I just had an epiphany doing an interview. The sample culture hasn’t yet gelled, but I place it here for careful observation.

The specific scenario shared (as I’m sure is the case elsewhere), suggested that the primary path (channel) to engage with this individual was via social networking. From my notes: “I specifically started asking people how they knew to contact me and they said, ‘Your name and number are on the whiteboard’”. My thoughts immediately flew to the social aspects of 2.0. If that’s not justification for Enterprise 2.0, what is?

As I reviewed both Joe and Tom’s fabulous perspectives on ROI, I saw yet another perspective — the opportunity to put ROI into context: require that it be justified against current costs. Before you jump to retort, I’m not suggesting that this be done, but that it be used as a defense against the mindlessness of ROI efforts. I’m not suggesting that justification is not needed, but that ROI is simply a horrible means of justification.

So, consider the scenario above. How much does it cost an organization for people to currently ‘find’ the individual above and what is the cost of not finding them? If true ROI were dependent on these numbers (as it likely should be), no one would be asking for ROI — they’d start looking for more reasonable alternatives — like the value of finding someone and the potential ‘earnings’ to be made from shorter contact cycles. That’s the potential of 2.0 — shortening the connections — effectively, providing digital infrastructure to facilitate social networks that already exist in non-digital forms (or connecting isolated digital forms).

And if you run across someone who just really wants to stand their ground on ROI, suggest that to improve your estimate you’d like them to provide examples of the top ROI estimates that most closely matched the results (…watch for the response). Why bother creating an ‘estimate’ that isn’t going to be validated and/or has no consequence? How is an unsubstantiated estimation model superior to one in which we try out very simple things and measure the results, and don’t invest more without desired results?

I’m sorry…someone remind me, what did anyone ever assume they were accomplishing with estimates that are never validated or acted upon in any way? And who believes that they are godly enough to identify all of the economic costs, even if ROI was to be validated? Better yet, who is naive enough to assume that what crosses the capital finanicial stream truly represents total cost to a company?

Do yourself a favor, stop the madness. People ask for ROI because they think that these are the words they’re supposed to use when they need justification. The justification should come from current measures of current efforts — if they aren’t being measured, then that’s where you need to start. Or, you leverage a simple prototype and quantify some change in results. Just do something simple…2.0 is about trying possibilities, not thinking about or justifying the ultimate.

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2 Comments »

Brian HouseAugust 19th, 2007 at 11:54 pm

Great article on ROI and today’s socially connected web fabric. I’m working on some research around the 2.0 aspects of measurements and metrics, and the idea of ROI being incredibly easy to misuse in the 2.0 world continues to rear its head. You correctly point out that many people don’t apply ROI with the correct opportunity cost in mind (i.e. the cost of doing nothing). Additionally, in the 2.0 world, it seems that innovation from the grassroots and breakthrough growth via community and collaboration are aspects of strategy which ROI cannot capture without some thoughtful modification. Metrics like ‘return on innovation’ or even ‘return on community’ seem to be more relevant than ROI today. Anyway - great thoughts..

Zia ZamanAugust 20th, 2007 at 3:34 pm

As usual, awesome post. I too feel that ROI is a trap that ensnares some of the best ideas from getting executed.

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