Social Media Business Case Final Thoughts

Originally published 11/18/2010

Over the last three weeks (here, here and here), I’ve talked about some key benefits to look for when building a business case for a potential social media solution.  This week I’ll finish up with a few thoughts about what makes a business case successful.

Although the numbers are indeed important, never forget that the business case is about believability and confidence: your audience (the people with the money that you are trying to convince) need to believe the information you provide and need to have confidence that your social media solution is worth investing in.

Let’s talk first about believability.  Let’s say I’ve built a business case and I intend to show you the benefits.  I present you with a link to a web page where you can enter all kinds of metrics: how many customers you have, what the average purchase size is, how long customers stay with you, and so on.  I sit down with you and collect a handful of metrics in 5 minutes, and then generate a 20 page business case with detailed charts, references, spreadsheets, etc. that show that if you invest $100,000 with me, in five years you will have saved $2,304,201.32.  What’s your reaction? Do you believe the numbers and write me a check on the spot? (If so, please give me a call…I have a web site I’d like to walk through with you.)  If you are like most people, you look at the business case with a healthy amount of skepticism: any methodology, no matter how sophisticated, cannot possibly be that accurate with such little input.  What if I spend the next two hours going over the business case with you to show you *why* the numbers are accurate: we look at dozens of research papers published by organizations you trust (or maybe even belong to), we look at the comparison of your numbers with your close competitors and show you what savings/revenue improvements they have been able to achieve with the same solution, and so on.  How do you feel about the business case now? Better?

When modern surveyors first measured the height of Mt. Everest with modern equipment (well, modern at the time) they calculated that it was *exactly* 29,000 feet high.  Rather than have people assume that the 29,000 number was an estimate only accurate to a few hundred feet, they decided to publish the surveyed height as 29,001 feet. It turns out that when measuring mountains and building business cases, credibility is more important than accuracy.  Your numbers can be accurate to a fault, but if you haven’t given the buyer reason to be confident that your numbers are believable, your business case will not be successful. 

One more point I’d like to make. There’s an old saying in sales that “When you’ve made the sale, stop selling.”  If you prepare a business case that presents four or five big benefits and 100 little ones, you are wasting time and effort.  If you can make the four or five big benefits believable (and reasonably accurate), there is no point in quantifying or attempting to justify 100 additional little ones.  In fact, you may be giving the buyer reason to suspect that your four or five big ones might be iffy, since you felt compelled to attempt to justify so many other benefits that, in comparison, really don’t matter much.

Finally in an act of shameless self promotion: if you want to read more about building business cases in general, I’d recommend that you look into an Executive Report on the subject I did for the Cutter Consortium.  I’m sure they would appreciate it (as would I).

Defining Social Media Benefits Pt 3

Originally published 11/10/2010

In the first of this three-part series I blogged about finding benefits for social media solutions.  A brief recap: the most effective benefits you want to look for are 1) opportunities to directly reduce costs, 2) opportunities to improve productivity, and 3) opportunities to increase revenue.  Last week I mentioned a few obvious direct cost reduction benefits to consider.  This week, I’m going to look at some of the soft cost reduction benefits and revenue increase benefits to consider.  As with last week, not all these benefits may be relevant to your particular solution.

Most of the so-called “soft cost” or “indirect cost” benefits involve some type of productivity increase for internal assets, most notably employees.  A benefit may make an employee’s job easier, quicker, or more accurate, enabling them to perform more work or to complete the work they already have at a higher quality.  While on occasion these translate into opportunities for hard-dollar cost savings (if they, in fact, can be used to justify headcount reductions), repurposing employee time usually is considered a soft-dollar savings, no matter how much time is saved.  Instead of “cutting heads,” these productivity increases often come in fractions of a Full Time Equivalent (FTE). So in effect, you’re not cutting heads so much as fingers and toes—which aside from being frowned upon won’t save the enterprise any real money: what’s left of the employee still has to come to work and get paid.  Social media solutions can indeed present multiple opportunities for increasing productivity, and whenever the social media solution you are considering is primarily intended for use by employees, you should define and quantify numerous benefits in this area.  Some obvious examples are things such as Improve Employee Collaboration, Improve Employee Knowledge Transfer, Improve Employee Training, and so on.  Again, usually soft-dollar benefits are not as compelling as hard dollar benefits, but they can still be used to generate a decent business case.

The final category of benefits to consider is those that would result in increased revenue.  In my experience, these are the hardest benefits to build a compelling case for, but it can be done.  The social media solution you are considering might make customers more satisfied, resulting in Increased Customer Sales through additional up-sell and cross-sell opportunities. They might increase the time the users spend on your time, translating to Increased Revenue per Visit (and perhaps Increase Average Visits per Month).  While most people will readily believe some level of revenue increases, the trick to generating believable revenue increases lies in finding numerous (and credible) metrics from similar clients.  If you can find a competitor in the same space as your enterprise that has achieved measurable gains from a similar social media initiative, you are golden.  If you can’t back up your benefit assertion with credible metrics, you are probably better off just presenting benefits you can justify rather than trying to throw in every possible benefit you can think of.

A former colleague of mine made an interesting statement about business cases and finding value that has stuck with me over the years: “If you are solving a real business problem, a business case is always possible.” Put another way: if you can discover a solution that eliminates a major business problem, you can always quantify the value of that solution and present a positive ROI as a part of a comprehensive business case. 

Defining Social Media Benefits Pt 2

Originally published 11/3/2010

Last week I posted about finding benefits for social media solutions.  To recap: for the most effective benefits you want to look for (in order) 1) opportunities to directly reduce costs, 2) opportunities to improve productivity, and 3) opportunities to increase revenue.  This week, I’m going to look at some of the obvious ways a social media solution might realistically be used to cut costs.  Keep in mind that not all these benefits I’m going to discuss may be relevant to your particular solution: your mileage may vary.

Perhaps the most obvious benefit provided by social networking is the ability to Reduce Customer Support Costs.  The use of member-supported forums is widespread in the technology industry, so this is not a new or Earth-shattering idea.  Instead of having customers call a support line and get help from an actual person, directing customers to a forum where other members have posted questions and answers to common questions is often a more economical solution than an actual help desk.  Of course, you probably won’t eliminate the help desk function altogether, but if you can use a forum to eliminate some percentage of calls that require support, you can probably justify a cost savings.   Note that there may be several potential benefits that can be called out in this regard: you might be able to Reduce Customer Support Staff (which is a hard-dollar benefit if you can truly justify needing fewer people); you might be able to Reduce Customer Support Facility Costs (fewer people might require less floor space, less environmental controls, less trash pickup, etc.); perhaps Reduce Customer Support Telecommunications Costs (fewer phone lines, fewer PBX switches, etc.); and perhaps Reduce Customer Support Equipment Costs (fewer computers, chairs, desks, etc.). 

Another obvious potential benefit is Reduce Marketing Costs.  Using a social network can often be a more cost-effective way of getting marketing messages in front of the appropriate eyeballs.  Even if the cost per impression (the cost of getting your message to one viewer) is higher than traditional methods (TV, Radio, Newspaper, Magazines, etc.) you might be able to demonstrate lower total costs in terms of marketing to the people you really want to market to.  In other words, it might cost you $10k to put out a radio add intended for your customers that’s heard by 100k people (most of whom are not customers); it might cost $5k to put out a social network add to 5k existing customers who are already members of your social media site: A higher cost per person, but a lower overall cost.

Two more related benefits may also be possible to justify on the basis of reducing actual costs: Reduce Cost of Customer Turnover and Reduce Cost of Employee Turnover.  In both cases, you calculate how much it costs to replace a customer or an employee, then calculate the amount saved by how much your social networking solution might reduce turnover.  The tricky part in this calculation is estimating how much turnover you will reduce.  To build a credible case for either of these benefits, you need good metrics, preferably from the same vertical in which your enterprise resides (if you are in technology, you need metrics from other technology companies; if you are in manufacturing, you need metrics from other manufacturing companies).  Bear in mind if you are in an environment with already low customer and/or employee turnover, this probably won’t be a benefit worth trying to justify.

One final cost reduction item I’ll mention this week is Reduce Travel Costs.  If your social media solution has elements of collaboration (file sharing, chats, group chats, content management, video, etc.) you may be able to justify some level of savings from reduced travel.  When employees in diverse locations can more effectively collaborate, the need for them to travel for physical meetings might be reduced.  Again, the key to justifying this benefit is gathering metrics on what other organizations like yours have been able to achieve with a similar social media solution. 

There are probably lots of other potential direct cost reductions that might apply to any given proposed social media implementation.  Next week, we’ll talk about some indirect cost reduction benefits and some revenue increase benefits that you might consider.

Defining Social Media Benefits Pt 1

Originally published 10/28/2010

Let’s say you’ve been tasked with building a business case for a new social media project.  How does one go about building a business case for a social media solution?  Pretty much the same way you build a business case for anything else: begin by describing the benefits.

A benefit is some quantifiable statement of economic value (i.e., more to the point: a benefit describes how much money it’s worth to do something).  Simply put, all benefits boil down to one of two categories: they are either a) cost savings or b) revenue increases.  I’ve also mentioned intangible benefits in an earlier blog post, so you know how I feel about them: forget intangible benefits. In my experience building business cases I’ve discovered two things about them. The first is that no business case will ever be approved because of an overwhelming abundance of intangible benefits: there are just too many other projects with tangible benefits that will get approved first.  The second thing I’ve learned is that, with just a little thought and effort, intangible benefits can be converted to tangible benefits that can indeed be quantified.  For instance, “increased customer satisfaction” might seem at first glance to be an intangible benefit, but in fact it can translate into multiple measurable benefits such as “reduced cost of replacing lost customers,” “increased average purchase amount,” and “reduced marketing costs” among others.  All of these can be calculated and, more importantly, all of them can be measured and tracked before and after implementation. 

When building a business case, keep in mind that not all benefits are created equal.  Reduced cost benefits are generally more credible (and therefore valuable to your business case) than increased revenue benefits.  If you can show how a solution might save $20,000 you are more likely to be believed than if you try to convince someone that they’ll do $20,000 more business.  Even among cost benefits, those that reduce costs directly are more credible than those that reduce costs indirectly. Let’s say you have a benefit that reduces spending on an item from its current level by 10%: that’s a direct cost.  Another benefit may make it easier for an employee to perform a task, thus increasing their productivity: that’s an indirect cost reduction.  It’s “indirect” in the sense that it may or may not translate to a drop in costs on the bottom line (reducing the amount of time an employee spends on a task may simply allow them to spend more time on other tasks, and not translate into a reduction of dollars spent on the bottom line). 

So the best types of benefits to build a business case are (in order): Direct Cost Reductions, Indirect Cost Reductions and then Revenue Increases. Now that we know what types of benefits to look for, we’ll start examining some of the more common social media benefits to consider.  Stay tuned for part two of this discussion next week.

The Social Learning Curve

Originally posted 10/21/2010

In my last blog entry I talked about a couple of things to consider when starting up a new social media community. It addressed the fact that vibrant social communities don’t come that way out of the box, but that they grow and evolve over time.  In this entry, I’d like to continue that discussion and talk about how to keep that momentum alive once it’s been kickstarted.

Years ago when I used to teach software development methods, one issue we always addressed at the conclusion of the training was the difference between expected productivity gains and actual productivity gains.  The “learning curve,” while somewhat counterintuitive, should also be considered if you are trying to kickstart a social community.

To begin with: why does anyone ever try to learn a new technology? The answer: to be more productive than they can with the technology they already know.  So people often have the perception that the minute they learn a new technology, their productivity will jump up from the level at which they’ve been producing to a new, higher level of productivity.  But guess what. It usually doesn’t. Most of the time (especially if that new technology is revolutionary rather than evolutionary) a person’s productivity goes down for a while after learning something new before rising to a new higher level.  Why?  Lots of reasons, but the main one is that people are better at doing things they know how to do than they are at things they don’t know how to do (yet). As they practice with the new tools, they get better with them and more accustomed to them and eventually can do more with them than they used to with the old tools.

What does this have to do with kickstarting social media communities? A lot, it turns out. When you are getting a community going you have to be committed to trying lots of different marketing efforts: lots of different “kicks,” if you will. Some of these will work and some of them won’t. But regardless, each time you introduce something new to your community (especially if it’s radically new) you have to realize that you might be impacting the learning curve of the community. No matter what you do, the productive output of the community might go down before it tracks up again to a new level.  The problem is, it’s often hard to know if a decrease in participation is simply due to the learning curve or the fact that you’ve introduced a barrier to participation.  Case in point: the new Digg interface that debuted back in August.  Traffic to Digg dropped off noticeably after the rollout of their new interface (26% in the US; 34% in the UK).  Is that just the learning curve in action before traffic returns and eventually exceeds the previous levels? Or is it Digg’s “New Coke” moment and a future case study for social media marketing? As of this writing, the jury is still out. 

If you own or operate a social media site, you have to be prepared to give it a kick now and then. You also have to realize that the learning curve might mean that your kick might not work right away. You also have to be aware of the fact that not all kicks send the snowball down the hill: some can smash it to bits.

Kickstarting the Snowball

Originally published 10/15/2010

In my last blog, I talked about the similarities between social media communities and snowballs. This time I’d like to talk about a couple of ways of getting the “snowball effect” started in a community.

To begin with: think like a casino. If you’ve ever been to Las Vegas (or anywhere casinos have gaming tables) you’ll notice that there is rarely just one player at a blackjack table.  Even if there is a dealer standing by at the ready, most players don’t want to sit down at an empty table and play one-on-one against the house.  It’s more fun (and some would say you have better odds) if you are playing blackjack with other people at the table, so new players tend to gravitate to tables that already have a few players.  So how do casinos draw in players during slow periods?  Shills.  Players, paid by the casino, sit at empty or slow tables so that they look busy.  Busy tables attract other players so they become more busy, attracting more players, and so on until the table is full.  Social media communities can also employ this strategy: while they are small, the organization that owns the community can discretely insert members who are paid to hang out, post comments, encourage other members, contribute representative content, etc.  Of course, you have to be careful to make this a discrete activity: if other members *know* that the shills are there, they might be discouraged from participation.

Another way to attract participants is to offer some sort of reward for participation in key areas of the community.  The reward can be an actual monetary award (or some kind of prize with actual value in the real world) or some sort of perceived award (like Foursquare “badges,” for instance, that may be worth nothing more than bragging rights).  Ideally, you would like to have the community members vote for and select the winning content, but the organization can reward desired behavior just as easily. I had some moderate success with just such a strategy long before the concept of social media crowdsourcing: my company ran a snarky website making fun of stupid things said about the Y2K problem, and generated a ton of email submissions by giving out a small prize each month (of course, the site had limited usefulness after the 1990’s).

Another idea I saw recently was a kind of real-world scavenger hunt leveraging people’s natural curiosity.  QR codes were posted without explanation in strategic areas where potential members of the social community tended to hang out in the real world.  Those QR codes, scanned into a mobile phone, directed curious visitors to an online community.  Visitors there got an explanation of the contest, the rules, and clues to locations of other QR code postings to go hunt down.  Winners got recognition on the web site and a small prize, but I thought it was a great way to show new people the site and to get people who were already registered to visit portions of the site they might not otherwise know about.  Done correctly, this strategy has the potential to be a success online and offline: the scavenger hunt could increase traffic at sponsor locations *and* generate traffic (and members) online.

There are lots of other strategies that might be employed to market the site, and I’ll pass along interesting ones in future blog postings.  One thing we know for certain is that the “Field of Dreams” strategy—“build it and they will come”—doesn’t work. 

Hurricanes, Snowballs and Social Media

Originally published 10/7/2010

Here at INgage headquarters in southwest Florida, this year’s hurricane season is starting to wind down, and will be officially over in a few weeks (I’m looking for some wood to knock on as I write this). And I just came back from a trip to our offices in Michigan, where cooler weather has descended (finally!) and snow season will be winding up in a few weeks. 

I find that analogies are often useful in discussing technology (especially new technology), and it occurred to me that both hurricanes and snowballs can be useful for describing conditions under which social media sites can thrive.

Consider: Hurricanes only exist in summer months, when prevailing upper level winds and warm ocean temperatures are conducive to their formation.  A “wave” of clouds, thunderstorms and lower atmospheric pressure rolls off the west coast of Africa and heads west every few days during the late summer months.  Some of these waves develop into hurricanes. Many do not. They remain a harmless cluster of thunderstorms and clouds until they dissipate or are absorbed into other storms.  They only form into hurricanes when conditions are just right: the spin in the clouds coupled with low wind shear allows more thunderstorms to build, more moisture to be pulled into the storm; which somehow causes the rotation of the storm to increase, building even more storms and pulling in even more moisture, and so on.  In other words, some of these storms create a kind of positive feedback loop with their environment, altering it in ways that make the storm spin faster and faster until a hurricane is born.

And snowballs?  Well, anyone that has lived in a hilly, snowy climate has at one point or another tried to make a large snowball and push it down a hill to see if they could get it to grow into a big snowball by the time it gets to the bottom.  It doesn’t always work.  Sometimes the snow is the wrong consistency; sometimes the snowball is too small and doesn’t roll; sometimes the snowball is too large and falls apart; sometimes the hill is too shallow for the snowball to roll very far.  But when it works: wow.  It works so well that I can use the phrase “snowball effect” and pretty much everyone will know what I mean.

Social media sites can behave a lot like hurricanes and snowballs.  They can generate enough positive feedback to snowball into huge, vibrant communities.  As they grow they attract new members, which contribute new content, which attract other new members, and so on. But like snowballs and hurricanes they can be awfully hard to kick start when they are new.  They need just the right social networking conditions and the right networking environment, and usually a helpful nudge or two before they can take off.  And without the right conditions—just like hurricanes and snowballs—they can easily fizzle or fall apart.