Measuring the Impact of Corporate Social Responsibility
The prevalence and scope of corporate social responsibility (CSR) initiatives has exploded over the past decade. Despite this massive growth, roughly half of companies say they are not adequately measuring the impact of those investments; those that are attempting to measure the impact appear to not be using relevant, business-focused key performance indicators (KPIs).
It is worth mentioning that there is no universally-agreed-upon definition or set of regulations for CSR programs, but Investopedia provides a useful definition: “Corporate Social Responsibility is a self-regulating business model that helps a company be socially accountable – it itself, its stakeholders and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including [the] economic, social and environmental elements.”
Based on data provided by CSR experts, these programs purport to support the overall strategic direction of firms in a number of ways, including:
- Employee engagement (my issues with the term “engagement” aside),
- Customer/Client retention
- Recruitment of new employees
- Corporate reputation/goodwill
- Building relationships with a number of key stakeholder groups (e.g., community leaders, clients, investors, partners), and ultimately
- Growing revenue/profitability.
By their nature, CSR initiatives impact a number of different groups (internally and externally), each with their own goals (which may not align with the strategic direction of the company), their own measures of success (which may or may not be known to the CSR-providing organization) and their own perceptions of how CSR programs ought to be valued.
This reality is the driving force behind the confusion most organizations have about quantifying the impact of their CSR programs.
After all, which goals are to be prioritized? Should success be measured relative to an internal audience or an external one? If both, how should disparities be rectified? How should various CSR programs be allocated funds? What models and valuation methods should be used to quantify impacts produced by various initiatives – and what is the justification for using those methods over others? How should the case for additional investment in CSR programs be made to the executive suite, the board of directors or other key stakeholders?
Quantifying the Impact of CSR
Before we discuss this further, let’s take a step back and understand why we’d want to understand the impact of these programs on traditional business outcomes or KPIs. After all, if the goal of the program is simply “doing good,” then why is it necessary to quantify impact? Isn’t it sufficient to simply do good?
For most companies, the answer is “no”—but not for the reasons most of us would assume:
- One school of thought is that CSR programs are an end in and of themselves. The companies and organizations that subscribe to this philosophy are seeking to do good for the sake of doing good – no ulterior motives, no hidden agendas. If that’s a company’s position on CSR, fantastic. However, even organizations with purely philanthropic CSR goals should strive to quantify their program’s impact, if for no other reason than it enables those organizations to maximize the good done the resources provided—and convince skeptical stakeholders of the value of those efforts.
- The other (and I daresay, more common) school of thought is that CSR is an investment—a means to an end. As such, and like every other investment, it should follow a traditional trajectory: an initial outlay of capital to fund the program, followed by a return (in the form of additional revenues, increased firm value, increased favorability in the marketplace, better recruitment efforts, improvement in other KPIs, etc.) which provides real value in excess of the initial outlay. As with most investments, the return is likely to materialize over time, rather than be immediate. This is the case with outcomes such as:
- an increase in corporate favorability/perception (“a good place to work” or “a socially responsible organization”)
- improvements to employee morale & higher employee retention
- a higher quantity/quality of employee applications
- easier recruitment of top talent
- the attraction of new/different customers
- easier retention of existing customers
All of which are measurable. (side note: if your company isn’t measuring those last few, there may have bigger problems than knowing how your CSR is doing.)
Quantifying the Impact of CSR Programs
Regardless of which of the above goal(s) are the impetus for a CSR program, it is clear that they should be quantified. Excuses that the calculations necessary are too complex or the volume of impacts too great simply are not acceptable. It is true that this is not an easy problem to solve—few measurement challenges are—but let’s not let the perfect get in the way of the necessary.
As an example, consider revenue/profitability. This can be impacted by CSR in (at least) a handful of ways:
New Customer Acquisition—This can be measured by:
- Calculating the incremental increase in new customers from a CSR-focused campaign vs. a traditional one (after discounting for natural growth, etc.), or
- New leads generated through CSR-originated relationships using your CRM, or
- A “with-or-without you” mixed-market test, or
- A multi-variate regression model (something similar to an MMM)
No one method is perfect, and no single method will accurately capture all of the value created by your CSR program; this is to be expected. It’s completely OK. Start with what you can and build on it moving forward. Communicate progress internally — and don’t be afraid to ask for the assistance of others (your finance/accounting team, operations and product teams, HR, etc.). Many of these departments/divisions have access to additional data that may be helpful.
Scared of numbers? Hire a statistics/finance/physics/mathematics graduate student from a local university and task him.her with building a few models. You’ll be amazed at what they find—and you’ll be supporting your CSR program in the process (or starting an entirely new program). The impact of CSR programs are far-reaching and temporally dispersed – but that does not prevent the value of these initiatives from being quantified (although it may make it a bit more difficult).
To get started, here are a few ways CSR programs may (or may not) impact an organization’s bottom line, along with some suggestions on how to model those impacts in economic terms:
Revenue Increases — many US customers (about 66% according to this study) will pay more for products from companies perceived to be “socially responsible.” That trend is even more pronounced among female millennials (75%) and affluent millennials (79%) — both of which are key market segments for most organizations.
CSR programs can play a vital role in helping a company create and maintain that perception among key audiences, as well as raise brand awareness, favorability and preference among core target audiences. All of this translates into (at least) one of the following four revenue-increasing outcomes:
- A reduction in price elasticity of demand (i.e. customers being less sensitive to changes in prices of a company’s goods or services. Basically: the company can charge more or use sales/discounts less often)
- Preference in the marketplace (shorter sales cycles, easier time convincing potential customers to buy, etc.)
- Customer relationship expansion (cross-selling or up-selling current customers on additional products/services provided by the Company)
- Higher customer lifetime value (more on this below)
Of course, increases in revenue do not necessarily entail increases in profit; bankruptcy courts are full of companies with massive revenue numbers, but even more massive expense/liability numbers.
Lifetime Value Increase/Relationship Expansion—This one is a bit more complex, but again, measurable. For some companies, customers or clients acquired through or who participate in CSR-driven activities tend to be more valuable, less prone to churning, or more inclined to expand their relationship with your company. Each of those can be measured. Make sure you tag your CSR-related outreach so you can segment your results and attribute them appropriately.
For customers, something as simple as a lifetime value (LTV) comparison between customer groups or a regression analysis can reveal startling outcome data. This approach can be used to quantify the impact on customer retention, which should be captured in LTV.
Cost Savings—The other side of the profitability ledger is the “expenses.” For many companies, going green actually saves green, and lots of it. A quick conversation with your finance team (as a CSR professional, they are your best friends!) can reveal startling savings. For instance: switching to low-flow toilets or air dryers in bathrooms as part of a sustainability initiative can result in savings of $10,000+ per year.
Then there are:
- Supplier relationships (lower cost and/or higher quality products, which in turn reduces inventory loss and replacement costs)
- Brand reputation savings (which reduces internal and external expenditures on communications, as well as boosts stock price/market capitalization)
- HR costs (recruitment, churn, new hire costs), etc.
- Tax savings (charitable contributions, tuition reimbursement, community contributions, etc. all can off-set profit, potentially reducing a firm’s tax liability)
The list goes on and on, but you don’t need to have a comprehensive one. Just start somewhere. Find the low-hanging fruit. Build from there. As with almost any project of this sort, adopt a lean methodology: create a prototype model, test it, refine it, adopt it. Then start again. Don’t allow the perfect to get in the way of the necessary – and make no mistake: understanding the value of CSR programs is necessary.
What I hope the above examples demonstrate is this: While the impacts of CSR programs are far-reaching and temporally dispersed, that doesn’t mean it is impossible to measure the impact these initiatives have on your business’ bottom line. And it certainly doesn’t mean you succumb to the inertia that is the status quo. Any company, regardless of size, can begin to quantify the impact of a CSR program. In many instances, the very act of starting this process unearths new avenues for exploration, inquiry, and improvement.
As you advance down this path, you can use what you’ve found, both retroactively (to assess the impact of prior initiatives and programs) and prospectively (to optimize the deployment of CSR resources and/or compare the anticipated impacts of potential programs). However, absent a framework for business leaders to assess and evaluate the efficacy of these programs relative to the goals set for them, it is nearly impossible to determine if a CSR program is working and if so, how well.
This is not an easy challenge to overcome or a simple problem to solve. But if you take nothing else away from this article, please remember this: try.
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