Social impact

What is impact measurement and why does it matter? In answering the question this article is targeted specifically at charities, social enterprises, and more generally impact investors interested in creating a positive social impact. The objective of this article is not to recommend a particular impact measurement tool, but to walk you through the key stages involved in the process of impact measurement.

Impact market trends

Impact investing has captured the hearts and minds of leaders in finance, philanthropy, business, and government seeking innovative ways to help solve society’s most challenging market failures. Impact investments are those that intentionally target societal and/or environmental impact along with financial return through specific measureable outcomes.

Until recently there has been a large amount of debate on the definition of impact investing and a lack of cohesiveness towards impact measurement approaches – however, on 20 June 2014 the European Commission announced the approval by the GECES (Groupe d’experts de la Commission sur l’entrepreneuriat social) of the standards for measuring and reporting social impact.

EU Commissioner for Employment, Social Affairs and Inclusion, László Andor, said: “...the new standard will help social enterprises to access EU financial support, and sets the groundwork for social impact measurement in Europe." The GECES standard outlines a universal five-step process towards measurement. Importantly GECES highlights that a “one size fits all” approach towards measurement is a non-starter. We continue by defining social impact and providing an overview of the GECES five-step process.

Definition of social impact

Social impact as defined by GECES is “the reflection of social outcomes as measurements, both long term and short term, adjusted for the effects achieved by others (alternative attribution), for effects that would have happened anyway (deadweight), for negative consequences (displacement), and for effects declining over time (drop-off)”.

Impact measurement is a tool to embed and integrate outcome based performances measures into the day to day activities of social sector organisations (SSOs). It should not be seen as a fringe activity. It is a powerful tool to not only quantify effects of interventions, but a tool to understand how to use resources effectively, assist with organisational planning and decision-making, and secure funding.

When considering social impact it is useful to think of it as an Impact Value Chain (IMV). The IMV has become a popular starting point for defining social impact as it clearly sets out the differences between inputs, outputs, outcome and social impacts.

As with all definitions, they are most effectively demonstrated through the use of an example. Let us look at an organisation that focuses on increasing access to personal development programmes to support young people to re-engage with learning, increase confidence and employability skills.

The theory of change for this organisation is that lack of access to such programmes is a key factor in preventing disadvantaged young people from gaining future employment or gaining qualifications. In the context of such a programme the SSO inputs the money invested and the people employed to educate the young people.

The output is the development of the personal development programme, whilst the outcome may be the change arising in confidence, self-esteem levels in the lives of the beneficiaries. The overall impact of such an intervention is the change or effect on society that follows from the change in the young person.

Five-step impact process

Impact measurement should be underpinned by a common process based on setting objectives, identifying stakeholders, setting relevant measurement metrics, measurement and validation of results and finally reporting.

STEP 1 – SETTING OBJECTIVES. Setting realistic, measurable and attainable objectives is a vital step in any impact measurement process. It is important that the social sector organisation sets realistic boundaries for the assessment based on available resources and the SSO’s overall objectives of the assessment.

STEP 2 – STAKEHOLDER ENGAGEMENT. SSOs should engage with stakeholders to prioritise the impact objectives set out in Step 1 build a hypothesis of the SSO contribution to addressing social market failures and, finally, test the development hypothesis with stakeholders.

STEP 3 – MEASURING DIRECT AND INDIRECT IMPACTS. To transform the objectives set in Step 1 into measureable results, a SSO must consider outputs, outcomes and impact. Once the SSO has set a coherent theory of change in place, the next step is to identify relevant indicators to measure the extent of the SSO impact.

STEP 4 – MEASURING AND VALUING IMPACT. In this step, the SSO should seek to verify whether the claim made on having positive impact is true, and if so, to what extent (i.e. to what value). It is during this step in the process that a system for data collection is set up. Measurement and validation is a continuous process over the lifetime of an intervention, as such data collection should be integrated into everyday operational systems and should not be considered as an afterthought.

STEP 5 – REPORT IMPACT. Reporting impact through a stand-alone impact report, sustainability report or as part of a corporate social responsibility report is a key final step towards transparent impact. Distributing impact performance coherently is an effective tool for informing stakeholders of performance. An independent review or social assurance can be carried at this point to validate impact performance.

Social change and profit

Impact investing is an evolving space, it has the power to harness entrepreneurship, unlock private capital for public good and create innovative solutions to solve some of society’s most entrenched social issues. If underpinned effectively by an appropriate impact measurement framework, philanthropists, businesses, and SSOs alike can create real social change by combining profit with purpose.

There is a distinct tension in the charity sector between front-line delivery organisations and those who invest in the sector. From the perspective of charities and social enterprises, seemingly unrealistic expectations, lack of adequate support, and demanding requirements can make philanthropists seem like whimsical despots. From the perspective of foundations and investors, lack of coherent reporting data and unclear intervention logic can make charities and social enterprises appear inefficient and ineffective.

There is no denying that the charity sector is showing a genuine desire to be more effective, both individually and collectively. However, the key difficulty is this: transforming that desire from rhetoric to reality. There is a still a lot to be done in terms of increasing effectiveness on both sides.

For example, too many philanthropists and funders are still giving money without ensuring that their gift delivers positive impact. Furthermore, the amount of information collected to satisfy funders has increased, but those same funders have failed to return the favour by using the information to derive learning that is beneficial to the community.

Charities, whether operating wholly in the UK or with activities abroad, face problems that continue to evolve far faster than the ability to cope with them. Although the spirit and dedication unique to these charities remains incredibly strong – with so many individuals and organisations working harder and longer than ever before – resources are becoming increasingly scarce. Even with the best will and the greatest effort, the current way of working will simply not be enough.

Making altruism "high impact"

What is needed is a new paradigm for working, both individually and collective¬ly, which encourages greater focus on impact, systemic change and collective action. This has implications for how funders, donors and investors select, fund and support ini¬tiatives, as well as how they structure or align themselves. To do this, philanthropists need to follow a set of principles which will enable them to be "high impact altruists".

For me, a high impact altruist can be almost anyone – an individ¬ual donor, an impact investor, or a corporate foundation – bound together by a seemingly simple goal: the desire to support the creation of social value. What differentiates a high impact altruist from a conventional philanthropist is the way in which the donor adapts ways of working to achieve sustainable results in the most efficient and effective way possible.

The aim here is not to create a one size fits all straitjacket that must be rigidly implemented across the charitable sector, but rather to identify a series of fundamental principles that can be evolved and adapted to suit specific needs. After all, elements of high impact altruism already exist throughout the sector; however, to accelerate the pace of social change, the uptake of these best practices needs to be much more rapid.

Why a need for change

No matter what they have been traditionally called – do¬nors, funders, impact investors – these types of altruists have always been a key source of social good and form a vital pillar of the social sector. Since altruistic behaviours have an intrinsically moral element – the willingness to sacrifice some of one’s own goods or resources to benefit others – it can sometimes be taken for granted that all outwardly altruistic activities are good by default.

How¬ever, motivation alone does not guarantee success, and philanthropic programmes can not only be ineffective in achieving their aims, but can actually cause harm.

To address this, altruists need to constantly learn from their activities and improve ways of working. Paradoxically, as the challenges that altruists seek to address have increased in number and complexity, more and more altruists are turning to the "tried and tested", ingrained ways of working. However, what is needed is change, innovation and improvement.

Principles for high impact altruism

Below are the principles for a high impact altruist. As these need a bit of unpacking, we will explore each of these areas in more depth in the rest of the article.

1. Having a clear purpose.
2. Building an understanding of the issue.
3. Providing a proactive and supportive response.
4. Embracing learning and data-based decision making.

These principles should influence everything from high level strategy to day to day decision making – from individual donor level to large corporate foundations. They are not necessarily complex concepts, indeed many may seem like common sense. However, putting these principles into practice in a holistic way can be challenging.

Having a clear purpose

It is impossible to become a high impact altruist without a clear sense of purpose. What, though, constitutes altruistic purpose? A clear purpose is more than just the will¬ingness to do good – it is a way of channelling that willingness into a focused and specific mission that will guide all altruistic activities.

Defining altruistic purpose can be tricky as there are so many worthwhile causes to support and so many ways to act. An altruistic purpose can be divided into three core com¬ponents: motivation, commitment and ambition. In other words – what is my motivation for giving? How much am I willing to commit (time, money, resources)? And what is my overall ambition?

A clarified understanding of altruistic purpose should be integrated into everything the altruist does – from high level strategies to day to day operations. Altruists can often lack the intense scrutiny and competitive pressures which drive businesses to improve efficiency, and it is critical that trustees, managers, staff and even individual donors take ownership of their own results – whether this is large scale social change or the difference in a single person’s life.

A clarified understanding of altruistic purpose should be integrated into everything the altruist does – from high level strategies to day to day operations. Altruists can often lack the intense scrutiny and competitive pressures which drive businesses to improve efficiency, and it is critical that trustees, managers, staff and even individual donors take ownership of their own results – whether this is large scale social change or the difference in a single person’s life.

An understanding of the issue

Without an understanding of the issues at stake, an altruist cannot make vital decisions about where to allocate scarce resources. Many altruists, especially at the beginning of their journey or when entering new areas of work, will not be experts in the fields they hope to influence. However, being complete¬ly dependent on others to understand and design the best solutions can be both risky and ineffective.

Donors tend to be influenced by non-needs based criteria when planning activities – such as individual tastes and passions. True high impact altruists ask themselves a series of questions about the problem at hand which contribute to their understanding, such as: What is the issue that I am trying to solve? What information is already available? What are the negative effects of this issue? What are its root causes? How expansive is the geographic scope? What are some of the barriers to a solution?

Furthermore, most social and environmental issues exist in a complex system where multiple actors and external factors, as well as interrelated social issues, affect what happens. High impact altruists seek to understand the most relevant parts of the ecosystem in which they work – enabling them to, amongst other things, identify current gaps or pre-existing good working models; and target resources and efforts where they will achieve the greatest good.

A proactive and supportive response

More than just considering their own operating model, high impact altruists also need to sup¬port the development of sustainable business models for the charities they work with. High impact altruism is dependent on responding to a problem with the most effective solutions and ensur¬ing that solutions will be sustainable and scalable over time.

What does this involve? To start with, it requires choosing a response model and excelling at it – will I deliver impact as a delegator; work in collaboration as an associate; or lead change as an activist? Each model has its own merits but is dependent on altruists considering what financial resources, time, knowledge, or connections they already have that could be useful for their chosen pro¬ject.

Also needed is for high impact altruists to mobilise individual and collective assets. With a clear view of what one can commit, there are many ways to better combine and leverage assets so that impact can be multiplied. Finally, high impact altruists support capacity building, which enables charities to do more with the money they receive. Through it, charities build the skills, knowledge, and capacity to innovate and the infra¬structure required to be more effective and efficient.

This creates the ability to deliver more predictable, scalable and sustainable social and environmental impact, and is a central part of what the high impact altruist can offer.

Embracing learning and information

The final mark of high impact altruists is that they use all the evidence and information available to make informed decisions and encourage continuous improvement.

Embracing a new learning approach can often be seen as threatening and destabilising for those who have ingrained ways of working. However, only through continuous improvement can we move from pure mitigation of problems to sustainable solutions. This means not only embracing data and information management, but also being more open and honest about successes and failures.

There are three steps to facilitate ongoing improvement. Firstly, there needs to be smart performance management. Performance management across the sector needs to be more rigorous, more realistic, and more open. There needs to be a distinction between what a charity needs to measure its own performance versus what is useful for partners to measure.

The second step is sharing learning from successes and failures. In the face of complex and constantly evolving issues, no strategy, approach or intervention will guarantee success. How¬ever, using these experiences to learn and continuously improve work will help altruists understand which propos¬als to embed, which to scrap, and which to refine.

The third step of this principle is fostering peer-to-peer learning. Fragmentation and silo working is endemic in the sector and there is still much that could be done to facili¬tate greater learning amongst peers. Altruists can help facilitate this by fos¬tering relationships between similar or related initiatives within their own portfolio – and there is a proven appetite for more of this type of learning.

How to apply these principles

Applying these principles means integrating them into every aspect of an altruist’s journey, from strategy to implementation and evaluation. Whether the altruist is an individual with a small amount of money to give, or a large corporate foundation with millions at its disposal, it is worth ensuring that all of the key principles are applied in an appropriate and proportionate way.

As a quick sense check and assessment tool, below at the end of the article is a short diagnostic for some of the most common problems that high impact altruists might face. For each cause, I have indicated where some of the root causes may lie and some of the tools one could use to mitigate these.

Using these principles to start honest conversations about performance, ambition, and actions can be transformational – both for the effectiveness and efficiency of operations, as well as the ultimate impact that one can deliver.