Calculating the ROI of collaboration tools

Calculating the ROI of collaboration tools Bart Van Den Kieboom June 17 2009

What will we talk about in the coming 45 minutes? 1. Setting the scene… 2. Why calculating ROI? 3. Challenges in calculating ROI for Enterprise 2.0 projects. 4. Components of ROI-calculation 5. The typical ROI-curve 6. A practical example 7. Bonus : what is the value of one contact in your network (948 $)

1 Setting the scene

1. Setting the scene Enabling interactivity Increased collaboration Change Management Social Computing Social Media

1. Setting the scene And many, many more...

2 Why Calculating ROI?

2. Why Calculating ROI? Pré-project • It’s a necessary part of each business case • To get approval and support from management • It will help you to identify the real benefits and business drivers • A quantitative approach tends to be more acceptable than evangelistation • It will provide a set of KPI’s for future evaluation • It helps to see the big picture

2. Why Calculating ROI? Post-project • Just because for once you will have the real numbers • It will help to detect problems • To adjust the business case • To be prepared for the first evaluation

3 The Challenges?

3. The challenges • The benefits are often difficult to measure • Enterprise 2.0 tools are rarely used as originaly intended • The uptake and use of collaboration software is very difficult to forecast • Direct costs are often low, so more time is needed to “The benefit of Web calculate the the real time spend. 2.0 tools within the • The cost of doing a ROI-study should be aligned with the enterprise is very squishy, very soft. It cost of the project. is all about • The evolution of the collaboration software during the productivity, comm analysed period will impact the ROI calculations. unication and • You will need data from the HR-department to get the worker right number on personel cost efficiency, which are notoriously difficult to measure.” Oliver Young, Forrester Research

4 Components of ROI calculation?

4. Components of ROI calculation Costs Technology related • Software licence fees • Deployment • Maintenance • Integration costs • Additional hardware required • Bandwith Adoption • Training • Time to learn

4. Components of ROI calculation Tangible assets Revenue • New revenue from existing clients • Revenue from new clients Increased productivity • Time saved searching for info • Increased effectiveness of access to better information Company internal communication • Less email • Fewer phone calls • Fewer meetings • Less travel Technology related • Replacement of existing software licences • Reallocation of IT staff

4. Components of ROI calculation Tangible assets (cont„d) Product development • Reduced time to market • Cost of market research Supply-side (partners) • Reduced communication costs • More efficient supply

4. Components of ROI calculation Intangible assets Brand capital • Increased sales • Ability to hire better staff “Improvements in • Increased customer loyalty intangible assets Social capital affect financial outcomes through • Greater collaboration chains of cause- • Cost of market research and-effect • Lower staff turnover relationships” Innovation • Create new markets • Take market share Robert Kaplan Recruitment/retention and David Norton, Harvard • Lower recruiting and training costs Bus. School

4. Components of ROI calculation “a key aspect of the ROI issue is that the strategic capabilities represented by Enterprise 2.0 are primarily emergent in nature, instead of carefully aimed at and unleashed at specific problems” Dion Hinchcliffe, ZDNet

5 The typical ROI-curve

5. The typical ROI curve “The main reason We started the enterprise 2.0 project was because there was so much buzz about it in the public space. We just couldn‟t stay behind” John Parkinson, CTO TransUnion

6 Practical Example

6. Practical Example : the case Company Industrial Telco X (Europe section) 2000 employees Specialised in network security 10 offices accross Europe More than 5000 customers over Europe (many of them Fortune 500 companies) The business problems Email fatigue Searchability of information is becomming a bigger problem every month. European branches have difficulties to communicate/cooperate with each other. New employees can’t share their skill set with people outside their office and this could lead to less quality and innovation.

6. Practical Example : the case The solution Decision : implementation of a typical enterprise 2.0 software focussed on collaboration and social search. Functionalities include • working in online groups (internal and external) • Discussion capabilities through structured threads • Document/link/contact sharing • Social metrics are used to improve results • Clear indexing of documents • Blogging capabilities for each employee • Setup of an internal “Linked-in” like social network

6. Practical Example : the case The success factors (hard benefits/examples) Reduction of email More and better communication internally: so less meetings shorter meetings Improved production time Shorter sales cycle Less calls to tech support Reduce rotation time for personel Reduced time to search for information

6. Practical Example : the case The success factors (soft benefits) Increased client satisfaction Less frustration for employees to communicate amongst each other Better evaluation of employees Better cross-departemental communication Improved brand image Better recruitment Shorter adaption time for new employees

6. Practical Example : the case The costs (first year) Software licences 120.000 € Hardware + bandwith 55.000 € Consultancy to help for succesfull implementation 50.000 € IT staff needed for implementation (2 FTE during 28.000 € 2 months) (2 * 7000 * 2) Internal trainers and change management (2 FTE 42.000 € during 3 months) (2* 7000 * 3) Assimilation time for the employees (2000 empl. 497.737 € 55.000 € of value per employee) * (1 day/221) Maintenance and support (0,4 FTE per year) 33.600 € Total : 826.337 €

6. Practical Example : the case The costs (recurring) Software Maintenance (20%) 24.000 € Hardware maintenance + bandwith 14.000 € Maintenance and support (0,4 FTE per year) 33.600 € New developments (and change requests) 100.000 € Total : 171.600 €

6. Practical Example : the case The benefits (first year) Email reduction The cost The average manager spends 30 minutes a day answering mails to his team-members The average sallary is 70.000 € per year This means a cost for the company of : 300 managers * 70.000 € / 221 working days / 16 half hours per day = 5939 € per day. The reduction Thanks to the new software the managers need 10 minutes less to answer mails. So the new cost is : (5939 / 3) * 2 = 3959 € per day or a benefit of 1980 € per day Total benefit per year : 437,500 € per year

6. Practical Example : the case The benefits (first year) Improved search time The cost The average employee spends 20 minutes a day looking for info The average sallary is 55.000 € per year This means a cost for the company of : 2000 employees * 55.000 € / 221 working days / (480/20) per day = 20.739,00 € per day. The reduction Thanks to the new software the employees need 8 minutes less to find information. So the new cost is : (2000 employees * 55.000 € / 221 working days / (480/12) per day : 12.443,00 € Cost reduction : 8296 € per day! Total benefit per year : 1.833.333,00 € per year

6. Practical Example : the case The benefits (second year) Improved Employee collaboration It’s not so easy to measure this. Assume that with the improved collaboration you get new R&D- teams. 10 % of the R&D projects generate a real value of approx. 500.000 € Thanks to collaboration software 10% of the new teams will generate new value. In this example we assume that 20 new projects are created that wouldn’t have existed otherwise. 2 of them will create added value. here we assume that an added value of 2 times 500.000 € is created (but only from the second year on). We will not include it into the ROI however because of the too abstract assumptions.

6. Practical Example : the case The benefits Better communications with customers By allowing the clients access to the platform and by using it’s benefits with the client a better relationship will be build. It also creates more confidence The global result will be a bigger client retention with more recurring deals. This is a typical KPI that can be measured post-implementation but : • it is difficult to attribute the correct part of increased sales to the software. • And what if there is decreased sales?

6. Practical Example : the case Final assumption • Benefits for the first year are limited due to the implementation time. • It would be incorrect to attribute all benefits directly to year 1. • We only attribute 35% of the calculated benefits to year one

6. Practical Example : the case The result Year 1 Year 2 Year 3 Total after 3 years Costs € 826.338 € 171.600 € 175.102 € 1.173.040 Benefits € 794.792 € 2.316.250 € 2.362.575 € 5.473.617 Total -€ 31.546 € 2.144.650 € 2.187.473 € 4.300.577 € 3,000,000 € 2,500,000 € 2,000,000 € 1,500,000 Costs € 1,000,000 Benefits Total € 500,000 €0 Year 1 Year 2 Year 3 -€ 500,000 -€ 1,000,000

7 The bonus : 948 $

7. The worth of a contact? The IBM-MIT study • A network of over 400.000 connected people • Financial data AND communication data of over 1000 consultants • Interviews with key-consultants • Project information of over 10000 projects • Based on IBM’s internal social networking site Beehive. • A lot of math...

7. The worth of a contact? The key findings 1. The structural diversity and the centrality of your network have a positive impact on your work performance. 2. Having a few strong ties with the management is better than having many weak ties with the management 3. Having strong ties with management is good (as said above) but having to many managers working on your project is bad for productivity. 4. Equipping your project team with people who have desirable network characteristics will have a positive impact on the projects performance.

7. The worth of a contact? And finaly 1. The average e-mail contact is worth $948 in revenue 2. Consultants with weak ties to management produce 98 $ “Our software was per month less than the average. able to detect 3. The money formula : “interesting matches” for Network Topology Network Content Controls people ... but 1. Size 1. Links to managers 1. Demographics nobody cared..” $= 2. Betweeness 3. Reach 4. Cohesion + 2. Strong links to managers 3. Communications to + 2. Function of the employee 3. Regions Research team at IBM while working 5. Tie Strength managers 4. Job type on new 5. Month matchmaking software.

Thank you

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Calculating the ROI of collaboration tools

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