In his guest post, John MacIntosh of SeaChange Capital Partners made an important point:
The tools for evaluating for “impact” and “performance” come from different disciplines. “Impact” is a concept from social science where ideally we define the treatment, develop measures of impact (wages, employment rates, test scores, etc.), identify a comparison or control group, worry about selection and omitted variable biases, organize for large Ns, and hope for p-values above 2.0!
“Performance” is about leadership, culture, management information systems, accounting, unrestricted net assets, opportunities for donor engagement, and the like. Few people I have met are equally comfortable in these two domains; very, very few are masters of both.
I would argue that philanthropic institutions are currently geared towards thinking of themselves as impact researchers instead of performance investors. As I’ve tried to make clear, the goal is the same. Both disciplines are needed. A high performance organization that implements ineffective, poorly researched programs will fail to achieve impact. A poorly performing organization that tries to implement proven programs will fail to deliver them with fidelity and/or fail to grow.
But what would happen if funders thought of themselves primarily as performance investors and relied on a mix of internal, external and independent researchers to prove program effectiveness?
I think we’d finally be able to lay real claim to the idea that we are social investors. Calling a grant an “investment” would no longer be just the trendy way to describe what’s always been done. Grants truly would be investments because they would come in reaction to the capital needs of high performance organizations.
Remember the guest post by Kathleen Enright, the head of Grantmakers for Effective Organizations, during the Council on Foundations conference? It was titled The Need for Speed and reflected on the urgency of solving some of our most pressing problems:
This theme of speed and urgency reminded me of an observation that Ami Dar made when he spoke at the GEO/NFF Money Matters conference. He observed that whenever he’s in foundation offices, he never sees anyone walking quickly. The comment drew laughter from the crowd, but the point is an important one.
We need to start asking ourselves what it will take to infuse the kind of urgency in our own work. As it stands, our current modes of operating may get in the way of our ability to play an important role in solving our most pressing problems.
But speed isn’t always a good attribute. I certainly wouldn’t want someone researching the long term effect of multisystemic therapy on youth with behavioral issues to “rush” the study. I wouldn’t want to go into a social science research outfit and find people running down the halls. But investors do appropriately move at high speed. The timing of delivering capital is critical. If an organization needs money today, 9 months from now might not work.
Interestingly, for-profit capital providers work under this model. The vast majority of them focus on understanding companies. The definitely consider whether a company’s products and services “are effective,” but the best investors (like Warren Buffett) tend to assume that the company’s management knows what they are doing and trusts them to make the right decisions about whether to change their product mix or not.
These for-profit capital providers also depend on outside researchers at universities, independent consultants and firms with specialized expertise in areas like retail or biotechnology. The model does not downgrade the importance of academic research or systematic evaluation. It just asks the capital providers to play the role of investor instead of researcher and positions the role of researcher in the hands of other players in the system.
To be clear, there are also specialized for-profit investors who focus on only one niche market (oil and gas companies or media companies for instance). These groups do hire researchers and it is their industry expertise that sets them apart rather than their company evaluation process.
I’ve often heard people say that philanthropy is the research and development (R&D) of the social sector. But I wonder if that is wrong. Maybe we have a different role to play. Maybe we don’t have to invent anything. Maybe we just need to be social investors, providing capital to the most promising nonprofit organizations.
In a comment yesterday, reader Hildy Gottlieb worried that I was pushing a system “of rewards” where “funders decide from the top down what is best for a whole community".” But I actually think that my model aligns the interests of funders and grantees because suddenly rather than directing nonprofits to try different interventions and dangling money with the requirement it be used to the funders satisfaction, funders become deeply interested in providing capital in a way that best helps a nonprofit build a strong organization. In addition, we know from the for-profit market that while capital providers hold the power over early stage companies, it ends up being the investors who chase the highest performing companies and compete for the opportunity to provide them capital.
Nonprofits aren’t laboratories for funders to experiment in. The best are high performing social good generators. It is the job of funders to be the best at finding these organizations and helping them grow. We should take pride not in designing programs, but in being the smartest funder who always seems to find the best nonprofits before anyone else and whose portfolio of grantees thrive and change the world.