Have you noticed that more and more philanthropic and government funders are asking for proposals to have an “outcomes focus”? Impact investors and service commissioners increasingly want evidence that a program makes a difference.

The move to report on “outcomes” is gathering momentum and for good reason. The purpose of social sector funding, whether in homelessness, mental health or child protection, is to improve the lives of people – to make a difference. That’s also the mission of every social sector organisation. 

An outcome is a way of defining and measuring this important “difference” made in someone’s life – between dropping out of school and finishing school, between being employed or not employed, between mental distress and a sense of wellbeing. By defining and measuring the right outcomes, organisations and funders can focus efforts on what matters most to the service recipient, and therefore make the most social impact.

Funders have been experimenting with different ways to fund for outcomes, particularly over the last decade. A complex form of outcomes funding is a social impact bond (SIB), where a third-party provides an upfront investment to cover program costs in advance of the outcomes being known and outcome payments being made by the program funder (usually government). In Australia four states have funded more than $100 million across a dozen SIBs so far. We are seeing more government interest at federal and state levels in funding programs on an outcomes basis. Even if your funder is yet to raise this with you, the pressure is on to demonstrate outcomes per dollar spent, and to compare this to other programs or organisations.
 
Every social organisation we talk to is somewhere on the outcomes and data journey – sometimes one program has lots of good data but isn’t using it for decision making, and another area hasn’t yet decided what data to collect. Many organisations have invested in client databases (CRMs/CMSs) to deliver data that government (or external stakeholders) want, but haven’t thought through what is the right data to collect that will aid continuous improvement and demonstrate impact.

Latitude Network believes that we are on the verge of a data-driven performance jump in the social sector. The manufacturing world went through a data and performance revolution when Toyota adopted the ideas of American Engineer William Deming in the early 20th century. More recently the worlds of marketing and software have used analysis of “big data” to continually improve services and to better tailor services to individual needs. Just as the key to those leaps in quality and effectiveness in the commercial world was access to better and more precise data, we are now seeing tools emerge to enable impact improvements in the social sector.
 
Journey to ‘outcomes-focus’ Being an “outcomes-focused” organisation goes beyond simply defining some outcomes and commissioning program evaluations. While program evaluations can be important tools to prove point in time impact (especially if you have a counterfactual or control group to test against), other tools are needed for the modern fast-paced challenges of data-driven organisations. One state treasury official we talked to recently stated that they would much prefer to see social organisations investing in their own data capability and generating ongoing insights than in static program evaluations.
 
Using data and focusing on outcomes are important not only to ensure an organisation is delivering its mission and continually improving its effectiveness, but also to be competitive when it comes to philanthropic and future government funding. The business case is heart and head, mission and financial.

So what can social organisations do to build an outcomes-focused organisation: 

1. Put outcomes and data on the agenda – this means building the internal coalition of forward-thinking executives to demand outcomes and quality data. Does the board want better metrics and reports to track impact (not just finance or risk-related metrics)? Does the executive team crave visibility over program delivery, performance gaps and risks? Do frontline workers have the information they need to make informed decisions about where to spend their time and what parts of the service model to apply to which clients?
2. Build disciplined program logics for key programs (and possibly a system logic for multiple programs working together) – a theory of change is a theory until you prove it. Program logic uses evidence and practitioner experience to map what activities lead to what changes and what outcomes. It’s hard to improve service models if they aren’t mapped out ready to be tested.
3. Don’t equate data systems with IT systems – a mistake we have seen is organisations investing huge sums (millions of dollars in some cases) in IT and CRM before the thinking has been done on what to measure and how to use the data. There are now off-the-shelf low code database systems that social organisations can use for low risk low cost solutions compared with traditional IT. Even small organisations can be great at data without the price-tag.
4. Decide what to measure, based on your program logic – an outcomes focus means measuring outcomes (which itself can be tricky), but it also means measuring lots of other things to help you identify what’s working and how to improve.
5. Engage staff and clients in the design process – becoming an outcomes-focused organisation is a significant change from traditional social sector approaches, so engagement and bringing people along is vital. But drive from the top and leadership is needed as well – any change, even good change, is hard. Our experience is that once people really start to use data and see how it improves lives, they become converts.
6. Just get started with collection, with an MVP system (a minimum viable product) – before you lock in the design of any databases, collecting data with free- or low-cost tools can be a good idea. We often don’t know the value (predictive value) of a metric until we start collecting it – so we sometimes suggest a three to six month period of “just collect it”. At the end of that test period you can analyse the data to find out what’s useful.

​Once you’ve got data, the next phase is to use the data well – easier said than done. This means collating data, building dashboards, visualising the right data, and testing and refining it. And if you have great data with good “before” and “after” measures of outcomes, it might be time for some really exciting analysis – using artificial intelligence tools (machine learning) to identify segments and build predictive models that help you improve impact and become more efficient. But perhaps that’s a discussion for another time.

​One client reflected on the ‘innovation’ aspect of PADs/SIBs suggesting that learning or borrowing from other models is a good way to augment your proposed solution. While PADs give us a chance to trial new approaches ‘...that doesn't mean reinventing the wheel necessarily - look around for what is being done in another place or with a similar cohort and talk to the organisations delivering the program.’
 
Perhaps one of the most powerful aspects of an outcomes contract is the need for us to zero-in on lived experience. One client reflected that ‘when including people from the front line, or those with lived experience, prepare and encourage them to bring their experience and knowledge to the table…’
 
Indeed, the process may be uncomfortable for staff, ‘...they may feel outside their comfort zone [but should be encouraged] to think about how they go about their work in a different way.’ 

At the heart of a PAD is ‘being clear on your cohort and outcomes. Make sure you confirm this in the initial part of the project because you don’t want to get 6 months in and find you're not 100% clear on who and what.’
 
There is a flip-side to this outcome journey in all PADs and that is the service system journey for clients currently - what we can loosely call the ‘counterfactual’. ‘Make sure you understand the extent to which your clients currently use the service system and ideally understand how much this reduces through your program financially - savings are critical to government.’

One organisation suggested that ‘patience and a flexible approach is probably the most important’ thing in outcomes contracting. ‘Don’t expect it to be quick or straightforward.’ Another said to ‘be prepared for discomfort as you grapple with an intense and unfamiliar process, lots of workshopping, many unknowns and wondering how it will all come together.’ ​

​This excellent phrase was shared by one of our clients and nicely captures the way that PADS are trying to harness the relative strengths of each of the parties involved. ‘Don’t be afraid to tell the Government they are wrong. It's BAU for them to be conservative, NGOs should own the innovation space in front of Governments and be persistent’.
 
PADs really do alter the dynamics between Government and service provider. One of our clients put it this way: ‘You’ll need a thick skin and a strong commitment to what you know works. The Government’s needs aren’t necessarily your or the program’s needs and so you need to know what is non-negotiable.’
 
PADs also highlight the value of complementary skillsets. ‘You will be negotiating with numbers people… brilliant numbers people who have a limited understanding about the client group or how to do community development. They are great at what they do but so are you so don’t let them have it all their way!’
 
One of the benefits of an outcomes focus is that everyone is, effectively, a problem-solver. While Treasury officials are focused on the value-for-money challenges, officials from the line agencies will bring a practice-based focus: ‘Get other departments in the room. The line agencies will better know the sector people and programs - let them fight some of the programmatic battles for you.’

​The outcomes contracting process is nothing if not intensive. It needs resourcing internally. One client advised that you will ‘need to have at least one person dedicated to developing this. Most NGOs will fund this internally, however, this should be seen as a valuable investment, even if you don’t get the program up.’
 
As for the mix of the team engaged in the process, you will need ‘a mixture of ideas people and do-ers who can buckle down and progress the hard yards of research, seeking out answers and project management.’

​Some of the elements of an outcomes-based contract are highly-technical and specialised. One of our clients suggested that you will need ‘bloody good guides who have been there before and who can tell you when you are focusing on the wrong question’.

The process of negotiating a PAD, while intensive, can bring enormous benefits to the organisation itself. Becoming literate with data and how it can be used to check and adjust performance was seen as critical.
 
“Start with data… get literate about how numbers and data work because, at times, the process will become about the numbers ... Become an expert at it really fast and get your team used to measuring and counting at least something.’  
 
Creating a culture of measurement and the gathering and use of evidence is seen as key to success: ‘Having a culture of using measurement and evaluation to improve the services you provide to clients really helps with structuring and implementing a SIB/PAD/SII’. And even where data might be scarce, start with a hypothesis and ‘...use external sources including public data sets (ABS, AIHW etc), research and evaluations …’ to try to confirm your hypothesis.
 
The journey of negotiating an outcomes-based contract can be revolutionary for an organisation, giving it the tools, confidence, funding and time to re-imagine the way that services are delivered for a specific cohort of people. 

First published in Pro Bono News

The Living Learning program is important, writes Dale Renner, not just because of its social impact on young people, but also because of the way the impact investment is structured. It provides a new way to partner for the delivery of social outcomes.

The Living Learning program was launched last week at the Hester Hornbrook Academy (HHA) in Sunshine in Melbourne’s west. HHA is an independent school run by Melbourne City Mission for young people disengaged from the traditional school system. The program is funded as an impact investment under the Victorian government’s $30 million Partnerships Addressing Disadvantage (or PAD) program (also known as social impact bonds, or SIBs). 

The service innovation which will be tested through the program is a more integrated mental health and flexible secondary school education program for young people whose educational and long-term employment prospects are being affected by ongoing mental health challenges.

The program is important not just because of the social impact on young people, but also because of the way this impact investment is structured. We have worked on a variety of social impact investments in the last few years and have encountered a range of barriers to a wider takeup of social financing mechanisms such as SIBs. They are complex to negotiate given the three parties involved (government, social organisation and investors) and their need to balance a range of risks as well as target measurable financial and social outcomes. SIBs were originally designed to allow socially-minded investors to help fund the upfront costs of social programs where their investment was “at risk”, meaning they would lose some of their investment if the program did not deliver the target outcomes. They were specifically designed with private investors, not philanthropic trusts, in mind.  

Philanthropic trusts operate differently to a traditional impact investor. 
Philanthropic trusts and foundations usually have a corpus of funds built from an original or historic donation invested in “safe” market investments so that the interest earned on those investments can be given away as grants. For an overly simplified example, if your corpus is $10 million and you earn 5 per cent per annum from your investments, you can give away $500,000 (less expenses) per year and keep the trust going “in perpetuity”’. A more modern way of thinking about the granting side is that, it too is an investment but the return is in social outcomes rather than in financial returns. This means each alternative use of grant money should be compared to the level of outcome it achieves compared with the next best use of that money.

As a result, the amount of money that philanthropic trusts and foundations give away each year is tiny compared with the amount that is locked away in their corpus. People in the social impact space have been thinking for years about how to unlock this corpus for investing in impact directly. The social finance innovation that enables the Living Learning project represents one way we can now unlock that corpus to be used for specific types of social impact investment projects. This is a “philanthropic impact investment” (PII) model, as distinct from the more common impact investing model which tends to focus on investors that may not be philanthropic trusts.

Why is it difficult for some philanthropic trusts to use the corpus for social impact investing? 
The problem is that social investments are competing against asset classes that are very well known – whether listed companies, property or, increasingly, renewable energy investments. Social impact investments are newer and far more variable (a SIB service model and program logic is usually an innovation that is unique or new to the sector), so it is harder for an investor to assess the risk of an investment in such a project compared to those in well-known assets. As a result, the understandably conservative investment strategies employed by trusts and foundations mean these newer and more complex social investments are passed over. 

The new PII approach developed for the Living Learning program enables a trust or foundation to combine both its corpus and its grant funding in the same investment through a “split tranche” structure. The investment generates a return if the project achieves its social outcome goals while the grant portion is called upon to cover the loss if the program fails to achieve the target social outcomes.

Latitude Network with Social Enterprise Finance Australia (Sefa) and Melbourne City Mission worked together with the Victorian government to ensure this model suited the program and complied with all legal and government requirements. This approach has the potential to make it easier for social service organisations to develop high impact social programs that attract impact investment from their philanthropic partners.

Benefits of the new split tranche structure 
One of the benefits of this new structure is that it leverages and deepens the natural relationship between philanthropy and the social sector and allows philanthropists to use part of their large capital base to help unlock funding from the government for worthy programs. Philanthropic trusts can use their dual ability to invest capital, but also to provide grants that enable them to reduce the internal risk of these investments and provide the working capital that outcomes based contracts require. 

This is useful because outcomes-based contracts are powerful tools to drive higher accountability for social impact. One of the core public benefits that we at Latitude Network have witnessed in organisations that undertake outcomes contracts (such as SIBs or PII projects) is that the focus on outcomes and the rigour of the contracting and financial structure create strong incentives to achieve social outcomes. This in turn leads to stronger use of data and performance systems that drive continuous improvement in programs. Well-designed outcomes contracts align financial and mission-based incentives to deliver high performing social programs.

While SIBs have been important vehicles for helping the social sector develop new tools and skills for achieving outcomes, they are very complex to develop and negotiate and are not suitable for all forms of social service funding. Government, philanthropy and the social sector need to continue to find new and lower-cost ways of contracting for the delivery of social outcomes. The PII structure developed for Living Learning is an example of a new way to partner for delivery of social outcomes.

This article was originally published in Pro Bono News on 4 May 2020.

In the social sector today, there is an understandable rush to manage immediate operations, protect staff, and review face-to-face service delivery. It’s a complex time and it is difficult to see beyond the next week or two. However, senior managers need to start thinking about the phases of adjustment to the COVID-19 crisis across time:

• Phase one: Manage the crisis. This is the operational reaction to shutdown – how to continue, protect staff, and manage the needs of clients whose services are stopped by social distancing, with particular complexities for residential programs (most organisations are here now).
• Phase two: Stabilise and deliver. This means delivering during six to 12 months of constrained activity, including preparing for delivery of services under different levels of social distancing rules.
• Phase three: Leverage the upswing. This is about delivering in the post-pandemic world – and being prepared as an organisation for the “permanent” effects of the crisis.

The pandemic is driving change for both commercial and social organisations across the globe. 

There are a number of significant forces at work:
Increased use of technology – In phase two, social distancing will continue to test the sector’s ability to deliver services in the traditional face-to-face mode. Back office functions will need to simplify but it is also a time to experiment with what parts of the service model can be delivered via technology and what parts require face-to-face interaction.

• Consolidation of organisations and concentration of power – Financial crises usually accelerate concentration of power (organisations with shallow reserves may shrink or merge with larger organisations with deeper pockets). In some parts of the social sector donations have fallen significantly, leading to the need for some organisations to consider their financial viability and the options for ensuring the continuation of their best programs. Non-viable social enterprises will need to be closed down or merged. Financially secure organisations might find opportunities to pick up successful programs.
• Increasing social problems arising from lockdown – The steep increase in unemployment (even if “most” people who lose work will return to it, the effects will be long term especially for more vulnerable groups) and other heightened social issues (domestic violence, mental health, school dropout) will require fresh and effective solutions. Governments will be seeking new solutions from the social sector. Social organisations can develop “proactive” funding pitches to governments with high quality programs.
• Increasing role of government in the wider economy – The Job Seeker package is likely to establish new norms and expectations about government support for people out of work. It will be hard for the government to return to the previous low level of Newstart payments. This flow of cash may mean opportunities for some programs that rely on client financial contributions (e.g. in housing). 
• Longer-term funding crunch as the government pays off debt – While it may be a year or more away, at some point the federal government in particular will begin belt-tightening to manage the huge increase in government debt. Social organisations should be ready to prove the cost-effectiveness of their programs (including with “avoided cost” financial models) alongside the “social”, to make sure they can withstand this pressure. Along with positive social outcomes, governments will be looking for improving efficiency in provision of welfare, with reforms potentially around simplification and poverty reduction.

What does this mean for social organisation strategy? While most organisations have rightfully been focused on phase one adjustment, some of our clients are now entering phase two stabilisation period. We think it is now time to plan for “living with constraints” and for phase three, the “leverage the upswing” phase after social restrictions begin to ease. One way to think about it is that operational management should be focused on phase one, while CEOs and boards need to be planning for phases two and three.

While it is incredibly disruptive, Latitude Network believes that the current upheaval also provides an opportunity for social organisations to accelerate the innovations and performance improvements needed over the next few years. This is exactly what is happening now in manufacturing around the world – technology improvements that might have taken five years are being implemented in one year. 

The high-performing social organisation

What does a high-performing social organisation look like? We will need social organisations that use data for evidence-based decision making and continual improvement, leverage technology, have a laser focus on their social impact and outcomes, and develop a “flexible playbook” of opportunities and programs that enable adaptability to changing needs and funding environments. An organisation that can evidence performance to government and other funders, and can also make a convincing case for the economic savings arising from their work.

The daily charting of COVID-19 cases and the entry of epidemiological models into the mainstream discourse have demonstrated how vital good data is at times of uncertainty. Social organisations need live, relevant data that enables them to pinpoint barriers to achieving impact, to identify service approaches that work best for specific cohorts and sub-cohorts and help allocate resources to where the organisation can have the best impact.

Social sector boards are tasked with ensuring organisations maximise their impact. They therefore need to be asking these questions to help with this transition: 

• What is the impact we want to achieve and for whom?
• Where do we currently achieve our best impact?
• How can we use technology and automation to both operate in a constrained medium-term environment (under social distancing rules) but also to improve our longer term impact and efficiency?
• What data should we collect and how do we use it to focus our efforts?
• How do we position ourselves for the future funding crunch?
• How can we demonstrate our effectiveness and make an evidence-based case for funding high-impact programs?
• If the wider changes are a fundamental threat to our financial sustainability, how do we ensure our best performing programs continue (either through partnerships, licensing or mergers)?
• What shifts in funding will occur in our sector, and how can the organisation position itself as having solutions to the looming challenges across unemployment, mental health, domestic violence, homelessness, etc.?
• What planned innovations and “moonshot” solutions do we have that we can propose to governments in relation to these rising social issues?

Special thanks to Dave Wells at Melbourne City Mission for is contributions to this article.

Invitation
As our way to contribute to social organisations in this time of uncertainty, Latitude Network is offering free “Sounding Board” online workshops for the boards and executives of five social sector organisations exploring the questions outlined above. If you are interested please contact us at dale@latitude.network to book your workshop. We will provide a pre-reading document and a summary of recommendations after the workshop.

This article was originally published in Pro Bono News.

​Latitude Network recently took some clients with us on an ‘outcomes tour’ of the US to learn from organisations, funders and governments that are shifting to outcomes-based funding. This includes what the US calls “Pay For Success” projects, and we call Social Impact Bonds, as well as newer forms of outcomes contracting where a range of financial and non-financial incentives are provided for performance. Outcomes-based contracting is when a commissioner of services (usually a government but can include large philanthropy) agrees to fund a social service program where at least some of the funding is contingent upon the organisation achieving a target performance on clear, agreed outcomes metrics for service users.
 
Key lessons learned -
 
1)    A shift to outcomes funding, while difficult, is a must
Our observation in Australia and in the US is that most people who work in the social sector (including government) want the work they do to lead to improvements in people’s lives. There is generally a strong desire in organisations - from the frontline to the Board - to work towards outcomes. The difficulty is that merely measuring outcomes or drawing up an outcomes framework, while necessary, is often far from sufficient to change behaviours and performance. Funding on the basis of inputs or outputs is a very blunt instrument with very low levels of data or feedback on what is working for long term, relevant outcomes. 
 
Funding on the basis of outcomes, however, can provide the joint incentive to properly define, measure, track and deliver outcomes that matter to the service user. A range of different outcomes have been contracted, from reduction in recidivism, to early childhood development milestones to family reunification. Despite their challenges, everyone we met - from local and state governments such as Ventura County or LA County Department of Mental Health, to impact funders such as Maycomb Capital and First5 LA and service providers such as the Center for Employment Opportunities and Interface - everyone was focused on making the shift to outcomes-based funding.
 
2)    Social Impact Bonds have been a useful tool to kick start the outcomes revolution, but will be only one of many tools for the next era in outcomes funding.
Our discussions with Emily Gustafsson-Wright and Izzy Bogild-Jones at the Brookings Institution highlighted how Social Impact Bonds have had powerful impacts on social sector performance, innovation and flexibility in service delivery, but there is little evidence that they bring a net additional amount of private sector funding into the social sector. This aligns with Latitude Network’s view that outcomes funding is best used to drive alignment of interests and flexibility for innovation between government, social sector and philanthropy, and should not be seen primarily as a tool for increasing private funding of social services.
 
3)    Organisations that build outcomes-funded projects are transformed for the better - especially in managerial focus and performance capability.
All the organisations we spoke to had used the experience of an outcomes contract to drive important changes in capability and process within their organisations. One organisation, Center for Employment Opportunities (or CEO) in New York City, has built a sophisticated outcomes and performance management system that gives visibility to everyone, from the frontline to the Board, on how the organisation is tracking in delivering its mission. The organisation has a strong, singular focus on a cohort of high risk offenders leaving prison. It’s focus allows for a robust program logic and service methodology and it uses detailed performance reporting to achieve employment goals and reduce recidivism. Their data has helped them identify the most effective early responses (e.g. ensuring a client starts a job on the day they turn up), and helps frontline workers adjust their activities by getting regular, timely feedback and learning from high performers. CEO’s outcomes contracts with governments have helped provide the incentives to focus on outcomes.
 
4)    A new ‘Outcomes Partnership’ approach between Government and providers can lead to better achievement of  outcomes
Forward-thinking governments are entering into what we are calling ‘Outcomes Partnerships’ with social organisations to work together over time on defining and aligning around key outcomes that matter to services users. These partnerships allow for better targeted procurement procedures from government, adding additional incentives into contracts for achieving short and longer term outcomes, and ensuring transparency of data sharing that can shed light on areas of highest and lowest performance. They also provide a much higher degree of flexibility to both Government and service providers through ‘active contract management’ methods that allow for adjustment of performance goals as theory hits reality.
 
These partnerships are a part of the journey of various governments in the US to shift large parts of their funding base to be procured on the basis of outcomes rather than inputs or outputs.
 
Our visit to the Massachusetts Department of Transitional Assistance in Boston revealed a forward-thinking government department that is leading the internal systems and behaviour change required  to procure on the basis of outcomes, increase quality and sharing of data and establish trust between government employees and leaders and the social organisations they fund.
 
Latitude Network and our clients see Outcomes Partnerships as the next important step for the social sector in Australia.

Yesterday’s release by Infrastructure Australia of its annual Infrastructure Audit is a timely reminder of how important capital spending is to our social, community and health sectors.
 
It is also a reminder of how ineffective our social infrastructure currently is in addressing some of the growing and increasingly complex health and social challenges facing our communities.
 
The report notes that it is the challenge of operating within ‘sector-based structures’ and the ‘lack of integration’ that stops us from effectively addressing these challenges through our infrastructure investments. Indeed, it can often make things worse as a result of getting differing levels and types of services depending on where people live (p.394).
 
Perhaps the most critical statement in this section of the report, however, is the following:
 
“…challenges remain, however, in overcoming sector-based planning, funding and governance structures which limit the incentives for different infrastructure sectors to work together to improve benefits to communities.” (p. 394)
 
The take-out here is that the success of an infrastructure investment should not be measured by the quality or scale of the build itself but the extent to which it delivers solutions to complex and enduring social and health challenges. To do that, it requires a process that breaks down silos and creates incentives for different parts of the infrastructure system to work together with outcomes at the centre.
 
Latitude Network’s work with Brimbank City Council in Victoria as well as Logan City council in Qld has delivered a process which puts the social and health focus at the core of the investment, including the identification of outcomes, service delivery approaches, cross-sector partners and governance structures. The planning, design, construction as well as the operations can then proceed, confident that we are arming this piece of infrastructure with the tools it will need to truly have an impact.