SII allows companies and corporations to partner with non-government agencies (NGOs) and social enterprise businesses to create innovative solutions to complex problems; however, corporations are still seeking a return on their investment.
RETURN ON SOCIAL INVESTMENT
In September, we wrote on Social Impact Investing (SII), an approach by the corporate world to investing that seeks to generate positive social and environmental outcomes alongside financial returns.
The shift to SII as a way of investing is driven, among other things, by the need for companies to demonstrate they are meeting environmental, social and governance (ESG) standards and the demand from customers and clients for businesses to contribute positively to the broader economy and environment.
SII and Return on Social Investment [SROI] – what is the difference?
SII allows companies and corporations to partner with non-government agencies (NGOs) and social enterprise businesses to create innovative solutions to complex problems; however, corporations are still seeking a return on their investment.
The question for NGOs and social enterprises is how they demonstrate their value to companies looking to invest.
The power of being able to demonstrate return on social investment
NGOs and social enterprises demonstrate their value by articulating and demonstrating their return on social investment.
What is the Return on Social Investment [SROI]?
SROI, at its core, measures whether the social value created by a program outweighs the cost of running the program [1]. Calculating the effectiveness of the social program allows the organisation to identify areas where they can improve their impact. It is in these areas that NGOs are most likely to attract companies seeking to invest and contribute because, as mentioned, SII prioritises investments with a measurable impact while generating a financial return.
Hence, the difference between SII and SROI is one measures social value, while the other is predominantly an investment strategy.
The seismic mind shift for NGOs in moving to a Social Return on Investment perspective
Many NGOs and non-profit organisations continue to operate with a mindset based in the 20th century without realising the rapid shifts that have occurred in the last two decades, particularly in the transition towards SROI.
The changing landscape for NGOs and not-for-profit organisations
Significant shifts have occurred over the last two decades for many NGOs, including:
1. Increase in both demand for services and complexity of problems
Many non-profit organisations are finding that:
a) there is an increasing number of clients presenting for assistance and
b) clients are presenting with increasingly complex problems.
These two factors impact the organisation's ability to meet demand in several ways.
● The impact on Human Resources
Increasing demand often impacts issues like staff retention and burnout. When staff become burnt out with the ongoing demand, and there is high staff turnover, the results for the organisation are:
a) Higher recruitment costs.
b) Loss of organisational knowledge and expertise.
c) Reputational damage as people become aware of the high turnover of staff.
d) Impact on service delivery to clients when there is high staff turnover.
● The need for professional staff and the impact of higher wages
Clients or communities with complex problems often require services from a multidisciplinary team of professionals who work together to address the issues.
Many NGOs do not pay the professional wages paid in the private sector to attract the professionals required. This can lead to problems in employing suitably qualified staff skilled at dealing with complex issues.
2. Reduction in donor and government funding
The ability of an NGO to offer higher wages to engage professional staff who can meet increasing client demand is further impeded by the reduction many NGOs are experiencing in donations from donors, particularly post-COVID, and greater accountability requirements from the government.
Many NGOs are caught, like hamsters in the wheel, trying to work harder and faster, doing the same things to meet increasing demand with reduced funding. Shifting to an SROI model would enable many NGOs to demonstrate their value and impact, making them attractive to companies seeking SII opportunities providing an additional funding stream.
Making the shift
NGOs seeking to make the shift need to do the following.
1. Change the focus from a mission focus to an impact-focused mentality
Many NGOs are mission-focused. Their mission statement is a statement about what they want to achieve. Their mission statement is about the organisation’s unique reason for existence and how it will achieve its vision. The organisation’s vision statement is also about their desired future state of the world.
In other words, a mission-focused NGO talks about itself. Its uniqueness and how it works to achieve a desired future state, as it sees the world or the community. While vision and mission statements are essential, they are aspirational. They do not clearly articulate the impact the organisation is having on its community or clients.
NGOs that are impact-focused change their language from mission and vision to the impact they are having on clients and the community.
This is something companies and, increasingly, governments want to know. How does an organisation impact the lives of its clients or community? Is the funding provided to the organisation having an impact that can be measured, or does it still focus on its aspirational desires? Becoming impact-focused means being comfortable with a results-driven mentality.
NGOs that are impact-focused change their language from mission and vision to the impact they are having on clients and the community.
2. Become comfortable with a results-driven mentality
Many NGOs talk about the programs they run rather than the results they achieve.
One of the leading indicators many NGOs use for the success of a program is the number of clients assisted. While numbers are significant, they are only one indicator and usually not a very reliable indicator of the impact a program is having.
If we take mental health counselling as an example. One counsellor may see 25 clients a week, while the second counsellor may only see 18 clients weekly. Looking simply at the numbers, it would appear the first counsellor is more successful because they are seeing more clients. However, the second counsellor may be more successful because the impact of their counselling means clients do not need to have as many appointments because they are skilled in applying self-help techniques away from the counselling sessions.
A results-driven mentality looks beyond the numbers and thinks beyond traditional programs towards social marketing, social enterprise, advocacy, and collaborations. It is about achieving results that drive system change [2].
Many NGOs' failure to harness social media's power is a clear example of these organisations' failure to shift to an SROI perspective. Many continue using organisational social media platforms as they do their personal social media profiles. They post photos of recent staff activities or events. Posts are ad-hoc and often rely on a staff member remembering to upload a post or a photo.
NGOs should have a designated line item within their budgets for social media and a clear business plan to use the power of social media to bring about change and demonstrate the impact of what they do, not just for the individual but for communities and to bring about system change.
3. Entrepreneurial versus risk-averse mindset
Many NGOs are risk-averse. While this is understandable when dealing with government grants and donations, it can also result in an organisation being unwilling to try innovative ideas. Developing a mindset based on SROI requires considering, tolerating, and implementing new ideas that may carry some risk.
Developing an organisational, entrepreneurial mindset starts with the Board of Management. Most NGO Boards are risk averse; in part, this is often due to the make-up of Boards. Many boards, when seeking new members, think about lawyers, accountants, and other professions that, by nature, are risk-averse. NGO Boards should actively recruit entrepreneurs who can assist other Board members in developing a constructive risk appetite and seeing entrepreneurial opportunities.
In developing a constructive risk appetite, the Board needs to create a culture based around four qualities:
i) Openness and the ability to share information and lessons learned.
ii) Adaptability in monitoring, assessing, and responding to internal and external changes.
iii) A commitment to tracking outcomes and impact of service delivery; and
iv) Supporting a learning culture where everyone can learn without fear of being blamed or criticised.
Making the shift is not easy. It takes time and energy, time to step back from the demands of constant service delivery and reflect on what needs to change. Again, the Board’s responsible for providing direction; otherwise, staff must keep meeting increasing demand without reflecting on what needs to change. It also takes energy to learn to do things differently. However, being able to shift to an SROI mindset and talk about the impact the organisation is making is essential for several reasons.
- It opens opportunities for collaboration and investment from companies and corporations looking to invest in services making a social and environmental impact.
- Being transparent about the impact an organisation is having is positive for the workplace culture. A positive workplace culture attracts staff has lower staff turnover and greater staff satisfaction, which reduces the risk of burnout.
- Being clear about the impact of an organisation brings clarity to its vision and mission. Also, it enables it to know where it should invest its financial and human resources, that is, in areas with the most significant impact. This reduces organisational waste and deficit.
While NGOS need to develop an SROI mindset, it is also important to understand there are some things that SROI doesn’t measure. For example, increasing self-confidence or family stability cannot be measured. However, the strength of an SROI model increases as the organisation gains evidence of its outcomes through best practices research or self-evaluation studies.
[1] https://socialimpactarchitects.com/sroi/>
[2] https://socialimpactarchitects.com/nonprofit-trends-2017/>
