This post originally appeared on Harvard Business Review's Blog Network.
Companies seeking to create scalable social businesses need a measurement system that monitors their progress in delivering social benefits and economic value. Only by tracking both the social and business results and how they're connected can firms hope to have a large-scale social impact.
The problem is there is not yet a universal system for doing this. The Sustainability Accounting Standards Board is trying to create industry-based standards that will allow investors and other stakeholders to compare firms' environmental and social impacts, but it remains to be seen whether it will be able to tie its standards to value creation. The International Integrated Reporting Council is developing a common framework for companies to submit "integrated reports" on their financial, environmental, social, and governance performance. But it, too, remains very much a work in progress.
We applaud these efforts. However, even if they do succeed in creating standards, we doubt that they will be sufficiently granular and tailored to be of use in devising and implementing "shared value" strategies for generating social benefits and profits.
There is a remedy. It's a straightforward process that our firm deduced from studying over a dozen major corporations — including Alcoa, Coca-Cola, Intel, InterContinental Hotels, Nestlé, and Novo Nordisk — that seem to be well along the way to building shared value enterprises at scale. It involves four steps described below. To illustrate them, we describe how Coca-Cola Brazil measures its Coletivo initiative, which has the twin goals of increasing the employability of low-income youths and young adults and strengthening the company's retail distribution channels and brand strength. (See our report on the topic for other examples.)
Identify the Social Issues to Target
Start by identifying and prioritizing specific social issues that represent opportunities to increase revenue or reduce costs. This requires a systematic screening of unmet social needs and gaps and an analysis of how they overlap with the business. The result of this step is a list of prioritized social issues that a shared value strategy can target.
In 2008, Coca-Cola, after six months of studying the needs of Brazil's growing lower-middle-class population, identified a core social issue — skills development among low-income young people — as a strategic focus that could improve the company's profitability. Most had little or no opportunity to find jobs due to their lack of skills and limited employment opportunities in their communities.
Make the Business Case
Develop a solid business case based on how social improvement will directly improve business performance. This step includes specifying the targeted social and business benefits and understanding the activities and costs needed to achieve them.
To improve the skills and employability of these young people, Coca-Cola, in partnership with local NGOs, sought to train local youth for two months in retailing, business development, and entrepreneurship. Coca-Cola hypothesized that the training program, which includes pairing the young people with local retailers to get some job experience, could help the small businesses significantly improve their operations in areas like stocking, promotions, merchandising, and pricing, increasing sales of Coca-Cola products — especially in the emerging lower-middle-class segment.
Using the business case as a road map, track progress against the desired targets.
Coca-Cola's Coletivo initiative measures and reports progress on a monthly basis. It tracks the number of participating young people and retailers and the performance of retailers over time. The company also closely monitors the costs associated with the effort to ensure its cost effectiveness and efficiency.
Since its launch in 2009, the initiative has trained more than 50,000 young people in retailing, business operations, and basic entrepreneurship concepts. The company now operates the Coletivo initiative at over 150 low-income communities across Brazil.
Reassess the Concept and Identify New Value
Use the results to validate (or invalidate) the anticipated link between social and business results. Determine whether the outlay of corporate resources produced sufficient social and business value. Insights and lessons from this analysis will help you refine the strategy and execution.
Coca-Cola assesses four key measures: job placement; self-esteem of the young participants; company sales; and brand connection.
The initiative has been highly successful so far: After being trained, approximately 30% of the young people immediately have landed their first job with Coca-Cola or one of its retail partners (small shops to large companies like McDonald's and Walmart). And more than 10% have set up their own businesses with microcredit support from the company. An investment in a Coletivo site is profitable in only two years.
Coca-Cola's measurement system also identified continuous improvement opportunities, such as revising the training program to put more emphasis on soft skills, including leadership and presence, instead of only technical merchandising skills.
If the world is going to reap the promise of shared value — sustainable, scalable approaches to solving social problems — then companies need robust measurement systems to help them learn what works.