My colleague Penny Edwards has a nice post @ Headshift on measurement and social software, which reopens in a smart way the conversation about return on investment (ROI) we had months ago with Luis Suarez, Dennis Howlett, Jon Husband and others.

The argumentation she builds is valid in a much broader perspective than social software. It deals in reality with knowledge related activities in any organisation, whether it is supported by social software or other tools.

It is common knowledge that “what you can’t measure, you can’t manage”. And because knowledge is intangible by nature, it is not measurable and therefore not manageable.  This argument is seated in a fundamental law of Science. Consequently, the only way to move forward is to rematerialise knowledge, which we do by transforming knowledge into information or data.

As I have maintained on many prior occasions, social computing is useful in this ‘rematerialisation’ process. Social software helps rematerialisation tacit interactions that occur around formal, corporate (computer-based) processes and workflows by capturing conversations (wikis, blog posts and comments) and references (social bookmarks, RSS feed portfolios, profiles) in organisational / group platforms. Social computing helps transform tacit knowledge into formal transferable knowledge. This is why social software fundamentally complements existing organisational information architecture, as well as provides a constructive replacement for email, which is often considered a silo because of its overtly individualistic nature.

Excellent, but that is only one part of the job. Now, the prestige we are seeking manifests itself in measurement. Too often social software enthusiasts and evangelists overlook this fundamental aspect (knowingly or otherwise).  Where the mindset is fixated on measurement = financial, responsibility will commonly be considered to fall at the feet of management accountants.   This is exacerbated because (well before it got momentum behind the firewall) there was a perception that social software is a web thing developed by web people, which puts it outside the remit of ‘accountants’.

Measurement of activity may be unappealing to web people, but it is a necessity in business. Measurement is the translation of an operational function into an economic reality that facilitates monitoring of activities and benchmarking of performance between organisations (and their offerings). That enables businesses to attract and/or inform shareholders who ultimately capitalise the visions and goals outlined in a strategic plan.

Having said that, it should be noted that measurement is much more than ROI or any like-model. Today, ROI is the iconic, easy-to-catch and use wording for a much significant concern: evaluation. ROI is one tiny piece of a real big puzzle. ROI is an indicative ratio commonly used to anticipate the financial impact of decisions. It is a simplistic rendering of a very complex set of parameters. The pervasive, intricate, situated and complementary nature of social computing in the organisation makes for a vast list of parameters and the complex calculations. In fact, calculating the ROI on social software is complicated to the point that economically it is unrealistic to do so. Instead of an estimation a posteriori a pilot phase, ROI as it is commonly referenced in the “Enterprise 2.0″ scene is pure guess and absolute non-sense in most cases.

Back to measurement. Another difficulty we face in a knowledge economy is that most activity measurement tools date from the glorious days of the “old” physical economy. My point here is that reporting process are one key reason for organisational blindness when it comes to knowledge-related practices. As such, ‘management’ in a knowledge economy requires a serious revamping of reporting tools, metrics and processes.

Some people may be reluctant to that as they consider reporting a ’sacred cow’. In fact, the measurement of activity divides into contractual and non-contractual measures. Contractual elements are compulsory and objectives as defined a priori, negotiated and accepted: they are normed. This type of measures is used for both internal and external purposes. Non-contractual elements are desirable and subjective (as consensus is specific to the organisation). This type of measure is used for internal purpose, principally for driving the activity.

One way to revamp the measurement / reporting process is to enrich it with knowledge relevant metrics and insert them into official reporting procedures. Two things are key here: (i) new metrics and (ii) insertion into official reporting procedures.

1. New metrics. Because we deal with different stuff, we need to invent metrics that are relevant to what we are trying to follow and drive. For social software, one can start with the usual web and online community metrics. Some new initiatives, such as Me-trics, open doors to more in-depth analytics that are worth considering (with a barrage of ethical considerations however).

2. Insertion into official reporting procedures. Some of the metrics I have mentioned below are already used in organisation.  But the drawback is the adherence to local reporting. What is required here is the extension of those analytics to organisational reporting. Failure to make this extension into reports that fuel senior management decision making, will at best see the maintenance of the status quo or at worse regression and oversight of key operational issues. That is my experience gained whilst I designed, implemented and managed a sales reporting process in a multinational (world-leading) company. One way to relate knowledge-related analytics (i.e. to enrich organisation-wide reporting) is via the Balanced Score Card.

Why Balanced Score Cards? For four reasons:

1. Kaplan & Norton have escaped the collusion of measurement and quantity. Measurement is not necessarily quantitative. That is a common source of confusion and of inefficiencies in numerous parts of human activity (to name a few: reporting (exhaustiveness), research (methodology), education (elite creation via selection on maths)). Measurement can be qualitative (see  Georgescu Roegen work if you’re curious). It is no surprise if numerous initiatives in “Intellectual Capital” (i.e capital building) used Balanced Score Cards.

2. Balanced Score Cards are notably visual, which is not so with quantitative ratios.  That visual characteristic invites greater meaning and relevance.

3. Balanced Score Cards are heterogeneous and are therefore a more natural receptacle for a) qualitative and quantitative analytics and b) can encompass a variety of topics. In this regard, one can build official reporting encompassing both physical and knowledge activities.

4. Balanced Score Cards are aggregative so that one can build reports from various levels in the organisations. Coupled with its heterogeneous nature (previous point), one can build reports for HR, Marketing, Finance, … under the same format and surface analytics at one or many levels. The result is that some knowledge related metrics can climb the hierarchy up to the summit.

As we can see, Penny’s post opens doors to some interesting discussions and actions that would aid social computing get a sounder ground and senior management drive in a better informed way the organisation they manage.