The new tone on social media ROI: from anecdotal evidence to systematic analysis

Abstract: After the review of five recent studies on social media ROI, it seems we are entering a new phase in dealing with social media professionally. Since the corporate use of social technologies is going mainstream, we are now getting enough data to make the leap from anecdotal evidence to systematic analysis. And clearly, data shows there are some lessons to be learned, since businesses had pretty mixed returns on their social technology investments so far. Pain points are a lack of economic metrics, confusing technology options in a rapidly evolving software environment, and insufficient integration into the workflow of organizations. Critical for success is not only the right choice of technology, but its combination with an open corporate culture and a focus on business results.

In February 2012, six years after his seminal paper on Enterprise 2.0, MITSloan Management Review asked Andrew McAfee, if there is “evidence yet that there are competitive advantages that come from doing Enterprise 2.0” and got the following response:

At the company level, it’s an incredibly hard research question to answer, because you’ve got to, first of all, identify who’s good at it; then you have to isolate all the other things that could be affecting their performance; and then you have to watch them for long enough to see if their performance improves. So, no, I don’t have bulletproof academic research yet that will demonstrate that this stuff leads to superior outcomes at the level of the firm.
But even if you can’t demonstrate with bulletproof research that competitive advantage comes, go back to Lew Platt’s challenge, “If only HP knew what HP knows, we’d be three times more productive.” Do they think they’d be better off knowing what their company knows? The answer is almost always yes.

So, there you have it. We still don’t have scientific proof for the ROI of social media, but it just seems to make sense and there is also anecdotal evidence that corporate use of social media pays off. Most people have probably heard of some extraordinary social media marketing case studies such as the Old Spice Guy or of IT companies such as IBM that put Enterprise 2.0 into practice. But there are also nagging doubts that examples like these might be singular cases surrounded by a lot of hype. While we are still waiting for that “bulletproof academic research”, we are are starting to see studies with a broader data foundation. Here is a selection of five noteworthy updates over the last six months that provide a pretty consistent view on where we are with social media economics:

  1. November 2011: McKinsey’s fifth annual survey of 4,261 global executives on “How social technologies are extending the organization“.
  2. December 2011: The Social Intranet Study 2011 by Toby Ward of Prescient Digital Media, based on a survey in collaboration with the International Association of Business Communicators (IABC) which was completed by 1,401 participants in small, medium and large organizations in all types of industries, from across the globe.
  3. February 2012: Altimeter Group, an “advisory firm for disruptive technologies”, published a report “Making the Business Case for Enterprise Social Networks“. This  report is based on an online survey of 185 professionals from various industries and backgrounds involved in the management or deployment of their corporate Enterprise Social Network and qualitative interviews among corporate practitioners, IT and communications leaders and senior executives of several Enterprise Social Network vendors and end users.
  4. April 2012: A study on “The Economics of the Socially Engaged Enterprise” by management and digital consulting firm PulsePoint Group which is based on a survey by The Economist Intelligence Unit among 328 senior executives in the US.
  5. May 2012: Google published a study on “How social technologies drive business success“. They had commissioned this study with Millward Brown, gathering opinions from 2,700 professional users across France, Germany, Italy, the Netherlands, Spain, Sweden and the UK.

After reviewing these studies, I have come up with four insights that were also consistent with my own experiences with social media project work over the last years.

1. Business use of social media has gone mainstream

Exhibit 1: Social Media adoption in companies. Source: McKinsey Quarterly 11/2011

Like it or not, it has become a matter of fact: social media adoption has gone mainstream. Seventy-two percent of the respondents to McKinsey’s latest global survey (Nov. 2011) reported that their companies are deploying at least one social technology, more than 40 percent said social networking and blogs are now in use (McKinsey, p.2, see also exhibit 1).

Prescient’s Social Intranet Study (Dec. 2011, p. 4) found that 61 percent have at least one social media tool available to some or all employees, the most popular tools being blogs, discussion forums, instant messaging and wikis.

Exhibit 2: Enterprise Social Network Goals. Source: Altimeter Group Report, Feb. 2012

People know from their personal lives how social media helps them to connect with others they share an interest with. So, it doesn’t come as much of a surprise that enterprise social networks are anticipated to improve collaboration and the flow of information (see Altimeter Group’s findings in exhibit 2). Many of today’s  professionals simply expect that they are allowed to use  tools at work they’ve grown accustomed to at home.  And if businesses don’t provide corporate social tools for their employees to use, they often use external ones. Google’s recent user survey across EMEA (May 2012) found that “almost half (46 %) of professionals want to make greater use of social tools: A third (32%) are using external social media, such as Google+, Facebook, Twitter or LinkedIn, for work related purposes every day. A quarter (23%) are using in-house social tools (set up for use by people within the business) daily, over a half (57%) use them at least once a week” (p. 2).

According to Prescient’s study, one reason for the rapid adoption of social intranets is that the cost of deploying social tools is relatively low: “[…] nearly half (38%) of organizations that have deployed intranet 2.0 tools have spent under $10,000 doing so; another 24% have spent under $10,000 – $50,000. However, the low cost of entry comes with a risk, and a potential cost” (Prescient: Social Intranet, p.5). It is often underestimated how much effort is still needed when the social technology is up and running. As a matter of fact, my own experience told me that many social media projects fail when only managed from a technology perspective.

2. So far, businesses have had mixed results

When it comes to results of social media use, responses from Prescient’s Social Intranet Study (Dec. 2011, p. 5) send mixed messages: 30 percent of organizations rated their overall satisfaction as good or very good, but as many as 26 percent as poor or very poor. Even more worrisome, only 28 percent of executives rated their overall satisfaction as good or very good, but 35 percent rated the experience with their social intranet as poor or very poor.

Exhibit 3: Social Business Maturity. Source: Altimeter Group Report, Feb. 2012

Altimeter found in their report (Feb. 2012, p. 5-6) that many organisations failed to meet expectations with Enterprise Social Networks, often indicated by one or more of the following scenarios: a) Initial enthusiasm is followed by slow decline, b) only one department really embraces the network, c) there is confusion on how “personal” (as opposed to work-related) the business network can be, d) the corporate culture hasn’t matured enough to understand, appreciate and leverage an enterprise social network. In fact, two out of five companies Altimeter surveyed were still beginners (6 %) or just running trials (33 %) without a formal strategy (see exhibit 3).

Exhibit 4: Four types of organizations. Source: McKinsey Quarterly, 11/2011

McKinsey clustered the types of organizations by the benefits they reaped from their social media use and tracked how they did over time. They distinguish between “developing”,  “internally networked”, “externally networked”, and “fully networked” organizations, based on the average mean improvement reported across the different benefits when social tools were used. McKinsey define fully networked enterprises as those with an improvement greater than 10 % when social media is used to interact both externally and internally. Externally networked are those with at least 10 % improvement when social media is used to interact with customers and partners. Internally networked are those with at least 10% improvement when interacting with employees. Organizations with less than 10 % improvement are classified as developing enterprises (see exhibit 4). As many as 78 % out of the 3,103 companies McKinsey surveyed were rated as developing organizations, approx. 12 % were rated externally networked, 7 % internally networked and only 3 % fully networked. According to McKinsey’s findings, it’s not only hard to achieve  success with social media, but even harder to keep it. Between 2010 and 2011, “Roughly half of the internally and externally networked enterprises slid back into the category of developing organizations; that is, they did not maintain the benefits of using social technologies that they had achieved earlier. Less than 15 percent of the companies in any given category moved up to the next tier […]. It appears that it is easier to lose the benefits of social technologies than to become a more networked enterprise, which suggests that significant effort is required to achieve gains at scale” (p. 7).

Exhibit 5: The Six Profiles of Socially Engaged Enterprises. Source: PulsePoint Group: The Economics of the Socially Engaged Enterprise, April 2012, p. 8)

PulsePoint Group’s sample size (328) was much smaller than McKinsey’s (4,261), and it was US only rather than global. However, like with McKinsey, Altimeter and Prescient interviewees reported mixed results. While PulsePoint calculated an average return on social engagement of 3-5 %, the most engaged companies achieved 7.7 %, which was four times the return of the least engaged (1.9 %). PulsePoint recognized six different patterns of social engagement. 14.6 % fell into the category of those with highest engagement and highest return, 18.5 % in the lowest category, the rest somewhere in between (see exhibit 5).

What is it that makes such a difference when using social media? Let’s first look at some major pain points and then at critical success factors.

3. Major pain points are lack of metrics, confusing technology options, and insufficient integration

Exhibit 5: Roadblocks to Deeper Social Engagement. Source: PulsePoint Group: The Economics of the Socially Engaged Enterprise, April 2012, p. 4)

According to PulsePoint Group’s survey, senior executives in the US made it clear enough: the single biggest roadblock to deeper social engagement of businesses is the inability to prove ROI, followed by legal or regulatory concerns (33 %) and a lack of strategy for change (32 %) (see exhibit 5).

One of the reasons why businesses don’t see the ROI is that they use the wrong metrics. Altimeter found that companies measure user engagement or frequency of use rather than business impact of their social networks.  This will certainly change, since  companies responding to Altimeter also felt that they measured the impact poorly (p. 7-9, similarly PulsePoint, p. 7)). Interestingly, one of the main reasons for this poor measurement might be that “[…] investments in ESNs [Enterprise Social Networks]  have been low — two-thirds spent less than $100,000 on their ESN in 2011, with no plans to spend significantly more in 2012. Thus, the pressure to provide concrete proof of value creation or ROI isn’t as present as other technology deployments” (p. 8).

Exhibit 6: Technology Scenarios for Enterprise Social Networks. Source: Altimeter Group Report, Feb. 2012

Another pain point Altimeter Group identified is the multitude of technologies available. When setting up an Enterprise Social Network, there are not only many standalone solutions on the market, networking features can also be included in collaboration platforms or enterprise application suites (see exhibit 6). Whatever the approach is, the main question to be considered is how to integrate the social network with all the other applications. That is not only true for the technology environment, but also for the workflow: “The likely scenario is for enterprise social networking to be integrated into the enterprise platforms we are already using, ranging from Outlook, to Office, to back-office business apps” (Altimeter Report, Feb. 2012, p. 11). Finally, the full power of social media will only be released, if everyone who needs to contribute has easy access, including those who are not used to social applications and those who don’t work in a desk environment (Altimeter Report, p. 12).

4. Critical success factors are economics, culture and technology

Based on the studies reviewed for this post and consistent with my own project experience, I see three critical success factors for corporate social media projects: economics, culture and technology. They are interdependent: each of them is necessary to allow for success, but only all of them together are sufficient to achieve it.

In terms of economics, it is critical to set a foundation with business relevant objectives and metrics. Altimeter Group have rightly argued that it’s necessary to go beyond the technology perspective, so as to release the business value of social media. They recommend to focus on communication and relationship gaps constraining information sharing and decision making within an organization. Some of these gaps can be bridged with social media which creates measurable value (cf. Altimeter Report, Feb. 2012, p. 12-16). As a result, rather than measuring technology usage, metrics should focus on business improvements achieved, e.g. the increase in sharing of best practices across a large organization.

PulsePoint expect based on their survey “that benchmarks (33%) and key performance indicators (30%) will be the top approaches for measuring social engagement in the next two years” (p. 2). When it comes to the business areas where social technologies can have the highest impact, PulsePoint found that companies expect more return from sales and product development than from brand reputation (p. 3).

The emphasis on business relevance is not only important to win over those 45 % of CEOs who still don’t see enough proof of value in social media (see 3. above on pain points), but also to get the buy-in and commitment of users. They need to feel that using social media is not just another time killer, but a source of value as they might have experienced it already  in private use. As such, social media use for business must not be an option for play through downtime periods but has to be closely integrated with daily work. McKinsey found that those organizations where social technologies were highly integrated into employees’ day-to-day work reaped the highest business benefits (p. 5, see also exhibit 4). For instance, if you can avoid reinventing the wheel in your daily work by learning from remote colleagues you haven’t been connected to before, you will experience the value and be encouraged to share your own knowledge.

Another important aspect of social media economics is that it has to be properly resourced. As already mentioned above (see 2. on mixed results), McKinsey found that it takes serious effort to gain and maintain benefits from the use of social media. The resources needed for social media success are often underestimated, because technology deployment is the only expense considered. However, the value isn’t created by the technology only but by the relationships between people using that technology. And relationships always need time, nourishing and development. Ultimately, community management is more important than top-notch technology features, because users will rather forgive some lack of comfort than lack of relevance for their interest.

That said, technology is still the necessary enabler. Google’s recent EMEA survey  confirmed that professionals want to make more use of social technologies to support their work, and if they don’t find them inside the organization they might use them outside (see above, 1. Business use of social media). More than that, those frequently using social media are most likely to be succesful in their jobs and work for high growth companies: according to Google’s report (May 2012, p. 5), “80% of high growth companies are using social tools to improve ‘connectivity’ (such as collaboration and knowledge sharing)” and “86% of frequent users have recently been promoted, 72% say they are likely to be promoted, compared to 61% and 39% of nonusers”. Providing these people with tools they like to work with can give a boost to their energy and make them multiplicators inside the organization. They just need to get technologies that will really help them do their job. For that, it’s more important to get the basics right than to indulge in features, and – as Altimeter Group pointed out (see above, 3. on pain points) – the social platforms need to be integrated with other business tools. E.g. it shouldn’t be hard to transfer content from one tool to the next, and the workflow should be linked naturally. So, the decision on technology shouldn’t be made just based on cost and features, but within the context of the enterprise environment it has to be integrated with, in terms of the workflow and the human resources needed to develop relationships.

Last but not least, even the best integrated tools and the best business metrics in the world won’t guarantee success with social technologies, since they need to be accepted socially before becoming useful. And this often creates a challenge to the corporate culture. As the Altimeter Group have put it: “Social represents a fundamental change, simply because, at its essence, it encourages sharing.” (p. 12) Sharing means open accessibility and exchange of information, often also called transparency. It is feared by many organizations, mostly for two reasons: It goes beyond organizational boundaries because it is based on interest rather than hiearchies. And it opens the door to public criticism. So, for good reasons both Altimeter (p. 18-19) and PulsePoint (p. 2, 6) have highlighted two success factors for social engagement: organizations need to learn how to deal with open critique, and leadership must champion the use of social media.

Against all odds, permitting negative comments by employees or customers and addressing them in the open makes businesses stronger, since it proves how an organization can learn and is taking their constituents seriously. The fear that critique might be abusive is in most cases not warranted because communities can be effectively moderated by guidelines and will also self-police behavior (Altimeter Report, p. 18-19).

However, this openness will only work when supported by top-executives. They are the catalyst for change. They need to encourage sharing and show their belief that it makes their organization better. It is also important to understand that openness is not an end-in-itself. Openness enables sharing across organizational boundaries, so that people can connect and collaborate where they otherwise wouldn’t. However, once people have found each other based on their interest or expertise, they will refocus in more private groups. This is a great point Altimeter made in their report (p. 14).  An open corporate culture doesn’t mean that everyone shares everything all the time, it just means that people are allowed to connect and collaborate based on their interest rather than defined by organizational silos. Since executives are the guardians of organizational boundaries, they need to show that they are okay with that and participate in the effort. Executives using social technologies will endorse the culture needed to reap the economic benefits everyone expects.

Georg Kolb