You may be familiar with Maslow's Hierarchy of Needs. It's a theory Abraham Maslow proposed in 1943, that provides a pecking order of human needs. At the bottom of the pyramid are physiological needs: breathing, food water, etc. The fundamentals needed for basic survival. The needs then climb the pyramid, becoming more intangible as one goes along: safety, love/belonging, esteem, self-actualization.
The theory's structure of moving from tangible/tactical needs to those that are intangible and more impactful is actually well suited for another purpose. That of the software decision-maker inside companies...
Maslow’s Hierarchy of Enterprise 2.0 ROI
The decision to purchase an enterprise software application is one that generally demands a variety of different views about benefits. Because with most enterprise systems - Enterprise 2.0 included - there are a variety of benefits:
Working our way from the bottom up...
Saving money is one of the easier ways for an enterprise decision-maker to justify an investment. The savings can more than offset the costs of a enterprise system. This correlates to Maslow's original hierarchy of physiological needs. The dollars saved cover the cost to purchase.
Saving money occurs in multiple ways when it comes to software. While a traditional measure is that the new application replaces a more expensive one, that's a benefit that doesn't scale. A stronger benefit is one which opens up a pipeline of new cost-cutting and operational efficiency measures. A favorite quote about cost-cutting ROI at Spigit (disclosure: I work @ Spigit) is this one:
Another event for store managers focused on cutting costs and improving customer service. One idea from that event will save the company $8 million. "IT and senior VPs ask how we measure ROI for Spigit," the director says. With numbers like that, the answer is easy.
You've covered the lowest level ROI needs with this one, the benefit that is easiest to see and measure. The importance of this should not be underestimated. However, it's also the benefit with the lowest impact on the organization.
Next rung up the ROI hierarchy is creating new revenue. In this case, the benefit is more localized to new products and services, as opposed to entirely markets. Increasing the top line is great for the social software ROI calculation. It's not surprising to see the social CRM space heating up.
Getting ideas from employees and customers that lead to new revenue-generating products is a solid business case for Enterprise 2.0. Employees have ideas, but have lacked effective means of making them known to a wider audience. This cartoon highlights the issue:
Customers have great ideas, and provide great direction for new products. They also love to hear about your new product concepts, and will gladly offer feedback.
The reason revenue generation is above cost-cutting is that there is an increased level of uncertainty as to how the revenue will come about, from which idea. Still, this is a solid level that deeply satisfies the ROI needs of companies.
Happy customers. What every great company wants and continually works for. Anyone with experience on the "front lines" of a company understands the importance of this. Enterprise 2.0 platforms that help companies find ways to increase customer satisfaction hit on an important need for companies.
Having customers suggest their ideas is a valuable approach to improving products and ideas. With an eye toward higher satisfaction and lower churn.
There's also a new factor emerging: social media. Customers who are unhappy can create publicity problems for companies, an issue Jeremiah Owyang takes head on with his post, Companies Should Factor ‘Social Influence’ Into Total Customer Value.
The other value of engaging customers is that while their ideas may be incremental, there may be patterns companies can pick up in what the customers are proposing. In other words, look beyond the tactical feature or service idea, and see what "job" the customer has for your offering.
This benefit scales well, and is of high value to companies. It does have a softer ROI story, however.
Enterprise 2.0 has more highly engaged and connected employees at its core. The ability to make a more substantive impact. The ability to find that right person to help with an idea or project. The aha moments of discovering information you need. Making connections with people who see the possibilities you do. The ability to carve out a basis for recognition more broadly than has been available previously.
All of these relate to the issue of more satisfied employees. Now a social software application cannot on its own get you there. But it can play an important role in making that goal a reality. In Ideas Are Core to Enterprise 2.0, four elements of ideas are identified relating to higher employee engagement:
- Ideas are me
- Ideas Are the Basis for Finding Like-Minded Colleagues
- Ideas Are Social Objects
- Ideas Become Projects
Now the benefit of employee satisfaction is moving higher up the pyramid. Which means its measurability is limited. But it also means its impact is higher. On the Knowledge@Wharton site, the research of Alex Edmans on valuing intangibles is presented (requires free registration). One finding:
Edmans examines the stock returns of companies with high employee satisfaction and compares them to various benchmarks -- the broader market, peer firms in the same industry, and companies with similar characteristics. His research indicates that firms cited as good places to work earn returns that are more than double those of the overall market. Companies on Fortune magazine's annual list of the "100 Best Companies to Work for in America" between 1998 and 2005 returned 14% per year, compared to 6% a year for the overall market, according to Edmans. The results also hold up using an earlier version of the survey that dates back to 1984.
It may not work well on a spreadsheet, but the impact is felt in organizations. And employee satisfaction is a higher level, emotional benefit for companies in the Maslow's Hierarchy for Enterprise 2.0 ROI.
An important objective of companies to getting employees to work together. It's not enough to have the expertise and experience resident in employees. People need to work together to achieve the various objectives of a company.
Cross-organization collaboration does three things:
- Improves outcomes as a diversity of knowledge and perspectives are brought to bear
- Strengthen bonds for the next initiative an employee works on
- Reduces cases of duplicative efforts and unnecessarily starting from scratch
As has been discussed here previously, people with access to a wider range of viewpoints consistently produce higher quality ideas. That only happens when the full intellectual power of employees can be tapped through collaborative networks.
Andrew McAfee's bulls eye shows the different strength of connections each worker has inside organizations:
There is a tremendous opportunity for organizations to help their employees increase the closer ties and extract much more value from those who are in the outer rings away from one's strong ties. Because for most workers, those outer rings are practically non-existent.
We're getting pretty high up on Maslow's ROI Hierarchy. The previous level of employee satisfaction was more emotional. This level weaves in intellectual benefits as well.
Innovations that arise from a social software initiative can be measured; indeed they are the most tangible ROI of Enterprise 2.0. As Intel's Laurie Buczek wrote about her company's Enterprise 2.0 efforts:
Where we did quickly find quantifiable business value during an ideation proof of concept. Ideas that are discovered and turned into action have produced dollarized return of business value. Where we are finding it tougher to quantify is determining improvements in team collaboration, communication, individual productivity and the softer side of enterprise 2.0.
What's harder to measure is this: how deep is a company's innovation culture? This is a culture where the nine principles of innovation management flourish inside an organization:
- Innovation benefits from a range of perspectives
- Four of the most damaging words an employee can say: "Aww, forget about it".
- Allow some freedom to try things that don't work
- Create a culture of constant choices
- Looking at innovation as a discipline
- Focus employees' innovation priorities
- Recognize innovation as a funnel with valuable leaks
- Establish a common platform for innovation
- Innovation must be more than purely emergent, disorganized and viral
The value of creating a sustainable innovation culture - as opposed to a series of one-off innovations - is distinctly covered by by the top consulting firm Boston Consulting Group. Companies that are the innovation leaders in their industries generate 430 basis points more in shareholder returns than do average companies (link to pdf report).
We're talking culture here, and in purely in that sense, it's a soft ROI discussion. But the end-results are quite measurable and powerful for this part of Maslow's ROI Hierarchy. Combined with executive commitment, strong incentives and a can-do attitude, social software like Spigit becomes a critical tool for helping companies achieve an innovation culture.
This is the equivalent of self-actualization, the top of Maslow's needs hierarchy. Companies that have achieved the other benefits - hard to soft - will find they have a much higher level of organizational agility. Organizational agility includes:
- Seeing changes in the market faster
- Shifting resources in response to new opportunities
- Mixing incremental and disruptive innovation
- Moving on from initiatives, programs,markets, products that no longer work
- Employees can recognize opportunities and threats themselves, and act accordingly
Gary Hamel has been doing a masterful job the past few years of covering the need for organizations to be more agile. He frames the issue in terms of looking at the pace of change in the world compared to traditional management models:
On the left, a conceptual chart outlines something many of us instinctively feel. The pace of change in our world is increasing. As Gary Hamel noted, year-to-year volatility in company earnings have been increasing exponentially the last 40 years. Those changes are manifestations of what we all experience. At the Spigit Customer Summit, he put it well when he said:
What a company did in the past is now less predictive of its future.
Business Week in 2004 ran an article that nicely demonstrated the acceleration of change. It included these points:
- The number of Fortune 300 CEOs with six years’ tenure in that role has decreased from 57 percent in 1980 to 38 percent in 2001.
- In 1991, the number of new household, health, beauty, food, and beverage products totaled 15,400. In 2001, that number had more than doubled to a record 32,025.
- From 1972 to 1987, the U.S. government deleted 50 industries from its standard industrial classification. From 1987 to 1997, it deleted 500. At the same time, the government added or redefined 200 industries from 1972 to 1987, and almost 1,000 from 1987 to 1997.
- In 1978, about 10,000 firms were failing annually, and this number had been stable since 1950. By 1986, 60,000 firms were failing annually, and by 1998 that number had risen to roughly 73,000.
- From 1950 to 2000, variability in S&P 500 stock prices increased more than tenfold. Through the decades of the 1950s, 1960s, and 1970s, days on which the market fluctuated by three percent or more were rare — it happened less than twice a year. For the past two years it happened almost twice a month.
The right side of the model discusses several management thinkers from decades ago. The point Hamel is making is that companies need to be organized to better addres increasing volatility and complexity.
Organizational agility - software alone doesn't make it happen. But lacking a platform to tap the ideas, judgment and real-time radar of employees means companies will not achieve it either.
This is the company, self-actualized.
(Originally posted on Cloud Ave and cross-posted @ the Spigit Blog)