Developing Indicators

Managing Economic Development with Communities

Companies can use all of their assets - philanthropic monies, hiring, sourcing contracts, financial investments, real estate, and so on -- to affect communities in ways that strengthen their social and economic fabric and create a more stable environment in which to do business.
Companies can ask two overarching questions to help identify what defines "community" for the purpose of measurement: What groups are affected (or perceive themselves to be affected) by a project, product, or investment? And who can play a significant role in shaping or affecting the project or investment?
The process of measuring and managing economic impact can be designed to build on and complement existing corporate responsibility and quality management standards.

This section describes in detail the Economic Impact Management Process -- a process for measuring, managing, and reporting a corporation’s economic impact on its significant communities. Like many other management processes, it is a cycle of continual performance improvement via ongoing innovation and learning: the familiar "plan, do, check, act" cycle.

The Economic Impact Management Process has five key elements:

Identify risks and opportunities.
Engage significant communities.
Define strategy to improve impact.
Develop indicators.
Manage and improve impact.

The elements of the model are outlined in the following figure and detailed in Sections 4.1.1 to 4.1.5.

The Economic Impact Management Process is designed to be flexible enough to be useful to managers at all corporate levels. It also has been designed to complement and build on existing corporate responsibility standards and systems such as the GRI and AA1000S.

The Economic Impact Management Process is most appropriate for corporations that have already determined that managing their economic impact on their significant communities is a critically important management task. This process is a tool for managing impact, not a tool for deciding whether or not to manage impact. Accordingly, this section will focus entirely on how to manage impact. For more information on this process please see our report, Business and Economic Development: The Impact of Corporate Responsibility Standards and Practices.

1. Identify Risks and Opportunities

When a company finds itself trying to understand and measure its corporate contribution to the economic performance of poor and disadvantaged communities, it is usually in response to the convergence of internal and external pressures that underscore the need to, and the business benefits of, managing this economic impact. The first step is to identify correctly the key internal and external risks for the corporation. What are the key risks that the corporation is seeking to mitigate through managing its economic impact? What are the key opportunities that the corporation wishes to profit from?

Our research suggests that the risks and opportunities vary significantly depending on industry, geography, and community. All of the following issues need to be considered when analyzing risks and opportunities:

Industry structure
Public opinion
Laws and regulation
Competitive positioning of the company:
Factors specific to the geographic regions in which the company is operating.

2. Engage Significant Communities

Once a company understands the key risks and opportunities it is seeking to address in managing its economic impacts, it then needs to define which communities to engage and go through a process of engaging those communities in defining the objectives and strategies for enhancing its economic impact.

Determine Significant Communities:
Before companies can begin to measure and manage their economic development impacts, they must define which "communities" are most relevant to them. Certain communities will be more "significant" to the company than others. A significant community could be a local neighborhood, a country, or a marginalized group in society. Identifying a company's significant communities, and what their primary expectations are, is critical to creating an appropriate system to measure economic performance.
There are two overarching questions that can help identify a significant community for purpose of measurement: What groups are affected (or perceive themselves to be affected) by a project, product, or investment? And who can play a significant role in shaping or affecting the project or investment?

This definition of significant community differs from the traditional notion of stakeholders. The significant community is in fact a subset of all stakeholders, with stakeholder being defined as "an individual, community, or organization that affects, or is affected by, the operations of a company. Stakeholders may be internal (e.g., employees) or external (e.g., customers, suppliers, shareholders, financiers, significant community)."
Engage Communities in Designing Goals and Metrics:
Once a company has decided which communities to engage, it needs to determine how it will engage those communities in defining its objectives and strategies for enhancing its economic impact. Engagement processes can vary tremendously from company to company, depending on available staff, buy-in, resources, level of corporate responsibility, and level of involvement desired by the communities identified. The engagement could be as simple as contracting personnel from the significant community as employees or vendors. Or it could be a more inclusive and expansive process that involves many different stakeholders convening in formal dialogue.

3. Define Strategy to Improve Impact

Companies can use all of their assets -- philanthropic monies, hiring, sourcing contracts, financial investments, real estate, and so on -- to impact communities in ways that strengthen the social and economic fabric and create a more stable environment in which to do business. Once the significant community has been identified, the corporation and the community can work together through the engagement process to determine which corporate activities directly address the issue. Our research suggests that the benefits for the company and community are maximized when focused on those assets that a company controls:

Who and how a company hires
Where and how a company sites its facilities
What and from whom a company purchases
How, what, and to whom a company sells
Where and with whom a company invests its cash assets
Who and how a company influences
Where and to whom a company gives

Each one of these areas can affect the community in positive, negative, direct, and indirect ways. Together, the company and the community should study the impact of each of the areas and determine where the greatest opportunity for improvement lies.

4. Develop Indicators

Having the strategies and action plans for enhancing the company's economic impact on the significant communities in place enables the company and the communities to work together to develop specific objectives and targets for each strategy. These objectives then become the basis for the indicators that the company can measure its performance.

Because each company’s structure is different, management will need to look internally to determine the relevant departments that will be held accountable forperformance on economic issues. There are several corporate activities that can contribute to the economic development of communities. The preceding table presents a picture of the different business activities - with their risks-opportunities, activity descriptions, and related business units -- that may have a direct relationship with the desired outcome; corresponding sample indicators are also provided. The complete pool of indicators is available in the indicators database section of this Web site.

Each of these areas can individually promote economic development for a significant community. When integrated into a more holistic approach, the impact may be greater.

5. Measure and Manage Impact

If the previous steps have gone well, the corporation and the community should have developed a clear economic strategy with goals, objectives, budget, and time line. Implementation of this plan will rarely be linear. The company and the community should be prepared to evaluate the process and made adjustments accordingly. The evaluation plan should be modeled on a continuous improvement process. If the process has adequate participation from the significant community, implementation will enable the company and the community to understand whether or not positive economic impact is being achieved, and what can steps can be taken to continue to improve the results obtained.

Compatibility with Other Management Process Models
As already noted, the Economic Impact Management Process is intended to build on and complement contemporary corporate responsibility standards. A quick review shows that it builds on the four-step process principles of plan, do, check, and act that are common to ISO environmental or quality management standards, such as ISO14001 and ISO9001. Also, through its emphasis on stakeholder engagement and risk management, it links nicely with other frameworks, notably AA1000S, EFQM Business Excellence Model, GRI, and SA8000. This allows the framework to be mapped over, and integrated with existing corporate policies, strategies, and systems. For instance, with respect to AA1000S, core quality principles derived here relate to completeness (i.e., full coverage across the business activities that have an economic impact), materiality (i.e., relevance of information provided), and responsiveness (i.e., engagement of stakeholders). The following figure demonstrates the close connection between the base engagement model and other management process models.

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