Data on social results is an important input into operational and strategic decisions for our portfolio companies, and we work closely with them to set up good processes for measuring their social impact.
What are Social Results?
The social results that our portfolio companies create are our most important return. Social entrepreneurs and impact companies strive to create positive change for vulnerable groups by, for example:
- providing work to people who have fallen outside the world of work
- giving a voice to someone who is not able to communicate
- teaching children with particular challenges to read and write
- developing new diagnostic and treatment options for people with autism or dementia.
Our social return comes from a company reaching many people who experience a positive change in their life.
Social Results Are an Important Basis for Decisions
But how can we know that a social entrepreneur’s solution actually works and creates positive change? Measuring a solution’s social results and having evidence that positive change actually occurs is absolutely essential for social entrepreneurs. This is the most important basis for decisions that social entrepreneurs have when seeking to quality-assure and make changes to their solution, to optimise their work or to scale what works. It is also one of the most important factors that we as investors consider when making a new investment, and when considering the return on the social investments we have made.
Whereas commercial organizations want to maximise profit, social entrepreneurs seek to deliver the most positive social change possible.
Ludenso is an educational technology company that helps to create greater engagement and a more customised learning journey for pupils. Photo: Ludenso
How Can you Measure Social Impact?
Measuring social results is much more difficult than measuring financial results. It is, however, by no means impossible. There are not the same structures and regulations as there are for financial accounting. At the same time, the specialist field of Impact Measurement and Management (IMM) has developed rapidly in recent years, particularly internationally, and it continues to evolve significantly. A framework and principles have emerged that attract a relatively extensive consensus among companies, investors and social entrepreneurs.
We at Ferd Social Entrepreneurs have followed these developments in the field closely, and our methodology is in accordance with both the European Venture Philanthropy Association, Impact Frontiers (formerly Impact Management Project) and Social Value. It is important for the IMM process to be adapted to each company’s phase and needs, and in this regard we rely on and use tools such as Ventures at the Helm.
One of the biggest contributions we make to the companies that we work with is helping them to set up a good system for measuring their social impact. Impact Measurement & Management (IMM) is about measuring and making management decisions based on the social results a company creates. For an early-phase company, it is not necessarily a question of having the perfect indicators in place, but of having a system that provides the company’s founder with the data he or she needs to make good decisions – and thus to create the most social impact possible. IMM should primarily be a driver of value for companies and not about external reporting and shiny glossy reports with the biggest possible numbers.
Impact Measurement & Management should primarily be a driver of value for the company and not a reporting tool.
Key Elements of The IMM Process
Measuring social impact is a repetitive process in the same way as producing annual financial accounts, and a company’s management and board monitor its financial and social key figures throughout the year. At the same time, the process is most challenging the first time it is completed, as it involves carrying out deeper analysis of the social problem. This means the target group, the causal relationship between the company’s activities and the change the target group experiences (theory of change), and also defining the company’s indicators and approaches to measurement for the first time. You can read more about this in Maximise your Impact – A Guide for Social Entrepreneurs.
A key principle of IMM is involving your target group. In a company’s process to produce its theory of change and measurement indicators, this is an absolutely central requirement if the company is to know what change is important for them and thus how the service should be designed to achieve this. As well as what should be measured to assess subsequently whether the desired social change has been achieved.
We at Ferd SE invest in commercial social entrepreneurs. This means companies that have a business model that will become viable companies long term, and that do not need financial grants to be able to pay their staff and provide their services. The company’s business model must be connected to their theory of change and activities, so that financial growth and growth in its social results are closely intertwined.
IMM is a repetitive process that consists of five parts: planning, measuring, analyzing, reporting and improving.