With “enterprise 2.0″ (i.e., web 2.0 for the business) fully into its third year of being, you’d think everyone is from Missouri. In other words, it’s all about “show me” – show me: the measurable business benefit, the ROI, the value creation, etc.

The interesting thing is that measuring the bona fide desirable business outcomes of an enterprise 2.0-style collaborative initiative is a little like measuring the winner of a Sim game. There are many variables at work, many interrelated systems, and what may seem like success at one level can lead to failure at another, higher-order system level.

But progress is being made and many bright minds are working on the problem. Recently, my colleague George Danner posted a clever piece about this subject, breaking it down into a combination of layman’s terms and math, in a way only George (“I’m just a simple mathematician”) can do. Here’s what he posted:

“Our company, nGenera, is all about how Collaborative Enterprise Management – how firms can leverage the power of collaboration for strategic value. The evidence is clear that most companies have far to go to achieve a collaborative enterprise, so we have our work cut out for us.

For the average organization, it is a legitimate question to ask: what is the business value of collaboration? It sounds nice, makes a nice phrase in a mission statement, but what really is the economic value, in dollars and cents, to making a collaborative enterprise? …a completely valid question.

Since we are also scientists of business, we tend to come at this question from a scientific viewpoint. Want to know the value of collaboration? – then simply contrast the value of the collaborative firm versus that same firm in the absence of collaboration.

The question of “added value” in cooperative settings has been addressed exhaustively in the science of Game Theory. Here, economists use stylized examples to illustrate cooperation and competition in quantitative ways. One of the classic examples is called The Prisoner’s Dilemma. Here is the setup:

Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies (defects from the other) for the prosecution against the other and the other remains silent (cooperates with the other), the betrayer goes free and the silent accomplice receives the full 9‐year sentence. If both remain silent, both prisoners are sentenced to only one year in jail for a minor charge. If each betrays the other, each receives a five‐year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should prisoners act?

To understand the decision confronting the two prisoners, we use a device called a payoff matrix, as shown in Figure 1.

Now let’s fill in the matrix with the payoff numbers. In the case where a prisoner receives a 9 year sentence, we consider the payoff to be a -9. The prisoners would obviously prefer a smaller negative number to a larger one.

Now let’s examine the decision for an individual prisoner. Either prisoner can be silent, in which case he can receive a 1 year or nine year sentence, depending upon the moves of the other. Either prisoner could betray, in which case he would receive a 0 or 5 year sentence, depending on the moves of the other.

Note that the “betray” strategy beats the “silence” strategy in any case – a 0 is better than a ‐1 and a ‐5 is better than a ‐9. For this reason, we achieve equilibrium in the game when each player follows his best strategy – to betray the other and receive a 5 year sentence each. But wait – that is worse than the overall best strategy, which is for both to remain silent!…hence, the “dilemma.”

You will recognize that the reason the prisoner’s behave the way that they do is the artificial walls (or in some cases actual walls) between the prisoners, not allowing them to observe the other or to compare strategies – in other words, barriers to collaboration. So what if the prisoners could collaborate?

In an ideal world, they would compare their strategies and pick the value maximizing choice – to remain silent. Therefore one could argue that the economic value of collaboration is the difference between the two cases ‐1 – (‐5) = +4; +4 X 2 prisoners = 8. Therefore the prisoners created 8 positive years of value between them by collaborating.

The Prisoner’s Dilemma vignette is a highly stylized illustration; yet, the very same dynamics emerge in business problems with budgeting, price negotiation, and shared service adoption. In practice, however, this may mean contrasting a conventional supply chain with one where information sharing with respect to buyer forecasts or internal material requirements or even customer orders operates.”

George goes on to write that “Business simulation is a vital tool in just such investigations, as one could easily construct that set of experiments using a simulation model replica of the supply chains in question.”

George and his colleagues on the simulation and analytics team at nGenera are working on ever more concrete models to use in measuring and then verifying the results of large-scale enterprise-wide collaborative efforts. What examples have you observed? What metrics have you seen that are broadly applicable and validating repeatable methods for successful collaboration? Please let us know!