At the Opportunity Collaboration in mid-October 2009 in Mexico, organized by MicroCredit Enterprises, the topic of measuring impact was a top discussion topic of many conversations.  Several attendees requested that HIP Investor synthesize the core insights, tools and methodologies that we have observed so far – and how they might be of use.  Here is a simple 5-step approach that includes example frameworks to consider:

1. First, understand the distinctions among Inputs, Process and Results. An input counts how many applications for a micro-loan there are. The process would count how long that process took, and the rate of acceptance. The result of a successful micro-loan would range from re-payment to the benefits of that investment, like educated children or funds for purchasing health or water. Organizations that measure results tend to be the most successful – as they align their select highly targeted strategies and align their resources against them. They might also measure processes and inputs, but only if contributing to maximizing the result.

2. Next, determine what and how aggressively you want to measure. You can go as shallow or deep as you like. Determine how meaningful it is to do so. If you make decisions by intuition, the metrics might be less helpful. Not everything that is measurable is meaningful – at most choose five metrics (the number of fingers on your hand). But if you are deciding among multiple choices with scarce resources, metrics help to identify aspects that best connect with your goals – whether as an organization or an investor (or donor).

3. A range of measurement frameworks exist to learn from, and provide a starting place to build a template:

• Ashoka asks three core questions: How many Ashoka Fellows changed government policy in five years? 50% typically. How many Fellows were replicated by another program in five years? 90% on average. How many people were impacted? This varies by field, and ranges from thousands to millions depending on the topic.
• The Human Development Index by the United Nations covers social, environmental and economic indicators, and rates most of the 200 countries worldwide. These metrics, covering infant mortality, literacy and gender equality, also track year over year performance.
• The Gross National Happiness approach of Bhutan looks at 72 indicators, including how people used the last 24 hours in terms of time. These compile the core “pillars” and go beyond traditional GDP as a measure of success. France is now evaluating how they can do the same with Nobel laureates Joseph Stiglitz and Amartya Sen.
• The Balanced Scorecard is used in business and tracks four categories: customers, operations (including employees), learning and financial metrics. It is used by many large companies as a more comprehensive view.
• The Global Social Venture Competition (GSVC) includes a Social Return on Investment analysis as part of its evaluation for business plans. World of Good won both the GSVC grand prize and SROI prize in 2004. Businesses select the 3 metrics that best drive their venture.
• SVT Group has cataloged more than 30 approaches in a PDF guide, and describes what they are, how they work, how many resources and time commitments are required, and where they have been used.
• Grameen Bank has a set of questions that frame how microfinance families improve their lives.
• The HIP Scorecard. has a comprehensive look at five categories – Health, Wealth, Earth, Equality and Trust – based on Maslow’s hierarchy of needs and the UN Human Development Index. HIP has adapted it to publicly listed companies. The HIP 100 Index (and the HIP 500 Index) tend to beat the S&P by integrating these quantifiable human impact factors – and how they drive profit for corporations.

4. Seek out benchmarks to compare against. The U.N. Human Development Index tracks many categories of metrics at the country level over multiple years. Consider how your organization’s metrics might fit those – and demonstrate how it’s more comprehensive, more efficient or faster momentum of improvement.

5. Start a pilot of metrics that seem right for your mission and goals. Don’t overcomplicate it. Go with one, two, or even five metrics (no more than one hand!) – and track the impact you are creating. Compare it to the investment currency – and calculate a ratio. See how that ratio changes by day, month, quarter or year. Then, evolve your approach to use it as a great management and evaluation tool.

For more information, feel free to contact us (Paul @ HIPinvestor.com)

What’s your experience? Any other models or frameworks to suggest? Post your ideas below:

Will You Be a HIP Conglomerate?

Wall Street analysts and institutional investors examine sales growth, international sales, product mix and business unit ups and downs. All of these are financial in nature, and critically important to an enterprise’s economic prosperity.

But those metrics can also be lagging or incomplete. Customers buy products for a reason. HIP Investor’s research and analysis shows that the most successful companies typically hone in on solving a human problem – health and wellness, financial security, eco-efficient equipment, equal access and increased trust and credibility.

Products that are “HIP” generate both Human Impact + Profit ™, because they are designed that way from the start, screened along those criteria during research, development and launch, and deliver a core environmental, social or human benefit to customers, while making money for shareholders. Yes, they Do Good AND Make Money.

At PepsiCo, CEO Indra Nooyi (BIO) is integrating a business strategy of “Profit With Purpose,” which includes initiatives in health and nutrition, environment and people. PepsiCo is now tracking its product revenue in the categories of “good for you” (like Tropicana, Quaker Oats, SunChips, Naked Juice, SoBe and Ethos Water) and “fun for you” (like Doritos and Mountain Dew). At last count, Pepsi’s “good for you” products represented 30% of its revenue, which it expects to increase over time (though the Q1 2009 earnings presentation highlighted a “maniacal” focus on cash). Pepsi is a top performer in HIP ratings – and Q1 2009 return on equity is over 40% – which has enabled it to outperform the S&P and Dow indices.

At General Electric, the “ecoMagination” strategy has evolved from CEO Jeff Immelt’s self-admitted “good public relations” to real revenue and profit. GE’s wind turbines, fuel-efficient railroad engines and compact fluorescent light bulbs are examples of 70 products in ecoMagination, contributing top-line 2008 revenue of $17 billion, or nearly 10% of sales worldwide. GE expects that to grow to $25 billion by 2010, building off its $1.5 billion ecoMagination R&D budget. GE has also announced they are an anchor R&D partner for Masdar City (the world’s first zero-waste, carbon-neutral, renewable-energy city, based in Abu Dhabi). GE’s leadership in these segments are generating revenue and profit growth as well as energy efficiency and emissions reductions, but the company has been hampered by its un-HIP exposure in financial services and leverage. GE’s management practices (lower carbon is on each executive’s performance goals and reviews) are very HIP and recent ROE is above 10%, but shareholder performance has not lived up to historical norms.

What is YOUR HIP revenue share? Most companies still don’t know exactly. While HIP’s approach examines environmental, social and human impact created for customers by the products and services of the company – and how they generate profit, our interviews with companies have found that there is not yet tracking of this metric systematically like Pepsi and GE.

HIP’s five categories of impact (health, wealth, earth, equality, trust) are based on solving human problems that are highlighted by Maslow’s hierarchy of needs. Many times the industry dictates a company’s category of primary impact, for example:

= Health: Obviously, the mission of health care is healing patients and encouraging wellness. Data mining technologies help Cardinal Health’s MedMined help track outcomes, and support pharmacies in managing complexity. An example of a Health+Earth product is Hospira Inc.’s VisIV, a new IV solution container resulting in 40%-70% less waste than similar products.

= Wealth: In these times, it’s hard to identify firms that are solving financial challenges in banking or investing. Before the meltdown, Wachovia Bank shared how its CRA (community reinvestment act programs) were becoming a business strategy, to help the poor become richer. (Unfortunately, Wachovia’s toxic assets led to its acquisition by Wells Fargo.) In social investing, State Street and Northern Trust offer mutual funds and exchange-traded funds (ETFs) that enable investors to invest in HIP firms, supporting human impact and profit.

= Earth: Innovative materials companies are pioneering environmental breakthroughs: PerkinElmer’s suite of sensor products (in industrial, auto and safety) annually reduce 22 million tons of carbon emissions. Allegheny’s grain-oriented electrical steel (GOES) is used in lightweight and eco-efficient equipment, saving energy and emissions. Ball’s award-winning 100% recyclable, lower-weight-than-glass wine bottle that uses both product and process innovations to drop the overall footprint and cost over its lifecycle. Juniper’s new routers save 30% energy and half the data-center space, and Tellabs 5500 digital cross-connects drop energy usage 85%.

= Equality: Whether gender, ethnic, income-level, or species, HIP products seek to equally serve the full range of society. BB&T Financial is increasing its support of community-development corporations to better serve the full diversity of customers. Cosmetics firm Estee Lauder is seeking the elimination of animal testing in its product development.

= Trust: Technology helps provide new lenses into great deals for customers. eBay provides competitive and transparent pricing (though buyers need to validate quality), Progressive Insurance compares prices to its competitors for consumers, and Amazon enables a competitive marketplace against its own retail products.

This strategic view about solving human problems focuses innovation and R and D on the most pressing opportunities – which also creates loyal customers, engaged employees, and committed suppliers. These products also tend to be first to market, higher margin, market-share grabbers and have the potential for long-term profitable lines of business.

Can you be a HIP Conglomerate? One example of a multi-impact company is McGraw-Hill. While many recognize its affiliation with textbooks, McGraw Hill (a multi-generational family controlled company) owns several lines of business across all five HIP human impacts.

= Health: Harrison’s Practice is a mobile resource that provides doctors and nurses with the latest medical advances and knowledge via the web and hand held devices, which can be used with patients more easily than books.

= Wealth: Standard and Poor’s, author of the S&P500 and other indices, tracks daily changes in stock prices around the world, and provides timely information about the state of portfolios – and makes it easy to diversify as well as be used as a platform for firms that manage customer wealth.

= Earth: Platts’ energy commodities price assessments are now incorporating info about emerging emissions, biofuels and liquid natural gas markets; and McGraw Hill’s construction industry media, product information, market trends and forecasts are incorporating details on green and sustainable building projects.

= Equality: iSpeak is a device that turns an MP3 player into a portable translation device, while Acuity is an accountability testing program for public schools.

= Trust: Customer satisfaction surveyor (and consultant) J.D. Power and Associates’ creates a deeper understanding of what customers want – and showcases it with awards that increase transparency about who’s a top performer. Increases in customer satisfaction scores also correlate with higher revenue growth, profit growth and shareholder value.

How much of YOUR revenue is HIP? How is your company solving human problems for profit? What is your strategy for creating Human Impact + Profit?

= Share your successes with us at HIPrevenue@HIPinvestor.com – or contact us to advise you on how to create more HIP products and generate more HIP revenue. =

Finally, THANKS! To all the HIP portfolio research associates who have contributed to the 500+ companies that HIP Investor has researched across Products, Human Impact (health, wealth, earth, equality, trust), Management Practices — and how they drive Profit.

CAN MEASURE THE HUMAN IMPACT OF OUR TAXES

When investing in a business, you are a shareholder expecting a return on your investment (ROI).

But as a citizen, you are typically called a taxpayer. In reality, we are tax-investors. Our tax dollars need to generate a positive human, social or environmental impact. In this economy, businesses have slashed capital spending, forcing the government to “reinvest” hundreds of billions for recovery.

So, how will America measure the return on investment (ROI) of the federally-approved stimulus? More importantly, how will President Obama highlight successes, call out failing programs, and ensure the highest possible “return on investment” of taxpayer dollars?

The American Recovery and Reinvestment Act ( full 407 page PDF) authorizes an Accountability and Transparency Board and specifies urgent (“flash”), quarterly and annual reporting to track metrics like job creation and economic growth.

When President Obama, governors, mayors and officials use a scorecard to track success, we recommend they track HIP metrics like these:

WEALTH: Job creation, income per person and net worth per person. And which investments will create the most jobs? According to this chart from Congressional testimony using Dept of Commerce data, each $1 million federal investment can create 23 educational services jobs, or 17 public-infrastructure jobs, or 16 “green” jobs. That beats tax cuts (14 jobs per $1 million), military spending (11) and oil and gas (4). The Reinvestment Act also specifies that worker compensation be in line with typical pay rates of similar work (and hire only American workers for companies taking TARP bailout funding).

HEALTH: Access to affordable health care, coverage for workers, and increases in health metrics. Wellness programs at corporations, from General Mills to Motorola to Xerox, show highly attractive financial paybacks (2-to-1 and more) and increased quality of health for the employees participating. Future demand for Medicare can be reduced as well. More corporate examples and payback data are here:

EARTH: Greenhouse gas emissions (GHG), energy usage (BTUs), water usage (volume), waste (volume). Major retrofits and increased eco-efficiency of buildings will reduce monthly expenses for fuel and utilities, as well as eliminate pollution, For a “green” school, a $3 per-square-foot investment would yield $11 per sq.ft. in energy/emission/water benefits – and another $63 per sq.ft. in healthier staff and increased performance of both teachers and students – see the data.

EQUALITY: Gender equality, ethnic balance, income-class distribution. US society is 50-50 men/women, and a mix of ethnicities (e.g. 14% Hispanic-American, 13% African-American, 4% Asian-American), but employment does not always match up with the citizens served. Government contractors like Lockheed Martin and Northrop have some of the highest rates of supplier diversity, due to the requirements of federal contracts. Furthermore, battling illiteracy can reduce the number of criminals (and save money). While 60% of prison inmates are illiterate (as are 85% of juvenile offenders), inmates receiving literacy help have a 16% chance of returning to prison, as opposed to 70% who receive no help. Taxpayer could save $25,000 per year per inmate and nearly double that amount for juvenile offenders, with an investment in education.

TRUST: Transparency of information, including the impact metrics per dollar invested above. The Recovery Act mandates “appropriate use of taxpayer dollars,” and funding details should also be posted on a website. The more transparency about progress and expected benefits will lead to higher public confidence and recognition of high ROI projects.

In my conversation with Honolulu mayor Mufi Hannemann this week, he highlighted the kick-off of the first light-rail system for the Hawai’ian capital. It was possible a few decades ago, but the local politicians opposed raising the taxes to match federal funds. Mayor Hannemann, elected in 2005, worked to secure state funds for the city, before applying for Federal dollars. When completed, the new elevated-rail system will yield lesser congestion and pollution, and a healthier, eco-efficient and more equal transportation for citizens and tourists.

The HIP Scorecard can be used for tax-investors and governments, as well as for-profit corporations. We all seek Human Impact and a Positive ROI – whether as tax-investors to government, donor-investors to charity or shareholder-investors of corporations. And that is the essence of being a HIP society.

* * *

How can you track the Human Impact of the forthcoming reinvestment? Go to www.Recovery.gov to provide feedback and participate.

What HIP metrics should be tracked in your city, county or state?

What should the ROI of your tax-investment be?

ADD YOUR COMMENTS BELOW:

“Mandating changes in supplier practices can deliver 90% or more of your greenhouse-gas reductions”

In addition, the feature analyzes Wal-Mart, Hewlett-Packard and Federal Express.

READ THE FULL COVER STORY HERE

Does adding women leaders make companies more money? The research of Catalyst.org, a non-profit based in New York, has consistently shown that the top 25% of companies with the largest share of women Directors on a public-company Board beat the bottom quartile companies with a return on equity 53% higher (13.9% for Boards with more women; 9.1% with fewer or no women). For public-company Boards with 3 or more women (the upper echelons of the top quartile), the return on equity skyrockets to 16%. Read more details about higher financial returns when women are represented in leadership which is not yet close to the 50% of women in the population, or the 47% in the workforce. At HIP Investor, we evaluate how companies that represent the population in Boards, executive teams, managers and staff drive higher “Human Impact” which tends to increase “Profit” and financial returns. This Human Impact + Profit, or HIP, correlation can be tracked and a useful measure for both companies and investors.

And the most recent Catalyst study this year shows that a higher proportion of women on the Board typically leads to more women in senior management and roles in lines of business in those companies.

How do women increase financial performance? A wide variety of possible reasons: a more diverse representation of leaders may better understand the variety of customer needs; many women tend to be more collaborative problem-solvers critical to employee engagement and satisfaction; and more women tend to incorporate the longer-term considerations, like environmental sustainability and social impacts.

In 1993, the Women’s Equity Fund was founded to invest along the theme of women in leadership at public companies. Its former ticker symbol is FEMMX ( Google Finance), currently has liquidity (investor funds) of about $42 million, and became part of the Pax family of funds last year along with the new ticker PXWEX. (Side note: Pax was fined $500,000 last week by the SEC for not adhering to its “socially responsible” mission during 2001-2005.)

Why are fewer women represented in leadership roles? In the past, some have argued that women may not be as technically capable. However, last week, Science magazine has published a study, funded by the National Science Foundation, that there is no math performance gap between girls and boys unlike 20 years ago. The gender disparity has disappeared so how long till there is gender equality in math, science and engineering degrees?

High-tech companies especially await the answer, as they seek to address EEOC (Equal Employment Opportunity Commission) inquiries about the continued gender gaps in computer science hires. The leading high-tech companies seek to recruit the maximum number of women engineers to balance out their ranks, but need a larger pipeline of graduate and undergraduate women in science and math. That will increase their pool of qualified engineers and managers, and contribute to better financial returns from the more diverse pool of problem solvers.

So, how can you influence a company’s commitment to equal representation? Research the Boards and executive teams of the products you buy, places you work, and stocks you invest in. You can find this on their websites (”About Us”) or on the finance sections of Google or Yahoo. In addition to voting your preferences with your dollars, you will likely be making a great investment choice with the potential for higher returns, lower risk and a commitment to a society where positive Human Impact drives increased Profit and that is HIP for you, your company, your portfolio and your world.