Strategic CIO // Enterprise Agility
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7/16/2014
09:06 AM
Dennis Pearce
Dennis Pearce
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Are Social Businesses Really More Innovative?

A strong enterprise social network can improve innovation in an organization, according to anecdotes and self-reported survey data. But how can we measure more accurately?

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It seems almost intuitive that having a vibrant enterprise social network would lead to increased innovation within a company. After all, the more visible ideas are to the whole corporation, the more likely some of them will take hold.

But it also seems intuitive that the sun goes around our flat earth. That's why we invented science -- to confirm or correct our intuitions. We do know from academic research that innovation is positively influenced by collaboration, diversity of participants, and shared vision, but whether the use of an enterprise social network (ESN) contributes to any of those is still something of an open question.

Most of the data we have on the success of ESNs comes from self-reported anecdotes, vendor success stories, individual case studies, and surveys. Each of these methods is useful, but each has its drawbacks.

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Self-reports and vendor stories will inevitably be painted a shade rosier than they might actually be. Case studies performed by an independent researcher are somewhat better, but still may suffer from survivorship bias or the "file drawer effect," since failures are not as enjoyable as successes for the participants and not as likely to be published by the researcher. Also, it might take quite a few case studies to ensure that any one success is part of a pattern rather than just an anomaly.

Surveys can give a nice cross-sectional view of an industry or marketplace, but most of the social business surveys I have seen rely on responses from CEOs, CIOs, and other executives. Anyone who has worked in a large company knows that the views of executives can often be wildly different from those in the trenches.

Underlying all of these approaches is an even deeper problem: What exactly is innovation? What is collaboration? How can they be defined in ways that are quantifiable and consistent across multiple organizations so that companies can be compared against each other?

I was pondering this a while back and realized there might be a way to tackle this question more quantitatively with readily available public data. Several years ago, the Dachis Group created something it calls the Social Business Index. It tracks thousands of companies and scores them based on data from Facebook, Twitter, YouTube, blogs, wikis, forums, and company announcements.

Granted, it has no way to measure the level of internal social activity for these companies, but there is some evidence that firms that devote the most resources to becoming networked will have both internal and external social business activity, so it might serve as a reasonable proxy.

Patents have been used by researchers for years as a way to measure innovativeness, and the US Patent Office makes its database freely available. Of course there are problems here too -- many companies are highly successful and innovative while producing very little that is patentable. (Think of Walmart.) Also, not all patents are equal. Some provide long-term competitive advantage, while others become worthless shortly after being issued. But it is one way to give a number to innovation.

To control for the Walmart problem, I picked a couple of industries where patents are essential for continued success: computers and medicine. I looked at the number of patents going back only to 2009 because the use of ESNs was not very prevalent prior to that. I also wanted to limit the analysis to companies that are already considered successful, just to make sure that bad management or financial problems weren't swamping the effect of social tools.

The Fortune 500 is an indicator of success. Fortune magazine nicely categorizes its list, so I could easily group several of its categories together in a way that gave me the top 14 computer companies and 12 medical -- computer companies such as Apple, Microsoft, HP, and IBM, and medical firms Baxter, Pfizer, Merck, and Eli Lilly.

A few hours of data-gathering produced some interesting results:

The best fits in my quick-and-dirty Excel plots were a power curve for the computer industry (note that the graph has a log Y-axis) and an exponential curve for the medical industry -- but they both resulted in almost identical 0.4 R-squared values. One interpretation of this is that the Social Business Index explains 40% of the variability in patents produced.

I'm the first to admit that there are many limitations here, just as with surveys and case studies. My assumption that patent count and SBI score are proxies for innovation and social business activity might not be correct. It could be that companies that generate a lot of patents are already innovative and so are more inclined to use social business tools -- or there might be a third factor that influences both innovation and the use of ESNs. A more sophisticated statistical analysis might result in a weaker relationship.

But the results are intriguing. This analysis is a first step toward trying to measure the benefits of social business quantitatively, and it confirms what the surveys and case studies all say. I thought I would share it to spark some discussion.

I'd love to hear any ideas you might have for other ways to measure the impact, not just on innovation but for other benefits as well. The above analysis is contained in an unpublished paper I wrote as part of my PhD research. I would be happy to send a copy to anyone who wants one. Just email me: depearce@lexmark.com.

Here's a step-by-step plan to mesh IT goals with business and customer objectives and, critically, measure your initiatives to ensure that the business is successful. Get the How To Tie Tech Innovation To Business Strategy report today (registration required).

Dennis Pearce has over 30 years experience in manufacturing, product development, quality, IT, and knowledge management. He is currently Enterprise Knowledge Architect for Lexmark International, Inc., focusing on internal and external collaboration strategies and systems. View Full Bio
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Alison_Diana
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Alison_Diana,
User Rank: Author
7/23/2014 | 9:09:41 AM
Re: views
Quantifiable or not, surely by getting input from stakeholders -- whether from an internal social network or broad public social networks -- an organization has a much bigger opportunity to improve its product or service, simply because users (whoever they may be) have a simple way of communicating? Granted, many studies find those who are dissatisfied are more vocal than those who like something so that must be taken into account! But social media is also a great tool for education, whether it's about a new internal service or a brand new product, which is crucial to success. 
soozyg
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soozyg,
User Rank: Ninja
7/18/2014 | 10:40:09 PM
Re: What innovation or business value
I agree. I think surveys are unhelpful and the answers are skewed unless their are related to a very specific goal or, like you say, are done before and after an event.
Ericzigus
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Ericzigus,
User Rank: Apprentice
7/18/2014 | 8:04:56 PM
Re: What innovation or business value
Not sure why that got posted as anon -

 

Surveys and questionnaires can provide some insights for sure. Especially when a comparison is done before and after implementation. I would just make sure that the survey is measuring something related to the goals of the implementation. If it is not done before and then after, they But while they still can provide some information, but that information will will be more anecdotal.
anon4707399127
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anon4707399127,
User Rank: Apprentice
7/18/2014 | 1:42:01 PM
Re: What innovation or business value
Surveys and questionnaires can provide some insights for sure. Especially when a comparison is done before and after implementation. I would just make sure that the survey is measuring something related to the goals of the implementation. If it is not done before and then after, they But while they still can provide some information, but that information will will be more anecdotal.
soozyg
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soozyg,
User Rank: Ninja
7/18/2014 | 12:19:32 PM
Re: What innovation or business value
Ericzigus, what about surveys and questionnaires? Do you think they are accurate or helpful? What is your experience?
soozyg
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soozyg,
User Rank: Ninja
7/18/2014 | 12:18:00 PM
views
Anyone who has worked in a large company knows that the views of executives can often be wildly different from those in the trenches.

And not just views of the markeplace. Executives often have a very different view of the internal workings of the company. Sometimes it's quite unrealistic.
Ericzigus
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Ericzigus,
User Rank: Apprentice
7/17/2014 | 8:11:14 PM
What innovation or business value
I find that to measure anything (innovation, business value, effectiveness) associated with social business or esn or any new technology implementation your best bet is to do a somewhat controlled "experiment" , measuring before and after implementation while trying to keep as many unknown variables from impacting the data. If you implement an #esn, define what your goal is, determine how you will measure and show you have met your goal, and then measure before and after the tech implementation.
Brian.Dean
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Brian.Dean,
User Rank: Ninja
7/16/2014 | 6:12:07 PM
Re: Measuring impact of social collaboration
As products and services become increasingly complex, firms have to communicate with their consumer base to a greater extent, and communication needs to be both-ways, that leads all the way to the CEO. For example, Microsoft was initially to require the Xbox One to perform a check function, once every 24 hours in-order for the console to work, but later Don Mattrick read a blog in which a submariner stated that it would be difficult to provide 24/7 connectivity to the console, and changed its online requirement. 

Product documentation creation has been an important process since a long time but recently, online reviews and more importantly, positive online reviews can make or break a product. Amazon understands the value that these reviews provide to their site, that why Amazon removed Mediabridge's account when the company tried to sue a reviewer. Beyond information that documentation and reviews provide, a public process also introduces a kind of peer review process.

Measuring performance levels becomes a little complex as different business models would result in different outcomes. For instance, if a firm is mostly proprietary, then detailed information sharing would be limited, but if a firm is mostly open source, then this model requires economies of scale, a large developer community and partnerships, etc., resulting in information that is anything but limited.
jordanfrank
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jordanfrank,
User Rank: Apprentice
7/16/2014 | 10:31:18 AM
Measuring impact of social collaboration
Dennis -- Return On Information / ROI for social collaboration comes up routinely on my blog. The keys are to understand return on information (what you put into the system) vs. return on investment (the dollars you put into the system) and what you get out, routinely through business process excellence and occasionally (and more substantially) through epiphany, insight, better decisions due to better and more immediately available information.  

In cases like Alcoa Tackles IT Projects and Compliance, a Deloitte study calculated a 62% return on adopting TeamPage for a compliance process. Great result, but this is an example of a simple routine improvement in process vs. the more substantial benefits they achieved by cutting ERP deployment time by 50% (saving many months of IT time and, more importantly, accelerating the business which could achieve greater monetary return by using the ERP sooner). 

In a very early case study --  Dark Blogs Case Study #1 - A European Pharmaceutical Group -- a firm deployed a system to share market and competitive intelligence information. In at least one case, the passage of information changed a multi-million dollar negotiation only moments before it was to begin. The return of this nature simply isn't quantifiable because this is one of many practically serendipitous human to digital to human connections that pays off in massive numbers. 

 

--- Jordan
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