Understanding Social Enterprise Performance Measurement Systems

Introduction


The number of social enterprises (SEs) has grown in recent years due to the vast economic and social inequalities and the inefficiencies of government services. Social Entrepreneurship companies differ from other businesses because they are not profit driven, they are driven by their mission to make an impact in society. SEs need to be careful in utilizing their resources in an effective way and focus on concise ideas.


Although small managers and owners of SEs are extremely busy which leads to a lack of time, the understanding of how to measure performance is crucial to have a healthy organization. Without reflection on the tracking methods, it is very easy to slip into a plateau stage.


This paper shines light on the historical development of performance measurement systems (PMS) in businesses, the complications of PMS in SEs and the advantages of measuring performance. The Balance and Logic Models are introduced as two methodical ways of understanding where the business stands in a particular moment and where it’s headed. At the end, there is a brief evaluation of a social enterprise named Coops to Co-ops, by using some of the methods described on the paper, readers can see a real case study of performance measurement.


Origins and evolutions of measuring performance

Performance measurement systems (PMS) originated in the business world particularly for profit based businesses. A PMS can be defined as the set of metrics used to quantify the efficiency and effectiveness of actions. There are different stages through which measuring performance has evolved:


The first stage started around the industrial age in the 1920s. The specialization of labor and the transition from piecework to a wage system made it necessary for companies to monitor employees' productivity. This led to the creation of departmental budgets and resulted in managerial systems and procedures to delegate power and control.


Stage two happened during the early stages of globalization in the 1950s, a more sophisticated approach to measure productivity was developed with an emphasis on quality control, motion-time study, variety reduction, amongst others. These PMS were purely correlated to financial indicators.


A third stage happened between the 1960s and 1980s where the economic engine shifted from supply to demand, consumers had power with their purchasing decisions. Factors like quality, time, flexibility and customer satisfaction became the new focus of PMS.


This paper is focused on the most recent stage in performance measurement systems, where companies measure beyond their boundaries and into the impact they have in a larger set of shareholders. This has led to the creation of indicators that take into account social and environmental performance.


Importance of measuring performance in social enterprises and current challenges


When a social entrepreneur is getting started there are many ideas of what to do and how to do things, at some point, there needs to be a decision of what idea will be pursued and there has to be a focus and consistency to make that idea happen. It is very easy to take actions everyday and move forward without a performance measurement system, the problem is that resources are limited and it is necessary to understand key priorities in order to be as effective as possible and maximize social outcomes.


SEs companies require funding. To obtain sources of funding there needs to be a comprehensive plan of action and an assessment report from past performance. Without a clear system to measure performance it is hard to show key stakeholders transparent and comprehensive results.


Most activities done by SEs are social based rather than profit based. As mentioned above, past performance indicators did not take into account non-monetized items or the benefit of those outside the company boundaries, making it difficult to showcase overall performance of a social enterprise. In other words, it has been difficult to convert qualitative data related to the achievement of a social mission into quantitative metrics.


Another challenge that SEs face is that performance measurement systems can be expensive, in terms of generating data, staff time and the investment in information technology. Many times, managers and limited staff are busy and have other priorities besides inputing data to spreadsheets, updating and keeping track of numbers which can be a laborious task. This causes managers to consider performance measurements a hindrance, rather than a resource.


The next section of this paper will examine two different models that can be used in social enterprises, the balance and logic model.



The Balance Model


The balance model was developed by Mike Bull and explained in his paper “Balance”: the development of a social enterprise business performance analysis tool published in 2007. He based the model on previous research and adapted the well known balanced scorecard performance measurement and management tool by Robert Kaplan & David Norton (1996) as well as the incremental learning concept, development by David Kolb and Ronald Fry (1975).


The following images are a comparison of the main differences between the balanced scorecard (BSC) (figure 1) and the balanced model (BM) (figure 2) and an explanation of what each section of the BM represents.


  • The Multi Bottom Line was renamed from “Financial” in the BSC. The motivation of profit maximization on a BSC is replaced with an approach that seeks out other benefits such as social, environmental or community benefits hence the term “multi-bottom line” is used.


  • The Learning Organization section focuses on the social capital and knowledge of an organization. The main reason why the term “growth” was taken out is because they did not want growth to be associated with performance.


  • The Stakeholder Environment replaced “customer” in the BSC given that the term stakeholder is a better representation of what social enterprises deal with, since they satisfy multiple groups of people.


  • Internal Activities were changed from “internal business processes” since the idea is to move away from rigid processes into using business activities.

The balance model has a three step approach:

  1. There is a critical reflection done by the business owner or manager, ranking from 1-5 the topic areas (The Multi Bottom Line, The Learning Organization, The Stakeholder Environment, Internal Activities).

The owner/manager chooses descriptions that best suit each situation for the numbers in the scale. Ex. stage 2 could be “we act as and when in crisis situations” and stage 4 could be “we have formal systems and structures in place” (figure 3).

  1. There is a snapshot of the particular strengths and weaknesses across the BM by giving a numeric value to each stage option and obtaining the average for each topic area (figure 4).

  2. An action step process is developed with new researched knowledge.


When the snapshot of results is available, it can guide the development of a new learning cycle. The balance model as explained earlier, takes into account learning stages. As Kolb and Fry explain, businesses grow in cycles and patterns, after a cycle has been reached comes a plateau and a new incremental learning stage is needed, at that point it is valuable to reflect on what actions were successful or unsuccessful to allow an opportunity for learning, followed by developing the next learning cycle.


The Logic Model


Logic models help managers understand the theory behind the activities an organization engages in and how results are generated. The purpose of this tool applied to a social enterprise is to get a clear picture of how the organization does its work. The following list describes the four components of a logic model.


  • Inputs/resources include human, financial, organizational, technological and community resources that a company needs to develop their activities.

  • Activities are what the company does with the resources. The processes, tools, events and actions that bring about changes or results in the community.

  • Outputs are the direct results of the activities. This includes levels and targets of services to be delivered by the program.

  • Outcomes are the specific changes in the participants or particular stakeholders being impacted by the activities. Short term outcomes should be attained within 1 to 3 years, medium term within 4-6 and long term impact within 7 to 10 years.


A logic model framework can be used in either direction and it’s a good idea to use it in both directions. The “execution” direction is when the logic model is examined in the order in which it is given in Figure 5, there's a clear view of how activities generate results and the effectiveness of the process. On the other hand “reverse planning” happens when the owner/manager starts with the outcomes in mind and works backwards to determine the outputs needed to generate those outcomes and so on.


The execution approach is used to assess and understand current activities and generated outcomes. The planning approach is used when managers are interested in discovering new and better activities, processes or methods to accomplish the desired outcomes.


Inputs, activities and certain outputs happen “inside” the company whereas “outcomes” happen outside the organization. If a company only focuses on measuring internal processes they would lose perspective on the outcomes as a result of their work. It’s also important to keep in mind that outcomes are not controlled by the organization, managers that track some data outside of the organization will only be able to see up to a certain point in the value chain, that is called the “data horizon”. Gathering data outside of the data horizon can be complicated and expensive. Beyond the data horizon managers can only have assumptions and theories of what activities and outputs are generating the outcome.


Measuring performance at Coops to Co-ops


Coops to Co-ops (C2C) operates as a social enterprise. The primary focus of C2C is to have a positive impact in the community. The following figure illustrates the different directions C2C can take. Although in theory it seems like an easy task to accomplish 2 or 3 projects at the same time, it has been of crucial importance and effectiveness to focus all resources on the farmers market.


In a period of 4 months, the farmers market went from an idea stage to inauguration. As a farmers market manager, I keep track of 3 key metrics to measure the effectiveness of my inputs and activities: # of customers, # of vendors, # of sales. The soft opening was on May 2nd, 2020. It was a sunny day, there were 38 customers, 5 different vendors and $490 in sales for the day. The second market day happened on a cold and windy day, there were 23 customers and 5 vendors.

The first developmental stage was getting the market started with a successful soft opening. I’ve noticed that without a new development cycle I will soon be in a plateau. I’ve decided to use the logic model to understand what are the critical tasks, activities and ouputs to create a new development cycle with the data gathered. Figure 7 shares the logic model that I’ve created for Coops to Co-ops Farmers Market.


Doing the logic model for C2C in both directions gave me a good understanding of where I am standing. The execution direction gave me the opportunity to see what is the relationship between activities and outputs and realize what are the non-negotiable activities and which others are not as crucial. When I did the logic model from a planning approach I started getting ideas on how to fulfill my outputs and outcomes. One particular idea was to get chess sets and board games and promote tournaments during farmers market days so people have an excuse to come regularly, developing a routine instead of attendance being a once a month affair.


Conclusion


Most new business owners are extremely busy with the day to day operations that little or no importance is paid to measuring performance. Many others see it like a waste of time and can’t see the value of doing a comprehensive plan. This paper showcases why it's important to evaluate performance regularly. It introduces comprehensive methods that any entrepreneur can use to get clarity and a good picture of where to focus energy and resources.


As social entrepreneurs it is critical to always remember question zero: What exactly are we trying to accomplish? Without having a clear answer to this question, it’s very easy to take many actions but without a real direction. Particularly when the team expands to more than two members, the leader's role is to keep everyone focused and reminded of what the main goal is at the moment.


There needs to be a healthy relationship with measuring performance since it might not be wise to spend valuable resources measuring outside of the company’s boundary line unless it is absolutely needed. Measuring performance becomes a game that if played well can be beneficial but if not played well, it can drain resources and/or not provide the intended benefits.


Sources

Arena, M., Azzone, G., & Bengo, I. (2014). Performance Measurement for Social Enterprises. Voluntas, 26. https://doi.org/10.1007/s11266-013-9436-8


Bititci, U., Garengo, P., Dörfler, V., & Nudurupati, S. (2012). Performance Measurement: Challenges for Tomorrow*: Performance Measurement. International Journal of Management Reviews, 14(3), 305–327. https://doi.org/10.1111/j.1468-2370.2011.00318.x


Bull, M. (2007). “Balance”: The development of a social enterprise business performance analysis tool. Social Enterprise Journal, 3(1), 49–66. https://doi.org/10.1108/17508610780000721


Kolb, D. A., & Fry, R. E. (1974). Toward an Applied Theory of Experiential Learning.

W .K. Kellogg Foundation. (2004). Logic Model Development Guide.


Wei-Skillern, J., Austin, J. E., Herman, L., & Stevenson, H. (2007). Entrepreneurship in the social sector. Sage Publications.


What is a Balanced Scorecard? A short and simple guide for 2020. (n.d.). QuickScore Balanced Scorecard Software. Retrieved May 10, 2020, from https://balancedscorecards.com/balanced-scorecard/


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