Social Media Strategy: Let's Stop Talking ROI Already

Social Media Strategy: Let's Stop Talking ROI Already

There's been a lot of talk lately about ROI as it pertains to Social Media Strategy with regard to recruiting efforts. Most notable is a great post by Michael Long, "The Red Recruiter". Michael does a bang-em-up job of aggregating ROI-related posts and tossing in his own analysis.

And while I've migrated into Network Analysis and Social Business Design, a big part of my heart still lies in Talent Acquisition. That's why I don't like seeing the Recruiting Industry having the wrong discussion.

Here's what I mean. The Recruitosphere needs to look out for something I call . . .

"The ROI Monster"

I've noticed many in our industry (as well as the marketing industry) opine about ROI - it's a constant source of debate. However, in the mind of a finance professional (like the CFO you're likely pitching), ROI is not only a waste of time, it's a legitimacy-killer. Here's why:

ROI only accounts for the "what" (i.e. what will we get back for the investment? [i.e. "return"])

What ROI doesn't account for is time and risk. Trust me, I wish life was as simple as ROI. It would have saved me hours of projects in business school, to say the least!

Time = how long will it take to get the "what" above?

Risk = how sure are we that we're going to get the "what" above?

In my humble opinion, the absolute worst thing a Recruiting Leader can do is walk into a financial meeting talking about ROI. If they do, they won't even get to 2nd base.

What I'd recommend is not even talking $$$ in terms of justification. It's an investment to achieve parity with the competition, regardless of ROI. Even speaking in terms of legitimate financial measures such as NPV and EVA isn't necessary. Because if you ignore engaging a Social Media Recruiting Strategy and your opponent doesn't, that's a recipe for death. Now that's the real risk you should be talking about!

I'll follow up soon with a post about how to sell Social Media Strategy. Here's a quick tip before the post comes out: Play a little game theory with the CFO. Simply pull the prisoner out of the "Prisoner's Dilemma" and insert a recruiter. You'll get your money . . . quick. You just have to shift the discussion from one of ROI (just the "what"), and start talking in terms of both time and risk as well.

P.S. It's good to see the Recruitosphere shift from the ridiculous, wasteful process of massive-friending that plagued our space in the earlier days of Social Media. We were the laughing stock then, but things are swinging back in our favor as we find our way. Now we just need to start selling the right way, which means leaving ROI at the door where it belongs.

Comment by Joshua Letourneau on January 19, 2010 at 5:30pm: John and Rich, you each are bringing more to the table than a pure ROI calculation. I can tell by what you're suggesting, for example:

John: "strategic plan, consider alternatives and project likely actions and returns from your program"
Rich: "the value of time to produce, the value of the talent producing it, and duration of the impact"

You are both extending far beyond the definition of ROI, and I mean that very positively. ROI is strictly quantification. It's: (Gain from Investment - Cost of Investment)/(Cost of Investment)

I define ROI for what it is: a quantifiable expression of expected "return", however I also note that the calculation does not include time or risk. You both are accounting for such :)

We're not apart on this at all. Each of you have a unique way of selling your project plans, both of which I imagine are extremely effective. Why? Because you're accounting for both time and risk, something pure ROI does not account for. So please do not assume I'm trying to punch holes in the way that you sell your initiatives and project plans - I am definitely not doing so; I was simply trying to point out the futility of ROI as a metric.

John, I like your communication style - I can tell you're a straight shooter much like myself. Given that admission, let me toss out there that I agree with your approach. You're moving far beyond ROI, which is my recommendation.

I'll follow up with a Game Theory approach that takes into account both our actions and our competitors' actions. This further extends where you both went in your extension of ROI. Why? Because we're searching for 'dominant decisions' given any of our competitors' counter-moves. As we don't exist in a non-competitive vacuum, it's important to predict our competitors' counter so that we're a step ahead. To reference maneuver warfare, once we have them in a reactive state (where they're only reacting to our moves), we've won and can always keep a step behind.

Comment by Joshua Letourneau on January 19, 2010 at 5:53pm: P.S. John and Rich, if you guys are aware of a new definition of ROI, turn me onto it. I know a lot of people who'd want to know about the new calculation :)

ROI = (Gain from Investment - Cost of Investment)/(Cost of Investment)

Comment by Alexandre Ivanov on January 19, 2010 at 6:22pm: Now this is interesting. Everybody is trying to justify Social Media through ROI and I like the stand that you are taking. It gives me a little more insight of what an ROI is and how it should be complemented by other factors. I guess many people, like Rich, refer to more factors than just the "what?" when they talk about ROI. I have to say that I am enjoying this discussion very much. It's almost as good as going to a conference about Social Media.

Comment by Rich on January 19, 2010 at 7:56pm: Appreciated Josh. I think it makes a significant difference.

The measurement I use is called a return on communication (because ROI is best reserved for the definition it was intended).

[(B • I) (m+s • r)/d] / [O/(b + t + e)]

The Brand Equity times the Intent of Communication (Message plus Suitability times Reach) divided by Sustainability OVER Outcomes divided by the Cost (the Budget plus Time to Produce plus Experience) will provide a better picture. I've written an abstract draft that explains why each is important for anyone interested. http://www.copywriteink.com/Abstract7.pdf

Some people find the more conversational series I wrote last year more helpful. http://copywriteink.blogspot.com/search/label/ROC

If you want a simpler guideline, remember that the intent of any communication over the outcomes is the ROI or ROC as I might call it.

Best,
Rich

Comment by Joshua Letourneau on January 19, 2010 at 10:53pm: Rich, I'm going to check out your work asap, likely first thing tomorrow morning. It looks interesting, to say the least.

You know, just for the sake of conversation, let's say we could calculate the 'lifetime value' of an employee, just as we could a customer.

However, instead of using a weighted average, let's say we go further and segment our nice talent pools by employee lifetime value.

If we could show a measure such as this, we'd be talking about justifying individual investments toward each niche talent pool (say, talent that is highly critical or pivotal to our organization.)

In this way, we'd be using more of a portfolio approach toward niche talent pools, just as we do with market segmentation (i.e higher value customer segments get more attention and investment, such as frequent buyer programs, buyer rewards, etc.)

Instead of calculating the overall return, we'd be looking at the return through the lens of each niche talent pool we're pursuing. Just a thought :)