As we develop and apply our SROI methodology we are learning several important lessons with respect to what aspects of a social enterprise most affect the overall SROI performance. Not surprisingly, it has become obvious that SROI performance is affected by a complex set of interrelated factors however there are two overarching levers that appear to have the greatest impact on performance.

Target employee skill set

It has become apparent that the skills possessed by target employees at hire greatly affect the ability to generate social returns. At first glance, it might appear that a greater gap between the current skill-set and the necessary skill-set would provide more opportunity for skill development and therefore a better social return. In other words, target employee populations that enter into a social enterprise with significant societal costs (e.g. heavy reliance on government income and government services) will have a more significant change in cost savings to society than other target populations and will therefore generate a higher SROI. On the other hand, employing such a target group could also result in substantial operational losses due to the significant skills gap, lead to a greater total investment and ultimately decrease the SROI.

We have learned that when the gap between the skills possessed by the target population and what is required to do the job is very wide it reduces the probability of business success and increases the need for social support infrastructure. The net result is that the SROI may be lower than expected and the timeframe for a “payback” may be longer than expected.

We have yet to refine this thinking to the point where we can create a predictive model of which enterprises will work with which target populations but we have come to understand that this “skill gap” is an important factor when considering investments.

Target employee forever?

Thinking through the target employee skill set issue has also prompted us to question at which point do target employees become “non target?” This question is particularly relevant in social enterprises that take a career development approach in their employment model and maintain a core group of target employees over the long term. With this particular model, it is important to understand when employment barriers are overcome and how this may positively skew SROI results. At the same time, for some people, employment in a social enterprise over the long term makes the most sense. For a variety of reasons, some people may never be ready and/or want to transition into mainstream employment.

Target employee ratio

Another key influencer in this equation is the target/non target employee ratio in a particular social enterprise. In most cases, we have discovered that there is a clear trade-off between the performance of the business and the proportion of target employees hired. Thus it is important to understand that decisions about this ratio will affect outcomes for the enterprise. For example, if the target ratio swings too far toward non-target employees, the overall societal benefit will be reduced while the financial performance will improve (and by extension the investment required will decrease). Likewise, should the target employee ratio become too high, the ongoing investments required to subsidize the resulting poor financial performance may make a payback on that investment impossible.

Resulting from this issue, we have learned enough to be slightly more prescriptive – at least in the context of our own portfolio organizations. Specifically, we believe that it is best for our social enterprises to start with a relatively lower target employee ratio (but still greater than 50%) and then increase that ratio as the business gets on more stable footing rather than visa versa.

As we continue to work with our portfolio organizations and gain more experience with the SROI analysis of our portfolio, we are learning more about these underlying variables that influence SROI.