Hi, my name is Guenter Rottenfusser and I have years of experience through the Boston Consulting Group (BCG). Here, I grew professionally from consultant to global social impact manager. While originally trained in theoretical mathematics, I decided that after gaining a solid analytical foundation, it was time to shift into a role where I could have a larger contribution.
After all, over the years, we have seen a shift in corporate social responsibility. This is because impact measurement indicates that it’s no longer enough to simply donate sums of money and say your business has a meaningful impact.
But what exactly is entrepreneurial impact measurement, and why is it important? In this article, I will answer these questions and more.
What is Impact Measurement?
Impact measurement is how we determine to what extent our actions have an effect. In terms of entrepreneurship, it can be quite complex and difficult to perfectly measure. However, there is a general framework that is applicable:
1. Input – This is where you assess what are you trying to measure the impact of. As part of input, you make note of what resources are available to make the impression you want to have.
2. Output – Here, we are describing what has happened. Is something achieved or created? What activities resulted? Often, the output is a countable feature. For example, how many people were served or how many products were delivered?
3. Impact – This is the effect a program has. Unfortunately, it doesn’t always get the attention it deserves because it is difficult to measure.
4. Value of Impact – When I say the value of impact, this refers to how much influence the impact had. It’s what we come to at the end of the day and see how effective and efficient our impact was. It allows us to understand what we could do better with the same input resources. For example, wiser spending habits, deeper assessment of cost-benefit analysis to implement our program and so on.
To conceptualise this framework better, imagine a remote village plagued by famine. In particular, the lack of food affects the children of this village. So, your organisation aims to improve their situation by providing the thousands of children living here with food. In this scenario, food is the input. The result, or output, is an improvement in health and longevity of some number of children for the time to come by preventing malnutrition and starvation.
In this case, it’s possible your organisation created a meaningful social change. Your efforts were able to springboard your target group (the children), to a higher quality of life than what they would have had without your efforts.
Though, determining the value of this influence is difficult because many variables factor into the well-being of the children at hand. In any case, you can be sure that you contributed to this community.
Challenges Surrounding Impact Factor
From personal experience, I can say that a few challenges come up when looking further into an organisation’s impact factor. The largest complications that I have found are:
To understand their impact, organisations and companies will employ various metrics. Even an organisation as large as the United Nations uses them. Take the Sustainable Development Goals (SDGs) for example. These address a multitude of social and environmental concerns. One such example is improving the number of people living below the poverty line. For this, the metric may be assessing how many people remain living below the poverty line after the input.
The issue here is that this metric reports numbers. It doesn’t give a sense of how much and how well things have actually improved. Obviously, more refined metrics should describe what is going on. However, we would then have to factor in how feasible such metrics are.
Scalability and Reproducibility
It is important to know your investment wasn’t short-lived and can have a long-lasting impact. But how? Knowing how to and that you can to scale up your efforts to extend beyond its original borders is a great first step. Alternatively, you want to know that what your organisation did, can be done again – maybe in another area, maybe in the same place, but it should be reproducible.
While a sensitive topic, having thoughtful conversations about the reach and replicability of an organisation’s impact is important.
Sometimes, we know what we want to improve, but it’s hard to quantify the true effect our efforts have. This is because acquiring such information is not always feasible. For example, in remote areas, it is unlikely that we can perform a tele-survey to understand the true significance of our actions. In other cases, it may be too difficult to use the ideal set of metrics, and instead, we have to settle for those that give us a coarse view of what our impact is.
An initiative taken today may not be immediately realised. Take education, for example. The effects of an education program may not show until 10 years from now. Even then, how do you take an impact measurement?
While based on experience, knowledge, and science, trying to track the progress of impact is so complex that we cannot say it was us that made the change in full. Though, we can say we were a part of the progress observed.
Impact Factor and Social Business
Typically, social entrepreneurs start with something they understand and know well. This way, you know what your effect is, and the complexities mentioned before are less stark. You know with certainty what your attributes are, what are the needs and can see if they are being met or not.
For instance, if an organisation wants to have the highest impact and benefit for itself, then it’s optimal if they look at an action that is close to its core business. From there, they can think about how to improve that and how it can branch off from the already existing infrastructure.
Take the organisation Because International for example. This non-profit partners with local manufacturers to produce cheap shoes that not only prevent infection from soil-transmitted diseases and parasites for children in need, but also expand in size to grow with the child. For the manufacturers involved, this increases their brand reputation and market in addition to serving a social cause. What’s more, is that it’s something they know how to do already and can easily extend from their core services.
Even at BCG, most of our investment is not cash-based, but is what we do best. That is, strategically consulting organisations on how to be more impactful. What results is the creation of more impactful organisations. By doing this, we are able to extend our impact way beyond what we could have, had we just donated a sum of money.
What Does Not Work in Social Business
As I just mentioned, BCG is able to achieve a greater impact by doing what it excels at as a business. To see an impact measurement that goes beyond the bare minimum for your business, it’s best to avoid simple donations, sponsorship, and random investments.
These methods are archaic and don’t allow your efforts to be scaled nor always used in the wisest of ways.
Another method that does not work so well for maximising social impact, is hyper-focusing on a narrow-angle of the value chain. Some entrepreneurs take a narrow perspective in hopes of achieving optimal measurability. Though, this method is often far less satisfying for those looking to do good. The reason being is that you are typically only able to serve a niche group in society.
Theory of Change
Another thing I want to explain that is critical to evolving your social impact is the Theory of Change. This explains why what we are doing will have certain impacts. It models the desired outcome and connects all the pieces involved that bring our intended change. As a methodology, the Theory of Change guides social change through an organisation’s planning, participation, evaluation, and management steps.
Problems and Solutions in Impact Measurement
Bear in mind, that it is difficult to understand your impact contribution. While we can further our understanding of what we’re doing through the Theory of Change and knowing what contributes to our impact measurement, change is nonetheless complex.
Depending on the problem, the significance of your actions will vary. This is due to the interdependencies in the process. For example, if you invest in education, it will most likely also have a positive impact on health.
The complexity of interdependencies is not limited to just the problem at hand, either. It also is dependent on the solution chosen to fix the problem. One case I like to highlight for this is battling malaria. This disease affects millions every year. When looking for a solution, there are two main schools of thought, but each has different impacts and outcomes.
The first method is to use genetically modified mosquitoes to decrease the prevalence of malaria vectors by making the next generation of mosquitos infertile. In other words, the vector species goes extinct. Though some studies show that while a gene modification can help decrease the prevalence of malaria, it may lead to an increase in yellow fever.
Yet, another approach is to develop a vaccine. In this case, you are able to provide immediate resilience to malaria without affecting the ecosystem and maximising your effect.
When looking at an impact, you need to be both an expert on how to address the problem and how the solution affects the problem as well as the whole value chain.
A Good Business Impact Plan Starts at the Beginning
Now that you’ve seen how different problems and different solutions affect the chain of change we want to have, it’s time to address how we organise our impact.
What I highly recommend is that people include a business impact plan for their whole enterprise from the very beginning. It should include what we want to scale to in a certain number of years. Additionally, it should look at first-order effects while saying what the plan is, how we impact people and the challenges at hand.
It’s not enough to say you’ll focus on addressing something because it adds societal value, and then scale it up. Of course, while this works, if you don’t have a proper plan in place, this will not continue to work pass a certain size. Once you have grown too much without a proper plan, a loss of control typically occurs.
When hammering out the details to your impact plan, you don’t need to have perfect data to troubleshoot everything. But, you need to make smart estimates and guesses to make sure realistic and sufficient calculations to yield something meaningful.
Most entrepreneurs have their heart in the right place. So, if they thought about the theory of change and impact factor early on, they could have a great impact.
Who are the Stakeholders Involved in Impact Measurement?
When trying to have a positive social change, you are not the only one who cares about what you’re doing. Your stakeholders are also concerned with what your impact is.
- Consumers – will change behaviour based on what you’re doing. So bad impact results in a bad customer base.
- Employees – want to work for an organisation that does good, has a purpose, and has a positive influence on society.
- Public regulators and policymakers – generate more laws and regulations on being climate neutral, having a sustainable supply chain, and following human rights.
For example, in India and South Africa, it is mandatory for corporates of a certain size to put a fixed percentage of profit into socially beneficial projects.
- Investors – want to invest in companies that embrace Environmental, Social and Governance (ESG) and green ideas, not someone who doesn’t care.
A Final Word to Impact and Impact Measurement
There is hard evidence, albeit it’s industry-dependent, that when you have a strong societal and environmental impact, then you’re more profitable on average than your peers. Not only that, but you will have a higher evaluation of investors and therefore a higher multiple if you want to sell. Should you not want to sell, then it still benefits your image and direct economic impact
It’s important to find a balance between the challenges in constructing your impact plan and how to go about it. Though, don’t worry too much, as long as you are passionate and knowledgable about the topics at hand. After all, they can be incorporated into what you are already doing in one way or another as an organisation.