So, let's talk about level two.
This is the level at which you have some data but it's pretty limited.
You have data on outputs only.
And remember, we talked about inputs,
the resources your business needs to operate.
We talked about activities,
what your business or organization does or makes.
Now, we're going to focus in on outputs.
And outputs are the number of products or services
your organization or business makes, sells, or offers.
So, at this point,
let me introduce two more terms.
These are terms that are helpful in describing the kinds of outputs,
and ultimately outcomes and impact your organization or business may be trying to create.
And these terms come from Breast and Born.
They're two writers and scholars who thought a lot about impact.
So, the terms are Product impact and Operational impact.
So, Product impact is the impact of the goods and services produced by the enterprise,
such as providing anti-malarial bed nets or clean water.
Again, Product Impact is the impact of the goods and services your organization produces.
Operational impact is the impact of the enterprises, management practices,
on its employees' health and economic security,
its effects on jobs or other aspects of
the well-being of the community in which it operates.
So, operational impact is impact that results
from the employment practices and management practices of the business,
and its the impact on the employees and perhaps,
on the local community.
Again, the difference is impact through products and services
or impact through your actual employment and operation of the business.
So, what are the implications for outputs and what were counting?
If we are thinking about product output,
we might be thinking about the number of training sessions delivered,
the malaria bed net, example,
the number of solar lanterns sold.
Those are all products and services.
If we're thinking about operational outputs,
we might be thinking about things like
the number of people who are employed in the company,
or the number of women owned businesses in the companies supply chain.
So, those are outputs.
What do we learn from output data?
Well, we learn a lot about what the organization does,
its activities, its operations, its products.
We don't necessarily learn much if anything about its outcomes or impact.
So, my favorite example to describe the distinction here
and what the problem with just counting outputs is,
is those exercise machines called exercycles.
So, these exercise machines are things you buy and put at home so that you will exercise,
run on the treadmill,
run on an exercycle at home.
So, our logic model for this might look like we
sell or we donate exercise equipment like exercycles, that's the activity.
The output is the number of exercycles that we sell or that we donate,
and the outcomes are weight loss due to riding this exercycle,
cardiovascular improvement, great fitness.
That all sounds really good,
but you might never get those outcomes.
So, as you can see in this photo,
this is an exercycle that's actually being used as a clothing rack.
And you know, we know that happens a lot.
People buy these exercise machines but they often don't actually use them,
in which case, you obviously don't get the outcomes you hope.
So, exercycles are kind of a funny example,
but we actually have examples of outcomes not materializing a lot, right?
Teachers may teach, but students don't actually learn anything.
Malaria bed nets get distributed but people don't use them on their beds,
they use them to catch fish.
Or X-ray equipment gets donated but it doesn't get maintained or repaired,
so it's actually not used.
Those are the kinds of problems that occur when we just focus on outputs.
So, when we just focus on outputs,
we get some sense of what impact might occur.
We don't necessarily know what impact does occur.
If outputs are weak or limited,
it's a good bet that outcomes will be weak and limited, too.
But if outputs are strong, you know,
outcomes may still be weak or limited. That's a problem.
Increasingly, many purpose driven organizations, impact businesses,
and impact investors are recognizing the limits of measuring just outputs,
and they are wanting to get to outcomes.
So, let's look at an example.
The organization Root Capital has done a lot of thinking about this.
Here's how Root Capital describes itself.
Root Capital is an agricultural impact investor that grows rural prosperity in poor,
environmentally vulnerable places in Africa and Latin America.
What Root Capital actually does is they make loans and
provide financial management training to small and growing businesses,
so that those businesses can in turn buy more products from small scale farmers.
Since 1999, Root Capital has dispersed more than $900 million
in credit to over 600 businesses in Africa and Latin America.
So, they are making loans and providing management support
to companies like Coffee Cooperatives.
And those Coffee Cooperatives in turn buy coffee from small scale farmers,
or they make loans and provide services to cotton entrepreneurs,
who in turn, buy cotton from small-scale farmers.
Maybe it's an organic flower producer that's
buying organic flowers from small scale farmers.
The focus on small scale farmers is important because Root Capital is really trying
to help these people who often are subsistence farming and having living in real poverty.
So, the hope is,
that in this way by giving loans to and improving these businesses,
they're ultimately improving the livelihood of the farmers who are in the supply chain.
So, Root Capital is hoping for impressive outcomes.
They are hoping that the outcomes of their work are,
that farmers are producing higher quantities of crops,
higher quality, and they are getting
a more stable income and improving their livelihoods.
That's what they're hoping the outcomes are.
But what Root Capital has typically measured is outputs.
The number of farmers reached,
the total dollar value of purchases from rural producers. Those kinds of things.
So, what's interesting to me is that Root Capital has been really
thoughtful about the limitations. Here's what they say.
"These core output metrics are starting point and yet,
these metrics, like most output metrics are one dimensional.
They mean little without further context.
Over the past decade,
Root Capital has reached more than 600,000 farmer households,
but is that a lot or a little?
Given the human and financial resources we have invested?
More importantly, what does it mean that we reached a farmer?
In what ways did the lives of these farmers and their families change?
How important were these changes to them?
And how do we know that it was our work that caused the change?
That farmers lives would not have changed anyway?"
So Root Capital has been thinking a lot about
this and trying to improve their measurements.
So, Root Capital is not by any means alone in
its focus historically at least, on measuring outputs.
It's really common for most organizations to measure outputs if they measure anything.
And one of the ways that companies are measuring
outputs is by using something called IRIS.
IRIS is the abbreviation for Impact Reporting and Investment Standards.
Again, as you start to dig into this space,
you may hear a lot about IRIS.
So, let's talk about what this thing, IRIS, actually is.
IRIS is essentially a compendium,
a very long list of impact indicators and metrics that really get at outputs.
So, more formally, IRIS is a set of
standardized metrics that can be used to measure and describe the social,
environmental, and financial performance of organizations and businesses.
IRIS is organized into a variety of different sectors including agriculture,
education, health, financial services, and energy.
So, let me give you some examples of these metrics,
and I think what you'll see is, yeah,
their outputs for the most part, not outcomes.
So, what are some of the metrics that you'll find in IRIS?
They might be things like number of low income clients.
That's a count of the number of unique low income individuals who were
clients of the organization or business during the reporting period,
or you might count the number of loans that were given out during the reporting period,
or for organizations that work in education,
you might look at the teacher attendance rate.
The rate of teacher attendance during the reporting period.
You might look at the amount of charitable donations,
or here's one from energy.
It's energy savings from products sold.
That's the amount of energy savings over the lifetime of
the product for those products that were sold
by the organization during the reporting period.
So, energy savings from products sold.
That one, seems to me,
actually is getting at outcomes but most of these measures are just getting at outputs.
All right, to wrap this up.
Measuring outputs is a really good place to start,
but when we measure outputs and only outputs,
we can only assume or guess what the outcomes and real impact are.
Sometimes, our assumptions and guesses are absolutely right,
but that's certainly not always the case.
Katherine KleinEdward H. Bowman Professor of Management
Christopher GeczyAdjunct Professor of Finance
