Saurabh Lall

Why Should We Evaluate Social Enterprises?

The metrics discussions during SoCap, as well as many others, made me think about the question “Why should we evaluate social enterprise?”

Why do we need social and environmental metrics to evaluate the performance of these enterprises? Some macro level answers may be – ’To be able to generalize. To make comparisons across companies and across sectors. To demonstrate the social and environmental impact of these enterprises in an objective way.’

But what’s in it for the company? After all, we can evaluate non-profit programs because their sole purpose is to address a particular social or environmental problem. These programs are funded by donors, who want to know how well the programs are doing, and how their money is being spent. There is a clear incentive for the program implementers to be evaluated since that is their only real measure of success. Companies measure their success by the size of their profits; non-profits measure their success through performance indicators.

So why evaluate social enterprise?

To help the enterprise achieve its goals, whatever they may be.

For me, this has emerged as the most important point to remember when developing evaluation frameworks for social enterprise. Some social enterprises may be more mission driven and may prioritize their social or environmental goals over financial objectives, while others may be motivated mainly by profit, with some expectation of social and environmental goals. However, we have to remember that they are enterprises and, as such, we should assume that they have no real incentive to be judged on anything besides their financial performance.

Over the past couple of months I have been working on a paper on developing an evaluation framework for BoP enterprises. While developing my research, this question kept coming back to me, so eventually, I let it guide my research. I eventually found the answer in a book first published in 1978 – Utilization Focused Evaluation, by Michael Patton.

Utilization Focused Evaluation (U-FE) begins with the premise that evaluations should be judged by their utility and actual use. The focus is on the intended use by intended users. The concept of U-FE can serve a guiding principle to be followed throughout the design and implementation of an evaluation for social enterprise, and a way to ensure that an evaluation is actually useful.

If we in the social enterprise space believe that the companies we work with deliver specific positive social and environmental impacts, then we should think about what the company needs to improve its performance. The company may be primarily profit driven, but deliver important social and environmental benefits, and the company’s primary motivation should also be factored in to the evaluation. Information on social and financial impacts can not only help attract investment from impact investors, but can also help the company improve product design and help in marketing campaigns, which can ultimately help its financial performance. Companies that are more mission driven can use an evaluation to improve their operations and demonstrate social impact.

There is a great deal of discussion about what kinds of metrics are best, which ones are easy to collect, and whether we should measure outputs or outcomes; all of which are important issues. But I think the question ’Why should we evaluate social enterprise?’ is an appropriate way to start the discussion.