Tying Social Software to Business Metrics that Matter
June 10 2011 by John Hagel and John Seely Brown
As performance pressures mount, you cannot relax in driving operating performance to new levels. You’ve become a master at running lean and you’re pursuing promising ways to innovate. One of your biggest opportunities for doing both better is to tap the full capabilities of social software.
In this era of near-constant business disruption where non-routine issues are becoming the norm, your capacity to solve them swiftly, using the unique capabilities of social software makes its measured use important for profitability and growth. Start by identifying and solving some of your stickiest, most costly operating issues with targeted deployments of social software.
Early success can spur the deployment across the company. As CEO, you are the natural sponsor of an initiative that can move the needle for your firm. CEOs can lead a company-wide initiative and spotlight the results in ways that pull employees and business partners towards participating. Side benefits can include accelerated innovation and talent development. In so doing, you may avoid the mistakes being made by many of your competitors who are taking a much more limited view of the potential of social software.
Appropriately deployed, social software can yield significant and quantifiable operating performance improvement. It has unique capabilities to address current operating challenges and improve operating metrics. Two early adopters demonstrate that business performance improvements are possible. OSIsoft realized a 22 percent improvement in average time to issue resolution through the customer support team’s use of Socialtext wikis. Alcoa Fastening Systems reduced compliance activities by 61 percent using an internal collaborative platform provided by Traction Software. Both companies believe these improvements would have been impossible without their respective social software tools.
Most senior executives are either deeply skeptical of social software because they don’t understand its potential impact on business performance or they have adopted a “check the box” approach — they feel they have to deploy it because other companies are adopting it, but they are not sure what it does or why it matters.
One reason for C-suite skepticism may be that, “of the 12 benefits of collaboration technology that the firm, Forrester Research tracks, almost two-thirds of the businesses that are deploying such technologies are seeing between zero and four benefits.” In fact, most senior executives are yet to be convinced that there are concrete benefits to be gained from using social media. 64% of companies implementing social software faced resistance from management and 72% faced resistance from users. Here’s why.
Most deployments of social software follow one of three patterns:
Many companies are experiencing bottom-up adoption by individual teams, especially by groups that come together for an extended period of time — anywhere from six months to a year or more. Given this extended time horizon, team members will often take the initiative to adopt some social software tools to support their collaboration efforts. Often the younger employees on the team are most instrumental in driving the adoption of social software by the entire team.
In these situations, the teams often use social software tools from various vendors and knit them together for their own needs without the knowledge of corporate IT or anyone beyond the team. When the team disbands, the software tools are often abandoned. As a result, the rest of the enterprise rarely benefits from a broader understanding of how these tools were used and from sharing the lessons learned as these tools were applied to specific business issues. The team members can certainly take their learning with them to new teams, but this is a very fragmented process. Since the initiative for adoption is driven bottom-up, it is also not at all clear whether these tools were deployed against the highest impact operating problems facing the company. Bottom-up adoption is certainly useful for harnessing this technology in limited domains, but the challenge is how to amplify impact in the early stages and to accelerate adoption by the broader enterprise over time.
Ad hoc top-down adoption
Individual senior executives may learn about the potential benefits of social software and decide to take the initiative to adopt it in their part of the organization. While individual executives have the ability to mandate adoption and use within their own organization, there is no assurance that they have systematically assessed where the highest impact applications might be within their organization, much less within the rest of the firm. Often the deployments are driven by a specific use case that the executive read or heard about at some conference. Once again, there may be tangible benefits from these ad hoc deployments, but they are likely to be random and relatively low impact relative to the broader pressures facing the enterprise. Few companies have someone who steps back to survey or even inventory these independent deployments across the firm to determine patterns or levels of impact and lessons learned.
Top-down, enterprise-wide deployments
These often take the form of “check the box” deployments where the CEO or someone in the C-suite decides the company must have a social network or live streaming platform but does not establish a clear purpose nor criteria to assess success. Sometimes these deployments are driven by a “build it and they will come” philosophy — we’re not quite sure how these platforms will be used, but hope that they attract participation, and drive valuable, viral adoption within the enterprise.”
As a result, these initiatives are rarely driven by specific metrics of impact. Instead, the organization defaults to metrics focused on availability and adoption — how many employees have used the platform? Often, there is not even an attempt to track sustained or increased usage over time. A one-time visit counts as adoption. Sometimes, some small group within the enterprise may discover a use for the platform, but this falls prey to the limitations described earlier — ad hoc and random impact.
Perhaps the greatest risk of this approach is the potential for backlash. These enterprise-wide deployments often require significant up-front investment. When the platform is finally unveiled, a few brave souls may venture onto the platform and encounter the “empty bar problem” — they see only a few random people around and quickly conclude that this is not a good place to be. They receive little value from their visit and decide that there are better ways to spend their time. Having come to this conclusion, these people rarely come back to see if anything has changed. That first-time visit shapes their perception of the platform. As executives realize how much they have spent to deploy the platform and employees come to the conclusion that it has little value, a profound backlash begins to take shape, discouraging anyone else from championing this kind of technology.
All three of the prevailing approaches to social software deployment suffer a common drawback: the performance impact is likely to be severely limited. In many cases, performance impact is not even explicitly specified or measured. Where performance impact is achieved, it tends to be fragmented and random, rather than focused on the highest impact areas of the business. In the worst case, the potential for backlash mounts as investments grow and performance benefits fail to materialize.
So, what is the performance-improving option? What’s missing is a more systematic approach, explicitly tying social software deployment to metrics that matter for your firm and triggering cascades of adoption and sustained usage based on clear and measurable operating impact. Social software can have a significant impact on the performance of the firm but its deployment needs to be guided by a methodology that targets the greatest opportunities for performance impact.
But here’s the problem. The metrics that matter differ at different levels of the organization. Given this, it is vital to focus on a performance funnel that specifically targets metrics that matter at each level of the organization.
Start at the top of the organization. The metrics that matter the most to you and your C-level colleagues are generally financial metrics. The performance of the firm, and your own performance, is generally measured on a financial dimension — revenue growth, gross margin, return on income and returns to shareholders. So start here and ask yourself, what are the most pressing financial challenges and opportunities that we face today? Is your profitability solid but growth has slowed down? Or are you growing rapidly yet having trouble generating enough cash to support the needs of the business? Which business units or segments in your business portfolio have the greatest challenges or opportunities? You deal with these issues on a daily basis, but it is useful to explicitly and systematically ask the question to provide a context that will focus your social software initiatives.
Once you have identified the most significant financial challenge or opportunity, it is time to shift your attention to the next level of the performance funnel. For the middle managers in your organization, the metrics that matter the most are usually operating metrics — for example, customer churn rates, product introduction lead-times and utilization rates of manufacturing plants.
So the challenge is to take the financial target you identified earlier and determine which of the core operating processes of the business have the greatest impact in driving the financial performance you are seeking. To simplify, most companies have three core operating processes — infrastructure management processes (supply chains or back office processing operations), production innovation and commercialization and customer relationship management processes. Which of these three processes will have the greatest impact on the financial metric you are targeting?
Once you have identified the operating process, drill down into the specific operating metrics in that process that seem to be most at issue in terms of driving the next level of financial performance. For example, in customer relationship management, the three big operating levers are customer acquisition cost, average lifetime of a customer and operating approaches to drive annual profitability per customer (for example, the ability to cross-sell or to capture a greater share of the customer’s wallet).
Generally, one of these operating metrics tends to be a greater issue than others in driving the overall performance of the core operating process. Once you have discovered this one, you now have an operating metric for your social software deployment initiatives. This is a metric that will definitely get the attention of affected middle management. If the initiative has the potential to materially improve this operating metric, middle management will probably mobilize to support the effort.
Now the challenge is to move to the third level of the funnel — the performance metrics that drive the relevant front line workers. Let’s continue the example above. Let’s say the relevant operating metric is customer churn rate — the company is losing customers at an accelerating rate. Upon further investigation, it may turn out that the company recently introduced some complex new products and customers are unhappy because they cannot get the support they need to effectively use the new products.
You can now focus on call center operations because the call center operators are the primary point of contact for the customers. At this level, we need to look at the specific performance metrics that motivate call center operators and that have the greatest potential to drive the operating metric we have targeted. Most likely, call center operators are measured along two fronts — time to problem resolution and customer satisfaction ratings.
Now you’re getting somewhere — you have zeroed in on a specific area of the company’s operations that appears to have the greatest impact on operating performance and ultimately financial performance of the firm. At this stage, the challenge is to identify the kinds of situations that appear to be limiting the performance of the front line workers. In this case, to carry the example forward, it might be that the documentation on the product did not anticipate a growing set of use cases for a significant segment of customers.
One possible application of social software in this context might be to create a shared platform where customer call center representatives can post unusual use cases and see who in the relevant product engineering group might have some perspective on how to advise the customer. Of course, many companies today simply provide multiple tiers of customer support and escalate such troubling questions to someone with deeper expertise on the problem. This sometimes works, but especially in new product introductions, can often lead to further frustration since the relevant expertise is more distributed and not yet fully documented. Social software platforms have the unique potential to accelerate the tedious and inefficient process of identifying the people with the relevant expertise and getting them to connect with each other. Of course, not every problem at the front line will be appropriate for social software to address. This needs to be carefully evaluated and the relevant social software tailored to the specific front line problem involved. If social software is not relevant, then the process defaults to explore other front line performance obstacles related to the operating metric in question that may be more amenable to social software solutions.
This approach to social software deployment has a number of distinct advantages. It helps to ensure that the deployment is targeted against the metrics that matter the most for your firm. As a result, it tends to reduce the initial investment required, especially relative to blanket deployments across the firm, because only specific parts of the organization are involved in the front line operations in question. It also has the potential to accelerate performance impact because lead-times for deployment and results can often be shortened.
Even more significantly, this approach focuses attention on very specific operating and performance metrics that can be monitored and assessed on a continuing basis to drive learning. Is the software having the anticipated performance impact? If so, what could we do to accelerate and amplify this impact even further? If not, how can we refine deployment to get greater impact?
This approach offers a significant advantage relative to more conventional practices that seek to quantify return on investment of social software deployment. Such efforts are fraught with difficulty. Even with the best of intentions, the connection between financial metrics and operating metrics is difficult to quantify. And we all know that whoever controls the assumptions on a spreadsheet can deliver a very attractive ROI. Often assumption inflation is encouraged by the fact that companies rarely go back after the fact and assess whether the ROI was achieved. Once the business case is approved, people move on and don’t look back.
By focusing on operating metrics, something remarkably different happens. These operating metrics can and should be monitored so that progress (or lack of it) can be quantified. Not only does this provide assurance that the desired operating metrics are improving, but it also builds a compelling case for broader deployment of social software in other areas of the enterprise. When tangible and quantifiable operating performance results are achieved, word of mouth spreads rapidly and others are motivated to achieve comparable results. At the same time, the skeptics and opponents for deployment of this new technology are undermined in the face of clear evidence that the metrics that matter the most are being materially improved.
The link between financial metrics, operating metrics and front-line performance metrics is difficult to quantify precisely. Specific examples of where and how social software made a difference on the front line can, however, build a strong case that improvement in front-line performance metrics contributes to related improvement in operating metrics and that this in turn translates to related improvement in financial metrics. The key is to have the links between these three levels of metrics clearly and explicitly identified so that everyone in the organization can visualize how impact at the front line can translate into driving metrics at higher levels of the organization.
A major municipal transit authority recently used this approach to metrics that matter to discover unexpected opportunities to use social software to make a meaningful difference in their operations. They began by looking across their agency and decided to focus on their metropolitan bus unit because it represented a significant portion of their overall budget. Within the metropolitan bus unit, they zeroed in on their maintenance operations (part of their broader infrastructure management operations) because it was the largest single expense item and had been growing in recent years.
At this point they identified two key operating metrics driving the financial performance of this part of their operations: mean time between breakdowns and cycle times required to restore a bus to service once it had broken down. As they drilled into these metrics, they discovered that cycle times were driven significantly by parts availability. Often the needed part was not easily located and they ended up having to wait for the part, holding up the process of restoring the bus to service. It turned out that one of the key obstacles to locating the right part involved difficulties in communicating across three parts of the organization: the maintenance organization, the parts inventory managers and the parts procurement group.
This led them to focus their initial deployment of social software in one of the last areas that they had initially expected would be a promising arena for deployment. But they realized that social software could help them more rapidly reach out through a distributed organization and identify parts availability, offering the prospect of driving a significant operating metric for the agency which in turn would help to improve their overall financial performance and quality of service.
Stepping back from all of this, it becomes clear why CEOs are natural and necessary leaders for these software deployment initiatives. Effectively targeting metrics that matter requires a broad overview of the economics of the business and an ability to drill down quickly into whatever part of the operating processes that might be most helpful in driving key financial metrics. Once these areas have been identified and the tie to key operating metrics made explicit, the CEO can delegate down to appropriate middle managers to shape the specific deployment initiatives at the front line of the organization. The role of the CEO at that point is to provide overall leadership to ensure that front line performance metrics and relevant operating metrics are regularly monitored and that the initiative is continually refined to reflect the feedback received through these metrics. As operating metrics begin to improve, the CEO becomes the catalyst to showcase the results achieved and to drive further waves of deployment, again shaped by a systematic assessment of the areas where social software is most likely to move the needle for the overall enterprise. Bottom up initiatives can continue to flourish but they will likely be supplemented by a much more systematic effort to determine areas of highest potential impact that can drive cascades of broader adoption.