Social enterprises have two ultimate goals: to generate sustainable profits and improve livelihoods. While they typically have systems in place to track business metrics, many social enterprises lack the foundational monitoring and evaluation (M&E) tools they need to measure whether their products and services improve customers’ livelihoods.
Integrating measurement of social outcomes alongside business performance metrics can help leaders use data to make informed decisions that achieve both key goals, without overburdening existing systems and staff. Integrating M&E systems also facilitates comprehensive reporting to key stakeholders, which can help unlock additional funding since many social impact investors require proof that businesses are sustainable and lead to improvements in livelihoods.
With this challenge in mind, the African Enterprise Challenge Fund (AECF) partnered with IDinsight Zambia to design integrated M&E systems for two of its investees, Vitalite Zambia and WidEnergy Africa. Both are social enterprises based in Zambia that aim to increase rural electrification and improve livelihoods by increasing access to solar home products for households. This support was part of the Technical Assistance Facility under the House Hold Solar Systems Program implemented by AECF.
In this blog, AECF and IDInsights draw on lessons from this work with, Vitalite Zambia, and WidEnergy Africa to share steps social enterprises can take to build M&E systems that advance their business and social outcome goals – and how funders can support this.
RECOMMENDATIONS FOR SOCIAL ENTERPRISES
1. Define the business model’s pathway to impact using a Theory of Change, a tool common to the social sector
A Theory of Change (ToC) is a narrative that explains the cause and effect of an initiative and the assumptions about what is needed to achieve an overall outcome. More specifically, it is a set of causal hypotheses about why, how, and under what conditions an initiative’s inputs and activities are expected to bring about the intended change in outcome(s) in a given context. A stylized ToC for a solar home systems business model is shown below.
Building a ToC can help social enterprise leaders articulate how their product or service aims to improve customers’ livelihoods and what it will take to achieve that goal. It also allows them to spot potential risks in their model by identifying and assessing their assumptions. As the saying goes, “what is not measured cannot be managed,” so it is important to critically examine assumptions to identify and manage risks.
A ToC helps in laying the foundation for an M&E system to inform data collection, management, and reporting systems. However, most social enterprises do not utilize this tool; as a result, they may miss out on the value of reflecting on what really matters to achieving intended social outcomes.
IDinsight worked with WidEnergy Africa and Vitalite Zambia team members to design their ToCs by holding interactive workshops to help them to think critically and creatively about how their business model will work. This process not only encouraged the social enterprise stakeholders to align on their larger end goals and understand their role in achieving them but spot other critical assumptions they did not take into account prior to this activity.
2. Prioritise evidence needs using an indicator prioritisation framework
Through the process of building a ToC, a social enterprise will identify many possible areas of measurement. However, that does not mean measure everything. Social enterprises seeking to maximize profits and achieve social outcomes need to use resources judiciously, so it is critical to have lean M&E systems that prioritise collecting data crucial to making decisions and ensuring goals are met.
In complement to a ToC, an indicator prioritisation framework can help social enterprises prioritise what to measure, which indicators to use, and how leaders will use the information collected. This framework can also help social enterprises balance data for their own decision making, as well as for reporting to funders and other stakeholders.
During our engagement with Vitalite Zambia and WidEnergy Africa, the indicator prioritisation framework was instrumental in helping the social enterprises identify questions about their operations and what they can measure to monitor and improve their business performance and social outcomes. We recommended the enterprises prioritise indicators by grading each one against the following factors: 1) its likelihood to be unbiased and accurate; 2) its importance for decision making; 3) social enterprise capacity to act on the data collected; 4) the cost of measurement; and 5) the time required to collect and relay the data to decision-makers.
3. To keep the M&E system lean, integrate social outcomes measurement techniques into existing business systems
To use staff time and resources well, social enterprises can leverage existing business systems to collect social outcomes data, instead of introducing an additional system. For instance, to understand how products or services are impacting customers’ livelihoods, Vitalite Zambia and WidEnergy Africa could add questions to their existing customer satisfaction phone surveys, and have sales agents use marketing activities as opportunities to ask customers how using solar home products could address certain challenges the customers face.
4. Involve the whole team to ensure data is used to inform decisions
There is no value in creating M&E systems and collecting data unless social enterprise team members use the data to make decisions, including course corrections, when there is room to improve business performance or social outcomes. Data is often easier to understand and use in decision making when it is visual. Analytics that present key business and social outcomes data together, in easy-to-understand graphs and charts, can help social enterprises follow trends over time, identify differences between products or regions, and see alignment or tradeoffs between social impact and business metrics so they can make decisions based on the full picture.
IDinsight recommended Vitalite Zambia and WidEnergy Africa build data systems that pull both business performance and social outcomes data into a centralized location and presented in such a way that it provides a holistic picture of the enterprise’s operations. For instance, as opposed to visualizing and reporting marketing activities and customer outcomes separately, Vitalite Zambia and WidEnergy Africa dashboards could present bar graphs showing customer outcomes (e.g., health or income) for different marketing activities, along with the cost and sales volumes of each. That way, leaders can factor business performance and social outcomes into decisions about which marketing strategies to pursue.
HOW FUNDERS CAN HELP
1. Provide technical assistance for social enterprises to improve measurement capacity
Because they often have very limited resources, social enterprises may prioritise M&E systems that focus on business performance rather than social outcomes – or prioritise immediate needs over-investing in any M&E systems at all. Given these financial constraints, funders interested in the social side of social enterprises should consider building M&E support into the funding package they offer.
As a result of the technical assistance provided by AECF, Vitalite Zambia and WidEnergy Africa were able to invest in M&E tools and skills to better assess their social outcomes and provide additional evidence to AECF and other funders.
2. Encourage social enterprises to use social outcomes data meaningfully
Some social enterprises view social outcomes measurement as a funder requirement – something they include in an annual report, as opposed to a critical tool for improving their own products and services. Funders have a role to play in helping social enterprises realise the benefits of this evidence. For example, funders can help facilitate shared learning across a portfolio of similar social enterprises. They can also provide guidelines for how social outcomes data can feed back into business processes, and get in the habit of asking social enterprise grantees questions about the alignment or tradeoffs between business and social outcomes goals for discrete activities and strategies.
THE DOUBLE BOTTOM LINE
Social enterprises and their funders need to balance cost-effective business models with the pursuit of social outcomes. The recommendations above highlight steps they can take and new mindsets they can adopt, as they integrate social outcomes measurement into existing business operations and use integrated M&E systems to advance their twin goals.
Fiona Lukwago, AECF Investments Advisory Services.
Sipho Muyangana, IDinsight.