According to a survey by the Global Impact Investing Network, more than $100 billion worth of impact investing assets are currently under management. Every dollar of that investment capital represents a certain quantity of social impact return. At least it should.
For a variety of reasons -- from issues of data quality and management, to lack of incentives, resource scarcity, and many more -- impact data and impact returns are not as meticulously tracked their financial counterparts. The same can be said in the spheres of philanthropy and nonprofits as well.
Yet, tracking performance and managing impact is key from the asset level (e.g. social enterprises, entrepreneurs) to funder level (e.g. impact funds, individual investors) and even for those mediating those relationships (e.g. impact fund managers, wealth managers).
How often might an impact fund manager interact with a beneficiary in, for example, a farming community in Colombia? Hardly ever. Yet these managers and the funds they represent remain accountable to impact returns presumably being generated at this ground level. Data must flow from that community in Colombia to the desk of that manager, wherever he or she may be. That’s quite a journey for those data.
Unfortunately, the social sector remains quite fragmented with complex handshaking between primarily three layers of stakeholders all trying to manage this impact journey:
- Asset Owners: Funders of funds, large foundations, etc.
- Asset Managers: The “middle man” receiving, managing and allocating capital
- Assets: Enterprise-level (social enterprises, nonprofits, etc.)
It could be argued that asset owners stand to gain the most efficiency by aligning with assets and empowering them to manage data. However, managing impact amongst these players isn’t primarily a top-down or bottom-up approach. There should be continual flow -- communication, alignment, feedback, etc. -- in each direction.
In this article, we’ll explore why there is traditionally friction in that flow between players in the ecosystem and what is needed to reduce that friction. We’ll start by exploring what we mean by impact management and why it is important.
Impact Management, What is it Good For?
Impact management enables us to make strategic organizational decisions informed by sound data on the social or environmental returns of a given program, product, or service. It allows us to better understand performance and thus prioritize, focus, or refine our impact efforts (e.g. choosing investments, improving a service, redesigning a product, etc.). Impact management relies on the quality of the data we are able to collect and how well we are able to share, analyze, and manage those data.
We’ve initially framed this article through the lens of impact investing. However, it should be noted that all forms of impact-seeking vehicles -- foundations, nonprofits, traditional philanthropy, etc. -- have impact management needs.
Of course, in each capital arena the approach to impact management and the rigor applied vary. If approaches and degree of rigor are not aligned, either within a closed impact value chain (beneficiaries → asset → asset manager → funder) or in the impact ecosystem at large, the endeavor of social change itself risks becoming an empty marketing tool. In other words, the more diluted data becomes, the less it tells us about the impacts we are seeking to generate.
Let’s take a closer look at the four key areas that benefit from a refined impact management process, from the funder to the funded.
- Assessing Impact Potential: This could also be called impact risk assessment, or due diligence from an impact perspective. There is a clear impact management need at this stage for the funders as it is generally asked of assets to provide historical impact data. What kind of impact is the asset claiming to generate? How does it do so? How much impact can be expected per a certain amount of capital? These are essential questions at the beginning of any impact relationship. And when there is capital flow seeking impact upon return, the data need to tell a convincing story.
- Impact Strategy: In order to have clean, well-aligned impact data at the end of a monitoring cycle it is essential to develop an execution plan prior to that cycle. This includes establishing relevant metrics (relevant for funder, the funded, beneficiaries, even customers) and sound methods for collecting and managing those data.
- Impact measurement (M&E): Perhaps the most friction in the impact management process can be found here. Depending on how one interacts with beneficiaries to acquire data, the process can get messy from the outset. From the data collection point, to where you input those data, to how you analyze it, you ultimately need to answer the question -- did my intervention have an impact? Without a well-managed impact journey it will be difficult to answer that question.
- Impact reporting: Telling the story of your data serves many purposes -- from appeasing funders and inspiring customers and employees, to seeking new funding.
At a high level, there is a clear need for managing impact along these four guidelines. As anyone who has worked in the social sector knows, however, the reality of that path is a bumpy one. Let’s take a look at the some of the challenges faced by the different players in their efforts to collectively achieve the four-step flow outlined above.
Issues in the Ecosystem of Impact Management
At every level of the social sector space there is a need for impact management. The difficulty of having different levels lies in the varying needs associated with each in terms of infrastructure, resources, and human capital. Along the impact management journey as discussed above the players in the ecosystem confront challenges in their own internal impact management systems as well as how they share those data, findings, etc. up and down this spectrum.
Challenges of data and outcome alignment between layers
Effectively managing impact means effectively collecting relevant data so that there is impact know-how to actually manage. However, according to a report by the SVT Group and the Middlebury Institute of International Studies, “historically, measurement and reporting has been an exercise to satisfy donors and hasn’t typically been used to help organizations make strategic decisions.”
What data has historically been used for has created a culture at the asset level unaccustomed to impact management as a strategy tool. At the funder level impact management is the core driver of decision-making so when they come calling there can be a great deal of inefficiency in finding the right alignment.
Impact data and the management needs associated with it evolve as we move up or down this value chain. Benetech’s CEO, Jim Fruchterman, summarizes this quite well:
In the data supply chain, data flows from basic program activities steadily toward greater and greater levels of aggregation. The frontline staffer of a nonprofit, for example, typically delivers services to many individuals in the community being served. Program or branch managers oversee multiple staff members. The head of an organization oversees multiple managers. Program officers and individual donors generally support multiple organizations. Foundations and donor collectives track multiple program areas. National policymakers want to see progress at the national level. And international policymakers want data that transcends national borders.
|Source: "Using Data for Action and for Impact." Stanford Social Innovation Review. 2016.|
Each player in the ecosystem holds themselves accountable to different standards and is faced with unique performance indicators. Usually this means each has built their own impact management structures. Thus, when it comes time to collaborate -- whether in due diligence, impact planning, M&E, or reporting -- the aggregation task from the enterprise to fund managers or policymakers is a tall one. What the social sector desperately needs is an integrated approach and platform. So we created one.
Bringing all the players together
SoPact’s Impact Cloud™ delivers a software platform for end-to-end social impact data management. The Impact Cloud can help each player in the ecosystem better manage impact for strategic decision-making. Most importantly, it allows all players to do so collaboratively.
By connecting the ecosystem on one platform, the Impact Cloud alleviates the data sharing and management issues that traditionally plague social sector players. In the Cloud, asset owners, assets and even asset managers see and manage impact data in one place. With a comprehensive database of social sector metrics and report building tools each player is empowered to use impact data to inform strategic decision-making.
Remember the four key steps in impact management? Let’s see how SoPact’s Impact Cloud addresses the needs of each:
- Assessing Impact Potential: Housing and managing your data with the Cloud makes sharing it with potential funders much easier. They’ll be able to peruse the data, do their own analyses and really understand the potential your intervention offers.
- Impact Strategy: As you co-create an impact plan you’ll have access to one of the most comprehensive impact metric databases on the market. The Impact Cloud will help each player align outcome expectations, streamlining the development of an impactful intervention that meets the needs of asset owners and managers, without compromising efforts at the enterprise/beneficiary level as well.
- Impact Measurement (M&E): Say goodbye to cumbersome Excel sheets and formatting nightmares between operating systems and organizations. The Impact Cloud houses your data so that you can analyze and manage it more efficiently across teams and between organizations. Because all players can construct and see those data analyses you can make program decisions more strategically together.
- Impact Reporting: In the Impact Cloud you can create reports using the collected data to share with your beneficiaries, funders, customers, etc. As each player may have a unique audience to whom they report to, it is important that each has the capacity create reports that meet these unique needs.
Wherever you stand in the impact ecosystem we’re here to help you manage the impact you and your partners are seeking to create. And we’d love to help you get started. At no cost to you, get started on revolutionizing your impact management journey.