Lessons learned from US shift to outcomes

The shift to funding for outcomes is on its way, but the next stage needs to focus on lower costs and more collaborative outcomes partnerships between social service organisations and government commissioners, write Dale Renner and Russ Wood from Latitude Network.

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.

Here are some of the key lessons we learned:

• 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.

• Social impact bonds have been a useful tool to kickstart the outcomes revolution, but they 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.

• 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. Its 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 (eg 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.

• Government needs to collaborate with providers to better procure around 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 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. 

Our visit to the Massachusetts Department of Transitional Assistance in Boston revealed a forward-thinking government department that is fighting the internal bureaucratic battles 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. 

This is not an easy journey and there are plenty of pitfalls and challenges for government and the social sector which will need strong guidance and support from others. 

With our friends at leading intermediary organisations such as Third Sector Capital Partners and the Harvard Kennedy School Government Performance Lab, these outcomes-based procurement and contract management systems have great potential to deliver improved social impact.

Thanks to John Barrett, YSAS; Kath Brackett, Brimbank City Council; Simone Gianelli, Save the Children Australia; and Wayne Merritt, Melbourne City Mission for their help with this article.

About the authors: Dale Renner is an experienced consultant in strategy, innovation and marketing, working on outcomes-based social sector projects. He has advised senior managers on addressing difficult problems in sectors including social services, health, education, government, energy and finance. His background includes degrees in Law and Economics and work as a lawyer, marketer, management consultant and design strategist.

Russ Wood has expertise in social policy, governance and social finance, and is passionate about addressing intergenerational disadvantage. He has experience as a ministerial advisor in federal and state governments, as an executive in the social sector, in local government, a startup and in property management. He has an MBA from the University of Melbourne.