The commercial value of impact measurement: does it do what it says on the tin?
Nesta has long been interested in ascertaining the impact of its work, not only to gauge where we are being effective, but to understand how effective we are being at promoting our broad pro-innovation agenda (from policy suggestions, grant-funded trials, to our investment activity).
At Nesta Impact Investments our aim is to source high impact solutions to some of the UK biggest challenges and through investment and support take those solutions to scale. To achieve this, the first step is to understand the impact each venture has on our target outcomes.
Measuring the impact of a product or service isn’t something that’s exclusive to the social sector. Organisations from every sector have a vested interest in understanding the user experience of their product or service. Added to which, end users want to know that the product or service they are receiving will deliver against its promise – does it really do what is says on the tin?
To offer a seasonal example, would you buy sun tan lotion without a clear statement about the UV protection benefits it offered? If there was no proof of its effectiveness would you spend your money on it and use it in this sunshine? Probably not, I’d guess. When making such a purchase decision, we want to know that the stated benefits have been tested, proven and verified.
To take a more relevant example, at least from the perspective of our investment activity, if a school is looking to buy an educational product, it will at the very least want to believe that this product will have some benefit to the speed/depth/breadth or effectiveness of learning. If the provider of this product can go a step further and actually demonstrate and verify how much faster/deeper/broader the learning experience will be, then it is our belief that, with all other things being equal, the school will be more inclined to purchase a product with evidence of impact.
There are many other such examples from all sectors of the economy. If an organisation can isolate and demonstrate the effectiveness of its offering, it will be in a stronger position to win more business and grow. We would argue that this is the most valuable metric an organisation can measure.
At Nesta Impact Investments we are committed to understanding the impact performance of each venture we work with, both in terms of the numbers of people benefiting from a product or service and the effect of the product on people. We are clearly not alone in harbouring a deep rooted interest in the effectiveness of the interventions we are financing. The social sector has been wrestling for some time with attempts to increase the practice of measuring and reporting of social impact, and the Inspiring Impact campaign is a great example of the real momentum that is now building amongst charities on this topic. Government is increasing its focus on the role of impact, and measurement of it, as the constrained public purse seeks to get better outcomes for less money – Payment By Results (PBR) contracting is a high profile policy example of the public sector’s need to define and measure outcomes.
The commercial sector has created whole industries to support its efforts to create product/service differentiation, strong user experiences and brand loyalty – all based on the need to set, meet and ideally exceed customer’s expectations of their offering. The advertising and marketing industry is based on the idea of better understanding your customer’s needs and wants and then measuring how you have got-on delivering against these expectations. Without gauging how your customers interact with and use your product/service, you will struggle to scale-up and optimise the offering.
In our view, to successfully grow organisations you need to evaluate the effectiveness of any end-user offering whether in the social, public or private sector. Measuring impact is something we will do with all of the organisations we invest in, through our own Standards of Evidence for Impact Investing. This is not an easy process, nor is it an exact science. It is undoubtedly easier in some cases than others; for example, measuring whether you are using less energy is far more straightforward than assessing whether an apprenticeship scheme is effective at reducing re-offending, due to the myriad of contributing factors into why someone is offending in the first place.
Our experiences of managing Nesta Impact Investments have re-iterated the importance of aligning commercial and social impact. In the pipeline of promising opportunities that we are investigating, the most compelling tend to be where there is complete alignment of the commercial and social goals. For example, take the health sector where technologies now allow the remote monitoring of patients with long term medical conditions which in certain cases have been shown to improve patient’s quality of life, or in the digital education sector where there are a growing number of on-line learning platforms that purport to raise attainment levels. In either case the commercial and social goals are closely entwined. A clear verified assessment of the offering’s ability to deliver on the stated impact goals is bound to improve the commercial proposition of the companies in question – essentially it’s the outcomes that the customer is buying.
As we reflect upon our initial learnings of running Nesta Impact Investments, it is clear to us that there is undoubted commercial value to accurate evidencing and measuring of impact. It can lead directly to improved outcomes in sales, product development, competitive positioning and even raising investment – all of which directly increase the value of a venture.
By Alex Hook - Nesta Impact Investments