If social tools and practices can fundamentally change how we work, how much is that worth? As a starting point, I estimate the top 4 US banks alone can use social business efforts to realize an extra $5 billion of value.
Things to focus on
Sameer Patel is a noted social business consultant (now at SAP) who writes about accelerating business performance using social software. In a recent post, he pointed out that much of his audience is still asking the wrong questions.
“...we’re still looking at things such as “Encourage Sharing”, “Enable Action”, “Knowledge Capture” and “Empowerment” as end value points via social business...If practitioners can’t draw connectors between strategic and tactical objectives and how social networks facilitate execution, end users and executives won’t experience the needed aha moment.”
Focusing on people is important. But to be relevant to businesses, we better also focus on eliminating waste and increasing revenue opportunities.
Where to look
At large firms, in particular, controlling expenses is always difficult. The larger the firm, the harder it is to know who does what and who spends what. The costs - and the waste - add up quickly.
In just the top 4 US banks, for example, there are over 1 million employees and over $287 billion in costs.
|Bank of America||$90 billion|
|JP Morgan Chase||$81 billion|
|Wells Fargo||$65 billion|
Not all costs can be reduced using social tools and practices. (Legal costs, for example.) But, in looking to improve efficiency, a good place to look is in the support areas - large divisions that cost a lot but don’t bring in revenue. A good rule of thumb is that about 1/3 of the people and 1/6 of the costs are for 3 such functions - IT, Operations, and Finance.
Just that slice of these firms costs $47 billion.
A good match for social business
What are those IT people doing? They’re not writing software. Largely, they’re moving information around. They’re coordinating work among multiple teams and functions. They’re supporting systems and trouble-shooting problems. They’re overseeing the use of expensive hardware, software, and market data.
And those are terrific areas to apply social tools and practices.
Social business efforts are ideal for connecting people across locations and across teams to solve problems more quickly, reduce cycle times, reduce service calls, optimize the use of resources, and a wide range of other use cases.
These banks have all tried the traditional, centralized approaches to cost-cutting - offshoring, vendor management, bonus reductions - with some good results.
But the waste is too insidious, too pervasive, to just be managed centrally. And the only way to drive out the waste in that $47 billion of support costs for these 4 banks (and in the overall $287 billion of expense) is to enable much more distributed approaches.
- Can the 4 banks improve the spread of best practices to reduce their computing costs of $12+ billion by more than 8%?
- Can they reduce the time associated with chasing information to increase productivity of the 300,000 support people by more than 5%?
- Can they crowdsource the quality of who’s using what (and how) to reduce overall expenses - not just cut but optimize - by an extra 5%?
Yes, yes, and yes. It may not necessarily be $5 billion in savings. It could be more.
How to generate more revenue
It’s important to focus on costs because those are the hard dollars. Still, a lot of revenue flows through banks. The 4 big banks generated revenues of well over $300 billion.
How much more could they generate using social tools and practices?
Morten Hansen writes about one aspect of this answer - cross-selling - in his excellent book, “Collaboration.”
“Wells Fargo is able to collaborate internally across its eighty-four businesses to present “one Wells Fargo” to customers, who in turn buy more products. This collaboration contributes to profitable growth.”
Social tools and practices are ideal for exactly this kind of objective - connecting people, products, and ideas across the firm to deliver “one Bank.”
The Wells Fargo CEO knew that “The cost of selling a product to an existing customer is only about 10 percent of selling the same product to a new customer.” And, with a focus on cross-selling during the period from 1997-2007, Wells Fargo doubled their sales-per-customer.
Importantly, that number was twice what Bank of America sold per customer in 2007. And the profits-per-customer was also double. (Hansen includes excellent data in the endnotes of “Collaboration” to back up these numbers.)
With well over 100 million customers, think of how much more revenue the 4 banks could generate. Now, add that to the cost savings above and my estimate of $5 billion of extra value looks conservative.
In the past year, I’ve been guilty of aiming too low. Of trying to save, say, $10 million so I could have a positive ROI. That’s nowhere close to good enough.
We’re in the middle of a megatrend. And now is time to go after the big commercial benefits.
As Sameer writes,
“The first innings of social in the enterprise is over. Those organizations that like to experiment have done so...But there’s massive untapped opportunity out there to revise the value proposition...Until then...executives will treat “social business” as another Mickey Mouse program until they see how it matters to revenue increase, cost reduction and risk mitigation.”
For the social business movement to be sustainable and relevant for enterprises, then we have to focus on achieving measurable commercial benefits.
To help the people working in our large enterprises, we have to go beyond just connecting them. We have to make our enterprises much more efficient and effective.