Rob Koczkar, SVA CEO, describes how we can achieve improved social outcomes by better capital investment for social purpose and applying business disciplines to increase the sector’s efficiency and effectiveness. Most notably improved availability and use of data.

Based on a presentation to a Community for Economic Development Australia (CEDA) Forum on ending entrenched disadvantage in Australia.

Rob Koczkar believes that it’s time to ’break the mould’ of service delivery.

Capital and failure are two words we don’t often hear together in the social purpose sector.

This article addresses capital and the investment it allows to take place in our sector. However, at the outset, I want you to think about the failure and the price of that failure.

When we as a sector are less than our effective best, it’s not we who suffer. It’s the 1.5 million Australians living in entrenched disadvantage that the CEDA report (Addressing entrenched disadvantage in Australia) so disturbingly describes.

When we fail, people who put their faith in us, people challenged daily by issues on the edge of life, without the help, without the community support, without the resources that capital can provide, are the ones who suffer.

We must not fail; we must find better and more effective ways to work in the social purpose sector.

Capital supports this process by funding innovation, fostering replication and later providing the financial resources required to expand to scale.

I believe that it’s time to ’break the mould’ of service delivery. We can achieve better social outcomes if we learn to better utilise capital investment for social purpose and apply some of the same disciplines used in business to increase the efficiency and effectiveness of the sector.

In business we see development follows a logical, sequential process:

1. Innovate and test
2. Replicate
3. Expand to scale

Capital supports this process by funding innovation, fostering replication and later providing the financial resources required to expand to scale. If this same process were applied more often in the social sector I believe it would lead to the allocation of resources to programs that are achieving real, positive outcomes in the community. What is working would be funded, and where we need to transition from less effective programs, we would make those choices on an informed basis.

SVA has supported social innovation since we began, and has supported this ‘business like’ approach to achieving outcomes with our venture partners, to ensure that the success we see in the organisations we support is delivered to more people in need in Australia.

There are two critical enablers:

• Access to capital; and
• Access to the right information and data (as CEDA flagged in its report).

In the emerging impact investing market SVA is not seeing a shortage of capital.

Australia’s first social impact bond (SIB) developed by SVA and UnitingCare Burnside in partnership with the New South Wales Government (see Pinning benefits bonds down) was over-subscribed and closed a month early. We continue to have conversations with superannuation funds and other institutional investors that are eager to allocate capital to impact investing.

In relation to information though, the situation is different.

It’s worth reflecting on how data enables commercial entrepreneurs to develop their ideas and grow their businesses. Ready access to the right information helps shape business models, provides parameters for risk and return, and gives funders confidence in the investment they are choosing to make. That type of information just isn’t consistently and easily available in social purpose sector.

How can we shape program design, assess risks and social return, and give funders confidence in their community investment if we don’t have the right information?

1.  Innovating and testing

For entrepreneurs to innovate and test ideas in the social purpose sector, we need access to the sort of information that is available in the business world.

Aussie Home Loans (Aussie) is a business story that highlights how an entrepreneur can effectively deliver a new product to the market.

John Symond AM, Aussie Founder and Executive Chairman, recognised that he could offer home loans to Australians at a lower rate than the big four banks. Utilising securitisation, Aussie was able to offer cheaper home loans than the banks. This innovation led to a complete shift in the market, and changed the nature of how banks and other institutions funded home loans.

However, without knowing what the banks charged for home loans, Symond would not have known his model would be competitive and his investors would not have had confidence to provide seed capital. He had ready access to information that enabled him to develop a competitive funding and service model. He also had access to capital that funded this successful innovation to expand to scale.

The result – millions of everyday Australians today benefit from better, cheaper mortgages in a more efficient mortgage market.

By comparison, in the social sector there’s little data to allow us to compare alternative programs or their impact, and this limits our ability to develop effective solutions.

Overseas, there are examples of real innovation in data-sharing.

In the UK, the Government has created a ‘Unit cost database’ and publishes the cost of particular social outcomes; for example the cost to government of the support provided to someone sleeping rough. While unit costs for some social outcomes are published in Australia, the data is fragmented.

Access to linked government information and data from the sector is critical to understanding the drivers of, and the creation of better solutions…

A unit cost database or similar resource could change the evidence equation for social entrepreneurs like Rebecca Scott at STREAT in Melbourne. STREAT is a social enterprise providing homeless youth with a pathway to stable employment in hospitality. It uses its five cafes, catering and coffee roasting businesses as training venues.

The outcomes STREAT delivers don’t align neatly with one government department definition. STREAT should have the capacity to access capital to replicate the real success they have creating employment pathways for young people who are homeless, or at risk of homelessness and long term unemployment. (See STREAT’s ahead: funding social impact with equity.) The positive impact on the lives of the young people that STREAT serves is profound, but because those benefits cut across many parts of government we all struggle to understand the value of the STREAT program compared to the current alternatives.

Another organisation which has to carry the burden of proving the value of what it does is CareerTrackers which creates private sector internship opportunities for Indigenous university students. A small organisation like CareerTrackers working at the leading edge of social change should not be burdened with funding research to provide counter-factual evidence to demonstrate the difference its program makes – especially when government could readily provide this data.

Access to linked government information and data from the sector is critical to understanding the drivers of, and the creation of better solutions to, the intertwined challenges disadvantaged people face across education, housing, mental health and many other social issues.

2.  Replicate

In all markets, there are early adopters who create the case for replication of new innovations. In the social purpose sector government must act as the early adopter by contracting with social purpose organisations to replicate tested programs.

UnitingCare Burnside is an exceptional organisation that was willing and able to grow the successful Newpin program through the New South Wales Government’s Social Benefit Bond pilot. Newpin was a tested model that had robust measurement and evaluation in place. The program was ready to grow and secured the capital needed to replicate. The New South Wales Government was able to contract for social outcomes in a way that delivered financial returns to private investors linked to those social objectives.

If we are to see more replication of effective programs, then the market will need to rise to the challenge of accurately and consistently measuring outcomes.

It’s equally important that government supports the social purpose sector to create the capacity to undertake and be held accountable to more robust measurement and evaluation.

Data Labs is another promising innovation which has been piloted in the UK to address this. A Data Lab offers a low-cost way to improve understanding of service impact (see Data Labs: open up existing data). It enables comparison of the impact of different types of services and service providers in addressing social problems by using data already collected.

Even in situations where a service provider can collect the necessary data, services for evaluating causal impact typically cost around $100-$200k.

… government has to play that role [of early adopter] so that capital will flow to support replication of programs that work.

The UK pilot pioneered by New Philanthropy Capital (NPC) and the Ministry of Justice (MOJ) in 2013 provides access to client outcomes and a report on comparative impact for approximately $5k per program – a fraction of the cost of bespoke evaluation services.

The New South Wales Government is also taking some encouraging first steps sharing data and starting to make more information available to provide clear guidance on social issues it would like to address. These first steps are helping a number of organisations start down the road to replicating their successful programs.

In business, early adopters provide the signals for growth. In the social purpose sector, government has to play that role so that capital will flow to support replication of programs that work.

3.  Expansion to scale

If the tried and tested business development process is allowed to develop in the sector, there is no reason why effective social programs won’t be successful at scale.

The challenge is how we direct funding to the most effective solutions and help them to scale, replacing well intended but ultimately unsuccessful programs that simply don’t work.

Every day at SVA we see organisations like AIME, the Australian Indigenous Mentoring Experience, which has a proven track record and an ambitious goal to work with 10,000 young Indigenous people by 2018, so that they finish high school at the same or better rate than all Australian students. As Jack Manning Bancroft, the CEO says, that’s not just working on the issue, that’s taking it off the table altogether. And yet AIME and many other successful program providers struggle to access the funding they need to take their proven solution to scale.

Beacon Foundation (see A beacon for school-community partnerships) is another example of an organisation with an innovative and tested program, in its case working to achieve the social objective of ‘every young person being meaningfully engaged in their community by participating in work or learning’. Beacon has replicated the program, from four schools in Tasmania, to now have worked in over 200 schools nationally.

How do we support Beacon, and other successful social purpose organisations to scale their operations?

Ensuring the business development cycle is applied to the social sector will result in capital investment flowing…

One example of impact investing being used to both prove and then scale up an early childhood education program is a social impact bond in Utah in the US. The bond funds an intervention for disadvantaged children between three and four years old, many of whom have English as a second language. The program provides a curriculum designed to increase school readiness and academic performance. The expectation is that the preschool intervention will lead to fewer children needing special and remedial education throughout their primary school years, resulting in government savings which are used to fund outcome payments.

The initial investment of US$1m for the first cohort was to prove the concept before it was extended to a five year program – for a total investment of US$7m. This initiative is envisaged as the first phase in a larger US$20 million commitment by J.B. Pritzker, Goldman Sachs and other private investors to increase the availability of high-quality early childhood education while building a strong evidence base of success.

Ensuring the business development cycle is applied to the social sector will result in capital investment flowing to effective and efficient programs that achieve measurable outcomes.

The development model proven in the business world needs to be applied with genuine heart in the social purpose sector.

We must never lose sight, in this complex capital equation, that people are at the heart of everything that we do. Because the people who need us most – those who need the benefits that capital investment can provide in the sector – are the people who can least afford for us to fail.