Measuring Social Value to Advance Social Innovation

This Week’s Topic: Capitalization and Impact Assessment for Social Innovation

Measuring Social Impact: Measuring Social Value (link to the referred article presented below)

Geoff Mulgan, the article’s author, acknowledges the need to quantify, through an effective metric, social value that results from nongovernmental organizations, social enterprises, social ventures, or social programs. A useful metric ensures adequate justification for spending, funding for effective programs, and demonstrates the extent of impact created. Despite the need and want to use adequate metrics, Mulgan points out both managers of socially impactful organizations and their relevant stakeholders (e.g., foundations, funders, beneficiaries, policymakers) fail to use sophisticated metrics that sufficiently allocate resources as informed by levels of social impact, or value, created.

Mulgan offers his conceptualization of a more effective and sophisticated metric for social value, and argues a sophisticated metric should “think about social value as the product of the dynamic interaction between supply and demand in the evolution of markets for social value.” In other, perhaps more simple words, social value is created in the case in which the something that is created is paid by some willing someone.

Mulgan argues social value metrics serve the following three roles: external accountability, internal decision-making, and assessment of broader social impact. The metric mentioned below assesses social value associated to “internal decision making;” other metrics are required for the remaining roles. Mulgan suggests organizations that assess social value to inform internal decision-making should measure the social value using a Likert scale (i.e., 0-5), rating the following four categories in relation to the social value created: Strategic Fit, Potential positive outcomes, cost savings and economic effects, and risks associated with implementation. Mulgan suggests relevant stakeholders adopt their own frameworks to measure social value, and then engage in useful discussions with organizations (organizations’ stakeholders) to share and reform frameworks for better future measurement.

Effective measurement tools provide adequate means to assess social impact, and inform ways to innovate, making this article especially relevant for this week’s topic. I personally am drawn to this topic as I find it provocative to measure social value. I admire Mulgan’s ambition to propose effective measurement of such an intangible concept like social value, but understand the necessity to measure the concept. Providing frameworks to measure any concept, including social value, allow social enterprises and other relevant organizations to innovate more accurately (innovation guided by clearer measurement), rather than to rely on beliefs as a means to measure social value.

In the work that I have done in providing educational panel discussions, or social awareness campaigns, arguing the social value of my efforts has been a challenge, although I have used other metrics to attempt to do so. As I continue attempting to provide social value to my community, using sophisticated metrics will equip me with better guidance to do so.

Question: When measuring social value, what else should be included in a metric that Mulgan failed to mention?

Article Link: www.ssireview.org/articles/entry/measuring_social_value

Measuring social impact of SIBs and B Corps

Using social impact bonds (SIBs) to fund preventative social programs has potential to improve quality and reduce costs of costly programs for job training, drug rehab, early childhood education, prison recidivism, child abuse prevention, and many other challenging social issues.

Like SIBs, Benefit Corporations (B Corps) such as Etsy, which adopt a social mission alongside their pursuit of profit, could eventually re-write the consumer-producer social contract in such a way that employee welfare and company ethics become a marketable commodity rather than a red line on a balance sheet.

SIBs and B Corps may be relatively new ideas, but they come with the same set of challenges faced by philanthropists, social entrepreneurs, and impact investors. First among those challenges is measuring social impact.

The four complexities identified in the Stanford Social Innovation Review article “Measuring Social Value” are equally present in SIB and B Corp efforts to make an impact:

1. Human behavior is not always predictable. There are too many variables influencing human decisions to draw sound conclusions about a causal relationship between the government or an organization’s efforts to address a social problem and the results of those efforts. SIBs that are effective in one context may not produce the same result in another, and investors may be turned off by the risk associated with such uncertainty. Similarly, B Corps that go public could face lawsuits for failing to carry out a social mission that they actually have very little control over.
2. People do not agree about what desirable outcomes are. As Mulgan points out in his article, “the public argues not only about social value, but also about social values.” While the government may issue an SIB to reduce incarceration rates, some members of the public may be of the opinion that criminals deserve to spend time in jail as punishment, regardless of the cost. Likewise, a B Corp’s social mission may have a religious aspect that requires workers to dress a certain way or denies employees certain health benefits for religious reasons.
3. Social value metrics are arbitrary. Estimating costs and paybacks of investments intended to have social impact is not a rigorous enough process to give policymakers the necessary information to evaluate the effectiveness of SIBs with much accuracy or specificity or compare results with alternatives. B Corps also face this issue when attempting to scale – should scaling be measured by organizational growth, more product sold, changing behaviors of consumers, etc.?
4. Short-term costs vs. long-term benefits. It is difficult to determine the value of making a future generation better off, especially because traditional commercial discount rates don’t necessarily apply to social benefits. What should the return be for an investor that funds a social program that will decrease obesity rates in 25 years? Does it make sense for a B Corporation to introduce company policies that benefit the children of their employees in 18 years? Would the corporation be neglecting their fiduciary responsibility if they didn’t implement that policy? These questions do not have clear-cut answers.

Investment leads to Investment

It takes success for the private sector to invest in social ventures. Currently social ventures are beginning to hit the mainstream at a rate that hasn’t been seen historically. Investors by and large are still unfamiliar with how to operate with social ventures as they are caught between the non-profit and for-profit spectrum of businesses.[1] For investors to be interested in pursuing social enterprises there needs to be a track record of success on behalf of these enterprises. Investors look for investments with relatively low risk and the possibility for return. An individual social enterprise making money isn’t enough to develop an astute assessment of whether or not the enterprise will succeed because investors are not familiar with the social enterprise market because it is still developing. An investor can’t look through a history of businesses with similar business structures in similar markets because the social enterprise market is still emerging into prominence within the finance sector.

The “Funding Gap” article states that social entrepreneurs don’t have trouble finding investment for them to start up their business, they instead run into trouble when trying to expand their business. Funding isn’t just about the company you’re investing in making profit. A large part of the investment process involves risk-reward analysis. As more investors begin to invest in the social enterprise market then the market will begin to develop. Large investors IGNIA and the Acumen fund are paving the way for more investment to occur in the market because of their investment. Funding social enterprises creates survivorship bias within the market. Of the many investments these large funds will make, only few can realistically be revolutionary. If the amount of successful social enterprises grows, then outside investors who may not care about social impact may be persuaded to invest in a social enterprise because of the success of other enterprises. As investment companies with a social focus continue to grow and see success in their investments, then a self-perpetuating cycle can be established where social enterprises succeed with capital investment which would spur more capital investment from diversifies sources which would again in turn promote increased investments.

Social enterprises are on the cusp of seeing increased investment from sources outside of socially conscious investment firms. Socially conscious investment firms were necessary catalysts for the social enterprise market because they contribute in making success stories. Its these success stories that will be referenced when other private equity shops or banks are pursued by budding social enterprises seeking investment. Many investors want as close to a guarantee as possible that their investment will pay off. A thriving social enterprise market will be proof enough for many investors and lead to increased investment into social enterprises.

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[1] Chertok, Michael, Jeff Hamaoui, and Eliot Jamison. "The Funding Gap." Stanford Social Innovation Review 6.2 (2008): 44-51. World of Good Inc. Web. 12 July 2015.

Social Impact Bonds ≠ Human Centered Design

Social Impact Bonds (SIBs) are not really bonds. Bonds are a debt investment where "an investor loans money to a bond issuer for a defined time period at an agreed interest rate" [1]. SIBs are partnerships between governments and private investors. Private investors invest in non-profits to scale up. If greater social impact is proven, then the government reimburses private investors for their investment.

The SIB has bipartisan congressional support and the support of prominent think tanks like the Center for American Progress, global investment banks like Goldman Sachs, famous consulting firms like the McKinsey Institute, and U.S.A Today's top policy institution, the Harvard Kennedy School [2].

In the finance and public policy realms these are huge names. However, each and every article does not include hard facts about non-profit SIB support.

The closest direct references are:
1) Hypotheticals in context of Social Impact Bonds: The introduction from McKinsey's "From Potential to Action: Bringing Social Impact Bonds to the U.S." [1]

2) Digital Divide Data's inability to receive adequate funding. However, there was no reference to Digital Divide Data wanting SIBs to fulfill their funding needs [3].

To me, this is a serious problem. How many McKinsey analysts have tried to end youth violence, end homelessness and support victims of rape in the same 'on the ground' capacity as non-profits? Non-profit organizations deliver on the ground social impact not purely analyze it. Thus, to ensure the success in a switch to SIB funding mechanisms, non-profit organizations must be excited about SIBs and support the measure.

I have worked for two non-profit organizations. One that addressed youth development in St. Louis, Missouri and another that addressed homelessness through job training in Appleton, Wisconsin. SIB's never proved topics of discussion. 

Throughout the social innovation course, we have discussed the success and failures of non-profits, social ventures, and for profit companies addressing social welfare. Many successes surrounded a company's use of human centered design. The main tenant in human centered design is a conversation between those who can provide a good or service and those who will be receiving a good or service. In my opinion, this dialogue is not occurring in regards to SIBs and the effects may be detrimental for various reasons.

1) SIBs rely on quantitatively determining social impact in a market system. This inadvertently puts greater value on some human life and a lesser value on other human life. I believe many non-profits would be vehemently opposed or at least strongly question this type of discourse.

2) SIBs require a standardized way of determining social impact. I do not believe this is best practice. Each non-profit serves a different goal. Even if the goals seem similar, the people served differ culturally and geographically. This makes standardization impossible or requires a very flexible model that may not meet investor or government demands.

3) SIBs require a non-profit cultural shift. Having worked in and directly benefited from smaller non-profit organizations, I have seen that general computer, math, and economic skills are more difficult to find or are less valued. Even if the directors do have quantitative and standardized tendencies, efficiency measures may just not work. For example, when I worked for a job-training venture, I suggested standardizing the sign-in and sign-out procedures, saving me hours of work. However, the director, a math major, responded that they've already attempted it, but the community they served never standardized their behavior: Marie may want to be Maria one day and Margaret or Mariaaa another.

For SIBs to be all that McKinsey, the Harvard Kennedy School, and Goldman Sachs crack them up to be, the SIB conversation must more actively include the people they will serve, non-profit organizations. Otherwise, SIBs will be another failed attempt to increase social welfare, similarly to social innovation start-ups that begin in a lab versus in the field. 

Changing the Market

Traditionally, we equate the idea of creating social impact with the mission of a conventional non-profit organization.  Non-profits have been a way to provide goods and services in areas where policy cannot fulfill citizen’s demands. However, many social entrepreneurs have taken a different approach to creating a social impact through a for-profit  model.

What makes these organizations and this method unique is that it looks to create change by working in the for profit market system. I found a resemblance between this week’s readings and public policy issues the cohort was exposed to this past weekend. During our trip to DC, we met with Felicia Escobar, Special Assistant to the President for Immigration Policy, who spoke about creating change a broken system. Comprehensive immigration reform, Escobar explained, could not pass congress, a scenario too often faced by policy makers. However, Escobar also explained that this motivated her team to find ways to work within the current system in order to provide benefits to immigrants without having to completely change the system.

This type of mentatlity can be applied to the field of social innovation. Economists everywhere agree that markets often fail: people could be priced out of essential goods and services such as healthcare and housing options, negative externalities such as pollution are sometimes overlook, and costumers do not always enjoy full information. So a social entrepreneur may ask herself how can she make the most social impact? While non-profits still have a place in society by filling in the gap where the market and policy fall short, such as aid immediate aid relief, for profits can work with the system and also create change.  

Rather than outwardly challenging the status quo, for-profit companies with a socially motivated mission statement can work from inside the system and essentially shift the market curves. As representatives from Thread International and the Idea Foundry explained last week, the existence of companies with a socially-conscience mission attract socially conscience consumers, which influences the market and consumer preferences. This in turn creates higher standards for regular for-profit companies to follow, indirectly affecting the rules of the traditional market. While social enterprises that seek to follow this path face many difficulties such as maximizing their profits and social impacts, their existence shows the reality of creating alternatives to the traditional markets.