The Portfolio Data Management System, to be unveiled at the Clinton Global Initiative summit, may help channel capital to do-gooders
There's plenty to love about organizations that focus on solving the world's poverty and health problems—but their impact is often hard to measure. That can make it hard for philanthropies and investors to tell whether their money is well spent and leaves some of them reluctant to channel funds to the social sector.
A few foundations hope to change that by shedding more light on the track record of organizations that aim to do good. A group led by Acumen Fund, Salesforce.com Foundation, and Skoll Foundation has formed to create an online database for use by hundreds of donors, investors, and social enterprises.
The Portfolio Data Management System (PDMS) will focus on so-called social entrepreneurs, or groups trying to bring about social change while also functioning like a business—in some cases even trying to make money. Some social enterprises are nonprofits, while others seek a return on investment. Perhaps the most prominent social entrepreneur is Muhammad Yunus of Grameen Bank (BusinessWeek.com, 10/13/06), the pioneer of microfinance and winner of the Nobel Peace Prize.
Whatever the business approach, social enterprise performance can and must be measured, say investors and foundations. "When you have no metrics, it is difficult to measure impact, and decisions get made based on anecdotes, not real data," says Jacqueline Novogratz, founder and CEO of Acumen Fund, a nonprofit venture fund that backs social entrepreneurs. "While you can't measure everything, we need to dig deeper into what works and be equally as honest about what doesn't work."
Roughly speaking, PDMS will be to social entrepreneurs what regulatory filings are to publicly-traded companies registered with the Securities & Exchange Commission. The tracking system, to be announced at the Clinton Global Initiative summit in New York on Sept. 25, is expected to be available for broad use in January. Until now, donors and investors have tended to keep their own tracking systems, often using basic spreadsheet software on PCs. The PDMS is better because the data from many organizations can be put in one database that's accessible from anywhere in the world via the Internet.
A common set of metrics will be recorded for each organization so donors and investors can check regularly and track their progress or spot trouble. Social entrepreneurs will be able to benchmark their results against those for similar organizations around the world. "This provides rigor," says Robert Kennedy, professor of corporate strategy and international business at the University of Michigan's Ross School of Business. "It forces companies to be more analytical and honest in assessing their own performance."
Vast Latent Capital
There have been similar efforts in the past but nothing came of them—either because diverse organizations couldn't agree on approach or the right technology wasn't available. "Now is the time to get moving on this," says Antony Bugg-Levine, a managing director at the Rockefeller Foundation, who's been testing PDMS. "There's a huge amount of latent capital that will move into this system if we can come up with the right metrics and measures of performance."
The PDMS project has been under way behind the scenes for two years, and about 15 investor or donor organizations are using a test version. It was headed by Brian Trelstad, Acumen's chief investment officer, and much of the grunt work was done by Marc Manara, an Acumen staffer. A breakthrough came when Salesforce.com Foundation, the philanthropic offshoot of software company Salesforce.com (CRM), committed to work with programmers from Google (GOOG) and Acumen to build the system and run it on Salesforce.com's servers. Managers from PricewaterhouseCoopers are helping to make it easy to compare data from different types of companies. The organizers hope that about 25 donors and investors will be using the fully functioning system by early next year to track upwards of 500 enterprises.
The system will provide a deep reservoir of vital stats. All listed companies will use the same financial accounting methods. They'll be measured based on seven basic metrics, including revenue growth, net income, the number of customers served, jobs created, wage growth, local suppliers supported, and additional money raised. Additionally, investors and social enterprises can customize the system to include their own goals and accomplishments.
Free to Nonprofits
The tracking application is available free of charge from Salesforce.com to nonprofits. For-profit organizations can get it at an 80% discount from normal rates. Acumen has raised money from the Skoll Foundation and other philanthropies to pay for developing the tracking system, which Acumen expects to cost about $700,000.
Acumen Fund has been using early test versions of PDMS for 20 months to track about 30 of the companies it has invested in. Already, the fund managers have made follow-on investments in some companies based on their outstanding performance. They also use it as an early-warning system. For instance, a few months ago Acumen managers noticed that an ambulance company in Mumbai, India, didn't have enough patients per day riding in some of its vehicles. Acumen sent a representative who helped the company, Dial 1298 for Ambulance, analyze its operations and shift things around to make more efficient use of vehicles and personnel. "They came up with a beautiful model that will make it possible to break even on every ambulance," says Sweta Mangal, chief executive of the ambulance outfit.
While there's still a lot of technical work to be done on PDMS, its supporters are convinced that, over time, the system will have a major impact on the social sector. And the more organizations that join, the better. Says Preston D. Pinkett III, head of Prudential Social Investments, the social investment arm of insurance giant Prudential Financial (PRU), which has more than $500 million invested: "It leaves me with a sense of hope that we can create an industry that produces a big flow of capital to do a lot of good in the world."