How Finding “Exceptions” Can Jump Start Your Social Initiative

John Hagel, co-chairman of the Deloitte Center for the Edge

“One thing that’s really undervalued in discussions of social technology and social business is the opportunity to make the invisible visible,” says John Hagel. It’s the opportunity, he says, “to see patterns of activity and interactions that you never knew were occurring.”

Hagel is co-chairman of the Deloitte Center for the Edge, a research center based in Silicon Valley that he has led for the past five years. The Center’s focus is to help senior executives make sense of and profit from emerging opportunities on the edge of business and technology. It does so by identifying emerging business opportunities that should be on the CEO’s agenda but are not, and doing the research to persuade CEOs to put them on their agendas.

A paper published recently by the Center, Social Software for Business Performance, takes an in-depth look at what it means for companies to effectively launch social tools and technologies. Co-authored by Hagel and the Center’s other co-chair, the renowned business and technology researcher John Seely Brown, the study notes that senior executives are skeptical of the value of social software, but makes the case that companies can leverage social software to significantly enhance business performance in the short-term and transform it in the long-term.

In a conversation with David Kiron, executive editor of Innovation Hubs at MIT Sloan Management Review, Hagel talked about the report and shared some additional thoughts on what it means to be an effective social business.

In your research you identify “exceptions” as a business issue that social tools and technologies can help with. What do you mean by “exceptions” and how do they connect with social business?

Based on some of the work Deloitte has done we believe that about 60 percent to 70 percent of the headcount time in most functions within an enterprise is consumed by handling “exceptions,” things that get thrown out of automated processes. It’s an exception when it doesn’t comply with policies or the rules of the process — an individual has to go and resolve it, typically by scrambling around because they can’t resolve it on their own. They need to get a number of other people engaged to help. That is a hugely inefficient process today.

What are some examples of exceptions?

A classic exception would be in the customer sphere. There’s a prospect who is looking for special terms on a potential sale. The terms don’t fit into the specified processes and policies of the firm, so you’ve got to figure out, is this one worth making an exception on? It could be a disruption in the supply chain operations. You’re expecting a delivery of an inventory and it didn’t happen. What do you do now? It could be in product development. You’re well along in the development of a product and all of a sudden a test shows that it’s not performing in the way you thought it was going to perform. What do you do now?

It can occur in virtually any part of the enterprise, any process, and again, it’s consuming a huge amount of time and resources, and yet is very inefficiently handled today.

Can you tell us how this kind of conversation plays out when you’re working with a client?

We had a recent experience with an agency that was running buses for a major city. Its whole view of social software was basically putting up a Facebook page and somehow getting better connection with their customers, their riders.

We just went through a fairly quick discussion of, “well, wait a minute, before you put up a Facebook page for the riders, there are ways you could get more impact.” We found one of their biggest cost items was maintenance of buses. When we drilled down, we discovered that the operating metric driving the growth of this cost item was the lead time to get the bus from the time of breakdown back onto the streets. When we drilled down to the next level of front line performance, we found that the problem was that parts that were supposed to be available weren’t readily available where they were supposed to be — a classic example of an exception condition.

So we could think about targeting the deployment of social platforms to just engage the people who were dealing with that problem. It was these grizzled older guys out in the maintenance yard. When they could see how this would relate to their job, how it wasn’t just something that management was putting on top of them as an added to-do, but that it could actually help them deal with this pain point, they got really excited about it.

Obviously, every company and industry is different. It’s a process of being thoughtful about where and how these kinds of exceptions are occurring that are real pain points, and then figuring out where and how social software could be deployed in a very targeted way. If you think about social technologies, that’s exactly what they do. They help you identify people, find them, connect them, connect with relevant data and analytics and get the job done in a much more efficient way.

The problem with exceptions right now is they’re what I call the shadow economy of the firm. People know it goes on, they have no idea how much time and effort is consumed in it, and they have no idea of the patterns of exceptions.

So you’re talking about using social technology to not only solve exception-related issues but identify them as well.

Identify them and then also keep a record. One thing that’s really undervalued in discussions of social technology and social business is the opportunity to make the invisible visible; to see patterns of activity and interactions that you never knew were occurring.

There’s an analytic tool that was developed in Deloitte in Australia. For the first implementation, we applied it to ourselves to see what we could learn from the patterns of interaction occurring within Deloitte.

This tool took a whole range of social interactions, everything from phone logs to internal social enterprise tools, email logs, a whole variety of ways to look at interactions occurring within the organization and then matched it up to operating metrics that matter to any professional service firm, so things like revenue per consultant, utilization of consultants, turnover rates of consultants — how often do they leave the organization?

What we found as we applied this was that there were distinct patterns of interaction. One pattern had to do with teams that came together within Deloitte that were very tightly integrated. They really connected with each other and they were constantly communicating with each other and they persisted over long periods of time. Well, it turns out those teams were underperforming teams. They actually didn’t perform relative to these operating metrics as well as another form of team, which had a reasonable degree of interaction within the team, but where there was a lot of interaction between the team members and other parts of Deloitte. So they were more connected into the rest of Deloitte. It turns out those teams performed far better.

Can you say more about what you mean when you say “metrics that matter”?

Metrics that matter is particularly important in social business and the social technologies. In the minds of a lot of executives, the concept of social casts a negative light. Social is something you do after hours. It’s something you do if you have some free time. So this label tends to create kind of an allergic reaction on the part of many executives, that this isn’t going to really drive the core performance of the business.

The metrics that matter approach says no, wait a minute, let’s start with the highest-level metrics that matter to the senior executives — typically financial metrics. That’s what they’re measured on and that’s what they tend to spend a lot of their time on. And then let’s drill down to operating metrics — so whatever your pain point is or need in terms of financial metrics, typically there are some operating metrics that are going to drive that financial performance. What are those? And then drill down even further to front line metrics, which are going to be the things that the front line are measured on, on a day-to-day basis; and figure out, as you drill down, where and how can social technology enhance the performance in line with those metrics?

So now you suddenly have the attention of the executives.

What are the big challenges that you see with metrics around actually implementing social initiatives? Last year MIT SMR and Deloitte surveyed more than 3,400 executives and business professionals on a number of social business topics. [Read the full report.] On the metrics topic we asked, “How are social tools measured in your organization?” And we gave respondents a couple of choices. One of the choices was “not measured.” And that was the number one answer.

You’ve hit on a real significant issue. We had a major research project where we set out to really try to identify examples of companies that had implemented social software of various types and gotten quantifiable performance impact from it. And I have to tell you we searched long and hard to find those examples. In my mind it’s not because they don’t exist, it’s because they’re not measured.

At one level I’m a huge contrarian or skeptic around this notion of ROI for social technology. I’ve done enough ROI analyses in my life to know that whoever controls the spreadsheet and the assumptions behind the spreadsheet can make an ROI that can justify anything. And I also know that once an ROI analysis has been approved, executives rarely go back after the fact to determine whether the financial impact has actually been achieved.

I think what’s valuable about this metrics that matter approach is it quickly gets you down to metrics that can be measured on a day-to-day basis and quantified on a day-to-day basis. It’s where you can start to monitor and see not only their improvement, but if there’s not improvement or if the improvement isn’t as great as you might have expected, you can figure out how to tweak it so that you can get the improvement that you thought was going to come.

It provides you with a way to continue to learn and refine as you go, because these things rarely work as initially anticipated. They typically require tweaking and adaptation, but if nobody’s looking at the performance metrics on a systematic basis, whatever learning occurs is very ad hoc and sporadic.

Most executives, I think, are still very skeptical of the value of technology, and need justification of it. There are so many variables that are going to end up going into the calculation of a technology’s ROI. I think, in contrast, you can take something like customer churn rate — more of an operating metric than a financial metric. I can monitor customer churn rate on a daily basis, and I can take that down to a front line level and say, “okay, what’s driving customer churn?” Maybe it’s because our call centers are taking too long or not effectively answering the questions that the customers are asking.

That’s something I can track, again, on a day-to-day basis. I have a much higher sense of where and how social technology can actually improve that performance, versus saying somehow, somewhere I’m going to get higher margin for the business, or more revenue growth for the business.

How do you think about the value of externally facing uses of social technology, such as understanding the consumer, versus some of these more internal-oriented uses?

A pet peeve of mine is the attempt to establish boundaries between the externally-facing social technology and internally-facing. To truly harness the potential of this technology you have to think about it in a much more integrated way. The early adoption has been largely externally-facing, customer-oriented, driven by marketing departments with a surprisingly traditional mindset. It’s all about trying to get early indication of customer sentiment or views of problems that you can then target with more traditional marketing kinds of broadcast mechanisms.

On the other hand, there are things like that customer churn rate, or a problem because the product or service isn’t designed very well. How often does that actually get back into the organization to shape and drive the product development process so that you’re actually helping them to understand what they can do better in terms of product design? That’s an internal function. But typically that knowledge and insight is all captured out in the marketing silo and rarely gets back into that internal organization or function.

What can the CMO and the CIO learn from one another about social tools?

That’s a great question. I think there are opportunities for learning and enlightenment from each other. This may be an unfair generalization, but from my experience, CIOs are increasingly more and more risk-averse, particularly about adoption of new technology. They feel the risks and the potential for something blowing up on them, the untried new technology versus the stuff they’re used to.

So when they think about these technologies they tend to focus more on the risk side, what could go wrong. I think what the CMO or any of the line managers in the company could help do is frame and quantify the opportunity side, why this is so important in terms of, again, performance metrics that matter, not only to the CMO, but ultimately to the overall business, so that you at least have the upside to compare with the risks. It’s not to say you shouldn’t focus on the risks, but if you’re going to have a balanced assessment you have to have both sides equally represented.

I think from the CMO’s side, it’s important to be very tangible about where and how the technology could in fact improve the performance of the business. One upside of this new generation of technology is that, unlike with enterprise applications of the past, it does not require a commitment of the entire firm to adopt it. You can start in very surgical and targeted ways to demonstrate its impact and value. So it reduces the perception of risk from the CIO and starts to build a more tangible case from the CMO or the line manager as to where and how this does make a difference.

Where the CIO can help the CMO is that CMOs and line managers are typically very focused on a specific problem and tend to be pragmatic and opportunistic about going after that problem. But the CIO can pull back and look at larger architectural implications. They can create more value by anticipating up front what kind of architectures are needed to scale the project, rather than creating one-off solo initiatives that over time would have a harder time communicating with each-other. It’s helping figure out where there are other resources within the enterprise architecture — IT platforms that could potentially add value to these social software initiatives.