|
What is ROI?
ROI is a financial term that stands for
"Return on Investment." ROI is a type of measurement that is
widely used to assess the potential benefits and risks of an
investment. The simplest form of ROI is calculated by dividing
profits by invested capital.
ROI =
Profits
Invested Capital
ROI can be measured when the gains and the
costs of an investment are known, and can be directly linked to
the final quotient.
Why does ROI matter?
ROI is an effective and powerful tool that enables CEOs and
other organization decision makers to see the potential benefits
of an investment and to make sound business decisions about how
to spend resources. Not only does ROI prove to upper-level
management that a particular investment is beneficial for the
organization, but it is also a strong selling point to potential
shareholders. ROI confirms for shareholders and other
stakeholders what they will gain from a particular investment.
A high Return on Investment proves that the longevity of a
company is being maintained through positive business decisions.
ROI sounds like a term that is
most relevant for CFOs. How is it relevant for communication
professionals?
In today’s cost conscious business
environment, communication professionals must demonstrate the ROI of
communication, or risk having their programs cancelled.
These days when every dollar
needs to be justified, it is critical to prove that our
communication budgets are well spent. Internal
communicators are not the only ones who face the challenge of
trying to quantify the impact that their work has in an
organization. Every functional area of business is called to do
this - HR managers are demonstrating that having progressive HR
practices contributes to the bottom line, IT professionals are
quantifying how their work impacts productivity, and training
and development professionals are showing how their training
programs are making a difference. It’s about accountability –
every functional area of business is being held accountable for
making bottom line contributions.
How are most companies
measuring the ROI of their communication function?
In the past, many organizations have used
"soft" measurements such as employee awareness, understanding,
and satisfaction to evaluate the success of their communication
initiatives, programs, and channels. The current
measurement trend focuses on "hard" measurements like productivity,
employee turnover rates, behavioral changes, and the achievement
of business goals. Hard measurements are effective because they
directly link a tangible outcome to a specific communication
function. For example, companies that have implemented effective
internal communication strategies report higher employee
retention rates than companies that do not. Both the
"soft"
and "hard" metrics are useful in telling a complete story about
the value that the communication function brings to an
organization. Linking the communication strategy and metrics to
the business strategy is equally critical – the ROI of
communication will only be reflected in the bottom line when a
successful communication strategy and business strategy are
closely aligned.
What are some basic tools that I
can use to start measuring the effectiveness of my company’s
communication programs?
The first fundamental step is to set
measurable communication objectives which are tied to relevant,
corporate objectives and priorities. You can then track
progress against these objectives, assess communication
effectiveness and recalibrate plans as needed by using a variety
of measurement tools, such as:
-
Regular and
"pulse" surveys
-
Focus groups
-
Employee
and/or management communication advisory teams
-
Union input
-
Benchmarking
and trend analysis
-
Web usage data
-
Event feedback
and attendance data
-
Readership
data
Is there a direct link between
organizational communication and financial performance?
According to a 2003 study conducted by Watson
Wyatt, organizations that effectively communicate experienced a
26 percent total return to shareholders from 1998 to 2002. The
large increase in shareholder returns is due in part to
effective internal communication enabling employees to be
motivated, informed and engaged. With a strong
communication strategy in place, employees feel connected to
the company, understand the direction and business priorities,
and know their role in helping to achieve business success. The
bottom line: the better a company communicates, the better
its return on investment. Organizations that communicate
effectively dramatically outpace organizations that
don’t. Communication is no longer a "soft" function, but rather
one that drives business performance and is a key contributor to
organizational success.
What role does
internal communication play in mergers and acquisitions?
Effective communication is an essential
ingredient for any organization undergoing change. Companies
that implement effective post-acquisition communication
reported significantly better results in areas such as
than did companies that delayed
implementation for three months or more, according to a 2003
survey conducted by PricewaterhouseCoopers. Communication can
also minimize damage caused by rumors, relieve employee anxiety,
and build both internal and external support for change.
Are intranets a cost-effective
communication tool?
Intranets can be very cost-effective tools
for an organization, but as with any other tool, they must be
implemented effectively. Some companies, such as Cisco Systems,
have developed a culture where everything can be found on the
intranet. Employees complete most HR and payroll functions
online, as well as a host of other functions. Some
organizations, however, use their intranets as little more than
outdated message boards. If you establish a culture that
encourages the use of the intranet as an important communication
tool where employees can always find the most up-to-date
information, the resources invested in an intranet are more than
returned. However, if the organization does not use the intranet
to continuously update employees, then employees will look to
other forms of communication to get their questions answered.
Sources: IABC Communication World, Watson Wyatt Report -
Connecting Organizational Communication to Financial
Performance, 2003-2004 Communication ROI Study |
