Critical Performance Measurement and the Legitimacy of Blended Value Accounting

Critical Performance Measurement and the Legitimacy

of Blended Value Accounting

Dr Alex Nicholls MBA

University Lecturer in Social EntrepreneurshipFellow of Harris Manchester College

[email protected]

Critical Framework

• What to measure?• Why measure?

• Blended Value Accounting

• Who measures?• For whom?

• How to measure?• Metrics that embody ‘what’, ‘why’ and ‘who’

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Critical Framework

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Epistemology

Strategic Purpose

Strategic Focus

What to Measure?

Control Logic Model

Why Measure? Planning Mission Objectives

Who Measures? Accountability Stakeholders

How Can These Different Strategic Foci Be Reconciled?

Legitimacy Model

• To encompass:• Multiple perspectives

• Positivist v interpretive• Multiple values• Which perspectives/values count?

• Accounting (‘Audit Society’) v accountability

• Who determines this?• What are the consequences?

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What To Measure?

• Materiality• Contingency

• Social constructs or positivist ‘realities’?

• Whose reality?• Dynamic or set?• Referential or absolute?• Culturally contingent?• Sectorally contingent?

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What To Measure?

• Direct impacts• Process• Outputs• Outcomes

• Indirect externalities• Public goods

• Unit of analysis?• Individual: pragmatic• Aggregate/common good: cognitive• ‘Other people’: normative

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What To Measure?

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• Individual human impacts• Highly personal • Multiple variables• Complex to measure• Timescales unclear

• Externalities• Causality

• Generating social capital• Bonding/bridging

Contingency Framework

Ebrahim and Rangan (2010)8

Logic Model

Ebrahim and Rangan (2010)9

Where Does Impact Lie?

Procuring Procuring SuppliesSupplies

Employing Employing WorkersWorkers

DesigninDesigning Product g Product

or or ServiceService

ProducinProducing g

Product Product or or

ServiceService

MarketinMarketing to g to

TargetTarget

Fair Fair TradeTrade

Dis-Dis-enfranchised enfranchised

GroupsGroups

DeliverinDelivering g

EducationEducation

Green Green TechniqueTechnique

ss

Micro-Micro-financefinance

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Nicholls (2008)

Why Measure?

• External accountability• Internal decision making• Assessment of broader social impact

Mulgan (2010)

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Why Measure?

• Measure of mission success/failure• Inform future resource allocation

• Reward success

• Support initial funding proposals• Attract continuing funds

• Add credibility to social ventures• Create models and benchmarks

• Best practice

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Theorizing Reporting

• Positivist• Reporting data represents empirical reality

(Whittington, 1986)

• Critical Theorist• Reporting data enacts power mechanisms (Chua,

1986; Power and Laughlin, 1996; see also Lukes, 1974)

• Interpretive• Reporting data acts as a symbolic mediator for

discussion between organizational practice and stakeholders (Ryan et al, 1992; Gambling et al, 1993)

Nicholls (2009)

SE Incorporation and ReportingForm of IncorporationForm of Incorporation Annual Reporting Annual Reporting

RequirementsRequirementsSocial Social Entrepreneurship Entrepreneurship ExamplesExamples

CharityCharity Annual report to Charity Annual report to Charity Commission to include public Commission to include public benefit statement and benefit statement and consolidated financial accounts*consolidated financial accounts*

Hackney Community Hackney Community TransportTransport

Industrial and Provident Society (IPS)Industrial and Provident Society (IPS) Financial accounts to Companies Financial accounts to Companies House + #House + #

Baywind Energy Co-opBaywind Energy Co-op

Company Limited By GuaranteeCompany Limited By Guarantee Financial accounts to Companies Financial accounts to Companies House +House +

OxfamOxfam

Company Limited By SharesCompany Limited By Shares Financial accounts to Companies Financial accounts to Companies House +House +

Divine Chocolate LtdDivine Chocolate Ltd

Public Limited CompanyPublic Limited Company Financial accounts to Companies Financial accounts to Companies House +House +

CafedirectCafedirect

Unincorporated Voluntary OrganizationUnincorporated Voluntary Organization NoneNone Oxford Fair Trade Oxford Fair Trade CoalitionCoalition

Community Interest Company (CIC)Community Interest Company (CIC) Financial accounts + and CIC34 Financial accounts + and CIC34 report on activities to Companies report on activities to Companies HouseHouse

Develop Your ChildDevelop Your Child

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*There is some variation depending on turnover: see Table 2# IPSs can also be charities and would then be required to submit a Trustees’ Report as well as financial accounts+ Registered companies can submit unaudited financial accounts if they satisfy two or more of the following:•aggregate turnover must be £5.6 million net (£6.72 million gross) or less;•the aggregate balance sheet total must be £2.8 million net (£3.36 million gross) or less;•the aggregate average number of employees must be 50 or few Nicholls

(2009)

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BVA Spectrum

Nicholls (2009)

Who Measures (For Whom)?• Beneficiaries/clients/customers• Funders/shareholders• Employees• Local community• Partners• Government/regulatory agencies• Third parties (civil

society/media/competitors)• Society at large

Perceptions Of Impact Differ For Different Stakeholders

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Who Is The ‘Customer’?

User Purchaser Influencer

Clinical services (indigent)

Patient Donor Government

Elder services Senior Clients’ children

Competitors

Child health Child Parent ParentCompetitors

Pharmacy Patient Insurance Regulatory/legal

Laboratory services

Public Clinic State Government policy

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Who Measures?

The quality of an NGO’s work is primarily determined by the quality of its relationships with its intended

beneficiaries

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Slim (2004)

8 Principles Of Accountability• Inclusivity• Comparability• Completeness• Regularity and evolution• Embeddedness• Communication• Externally verified• Continuous improvement

Zadek (1998)

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Effective Accountability

• Good measures of mission success/failure• Informs future resource allocation

• Reward success

• Supports initial funding proposals• Attract continuing funds

• Creates models and benchmarks• Best practice

• Increases legitimacy of social venture

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‘Listen First’

Jacobs and Wilford (2010)

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How To Measure?

Wood and Leighton (2010)

GIIRS

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IRIS

Measurement Typology

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Ebrahim and Rangan (2010)

Measurement Typology

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Ebrahim and Rangan (2010)

How To Measure?

Mulgan (2010)25

Young Foundation NHS Tool• Likert Scales + data (if available)

• Strategic fit • Potential health outcomes• Cost savings and economic effects• Risks associated with implementation

Mulgan (2010)

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Fair Trade Impacts

Nelson (2009)

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Nelson and Pound (2009)

Fair Trade Impacts

• Economic impacts• Environmental impacts• Empowerment impacts• Quality of life and well-being impacts• Gender and equity impacts

Nelson and Pound (2009)

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IRIS Framework

• ORGANIZATION DESCRIPTION• Indicators that focus on the organization’s mission, operational

model, and location

• PRODUCT DESCRIPTION• Indicators that describe the organization’s products/services and

markets

• FINANCIAL PERFORMANCE • Commonly reported financial indicators

• OPERATIONAL IMPACT• Indicators that describe the organization’s policies, employees,

and environmental performance

• PRODUCT IMPACT• Indicators that describe the performance and reach of the

organization's products and services

• GLOSSARY • Definitions for common terms that are referenced in the indicators

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GIIRS

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GIIRS

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SROI

OTS (2007)

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Organizational Legitimacy

Suchman (1995)Suchman (1995)

A general perception or assumption that the actions of an entity are proper,

appropriate, or values and beliefs desirable within a socially constructed set of norms

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Organizational Legitimacy

Dart (2004)Dart (2004)

From an institutional perspective, legitimacy is…the means by which organizations obtain and maintain

resources…and is the goal behind an organization’s widely observed

conformance or isomorphism with the expectations of key stakeholders in the

environment

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RegulatoryRegulatory AssociationalAssociational PragmaticPragmatic NormativeNormative CognitiveCognitive

LegalLegal By associationBy association Self interestSelf interest ExpectedExpected WorldviewWorldview

Basis ofBasis ofJudgementJudgement

Compliance withCompliance withrelevant legalrelevant legalrequirements requirements and/or and/or

internationainternationall

conventions conventions

Association withAssociation withother entities that other entities that

arearealready perceived already perceived

totobe legitimate be legitimate

and/or and/or powerfulpowerful

Ability to meet theAbility to meet thedirect needs anddirect needs andinterests of interests of

specificspecificstakeholders stakeholders

makingmakingthe judgementthe judgement

Acting in ways thatActing in ways thatare consistent withare consistent withstakeholders’stakeholders’expectations of expectations of

howhowrelevant SEs relevant SEs

shouldshouldactact

Fitting in to conceptualFitting in to conceptualcategories thatcategories thatstakeholders habituallystakeholders habituallyuse to understand theuse to understand theworld around themworld around them

AntecedentAntecedentss

Legally Legally constituted;constituted;

Mandated byMandated byconventionsconventions

Working Working relationshiprelationship

with powerfulwith powerfulgovernmental orgovernmental orcorporate body;corporate body;Associated withAssociated withperson of repute orperson of repute orcelebritycelebrity

Effective serviceEffective servicedelivery;delivery;Grounded Grounded

knowledgeknowledgeto influence policyto influence policydebate;debate;Providing a Providing a

channelchannelfor exercisingfor exercisingcharitable valuescharitable values

Perceptions of how Perceptions of how aa

SE or a type of SESE or a type of SEbehave (e.g. behave (e.g. effective serviceeffective servicedelivery to clients,delivery to clients,acting with acting with

integrity /integrity /courage ofcourage ofconvictions);convictions);Expectations of Expectations of

howhowa type of SE a type of SE

shouldshouldbehavebehave

Pre-existing categories Pre-existing categories ofof

entity;entity;Concepts that Concepts that

constructconstructsocial reality;social reality;Entities that are part ofEntities that are part ofsocial fabric, (e.g. BBC social fabric, (e.g. BBC

&&Oxfam in the UK)Oxfam in the UK)

StrategicStrategicManagemenManagemen

tt

Registration withRegistration withregulatory regulatory

authorityauthority

PublicisedPublicisedpartnerships; partnerships; Alliance buildingAlliance building

Understand and Understand and meetmeet

key stakeholders’key stakeholders’needs;needs;Develop Develop

professionalprofessionalexpertiseexpertise

Follow sociallyFollow sociallyprogressiveprogressivetechniques andtechniques andprocedures;procedures;Manage publicManage publicrelationsrelations

Align with existingAlign with existingcategories;categories;Achieve longevity andAchieve longevity andnational respectnational respect

Legitimacy Typology

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Nicholls (2010)

Critical Legitimacy Framework

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Epistemology Strategic Purpose

Legitimacy Strategic Focus

What to Measure? Control Regulatory, Normative

Logic Model

Why Measure? Planning Pragmatic Mission Objectives

Who Measures? Accountability Normative, Cognitive

Stakeholders

Stakeholder Perceptions

StakeholderStakeholder Legitimacy Perceptions:Legitimacy Perceptions: Positivist/Hard DataPositivist/Hard Data

Legitimacy PerceptionsLegitimacy Perceptions::Interpretive/Soft DataInterpretive/Soft Data

Customer/Customer/BeneficiaryBeneficiary

Market-BasedMarket-Based Welfare-BasedWelfare-Based

EmployeeEmployee ContractualContractual Trust-BasedTrust-Based

GovernmentGovernment RegulationRegulation Public BenefitPublic Benefit

CompetitorsCompetitors Financial PerformanceFinancial Performance Social PerformanceSocial Performance

Investor/DonorInvestor/Donor Value CreationValue Creation Cognitive FitCognitive Fit

Owner(s)Owner(s) Private BenefitPrivate Benefit Public BenefitPublic Benefit

Third Party ActorsThird Party Actors Organizational BrandOrganizational Brand Sectoral BrandSectoral Brand

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Nicholls (2010)

Performance Legitimacy

Performance Legitimacy

Data Dashboard

CognitiveNormativeAssociational

Regulatory

Interpretive (Soft) Domain

Empirical (Hard) Domain

Impact Metrics

AccountabilityMechanisms

Pragmatic

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Nicholls (2010)

Performance Legitimacy?

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