The hunt for ROI
ROI seems to be a constant debate which never gets resolved! This last week, I’ve seen lots of things on the ROI of Coaching, read about Impact Reporting for charities, and attended a great discussion on Social Media ROI,organised by The Feed, and all are wrestling with the same issues.
The debate about the ROI of Social Media seems to be clouded by all sorts of red herrings; I must disclose that I’m not a Social Media expert/guru/ninja (but it is something that I’m passionate about and use for my business) but I believe that the Social Media ROI debate needs to get back to some simple fundamentals and here is my starter for 10;
There are two reasons why the ROI of Social Media really matters:
1 – The potential ROI is part of the decision-making process for thinking about doing something different. It is part of the process of deciding what to do, what to change, and (possibly) which person/company to engage to help you.
2. Once you’ve made the decision, ROI needs to be tracked to make sure that you’re getting the results you wanted and to help take corrective action if things aren’t working out as expected.
A possible approach to ROI discussions:
ROI isn’t an easy nut to crack for Social Media and I think it revolves around accepting that any ROI decision needs to factor in the cost, the risk, and the potential value and not just focus on the value alone:
– The cost: Social Media isn’t free and any Social Media initiative will cost, even if it is purely an investment of time. Whatever the ‘cost’, it is likely that you could use that time/effort/money to pursue alternatives and it should be factored into the decision.
– The risk: When trying something new, it is unlikely that you can guarantee 100% success and a realistic view of the risk should be part of the decision. This means that innovative, risky ideas with a large potential return still get a chance.
– The value: This needs to be clear at the outset and it needs to be expressed in terms of how the planned activities will deliver the business result that is expected. I’m a fan of the work on Benefits Management that has come out of Cranfield and there is a great paper on “Managing the Realization of Business Benefits from IT Investments” by Peppard, Ward, and Daniel which, although aimed at IT, has a brilliant concept of the benefits-dependency network which I believe could be a great help in the Social Media ROI debate. Here’s a sample benefits-dependency network from the paper:
I can see how this could be used for Social Media and it forces the drawing of the connection from things like ‘set up Twitter account’ on the left to ‘Improve customer service’ on the right and forces the debate about how the former will enable the latter.
Having a benefits-dependency network agreed up-front also helps to make the measurement of ROI easier; Generally, things on the left are easy to measure (e.g. set up Twitter account and build followers), but it then gets progressively more difficult as you work towards the right-hand side and start to try to measure engagement, and even harder when you reach the right-hand side and try to measure improved customer service when loads of other initiatives are trying to claim the same thing! That said, a balanced mix of measures should be enough to have an open discussion about how things are working out and to make any necessary changes.
I’m not claiming that this answers every question on this difficult topic, but I do believe that making decisions based on cost, risk, and value where value is expressed as a benefits-dependency network could lead to better decisions, less disappointments, and a balanced set of measures that help!