Repeat after me: ROI bad, IOR good

One of my passions has been to ’prove’ the effectiveness of digital media by understanding the ways businesses can measure the impact of their online presence and relate it to the rest of their business (see here, here and here for examples of my academic efforts and blog posts in this area). Lots of pundits have been saying that business needs to move away from trying to relate web activity to traditional performance measures such as return on investment (ROI) and instead look at measures associated with customer engagement.

Well, Kyle Flaherty wrote a post for ZDNet (and re-posted on Social Media Today) last week which I think nails it. He argues against using ROI to measure digital activities such as social media and talks about a new measure called Impact of Relationships (IOR). He writes: “ROI was created by someone who wanted to defend their activities in the scope of the bottom line of their company; they found direct linkage between what they were doing and revenue being brought in and if that number was larger than their salary plus additional costs they were in for a bonus (or at least steady employment). Determining your social media ROI is a means to an end. It allows us to prove a programs worth to our business, which enables you to continue your work with the community, which coincidentally lets you dismantle the importance of ROI internally and start to focus on IOR…Impact of Relationships.

“IOR allows me to detail how a relationship develops with our company, whether they are a customer or not, and how that relationship has impacted the totality of our business. Using many of the same techniques above I also measure the amount of interaction we have with our community. Not to measure against revenue, but to determine what product feature requests this person suggested that made our product better, how many comments they leave on our blog, the number of times they reference us on their Twitter feed and more. We’ve been able to formulate IOR for members of our community, many of them non-customers, based on what they have given back to our company.

“Are each of these elements a pure statistical entity or a dollar value? No. But it is a great additional barometer we have to show the gains made through our social media activities. This IOR data becomes just as valuable to the senior staff of your company, but only because they have already seen some level of ROI data. It is only when we prove the ROI that we can reach towards IOR.”

I’ll be interested to see how this concept works out in practice and how it is monetized.

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Posted on Friday, November 28th, 2008 at 9:42 am under Marketing, Technology, e-marketing.

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4 Responses to “Repeat after me: ROI bad, IOR good”

  1. Kwoff.com Says:
    November 28th, 2008 at 9:58 am

    IOR - Impact of Relationships - beats ROI for measuring social media…

    In the ongoing debate about measuring the effectiveness of websites and how they contribute to business performance, a new measure has cropped up - instead of ROI, try IOR - impact of relationships….

  2. Kyle Flaherty Says:
    November 29th, 2008 at 2:35 am

    Thanks for the mention, I think the concept of IOR is helping us in our measurement and I’m trying to put it all together and publish it very soon. Of course the measurement is different for different industries, which is part of the challenge (in a fun way…of course).

    Looking forward to getting more of your thoughts as we roll this out.

    /kff

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