Many discussions about social media inevitably turn to the issue of ROI – or how you can measure impact and, more specifically, if there is empirical evidence (or reliable projections) that social media can boost hard business metrics like productivity, revenue and profits. While I’ve heard of a few isolated success stories (like Dell’s profits through Twitter promotions) I haven’t seen much consensus on a measurable, widespread impact – particularly related to consumer activities. In fact, there are still pockets of skeptics who deny social media can add directly to the bottom line. (Conversely, some social media fans/users suggest focusing on finding a bullet-proof ROI link is missing the point, since social media is more about conversation and engagement than short-term returns.)

Well, the folks at McKinsey – who could never be accused of using fuzzy math – recently came out with a study that suggests companies who make extensive use of the Web 2.0 technology have higher returns and margins than their peers. [FYI: you may have to subscribe to McKinsey to view the full report.] What’s telling about the findings is that McKinsey found that organizations that were highly networked – meaning they leveraged collaborative technology inside the enterprise as well as with external partners – were most likely to be market leaders (and gainers) and benefit from higher margins. There is plenty of room for progress, however; only 3 percent of survey respondents were defined as fully networked enterprises – with robust social media engagement across audiences. McKinsey also details the trend towards increasing use of social media inside the enterprise, and the shift beyond the more established business-to-consumer activities. The authors suggest this trend will exacerbate a gap between the forward-thinking organizations (who are gaining measurable benefits) and those reluctant to fully engage the collaborative technology.

A closer look at the findings shows that respondents to the global survey defined a wide range of “measurable benefits” – which confirms that most organizations are looking well beyond core metrics like profit-and-loss for evidence of ROI. But the purported benefits are by no means soft, in corporate parlance. Take a look at the top 4 benefits – based on percentage of respondents whose companies achieved benefits from use of Web 2.0 technologies – across the main categories:

Internal Purposes

  • Increase speed of access to knowledge (77% of respondents)
  • Reduce communication costs (60%)
  • Increase speed of access to internal experts (52%)
  • Decrease travel costs (44%)

Consumer Purposes

  • Increase effectiveness of marketing (awareness, consideration, conversion & loyalty) (63%)
  • Increase customer satisfaction (50%)
  • Reduce marketing costs (45%)
  • Reduce support costs (35%)

External Partners/Suppliers

  • Increase speed of access to knowledge (57%)
  • Reduce communication costs (53%)
  • Increase satisfaction of partners (45%)
  • Increase speed of access to external experts (40%)

How can companies join the networked high flyers described in this survey? Here are suggestions from the McKinsey study:

  • Integrate the use of Web 2.0 into employees’ day-to-day work activities. What’s in the work flow is what gets used by employees and what leads to benefits.
  • Continue to drive adoption and usage. Benefits appear to be limited without a base level of adoption and usage.
  • Break down the barriers to organizational change. Fully networked organizations appear to have more fluid information flows, deploy talent more flexibly to deal with problems, and allow employees lower in the corporate hierarchy to make decisions.
  • Apply Web 2.0 technologies to interactions with customers, business partners, and employees. Fully networked organizations can achieve the highest levels of self-reported benefits in all types of interactions

As someone who spends a great deal of my time working with companies on internal issues, I’m glad to get this additional ammunition to help convince companies their greatest potential to leverage social media may be inside the organization. McKinsey’s describes these progressive internally networked organizations as cultures where “information is shared more readily and less hierarchically, collaboration across organizational silos is more common, and tasks are more often tackled in a project-based fashion.” Buried in this description is the root of the problem; the reality is that some companies are still not willing to foster this type of decentralized, fluid communication environment. To some, information is still power…and they don’t want to give it up.

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