Is Pay for Success a forcing mechanism that can make Collective Impact tables work?

As discussions about Pay For Success and Collective Impact take place at The White House today, we’re looking back at question that Eileen Neely, Director of Capital Innovation at Living Cities, posed earlier this year: ‘Is Pay For Success Collective Impact?’ This Throwback Thursday post originally appeared on May 6, 2014.

When I joined Living Cities almost a year and a half ago I was introduced to the concept of “Collective Impact”. It took me a while to understand what made it different from simply working together. Recently my colleague Tynesia Boyea-Robinson made it easy for me to (finally) understand (I think). If you are confused like I was, you should read her blog (written in plain English).

There are three things in tandem that make Collective Impact “innovative”.

1. A cross-sector partnership of both decision-makers and doers who

2. Have agreed to hold each other accountable to achieve a shared goal; and

3. Developed a feedback loop that tells them if they are on or off track.

When I read the above “requirements” of Collective Impact, I think of Pay for Success, an emergent and innovative financing and government contracting model that raises funds from private investors to pay for the provision of a service upfront and obligates government to pay for those services only if they achieve agreed-upon social outcomes within a specific timeframe . And I’ve been wondering, is Pay for Success a forcing mechanism that can make Collective Impact tables work?

Let me make this more tangible using the Massachusetts Juvenile Justice Pay for Success project.

1) Cross-sector partnership of both decision-makers and doers? The Massachusetts project has this one covered.

  • Public sector: the Commonwealth of Massachusetts lead this project from the start with participants at the Secretary level and at the staff level.
  • Philanthropy: Multiple foundations participated in this project as both grantors and lenders.
  • Private sector: As the largest investor, Goldman Sachs has been an active participant in this cross sector partnership.
  • Non-profit: Roca is a non-profit that helps young men who are or have been involved with the justice system break the cycle of reoffending by increasing workforce participation and job readiness.
  • Backbone organization: Third Sector led negotiations with the government; finalized contracts around impact, economic, and legal feasibility; brought the investor capital together to finance the project; and will continue to serve as project manager throughout the life of the project.
  • Evaluator: Sibalytics is an independent evaluation firm that is running the Randomized Control Trial (RCT) for the project. Sibalytics will track the outcomes of the young men in both the treatment group and the control group and report on outcomes.

2a) Shared Goal? Not only is there a shared goal in the Massachusetts initiative but it’s clearly articulated – Reduce recidivism and increase employment for high-risk young men coming out of the juvenile justice system or on adult probation.

** 2b) Way to hold the partnership accountable?** Maybe it’s my bias as an economist, but financial incentives are a great way to hold people accountable. Everyone involved in the Massachusetts project has “skin in the game” and a vested interest to see the project succeed. Implementations of a complex policy solution is as intense and hard as constructing and closing the initiative; the shared goal and financial incentives are keeping everyone engaged and at the table as implementation gets underway and moves forward.

3) Feedback loop? Roca brought this into the project with them. One of the things Living Cities as an investor found compelling about this transaction was Roca’s long data-driven operating model. They have been a learning organization for years and they brought that discipline with them to this project. What was once a way for Roca to know whether they were on track and tweak processes and/or change directions if they weren’t has become integral to the operations of this Pay for Success “Collective Impact table”.

A lot of attention has been paid to the Pay for Success financial transactions, but I think if we look at the way the Pay for Success cross-sector partnerships are behaving we’ll universally see the elements of Collective Impact. There is still much to be learned in watching as the Pay for Success projects make progress toward achieving their shared goals.