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To achieve credibility, social entrepreneurship must spell out the basic principles underlying its practices and objectively measure its outcomes. Measuring social performance – particularly by analysing management practices – is an eminently suitable approach for social business. A key challenge in this respect is designing standardised tools that reflect the special requirements of this sector.

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This article is an excerpt from Issue 23 – Social business: a different way of doing business and investing

USING MEASUREMENT TO ENHANCE AND SHARE SOCIAL BUSINESS PRACTICES

Social businesses have attracted an enthusiastic following among corporate foundations, multinationals, investment funds, the media, public policymakers and NGOs alike. Social business aims to implement concrete, innovative, sustainable solutions to social problems – from access to renewable energy in areas covered insufficiently or not at all by the electric power grid to the fight against infant malnutrition. Where its proponents often differ however is on how to achieve the desired results. Taking their lead from Muhammad Yunus, who articulated the principle of “No loss, no dividends”, a number of social entrepreneurs have stressed that social objectives must take precedence over financial objectives. Others claim that it is enough to give the two equal status, or that the main issue is simply to set explicit targets in advance for both kinds of goals. But everyone seems to agree on the crucial need to measure social achievements. Otherwise, it is hard to see how these organisations can monitor or enhance the impact of their work on the social or environmental problems they seek to address. A failure to clearly identify the intended outcomes could well undermine the credibility of social businesses – and their raison d’être.

THE NEED OF SOCIAL PERFORMANCE MEASUREMENT

Microfinance has become popular as a means of combating poverty by enabling small entrepreneurs – often operating in the informal economy and lacking access to the financial system – to make it on their own. An influx of public funding into this burgeoning  sector has led to rapid commercialisation and, in some cases, to practices that bear little resemblance to the initial purpose of microfinance, including private appropriation of public funds, larger loans at higher rates and over-indebtedness. The fight against poverty has gradually been supplanted by the notion of financial inclusion, often with detrimental consequences for the poorest recipients. As the microfinance experience strongly suggests, any sector that claims to meet both social and financial goals but fails to outline its underlying guiding principles risks veering off-track.

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This highlights the importance of establishing clear non-financial assessment criteria for social businesses and identifying the practices most conducive to achieving social objectives. But before we go about the vital task of measuring the work accomplished by organisations, we need to clarify the actual purpose of measurement. Are we concerned, for example, with the effects of selling solar lamps to poor population groups or rather with steering indicators – in which case we would focus more on “social performance”, i.e., on management practices in place? It is important to distinguish between these two levels of analysis: i.e., measuring social impact or measuring social performance (the latter being much better suited to social businesses).

It is important to distinguish between these two levels of analysis: i.e., measuring social impact or measuring social performance.

Measuring social performance means assessingthe extent to which an organisation has planned for achieving its social purpose in the long term. That requires analysing the organisation’s mission and reviewing its policies and procedures as well as examining the clarity, consistency and relevance of what is often termed the “theory of change” – in other words, the changes the organisation expects to achieve and how it believes the actions it has planned will bring these changes about. This ensures that each of the first links in the  impact chain – from inputs to outputs – is sufficiently robust (FIGURE ). Social performance measurement is a concrete activity carried out under the direct stewardship of the organisation. It helps the organisation’s policy-makers and partner institutions to make operational decisions and strengthen and adjust existing practices whenever these appear to be going astray. The resulting framework makes it possible to identify key performance indicators, or KPIs (profiles of beneficiaries, shared governance, satisfaction, product adoption rates, quality, etc.) that provide a basis for regular and relevant impact reporting.

In contrast, social impact measurement seeks to tie changes for end-beneficiaries back to the social business actions (BOX ). When we focus on quantifiable measurement of a social business impact, we are confronted with the thorny issue of how to treat the changes observed. For example, if the income of a group of producers has gone up, should this increase be ascribed to the action of the social agribusiness to which they deliver their output or to an upturn in the local economy?

In any event, impact measurement – a process involving a cumbersome research protocol – is a more occasional practice, typically conducted with outside financing and input from outside experts. A social purpose organisation does, however, retain control over the assessment and monitoring of outcomes and observed changes using KPIs to ensure effective implementation of the organisation’s theory of management – for example, the number of solar lamps sold, profiles of beneficiaries and their level of satisfaction. These processes can subsequently be checked (as in the microfinance industry, for example) by rating agencies that may systematically and independently assess to what extent the organisation is fulfilling its social mission. Such external verification enhances the credibility of the organisation’s internal efforts and helps it communicate more effectively with partners.

STANDARDISATION, A PROCESS REQUIRING MATURITY

In the measurement process, a question that often crops up is comparability. How do the outcomes achieved by an organisation stack up against those of another organisation, or the a peer group average (i.e., organisations with a similar purpose, structure and environment)? That question cannot be answered unless the methods and indicators used to track progress have been standardised. The idea is to be able to compare organisations in terms of impact and, more importantly, to provide a common language that renders a set of good practices intelligible based on the maturity of the specific sector and the sharing of experience. Standardisation establishes a “compendium of existing practices” that includes all of the component parts and devises a metric for assessing outcomes that is relevant to an organisation’s specific purpose. An organisation may elect to apply sector-based benchmarks, scale down its reporting and communicate in a consistent, directly intelligible fashion with its funding providers and external partners. The work of the Social Performance Task Force1 – which produced the Universal Standards for Social Performance Management with microfinance professionals – is exemplary in this regard.

The idea is to be able to compare organisations in terms of impact and, more importantly, to provide a common language.

A decade of sharing experience and collaborating has enabled microfinance practitioners to develop both the Universal Standards and a social performance assessment tool called SPI4. The microfinance experience underscores the power of such approaches to drive organisations to improve their own social practices and design appropriate assessment tools – most notably by managing their processes and outcomes with the help of social scorecards which they share with their staff and their boards of directors. The Universal Standards serve as both a manual of good practices and an assessment framework.

 

IMPACT ASSESSMENT METHODOLOGIES

Some impact assessment methodologies are chiefly quantitative; they involve statistically comparing the characteristics of a representative group of beneficiaries with those of a control group composed of individuals whose “only average difference” with the experimental group is that they are not subjected to the action of the organisation. A further distinction runs between “quasi-experimental” methods (ex post construction of the control group) and experimental methods or Randomised Control Trials (RCTs) with ex ante construction of a counterfactual (random assignment of individuals who will or will not benefit from the organisation’s actions). In contrast, qualitative methods tend to use modes of sampling that emphasise diversity rather than representativeness, along with anthropological and sociological research protocols (interviews, observation, “triangulation” of data) to analyse life trajectories, relationships between stakeholders and complex socio-economic systems. Lastly, we find mixed methods straddling quantitative and qualitative approaches. To establish causal links, such methods combine quasi-experimental with qualitative techniques (Bédécarrats, 2012).

CERISE’S SOCIAL ENTREPRENEURSHIP ASSESSMENT TOOL

The popularity of social business and impact investing has gradually given rise to a variety of approaches and tools for assisting social enterprises. For example, the Practical Guide to Measuring and Managing Impact (EVPA, 2015) proposes a five-step framework for integrating impact measurement into the organisation’s operations so that impact assessment becomes an integral part of the management process (for the organisation) or the investment process (for the funding providers). Similarly, the Organizational Capacity Assessment Tool (OCAT) developed by McKinsey2 helps non-profits assess their operational capacity and identify areas for improvement.
Based on insights derived from the microfinance industry and the real-life experience of social businesses, CERISE, the knowledge exchange network, has developed a special tool called the Social Business Scorecard (SBS3). The product of a three-year iterative process undertaken by CERISE and the working group it heads up,4 the SBS analyses the distinguishing features of social businesses with the aim of enhancing the assessment and management of their social performance. It is structured around seven “dimensions” (the 7 P’s) that are subdivided into some fifty management practices (BOX ). The Scorecard’s standardised nature makes it easier to assess social performance, shape strategic and operational policies and introduce programmes to improve management practices.
In early 2015, twelve organisations in six countries across three continents made use of the SBS – thanks in large part to support from Agence Française de Développement (AFD) and efforts by CERISE and its partners. One such organisation is a development NGO in Togo dedicated to tackling rural poverty. It has three programmes in place: providing instruction for small farmers in how to increase agricultural yields; construction and management of community clinics; and a mutual health insurance scheme that covers 75% of each member’s healthcare expenses. As a result of the programme, the NGO’s beneficiaries can get faster medical treatment throughout the year, leaving them more time to tend their farms and generate income.

THE SOCIAL BUSINESS SCORECARD (SBS)

scorecard

The Scorecard is structured according to seven independent dimensions called the 7 P’s. A social business has a Purpose – a clear social mission shared by all stakeholders. A social business targets a Public that is vulnerable, poor and/or excluded (clients, suppliers and/or employees), and the Products and Services it offers form an adapted mix that meets basic needs and reduces inequalities. A social business has HR Policies and Practices that ensure employees and service providers are treated responsibly. A social business adheres to Ethical Principles regarding the environment, the community and integrity. A social business has a defined and transparent policy on Profits and how they are used to further the social mission. Partnerships are a last, optional point. When a social business benefits from a partner relationship, the technical support provided is fundamental to the business model. The seven points in the SBS are subdivided into some fifty management practices spanning a broad range of organisational profiles. Completing the Scorecard requires documentary analysis and interviews with people in the organisation and its partner organisations (service providers, suppliers, funding providers, clients, etc.).

However, a finer-grained analysis of the current beneficiaries highlighted a lack of information that would guarantee continuity among the three services provided. For example, the mutual health insurance scheme – a recent, pioneering programme that is inadequately understood by the local population – has attracted more traders and teachers than farmers. These findings prompted the NGO to track a number of indicators systematically so as to ensure proper targeting and adjust its promotional campaigns to the profiles targeted.
The SBS can also help strengthen human resource policies in ways that consolidate an organisation’s social purpose. A case in point is a social business in Madagascar that works with a network of women service providers distributing food to combat infant malnutrition. The SBS analysis highlighted the fact that the role played by these women had been underestimated. They do very hard underpaid work with no entitlement to social insurance. Moreover, while the distributors embodied the organisation’s public image, they were only vaguely aware of what made the programme special. Moreover, because the women rarely stayed long, the enterprise was constantly obliged to train new people. The situation only began to change once the results of the SBS analysis were presented to the organisation’s leadership. The previous service agreement approach, with sales commissions as the distributors’ sole compensation, was replaced by salaried employment that included benefits and training. Given that this strategic choice required substantial expenditure, the organisation extended the time limit it originally set for breaking even so that it could build up adequate human resources. Since these changes were made, the enterprise has noted greater levels of satisfaction and lower turnover among distributors, as well as improved delivery of its message to the designated beneficiaries.

To be able to carry out innovative, socially ambitious programmes (…) and to make sure they stay on track, social businesses need to measure and monitor their practices.

To be able to carry out innovative, socially ambitious programmes – requiring clarity and transparency – and to make sure they stay on track, social businesses need to measure and monitor their practices. Impact measurement is a complex, time-consuming exercise that may seem like an ordeal to social businesses. Shifting the focus of impact chain analysis from the changes attributed to the organisation to an assessment of its outputs can lead to more effective direct production of information with greater operational relevance. The experience with microfinance suggests that it is a good idea to focus on the management practices of social businesses. By sharing good management and governance practices, identifying tools capable of producing measurements that be used for management and external reporting purposes, and prioritising the combined financial, economic and social efficacy of such approaches to enhance their own solidity and credibility, social businesses have a good chance of saving several years – and averting the kind of “adolescent crisis” that all too many observers are already predicting. When all is said and done, social performance management merely advocates starting at the beginning of the impact chain (social inputs) instead of at the end (the impact on beneficiaries). This feature alone should be viewed as a clear sign of maturity.

Footnotes:

1 The Social Performance Task Force (SPTF) is a membership organization with more than 2,600 members involved in inclusive finance
(practitioners, donors, investors, associations, technical assistance providers, rating agencies, researchers, regulators, etc.). SPTF engages with stakeholders to develop, disseminate, and promote standards and good practices for social performance management and reporting.

2 To find out more about the OCAT, go to http://mckinseyonsociety.com/ocat/what-is-the-ocat/
3 The SBS is underpinned by guidelines and feedback from social entrepreneurs who have undertaken a performance assessment and improvement process. It can be downloaded for free at www.cerise-sb.org.
4 The working group’s members are CIDR, GRET, IRAM, AIDR, Entrepreneurs du Monde, AFD, the Grameen Crédit Agricole Microfinance Foundation, Investisseurs & Partenaires and Proparco.

REFERENCES
Bédécarrats, F., 2012. L’impact de la microfinance : un enjeu politique au prisme de ses controverses scientifiques, in Mondes en développement, Issue 158.
European Venture Philanthropy Association, 2015. A Practical Guide to Measuring and Managing Impact. Available online at
http://www.avise.org/sites/default/files/atoms/files/evpa_guide-mesure-impact_201506.pdf