As highlighted in my last post on collaborative scaling, agreeing a common agenda for success and setting clear targets are some of the key success factors for getting to impact. In my role as coach or mentor of many startups I have observed that too many impact oriented initiatives start out of good intentions but lack agreed targets and the clear pathway to know when they are successful. This article introduces the concepts of Theory of Change, Social Value and Social Return on Investment (SROI) all important tools to defining your trajectory to success and knowing when you have achieved it. By applying these tools and following through on your theory of change, targets and measuring thereof you can ensure not to unconsciously deviate from what you originally set out to do but are brought back to asking yourself the question whether you are reaching what you intended with the measures applied.
The (financial) value of a company listed on the stock exchange is captured in its share price and it is typically deemed successful if it brings financial returns to its shareholders in the form of dividends or an increased share price. The question on the social value of a company along with its intended and achieved impact is usually much less straightforward and has often been debated. Indeed social impact and social value were both named 2014 buzzwords by the Guardian – mainly because it often remained unclear on what they refer to exactly.
The principles of Social Value are not individually remarkable; they have been drawn from principles underlying social accounting and audit, sustainability reporting, cost benefit analysis, financial accounting and evaluation practice. There are different approaches and guidelines to implementing this. An account of social value is a story about the changes experienced by people. It includes qualitative, quantitative and comparative information, and also includes environmental changes in relation to how they affect people’s lives. The following description is based on the Social Return on Investment which is 10 years old this year and one of the most commonly referred to framework in the discussion on impact measurement. It’s a quantitative measurement tool that has been standardised by Social Value UK (formerly the SROI network) . As the name suggests, it looks at those environmental or social values that are not included in conventional accounting and ultimately provides a monetary figure for social value.
Before we start setting the stage for Social Value we need to be clear about the theory of change behind a particular project or endeavour. The theory of change is the narrative describing where you want to go and how you will get there. It identifies preconditions, pathways, and interventions necessary for the success of a strategy. As you will see later on there is a part which overlaps with the Social Return on Investment and Social Value thinking. The main difference is that the theory of change is a specific tool for community change efforts which supports a structured thinking process and allows you to co-design what needs to be changed and why in a causal pathway. The approach follows 5 steps:
- Elaborate your vision
- Build a map of the desired outcomes
- Determine on which of these outcomes your team will work
- Identify indicators for each outcome you address (incl. Who will be impacted? How many will change? How much will change? When will it change? And of course what measurement tools will be used, when the indicators will be measured, who will do the measuring and who will look at and analyse the results)
- Design the interventions (what will be done, by whom, how and when)
Once you have your theory of change laid out you are ready to develop it into a pitch and test it with stakeholders.
Next we are looking at the 4 Stage approach to determine the Social Value or Social Return on Investment (note that since the “parents” of SROI renamed themselves to social values, the two terms are often used referring to the same thing). This framework does not only helps systematic thinking and monitoring but also quantifying impact and thus rendering it comparable across different types of intervention. The analysis starts in Stage 1 with the stakeholders and the questions of “Who do we have an effect on? Who has an effect on us? In regards to the stakeholder we then need to anticipate transition consequences, so both the intended as well as unintended changes. We can ask “ What do you think will change for them?” Taking a perspective which includes stakeholders right from the start will mitigate the risk of impact assessments conducted in isolated manners and many organisations trying to invent independent solutions.
Stage 2 then looks at direct cause and effect. Thus describing the inputs per stakeholder “What do they invest?” And attributing a value do it. Outputs are then the direct consequences of the inputs. Things like space for event for 30 people provided. These outputs should lead to an outcome. The outcome needs to be described by asking ourselves “How would you describe the change?” This is again then per output. An output typically has more than one outcome.
In Stage 3 we look at what changes in more detail. First we look at the indicator of the outcome, so the question is “How would you measure what changes?”, when we look at the source of the information “Where can you get this information from?”, the quantity “how much change was there?”, the duration “how long does it last?”, the financial proxy “What proxy would you use to value the change?” the monetary value “what is the value of the change?” and again the source for the monetary valuation “where did you get this information from?” And of course: Are there any indicators for which you have not recorded a financial proxy, which are nevertheless important?
Image credit: Sidney Harris
Stage 4 is then about establishing the impact. Here your baseline or deadweight which answers the question of “What would have happened without this activity?” is at the core of our interest. To claim any impact for yourself you need to be able to prove, that there is what is called additionality in the carbon offset language, meaning that your project creates something which would not have happened otherwise. This is often the most difficult step and asks also for other methods like randomised control trials. These randomised control trials appear to have created a new hype in the industry as they finally seem to warrant for the impact of e.g. development aid measures before then proceeding to scaling them. In principle this is very much welcome in an industry that is converting from donorship to impact driven investment but requires both knowledge and resources.
The next step after looking at the initial impact of an activity is to look at the attribution and ask “Who else contributed to the change?”. In terms of lasting effects you need to think also about the drop-off: “Does the outcome drop-off in the future years?”. Once you are there you can then calculate your impact which is equal to quantity times financial proxy, less deadweight, displacement and attribution. If you want to take it one step further you can then look at it on a year by year basis and apply a discount rate to calculate the total net present value and then the social return per amount of currency invested. These last steps are thus identical to any usual ROI calculation which is one of the reasons why not only the thought process – which in my opinion provide value by themselves – but also the results are attractive since they can be used talking to investors in an already familiar language.
If the outlined process sounds too complicated you can revert to the method of storytelling and develop a qualitative description of your impact in a narrative. The questions you need to ask yourself on deadweight loss, attribution and drop-off will remain the same but sometimes putting things in words may be more telling and more intuitive.
Of course once you are able to quantify and clearly attribute your impact, growth financing – often a major barrier to scaling – will be much easier to raise.