- Training & Events
- What is Social Value?
- Tools & Resources
This is a guest blog from member Adrian Henriques. Adrian is Visiting Professor of Accountability and CSR at Middlesex University Business School and a member of the Social Value International Assurance Technical Sub-Committee. You can read more articles on his blog, or follow him on Twitter: @adrianhenriques.
SROI is one of the pioneering initiatives for assessing an organisation's social and environmental impacts. It has been deservedly successful over the last decade or so. It has many strengths - including the participation of stakeholders in the determination of impacts and their measurement - but it has largely been applied to social enterprises and charitable ventures. While there has been some interest from the corporate sector, this has largely been confined to corporate community or foundation projects. So is SROI destined to remain in that niche - or can it break out into the mainstream?
Any SROI practitioner will know that there are many challenges in delivering a successful SROI evaluation: engaging stakeholders appropriately, quantification and defining proxies among them. But these are not the reason why SROI will have difficulty approaching the mainstream. The chief difficulty is that SROI is culturally oriented to the assumption that the organisation in question has a social mission or at least that it is trying to make a difference to social or environmental outcomes. Ideally that will be expressed as a 'Theory of Change'.
So to apply SROI successfully to large commercial companies, we need to be able to answer such questions as 'What is Unilever's Theory of Change?' This may seem an absurd question, but here is a quote from Unilever's website: "We have ambitious plans for sustainable growth and an intense sense of social purpose. Our purpose is to make sustainable living commonplace." And they have a 'sustainable living plan' to go with it.
Some people may not be convinced by all this, of course, but it does underline the importance of the question whether SROI can be applied to the mainstream businesses of an organisation like Unilever (not just to an appraisal of its many charitable projects). One response may be to try to prove that Unilever is not a social enterprise - and of course it does fall outside the usual understanding of that term. However I prefer to take the opposite tack and to challenge Unilever to prove that it is delivering on its social purpose, including through the application of SROI techniques. After all, making money is a social purpose and I believe it is important to reclaim all economic activity for the social good, not just that which is consciously trying to deliver benefit.
Unfortunately the way SROI is applied in practice which is not very conducive to understanding mainstream commercial activity. In the calculation of impacts, traditional SROI subtracts 'what would have happened anyway' from the total impact that arises to arrive at the figure that can legitimately be attributed to the activities of the organisation in question. And that makes sense when the purpose of the organisation is to make a difference and SROI is trying to measure that that difference.
Mainstream economic activity, however, takes place in a market context. If we suppose that the market is functioning well, then the answer to the question 'what would have happened anyway' had the commercial organisation not done what it did is: exactly the same thing! Another organisation would have done the exact same thing. That means that the social impact of a mainstream organisation, as measured by SROI, is always zero. Of course in some industries companies will try to get a competitive edge – perhaps through new technology or better thought-through processes. But in general and for mature markets, the marginal impact will be very small. This suggests that a social enterprises competing for public contracts, for example, only creates value to the extent that it does so above and beyond that provided by the social enterprises against which they are competing.
That may be in line with some people think about large companies, but it does seem counter-intuitive to say that Unilever makes no difference whatsoever to the world - for good or ill. Doesn’t the fact of employing people make a positive difference? Surely it at least produces carbon dioxide that will have a measurable negative impact on the world? What sense does it make to say that Unilever is not responsible for any of that? Just because another company may have done identical things doesn't mean that the things done don't matter.
The problem of course stems from the question to which SROI provides the answer. For traditional SROI, the question is really this one: 'what difference does the organisation make?'. The word 'difference' is interpreted to mean doing something that is consciously intended, as well as the unintended consequences of doing so. The answer is set against an alternative in which, while some impacts undoubtedly occur anyway, typically no one else is trying to make a difference. But for mainstream companies, there is another question: what is the total consequence or impact of the organisation? It's important to note that this is not a better, alternative question, just a different one – and one moreover whose answer is calculated in order to derive the traditional SROI figure.
The techniques of SROI can still be used to provide answers to the total impact question, albeit with some technical differences. This leads to what I call the 'absolute SROI', as opposed to the 'marginal SROI' of the traditional technique. Absolute SROI values are useful to assess the scale of impacts and to compare one aspect of a mainstream business to another. They could also be used to evaluate the total impact of a social enterprise, which may become more appropriate as larger parts of the public sector are turned into what can be very large social enterprises.
I believe that SROI needs to adapt in order to address the impact of mainstream business. And a key part of that adaptation will be to include the calculation of absolute SROI in its portfolio and in the presentation of results. Similar approaches have already been used by organisations such as the Crown Estate which makes use of gross economic value added. And it has been used by Veolia in the calculation of the impact of some of its mainstream businesses. My contention is that if SROI itself is to move into the mainstream it must adapt its techniques.
You can download an article version of this blog here.
A downloadable version of this blog is available here.
Inequality is the most pressing issue of our times. From Joseph Stiglitz and Oxfam’s recent research to the IMF and the CEO of Goldman Sachs, many are citing it as a critical issue leading to poverty and unstable societies. However, it is not just the broad brush issues that are affected by inequality. In The Spirit Level, Kate Pickett and Richard Wilkinson made a strongly evidenced and compelling argument that inequality contributes to a wide range of society’s ills, from prison sentences to mental health, life expectancy to teenage pregnancy. It is becoming increasingly clear that it is narrower income differentials, rather than infinite economic growth, that produce happier, healthier and more resilient societies.
This problem of inequality is systemic and getting worse. In the UK between 1977 and 2013, inequality, measured by the Gini coefficient, increased by 42%.1 In January, Oxfam announced the combined wealth of the richest 1% will overtake that of the other 99% in 2016. Whilst there are disagreements as to whether social mobility is decreasing, politics, journalism and legal professions in the UK are still dominated by people who have gone to private schools. And countries with higher levels of income inequality have lower levels of social mobility.
Inequality is also expensive – and economically inefficient. Research from The Equality Trust found that social impacts of inequality: poor mental health; high crime rates; and low life expectancy, costs the UK over £39 billion a year.2 The rich increase spending on security services they wouldn’t otherwise need. Inequality reduces wellbeing for both rich and poor with higher rates of depression and lower levels of trust. In the worst instances inequality leads to social and political instability.
The solutions are consequently unlikely to be straightforward or superficial. It will require a radical approach to change this broken system.
We believe that a major issue at the root of inequality is that of resource allocation. Currently, investment decisions that lead to capital flows and allocation of resources are made on the basis of the price signals that are sent to the investors. These price signals are informed by an organisation’s financial accounts. So how are these accounts prepared? The current system is to prepare accounts with a supposed, hypothetical investor in mind. This hypothetical investor is assumed to be solely interested in the maximisation of wealth. The accounts therefore exclusively reflect this interest.
So the first assumption is that our hypothetical investor is only interested in wealth. The second assumption is that this is an accurate reflection of real investors; that what matters to them is solely a financial return on their investment, and no other criteria are factored in to the decisions they make.
These assumptions are rooted in the model of neo classical economics. This operates on the idea that human beings are entirely rational, wealth maximising individuals who act in a consistently self-interested manner. In practice, the assumption clearly does not bear out. As well as most people’s real life experience that humans do not behave in this way, there are countless psychological examples in decision theory that demonstrate a much more nuanced, complicated and ‘irrational’ decision making process in human beings. Whilst modern day economics has changed (to a certain extent) to adapt to these findings in behavioural psychology, accounting has not moved on; it is still stuck with this concept of a super rational, wealth maximising individual.
So where does this leave us with inequality? There are two questions that we can ask ourselves at this juncture. Firstly, does this hypothetical wealth maximising investor accurately reflect all investors? Secondly, even if it is an accurate reflection; do we really want to live in a world where accounts are prepared with this in mind? Or would a world where accounts are prepared in the public interests to enable companies to be held to account and encourage transparency be preferable?
To address the first question: investors surely do make decisions on evidence other than the financial impacts of a company. Many investors, and indeed consumers, would also make decisions based on a company’s social and environmental impacts – does it use child labour? Does it poison the environment through dumping of toxic waste? If these sorts of impacts were included in the financial accounts of a company, and subjected to external auditing to examine whether the impacts were a true and fair representation of that company’s accounts, investment and therefore resource allocation decisions would be reflective of these impacts. Companies which were more transparent and more accountable for their actions would demonstrate a better return on investment – where return means all material types of value, not just financial. Resources would therefore be directed towards ventures that demonstrated accountability to their stakeholders for all types of material value that were created and/or destroyed.
To address the second question from above: even if it is true that investors are solely interested in maximising their wealth, surely the world would be a better and more egalitarian place if accounts accurately reflected a range of impacts, rather than just the financial? If we would prefer to live in a world where resource allocation decisions are made on this wider basis, then it is time to change public policy to reflect this.
To make this world more equal, we need profound and systemic change. Resource allocation decisions lie at the root of current inequality, and changing the evidence used to make these decisions gives us a real chance at making this change and moving towards a more equal, and therefore healthier, safer and economically stable society.
You can download a pdf of this case study here.
Link Group is one of Scotland’s leading housing, regeneration and support organisations, providing services to 10,000 families and individuals in 26 Scottish local authority areas.
Sheila Maxwell, Link’s Community Regeneration Officer and an SROI Accredited Practitioner, explains the varied ways that they use SROI across Link’s activities to help them improve their services and win contracts.
Link Group is a registered social landlord and social enterprise offering a wide range of housing, support and regeneration services for individuals, families and communities, with our activities mainly concentrated in the central belt of Scotland.
We were formed in 1962 to provide housing for rent to those on low incomes and for people with specific housing needs including the elderly and people with disabilities. 53 years on, Link Group now operates in a variety of areas including:
Our involvement with SROI goes back to 2008. Our original interest in SROI stemmed from the Scottish Government and their SROI project. We felt that we wanted to be able to demonstrate additional impact of our services, not just on a ‘cost benefit’ level, and then potentially use this to improve our service delivery and develop partnerships with identified stakeholders. SROI seemed like a good option.
After going on the practitioner training course, I conducted my first SROI analysis on Link’s Older Persons’ Advice Project. During this experience, the mentoring I received from Sheila Durie, another accredited practitioner in Scotland, was invaluable. This was all back in the early days of SROI – we didn’t even have the Guide to SROI to help us when we started the process!
Since then I have written a couple of other assured reports, and completed analyses on other areas of our work.
Definitely! It’s been very useful for Link Group, its customers and stakeholders.
i. Funding and contracts
We have discovered different dimensions to our service delivery that we were not previously aware of. This has then given us access to other funding sources and new partnership relationships. For example, intermediate outcomes that we identified on the Older Persons Advice Project were used to then gain additional funding.
Other SROIs have been useful as they help us to develop bids and funding applications.
ii. Changed decision making
It’s probably true that the original reason we engaged in SROI was to help us to gain access to funding and confidently demonstrate our positive social impact to stakeholders. However, it’s actually been incredibly useful in helping us to evaluate and improve our services by informing key decisions about delivery.
For example, SROI has helped us with assumptions about our stakeholders. An SROI we conducted on our RealLiving Befriending Service in West Fife (a service to help older people including those affected by dementia) found that the service actually made an equally significant difference to the carer of the client, as to the client themselves. This helped us to change the way we thought about this particular service.
A different example is from when we did an SROI report on Care and Repair services in West Lothian in 2013. One of the big realisations was that we needed to improve our relationship with the NHS and partnerships with other health and social care providers.
iii. General Monitoring and Evaluation practices
We have adopted some principles of SROI in our monitoring and evaluation practices. We ask questions about baselines as a standard part of our initial customer engagement, and include questions about ‘difference made’, rather than just outputs. I believe this has improved the quality of our surveys and feedback across large areas of Link.
iv. External Communications (reputation)
We’ve also found that using SROI has given us an enhanced reputation as a sector innovator – we’ve been involved in promotion of SROI at workshops and events across Scotland and beyond, including the National Australian Housing Conference in Brisbane and Citizens Advice Scotland Conference.
v. Internal Communications
One other less obvious benefit is the difference that SROI reports have made to staff morale. After being involved in the production of an SROI, stakeholder engagement or reading the analysis and case studies afterwards, staff feel less like a cog in a wheel; it puts them more in touch with the difference that they are making on the ground.
SROI also helps to spread information about our services to other parts of Link group – incredibly useful for an organisation of our size and diversity.
A few pieces of advice I’d give to others:
Every year there is a huge amount of excitement around the Annual Budget. Along with the autumn statement, the event is a landmark in the political calendar and is preceded by weeks of speculation how it will affect business and people's standard of living.
Of course this is very important but policies to increase income and change taxes are only part of the picture. Income is an important part of our wellbeing but other things contribute as well. Health, security, education, culture, community relations and the environment all play a part and often inform people’s voting intentions.
On the 13th February, Lord Young released the much anticipated review of the Social Value Act. The growing interest in social value, what it is and how we can produce more of it, is encouraging and a revision to the Act is a great opportunity to make this easier for commissioners whilst ensuring that local communities are really benefiting. More social value is being created than before.
And so it was a disappointment that the Act has not yet been extended to include goods and works. The SROI Network’s aim is to change the way the world accounts for value, across the board. Incorporating social value into all procurement decisions is a natural step.
One of the issues raised by Lord Young before the Act can be extended or given more statutory permissions is measurement. As stated in the report, 'whilst potential bidders are able to articulate the social outcomes they will provide, there is a lack of consistency and rigour around how these outcomes are quantified. This can make it harder for procurement officers to be reasonably objective when they are evaluating social value bids, and make it more difficult to assess the additional value for money provided by a social value offer.' (pg.11)
This means that measurement of social value is not yet developed enough to provide commissioners with adequately robust measures which can be compared between bidders.
Challenges around measurement and clarity of definition of social value will of course contribute to a lack of take-up and inconsistent practice. As Hazel Blears said in Hansard in September of last year, “This is a plea to the Minister: we have to have consistent principles and grounds for the measurement of value”.
It is this consistency in the principles, rather than indicators or values that will enable different values to be compared between each other, and decisions to be made on this basis. That is why we have had a set of seven core, consistent principles that lie at the heart of SROI. This enables different types of value to be measured in the same way, according to the same principles of best practice, but suitable for different levels of rigour, depending on the organisation’s purpose.
It is also important that we do not lose sight of the linkages with the public sector’s existing approaches to thinking about value, for example through the need to ensure value for money, cost benefit analysis, and business case requirements to support expenditure programmes.
The National Audit Office defines Value for Money as 'the optimal use of resources to achieve the intended outcomes'. We would want to be clear that assessing value for money must also take account of non-intended outcomes. However if the focus is on outcomes, and these have been determined with the involvement of those who will be affected by commissioning decisions, then social value will be aligned with value for money.
The Business Case, specifically the Five Case Model, is designed to ensure public value is being achieved through spending decisions. Again there is a strong relationship between social value and public value.
The challenge is to make the approach to measurement appropriate for commissioning decisions, whilst remaining consistent with existing requirements. As the measurement of social value develops and helps commissioners make choices between bidders, the SROI Network would recommend that our principles are used as the basis which will contribute to comparability without falling into the trap of pre-determined lists of indicators that are thought to represent all the important sources of social value. The Treasury were part of the steering group that resulted in the Guide to SROI and its principles and we would recommend therefore that the NAO and Treasury are closely involved in developments.
We also hope to contribute to an increase in social value commissioning and creation through our Social Value Commissioning site, with its database of case studies and resource documents. We were also happy to note that the Guide and our SROI Self Assessment Tool are both referenced in the report as useful sources of more information.
Download and read the full report here
 Hansard, 2nd September 2014: http://www.publications.parliament.uk/pa/cm201415/cmhansrd/cm140902/halltext/140902h0001.htm