Blog 6: My Return On Investment (ROI)

 Enterprise 2.0 tools, including wiki pages, blogs, video feeds, and a variety of other social networking technologies have been employed by many businesses recently. These tools are used for better employee management and increased employee collaboration, resulting in increased efficiency and competitive ability (Huddle, n.d.).

In this blog I shall consider a fictitious company that employs almost 50,000 people across the nation. It has introduced Enterprise 2.0 using IBM collaboration tools and auditors want a perspective on ROI of the project using a framework developed by Forrester Research (Forbush, 2010). The analysis will be performed considering both tangible and intangible benefits for the company.

The tangible benefits can be grouped into four principal categories. The first is revenue generation from products that were the result of, or whose designs were benefited from, generation of ideas through Enterprise 2.0 tools. The Forrester Research report stated that collaboration tools would typically increase new ideas by 0.5%. If the company generates revenues of $20 million from its new products, then this translates to revenues of $100,000. 

The second category is lower time-to-market. The report estimated that 1% of all products are benefited from this, and let us assume that the corresponding revenue benefit to the company is $100,000.

The third category is revenues from incremental sales. This occurs because the IBM collaboration tools allow sales executives to post their best practices on their portion of the intranet and link these to demonstration videos, thus leading to improved sales performance from the entire team. We shall assume that the company experienced increased sales of $900,000 and it operates at a margin of 25%. Therefore, the sales revenue increased by $225,000.

The fourth category is saving due to staff productivity. The collaboration tools are designed to disseminate knowledge faster and this helps employees at all levels access relevant information more quickly to improve their efficiency (Razmerita, Kirchner, & Sudzina, 2009). The Forrester report stated that an employee can save 10 minutes on average every time she accesses the intranet instead of going to the library. Considering factors such as employee strength and hourly remuneration for each employee, let us assume that this translates into an overall saving of $1,000,000.

Increased revenues from tangible benefits of Enterprise 2.0 for the company are a sum of the four categories discussed. This is $1,425,000.

There are a number of intangible benefits also, such as greater employee engagement, lower employee turnover, diffusion of good ideas across departments and hierarchies, and quicker and more informed to customer issues (Wong, Bosua, Kurnia, & Chang, 2013). Let us assume, conservatively, that these benefits transform into a revenue generation of $500,000. Then the total increased revenue from tangible and intangible benefits is $1,925,000.

Let us assume that the company initially invested $1,000,000 for purchase and installation of the system, and that it has a recurring cost of $200,000.

The formula for ROI for each year is total benefit minus total expenses expressed as a ratio of total expenses till that year, multiplying by 100 (Newman, Thomas & Ebrary, 2009).

 

Using this formula, first year ROI is ([1925000 – (1000000 + 200000)]/(1000000 + 200000))*100 = 60%.

The second year ROI is ([2*1925000 – (1000000 + 2·200000)]/(1000000 + 2·200000))*100 = 175%.

The third year ROI is ([3*1925000 – (1000000 + 3·200000)]/(1000000 + 3·200000))*100 = 261%.

The strength of my ROI analysis is that I have considered a number of tangible benefits according to an accepted framework and I have also considered intangible benefits. The weakness is that the intangible benefits are difficult to enumerate. In addition employee performance is dependent on a number of factors, social technology being only one of these. Therefore, the figures mentioned are only rough estimates.

References

Forbush, N. (2010). Total Economic Impact^TM of IBM Social Collaboration Tools. Forrester Consulting. Retrieved from ftp://ftp.software.ibm.com/pub/lotusweb/Forrester_TEI_IBM_Social_Collaboration_v20Sep10.pdf

Huddle. (n.d.) Communication & collaboration in the Enterprise 2.0 world. Retrieved from http://www.huddle.com/files/white-papers/Huddle_white_paper_-_Collaboration_-_Communication_and_collaboration.pdf

Newman, A., & Thomas, J. (2008). Enterprise 2.0 implementation. New York: McGraw-Hill Professional Publishing. 

Razmerita, L., Kirchner, K., & Sudzina, F. (2009). Personal knowledge management: The role of Web 2.0 tools for managing knowledge at individual and organisational levels. Online Information Review, 33(6), 1021-1039. doi:10.1108/14684520911010981 

Wong, D., Bosua, R., Kurnia, S. & Chang, S. (2013). Leveraging Enterprise 2.0 for Knowledge Sharing. 24th Australasian Conference on Information Systems. Retrieved from http://mo.bf.rmit.edu.au/acis2013/215.pdf