Now that we’ve spent two blogs explaining what SROI is (see parts 1 and 2) we can use this one to explain why SROI sucks!

Okay it doesn’t actually suck – it’s a great tool to communicate social and environmental value in a tangible way – but a single metric never tells the whole story. The Ecotone approach to SROI is as a tool to understand the potential dollar value of impacts, along with a host of other related indicators, to help investors and philanthropists work in partnership with entrepreneurs and impact managers allocate resources and manage outcomes. 

It’s a concern of ours that SROI could be used as a single criteria to determine merit in the absence of context: sometimes people want to look at it as a final “scoreboard”, when it’s not. Think of it more of an “efficiency metric” like “points per possession” or “turnover-to-assists ratio,” if we’re to extend a sports metaphor. We want to help our clients manage their impact strategies with this level of sophistication and insight, not as a final judgement on an organization’s overall value.

Organization-Level

Our clients employ a variety of strategies to best serve their beneficiaries and stakeholders. They have strategically intended outcomes, but along the way may discover the need to address specific barriers to those outcomes, or other supports that protect impact that they are achieving. Because solutions cost money, that can result in a lower SROI, even though a greater number of people may be able to achieve and maintain that core success. It would be unfair to “judge” organizations that are proactively managing their impact value with new investments over time. The knowledge of the ratio, however, might be a key piece of strategic data for decision-making and prioritization of these new investments.

Systems-Level

Pulling back from the level of the organization, what about the use of SROI at the level of portfolio/fund management or an ecosystem/systems-thinking strategy? In philanthropy, there isn’t the same incentive as in business towards mergers and consolidation. There are many players serving the same client base across many different areas of need. Looked at from a systems perspective, strategic outcomes, barriers to access, and protective factors may weave an uneven fabric of social investments across many different organizations. SROI-as-scoreboard could lead to underinvestment in a key link in a value chain that prevents the system from creating better outcomes. 

Active Management and Risk

A better way to measure impact is to have a comprehensive approach such that you aren’t only looking at a single piece of the puzzle. Creating a line of sight into the value you’re creating by looking at the various strategies you’re employing, and keeping track of a set of key performance indicators helps our clients to to actively manage impact for both quality and scale. Are the outcomes occurring as expected? Are there new barriers that require attention? If you’re continuously reviewing these metrics, even if your SROI is lower, you’re a better bet for funders and investors because it shows that you are really doing what you’re saying you’re doing. This is exponentially more important than an analyst doing a one-time math problem.

A report that does the math may begin to help you de-risk performance because you have a line of sight on cost and value, but there are other steps that position you as an organization to prove you’re doing what you say you’re doing. For example, if new barriers or feedback from participants/customers leads to a new strategy/program updates, then you could consider ecosystem players/potential partners already positioned to do the work. Gathering feedback from your beneficiaries also helps you to better understand and adjust how you’re helping them and what it means to them. Evidence of impact, adoption of best practices, and continuous learning are all keys to effective management, of which SROI is a complementary component for quantification and valuation. 

Long Story short – don’t use SROI as a final scoreboard of your impact because it’ll cause you to miss out on the full picture of how your value is being created. 

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