Why and how companies set Key Performance Indicators to track social impact
How many farmers sell cassava into the supply chain? What is the retention rates of rural sales-women (aparajitas). How many requests for information on aflatoxin management processes are made by other companies? These are all examples of Key Perfomance Indicators (KPIs) considered by BIF clients, for inclusion in their social metrics.
Companies are well used to metrics and reporting systems that track commercial results and operational efficiency. But defining and tracking indicators of social performance is less familiar, and poses new challenges.
The first question, is why bother? The first motive is to track delivery of mission. All these companies have social objectives intertwined with commercial goals, so need to know if they are delivering them. Take AfriNut, a new peanut processor in Malawi. It was founded as a business that aims to support Malawian development, so the founding investors, range from a commercialcompany to a donor fund, are all committed to delivering combined social and commercial impact. So KPIs need to capture AfriNut progress, not just in tonnes processed, but also sales revenue to groundnut farmers and copy-cat improvements in the industry.
A second reason to develop social Key Performance Indicators is to sustain operational efficiency and to provide early warnings of supply instability. Universal Industries, a major biscuit manufactuerer in Malawi, is establishing a new supply chain for fresh cassava. The factory that will produce High Quality Cassave Flour (HQCF) is a subsnative operation, so needs to run at capacity in order to generate return. By tracking metrics at farmer level – planting, willingness to sell to Universal, farmgate price – Universal can both report their farmer impact, and get early warnings of any trends that suggest unreliability in future supply.
A third reason to track social KPIs is to reach out to Impact Investors – funds that value both financial and social return. The impact investing industry is increasingly using a standardised set of indicators, known as IRIS indicators, and is making strong efforts to improve social perfoamnce tracking. Any investor would no doubt require such tracking – so it seems prudent to incorporate IRIS indicators at the set-up of any company that knows it will be seeking impact investment. IRIS has a suite of generic indicators, plus a host of sector specific ones, with the idea that each company or investee selects the few that are most releavant. Attached is a file of IRIS indicators that we picked out for consideration by an agribusiness.
The final reason for careful selection of KPIs is less common, but strategically very wise: to temper performance incentives. Jita, a new social enterprise in Bangladesh, has explicitly brought a commercial drive to what was once an NGO programme. But the CEO is well aware that performance indicators get translated into targets, incentives, and changes in staff behaviour, and there is a risk that maximising sales could lead to trade-offs with social goals. If the staff (and I say if, this is hypothetical) were to only maximise revenue, this could discourage inclusion of the poorest saleswomen (who turn over low volumes of sales, so are relatively costly to the business) or the most socially-beneficial products (which need more customer sensitisation and will initially generate lower sales). In the case of Jita, BIF input focused on helping to refine the details of a few KPIs, to ensure cohesion across different departments and balanced delivery of the combined commercial-social goal.
These examples are all summarised in this slide from a recent presentation about approaches companies can use to track results:
These examples have already generated many lessons. To list just three:
- Tracking data amongst farmers, suppliers or customers at the base of the pyramid is easy for some, but a challenge – and possibly more than a business can do – for others. It depends on the business model, the companies location in the value chain works, and the use of technology. For example, Afri-Nut investors are keen to know how many farmers, and particularly women, are selling nuts to be processed. But Afri-Nut buys from a farmers association and traders, and does not have the direct farmer contact, nor electronic registration system, that would enable this to be done without substantive new investment – and to be honest, investment in peanut paste machinery is a more immediate priority.
2. Deciding which indicators is an important internal process. We usually help companies rank a ‘long-list’ by both importance and feasibility. Importance is about how necessary they are for management or board, and for what purpose? Feasibility is about whether the data is available, and what systems already exist for aggregating it?
3. There is a risk of spending too much effort on finding the right indicators to track, or generating the raw data and not enough on developing the system that aggregates and analyses data, and reports it in ways that show trends, comparisons and make it used and useful.
An overview of four approaches companies can use to track social impacts: