Determining the ROI of (Corporate) Community Involvement, Investment and Development

Over the last 20 years community involvement (CI) / corporate social investment (CSI) has evolved from an add-on activity to a bona-fide line function with bottom-line accountabilities. Like any other business function it is expected to add value (returns) to the business. For community involvement adding value means creating a shared and or blended value proposition — increasing the returns on investments for both the company and the community. Currently in community development practice a lot is being said, written and documented about measuring the impact on beneficiaries of such community investments, but there are less focus/literature/advice on how to measure the ROI for the donor/investor.

The challenge for CSI managers/CI practioners is to establish rigorous and effective measurement processes that measure both impact (on beneficiaries) and return on investment (for funders). For a number of funders CI/CSI is about intangibles: relationships, reputation, and responsibility. This article focuses on measuring ROI of community involvement and investment.

As corporate community involvement evolves from a side function to a core business strategy, companies are under pressure to demonstrate that their investments in the community are paying dividends. Yet, measuring the value of what often boils down to as relationships, remains mystifying to most practitioners in the field. How does one even begin to calculate the worth of a community outreach project or an employee volunteer program? The answer is simple: Plan and document the expected returns even before you start.

In general, companies define their community objectives within their strategy and policy documents. But until now most companies have focused only on strategic intent and objectives that is related to and focused on 1) the outcomes of their community interventions and 2) the change they want to facilitate on beneficiary communities. What is lacking in most cases is 1) a clearly defined business case 2) integration and alignment to core business strategy and 3) measurable and defined statements and indicators about what the funding organisation aims to measure about the shared/blended value created to their own benefit.

Based on conducting numerous impact and return assessments for corporate donors over the past five years, Next Generation Consultants have come to understand that measuring return comes down to the following:

A. START WITH THE CSI/CI POLICY:

Within the policy statement the company has to clearly define HOW the social/community involvement/investment/development function will contribute to business goals and objectives. This should take the form of strategic goals, which should specify the intended impact on the business and on the community. The goals should also work to shape/influence plans, programs and activities. It is possible to design community programs that serve the business and have little or no benefit for communities. Organisations that focus first on achieving real and positive outcomes in communities end up with initiatives that optimise business benefits and create a sustained impact rather than one sized/focused approaches. Typically, strategic goals should clearly define the anticipated outcomes of the objective for instance “preserving the corporate license to operate” as their primary community involvement goal. These strategic goals tell managers how the function will create a mutually reinforcing relationship (shared/blended value) between community interests and business interests. To do this, a data collection process should be used to clarify two broad factors:

1.  Community interests
2. Business Interests

B. USE DATA TO ALIGN BUSINESS GOALS AND COMMUNITY NEEDS:

Once data is collected from the community interests and needs assessment, it should be matched to business goals. Specifically, identify:

a. Key business goals of important line and support functions. For example: A company will use specific grantmaking criteria to determine which projects to support. The process uses the company’s key business-related and community impact criteria. Typical business goals can include:

1. To build a future talent pipeline or to build, contribute, ensure the availability of (future) skills required by the business
2. Raise corporate/brand awareness in specific communities or build relationships with specific target markets
3. Meet specific stakeholder and communication objectives, requirements, needs, expectations
4. Create future markets / sales opportunities or build business relations / future supply chains/providers
5. Align to specific customer/consumer interests or meet specific customer expectations
6. To protect the licence to operate / obtain permission to ensure future licences
7. To differentiate the company in competitive markets
8. To mitigate negative perceptions about the company or mitigate negative impacts from the operations

b. Similarly specific community goals can include:

1. Address specific community needs / or country/industry development targets
2. Develop partnerships and leverage funding – partnerships between the private/public/development sectors
3. Build capacity in a specific sector/industry that will benefit the company in the future
4. Contribute to local economic development that will enhance the operating context for the company

For most companies, community involvement does not lend itself easily to financial quantification. Other business functions have a much easier time assessing their value added because they can use profitability metrics to evaluate return or productivity metrics to identify efficiency and cost savings.

In general, support/service functions, such as marketing, communications, HR, investor relations or corporate affairs, and community involvement, have a more challenging time quantifying results. Even if it is clear that a support function contributes to the bottom line, it’s not always easy for the function to claim credit for its efforts. The way to overcome these challenges is to plan and to set clear goals.

Once the goals are set, it is easier to determine whether they are being met. That means asking the right questions, which in turn helps to frame and organise thinking about how to measure impact and return on investment. Asking the right questions leads to the next step in the process — designing measures to answer those questions. For instance:

If your goal is to support employee recruitment, retention and productivity, ask:

1. Does our reputation as a good corporate citizen help attract and retain employees?
2. Do potential employees who believe we have a strong reputation in the community choose to work for us?
3. Are they more committed than those who are not aware of our reputation in the community?
4. Do our community programs help attract and retain employees?
5. Do potential employees who are aware of our programs choose to work for us?
6. Are they more loyal than those who are not aware of our programs?
7. Do employees who participate in our community development programs feel more committed to the company?
8. Has morale and on-the-job performance improved?
9. Do employees who participate in our programs also develop their skills and competencies?
10. Has their on-the-job performance improved?
11. Has their leadership potential been enhanced?

If your goal is to support sales targets, ask:

1. Does our reputation as a good corporate citizen help increase our sales?
2. Do potential consumers/customers who believe we have a strong reputation in the community buy from us more often?
3. Are they more loyal than those who are not aware of our reputation in the community?
4. Do our community programs help attract sales?
5. Do potential consumers/customers who are aware of our programs buy from us more often?
6. Are they more loyal than those who are not aware of our programs?
7. Have our relationships with key stakeholders helped to influence buying decisions?

If your goal is to support corporate reputation, ask:

1. How is our program(s) enhancing our corporate reputation? Is it:
2. Improving how key stakeholders view the company as a corporate citizen?
3. Helping to increase the level of trust key stakeholders have in our company?
4. Enhancing how stakeholders view our brand and the quality of our products and services?
5. Enhancing how stakeholders see the quality of our management and operations?
6. Increased the number of investors?
7. How is our program(s) building awareness of our corporate brand?
8. How familiar are key stakeholders with our efforts to be a good corporate citizen?

If your goal is to support the license to operate, ask:

1. What is the level of support for us in the community?
2. How do our communities feel about us?
3. How strong are our relationships with key stakeholders?
4. What actions would key stakeholders take on our behalf? Would they:
5. Support us at a public hearing?
6. Speak favourably about us to a reporter?
7. Advise a friend to buy a home near our operations?
8. Advise a friend to seek employment with our company?
9. Say that they trust us and our decisions?
10. What actions did our programs help encourage?
11. Did they positively influence a permitting and approval decisions?
12. Did they help us avoid costly delays?
13. Did they help us avoid or mitigate a crisis?
14. Did they help us to keep our operations going?

C. MEASURE:

Quantify and qualify the data you have collected to help meet the specific business/community goals according to specific indicators. For instance:

If your goal is to support employee recruitment, retention and productivity:

1. Measure employee awareness of CI/CSI and contribution programs
2. Measure employee participation (e.g. volunteer time, program support, and contributions)
3. Measure employee support (e.g. testimonials regarding their experiences and their development)
4. Track employee attitudes and satisfaction with the company
5. Track retention and absenteeism rates for those most aware compared to those least aware of CI/CSI and contributions
6. Measure recruitment and retention rates of individuals who participated in a company sponsored workforce development program
7. Calculate the development of employee skills and competencies through volunteerism (can also factor costs of alternative training compared to the costs of running the program)
8. Conduct pre- and post-event surveys that track attitudes and behaviour before and after a major CSI/CI initiative or sponsorship program

If your goal is to support sales targets:

1. Measure customer awareness of community programs
2. Determine market penetration of giving programs or exposure
3. Measure attitudes of customers toward the company as a corporate citizen
4. Measure changes in purchasing behaviour, or measures of customer satisfaction, etc.
5. Calculate feature space in media and compare to advertising costs for that space
6. Track sales from a new store in a low-income neighbourhood compared to sales from other retail facilities
7. Collect testimonials from internal stakeholders on key relationships and business leads
8. Collect testimonials from customers on the role of the company’s status as a good corporate citizen (or from impressions of community programs)
9. Define with internal stakeholders a virtual finder’s fee that indicates the percent of sales attributable to CI/CSI programs
10. Track the return of donating to a non-profit organisation which then becomes a new customer
11. Conduct preliminary and post-event surveys tracking attitudes and buying behaviour

If your goal is to support corporate reputation:

1. Measure attitudes of key stakeholders who are aware of the CI/CSI program toward the company as a corporate citizen; compare these to the attitudes of stakeholders who are working as the company’s partners in the community; track attitude changes over time
2. Benchmark and compare reputation against competitors in the industry
3. Define the stated level of trust for the company among key stakeholders; identify the aspects of the business they do and do not trust
4. Conduct pre and post surveys of awareness of brand reputation
5. Track media hits and exposure of the company’s CI/CSI programs
6. Track awards and recognition garnered

If your goal is to support the license to operate:

1. Compare approval rates with and without community involvement programs to similar projects
2. Calculate revenues gained by a business function starting a project earlier than anticipated due to community support
3. Track the regulatory process (e.g. increasing ease of obtaining approvals, length of hearings, and number of interveners, the lack of negative push back, and decreasing protests and boycotts)
4. Track the number of public protests, permit interventions, and negative comments at public hearings/or in the media/or at community forums for your company compared to the industry (tie these to costs avoided)
5. Look at the success of legislative initiatives; public support in operational/facility siting cases connected to community programs and relationships
6. Measure support from key stakeholders (e.g. testimonials regarding their experiences with the company, letters of support, and public commentary)

D. ASSESSING THE RETURN ON INVESTMENT

There are a number of approaches to measuring the value/return on investment of community involvement. These vary in rigor and technical requirements and fall into four categories that are not mutually exclusive and can actually be more powerful when combined. These could include:

1. Links to performance assessment
2. Stakeholder perception surveys
3. Case analysis and project evaluation
4. Return on investment (ROI) assessment

1. Link to Performance Assessment

This, the least difficult approach, involves applying to CI/CSI the same performance management models that other business functions use. In short, it uses outcomes to report impacts. We have found that CI/CSI managers often overstate the demand internally for impact measurement. Key internal stakeholders don’t always demand that the CI/CSI department produces statistically validated, air-tight financial based figures. Instead, they may simply be asking CI/CSI managers to follow the same management process that other departments use:

? A strategy that clearly explains the purpose of CI and its core goals
? An action plan that implements the strategy
? Measures that demonstrate whether strategic goals are met

2. Stakeholder Perception Surveys

In our experience, this is fast becoming the most common way that companies measure the value/return of their CI/CSI programs. A stakeholder perception survey uses the techniques of opinion polling and consumer market research. A sample of people representing important audiences are asked a series of questions designed to identify any number of attitudes, perceptions, preferences, and even past behaviours or likely responses in the future.

Such surveys are conducted at a certain point in time and can seek the feedback of one or several stakeholder groups. However, more organisations understand that this type of measurement cannot be a one-time effort but must be revisited (typically within one to three years). In this case, surveying individuals from the same populations over time allows for tracking changes in perception, enabling a company to produce vital trend information in stakeholder perceptions.

Because the stakeholder survey helps reveal whether key goals are being met, the process of designing these surveys should start by revisiting the strategic goals, questions, measures, and records that have been identified.

Typically, companies will use stakeholder surveys to help measure one or more of the following areas:

• The awareness of stakeholder groups of the company’s efforts in the community
• The assessment or evaluation of stakeholder groups for/of the company’s community programs
• The expectations (or preferences) that stakeholders have for the company’s involvement in the community
• The attitudes of stakeholder groups toward the business and its social responsibility. Are they favourable, unfavourable, or mixed?
• The behaviours that stakeholders report were motivated by the company’s community programs and/or overall reputation as a corporate citizen

From here, CI/CSI managers need to identify who the key audiences or stakeholders are. Broad categories of stakeholder groups can include:

• The general population of a particular region
• A specific population (e.g. the residents surrounding a manufacturing plant, or a particular demographic group)
• Existing or potential customers
• Community or opinion leaders (e.g. professionals at civic associations, non-profits, government agencies, and other businesses)
• Employees
• Existing or potential shareholders
• Suppliers
• Shareholders
• Representatives of civil society
• Beneficiaries of community programs

The number of stakeholder groups a company surveys depends on its goals and what questions it is trying to answer.

3. Assessing Impact: Calculating Returns on Investments

When done successfully, return on investment (ROI) is the Holy Grail of CI/SI measurement. ROI will indicate whether community involvement programs are performing and meeting business related goals. It will provide powerful information to support the business case for CI/CSI, and by communicating a company’s work through this process, will break down the cultural divide that often exists between CI/CSI and other business lines.

However, the path to this ROI Holy Grail is fraught with obstacles. This process takes effort, creativity and the ability to persuade. Few CI/CSI departments use ROI techniques as part of their measurement processes.

Definition of ROI: ROI approaches use economic models to answer a simple question: Did our investments pay off, or would we have been better off investing our money, time, and energy elsewhere? There are two related popular techniques that can answer this question:

1. Cost-benefit analysis
2. ROI analysis

Other related techniques include internal rate of return (IRR), break-even analysis, payback, and net present value. Mostly, CI/CSI’s rate of return is determined by calculating the costs and benefits associated with CI activities as accurately as possible.

Cost Benefit Analysis: CI/CSI Costs: Determining the cost (input) can include considering planning and design aspects such as:

Planning and design

• Allocated resources such as cash grants, and in-kind giving. If volunteers are provided, a conservative approach would be to include their participation as a program cost. Managers can use hourly rates for instance to determine the value. A less conservative approach is only to include volunteer time as costs in situations when volunteers receive formal or informal leave policies.
• Salaries for personnel needed to administer, monitor, support, and evaluate the particular community program (or manage overall function)
• Costs related to communication of the program
• Costs related to staff training
• Opportunity costs

CI Benefits

Benefits are measured in income or savings, or both, generated from a project. Benefits can include:

Savings

• Tax rebates received from philanthropic/charity/social/community contributions
• Saved costs of free advertising space received from media coverage of the CI/CSI programs
• Legal fees averted (includes legal department staff time and projected billable hours from contracted firms)
• Crisis PR efforts averted (includes PR staff time and projected billable hours from contracted firms)
• Costs of avoided down-time from failure to receive building approval, work stoppages, etc.
• Reduced employee recruitment costs, reduced turnover costs, and/or reduced absenteeism
• Reduced employee training costs (e.g., through community service learning initiatives)
• Reduced customer turnover
• Other staff management hours saved

Income

• Sales generated from programs
• Value of new products and services generated from CI/CSI programs
• Increased worker productivity
• Increased share price (e.g. from attention of socially-screened investment funds)

The Challenge of Defining Benefits

The costs of CI/CSI programs are relatively easy to figure out. In contrast, calculating benefits can be quite difficult and politically charged. A sales department, for example, may not be especially enthusiastic about giving CI/CSI credit for bringing in business. Government relations may not be forthcoming in singling out CI/CSI as a key factor for winning approvals. HR may also be hesitant about giving CI/CSI credit in assisting with recruitment, retention, or skills development.

In addition, calculating benefits is straightforward in some areas but more challenging in others. To be calculated, some benefits require specialised knowledge or data that is typically not accessible to anyone except the department that owns this data and the top management team. For example, to understand how CI/CSI may save on turnover costs, HR must share its calculation of the costs of employee turnover. This figure usually varies for every industry and company. Similarly, calculating the costs of down-time requires some effort and assistance from relevant departments.

For example, consider the scenario when a company hopes to win approval to build a new site. Very often companies experience bureaucratic delays or they’re held up by stakeholder opposition. With each day that passes, several types of costs mount. There is the cost incurred from a sitting budget. Operating costs accrue from losing out on the efficiency of having the new site in use. There are costs from legal, GR/IR, and PR staff and consultant time that goes into winning approval. Every day that CI/CSI helps cut from this process saves costs. To understand these costs, CI/CSI staff needs data from other departments and business lines. To get this data, CI/CSI needs these other departments and business lines to believe that CI/CSI can contribute value.

The real challenge in using ROI techniques is calculating benefits that internal skeptics will accept. The most skeptic-proof way to prove CI/CSI adds value is to design a rigorous approach that employs advanced statistics to determine whether or not the benefit in question would have likely occurred in the absence of the CI program.

E. CALCULATING RETURNS

The main benefit of determining ROI is that it shows the bottom line, financial impact of community involvement work by quantifying the outcomes of what is viewed as a ‘soft and intangible’ function. The real problem lies in calculating the benefits. Skeptics will challenge CI’s attempts to claim credit for outcomes it may have had a supporting role in producing. Answering these skeptics makes ROI a potentially complex and resource-intensive process.

Sometimes one measurement technique is not enough to demonstrate CI’s value. When combined, various impact assessment methods can reinforce one another in defining shared/blended value. Typically, the primary business goals of Community Development/Involvement programs are to:

1. Enhance reputation
2. Address community needs
3. Address company values
4. Respond to stakeholder requirements/expectations
5. Preserve/protect/ensure licence to operate
6. Address employee needs
7. Recruit/retain employees
8. Augment client/customer marketing
9. Respond to government regulations
10. Augment/support/enhance business marketing, communication and branding strategies
11. Mitigate negative impact or manage risks pertaining to operations
12. Support market/product entry/growth/diversification/expansion
13. Mitigating increased competitive/competition
14. Opportunities for innovation or research and development

Similarly, because CI/CSI practitioners understand the value of shared and blended value i.e. the impact of community/social programs on beneficiaries as well as the funder an important factor to consider when determining the full scope of return is the specific drivers of community interventions. Therefore, balancing community interests with business interests is important. These drivers could include the following:

1. Economic trends and demographics and expanding workforce needs
2. Increasing regulatory activity
3. Increasing disparity between haves/have-nots
4. Globalisation
5. Diversity/equality/race/gender/minority inequality
6. Increased pressure from specific interest/stakeholder groups
7. Human Rights
8. Safety and security/crime
9. Impact of climate change/deteriorating environmental conditions

In closing – based on the defined CI objectives, obtaining evidence through data management processes and calculating ROI – the following section consider specific indicators to measure ROI from CI/CSI.

Employee Related:

1. Positive response to utilizing volunteerism for professional development/skills development and team building
2. Employee surveys demonstrating that volunteer activities contribute to leadership development
3. Voted one of the best companies to work for
4. Surveys showing increased employee morale from participation and increased numbers of employee volunteers, volunteer hours, and the number of company-sponsored volunteer projects
5. Satisfaction surveys indicating positive impact and anecdotal evidence
6. Employee training programs designed to use volunteers and products with most donations
7. Employees learning to use products to that they are more equipped to sell/market them
8. CSI/CI projects used for team building or during orientation/induction or other training
9. Recruitment from communities where CSI/CI projects are run
10. Internal surveys showing an increase in employee pride, morale and commitment as a result of employee involvement in volunteer activities

Investor/Shareholder Related:

1. Share price not affected when industry or sector are targeted by activists
2. Rated as industry leader in Sustainability Indices
3. Increased investment from socially responsible investment funds
4. Inclusion and high ratings in awards programs

Customer Related:

1. Surveys indicating improved customer perceptions and impacts on shopping decisions
2. Sales leads generated in specific geographic or demographic markets
3. Development/increased sales of specific products/services in targeted geographic or demographic markets
4. Annual brand tracking surveys indicating higher scores
5. Collaboration/participation/co-design of new product/service development
6. Greater participation/involvement/contribution in community investment and development programs
7. Increased brand awareness
8. Increased customer acquisition/retention
9. Drop in complaints/grievances

Licence to operate Related:

1. Expansion or obtaining new licences/permits
2. Less activism when expanding operations/increase production
3. Increased positive responses to tenders

Stakeholder Related:

1. Increased community/government awareness/positive relationships/stakeholder relations
2. Decreased complaints/grievances/activism/strikes/boycotts/negative press coverage
3. Cost savings/avoidance
4. Prevention of operational stoppages/delays
5. Reducing/decreasing legal costs/law suits
6. Support for market entry/expansion plans

Reputation Related:

1. Recognition/awards
2. Media coverage
3. Increased brand awareness

 

About this article:  Reana Rossouw is the owner of Next Generation Consultants. A specialist management consultancy that assist companies with Community Involvement, Investment and Development strategies and assessments.  This article is part of a larger body of knowledge that focuses on determining the impact and return on investment of CI/CSI.  For more information visit our Facebook page, LinkedIn page, Slideshare, Google+, or our website at:  www.nextgeneration.co.za