Have McKinsey proven the ROI of social media?

New study shows a significant correlation between the ‘social business’ and improved financial  performance

What do you say to the CEO when they want to know the financial return on an investment in social media?

McKinsey study on networked enterprise - proving the ROI of social media?

Yes, there are lots of things we can measure that demonstrate value (changes in sentiment, traffic to a site, high value consumer engagement) but that is not strictly the same. The financial ROI is how much money you get back for a given investment in social media (usually expressed as a percentage). And this is something that we all struggle to demonstrate.

The report from management consultants McKinsey: The rise of the networked enterprise: Web 2.0 finds its payday appears to get closer to demonstrating it. From a macro-level it proves why all businesses should embrace social media and move towards being a ‘fully networked enterprise’ or what I would call a ‘social business’. They have found in their four year survey of over 3000 businesses that the social business is more likely to be a market leader, be gaining market share and have margins that are higher than competitors. Now you have got the attention of the CEO…

Cost reduction, efficiency and customer satisfaction

Here are some of the business benefits of social media (or Web 2.0 technology as they call it),  indentified by those surveyed:

• 77% said it increased the speed of accessing knowledge and information internally
• 60% said it reduced internal communications costs
• 63% said it increased the effectiveness of marketing
• 50% said it increased customer satisfaction
• 24% said it led to an increase in successful innovations for products/services

The social business = top financial performer

So how does this translate to better financial performance? McKinsey found that there is a significant correlation between the social business and improved financial  performance. Specifically they found a correlation between:

• using social media to improve collaboration with customers and stakeholders and gains in market share

• using social media to make ‘decisions lower in the corporate hierarchy’ and higher operating profits

• using social media to improve internal collaboration and a market leading position

Crucially businesses that are using social media the most (the fully networked enterprise), are 50% more likely to have higher profits and gains in market share than the rest of those surveyed.

In my opinion the simple explanation for all this is that the social business is an adaptive, flexible and forward looking organisation. By using social media it is able to get closer to customers and partners – closer to understanding their needs,  and more adapt at responding and innovating to meet those needs.  All of which makes them a better business.

This report is very insightful (HT to authors Jacques Bugin and Michael Chui) and I will be talking more about it. It seems social media really does mean business!