Social is a Business Model
Doug Hadden, VP Products
Christoph Schmaltz of the Dachis Group (@christoph) has described what I’ve been trying to get at with some recent blog entries. His July 28 post From traditional business to social business is essential reading for anyone to understand the business transformation enabled by social media.
My sense is that many business people view social media as another channel. They expect to see traditional metrics to justify social media cost. My view is that social is really a different business model so the old metrics won’t work.
Christoph provides effective contrasts between traditional and social businesses. (And good graphics too.) These contrasts are:
- From transaction to interaction
- From B2B/B2C to P2P
- From gatekeeper to platform provider
- From hierarchy to network
Technology and Change
Many observers believe that technology does not fundamentally change society. I’m more in the McLuhan school. For one thing, the four characteristics of the social business where virtually impossible to support in the pre-Internet age and not on a global basis until quite recently.
- Multiple interactions between company and customers were at a high cost to both company and customers – the “your call is important to us” phenomena
- P2P support and influence networks were difficult to organize in the era of controlled collaborative tools where security, control and compliance restricted flexibility. Also, there was little ability to create self-organized networks of like-minded people outside who were not physically in the same geography.
- Supply and information chains required economies of scale because of the cost of information dissemination. Acting as a platform provider gained momentum through the open source movement and the development of social development tools.
- Command and control was the most effective means of managing large organizations in the industrial age. Specialization was key. Now, social networking tools enable the network of communications within organizations and supports freer flows.
Big Deal, so you think FreeBalance is a Social Business?
I believe that FreeBalance is one of the new breed of social business as a for profit social enterprise. Don’t get me wrong, I’m not saying that we’ve got this all figured out. Here’s how we are approach the four characteristics:
- Engaging customers and domain experts using social media. Yes, we tweet our press releases. More importantly, we interact. My analysis a few months ago is that we tweet more than the combination of the official tweets from the top 6 ERP vendors. (If you imagine the ratio of tweet per $ of revenue, you will see how FreeBalance is a bit of an outlier.) We see these activities as part of our non-virtual activities at public financial management conferences, academic presentations and transparency unconferences.
- Extending our learning to social media. We share what we have learned. (As we are doing now.) We listen more than we talk. We also see this as an extension of our non-virtual activities as we produce case studies and articles of how countries have effectively reformed public financial management. Where the use of FreeBalance software might only be incidental to the whole story.
- Becoming a platform is more challenging. We’ve leveraged Ning for a Customer Exchange which has had limited impact to date in getting the critical mass we’d hoped for. But, that’s the reality of social networking – it enables change as you learn good practices. We also see this as extending our non-virtual activities, particularly in the FreeBalance International Steering Committee (FISC) where our customers gather to share good practices, brainstorm about PFM trends and revise our product roadmap. We bring in experts in the PFM domain and futurists.
- We re-organized in a matrix-network approach that results in more FreeBalance staff exposed directly to customers. We’ve sent product developers to client sites to fix problems. We use collaboration and content management tools in-house and with customers. We’ve got global development integrating product management and product development using mostly open source tools.
How do you justify the ROI of Social Media?
We don’t. Why not? Because we’re a social business. Any tool that enables us to interact better with the PFM domain is worth considering. It is almost impossible to calculate the value of the insight I’ve received from tweets and blog entries that has led to an improved product vision. I’ve engaged people who have explained the why behind the what.
Tags: Christoph Schmaltz, Dachis Group, e20, marshall mcluhan, McLuhan, socbiz, social business, social enterprise, social media, social networking
July 30th, 2011 at 3:58 pm
Hi Doug –
Interesting article and good to point out Schmaltz’s post (it is a must read). I disagree, however, with your notion that we shouldn’t measure ROI. We’re likely to see the way we measure ROI change (from NPV, IRR, etc.), but not the concept itself. Here’s why:
- ROI is a decision framework that says “I’m choosing this project or to spend money on X instead of Y.”
- I wholeheartedly agree that it is difficult to calculate the knowledge you’ve gained, but that’s nothing new. ROI has been hard to measure since folks started trying with early Knowledge Management efforts. But we’re seeing a growing generation of tools and strategies that are tracking value in pretty incredible ways.
- a social business model is still a business model. While it may be murky, it was also murky (hence the hurdle rate). Putting together a disciplined approach to this work, however, will be so important for its future.
August 1st, 2011 at 9:50 am
Josh,
ROI, as it is used, assumes causality. In other words, you spend $X on something and the result is $Y. The problem is that social business is a network business. In this case, you spend small amounts on numerous things that has a result of $Y. What was the contribution of all of these items? In the network model of communication, these initiatives can have a compound factor. The ROI argument would result in the conclusion that initiative Z did not result in sufficient return, when Z happened to augment other initiatives and contribute to the positive result.
Also, ROI assumes one-way communication. Perhaps that’s a gross generalization. I’ve only seen compelling ROI analysis on social media about broadcast measurements. Or, early warning that there is a customer problem trending (i.e. Dell hell). ROI seems like a blunt instrument to measure all of the possible effects of social media: improved customer satisfaction, improving products based on suggestions, determining a new trend that affects strategy, influencing an influencer who influences a prospect etc.
I’ve had numerous discussions with ROI experts. I’ve been part of ROI analysis in the past. I’ve read up on the latest state of the art. And, I’ve witnessed too much vendor nonsense about ROI to be less than skeptical.
Here’s the thing about a business model. Does Home Depot track the cost of accepting returns of products that were not bought at Home Depot? Can they measure the goodwill associated with doing so? The business model comes first. So, a non-social business can stick to ROI metrics on social media.
August 5th, 2011 at 5:10 pm
[...] Social business as a model – Doug Hadden from FreeBalance argues that a) the traditional model of business is changing with the rise of social business (see the Dachis group post he references) and b) this new model of business shouldn’t be measured by ROI. I don’t think he’s right: my perspective is that we’re still figuring out how to measure ROI with social, not whether. Maybe it’s not going to be a typical NPV or IRR analysis, but “doing it just because” is also an undisciplined approach. [...]
September 6th, 2011 at 9:36 am
[...] Social business as a model – Doug Hadden from FreeBalance argues that a) the traditional model of business is changing with the rise of social business (see the Dachis group post he references) and b) this new model of business shouldn’t be measured by ROI. I don’t think he’s right: my perspective is that we’re still figuring out how to measure ROI with social, not whether. Maybe it’s not going to be a typical NPV or IRR analysis, but “doing it just because” is also an undisciplined approach. [...]