Part 2: Framing Performance

Part 2: Framing Performance

Premise

Premise

The performance of a social sector organization is ultimately measured by its ability to create and sustain social impact.1

Sustainable Social Impact

“Sustainable social impact,” meaning enduring social impact, is a frequently used term in social enterprise literature and jargon. In some camps, creating sustainable impact is linked to institutional and financial sustainability; the underlying assumption is that if an organization exists in perpetuity its impact is sustained. In the context of this paper, however, and for the purpose of informing social enterprise methodology, sustainable impact, has everything do with solving a social problem or market failure. In other words, when a social problem or market failure is resolved, continued impact is achieved because the problem ceases to exist.

Does that mean that the concept of creating a sustainable institution is in conflict with solving a social problem? Not necessarily. In most cases solving social problems is a long-term proposition requiring systemic change that can take generations to realize. Working toward the resolution of a social problem may require rendering ongoing social services through a sustainable institution over many, many years. In many cases the social enterprise becomes a permanent fixture, a “third sector” institution in the landscape of private, state and civil society. Nonetheless, it does mean that a social enterprise must plan formal exits or reinvent itself to address new problems as old ones fall away. Here, it is relevant to consider Maslow’s Hierarchy of Needs,2 and how the nature of human need evolved: as “base” physiological and safety needs are met, a person moves up the pyramid toward self-actualization. Hence, once one problem is solved, another one often surfaces, so new opportunities continue to present themselves.

Beyond Financial Sustainability

“Private sector practices” in social enterprise are borrowed from the commercial business and pertain to financial profit-making activities. However, for a social enterprise whose goals are to sustain social impact as well as its own existence, sustainability is a good deal more complex than simply earning money. Also, lest we not forget, one role of the social sector is to mitigate or undo harm to society, the environment, and its people, some of which is the result of unsustainable behaviors of the private sector. To fully appreciate sustainability in the context of the social enterprise, one must consider the three interrelated aspects that enable a social enterprise to become self-sustaining: financial sustainability (the ability to generate income to cover expenses), institutional sustainability (organizational capacity to execute and compete in the market) and sustainable environmental practices (the use of renewable materials, energy and processes that do not ravage the environment). A social enterprise combines at least financial and institutional forms of sustainability, and often environmental sustainability, to create and sustain social impact.

  • 1. This particular understanding of the concept of performance must be accepted for the framework to be relevant.
  • 2. Maslow, Abraham, A Theory of Human Motivation, Psychological Review, 1943.

Identifying Common Performance Criteria

Identifying Common Performance Criteria

The challenge in creating a common performance framework is that both the concepts of social impact and sustainability are hotly debated and highly subjective.

Hence, in creating a common framework, we have chosen to focus on a set of common criteria that can be simply demonstrated and accepted as being essential to sustainable social impact creation, without pretending to define the full scope of ‘sustainable social impact.’

Performance CriteriaThe framework establishes four common performance criteria that lead to increased sustainability:

Depth of Impact. How effective is the organization at addressing the underlying causes of the social problem? There is no sustainability without deep, lasting impact—solving (not palliating) the social problem should be the end goal.

Blended Value. How effective is the organization at making economic wealth creation and social value creation truly interdependent, so that eventually one cannot exist without the other? There is no sustainability without blended value creation because it is not viable to maintain activities that generate a value deficit.1

Efficiency. How effective is the organization at systematically striving to do more with less? There is no sustainability without efficiency because waste leads to a vicious cycle of resource attrition.

Adaptability. How effective is the organization at adapting to changing conditions? There is no sustainability without adaptability because the inability to negotiate threats and seize opportunities leads to exhaustion and extinction.

We can think of these four performance criteria like the central pieces of a puzzle—if one is missing, we will never arrive at a full picture of sustainability. That said, we do not assume that these performance criteria are all there is to achieving sustainability—our focus has been to identify the common pieces at this stage of development of the social enterprise field.

  • 1. We use the term blended value here as defined by Jed Emerson: “What the Blended Value Proposition states is that all organizations, whether for-profit or not, create value that consists of economic, social and environmental value components—and that investors (whether market-rate, charitable or some mix of the two) simultaneously generate all three forms of value through providing capital to organizations. The outcome of all this activity is value creation and that value is itself non-divisible and, therefore, a blend of these three elements.” Read more about blended value at www.blendedvalue.org

Applying the Performance Criteria to the Social Enterprise Methodology

Applying the Performance Criteria to the Social Enterprise Methodology

To be relevant as a methodology for social sector practitioners, social enterprise must address the challenges common to all social sector organizations, while offering novel approaches to addressing these challenges.1

At the core of social enterprise methodology lies a simple observation: private sector markets—like it or not—are predominant worldwide, massively overshadowing public sector markets. At the same time, many social sector challenges can be demonstrably related to the inclination of private sector markets to provide for the short-term needs of a few rather than for the long-term common good—particularly when the two are not deemed compatible.

The social enterprise methodology differentiates itself in the way it seeks to associate social sector challenges and private sector limitations. It addresses both concurrently by leveraging the strengths of private sector markets (as exemplified by the business methodology) to achieve social gain.2 The beauty of social enterprise is that commuting business practices to effect social change offers so much more possibility than just money.3 Social enterprise methodology harnesses the power of the private sector by actively engaging in the market and strategically employing market mechanisms in decision-making to solve social problems and generate value for the greater good. Other methodology tenets include operating the social enterprise with the financial discipline, innovation and determination characteristic of private business, which promote savvy survivalist behavior time-tested in markets.

  Address social sector challenges… …by leveraging private sector strengths while addressing its limitations.
Depth of Impact:
How effectively do we address the social problem?
  • Address the root causes of the social problem.
  • Rely less on short-term "quick fixes" that come from palliating the symptoms of social problems.
  • Leverage commercial markets’ ability to provide for a vast array of individual wants and needs.
  • Address, from within, the market's inclination to address opportunity based on short-term profit potential while ignoring long-term social impact.
Blended Value:

How effective are we at integrating social and economic value creation?
  • Rely less on economic wealth generated externally and develop means of internal wealth creation.
  • Change the current paradigm; social value creation shouldn’t depend on financial resources created without regard to social impact.
  • Leverage the market's long-standing track record of wealth generation.
  • Address, from within, the market's failure to make economic wealth creation more dependent on social value creation, so that one cannot exist without the other.
Efficiency:
Do we systematically strive to do more with less?
  • Implement process reengineering and keep up with the need, expectations and potential for increased productivity.
  • Question established knowledge and conventional processes in a constructive manner.
  • Leverage the market's track record of supporting innovation and producing high-yield solutions to address market demand.
  • Address the market's tendency to create superficial needs to leverage existing solutions (solutions in search of a problem), instead of creating solutions to more fundamental needs (problems in search of a solution).
Adaptability:
Are we willing and able to respond to changing conditions?
  • Implement flexible structures, mindsets and decentralized control mechanisms.
  • Question the status quo and challenge complacency.
  • Leverage the market's track record of supporting calculated risk-taking, complementary (even contradictory) approaches, and a willingness to embrace change.
  • Address the market's inclination to seek change for change’s sake, to go along the path of least resistance, or to fail to "stick with it.” Instead, demonstrate long-term commitment to addressing fundamental needs.
  • 1. We are not implying that being novel automatically makes you better; instead we are saying that to be relevant, a new methodology obviously has to bring something new; whether it performs better has to be judged on, well, how it performs! This seems rather obvious but important to avoid falling in the trap of innovation for the sake of innovation.
  • 2. This "fighting-fire-with-fire" aspect is probably what makes the social enterprise methodology both effective and hazardous at the same time.
  • 3. Alter, Kim. “Social Enterprise Models and Their Mission Relationships,” in Social Entrepreneurship: New Models of Sustainable Social Innovation. Oxford University Press, 2006.