Akey topic from the last #LikeMinds event was the issue of measuring the return on social media investment. There was a good (and entertaining) treatment of the topic from Olivier Blanchard (@thebrandbuilder) which covered the effect on sales and how to decide if the usage of social media had, in fact, improved your bottom line. Olivier’s presentation is available on Slideshare here.

This is all good stuff, but I believe there is another set of dimensions to the ROI that you might get from using social media – and so the LikeMinds crew only dealt with part of the subject. This is because, as one commenter put it, social media is just people having conversations – what’s the ROI on talking?

Indeed, no-one asks what the ROI on a telephone is – it’s just accepted that the telephone is essential for a modern business to function. And I believe that social media is headed the same way. But many people remain to be convinced: a story last week ran on the BBC website that stated that “Twitter costs businesses £1.4Bn a year” – indicative of the cultural resistance that this platform has to overcome if it is to be accepted just like the telephone.

Given that, it’s probably time someone tried to start mapping out the benefits of SM right across the piece so that a full business case can be made by those who are trying to make the change in their own organisations. So how might we go about doing that?

Business theorists have many ways of modelling organisations, and I’m going to pick one. Other models are available. This one is simple, which is why I chose it (you could also try ITIL service management , or if you really want to go the whole hog try the Zachman Enterprise Architecture matrix. Just don’t say I didn’t warn you!).

Value Chain Analysis

This was devised by Michael Porter in his seminal work, Competitive Advantage (1985). Porter argued that all parts of a business add value to the finished product, and it looks a bit like this:
800px-Porter_Value_Chain

 

 

 

 

 

 

 

 

From wikipedia: “A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities.” A typical example is a production line in a car factory: the finished car, delivered to the customer with a finance package and their old car towed away and recycled, is worth much more than the components added at all stages of assembly (but see also Scott Gould’s critique of factory thinking ).

Now we’ve got our model, we can start looking at ROI. Olivier’s presentation points out that there are two ways ROI comes in – through increased revenues or through lower costs.

Increased revenues are either a result of increased volume, or by a higher quality product or service that people will pay more for. Remember that a “product” also includes the experience that people have when buying or otherwise consuming the service – what some marketers might call the “augmented product”.
Lower costs result from reduced friction and waste, either internally in a company or in the supply chain. What we’re looking for here are things like higher staff competence, better processes, better communication and teamwork, and lower materials costs.

The Porter value chain model identitifes 9 areas of activity. Here are some ways that social media can benefit them:

  • Infrastructure (administrative management of eg buildings) -> need maintenance and planning (and even strategy) -> SM can streamline maintenance processes, alerts, and educate people in how to get the best out of their investments.
  • HR management -> social media tools can be used to provide early warnings of things that are bothering the workforce, ways to access employee resources (like workplace counselling or learning and development); conversely the blocking of social media sites can be demotivating for employees
  • technology -> Social media can reduce email, provide mashups, enhance remote, mobile and flexible working. This is a big topic in itself.
  • procurement -> getting the right product (using crowdsourced reviews) at the right price (customers communicating with each other reduces supplier power)
  • inbound logistics -> “@customer @acme is held up at roadworks on #M25. will b 2.5hrs l8” can save you money.
  • outbound logistics -> “@customer @acme is held up at roadworks on #M25. will b 2.5hrs l8” can save your reputation.
  • operations (production) -> the benefit here is in collaborative working and low-cost messaging systems. Teams can work together better even if they are geographically separate, and the creative use of APIs can automate some processes (eg in publishing an author may submit a document which triggers workflow for editing, proof-reading and then sends it back afterwards).
  • marketing, sales and service -> Apart from the customer relationship (dealt with comprehensively by Scott and Olivier) social media can yield valuable intelligence about what the market wants. making the organisation truly marketing-oriented by enabling all parts of it to hear the customer can yield a massive increase in product or service quality.

Each of these areas is probably worthy of something much more detailed – along with actual methodologies. Actually measuring these things quantitatively might prove more expensive than worthwhile, however: and not everything can be measured.

Anything I’ve missed?

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