Impact measurement over the next decade

I had the chance to participate on a panel at SOCAP about the future of impact measurement, and was surprised how challenging I found Karim Harji’s framing question:

Where is impact measurement headed over the next decade? What is it going to take to get there? 

After pondering on this question for a while, I ended up at the conclusion that the future is very bright at the level of company-customer interaction.

I say this because in the coming decade, social enterprises, like all companies, will necessarily begin accessing and managing much more customer data gathered remotely through devices. It’s a bit easier to see this future when one is in San Francisco staying at an Air BnB and taking Lyfts everywhere: as mobile phones become both the communications and transaction platforms for nearly everything in everyone’s lives, companies, no matter what their specific business or the customers they serve, will have more data about us. While it’s true that poorer, more remote customers will lag millennials in San Francisco in terms of how soon they get on this conveyor belt, the direction this is heading, for everyone, is clear.

With that in mind, the only question at the company-customer intersection is whether and to what extent companies will incorporate data about social impact into their growing data flow. My thesis is that doing so will be a competitive advantage, allowing companies that move first to better understand how well their products and services are improving their customer’s lives, thereby driving greater loyalty, share of wallet, and share of mind and voice.

I believe this because, as our Acumen impact team has worked with companies on Lean Data projects, it’s become increasingly clear that value creation is impact when you’re dealing with critical goods and services like electricity or education or healthcare: if the customer who buys her first solar lamp stops using kerosene, uses the lamp to keep her business open later at night, and also uses a second lamp for her kids to study at night, then that lamp is creating deep and meaningful value (impact) for her. And all our data show that this same customer is nearly always a net promoter of the company, a source of positive word of mouth, and a high-value and loyal customer.

If this thesis plays out over time, then we’re about to be riding a huge, powerful wave that we’ll simply have to redirect slightly to incorporate thoughtful impact data capture and to drive towards impact management. Soon, even resource-strapped, impact-focused companies in the developing world will have no choice but to gather and utilize more data (including impact data) from end customers if they want to serve these customers effectively.

The question I find harder to answer, interestingly, is: What is going to happen to the capital market for impact? Here, things seem a bit muddier.

In order for capital to increasingly flow towards high-impact opportunities, there has to be some standardization in terms of how impact is measured and communicated, so that an investor looking to compare impact performance can compare opportunity A and B in the same way she compares financial performance for these same two opportunities.

I believe this evolution is a very important one, indeed it might be the most important development that needs to happen if the impact investing marketplace is to realize its full potential. However, unlike the evolution at the company-customer level, it’s less clear to me that there’s forward momentum pushing us in the right direction. It seems possible that we are due for a step-change in terms of how investors deploy capital for impact, and it seems just as possible that five or ten years from now things will be as bespoke and hard to decipher as they are today.

My best guess is that what’s needed to make a shift here is that a handful of highly influential and interconnected players – those holding large amounts of capital that they distribute through a large ecosystem of connected funders – need to establish their own higher, clearer impact measurement standards that they will use to deploy capital, such that their new standards flow all the way down the chain and slowly shift expectations for, and raise the bar for, everyone in the space. This was the role that the U.S. Government played with LEED certification through the GSA, which owns 9,600 buildings in 2,200 communities across the U.S., and I suspect it’s the pattern that needs to play out in impact investing too.

For more on this topic, here’s the link to the SOCAP16 plenary I got to do with Karim Harji, Jim Fruchterman, Kelly McCarthy, and Paul DiLeo.

socap16-impact-measurement

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