In one of my previous blog posts, I described how the technology giant IBM utilised Enterprise 2.0 technologies to foster innovation, discover novel ideas and find ways on how to commercialise existing technologies. Although the blog post contained several useful bits of information about the process IBM had invented to make this online collaboration happen, the article did not contain any figures on the actual Return on Investment (ROI) statistics on IBM’s social media endeavour.
To be able to accurately gauge the success of a project, the Return on Investment (ROI) numbers need to be established as accurately as possible. Without knowing these figures, one can only guess the effectiveness of a given project. Needless to say, gathering the right kind of data for such calculations is far from being an easy task. This is exactly the reason why IBM commissioned Forrester Consulting in 2009 to establish the ROI enterprises may realise when using IBM’s Social Collaboration tools. The results of the study have been publicised by IBM, as presenting these statistics on the potential benefits of adopting these social media tools can be very strong incentives for IBM’s prospective business partners.
Forrester gathered the data used used in their research from existing statistical data on IBM’s tools and by conducting interviews with IBM’s sales personel and one large organisation currently using these tools. The data was fed into a financial impact model built by Forrester, which resulted in the following three main benefits being identified:
- Revenues of incremental new products
- Improved Time-to-market
- Revenues of incremental sales
- Staff productivity savings
Let’s calculate the ROI figures based on the numbers published in the study. Based on a 20,000-seat enterprise implementation, the initial implementation and roll out of adopting IBM’s tools would cost roughly 1.5 million dollars in the first year. The ongoing maintenance after the first year would incur about $313,000 a year. Thus the cost of investment for a 3 year period would be $2,126,000 in total.
Providing that the company has a total revenue of $20 billion a year, the revenues of incremental new products is estimated to be in the $420,000 to $8,400,000 range, with a likely estimate of $2,100,000 revenue per year. The other three areas would result in significantly more modest incremental yearly revenues ($336,000, $150,000 and $455,813 likely yearly figures, respectively). By adding up the low, likely and high values in all four categories we get the following estimates for the profits:
Profits (1 year)
- Low – $1,045,500
- Likely – $3,041,813
- High – $10,556,813
Profits (3 years)
- Low – $3,136,500
- Likely – $9,125,439
- High – $31,670,439
By plugging the numbers into the ROI formula, we get the following 3-year ROI figures for implementing IBM’s tools:
ROI Low = 47,53%
ROI Likely = 329,23%
ROI High = 1389,67%
The ROI figures above are very strong indicators on the financial success of adopting IBM’s social media solutions. Such studies can act as an extremely effective marketing tool to prospective clients who are on the verge of buying into a long-term social media strategy.