'It's only going one way' - a lively discussion on business impact measurement
At a crowded event in London last night we discussed why and how companies measure their development results. The headline messages I took away were:
- ‘It is only going one way' - more interest, more relevance - in the words of a senior banking executive, echoed by a mining multinational. The business case for measuring socio-econonomic is getting clearer: perhaps not many companies have reported publicly yet but they are now considering and discussing it. Business people in the room reported that it is now seen as an investment, not a cost.
- The ‘outside world’ - pundits, investors, perhaps governments – would like social performance boiled down to the fewest simplest metrics – perhaps even one number. Fine for a headline. But tracking impact for internal decision-making will never be so simple.
- Companies have a variety of measurement approaches to choose from. Which one works, depends on why they want to measure impact. A combination of approaches may be needed over time.
A great example of how different tools can be used came from Clara Barby, speaking about impact investment funds. A fund will assess routes to social impact before selecting clients. During engagement, it will map value chains to help identify opportunities to boost social impact, then use Key Performance Indicators, including indicators from the IRIS taxonomy as part of the normal operating reporting of an investee. Finally, they would consider academic modelling and deep dives for selected investments. Different tools for different needs at different stages.
For this event, co-hosted by BIF, Business Fights Poverty and Anglo-American, we prepared an overview of the four main approaches to assessment of impact by companies (forthcoming, as BIF Spotlight). Each has it strengths and weaknesses.
My presentation focused on how these approaches are being used by companies. More multinationals are commissioning studies of their economic contribution, assessed through economic modelling. But my personal favourites are the tools that help pinpoint and guide action inside the company: measures that track change over time and provide real time information to management.
I was asked at the end of the meeting where I see this impact agenda and future innovation. My five reflections:
1. Multinational companies have the resources and increasingly the business case to measure impact; they need the data to speak to governments and partners. Mission-driven businesses, often social enterprises, have the combined social and commercial goal that makes them inherently focus on understanding their social impact. But that leaves a vast middle of small medium and large companies, who probably remain at the edge of this groundswell of interest in tracking results.
2. Measuring the positives is one thing, but the negatives matter enormously to local people. Until impact assessment by companies gets better at covering the negative impacts or areas of poor performance, it will be incomplete.
3. Tracking indicators of social performance is critical, but choosing the right indicators is very hard. Indicators that can be generalised across all businesses are less likely to be truly relevant to each business. We won’t get it right first time. What matters is to continue revising, and not build a monstrous institutional edifice that rolls out fixed indicators that lack meaning.
4. A lesson from our work with BIF clients on their Key Performance Indicators is that gathering data about low-income suppliers, farmers or consumers is hard. It may be simply too much cost and effort for a business that is not in direct contact with the base of the pyramid. But technology – such as hand-held PDAs or mobile phones used for exchanging money and data, will soon unblock the efficiency and affordability constraint.
5. Consumer-focused inclusive businesses targeting low-income consumers are likely to be the fast growing segment in the decade to come. They will find it much easier than the producer-focused businesses to overcome data problems. Data from the point of sale, or from finance or post-sale servicing, will enable them to capture social metrics. The challenge will be metrics that go beyond numbers reached, and assess the significance of the new product or service in people’s lives.
For more information:
Resource Library section: Measuring Impacts and Results
Event page on Business Fights Poverty