Tools to Measure Social and Economic Impact of Social Enterprises

Thorsten Jahnke, specialist from Social Impact Lab Berlin, spoke about different ways to measure the social and economic impact, using unemployment programmes as an example. According to the expert, there is no universal approach, as each country has its own specific social and economic impact. The European Commission developed an ecosystem of social innovation, taking into account 4 key elements:

• policy (regulatory system);
• civil society;
• economy (where social enterprises are in between commercial structures and the public social sector);
• research (in order to integrate the social and entrepreneurial way of thinking into the education system).

Thorsten Jahnke underscored that the programmes created within the framework of the European ecosystem of social innovation are intended not only for European Union members but also other neighbouring countries, including Belarus.

Measuring the social and economic impact: why it is important

There are at least five reasons to assess the social and economic effect of social enterprises.

1. To maximise effects an entrepreneur can create. In order to do this, one has to answer the question “What is my mission?” and analyse activities of the enterprise from the point of view of the theory of change. Any social enterprise creates some sort of wealth, but it is necessary to understand specific benefits people would receive thanks to the organization’s work.
2. To engage stakeholders. To do this, the entrepreneurs have to understand who their beneficiaries are. This reason also means that investors are not just companies investing money but organizations and groups that allocate funds and resources for specific purposes.
3. To gain a competitive advantage. Competition exists even within the social sector. That is why an approach like “we have to save the world, but our resources are limited” does not work. Organizations have to find the most efficient ways to solve existing problems.
4. To improve internal and external communication. Many people deliberately choose to stay away from large commercial structures, because they need to know that they do something good for the society. This goes for some actors from the business sector as well. By demonstrating the real social and economical impacts to them, you are going to make them more local.
5. To receive funding and sign contracts. Funding has a price — it is the price of activities that make the world better.

Outside inwards or inside outwards?

There are 2 basic approaches to measuring the social impact:

• Inside outwards. You invest your own resources and achieve short-term and long-term results. What are you getting for what you do?
• Outside inwards. This means a certification system. You put your company into a register to understand whether your work is good enough.
   

There is an international movement called B Corporation (or B Corp), where commercial enterprises working under innovative models can demonstrate their social impact to the world.

During the certification process, you will have to answer many different questions: What kind of energy do you use: renewable or traditional sources? How many people with disabilities work in your company? How are your profits spent – are they sent to shareholders or used to create social innovation? At the end of the process you are certified with a certain score on a scale.

The other approach — outside inwards — is a framework approach to measuring social impact, which allows you to assess it from different perspectives: from the point of view of government, business or private donors. The assessment includes various stages (or steps) of an organization’s work: resources — potential — product — social impact — social value.

Thorsten used a practical case to review the approach with the participants of the discussion: hotel and café personnel trained to provide services to people with disabilities, with people with disabilities themselves employed as trainers who get paid for the work they do. In this approach, one has to answer seven questions:

1. What real activities do you do as a social enterprise and who is your target group?
2. Do you have direct access to organizations (hotels and restaurants)? Do cafés and restaurants accept and require your services? How will they use them in practice? The answer to these questions involves marketing research.
3. What are the real results? For example, you conducted 10 trainings per year covering 10 hotels and cafés. How many people have you trained?
4. Have you reached your goal? Are hotel and café staff able to interact with people with disabilities after they did the training?
5. Have the hotels and cafés employees incorporated this new knowledge into their worldview? Have they changed their behaviour and attitudes?
6. Are any of the people with disabilities themselves now employed in hospitals or cafés?
7. How has the situation in society changed? At this level, it is difficult to achieve visible results within a year. However, in the long run, you will have more and more positive examples. You will also become an example for others.

Main social impact measuring tools

Although there is no single international standard for assessing social impact, some methodologies are considered more advanced for specific purposes.

Social Reporting Standard (SRS)

Social Reporting Standard (SRS) was developed specifically for non-profit initiatives and projects as opposed to the Financial Reporting Standard for commercial companies. A central component of this standard is the social impact section, where resources used by an enterprise are compared with the services it provides and its social effects. Any organization can download SRS templates and forms to do the assessment independently. A bonus here is that, based on the SRS report, a social enterprise can become a member of the large international non-profit organization Ashoka, which promotes social entrepreneurship.

SROI basic tool

While ROI (return on investment) is a tool typically used to measure profitability of a business, the SROI (social return on investment) formula allows to assess non-monetary impact, i.e. take into account the environmental, social, cultural and financial effects. A key element of this is that all stakeholders take part in the assessment process: beneficiaries / users / recipients of the product or service, investors, volunteers, sponsors, the media, etc. It is also very important to identify and present indicators that are clear and measurable and, of course, to be as open and transparent as possible, even if at first glance your indicators do not look good.

Thorsten used EnterAbility, a project that provides training and support to people with disabilities who want to launch their own start-up, as an example of an actor that successfully uses the SROI tool. After the programme worked for three years, state funding of the project was cut, so the company management was forced to start thinking of it like a business structure. The organization calculated its social returns over a 5-year period and was the first in Germany to make this information public and open to all.

As was demonstrated, with investments of 875,000 euros, 340 participants were trained, and 95 of them created their own start-ups, but only 64 of them were actually launched with the help of the project (the rest would have run their businesses anyway, even without this support). The remaining 64 people now not only employ themselves, but have now also created additional jobs within their start-ups. This has reduced government spending on disability benefits. In addition, the number of diseases has decreased by 50%. Since EnterAbility needed to develop a business proposal for commercial companies, they used the most radical form of social impact assessment —a quantitative method. The company had an SROI index of 3.9, meaning that each euro invested in the project returned to stakeholders as 3.9 euros of social impact.

Other social impact measuring tools cited by Thorsten included Sinzer programming platform and ValueGame, which allows users to create a virtual market environment.

In the final part of his presentation, Torsten noted that, in his opinion, in future social enterprises will become more and more similar to businesses, as they will have to become sustainable, and large corporations will include more and more social components in their activities.

Social impact of Belarusian social enterprises

Anastasia Zhyrmant, consulting lawyer for BelAPDIiMI (Belarusian Association of Assistance to Children and Young People with Disabilities), talked about social impact measurement done by 4 social enterprises created by BelAPDIiMI and a social enterprise "Nashi Maistry” (“Our Craftsmen”).

Social impact of employing people with disabilities: BelAPDIiMI

BelAPDIiMI has founded four unitary enterprises working in a range of areas, all of which have one goal. 80% of employees of all these enterprises are people with disabilities. Only two companies are profitable, one is self-sufficient and one is unprofitable. Seeing that, the company management wondered: if enterprises do not generate economic value, do they generate other types of value to society that can be measured in quantitative terms?

Employed people with disabilities pay taxes (13%) and make contributions to the pension fund (1%). They spend more as consumers, as they can now afford goods and services that were previously unavailable to them. Indirect taxes are also deducted from these goods and services. In addition, they no longer visit day care centres for people with disabilities, which reduces government spending on them.

An additional study conducted by Valery Zhuravsky showed that employing one person with a disability helps save $1,693.93 per year, bringing the total for 28 people employed in their company to $47,430. In addition, the study revealed a number of real indicators that are hard to express in quantitative terms. For example, people’s physical and emotional state has improved (e.g. the number of epileptic seizures and even viral diseases has decreased), their communication and professional skills have improved, and their sense of autonomy and social engagement has increased. Parents and guardians of some of the now-employed people with disabilities were also able to return to work.

Social impact of employing people suffering from alcohol or drug addiction

Social enterprise "Nashi Maistry" ("Our Craftsmen") produces hand-made plaster figurines used as art supplies or interior decoration and employs people suffering from alcohol or drug addiction. The company has to compete in the open market, as it is legally no different from other business entities and can not receive dedicated government support.

Although "Nashi Maistry" has existed for just under three years, it has already helped 18 people undergo rehabilitation. The program provides training and employment, as well as opportunities to receive help in self-help groups and other psychological support.

Non-monetary social impact in the case of "Nashi Maistry":

• Improved public health. Former users now lead a healthy lifestyle.
• Improved demographic situation. Women who have undergone rehabilitation give birth to children. Former users get back custody over their children (39 children have returned to their families).
• Reduced unemployment.
• Reduced crime rates.
• Increased living standards of the population.
• People's lives become more meaningful. The enterprise has an initiative called “Box of Courage”, where customers are offered to purchase toys made out of plaster that will be sent to children undergoing long-term treatment in hospitals. Children can paint these plaster figures with bright colours before they have to undergo painful procedures, and the kids often bring them along as a symbol of their courage. While former users often quit their jobs or get sacked, here they put a lot of effort into their work, since they find additional meaning in initiatives like this one.

The social impact of “Nashi Maistry” that can be put into monetary terms: the number of taxes paid, consumer expenses, reduced costs of keeping children in boarding schools, repayment of utility and tax arrears, etc.

Text by: Alina Krushinskaya               

Photos: public domain images