5 ways outcomes contracts change you

Outcomes contracting improves how social organisations operate, how they use data, and how they think about performance.

Over the years I’ve worked on a few outcomes funded projects (a.k.a. Social Impact Bonds) and I’ve seen how much they can positively change an organisation and the way it thinks about service design and outcomes. We are about to start another outcomes funded project, so it’s a good opportunity to share some of those lessons.

This piece isn’t about the merits or otherwise of Social Impact Bonds, it’s more about what changes inside an organisation when service contracts are clearly aligned around achieving outcomes. There is a case to be made that the cultural, capability and systems changes that occur within an organisation are more important than the program itself in the long term. I’ve seen organisations use outcomes funding to do better - to focus on results, accelerate learning and innovation, and improve performance and accountability.

1. Mission matters but incentives might matter more

Every social organisation has a mission and vision that summarises how it wants to change the world. Mission matters if it’s used as a touchstone for important decisions rather than just a marketing tool. Those shared values matter to getting staff working together and trusting each other. Most social organisations are pretty strong on the mission and motivation side. But outcomes funded projects demonstrate that incentives also matter. Think about a teacher who knows they should spend more time on supporting a particular group of learners in their class. But if this conflicts with the top-down requirement to teach to a specific curriculum in a certain time period, that teacher will often be forced to ignore what works and comply with the curriculum requirements. If the incentives (job requirements, payment structures, management pressure) push against the mission, it’s often the mission that gets pushed aside because there aren’t clear ways to measure or incentivise it. We need more focus overall in the social sector on getting the service contracts, financial incentives, measurable goals and systems to better align with the mission.

2. Budgets and financial management need flexibility

Outcomes funded projects, when well-designed, enable the service provider to more flexibly adjust budgets over the course of a program. So if they find certain parts of the service model are over-serviced they can reallocate those funds to under-serviced or vulnerable parts of the service. Traditional service contracting locks providers into the specifics they included in their proposal (with the understandable intent to ensure value for money on the part of the commissioner), which often means time and money are spent in an inefficient (and therefore less effective) way for the budget. When we focus on outcomes for a given overall budget, and allow experienced managers to make evidence-based resource allocation decisions, we can significantly improve value for money over time.

The social sector should be advocating to funders to add more flexibility into budgets, including reserving money for innovation and quality not just service delivery.

3. Data can turn from burden to booster

For many frontline workers, data is a dirty word - it means extra burdens on collecting information for funders that they never see or use, and it becomes a time burden with no benefit on the ground. In outcomes contracts, because the core program outcome is a ‘payable measure’, there is more focus on collecting the data that proves the outcomes - not just at the end of the program but all along the way. A well-designed performance system also collects early warning indicators that help staff head off problems before they affect outcomes, and keep everyone on track. When data is live, relevant and useful and fed back to frontline and management staff when it’s needed, then it becomes a useful tool rather than just a data collection burden. Program managers should select one or two key ‘lighthouse’ outcome metrics for the team and rally around these (even if the funder doesn’t ask for that).

4. Complex programs need a performance system not just a service model

One surprising impact of outcomes funding is how it galvanises teams to perform better. In traditionally funded programs, there may be a KPI in the contract, but it may be poorly designed, ignored or not relevant to frontline staff. Once everyone has a clear well-measured outcome, the desire to perform well is in everyone’s interests (the participant, the staff who care about the participant, the management and the funder). It’s easier to talk seriously about what performance looks like, how to improve it, how to use data to get better outcomes, how to track what’s been done and what works at a nuanced level. A Performance System should be built for any complex program that links the outcomes and other data, the practice manual, the continuous learning and the needs of participants to improve outcomes.

5. Fidelity to model requires ‘tight’ and ‘loose’ elements balanced

Once a program is well-proven, the natural question is how to ensure that service model is delivered with fidelity across teams, partners and even to new places and organisations. How do you ensure staff deliver the core elements for success (what we call the ‘magic sauce’), but still are free enough to adapt the service to the uniqueness of each individual? There is an unhelpful debate that can arise between the ‘individualists’ (everyone’s unique so services need to be unique to them) and the ‘universalists’ (we have good evidence about best practice so everyone should get those services). Our view is that the core of the program does need to adhere to a more universalist approach - otherwise service quality and outcomes can vary too much and there is no unique service model that is replicable. But at the same time, we need systems that enable practitioners to learn from specific case applications and accelerate their learning and ability to adapt services. That’s something we’ve been working on at ShareCraft in our Practice Journey toolset, and it’s a delicate balance to get it right. Organisations should document the core ‘universal’ elements of your service model but also allow for managed adaptation along an ‘individualist’ model and iterate to get the balance right.