Theory of Change for Sustainability
Updated: Oct 22, 2021
What is the Theory of Change, how does it affect sustainability impact making founders when making pitches, and why is it tapped into by many Sustainable Development Goals (SDGs) organizations? We had Eric Barker who spoke to the YSI SEA 2020 batch in preparation for the Demo Day for Southeast Asian Impact Founders pitching for sustainable solutions in circular economy, energy transitions and food and agriculture!
The Demo Day featured 23 Southeast Asian impact entrepreneurs selected from 1140 candidates and Eric's theory of change was important to help the founders answer important questions that investors would be asking.
When Eric was giving this talk, Eric was doing communications for SecondMuse's Incubation Network project where his digital marketing expertise helped him zone into impact investing due diligence and fundraising.
Thank you for joining us Eric!
Theory of Change 101: What is Theory of Change?
Theory of change is an impact tool that social enterprises or nonprofits can use to map out in a logical flow of how their activities are achieving beneficial outcomes and impacts over the long term.
That's a fancy way of saying this:
It's a logic model and it shows how does this premise lead to us doing things to create good impact in the world.
It's the hypothesis behind how you will change your chosen slice of the world.
It's supported by the Ākina foundation's impact model and used in lots of initiatives all around the world.
It's made up of these five things: issues, activities, outputs, outcomes, and impact.
What are the building blocks for the Theory of Change and why do the order matter?
A quick peek at what we will be uncovering in depth:
issue is about the problem you're trying to solve
activities that you want to perform in your business
outputs that you expect from those activities
outcomes that come from those outputs
impacts on the beneficiaries focusing on how the outcomes lead to actual real life change for the beneficiaries that you're trying to serve.
The links between each of the bits need to be causal:
You say the issue leads to the activities which leads to the outputs, which leads to the outcomes, which leads to the impact.
You need to be able to enunciate every single stage of that transition to define your idea and communicate it.
It also lets you see, do people actually need this change?
Some of the steps might seem like really similar things right now, but there is a difference which you will see below.
Why do you need the Theory of Change?
It might seem superfluous to have to put this much time and effort into developing a theory of change. But if that does seem the case, Eric would definitely caution against it. And this is why:
On an organizational level, this is why it is important to have one: To get everyone on the same page and anyone who talk to you about the organization to make sure everything is properly defined and laid out.
Theory of Change for Idea Stage
If your organization is an idea or very early stage, this hypothesis, this framework is used to validate the logic model.
Because often when we find a problem, we're convinced that it's a really big problem, but it may not be that relevant. The purpose of this framework for an organization or an idea, like a napkin stage enterprise, is to define everything to make sure.
Theory of Change for Startup Stage
If you're a startup, it's to define, test, and measure your way to a MVP.
You've got to quantify the outcomes and the impact that come with that MVP. It's about making sure the hypothesis does what it does. And when it does, you can say, cool, give us money because this is how things work.
Theory of Change for Growth Stage
If you're in a growth stage, raising seed round or an early round of funding, the purpose of this would be to demonstrate that we actually know what we're doing to refine:
We've already established that we know what we're doing, here's what went wrong, here's how we fixed it, to quantify like this is, how much of what we've done, and justify scaling.
This is how it could work over here, here, here, this is how much we need. We've de-risked your investment, give us money.
And we've done this much good in the world.
Number two is to do kick-ass marketing.
Once we have established the metrics and the framework by which we're going to actually change the problem that we're trying to address, then we can tell stories about it better and make sure it's all aligned to the mission that we said.
And it also forms the bedrock of impact measurement
For example, we have a startup that wants to start selling solar panel energy systems for off-grid usage.
The bedrock of impact measurement for them would be a theory of change where they're saying, "cool, we're trying to solve this problem with energy".
What does that lead to? How do we measure that? How do we actually quantify that people are benefiting from what we're doing?
And that doesn't happen without saying explicitly that this is what we're trying to change.
Basic example of Theory of Change for SDGs and Steps
For example, the issue would be households that have no light after dark, without burning stuff. They'll burn wood, coal, and kerosene.
The first thing we need to do is to define the issue. What are we trying fix? This is where most startups, social enterprises, nonprofits see it as their elevator pitch.
We're trying to get distribute clean energy, but again, it has to get a deeper:
Identify and challenge your assumptions:
One of the assumptions would be that people are currently dissatisfied or they're currently using for light.
This is a tool that people use: find issues with a problem tree.
The symptoms are the bad effects that we see on the surface. And the problem is the big assumption that we think is a problem.
We need to ask "why", and come up with a list of causes and then for each of those causes by asking again "why is that the case"? And why is each one of those the case? Where does our organization fit in best?
An example of this: we look at the symptoms, bad breathing, price is expensive, etc.
The problem would be high indoor pollution from light sources.
Why is that?
Because alternate energy is expensive.
Why is that?
Because delivery is expensive
Because of time spent to acquire those alternative energy sources: if you want to buy a generator, if you want to buy existing solar solutions then you would have to call in from ages away
Because there's no immediate provider of the infrastructure for alternative electricity, or maybe traditional on-grid electricity does not exist in a lot of places
And these are other examples of why it might not work.
Why does the problem exists?
Are what I can build on?
What can our organization draw on from beforehand?
These are key questions that a lot of organizations either don't ask or don't think to ask.
Who else has done solar panel intervention work?
What else have they done it successfully?
What are some poster child case studies of it?
What are some peer reviewed literature?
There are research reports on this, that list out all the risks, benefits, and pitfalls.
What can I adapt to our circumstances?
Has something that's worked in Latin America, work in Southeast Asia?
And who can we partner with or talk to?
And we don't have to start from scratch every time.
And then we get to the last “why”. We get to what we can actually do:
It leads us to focusing on fixing this issue that we can be most impactful at with our current team, our current structure, our current insights, and what we can actually control.
For this specific example, it is because currently there is no provider or solution that is accessible, affordable, and effective, or solar panels in this hypothetical situation.
The activities that such a business would perform would be to sell off grid solar power systems.
What does the business actually do? This is when we formed the hypothesis:
If we do X, we will make an impact of Y.
From there we identify the activities that the business will perform. These should be based on stakeholder input:
beneficiaries: are the people that we want to actually benefit in their life,
supporting parties: people that are going to help us,
executing parties: people executing the tasks.
If we solve solar electricity systems to low-income families, for example, in Pattaya, a village in the Philippines. And then trained community members to educate on and maintain them with a financing period of six months. So it is accessible, affordable, and effective. We will make the impacts of better respiratory health, increased savings rate and increased time for the beneficiary.
That is a theory of change and that dictates the activity. The activities for this could vary. It could include conducting community demonstrations of the system, working with community groups, pop-up stalls and door to door salespeople.
These are strategies that various social enterprises have used to roll out a hardware solution.
The outputs from those activities would be that households use those solar power systems.
What do we want to happen when we do our activity?
There's a distinction between outputs and outcomes. And these outputs may come in stages over time as with any customer journey and output of conducting community demonstrations would be that a hundred people turn up.
That is what we predict will happen. And we can refine that over time. And that's an output that we can hypothesize, predict, and track.
For example, we predict 100 people will turn up for our community demonstrations. And when we set up workshops with existing community groups, we predict that 6/10 leaders agree to meet and 4 agree to mention us through word of mouth, etc.
With the assumption we can gauge an output.
The outcomes are from those outputs. And here's the distinction. There is lower indoor pollution. It's usually lower costs. You get better lighting.
When outputs occur, what is the outcome for the better of beneficiaries and other stakeholders? The outcomes could be both positive and potentially negative.
Outcomes are different from impact!
Outcome is more of what happens as a result of outputs and impact is how does that change the lives of our beneficiary.
What is the outcome from the outputs that we predicted? Would any of these outcomes happen without us?
This is where we need to be really honest because sometimes are there things that are actually needed by the beneficiary?
Is there stakeholder ownership, and stakeholder equity in building this theory of change?
It could be based on interviews, and surveys, but it needs to be backed up by data.
A potentially negative outcome will be that the initiative will cause friction with existing energy providers.
Now that your family can get a solar panel system from you, will that cause friction with people who provide kerosene, provide generators, is that going to be friction?
How can we involve them in the supply chain and mitigate that friction?
And again, these are outcomes not impact. The impact, for example, will children be better able to study? The impact is that children's education is enhanced. That's an impact. Will people will be able to work longer hours because they have better access to light:
And the impacts that come from those outcomes, is there's better health for the household? There's increased savings because they're not spending as much and there's increased time because they don't have to get bad lighting.
This is where it gets really beneficiary centric.
What do the outcomes actually mean to the beneficiaries? What changes and how do we measure it?
For example, we predict a 20% average increase in monthly household savings because they have better light.
They have increased time for things like the average increase of three hours everyday after sunset, because they're not relying on a candle or a stove.
A question that comes out of this is what is the value of these things? How do we quantify that in terms of dollar value and impact that we can track?
We measure impacts with indicators that we can assign to both outcomes and impact.
How do we track that? How do we track lower indoor pollution? How do we track a lower cost?
We can track it from outside by saying that this is what we modelled for alternative energy sources in the region based on suppliers that we know about. This is how much our solution will cost over a period of six months.
This is why we're better. And this is how we've measured it. This is how we've tracked it in reality versus a hypothesis.
Why have Impact Indicators?
And the same with impacts. Why have impact indicators at all? It is to demonstrate the impact that needs to be demonstrated to inform the people who actually benefit.
In a situation where you're distributing, supplying, training and solar panels, you're going to want to talk to people who control communities that you want on your side and that you want to have equity in the solution.
And this is where you say, based on these indicators verified by talking to 50 households and this is how we quantify that, this is the surveys that we used, everything checks out.
This also applies to investors, showing investors what we've done by quantifying meeting needs.
The idea behind this is that investors want to see that the organization is actually meeting a need.
If you are meeting a need, and you can quantify it, then you get money.
We need to be able to draw a narrative using the data that we've gleaned from these impact indicators over time. And then for an organization, we need to form actionable insights.
Given this data, what has worked, what has not worked, what can we do about it next? How do we pivot according to that? What do we have to change?
We have to go back through all of the logical steps in our theory of change and say, what is not working and how we can be agile.
Minimal Viable Reporting (MVR)
This is actually something that is not very often mentioned, a minimum viable reporting.
What is the minimum that we need to report to make sure that we're creating the impact that we want to create?
Unless the metrics are connected to impacts or outcomes, it's just fluff.
And no one knows what it means. We have to define it. What is the most important to measure? How do we measure that? What data collection methods do we have to use?
What outcomes and impacts are not as important and what do we not really have to worry about? And therefore, where are our time and resources best spent on this?
Would it be how many hours are children able to study as a result of implementing the solar panel solution?
Impact Measurement example
This is an example of a matrix.
Eric has used this for the impacts that we detailed previously, linking them to an indicator and then linking that to a data collection method.
So say better respiratory health is an impact that we've identified.
The indicator would be the prevalence of asthma or respiratory symptoms. How would we gauge that?
And this is comparing it to baseline measures that happened before the intervention.
When you started intervention, when you start selling these things, you'd go around to the sample size and you ask these questions.
Who would administer these reports? Is the collected data done in the same way to have a controlled baseline. How's your child's respiratory health now?
Ask questions in a way that they could understand to make it accessible. How many colds does he get per week? How, how much wheezing do you notice? Does he have trouble sleeping at night? Does he get asthma attack? And then after a designated time period, we ask it again, see if there's any discernible statistically significant difference in the data.
Social Return on Impact (SROI)
This is a tool on how to tell that story, social return on impact. It's a fancy way of saying how much is the benefit we're producing worth in a dollar amount.
What's the value that we calculate, or we guesstimate is the sum total output of all the impact that we created minus what it costs to make it as a percentage of the cost. What's the return?
And there's different ways to gauge that amount. And that's where a lot of contention is. In the specific method, how do you gauge the value of an additional light source?
How much would this benefit be worth if it had to be acquired elsewhere? How much would it be worth to this family if they had the source an equivalent product from somewhere else and based on that monetary value, and you can break it down into how much would they have to spend on gas?
How much would they have to spend on solutions? How much would they have to spend on maintenance?
As compared to how much the organization, us, have put into creating that benefit and this social return on investment should go up over time.
The stage where it's most useful is where an investor or a donor doesn't want to get into the nitty-gritty of exactly what you do so much as you do. "Give me a number that you can back up saying you've done a great job"
Role of Impact Measurement
The role of impact measurement here is to form a narrative with data over time. We're actually doing what we hypothesized we would do. We're creating good stuff in people's lives. We're still relevant.
This is something that people need as indicated by these metrics where, for example, there is demonstrated traction because we've rolled this out over X number of families.
You want to be able to say things confidently such as:
This solution is necessary because no one else is doing it.
And it also demonstrates an adherence to the mission.
When we started, this is what we wanted to solve.
This is how we've stuck to that.
And this is how we have either fulfilled that mission or changed the mission because we found something more relevant that we can do better.
And this has all the numbers to back it up based on our theory of change, which links everything with causality.
01:22 Why do you need Theory of Change? (Idea, startup, and growth)
03:41 5 Building Blocks of Theory of Change: issues, activities, outputs, outcomes, and impact
09:07 Why have Impact Indicators?
10:12 Minimal Viable Reporting (MVR)
10:49 Impact Measurement example
11:35 Social Return on Impact
12:35 Role of Impact Measurement
Do you wish that there was a platform to focus on sustainability issues and we can work together as a community?
What if there was a platform that is bringing opportunities for funding, jobs, community, events, and insights under one platform?
The folks at YSI SEA, aka us!, have been working on moving our sustainability incubation program to an online platform to reach out to more sustainability players in Southeast Asia.
Interseed.co is finally online for founders and talents to come together and make sustainability changes in the region! Check us out!