At last…evidence that Social Media does provide a positive ROI

From the outset and even as  “social media” has gained more and more momentum, there has been a majority of brands that have delayed embracing it because “there’s no proof it delivers a positive ROI” (return on investment). 

To an extent this is understandable given the extent to which the ROI on an investment in SEM is so directly quantifiable.  There are a number of examples of counter arguments to this perspective, some of which seek to respond directly, and others, which encourage us to take a wider view.

The Wider View

Don’t confuse measurable with valuable.  It’s unlikely that many brands measure or consider the specific ROI related training their call centre staff to be courteous to customers, or on a smaller scale the ROI of having a clean reception area – they are a cost of doing business.  But that personal/social interaction is more easily acknowledged as being worth the investment.  We know you’ll get a return from all these types of activity.  They cost time and money.  But they make sense and we do them anyway.

As Albert Einstein said:

“Not everything that can be counted counts, and not everything that counts can be counted”.

A More Direct View

Look at the financial returns Dell have achieved through Twitter - $6.5m in less than 2 years, plus increased interactions with 3.5m customers.

Look at the UK Xmas No1 in 2009 – Rage Against the Machine’s ‘Killing in the Name’, the success of which was down to a community that almost spontaneously formed on Facebook, to put an end to the sequence of X Factor Christmas chart –toppers.

Then there’s politics…

“A major success factor for Obama’s victory was how Obama’s campaign used social media and technology as an integral part of its strategy, to raise money, and, more importantly, to develop a groundswell of empowered volunteers who felt they could make a difference.”

Source: European Business Review

Sceptics may respond that they are not retailers, or political parties or as big or small as some of the lauded successes in the social media arena – and that there’s no proof it delivers a measurable ROI, that they can relate to.

Well, now there is.

A recent report from McKinsey – “The  rise  of  the  networked  enterprise:   Web  2.0  finds  its  payday” highlights that there’s a new class of company emerging – “one that uses collaborative web 2.0 technologies intensively to connect the internal efforts of employees and to extend the organisation’s reach to customers, partners and suppliers.”

In their latest annual survey of 3249 executives across a range of regions, industries and functional areas, two-thirds of them reported using Web 2.0, up 40% year on year. In nearly half of the companies that use social networking, more than 50% of employees are actively engaged with it.

Crucially, 9 out of 10 of the companies using Web 2.0 report that they are receiving ‘measurable business benefits’. (See Figure 1)

From a customer-focused viewpoint

63% are seeing an increasing effectiveness of marketing (including awareness, consideration, conversion and loyalty).

50% see increased customer satisfaction, and 45% reduced marketing costs.

Figure 1

 McKinsey’s analysis of the relative magnitude of the business benefits attributed by each company to social media enabled them to identify 4 distinct clusters of company.

‘Developing’ - Almost 80% saw a mean improvement of 5% or less across business benefit metrics.  These companies report the lowest percentages of usage among their employees, customers and business partners. Within these companies Web 2.0 is less integrated into their employees’ day-to-day work, and they are less likely to report high levels of collaboration or information sharing.

‘Internally Networked’ – 13% of companies in the survey have derived substantial benefits from deploying Web 2.0 technologies in employee interactions.  Respondents at half of these companies reported that social media was integrated tightly into their workflows. There is good evidence amongst this group that Web 2.0 promotes more flexible working processes internally, with information being shared more readily and openly.  Collaboration across organizational silos is more common.

‘Externally Networked’ – These are companies that have achieved substantial benefits by interacting with customers and business partners via social media tools.  Accounting for 5% of companies deploying Web 2.0, these organizations report that a greater proportion of employees, customers and partners use it, than internally networked organizations. But the internal organisational processes of externally networked organisations tend to be less fluid than those of internally networked ones.

‘Fully networked’ – This elite group of companies, 3% of those surveyed, drive very high levels of benefits from Web 2.0. They reported higher levels of employee benefits and external benefits (amongst customers and partners) than the other clusters.  These organizations have moved further along the learning curve, integration into day-to-day activities is high, and higher levels of collaboration internally and externally are reported.

All well and good you might think, but do benefits translate into fundamental performance improvements?

Figure 2

As Fig.2 illustrates, market shares reported by respondents were significantly correlated to fully networked and externally networked organizations.  McKinsey puts this down to both the benefits of collaborating across organizational silos and of

‘forging closer marketing relationships with customers by involving them customer support and product-development efforts’.

The reported attainment of higher operating margins than competitors correlated with a different set of factors: the ability to make decisions lower in the corporate hierarchy and the willingness to allow the formation of teams comprising both in-house employees and individuals outside the organization.

This suggests that Web technologies can underwrite a more agile organization, which in turn can raise productivity and create more valuable products and services.

The McKinsey report concludes

‘the benefits from the use of collaborative technologies at fully networked organisations appear to be multiplicative in nature: these enterprises seem to be “learning organizations” in which lessons from interacting with one set of stakeholders in turn improve the ability to realize value interactions with others’.

Our Industrialised society has arguably grown and flourished despite the fact that organizations have kept their ‘partners’ and their customers at arms length, whilst at the same time espousing customer centricity. 

At a time when the phrase ‘we are all in this together’ is perhaps a little overused, there is increasing evidence that significant and measurable benefits accrue from dialogues and collaborations that Web 2.0 facilitates. The McKinsey report begins to show that falling behind in creating internal and external networks could be a critical mistake for business leaders.

Does your organization fall into one of McKinsey’s identified types?

What do you think about McKinsey’s conclusions?