After tremendous progress in standardizing language and platforms for shared measurement over the past five years, have we reached a plateau? As a group of organizations with the shared mission of supporting small and growing businesses (SGBs) in low- and middle-income countries, we have agreed on common terms for measurement, aggregated our data, and started to demonstrate our collective scale and reach. So where do we take metrics from here?
An evolution in metrics:
Metrics 1.0: Accountability. Individual organizations began to identify outputs and outcomes by which to track their impact. Funders became more data-driven, and began asked investees and grantees for more than anecdotes.
Metrics 2.0: Common standards. Organizations started to realize that to distinguish themselves from purely commercial operations, enhance comparability of results, and increase the flow of capital to the sector, they would need to develop a shared measurement system by which to monitor and report social and environmental performance. In 2013, more than 50 percent of impact investing funds listed in ImpactBase used IRIS, the common language to report social and environmental performance indicators. The conversation about shared metrics has been robust.
But it is at Metrics 2.0 that collaborative efforts seem to plateau. Individual organizations can continue on their own unique paths of performance monitoring and impact evaluation, and the group can keep reporting on common output and outcome metrics year after year, but again we return to the question: Where do we go from here?
We have yet to fully realize the opportunities impact measurement and evaluation can create, and we believe there is another step-change—Metrics 3.0—that we should aim to reach within three years.
A Vision for Metrics 3.0
The next phase of metrics will shift the emphasis from accountability (Metrics 1.0) and standardization (Metrics 2.0) to value creation (Metrics 3.0).
For metrics and evaluations to create value for us, individually and collectively, we must do two things:
- Integrate impact metrics with financial and operational ones. Integrated metrics can help organizations develop better products and services, improve resource allocation, and build more efficient and impactful businesses.
- Implement targeted, actionable evaluations that are useful to multiple stakeholders and fit with collective learning agendas. Such evaluations will build on existing knowledge; break down big questions into manageable, answerable pieces; and put the answers back together to inform strategic decision-making for enterprises and the sector at large.
The chart below lays out our vision for how Metrics 3.0 will drive business value and impact at the organizational level, and help us to achieve our shared goals and mission as a sector:
1. Organization-Level Measurement
Most organizations track social and environmental metrics as a separate function; the data is stored separately, analyzed by dedicated staff, and reported on in its own publications. Our vision for Metrics 3.0 shifts isolated impact metrics to integrated financial, operational, and impact metrics.
For instance, Root Capital provides loans to agricultural businesses in Africa and Latin America. Even if perfect information were available about the impact of every loan (such as the number of producers reached, the precise amount of extra income that each earned as a result of the loan, and the effect of that extra income on their lives and their children’s futures) that information would not be a sufficient basis for making underwriting decisions or setting long-term portfolio strategy.
Root Capital also needs to know the expected revenues, operational costs, and risks of the loan to evaluate impact per dollar, per loan. In 2013, the impact team led an initiative to estimate the impact and profitability per loan, and then developed integrated impact-profitability dashboards for each loan officer. This enabled them to make data-driven decisions about their portfolio management and new client acquisition.
Integrating financial and impact metrics is a challenging task. Existing forms of cost-benefit analysis, developed for policy-makers and service delivery nonprofits, don’t quite fit the new breed of social entrepreneurs, impact investors, and mission-driven businesses. The challenge for metrics professionals is to become sufficiently fluent in operational and financial metrics to both integrate them with impact metrics, and create and advocate for this integrated approach with the leaders of their enterprises.
2. Ecosystem-Level Measurement
We have not realized the potential of aggregated impact data. At a sector level, Metrics 3.0 continues the unfinished work of Metrics 2.0. It encourages demand-led aggregation of impact data, which creates value by demonstrating the scale or reach of a group of organizations, or by enabling capital providers to compare organizations’ impacts and efficiency more effectively. More broadly, we believe that aggregated data will be useful only when it is collected with a clear purpose.
For instance, the South African nonprofit Catalyst for Growth has initiated an analytics platform that will bring transparency to the incubation and acceleration market by providing comparable data on the effects programs have on SGBs. This analytics platform will help SGBs and funders identify the best incubators and accelerators, while giving incubators and accelerators feedback on their performance to stimulate improvement.
Similarly, in Mexico a group of organizations are developing approaches that will increase the flow of resources to women entrepreneurs. Convened by Value for Women, the ANDE Mexico Women’s Working Group has come together to benchmark its practices and performance. Its aggregated performance data will provide evidence to make the case for investing in women, decrease transaction costs, and reduce the perceived risks to serving women entrepreneurs.
In both cases, data aggregation is focused on a particular inefficiency in the market. These efforts not only provide participating organizations with actionable information, but also create sector-level resources for measurement that can be leveraged by others.
3. Organization-Level Evaluation
Evaluations are expensive. Using the highest standards of rigor, it’s possible to spend more evaluating an investment than the actual investment amount. But we believe that organizations can creatively and less expensively conduct evaluations that create more value for additional stakeholders, including the subjects of the evaluation. Hard data about consumers and producers living at the bottom of pyramid is scarce and valuable to others, including upstream companies in the value chain, NGOs serving the same community, and donors and investors. Each data collection exercise represents an opportunity to create value in multiple ways:
- By testing assumptions about our impact, and hopefully, demonstrating impact to capital providers
- By refining products and services
- By channeling feedback from low-income consumers or producers to others engaged in the community (who may in turn be willing to share the cost of the evaluation)
For instance, the nonprofit impact investment fund Acumen, Root Capital, and ANDE, a network of organizations that supports entrepreneurship in developing countries, are experimenting with new ways to decrease the cost and increase the value of data-collection at the consumer- or farmer-level. In particular, our aim is to use mobile data collection platforms and short-form impact survey methodologies such as the Grameen Foundation’s Progress out of Poverty Index. Together we seek to build public knowledge about how we can use technological and methodological innovations in data collection to make large-scale “outcome” data collection more cost-effective, while creating opportunities for enterprises to collect data that is most relevant for their operations.
4. Ecosystem-Level Evaluation
Evaluation, like most forms of knowledge creation, is a public good. Not every organization will conduct evaluations, but every organization could potentially benefit from evaluations done by others. What’s more, organizations working together can build a base of evidence about what works that no single organization could build alone.
We envision that in Metrics 3.0, sector-wide initiatives will catalogue existing information and findings, and identify gaps. In a virtuous circle, this will drive individual organizations to develop evaluations that are “repurposable”—that is, useful to multiple stakeholders.
One example of a sector-wide learning agenda that is already underway is the Smallholder Impact Literature Wiki. The Initiative for Smallholder Finance recently developed the wiki to provide a living resource for its community that helps smallholder farmers capture, organize, and easily access the growing body of literature. The wiki instantly makes clear, for example, that while we have strong evidence to support the theory that providing inputs to smallholders will increase productivity, we don’t have a strong evidence base for the impact of technical assistance of agricultural SGBs. The tool enables new entrants to the field to quickly understand which elements of smallholder finance have been proven to drive impact and in what context, and what gaps remain in our understanding.
The practice of measuring impact has come a long way, but we have yet to realize its potential in creating value for individual enterprises and society at large. We invite our colleagues and peers to join us in envisioning and implementing Metrics 3.0, the next step-change in shared metrics. In doing so, individual organizations can maximize the value of impact metrics by integrating them with financial and operational metrics to inform both day-to-day decision-making and longer-term strategic planning. Multiple enterprises in a sector can collaborate to demonstrate collective scale, channel resources to the most impactful and efficient activities, and start building a base of evidence about what works around a shared learning agenda.
In the next three years, our three organizations are committed to taking action in each of the four windows of opportunity that Metrics 3.0 presents, and we invite you to join us.