Measuring the performance of a social enterprise is likely to be one of the biggest challenges an entrepreneur will face. Unlike a non-profit who can measure their performance based on their fulfillment of their mission, or a for profit who can measure their performance based on their profits, a social enterprise must seek to measure both metrics and find a balance between the two.
Accounting measures and accountability are a very important part of a social enterprises’ duty to report their performance. While financial accounting to disclose profits is easy, it is much more difficult to identify and quantify proper metrics to measure a social enterprises’ social impact. In Connolly and Kelly’s 2011 article “Understanding accountability in social enterprise organisations: a framework” in the Social Enterprise Journal, they identify three types of accountability for social enterprises: legal, constructive and voluntary.
- Legal: Also known as process accountability, legal accountability includes the implementation of the proper authority structure in the company, annual filing of requires reports and financial statements, obtaining the necessary accreditation, meeting all legal and regulatory standards and fulfilling all contractual obligations entered into with service provides and investors.
- Constructive: Also known as performance accountability, constructive accountability measures a company’s use of resources for efficiency. A company can used a balanced scorecard, benchmarking and best practices in the industry, and Social Return on Investment. A company can also engage in continuous improvement through training and other forms of organizational learning.
- Voluntary: Also known as program accountability, voluntary accountability measures whether or not an organization has met its objectives. This form of accountability is often driven by social accountability where organizations engage in self-evaluation and audits of other social enterprises. This form of accountability is the least well-defined and is most dependent on a company’s own reflection on its goals and mission and how it has managed to meet those expectations.