How do we assess the positive impact of a company over time?

By any stretch of the imagination, the Guggenheim Museum Bilbao has arguably had one of the most far-reaching social and political effects of all the projects to have been developed in recent times. In its beginnings, however, the Museum was born into a complex socio-economic and political milieu; a bleak Bilbao, a city noted for its grey, industrial landscape; a society where few would look upon contemporary art as an economic catalyst. But what really provoked popular sentiment against such an “overambitious building project” was the enormous investment required: €120 million (in the 1990s).

Today, however, as an icon of architecture and a symbol of Bilbao’s urban transformation, no-one doubts the positive economic impact the museum has had on wealth and job creation for the region over its 15 years of activity in terms of tourism, hospitality, transport, spin-off businesses, etc. In 2012, it was estimated that the art centre contributed €295 million to GDP and was responsible for creating close to 6,000 direct and indirect jobs. What’s more, the “Guggenheim effect” stretched way beyond economic benefits being main reason for propelling Bilbao and Euskadi onto the world stage.

Following the same line of reasoning, we should measure the impact our own companies have on their geographical area of influence. Over the decades, a company can generate the same positive effects as this iconic museum has done, not only in terms of investment and direct job creation, but also in terms of the pull effect on other companies and people in the area.

In both cases, we implement an Economic Impact tool which is invaluable to executives of institutions and companies since it allows them to calculate in a clear, objective and comparative way, the return on investment (ROI) in terms of GDP, job creation and tax collection. Using the Leontief method, calculating this impact is of particular relevance when studying important “heavyweight” projects which have pubic repercussion and when it becomes critical to visualise the positive economic outcome.

Without a doubt, calculating the wealth created is a value in itself, as can be seen in a number of surveys undertaken by local companies and institutions. But where many of them fail is precisely in the second main value of the model; that is, in the rigorous calculation of the economic impact generated outside the company in question. This makes the total amount of the ROI significantly higher, and consequently, more accurate.

After over 15 years working on projects across a variety of sectors, from our experience we consider that the initial effort is critical to understanding economic movements, along with applying large doses of prudence and discipline. Only in this manner can we accurately ascertain the actual increase in demand generated by a new infrastructure, an event or a given activity in a company, along with the pull effect on related sectors of activity and potential measures aimed at prolonging these effects over the medium and long-term.

Moreover, we understand that there is an added benefit in measuring the company’s economic impact and assessing the social and environmental impact, or that of the specific activity. It allows us to determine the impact on the following: contribution to technological and infrastructure development; environmental sustainability; social cohesion; improving commerce and energy use, among others.

In conclusion, by developing an evaluation model of the economic impact of companies and of other activities, we can create an innovative, objective and reliable means of comparing the ROI of various projects and investment initiatives in the region. Determining ROI is more important than ever at a time dominated by the economic crisis, where public institutions face spending restrictions, and where society demands greater public transparency and greater Corporate Social Responsibility.

 Written by Iñaki Pertusa.