Monitoring for Social Enterprises: How to Protect Mission and Deliver Profit

By Marta Maretich @maximpactdotcom

A growing body of sector research is shining light on the principles of how social enterprises can use outcome monitoring to strengthen mission and deliver a blended bottom line.

Up until now, the commitment to measuring and reporting outcomes has been one of the things that distinguished social investing from mainstream investing. Today, that’s changing. Increasing regulation and a global movement for integrated reporting are making impact monitoring everybody’s business, though in different ways and to different degrees. The will to verify is increasing, yet the questions of how and what to measure remain tricky ones for companies, even as measurement standards and services proliferate.

For social enterprises with a double bottom line to account for, outcome monitoring remains even more challenging as well as more important. Proving impact and demonstrating sustainability are key to building brand reputation, attracting investment and winning customers. Beyond these well-known values, evidence now suggests that these activities can actually provide managers and directors with the tools they need to protect the mission while delivering profit.

Two kinds of social enterprise

To understand how this works in practice, the team behind a recent report—researchers Alnoor Ebrahim, Julie Battilana and Johanna Mair—first identify two distinct kinds of social enterprises and then reveal the best monitoring approach for each.

One kind of enterprise, the “differentiated hybrid”, keeps social activities separate from commercial ones. For them, the profits generated through selling products or services are used to pay for activities that help beneficiaries who are not their primary customers.

In a second kind of enterprise, the “integrated hybrid”, beneficiaries and customers are the same people. These businesses create social benefit directly through delivering their products or services. Many microfinance organizations work on this basis, providing loans to beneficiaries who couldn’t otherwise get them.

Facing the danger of mission drift

For both kinds of social enterprises, the report says, mission drift—the failure to realize social and environmental benefit goals—is a danger. But in each case, the threat takes a different form.

For differentiated hybrids, the danger comes from financial pressures leading the company to prioritize creating value for customers at the expense of delivering value to beneficiaries—for example, using increased revenues to grow the business rather than dedicating the money to mission delivery.

For integrated hybrids, risk arises when commercial activity is misaligned or “de-coupled” from social or environmental benefit goals. For example, if delivering the commercial good or service doesn’t reach the intended client group, or it proves too expensive for them to access, then the business has failed in its mission, even if it’s succeeded in the marketplace.

Two different approaches to monitoring

To avert the danger of mission drift, both kinds of social enterprises need to establish systems that deliver information about the effect of their activities—and this is where outcome monitoring comes in.

Differentiated hybrids need to monitor the outcomes of both financial and beneficial streams of activity and use these metrics to evaluate the way commercial activities are supporting beneficial ones. For example: How much profit did the business generate and what was the resulting increase to social or environmental benefit? Monitoring efforts will focus on managers: those heading the social and financial work and those whose job is to integrate the two areas.

Integrated hybrids need, first and foremost, a sound model to begin with, one that makes it possible to deliver benefit through commercial activities. They then need to monitor behaviour, the “how” of the way the business is done. For instance: Are sales agents targeting the intended client group? Do the products meet needs or, as in the case of inappropriate lending, do they make the situation of the client group worse? In this case, monitoring needs to cover those overseeing the behaviour of salespeople in the field and those delivering services.

A governance challenge

Monitoring is, obviously, a good idea for social enterprises: this research is more proof of that. But the really important insight here is how the monitoring information can be used, and who will use it, to preserve mission delivery.

This report forms part of a growing body of evidence that links outcome monitoring systems and data collection to organizational leadership and governance. With measurement data in hand, directors and managers can see for themselves whether mission is being met or not and take action. Just as importantly, in a climate where businesses are increasingly expected operate transparently, investors and customers will be able to see it, too. This could ultimately prove the strongest incentive for social benefit companies to adopt monitoring systems that help them keep on course.

Download the full report here.