To understand how we can address the needs of social innovators, we need to first understand the nature of the role they will play in spreading what works. Here at Root Cause, we believe that social innovation is the process of finding, testing, and honing potentially transformative ideas, practices, principles, and models of approaching social issues. Therefore, we need to first train social innovators to correctly assess and analyze social needs in order to enable their development of innovative approaches. Innovators, trained in social needs assessment and analysis, will be able to understand the complex nature of social problem solving, clearly articulate their vision of change and develop expertise on the social issue landscape.

This in turn will allow them to identify new opportunities for impact, define organizational roles, and develop innovative solutions with a focus on target beneficiaries. Finally, this capacity of social needs assessment will assist them in developing and articulating an approach and managing an organization to achieve its goals. But once these leaders have developed innovative approaches, how can we help them spread these models? In other words, how are we equipping them to advance social innovation?

Our work through the Social Innovation Forum shows that spreading proven approaches requires collaboration between nonprofits, philanthropy, government, and business as they move through the social innovation process. Thus, social innovators need to be trained in strategic collaboration, where they can Identify and develop key partnerships within and across social issues and sectors. These partnerships will facilitate the spread of innovative approaches via knowledge sharing about best practices and collaboration with similarly mission-aligned organizations.

However, this collaboration itself requires a platform like a social impact market. Therefore, effective social innovators understand how social impact markets operate. They can develop and implement a system to measure and communicate performance. Consequently, social innovators need to be trained to learn from performance, make data-driven decisions focused on continuous improvement, and effectively allocate resources based on performance.

If sustainable impact is a question of performance, leaders engaged in social impact need to measure their performance to maximize their social impact. This new generation of leaders will need to develop competencies in market assessment and analysis, building and sustaining organizations, engaging in outcomes-driven adaptive learning, and collaborating across sectors. Are our leaders ready for this? If not, how can we prepare them?

This past week, I explored how social impact markets can facilitate this role in a webinar hosted by Stanford Social Innovation Review based on my Winter 2012 article in the magazine. The webinar featured State Street Foundation’s Corporate Citizenship Vice President Sheila Cody Peterson representing the Youth Violence Prevention Funder Learning Collaborative, ACCESS CEO Bob Giannino- Racine speaking about his participation in Root Cause’s Social Innovation Forum, and Shawn Dove, the Campaign Manager for Open Society Foundations’ Campaign for Black Male Achievement. Through the conversation, it became even clearer to me that there are two ways in which a funder can be the key lever in ensuring the allocation of resources based on performance in a social impact market.

First, funders need to take the initiative to provide the infrastructure, information, and incentives required to direct resources toward performance. Created three years ago to align funding in youth violence prevention, State Street Foundation’s Youth Violence Prevention Funder Learning Collaborative stands as such an example of an emerging social impact market. Currently the collaborative consists of 45 private and 12 public funders, who are learning, sharing, and acting in a market-based approach. Yet the knowledge sharing goes beyond the collaborative since all the information is publicly accessible to any interested funder.

According to Sheila, one of the most important first steps was to identify strategy areas most in need of aligned funding based on research and on funders’ current giving priorities. The three areas—workforce development, youth development and mentoring, and family support and mental health—helped organize funders into working groups aligned around these strategy areas.

Within these working groups, funders learn about their area of focus, creating a common set of knowledge. They share funding expertise and learn to use this knowledge to align funding by developing funding tools, co investing, etc.

The funders invest in nonprofits based on shared views of prevention and by choosing outcome-driven practices they all agreed were necessary. Using the social impact market model, some funders in the YVP Funder Learning Collaborative have aligned $1.5 million in private investment, increasing meaningful employment experiences for over 900 youth in targeted communities where violence is highest.

Second, funders need to be willing to help programs build capacity to perform better and spread what’s working within the social impact market. Root Cause’s Social Innovation Forum played that role for ACCESS, a national nonprofit working towards removing the inability to afford college as a barrier to education. During the webinar ACCESS CEO Bob Giannino-Racine attributed the organization’s tremendous growth to the capacity-building support provided by SIF. Within the few years of working with SIF, ACCESS has gone from serving 2,734 students to serving 9,500, while securing $57.2 million in financial aid compared to $45 million before SIF. ACCESS went from an individual organization in need of support to piloting a training program in ten cities and expanding direct services in three others.

Shawn Dove, representing the Campaign for Black Male Achievement, reiterated this role of funders while discussing the work required to improve the lives of black men and boys. As an example, with 42 percent of all black boys failing an entire grade at least once, black male achievement is a challenge in need of a social impact market. He noted that there are thousands of programs working in communities across the country that are having results; however, there is currently no social impact market structure to organize the efforts, incentivize performance, and spread the impact.

Therefore, the challenge lies in the process of getting funders to take these two bold steps: data-aligned funding and provision of capacity building support so organizations can strengthen performance to improve lives. A striking example Shawn brought up was that there are currently many foundations that ask for performance data in their grant proposals, while very few of these actually give grants for measuring performance and evaluation. Sheila added that since not all nonprofit partners can provide outcome information in a cost-effective manner, the initial selection of performance indicators should be based on feasible and currently available indicators. The funders should talk to content experts to understand what indicators these nonprofits can feasibly measure while simultaneously supporting nonprofits to build capacity to evaluate their own impact.

All in all, the conversation brought to light the need to emphasize the role of funders in directing the flow of resources in a social impact market. The market approach pushes beyond collaboration as it allows a clearer way to allocate limited resources. As Sheila stated, funders need to move away from loose collaboration with individual areas of focus and a lack of sharing practices and knowledge toward strategic alignment that incentivizes performance and builds capacity.

A Social Impact Bond or a Pay-for-Success bond is an investment model where the government enters into a contracting position with an intermediary that raises private funds to finance the operations of nonprofits driving social impact. It is at this intersection where performance measurement becomes relevant. The government will pay the investment back with returns ONLY if the nonprofit in question delivers the pre-defined objectives (as judged by an independent evaluator). Therefore the government’s biggest incentives in engaging in this model are the limited liability it takes on and the fact that no tax dollars are wasted on programs that don’t generate government savings. Thus, the government is accelerating the adoption of new approaches while shifting the burden of risk on to private investors. As Jeff mentioned in the panel, this system also builds “evaluation into the DNA” of the government because funding can now be directed to those organizations that have proven to be successful.

On the other hand, philanthropy through SIBs is taking the form of a private sector instrument because these bonds are now seen as investments, with a tax treatment that is no longer under charitable contribution. In this model it is private philanthropists who are the investors providing funds to finance the operations of collaborating nonprofits and who can expect to see real capital gain or loss depending on the performance of the nonprofit. What do these returns look like? According to Tracy, although it’s too early in the US model to be able to throw out a concrete number, the UK recidivism model saw returns in the range of 2 – 13% net IRR after recidivism was lowered to a certain pre-defined threshold. As expected, the investors were mostly philanthropically motivated private foundations using a portfolio outside its grant-making corpus.

In simplest terms, the SIB or “pay for success” model rewards proven innovations while simultaneously allowing investors to get more social impact out of every dollar. However, the discussion raised a few clarifying questions and potential caveats about the implementation of this model. For example, what kind of nonprofit organizations are suitable to use this tool and what challenges will they face? Additionally, given how much resources will be required for the implementation is this the best way to utilize our already limited resources?

In talking to Jeff and Tracy about how SIBs will impact nonprofits, I understood that the organization ideal to work within this model will have an organizational structure with proven success, experience with measuring impact and the ability to scale. However more importantly, the SIB model would require not one single nonprofit but rather a network of nonprofits providing a multitude services.  For example in the UK SIB model working to reduce recidivism, there was a team of NGOs providing a range of services starting from finding jobs for the prisoners to working with their families. The objective is not to provide one service better but to stabilize lives, which in turn requires collaboration.  Therefore, this is not an easy model to pilot, let alone scale.

Additionally, Jeff noted that SIBs are not ideal for services with a high cost-benefit ratio. This model is not the right way to fund a majority of social services and is instead more suitable for services where the benefit-cost ratio is 2 and that deliver a high return on investments while having outcomes that are measurable. Finally, these programs should also be supplementary to a larger program or have safeguards against failure so that there would be no huge impact if the program fails.

The SIB model presents certain challenges to nonprofits themselves. Lisa from My Life My Choice raised the question of validity in impact assessment and performance measurement. With the amount of ambiguity shrouding the progress in social impact, who decides which results are valid and what do good outcomes look like for organizations like MLMC? Furthermore, since the effectiveness of the SIB model depends on the amount of government savings the proven nonprofit can generate, there needs to be better definition as to how existing efficiencies are being recaptured. Using the example of Medicaid, Joe Finn from the Massachusetts Housing and Shelter Alliance asked when a program is proven to have created certain efficiencies, how willing were people going to be to provide a financial return to philanthropic investors and how much?

Another growing concern among nonprofits is whether the SIB would cannibalize current grant making activities and further limit the already scarce resources available and where does the idea of reduced risk becomes reduced responsibility on the part of the government? Tracy responded by saying that both foundations and individuals are looking at SIBs as investments. Positive returns on SIBs will constitute long-term capital gain and is a different tax treatment from a charitable deduction. Hence, SIBs are no longer a segment of philanthropy and belong to a different source of money. In fact from the evidence gathered from the UK model, it seems that foundations have been leveraging a pool of money that is outside the grant portfolio; thus introducing a new pathway for NGOs to access capital to fund and scale their work while generating future recoverable government savings.

Given all this, I wondered whether this was a good allocation of resources to get government in a better contracting position with nonprofits? The answer, so far, is yes – because the incentives are in the right places. Firstly, it provides an incentive to government to allocate social service dollars through performance measurement checks with minimal risk. Secondly, it creates an incentive for organizations to measure outcomes because in a few years there will be evidence that program evaluation can in fact attract significant funding.  Lastly, it creates an incentive for private investors to allocate their resources and now receive a nominal return.

SIB’s are creating conversations between government and nonprofits that in the past have been difficult to get going.  Despite the uphill battle to get SIB’s off the ground, this tool has many positive implications beyond just the goal of doing more with less.

Illustration: Shannon May

What will it take to ensure that resources – not only money, but also in-kind donations, volunteer time, and partnerships – go to the organizations that are best positioned to create social impact? One key factor, I believe, is the emergence of a new generation of philanthropists – social impact investors, we might call them – who prioritize using information about nonprofit performance to guide their decisions. We need these leaders to help change the current culture of nonprofit giving in the United States. The challenge is that donors – whether they are foundations, individuals, or government agencies – often do not have the information they need to ensure that their resources are going to organizations with promising new ideas or proven, high-performing solutions.  As a result, too often, money flows to organizations based on existing relationships or aspirational mission statements, rather than a clear understanding of the outcomes that an organization is seeking to achieve and the results that it has already demonstrated.

On Tuesday night, Root Cause hosted its 7^th annual Social Innovation Forum showcase event, which provided a glimpse of what this new generation of philanthropists will look like. The event, modeled after private-sector venture capital forums, featured six Boston-area nonprofits , identified through a rigorous selection process, as up-and-coming organizations with promising new approaches in the areas of workforce development, obesity prevention, healthy aging, homelessness, empowering women and girls, and youth development through the arts. Local foundation leaders and individual donors attended to hear the organizations pitch their approaches, with an emphasis on their performance to date, and the resources they need to increase that performance and spread their ideas.

These leaders’ responses were enthusiastic. During the event, we asked attendees to commit some resource, be it a new connection, an in-kind or monetary donation, or a date to meet for coffee, to one or two of the organizations they found most interesting. Root Cause then collected these commitments and posted numerous examples through the #sif2010 hashtag on Twitter. These resources, I believe, will help these promising nonprofits creating lasting social impact for Boston’s residents.

Looking ahead, as we work to create a vibrant social impact market that fosters social innovation and directs resources based on performance, we will need more of these philanthropic leaders who demand information about performance and are ready to direct resources to those organizations with the most promising and proven approaches.

While I absolutely hear your points, I remain committed to my claim that Ms. Rhee is a public innovator. The D.C. public schools are notorious for failing to prepare their students for success. The study that Richard cited in his comment notes that D.C. students scored lower than students in most other urban districts on a nationally administered test; in addition, D.C. students have historically fallen far behind the average of their peers nationally in terms of high school graduation and post-secondary graduation, and have been much more likely to be unemployed. When one considers that D.C. spends more than all but two states per student on public education, and nearly $5,000 more per year than the national average, these shortcomings seem even more poignant; it seems clear that D.C. hasn’t had anything like an ‘invest in what works’ mindset in the past that could benefit students. Students and parents have begun to flow out of the school system, presumably because they were fed up with the status quo, and into charter schools and other types of schools. Given this information, and the state of affairs when Ms. Rhee was named chancellor, it seems hard to imagine that she could really do more damage to students on a macro scale than has already been done. For decades, children have received atrociously sub-par education in the DCPS, and their parents have often lacked recourse to address the situation. Michelle Rhee decided that somebody had to do something about it.

After years of failure at DCPS, it seems the least we can do is give her a full chance to demonstrate the value of her decisions. It’s extremely challenging to assess impact on social issues, as we all know, and expecting her to have turned around the lumbering ship of public education in less than three years is, frankly, unreasonable.

While I am certainly not asserting that her approach is perfect or even close to proven yet, the fact that she is putting a stake in the ground about the dire need to do things differently makes me want to hang on and see what comes out of it. Innovation drives change; it’s what this country is built on! No, the strategy and implementation plans are not fully in place, and yes, she has burned many bridges with her tactics. Nevertheless, it seems that without such a radical approach, change on any notable scale would probably be impossible to achieve. The option of continuing with the schools as they were would have been, to me, the work of yet another government official who tiptoed around the edges until her tenure was complete. While we wait for more evidence of results, we should see if she continues to refine her thinking in any way. A big part of successful social innovation is continuous improvement, informed by data.

I hope that Michelle Rhee continues to improve her practices and further adopt the principles of public innovation. For now though, I think she is someone we can look to as we consider how to break with inherited traditions of bureaucratic inertia and move toward thinking about government as a catalyst for and investor in finding and supporting solutions that work.

The ‘measurement movement’ is not new – some might say it started well over a decade ago when the logic model came into fashion. What’s new today is that many different stakeholders are simultaneously bringing their perspectives, models, and ideas for requirements to the table. And so, while in the past it may have theoretically been possible to determine the right decisions “by gut” and to raise resources with just good stories and talented development staff, I believe that era is now behind us. It’s now or never that nonprofit organizations and the sector as a whole have the opportunity to take performance measurement seriously – it’s what will drive continuous improvement, allow for the sharing of knowledge that benefits social problem solving across sectors, and ensure the sustainability of efforts that work when proven impact is rewarded by investment. In short, coherent, collaborative performance measurement could be the key to finally enabling the nonprofit sector to fulfill its promise of systemic change on our most pressing social problems.

With all of the information that’s out there ranging from advice on how best to report overhead ratios to how to put out an RFP for a randomized control trial, it can be challenging for nonprofits to figure out where what they need to do and how to get started. I’d like to offer a simple framework for how to think about whether your organization is ready to build an internal performance measurement system. I believe that such systems are the core action that nonprofits can take to ensure that they measure their work in a way that continually identifies opportunities for improvement while demonstrating their commitment to developing a proven model to funders. Only after working within the framework of an internal performance measurement system for some time can a nonprofit move to more elaborate evaluation studies.

The following excerpt is drawn from the How-to Guide we’re releasing today at Root Cause, Building a Performance Measurement System: Using Data to Accelerate Social Impact.

MAKING A COMMITMENT: WHAT TO CONSIDER BEFORE YOU START

Performance measurement provides crucial information to help organizations dedicated to social impact assess their efficiency, sustainability, and progress toward achieving their missions. And while we believe that performance measurement is an essential and accessible tool for any organization, it is important to understand the commitment it requires. The organizations that benefit the most from performance measurement typically have the following commitments in place before they get started A commitment to…

• Employ knowledge drawn from your data to drive decision-making:
  Your organization, particularly senior leadership, must commit to examine results critically and learn from them. Building a performance measurement system will not be worth the effort unless you take action as opportunities for improvement are identified.
• Devote staff time to build the performance measurement system and oversee performance measurement once the planning process has ended:
  Think about the resources required for planning and implementing a performance measurement system. The initial development phase may require a few weeks to several months, depending on the size and complexity of your organization. You will need at least one staff person to devote a portion of his or her time to leading the effort and several others at multiple organizational levels to contribute to the overall design, develop measurement tools, and put processes in place. Once you have developed the performance measurement system, we recommend assigning responsibility to a senior staff member to ensure the system is maintained. We also recommend assigning a group of staff members, including leadership, the responsibility for regularly reviewing your data, drawing conclusions, and ensuring that the lessons learned inform future decision-making.
• Agree on the organization’s mission and vision of success:
  It is important to have a clear sense of your mission before getting started. We also suggest articulating a vision of success, which describes what the world will look like if your organization succeeds in its work, to help guide the process of choosing what to measure.

Once you can make these commitments, performance measurement will become a key to your success, perhaps even your survival. And it doesn’t have to be complicated or overwhelming.

We hope you’ll find the book hands-on and extremely practical; that’s why we wrote it. We’re also launching a new section of our website today that is dedicated to performance measurement. On this new mini-site, you’ll find templates to get you started, a conversation about the topic, key terms, resources, and even a Twitter feed of the conversation on performance measurement (#perfmeas). Hopefully, we can further the conversation about performance measurement, and through that conversation work together to improve the effectiveness of social problem solving.

The trouble with randomized control trials is that they are extremely expensive to carry out and so only the more developed and/or the best able to access resources participate. Most nonprofits struggle with finding the funds for general operations, let alone conducting an RCT.

So, we are stuck between encouraging social innovation and the strong desire to invest in what works. I believe we need to develop a spectrum that links an organization’s stage of development, with measurement requirements, to levels of investment. The stages could look something like this:

The Social Impact Measurement Spectrum

• Stage 1, Start-up: At the earliest stage, start-ups with promising ideas could receive minimal support in exchange for a commitment to developing and tracking an initial set of measures that align with standards in the organization’s field.
• Stage 2, Proof of concept: At the next stage, the organization would have a simple, internally driven performance measurement system, which would drive internal continuous improvements while generating initial data on the impact of the organization’s model. Funding would be increased to match the increased rigor of the organization’s measurement, but it would still be far less than that given to organizations at later stages.
• Stage 3, Promising, not proven: At this stage, organizations would be required to operate a full performance measurement system that is integrated with their business models and publicly share the results. They may also do an external evaluation at this stage to further elucidate their impact.
• Stage 4, Spread of proven model: This final stage would occur when an organization has conducted an RCT study with positive results. They would be able to receive substantial investment in exchange for a commitment to share the details of their model so it may spread and others can learn and adopt the organization’s successful practices. The Coalition for Evidence Based Policy is building a site that will identify those social interventions shown in rigorous studies to produce sizable, sustained benefits to participants and/or society.

A spectrum like this would do a few important things. It would provide a framework that would inform how a social innovation might spread, what kind of measurement system an organization should develop overtime, and, lastly, the size of funding an organization might expect as an innovation moves towards greater proven social impact.

• The Pop!Tech blog has great summaries of different sessions during Day 1 and Day 2, all of which are quite interesting.  If you’d like to learn specifically about Sonal Shah’s keynote and the panel discussion I participated in on “Social Innovation and the Administration,” click here. We talked a lot about cross-sector partnerships, finding champions in government, and using tools and data to find and support what works: the most effective solutions to social problems.
• SOCAP has posted a number of interviews with participants on their YouTube channel.
• The Chronicle of Philanthropy Online has a Conference Notebook on SOCAP09 on their site, which includes digests of a few sessions, as well as some audio interviews.
• Beth Kanter did a great roundup of some of the sessions she attended and interviews she did on her blog.
• Sean Stannard-Stockton blogged about his impressions of SOCAP09 and how the conversations that took place there represent an “unconstrained” approach to philanthropy and social impact.
• Susie Lee blogged about the Social Capital Spectrum at Next Billion.

What else are you reading about SOCAP09?

Along those lines, a short time ago, Aspen invited me to a convening entitled “Barriers to Impact and Innovation: The Power of Statistical Data on the Nonprofit Sector.” I believe data may be the most critical issue for the Office of Social Innovation to prioritize.  If we are going to strive to advance a social innovation agenda…if we are going to invest in what works…we need to get a better handle on data − how we collect it, how we report it, and how we use it. Unfortunately, after attending the Aspen convening, I am more convinced than ever that we are not very good at any of these aspects of data right now.

The  Mott Foundation sponsored the recent Aspen gathering, which brought together an  excellent cross-section of people to discuss data. They included: Lester Salamon from Johns Hopkins University, who has been reporting on nonprofit data for decades; Rick Clayton and David Hiles from the U.S. Bureau of Labor Statistics; Darin McKeever from the Gates Foundation; Richard McGahey from the Ford Foundation; and Bob Ottenhoff, President and CEO of Guidestar, to name a few.

The discussion brought forth a mix of opinions about what the real data issues are. Clearly, more questions than answers exist.  My own conclusion for the near-term  is that we should break down the data issue into two fundamental challenges that we should tackle separately and collectively.

The “first challenge” is the better use of current data, including how and what we collect − something about which Lester Salamon and people from the Bureau of Labor Statistics had much to say. A great deal of data already exists from various agencies and surveys conducted, including the census. This data is waiting to be analyzed and reported, but we need the will to tap it. While it is no small task in terms of labor, it actually is not that complicated − at least according to Salamon.

The far more complex “second challenge” is the need to develop some type of taxonomy that lets us drive performance based on agreed-upon indicators for different social issues. Currently, we are judging performance based primarily on financial data, often reported on the IRS form 990. But this has no direct connection to the mission for which an organization originally applied to receive its 501c3 tax designation. All too often,  financial reporting is just “funny accounting” to make an organization look as though a majority of its money is going into direct programs.  Such a taxonomy does exist for the private sector. In fact, representatives of the private sector financial market have been meeting for almost a decade on developing a taxonomy standard in a consortium called RIXML.

If we are going to make real progress on the many societal challenges we face, it will be essential to work on both of these challenges. Without such progress, how will we ever know what really works?

Photo: http://www.flickr.com/photos/myklroventine/ / CC BY 2.0