Impact Management – ensuring a positive outcome of your business

The urgency to solve today’s societal challenges is increasing and so is the need for comprehensive impact management. The two topics are no longer to be separated. Organizations, boards, executives, funders, investors and communities are asking about the impact and it no longer seems enough to claim to make a difference, but rather to show what and how much the company contributes to that impact– as the Harvard Business Review points.

On the national level data from the Monitor Social Entrepreneurship of SENS highlights the importance of impact measurement. 50% of the respondents have defined impact targets and 75% of them measure their impact at least annually.  An Additional 30% are planning to define their impact, which further shows the increasing importance.

On the global level, the UN is promoting impact-based business models, as they contribute to the achievement of global goals and can help to close the funding gap of the SDGs. Especially in emerging and developing countries, where the needs are most acute, impact-oriented enterprises can significantly reduce the costs of achieving the SDGs. Even though the number of impact-driven companies is growing, a huge potential for a positive contribution to society remains unexploited so far.

But what is meant by the term “impact” and why is it so important to manage the impact of a company? Beginning from the root, the impact is the result of a company’s actions that affect society and the environment. This outcome can be positive or negative, intended or unintended.

Managing the impact means identifying an organization’s specific impacts with the overall goal of reducing the negative and increasing the positive results. Impact Management is crucial for decision-making, increasing effectiveness and minimising risks. It is also needed for communication with financing partners and investors. In addition to these external gains, impact management increases transparency within the organisation, can be meaningful to employees and can prevent mission drift.

However, if one considers the meaning of impact, it quickly becomes clear, that this varies significantly from one individual to another. However, the United Nations SDGs and the Impact Management Project are constantly evolving standards, that promote a common understanding of impact management. Therefore, these standards can be used in defining one’s impact. The five dimensions of the Impact Management Project, which have reached global consensus, are presented below.

The impact management project defined the five dimensions of what, who, how much, contribution and risk. 

The dimension what explains the outcome but goes beyond measuring emissions and employee satisfaction. It analyses whether impacts are positive or negative, how they relate to the SDGs and whether stakeholders’ needs are met. The practical frame of Impact Management can be helpful when defining the what. This dimension in particular guides people to open up their perspective and see connections between their entrepreneurial activity and wider impacts. For example, higher sales performance may have the unintended consequence of increasing the risk of child labor.

The second dimension identifies who the stakeholders are and their relative benefits. This should lead to maximizing the impact on those who are most underserved. It is relevant to consider not only customers, employees, local communities, and suppliers, but also the environment as stakeholders. Further subcategories can help to clarify the definition.

How much contains not only the number of people (scale) involved but also of depth and duration. Depth is used to describe the extent of social and environmental change brought about by the enterprise. This is done by comparing the baseline with the outcome, resulting in a percentage that attempts to indicate the depth of change. Duration indicates the period, in which the stakeholder experiences the outcome. Education can be taken as an example, as such an investment lasts for many years and therefore has a high degree of duration and possibly affects also depth if the person has a higher income than before. However, the longer the time horizon, the more complex the measurement becomes. A company can focus either on a long-lasting impact while reaching fewer people, or vice versa. However, it is possible to consider all criteria as equally important.

The dimension contribution seeks to measure the entrepreneurial activity that contributed to the change. It should lead to the certainty, that the result would not have been achieved without the organisation. The focus is on other parties, striving to achieve the same social or environmental change. In addition, a sixth layer of the investor’s contribution can be added. Further information

The dimension risk assesses the probability, that the impact will be different than expected. This risk can be categorized according to its type and severity. The overall objective is to gain an understanding of potential risks.

Indeed, Impact management is becoming more and more important, and as mentioned, brings with it several reasons. Nevertheless, measuring the company’s activity also has its limits. Having to prove one’s contribution requires a lot of time and financial resources. Data collection involves a lot of effort, and meaningful data is needed. This makes it all the more important to determine when, in what context, and at what intervals comprehensive impact management is required.

This blog post was written as a follow-up to one of the eight modules of our Social Impact Accelerator programme. Find out more about this year’s programme and the participating start-ups at: www.socialimpactaccelerator.ch

The Social Impact Accelerator program is initiated, developed and executed by SENS and SEIF.