ABC of Enterprise Impact | Comparing And Communicating Impact Performance
Comparing impact performance
Aligning impact measurement to the five dimensions of impact provides an opportunity to compare impact performance consistently. For instance, consider how investors select investments to deliver the impact they want. If an investor has broad goals in terms of What effects they want to see, they will then choose between potential investments by assessing the (potential) impact performance of the underlying enterprise(s) across the other four dimensions of impact:
- Who will experience the outcome
- How Much will occur
- The Contribution the enterprise makes to what would likely occur anyway
- The level of Risk that the impact is not as expected
If, for example, an investor wants to make investments that contribute to the Sustainable Development Goal (SDG) of good health and well-being (What), they cannot assume that any investment in healthcare is relevant. The other four dimensions of impact will help them understand which healthcare investments are likely to make a real difference when it comes to advancing that SDG.
Investors will want to support business models that not only set goals to try to reduce negative impact but also seek to have a significant effect (How Much) on the health of people previously experiencing negative outcomes (Who), resulting in an improvement of the situation relative to what would otherwise happen (Contribution), with any risk of impact failure (Risk) justified by the level of positive impact if things go as planned.
By focusing on an outcome (such as good health) rather than a sector (such as healthcare), the dimensions also widen the array of business models that investors may consider relevant. For example, education and clean energy (e.g., solar that replaces kerosene) are both significant drivers of good health.
Benchmarking impact performance
Enterprises can benchmark their own performance across the five dimensions against other enterprises – for instance, of all enterprises working to build wealth (What) in communities with disproportionate poverty rates in Nepal (Who), which enterprises are making the deepest change and / or reaching the largest number of individuals?
Using the five dimensions of impact helps avoid “bad benchmarking”
Imagine two enterprises, both aiming to improve educational outcomes for children by increasing the student transition rate from one level of school to the next. Both provide counselling to 11-16 year-olds and both operate in the same city. Enterprise A offers a proven intervention to addressing barriers to teenagers attending school, while Enterprise B is testing a new approach to supporting teenagers with learning disabilities. A’s transition rate shoots up from 50% to 85% and generates attractive financial returns, while B’s moves from 50% to 65% and the financial return doesn’t justify the risk taken on purely financial grounds. If a manager were to benchmark A’s performance versus B’s based only on the student transition rate and the financial risk-adjusted return, she might infer that A is more efficient than B – and resources should therefore be diverted away from B. However, she would not be accounting for the fact that B’s goal was to take a higher level of risk – both financial and impact risk – to impact a harder-to-reach demographic.
Bad benchmarking risks diminishing an enterprise’s impact: it could lead to avoiding investment in Enterprise B, pulling resources away from the toughest problems and away from reaching historically and / or currently marginalized communities.
By contrast, benchmarking across the five dimensions of impact enables a meaningful comparison of the two interventions: understanding what important outcomes are being experienced, who is experiencing outcomes furthest below threshold, the contribution compared to what the market would do anyway, and the level of risk taken to reach the specified population, rather than focusing on one how much indicator like scale or depth, out of context.
Communicating impact performance
Enterprises and investors frequently communicate their impact goals and performance to external audiences – whether raising investment or securing funding, speaking to their Board, or engaging with their employees and the local community. Beyond comparing performance between enterprises, the five dimensions of impact provide the necessary fundamentals for creating consistent impact disclosures or reports (for example, see Impact Performance Reporting Norms).
