Measuring the Business Value of Social Impact Efforts
Our expert's opinion
I chose this article because it’s a topic close to my heart, having based my thesis on the impact of CSR on companies and our society. Measuring the business value of investments in corporate social responsibility will lead to a better engagement of companies towards social impact efforts.
More corporations will become committed to our society's urgent global issues if the positive effect of CSR on companies is shown in a scientifically substantiated manner.
Not only companies but everybody should be concerned and engaged in the improvement of our society and the issues that we’re facing daily.
- Sophie Cachet, Associate Consultant
Measuring the Business Value of Social Impact Efforts
Today, leaders increasingly are recognizing the business value of corporate social impact. In fact, CEOs named social impact as the top success factor for annual performance in Deloitte’s 2019 Global Human Capital Trends survey—the first time chief executives ranked that factor highest in the survey’s 10-year history.
However, many corporate leaders have struggled with how to adequately assess the business value of philanthropic and volunteering initiatives, sustainability efforts to mitigate social and environmental risk, and other core business activities that also deliver economic, social, and environmental benefits. Typically, such efforts are presented only in terms of their value to the public good. Yet this can make it difficult for leadership to effectively weigh corporate social initiatives against other business needs and to properly understand the relative importance of social value to the bottom line.
Fortunately, measurement techniques and data analytics have improved in ways that now can enable organizations to better quantify the business value of social impact. This can be done by organizing measurements along six key drivers of value creation:
- brand differentiation
- talent attraction and retention
- operational efficiency
- risk mitigation
- capital access and market valuation
By adapting business metrics to measure the value of these benefits, corporations can more accurately assess risks, assign costs, and predict growth related to social impact activities.
Using this approach, corporations can identify concrete measures for both the social and business value of each of the six dimensions. Together, these measures can be used to create a corporate social impact scorecard, which can help business leaders make decisions about when and how to integrate social purpose into core business activities or within specific campaigns, initiatives, or brands.
‘Research shows that good citizenship and good governance qualities account for nearly 30% of corporate reputation.’
Principles for Creating a Scorecard
A good social impact scorecard can provide the necessary insight for decision-making under a variety of circumstances and in diverse corporate environments. The scorecard can be used to
- value individual social impact initiatives
- assess the effects of such efforts on specific business units or functions
- provide an aggregate view of the business value of social impact activities across a company
To create a scorecard, business leaders should begin by identifying the questions they hope the scorecard will answer. For example, is it worth investing in socially responsible new product development? Or more broadly, is the company realizing sufficient returns on all its social impact work? Being clear about the questions a scorecard can answer helps define its scope and clarify the types of goals it should include.
Next, business leaders should identify which drivers of business value are most relevant. While some business questions are specific to functions or units, others have wider applicability and may touch on more than one of the six dimensions of social impact’s value. The specific business drivers can govern how costs and benefits are measured.
Finally, leaders should choose appropriate indicators to capture the business value of social impact. Wherever possible, it’s important to align with existing business measurement systems to enable comparability. It’s also important to align with standard social impact approaches to facilitate peer benchmarking. Where relevant—especially for making resource and investment decisions—it may also be helpful to translate net benefits from social impact activities into monetary values.
With these principles in mind, organizations can drill down into each of the six dimensions of social impact, determining how that dimension relates to organizational goals and financial performance.
Brand Differentiation: A Deeper Dive
For example, a business leader looking to evaluate the impact of corporate social activities on brand could begin by assessing how such efforts contribute to brand differentiation. (To learn about the other dimensions in depth, read the full report here.)
The importance of social impact to brand reputation is considerable:
- Research shows that good citizenship and good governance qualities account for nearly 30% of corporate reputation, more than any other factors besides products and services
- Two out of three consumers are willing to pay more for sustainable brands
- Recent retail research shows that, after quality, the second most important reason for customer brand loyalty is recognition of sustainable and ethical business practices
To assess the brand value of social impact, organizations can break down consumer decisions about purchase and use to understand the weight of different choice elements, including those related to social impact. Companies whose reputations are prominent enough to be tracked and indexed can work with various third-party organizations that assess reputation to determine the relative importance of social impact. If an organization has developed a total-dollar brand valuation, or if a third-party valuation exists, it can calculate the dollar value of the percentage of reputation attributable to social impact concerns.
While third-party rankings can be helpful for determining the reputational value of social impact for larger companies, smaller companies may need to construct or adapt existing consumer preference data collection tools to tease out the social impact component of brand value. Companies could also conduct their own research to explore more fine-grained consumer preference questions.
Through surveys or interviews, leaders can:
- explore ways to help address new market segments and better target existing customer segments
- assess the value of marketing campaigns that spotlight the company’s social impact work
- understand the possible business impact of additional social impact efforts
These tools can allow companies to assess how specific social impact efforts or sustainable product attributes affect purchase intent. They can also help assess consumers’ price sensitivity for sustainable products as well as their brand loyalty to such products.
To monetize this more granular consumer preference data, business leaders can capture the price premium of sustainable products and services, additional sales revenue through new market segments, and the customer lifetime value of sustainability-oriented consumers.
Through brand differentiation, among other factors, social impact can have a substantial effect on business value. By measuring the business returns of social impact, leaders can translate social value into the language of the business and demonstrate the worth of social impact work to help ensure it is appropriately considered in decisions about strategy and resource allocation. Companies that quantify their social impact in business terms may not only gain a more complete picture of social impact’s value but may also find increased incentives to expand their social impact efforts and integrate social purpose into their core strategies.
—by Rhonda Evans, senior manager, and Tony Siesfeld, Ph.D., managing director, Monitor Institute by Deloitte, Deloitte Services LP
Source: The Wall Street Journal