Evaluating the impact of corporate purpose
Companies tracking the impact of corporate purpose tend to concentrate on measuring employees’ understanding of their stated purpose and its effect on engagement and retention rather than considering how it is brought to life across all business activities, suggests a new report.
For a company to be truly purpose-driven, it must view managing purpose as inseparable from managing the business which requires assessing its impact in terms of specific objectives, outputs, and outcomes across all activities.
How to evaluate the impact of corporate purpose, published in MIT Sloan Management Review, says companies must identify both the positive and negative impacts of their activities. In doing so, they evolve into what the report describes as ‘impact organisations’, who turn rhetoric into reality.
For example, a company that collects food restaurants might otherwise throw away to distribute to people in need, should also consider the potential food insecurity of their delivery workers earning minimum wage or involved in the gig economy.
Similarly, authors Christian Busch and Lisa Hehenberger argue that, while companies are accustomed to quantifying positive contributions in terms of the money invested, they are less rigorous about calculating outputs and outcomes. Starting with outputs, however, is helpful as they often directly relate to an activity.
Impact organisations turn rhetoric into reality
For example, the food redistribution company could consider the number of people fed (outputs) but measuring the outcomes of its activities is likely to be more complex, requiring external information. If improving food security is deemed an outcome, for example, the company might need to poll community members to measure this impact.
However, it will also need to consider other factors at play particularly when it comes to assessing longer-term outcomes. The authors argue this requires ‘a look at the counterfactual – what would have occurred had the organisation not made that particular effort’.
They recommend that one indicator is used to assess scale and another to measure depth. For example, if a company launches an educational programme to prepare young people for work in a specific sector, its scale would be defined as the number who complete the programme while the depth relates to those who get jobs.
The report recommends that outputs within an organisation’s control are measured quarterly while outcomes, the changes it wishes to achieve, could be tracked less frequently as these will take time. ‘Qualitative data that connects outputs to the lived reality of programme participants adds depth and can inform the design of future activities,’ it claims.
As companies become more serious about measuring the impact of their stated purpose, the report argues they will need to develop formal systems for collecting and tracking data, applying the same levels of rigour as to their financial information. This should be transparent and accessible, and regularly communicated to key stakeholders.
‘Data must withstand scrutiny from shareholders who seek to hold the company accountable for living its purpose, such as activist employees and customers and impact investors,’ states the report. Good data will ‘reveal opportunities for iterating, learning and improving upon execution of a purpose-based strategy’.