For charities and social enterprises it often seems that the pressure to measure impact is coming from funders. Application forms and tender documents ask how you measure your impact, and monitoring processes require lots of reporting about the impact you are having.
However, developing an impact-measurement approach purely in order to tell positive stories to the outside world is unlikely to help generate significant new income. Indeed, much more benefit can be gained from building an approach that responds to the needs of your organisation itself and helps to embed impact in how performance is managed. We call this impact management.
There are many challenges from looking at impact through a funder’s lens, not least how you should choose which impact approach to use. Crucially. though, does having a high-quality impact-measurement system make it more likely that you will win contracts or raise investment?
In the world I know best, social investment, impact is one of a range of factors that influence decision-making. Research carried out in 2015 for Big Society Capital and the Esmée Fairbairn Foundation found that about half of social investors used simple conversations as the tool for assessing impact, although social investors are adopting new approaches to this all the time.
More recent research by Adrian Hornsby has looked at the outcomes of the Impact Management Fund, a £3.8m government-funded programmes that helped 110 charities and social enterprises build their capacity around impact for the specific purpose of helping them to win more contracts and raise investment.
The headline facts are that receiving this support does not seem to have significantly increased the likelihood of these organisations winning a contract or raising investment. About 70 per cent had done so before the support and the same proportion, with a bit of churn, did so afterwards. Given that many in the sector feel that funders are driving impact practice, why this discrepancy?
For commissioners, impact is of course important, but unlikely to be the core reason for making a decision when compared with operational experience and, crucially, price.
Many social investors have more funds to invest than they have organisations to invest in. So, if the cash-flows stack up, even if the impact systems are rudimentary, then it is more likely that a social investor would say yes and then provide support to help build on that impact system rather than wait until the charity had done the work.
So if building an impact system isn’t helping to increase funding in the short term, why do it? Organisations that had benefited from impact-readiness grants felt strongly that the support had left them in a stronger position, better placed to engage with commissioning and investment processes.
Participants who had built their impact systems were better placed to lead the conversation with commissioners about service design and to influence outcomes. One organisation that lost a contract still felt that the impact process had "done its job", because the commissioner was convinced of the value of the service, even though the service was decommissioned because of funding pressures.
However, it is within organisations that the most profound change seems to come. Organisations that had successfully built an impact system felt it allowed them to be more strategic and selective about the work they bid for, focusing on the areas that best delivered their mission and pricing more effectively.
As one beneficiary of the grants said: "The point is to stop and think about what you are really doing, to be more strategic, rather than responding all the time and running one bit of money after another."
Another said: "We put in 30 per cent fewer bids last year, but we won more."
There is no set way to develop an impact-management system. Adrian’s report highlights the importance of the cultural fit and the value of using external support through the change process. Such support needs to inform and empower organisations to deliver this change. As with any other area of organisational development, internal leadership and engagement at all levels is crucial.
For organisations using scarce resources to deliver the best possible outcomes for beneficiaries, the prize is big. The longer-term goal must be for impact management to achieve parity with financial management within organisations, and from there to influence funders on charities’ own terms, not the other way around.
Seb Elsworth is the chief executive of Access, a foundation that helps charities and social enterprises access social investment