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In early 2008, when my five years as Secretary of the Department of the Prime Minister and Cabinet came to an end, I was offered the opportunity to set up the Centre for Social Impact. Headquartered at the University of New south Wales, the Centre has evolved into a collaboration of 4 business schools, with Melbourne, Swinburne and UWA being partners. It was an exciting prospect. I was attracted to the idea of a new institution that would provide more socially responsible business management, focusing on the management of not-for-profit organisations (NFPs), corporate social responsibility, philanthropy and volunteering.

The one thing that I was uneasy about was the appellation. Being an ex-bureaucrat, with a lowbrow taste in TV crime, I admired the acronym CSI-Australia. In truth, however, I wasn't certain just what ‘social impact' was. I've slowly been educated. It now seems to me that CSI has a name whose time has come. I understand better its prospective provenance. Let me explain.

The social economy touches virtually everyone. Most Australians donate to charity or join a community organisation or give their time. Yet very few comprehend the scale or significance of what they do collectively. There are around 600,000 NFPs, of which almost 60,000 are economically significant. They provide 8% of employment, excluding the wage equivalent of $15 billion worked by 4.6 million volunteers. Nonprofit activity contributes $43 billion to GDP and is growing at almost 8% each year.

Statistics are dry. Imagine instead a raucous cacophony of disparate organisations, some formed for the mutual benefit and shared interests of members; others driven by social, environmental or artistic mission. Some are large, well-established with a proud tradition of helping those in need. Others formed relatively recently and have little to call on but commitment. What they share are ambitions that always outstrip their resources.

But wait, there's more. The social economy also includes the benefactors, philanthropic foundations and business organisations which support nonprofit activity. It embraces the government which provides grants or contracts to NFPs.

It is at this intersection of private, public and nonprofit engagement that social innovation often emerges. By this I mean creative answers to delivering community benefit which often require a profound reframing of the question. Microfinance, for example, only becomes recognised as a solution to poverty in developing countries when the purpose of aid is rearticulated in terms of the relationship between the family economy and the market.

A key part of that transformative process has been the evolution of NFPs as social businesses. Many of Australia's NFPs have for a long time had an energetic commercial ethos driven by entrepreneurial energy. They are adept at fundraising. Receipts from the sale of goods and services, together with investment income, supplement membership dues and charitable donations. More recently they have won a great deal of government business.

Today new ventures are emerging that distinguish themselves not by their avowed aversion to profit but by their pursuit of social mission. They seek to become economically sustainable, offering a blend of financial and social returns. After repaying the cost of their capital and meeting operating expenses they invest the surplus in community responsibility - such as providing employment opportunities to the most disadvantaged, running childcare centres or delivering low-cost, environmentally-friendly products.

That is why many individuals and companies that support community enterprises now regard themselves not as philanthropic benefactors but as social investors. True, not everyone seeks to portray themselves in this manner. Many do not want their gift of giving to be characterised, and perhaps demeaned, as some variant of philanthro-capitalism. For other socially responsible investors, however, the opportunity to put their money into blended-value ventures offers a bold step forward. Instead of channelling their wealth into ethically responsible and accountable private sector businesses they can invest directly in social mission. As Roseanne Haggerty emphasised in ALR last month, ending homelessness "will require more than charity. It will require investing for results."

Unfortunately the market for social capital in Australia remains weak. Governments are struggling to adapt their taxation, incorporation and regulatory regimes, designed for charities, to these new organisational structures. Social investors are few. Community development investment funds are scarce. There is no social stock market.

This lack of investment funds is often put forward as a key reason why Australian community organisations find it hard to build the scale necessary for cost-effective and resource-efficient operations. There is much truth to this argument. Yet the proposition also confuses how scale is achieved in the competitive market of corporate enterprise compared to the more collaborative environment of the social economy. Scale in the community sector often takes the form not of organisational growth but of social movement. Campaigns to end discrimination, fight poverty or protect the environment are inspired by the collective power of disparate groups working together for social purpose.

Perhaps the greatest challenge for community organisations is to measure the social returns on investment. How does one actually gauge success in meeting social or environmental mission? It's relatively easy to measure how many homeless people have been provided with a hot meal, but much harder to calculate the contribution that food distribution makes to community well-being, social inclusion or housing affordability. It's not too hard to work out the cost of volunteers replanting trees on a degraded river bank but far more difficult to estimate the contribution that effort makes to environmental protection or the preservation of biodiversity.

The challenge then, in assessing the diverse benefits of multifarious community-based activities, is to assess their social impact. This is not simply a matter of academic interest. It is important to exhibit to individual donors and philanthropic foundations, government funders and corporate supporters, gifters and investors, that a dollar placed with a NFP or social business returns many dollars in social benefit - such as reduced unemployment, more support to those in need, reduced health costs, less institutionalisation, lower rates of incarceration or more political and civic engagement.

In a real sense social impact is the apotheosis of the social economy. It is the ultimate ideal of cross-sectoral social innovation. It sits appropriately at the very centre of CSI.

An excerpt of this article appeared in Literary Review section of The Australian, on Wednesday 7th July, 2010