HootSuite CEO Ryan Holmes published an interesting article on Fast Company that examined the misguided perception in the C-suite that social media is harmful to the bottom line. As he puts it, “Without a push from the top, many of the biggest companies have been slow to take the social media plunge.” The only way to make that push a reality is to quantify the value of social media as it relates to the bottom line, and a value model is the best way to build that compelling story. The example below illustrates how value drivers are used to quantify the value of using social media in an organization versus the alternative of not using it all.
The green bars on the chart represent three value drivers that together can produce $900 billion in annual value if social media is properly adopted in the 4200 enterprise sample of the study (around $215,000 per company): increased revenue, increased employee productivity, and increased knowledge sharing across the organization.
In the example above, we examine how the productivity bar is produced. Using the data from the original McKinsey report (take a look at the Exhibit chart), we can take employee wages and the increased productivity from social media use to quantify economic value. The grey boxes represent different components for each variable in the value driver, which are calculated in a subformula to quantify the variable. There are two big advantages here; the first is that completing the exercise in itself allows you to internalize and truly understand the value you are delivering. The second is that you are able to respond to changing data and market conditions by simply tweaking the numbers in the formula, allowing your value models and value propositions to always be up to date.
This is not to say that you will start generating millions in revenue just because your company starts a Twitter account. Quantifying the value of social media is far from being exact science. However, value modeling is an effective framework to represent the economic business case for a product or initiative, especially if it is for a big picture strategic decision. The exercise of building one in itself allows you to organize your data into features, benefits, and value drivers, so you can truly understand the bottom line impact of what you’re evaluating or selling.
What do you think? What other recent innovations would you quantify using value modeling?