Powering the Shift to non-financial Value, Impact & ESG Planning.
Why we pivoted from consulting to build an API-first Impact Management AI Product.
When Erik and I met back in 2017 we quickly realised that we both wanted large organisations to make better strategic decisions. And by better I mean going beyond the trusty annual cost / revenue / customer equation. Today the discussion around this has truly exploded and Environmental, Social and Governance (ESG) topics are top of mind for many listed companies.
We founded OutPace with the mission to help organisations deliver more impactful strategies at pace. Both of us had consulting experience and worked in large organisations to improve their strategy, portfolio and technology management practices. Our idea was to combine strategy consulting with human centred design and the use of innovative low code technologies to make adaptive strategy approaches stick. (Most strategy consulting is still “present and forget” and therefore becoming increasingly irrelevant.)
Value and impact management are not only much needed disciplines to shift the executive conversation away from financials. These frameworks are also great tools that allow you to bridge the gap between high level strategy and prioritising a complex delivery portfolio.
Make no mistake, what people understand by managing value and impact is a broad spectrum and an evolving discipline that will only mature over the next couple of years.
To understand the difference between the different value paradigms and the broader concept of public value, this visualisation supported by research from Timo Meynhardt, CLVS-HSG, & HHL Leipzig explains the different perspectives:
It’s also easy to confuse these terms with Environmental, Social and Governance (ESG) investor reporting (often also referred to as sustainability reporting) which primarily focusses on company processes, outputs and outcomes. Value or impact also cover the external effect in the global, public domain (like the Sustainable Development Goals) — and doesn’t separate “traditional” private value either. It’s a very holistic approach and that’s what we like about it.
Its complexity also means building consulting offerings around sustainability, value and impact management makes logical sense. And it looks like we weren’t completely wrong measured by how many of the “incumbent” consultancies have started to aggressively recruit Sustainability Directors, ESG consultants, etc.
So far so good.
Consulting is a great business to help organisations transform and learn more about problems in different contexts. We quickly delivered our first client engagements in 2019 and created some great strategy and value management systems by using human centred design and emerging low code technology.
Yet it pains us to see how many organisations still struggle to put basic impact management and prioritisation practices in place. Yes, impact is harder to identify, forecast and manage — but unfortunately that’s often also being used as a convenient excuse for enterprises to fall back to simply comparing dollars and simple (yet often misleading) customer metrics like NPS.
We still see a heavy bias towards these narrow commercial strategy goals and metrics — even as more and more organisations implement agile Objective & Key Results (OKRs).
Throughout 2020 we then started working more closely with universities on research, prototyping different solutions to embed value management and NGO / NPO engagement.
However, we soon realised that consulting won’t be a scalable business model for us to make an impact at the scale and pace we wanted to.
So let’s take a quick detour to explain why we decided to make a hard and fast pivot from consulting to an Artificial Intelligence focussed API company.
Enter the rapid rise of impact funds, ESG and impact reporting.
A few years ago, large funds like BlackRock started to realise that non-financial impact at a global level (climate change, poverty, water quality) is impacting the ability of their financial investments to grow and perform in the long-term. Put simply, the negative effects of climate change does impact industries across the globe. Funds who manage $8trl of investment cannot offset these effects from other sources.
There is also great demand from millennial investors who are currently seeing significant wealth transfer from boomers and have a preference for investing in sustainability.
The sheer speed and scale of change is mind-blowing though.
- More than 30% of global investment (which translates into $30trl) is already subject to a range of investor driven ESG requirements.
- There has been a 96% increase in sustainable investment since 2019 alone according to BlackRock.
- There are already 600 different ESG guides and standards worldwide which creates a number of different challenges.
- Within just the last 6 months, multiple international bodies for standards (like IFRS) and government agencies have announced programmes to introduce global norms as well as local regulation with regards to ESG.
If you are interested in the staggering uptake in ESG investment then I recommend reading this blog which summarises it nicely, pointing out that these investments not only outperforms other funds but also has shown itself as more resilient during the pandemic.
We found organisations aren’t ready for the enormous expectations (in particularly listed ones).
There are many challenges to go from well understood financial metrics to still largely ambiguous, complex and highly diverse impact reporting.
There is no common international standard yet on how to consistently account for impact, how to treat both positive and negative effects, the ways in which numbers can be validated and reconciled reliably or whether historic data has lineage and is reconciled.
Reporting on what happened already proves to be a major challenge for organisations who in many cases may not even have captured the required data for prolonged periods of time.
EY surveyed investors in 2020 on what they believed the biggest data challenges are in relation to Environmental, Social and Governance reporting. Unsurprisingly the top ones were related to reporting integration, timeliness and material forward looking (planning) information.
Impact Planning is an area that organisations are struggling with.
If you you think it is difficult for organisations to identify, measure and report on historic impact, then spare a thought for strategy teams who already have been dealing with various different (and inherently inaccurate) frameworks to build strategies around “”clear-cut” future cost and revenue.
We have seen time and time again that a strategy might feature broader impact at the highest level (in particular at purpose-led organisations).
However, this quickly falls apart in 9 out of 10 organisations when it comes to translating these statements and strategic focus areas into meaningful objectives, key results, KPIs, roadmaps and measures. It’s a hard thing to do and it’s not trivial to cascade this throughout the organisation.
Out of the organisations who are able to make the transition, most will be unable to effectively connect their strategy with their portfolio of work (change & BAU). In most cases the easiest financial business cases (cost reduction, automation) and most urgent regulation and risk areas (technology and compliance programmes) will secure investment and prevail no matter if the strategy changed or not.
Areas that relate loosely to the original purpose statement and strategic choices to drive broader impact only rarely translate into meaningful action. The organisations that are highly successful are typically more mature in how they manage & realise benefits and map interventions and have a culture to promote it.
The gap between intention and implementation
According to the 2020 UN Global Compact Progress report, 84% of respondents are taking action on impact (or intend to) but only 37% have made some progress to design business models to implement this in strategy and operations. Even though the impact on climate change is seen to be one of the most relevant Sustainable Development Goals by organisations, only 6 per cent of businesses in the system currently have a carbon emissions reduction target approved.
That should give you an idea of the state that impact planning is at. It’s definitely in it’s infancy, pre-school age at best.
Having said that, there is an increasing shift from project outputs to product outcomes, value over cost and people over process as more and more organisations implement agile principles and values at scale.
Generally this helps to not only build impact from the top down but also to deliver successful bottom up initiatives.
While there has been slow progress in the adoption of these approaches over the last 10 years, it will soon become very painful for most organisations.
Meeting the exponential demand for better impact reporting, management and planning — with regulation on its way is going to put pressure on value & impact capability gaps.
Some of the reasons why impact planning is so hard
If you have ever worked with a project, programme, product or strategy manager or even senior leaders and executives, you will probably have come across:
- The focus on cost and close management of any significant change to it (even in agile)
- The elusive art of revenue forecasting by using customer and conversion metrics, margins, etc.
- The many attempts to prioritise based on goals, outcomes, targets, etc.
- The challenge to find and retain the right talent, resources across the organisation
- The magic needed to align diverse stakeholders behind common goals, hypotheses and actions
Even projects that have little to do with innovation only have a mediocre success rate when focussing on traditional cost, budget, scope targets.
Middle management tends to be fully consumed by the challenge to manage delivery, report to governance committees, fire fight incidents, empowering the team or creating basic financial outcomes while keeping the Finance colleagues at bay.
Whenever we have worked with organisations to think about:
- broader external implications of the intervention, or
- scenarios that yield vastly different public value outcomes, or
- outcomes beyond financials, or
- baby steps to identify and establish non-financial measures, or
- prioritisation based on both positive and negative value
… we have seen that it becomes “too hard” and naturally everyone prioritises their mental capacity according to what their 1) managers 2)leaders 3) board 4) shareholders care about.
Think about that chain for a moment…
Now that shareholders at the top of the chain care about impact, we bet people down the chain will come under pressure to make the effort and invest time and energy into it.
The problem is that we are starting from 0.
How many people have seriously planned and managed impact in a commercial setting before?
We often need to remind ourselves that most people in a business context don’t think a lot about impact and sustainability today. Now, we are hopeful this will change simply looking at a shift in consumer engagement on these broader issues that transcend into organisations. Have a look at this astounding example where Samsung created engagement on the UN Sutainable Development Goals with over 100 million people in a matter of months.
Back to business: While there is a shift towards the focus on benefits and outcomes, many don’t know:
- What value or impact management framework their organisation is using?
- How external impact translates to individual teams’ objectives, goals and metrics?
- How to establish similar forums for impact that you have for weekly finance check ins?
- What type of value / impact your activity could or should relate to?
- How to consistently plan for and aggregate work and metrics on impact?
- Where impact is being generated and how to keep on top of distributed teams?
Powering the shift to impact — why we pivoted to technology as an enabler.
Let’s be clear — we don’t like focussing on tools.
Why? Because often the specific tool you use doesn’t really matter. What does matter is having the right combination of people, process, technology, data and governance.
To be honest, to get any use from this chapter, your organisation has to have the urge to plan and manage impact in the first place. If that’s not sponsored at the top level then the use of technology to enable it will be doomed from the beginning.
So let’s imagine your CEO / Board has made a commitment to actively manage and improve the impact profile of your organisation.
- There will likely be an update or amendment of the strategy.
- The person or team responsible for strategy (or the sustainability officer) will put some motions in place to start with the material impacts and how the organisation is currently tracking, what policies are needed and where quick wins can be made.
- For many the immediate goal is to reach effective carbon zero certifications or accreditation of efforts which will increase the ability to maintain access to the growing ESG capital (and effective in the public domain).
There are many emerging technology start-ups and organisations that are starting to help with this part of the challenge using modern Big Data, BI, Artificial Intelligence and even Blockchain technologies. These solutions help organisations move from excel and word document to a sustainable, systematic process of managing impact. And increasingly VC funds are being dedicated to further support the shift to impact.
However, while progress is being made to establish the reporting on current impact, the landscape to enable strategy, transformation, portfolio management and delivery is somewhat less straight forward.
Impact strategies and plans require different scalable solutions
Instead of simply making logical connections, strategies, investment portfolios, programmes and interventions follow a creative and emerging process to plot the way forward.
Erik and I are logical thinkers — so naturally we started our journey with logical frameworks. However, we have realised over the years that the reality changes so rapidly that these rigid structures (that most technology solutions are based on) don’t really work for strategy and transformation.
From a technology perspective, we need different toolsets and approaches to deal with a situation that is subject to a constant interrogation of:
- What are our assumptions and hypotheses?
- Are we doing the right thing?
- How do we differentiate?
- Are the outcomes what we expected them to be?
- What objectives and targets should we set?
One of the frameworks that illustrates this strategic agility challenge quite well is the Cynefin framework:
One could argue the logical framework follows the characteristics of the Clear quadrant.
To truly address Impact Strategy, we need to establish solutions that can conquer the complicated or even complex domain to be effective.
So why are we building an Artificial Intelligence? Why go API-first?
We have tried a number of ways to enable organisations implement impact management.
However, most of them aren’t particularly scalable as they require a considerable amount of consulting work and either the implementation of new software or time-consuming processes.
Rather than trying to create a one-size-fits-all-suits-all approach we are now more focussed than ever to address the following problems:
- Strategy artefacts and processes are complicated, people dynamics are complex
- Impact and value drivers, metrics, standards and reporting requirements are vast
- Most people don’t want to introduce yet another tool
- There is a huge demand to improve the identification, categorisation, planning, monitoring and reporting of impact based on information distributed across the organisation
- The need for guidance and education to grow impact planning capability is significant and a pre-requisite for the ongoing, sustainable improvement of impact management
Given the large amount of possible options, cause and effect and available data, Artificial Intelligence is best placed to replace and automate the mental burden on employees to navigate through the complicated web of impact goals, standards and measures.
Building an API product allows us to integrate and foster an ecosystem with existing and established software solutions. These already capture strategy, portfolio and work information on one hand or help to update, analyse and report on impact and ESG information on the other hand. However, both ends are disconnected and the source data requires a considerable amount of analysis, classification, re-categorisation and new features that allow people to better identify, define and track impact drivers when they add goals / benefits / KPIs / OKRs etc.
It’s still the beginning of our journey but we are determined to become a significant part of the ecosystem that drives organisations’ ability to better plan, prioritise and report on future impact goals and objectives.
