9
Metrics versus instinct
MEASURING SUCCESS
You can tell an awful lot about a business by what and how it measures. So to distinguish between a social enterprise and a non-social enterprise, you need look no further than the key reported metrics. In an NSE, the metrics are almost entirely financial. First among these is the measurement of market capitalization.
In a social enterprise, financial results are also reported, but these metrics are reported in relationship to the measurements of social impact that go to the core purpose of creating the common good.
To be clear, an NSE might also collect and report certain metrics around its social impact. Target Corporation, for example, has a huge strategy around community philanthropy. It measures every dollar it gives to every group at every location and proudly displays signs in every store meticulously describing how much money it has given away and to whom. All of this makes an impact in its communities. It has every right to trumpet that impact in its in-store marketing campaigns. But the fact that Target collects and reports that information does not make it a social enterprise.
130■ UNLOCKING THE EIGHTH PARADOX
Your business isn’t a social enterprise until you can prove it with blended social and financial metrics.
Are people’s careers going to be made on, are their raises and bonuses going to be tied to, is the board’s evaluation of management going to be based on the financial metrics, the social metrics, or the blended metrics? If the answer is the financial metrics, you’re a for-profit NSE. If the answer is the social metrics, you’re a nonprofit NSE. If the answer is the blended metrics, welcome to the club! You are a social enterprise, regardless of whether you happen to have the tax status of a nonprofit or a for-profit.
Why Bother?
You know that you’re making a difference in the world and you have plenty of supporters who also take it as an article of faith that you’re doing so. Given the time, money, and attention that building good systems for measuring social impact takes, you might be tempted to avoid the topic altogether. REDF, widely considered the thought leader in the entire field of measuring social enterprise impact, understands the temptation. REDF’s Cynthia Gair puts it rather bluntly:
There is this dilemma: do you want to pour all the money into measuring, when that money could probably do quite a bit toward actually helping people do things? It’s sort of a quandary about where to put your money… We value measurement of outcomes, but most important to us is helping people move along in their lives and move out of their difficult situation.1
Why put your energy into an activity that is not directly producing results? Because you want better results, that’s why. Just as production-floor metrics improve the processes in your factories, social-impact metrics help you find better, faster, more efficient ways to deliver to the world what it needs from you. You measure what is important. If it is not measured, it is likely not something that you are trying to improve.
But beware to never collect social metrics in a vacuum. Instead, take the artful approach of collecting them and reporting them right alongside your financials. In fact, you’ll generally find a direct and traceable relationship between social impacts and financial impacts. Your ability to carve out true costs on both sides of the equation will improve each and every decision in your enterprise.
If you remain unconvinced, then consider another argument for investing in measurement systems: the rapid emergence of capital markets for social enterprise. This is great news for any enterprise that hopes to go to scale. But remember, sophisticated sources of expansion capital have the know-how and, frankly, the fiduciary duty to deploy capital where it will have the greatest blended social and financial return. Fail to develop credible metrics and these markets will leave you behind.
■ PRACTITIONER’S TIP
Measure impact to improve it.
By the very nature of what it is you’re trying to measure-to-improve, you’re facing a tricky measurement and reporting challenge, made all the more difficult by the newness of the field of social impact reporting. Think about it. Going way back in time to Pacioli’s invention of double-entry bookkeeping, financial reporting has never had to change much. Virtually 132any company can be lined up next to any other company or set of companies and be compared on the same handful of key ratios and indicators. Not so with the nascent field of social enterprises.
It’s really not very hard to set up good financial measurements. An entire set of GAAP (generally accepted accounting principles) has been devised to standardize how it’s done. Get a reasonably decent piece of enterprise software or stick with an old-fashioned columnar pad and you’re in business, whether your business is McDonald’s, Boeing, or the corner grocery.
On the other hand, every social enterprise is different. The common good is a vast goal toward which to aspire. Everybody who is working toward it is working on a different part. If you’re going to claim progress—and you must, for many reasons—you must be clear, from the outset, about what you really want to have happen in the world because of the existence of your enterprise.
■ PRACTITIONER’S TIP
Build common-good measurements, from the ground up, into the front end of the enterprise.
Here are just a few examples of what our colleagues are measuring, or at least attempting to measure:
- At Give Something Back: Percent of accumulated retained earnings given away via philanthropic dollars (a whopping 78 percent, to date, according to Mike Hannigan!).2
- At Seventh Generation: Product efficaciousness of no less than 90 percent of that of the leading product in each category, and superiority from health and environmental standpoints to all products in the category. (What makes this an 133interesting approach to measurement is that measurements are made only in relation to other products that represent the status quo Seventh Generation is seeking to alter.)3
- Also at Seventh Generation: The size of the category in which the product competes. (This is a very sophisticated way to look at social purpose, which allows a small impact on a big problem to count as much as a bigger impact on a smaller problem.)4
- At Benetech’s BookShare.org enterprise (a web-based system supplying accessible books in digital formats for people with disabilities): Number of users, subscription renewal rates, number of downloads, number of books in the collection, number of books scanned by volunteers.5
- At Benetech’s Martus enterprise (an open-source software system for ensuring that the documentation of human-rights violations is safeguarded and disseminated): Number of bulletins and number of server backups.6
- At KaBOOM!: “Value,” the number of kids served in low-income communities, as defined by reduced-cost or free lunch programs, and the square footage of space being developed into play space; “efficiency,” dollars raised, contracts executed, and volunteers engaged; and “leverage and amplification,” the rate at which volunteers become longer-term advocates and partners.7
- At Guayaki: Amount of rainforest reforestation, species per hectare, and number of acres preserved and dedicated to sustainably harvested mate.8
- At TROSA (and coincidentally, at Rebuild as well): Percentage of program participants who graduate and place ment rate of graduates. Also at TROSA, GEDs attained and drivers’ licenses obtained.9
- At Calvert Foundation (relative to the lending it does to other social enterprises): Number of housing units produced, 134number of child-care slots created, number of jobs created, and square footage of commercial construction. (Notably, in these measurements, Calvert recognizes it is really measuring “output,” not true social impact, since the social impact is created, in turn, by the organizations to which it lends.)10
- At Greyston: Good turnover (when employees leave for a career or job opportunity that better fits their lives) versus bad turnover (when an employee is asked to leave or leaves without having a better job opportunity lined up).
To our knowledge, the prize for state-of-the-art measurement systems for social impact goes to Rubicon, whose CICERO system has been widely lauded as the best of field. What is impressive about CICERO is not just its technological platform for capturing and reporting data but the nuanced approach to true social impact that it presents. Rick Aubry explains that CICERO measures all of the interactions between Rubicon and those it serves so that Rubicon can evaluate the impact of programs and combinations of programs on achieving its common-good goal of moving people from poverty to sustainability:
If you roll it up to three of the most important things that we look for, we sort of compare the income of people when they walk in our door to where they are at six months, a year, and two years down the line to see if there is in fact both job creation and wage growth over that period of time… Since a significant number of people we serve were homeless when they walked in our door, we compare their housing stability at the point of entry to six months, a year, and two years down the line. We 135also measure involvement in the criminal justice system as at least a proxy for cost savings that we are creating and impact on people’s lives. In some programs that, for example, are targeted at fathers, we monitor the child-support payment that the dads do at entry versus further on, their engagement with the lives of their young children, as well as the job and housing stability that they have. So a very significant amount of resources is invested in measurement of the impact that we have, and it is published and available on our web site for investors to see.11
If a Tree Falls in the Woods but There’s No One Around to Hear It
A good leader, when faced with a tough decision, collects input and information from as many sources as possible but never abdicates the duty of deciding. In the long, dark hours of the night, the courage to make a call and move on is what separates leader from follower.
So it is with the world of measurement.
As the list of items our colleagues are measuring bears out, you can and should measure plenty of things. By all reasonable means, go ahead and do so.
You may never be able to measure other things. “How do you mark down something about learning to care again, that there is hope?” asks Kevin McDonald.12
This is where faith, passion, and conviction come in. While business schools may try to beat common sense and intuition out of their graduates, we would argue that these soft skills are absolutely essential requirements for you as a social enterprise leader.
136PRACTITIONER’S TIP
Use measurements to inform your instincts, not replace them.
Start with values. You will never, and we mean never ever, be able to quantify the social impact of love and compassion. Operate a loving and compassionate enterprise anyway. You can’t measure what it means to treat your employees well, to be square with your customers, to pay your suppliers fairly and promptly. Do all of these anyway. And so on. Of course they have a cost to them. So what? If you’re not willing to compromise about them, don’t bother measuring them.
Outputs to Outcomes
We strive to change the world for the better. Let us not be so egotistical as to believe that we can control the entire set of variables necessary to do so. Even if we ever could, that which we seek to change would change before we could measure it.
That is why it is so important to be very clear about the difference between measuring outputs and measuring outcomes. Think, for example, about what it means to move out of poverty. REDF has researched this extensively as a key supporter of social enterprises working in this field. According to Cynthia Gair,
We have positive [evidence] that if people get a job and increase their wages and span a job over two years, they are on the way to moving out of poverty. But assessing whether a person moves out of poverty permanently would take years of monitoring… We’ve found that just measuring longitudinally for two years after baseline is a pretty unusual thing in the world of social-science measuring.13
What we can do, or what we have to at least settle for, is to measure specific actions, aggregate these actions into movements, and then project the cumulative effect of these into ultimate outcomes. This is the heart of what has been termed the KaBOOM! formula, according to Darell Hammond:
We manage outputs and occasionally do longitudinal studies on what are the outcomes that we are achieving. I think it is important to note that we manage outputs and occasionally outcomes because if we were constantly trying to measure outcomes, it would take seven to ten years for us to be looking at what those outcomes are, and by the time we tried to have process improvement,… it would be five years into a cycle. [So, for example,] an input is the number of people who are hitting our web site; an output is the number of people who are registering and then making posts, and an outcome is the number of people who actually go on to build [a community playground]. And if they build, do they have a higher degree of civic responsibility, do they go volunteer more frequently, are the kids more healthy? Those are outcomes.14
Just as importantly, consider the phenomenon of measuring what doesn’t happen in the world because of your enterprise. That may be the ultimate measure of your impact—and the hardest of all to measure. It’s a key measurement for Joan Pikas relative to the women escaping from poverty at The Enterprising Kitchen: “They may not necessarily leave here and be immediately employed. But if they don’t lose their housing and they don’t go back to jail and they keep on that positive path, then that is another measure of success.”15
138Remember, too, that this whole issue of measurement is a two-way street. It’s not just about tracking what your enterprise is doing to improve a social condition. Flip it on its head once and you’ll discover that it’s also worth measuring what improving a social condition does to your enterprise. Basic market research and business analysis may very well prove that your enterprise’s social impact is also serving your bottom line.
Build It In
When you’re as focused as you must be on the day-to-day running of the business, it can be hard to find the bandwidth to do the kind of measurements you really should do. We have some simple suggestions that may help.
Most fundamentally, remember to think about social-impact measurement at the very earliest stages of your enterprise. You’ll find it easier to collect the information you may need if you build the collection into every other system you use for managing the enterprise—and easier to track your progress if your baseline extends all the way to day one of your enterprise.
Internally, communicate and celebrate your social metrics frequently and regularly. Break the metrics into small chunks that can be measured quickly and easily and can be displayed visually in your workspaces. Nothing will motivate and unify your staff more than to see regular evidence of the impact they are having on the world.
Report social impact wherever and whenever you report financial information. If social results go hand in hand with financial results, one should never be displayed without the other. Include social metrics in your executive summaries, on dashboards, and in the financial reports themselves.
139■ PRACTITIONER’S TIP
Measure frequently and regularly— and celebrate results!
An interesting phenomenon develops when you do all of this measuring right. You’ll find that your business partners become more interested in your social results, while your social partners become more interested in your business results. Some would call that a blended bottom line. We’d call it a good thing.