Small World Labs

“If you can’t measure it, you can’t manage it"    
- Peter Drucker

OVERVIEW
With an understanding of the 4 goals of openness under the belt, we now turn to measuring their value.  Charlene Li starts off the chapter by acknowledging that senior execs invariably want to find a measurable ROI for any openness initiative, but calls into question the ability to do so with questions like “What is the value of a handshake?” and notes that more than half of a company’s typical operating expense is on activities with an “indirect impact on the bottom line.”  That said, Li then provides an ROI type framework for each of the 4 openness goals.
 
In general, the benefits of openness fall into four categories

• Removing friction (by removing barriers and access to information and people)
• Scaling efforts (information becomes more easily and widely shared)
• Enabling fast response (social technologies are real-time)
• Gaining commitment (more info leads to more buy-in)

 
Rather write prose on benefits generally ascribed to each type of openness goal, I’ve summarized and reformatted a worksheet type grid, drawing from figures Charlene has included in the book.  These are provided below:
 
OPEN LEARNING

Benefits	Description
Reduce cost of focus groups	Focus groups replaced by online communities
Faster insight generation	Impacts  speed to market of new products/services that produce additional revenue
Improve alignment for strategic goals	Reduce training classes & meeting times; Increase buy-in reduces turnover, lower recruitment costs, morale increases, productivity increases; Strategic partners develop more solutions
Costs
Platforms	Social media monitoring; Social networking software platform
Employee resources	Employee & benefits costs
ROI Worksheet Example	94%

 
 
OPEN DIALOGUE

Benefits	Description
Increase revenues	Sales from new customers; Increase sales from existing customers
Increase awareness	Advertising-equivalent spend employed for reach of campaigns
Improve reputation of organization	Negative sentiment reduced from X to Y (ties to projected # of customers “not lost”)
Avoid potential PR blowup	The costs associated if a blow up occurred and you were not dialoguing
Hire better people	Your company's reputation is better, making recruiting easier, reducing recruitment costs
Scale engagement	Reach more people with same budget (tied to revenue increase)
Improve SEO	Generate more inbound links (increasing traffic & sales)
Costs
Employee resources	Employee & benefits costs
ROI Worksheet Example	1667%

 
 
OPEN SUPPORT

Benefits	Description
Call deflection	Fewer calls via self support
Identify support problems in advance	Learning about issues and communicating faster
Increased employee productivity	Fewer emails, find information faster
Improved employee morale and commitment	Better buy in for goals, moral increase, turnover reduced, recruitment fees reduced
Costs
Platforms	Discussion forums; Collaboration software
Employee resources	Employee & benefits costs
ROI Worksheet Example	307%

 
 
OPEN INNOVATION

Benefits	Description
Diversity of designs and ideas	Better products sell better; Faster time to market increases demand;
More accurate projections and predictions	faster closing down of "dog" product initiatives
Increased customer and employee commitment and loyalty	Better buy in for goals, moral increase, turnover reduced, recruitment fees reduced
Costs
Platform	Innovation hub
Employee resources	Employee & benefits costs
ROI Worksheet Example	650%

 
 
Li then combines each of the preceding goals’ net-benefit into a customer LTV calculation.
 
NEW CUSTOMER LIFETIME VALUE CALCULATION

Component	Description
NPV of future purchases	Net present value
Cost of acquisition	only cost center included
Value of new customer referrals	% that refer Size of their networks % of referred people who purchase Value of purchases
Value of insights	I believe this corresponds to the open dialogue benefits
Value of support	% that provide support Frequency and value of the support
Value of ideas	Values turned into revenue producing products and services

 
Note: the book mentions that detailed calculations will be available at open-leadership.com but as mentioned in a previous post, this does not seem to be up yet as of May 17 but is likely in waiting for the launch on May 24
 
                                 
While it’s an indirect contributor to ROI (you need to measure its effect on revenue and cost to get to ROI) the Net Promoter Score is discussed as a key metric of customer loyalty and satisfaction.  If you are unfamiliar with the NPS, it collected and calculated as follows and is a controversial metric:
 
Question: How likely are you to recommend [company] to a friend or colleague on a 0 to 10 scale?
 
Scores are organized as follows:
9-10: Promoters
7-8: Passives
0-6: Detractors
                       
NPS = % of Promoters - % of Detractors
 
Before ending the chapter, the reader is provided with an action plan for calculating the benefits of openness.  This includes five steps:

• Step 1: Define Your Objectives
• Step 2: Identify the most important key performance indicators (KPIs)
• Step 3: Identify open activities that support your KPIs
• Step 4: Establish a baseline for your objectives and KPIs
• Step 5: Optimize and adjust your KPIs and priorities

 
                                     
ANALYSIS
In this chapter, Li seems to waffle a bit between stating that companies shouldn’t force the need for an ROI-based approach in evaluating a particular openness initiative, yet providing a framework for its calculation.  It’s like karate.  A sensei teaches you karate so you won’t need to use it.  My sense is that Li believes (especially after she goes through the process of creating a new, more comprehensive customer LTV model) that ROI is important in managing business decisions, but accepts that there are many indirect and easily imperceptible drivers of ROI that companies may not measure and therefore not take into account when assessing the ROI of “going open.”  Thus, just because you don’t have the rigor to measure something, doesn’t mean that it doesn’t exist.  I have to sympathize with this.  Back in the 90’s I worked at a management consulting company in the Bay Area, and one of our oft-repeated projects was to create ROI models for the sales groups of companies to help them use ROI to better sell their products and services.  These companies would pay us tens of thousands of dollars to go figure this stuff out for them. 
 
A client of ours, Scottrade, also commissioned a 3^rd party to analyze the ROI impact of their online customer community.  It just seems that the skill set of researching ROI contribution factors and their resulting metrics and turning around an ROI model isn’t a very common skill in today’s organizations.  Does it mean the ROI isn’t there?  No, it just means that it hasn’t been measured yet.  Do I believe it can be measured at virtually any company?  You bet ya.  Earlier this year, we worked with a (at that time) prospect to help them create an ROI model to help sell the idea of creating a customer community to their CEO.  It took a lot of work, but after that was done, the rest of the sales cycle was just clarifying details.  Executives don’t want to spend money.  They want to invest in things.  Giving them a business model or ROI model for a project generally makes obtaining approvals much easier.
                                   
I liked Li’s inclusion of the Net Promoter Score.  I hadn’t heard of this until I went to a conference earlier this year.  I’m a big fan of measuring things.  What’s the old adage (it’s under the title if you can’t remember it)?  I also appreciated Charlene’s action plan as it gives the reader a quasi task list of steps to take to turn what they’ve read in the chapter into action.