S-ROI measuring the immeasurable?

I truly believe that valuing the socio economic impact of non-profits is key in order to ensure future creation of a truly sustainable and impact oriented citizen sector. S-ROI is therefore crucial in the future of the non-profit sector.

Social Value is created when resources, inputs, processes or policies are combined to generate improvements in the lives of individuals or society as a whole. It is in this arena that most nonprofits justify their existence, and unfortunately it is at this level that one has the most difficulty measuring the true value created. Public sector "pay for performance" and other trends are a move in this direction, but need to be taken one step further, with social impacts being tied back to the "investment" required to achieve such impacts. Therefore and despite all the difficulties of valuing the direct benefits of social action in $ terms it is to develop such measurements.

Regarding potential negative impacts of using S-ROI type of measures I would like to counter argue Jessica’s identified threats.

Firstly, I think that it will not result in a bias of investment towards less risky projects because often these less risky investments and actions are also the ones with the less impact on the future and so the different discount rates that dictate the riskiness of investments allows us to compare two different riskiness investments that also with different returns. This will result in much more rationale decisions on where to apply a very limited pool of resources.

Secondly and regarding the short term bias it is again not a credible reason since also short term projects (e.g., food aid) have less impact than building a democracy or structural projects and will therefore not be under valued even using a discount rate.

Regarding intangible outcomes one may argue about their value if they don’t have any impact on society as a value producing community. Certainly that intangible changes impact is valuable but given the difficulty in measuring it aren’t we better off applying $ elsewhere. I am sure that if well structured projects exist in terms of intangibles they have very rationale reasons that can and will certainly be translated in $ terms (e.g., openness of cultures to equality regarding voting rights will translate into a more efficient democracy and hence economic impact will be generated that can be measured by looking into other countries that have gone through the same process).

Finally one must not forget the objective of measurement. It exists not to compare projects with the for profit sector or even between radically different projects among different organizations, but yes to compare potential projects in similar areas by one organization or comparable ones. Therefore I truly believe that by using objective measurements we are giving a great step towards a more sustainable and economically efficient social sector that will in turn translate into bigger impacts.

Finally and regarding balance scorecards I would like to reinforce Quin’s argument about the top-down approach. One can only apply an effective scorecard if its objectives and structure is fit with the desires and needs of those that will use it. It can be applied at different levels in the organizations if each one has its own centre of responsibility.

S-ROI and balance scorecards are nevertheless not comparable since they serve different purposes. A scorecard is in my view more oriented to the day-by-management, more directed to inside management while S-ROI has a more general usefulness in such that it can be used by external investors in the making of their money allocation decisions.

Volunteering: Isn't it great ?

Volunteering can be approached in non-profit world from multiple perspectives: should NGOs be dependent on it? Is it vital for the evolution of NGOs directly or indirectly? Is volunteering efficient? What are the main positive impacts of volunteering?

What is in it for the corporate sector? Does it make sense to use its resources in activities out of its core competencies and activities? is this trade off in efficiency counter balances by the increased motivations and work force cohesiveness and potential retention of talent. Hardly is this is enough to counter balance the costs of such initiatives. In my opinion I do believe that Corporations should not engage in such activities as for they represent a simple and direct waste of resources in non-welfare creating activities (given the opportunity cost). This however does not mean they should not exist. I think that if these types of activities are to exist than they better be integrated in a global strategic plan of action where the way to create the biggest possible social impact is formulated and where a specific plan of action is created (e.g., partnership between Randstad and VSO for example).

Nevertheless, lets not forget the role of government and other ruling bodies that should create the best conditions possible for Corporations to better perform/organize volunteering programs (e.g., tax benefits, subsidies, enforcement laws). This is especially important for the fact that Corporations management is there to serve the prime stakeholders of their organization the shareholders. Therefore the government has to create the conditions for objectives to be more aligned or to simply empower other stakeholders to have a "word to say" in management decisions.

I don't ignore the social outcome of individual participation in volunteering activities that impact the social cohesiveness of our society and the awareness of its members but nevertheless one may not consider that shareholders should be the ones to support the costs of this endeavour ! (unless its their will of course). As an individual I still have the will to, if I desire, to participate in volunteering activities outside of work in my free time.

In all, I truly believe and support the social upside of volunteering but I do think that the opportunity cost of this is often disregarded or downplayed.

Corporate Philanthropy: The Evolution of The Species

While reflecting on this topic and after reading many different opinions on the topic I believe that Corporate Philantrophy has a very important role in the development of the non-profit sector in both efficiency and effectiveness.

Individuals and foundations tend to be very reactive in terms of funding needed NGOs and other non-profit organizations usually reacting to letters and other types of requests. Continuing donations are more times out of habit than oon a continued trust link between donor and beneficiary based on simple but objective performance criteria. This is exactly where I think that Corporate Philantrophy can play an important role.

In today's society and due to the inequitative power of the various social stakeholders not all have accesss to the same resources and iinformation. Therefore I believe that Corporations are in a key position to effectively leverage on superior management resources in order to better assess resource allocation for NGOs and or foundations. This has sometimes not been the case in most Corporations leading to a continuous destruction of value for the entire society by not allocatiing effectively resources. This failures have probably lead to today's critiques of CSR and other jargons used in defence of uncounsicous giving and other social actions.

I believe that in the future philantrophy will be reformulated in order to respond to an increasing awareness and control for the use of Corporate resources specially money/cash flows. As a result, I think that the next step is to evolve to a more strategic type of philantrophy where Corporations will share other, and perhaps, more valuable resources such as specific skills or abundant human resources. Through Public Private Partnerships a better and more efficient system of Corporate Philantrophy will be in place that has higher chances of creating a win win situation for both parties hence catalysing the interest of the private sector and other stakeholders.

In order for this transformation to take place I think that the key is information, information and information. Only with a wide and in depth information available about needs and past performance of NGOs will the market become more efficient and effective both in its use of resources and in the social impact it will achieve. Only through the use of this information will organizations be able to make more rational decisions and initiatives.

Socially Responsible Investment - what impact and intrinsic value?

I would like to make to main comments: (1) what is the actual impact of socially responsible investing and (2) what is the relative financial performance of SRI to other funds ?

(1) Regarding the actual impact of SRI I think it a trully wide question that might be discussed from different perspectives. If we think on a long-term CSR perspective I trully believe that if this SRI acquires the critical mass and demand from main stream and institutional investors with will surely drive a need for compliance from corporations in a wide basis. Basically one can argue that this effort if successfull will really provide an impact across the board (sectors and geographies). The need for access to capital markets and financing will lead to compliance given that premiums might be charged to social responsible companies. Ofcourse this fact is mainly dependent on the potential future trends from investors. Hence I believe that insitutions today like ASRIA really fill in a huge gap of information providers that will have as main role the creation and understanding of this untapped demand.

(2) Regardind social responsible oriented funds I would like to refer to a recent McKinsey study: "Socially responsible businesses sacrifice financial returns to pursue social or environmental objectives; that much is known. Just how much of a trade-off they make has always been unclear, however, and evidence from the capital markets is inconclusive. A recent study has produced some surprising results: over the ten-year period we examined, a portfolio of investments defined as socially responsible generated returns of 8 to 14 percent. That is lower than the rate typically earned by "angel" investors—wealthy people who make direct equity investments in entrepreneurial ventures, usually at an early stage—but comparable to capital-market returns."
I would consider this finding as very encouraging due to the still somehow insipient corporate world consideration/concern and therefore less diversified potential targets of SRI (as compared to the global market).

Lastly I would like to thank and congratulate Melissa Brown for her time and informative session on SRI.

Cheers !

From Microfinance to the Bottom of the Pyramid: serving the poor profitably

I would like to basically make a comment regarding both micro finance and bottom of the pyramid market potential. I do believe that micro finance is nothing more than an application of financial credit to the bottom of the pyramid market. It is a basic adaptation of a common product of credit to the necessities of the bottom of the pyramid: no possibility to give any collateral is replaced by group solidarity, amounts and channels of distribution are adapted to local needs among many other specificities.

I do think that BOP really represents a big potential for multinationals. It is enough to analyse what multinationals such as Unilever and other similar companies are doing in consumer good markets. In India Unilever, for example, introduced an inexpensive powder detergent called Wheel and outsourced its production to a local manufacturer. The product was less refined than Unilever’s premium Indian brand and sold for about one-third as much, allowing the company to serve a previously neglected low-price market. With only one strong competitor in it, Wheel quickly won 38 percent of the powder-detergent market in India, thereby matching the competitor’s market share. Margins in this market, due to less spending in branding and other administrative costs, were however as high or higher than for the premium brand.

What is the social impact of this business development of BOPs? The main social impact of this type of activity is the supply of much better quality products or services to low income consumers at a cheaper price. Additionally it also impacts a lot the whole economic and social tissue of less developed countries and regions. In order to capture this low-priced markets multinationals usually try to emulate local competitors. By doing so they try to retain the best local managers that best know the market and don’t focus so much on branding but much more on distribution effectiveness, efficiency of operations and simplicity. By doing so the local market/industry gets more developed through bigger economic activity as well as more efficient hence being able to produce more value to both production factor owners and end consumers.

Fair Trade : the new financing for multinationals and retail players?

After my previous blog on fair trade I have kept reflecting on the main pitfalls and advantages of fair trade. Nevertheless, I do continue to think that clearly the pitfalls and main impact of fair trade are undoubtedly not sufficient to justify the “investment” in it. When evaluating the cost of fair trade there are many factors that should bee considered:

A) One has to think on the premium consumers are paying for fair trade products being both (1) what they pay above a price of a normal product with the same quality level or (2) the difference in quality when compared with a product in the same price range.
B) Cost and opportunity cost of time spent by non-profit organizations on the fair trade business

Given this investment in fair trade one has now to evaluate the positive impact it has on society as a whole. In here is where a supply chain analysis might enter into play. Let’s assume for a moment that cooperatives do work, that the system works perfectly and that basically we are getting 3rd world producers to reach self-sufficiency and market their products in the open international market.

Basically consumers are paying a premium for a product that goes all the way through the value chain, hopefully, into the hands of under developed farmers and cooperatives. With this money they are supposed to develop their agricultural techniques and infrastructure in order to increase productivity and quality in order to in the medium term being able to access on their own the world market. What happens when they do are able to access the world market?

Basically what happens is that excessive supply on international markets of crop x is aggravated even more creating even more pressure on prices. Even if excessive supply is not created (due to small impact of fair trade in creation of more supply) farmers will still be making small margins per kg/ton/square km of production. So where did all the money that was pumped in the system in the meantime was transferred into? Basically it was pumped into production factors that are now producing value that is being captured by retailers of for profit brands in developed countries or by big distribution multinationals. Does it make sense to create an entire scheme of wealth transfer that basically bounces back even creating in the meantime more disparities due to local disruption of current production structure?

In my opinion fair trade in its pure sense is sincerely a non-effective and efficient way of investing into developing countries. One may consider more structural projects that basically aid developing the productive capacity in a customized way according to the local requirements of a determined region that will enable self sufficiency in the long-term.

Car sharing: leading to increase car usage ?

I just want to raise the discussion on I believe was the main goal of the majority of the car sharing companies: to reduce overall environmental impact of car usage. The main argument about the positive environment impact can be summarized in two main points: (1) less occupied space (each car share in average represents 5/6 cars that are no longer needed); (2) less pollution since car sharers tend to use more public transport than the average automobile owner.
After doing some research I found that basically car-sharing companies in Europe are flourishing in all countries in very different formats and with very different objectives: from non-profit firms to for-profit firms, with missions ranging from green companies to “a better luxurious alternative to public transports”. My main hypothesis is that the ripple effects of car sharing will indeed induce to overall more car usage not off-setted by the increased usage of public transport. The proliferation of car-sharing companies and associations and the increase competition for clients to sustain the even-more expensive networks of cars and locations will probably lead to a competition on prices hence resulting in the democratization of car-usage. Even more, the increase in size of these companies will lead to the weakening of the their neighbourhood/ communal feel and associated auto censorship of excessive car usage.

Another factor that in my perspective will also lead to increase usage of cars are the creation of international car-sharing networks like European Car Sharing that, among other benefits, enable international mobility of members giving them access to local car sharing networks. Basically when abroad people will now have access to a cheap and accessible fleet of cars hence not needing anymore to recur to public transport (one of the main means of transport when abroad).
Although with no scientific sound facts to back out this hypothesis I do think that one has to step-back and reflect on the possible ripple effects of such a huge boom in the car sharing industry in Europe and in the US (e.g., City Car Share - http://www.citycarshare.org/) Will it attain its main objective ? Are alternative/concurrent business models more valid, as lift sharing ? (http://www.liftshare.org/)

Ashoka and Unltd UK a different breed of non-profits...

As per our last class I have been reflecting in the roles of organizations such as Ashoka and Unltd UK that focus on individuals rather than organizations for local development of impactful projects.

I feel that basically this specific type of NGOs really fill an existing gap in the non-profit sector by concentrating on developing and supporting social entrepreneurs at a local level in a project by project basis always bearing in mind the potential coming from spreading ideas/projects among vaster geographies/situations. Hence I believe that the added value comes from their ability to assess at a local level the potential impact in the community of a particular project whilst prioritizing funding of different projects that compete for funding at a national, regional and global level enabling at a later date the generalization at a larger scale of the major breakthroughs.

Ashoka and Unltd UK although sharing the same philosophy they differ slightly differ in their target audience/projects. In one hand Ashoka is a global organization with international funding that seeks projects at a large scale often exceeding several thousands of euros of funding during extensive periods (eventually for life) and on the other hand Unltd UK that focus on the UK community necessities funding social entrepreneurs in three different potential levels but often with a roof of a few thousand euros. If in the case of Ashoka its aid comes in after the inception of the project in the case of Unltd UK they provide aid right from the idea and provide even consulting services for their clients (the social entrepreneur). Nevertheless a common root connects both organizations: they both aim for local, impactful and sustainable change whilst enhancing knowledge development that can be further applied at a larger scale. They also try to create the necessary conditions for a flow of real-time interchange of ideas and know-how.

These three factors: (1) funding of selected individual's projects and ideas at a local level, (2) active management of knowledge ensuring both development of general frameworks and "formulas" as also enhancing interpersonal exchange and (3) effective life cycle support of implementation and measure of effectiveness certainly do create social value hence providing "la raison d'etre" of Ashoka and Unltd like NGOs.

Fair Trade ... more than charity ?

It is commonly accepted that the WTO (World Trade Organization) has been increasingly marginalizing small producers in developing countries. The small producers (craftsmen, farmers and converters) in these countries are excluded from the world’s main trading channels. As an alternative fair trade offers them the opportunity of finding alternative outlets for their products and generating a better income from the work they do (through offer of minimum conditions of trade).

It also intends to help develop alternative trade solutions between the countries of the North and those of the South and to demonstrate their viability.

Nevertheless, and despite all the unquestionable virtues of fair trade some question poped up in my mind. The first was what was the philosophy behind fair trade and the development in efficiency and quality of small producers?

Fair trade as it is commonly defined aims at developing small producers giving them access to better conditions that should enable them to in a sustainable fashion develop capabilities of competitively accessing global markets. If one thinks about it this is only one side of the coin, or even, a two-sided knife. It seems to me that if focus is solely on efficiency improvement and quality conformance ATOs are only preparing small producers to be able to pass value from their production to the large multinationals that explore the remaining steps on the value chain until retail. In other words, ATOs can be in a extreme and provocative perspective perceived as agents in service of multinationals ensuring their access to greater supply in terms of quality and price. Given this idea I believe that in a parallel fashion to ATOs initiatives in fair trading the issues about trade regulation and coordination should also be top priorities in the agenda in order to sustain long term enhancement of captured value on the production/extraction steps in the value chain. This, in my perspective, is particularly true for fair trade of agricultural products and extraction of raw materials.

An example of the importance of this side-line matters is the call for action from United Nations Secretary-General Kofi Annan at the UN Conference on Trade and Development in Sao Paulo. (http://news.bbc.co.uk/1/hi/business/3804007.stm)

Welcome !!!

This blog is part of the Blended Value Strategies class at INSEAD in Singapore. I will be posting content as we move in our course. Please feel free to add comments at any time.