Measuring the Value of Social Technology

Do we finally have the collaborative technologies that reflect the way work gets done? It's been a short seven years since Andrew McAfee, an associate professor at Harvard Business School, wrote an article titled Enterprise 2.0: The Dawn of Emergent Collaboration in the MIT Sloan Management Review (Spring 2006) that asked the question.

Today, social technologies for the enterprise are so highly developed, widely used and integrated within platforms the answer has to be, yes. They reflect, and radically enhance, the way we work. It only takes a relatively small taste of connecting people and ideas in a collaborative space to be convinced collaborative technologies have arrived.

Measuring Value

But initial success creates new demands, and the new demand in "social business" (the practice of business using social technologies) is measuring value. As everyone knows, no company can allocate significant resources to something that isn't contributing in a quantifiable way and social technology is now mature enough to meet that standard. (This is not discounting, by the way, the excellent work that has gone into measuring basic activity in social communities - e.g., the number of users, views, discussions, videos, replies, likes and so on - but this is not the same as measuring business value.)

And this effort has begun in earnest. Last year, the McKinsey Global Institute (MGI) set the stage for the conversation on business value with a detailed study that estimates social technologies have the potential to generate more than $1 trillion annually across five major sectors of the economy and raise the productivity of knowledge workers 20 to 25 percent.

MGI based their estimate on ten value "levers," such as co-creating products and matching talent to tasks, that enterprises use to generate value with social technologies. It matched these levers, in turn, to organizational functions we're all familiar with, including product development, operations and distribution, marketing and sales, customer service, as well as enterprise-wide productivity.

Quite brilliantly, MGI was able to calculate an overall margin improvement in dollars for each of the five sectors. It applied regression analysis to a few fundamental drivers of value (e.g., R&D intensity) that could serve as proxies for all sectors. This baseline was then used to model each sector based on its social technology levers and organizational functions.

This study teaches us two things. First, social technologies offer enterprises much more value than previously thought (they are not simply "Facebook for the enterprise"). Second, there is a logical way to measure that value.

Although MGI's methodology in the study is complex, the approach is simple: Value levers used for organizational functions produce significant margin improvements (as well as productivity gains). Said another way, organizational functions (e.g., marketing and sales), enhanced by applications of social technologies (e.g., co-creating products), positively impact cost savings and revenue.

There is no reason why the same basic approach can't be used to measure value within an enterprise.

John Hagel, co-chairman of Deloitte's Center for the Edge, gives an example of how this would work in the video below. He suggests that if you want to impact a financial metric with social technology, say revenue growth, first identify a relevant operating metric like customer churn, then drill down further to the frontline metric, like the number of successful responses to customer questions at a call center. This gives you something tangible to address with social technology that can be tied back to the financial metric. In other words, the operating/frontline metric is the bridge for measuring value between the social technology and the financial metric.

What do you think? Is this a valid way to measure the value of social technology in your enterprise?

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