Inside Conversation

Actually the question I hear more often is something like:

“What is the business case rationale and ROI of installing social computing tools when we already have a complete array of collaborative tools in place?”

As you might surmise I work for a LARGE organization. People in large organizations talk like that. I like the short form better.

Anyway, I have been spending a lot of time lately trying to answer this question. I think I have the beginnings of an answer that I have not explicitly heard before.

It’s transaction cost.

OK, here is my thinking, if you buy into the thinking of my earlier post, Decisions…Decisions, the gathering of information is a critical step to effective decision making. I use the term “gathering” here loosely. You could easily substitute “learning”. Basically I mean all of the activity undertaken to build knowledge prior to making a choice among options. So the question now becomes, how do you effectively “gather”. In most cases, the gathering process is limited by time and resources, e.g.:

• The decision has to be made by next week.
• We only have one person to work on this.

In any case there is a limit to how much relevant information you can gather. The problem is how many relevant sources can you access within the limitations of the gathering process. In other words you have a fixed cost to use for the activity.

Let’s go back in time. In the old days the best (only) way to gather information was to talk to people, so given your time and resources you might be able to talk to 10 or 20 people and maybe only 2 or 3 had relevant information. As technology progressed over time, for that same fixed cost you could access more, relevant content: books, telegraph, telephone, radio, TV, Internet. So for the “same” cost you got more information, i.e. the transaction cost dropped.

Enter Social Media (or Web 2.0 if you prefer). Why is it an improvement over other ways of gathering already in place? The problem with most existing/traditional/legacy approaches is that there is only limited ability to filter easily to find the relevant information. This is commonly described as information overload.

The key component of social media that differentiates it from plain old HTTP and other broadcast media is the network of people, i.e. the community behind the information. This community and the connecting tissue (web 2.0) operate as a fantastic filtering mechanism. In other words it is easier to find relevant information, therefore the amount of relevant information gathered goes up and the transaction cost goes down.

OK, may be a bit rambling, but I just wanted to get my thoughts documented before I forgot my logic. If you can expand or clarify this argument, please do. If you think it is a load of c—, keep your thoughts to yourself.    ;-D

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