Challenges and boundaries in implementing social return on investment: An inquiry into its situational appropriateness

Abstract

Nonprofit organizations (NPOs) and social enterprises are increasingly under pressure to justify their use of resources and report their impact on society. Frameworks that monetize social value such as social return on investment (SROI) have emerged as a response. The existing literature highlights many benefits and technical challenges of SROI, but largely ignores strategic and organizational learning aspects. This paper explores the use of SROI in an NPO conducting cultural heritage preservation. By analyzing the challenges managers face in agreeing on a reliable (“correct”) computation of SROI and in assessing the validity and relevance (“appropriateness”) of SROI, we seek to understand the challenges and boundaries of SROI. Challenges with a reliable computation of SROI are identifying stakeholders, the choice of proxies, the time horizons, and deadweight factors. Challenges with an appropriate SROI calculation are comparability, subjectivity, legitimacy, and resource utility. We argue that SROI calculations might not be reliable or appropriate in organizations with fuzzy purposes, broad value creation goals, broad target groups, very individual or subjective proxies, strongly lagged outcomes, complex or unobservable causality, and with lack of legitimacy among stakeholders. Organizations should not trustingly adopt SROI without being aware of these limitations.

Measuring the impact of sheltered workshops through the SROI: A case analysis in southern Spain

“…Thirdly, the SROI constitutes a very suitable tool for measuring impact due to the advantages it offers, especially in a social enterprise such as a sheltered workshop (Arvidson et al 2010). With this methodology, the complexity in the evaluation is reduced by translating the impact into a single figure using the cost-benefit analysis and financial proxies (Ali et al 2019;Nielsen et al 2020). In addition to this, the SROI method has the advantage of counting on all the stakeholders involved in the company's activity, something that most other methods lack.…”

“…Likewise, the SROI is a methodology whose application requires professionals specifically dedicated to this task, which consumes financial resources and time that entities can ill afford (Lingane & Olsen 2004;Gardner et al 2013;Ebrahim & Rangan 2010;Millar & Hall 2013). Furthermore, assessing what the impact would have been if the activity had not been carried out is crucial for comparisons, but this is difficult to measure and can result in significant calculation errors (Muyambi et al 2017;Nielsen et al 2020). Despite these weaknesses, there are authors who highlight that the SROI is underused (Millar & Hall 2013) and that, judging by the articles published in journals that have undergone a peer review, its use by academics is limited (Hutchinson et al 2019).…”

“…The SROI method is considered one of the best ways to approximate the impact of social enterprises (Arvidson et al 2010) because it allows the complexity of the social impact assessment to be reduced to a single figure, facilitating its understanding and rationalising decision-making (Ali et al 2019;Nielsen et al 2020). For example, if the SROI result is 1: 3, this means that for every euro invested, 3 are obtained as an outcome.…”

The Role of Top Managers in Implementing Corporate Sustainability—A Systematic Literature Review on Small and Medium-Sized Enterprises

“…Accordingly, just a rare amount of SMEs report on their social and environmental actions which leads to the fallacy that SMEs "have not taken up their social responsibility", justified by the idea that enterprises that do not report on CS simply do not engage in CS (Fassin 2008, p. 368). However, existing research indicates that SMEs engage in CS (Nielsen et al 2019(Nielsen et al , 2021. Most SMEs particularly perceive CS as a social responsibility and show a great sensitivity towards two stakeholder groups-the local community surrounding them and their employees (Kechiche and Soparnot 2012).…”

A Social Return on Investment Analysis of Improving the Management of Chronic Obstructive Pulmonary Disease Within the Spanish National Healthcare System

“… 18 To measure a more comprehensive concept of value, different valuation methods have been developed to translate social value to monetized value (eg., people’s willingness to pay or spending preferences). 19 Despite the subjectivity associated with some of these methods, valuing intangible aspects without a market price is essential to expose social returns, usually associated with patient and caregiver needs, which would otherwise remain unaccounted for. Previous experiences have been used to guide decisions relative to healthcare interventions, 18 , 20–23 including interventions on chronic diseases overall, 24 heart failure, 25 psoriasis, 26 multiple sclerosis, 27 rheumatoid arthritis, 28 or haemophilia A, 29 among others.…”