I was having a recent discussion with Steven Wright, fellow traveler and Aspiration Board Member and the Director of Social Performance Management Center at Grameen Foundation. We were discussing metrics and Social Return on Investment (SROI) when he posited, “There is no such thing as a social return [on investment]. The specifics of that return are impossible to generalize in to ‘units of good’ — so the metaphor falls apart.” Recognizing the problem he was alluding to as valid I nevertheless had a slightly different take on the issue that I wanted to share.
I believe social returns actually do exist in the world of strategic philanthropy, social entrepreneurship, corporate giving or whatever incarnation of support is provided with the intention of concurrently creating economic and social value. Social returns only look elusive because of the way we seek to measure them, the tools we use to quantify them and the timeline we use to address them. In short, the “units of good” we attempt to describe are an incomplete measure of social return leading to the conclusion that they really don’t exist.
The problem is not unlike the Heisenberg Uncertainty Principle. This Principle states:
Certain pairs of physical properties, such as position and momentum, cannot be simultaneously known to arbitrarily high precision. The more precisely one property is measured, the less precisely the other can be measured.
Our situation differs from the Heisenberg Principle in that our two measured properties differ. One is physical and the other behavioral. However, by trying to measure both in a similar way using Return on Investment (ROI) metrics as a foundation for defining SROI, Steve’s “unit’s of good” issue rears its ugly head, and we end up imprecisely measuring social return.
As I said, Return on Investment (ROI) and bottom line consumerism deal with tangible transactions [the physical] whose benefits are measured at the time the transaction is made. On the other hand, Social return on investment (SROI) often deals with benefit derived from complex human reactions [the behavioral] that are less tangible and occur over significant lengths of time after the transaction. So let’s compare the two, ROI and SROI, with practical examples to understand the implications of both the physical transaction and associated behaviors related to both:
Return on Investment (ROI): The Short Term Transaction
In our ROI example, Mr. Jones buys a big house. He does so to maintain a standard which also displays his affluence and houses his growing family. As a result of this expensive purchase he makes specific career decisions; works harder into the night; competes harder for that promotion; competes to send his kid to a better school; participates in the community and at the PTA to better them, etc…. All this is completely beside the point however in our ROI example…..
We really don’t care what Mr. Jones does beyond his decision to purchase the house, the primary goal of measuring and reporting on return on investment (ROI) for his real estate agent happens at the time Jones closes on the home. The agent doesn’t even care about Jones’ other associated transactions (the expensive furnishings, the Mercedes in the driveway) — unless he also happens to own a car and furniture dealership…
Social Return on Investment (SROI): The Long Term Behavior
As a Vietnam vet Mr. Smith has been having a tough time of it and is homeless, until the Housing for the Homeless Program puts him in subsidized housing. Having a roof over his head allows him to get a job he would otherwise not be able to have because he didn’t have an address. It also limits his exposure to illness which takes pressure off the health care system. Once gainfully employed Smith seeks help for his depression and relationship issues and wins back the return of his daughter from foster care. He can now pay his own rent for the home as well. The mission of the Housing for the Homeless program relates to all these goals: Lifting people out of poverty and making them net contributors to society by putting them in homes with all the supplementary benefits this accrues. The transaction involved in getting Mr. Smith in his home is only a tactic Housing for the Homeless uses to achieve these broader mission goals. Once participants like Mr. Smith get into homes they pay back the original investment in them either in small installments from their new paychecks or through community service.
Applying the same transactional approach to metrics as in our ROI example — we can measure how many homeless were transacted into subsidized housing, and how many subsequently got jobs and paid back the initial investment in them. To what extent the burden was relieved from the health care system is a bit more difficult to quantify as is the success of counseling for many, but it is still possible… Even more difficult to measure is Smith’s increased self-confidence; the fact that Smith told his reunited daughter “you have a future too” and raised her differently; that his daughter subsequently decided to go to med school and 15 years later became a doctor serving her community instead of running away from her foster home and becoming homeless herself; that having his daughter back, Mr. Smith joined the PTA and helped develop a new after school program assisting youth in his community. These subsequent behaviors are not easily measured or tracked in terms of units. The benefits accrue over years – but they are still legitimate socially returned benefits of the program with quantifiable value.
So, in contrast to ROI, measuring real SROI is about the long term behaviors that result from the initial transaction and only partially about the actual transaction itself. Unfortunately, many SROI metrics measure real SROI as effectively as Twitter can relate the core points of a PhD Thesis. Too often, they convey immediate, one dimensional sound bites of an initiative.
The quality of one set of SROI measures over another is often more about how many objective statistics can be related to a specific initiative. For example, technical initiatives like getting kids online often just generate more good objective statistics than feeding hungry kids and trying to track changes in their educational proficiency over time. In the former example, you can not only track how many kids get online but invade their privacy to find out what they are doing with their new found access. Other SROI measurements distinguish themselves by clever assumptions that project rather than really measure impact over time.
So why do we try to quantify complex behaviors that occur over years by applying short term transactional metrics more suited to ROI? I would suggest it is to justify real time, short term, funding decisions that determine whether social initiatives are supported or not.
This raises a reasonable question: Are current approaches to SROI measurement really about proving actual social return on investment? Or are they more about justifying further investment in socially responsible programs by rationalizing decisions with metrics that entities investing their dollars are just more comfortable seeing — no matter how imperfect the measurements really are?
It is completely reasonable for program investors to want to measure something that objectively quantifies success, and for those who receive a program investment to quantify and show results. However, to make believe what is being measured in many cases is real SROI without addressing the limitations, realities and reasons for measurement is what I think causes the dissonance between the resourcers and the resourced in the continuing SROI debate.
Jonathan Peizer is the Principal of Internaut Consulting supporting foundations, nonprofits, governments and socially responsible private sector initiatives. He is the former CIO/CTO and Director of the Open Society Institute’s Global Internet Program.