From Legitimacy to Learning: How Impact Measurement Perceptions and Practices Evolve in Social Enterprise–Social Finance Organization Relationships

Abstract

While the links between the fields of social enterprise and social finance appear apparent, academic research on the relationship lags behind practice. This study examines how social enterprises interact with social finance organizations in the context of impact measurement. Through qualitative research with eight social enterprises and their respective funders, I find evidence that both sides view impact measurement primarily as a means for establishing legitimacy prior to engagement, and in the early stages of their relationship. These relationships are hierarchical and rigid at early stages, but over time evolve into more collaborative partnerships. Eventually, social enterprises embrace impact measurement as a tool for organizational learning, and social finance organizations develop more empowering approaches for impact measurement. The level of flexibility and the closeness of the relationship between social finance organizations and social enterprises suggests important lessons for the development of a more enabling use of impact measurement.

To Prove and Improve: An Empirical Study on Why Social Entrepreneurs Measure Their Social Impact

“…This 'measuring to prove' factor has close connections with the accountability literature on social entrepreneurship (Nicholls 2009;Ebrahim 2003;Ebrahim, Battilana, and Mair 2014). However, the heterogeneity in funding resources available to social entrepreneurs may affect them differently in whether, how and what they are held accountable for (Smith and Stevens 2010;Lall 2019). Nevertheless, some scholars argue that too much accountability can hinder social entrepreneurs in achieving their social mission (Ebrahim 2005;Ebrahim, Battilana, and Mair 2014).…”

“…Qualititave and case-study research show the significance of the dichotomy between two important factors for social impact measurment by social entrepreneurs. First, there is an externally driven motivation for social entrepreneurs to demonstrate their legitimacy to key stakeholders, such as funders (Lall 2019). This 'measuring to prove' factor has close connections with the accountability literature on social entrepreneurship (Nicholls 2009;Ebrahim 2003;Ebrahim, Battilana, and Mair 2014).…”

“…Satisfying current funders however fits within the paradigm of 'measuring to prove' (Lall 2017;Liket and Maas 2015;Rawhouser, Cummings, and Newbert 2019). For example, there is a need for delivering prove of the effectiveness in achieving the social mission for social entrepreneurs who are being funded by a grant or who work under a government contract (Campbell and Lambright 2016;Lall 2019). However, the need to measure social impact may depend on the type and primary interest of the financial funder: 'finance' or 'impact' first (Gl€ anzel and Scheuerle 2016).…”

Main Factors for Understanding High Impacts on CSR Dimensions in the Finance Industry

“…These issues are problematic, because they not only do they hamper comparability and achievement of consensus, but also create a potential risk of deviation from the original social and environmental missions in order to satisfy various stakeholder needs [38]. Nonetheless, as a common characteristic, the different models associated with measurement and evaluation of different forms of impact can be considered as tools for the management of activities and communication with stakeholders, therefore constituting a means for improvement and legitimization [39].…”

“…Apart from their relevance in terms of improving organizational legitimacy, measurements and assessments of impact are also used by firms, foundations, investors, non-profit organizations and national as well as supranational institutions for organizational learning, monitorization of activities, investment decisions and/or resource allocation [44]. In summary, business is faced with an environment in which evaluation of impact is relevant for management (e.g., monitorization and improvement of performance) and for legitimization (e.g., communication of positive contributions to society and/or environment) purposes [39].…”