Subscribe to get the latest stories
June 15, 2021
Measuring Social Impact in Your Software Business
Trend Watch
Share
Subscribe to blog

When a top corporate executive, Paul H. O’Neill, took the reins at industrial giant Alcoa in 1987, he inherited a company in a tough spot encountering several operational and financial challenges. Common sense suggested that cutting costs and making the company more efficient were logical routes to take, considering the company’s poor financial position.

Instead, as his top priority, O’Neill prioritized workers’ safety and invested in reducing work-related injuries.

Although it was initially an unpopular decision with shareholders that led to the stock tanking, O’Neill’s move to focus on worker health and safety led to astonishingly impressive downstream results: a maniacal focus on employee safety resulted in streamlined manufacturing processes, more well-maintained equipment, and increased employee productivity. All of these things ultimately reduced the cost base and made the company run more efficiently. Then the stock price soared. Prior to O’Neill taking over in 1986, Alcoa was worth $3 billion. By the end of O’Neill’s term in 2000, the aluminum producer was valued at $28 billion and branded as among the world’s safest companies despite the inherent risks in the aluminum industry.

“Every year, numerous Alcoa workers are injured so badly that they miss a day of work. Our safety record is better than the general American workforce, especially considering that our employees work with metals that are 1500 degrees and machines that can rip a man’s arm off. But it’s not good enough. I intend to make Alcoa the safest company in America. I intend to go for zero injuries.”
– Paul O’Neill

Social impact investing follows a similar template within the software world. When a software business focuses and measures social impact, it creates a more profound commitment to customer value. Customer value, in turn, leads to a stronger product. A stronger product leads to happier customers and ultimately more revenue growth! In addition, a compelling social impact story rallies a company’s culture. Recruiting also gets a boost by broadening the gateway to a talent pool motivated by social impact. This becomes important during tight labor markets like we’re experiencing today.

Within Norwest’s growth equity business, we often hear companies talk about their positive social impact, but their discussions can be vague. We take the position that to experience the entire customer, product, employee, and ultimately, financial benefits of social impact, companies must measure and track social impact as one of their most crucial KPIs.

So what is the broader picture of social impact investing today? And how can companies move toward better measuring their impact?

Social Impact Investing: A Growing Trend

Social impact investing is often confused with ESG (environmental, social, and governance) investing. However, they are two different things. ESG investing supports the tracking and measurement of environmental, social, and governance factors relevant to a particular investment, many of which are not core elements of a company’s operations. However, social impact investing is an acute and intentional focus on making social impact absolutely core to a company’s operation and output, then measuring and tracking that specific impact to elevate overall performance and ultimate impact.

Since starting Norwest’s growth equity business 12 years ago, we’ve seen social impact investing grow in popularity. As a result, the number of investors looking for portfolio companies that create social impact in addition to investment returns has dramatically increased. Some investors are doing this as part of a distinct social impact fund, while others are making it a core thesis within their traditional funds.

A 2020 survey on impact investing shows that from 2017 to 2019, capital investment for impact ballooned among institutional investors (moving from 12% to 24%), financial institutions (moving from 5% to 12%), and governments (moving from 8% to 12%). Organizations and councils have sprouted up to support social impact and responsible investing. Examples include the Global Impact Investment Network (GIIN), which offers a social impact investment framework, and the UN-supported UNPRI (Principles for Responsible Investing). The Impact Management Project is built on the consensus of 2,000 practitioners, mainly focusing on and analyzing the who, what, how much, contribution, and risks.

 

The Secret Sauce: Measuring Social Impact

One of the biggest challenges of measuring social impact is selecting and implementing a standardized framework. While various organizations have great frameworks, we’ve found a more bespoke approach to work better than something force-fitted.

As part of our process, we endeavor to align with management around the fundamental social impact they’re looking to create. For example, is management decreasing carbon emissions, lowering job site injuries, or improving access to online learning for underprivileged students? We can then create a longitudinal model pre and post-investment to measure social impact improvement.  For example, in the instance of software that mitigates the risk of job site injuries, we can track injuries or near-misses by customers over time. The company can then work back up the funnel to see which variables and tools actually influence the ultimate social impact.  Is it more investment in product, subject matter expertise, an acquisition that enhances the overall solution, or better customer training through professional services? The company then sets up processes and priorities that drive the social impact.

The flywheel below shows how the process, product, and service improvements that drive social impact leads to happy customers and great case studies to support even more new business. The strategies, investments, and priorities that drive social impact eventually become central to the company’s mission, culture and evolve into a rallying cry for all stakeholders in the business. Measuring it all is the secret sauce to social impact because, as the adage goes, “if you can’t measure it, you can’t improve it.”

 

 

 

We have some great social impact-oriented companies in the Norwest growth equity portfolio. We asked the founders and CEOs of a few of these companies how they think about social impact and measurement within their respective businesses.

 

Cority

Cority is the global enterprise EHS (environmental, health, safety, and sustainability) software provider that empowers those who transform the way the world works. For over 35 years, Cority has been powered by a spirit of innovation, deep domain expertise, and a commitment to integrity that enables our customers to achieve higher operational and sustainable performance levels.

“We have a customer that had multiple deaths on the job from one incident,” said Cority CEO Mark Wallace. “The employees and community were devastated. As a result, the company redoubled its use of the Cority system and is singularly focused on avoiding such tragedies in the future. We also recently got the world’s largest retailer to use Cority’s Waste Management Solution, which has enabled them to divert ~82% of its waste from landfills through recycling, donating to charities, creating animal feed, composting, reselling or reusing, and converting waste to energy. Cority employees and customers can all feel proud that we are making a positive impact on the planet.”

Envisage Technologies

Envisage Technologies is the world’s leader in unified public safety training, compliance, and performance software solutions. Our Acadis Readiness Suite is the only comprehensive solution built exclusively for public safety leaders that ensures first responders are trained, equipped, and ready. The software enables streamlined personnel training, compliance, internal affairs case management, professional development, legal defensibility, and public accountability. Customers include federal agencies, law enforcement organizations, military commands, and state and local public safety organizations.

“Readiness saves lives, and saving lives is what our first responders do every day,” said Ari Vidali, Envisage Technologies Founder and CEO. “For us, the mission is simple; ensuring that our firefighters, police officers, and emergency medical personnel are fully trained and equipped to provide the critical services our communities need to be safe and citizens need when their lives hang in the balance. It is our primary goal that every first responder come home alive and uninjured from their shift.”

 

Avetta

Avetta offers a configurable SaaS-based solution that assists organizations – both large and small – in managing supply chain risk across a variety of disciplines. Avetta is building the world’s most intelligent supply chain risk management network to advance clients’ safety, resilience and sustainability programs. Less than two weeks ago, Avetta announced that a growing number of executives in all industries recognize the importance of social and environmental efforts. The findings are in a technical whitepaper here.

 

We’re inspired by the remarkable social impact that many of our portfolio companies deliver. These companies have proven that a heightened measurement on the underpinnings that create positive social impact results in a positive flywheel of great products, happy customers, motivated employee culture, and strong financial returns. So whether it’s Cority helping its customers to thrive as a result of sustainable operations, Envisage transforming law enforcement training, Avetta creating safe and sustainable supply chains, or our other portfolio companies creating substantial social impact in their own endeavors, we thank all these companies for their commitment to social impact.

 

 

Subscribe to blog