Measuring Socio-Economic Impact

I recently attended another of Business Fights Poverty’s fine events: Linking Socio-Economic Impact and Business Strategy. It was a great event, and good to see that there has been significant progress in the way social impact is being measured and in the way the conversation is happening, but a few things troubled me.

Measuring Socio-Economic Impact

Business Fights Poverty recorded the event, and you can watch it below. The first video is the presentations from the speakers.

The second video is the Q&A session.

Keep an eye out for the questions from me!

There was much to admire.

  • The rigour of answers from the researcher (and their admission about what the numbers can and can’t achieve).
  • The candid comments from the corporate speakers.
  • The insights from the audience.
  • The complexity of the understanding of data is getting much closer to helping companies make useful and insightful conclusions about their affect on communities in which they operate.
  • The most clear articulation of the difference between direct and indirect value creation (and impact) that I have heard at one of these events.

But still, I was left feeling a bit flat on two issues.

Indirect Jobs

Assuming I have calculated correctly from the numbers given in Standard Chartered’s presentation, they are saying that for every job they provide in Africa, a further 212 people are employed directly or indirectly as a result of their operations. For anyone other than lawyers, the words, “create jobs” would be used.

I trust that the researchers methodology is reasonably robust and reliable, although at some level will rely on a set of assumptions that aren’t currently being tested and therefore difficult to challenge. But that methodological problem isn’t what really bothered me (although bother me it does).

So, using the formula, if they employ 5,000 people they also claim that they indirectly or directly ‘create’ 1,060,000 jobs. That’s a really big number, and sounds impressive. But I’m not sure they’ve thought about the long term implications of saying that. So when they cut jobs, will they publish that the 500 jobs made redundant results in 106,000 job losses? Not likely.

Let’s also bear in mind that making people redundant usually comes in one of two forms – technological improvements or a desire to reduce headcount (usually because of efficiency improvements or need to reduce costs in response to reduced revenue). So if Standard Chartered work out a way to automate parts of their processes that are currently labour intensive, have any jobs been destroyed in other parts of the economy? That was rhetorical – Almost certainly not beyond a relatively small marginal impact, which means that their numbers are a fiction. It’s easy to imagine that if they do need to make redundancies, the multiplier impact will be more like 2 than like 212.

unemployed-south-a_2439774bNow, I have no doubt that if Standard Chartered shut all its African operations overnight, that Africa would suffer – most certainly in the short term. But another bank would replace most (if not all) of the roles standard chartered plays in facilitating commerce – maybe in an even better way (http://community.businessfightspoverty.org/profiles/blogs/sanjay-shah-hello-paisa-a-coopetitive-business-model-for-financia). Which leads on to my next concern.

If it matters, Prove it

The second thing that caused me some consternation was the answer to my question about why Standard Chartered and Anglo American would have us believe that other similar organisations couldn’t do the same job that they are doing. The answers were a little thin, both from a numbers and a communication perspective, and can be summarised in this phrase:

“Trust us. We’re better than the others.” OR “Trust us, we’re better than the others.”

(There might be a subtle but important difference between those two statements).

Now it may be true that it’s better to have Standard Chartered and Anglo American than some of their competitors. And while I don’t disagree with Richard Morgan’s response to my question that GlenCore isn’t as willing as Anglo American to engage with different ways of doing business, that is just as much a strategic choice by Anglo American as it is by GlenCore. From an investor’s perspective, it might even be a reason to avoid Anglo, because they have, arguably, a higher risk and/or higher cost model because of increased complexity (although they would rightly argue that their strength in winning local communities over to the cause reduces their costs significantly). But there isn’t any science or significant method behind their answer. Where is the comparison of good within Standard Chartered to the less good within Standard Chartered, or comparing the showcase Innovative Branch in Country X with the Business as Usual one?

Which means that the Social Impact agenda probably isn’t being used with the investment community, thereby at least maintaining the wedge occupied by ESG, CSR and Sustaianbility. Failing to get the CEOs selling the sizzle of Social Impact will result in Social Impact remaining an isolated part of business operations.

It also means that the business speakers haven’t really proved why they are the better choice – or at least they haven’t yet done enough to convince people who are at least as critiquing as me.  They also haven’t connected the Social Impact to levers of profit for business as usual, at least not in any memorable way. We don’t trust vague statements about jobs – politicians probably immunised us against such rhetoric long ago.We barely trust statements about additional profit. We might trust statements about how many people have clean water, have lived past the age of 5 or who have been cured from AIDS.

2012-09-13-social-impact1Which is surely disappointing, given how much Anglo American has done in advancing the cause of Social Impact and measuring same. As one of the leaders in this area for the extractive industry, they are probably uniquely placed to lead industry collaboration on improving profit and social outcomes across the whole sector. They deserve more than to have to assert, without reference to anything measurable, that they are better than Glencore. And Standard Chartered deserve more than to be limited to saying that they are indirectly involved in creating jobs. If their lending is better for the communities in which they operate than their competitors, surely they can demonstrate it? If they seriously believe that their lending policies are better, and their lending policies are framed by good business, they must be able to show just how much better than others they are – indeed they are the only ones that can make fully meaningful assessments about their approach to risk and return. Including how they respond to loan recoveries and helping businesses. And if they could, then their jobs rhetoric gains some tangible meaning.

Who can use the numbers?

If measuring impact across socio-economic space is to continue to grow in reputation and … impact … then it needs to be able to show more impact. And while indirect jobs works at a policy level, it doesn’t really work at a company level. That’s mostly because companies will tend toward producing a big multiplier of the number of people they employ to the number of indirect jobs created. If ever that develops into a race, then the value of understanding indirect jobs has been destroyed.

I’m going to go out on a bit of an opinion limb that I haven’t thought quite enough about just yet. I have a saw and may cut the limb myself if I don’t like where it goes.

It seems to me that companies, unless they can show quite a bit more rigour on the impact on their operations (and only on their marginal difference compared to the next-best competitor or of one area of operation compared to another), should talk about levers and concentrate on measuring how different interventions produce different results. That means things like A/B testing, control groups and some scientific method. While that might not be an especially palatable thing for many companies to think about, such an approach is likely to increase innovation, profit and social impact – so long as social impact is part of the thing being measured.

 

And policy makers should focus on the macro-impact of sectors and industries, although of course that will necessarily be done in conversation with companies. Companies will have a role to play in educating policy makers and showing how value has been created previously (they may even be the best at this role if they take the above seriously), and how it might be created in the future, but decisions shouldn’t be made on the basis of untested multipliers that may not be reliable in different contexts.

 

As a last aside, it was also slightly disheartening to hear the speakers referring almost exclusively to economic values, bypassing some of the really useful human metrics they could have used on the way through. But a big thumbs up to all involved in the event. We have come a long way!

 

Caroline Ashley, who also asked a question in the above Q&A (although without the microphone), has since blogged about her reflections on the event, here. I like her reflections, particularly the ones on indirect jobs and policy choices.

 

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.