What is the difference between a social enterprise and any old corporation? Nexii’s Advisory Board member, Steve Wright, Director of the Social Performance Management Center at Grameen Foundation talks to our Jack Breslauer on the importance of a theory of change.
What is the difference between a social business and traditional corporation? If you work in the impact investment field, chances are you’ve been asked this question innumerable times. I have always answered by explaining that a social business can still sell goods and services and generate surpluses, but exists fundamentally in order to generate a social good.
I’ve found that this response often generates more questions than it answers. ‘What sort of good is that?’ ‘How does the social business know if the social good is being created?’ ‘How does it measure the size of that good’ ?
This is where the theory of change comes in. It starts with the change you want your company to create, and the resources and skills that you have, and creates something in the middle to connect the two. Steve Wright, of the Grameen Foundation, distills the process into four words: “Set targets. Align tasks”.
While this is perhaps a simplification, it alludes to the defining characteristic of the social entrepreneur- a relentless focus on positive results, not the reassuring activities or heartwarming anecdotes which are too often the currency of charities. In practice, aligning tasks is a complex process, which requires constructing a theory of how the world works, how change happens, and hoping it holds true in reality.
How do you know if your theory of change is a law of change or not?
“Data”, says Wright. At every stage in your theory of change, from the activities you perform to the outcomes you observe to the impact you (hopefully) achieve, there are indicators and proxies that will suggest whether your business is having the desired effect. So the theory of change becomes a way to focus on your ultimate goal, map out the steps that will get you there, and the metrics to prove where you are and if you have arrived.
Where does money come in?
According to Wright, it is a means to an end only. “The whole idea of double bottom line reporting is misleading. There’s only one bottom line: social change. Money can help you get there, but it isn’t a goal itself”. In fact, social business is a disruptive innovation. Our global economy is littered with corporations who care only about money (and will admit as much). Concentrating on lasting social value is a better way.
Wright is a social business veteran. During his 10 years at the Salesforce Foundation, he was one of many people who worked to develop IRIS , the pioneering standards for social and environmental performance of impact investments and PULSE, a tool that help collect the performance data. At the Grameen Foundation, he heads up the Social Performance Management Center, which develops tools to help organizations measure the poverty level of their clients and manage their operations using the data.. His goal is for impact performance management to be carried out with the same level of specificity and focus as financial management. Only then, he believes, will investors reward strong social results with the same reliability as they do for financially profitable companies.
The most prominent contribution of the Center so far is the Progress out of Poverty Index, or PPI, which has become the poverty measurement tool of choice for many microfinance institutions and pro-poor development organizations around the world. The use of the PPI data collected over time supports user at three stages, according to Wright.
- Firstly, it can be used to monitor the country specific poverty levels for a social businesses’ clients at a given time.
- Secondly, the change or lack of change in client poverty level can help an organization understand how the interventions are performing, relative to the poor people they are designed to help.
- Lastly, by using the PPI over multiple years, organizations can track the progress of these people out of poverty.
As more PPI data is recorded and aggregated, it should help build the confidence in impact reporting that will be crucial to drive serious amounts of capital to the sector.
In an ideal world, all companies would run themselves according to a theory of change, set impact targets, and do their bit to improve the world we live in. Our world is still far from this ideal.
Given that many shareholders and directors will continue to demand profit maximization, are there any realistic steps that today’s corporations can take towards being ‘change-driven’?
“Take a long term view”, answers Wright. “Eventually all externalities are internalized. Social business can turn negative externalities into positive opportunities for their business”. Irresponsible companies tarnish their reputations, lose customers, and draw regulation and litigation to erode away their profits, while social businesses enrich and empower their communities, creating loyal customers who drive long term growth.
That sounds like a good theory of change to me.