By Stephen King, Founder at SocialBusiness.org
A critical problem in the social sector is measurement of the benefit that they have created in the system. For non-profits and charities the donors and government grants are looking for clear measurement of social impact; and those that can demonstrate the impact are more likely to get initial and future funding. The companies will measure market, operational and financial performance, in addition they will also need to understand their social performance. This extra dimension of measurement is what makes these companies so valuable, and also adds the complexity.
First coined in 1994, the triple bottom line (http://en.wikipedia.org/wiki/Triple_bottom_line) was used widely in the environmental sector in the late 1990s. It is now being more widely used across the social sectors as more sophisticated measurement tools are available to describe and track the impact of these companies. The concept allows companies to measure their full cost accounting; as social impacts are taken into the balance sheet, companies will make different decisions. Social entrepreneurship companies, as described in the first blog, do not suffer from this measurement problem nearly as much as others. These types of companies are driven much more by market forces and their measurement of profit decides whether their products or services are seen as valuable in the market place. This brings up other issues regarding how socially focused these companies are, although this is a demarcation issue for tax laws mainly.
With this framework in place, it allows these types of companies to adopt many of the business principles and approaches to managing their business. They should not be bashful of bringing over all of the strategy and processes that have been used for decades in the business world. Having customers, tracking market share, investing based on ROI, keeping fixed costs low, these are all acceptable ways to run the business. To push it further, having 6 figure director salaries, 15% profit margins and going after your competitors even if they are public sector is also acceptable; as long as the social impact is being improved by more customers being served with an increased quality, this new venture is adding value to community.
While measurement is still a critical issue for these companies, by being more market driven they resolve some of the more complicated measurement challenges. If they continue to offer great products & services and restore equality to the social systems then the market will reward them with customers and profits.