Measuring Social Impact – the difference of social enterprise

Part 1

By Richard Cobbett, Assessment and Compliance Manager

“Social enterprise”, “Social business”, “Social Entrepreneurism”, “Corporate Social Responsibility” (CSR). How many people must be left scratching their heads when trying to determine the difference between these labels?

The fact that such business models can all measure and report on their ethical business outputs in similar ways explains much of this confusion. Their social impact (including environmental) may vary according to their resources, their sector of interest and other factors influencing their delivery capacity. But if they are all about the same ends, why is there a need for so many labels?

The Social Enterprise Mark evolved as a means of helping genuine social enterprises stand out from the crowd, driven by the desire of the sector to distinguish their distinct motivation for being in business – trading to serve social purposes. This is the crucial differentiator: what is the central motivation behind the business – why does it exist?

A social enterprise is not necessarily a guarantee of greater social impact – as I note above, the scales of output may vary according to circumstances unrelated to business motivations. An international corporation reporting CSR credentials may be able to point to greater levels of investment and positive social output than a small social enterprise providing a crucial service in a rural community.

But how does this investment compare with their overall profit generation? How far was the investment motivated by other interests, such as maintaining a positive public profile that helps them retain and expand their markets, thereby continuing to maximise shareholder profits? How far does such CSR related investment suffer when profits fall, compared to the bonuses and dividends paid to top executives and shareholders?

What distinguishes a social enterprise is it’s commitment to continually maximising social outputs with the income they generate through trading, at least in equal proportion to the objective of serving owner or shareholder interests. This specifically requires a commitment to investing at least 50% of annual profits in social purposes. Just as significantly, it also includes a consideration of how income that might otherwise be accumulated as profit (which could then feed personal shareholder gain) is used to support the fulfilment of social objectives throughout the business year.

There may be instances where social enterprises endeavour to minimise annual profits, to reduce corporation tax and thereby maximise the ongoing investment in their social purposes. In these instances, justifying how resources have been used to fulfil social objectives and achieve social impact becomes even more important. If a typical indicator of business success is bottom line profitability, when a social enterprise fails to report a profit, analysing and reporting on social impact represents an alternative rationale for demonstrating business strength and sustainability.

Broadly speaking, there are three ways in which a business may be able to report on how it has strived to fulfil its social objectives:

  • its social inputs
  • its social outputs
  • its social outcomes

However, the question remains: how can a social enterprise distinguish itself when reporting on its social impact when compared to other business models and their ethical commitments?

Following the logic of earlier points, this must necessarily take into account the application of income and profit towards social purposes; this may also include the cost of investments that might otherwise have represented income generation potential (e.g. people’s time given up freely to provide services). Once a social enterprise begins to consider its activities along these lines, it may consider how the level of the investment towards purely social interests compares with the annual profits it generates year on year.

Social Return on Investment (SROI) and other forms of social auditing provide formal methodologies that businesses can employ in reviewing and calculating the social value they have generated. Such approaches can be quite complex and demanding though and may have limited relevance or value to a business, particular smaller organisations or those with restricted resources. However, whilst these systems provide for greater transparency and external validation of an organisations achievements, there are simpler ways in which organisations can provide illustrations of the social value they contribute. We are beginning to see interesting examples of this emerging from our Social Enterprise Mark Holders, within the social impact statements they are asked to provide when first applying and at each annual renewal of their Mark status.

Next month, in part two of this article, we will consider some general illustrations that help exemplify alternative ways of how social enterprises can reflect upon the social value of their investment in fulfilling their social purpose.


Please click here to read part 2 of Richard’s blog