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The ROI of Enterprise 2.0 and the Value of Intangible Assets

Posted by on August 2, 2011

I want to dispel a myth that I keep hearing and that myth is about the ROI of emergent collaboration technologies.  We keep hearing about the challenges with measuring and showing ROI and how that is a sticking point for executives and decision makers at companies.  The problem with this is that there will never be an ROI from an emergent collaboration technology precisely because technology is just that…technology.  We are talking about tools that enable us to collaborate and do “things.”  The ROI or the value comes from the activity and from the actual collaboration, not from the technologies themselves.

You can take data and make it look like almost anything you want.  In fact you can paint either a negative or a positive picture with the exact same set of data so just because you have numbers attached to something doesn’t always mean that those numbers tell the best story.

Which leads me to my next point, measuring the value of intangible assets such as effective collaboration, knowledge, and information.

How do you measure the ROI of intangible assets?  I’m sure there are a lot of responses and ideas on this topic, in fact books have been written on this very subject.  My response to this?

“It’s in the sauce”

What do I mean by that?  Intangible assets such as effective collaboration and knowledge are one part of several ingredients that make up the “sauce” of whatever it is we are making.  For example let’s say we are looking to work on a global project together to develop a new revenue model for product X.  To do this we need to find the right subject matter experts to work with (among many other things).  We use our emergent collaboration platform, find the best people to connect with, build the product, and finally develop a working revenue model.  Now that the product has been developed and is generating revenue how to we attribute a certain portion of that revenue to our ability to find the right people to work with on that project?  Would that project not have come to fruition if we hadn’t used those tools? Probably not.  The ability to find the subject matter experts for this project was a part of “the sauce” that was used to complete the project, it was an ingredient.

Sure, we can look at time saved and potential new revenue opportunities and while these are useful to help show ROI they show only a very small part of the value of emergent collaboration.  This is an ingredient that will be found in almost anything and everything that the company does.

In the book Strategy Maps: Converting Intangible Assets into Tangible Outcomes,” Bob Kaplan and David Norton note:

“None of these intangible assets has value that can be measured separately or independently.  The value of these intangible assets derives from their ability to help the organization implement its strategy…  Intangible assets such as knowledge and technology seldom have a direct impact on financial outcomes such as increased revenues, lowered costs, and higher profits.  Improvements in intangible assets affect financial outcomes through chains of cause-and-effect relationships.”

Andrew McAfee, author of “Enterprise 2.0” uses the analogy of trying to credit one player on a sports team for winning a game, it doesn’t work like that.

I have a lot more to say on this topic but it will be included in by book on emergent collaboration which is due out next summer.

In the meantime what do you think about the ROI or value of emergent collaboration?

  • Thanks to Johannes Egenolf on FB for making me aware of this awesome article. Yes when it comes down to intangibles, social networks and their impact on overall value, it is like on the field, where just the individual players don’t count much as long as they don’t interact in a useful to the system manner.

    What is the monetary value of a boundary spanner for example? A maven? A connector?

    • Hi Ralf,

      Thanks for the comment and I agree with you.  I think ROI is the wrong thing to be looking at when it comes to emergent collaboration.

      • Mary Adams

        I agree it’s hard. But it’s a cop-out to not try to measure what’s going on, even in social media. I spend my time looking at all the intangible elements of business which work together as complex adaptive systems. These systems require different approaches to “measurement” and “management.”

        But if an organization needs to support the intangibles system with necessary resources, then those resource decisions should be made with some kind of discipline. Social media is selling itself short if it maintains that it’s magic that happens behind a screen or through some secret recipe.

        The monetary value of a boundary spanner may not be relevant to the decision. But there is a return from the investment of time and resources in this person. And the sooner you figure that out, the better off everyone will be.

        • I don’t think it’s about hard or easy.  I think it’s about whether or not makes sense to do it and spend additional time and resources to do it.  ROI makes sense for assets or investments which are sold, like a house or a stock, this way you can look at what you paid, how much you made from the sale, and what the return was.  Emergent collaboration is never sold and you don’t get rid of it, there is no end date for it so the ROI calculation is quite meaningless.  Of course it’s always important to measure what’s going on whether it’s anecdotal data from employees or performance indicators telling you that you are moving in the right direction.  This however, is specifically a question of being able to figure out a financial ROI on the emergent collaboration investment.

          In working with and researching many companies I have found two things.  1) the financial reward is never a primary business driver (i,e. companies don’t say that they are doing this to make or save money…at least not one of the top 5 drivers).  and 2) no organization thus far has been able to predict or calculate an accurate ROI yet almost all have been more than satisfied with their investment based on soft data and the ability to solve business problems.

          For emergent collaboration it is far more useful for organizations to measure progress and achieving a goal than it is ROI.   

  • Mary Adams

    Jacob – On one level I agree with you. When dealing with intangibles, we must think holistically.

    However, to use your two analogies, a sauce has a recipe and a team has a roster and a play book. We cannot use the holistic nature of intangibles to excuse us from trying to pick apart the system, understand the elements that contribute to its success and, yes, measure those elements in one way or another.

    Ultimately, organizations and businesses make investments with the expectation of a return. We are selling our intangibles short if we assume that there is no measurable ROI on the enormous investments we make in them. Just start with other forms of measurement beyond monetary ones.

    I suggest the analogy of a production line. If you add a new enhancement that increases speed or quality, you measure it through speed or quality. Eventually, you may learn how to translate that into dollars. But you have to start with measuring the effect on the system. The same thing has to hold true with intangible systems. We have to understand how they work and measure that before we can measure things in dollars.

    • Hi Mary,

      Thanks for the note.  Thus far I haven’t come across a single company that has successfully been able to calculate and be confident with an ROI from their emergent collaboration initiatives and to be honest I don’t think anyone ever will.  Many companies I have been speaking with don’t even care to do so because they perceive it to be a fruitless and time-consuming tasks.  Anecdotal evidence appears to be the best way to measure or gauge the value of emergent collaboration at this point but it’s impossible to say what the ROI from collaborating on a new technology is.  In the production line example you refer to you are dealing with a physical good, a product.  That example is specifically focusing on one aspect of a business.  However, emergent collaboration impacts every department and every employee and everything that the company does.  

      It’s not like changing the exhaust on a car and being able to measure how much more horse power you got out of it.

      Thanks for your comment!   

  • Marc Strohlein

    The concern over ROI is a passing phase as we move from hierarchical command control organization structures to network organizations. The concerns and risks associated with emergent social technologies have little to do with the technologies–they have much more to do with management and culture.
    My first IT job, back in the early 1980’s,  was reviewing applications from employees who wanted PCs and had to submit a business case with an ROI estimate. That concern passed and “this too shall pass.” I’m starting work on a workshop (Gilbane Conference) that includes a section on “making the case for social technology” so will be wrestling with this topic some more.

  • Richard Ordowich

    I think people misunderstand the primary purpose of ROI. ROI is a comparative
    measure used to help select from a number of different alternative solutions and opportunities. It is but one technique.

    ROI attempts to reduce the subjectivity in decision making using a measurement standard. What is important is that the process of developing the ROI helps identify the cost benefits in a systemized and repeatable way. It helps level the playing field regardless of the nature of the investment or change being considered.

  • Intangible asset ROI is not some simple calculation. Break out earnings from units to see intangible contributions.