At a recent CEO Roundtable among women entrepreneurs organized by Miller Center for Social Entrepreneurship, one founder asked about the best way to measure impact. This sparked a lively debate among her peers, each with a different take on the issue. This discussion illustrates a key dilemma in the impact space: the lack of coherence and standardization around measuring and managing impact.
The last decade has seen the impact investment ecosystem grow dramatically. The Global Impact Investing Network’s (GIIN) 2020 report estimates the market at $715 billion. As the market has grown, so has demand for accountability in measuring social impact. But what exactly does this mean for entrepreneurs and — even more challenging — for ecosystem intermediaries (those that don’t create impact directly, but enable others to do so)?
At the enterprise level, impact measurement and management (IMM) entails balancing easily quantifiable inputs, like volunteer hours, or outputs (houses built) that explain what the enterprise does, with outcomes and impacts that get at why the work is important. For example, social enterprise Husk Power Systems reports not only the number of solar mini-grids installed (their outputs), but also the company’s impact — providing reliable energy access to 125,000 people, directly employing 650 people in 2020, and replacing 15,000 tons of CO2 a year.
For intermediary organizations, IMM presents a unique set of challenges. As an intermediary organization focused on accelerating social enterprises, Miller Center for Social Entrepreneurship is rethinking its own IMM strategy. At the core of our approach is respect and ingenuity. How can intermediaries accomplish their goals for measuring impact in a way that retains credibility, is humble, and still attracts the funders needed to thrive? This article poses three questions intermediary organizations should consider about measuring their impact.
#1 What to Measure and Which Framework to Use
With a byzantine web of complex IMM frameworks available, it’s hard enough for those achieving direct impact to navigate; even harder for ecosystem intermediaries whose impact is more indirect. The first step is identifying the most relevant and broadly used frameworks, such as the United Nations Sustainable Development Goals (SDGs), the Impact Management Project (IMP), and GIIN’s IRIS+ framework, which are meant to help standardize, organize, measure, and benchmark impact.
However, for intermediary organizations like Miller Center, these frameworks lack the ability to aggregate impact meaningfully across the multiple social enterprises we serve — with over 1,200 enterprises to date across six continents, spanning a wide range of sectors and business models. For instance, how do we aggregate and compare the impact of safe water filters from Nazava in Indonesia to artisanal employment created by Someone Somewhere in Mexico to sustainable coffee farming in Uganda with NUCAFE? Focusing on lives improved is one way to aggregate across disparate enterprises.
That said, depth of impact rather than more shallow touchpoints provides more credible data for investors and other key stakeholders. For example, premier grain-handling company Grassland Cameroon helps farmers improve their yields, increasing their incomes by over 200%. Artisans working with Someone Somewhere are retaining their traditional crafts while increasing their monthly income by more than 300% through better paying, steadier work. They also report improved skills, self-esteem, and educational attainment. This is the type of data — reflecting a high level of impact — that intermediary organizations can meaningfully aggregate.
Another ecosystem player, Global Innovation Fund, has chosen to aggregate the work of their portfolio enterprises by creating a formula that multiplies breadth of impact (the number of low-income people who will benefit at year 10) by depth of impact (benefit per person relative to annual income) by probability of success (the likelihood that the innovation will be successful in 10 years). This number provides a way to standardize, measure, and benchmark their impact.
#2 How to Handle Additionality
How can an intermediary organization measure the value it has contributed to social enterprises and their impact? It’s tempting to add up all the impact of social enterprises participating in programs and portfolios, but this may not reflect true additionality. As the impact investing ecosystem becomes more sophisticated, so must our methodologies for capturing our added value. The conundrum is that it’s difficult to estimate the counterfactual — what would have happened to social enterprises and their impact without an investment or a business acceleration program?
For impact investors, measuring additionality might entail measuring the anticipated social benefits of an investment against its costs. This expected return metric can take various forms. Examples include Social Return on Investment (SROI), which the Harvard Business Review describes as “the financial value of the social and environmental good that is likely to result from each dollar invested”, and Economic Rate of Return (ERR), a cost-benefit analysis that Millenium Challenge Corporation defines as “income or value-added that is expected to be generated through environmental and social improvements, such as the effect of clean water on health outcomes or improved female educational attainment on incomes.” For academics, it might include running a randomized control trial and estimating what would have happened in the absence of an intervention.
Since Miller Center does not provide direct funding, we approach additionality differently. Our methodology has evolved from counting all cumulative impacts created by social enterprises from their origins to deliberately focusing on the value we help create. Our new measurement methodology counts the impact created by social enterprises in the first 3 years after graduation when our additionality is likely at its greatest. Further, we are testing other ways to measure the impact of our programs on social entrepreneurs by tracking their confidence levels regarding their ability to run their businesses and raise funding.
#3 How to Collect Data in a Way that Creates Value Exchange
Collecting data is a challenge at all levels of the impact ecosystem — for intermediary organizations seeking data from their portfolio enterprises, and for social entrepreneurs seeking data from their end-users. Regardless of the level, these challenges often reflect resource constraints and a lack of a clear value exchange for those sharing their data, which can feel extractive.
To deal with the resource constraints of data collection, many organizations have relied on a lean data approach, a term coined by Acumen and their spin-out organization 60Decibles. Lean data refers to a customer-centric approach to data collection by leveraging technology and measuring the meaningful changes and impact of a social enterprise, while ensuring the data collected helps organizations improve their business. By including the voice of the customer at the center of impact measurement and keeping their needs front of mind, social enterprises can better serve those customers and create more impact.
The ecosystem has historically struggled with low survey response rates. Miller Center is partnering with Sopact, a technology-based IMM social enterprise, to help us develop a value exchange for social entrepreneurs to provide their data. With this new platform, entrepreneurs will be able to select metrics appropriate for their theories of change, align to frameworks of their choice, and create visual dashboards of their impact. Intermediary organizations such as ourselves will then be able to aggregate the data across all of our entrepreneur partners.
Stepping up IMM strategies among ecosystem intermediaries is important because the market increasingly demands it. But it’s also critical because we collectively want to understand and communicate authentically about the impact of our work.
Originally posted on Medium.