Return on Investment (ROI) of Social Technology Implementations

IBM logoIn 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.

ForresterTo 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.

roiProviding 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.

References

Use of Enterprise 2.0 in the Professional Services Sector
IBM
Total Economic Impact Of IBM Social Collaboration Tools
Forrester Consulting
Wikipedia – Return on investment

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15 thoughts on “Return on Investment (ROI) of Social Technology Implementations

  1. Hi! Thats an excellent analysis of where the expected ROI would fall after considering ongoing costs and the like. Very thorough. Forrester has definitely provided some excellent data and statistics for use in getting these answers. Do you think going to this extent is necessary for everybody?

    sammacgregor.wordpress.com

    • Exactly, the excellent study done by Forrester has made my job really easy 🙂 I think measuring is essential for all kinds of new initiatives a company puts in place, be it social media or any other endeavour. So, in short, yes, I strongly believe this is necessary for everybody. Thanks for stopping by 🙂

  2. Hi
    Great post. I must say that I think it is a cleaver move to estimate the potential profits in a span of low, likely and high. This just proves that the company is aware of the broad width of the potential gains of the initiative. I never understood how some organisations could just come up with one number of potential profit without considering the variability of the initiative’s outcome. So for the last time thank you for a nice and informative read 🙂

    • Thanks Lise, glad you liked my last one 🙂 Yes, I found the study done by Forrester very comprehensive, they have obviously put a lot of thought into their analysis. As you say, giving ranges instead of exact figures could inspire much more confidence in such an analysis from the perspective of a prospective buyer, as the number seems surely much more realistic than just giving a single number.

  3. I must commend you on your effort in crunching the numbers and creating a very relevant and useful set of financial data pertaining to ROI. In saying that however, are these results generalised? Are there certain types of businesses this model applies to, and if so what do you think that type would be?

    • Good question, I think these results can be applied in all big enterprise type of organisations. The key thing here is that the company has to generate a lot of profit for these single digit performance improvements to really make sense.

  4. “Your topic sound interesting. IBM is the market leader at applying social techniques to business situations. It gives ideas and new concepts places to create a more nimble and flexible company with dramatic return on investment opportunities. It is also concerned of promoting customer services, sales and community building”

  5. Pingback: week10: Return on Investment (ROI) | Ebraheem

  6. Nice work. I concur with you that the success of projects needs to be evaluated accurately and the easiest measure is by the use of Return on Investments. The ROI measured from social technology implementations can be used as a yardstick by companies before making financial inputs. Therefore the ROI can give the direction which the new project takes. However, it would help to state whether a there is a margin of error and its impact on the approximation. Thanks a bunch for the information.

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