Social Impact: Show Me The Money!

Andrew Young is the Chief Executive Officer of the Centre for Social Impact. In this article from the CSI blog, he explores the effective delivery of social outcomes.

OPINION: In my last two blogs I wrote about defining organisations and activities in terms of social outcomes, and effectively measuring and transparently reporting these outcomes.

As I concluded in Proof’s in the Pudding, to establish a functioning social outcomes market, we need one more thing: the willingness and ability of decision-makers and funders to reallocate limited resources towards more effective delivery.

Survival of the fittest

Consider this question: what determines which social purpose organisations prosper, and which either fail or fail to grow? Of course, the answer is access to funding. But what determines which organisations attract the most funding?

If our interest is maximising social impact, then a good answer to this question would be “the organisations that deliver the most outcomes,” or, better, “the organisations that deliver the most outcomes per dollar invested”.

In the world of social impact, we’d like to think that we encouraged survival of the fittest.

Or survival of the fattest?

Do we encourage survival of the fittest – the most effective delivery of social outcomes?

While the social impact space is much bigger than the Not-For-Profit (NFP) sector, consider NFP funding as an example. According to the Productivity Commission Report (2010), setting aside “self-generated income” (mostly fees for services), NFP funding in 2006-07 came from:

Government ($25.5bn; 66%)
Individuals and fundraising ($5.2bn; 13%)
Sponsorships ($1.1bn, 2.8%)
Donations from corporate and philanthropic trusts and foundations ($0.9bn; 2.3%)

How much of this funding is genuinely outcomes-based? Without putting too fine a point on it, I suspect the answer is “not very much”.

Clearly, government funding is a dominant component, and to understand what proportion of it is contingent on delivery of outcomes might take some investigation.

In my own experience, it’s generally more focused on activity and outputs, and I’ve not heard many prepared to argue differently. One of the big issues is the timeframe for most government funding – generally three years at most – and very often this funding is significantly risk-averse.

While there may be (increasing) exceptions, government funding usually does not encourage pursuit of innovation nor capacity-building for longer term outcomes.

What about fundraising income?

The great majority is raised through activities ranging from child sponsorships to “pink ribbon days” to sponsor-me-in-a-marathon activities. Most donors give either because someone asked them to, or because they feel affinity with the cause (and perhaps the pre-condition that they perceive that the recipient organisation is trustworthy).

Very few consider the effectiveness of the organisation in delivering outcomes. Even if they wanted to, they’d find accessing the data they need was extremely difficult (see my previous blog).

This leaves larger philanthropy, or “planned giving”, from philanthropic trusts, high-net-worth-individuals and corporate foundations.

The first problem here is that this funding is the small end of the wedge – contrary to popular perception, it is much less than five per cent of the total funding for NFPs. My observation is that at least a significant part of this funding is also unsophisticated with regards to outcomes.

Many of the philanthropic foundations fund tens or even hundreds of applications without deep knowledge of effectiveness. A recent review of grant making Australia’s largest foundations found that their average grant size in the past three years was of the order of $60,000. It’s not generally practical for a grantmaker to analyse the potential or proven effectiveness of the programs to be funded at this level. Even if they wanted to be more outcomes-focused, these funders also face a lack of suitable information on which to base their analysis.

In short, being good at fundraising or grant writing or government relations are necessary attributes for financial sustainability and growth, rather than being effective at delivering social outcomes.

In other words, we encourage survival of the fattest rather than survival of the fittest.

Systemic misallocation

There’s a corollary to this observation. I’ve argued here that organisations that most effectively deliver outcomes may not be rewarded for doing so. But if we take a step further back, we can ask the bigger picture questions “How do we direct resources across a system? Do we effectively allocate resources to the right priorities?”

Here I’ll give an example from the health sector. I argue that if I gathered a roundtable of, say, 20 cancer experts, including one from paediatric cancer, and one from breast cancer, and asked the room to objectively determine the priorities for the next philanthropically contributed dollar, my guess is that the roundtable would answer (unanimously, if all the participants are honest) “anything, except paediatric or breast cancer.”

These two areas already attract a hugely disproportionate share of the donated dollar, in spite of the fact that the needs for research and services in many other areas are just as great.

However, such is the power of “pink” and the natural human response to a child in need, there’s a very good chance the next donated dollar is still going to go to either a paediatric or breast cancer cause.

Opportunity Lost

In summary, at a systemic level, I think we are collectively good neither at allocating resources to the most effective delivery of social outcomes, nor at directing resources to the right priorities in the first place. We don’t have a functioning market for the effective delivery of social outcomes.

I can’t quantify the cost of the opportunities we have lost. But I am confident that with the demographic changes Australia faces in the decades ahead, we can’t afford to keep operating this way in the future.