Money & Meaning: Manage What Matters

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August 31, 2011

Steve Wright is Director of Grameen Foundation's Social Performance Management Center. He is a keynote speaker for the upcoming SOCAP11 conference. This is the 2nd of a series of blog posts focusing on money and meaning (You may also want read Part 1). We've excerpted a section of the post below, with a link to the full post afterwards.

Maximize Impact

Markets : Capitalism :: Physics : Ideology

Markets have natural laws, like physics. Capitalism is an ideology. Ideologies can be changed.

All social enterprises want to know if they are producing positive social outcomes. They closely monitor their financial performance to maintain sustainability and closely monitor their social performance to see if they are achieving their mission of doing good. This blog focuses on the questions “Am I any good?” and “What is the good I am producing?”

There is no quantifiable unit of good

I have always found it strange that social performance is predominantly perceived as a measurement problem. The reality is that great social enterprises don’t focus on measuring what matters; their priority ismanaging what matters. Measurement is an artifact of good management. To a large extent the obsession with measurement is a problem unique to socially-funded entities (by that I mean organizations with capital provided at a rate of return between -100% and about 6%.) Because the money is not earning as much as it might otherwise, it needs additional justification to be invested. An investor/funder wants to ensure that their money is well spent, that it earns a valuable return that includes both money and social impact. The social impact or non-monetary component of the return on the investment comes in the form of social metrics or measurement.

However, as Kevin Jones, Co-Founder SoCap Conference, said to me recently, “Understanding the specific impact of a specific dollar invested is a pipe dream.” Even if it were possible to track a specific dollar’s impact, the overhead to do it would be significant and would subtract from the resources needed to achieve the impact. With this as a given, how do we build a marketplace when a marketplace requires comparability to understand relative value?

For a for-profit entity this is easy. An investor gives an entrepreneur a dollar and sometime later gets $1.25 and rejoices at the 25% return on investment (ROI). The math is easy because the input and the output are the same thing: money. In a social enterprise, money is an input but it is not an output. Money is important because it dictates sustainability but profit is not the purpose of the enterprise; social impact is. A massive amount of work has gone in to replicating this math to calculate an SROI (social return on investment). The work of REDF, Jed Emerson, Social Venture Technology Group and others have taught us a tremendous amount about what is possible. A primary lesson from this SROI work is that there is no monetary equivalent to a universalunit of good. Moreover, it is not rational to equate a specific social outcome to the amount of money that was spent to produce that outcome. We cannot use a financial balance sheet to compare the relative goodness of a homeless advocacy group in Brooklyn and a fair trade cooperative in Peru. The Beatles said it best: Money can’t buy you love.

>> Read Steve's entire post at the SOCAP11 Blog.

Comments

I totally agree that money cannot buy you love and I believe that people who invest in social enterprises like the idea that this is not charity, but in the end, they are more concerned with helping accomplish something they believe to be beneficial to the poor than on the SROI. At least, that is how I feel when I make my investments and try to convince others to do it. Banking without a profit is an oximoron. The question is can we, the bankers, accept a type of profit that is not measured in dolars but in social and human capital?
Marcela

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