Introduction

You are on a hero’s journey. You have decided to invest your most valuable possessions—your time, your money, your knowledge—to help others. Not content to sit back and watch, you have joined the effort to tackle some of the world’s most difficult challenges: challenges such as poverty, health, climate change, and security. You know that you face enormous odds. Social and environmental problems in both developed and developing countries are immense, and the resources we have available to address them are wholly inadequate to the task. Some of the institutions that help address these problems—governments, NGOs, and corporations—are unable or unwilling to devote anywhere near the resources needed to make meaningful and lasting headway in eradicating serious social problems. Yet you are not giving up. Against all odds, you continue to work diligently or invest generously in the causes you care about, believing that your gifts will make a difference, that you can change the world. And you can.

This book will serve as a guide on that journey. It will help you turn scarce resources into meaningful investments that will, in turn, make significant improvements in society. We have written this book to help you and others like you create the most meaningful impact possible with the resources you control.

There are over one million nonprofit organizations in the United States alone and millions more across the globe. The number, breadth, and depth of these organizations have grown significantly in recent years and will continue to grow. Rapid growth is occuring in social enterprise and impact investing. As social investments flow in, it is essential to figure out ways to make sure that the money will have an impact. The impact investing industry can learn the lessons gained through decades of governmental and nonprofit investments. Both up-front investigation and ongoing assessment are needed to ensure that your investments are on track to create the desired impact.

Traditional profit-oriented corporations, too, have become much more interested in understanding and managing their impacts. Social issues no longer take a back seat to profits, and companies have many boundaries, such as avoiding child labor, that aren’t subject to cost-benefit analysis. Almost all of the world’s largest companies now routinely monitor social impacts and produce annual sustainability reports. The expectation that companies will contribute to society has never been greater. India has just passed a law that requires large companies to contribute 2 percent of their profits to social causes or publicly explain why there were unable to do so.

But growth in the number of organizations and faith in the good intentions of everyone involved are not enough. Organizations need to develop the ability to know whether they’re making a difference and to know how to invest wisely so that they can do better over time.

While working with organizations and industries attempting to create social benefits, we have been surprised over and over again by the difficulties that investors and organizations face in their efforts to make social change. These unpleasant surprises relate to the roadblocks organizations and the social sector encounter in their attempts to produce positive impacts. As Table 1 shows, however, for each surprise there is an emerging opportunity to overcome obstacles and improve performance.

This book is designed for people who are serious about social change and want to put their resources to work in the most effective way. Although the book is packed with a variety of tools and techniques, its core message is simple. To make an impact you’ll need to:

• Define what success means to you, and

• Figure out how you’ll know when you’ve achieved it.

Once you’ve made these key decisions, you’ll find it much easier to evaluate your current progress and make changes to improve your performance.

Many investors and service providers are guilty of fooling themselves about the impacts they are making. They do this by assuming that good intentions lead to meaningful actions, by confusing the amount of action with the quality of results, and by basing important decisions on instincts instead of evidence. Perhaps you are guilty of some of these habits; if so, this book will provide you with valuable tools for overcoming them.

One common problem is defining success in terms of what the organization produces rather than the impacts that result. Table 2 shows some examples of goals based on an organization’s outputs compared to goals based on the impacts those outputs create. The distinctions here can be subtle, but it is essential that we focus on impacts for the following reasons: actions don’t always have the anticipated results, instincts aren’t always correct, and without understanding impacts it is difficult to improve them.

Humans are fallible. Psychological research has shown us over and over again that what we see and hear is strongly influenced by what we believe. Whether we believe the economy is getting better or worse might be influenced by whether we have a job. Whether we believe a school system is good or bad might be influenced by how much our own children seem to be learning. And whether we think our organization’s free meals are reducing hunger might be influenced by the heartfelt thank-yous we received when we last served food.

This book will help you gain clarity about the impacts that matter most to you, and it will provide you with methods to measure and improve those impacts. Even for long-term impacts like reducing global warming or poverty that are difficult to measure or to attribute to any one investment or organizational initiative, you’ll discover methods for evaluating your potential and actual contributions. Indeed, our purpose is not to try to turn you into a “randomista”—industry slang for those who believe that conducting scientific experiments, or randomized control trials, is the only way to know whether your outcomes are producing impacts. While such methods can be useful in certain circumstances, there are many ways to use both logic and other forms of intelligence and evidence to evaluate and prove the impacts you are making.

This book’s architecture is based on the Social Impact Creation Cycle. We developed the cycle to describe the steps that we believe are most necessary for creating and improving impacts. The cycle is introduced and described in chapter 1 and the steps in the cycle are discussed in depth throughout the book. The cycle is based on the five most fundamental questions faced by companies, and nonprofits, and investors seeking to maximize their social impact:

1. What will you invest?

2. What problem will you address?

3. What steps will you take?

4. How will you measure success?

5. How can you increase impact?

To address these questions, we have developed frameworks, described short case studies of organizational best practices, and provided guides to action. In addition, we have developed an online companion to this book, the Social Impact Self-Assessment tool. The tool will help you answer these five questions and assess your progress on the social impact creation journey. Further information on this self-assessment tool can be found on page 213. The book is divided into five sections:

Part 1: What Will You Invest?

Chapter 1, The Social Impact Creation Cycle, describes the Social Impact Creation Cycle and explains how it is used in subsequent chapters to help you define, measure, and improve social impacts.

Chapter 2, Understanding the Investor, explores the complex set of motivations that affect investor and donor decisions and the resources that investors can contribute to create impact.

Part 2: What Problem Will You Address?

Chapter 3, Understanding the Problem, considers ways investors can choose social causes to support, the approaches for addressing these causes, and the populations or regions to target.

Chapter 4, Understanding the Investment Options, surveys options for structuring and targeting investments and describes alternative roles, both active and passive, investors can take in those organizations.

Part 3: What Steps Will You Take?

Chapter 5, How Social Impacts Are Created, summarizes the basic avenues through which organizations create positive and negative social impacts—through products and services, through operations, and through investments.

Chapter 6, Linking Actions to Impacts, describes the essential ingredients for planning and guiding impact creation: missions, strategies, theories of change, and logic models.

Part 4: How Will You Measure Success?

Chapter 7, Measurement Basics, explores basic technical and behavioral concepts associated with measuring performance in general and social impacts in particular.

Chapter 8, Measurement Approaches, inventories and describes basic approaches to impact measurement and provides examples of tools used by leading organizations.

Chapter 9, Measuring Your Impact, builds on the impact planning discussed in chapter 6 and the measurement foundations in chapters 7 and 8 to provide guidance on how organizations can measure and report social impact.

Part 5: How Can You Increase Impact?

Chapter 10, Social Impact Measurement Maturity, describes a five-level maturity model that can be used to assess the qualities of existing impact measurement systems and to guide development of more effective systems.

Chapter 11, Amplifying Your Impact, explores ways to increase impact by innovating, scaling your organization, and contributing knowledge and resources to industry and sectorwide efforts to promote impact.

Chapter 12, Call to Action, summarizes the significant opportunities that exist to dramatically increase social impact through a careful implementation of the Social Impact Creation Cycle.

The Social Impact Creation Cycle and the book’s chapters integrate the experiences from our substantial work in this field, an extensive examination of literature in numerous related fields, and the findings from a large field research project on the measurement of social impacts that included visits and interviews with dozens of leaders in the United States, the UK, and India. The project included both investors and investees. It covered government agencies, nongovernmental organizations, social enterprises, corporate sustainability leaders, and company managers interested in the impact of their ordinary products, services, and supply chains. It also involved leaders in public foundations, corporate foundations, and private family foundations—both large and small. It included some organizations that had well-developed monitoring and evaluation departments, and others that were struggling to create them. All of these organizations—even those known for being measurement experts—discussed a significant need for a book that could provide better guidance on identifying, defining, measuring, and improving social impacts.

You will find many new topics and discussions here that are based on our work with these organizations and are unique to this book. Our affiliations with universities have provided us a vantage point that has yielded powerful insights. Rather than focusing on any particular grantor or grantee, we were able to travel extensively to work with organizations on the ground in many countries. In addition, our university experience has helped us thoroughly ground our work in previous academic and managerial research.

American Express

American Institute of Philanthropy

Annie E. Casey Foundation

Ashoka

AT&T

Bank of America

Beijing LangLang Learning Potential Development Centre

Best Buy

Better Business Bureau

Betty Ford Center

Big Society Capital

Calvert Investments

Campbell Soup Foundation

CARE International

Charity Navigator

Children’s Aid Society

Chrysalis

Coca-Cola Company

Code for America

Connected by 25

Coordinated Action Against Domestic Abuse

Creative Commons

Dana-Farber Cancer Institute

D.A.R.E. (Drug Abuse Resistance Education)

Domini Social Investments

Endeavorl

Exxon Mobil

Foodcycle

Foundation Center

Gill Foundation

Girl Scouts

GiveWell

Global Impact Investing Network

Goldman Sachs

Grassroots Business Fund

GreenXchange

Guidestar

Habitat for Humanity

HLL Lifecare

Hope Consulting

Houston Food Bank

Intellecap

International Labour Organization

Jewish Vocational Service

John S. & James L. Knight Foundation

JPMorgan Chase & Co.

Kickstarter

Kids Wish Network

Korean War Veterans National Museum and Library

Kresge Foundation

Laura and John Arnold Foundation

Law Enforcement Education Program

LifeSpring Hospitals

Locks of Love

Meyer Memorial Trust

Mothers Against Drunk Driving

Naya Jeevan

Newmont Ghana Gold Limited

Oddo Securities

Patagonia

PUMA

Raising Malawi

Root Capital

Royal Bank of Scotland

Social Impact Exchange

Society of St. Andrew

Sunlight Foundation

Taj Hotels Resorts & Palaces

The Gym

Tipping Point Community

Toms Shoes

Triangle Consulting Social Enterprise

Triodos Bank

UK Ministry of Justice

Unilever Indonesia

United Nations Children’s Fund (UNICEF)

US Agency for International Development (USAID)

US Department of Health and Human Services

US General Accounting Office

US National Taxonomy of Exempt Entities

Venture Philanthropy Partners

Vestergaard Frandsen

VisionSpring

Wal-Mart Stores

Wellcome Trust

Wells Fargo

World Wide Fund for Nature (WWF)

The book is relevant to organizations, large and small alike, that are ready to step up to the challenges of improving their social impact. This includes those with a poor history of measuring social impact along with those with strong leadership that understands the importance of measurement in increasing their social impact. An extensive list of organizations interviewed is included in the preface. In addition, selected examples from a number of organizations (listed on the facing page) are also included in this book

Individuals working in foundations, NGOs, companies, governmental agencies, and social investment firms need better guidance for practice. Program managers in both developed and developing countries and other staff need more guidance on improving operations to increase impact. Even beneficiaries and hands-off donors can benefit from thinking more rigorously about social impacts. By following the steps in the Social Impact Creation Cycle, both investors and organizations can become more rigorous in defining success, understanding the causal relationships between actions and the desired impacts, measuring these impacts, and amplifying the impacts they and other social-purpose organizations can create for the environment and for society.

Over the past decade, stories of wasted money and “dead aid” have been told repeatedly—often with the conclusion that it may be better not to participate in social change at all and to let market forces prevail. But environmental and social problems aren’t going away, and the world needs the resources of nonprofits, corporations, and social investors along with the operating expertise of socially concerned organizations now more than ever. These resources must be employed in the smartest, most impactful ways possible—and this needs to happen now. Let’s begin that journey.