Stanford Social Innovation Review Fall 2014

Stanford Social Innovation Review

The Rise of Gender Capitalism

by Sarah Kaplan & Jackie Vanderbrug

The Next Stage of Financial Inclusion

by Dean Karlan

A New Vision for Funding Science

by Sarah Kearney, Fiona Murray, & Matthew Nordan

Fall2014 Volume 12, Number 4

Global Problem Solving Without the Globaloney / The Rise of Gender Capitalism / The Next Stage of Financial Inclusion / A New Vision for Funding Science

Global Problem Solving Without the Globaloney By Pankaj Ghemawat

It’s time to put an end to the “flat world” thinking that guides the work of all too many social change organizations.

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Fall 2014 / Vol. 12, No. 4

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Stanford Social Innovation Review / Fall 2014

Published by the Stanford Center on Philanthropy and Civil Society Fall 2014 / Volume 12, Number 4

F e at u r e s

28

Global Problem Solving Without the Globaloney

By Pankaj Ghemawat

Believing that the world is “flat,” many organizations attempt to solve pressing social and environmental problems on a global scale. All too often, these efforts flounder because the problems that seemed global in scope could have been more effectively solved at the regional, national, or even local level.

36

The Rise of Gender Capitalism

By Sarah Kaplan & Jackie VanderBrug

Investing with a gender lens can create financial and social impact by increasing women’s access to capital, promoting workplace equity, and creating products and services that ­improve the lives of women and girls.

O n t h e c o v e r : Illustration by Baier, Delcan, Jen, Munday, & Sons

42

The Next Stage of Financial Inclusion

By Dean Karlan

Nonprofit organizations led the way in developing microcredit offerings for the poor.

Then for-profit companies took over large swaths of that newly created market. Yet ­research on the needs and ­habits of the poor shows that nonprofits continue to serve a vital function when it comes to bringing financial services to those who need them most.

50

A New Vision for Funding Science

By Sarah Kearney, Fiona Murray, & Matthew Nordan

The gap between the lab and the field—between the work of scientific discovery and the achievement of social impact— has grown wider in recent years. So, not coincidentally, has the gap between philanthropic funding for universitybased research and venture funding for the commercialization of products and services.

But the emerging practice of philanthropic investment holds the potential to close this dual gap.

1

2

Stanford Social Innovation review / Fall 2014

, A future in which most people are micro-

entrepreneurs is not likely to be a bright one. ...

Hustling to survive in the sharing economy is as likely to be soul-crushing as not. From NO VALUE, P.69

D e Pa r t m e N t S

8

4

EDITOR’S NOTE SSIR ONLINE

5

New Online Features / The Limits of Measurement / A Complex Topic / Poles Apart / Juggling Act / Empowering Others to Tell Your Organization’s Story W H AT ’ S N E X T

8

When the “Doves” Fly / Cultivating a Neglected Field / Design for Cleaner Living / Built WELL FIELD REPORT

13 A Model of Health In Nepal, a US-based nonprofit is partnering with the national government to deliver full-service medical care in remote areas.

17

17 Mentor for America

Thanks to the New Teacher Center, beginning educators gain support that will help them thrive in a challenging profession.

BY SUZIe BOSS

57

65

VIEWPOINT

57 A Good Ending

RESEARCH

65 How Fair Trade Grew /

As Giving Goes Global / Social Work as a Social Wedge / The Stories That NGOs Tell

Leaders at the Atlantic Philanthropies are modeling best practices for winding down a large, high-profile foundation.

BY chrIStOPher G. OechSLI & DAvID LA PIAnA

CASE STUDY

20 From Petitions to Decisions

After Change.org opted to place petitions at the center of its platform, the size of its user base began to soar. But operating a high-volume petition site isn’t enough for its leaders. Now they aim to transform the site into a venue connecting those who want to change the world with those who run the world.

BY GreG BeAtO

BY cOreY BInnS

15 Substance

59 Rethinking Poverty

Recent discoveries in brain science shed light on what holds the poor back— and on how to help them get ahead.

BOOKS

69 No Value

Jeremy Rifkin’s The Zero Marginal Cost Society revIeW BY tIMOthY OGDen

70 Taking a

Charter Flight

BY eLISABeth D. BABcOcK

Richard Whitmire’s On the Rocketship

61 Get Rid of the Grid?

An emerging model that aims to reduce energy poverty holds real promise.

But it needs a jump-start.

revIeW BY cAtherIne DIMArtInO

71 A Guide to “Good” Investment

BY PePUKAYe BArDOUILLe & DIrK MUench

Judith Rodin and Margot Brandenburg’s The Power of Impact Investing

63 Equal Effort

Behind the recent advance of gay marriage rights lay a decade of careful planning and diligent collaboration.

BY SYLvIA Yee

revIeW BY cAthY cLArK

72

LAST LOOK

Over Style

An international design award based in Denmark celebrates products and projects that aim “to improve life.”

BY ALIcIA cLeGG

SPECIAL SUPPLEMENT Between pages 16 and 17

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4

Stanford Social Innovation Review / Fall 2014

Mission-Driven Business

W

hen Stanford Social Innovation Review was launched in 2003, one of our guiding principles was the belief that social innovations would arise (in part) from the creative crossing of boundaries by organizations from the nonprofit, for-profit, and government sectors.

Businesses and investors needed to find ways to incorporate a social mission in their strategy and operations, what some now call shared value. Nonprofits needed to find ways to adapt business approaches to solving social problems.

And government needed to refashion the way it worked with the for-profit and nonprofit sectors.

A decade ago sector crossing was not commonplace. Today, thanks in small part to SSIR’s efforts, this approach to solving social problems is becoming more common. This issue of the magazine is full of articles about these kinds of practices and thinking. Let me point out two articles in particular that are about businesses that have adopted a social mission as an integral part of their work.

Our Case Study, “From Petitions to Decisions,” is an in-depth look at Change.org, one of the most successful mission-driven businesses to have been formed in the past decade. Change.org, which provides a platform for people to create and sign petitions, has more than 70 million registered users and is signing up new ones at the rate of 4 million per month.

Change.org is an unabashedly for-profit business. The privately held firm is said to have been profitable since 2010. One of the company’s investors is Omidyar Network, a hybrid organization that invests in

for-profit mission-driven businesses and makes grants to nonprofit organizations.

Change.org generates much of its revenue from advertisers who want to reach the millions of people who frequent its website. The company has ambitious plans to move beyond petitions to become a platform for a new sort of digital democracy— a place where ordinary people and government officials can come together to discuss ideas and create public policies.

Change.org isn’t the only for-profit business profiled in this issue of SSIR. We also have a story in our What’s Next section, “When the ‘Doves’ Fly,” about Planet Labs, an organization that is launching dozens of small and inexpensive satellites that will orbit and take images of Earth.

The company will then sell the images to a variety of clients (think Google Earth).

What makes Planet Labs interesting to SSIR readers is that even though the company is still a start-up and just getting off the ground, it has already formed a sister organization, Planet.org, designed to help nonprofits find ways to use the images.

The possibilities for using satellite images are numerous—tracking the deforestation of jungles, examining the destruction caused by typhoons, and monitoring the mass migrations of people caused by war and civil conflict.

Some nonprofits are already working with other satellite firms and doing these sorts of things, but the images are often old, making them less useful in tackling problems as they happen. Planet Labs’s goal is to provide daily updates of images, which will make them much more useful.

Change.org and Planet Labs are just two of many businesses that are beginning to use the power of capitalism to make the world a better place. —ERIC NEE

Academic Editor Managing Editor Senior Editor Senior Digital Editor Publishing Director Publishing Associate Publishing Assistant Art Direction and Design Contributing Writers Copy Editors Interns

Website Designer

Johanna Mair Eric Nee Michael Slind Jenifer Morgan Regina Starr Ridley Carrie Pogorelc Devin Briski David Herbick Design Suzie Boss, Adrienne Day Madeleine Adams Kathleen Much Emily Giglio, Mary Harrison, Soo Ji Lee, Dania Marinshaw, Andrew Mather Hop Studios

SSIR ACADEMIC ADVISORY COUNCIL

Paola Perez-Aleman, McGill University; Josh Cohen, Stanford University; Alnoor Ebrahim, Harvard University; Marshall Ganz, Harvard University; Chip Heath, Stanford University; Andrew Hoffman, University of Michigan; Dean Karlan, Yale University; Anita McGahan, University of Toronto; Lynn Meskell, Stanford University; Len Ortolano, Stanford University; Francie Ostrower, University of Texas; Anne Claire Pache, ESSEC Business School; Woody Powell, Stanford University; Rob Reich, Stanford University STANFORD CENTER ON PHILANTHROPY AND CIVIL SOCIETY

Faculty Co-Directors Executive Director Associate Director Program Manager HR, Financial & Grants Manager Administrative Associate

Paul Brest, Woody Powell, Rob Reich Kim Meredith Karen Lindblom Sam Spiewak Noelle Rudolph Cristina Alfonso

STANFORD CENTER ON PHILANTHROPY AND CIVIL SOCIETY ADVISORY BOARD

Chairman Members:

Laura Arrillaga-Andreessen Darren Bechtel, Somesh Dash, Susan Ford Dorsey, Laura Fisher, John Goldman, Burt McMurtry, William F. Meehan III, Regina Kulik Scully, Cari Tuna

Stanford Social Innovation Review (ISSN 1542-7099) is published quarterly by the Stanford Center on Philanthropy and Civil Society, a program of the Institute for Research in the Social Sciences at Stanford University’s School of Humanities and Sciences: 559 Nathan Abbott Way, Stanford, CA 943056042. Phone: (650) 724-3309, Fax: (650) 736-3454.

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Subscriber Services Call 267-557-3890, or mail Stanford Social Innovation Review, Subscriber Services, P.O. Box 3099, Langhorne, PA 19047-9199 Article proposals, advertising, and reprints go to www.ssireview.org Postmaster Send address changes to Stanford Social Innovation Review, Member Services, P.O. Box 3099, Langhorne, PA 19047-9199. Volume 12, Number 4. Fall 2014. Stanford Social Innovation Review and the Stanford Center on Philanthropy and Civil Society are part of Stanford University’s tax-exempt status as a Section 501(c)(3) “public charity.” Confirming documentation is available upon request.

Stanford Social Innovation Review was established in 2003 by the Center for Social Innovation at the Stanford Graduate School of Business. The founding publisher is Perla Ni. The former academic editors are Stephen R. Barley, James A. Phills Jr., Robert Scott, David Brady, and Chip Heath.

Stanford Social Innovation Review / Fall 2014

ssireview.org D I G I TA L H I G H L I G H TS

M AGA Z I N E E XT RAS New Online Features Stay on top of online conversations by signing up to receive alerts when others leave comments on articles you want to follow. Just go to the comment section of any article and select that option. Also check out our new All Issues page, where you can easily browse 11 years’ worth of print magazine content. ssireview.org/issue

Talent Matters Series Extended This series continues: Linda Wood of the Evelyn and Walter Haas, Jr. Fund will join Liz Maw of Net Impact and Monisha Kapila of ProInspire as a guest curator this fall, drawing in perspectives from funders who invest in social sector leadership as a core grantmaking strategy. Posts will highlight a range of issues and funder approaches. ssireview.org/talent_matters

F R O M T H E B LO G

BRANDING CHANGE

The Limits of Measurement Earlier this year, Jason Saul and Nolan Gasser launched the Impact Genome Project (IGP), an initiative that aims to create and use “synthetic”—real-time, predictive, algorithm-based—data to assess social impact programs. In a May 29, 2014, op-ed, Emily E. ArnoldFernandez of Asylum Access argued that the kind of data generated by such a project is of limited use to the social sector. She writes: If we’re serious about effective social change, we need more incentives for funders to support efforts to shift policy frameworks. By developing and promoting the [IGP], Saul and Gasser create a countervailing incentive, pushing funders toward direct aid models. And by pushing for a social capital market, they replicate, rather than correct, the inefficiencies of existing capital markets.”

READERS RESPONDED:

I think you’re right. …

But the vast majority of policy implementation is done through funding interventions. … We shouldn’t make data a fetish, but we also shouldn’t push it away just because it might become [a fetish] for a while. We need to use data for what it is good at.” —Andrew Means, Center for Data Science & Public Policy, University of Chicago

Even those programs that seek to influence policy, change laws, or create systemic incentives typically have reasonable outcomes that can be

Visit SSIR Online to access supplementary material for selected articles in this issue.

measured along the way. … Our best bet is not to resist measurement or accountability, but rather to find smart ways to make measurement more valuable and accessible to practitioners.”

—Jason Saul, Mission Measurement

Of course efforts to find systematic ways to measure … future impacts in human services interventions have been hardy perennials in philanthropy and public programs for decades—without notable success. … What we have learned generally is that programs have many unique features, which often influence

outcomes, rendering systematic generalizations so far impractical.”

—George McCully, Catalogue for Philanthropy

My concern is that philanthropists will be led to invest more in direct-service outcomes precisely because those are most easily measured. … The more we engage the philanthropic community in the discussion about where and when data is useful, the better we’ll all understand its limitations.”

—Emily E. ArnoldFernandez, Asylum Access These are two different issues: one is about creating better data and the other is about how people use that data. … Many philanthropists and legislators [appreciate] the full range of social outcomes, and I don’t expect that making it easy to measure certain outcomes will deter them from focusing on the ones that they believe are most important to advancing social change.” —Jason Saul Read more comments online. ssireview.org/limits_of_measurement

“From Petitions to Decisions” (p. 20): Read an online-only sidebar, “Change.org: What’s in a Domain Name?” to discover how the Change.org brand almost didn’t come to be. ssireview.org/petitions_decisions CLOSING CALL

“A Good Ending” (p. 57): Find out how leaders at the Atlantic Philanthropies are managing their grant process during the final years of the foundation, in “NOT Spending Down: CEO Update,” and watch a video segment titled “Chuck Feeney on Giving While Living.” ssireview.org/closing_foundation PATH TO EQUALITY

“Equal Effort” (p. 63): Consider “What’s Next for the Marriage Equality Movement” in a blog post written by Matt Foreman of the Evelyn and Walter Haas, Jr. Fund, and browse a timeline that shows “The Haas, Jr. Fund History With Marriage Equality.” ssireview.org/marriage_equality

Follow SSIR

View an eBook of this issue online or download a complete PDF.

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Stanford Social Innovation Review / Fall 2014

SSIR ONLINE

If [the authors] have their history and comparative politics right, and I think they do, then polarization is neither a trend that can be reversed nor a problem that can be solved.”

—Daniel Stid in his post about “Philanthropy in a TIme of Polarization”

B O O KS

CO M M U N I T Y A Complex Topic A recent Up for Debate feature by John Kania, Mark Kramer, and Patty Russell inspired a vigorous discussion of the relationship between earlier forms of strategic philanthropy and the approach—called emergent strategy—that the authors present in their article (“Strategic Philanthropy for a Complex World,” SSIR, vol.

12, no. 3, p. 26). Nathan Huttner, a principal at Redstone Strategy Group, argues for striking a balance between the older and newer forms.

“Mediocre strategic philanthropy may fall victim

to over-simplification, . . .” he writes at SSIR Online. “Conversely, a mediocre emergent strategy could use system complexity as a crutch to avoid spelling out clear hypotheses.” In a critique posted at the Nonprofit Quarterly website, William Schambra chides the authors for having launched a “deeply flawed approach” that they are now subjecting to a “recall,” as he puts it. “They are able to walk away from the damage their product has done,” writes Schambra, director of the Bradley Center for Philanthropy and Civic Renewal at the Hudson Institute. In a response to Schambra (posted at the NPQ site), Mark Kramer insists that he and his co-authors are refining rather than “recalling” their commitment to strategic philanthropy. Their goal in the SSIR article, he writes, “was to offer our evolving perspectives on how foundations can use rigorous strategic tools to succeed under conditions of complexity.”

Poles Apart Whether and how foundations can intervene in today’s deeply divided US political system was the subject of a feature article by Steven Teles, Heather Hurlburt, and Mark Schmitt (“Philanthropy in a Time of Polarization,” SSIR, vol. 12, no. 3, p. 44). “If [the authors] have their history and comparative politics right, and I think they do, then polarization is neither a trend that can be reversed nor a problem that can be solved,” writes Daniel Stid, director of the Madison Initiative at the William and Flora Hewlett Foundation, in a post at the foundation’s blog.

He voices interest in the authors’ discussion of “transpartisanship” but argues that foundation leaders need “to come to grips with the issue-specific, time-limited, and thereby fleeting if not fickle nature of transpartisan coalitions.” At The Atlantic website, Benjamin Sostis cites the article in support of a broad critique of the foundation sector. “The public now has been primed to view philanthropists as ideological combatants in a messy, brutal battle for political power,” notes Sostis, a fellow at the Center for Nonprofit Management, Philanthropy, and Policy at

George Mason University. He adds (quoting G. K. Chesterton), “If philanthropy is not now ‘the recognizable mark of a wicked man,’ it is often the mark of an ideologically driven, partisan one.”

Juggling Act In a Viewpoint essay, Fay Twersky discussed her study of what makes for an effective foundation CEO and suggested that foundation boards consider departing from the common practice of hiring outsiders for that role (“The Artful Juggler,” SSIR, vol. 12, no. 3, p. 55). “Headhunters and search committees are going to hate this study because it makes running a foundation look like a living hell,” the journalist David Callahan writes at the website Inside Philanthropy. “Okay, I’m exaggerating. But Twersky paints a picture of an inherently challenging job.” About her advice to boards, he comments, “What a novel suggestion: Tap people who actually know what they’re doing rather than bring in clueless big shots from other fields.” Larry Kramer, president of the William and Flora Hewlett Foundation (where Twersky works), doesn’t disagree with the article’s pro-insider argument. “I think I brought something to the Foundation, despite having no real prior experience in philanthropy, but there is a great deal of force in [Twersky’s] analysis, . . .”

Kramer writes at SSIR Online. “There may once have been a time when prior experience didn’t matter, but philanthropy today is a very complicated profession. Surely there are many talented leaders who already know the ropes.”

In their book Measuring and Improving Social Impacts: A Guide for Nonprofits, Companies, and Impact Investors, Marc J. Epstein and Kristi Yuthas outline a fivestep framework for determining which impacts matter and how to measure them.

Read an excerpt from this book and other recent titles, and browse book reviews online. ssireview.org/books

P O D CASTS Empowering Others to Tell Your Organization’s Story Many potential nonprofit supporters, believing that organizations want only monetary donations, may be discouraged from supporting a cause even though they can do so in another way: through influence. Julie Dixon, deputy director of Georgetown University’s Center for Social Impact Communication, explains how organizations can encourage their supporters to advance their cause on social media.

Listen to this podcast, and browse SSIR’s archive of more than 1,000 podcasts on topics ranging from the environment to socially responsible business. ssireview.org/podcasts

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Stanford Social Innovation Review / Fall 2014

! EYES IN THE SKY: Dove satellites enter orbit from the International Space Station in February 2014.

New approaches to social change / By Suzie Boss

Technology

When the “Doves” Fly imely and comprehensive data matter a great deal when it comes to issues that play out over long periods of time and over vast stretches of the globe.

Think of deforestation, say, or illegal fishing. That’s why upto-date satellite imagery could be a game-changer for organizations that focus on those issues. But barriers related to cost and technical expertise have kept such information out of reach for most nonprofits.

Enter Planet Labs, an aerospace start-up based in San Francisco. Founded by a trio of former NASA physicists, Planet Labs has designed a new breed of low-cost, shoebox-sized satellites that it calls Doves. With those satellites, the company is able to provide a bird’s-eye view of the planet—in the form of high-resolution photos, ­heat-map images, and other ­information—and to update that view daily. Planet Labs released its first flock of 28 Doves from the International Space Station earlier this year, and it expects to have 100 of them in low earth orbit by 2015.

Planet Labs, backed by $65 million in venture capital, anticipates strong commercial interest in its data stream.

But it’s exploring noncommercial opportunities as well. “We ­recognize that academics, nonprofits, and social enterprises could do pretty dramatic things in their fields [if they are] given access to this new and compelling data set,” says Alex Bakir, a

T

director on the company’s business development team.

To serve that market, Planet Labs has created a sister organization called Planet.org. At the Skoll World Forum in April, Planet Labs CEO Will Marshall challenged an audience of social innovators to imagine how they might deploy this new source of data for social good. Planet. org will soon unveil an initiative called the Mission One ­Alliance—an “on-ramp” for users who intend to leverage its data for “public good,” Bakir explains. The organization plans to announce details about the initiative, including pricing information, by the end of 2014.

Already, though, the prospect of using satellite technology to further humanitarian aims is generating enthusiasm among social innovators. ­Andrew Zolli, curator of PopTech, calls Planet Labs “easily the most exciting thing I’ve seen in the past 10 years.” Access to frequently ­updated, around-the-globe data “is a platform innovation,” says Zolli, who has advised Planet Labs on its social benefit initiatives. “It’s going to ­enable thousands of new value propositions in all kinds of fields—p­ublic health, climate adaptation, land use, disaster monitoring, urban policy.”

Nonprofit organizations that use satellite imagery tend to rely on free data sets that may be out of date or limited in scope.

That’s the case for Global Forest Watch (GFW), which uses Landsat imagery—provided by

the US government at no charge— to detect changes in forest cover. Affordable access to recently produced high-resolution imagery would greatly enhance GFW’s work, according to Crystal Davis, ­senior manager of the organization. “Getting more-frequent updates on deforestation would increase the likelihood that ­action can be taken before it’s too late,” she says.

Humanitarian organizations also have a long history of analyzing images f­rom space.

“What Planet Labs will provide us and our United ­Nations partners is very rapid access to imagery,” says Patrick Meier, ­director of social innovation and social computing at the ­Qatar Computing Research Institute. He estimates that it took more than 48 hours after Typhoon Yolanda struck the Philippines for analysts to acquire the imagery that they needed to conduct a damage assessment. “With Planet Labs, I’m confident we’ll reduce

that time to 12 to 24 hours,” Meier says.

Mere access to satellite data isn’t enough, however. According to Bakir, few nonprofits possess the technical skills required to make sense of this new goldmine of information: “Frankly, it’s not that easy to analyze imagery on a mass scale.” For that reason, Planet Labs is working to expand the availability of data-analysis tools and to encourage a community to grow up around using them. “We have to lower the bar to entry,” he says.

For its part, Bakir says, Planet Labs “embraces the hacker mindset.” Like many a tech start-up, the company started in a garage, and it practices rapid prototyping. Its ­offices even include room for an artist in residence, whose artwork has been etched onto the exterior of its satellites. Putting artwork into orbit, ­Bakir notes, reflects the company’s broader “goal of creating a ­planetary consciousness.” n

Photograph by the us national aeronautics and space administration, courtesy of planet labs

8

Stanford Social Innovation Review / Fall 2014

suzie boss is a Portland, Ore.-based journalist who writes about social change and education. She is the author of Bringing­­ ­Innovation to School and contributes ­frequently to Edutopia.

Economic Development

Cultivating a Neglected Field or the smallholder farmers who grow most of the world’s coffee, an outbreak of coffee leaf rust can wreak havoc on family finances. Diseased trees have to be pulled up and replaced with healthy seedlings.

New soil and water management practices may be necessary to prevent a repeat outbreak of the fungus. Income grinds to a halt until the young trees start producing beans— and that can take years.

“The right farming practices can bring coffee back ­[after an outbreak], but that requires significant investment,” says Ben Corey-Moran, director of coffee supply for Fair Trade USA. “Who’s going to lend to farmers who have no collateral other than the title to their land?” Recent outbreaks of coffee leaf rust have wiped out thousands of acres of crops in Latin America. And growers who produce cocoa, cashews, and other niche export products routinely confront similar hardships. “They all need new financial products that conventional banking doesn’t offer,” Corey-Moran says.

This past April, seven social impact lenders launched the Council on Smallholder Agricultural Finance (CSAF).

The aim of CSAF is to build this nascent field and to attract additional capital to the “missing middle” space that lies between microfinance and

Photograph by the us national aeronautics and space administration, courtesy of planet labs

F

commercial lending. “We’re all impact agricultural lenders who share the same theory of change,” says William “Willy” Foote, CEO and founder of Root Capital, a nonprofit social investment fund. “We come from different institutional backgrounds but share the ­mission of growing prosperity in these frontier markets.”

CSAF members include—along with Root Capital—Alterfin, Oikocredit, Rabobank’s Rabo Rural Fund, responsAbility Investments AG, the Shared Interest Society, and Triodos Sustainable Trade Fund.

In 2013, the seven orga­ nizations lent a total of $360 million. By 2016, they hope to increase that amount to $500 million. “That’s still a drop in the bucket,” compared with the $22 billion global market for small and mid-sized agribusiness, Foote notes.

Michaël van den Berg, fund manager for Triodos Sustainable Trade Fund (which is part of Triodos Bank, a Dutch firm), compares the current state of smallholder agricultural lending to the microfinance sector in its early days. “We all want to do good. We all want make a positive change through finance,” he says. As the microfinance sector has matured, it has developed standards, formulated best practices, and adopted common impact measurements.

CSAF members are joining forces to do similar field-build-

ing work, even as they continue to compete for customers in remote corners of the world.

“Collaboration is likely to be messy, complex, maybe even awkward,” Foote acknowledges.

All the same, he says, council members aspire to “crowd in the competition”—to “show that there are market opportunities out in the countryside.”

The council will establish itself “by getting concrete things done together,” Foote says. Like their counterparts in the microfinance field, CSAF members will develop a shared set of metrics for tracking social and environment impact.

Doing so will simplify reporting for smallholder farmers, many of whom now have to track multiple sets of outcomes for multiple lenders. Foote also expects the council to refine best practices for transparency and inclusive finance. “This is a team sport,” van den Berg says.

Many of the ideas that will drive CSAF’s efforts are likely to

come from farmers themselves.

“Our customers are very vocal.

These are men and women who know what they want,” says van den Berg. “They are businesspeople who have standing in their communities. We interact [with them] as equals.”

New pressures on smallholder farmers will widen the scope of what CSAF members must do to support them. A ­recent report from the Specialty Coffee Association of America, for example, suggests that farmers will experience higher levels of food insecurity as a result of climate change. Already, according to CSAF, many smallholder families cut back on meals during lean growing seasons. In response to that problem, CSAF plans to leverage its relationships with technical assistance providers “to improve food ­security and support farmers in income diversification,” Foote says. “None of us can do this work by ourselves. We have to work together.” n

Urban Development

Design for Cleaner Living uring childhood trips to India to visit relatives, Dinesh Sonak recalls taking in the sights of “a beautiful, colorful country with roots in spirituality.”

Today, mountains of garbage obscure that once-inspiring view. “People think nothing of throwing their trash out of train windows” or dropping litter in the streets of Mumbai or Delhi, says Sonak, who grew up in the Netherlands. (He is half-Indian and half-Dutch.)

D

Waste management systems, he notes, have not kept pace with the needs and habits of more than a billion people: “The country as a whole does not have the infrastructure to extract energy from waste or the culture to inform citizens about their role.”

Sonak sees an opportunity to restore India’s beauty, and to create new economic opportunities, through design thinking.

It’s a problem-solving approach more common in Amsterdam,

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where he lives, than on the Indian subcontinent. But Sonak and his colleagues at the Saaf India Foundation, a social enterprise that they formed in 2012, are convinced that Indians are ready for change.

Saaf India was incubated at THNK, also known as the Amsterdam School of Creative Leadership. Sonak, a commercial designer who formerly served as director of partnerships at THNK, helped to develop a curriculum at the school that builds on the work of the Silicon Valley design firm IDEO and the Stanford University Institute of Design (known as the d.school). When Shammy Jacob, a THNK student, suggested tackling India’s solid waste problem, Sonak embraced the idea. (Today, Sonak acts as THNK’s India ambassador.)

To meet the challenge of waste in India, Sonak and Jacob

began by focusing on the Indian Railways, a system that carries about 22 million passengers— and their trash—every day. The two men traveled thousands of miles on the rail network in an effort to analyze the problem.

“We found that 90 percent of Indians don’t understand the risks of waste,” Sonak says.

Other organizations are attempting to solve the waste problem, “but not in a holistic way,” he notes.

Sonak and Jacob are working to develop solutions that

are not only design-savvy, but also financially sustainable and socially inclusive. One idea is to create a market for recyclable materials that would engage the legions of ragpickers who ply their trade in India. Other ideas focus on using videos, slogans, and celebrity endorsements to encourage recycling and discourage littering. “How do we integrate ragpickers into the formal economy? How could we bring in a champion cricket player to influence consumer behavior? Solutions have

n TRASH PICKUP: A street scene in Ahmedabad, India, illustrates the need for ways to clean up Indian cities. to work for all stakeholders,” Sonak says.

For the current phase of the project, Sonak and team are focusing on large urban train stations. “This allows us to reach practically every Indian, rich or poor, in every corner of the country,” he says. “It’s an ideal scaling platform.” Chhatrapati Shivaji Terminus in Mumbai,

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PhotograPh by wei deng

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Photograph by wei deng

Stanford Social Innovation Review / Fall 2014

for example—a UNESCO World Heritage site (formerly Victoria Terminus)—is one of “the busiest spaces in the city,” Sonak notes. “If we can engage people to clean up the biggest, dirtiest stations, then it should be easy to replicate [that work] in thousands of stations across the country.”

In late 2013, Sonak and his colleagues demonstrated a prototype of its approach during an exhibition for railway executives in New Delhi. “We rebuilt a train coach,” Sonak explains.

“A theater group played the roles of ticket inspector, tea vendor, housekeeper, and so on.” Actors modeled practices such as using bags to separate wet and dry waste, and the “ticket inspector” showed how he could use his on-board authority to educate passengers about recycling. About 500 people attended the exhibition, and

afterward they made suggestions to improve the prototype.

Railway veterans have been quick to endorse the project.

V. K. Raina, a retired general manager of Indian ­Railways, says the Saaf India team “brings a different skill set and attitude to this problem.

They’re using media, design, communication—all things that are not yet common in railway management.”

For Sonak and his colleagues, the next challenge is to recruit financial backers.

Raina suggests that the Saaf ­India team “is one hit away” from achieving its ambitious goals: “They have to convince corporations that this is doable.

Once they score a hit, then companies will be lining up to help them.” And not a moment too soon, he adds: “This is something that we desperately need in this country.” n

H e a lt h

Built WELL BRE, a global real estate services provider, didn’t set out to develop the world’s first certifiably healthy office building.

“This wasn’t our initial focus,” says Lew Horne, president of the firm’s Greater Los AngelesOrange County division. “But the more we learned about designing for wellness, the more we got into it.” In late 2013, CBRE moved into a rehabbed corporate headquarters facility in downtown Los Angeles that boasts enough health-­ promoting features—purified air and water, germ-resistant doorknobs, lighting that adapts to circadian rhythms—to meet a new industry standard.

Called the WELL Building Standard, the new certification

C

was developed by Delos, a real estate firm based in New York City. Using the standard “is not about making more-expensive decisions,” says Paul Scialla, founder and CEO of Delos. “It’s about making more-intelligent, more-informed decisions to build spaces that are conducive to human health, performance, and longevity.”

High-end residential properties—for example, a renovated historic building in New York City where wellness guru Deepak Chopra owns a multimillion-dollar unit—have been among the early adopters of the WELL standard. Developments that are in the pipeline for certification include the William Jefferson Clinton ­Children’s Center in Haiti, along with

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Stanford Social Innovation Review / Fall 2014

several student housing and hospital projects. There’s even an entire town (Livingston, Miss.) that is developing a new commercial center that will incorporate features of the standard. “There’s a massive economic game to play if we can infuse real estate with preventive health care,” Scialla says.

The Delos team introduced the WELL standard in 2012 at the Clinton Global Initiative.

Although Delos owns the standard, Scialla and his colleagues have established a B Corp—the International WELL Building Institute (IWBI)—to administer it. Under the B Corp structure, 51 percent of licensing revenues will go toward promoting “better solutions in the world,” and the rest “will be kept to grow the enterprise,” Scialla explains.

The green building movement and the appeal of LEED certification inspired Scialla to

develop the new certification.

“In real estate, the word ‘sustainability’ is used everywhere, but it’s only about how a building impacts the planet and energy resources,” he explains. “I wondered: Can we also look at the way a building influences human conditions? What about human sustainability?”

Answering that question took six years of research and cross-disciplinary collaboration.

“We got architects, doctors, technologists, and engineers into the same room,” Scialla says. The resulting standard sets performance requirements in seven categories: air, water, nourishment, light, fitness, comfort, and “mind” (which covers features designed to reduce stress and to improve mood).

Designing for wellness involves more than just meeting a building code. “Codes set minimum standards, primarily

for safety,” says Ellen Tohn, an environmental and health consultant based in Wayland, Mass., who belongs to an IWBI team that is reviewing performance benchmarks for the WELL standard. Tohn hopes that awareness of the WELL standard will “broaden conversations about the design of affordable housing,” so that architects and developers will start to consider features that enhance mental and physical health. “With slight tweaks, we could design for asthma reduction in children or injury prevention for the elderly,” she says For CBRE, the path to adopting the WELL standard came about almost by accident. An employee who was piloting the use of a flexible, shared workspace came down with a ­virus. Horne recalls thinking: “Who wants to sit there tomorrow? Who wants to touch that

keyboard?” Solving the problem of how to keep communally used equipment germ-free led firm leaders to consider other ways that a work environment might affect employee well-being.

Onno Zwaneveld, a sales professional at CBRE, led the corporate wellness committee that investigated a range of options— everything from circadian lighting to electromagnetic shielding.

“Some of these things can sound like snake oil at first,” he admits.

But the benefits of a healthy workplace are apparent, he adds: “Creating this kind of environment is about investing in your employees.” The features and materials required for WELL certification added about 3 percent to the cost of renovating CBRE’s headquarters, according to Zwaneveld. “If that translates to lower health care costs, that could be an incredible return on investment,” he says. n

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Baumhart Center for Social Enterprise and Responsibility Loyola University Chicago’s Quinlan School of Business is seeking applications for Director of the Baumhart Center for Social Enterprise and Responsibility.

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Stanford Social Innovation Review / Fall 2014

! HOLDING OUT HOPE: Ratan Kunwar shows her burn injury in advance of the surgery that she received with help from Possible.

Profiles of innovative work

A Model of Health the people of Achham lived a 36-hour bus ride away from a major health care center.

Today, Possible operates a sophisticated health care delivery system that functions on top of the Nepali government’s existing infrastructure. The organization follows a hub-and-spoke model: It runs a hospital and a network of clinics, and it supports them by managing a team of community health workers. It treats patients who suffer from a variety of maladies, and it treats them free of charge. In addition,

Bayalpata Hospital serves as Possible’s hub for clinical care and organizational operations. The Nepali government built the hospital in 1979 and then abandoned it for 30 years. Possible refurbished the crumbling buildings and took over management of the facility in 2009, and since then providers there have treated more than 44,000 ­patients. Kunwar delivered her second baby at Bayalpata.

Nepal offers an opportune setting in which to build a delivery model based on combining public and private resources.

The Nepali constitution includes a provision that guarantees free health care for patients who live in poverty. Each of Nepal’s 75 ­districts has its own public hospital, more than 13,000 government-run clinics dot the

Possible has built a referral program for patients with complex care needs. “It’s a model that’s neither private sector nor public sector, but a combination of the two,” says Arnoldy. Unlike some efforts to deliver health care in developing countries, moreover, the Possible model doesn’t have a limited scope. “It’s not just for certain conditions, like HIV or maternal health,” Arnoldy notes. It is, he says, “a health care system [like] we would expect to have here in the United States.”

country’s rural landscape, and the government maintains a network of 50,000 women who act as community health volunteers.

Yet the Ministry of Health and Population spends only about half its budget each year.

That’s because of gaps in the “absorptive capacity of the government’s health care system,” says Maru, who serves as chief programs officer of Possible. “There’s a real interest in public-private partnerships on the part of politicians and the funders in the ­Ministry of Health.”

In Nepal, a US-based nonprofit is partnering with the national government to deliver full-service medical care in remote areas.

By Corey Binns

Photograph by dear world, courtesy of possible

I

n 2013, Ratan Kunwar was stirring a pot of lentils to feed her family for dinner when she knocked over the pot. It fell onto her arms, chest, and abdomen.

Her skin was scalded and raw. Kunwar, a 28-year-old mother of two sons—a baby and a three-year-old—lives in the Nepali village of ­Mastamandu. After the accident, she was turned away from one hospital because she couldn’t afford treatment, and she assumed that she would endure her injuries forever.

Her arm itched and burned. At night, the pain kept her awake. She had trouble farming, cooking food, and washing clothes for her family. She couldn’t comb her own hair.

She was unable to hold her baby.

Three months after the injury, Kunwar arrived at a hospital run by a nonprofit organization called Possible. The organization posted Kunwar’s story on an affiliated crowdfunding site, and before long people from around the world had contributed enough to pay for her skin-graft surgery. Since the surgery, every aspect of Kunwar’s life has improved. Most important, she can now hold her infant son in her arms. “That’s a classic example of why taking a comprehensive approach to health care matters, because conditions as simple as a burn or fracture can destroy people’s lives,” says Mark Arnoldy, cofounder and CEO of Possible.

Kunwar is one of more than 173,000 patients whom Possible (formerly Nyaya Health) has helped treat since 2008. That year, a trio of friends from the Yale School of Medicine—Jason Andrews, Sanjay Basu, and Duncan Maru—along with local clinicians, started providing care out of a grain shed in the Achham district of Nepal. At that time,

Hub and Spoke

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Stanford Social Innovation Review / Fall 2014

Corey Binns is a journalist based in Northern California.

She writes about science, health, and social change for NBCNews.com, NPR’s Science Friday, and Popular Science.

Maru and other members of the ­Possible team have worked with those officials to create the Possible delivery framework. Amit Aryal, a technical expert for the ­Ministry of Health and Population, praises the comprehensiveness of that framework. “In my mind, [Possible is] really taking health care to the people and not waiting for them to come to the hospital,” says Aryal.

Accessing health care can be nearly impossible for people in Nepal who live far from cities. The average Nepali pregnant woman, for example, will walk more than four hours to deliver her baby in a hospital. To help remedy that situation, Possible has transformed six underperforming government clinics into high-quality birthing centers. “If we’re going to solve the access problem, we need to get that [local clinic] tier of the health care system working at a very high level of performance,” Arnoldy says.

To improve primary and preventive care, Possible is strengthening the government-managed cadre of community health volunteers. That effort involves training volunteers to encourage patients to visit Possible facilities for follow-up care. It also involves training volunteers to keep records of all pregnancies and illnesses. In addition, Possible has developed a network of paid community health workers who track health information and provide services at the household level. It’s “the health care system’s responsibility to reach out and to make sure [that patients] continue to be engaged in the system and are getting the care they need,” Maru says.

The value of the hub-and-spoke model is especially evident when it comes to treating conditions such as neonatal jaundice.

Trained health workers who operate in clinics and out in villages are able to screen infants for that disease. “With [the ­Possible] model, fewer infants will fall through the cracks,” says Garrett Spiegel, a product manager at D-Rev, a company that partners with Possible to provide phototherapy and jaundice management at Bayalpata Hospital.

Instead, he explains, properly diagnosed infants are “brought in to the health center

before the jaundice progresses to a level where their brain is permanently damaged.”

Possible holds itself to a high standard of care and applies rigorous evaluation to its operations. “The way we measure our success has changed, as the scale of operation has grown,” says Arnoldy. Epidemiologists from the Division of Global Health Equity (DGHE) at Brigham and Women’s Hospital in Boston work with Possible to track a variety of performance indicators: the number of days that surgical services are available to patients, the percentage of chronic-disease cases that community health workers treat, and so forth. (Maru is a faculty researcher at DGHE.) Cost control is another goal that Possible leaders take seriously. Their long-term aim is to limit per-patient expenditures to less than $50 per year, and so far they have kept that figure to less than $20. By comparison, annual per capita health care spending in the United States comes to about $8,000.

Change and Challenge

In early 2014, Arnoldy led the organization through a rebranding initiative that resulted in a new website, a new logo, and a new name. The original name—Nyaya Health—was hard to spell, hard to pronounce, and hard to promote. Over time, the Nyaya brand had also become more and more restrictive. “For us, this is about way more than the name, look, feel, and colors,” says Arnoldy. “Our team thought we had a shrinking window of opportunity to communicate why we exist and how our health care model works. We had to make a move before we got too big and [the old name] became too cemented into the identity of the organization.”

To continue growing under its own identity, Possible has sought revenue from a broad range of sources. At this stage, the organization receives most of its funding from donors such as the Good Works Institute, Greatergood.org, and Rotary International.

But ­Arnoldy foresees a time when the Nepali government might become its largest funder.

In 2013, the government invested cash and

in-kind contributions worth $270,000, up from $110,000 in 2011. (That year, Possible had annual revenues of about $1.25 million.)

Along with land, infrastructure, and other forms of in-kind support, the government has provided a large supply of pharmaceuticals to Possible through the public-sector supply chain. “We have a quickly growing relationship on that front that makes us believe that this is very much possible to do on a large scale,” says Arnoldy.

In partnership with the crowdfunding sites Watsi.org and Kangu.org, Possible has also created an online medical referral network. “Before this model, we had to turn patients away,” says Arnoldy. Now when patients come to Bayalpata ­Hospital or to a clinic with complex care needs, ­Possible can tell their story on the Web, and anyone with Internet access can then help fund their care with a donation of $10 or more. In December 2013, Possible received a Sappi Ideas That Matter Award valued at $43,000, and with that money it launched CrowdFundHealth.org—a site that integrates the Possible referral network with the Watsi and Kangu sites. (In its first 14 weeks, CrowdFund Health raised enough money to provide $112,000 worth of treatments to 120 patients.)

Today, the most challenging aspect of ­Arnoldy’s job involves retaining qualified providers who will work in less-than-hospitable rural areas. Despite offering comfortable staff housing, high salaries, and a supportive management culture, leaders at Possible face environmental and social barriers that hinder long-term retention of senior staff members.

“And we don’t expect that [problem] to go away anytime soon,” Arnoldy says.

Another challenge stems from the organization’s reliance on government funding. A new group of Nepali political leaders could easily take that funding away. “We can’t completely eliminate that risk, the same way we can’t eliminate the risk that a large-scale philanthropic funder might do that someday,” Arnoldy says. “We’ve tried to mitigate that risk—not by being too big to fail, but by being too influential to fail.” n

Photographs coiurtesy of wikimedia commons (left) and index: design to improve life (center and right)

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Stanford Social Innovation Review / Fall 2014

! FRESH IDEAS: Past winners of the INDEX: Award include the Tesla Roadster (2007), left, and FreshPaper (2013),

Substance Over Style An international design award based in Denmark celebrates products and projects that aim “to improve life.”

BY ALICIA CLEGG

PHOTOGRAPHS COIURTESY OF WIKIMEDIA COMMONS (LEFT) AND INDEX: DESIGN TO IMPROVE LIFE (CENTER AND RIGHT)

K

igge Hvid, CEO of INDEX: Design to Improve Life, has an unusual hobby. Whenever she spots a white teacup—and it must be white—she takes a photograph of it. She estimates that white teacups come in more than a million shapes, styles, and finishes. In her eyes, that’s hardly a reason to rejoice. Rather, it’s a call to action: Now is the time, Hvid believes, for designers to redirect their creative energy toward efforts that serve a higher social purpose. “It’s not that we don’t like choice,” she says, referring to the leadership team at INDEX. “We just think one million choices of white teacups must be enough for the next 100 years and that designers and companies should focus on something else.”

INDEX is a Danish nonprofit that oversees the INDEX: Award—the world’s largest international design prize. Conferred biennially, the award goes to recipients in five separate categories: body, community, home, play and learning (formerly just “play”), and work. Each of the five winners receives a prize worth 100,000 euros. Past winners range from global corporations to cash-strapped start-ups. In 2009, the Dutch conglomerate Philips won an award in the home category for the Chulha, a lowsmoke cook stove. The 2011 winner in the

play category was Hövding, maker of a bicycle helmet that looks like a neck scarf and inflates in the event of an accident. Large or small, INDEX: Award recipients share an ambitious vision of what design can do.

“Winning an award can help designers get past the mentality of ‘Yes, but.’ Everyone says they want innovation, but usually they want it at the old price and at no [extra] risk,” says Daan Roosegaarde, a Dutch designer whose firm won the 2013 award in the community category for Smart Highway, a project to create energy-saving motorways.

The Danish government and the City of Copenhagen created INDEX in 2002.

The name is an acronym for “international design exhibition,” and initially the mission of the organization was to stage an Oscar-like extravaganza that would show off Denmark’s design prowess while celebrating the cream of international design. But the people appointed to run the exhibition had another idea. The world, in their view, didn’t need yet another style spectacular.

So they surveyed roughly a thousand influential figures—designers, policymakers,

a compostable container product, right. Attendees at an INDEX event in Elsinore, Denmark, center, use an interactive display.

journalists—to find out what it would take for a new design event to capture the people’s imagination. The response was unequivocal. “What everyone said, in many languages, was ‘Don’t focus on aesthetics.

Focus on the power of design to improve life for people,’” Hvid recalls. She and her colleagues successfully lobbied their official sponsors to adopt that vision, and in 2005 the organization launched both INDEX: Award and the INDEX: Award Exhibition.

INDEX has been at the forefront of a sea change in design thinking. Nowadays, most design conferences devote plenty of attention to ethically responsible design.

But a decade ago, when INDEX jurors set out to bestow their first round of prizes, the world was very different. Mat Hunter, chief designer at the UK-based Design Council, recalls that most people back then viewed design almost exclusively “in a commercial context, where the goal is to buy and sell more stuff.” Few took seriously the insight that INDEX decided to embrace—that good design is as integral to husbanding the world’s resources and advancing humanitarian causes as it is to making beautiful things.

A PRIZE WITH PURPOSE

To win an INDEX: Award, an innovation must satisfy three criteria: form, impact, and context. First, it must be attractive enough that people will want to use it and to tell others about it (form). Second, it must make life better in some way, and it must have the potential to scale up (impact). And third, it must suit the specific needs and the budget of its intended users (context).

In some cases, evaluating award candidates requires the INDEX: Award jury to favor one criterion over another. A case

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Stanford Social Innovation Review / Fall 2014

Alicia Clegg is a UK-based freelance writer. She contributes regularly to the Financial Times and has also written for the Guardian, Management Today, and Oxford Today.

in point is the Tesla Roadster, which won the INDEX: Award in the play category in 2007—before a single Tesla car had rolled off a showroom floor. Jurors gambled that a high-style electric car aimed at an affluent elite would kick-start a market that more affordable ­vehicles had failed to ignite. In other words, they emphasized form (and, to some extent, context) over impact. In light of Tesla’s recent success, that decision looks prescient. Yet it could easily have backfired.

“When we nominated the Tesla, it had multiple issues. It might never have got out of the garage,” recalls Patrick Frick, a philanthropy and sustainability consultant who serves as an INDEX: Award juror. “But we wanted to highlight to the next generation of designers that an electric car could look really cool and be as desirable as a Ferrari.”

Not all INDEX: Award winners have flourished. Better Place, which sought to build an international network of battery-swapping stations for electric cars, won an INDEX prize in 2009. By 2013, it had collapsed. For INDEX: Award jurors, such outcomes—however disappointing—are preferable to the alternative, which is to applaud an innovation only after it has achieved success. “As designers, we know failing is an inherent part of the process of getting to a better solution,” says Frick.

Over time, jurors hope to give greater weight in their award choices to efforts that approach problems not just from a product angle, but in a systemic way. (Smart Highway, a project that involves rethinking public infrastructure, offers a prime example of such an effort.) Another goal of the jurors is to boost the number of early-stage innovations in the award pool. That way, good ideas will come to light sooner, and even if an award recipient ultimately fails in implementing an idea, other innovators may spot its potential and commercialize it.

From an innovation perspective, a shift from celebrating success to nurturing ­potential makes considerable sense.

A high-profile prize is worth more to an enterprise that struggles to make ends meet than to one that already attracts investor and media attention. Eben Upton,

cofounder of Raspberry Pi, which makes inexpensive pocket-sized computers that teach programming skills to children, notes that ­w inning an INDEX prize in 2013 has helped his venture catch the eye of parents and other consumers who make up its target market. “One of the challenges for an organization like [ours] is to create a bridge from the technical press, read by enthusiasts, to the mainstream.”

As the INDEX: Award has become more prominent, its organizers have had to use their resources more wisely. INDEX employs just seven permanent staff members, and it relies on a jury of 12 independent experts to make prize decisions. For the 2013 award cycle, the jury had to sort through 1,022 nominations from 73 countries to arrive at five winners. The award adjudication process is now under review, and the organization is exploring ways to streamline it—the partial use of crowdsourced voting, for example.

Concern about the use of its financial resources, meanwhile, has driven INDEX to apply robust governance provisions to the disbursement of its awards. (One reason for that concern is public accountability: The organization receives more than 40 percent of its funding from the Danish state.) “Initially, we didn’t earmark the prize money, and that had a pretty severe impact,” says Adam von Haffner Paulsen, a director on the permanent staff at INDEX. “Around half the winning designs from the first two ­[series of] awards no longer exist, because the recipients didn’t put the money toward the winning projects.” For that reason, ­jurors now direct prize-winning organizations to spend their award money on marketing campaigns, staff recruitment, and prototype construction. Award recipients must also file regular progress reports with INDEX. Designed for Outreach

INDEX conveys its core mission through a simple tagline: “Inspire. Educate. Engage.”

Furthering that mission requires the organization to spread its reach through initiatives that go beyond the INDEX: Award. Through the INDEX: Award Exhibition, for instance,

winners and finalists are able to display their design achievements in public venues around the globe. So far, more than 12 million people have attended touring versions of the exhibition.

In addition, INDEX seeks to shape public opinion through collaborations with schools, governments, businesses, and cities. With Design to Improve Life ­Education, INDEX helps teachers to foster design and problem-solving skills. Through the ­Design to Improve Life Challenge, the organization has joined with four ministries of the ­Danish government to encourage students to develop practical solutions to social and environmental quandaries.

(The first such challenge, conducted in 2013, ­focused on climate change.) And in its ­Design to ­Improve Life Cities initiative, INDEX works with government officials, businesspeople, and engineers to tackle urban problems through the use of sustainable design. Starting in 2012, for example, the organization undertook a partnership with the city of Guangzhou, China.

INDEX also practices outreach by maintaining a relationship with past winners of its award. Terese Alstin, cofounder of ­Hövding, observes that sharing a platform with INDEX at design events and touring with the INDEX: Award Exhibition have helped raise her company’s visibility. “For a start-up like ours, without a marketing budget, such opportunities are a great way to spread the word,” she says.

The goal of providing ongoing support to award recipients, coupled with a shift toward highlighting early-stage innovations, has led INDEX to expand its efforts in yet another direction. Through a recently launched initiative called Design to Improve Life Investment, the organization will introduce award finalists to potential mentors, commercial partners, and impact investors.

“We began by growing the award and the exhibition. Then we grew education. Now we are starting on impact investment,” says Hvid. “There’s much to learn, but within five years we anticipate the program will be scaled up and working.” n

Photograph by daniel shea, courtesy of the new teacher center

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Collective Insights on Collective Impact

2

Essential Mindset Shifts for Collective Impact

By John Kania, Fay Hanleybrown, & Jennifer Splansky Juster

6

Defining Quality Collective Impact

By Jeff Edmondson & Ben Hecht

8

The Role of Grantmakers in Collective Impact

By Lori Bartczak

10

Power Dynamics in Collective Impact

By Mary Jean Ryan

17

Learning in Action: Evaluating Collective Impact

By Marcie Parkhurst & Hallie Preskill

12

Roundtable on Community Engagement and Collective Impact

20

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Aligning Collective Impact Initiatives

By Merita Irby & Patrick Boyle

Achieving Collective Impact for Opportunity Youth

By Lili Allen, Monique Miles, & Adria Steinberg

22

Making Public Policy Collective Impact Friendly

By Thaddeus Ferber & Erin White

This sponsored supplement was produced by Stanford Social Innovation Review for the Collective Impact Forum.

S u p p l e m e n t t o S S I R s p o n s o r e d b y T h e C o l l e c t i v e I m pa c t F o r u m

To be effective, collective impact must consider who is engaged, how they work together, and how progress happens.

By John Kania, Fay Hanleybrown, & Jennifer Splansky Juster

Since the initial publication of “Collective Impact” in Stanford Social Innovation Review (Winter 2011), collective impact has gained tremendous momentum as a disciplined, cross-sector approach to solving social and environmental problems on a large scale.

The idea of collective impact is not new— many collaborations pre-date the original article and embody the five conditions of collective impact1—but the original article created a framework and language that have resonated deeply with practitioners who were frustrated with existing approaches to change. Since 2011, hundreds of new collaborations have begun implementing the principles of collective impact in a variety of domains around the globe, from the United States and Canada to Australia, Israel, and South Korea. Collective impact ideas have also started to influence public policy. In the United States, for example, the concept has been written into grants from the Centers for Disease Control and the Social Innovation Fund, a White House initiative, and a program of the Corporation for National and Community Service.

Our team at FSG has studied successful collective impact efforts around the world,

supported dozens of new collective impact efforts, and trained thousands of practitioners. We are inspired by their successes, from improving juvenile justice outcomes in New York State to reducing childhood asthma in Dallas to boosting educational attainment in Seattle.

People often ask whether we would refine the five conditions of collective impact that we articulated in the initial article: a common agenda, shared measurement, mutually reinforcing activities, continuous communication, and backbone support. (See “The Five Conditions of Collective Impact” below.) Although our work has reinforced the importance of these five conditions and they continue to serve as the core for differentiating collective impact from other forms of collaboration (see “Maintaining the Integrity of a Collective Impact Approach” on page 4), we also realize that they are not always sufficient to achieve large-scale change. In addition, several mindset shifts are necessary for collective impact partners, and these are fundamentally at odds with traditional approaches to social change.

These mindset shifts concern who is engaged, how they work together, and how progress happens. Although not necessarily counterin-

The Five Conditions of Collective Impact

2

Common Agenda

All participants share a vision for change that includes a common understanding of the problem and a joint approach to solving the problem through agreed-upon actions.

Shared Measurement

All participating organizations agree on the ways success will be measured and reported, with a short list of common indicators identified and used for learning and improvement.

Mutually Reinforcing Activities

A diverse set of stakeholders, typically across sectors, coordinate a set of differentiated activities through a mutually reinforcing plan of action.

Continuous Communication

All players engage in frequent and structured open communication to build trust, assure mutual objectives, and create common motivation.

Backbone Support

An independent, funded staff dedicated to the initiative provides ongoing support by guiding the initiative’s vision and strategy, supporting aligned activities, establishing shared measurement practices, building public will, advancing policy, and mobilizing resources.

Collective Insights on Collective Impact

Fay Hanleybrown is a managing director at FSG. She was previously a consultant at McKinsey & Company.

Jennifer Splansky Juster is director of the Collective Impact Forum. She was previously a consultant at Triage Consulting Group.

tuitive, they can be highly countercultural and therefore can create serious stumbling blocks for collective impact efforts.

MI NDSET SHI FT ONE : W H O I S I N VO LVE D

Get all the right eyes on the problem | As

we said in our 2011 SSIR article: “Collective impact is the commitment of a group of important actors from different sectors to a common agenda for solving a specific social problem.” By their very nature, these complex problems cannot be solved by any single organization or sector alone. Yet many collaborations that seek to solve complex social and environmental problems still omit critical partners in government and the nonprofit, corporate, and philanthropic sectors, as well as people with lived experience of the issue. Including the often radically different perspectives of these diverse players can generate more meaningful dialogue.

Cross-sector perspectives can improve collective understanding of the problem and create a sense of mutual accountability. In New York, a group of cross-sector leaders came together in 2010 to reform the juvenile justice system, which was widely viewed as inefficient, ineffective, and unsafe, with high youth recidivism rates. The group included leaders from law enforcement, the governor’s office, large state and local agencies, community advocates, judges, and private philanthropic and nonprofit organizations. Many of those partners had never worked together before, and some had dramatically different views. Over several months this group grappled with their differing viewpoints and ultimately created a shared vision for reform: to promote youth success and improve public safety. This effort now has backbone staff embedded in the state’s Division of Criminal Justice Services to coordinate action among hundreds of participant organizations. After three years, the effort has built upon earlier successes and contributed to remarkable results: The number of youths in state custody has declined by a stunning 45 percent, and

Illustrations by Mitch Blunt

Essential Mindset Shifts for Collective Impact

John Kania is a managing director at FSG. He was previously a consultant at Mercer Management Consulting and Corporate Decisions Inc.

Illustrations by Mitch Blunt

juvenile arrests are down 24 percent, with no increase in crime or risk to public safety.2 In addition to engaging the formal sectors, we have learned the importance of working with people who have lived experience.

Too often, the people who will ultimately benefit from program or policy changes are excluded from the process of understanding the problem and then identifying and implementing solutions. Authentic engagement with people who are experiencing the problem at first hand is critical to ensuring that strategies are effective. For example, young people play a critical role in Project U-Turn, a collective impact effort in Philadelphia that focuses on improving outcomes for disconnected youths by reconnecting them to school and work. Its Youth Voice working group focuses on ensuring that young people are integrated into all aspects of Project UTurn, including participation at committee

meetings. Youths also participate in specific projects, such as developing a public awareness campaign about school attendance. And the approach has paid off: Project U-Turn has seen an increase of 12 percentage points in high school graduation rates in Philadelphia since the program’s inception in 2005.3 MI NDSET SHI FT two : HOW PEOPLE WOR K TOGET HE R

The relational is as important as the rational

| In his “Slow Ideas” article in the July 29, 2013, issue of The New Yorker, systems theorist Atul Gawande asked why some powerful and well-documented innovations that help cure social ills spread quickly, whereas others do not. One of the answers to that question was found in the global problem of death in childbirth. Every year, 300,000 mothers and more than six million children die around the time of birth, largely in the poorest countries.

As Gawande points out, many—perhaps the majority—of these deaths are preventable.

Simple lifesaving solutions to the causes of these deaths have been known for decades, but they just haven’t spread.

Why is this? Gawande quotes the late scholar Everett Rogers: “Diffusion is essentially a social process through which people talking to people spread an innovation.” Gawande illustrates this observation by describing a birth trainer in northern India who, after more than five visits, convinced a birth attendant in a rural hospital to include evidence-based childbirth practices. The attendant adopted the new practices because the trainer built a trusting relationship with her, not because of how convincing the evidence-based practices were. To quote Stephen M. R. Covey, and a common view in the community development world, change happens at “the speed of trust.”4 Collective Insights on Collective Impact

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S u p p l e m e n t t o S S I R s p o n s o r e d b y T h e C o l l e c t i v e I m pa c t F o r u m

We have seen that data and evidence are critical inputs for collective impact efforts, but we must not underestimate the power of relationships. Lack of personal relationships, as well as the presence of strong egos and difficult historical interactions, can impede collective impact efforts. Collective impact practitioners must invest time in building strong interpersonal relationships and trust, which enable collective visioning and learning. Reflecting on the recent success of the juvenile justice reform effort in New York, one leader commented: “There is now a shared sense of why we’re doing things and where we want to drive the system to be. The process of having sat at the same table and gotten to know one another has really changed our work and the level of trust we have in each other.” Collective impact can succeed only when the process attends to both the use of evidence and the strengthening of relationships.

Structure is as important as strategy | When beginning a collective impact initiative, stakeholders are often tempted to focus on creating a “strategy”—a specific, tangible set of activities that they believe will ensure progress toward their goal. Although it is important to have a sense of how partners will address a problem, the fact is that in many cases the

solutions are not known at the outset. We believe that a critical mindset shift is needed: Collective impact practitioners must recognize that the power of collective impact comes from enabling “collective seeing, learning, and doing,” rather than following a linear plan. The structures that collective impact efforts create enable people to come together regularly to look at data and learn from one another, to understand what is working and what is not.

Such interaction leads partners to adjust their actions, “doubling down” on effective strategies and allowing new solutions to emerge.

Collective impact efforts coordinate the actions of dozens—sometimes hundreds—of organizations, and this coordination requires an intentional structure. As we wrote in the Jan. 26, 2012, SSIR article “Channeling Change: Making Collective Impact Work,” cascading levels of collaboration create multiple ways for people to participate, communicate lessons, and coordinate their effort. By structuring how stakeholders share information and engage with each other, initiatives enable collective insights that identify new strategies as the process develops.

Sharing credit is as important as taking credit | One of the biggest barriers to collective

impact that we have seen is the desire by indi-

vidual organizations to seek and take credit for their work. This tendency is understandable, particularly in an environment where nonprofit organizations are frequently asked to demonstrate evidence of their unique impact to receive scarce grant funding, boards hold foundation staff accountable for results, and companies look to strengthen their brands.

Nevertheless, seeking to take direct credit is extremely difficult in large-scale collaborations, and it can inhibit participants from making decisions that are aligned with the broader system and common agenda and hamper their efforts to create mutually reinforcing activities. We do not imply that organizations should not rigorously evaluate their own work and how it contributes to shared outcomes, but rather that organizations should think about their decisions in the context of others. Doing so also requires a behavior change among public and private funders, who must recognize an organization’s contribution toward the common agenda rather than seeking evidence of attribution of a grantee’s work.

For collective impact efforts, sharing credit with others can be far more powerful than taking credit. Consider the Partnership for Youth in the Franklin County and North Quabbin region of Massachusetts, a coalition that over

Maintaining the Integrity of a Collective Impact Approach The pace at which the concept and language of collective impact

their frustration that some funders are creating programs mandat-

have spread over the last three years is inspiring. We are encouraged

ing participation in collective impact that force grantee cohorts to

to see that many organizations in the social and private sectors have

collaborate with each other in ways that are inconsistent with the

embraced the concept as a new way to achieve large-scale systems

cross-sector, emergent collective impact approach. Neither of these

change. Practitioners, funders, and policymakers have begun to recog-

occurrences is useful to advancing efforts to achieve positive and

nize that solving complex social problems at a large scale can happen

consistent progress on a large scale.

more effectively when actors work together, rather than through

important. For the field to continue to embrace collective impact

for the field.

as a path to large-scale change, efforts appropriately identifying

Unfortunately, we have also observed that along with enthusiasm

4

Maintaining the integrity of the collective impact approach is

isolated programs and interventions—a tremendously important shift

themselves as collective impact must see results. In addition, to avoid

about this momentum, “collective impact” has become a buzzword

movement away from collective impact as the preferred way the

that is often used to describe collaborations of all types. Many efforts

social sector does business, we must help efforts inaccurately calling

using the term do not resemble the uniquely data-driven, cross-sector

themselves collective impact to better understand the important

approach that employs the five conditions of collective impact.

changes they need to make to increase their odds of success. The

Nor are they intentional about building the structure and relation-

stakes are high. If, through misinterpretation and disappointment in

ships that enable the emergent, continuous learning over time that

collective impact, the current tide toward working collectively were to

is critical to collective impact. Many funders report frustration at

turn—and working in isolation were once again to become expected

receiving grant applications that claim to use collective impact but do

and accepted organizational behavior—society’s potential to achieve

not resemble the approach at all. Conversely, grantees have shared

urgently needed progress will be severely diminished.

Collective Insights on Collective Impact

the past 10 years has made significant progress in reducing substance abuse and other risky behavior by young people.5 The backbone team consistently puts the work of the coalition in the forefront, publicly giving awards to a select number of coalition members. Award plaques are given annually, and the same plaque is passed around each year with the recipient’s names added so that partnership members can see how their work builds over time. The backbone staff also has held press conferences highlighting the work of the school districts and other partners to draw attention to their contributions. The ethos of the coalition is summarized by this statement from one of the coalition leaders: “We always think about who we can blame the good results on.”

MI NDS ET S HI F T THREE: HOW P RO GR E SS HAP P EN S

Pay attention to adaptive work, not just technical solutions | Collective impact initiatives

are designed to help solve complex social and environmental problems. As we described in the July 21, 2013, SSIR article “Embracing Emergence: How Collective Impact Addresses Complexity,” complex problems are unpredictable and constantly changing, and no single person or organization has control.

Such problems require adaptive problem solving.6 Because the answer is often not known at the outset, participants must engage in continuous learning and adaptation. Collective impact allows for adaptive problem solving by pushing multiple organizations to look for resources and innovations to solve a common problem, enabling rapid learning through continuous feedback loops, and coordinating responses among participants.

In contrast, much of the social sector has historically focused on identifying technical solutions, which are predetermined and replicable. Indeed, technical solutions are often an important part of the overall solution, but adaptive work is required to enact them. In the juvenile justice reform work in New York, for example, many stakeholders knew that keeping incarcerated youths in or close to their home communities, where they receive services and support, would likely improve outcomes. Yet although this technical solution was clear, the question of how to enact the policy was not—it required an adaptive solution. By building trust and establishing shared aspirations among previously contentious stakeholders, the collective impact effort helped pave the way for implementation

of Close to Home legislation. The success of the initiative in bringing about much needed policy change—the new policy was signed into law by the governor in 2012—demonstrates the emphasis collective impact efforts must place on adaptive work that creates the processes, relationships, and structures within which real progress can unfold at an accelerated pace.

Look for silver buckshot instead of the silver bullet | Achieving population-level

change, the ultimate goal for collective impact initiatives, requires all stakeholders to abandon the search for a single silver bullet solution. Instead, they must shift their mindset and recognize that success comes from the combination of many interventions.

This mindset shift—from seeking a silver bullet solution to creating silver buckshot solutions7—is important for initiative partners as well as public and private funders.

For practitioners, this shift means thinking about their work as part of a larger context and considering how their contribution fits into the larger puzzle of activities. Funders and policymakers similarly must shift from investing in individual, single-point interventions toward investing in processes and relationships that enable multiple organizations to work together.

In the case of juvenile justice reform in New York, multiple efforts in concert dramatically and quickly reduced the number of incarcerated youths. Partners created linked data systems, which allowed agencies to coordinate more effectively. They also established a public database of evidence-based programs for young people in the court system, which enabled providers and families to understand and use the many programs available with greater transparency and access than previously possible. Furthermore, they assembled evidence about alternative sentencing outcomes, which allowed judges to avoid incarcerating young people for misdemeanor offenses only.

Finally, they enhanced coordination among government agencies and nonprofit providers.

They enacted many additional changes at the organizational, local, and state levels. None of these changes would have been sufficient for large-scale change on its own, but taken together they represented a shift in the system that benefits thousands of young people and communities across the state.8 The shift toward silver buckshot solutions does not minimize the importance of high quality individual programs, interventions,

and policies. Rather, it emphasizes that each of these programs and policies is necessary, but not sufficient, for success. Rather than isolating individual programs and trying to scale them up, collective impact works best when it focuses on the ways that strong individual interventions or policies fit together and reinforce each other to solve a complex problem. This mindset is highly countercultural for many public and private funders, and for practitioners who design and implement their work in isolation from others.

CONC LUSI ON

The widespread momentum around collective impact is exciting. It demonstrates a vital shift for organizations, away from considering their work in isolation and toward seeing their work in the context of a broader system, paving the way for large-scale change. The five conditions, however, are not by themselves sufficient. Achieving collective impact requires the fundamental mindset shifts we have described here—around who is involved, how they work together, and how progress happens. These shifts have significant implications for how practitioners design and implement their work, how funders incentivize and engage with grantees, and how policymakers bring solutions to a large scale.

Without these vital mindset shifts, collective impact initiatives are unlikely to make the progress they set out to accomplish. ● Notes

1 Examples of collective impact that pre-date the Winter 2011 “Collective Impact” article include, but are not limited to, the Strive Partnership, the Elizabeth River Project, Shape Up Somerville, Living Cities’ Integration Initiative, Communities that Care, Ready by 21, Vibrant Communities, and GAIN. 2 New York State Division of Criminal Justice Services: Uniform Crime Reporting and Incident-Based Reporting System, Probation Workload System, and DCJS-Office of Court Administration Family Court JD/DF Case Processing Database. NYS Office of Children and Family Services detention and placement databases. New York State Division of Criminal Justice Services Office of Justice Research and Performance: Juvenile Justice Annual Update for 2012, May 21, 2013.

3 Four-year Cohort Graduation Rate, School District of Philadelphia.

4 Stephen M. R. Covey, The Speed of Trust, 2006.

5 The coalition has reduced binge drinking rates among young people by 50 percent, and alcohol, cigarette, and marijuana use by 33, 33, and 39 percent respectively; 2003-2012 Annual Teen Health Survey for Franklin County and the North Quabbin Prevention Needs Assessment.

6 Ronald A. Heifetz coined the term “adaptive problems” in his seminal body of work on “adaptive leadership.”

7 The notion of “silver buckshot” has been frequently used in the field of climate change by people such as Al Gore, Bill McKibben, and Jim Rogers.

8 New York State Juvenile Justice, Progress Toward System Excellence; New York Juvenile Justice Advisory Group, Tow Foundation, FSG; January 2014.

Collective Insights on Collective Impact

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S u p p l e m e n t t o S S I R s p o n s o r e d b y T h e C o l l e c t i v e I m pa c t F o r u m

Defining Quality Collective Impact To sustain collective impact, we must bring more rigor to the practice by drawing on lessons from a diverse array of communities to define what truly makes this work unique.

By Jeff Edmondson & Ben Hecht

Collective impact is at a strategic inflection point. After almost three years of extraordinary hype, investors are wondering what this concept really means when they receive proposals that simply replace the term “collaboration” with “collective impact.”1 Researchers are perplexed by so-called new ways of doing business that look eerily similar to what they have already studied. And most important, leaders and practitioners in communities are confused about what it really means to put collective impact into action.

As the founding managing director (Jeff Edmondson) and a national funder (Ben Hecht) of StriveTogether, we remain bullish on the concept of collective impact. For us, it is the only path forward to address complex social problems—there is no Plan B. Yet to realize its promise, we need to define in concrete terms what “quality collective impact” really means. For that reason, we have spent the last 18 months aggressively working on a coherent definition to increase the rigor of these efforts, so that this concept does not become watered down. We feel confident that if we agree on core characteristics, we can stop the unfortunate trend of “spray and pray”—haphazardly launching programs and initiatives and hoping that good things will happen. Instead, we can crystallize the meaning of collective impact and solve seemingly intractable problems.

First, some background on the organization. StriveTogether is an outgrowth of The StrivePartnership in Cincinnati, Ohio, which is based at KnowledgeWorks and was featured in the first article on collective impact, published in the Winter 2011 issue of Stanford Social Innovation Review. StriveTogether has pulled together more than 45 of the most committed communities around the country to form the StriveTogether Cradle to Career Network. Its aim is not to start new programs—we have plenty. Instead, the network 6

Collective Insights on Collective Impact

is focused on articulating how cross-sector partners can best work together to identify and build on what already works—and innovate as necessary—to support the unique needs of every child.

Fortunately, the members of the network have been willing to “fail forward” by sharing not only their successes, but also their struggles, using the lessons they have learned to advance the field. Their experiences during the last three years have contributed to the creation of a vital tool called the StriveTogether Theory of Action (TOA), which provides a guide for communities to build a new civic infrastructure.2 The TOA highlights a community’s natural evolution and provides the quality benchmarks that, taken together, differentiate this work from traditional collaboration. It uses what we call “gateways,” or developmental stages, to chart the path from early on (“exploring”), through intermediate and later stages (“emerging” and “sustaining”), and finally to “systems change,” where communities see improvement in educational outcomes. We define systems change as a community-wide transformation in which various partners a) proactively use data to improve their decision-making and b) constantly weigh the impact of their decisions on both their own institutions and the broader ecosystem that works to improve the lives of children. The ultimate result—which we are witnessing beyond Cincinnati in partnerships like The Roadmap Project in Seattle—are examples of communities where we see sustained improvement in a limited set of measurable outcomes that are critical for kids to succeed and for communities to thrive.

The TOA is not perfect: for example, we realize this work is not linear. Nonetheless, the framework captures the fundamental building blocks necessary for collective impact. As more

Jeff Edmondson is managing director of StriveTogether, a subsidiary of KnowledgeWorks. He was previously executive director of The Strive Partnership.

Ben Hecht is president and CEO of Living Cities. He was previously co-founder and president of One Economy Corporation.

communities adopt it, it will help us identify the most important aspects of our work.

Four Principles

Four principles underlie our work across the Theory of Action and lead to long-term sustainability.

Build a culture of continuous improvement | Data can be intimidating in any field,

but this is especially true in education, where numbers are most often used as a hammer instead of a flashlight.3 To counter this pitfall, community leaders from Albany, N.Y., to Anchorage, Alaska, are creating a culture that embraces data to generate ongoing improvement.4 At the heart of this process lie the “Three I’s”: identify, interpret, and improve.

Community leaders work with experts to identify programmatic or service data to collect at the right time from a variety of partners, not simply with individual organizations.

They then interpret the data and generate user-friendly reports. Last, they improve their efforts on the ground by training practitioners to adapt their work using the new information.

Dallas’s Commit! partnership provides a good example. There, leaders identified schools that had achieved notable improvement in third grade literacy despite long odds. The backbone staff worked with practitioners to identify the most promising schools and interpret data to identify the practices that led to improvements. District leaders are now working to spread those practices across the region, using data as a tool for continuous improvement.

Eliminate disparities | Communities nationwide recognize that aggregated data can mask real disparities. Disaggregating data to understand what services best meet the needs of all students enables communities to make informed decisions. For the All Hands Raised partnership in Portland, Ore., closing the opportunity gap is priority number one. It disaggregates data to make disparities visible to all and partners with leaders of color to lead the critical conversations that are necessary to address historic inequities. The partnership engaged district leaders to change policies and spread effective practices. Over the last three years, the

graduation gap for students of color has closed from 14.3 percent to 9.5 percent. In several large high schools the gap is gone.

Leverage existing assets | The all-toocommon affliction “project-itis” exerts a strong pull on the social sector, creating a powerful temptation to import a new program instead of understanding and improving the current system. At every level of collective impact work, practitioners have to devote time, talent, and treasure toward the most effective strategies. Making use of existing assets, but applying a new focus to them, is essential to demonstrating that collective impact work truly represents a new way of doing business, not just an excuse to add new overhead or create new programs. In Milwaukee, Wis., and Toledo, Ohio, for example, private businesses lend staff members with relevant expertise to help with data analytics so that communities can identify existing practices having an impact.

Engage local expertise and community voice | Effective data analysis provides a pow-

erful tool for decision-making, but it repre-

sents only one vantage point. Local expertise and community voice add a layer of context that allows practitioners to better understand the data. Success comes when we engage partners who represent a broad cross-section of the community not only to shape the overall vision, but also to help practitioners use data to change the ways they serve children. In San Diego, the City Heights Partnership for Children actively engages parents in supporting their peers. Parents have helped design an early literacy toolkit based on local research and used it to help other families prepare children for kindergarten. As more families become involved, they are actively advocating early literacy as a priority for local schools.

drawing on lessons from a diverse array of communities and defining in concrete terms what makes this work different. The StriveTogether Theory of Action represents a step in that direction, building on the momentum this concept has generated during the past three years.

As US Deputy Secretary of Education Jim Shelton has simply put it: “To sustain this movement around collective impact, we need ‘proof points.’” These come from raising the bar on what we mean by “quality” collective impact and challenging ourselves to meet higher standards. In so doing, not only will we prove the power of this concept, but we can change the lives of children and families in ways we could never have imagined. ● Notes

The P romise of Quality Collective I mpact

Collective impact efforts can represent a significant leap in the journey to address pervasive social challenges. But to ensure that this concept leads to real improvements in the lives of those we serve, we must bring rigor to the practice by

1 http://www.strivetogether.org/blog/2012/11/ the-difference-between-collaboration-and -collective-impact/ 2 http://www.strivetogether.org/sites/default/files/ images/StriveTogether%20Theory%20of%20 Action_0.pdf 3 Aimee Guidera from Data Quality Campaign 4 http://www.albanypromise.org/; http:// www.90by2020.org/

Theory of Action: Creating Cradle to Career Proof Points B u i l d i n g

I m p a c t

Gateways Exploring Pillar 1: Shared Community Vision

Establish cross-sector partnership with common vision and geographic scope

n

Emerging Release baseline report with disaggregated data

n

Sustaining Operate with roles and responsibilities defined in the accountability structure

n

Communicate consistent messages across partners

n

Inform community of progress to build momentum

n

Formalize partnership messages for multiple audiences

n

Share accountability among partners to improve selected community level outcomes

Demonstrate shared accountability for improving outcomes Communicate attribution of success and recognition of challenges

n

Collect and disaggregate baseline data for each indicator

Refine indicators to improve accuracy and validity

Share data appropriately in a timely manner to enable continuous improvement to improve outcomes

Pillar 2: Evidence Based Decision Making

n

Pillar 3: Collaborative Action

n

Commit to using a continuous improvement process to improve outcomes

n

Form networks of practitioners and other partners around community level outcomes

n

Create networks of practitioners and other partners to improve outcomes while lifting up opportunities and barriers to partners for further improvement

n

Pillar 4: Investment and Sustainability

n

Establish an anchor entity and the capacity to support the daily management of the partnership

n

Create the capacity to support daily management, data collection, facilitation, communication, and community engagement

n

Improve outcomes by mobilizing the community behind what works, allocating and aligning resources to what works, and establishing advocacy agendas to change policies

n

Identify core indicators related to each outcome

n

Engage funders to support the work of the partnership

n

Proof Point

Create partnership that continues even after changes in leadership at partner organizations

n

n

n Convene a leadership table with a documented accountability structure

Systems Change

n

Prioritize a subset of core indicators for initial focus

n

Motivate partners to support the operations of the partnership n

n

Collect and connect programmatic data to core indicators in order to enable continuous improvement

n

n

The majority of indicators consistently improving Use continuous improvement to identify and spread practices that improve indicators related to community level outcomes

Align financial and other community resources to what works to improve outcomes

n

Secure sustainable funding

Shape policy to enable and sustain improvement

n

For a more complete version of this table visit www.strivetogether.org

Collective Insights on Collective Impact

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S u p p l e m e n t t o S S I R s p o n s o r e d b y T h e C o l l e c t i v e I m pa c t F o r u m

The Role of Grantmakers in Collective Impact Grantmakers can catalyze connections and lay the groundwork for collective impact initiatives to take shape.

By Lori Bartczak

At the Mary Reynolds Babcock Foundation, program staff members have taken on a new title: network officer. This shift, although subtle, signals an important change in how foundation staff members see their role in supporting nonprofit and cross-sector networks such as the Central Appalachian Network (CAN), a collective impact initiative focused on community-based and sustainable economic development in the region.

To catalyze a collective impact initiative focused on education and youth development, staff members at the Kalamazoo Community Foundation in Michigan brought partners together and then left the room while nonprofit leaders and community members worked out the initiative’s strategic plan.

These examples provide two ways that grantmakers are embracing the potential of collective impact efforts. Grantmakers rightly see themselves as critical partners—more than just funders—of programs to bring fields and communities together to tackle complex issues and bring about lasting change. They catalyze connections and lay the groundwork for initiatives to take shape. But because of their position and the power dynamics inherent in the relationship between grantmakers and grantees, they also perform a delicate balancing act.

The experiences of grantmakers like the Babcock Foundation, the Kalamazoo Community Foundation, and others provide three important lessons for all grantmakers involved in collective impact efforts: to understand and balance partners’ varied needs; to catalyze connections with care; and to fund the costs of collaboration.

Understand and Balance Partners’ Varied N eeds

Successful partnerships recognize that everyone involved expects both to contribute and to receive a benefit from participating.

In collective impact initiatives, grantmakers 8

Collective Insights on Collective Impact

Lori Bartczak is vice president of programs at Grantmakers for Effective Organizations.

align their investments. In fact, after bumping into one another at various meetings of their mutual grantees, several of CAN’s funding partners decided to better understand one another’s interests. “We recognized that we each had specific theories of change,” says Sandra Mikush, deputy director of the Babcock Foundation. “We weren’t trying to convince each other to adopt one theory of change; we were just trying to understand what was driving each funder’s interest in this network. We looked at our collective interest and realized we wanted to align our funding to the network for better impact.” These conversations led to the creation of a parallel group of grantmakers, the Appalachia Funders Network, which includes 30 official members and more than 50 non-member participants. The network rep-

form partnerships with other grantmakers, grantees, and others, and they must understand their partners’ needs and motivations.

The cross-sector nature of collective impact efforts can often mean a steep learning curve.

When partnering with other grantmakers to determine a funding strategy, for example, partners have to negotiate the terms of each grantmaker’s involvement. Partners must ask questions like What is each grantmaker’s vision for the initiative? How does this work fit into the grantmaker’s broader strategy? How Being an effective partner in collective can we accommodate impact requires flexibility, long-term these varying needs? commitment, and a willingness to share “Grantmakers have power and decision-making with others. to be self-aware enough to know they have needs and resents a broad spectrum of public and private confident enough to disclose their self-interest funders that supports economic development in such a way that it doesn’t become ‘these are in Central Appalachia, including all of CAN’s my terms and conditions,’” says Carrie Pickettpast and present funders.

Erway, president and CEO of the Kalamazoo When it came to funding CAN’s efforts, Community Foundation. Her organization the Babcock Foundation paid attention to the supports The Learning Network of Greater types of support other grantmakers provided Kalamazoo, a collective impact initiative that and then stepped in to fill gaps. For example, aims to ensure that every child in the county is a national grantmaker was interested in repready for school, college, and career. licating a specific strategy for economic deMany funders are following Pickett-Erway’s advice. One example is CAN, which began velopment, but some local grantmakers faced geographic restrictions for their funding. The in 1993 as a loose network of grassroots orgaBabcock Foundation therefore decided to nizations devoted to economic sustainability provide multi-year general operating support in the Appalachian regions of Kentucky, Ohio, to individual organizations that were part Virginia, and West Virginia. Since then, CAN of the network as well as to the network as a has evolved into a collective impact initiative whole to help ensure its long-term success. focused on advancing economic development That funding filled important gaps in support, strategies to increase the region’s resilience and sustainability. The organization consists of such as network coordination functions, capacity building, and operational expenses six nonprofit organizations from five different such as meeting and travel costs. states, whose activities are coordinated by a “As a collective impact network, CAN has backbone support organization. to attract a variety of funders, and that means A variety of funders support CAN, includwe’re satisfying multiple interests that aren’t ing national and regional foundations and always aligned at the same time,” says Andrew government agencies, all of which have unique Crosson, CAN’s network coordinator and a priorities but increasingly work together to

program associate at Rural Support Partners, a backbone support organization. “It’s been valuable how connected CAN’s funders are. It helps them be aware of their differing priorities and how they can complement each other by supporting the different functions of the network that help it grow and work more effectively.”

Questions for grantmakers to consider as they balance needs: What is my vision for this work? What assumptions do I bring?

■■ What is my organization most interested in supporting? What needs won’t be met?

■■ How flexible am I willing to be?

■■ Where might my organization add unique value to the initiative?

■■ What do I know about my funding partners’ interests and needs?

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Catalyz e Connections with Care

Grantmakers have a unique big-picture view of what’s happening on issues and in communities that helps them to catalyze collective impact initiatives. Grantmakers can take advantage of this position by connecting nonprofits with each other to explore whether a partnership might emerge, using their connections to introduce grantees to decisionmakers they may not meet otherwise. And they can use their convening power to bring diverse groups of stakeholders together for big-picture conversations.

There is, however, an important line that grantmakers must walk. They must realize that their role is to offer the connections and then step back to see what emerges, rather than force connections or mandate strategies.

Nonprofits, community members, and other partners have hands-on knowledge and experiences that are just as important as grantmakers’ big-picture views. Shaping collective impact strategy requires both perspectives.

The Babcock Foundation, for example, has supported CAN by connecting members and other regional groups or partners, putting the idea of what they call a “network officer” to work. “Our vision of our role as network officers is to spend time in a place, understand where the momentum is, and where there’s good work going on and some potential partners,” says Mikush.

In collective impact initiatives, grantmakers must be one voice among many in shaping strategy and goals. Such a role reflects a significant shift from a traditional strategic philanthropy approach, where grantmak-

ing organizations execute their individual theories of change.

Consider the relationship between grantmakers at the Kalamazoo Community Foundation and the Learning Network. When Learning Network members were determining strategy, staff of the Kalamazoo Community Foundation decided that it was better for them to literally walk away so they would not unduly influence the strategy. “The foundation took the lead in bringing people together to talk about strategy, but as the conversation evolved, Pickett-Erway and her staff felt they were getting in the way of progress. “It felt like rather than being honest about what needs to happen, community leaders were looking at us and asking, “Well, what do you want to fund?” So we stepped back, which allowed them to step forward and drive the plan,” says Pickett-Erway.

When the foundation staff left the room, the group moved in a different direction. The foundation accepted and supported the new plan, demonstrating their trust in their partners.

Establishing this level of trust is critical.

For the Babcock Foundation and the Kalamazoo Community Foundation, trust was rooted in organizational culture and values. “A fundamental value that has been part of the Babcock Foundation since its founding 60 years ago is that people in communities know best how to address the problems,” says Mikush.

Trust, inclusion, and respect are important values at the Kalamazoo Community Foundation as well. Over the past few years, the foundation has worked on improving diversity, inclusion, and equity, and its work has been critical in generating meaningful contributions from the community to shape the Learning Network.

“You have to invite people to the table who look different and see the world differently in order for you to come up with better ideas,” says Pickett-Erway. “Once they’re at the table, you have to be able to create the right conversation so that they feel like they’re truly invited to share that perspective; they’re not just there as a token. A lot of that is, as a community leader, being self-aware enough to step back, to close your mouth, to let them start the conversation, to let them start the idea generation, and when they do, honor it, listen, and value it.”

Questions for grantmakers to consider in catalyzing connections with care: ■■

What knowledge or connections do I have that could be valuable to the initiative?

How am I balancing the need to catalyze connections with the necessity not to force them?

■■ How do we bring diverse voices to the table in an authentic way?

■■ How open are we to the contributions and ideas of others?

■■ Do collective impact partners have the trust in each other required to work together?

■■

Fund the Costs of Collaboration

When it comes to funding collective impact initiatives, a critical way for grantmakers to lend support is to help cover the costs of keeping a collaboration running. This support could take a variety of forms, such as funding the backbone function, supporting capacitybuilding for network participants or the network as a whole, covering the costs of evaluation, or supporting conventions, research, or other costs. In addition, unrestricted support allows organizations the flexibility to adapt their collective impact initiative to changing circumstances.

The Babcock Foundation’s multi-year general operating support funds some of the individual organizations that are part of CAN as well as the CAN network itself. CAN uses those funds to support the network’s backbone coordination role; cover the costs of meetings, research, and evaluation; and provide passthrough grants to build partner capacity.

“The network partners convinced us that in order to pursue this next level of work, they needed to be able to evaluate, assess, and measure their collective impact,” says Mikush.

“They needed to develop that strategic framework collectively and then measure it.”

In addition to covering expenses that program grants don’t cover, flexible support from Babcock has allowed CAN to operate nimbly and adapt to new needs and opportunities. “If an organization has to wait for a grant cycle to adapt, or wait for a funder to learn about the change and consider whether to be willing to shift from one particular programmatic strategy to another, it severely limits the ability for an organization or a network to adapt,” says Mikush. “Providing general operating support based on essential outcomes gives the funder accountability but leaves much more flexibility to adapt strategy and partners in other ways to get to the outcomes. We stay in touch with grantees so we understand the rationale behind these adjustments.”

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Long-term support is just as important as flexible dollars. Collective impact initiatives address systemic issues and have long timeframes for change, so grantmakers must be willing to stick with them for the long haul and maintain realistic expectations about the pace of change.

“We are putting in a $5 million, five-year commitment to the Learning Network and recognize even that’s not sufficient. Funders have to go into this with their eyes wide open,” says Pickett-Erway.

Grantmakers can support collaboration in other ways as well. In addition to providing funding, the Kalamazoo Community Foundation supports collaboration by dedicating staff time to lead the communications work for the Learning Network.

“Without that dedicated staff capacity from our foundation staff, the Learning Network just wouldn’t be,” says PickettErway. “But it requires us to do that in a way that downplays the community foundation identity as much as possible, so that all the other partners don’t feel like it’s just another community foundation initiative.”

Questions for grantmakers to consider in funding the costs of collaboration: How are we covering the time and expenses this collaboration requires?

■■ Are we giving appropriate resources and attention to evaluation for this initiative?

■■ What are we doing to ensure the longterm sustainability of this initiative?

■■ Does this initiative have the flexibility it needs to adapt to changing circumstances?

■■

Providing a Stable Platform for Success

To make the most effective contributions to collective impact initiatives, grantmakers must be mindful of the ways that they engage in these partnerships. They must balance the varied assets they bring with their own agendas and recognize the inherent power differential.

Being an effective partner in collective impact requires flexibility, long-term commitment, and a willingness to share power and decisionmaking with others. For many grantmakers, this requires a fundamental change in approach. When grantmakers are able to strike the right balance, however, they are more likely to meet the needs of the initiative and provide a stable platform for success. ● Many thanks to Emily Wexler for her contributions to this article.

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Power Dynamics in Collective Impact Collective impact initiatives must build the power needed to accomplish their common agenda.

By Mary Jean Ryan

Collective impact initiatives are movements for social change, and they cannot succeed without achieving significant shifts in power and practice in their communities. Collective impact work requires the creation and activation of new forms of power as well as the use of powerful strategies, tools, and tactics to create large-scale systemic change. For these reasons, people involved in collective impact initiatives must understand and carefully consider power dynamics.

To achieve large-scale change, collective impact initiatives must disrupt the status quo. In each community, a particular array of power holds the present system structures in place and accounts for present-day outcomes.

Generally, the status quo has been built over a long period of time by the actions of many.

The central actors are often unaware of the full extent of their complicity in any negative outcomes, or of how their roles and actions reinforce those of others.

Over time, systems often become servants to themselves. The actions of many reinforce the system’s strong hold and its resistance to change. This change resistance can be seen in many education institutions, which, even in the face of enormous change in labor market requirements and student demographics, operate as they have for decades.

For the past four years, my organization, Community Center for Education Results (CCER), has helped support the development and implementation of the Road Map Project, a “cradle to college and career” collective impact effort in South Seattle and the South King County area of Washington State. CCER provides the backbone support for this effort.

The Road Map Project region is very diverse demographically, and poverty rates in the area have skyrocketed over the last two decades. The project’s geographic area includes seven school districts serving more than 120,000 students. Our goal is to double

the number of students in South King County and South Seattle who are on track to graduate from college or earn a career credential by 2020 and to close racial and ethnic opportunity gaps. Effectively managing and engaging power has been central to our ability to make progress in our work, as it is for many collective impact efforts. As the work evolves, we are constantly learning about the dynamics and use of power. I want to share a few of the lessons that we have learned so far.

Know your context | It is not a simple thing to develop power and use it effectively for change. Collective impact leaders need to know who holds the reins of power and how these actors are best influenced. They need to understand their allies as well as their foes.

They need to know how to build powerful coalitions composed of a diverse group of actors, and they must accept conflict as a natural part of social change.

To understand the dynamics of power it is essential for collective impact leaders to understand the context within which they work and to stay vigilant because context shifts frequently. For example, when we started the Road Map Project, the economy was in a recession and governments were retrenching.

Now, four years later, the context has shifted; money is beginning to flow again, and the opportunities are different.

Test for favorable wind conditions | About a year before the formal start of the Road Map Project, I did a lot of digging into our regional context to assess the appetite for change. I talked with a host of regional leaders including education advocates, neighborhood youth service providers, K-12 superintendents, community college presidents, foundation leaders, nonprofit executives, housing authority leaders, and city officials. To a person, they felt a strong discontent with the status quo

Mary Jean Ryan is the executive director of the Community Center for Education Results, which staffs the Road Map Project.

She was previously director of the City of Seattle’s Office of Policy and Management.

and expressed a willingness to work in new ways. Their frustrations and their commitment to work for change were essential ingredients for building a new counterforce.

Conditions were looking favorable.

Even more important than widespread discontent, however, community hopes and aspirations were also pointing toward the need to dramatically improve educational attainment. One way we initially gauged community attitudes and priorities was by conducting a large public opinion poll of our region’s parents. The poll found an overwhelming desire of parents of all races and income levels for their children to be able to go on to college. The community’s hopes and dreams—as well as the widespread desire of many stakeholders to change the status quo— were like gathering winds that eventually join together to become a gale.

Build collective power | Collective impact ini-

tiatives develop their power by building large, diverse, multi-sector coalitions committed to a clear purpose and a common agenda. By working beyond individual agendas, one can create strength in numbers. When hundreds of organizations and community leaders band together in pursuit of common objectives, new power is generated.

Develop alliances between “unusual bedfellows” by focusing on common goals | The

power of a collective approach to create social change often comes from creating alliances among constituencies who don’t usually work together and may even have been traditional foes. Building these alliances can be effective in creating change because it brings pressure to bear on the status quo from multiple angles. For example, an alliance of unusual bedfellows was one of the driving factors behind the Washington State legislature’s rather unexpected passing of “Dream Act” legislation, which makes undocumented immigrant students eligible for state-funded financial aid for college.

The coalition that worked to gain passage of the law was composed of the most unlikely allies. Leading immigrant-rights

groups joined with school district leaders and suburban Republicans, and all pushed the measure to victory. Just one year earlier, the measure was not even brought forward for a committee vote. Good timing played a role, but so did having the common goal of helping more students attend college. The common goal allowed people from a variety of political perspectives and social circumstances to defy stereotypical stances, move past partisan battling, and get something done for an important group of young people in Washington State.

Apply pressure from the outside and inside | Often, the best way to create change is

to apply pressure simultaneously from both the outside and the inside of a system (or important institutions within the system) while engaging people from varied power positions.

I have seen situations in which grassroots activists have enormous power, and where people in positions of formal power have far less actual power than others imagine.

Strong alliances can emerge when people and organizations from the outside and the inside come together around a common goal.

Savvy leaders of institutions see the ability of grassroots activists to push from the outside as a gift rather than a threat because it helps them lead for change. These leaders can use the outside pressure to fight the necessary internal battles.

An example of effective outside-inside power dynamics can be seen in the Road Map Project’s parent engagement work. The project believes that strong parent engagement is fundamental to student success: it has tried a number of tactics to elevate the importance of parent engagement across the region. Along with many partners, the project hosted a successful regional parent forum in the spring of 2013. It then worked with University of Washington researchers, school districts, and community-based parent engagement practitioners to develop a set of common indicators to measure whether parent engagement improves over time.

By putting greater external focus on the need for more effective parent engagement strategies, the Road Map Project is now seeing growing evidence of institutional commitment. Districts are adopting the parent engagement indicators, hiring family partnership directors, and expanding innovative parent leadership approaches. Momentum around this work is accelerating rapidly.

Use competition and data to accelerate progress | In 2007, the state of Washington created

the College Bound Scholarship. Low-income students can receive a full-tuition scholarship, but to become eligible, a student and her parents must sign up by the end of the eighth grade. When the state created the scholarship, it did not put many resources into marketing.

With a few exceptions, the school districts did not see themselves as responsible for getting students and their families signed up.

Because of the lack of outreach only about 50 percent of low-income students signed up for the scholarship. To push the program forward, the Road Map Project created a large coalition from various sectors that has subsequently completed three sign-up campaigns.

It included mayors recording robo-calls to families, community-based organization staff members and school counselors knocking on doors, and public housing authorities and libraries sending home information.

The project’s approach to the sign-up campaigns has revealed that data, produced in the right way and delivered at the right time into the right hands, can be an incredibly useful tool. Every week during the sign-up campaigns, the Road Map Project sent the scholarship sign-up data to school district superintendents, mayors, local newspapers, and parent groups. The data spurred constructive competition among the seven school districts in the project’s region. Best practices were shared and have now become systematized.

In the last sign-up campaign, the coalition achieved a 94 percent sign-up rate in its targeted region, signing up 4,858 students in last year’s eighth grade class.

The effect of the sign-up work has extended into the school system itself. In the past, many high schools tracked low-income students away from college readiness courses. The students placed in college prep classes were those believed to be “college material”—typically white and more affluent. Now almost 100 percent of the low-income students entering ninth grade know that they have a college scholarship waiting for them at the end of high school. The power dynamics and school cultures are shifting as students and their parents demand access to college prep classes as well.

Step by step, a positive counterforce is being built in South Seattle and South King County that, over time, will shift power toward low-income students and their families and will help support courageous leaders trying to do new things inside of old systems. ● Collective Insights on Collective Impact

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Roundtable on Community Engagement and Collective Impact M oderator

Roundtable Participants

Melody Barnes, chair of the Aspen Institute Forum for Community Solutions

Paul Born, president and cofounder, Tamarack Institute

Richard Harwood, founder and president, The Harwood Institute for Public Innovation

Steve Savner, director of public policy, Center for Community Change

Collective impact efforts are often discussed in terms of organizations or sectors, such as business, nonprofit, government, and philanthropy. What is often left out of the discussion is the community itself, even though it is a critical factor in the long-term success of collective impact initiatives. The community includes the individuals, families, networks, and organizations who will be affected by the initiative and who participate in it, but who are not usually considered to have active leadership roles in creating community solutions. It includes, for example, people directly affected by the problem, as well as social service organizations that may not be initially represented on steering committees or working groups.

To advance the conversation about how to engage the community in collective impact, the Aspen Institute Forum for Community Solutions gathered scholars and practitioners for an honest discussion. In this roundtable, the participants discuss why it is important to involve the community actively, how it can be done within a collective impact initiative, and the challenges and pitfalls of engaging the community.

Melody Barnes: I want to start out by asking

what community engagement is. It’s one of those things you think you know when you see it, but let’s get specific. How do you define community engagement?

Steve Savner: From our perspective, community engagement needs to include people in the community—the people who are trying to be helped by the various services. They should be involved in a very genuine way in identifying community needs, developing ideas about solutions, and then helping to oversee and continuously improve the program. It’s all about the constituency having a real role and an actual seat at the table.

Martin Zanghi: It’s a method, a strategy, a way

of creating relationships for people who have been affected by poverty, social and economic

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injustice, and racism. It’s about providing people who haven’t had a voice the opportunity to share leadership and develop their skills to get practitioners and policymakers to actually listen. The most powerful voices that I’ve experienced over the last 20 years are youths who have changed policy, changed practices, and changed our belief systems so that we’re actually doing better by the people that we’re trying to serve.

Richard Harwood: Community engagement is an orientation. It’s about who you believe is part of the community and whom you’re willing to see. It means engaging people who have things that only they know and only they can teach us. For instance, only community citizens can tell us their shared aspirations and the challenges to reaching those aspirations. Only they can tell us about their lived

Stacey Stewart, US president, United Way Worldwide

Martin Zanghi, director of youth and community engagement, University of Southern Maine Muskie School of Public Service

experiences with certain challenges, and what kinds of tradeoffs they’re willing to make in their lives. This helps us develop the public will to move forward.

Stacey Stewart: For United Way, it’s a continuous process of listening, understanding, hearing, and acting on reaching those aspirations. I think the tendency is often to do engagement through town halls or meetings at the rec center and then say, “Well, we’ve engaged the community, so now we can go off and do our work for the next three years and never listen to anyone again.” That’s not the kind of engagement that will produce any kind of community-level change.

Barnes: How do you think community engagement fits inside the collective impact approach, which brings together so many different sectors across the community?

Paul Born: On a practical level, community

engagement in collective impact is particularly relevant when putting together a common agenda. It starts by identifying the system that we want to engage. For example, if we’re working on poverty issues, we may bring together government leaders, people from civil society organizations, and corporate leaders who care about the issue. In addition, there is a fourth sector—people who will most benefit from the success of our initiative. We bring them together for a series of experiences that

allow them to enter into the issue deeply.

In the process of working and talking across sectors, new ideas are shaped and old ideas are let go. The common agenda is not just a strategic plan. It’s also a commitment to the work moving forward. Community engagement is the process of building a common vision that binds us together.

Zanghi: It’s also about emergent learning—

about providing the time and space for the relationships and the processes to develop. It allows learning to come from the people who aren’t normally part of the conversation, by listening to people with rich life experiences. It’s not an easy practice to let people have that space.

People have practiced elements of collective impact over the years, but the piece that’s not clear to everyone is the process—the time, the trust, and the relationships that go into creating the five conditions of collective impact.

collective impact? Is it serving people or is it building something? What Americans want more than anything else right now is to return to being builders. It’s part of our DNA, part of the founding of the country, and part of how we built communities over the years.

Many people feel that we’ve gotten away from that by being served all the time, by taking on a mindset that we’re consumers and that we can make unlimited demands on limited resources. What I hear from folks in communities more than anything is: “Let’s build something that has meaning and purpose, and let’s demonstrate that we can come together and do things.” We don’t want to revert to the old paradigm that said: “What’s your problem? I have a program for that and you don’t have to do anything, even though you want to help create your own future.”

Stewart: If you look back at history, things have changed at large scale in this country and Savner: One of the issues that we need to around the world when some critical mass of pay attention to is the difficulties that comorganizations comes together and agrees that munities experience with the engagement there is something important to work on. But process. It’s important to think about what this happens only when everyday people believe organizations are in the community that are the issue is really important and are willing run by low-income people and to be sure to to change their own behavior. Not because have those organizations at the table. It is someone tells them to, but because they want to.

They see it as a priority for themselves, their comWhat is often left out of the discussion munities, and their lives. is the community itself, even though it Then there is the is a critical factor in the long-term success issue of creating real of collective impact initiatives. change in the community so that things actuimportant that there is an organization whose ally get better. That’s where this whole idea of mission is to work with low-income folks and engaging people and making them feel a part of that really represents their views. It’s also the process comes in. Even if they didn’t come important because it helps empower lowto the community conversation to share their income people and develop them into leaders. voice, they see their aspirations echoed by others around them and they feel a part of it. They Stewart: The nonprofit sector has always feel like it’s something they want to adopt in tried to solve challenges in a community by their whole life. This is an interesting cultural looking at the services that could be provided. shift in the community that changes behavior.

When things don’t seem to work, nonprofit Barnes: What are some of the biggest pitfalls leaders wonder what happened and realize when trying to take a collective impact approach that they don’t have the perfect solution. that is in harmony with the community?

Nonprofits have a lot of data and perspective, but other perspectives are just as valuable.

Born: I find our biggest pitfall is being able to We have found that, when we do the kind of listen to each other. We create environments listening and engaging with people that is rewhere we are thinking about the solution we quired to drive systemic change, people step want to implement rather than listening to up to lead the change with us. what is going on. Collective impact is very acHarwood: Stacey raises an interesting point. tion oriented. But Peter Senge has this lovely What is the basic frame we’re using to do saying: “Sometimes we have to go slow to go

fast.” If we don’t go slowly in this work, we can very quickly come to solutions that don’t engage people.

Harwood: The biggest obstacle that I see is when we are overrun by the very process we created. Suddenly the goal is to implement timelines to meet deliverables and funding requirements. We lose sight of the community because the project is so heavy that we spend all our time feeding it. Despite our best intentions, we are oriented inward toward our own organization and process. We have to make a commitment to turn outward toward the community and shift our orientation, individually as well as collectively.

A danger with collective impact is that it becomes like a social erector set. We think that if we just put the right pieces together and get the right nuts and bolts in the correct order, then somehow this organic system we call community will go along our nice linear path. We need the humility to confront the actual conditions in communities and begin where the community is, not with our erector set. If we don’t get this right, all the stuff that follows will not matter.

Barnes: I’ve heard from people around the country about perceived challenges when we engage communities and try to ensure that the community voice is a part of our work. But are there also real challenges that we need to address?

Born: I’m going to go to the one that is named

almost 100 percent of the time by backbone leaders: There is not enough time. The perception of time is in an old frame. We have gotten so busy that it is a challenge to convince people to slow down. We somehow have to put the clutter away, which means that boards have to tell their leaders, “We need you to spend time on this.”

So we’re approaching people who don’t necessarily want to lead a collective impact approach but want to be part of one, and we throw out the challenge: “You’ve got to set aside a minimum of 10 percent of your time to work in this process.” That might mean four hours a week, but more important, it sets up a thinking pattern. We’re in so many meetings and we move from thing to thing, so we’ve stopped looking at the larger reason we exist. I think that’s by far the biggest challenge in collective impact work: to get people to rethink and slow down.

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Savner: Whether it’s collective impact or

any other kind of work that requires building relationships and trust, the biggest barrier is frequently the risk to people in the organizations. And that’s real: Your organization and your people have certain needs, and there is always a risk that the process will not come out to your greatest benefit.

People have legitimate concerns and interests. If you’re running an agency, or if you’re an elected official or a community resident, the thing you can do is build trust and relationships. But it seems to me that risks and a lack of trust in the process are the biggest barrier.

Stewart: Whenever there’s a collective impact

exercise, it’s always in the context of what’s happened before. There is baggage in communities. There are things that have happened that didn’t work and relationships that are not going well. It takes patience and understanding to realize how to deal with that context.

From a backbone organization’s perspective, it’s important to understand that being the backbone doesn’t mean you are in control.

At some level, if you want to have the community engaged in a process, it has to be the community’s process, not the backbone’s.

That is often difficult for people to accept because they might assume they can take control and move the process according to their timetable, and that’s not the case.

Last, a piece of this engagement puzzle is both an opportunity and a challenge for some folks. There is a whole new world of engagement that we haven’t fully adopted or seen the full potential of—digital and mobile space, and online engagement. So we may think about engagement in the classic, in-person sense, but in reality there are huge numbers of people in society right now for whom engaging online is perfectly comfortable. They feel completely engaged on an issue even if they haven’t met everyone physically. There’s an exciting opportunity to think about how virtual engagement can lead to collective change.

Harwood: We say we want to put community in collective impact, but we don’t do it. That may be because we are afraid, we don’t want to lose control, or we don’t want to create certain risks, but there are two results. One is that we increase the likelihood that our collective impact will not succeed because there won’t be true community ownership and we won’t 14

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be able to mobilize the energies and the public will of our large communities. The other is that we will miss an opportunity. People are looking to be part of something larger than themselves. They want to come back into public life to build something together. Collective impact initiatives are the golden opportunity for that to happen.

Barnes: Picking up on that idea, do you think that the fear that sometimes leads us not to include community creates a perception that collective impact is really for the grasstops and not for the grassroots?

Stewart: I think that’s really what we’re

talking about. As we begin to understand collective impact, it feels very much like a grasstops effort. And I think that we all agree that it is both grasstops and grassroots. It involves everybody—everyday people, involved leaders. The more people you have engaged, the better. And the sooner we understand that collective action must include collective involvement, the sooner we will be able to solidify some real examples of moving the needle and involving people in something bigger than themselves.

Zanghi: My concern about the pitfall ques-

tion is not related to any particular method, whether it’s collective impact or another. It is that we still fall back on some of our old models of power, authority, and perceived expertise. That affects the ability to bring different people to the table and shapes the process and the outcomes for a likely change.

It can get in the way of the kind of change that we are all fighting for.

Harwood: I think the danger of grasstop power is that, for a lot of folks, the efforts that come out of collective impact can look nice but not necessary. People see a group of professionals in their community who have dreamed something up, put a nice label on it, and created a four-color brochure and maybe a jingle. Then they promote it as though it’s the new sliced bread.

This does not address the things that I’m concerned about and it doesn’t give me the sense of possibility that we’re building something together and changing the way our community operates. Instead, it feels like we’re just creating another program.

Born: In the early days of a collective impact

approach, we often find that one of two mistakes is made. One is that we gather only the grasstops. That is, we think somehow it’s about shifting power. So we bring the powerful players into the room. The other mistake, almost as common, is that we don’t engage any of the power players because we’re afraid that it will be perceived as a grasstops initiative.

So people are overcorrecting. They are either going grassroots or going grasstops.

We’re encouraging people to trust their instincts and bring the grasstops together with the grassroots. The actual process of bringing the power and the grassroots together is what changes the conversation.

Barnes: What is the one piece of advice that you would give to a person who comes to you and says, “I’m in community X and we are using a collective impact approach. We really want to work with the community. How should we go about doing our work?”

Zanghi: A theme I’ve heard in our conversa-

tion is the power of storytelling. Train and support people to tell their stories and to listen better.

Savner: Look for organizations that are

actually led by the people in the community who are supposed to be the beneficiaries of whatever changes you’re trying to achieve.

Stewart: I would say be patient, listen, and

involve broadly.

Born: We often say that the change that is re-

quired is really change within ourselves. And so we’re fond of saying First, it’s very important to know your heart; second, open your heart; and third, trust your heart. Know, open, and trust. Because by becoming fully human together, we become deeply honest with one another. If we can bring the right people into the room and have that deep, honest conversation, we’re going to find a new way.

Harwood: Get clear on your urge to do good, because you’re going to need that as you face adversity. But in order to create change, you need to turn outward and make the community—not your conference room—your reference point. ● To read an extended version of this conversation, visit www.collectiveimpactforum.org.

Special thanks to Sheri Brady for orchestrating the roundtable.

Aligning Collective Impact Initiatives Communities can suffer from too many initiatives, creating overlap, inefficiency, and frustration.

By Merita Irby & Patrick Boyle

Northern Kentucky was a hotbed of collective impact initiatives long before anyone called them “collective impact.” For decades, the region’s government and civic leaders have tackled thorny social issues through partnerships to create a vision for the region’s future and to implement plans to fulfill that vision.

“We were doing collective impact,” says the vice president of one such effort. “We just didn’t have those words.”

When it came to education initiatives, however, Northern Kentucky had too much of a good thing. Initiatives were created to foster collaboration among educators, among educators and businesses, and among educators, businesses, government, and civic organizations. Countless other organizations had a hand in education as part of their missions to help children and families. “You would sit in these meetings and hear lots of good ideas,” recalls Patricia Nagelkirk, director of community impact for education at the United Way of Greater Cincinnati. “But there was no coordinator or game plan to carry them out.”

As collective impact initiatives blossom around the country, Northern Kentucky provides a case study in handling a dilemma that can spring from that growth: When multiple

initiatives develop overlapping missions, members, and audiences, how can you reduce competition and increase impact?

Today, Northern Kentucky’s education initiatives are aligned through a backbone organization that aims to improve all youth supports, from birth to career. To achieve that goal, local leaders grappled with issues like: Which existing groups can deliver backbone supports? How is backbone support funded?

What do the initiatives do about areas where their work overlaps? Do any existing initiatives need to fold? Finding the answers took two years and a lot of analysis, negotiation, and, as Northern Kentucky leaders note, some frank and “uncomfortable” conversations. (See “Keys to Successful Alignment” below.)

Motivation to Align

The dilemma was born of abundance. Through the 1990s and early 2000s, several partnerships and initiatives were launched to improve educational services in Northern Kentucky (an area defined as anywhere from four to nine counties south of the Ohio border). The Council of Partners in Education sought to improve collaboration among secondary and post-secondary institutions. The Northern Kentucky

Keys to Successful Alignment Guideline

Why It’s Important

Start with a focus on the outcomes you want to achieve

Focusing on outcomes galvanizes people around goals that are harder or more complex than those they’ve tried to tackle alone, and it prevents getting stuck on existing strategies that might not be best for those outcomes.

Draw a picture big enough so that existing efforts see how they can connect and why

A big picture reinforces the idea that complex challenges need interconnected solutions and prevents the “edifice complex,” which assumes that solutions revolve around certain institutions, such as schools.

Identify where there is more efficiency and power in working together than alone

Analysis of synergies creates energy for leaders to take on issues that are too big to handle alone and to scale up solutions they didn’t know they were pursuing separately. It also prevents development of agendas that are too big or piecemeal to make a difference.

Clarify the lines of communication and accountability

Clarification focuses committed partners on the routinization of their relationships and prevents “task force syndrome,” in which partners sign on to recommendations without assuming responsibility to implement them.

Merita Irby is co-founder and chief operating officer of the Forum for Youth Investment. She is a researcher, author, and former classroom teacher.

Patrick Boyle is senior director of communications for the Forum for Youth Investment. He is an author and former editor of Youth Today.

Education Alliance, a venture of the Chamber of Commerce, worked to increase cooperation between schools and businesses. Vision 2015, which fostered cross-sector collaboration to improve economic and social conditions, had an Education Implementation Team. Some people were involved in all of these efforts and ran into each other at every meeting. “In any given week,” recalls educator Polly Lusk Page, “you could go to three meetings and hear the same report three times.”

The initiatives competed for resources and attention from the same audiences.

Although they worked together to varying degrees, they had no overarching strategy, and efforts to collaborate were complicated by a challenge that’s typical in rural and suburban areas: the presence of dozens of jurisdictions covering a large region.

Lusk Page recalls the frustration expressed by Vision 2015’s leaders: “We have too much going on. We have a lot of duplication of effort, and the business community is saying, ‘Too many people are coming to us with too many asks.’ ” Vision 2015 posited an idea: “What would it look like if we realigned?”

Finding the answer took two years of research and discussions. Because several organizations felt qualified to lead the new structure, these processes were facilitated primarily by neutral organizations.

Two processes somewhat overlapped.

In 2008, Vision 2015 launched a series of discussions with education stakeholders about aligning their efforts under one umbrella. (Vision 2015 harbored no desire to be the umbrella; its agenda extended beyond education.) Then in 2009, the United Way of Greater Cincinnati (which covers Northern Kentucky) signed on with our national nonprofit organization, the Forum for Youth Investment, to facilitate the implementation of Ready by 21—a set of collective impact strategies to help communities get young people “ready for college, work, and life” by strengthening partnerships, developing shared goals, and measuring progress.

Kara Williams, Vision 2015’s vice president of communication and strategic initiaCollective Insights on Collective Impact

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tives, says that among the keys for success were “having the right people in the room” who could make decisions for their organizations, and having motivated leaders. “They felt the confusion, the pain” of unaligned work. “They felt that together they could be doing more than they were doing separately.”

Give and Take

The Council of Partners in Education emerged as a candidate for the backbone role because of its strong connections to school districts and education leaders. The Council set out to become “the overarching organization for the alignment of education initiatives” in the region; it renamed itself the Northern Kentucky Education Council (NKYEC).

But although everyone was grateful to Vision 2015 for launching the alignment project, enthusiasm for alignment was tempered by uncertainty over whether the NKYEC would intrude on ground staked out by others. “We were dealing with multiple organizations, and understandably, some leaders had turf issues,” said Lusk Page, now executive director of the NKYEC. “Everyone was invested” in their community change work and “some didn’t want to give up what they were doing.”

They didn’t have to. The NKYEC preferred to coordinate with existing initiatives rather than start new ones; it found ways for other organizations to align their work with its priorities. That alignment was eased by the NKYEC’s creation of six “action teams,” each focused on an objective (such as “college and career readiness” and “educator excellence”) and composed of representatives from organizations that belong to the NKYEC. The teams allow the organizations to both sync with and influence the NKYEC, because the teams help to steer and implement its mission.

Some initiatives did disappear, but their work did not. Members of the Education Alliance (the Chamber of Commerce initiative) ran the action team on Business Involvement and Service Learning. That rendered the Alliance moot; it dissolved. So too did Vision 2015’s Education Implementation Team, because the NKYEC crafted new bylaws to promote Vision 2015’s educational goals. “We funneled all of those resources [for the education team] into the Council,” Williams said. Integrating people and resources among organizations facilitated the alignment’s success.

Getting A mbitious

Even while this process settled questions, 16

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the renovations continued. The Ready by 21 staff, working through the United Way, led an examination of the region’s goals for young people, the available resources, and the steps needed to achieve the goals. That examination pushed stakeholders to expand their vision in two ways: to focus on specific youth outcomes and to extend beyond education.

One of Ready by 21’s fundamental concepts is the “Insulated Education Pipeline,” which says communities must ensure a full array of cradle-to-career supports beyond academics, in such areas as early childhood, health, safety, social connections, and job skills. “That pipeline,” says Lusk Page, “helped people understand in a way that we never understood before that we can work on the academic pipeline all we want, but until we broaden our scope and think about these wrap-around supports that our families and youth need, this isn’t going to work.”

Building an insulated pipeline of supports meant creating and strengthening partnerships between education organizations and others that provide everything from afterschool activities to job training. The umbrella question arose again: Could one group coordinate these stakeholders? The NKYEC united local education efforts, but the United Way was the lead partner in Ready by 21, which brought funding and technical assistance.

The NKYEC and United Way had not worked together much, and their geographic coverage in Northern Kentucky did not exactly match.

“There were some very candid conversations in our initial meetings” about what organization should lead the broader work, Lusk Page recalls. The United Way grew convinced that the NKYEC was up to the task, but each party needed assurances about responsibilities and resources. Those were laid out in a 2010 memorandum of understanding between the United Way, NKYEC, and Vision 2015. They agreed, for the purpose of the broader work, to adopt the NKYEC’s geographic footprint (6 counties, 37 municipalities, and 18 school districts), and that Vision 2015 would pay for a part-time staff member for the NKYEC to carry out the work.

Thus the NKYEC stretched further.

Its desired outcomes now include not just academic achievement but the overall wellbeing of young people. It advocates birth-tocareer supports, adding early childhood on the younger end, for example, and workforce development for older youths. And its bylaws mandate equal seats for education, business,

and community leaders (such as nonprofit service providers) on its board of directors.

Results

Leaders of the NKYEC effort are cautious about drawing connections just yet between the collective impact strategies and population-level outcomes. Nonetheless, Lusk Page says, “the needle’s starting to move” on some indicators, such as reading levels, graduation rates, and measures of college and career readiness. More visible are the on-the-ground changes in the services and supports that young people receive, thanks largely to the work of the action teams.

Education and business groups launched initiatives to prepare more high school students for college and careers, such as increasing enrollments in dual-credit courses, mapping local career readiness resources, and training teachers to integrate 21st-century skills development in their classrooms.

■■ More than 80 schools administered an enhanced version of the Gallup Student Poll, which measures hope, engagement, and well-being. Schools combine the findings with data about grades and attendance, using the results to steer students to school supports (such as life skills courses) and to increase after-school opportunities (such as leadership development programs).

■■ The NKYEC, the United Way, and the Strive Partnership launched a literacy campaign with more than 70 partners.

■■

Realignment resolved the problem that leaders set out to solve: Northern Kentucky has moved from having “no coordinator or game plan” and disparate collective impact initiatives to embracing a highly coordinated system.

The leaders of these efforts feel that they are poised to accomplish changes that they could not have imagined before. The NKYEC, for example, is working with the Forum for Youth Investment and SAS (a business analytics software and services company) to pilot a diagnostic system to link efforts to impact.

The system will gather and display data from multiple sources and show how resource allocation and community supports affect outcomes for children and youths. “For the first time, we will have the power to see our impact and make adjustments,” says Lusk Page. “We’ll really know if we are making a difference.” ●

Learning in Action: Evaluating Collective Impact Successful collective impact initiatives embed evaluation in their DNA and use it to make better decisions about the future.

By Marcie Parkhurst & Hallie Preskill

As leaders across the social sector adopt the collective impact approach to problem solving, an important question looms in many people’s minds: Given how complex and unpredictable the work is, what is the best way to evaluate a collective impact initiative’s progress and success?

Traditionally, evaluations of specific interventions have focused on their results to determine whether or not (and how) they have “worked.” But collective impact initiatives involve multiple activities, programs, and initiatives, all of which operate in mutually reinforcing ways. Moreover, they aim to change highly complex systems. As a result, merely taking a snapshot of a given intervention’s effectiveness at one point does not tell

the whole story. To truly evaluate their effectiveness, collective impact leaders need to see the bigger picture—the initiative’s many different parts and the ways they interact and evolve over time. For that, they need a new way to approach evaluation. We believe that effectively evaluating collective impact requires the following practices.

First, rather than attempting to isolate the effects and impact of a single intervention, collective impact partners should assess the progress and impact of the changemaking process as a whole. This process includes the initiative’s context; the quality and effectiveness of the initiative’s structure and operations; the ways in which systems that influence the targeted issue are changing; and the extent of progress

Marcie Parkhurst is an associate director at FSG. She was previously director of strategic initiatives at Capital Impact Partners.

Hallie Preskill is a managing director at FSG. She was previously a professor in the School of Behavioral Organizational Sciences at Claremont Graduate University.

toward the initiative’s ultimate goal(s). To be sure, the relative emphasis of evaluation will shift as the collective impact initiative matures.

For example, an initial evaluation might assess the strength of the initiative itself, and a subsequent evaluation might focus on the initiative’s influence on targeted systems.

Second, rather than use performance measurement and evaluation to determine success or failure, collective impact partners should use the information they provide to make decisions about adapting and improving their initiative. To that end, collective impact partners should embed evaluation and learning into their initiative’s DNA, rather than treating it as an annual (or quarterly) exercise.

Embracing this comprehensive, adaptive approach to evaluating collective impact requires leaders to do three things differently.

As we explain in the sections that follow, they should “ask what,” “ask why,” and “ask often.”

Ask What

First, collective impact partners should assess the progress and effectiveness of the changemaking process as a whole. This exercise requires examining four levels of the initiative: the initiative’s context, the initiative itself, the systems that the initiative targets, and the initiative’s ultimate outcomes.

The initiative’s context | Context refers to everything that influences an initiative’s design, implementation, and effectiveness. It includes economic conditions, demographics, media focus, political will, funding availability, leadership, and culture, among other factors. Changes in context are inevitable and often are important in supporting or hindering an initiative’s success. For example, just as Washington State’s Road Map Project began to form in 2012, its leaders learned that they could apply for a federal Race to the Top district award. They successfully organized themselves and won a $40 million award. The influx of financial support significantly boosted the initiative’s capacity and accelerated the implementation of its priority strategies.1 To see how changes in context can influence an initiative’s outcomes, consider the Collective Insights on Collective Impact

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Assessing an Initiative’s Design and Implementation Sample Outcomes The development of the common agenda has included a diverse set of voices and perspectives from multiple sectors

Sample Indicators The initiative’s steering committee (or other leadership structure) includes voices from all relevant sectors and constituencies.

n

n

Members of the target population help shape the common agenda.

Community members are aware of the collective impact initiative’s goals and activities.

n

An effective backbone function has been identified or established

Quality data on a set of meaningful common indicators is available to partners in a timely manner

n

Backbone staff effectively manage complex relationships.

n

Backbone staff demonstrate commitment to the collective impact’s vision.

n

Backbone staff are both neutral and inclusive.

n

Partners commit to collecting the data as defined in the data plan.

n

Partners have the capacity to collect and input quality data.

n

Partners know how to use the shared measurement system.

Partners contribute quality data on a common set of indicators in a timely and consistent manner.

n

example of the final evaluation for Shape Up Somerville. This Massachusetts-based collective impact initiative focused on reducing citywide rates of obesity and included an analysis of the city’s changing demographics.

As its leaders noted: “If a community becomes more racially diverse over time, as is the case in Somerville, obesity rates would be expected to rise.”2 Without taking into account local demographic changes, the initiative’s collaborators couldn’t fully understand the effectiveness of its efforts.

The initiative itself | For any collective impact initiative, changing the way organizations and individuals interact with each other and approach complex problem-solving is an important, if often implicit, goal. The real power of the collective impact approach lies in the process—the ability to unite diverse groups around a common purpose, encourage open discussion and ongoing communication, support coordination and alignment of activities, and promote learning and continuous improvement. For example, an evaluation of Vibrant Communities, a pan-Canadian antipoverty initiative, found that the “multi-sectoral nature of Vibrant Communities helps government move on [policy] change because proposals are already vetted from multiple interests in the community.”3 Similarly, Shape Up Somerville attributes its success largely to its “multi-level approaches to promote active living and healthy eating.”4 The initiative engaged public schools, city government leaders, academic researchers, civic organizations, community groups, businesses (including restaurants), and residents in an integrated approach to problem solving that facilitated systemslevel change. Ultimately, the initiative suc18

Collective Insights on Collective Impact

ceeded in decreasing childhood obesity rates throughout the city of Somerville.5 Assessing the progress and effectiveness of the collective impact changemaking process as a whole requires an explicit focus on the initiative’s design and implementation.

(See “Assessing an Initiative’s Design and Implementation” above.) Although collective impact leaders may question the value of evaluating process, we urge them to pay careful attention to the quality and strength of their initiative itself, especially in its early years. This is a time when critically important decisions are made and learning is invaluable.

The systems that the initiative targets | Most collective impact initiatives have hugely ambitious goals: Not only do they seek to tackle complex problems, but they also try to create large-scale change. Achieving this level of impact, in a way that’s sustainable over time, requires collective impact initiatives to make significant changes in systems (by influencing cultural norms, public policies, and funding flows) as well as patterns of behavior (including changes in professional practice or changes in individual behavior). These systems-level

changes create the conditions that allow collective impact initiatives to achieve their ultimate objectives. (See “Assessing SystemsLevel Changes” below.) Shape Up Somerville, for example, attributes part of its success to a constellation of systems-level changes. These included increased funding for anti-obesity work; healthier menu offerings in public schools and at more than 40 local restaurants; new bicycle lanes and improvements to public park infrastructure; improved nutritional standards in schools and other public institutions; and improvements in physical education equipment, facilities, and activities in schools and after-school programs.

The initiative’s ultimate outcomes | As the initiative matures, collective impact partners should keep a watchful eye on their ultimate goals. It is normal for initiatives to make slow or minimal progress toward their goals in the early years, but collective impact partners should expect to achieve meaningful, measurable change within three to four years. They should track this progress over time using the initiative’s shared measurement system in addition to more robust evaluations.

Ask Why

Collective impact partners should use the results of their evaluative activities to make smart decisions about adapting and improving the initiative. To make such decisions, funders must complement performance measurement activities (which focus on determining what is happening) with other types of evaluation aimed at understanding how and why change is happening.

Collective impact partners can employ three different approaches to evaluation at different points in an initiative’s lifetime: developmental evaluation, formative evaluation, and summative evaluation. As “Three Approaches to Evaluation” (to right) outlines,

Assessing Systems-Level Changes Sample Outcomes

Sample Indicators Individuals view the issues and goals of the collective impact initiative with increased importance, relevance, and a sense of urgency.

The collective impact initiative is influencing changes in attitudes and beliefs toward the desired behavior change

n

Philanthropic (or public) funding in the targeted issue area/system is increasingly aligned with the goals of the collective impact initiative

n

Individuals express attitudes or beliefs that support the desired behavior change.

n

Overall funding for the targeted issue area or system has increased.

Existing resources are directed toward evidence-based strategies in the targeted issue area or system.

n

New resources are committed to evidence-based strategies in the targeted issue area or system.

n

Funding is increasingly designed to allow for program innovation and experimentation in the targeted issue area or system.

n

each approach can help answer different questions. (For more detail on the three approaches, see “Guide to Evaluating Collective Impact,” available at www.fsg.org.)

These approaches to evaluation are not mutually exclusive. Collective impact partners can and should use a combination of approaches over time. For example, Vibrant Communities in Canada used developmental evaluation to explore changes in context and potential implications for the initiative, and simultaneously used formative evaluation to refine its existing efforts. Later, the initiative used summative evaluation to look back on its effectiveness and overall impact.

Ask O ften

In the context of collective impact, the purpose of performance measurement and evaluation is to support learning, and the goal is to enable continuous improvement. We suggest that collective impact partners follow these steps to effective evaluation: Start early | Even before an initiative’s shared measurement system becomes operational, collective impact partners can monitor a set of early performance indicators that focus on the quality of the initiative’s design and implementation. They can also use elements of developmental evaluation to provide insight into the effectiveness of the initiative’s early efforts. For example, an infant mortality initiative in rural Missouri uses developmental evaluation to better understand how contextual factors and cultural dynamics influence the development of the strategy. The partners are working with a team of evaluation coaches to ask such questions as “What does the problem of infant mortality look like from the perspective of different stakeholders in our region, and what are the implications for the design of our collective impact initiative?” 6

tive impact initiatives, ongoing measurement requires dedicating a part-time or full-time employee to organize, oversee, embed, and apply lessons learned across the initiative. For others, it means looking for external support in the form of a coach, technical assistance provider, or professional evaluator. The majority of collective impact initiatives will likely rely on a combination of internal and external evaluation resources at different times. Regardless of the composition of the evaluation team, we urge collective impact partners to plan carefully for the financial resources and personnel they will need to support a robust approach to performance measurement and evaluation.

After all, as a recent report from Grantmakers for Effective Organizations put it, “When you look at evaluation as a means of learning for improvement, . . . investments in evaluation seem worthwhile because they can yield information needed for smarter and faster decisions about what works.”7

This article is based on FSG’s “Guide to Evaluating Collective Impact,” available at www.fsg.org. We encourage interested readers to refer to the guide for additional information on how to focus, structure, and plan for collective impact evaluation.

Notes

1 Roap Map Region Race to the Top. http:// roadmapracetothetop.org/ Accessed June 16, 2014.

2 “A Decade of Shape Up Somerville: Assessing Child Obesity Measures 2002-2011.” White paper, Somerville, Mass.: City of Somerville Health Department, 2013: vii, 1.

3 “Tamarack: An Institute for Community Engagement.

Evaluating Vibrant Communities 2002–2010.” White paper, Waterloo, Ontario: Tamarack, 2010: 58.

4 “A Decade of Shape Up Somerville.” 2013: 6.

Conclusion

5 “A Decade of Shape Up Somerville.” 2013: 7.

Effective collective impact evaluation needs to be multi-faceted, flexible, and adaptive, but it does not need to be exhaustive or extremely expensive. Evaluation efforts come in all shapes and sizes—the scope and scale of any

6 For more information on the Missouri Foundation for Health’s work on infant mortality, see “About MFH’s Work in Infant Mortality” http://www.mffh.org/ content/741/infant-mortality.aspx.

7 Grantmakers for Effective Organizations. n.d. Four Essentials for Evaluation. Washington, D.C.: Grantmakers for Effective Organizations.

Three Approaches to Evaluation Developmental Evaluation

Formative Evaluation

Summative Evaluation

Stage of collective impact development

Collective impact initiative is exploring and in development.

Collective impact initiative is evolving and being refined.

Collective impact initiative is stable and well-established.

What’s happening?

n

Collective impact partners are assembling the core elements of their initiative, developing action plans, and exploring different strategies and activities.

n

The initiative’s core elements are in place and partners are implementing agreed upon strategies and activities.

n

There is a degree of uncertainty about what will work and how.

Embed learning into the initiative’s DNA |To make learning a regular, active, and

applied process, collective impact partners should establish clear learning structures and processes. For example, they can create space for group reflection at the start of meetings or periodically survey participants to identify pressing issues. These processes encourage the partners to exchange information, ideas, and questions and are thus critical to the initiative’s continuous improvement.

Allocate resources appropriately | Because learning is central to collective impact success, ongoing investment in performance measurement and evaluation is crucial. For many collec-

individual evaluation will depend on the time, capacity, and resources available. Moreover, the focus of evaluation (including questions, outcomes, and indicators) will change as the initiative matures. The most effective collective impact initiatives will be those that seamlessly integrate learning and evaluation into their work from the beginning, allow those processes to evolve alongside their initiative, and use them as a guide for the future. ●

n

Outcomes are becoming more predictable.

n

The initiative’s activities are well-established.

Implementers have significant experience and increasing certainty about “what works.”

n

The initiative’s context is increasingly well-known and understood.

The initiative is ready for a determination of impact, merit, value, or significance.

n

n

New questions, challenges, and opportunities are emerging.

n

Strategic question

What needs to happen?

How well is it working?

What difference did it make?

Sample evaluation questions

n

How are relationships developing among collective impact partners?

n

n

What seems to be working well and where is there early progress?

How can the initiative enhance what is working well and improve what is not?

n

n

How should the collective impact initiative adapt in response to changing circumstances?

n

What effects or changes are beginning to show up in targeted systems?

What factors are limiting progress and how can they be managed or addressed?

n

What difference(s) did the collective impact initiative make?

What about the collective impact process has been most effective, for whom, and why?

n

What ripple effects did the collective impact initiative have on other parts of the community or system?

n

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Achieving Collective Impact for Opportunity Youth Emerging lessons on using data and resources to improve the prospects of young people.

By Lili Allen, Monique Miles, & Adria Steinberg

As a member of the Leadership Council of the Aspen Institute’s Opportunity Youth Incentive Fund, Jamiel Alexander sits beside leaders from national and regional philanthropies. He offers insights into the assets and challenges of young people who—like himself just a few years ago—find themselves outside any opportunity system in their community.

As a young man growing up in Philadelphia, Alexander confronted a fragmented public education system, street violence, and the financial obstacles associated with a singleparent home. After dropping out of high school, he had a series of run-ins with the law and was remanded to the juvenile justice system, which required him to complete community service. This path led Alexander to the local Crispus Attucks YouthBuild program in York, Pa., which gave him the opportunity to earn a high school diploma while gaining transferrable employment skills. Today, in addition to his duties for the Aspen Institute, Alexander serves as president of the National Council of Young Leaders and holds a fulltime job as an education program manager for YouthBuild USA. Debates continue over the pace and strength of recovery of the American economy, but one fact remains clear: A large number of young people between the ages of 16 and 24 are being left behind. Whether they graduated from high school or left without diplomas, many low-income young people suffer from inadequate educations that leave them underprepared for postsecondary education or the workplace. Surveys tell us that these young people, like others their age, strongly desire good jobs and understand the need for skills and credentials. Yet unlike their more privileged and affluent peers, they see few obvious paths forward.

Young people such as Alexander have traditionally been labeled “disconnected youth,” but the reality is more complex.

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Many of them are “connected”—to friends, neighborhoods, churches, families, and local community-based organizations. But the institutions, organizations, and public systems that could help them achieve higher levels of education, training, and jobs are themselves disconnected from one another.

Recognizing this reality, many advocates have abandoned the term “disconnected youth.” Instead, we favor “opportunity youth,” a phrase that calls attention to the opportunities these young people seek and that should be opened up for them.

The Opportunity Youth Incentive Fund (OYIF), a principal initiative of the Aspen Institute’s Forum for Community Solutions, focuses on this group of young people. The OYIF, which emerged from the work of the White House Council for Community Solutions, seeks to demonstrate how a collective impact approach can improve the options and lifetime outcomes of opportunity youth.

Bringing together a variety of sectors and systems is especially appropriate for opportunity youth, because, by definition, no one set of institutions currently takes responsibility for their progress and no publicly available database tracks that progress.

Through a collective impact approach, the OYIF helps communities harness local civic capacity to drive long-term sustainable change. The initiative has three goals: to reconnect opportunity youth to education and employment at higher rates; to catalyze the adoption of effective approaches in education and career attainment, leading to family-sustaining careers; and to promote local, state, and national policy changes to increase the replication and scaling up of these approaches.

Although the initiative remains in its early stages, important stories have already emerged about the strategies these communities are using to tackle two of the principal

Lili Allen is director of Back on Track Designs at Jobs for the Future.

Monique Miles is deputy director of the Aspen Institute Forum for Community Solutions.

Adria Steinberg is vice president of Jobs for the Future.

challenges they face—gathering the data they need to inform their work and strengthen public will, and securing financial support to sustain the on-ramps and pathways to opportunity. We hope that these lessons will inspire similar collective impact efforts on behalf of opportunity youth and offer starting points to collective impact initiatives for other vulnerable populations, such as English language learners, who also suffer from systemic disconnects that influence their progress.

Bring Together Data from Multiple Sources

Gathering data across multiple public systems is a key to achieving collective impact for opportunity youth. Because these young people are invisible in most data systems, one of the primary challenges is to understand who they are and how they progress toward adulthood according to such indicators as educational attainment and work readiness. Unlike in parts of Europe, where policymakers track 16- to 24-year-olds who are not engaged in education, employment, or training to assess their progress toward education credentials and careers, no single system in the United States keeps track of this population.

Rather than create new costly and laborintensive data systems, OYIF sites seek to build on existing public data systems, a task that involves working with multiple sources.

As these youths look to reconnect with education and employment, they often move in and out of public systems such as community colleges, adult education programs, and, if they face specific challenges, child welfare programs, homeless services, and the justice system. Through data agreements with these systems, collaborative sites can help partners and the community at large better understand the scope and dimensions of this population group.

For example, the Baltimore City Opportunity Youth Collaborative started with an analysis of US Census data of the opportunity youth population by sex, race/ethnicity, educational attainment, employment status, custodial parenting, and citizenship. The

partners complemented those data with a survey that asked programs serving opportunity youth to estimate how many fell into various subpopulations (such as court-involved, foster care, or homeless). The Baltimore project then used its partners’ relationships to request data from the leaders of systems that serve relevant subpopulations, particularly the Maryland Department of Juvenile Services and the Baltimore City Department of Social Services. In addition, Baltimore has contracted with the US Census Bureau to conduct a custom tabulation of the number of opportunity youths per census tract.

concentration of various distress factors, including youth unemployment, teen births, probation, foster care, and dropout rates.

These heat maps, as well as information about the assets of each neighborhood, such as the level of existing programming, help partners determine which neighborhoods should be focused on first.

Braid Funding Across Public Systems

As collective impact initiatives in the United States have progressed, new ways of financing efforts to create better postsecondary and career outcomes for opportunity youth have emerged. A number of communities Use Data to Determine A reas of Focus, T rack P rogress, and Build have developed new financing strategies by Public W ill drawing on school district funding, workforce The OYIF communities understand the development funds, and city agencies such as importance of data for helping partners unhealth and human services, as well as county derstand the problem and measure progress governments, state governments, and higher toward solutions, as well as promoting solueducation. tions that work and building public will. The As communities broaden their funding Boston collaborative, for example, has used sources, they are also building on lessons its unusually rich set of data partners to gain about creating “reengagement centers” a deeper understanding of the older populadesigned to recruit opportunity youths who tion of opportunity youth (20 to 24 years old), have dropped out or fallen significantly off track and help them find ways to earn a high Because these young people are invisible school credential. At the in most data systems, one of the primary launch of the OYIF, comchallenges is to understand who they are munities such as Boston, and how they progress toward adulthood.

Chicago, Denver, and Philadelphia had opened including identifying their education and centers using a range of funding streams. employment status and tracking how they Often, advocates had secured anchor fundmove through programs and services.1 Collab- ing from a school district after successfully orative partners are following their progress arguing that the district would receive state through postsecondary education, compiling compensation for returning dropouts. information on why they drop out, what helps Los Angeles’s YouthSource Centers them return to school, and what specific proillustrate how a collective impact effort grams and supports could help them obtain can use a multi-funder approach to sustain credentials. This robust data partnership will reengagement centers. These centers are potentially yield useful information about funded by the mayor and city council of Los this older population for other efforts across Angeles through the Los Angeles Economic the country. and Workforce Development DepartCommunities also use data to determine ment (EWDD) and the City of Los Angeles where to focus their initial pathway developWorkforce Investment Board (WIB), as well ment efforts. For example, the San Diego as the Los Angeles Unified School District Youth Opportunity Pathways collaborative (LAUSD). Over the course of two years, these wanted to understand which neighborhoods three agencies joined forces to study dropout had high concentrations of opportunity recovery efforts around the country and seyouth. Using aligned US Census tract data cure support for an ambitious and integrated and sources such as data from the San Diego approach for Los Angeles. Their efforts led to Association of Governments and the Health a competitive procurement process, starting and Human Services Agency, the collaborain 2012, for a system of 13 YouthSource Centive has created a “heat map” to display the ters that co-locate LAUSD Pupil Services and

attendance counselors and serve as the entry point for reengaged youths to secondary and postsecondary education. The centers also offer a variety of Workforce Investment Act programs, including academic enrichment, career exploration, and vocational training. A US Department of Labor Workforce Innovations Fund grant supports the addition of three more YouthSource sites.

Leverage P rivate I nvestment

Collective impact offers an opportunity to pilot a “dual customer” approach focused both on improving the life outcomes of opportunity youths and meeting workforce needs in the community. A number of the OYIF communities see this as an important financing strategy and have begun the hard work of bringing employers to the table.

In New Orleans, Tulane University’s Cowen Institute—a core partner in the OYIF initiative—is spearheading two efforts to engage employers in providing work-based learning and employment opportunities for opportunity youth. The institute is piloting a partnership between Tulane and Delgado Community College; Tulane will offer campus-based employment in technical trades and technology to students in Delgado’s Accelerating Opportunity pathways, which offer short-term certificates in high-growth career fields. For Tulane, this is a win/win solution. The university gets new employees who have already learned technical skills, and the Cowen Institute works with a broader set of employers to provide career coaching to students while they work at Tulane to ensure that they chart a smart career path. Tulane also plans to launch a “hub” to broker work-based learning and employment opportunities for opportunity youth more broadly.

Opportunities and C hallenges Moving Forward

Efforts to create solutions to help opportunity youth have long suffered from a shortage of resources. Programming efforts have been effective yet small and scattered, and community organizing has been strong but episodic.

As a result, most communities have not been able to develop the system connections, or the financing that relies on such connections, to support pathways for opportunity youth.

The OYIF, however, uses a collective impact approach to garner new public and private funding. Our potential reach has expanded Collective Insights on Collective Impact

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S u p p l e m e n t t o S S I R s p o n s o r e d b y T h e C o l l e c t i v e I m pa c t F o r u m

enormously through the recent competition for the next round of the Corporation for National and Community Service’s Social Innovation Fund (SIF). This fund offers multiyear federal grants, with a one-to-one private match at both the national and local levels, to implement and evaluate new solutions to pressing social problems. Significantly, the current round of funding prioritizes applications that use a collective impact approach to build pathways for opportunity youth.

In addition, in January 2014 Congress authorized the establishment of up to ten Performance Partnership pilots. This action will provide unprecedented administrative flexibility to states, local communities, and Native American tribes to work together to remove the barriers that opportunity youths face. Participating localities will solicit proposals from community-based cross-system partnerships aimed at blending competitive and formula-grant funding from federal agencies, including the Corporation for National and Community Service, Department of Labor, Department of Education, and Department of Health and Human Services. Flexibility will be granted to high-performing localities that demonstrate innovative cross-sector solutions to improve outcomes for opportunity youth.

These pilots demonstrate an unprecedented commitment by the federal government to support collective impact. Depending on the cross-agency data-driven outcomes the pilots seek, the model may be extended to other federal agencies, potentially extending the benefits of collective impact to other seemingly intractable issue areas.

Going forward, the OYIF will continue to deepen the learning community among sites as new strategic questions and new answers emerge. Disseminating these lessons is vitally important not just to these sites, but to any community trying to tackle the reconnection issues that face opportunity youth, and even more broadly, to any community adopting a collective impact approach to solve other pressing social problems. Ultimately, the OYIF seeks to share a host of lessons about implementing a collective impact framework to achieve better outcomes for vulnerable populations. ● Note

1 Boston data partners include the Center for Labor Market Studies, the Rennie Center for Education Research and Policy, the Boston Private Industry Council, Success Boston, the Boston Public Schools, and the Boston Indicators Project.

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Collective Insights on Collective Impact

Making Public Policy Collective Impact Friendly Government policies too often impede, rather than enhance, collaborative efforts.

By Thaddeus Ferber & Erin White

Cross-sector partnerships across the country are working hard to achieve collective impact.

Although public policymakers often share the goals of these partnerships, federal, state, and local policies too often impede rather than enhance the conditions necessary to operate collectively. Worse, some public policies explicitly prohibit the very things that collaborative partnerships need to succeed. Rigid funding models, a narrow focus on annual reporting, silos within and between agencies administering programs and funds, and inaccessible or unaligned data sets all create obstacles to achieving collective results.

One of the reasons this problem exists is that the structure of government often works against collective solutions. Policymakers typically operate within isolated sub-committees, departments, and agencies that result in loyalty to a specific issue and funding stream.

But not all problems lend themselves to a narrow, targeted response. Many are better addressed through simultaneous action by more than one office. In these cases, siloed governmental structures and processes are counterproductive. Moreover, policymakers and partnerships often lack clear information about what types of collaborative actions are even allowed.

It comes as little surprise that when governmental culture and auditing practices inhibit risk-taking, public policies that promote collective impact are few and far between. Nonetheless, some current policies, governmental structures, and processes do help partnerships achieve collective impact.

(See “What Do We Mean by “Public Policies”? on right.)

A Step in the Right D irection

Some public policies explicitly allow and incentivize partnerships to create each of the five conditions necessary to achieve collective impact. (See “Public Policies That Encourage

Collective Impact” on page 23.) These public policies are found in issues as diverse as youth development, economic revitalization, and health, as shown by the following three examples.

Performance Partnership Pilots, managed collaboratively by several federal departments, provide selected communities with needed flexibility to use existing federal funds to create a coordinated approach to disconnected youth (low-income young people between the ages of 16 and 24 who are not in school and not employed).1 Providing the variety of services they need—including education, job training, health care, childcare, food assistance, and housing—through multiple independent programs proves inefficient and ineffective. The Performance Partnership Pilots will allow communities to bring these disparate programs together to create a more unified solution. In return, each partnership must use a rigorous accountability system to monitor their results and correct course as needed.

The Working Cities Challenge, funded by the US Federal Reserve Bank of Boston, incentivizes collaborative leadership to promote economic revitalization in small cities in Massachusetts.2 It grew from a shared vision of success among leaders from private, philanthropic, nonprofit, and government sectors to develop a new model for investment. Rather than finance single projects,

What Do We Mean by “Public Policies”? n

A piece of legislation at any level

n

Guidelines in procurement such as RFPs

n

Program requirements

n

Regulations that govern programs

n

Cross-agency initiatives

n

Mayoral or gubernatorial initiatives

confront new problems as they arise and to create a culture of working together that can permeate other parts of government.

Thaddeus Ferber is the vice president for policy advocacy at the Forum for Youth Investment. He previously worked at the President’s Crime Prevention Council during the Clinton administration.

Erin White is an associate director at FSG. She was previously a senior advisor to the US Secretary of Agriculture.

the Working Cities Challenge requires cities to assemble cross-sectoral teams to improve the lives of low-income residents. It provides funding, technical assistance, and peer learning opportunities among grantees.

The Essentials for Childhood program, funded by the US Centers for Disease Control and Prevention, aims to create safe, stable, nurturing environments for children.3 The program explicitly requires a backbone infrastructure, multi-sector partnerships, continuous improvement, and shared outcome measures. Grantees must emphasize their work with partners who may not have worked together in the past but whose work aligns with the overall goals and strategies of a common agenda.

These examples are nascent, so it is too soon to know if they will ultimately lead to positive population-level outcomes. But each example suggests a path forward for policymakers looking for ways to allow and incentivize partnerships to achieve collective impact.

How to Enhance Public P olicy

The three previous examples, although promising, remain the exception rather than the rule. Broader adoption of public policies that encourage collaboration will require changes to government structures, accountability mechanisms, and auditing and accounting practices. Below are three approaches that policymakers can take to make government more friendly to collective impact initiatives.

Creating interagency structures focused on populations and issues | The most direct

solution to the problem of fragmentation among departments is to create structures that cut across silos. For example, a growing number of states and localities have created “Children’s Cabinets” through which the heads of related departments work toward shared goals on issues from early childhood education to disconnected youth programs.4 These permanent structures are more efficient than ad-hoc interagency groups because policymakers can use their existing relationships and collaborative work processes to

Conclusion

Although our focus in this article was on public policies, it is important to note that Flipping accountability from “services policymakers can also support collective provided” to “outcomes achieved” | Another impact directly. In addition to creating and way to cut across government silos is to hold implementing public policies that make it grantees accountable for results instead easier to undertake collective impact initiaof for specific services provided. Pay for tives, they can, for example, use their bully Success initiatives, which guarantee funding pulpit to call for effective collaboration, chair for organizations that achieve specific collective impact steering committees, share outcomes for a population, are a prominent governmental data, and lend their expertise example of outcome-based policymaking.5 and creditability by participating in meetings By allowing communities to replace overor working groups. lapping, underfunded sets of services with All such roles are vital. If policymakaligned, efficient, and effective ones, these ers devote their time and energy to helping initiatives are sparking innovative, collective impact initiatives succeed, and collaborative projects, many of which may if government policies, structures, and mindsets shift to help Some public policies explicitly allow partnerships create the five conditions necesand incentivize partnerships to create sary to achieve collective each of the five conditions necessary impact, we may finally to achieve collective impact. be able to make progress on some of the most well achieve collective impact. important, persistent, and intractable issues Changing government auditing and facing society today. ● accounting practices | Fear of triggering a Notes 1 Consultation Paper, Changing the Odds for governmental audit is perhaps the primary Disconnected Youth: Initial Design Considerations for reason that grantees often assume they are Performance Partnership Pilots, White House Office of Management and Budget, Washington, D.C., 2014. not allowed to align, blend, and braid siloed 2 http://www.bostonfed.org/workingcities/ funding streams across agency lines. For3 http://www.cdc.gov/ViolencePrevention/ tunately, it is possible to make government childmaltreatment/essentials/index.html more collective impact friendly by changing 4 Jenny Moreno, Elizabeth Gaines, and Danielle auditing and accounting rules. For example, Evennou, Ready by 21 State Policy Survey: Policy Coordinating Bodies in the U.S., Forum for Youth the White House Office of Management and Investment, Washington, D.C., 2013.

Budget recently released a new rule allowing 5 Jeffrey Liebman, Building on Recent Advances in private organizations that receive money Evidence-Based Policymaking, America Achieves Results for America and The Hamilton Project at The from more than one agency to consolidate Brookings Institution, Washington, D.C., 2013. their reporting.6 Such regulatory changes can 6 Uniform Administrative Requirements, Cost Principles, permit governments to fund partnerships and Audit Requirements for Federal Awards, White more successfully.

House Office of Management and Budget, Washington D.C., 2013.

Public Policies That Encourage Collective Impact Condition of Collective Impact Common Agenda

Public policies that allow or incentivize each condition n n

Shared Measurement

n n

Mutually Reinforcing Activities

n n

Continuous Communication

n n

Backbone Support

n n

Planning grants in addition to implementation grants Requirements to engage partners from multiple sectors Data sharing agreements Accountability for shared outcomes Blended funding streams Allowances for tailoring to local conditions Requirements for documenting the process of collaboration Allowing for adjustment in plans to support emergence Funding for backbones Grant criteria that require defined backbone functions

Collective Insights on Collective Impact

23

About the Collective Impact Forum The Collective Impact Forum, an initiative of FSG and the Aspen Institute Forum for Community Solutions, is a resource for people and organizations using the collective impact approach to address large-scale social and environmental problems. We aim to increase the effectiveness and adoption of collective impact by providing practitioners with access to the tools, training opportunities, and peer networks they need to be successful in their work.

The Collective Impact Forum includes communities of practice, in-person convenings, and an online community and resource center.

FSG and the Aspen Institute Forum for Community Solutions are joined by co-catalysts—peer organizations whose expertise in collective impact and broad reach are helping to accelerate the spread of collective impact.

Thank you to our co-catalysts for their partnership.

Learn more and join the community at: collectiveimpactforum.org

FSG is a mission-driven nonprofit organization specializing in research, strategy consulting, and evaluation. Through its field-building activities, such as the Collective Impact Forum and the Shared Value Initiative, FSG works to advance knowledge and practice among a global community of partners dedicated to accelerating social progress. Learn more at www.fsg.org

The Aspen Institute Forum for Community Solutions’ mission is to support community collaboration—including collective impact—that enables communities to effectively address their most pressing challenges. Learn more at: aspencommunitysolutions.org

Special thanks to David Phillips of FSG for leading the development of this supplement.

This sponsored supplement was produced by Stanford Social Innovation Review for the Collective Impact Forum.

Stanford Social Innovation Review / Fall 2014

! TEACHING TEACHERS: Mentor Shalini Patel, right, meets with Chicago Public Schools teacher Emily Lopez.

Mentor for America Thanks to the New Teacher Center, beginning educators gain support that will help them thrive in a challenging profession.

By Suzie Boss

W

Photograph by daniel shea, courtesy of the new teacher center

hen Kaitlin Driscoll started her teaching career at Santa Teresa High School in San Jose, Calif., she thought that she was ready for the challenge. She had done her student teaching in the same demographically diverse, urban school district that includes Santa Teresa, and she looked forward to teaching English to college-bound freshmen as well as “repeaters”—juniors and seniors who hadn’t yet met their ninth-grade requirements. “This is what I’m meant to do,” she remembers thinking.

Then reality hit. “I thought I’d spend most of my time planning lessons and interacting with my 150 students. I was overwhelmed by how much time was required in meetings, contacting parents, and on and on. Then there’s the workload you bring

home,” Driscoll says. “Until you see the sheer mass of papers spread out on your kitchen table, you don’t realize what you’ve gotten yourself into. I was trying so hard just to keep my head above water.”

Driscoll found a lifeline when her school ­d istrict—working in concert with an organization called the New Teacher Center (NTC)—matched her with a mentor. ­Abigail Soriano, a 15-year teaching veteran, has been a steadying presence in Driscoll’s professional life for the past two years. During weekly one-on-one meetings, they work on whatever Driscoll needs to build her confidence and competence as a teacher. Soriano might help Driscoll plan a lesson unit, coach her on analyzing student achievement data, or talk with her about why a particular student is struggling. “I’ve shared advice with her that I didn’t figure out until five or more years into teaching,” Soriano says.

That advice has found an eager listener

in Driscoll. “When it’s going well, I do feel like I’ve found my niche,” she says. “But there are still days when I wonder, How do people do this job for 30 years?”

In fact, people rarely do. Seasoned educators are have become a minority within the US teaching force. Today’s teachers are “younger and markedly less experienced than a generation ago,” writes ­Susan ­Headden, senior associate for public policy at the Carnegie Foundation for the Advancement of Teaching, in a recent report issued by the foundation. In 1987, a typical teacher had 15 years of experience; by 2008, that figure had decreased to one year or less.

Richard Ingersoll, professor of education and sociology at the University of Pennsylvania, calls this trend the “greening” of the US teaching force. As Baby Boomer teachers retire, newcomers are flooding into the field.

Nationwide, more than 200,000 newcomers enter the profession annually, and nearly half of them will exit within five years—just when they should be hitting their stride as educators. What drives most of them away is not low pay but a “lack of administrative and professional support,” Headden reports.

Ellen Moir, founder and CEO of the NTC, has a plan to rewrite that story. “We have the opportunity to develop a new kind of teacher,” she says. NTC, a nonprofit headquartered in Santa Cruz, Calif., partners with some of the largest school districts in the United States to match fledgling teachers with trained experts for two years of highly personalized mentoring. “From the moment new teachers get the key to the classroom, we want to be there every single week for two years,” Moir explains.

In Moir’s view, the period of induction— when teachers enter and adjust to their new profession—is decisively important not only for retaining rookie teachers but also for ensuring that they’re able to excel as educators.

“I want every young person in America, regardless of ZIP code, to get the best education possible,” Moir says. “We know that the teacher is the single most important component of improving student learning. We also know that good teachers are made, not born.”

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Stanford Social Innovation Review / Fall 2014

Suzie Boss is a Portland, Ore.-based journalist who writes about social change and education. She is the author of the book Bringing Innovation to School and contributes frequently to Edutopia.

Going for “the Gold Standard”

Teaching is complex work. Theory matters, but so do the practical skills that enable a teacher to avert classroom chaos. Effective teachers—the ones most likely to boost student achievement—not only know their subject matter but also know how to meet the needs of diverse learners. “You need to know your students and base your instruction on their learning needs. The best teachers keep improving,” Moir says. They continuously search for ways to “individualize, differentiate, personalize, and bring in a rich curriculum that will engage students,” she adds.

NTC grew out of the realization that those skills take time to develop on the job.

Moir launched the New Teacher Project (as NTC was originally called) in 1998, when she was a faculty member in the Education Department at the University of California, Santa Cruz. From the outset, the goal of NTC has been to replace sink-or-swim induction with structured, long-term support that will equip beginning teachers to work with young people. “Everything needs to map backward from the student,” Moir says.

In 2008, after a decade of field-testing its model, NTC spun off from the university to become an independent nonprofit.

With support from NewSchools Venture Fund, New Profit, the Skoll Foundation, the William and Flora Hewlett Foundation, and other funders, NTC has expanded its reach by opening eight regional offices. Today, annual revenues of $30 million enable NTC to work with 30,000 new teachers per year in more than 40 states—from urban Los Angeles to rural Iowa to suburban Broward County, Fla. According to NTC data, districts that adopt the NTC model achieve retention rates of 80 percent or more (as against the national average of 56 percent.) “In most cities,” Moir says, “we up retention by 20 percent” over a district’s previous retention rate.

As NTC has expanded, it has kept a laserlike focus on its brand of sustained, strategic mentoring; Moir calls it “the gold standard” for induction. Although most school districts offer new hires some form of orientation, continued support is often brief or practically

nonexistent. According to Ingersoll, only 5 percent of beginners receive the kind of support that leads to both higher teacher retention and increased student achievement.

NTC, with its focus on mentoring teachers who have already joined the education profession, bears comparison with Teach for ­America (TFA), which aims to bring new teachers into the field. TFA, with an annual budget of $300 million, recruits about 11,000 teachers annually and prepares them for classroom work with a five-week summer workshop and ongoing professional development.

By their third year on the job, though, about 40 percent of TFA recruits will leave the teaching profession, resulting in a retention rate of about 60 percent. TFA recently announced that in 2015 it will pilot a yearlong training program to improve that rate.

Building “a Better Profession”

The NTC approach starts with a rigorous process for selecting mentors. It’s not that good teachers are hard to find. “Everyone in a school knows who they are,” Moir notes.

The trick is to figure out which veterans might be good at teaching not just children but also adults. Once chosen, mentors undergo their own training to “unpack what it means to be an effective teacher,” Moir says.

They learn what to watch for during classroom observation sessions, and they practice giving concrete feedback to young teachers.

Districts that partner with NTC agree to release mentors from regular classroom duties. In return, NTC provides professional development services, assessment tools, and other resources. Shelley Winterberg, a mentor in Hillsborough County (Fla.) Public Schools, explains that her role is “to coach, to empower” beginning teachers. “I’m not the boss of anybody,” she says. Becoming a mentor provides veteran teachers “with a way to advance in their profession, and to earn more money, without having to leave the classroom for an administrative job,” says Headden. Mentors report that playing this new role reinvigorates them, and they often see themselves “becoming better teachers as a result,” Headden adds.

NTC has earned high marks for its work from a wide range of influential groups. In 2013, the Business Roundtable set out to identify organizations with the potential to improve US education, and NTC emerged as one of five (out of an applicant pool of nearly 100) that showed both proven results and a readiness to scale up. In 2012, similarly, the US Department of Education rated NTC at the top of more than 800 applicants for one of the federal agency’s Investing in Innovation (i3) grants. “Ellen [Moir] and her team have that entrepreneurial spirit,” says Gloria Lee, president of NewSchools Venture Fund.

“We think they’re just at the beginning of what they can accomplish in terms of scale and impact. As they share effective practices, the whole field gets better.”

NTC has generated “much more demand for our work than we’ve been able to meet,” Moir says. “We’re ready to grow dramatically.” Today, NTC works with 25 of the largest districts in the United States; its goal is to expand that field to 60 districts by the 2018-19 school year. To broaden its reach, NTC is introducing initiatives that leverage technology. It has developed an e-mentoring program to support new ­teachers in isolated rural schools, for example, and it has built online communities of practice that enable teachers in highdemand subjects like math, science, and special education to support each other’s professional growth. NTC also has developed classes for Coursera, a MOOC (massive open online course) platform launched by two Stanford University professors.

Although Moir and her team are highly receptive to innovation, their goal is not to “disrupt” public education. On the contrary, they hope to strengthen the current system of education from within—and to do so by supporting administrators as well as teachers. “We’re not inserting something new into the system and then pulling out,” Moir says. “We’re about building the capacity of a system to develop its newest teachers and to create leadership pathways for mentors.

This is a once-in-a-century opportunity to build a better profession.” n

BREAKING BOUNDARIES

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Stanford Social Innovation Review / Fall 2014

An Inside Look at One Organization

From Petitions to Decisions

After Change.org opted to place petitions at the center of its platform, the size of its user base began to soar. But operating a high-volume petition site isn’t enough for its leaders. Now they aim to transform the site into a venue for connecting those who want to change the world with those who run the world.

By Greg Beato

en Rattray launched Change.org, an advocacyoriented social network, in February 2007. In its original iteration, Change.org offered a variety of tools to facilitate fund-raising, volunteerism, and other forms of cause-related engagement. But it wasn’t until three years later, in January 2010, that Rattray saw how he could establish Change.org as a platform for shaping laws, regulations, and policies in the real world. “A homelessness activist in Boulder, Colo., started a petition calling on the mayor to suspend an ordinance that made it illegal for people to sleep outside at night,” Rattray explains.

The ability to create petitions had been a part of Change.org since the site’s earliest days, but it hadn’t been a part that Rattray and his colleagues had emphasized. Over time, though, users had gravitated toward that service, and by early 2010 petitions at Change.org were garnering thousands of signatures each week. Unfortunately, many of the most popular ones were powered by rhetoric rather than strategy. “Tell Sarah Palin and the Tea Partiers to Stop Lying,” declared one. “Demand Global Medical Assistance for All,” insisted another. Even if such campaigns had been able to attract millions of signatures, they were nonstarters. There was no practical way to implement the changes that they sought.

But the Boulder homeless rights campaign was different. Two hundred people quickly signed the petition. Each time someone did so, Change.org—as it does with any petition that targets a specific decision maker—automatically sent an email to Mayor Susan Osborne’s office. Although the number of signers was relatively small, their messages were going to someone who wasn’t used to getting that kind of feedback. “It shocked her,” Rattray says. “She’d never seen that much attention and interest from citizens on this issue.”

Then some of the petition signers arranged to attend a city council meeting. When they showed up there, the mayor instructed the Boulder

B

city manager to place an emergency moratorium on the ordinance. “It was a great illustration of the power that everyday people have in making small, incremental changes,” Rattray says. “Once we saw how that worked, we decided to start emphasizing petitions as a mechanism.”

Throughout its history, Change.org has lived up to its name— not just by empowering its users to pursue social change, but also by steadily refining and repositioning the way that it serves and appeals to users. The decision to focus on petitions helped clarify the purpose of the platform. It also helped create a brand identity that continues to resonate with users. But Rattray and his colleagues aren’t standing still. “Signing a petition is the first step,” he says.

“It’s the way of aggregating the largest audience of people who are potentially interested in an issue. But we’re not building a petition site. We’re building an empowerment company.”

Broad Reach, Big Plans

When Change.org started paying more attention to petitions, users started paying more attention to Change.org. As of November 2011, it was adding about 500,000 registered users per month. By the summer of 2012 (when Stanford Social Innovation Review first covered the organization), it had 10 million registered users. Today, Change.org has more than 70 million registered users, and it’s adding 4 million new ones per month. Each month, moreover, about 40 million people visit the site, and each month users create about 20,000 new petitions. On a regular basis, these petitions result in what the site calls “victories.” In 2011, for example, Bank of America dropped its plan to introduce a monthly $5 debit card fee in the wake of a Change. org campaign. In 2012, the Motion Picture Association of America switched its rating of the movie Bully from R to PG-13 after more than 500,000 people signed a Change.org petition.

Now, in 2014, Change.org is ready to build on its success with petitions. It has started to invite elected officials, corporations, and other entities to create special Decision Maker pages where they can respond directly to petitions that target them. The purpose of this

Photograph by max goldberg

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Photograph by max goldberg

Stanford Social Innovation Review / Fall 2014

Change.org, despite its suffix, is not a nonprofit organization. It’s a self-described “mission-driven social enterprise.”

It’s also a certified B corporation, which means that it aims to prioritize social good over shareholder returns. In any case, it vigorously pursues revenues and profits. It has been operating in the black since 2010, and it has developed multiple revenue streams. In May 2013, most notably, the company secured $15 million in funding Campaign from the Omidyar Network, a philanthropic investment firm Governor Quinn: Don’t Let Big Plastic Bully Me created by eBay founder Pierre Creator Target Date victory Signatures Omidyar. “When Change.org 174,817 Petition created: Governor Quinn Pat Quinn, Abby Goldberg petimade that transition to a full(June 2014) vetoes the bill June 2012 tions the governor of her governor of f ledged peer-to-peer platin question.

Illinois, and state to veto a bill that Goal reached: other parties prevents cities from form, it became a wonderful August 2012 banning plastic bags. fit for us,” says Chris Bishko, an investment partner at the Omidyar Network who now sits on the Change.org board. “We are evolving functionality is to establish Change.org as a place where multiple stakeholders can craft solutions through extended debate huge believers in the power of platforms that allow people to collaboand negotiation. If you’d like to see the federal government devote rate deeply around shared interests in a ways that have positive impact more money to science education, for example, you could target not only on their own lives but on the lives of those around them.” ­Representative Mike Honda, a Democrat from California, who serves on the House of Representatives Commerce, Justice, and Science Under Development Committee—and who maintains his own Decision Maker page.

As a child, Ben Rattray didn’t want to change the world. He wanted Honda and other Decision Makers on the platform—they range to own it. “I idolised Gordon Gekko and was obsessed by the idea of from politicians like Representative Paul Ryan, Republican of wearing a double-breasted suit and strutting down Wall Street,” he ­Wisconsin, to companies like Ikea and Etsy—aren’t obligated to told the Guardian in 2013. Then, when he was a senior at Stanford ­respond to petitions that target them. But Change.org leaders cerUniversity, he learned that his younger brother was gay. His brother tainly hope that they will. “We’ve built this incredible megaphone for said that the hardest part about being closeted had been (in Ben everyday people to have a voice that is much louder than it was before,” Rattray’s words) “seeing good people refuse to stand up and speak out against LGBT discrimination all around him.”

Rattray explains. “But we want to make sure that Change.org is more than just shouting at decision makers.”

That moment led Rattray to question what he wanted to accomChange.org, in short, is positioning itself as a locus of policy­ plish with his life. His old dream of stylish predatory capitalism no longer seemed so appealing; he now wanted to help people in some making that is more accessible and more transparent than traditional venues of governance. It’s an extremely ambitious proposition. But way. But he wasn’t sure how. He completed a one-year graduate proas the Internet continues to decentralize power in all facets of life, gram at the London School of Economics and then joined a political people are developing new expectations about the way the world consulting firm in Washington, D.C. His work at the firm quickly disenchanted him. “It wasn’t about corruption or anything menworks. When they tweet a message to an elected official, they ­expect dacious,” Rattray says. “It was just the clear disconnect between a reply. When they lodge a complaint with a major corporation, they policymaking and everyday people.” demand more than a boilerplate response. Rattray and his colleagues understand the appeal of an institution that can help meet those Next, he applied to and was accepted by the NYU School of Law. expectations. That’s one reason that their company is on track to But just a few weeks before what would have been his first semester reach 100 million registered users worldwide. there, he saw a website that was then known as TheFacebook.com.

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Greg Beato is a contributing editor and columnist at Reason magazine. His work has appeared in The New York Times, The Washington Post, and more than 100 other publications worldwide.

What would happen, he wondered, if you used the power of a social network to promote social change? “I had my dorm room set up on West 4th Street,” Rattray says. “Then I had the idea for Change.org and pivoted everything.”

It was the first of many crucial pivots in the history of Change. org. True to its roots in Silicon Valley (it’s based in San Francisco), the company has treated audacious iteration as a best practice. When Change.org began operation, its primary feature was a nascent form of crowdfunding. The idea was that nonprofit organizations would publicize their projects on the Change.org site, and Change.org users would donate to those projects. Such campaigns would inspire messageboard conversations and other forms of social interaction, and that interaction would in turn drive more giving. In return for facilitating this process, Change.org would take a 1 percent cut of the donations.

In 2007, however, online crowdfunding was all too nascent.

(Kickstarter didn’t exist yet.) Introducing a more efficient way than direct mail for nonprofits to raise money was a smart idea, but it was ahead of its time. And the twist to the fundraising process that Change.org introduced—allowing nonprofits to propose specific projects that users could support—wasn’t enough to create significant user engagement. Within three months of its launch, Change. org announced that users could make donations to political candidates as well as nonprofits. But that didn’t help much. By October 2007, total contributions made via Change.org had reached a mere $51,878. Change.org’s cut of the bounty came to $518.

In November 2007, Change.org tried a new tack, positioning itself as “the Ning for nonprofits.” In this incarnation, it offered qualifying organizations a chance to build proprietary pages on the Change.org website. By doing so, they would be able to use Change. org’s social networking tools and gain access to Change.org’s user base, even as they retained their own branded identity. But Change. org’s user base was quite small at the time, and few nonprofits felt that they needed their own Ning.

In June 2008, Change.org reinvented itself again, this time as a blogging network organized around categories like “Homelessness” and “Global Warming.” It employed a dozen full-time editors, and they coordinated contributions from as many as 200 freelance bloggers. “We were getting several million people a month on the site,” Rattray recalls. But when people read the site’s blog content, their most common response wasn’t to donate money or volunteer time to a related cause. It was to sign a petition.

User-Generated Impact

Petitions have been a fixture on the Internet since at least the late 1990s. But the rise of social networks has given them new life. In a world of ubiquitous social interaction, petitions are a boon to ­users— an extremely efficient form of personal expression, comparable to the Facebook Like button. A petition lets users share their values and beliefs with a single click. Petitions are also explicitly collaborative: The whole point is to get more people to sign them.

Still, even after the Boulder campaign, Change.org did not embrace petitions completely. Change.org editorial staff members continued to publish articles. Like traditional gatekeepers, they determined what appeared on the home page and what didn’t. Then, later in 2010, Rattray had another revelation. “I remember Ben coming into my office one morning,” recalls Meghan Nesbit, managing director of sales and marketing at Change.org. “He didn’t look like he’d slept much the previous night, and he was just on fire. He had this epiphany: It was all about the petitions that individual users were posting and sharing with their own communities. That was where we could make a difference.”

What Rattray had realized was that efforts to create editorial content were not only unnecessary, they were undermining Change.org’s identity as a user-driven platform. “It looked like we were ­trying to set the agenda, instead of empowering others to pursue the issues they cared about,” Rattray says. “We really didn’t have a choice.

Either we could be an editorial site that was about curating and crafting a particular perspective. Or we could be a massively scaled Internet platform that focused on empowerment and deference to users.”

In January 2011, Change.org introduced a new look. Petitions took center stage, and staff-written stories no longer appeared on the home page. “That’s when we started seeing really dramatic user growth,” says Nesbit. “That’s when we became a platform: ‘When you want to make change, you go to Change.org.’” In this new incarnation, the site essentially flipped its editorial approach. Whereas Change.org had previously pushed content created by media professionals to its users, it now pushed content created by its users to the news media.

As a fundamentally user-driven platform, Change.org began to function as a kind of eBay for advocacy, and it benefited from the same synergies that had animated eBay’s ascent in the late 1990s. As the number of “sellers” (petition creators) increased, so did the number of “buyers” (petition signers); as the number of buyers increased, so did the number of sellers. It was a virtuous circle that led to rapid growth.

Victory March

As the platform grew, so did its ability to achieve social impact. In March 2012, a woman from Texas started a petition on Change.org urging the US Department of Agriculture to eliminate the processed beef product known as “pink slime” from school lunches—and shortly thereafter the agency announced it would do so. That same month, the parents of Trayvon Martin used Change.org to demand that the state of Florida bring criminal charges against George Zimmerman, the man who had shot their son—and before long state prosecutors filed charges. In August of that year, a 13-year-old girl from Illinois named Abby Goldberg petitioned the state’s governor to veto legislation that would have prohibited towns from enacting bans on single-use plastic bags—and he did.

Results like these aren’t always solely attributable to Change. org. In many instances, a company or elected official targeted by a Change.org petition receives protests and complaints from many other sources as well. In 2012, The Wall Street Journal asked a data

Photograph by ed lefkowicz/Corbis

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analytics firm called Networked Insights to measure the impact that Change.org had in the Bank of America user fee campaign and in a similar campaign involving Verizon. The firm studied how frequently social media posts about the two controversies had cited Change. org. The involvement of the site “probably had marginal impact,” a Networked Insights analyst concluded.

Not infrequently, however, decision-makers targeted by Change. org campaigns do respond directly to those efforts. A Gatorade spokesperson told The New York Times that a Change.org campaign against its use of brominated vegetable oil—an ingredient sometimes used as a flame retardant—led the company to speed up its planned phase-out of the product. In another instance, an 18-year-old named Benjamin O’Keefe created a Change.org petition that urged the retailer Abercrombie & Fitch to create clothes in expanded sizes. ­Abercrombie executives met with O’Keefe, and later they announced that the company would start offering plus sizes.

To increase the odds that petitions will turn into victories, Change.org encourages users to create what it calls “winnable” petitions—ones that demand a focused action of some sort while

targeting a person or institution with the power to take that action.

When members of the Change.org staff identify a petition as winnable they go into action. They email press releases to thousands of journalists. They publicize campaigns via advertising on Facebook.

They even offer media coaching to petition creators whose stories garner attention from news outlets.

According to Charlotte Hill, a former senior communications manager at Change.org, more than 25 million people—roughly onethird of the site’s registered users—have signed a petition that has led to a victory. That high hit rate is a decisive factor in Change.org’s growth. Countless media outlets battle for people’s attention now, but few of them are able to convert a few moments of attention into a sense of accomplishment. Signing petitions at Change.org requires no more cognitive effort than watching CNN or reading The New York Times, but the five minutes that a user spends at the petition site could lead to zero-flame-retardant Gatorade.

Critics have derided online petitions as “clicktivism” or “slacktivism”—a trivial form of advocacy that doesn’t accomplish anything. But Change.org victories belie that notion. They give users a concrete indication that the time they spend on the site matters, that their efforts have real impact. In an era when people are pressed for time and hungry for purpose, the hyper-efficient form of advocacy that Change.org enables can exert a powerful draw on people.

Change.org didn’t emphasize its petition functionality when it launched in 2007. But its willingness to iterate, experiment, and quickly abandon features and services that don’t resonate with users have helped it achieve what people in Silicon Valley call an effective “product-market fit”—a condition in which a company produces a functional product that a large number of customers want to use.

“Simplifying where our core value was, it basically felt like identifying true north,” Nesbit says, referring to the decision to focus on being a platform for user-driven petitions. “Once that was set, everything else got a lot easier.”

Photograph by ed lefkowicz/Corbis

Change You Can Sponsor

In 2010, Nesbit joined Change.org to lead its business development effort. At that time, she discovered, advertisers found the site just as confusing as users did. “It was a tough conversation, trying to explain to potential clients what Change.org was,” she recalls. But when Change.org decided to focus on hosting petitions, it not only catalyzed user growth, but also helped advertisers to see why they would want to be on the platCampaign form, too. “Simplifying the brand identity,” Nesbit says, Prohibit Gun Sales on Facebook & Instagram Immediately allowed the company to clarify Creator Target Date victory Signatures its value offer to customers: 95,559 Mark Zuckerberg, Petition created: Facebook and Shannon Watts, “The business side opened up (June 2014) ­Instagram CEO of Facebook; February 2014 founder of Moms for us exponentially.” update policies Kevin Systrom, ­Demand Action, petiGoal reached: to ensure that CEO of Instagram tions Facebook and Today, Change.org genFebruary 2014 ­users comply ­Instagram to ban gun erates most of its revenue by sales on their sites.

with background checks and other relevant laws.

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an interest in a given subject.

It’s selling pre-qualified leads: Tell Bank of America: No $5 Debit Card Fees A user must sign the sponsored Creator Target Date victory Signatures petition, and also tacitly agree Brian T. Moynihan, Petition created: Bank of America 306,889 Molly Katchpole petito receive information from (June 2014) October 2011 and other banks CEO of Bank of tions Bank of America the sponsoring organization, announce that to drop a $5 monthly fee America Goal reached: before Change.org charges the they will drop the levied on all accounts November 2011 organization for making a condebit card fee. with debit cards. nection to that user.

Sponsored petitions are therefore a very efficient—and a very attractive—form of advertising. (In 2013, according to Rattray, Change.org worked with 250 advertisers over the course of the year.) Sponsors don’t pay for anyone who views their petition but doesn’t sign it. They don’t pay for anyone who signs it but opts out of receiving additional communication. And they don’t pay for anyone who signs it, consents to additional communication, but already appears on their own mailing list. Advertisers specify how many email addresses they want to acquire through the campaign and in what amount of time. Then Change.org exposes likely signers to the campaign until it reaches the advertiser’s target number.

“We’ve been working with Change.org for around five years now,” says Heather Shelby, an online activist coordinator at EDF. Her organization runs as many as 10 sponsored campaigns at a time on Change. org. EDF, she says, “consistently gets a return on [its] investment within two years.” In that span of time, in other words, those who join the organization’s mailing list through Change.org donate more money to the organization than it cost to acquire their addresses.

Julianna Egner, a media associate at the advertising agency Blue State Digital (BSD), says that Change.org was extremely effective in helping a client called Shatterproof to find supporters. “When we started, we had maybe 3,000 email addresses on our list,” offering advertisers the ability to launch what it calls “sponsored Egner says. Then Shatterproof, a nonprofit that focuses on addiction campaigns.” At the heart of a sponsored campaign is a petition issues advocacy, ran a sponsored petition to support better implethat works much like any Change.org petition. A decision-maker is mentation of the Mental Health Parity and Addiction Equity Act, targeted. A demand is made. Supporters are invited to “sign” as a a recently passed US law. BSD ran ads for Shatterproof on Google way to show their support. In this case, though, Change.org intenand Facebook as well, but Change.org proved to be its most effective tionally promotes the petition to “issue-aligned” users: When users recruitment venue. “We ran the campaign for less than a week and generated 10,790 ‘uniques,’” Egner says. Those “unique” petition sign a non-sponsored petition, they are invited to sign sponsored signers account for 43 percent of the roughly 25,000 names that petitions that match their signing behavior. If you sign a petition Shatterproof has on its email list today. related to climate change, for example, the site might then direct you The leaders of Change.org won’t reveal how much revenue the to sponsored petitions generated by the Sierra Club or the Environcompany generates from sponsored campaigns. As a B corporation, mental Defense Fund (EDF). Because millions of users collectively sign thousands of petitions each month, Change.org can draw on a Change.org is supposed to meet certain transparency standards. But huge amount of data to predict who is likely to sign which petition. in at least one important area, Change.org is not particularly transUsers who sign a sponsored petition can choose whether to receive parent: Because it’s neither a nonprofit nor a publicly traded for-profit updates on the petition’s progress. The default is “yes,” and if they company, it has no obligation to disclose its financial information. But don’t explicitly opt out of this arrangement, Change.org provides their there are publicly disclosed data that hint at the scale of the ­company’s email address to the sponsoring organization. (Change.org explains sponsored campaign business. At least two nonprofit customers rethe opt-out provision on the relevant petition page.) So Change.org ported what they spent on Change.org advertising in US ­Internal Revenue Service filings for 2012. StudentsFirst, a school reform isn’t selling just impressions or just a list of names of people who show Campaign

Photograph by cliff owen/Associated press

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advocacy group, paid a little less than $640,000 for that service, and Kaboom!, an organization that helps build playgrounds for children, paid $35,000. In 2012, meanwhile, The Wall Street Journal reported that Change.org was forecasting revenues of $15 million for that year.

Although sponsored campaigns generate the largest share of Change.org’s revenue, other lines of business bring in money as well. In 2013, for example, the company introduced a service that lets users promote non-sponsored petitions to a certain number of fellow users. The cost of promoted petitions varies by country, but on average it’s about 20 cents per impression. According to Charlotte Hill, about 16,000 people per month promote petitions on Change. org, and 30,000 people view a promoted petition on any given day.

“Promoted petitions continue to make up a higher percentage of our revenue every month,” she says.

Photograph by cliff owen/Associated press

Platform Politics

From the start, Rattray conceived of Change.org in broad and essentially nonpartisan terms. He wanted the site to be a platform where people with varied interests could pursue collective social activism.

In practice, however, most of Change.org’s early employees were politically progressive, and most of the content on the site reflected that orientation. There was substantial coverage of topics like “Animal Rights,” “Women’s Rights,” and “Gay Rights” but little or no coverage of, say, “Gun Owners’ Rights.” Although users could and occasionally did create petitions in favor of limiting abortion or expanding right-to-carry laws for people with firearms, they were an exception to a widely perceived rule. “The site continuously featured left-leaning, liberal petitions,” says Jeff Bryant, an associate fellow at Campaign for America’s Future, a progressive advocacy organization.

“It also posed itself as David versus Goliath. That was a recurring theme in its marketing efforts—that it would be for the little guy.”

In the summer of 2012, the tension between those two aspects of Change.org—its claim to be a platform with broad appeal and its affiliation with traditional progressive causes—led to another turning point. The company accepted sponsored campaigns from StudentsFirst and another school reform group, Stand for Children.

Because those organizations take positions on education policy that teachers unions oppose, a backlash ensued. A group of big-name labor unions, including the AFL-CIO and the Communications Workers of America, sent Change.org an open letter in which they asked the company to clarify its policy toward “prospective clients who have a history of attacking workers and supporting the dismantling of public services.” If Change.org continued to take advertising from such clients, the letter suggested, these unions would abandon the platform and encourage their “brothers and sisters in labor and in the wider progressive community” to do so as well.

In the face of such pressure, Change.org initially suggested that it would forgo future contracts with StudentsFirst and Stand for ­Children. But the situation prompted the company to review its advertising policy. With regard to user-generated petitions, Change.org

had always positioned itself as an “open platform.” Its policy regarding advertisers, by contrast, was more restrictive. “We accept sponsored campaigns from organizations fighting for the public good and the common values we hold dear—fairness, equality, and justice,” this policy read. “We do not accept sponsored campaigns from organizations that consistently violate these values, support discriminatory policies, or seek private corporate benefit that undermines the common good.”

Rattray had always envisioned Change.org as a global information utility—a platform that, like Twitter or YouTube, would be open to all. So when he and his colleagues reassessed their existing advertising policy, they concluded that it undercut the site’s position as a resource that anyone could use to pursue change. So they decided to revise it.

The new policy reads as follows: “As an open platform with tens of millions of diverse users, Change.org hosts sponsored petitions representing a wide range of viewpoints. We do not endorse nor are we affiliated with any sponsored petition or associated organizations.”

The revised policy bans advertising by hate groups and bars sponsored campaigns that “promote hate, violence or discrimination.”

Overall, though, it broadens Change.org’s potential advertiser base considerably. Under the original policy only nonprofits could advertise on the site, and they were subject to evaluation and approval on a case-by-case basis. Under the new policy, commercial entities, political parties, and people who run for public office can advertise as well.

“Open” Season

For Change.org, adopting an open advertising policy was risky. It would undoubtedly alienate many of the US-based progressives who had come to think of the platform as their own. But in Rattray’s ­estimation, the new policy simply made the site more coherent, ­extending to its sponsored content the same neutral perspective that had always governed its user-generated content.

According to an internal Change.org memo that Bryant obtained and passed on to the Huffington Post, the new policy would potentially allow advertising on behalf of “anti-abortion, pro-gun and union-busting” causes. In the wake of that revelation, other petition-­ oriented websites moved to present themselves as venues where only progressive-leaning campaigns would take place. “Care2 will never run a campaign for the NRA [National Rifle Association], or from ­advocacy groups that don’t support a woman’s right to control her own body,” said Clinton O’Brien, a vice president at Care2.com, a pioneer in the online petition space. “When you see MoveOn.org promote a petition, you never have to wonder if we’re doing it because someone paid us to,” said Steven Biel, the director of SignOn.org, a petition site run by MoveOn.org. “For years, progressives have built a huge advantage over the right wing on the Internet, and it would be awful to lose that in service of a short-term payday.” (Both men made those comments to the Huffington Post.)

Change.org, to be sure, is vulnerable to criticism regarding its financial motives. It uses a domain name suffix typically associated with nonprofits, and it positions itself as a “social enterprise” with

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a commitment to “fairness, equality, and justice”—yet it’s also a remarkably efficient advertising platform, with a mandate to generate revenue. In this instance, however, Change.org wasn’t looking for a “short-term payday.” StudentsFirst had a large contract with Change.org, but it was just one customer. In the near term, by revising its advertising policy in a way that would alienate unions and other progressive groups, Change.org stood to lose users, clients, and revenue.

Indeed, for Rattray and his team, adopting the new, more open policy was a long-term play—a bid for positioning and growth. “I think we live in such a pitched, partisan environment that many people think, ‘You’re either with us or against us,’” he says. “This idea that there are neutral platforms that are disrupting a system, instead of trying to advance a cause, is new to people. But if we have a specific political agenda, it undermines the entire pursuit. It undermines people’s ability to own the agenda themselves.”

Change.org’s decision to amend its advertising policy did have some short-term costs attached to it. There were “a number of ­efforts to steer people away from Change.org,” Bryant says, and certain exclusively progressive petition sites—including SignOn.org and CredoAction.com—benefited from their status as alternatives to Change.org. But a large exodus of clients and users never materialized. In fact, it was after Change.org implemented the new policy that its growth began to skyrocket. In October 2012, when the new policy took effect, the platform had about 23 million registered users. Since then, its user base has roughly tripled in size.

This basic truth points to the potential of Change.org’s emerging Decision Makers functionality. According to an update posted on Change.org by one of the Boulder campaign’s organizers, the mayor explained her change of heart by saying she had felt “boxed in” by the petitioners. But what if the platform had given her and the ­petitioners a forum for dialogue and deliberation? In that case, might her response have been different? “This is the next iteration of online advocacy,” says Jake Brewer, managing director of internal affairs at Change.org. “How do we bring decision makers onto the platform to allow for an exchange of ideas and work toward solutions, so it’s not just about who can be the biggest and the loudest?”

The Decision Makers functionality is still in its initial stages, but the outcome of one recent petition suggests how that functionality might work. Earlier this year, a blind college student named Jamie Principado asked Representative Mike Honda to support the TEACH Act, a bill in the US Congress that would increase the availability of electronic educational materials for blind students. “Jamie, thank you for bringing attention to this issue,” Honda replied at his Decision Maker page. “Your struggle moved me. Because of this petition, I am now a proud cosponsor of the TEACH Act.”

Decide and Conquer

About one week after the mayor of Boulder declared an emergency moratorium on the city’s ordinance against overnight camping on public property— and shortly after Change.org declared victory—she changed her mind. Despite the surge of activism that had occurred both online and offline, she lifted the moratorium. Sometimes, as it turns out, it’s difficult to make even a “small, incremental change” stick.

Campaign

Prosecute the Killer of Our Son, 17-Year-Old Trayvon Martin Creators

Target

Date

victory

Signatures

Tracy Martin and Sybrina Fulton, the ­father and mother of Trayvon Martin, who was shot to death in Sanford, Fla., launch a petition to prosecute his admitted shooter, George Zimmerman.

Pam Bondi, ­attorney general of Florida; Bill Lee, Sanford police chief; and other parties

Petition created: March 2012

A Florida state attorney charges Zimmerman with second-degree murder.

2,278,959 (June 2014)

Victory declared: April 2012

Photograph by john minchello/Associated press

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Visit ssireview.org to learn more about Change.org.

3“Change.org: What’s in a Domain Name?” sidebar 3“Change.org and Openness” blog post 3Video clips of petitioners Abby Goldberg and Molly Katchpole

Photograph by john minchello/Associated press

The practical import of Honda’s co-sponsorship is debatable.

Govtrack.us, a government transparency website, reports that the TEACH Act has 41 other co-sponsors and estimates that the bill stands only a 10 percent chance of getting out of committee. Still, this example shows that at least some elected officials are open to using the platform as a venue for communication with constituents.

“We’re not just trying to put the voice of nonprofits or our users inside the halls of government or in the boardrooms of companies,” says Brewer. “We’re incentivizing decision-makers to come to where the people are, on Change.org. And they’re doing it.”

One big question, of course, is whether users actually want to use a platform like Change.org to engage in dialogue and deliberation. Stuart Shulman, professor of political science at the University of Massachusetts, Amherst, has doubts on that score. “You’re back to chasing the great white whale here,” says Shulman, who studies how people use electronic comment-submission tools as part of the US federal rulemaking process. “People do change their behaviors when they’re exposed to new technologies. But so far they’ve done it for updating their Facebook statuses, not for deliberating about the finer points of [environmental] habitat.”

Stephen Zavestoski, professor of sociology and environmental studies at the University of San Francisco, notes another aspect of Change.org’s effort to increase opportunities for discourse on its platform. “When we interviewed environmental organizations, they more or less said that they didn’t really care much [about increasing democratic deliberation],” says Zavestoski, who collaborated with Shulman on several studies on the electronic rulemaking process. “For them, it was about aggregating preferences—being able to overwhelm a server with hundreds of thousands of comments.

That creates a spectacle for them. That gets traction.” The kinds of organizations that advertise on Change.org, in other words, may prefer a platform that emphasizes preference aggregation (that is, signature collection) to one that encourages dialogue and debate.

For Change.org leaders, introducing the Decision Makers functionality is one more instance of the company’s efforts to improve the site experience for users. “No victory can happen for a user without a decision by the person who’s receiving the petition,” says Brewer. “We’re making that a transparent process. Bringing light to the negotiation process will empower users more effectively.”

A Growing Concern

Change.org, which claims a larger audience than many well-known news organizations, has taken on several functions that those organizations have traditionally claimed for themselves—informing communities about issues that affect them, serving as a watchdog against powerful interests, and (as the old newspaper maxim has it) working “to comfort the afflicted and afflict the comfortable.”

Just as Change.org is becoming a new venue of governance, it’s also becoming a new and important conduit of public information. To play that role, the company needs to maintain a high level of credibility.

“We’re working to revamp our fact-checking process for petitions and trying to figure out a process that is scalable,” says Brianna Cayo Cotter, communications director. “We want to make sure that we have systems in place so that our users will continue to see us as a reliable source.” (At present, Change.org users publish more than 600 new petitions every day, and Change.org screens none of them in advance.) To some degree, the Decision Makers functionality will increase the trustworthiness of the platform. That functionality gives an entity targeted by a petition the ability to publish a rebuttal on the same platform where the petition appears. Every time a verified Decision Maker writes a response to a petition, moreover, everyone who signed the petition receives a copy of the response via email.

Earlier this year, Change.org worked with the Guardian on a pair of campaigns related to female genital mutilation (FGM). In one campaign, a woman in the United Kingdom petitioned her country’s secretary of state for education to push for adding information about FGM to UK school curriculums. In the second campaign, an Atlanta-based woman petitioned President Obama to commission a report that would assess the number of US women who are victims of FGM. To support these efforts, the Guardian created a page on its website that included articles and video clips about FGM, reports on the Change.org campaigns, and links to the petitions, both of which ended up attracting more than 200,000 signers.

In signing petitions at sites like Change.org, millions of people have shown that they seek forms of interactivity that go beyond adding a comment at the end of a news story. The Guardian collaboration shows how news organizations could add value to Change.org campaigns by checking their accuracy and providing context for them. At the same time, news media partners would benefit from the high level of user engagement that Change.org helps create. Yet news outlets have not yet capitalized on the platform to the degree that they might. “They’re very happy to report on petitions,” says Cayo Cotter. “But so far they want to keep a bit of objective positioning around their stories.”

At some point, Change.org will likely introduce a tool similar to the social media buttons that have become commonplace on news websites. Bishko, of the Omidyar Network, suggests how that functionality might work: “Instead of just tweeting something, you ‘change’ it. You go directly from an article that inspired you to Change.org to launch a petition on that same topic.”

The history of Change.org suggests that it won’t be just one tool or tactic that helps the platform realize its full potential as a venue for transparent deliberation and substantive decision-making. Change. org will likely try many options, and some of them will fail. Iteration has been a defining characteristic of the company from its inception.

Its willingness to change—to learn from how people actually use the platform, to make adaptations, and to accommodate its users’ needs and interests over time—helps explain how Change.org has grown so big so fast. In the world of Silicon Valley start-ups, that mindset is commonplace. Change.org has shown that it can flourish in the world of social innovation as well. n

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Believing that the world is “flat,” many organizations attempt to solve pressing social and environmen-

, tal problems on a global scale. All too often, these efforts flounder because the problems that seemed

global in scope could have been more effectively solved at the regional, national, or even local level.

Gl bal Problem Solving Without the Global ney

By Pankaj Ghemawat

Illustration by Oliver Munday & Pablo Delcan

T

here is widespread belief not just that globalization is on the rise, but that it is already (close to) complete. Fed by books such as Thomas Friedman’s The World is Flat, and by heightened awareness of truly global problems such as climate change, large numbers of people believe that many, if not most, of today’s social and environmental problems are the result of global trends and that their solutions must also be global in nature. I refer to such overstatements about the extent of globalization as “globaloney.”

Consider a few examples of globaloney. The French guess that immigrants make up 24 percent of France’s population—three times the actual level. British air travelers guess that international air transport accounts for more than 20 percent of energy-related greenhouse gas emissions—10 times the actual level. And Americans guess that foreign aid accounts for more than 30 percent of the US federal budget—30 times the actual level!

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Globaloney doesn’t plague just the general populace—it also infects leaders of nonprofit, business, government, and multilateral organizations. When I polled an assembly of the national envoys to the World Trade Organization, an overwhelming majority agreed with Friedman’s characterization of the world as flat—even though it raised existential questions about what they were doing in Geneva.

Globaloney has many negative consequences. It obscures the potential gains from additional globalization, swells fears about its adverse consequences, and causes companies to adopt strategies of “bigger and blander.”1 It also induces organizations and groups of organizations of all kinds to put undue emphasis on global solutions to social and environmental problems that should instead be tackled at a regional, national, or even local level. This misplaced emphasis matters because it overstretches our limited capacity for true “global problem solving” when it matters.

Consider, for instance, the Rio process orchestrated by the United Nations. It began amid much optimism with the 1992 Earth Summit, but has proven to be a colossal disappointment. Why has it largely failed? In addition to three treaties—on climate change, biodiversity, and desertification (which a review 20 years later in Nature graded with an “F” 2)—the Earth Summit resulted in Agenda 21, an “action plan” that covered an astounding 27 program areas and 116 individual issues such as promoting sustainable development through trade, providing adequate financial resources to developing countries, meeting primary health care needs, and providing adequate shelter for all. Were they all appropriate subjects for a global conclave? By my reckoning, action primarily at the global level was invoked for only two of the 116 issues. Of the remainding, one-third resulted in calls for action primarily at the local level, another one-third for action at the local and global levels, and the remainder for action at the regional level as well.

This classification, although subjective, is suggestive. It reminds us that not everything needs international coordination—and that even when international coordination is required, sub-global approaches (between only two nations, for example) may make more sense.

The other obvious problem with the Rio process was that the deliberations at the Earth Summit involved 172 governments and 2,400 representatives of nongovernmental organizations (NGOs)—not to mention the 17,000 attendees at the parallel NGO Global Forum, which was accorded consultative status. And Rio+20 (the follow-on to the Earth Summit that took place in 2012) saw a further explosion in the number of NGOs participating. More than three times as many NGOs were officially involved, along with many more representatives from the business and investor communities.

There were some definite attractions to bringing civil society into the picture to supplement traditional government-to-government interactions, but the dismal results remind us that broad participation doesn’t guarantee that problems will actually be solved.

Global Designs

To better understand how to differentiate between global and subglobal issues, and to pursue programs that are sized appropriately to the problem and the solution, I’ve devised five design principles, which I call the Five Ds: devolution, distance-sensitivity, distancedirectedness, distinctive-competence, and de-biasing.

The first principle, devolution, emphasizes that not everything needs international coordination. It is based on the fact that most

Pankaj Ghemawat is the Anselmo Rubiralta Chair of Global Strategy at IESE Business School and the Global Professor of Management and Strategy at New York University Stern School of Business. He is the author of numerous books, including Redefining Global Strategy and World 3.0.

An earlier and longer version of this article was prepared as a white paper for the Global Solutions Network project and is available at http:// gsnetworks.org/research_posts/globalization -and-global-problem-solving/. I have benefited from presenting this material at the US State Department and from the comments of Don Tapscott and Anthony Williams, although it should not be assumed that they agree with the viewpoints expressed here.

social and commercial interactions are only 10 to 20 percent globalized. Only a few interactions cross the 30 percent mark—and even that threshold still embodies a huge amount of “home bias.”

The fact that most international flows occur between countries that are near each other geographically suggests the distance-sensitivity principle: Even if international coordination is required, high levels of distance-sensitivity typically favor sub-global approaches focusing on regions or sub-regions. Remapping the world in terms of multiple forms of distance (economic, cultural, and administrative, along with geographic) reveals the power of the distance-directedness principle in guiding choices about the locus of activity or operation (“where”), which activities to perform (“what”), and ways to organize to get them done effectively (“how”).

Realism about the general difficulties of cross-border operations and the management challenges confronting nonprofits, in particular, underlines the usefulness of the distinctive-competence principle: ask not only whether something is worth doing, but also if you, your organization, or your network are or can become capable of doing it well. And finally, remembering that most individuals are still quite distrustful of foreigners leads to the de-biasing principle: the importance of deliberately building cross-border trust by reducing home bias due to ignorance or prejudice.

Adhering to the Five Ds might not only have improved the outcomes of the Rio process, they also hold the potential to (re)direct and improve social initiatives. Consider a social innovation that has stirred up considerable interest recently: global solutions networks (GSNs), defined by author Don Tapscott as consisting of “diverse stakeholders, organized to address a global problem, making use of transnational networking, and with membership and governance that are self-organized.” 3 The emergence of GSNs, which now number well into the hundreds if not thousands, is often extolled in glowing terms. (Examples of GSNs include knowledge and policy networks like the International Competition Network, advocacy and watchdog networks like Human Rights Watch, governance networks like the Internet Corporation for Assigned Names and Numbers, and operational and delivery networks like the Red Cross.) And the potential for GSNs is indeed enhanced by the growing connectivity afforded by the Internet—the enabler emphasized by Tapscott—and the explosive growth of what Ashoka founder Bill Drayton calls the citizen sector.4 Before we get carried away with the prospects for GSNs, it is worth remembering that global conditions are in many respects more challenging today than they were when the Rio process was launched in 1992. Then, the world economy was growing rapidly, globalization was increasing, and the easing of Cold War tensions raised hopes of a real shift away from war and conflict and toward development and sustainability. Today, economic conditions are generally bleaker in advanced economies, and even faster-growing emerging economies

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A common counterargument to my point is that even if the extent of globalization is small today, a borderless world may be just around the corner. Looking back in history, however, reveals that the changes that have occurred are rather mixed. The percentage of the world’s population composed of immigrants is the same now as it was in 1910. And some of the pre-financial crisis measures of cross-border financial flows are comparable to earlier peaks more than 100 years ago. Because financial flows actually dropped significantly in the aftermath of the financial crisis, it is probably more accurate to describe the current trend as increasing fragmentation, not increasing integration.

Proponents of a flat world often point to the Internet and, more broadly, to the fact that in the last few decades the cost of communication has plummeted and the richness of what can be transmitted has exploded “in a way that changes everything.” But the portion of Internet traffic that crosses international borders is actually about 17 percent—five times as high as telephone calls, but far below the level one would expect in a flat world. Similarly, an estimated 16 percent of people’s friends on Facebook are foreign,10 as are 25 percent of The Devolution Principle the people that individuals follow on Twitter.11 Just because we are Not all the issues raised at Rio required the powers of global probable to befriend anyone living anywhere on Facebook doesn’t mean lem solving (as opposed to global exhortation). Many of them could that we will—there is an important distinction between potential connectivity and actual connectedness. be better handled at the regional, national, or local level. But there All of these data suggest that the agenda for global problem solvseems to be a tendency to attach the handle “global” to issues for no ing can be simplified by deemphasizing areas where the critical pheother reason than to give them extra emphasis. Given the limits on nomena unfold mainly at a local or national level. The environmenour capacity for global governance, cutting back on such globaloney tal externalities caused by pollution provide an interesting example. is one way to concentrate that capacity where it really matters.

For distance-sensitive pollutants that stay more or less within naLet’s look at some relevant evidence—at data measuring the tional borders—most ground and water pollution—local solutions levels of internationalization of activities that can take place eiare generally appropriate. Pollutants that cross national borders to a ther domestically or across borders. (See “Internationalization Levels” at right.) It turns out that the international component significant extent—usually airborne ones—are the ones that require of these activities represents a small cross-border cooperation. fraction—typically less than 20 perThe growth and sustainability of citInternationalization Levels cent and often less than 10 percent— ies provides another, somewhat different The percentage of various types of interactions that take place across national borders is quite a bit lower of the total. Only for a few—mostly example. It may make sense to build a than many people think.8 knowledge network to share informafinancial7—variables do internationaltion on, say, sustainable cities around ization levels exceed 30 percent—and even that threshold still embodies a the world, and even to build an advocacy Mail huge amount of home bias. network to engage in cross-border lobbyUniversity students Actual levels of globalization are ing for more enlightened urbanism, but Immigrants much lower than the levels one would those are limited functions that don’t reTelephone calls expect to see if the world were flat quire much coordination across borders.

Co-invented patents (which would typically be 85 percent The broader point is that a problem Direct investment or more). They are also significantly needs to be more than globally widelower than most people’s intuitions. In spread to be a candidate for global soluPrivate charity an online survey that Harvard Business tions that go beyond simple informationTourists Review conducted for me, respondents sharing. Requiring some coordination of Facebook friends pegged international phone calls at 29 responses across borders, rather than Internet traffic percent of the total, immigrants at 22 simply sharing information about difTwitter followers percent of the world’s population, and ferent types of possible responses, is the acid test for global problem solving. foreign direct investment at 32 percent Mergers Hence the devolution principle: Not evof total capital formation—an average Public debt ery global problem needs coordination estimate of 27 percent, more than five Exports/GDP 9 times the actual average. (CEOs, inacross national borders, and many issues Portfolio equity stocks terestingly enough, overestimated by are, in fact, tackled most effectively at the a factor of nearly seven!) national or local level.

0 5 10 15 20 25 30 35% (such as China, India, and Brazil) have experienced slumps in their growth rates. Globalization itself, after surging through 2007, faltered in the wake of the financial crisis.5 And ongoing threats to global stability and cooperation include regional economic crises such as those in the Eurozone; increases in income inequality in many countries and of xenophobia in some; continued trade imbalances; talk of currency wars and uncertainty about the dollar’s future as the world’s reserve currency; the growing obsolescence of multilateral institutions, many of which were set up in the aftermath of World War II; and geopolitical tensions in regions such as the South China Sea and Ukraine.

Against this backdrop, the notion of self-organizing GSNs spontaneously generating solutions to global problems of the sort wrestled with at Rio appears to be a triumph of hope over experience. At least some other scholars who have looked at GSNs have come to similar conclusions.6 Nevertheless, GSNs do exist, and organizations are tackling social and environmental problems at a global scale. The Five Ds are meant to provide guidance for these organizations that is grounded in what research has revealed about globalization and the responses to it.

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and linguistically, but also historically: Apart from Switzerland, The bulk of Germany’s trade occurs with adjacent countries. The size of each country is based on Germany’s these countries, along with Gerexports to that country. The shade of each country is based on Germany’s share of their imports. many, constituted the Holy Roman Empire circa 1500.

Similar patterns are evident for other kinds of international interactions. Sixty percent of 9 Y 2 N German banks’ foreign lending 3 A is to the rest of Europe—which 4 6 10 also accounts for 70 to 85 percent of Germany’s foreign direct in5 vestment, portfolio equity hold8 1 1. France 10% ings, international phone calls, 2. U.K. 7% 7 and international tourist arriv3. Netherlands 7% als. There are good reasons why 4. U.S.A. 6% 5. Austria 5% the Eurozone crisis is, despite its 6. China 5% potential global ramifications, 7. Italy 5% 8. Switzerland 5% mostly being handled in Europe.

Unknown 25% 20% 15% 10% 5% 1% 9. Poland 4% Europe is more integrated 10. Belgium 4% than most continents, but simiSource: Data from UN Comtrade and IMF Direction of Trade Statistics databases.

Map courtesy of Pankaj Ghemawat lar patterns exist in other parts of the world. If we look at the world The Distance-Sensitivity Principle as a whole, 53 percent of merchandise trade, 52 percent of foreign direct investment, 51 percent of international telephone calls, and 49 If the devolution principle was about determining which issues should percent of international migration all take place within rather than be coordinated internationally and which should be addressed at the local or national level, the distance-sensitivity principle is about how between roughly continent-sized regions.12 The high average level of best to structure what does make it onto the international agenda. regionalization suggests that many issues that require international This principle is predicated on the law of distance—the observacoordination might be best addressed at the regional rather than the tion that the lion’s share of international interactions takes place global level. And geography isn’t the only possible basis for distinguishbetween countries that are close to each other rather than far apart. ing between the near abroad and the far abroad. Others include cultural ties, political alignment, and degree of economic development.

What this implies is that many “international” issues are actually regional ones and not truly global.

The distance-sensitivity principle can be illustrated by extending The Distance-Directedness Principle the earlier discussion of pollution. Airborne pollutants can range across The distance-directedness principle also relies on the law of distance, borders, but in very different ways. Acid rain, for example, tends to but shifts the focus from devising the global problem-solving agenda have a regional footprint, accounting for the success of intra-regional to shedding light on what the actors involved in it should do. The initiatives such as cooperation between the United States and Canada most interesting research in this area are the studies that use “gravity” models to investigate the factors underlying the law of distance, (most notably, their 1991 Air Quality Agreement), which has helped reparticularly concerning trade. Gravity models in international ecoduce North American acid rain by 65 percent since 1976. In contrast, nomics link interactions between countries to the product of their carbon dioxide emissions that cause global warming have an unusually economic masses, divided by some composite measure of distance. low distance-sensitivity and, therefore, warrant a fully global focus.

It is not just pollutants that obey the law of distance. DistanceGravity models not only help us understand why, for instance, the sensitivity also applies to the voluntary international interactions US-Canadian trading relationship is the largest in the world; they also that are more commonly studied in the context of globalization: explain, in a statistical sense, two-thirds or more of all the variation in bilateral trade intensities between all possible pairs of countries. trade in products and services, flows of capital, migrations of people, Distance, however, is not simply measured in miles. For example, and flows of information. Instead of being randomly distributed, these flows often have a regional structure. the geographical distance between the United States and England may Germany, for example, is known for its manufacturing prowess be substantial, but the two countries’ shared linguistic, cultural, and and its ability to export its products around the world, but the bulk of historical heritage supplies important bridges that narrow the gap. The its trade occurs within Europe, particularly with its immediate neighCAGE Distance Framework posits that “distance” includes multiple dimensions—cultural, administrative (or political), geographic, and bors. About 60 percent of Germany’s exports go to other EU couneconomic (CAGE). And whereas there are many differences between tries. Within Europe, there are also significant variations: Germany countries, the seven variables highlighted in red in the table explain represents a particularly high share of Austria, Switzerland, the Czech Republic, and Hungary’s overall imports. (See “German Exports” 70 to 90 percent of the variation in country-to-country flows of trade, above.) Those countries are close to Germany not only geographically capital, people, and information.13 (See “CAGE Distance Framework” RM

German Exports

GE

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below.) To illustrate the usefulness of the CAGE Distance Framework, consider some of the questions that businesses have found it helpful in answering—many of which can be adapted to the social sector.

Where? | Where a business originates affects what countries it should expand to—and that answer usually isn’t “everywhere.” In 2004, of all US companies that had foreign operations, the largest fraction operated in just one foreign country, the median number in two, and 95 percent in fewer than two dozen. As fully global action is unlikely to be warranted in the short run, do social-sector initiatives take adequate account of where they are from (for such things as administration and donors) and of relevant experience sets in deciding where to go next? Take, for example, an issue facing Worldreader.org, a nonprofit that aims to bring e-books to African schoolchildren: Which African market(s) should it focus on first? Its founders, a Briton and an American then based in Barcelona, chose Ghana because Anglophone Africa seemed the most natural target, Ghana’s public administration was reputed to be relatively clean and efficient, and time-zone proximity to Barcelona would likely simplify coordination.

What? | Businesses also seem more inclined to recognize that their strategies in the countries in which they operate must respond in some way to international differences. That said, they often fail to consider the full range of strategy levers for dealing with the differences that matter the most in their industries: most broadly, using multiple levers and sub-levers of adaptation to adjust to differences; aggregating across countries to (partially) overcome differences; and arbitraging to exploit (selected) differences. Consider some analogues for social sector initiatives: Does a family-planning initiative targeting poor, strife-torn, traditional societies, which often have high gender inequality and fertility rates, make adequate allowance for effective approaches in male-dominated societies? Can the

Grameen Foundation, the hugely successful pioneer of microlending in Bangladesh, identify important common social needs that cut across or aggregate segments in poor countries that it can effectively help meet? Some degree of confidence that it can do so should underpin its expansion into nearly three dozen additional countries. And arbitrage or targeting differences along selected dimensions raises important issues ranging from building low-cost but adequate delivery structures for very-low-income countries to questions about the focus of social-sector initiatives on extreme deprivation, as opposed to on some other area for improvement.

How? | Some businesses also understand that their ability to address cross-country differences depends not only on the objective distances to be traversed, but also on their internal capabilities for dealing with them. Businesses and social enterprises should consider the following questions before expanding: Do the critical people in your organization understand how global we actually are, or have they fallen prey to globaloney? Do they have a framework for understanding the underlying differences between countries—and differences in differences—that underlie limited levels of cross-border integration?

Are they housed in one location or dominated by one nationality? Are they involved in cross-border projects and networks, and, ideally, have they ever been rotated abroad? Are they prepared to engage in the debate about the social consequences of globalization in general and your organization’s particular involvement in it?

The Distinctive-Competence Principle

The distinctive-competence principle extends the where, what, and how questions, to ask whether a particular social enterprise is best positioned to pursue a particular global problem-solving opportunity—or would the cause be served better by joining up with an existing organization or network, or letting some other organization pursue CAGE Distance Framework it? The distinctive-competence principle This framework allows one to understand and compare the “distance” between countries emphasizes that individuals or organialong cultural, administrative (or political), geographic, and economic dimensions. The more marked the differences, the greater the distance between the countries. zations that are considering entering or expanding in the social sector need to ask Geographic Economic Cultural Administrative themselves whether their involvement Distance Distance Distance (or Political) would lead to creating significantly more Distance total value than would happen othern Different languages n No colonial ties n Physical distance n Differences in External Distance n Different ethnicities n No shared regional n No common land wise. The corollary is that organizations consumer incomes (differences between n Lack of connective n Differences in trading bloc border countries) should ideally account for the opportun Different currency n Different climates ethnic or social availability of human nity costs of donors’ resources, even if n Different legal system n Different time-zones networks resources, financial n Different religions n Differences in resources, natural those resources are contributed free. n Differences in national resources, infrastruccorruption levels Most social enterprises do not mean Differences in ture, distribution work systems n Different values, networks, and political stability sure their performance by undertaking n Political hostility organizational norms, and this sort of cost-benefit analysis. But capabilities dispositions the approach does merit more attenn Traditionalism n Nonmarket or closed n Landlocked-ness n Economic size Internal Distance tion. Industrial organization economics n Insularity n Geographic size n Low income per capita economy (attributes of each n Spiritualism n Lack of membern Geographic n Low level of indicates that at least in the absence of country) n Inscrutability ship in international remoteness monetization product differentiation, there is a tenn organizations Limited resources, n Weak legal institutions inputs, infrastructure, dency for an excessive number of comcomplements, and or corruption panies to enter a market simply to take n Lack of government capabilities checks and balances business away from existing companies n Societal conflict without growing the market or providing n Risk of expropriation any other particular benefit to society.14 Differences highlighted in red are the ones included in the regressions whose results are summarized in this article.

Source: Adapted from Chapter 3 of Pankaj Ghemawat, World 3.0: Global Prosperity and How to Achieve It, Harvard Business Press, 2011.

These effects might be aggravated in the

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social sector by “messianic complexes” that could lead to even more entrants than in the for-profit benchmark.15 The good news is that in the social sector, it seems reasonable (or, at least, more reasonable than in the private sector) to ask players to internalize the social costs of their entry or expansion. Another implication of this line of reasoning is that initiatives that add to variety, whether in means or ends, are generally more deserving of grace than initiatives that simply pile additional resources onto established, relatively well-funded efforts.

To be a bit less stringent and a bit more practical, a social enterprise might not be the best in the world at what it does or aims to do, but it does have to be—or have plans to become—pretty good in the relevant respects. Without those plans, the adage by Kenneth Andrews, who wrote the classic text on business strategy, applies: “Opportunism without competence is a path to fairyland.”16 To better understand these ideas, consider again the example of Worldreader.org. Its two founders focused their nonprofit on education because they had backgrounds in the field, and on e-books because one had connections in high-tech. This knowledge and these connections increased the odds of being able to do something special within the zone of distinctive-competence rather than outside it. But they also set up a clear evaluation mechanism by hiring MIT Professor Esther Duflo to help design and analyze their first field trials. And because Worldreader.org was designed to be an operational and delivery network, it clearly did require the development of some significant organizational capabilities, as well as a structure to house them in, rather than an attempt to “organize without an organization.”

The De-Biasing Principle

The final principle—de-biasing—shifts the focus from governments, NGOs, and businesses to individuals. It recognizes that distrust of foreigners is rampant, reducing cross-border interactions and imposing constraints on global problem solving. To counter this bias it is important to build cross-border trust. To figure out what might be done in this regard, it is best to start with some data—in this case, concerning the extent to which citizens of various European countries reported trusting their co-citizens and others.

Close to 50 percent of respondents to the 1996 “Eurobarometer” survey reported trusting their fellow citizens “a lot,” but only 20 percent reported trusting citizens of the other 16 European Union countries “a lot,” and just over 10 percent reported trusting citizens of other countries “a lot.” There is some variation by country (Italians report trusting the Swiss more than they trust other Italians), but on average, nationals of EU countries express “a lot” of trust twice as often in co-nationals as in nationals of other “nearby” EU countries, and four times as often compared to nationals of countries that are farther away. These data from the EU are indicative of what researchers have found in other parts of the world. Scholars have concluded that trust falls as the populations of any two countries grow more different in their languages, religions, genes, body types, geographic distance, and incomes, and if they have a more extensive history of wars.17 This differential distrust of foreigners is estimated to have big effects. Statistical studies suggest that moving from lower to higher levels of bilateral trust can increase trade, direct investment, portfolio investment, and venture capital investment by 100 percent or more, even after controlling for other characteristics of the two countries.18 Fear of foreigners, particularly the ones who are most “foreign,” is

compounded by the constraints that cross-cultural mistrust imposes on attempts to reduce other kinds of barriers to international flows.

Consider some additional examples from Western Europe—a region where nationalism has recently been more or less held in check, where countries have pursued formal administrative integration to an extent unparalleled in other regions, and where education levels are generally high. Despite this context, cultural fears have loomed very large as economic pressures have mounted. Much of the surging protectionist and, especially, anti-immigrant sentiment has not just nationalistic but cultural roots. The economic case for large-scale immigration into Europe is clear; most of the fears around immigrants have to do with cultural fears more than ostensibly economic dimensions.

In figuring out how to build trust, it is also useful to note that much cross-cultural mistrust seems to be rooted in cultural insecurities. A survey of 47 countries around the world indicates a strong positive correlation between perceiving one’s own culture to be superior and perceiving it to need protection. The list is headed by India, where 93 percent of respondents agreed that their culture was superior and 92 percent agreed that it needed to be protected. India is followed by Indonesia, Tanzania, and Bangladesh. In contrast, the bottom of the list is occupied by Sweden, where only 21 percent of respondents agreed that their culture was superior and 29 percent that it needed protection. Interestingly, Swedes are highly trusted as well as trusting, illustrating a more general pattern across the countries included in both surveys: Countries that feel the least superior and defensive about their own cultures also tend to be the most trusting—and trusted.

In keeping with the distance-directedness principle, the challenge of building cross-border trust is likely to be different in, say, the Netherlands and Nepal, not the least because the former is already more than one hundred times as connected with the rest of the world than is the latter. But both countries do present challenges.

Think of the success in the Netherlands, traditionally a haven of tolerance, of Geert Wilders’s wildly misnamed Freedom Party, with its anti-immigrant and now Europhobic posturing.

Research on the determinants of cultural chauvinism and related fears does identify some apparent commonalities across countries— and some broad paths forward. Higher education levels in a country cause levels of nationalism and suspicion of outsiders to decrease.

The extent to which an individual participates in the network of global economic, social, and cultural relations and of inclusive social identification with the world community seems important. Traveling and living abroad seems to broaden individuals’ perspectives.

And scholars have found that security of property rights and the rule of law are prerequisites for trust to emerge, rather than what they often seem: vital substitutes for trust.

On the basis of these findings, several concrete steps for building trust and reducing excess cultural fear can be undertaken. These steps include more education; monitoring of negativism in the media and in political discourse; encouraging more interpersonal contacts across cultures and ensuring that they are as pleasant as possible; and building a cosmopolitan global social identity. One might also try to build cross-cultural understanding between countries in which economic potential exists, but political and cultural relationships are strained (such as India and Pakistan or Israel and Palestine); to prioritize support for the rule of law; and to encourage the private sector to become involved in building bridges between cultures.

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Implications for Global Problem-Solving Leaders

Focus the agenda for global problem solving. | The devolution and dis-

tance-sensitivity principles offer systematic advice on how to set—and, in particular, limit—the agenda for global problem solving. Individuals and organizations should analyze the extent of globalization and the distance-sensitivity of the problems they wish to address. Calculate the percentage of the relevant activity that takes place domestically versus internationally and the percentage of the international component that crosses regional boundaries. Even if a similar problem appears in many countries, if it requires little coordination across borders, most of the effort expended toward solving it should be local, national, or regional, rather than global. Limiting truly global efforts to the problems that really demand them can help us make better use of our still very limited bandwidth for worldwide cooperation.

Select and structure initiatives so as to add value. | The distancedirectedness and distinctive-competence principles look at some of the same observations about limited globalization and considerable distance-sensitivity from the perspective of the organizational actors involved in global problem solving. Distance-directedness supplies guidance about the where, what, and how of an organization’s pursuit of its mission across borders, and distinctive-competence about the more basic existential question of whether it is a good instrument for that pursuit. A starting point for operationalizing these two principles is to use the CAGE Distance Framework to understand that where you are coming from affects where you might want to try to contribute and what kinds of adaptation to cross-country differences might be required. Having applied the framework to get a more realistic sense of the border-crossing and distance-bridging challenges your effort faces, ask whether your organization or network is really the right one to pursue a particular opportunity—or whether it is better pursued through other means.

Work on improving people’s attitudes towards globalization. | The de-biasing principle goes even more micro, emphasizing that individuals’ attitudes toward globalization and foreigners in particular constrain both the global agenda and what organizational actors can hope to accomplish within it. Somewhere within global problem solving we must find room to consider educational initiatives that aim to shape people’s attitudes—by connecting them better with the systematic evidence about the extent, patterns, and consequences of globalization, as well as with each other. n N ote s

1 For a detailed discussion of the consequences of globaloney and how to do better, see Pankaj Ghemawat, World 3.0: Global Prosperity and How to Achieve It, Harvard Business Review Press, 2011.

2 Jeff Tollefson and Natasha Gilbert, “Earth Summit: Rio Report Card,” Nature, no. 486 (7401):20–23. doi: 10.1038/486020a. Available at: http://www.nature.com/ news/earth-summit-rio-report-card-1.10764 3 http://gsnetworks.org/

8 Mail (international share of letter-post items, 2012) is based on data from Universal Postal Union; University students (students enrolled in degree programs outside their home countries as share of total tertiary education enrollment, 2011) is based on data from Euromonitor Passport, UNESCO Institute for Statistics, and Ministry of Education of the Republic of China (Taiwan); Immigrants (immigrants’ share of total world population, 2012) is based on data from United Nations Department of Economic and Social Affairs, “Trends in International Migrant Stock: Migrants

by Destination and Origin,” 2013 (United Nations database, POP/DB/MIG/Stock/ Rev.2013) and World Development Indicators; Telephone calls (international share of total telephone call minutes, including calls placed over the Internet, 2013 estimate) is based on data from International Telecommunication Union and Telegeography (note that this estimate includes calls between telephones using voice over IP technology, calls between telephones and computers, and calls directly between computers via Skype but does not include calls directly between computers using other services); Co-invented patents (share of patents with at least one foreign coinventor in OECD member countries, 2009-2011) is based on data from OECD Science, Technology, and Industry Scoreboard 2013: Innovation for Growth; Direct investment (Outward Foreign Direct Investment Flows as percentage of Gross Fixed Capital Formation, 2012) comes from UNCTAD World Investment Report 2013; Private charity (share of grants from US foundations to non-US based charitable organizations, 2007) comes from Global Geneva; Tourists (international share of total international and domestic tourist arrivals, 2012) taken from United Nations World Tourism Organization, “UNWTO Tourism Highlights,” 2013 edition; Facebook friends (share of Facebook friends located in different countries, 2011) comes from Jason Ugander, Brian Karrer, Lars Backstrom, and Cameron Marlow, “The Anatomy of the Facebook Social Graph,” arXiv:1111.4503, [cs.SI], Nov. 2011; Internet traffic (international share of total Internet traffic, 2012) is an estimate based on data from Cisco Visual Networking Index and Telegeography; Twitter followers (share of Twitter followers located in different countries from the people they follow, 2012) comes from Yuri Takhteyev, Anatoliy Gruzd, and Barry Wellman, “Geography of Twitter Networks,” Social Networks, vol. 34, no. 1, Jan. 2012; Mergers (international share of total M&A transactions both in number of transactions and in value based on the 40 percent of transactions with values reported, excluding spinoffs, 2013) comes from Thomson Research; Public debt (foreign debt share of total public debt, 2012), based on data from Euromonitor; Exports/GDP (gross exports of goods and commercial services as percentage of world GDP, 2012) comes from World Trade Organization and World Development Indicators; Portfolio equity stocks (inward portfolio equity stock as percent of market capitalization of listed companies, weighted average across 88 countries, 2012) comes from IMF Balance of Payments and International Investment Position Statistics and Euromonitor.

9 Harvard Business Review online globalization survey launched on April 25, 2007.

10 Jason Ugander, Brian Karrer, Lars Backstrom, and Cameron Marlow, “The Anatomy of the Facebook Social Graph,” arXiv:1111.4503 [cs.SI], Nov. 2011. Available at: http:// arxiv.org/abs/1111.4503 11 Yuri Takhteyev, Anatoliy Gruzd, and Barry Wellman, “Geography of Twitter Networks,” Social Networks, vol. 34, no. 1, Jan. 2012: 73-81. Available at: http://www.sciencedirect.com/science/article/pii/S0378873311000359 12 Pankaj Ghemawat and Steven A. Altman, “DHL Global Connectedness Index 2012,” Report, Deutsche Post DHL, 2012. Available at: http://www.dhl.com/en/ about_us/logistics_insights/studies_research/global_connectedness_index/ global_connectedness_index_2012 13 Pankaj Ghemawat and Tamara de la Mata, “Globalization and Gravity,” unpublished working paper, IESE Business School, Sept. 2013.

14 N. Gregory Mankiw and Michael D. Whinston, “Free Entry and Social Inefficiency,” The RAND Journal of Economics, vol. 17, no. 1, Spring 1986: 48-58. Available at: http:// www.jstor.org.ezp-prod1.hul.harvard.edu/stable/2555627 15 It has even been suggested that “While social entrepreneurs are driven by an ethical obligation and desire to improve their communities and societies, egoism can drive them to follow unethical practices. Egoism is especially relevant because the identity and passions of social entrepreneurs usually compel them to create and lead social ventures.” Shaker A. Zahra, Eric Gedajlovic, Donald O. Neubaum, and Joel M. Shulman, “A Typology of Social Entrepreneurs: Motives, Search Processes, and Ethical Challenges,” Journal of Business Venturing, 24, 2009: 528. Available at: http://www. sciencedirect.com/science/article/pii/S0883902608000529

4 Eli Malinsky, “Bill Drayton’s Five Trends for Social Entrepreneurs,” Forbes, Dec. 12, 2012. Accessed on June 18, 2014, at http://www.forbes.com/sites/ashoka/2012/12/12/ bill-draytons-five-advice-for-social-entrepreneurs-what-the-future-holds-and-howyou-should-adjust/

16 Kenneth Andrews, The Concept of Corporate Strategy, Richard D. Irwin, 1971.

5 Pankaj Ghemawat and Steven A. Altman, Depth Index of Globalization 2013. Available at www.ghemawat.com/dig/

18 On the first three flows, see Guiso, Sapienza, and Zingales, “Cultural Biases in Economic Exchange.” On venture capital investment, see Laura Bottazzi, Marco Da Rin, and Thomas Hellmann, “The Importance of Trust for Investment: Evidence from Venture Capital,” ECGI - Finance Working Paper No. 187/2007; EFA 2007 Ljubljana Meetings Paper; CentER Discussion Paper Series No. 2010-49 (Revision of No. 2009-43); TILEC Discussion Paper No. 2010-023. Available at SSRN: http://ssrn. com/abstract=997934

6 Kenneth W. Abbott and Thomas Hale, “Orchestrating Global Solution Networks,” http://gsnetworks.org/research_posts/orchestrating-global-solution-networks/.

7 Although nominal exports add up to 32 percent of global GDP, if you remove doublecounting, only about 23 percent of value added around the world gets exported.

17 Luigi Guiso, Paola Sapienza, and Luigi Zingales, “Cultural Biases in Economic Exchange,” working paper, National Bureau of Economic Research, Dec. 2004. Available at: http://www.nber.org/papers/w11005

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Investing with a gender lens can create financial and social impact by increasing women’s access to capital,

, promoting workplace equity, and creating products and services that improve the lives of women and girls.

The Rise of Gender Capitalism

By Sarah Kaplan & Jackie VanderBrug Illustration by Kaley mcKean

A

cross a wide “missing middle” of finance. They not only Looking through a “gender lens” helps spectrum of society there is growinvestors gain new perspectives, highlight lend capital but also offer financial training ing recognition of the central role that poorly understood inequalities, uncover to help farmers and agricultural businesses women play in the world economy. Books new opportunities, identify blockages in access markets. such as President Jimmy Carter’s Call to the system, and find value where none Root Capital did not start with a genAction and Sheryl Sandberg’s Lean In was found before. der focus, but in the course of its work advocate increased women’s empowerWhy “gender” and not “women”? Althe organization learned about the challenges women face in accessing resources ment. Former US Secretary of State Hillary though it is focused on the impact of investClinton made a strong case for the ecoing on women and girls, the movement uses like credit, land, training, and agricultural nomic inclusion of women as a vital source the term “gender” to emphasize that makinputs. A gender lens became a starting point for exploring new opportunities for of economic growth when she spoke at the ing change means looking at the socially constructed roles, relationships, and exfirst Asia-Pacific Economic Cooperation action. Root Capital launched a Women in High-Level Policy Dialogue on Women pectations of women and men and the ways Agriculture Initiative based on the belief that gender-inclusive businesses—rated and the Economy.1 And studies by corporathat these are reinforced by educational, potions such as Goldman Sachs highlight the litical, economic, and cultural systems.3 Usby a potential client’s percentage of women potential increases in GDP if women had ing “gender” brings both men and women leaders, women managers, women employequal access to employment and credit.2 into the conversation. The movement’s obees, and women suppliers, as well as incluFrom these ideas, as well as from work jective is to look at the entire financial and sive programs and culture—can create social system, not just at women. greater financial and social impact. in women’s philanthropy and advocacy for To understand how a gender lens can Through a gender analysis, Root Capiwomen’s corporate leadership, a movement change the way investment decisions are tal found that effective investment in agfocusing on the nexus of gender and investmade, consider the example of Root Capiriculture requires attention to the whole ment is emerging. This movement, which social system, from enabling land ownerencourages the use of capital to deliver tal, a nonprofit agricultural lender focused ship for women farmers to empowering financial returns and improve the lives of on increasing rural prosperity in Latin middle managers (often women) who are America and Africa.

Root Capital invests women and girls and their communities, is in businesses that are too big for microknown as “investing with a gender lens.” the hidden influencers in small agricultural finance but are unable to get credit from What do we mean by “lens”? A lens enterprises, to training entrepreneurs in banks—what the organization calls the allows us to see the world differently. financial management. A gender lens led

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Root Capital to identify businesses in traditionally male-dominated industries that have a high impact on women, such as a Nicaraguan collective of women coffee farmers that launched the “Las Hermanas” brand of coffee. It also led Root Capital to focus more on femaledominated but sometimes neglected industries such as shea butter. As a result, a gender lens has expanded, not limited, the range of products and services the lender offers and the types of clients it serves.

Digging Deeper into Gender

Although there is increasing discussion of the role of women in organizations and in the larger economy, the tenor of the conversation has been more about how women can learn to operate within the existing system than about how to overcome structural barriers. Sandberg’s Lean In, for example, has been criticized for not taking into account what happens when organizations push back. The breast cancer awareness campaigns that cobrand “pink” products have been criticized for benefiting marketers more than women with cancer. We are not saying that women should not lean in or that people should not buy pink products. We are now at the point, however, where we need to go beyond these individualistic concepts. We must engage trillions of dollars of investment capital to capture the gains that come from paying attention to the systemic problem of devaluing women.

Investing with a gender lens is about creating a new economic logic that bridges the market logic of financial returns with the feminist logic of women’s equality. Traditional investors often fear that a focus on women may make them too pink, and traditional advocates for women’s rights often fear that engaging with investors may mean they are selling out. Gender lens investing builds a bridge between these two worlds. It is not about investing in women as if they were commodities, nor abandoning feminism (with its roots in anti-capitalism).

Rather, the movement promotes gender analysis as a way of reshaping the system to change what we value as we invest. Paying attention to gender is not just about having a social conscience, nor is it about adding to our list of environmental, social, and governance investment screens. Instead, gender capitalism is about applying a gender lens to highlight the ways that gender is material to financial outcomes and financial outcomes are material to gender.

There is, however, no universal approach to investing with a gender lens. There are important distinctions between resource rich and resource poor settings, between different regions and countries, between different economies, and between different investment products. The ideas and examples in this article are meant as starting points for a larger conversation about how seeing through a gender lens can improve the financial and social returns of investments.

We focus on three ways that a gender lens can serve this function.

The first is gaining access to capital—getting women involved as investors and investees, from Silicon Valley to Bangladesh. The second is promoting workplace equity—using capital to value gender diversity in leadership and promote equal rights throughout company value chains, from top management to the shop floor. The third is creating products and services that affect the lives of women and girls, from clean cookstoves in Africa to pharmaceuticals that have been tested on women and adjusted for them. These three approaches are neither exhaustive nor exclusive. Instead, they are useful analytically in identifying opportunities and uncovering barriers to progress. As the Root Capital example shows, investors may use multiple lenses simultaneously.

Sarah Kaplan is associate professor of strategic management at the Rotman School of Management, University of Toronto, and co-author of Creative Destruction. She tweets at @sarah_kaplan

Jackie VanderBrug is a senior vice president and investment strategist at U.S. Trust. She was previously managing director of Criterion Ventures, an organization promoting investing with a gender lens.

Gaining Access to Capital

When we look through a gender lens, disparities between men and women’s ability to access capital become quickly apparent. Across all industries—from retailers, to filmmakers, to high-tech entrepreneurs—women have historically had trouble gaining access to investment capital, despite evidence that women-led companies may deliver higher and more consistent returns.4 In addition, there are few women in the business of investing money (in banks, venture capital firms, or hedge funds, for example), which compounds the problem, especially given the tendency for people to invest in and mentor people like themselves.

Women launching and expanding ventures around the world have an estimated collective credit gap of $320 billion (the difference between the capital they are seeking and the credit to which they have access), 5 which creates a major opportunity for investors.

Stereotyping, implicit bias, and constrained networks may leave strong women-led firms without adequate investors. For example, about 6 percent of US venture capital funding goes to women-led businesses. This is not just a supply problem, but also a function of an investment process that subtly discounts women. An important part of the process entrepreneurs must go through to obtain an investment from a venture capitalist is to “pitch” their idea in person.

But women have been socialized to be less comfortable pitching, and we all have been socialized to perceive women less favorably in those contexts. Experimental studies show that investors are 60 percent more likely to invest in pitches delivered by men than by women, even when the content of the pitches is identical.6 Innovative investors are breaking these patterns. Consider Village Capital, an organization developing and funding innovative social enterprises. Finding that the traditional due diligence process was expensive and not terribly effective, Village Capital created a peer mentoring and peer selection approach that would, in their words, “democratize the entrepreneurial process.” They select cohorts of about 15 entrepreneurs in specific geographic areas and industries for a 12-week program based on peer mentoring. Village Capital commits to providing funding to the top two enterprises, which are selected on the basis of peer evaluations. The program was not specifically designed to enhance female entrepreneurs’ success, but Village Capital found that although only 15 percent of the participating companies had female co-founders, these companies represented 40 percent of the investment winners. Female co-founders have been 2.7 times more likely to get funding through this model, and the differential has increased as Village Capital has improved the structure and transparency of the programs.

“There are systematic, implicit biases that investors have in the traditional venture world that many don’t even recognize and that disproportionately favor men. When you are more structured, methodical, and transparent and your assumptions are things you have to back up, women-run ventures tend to be appropriately valued,” says Ross Baird, executive director of Village Capital.

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The opportunities to rethink investment processes are not limited to incubators and accelerators. The 2013 launch by the International Finance Corporation (IFC) of a “Women’s Bond” has created new legitimacy for focusing on women’s access to capital. About $175 million has already been committed by the IFC to banks such as Itaù, the largest bank in Brazil, for investments in women-owned businesses. With women starting ventures at unprecedented rates, we are likely to see more innovations like this.7 Women-focused crowdfunding platforms such as Portfolia, gender-aware venture capital firms such as Illuminate Ventures, regionally focused investment funds like Texas Women Ventures, and nonprofit intermediaries such as Agora all provide investors with access to compelling opportunities.

Despite the flurry of activity, vast scope remains for continued progress. A gender lens on access to capital challenges embedded beliefs about how the system for capital allocation works. Sharon Vosmek, CEO of Astia, an organization helping women participate fully in high-growth entrepreneurship, points out that the venture capital and high-tech world is so captured by the “myth of meritocracy” that it can barely start a conversation on gender and cannot see that its understanding of merit is gendered. 8 Grasping how definitions of “merit” may embed criteria biased against women can open investors’ eyes to new opportunities. For instance, Illuminate Ventures deliberately recruits women advisors and investors, putting it into a different deal flow from other venture capital firms. The result: About half the companies in Illuminate’s portfolio have female co-founders, a share that is dramatically above the industry average of 6 percent.9 New opportunities also present themselves when investors expand the definition of what type of business constitutes a good investment. For example, women disproportionately start businesses that aim for steady profit rather than rapid growth or a quick and rich exit. Broadening one’s definition of an entrepreneur to include the woman filmmaker in Hollywood and the woman coffee farmer in Nicaragua (along with leaders of Silicon Valley high tech startups), also expands the set of investment opportunities.

Promoting Workplace Equity

A gender lens on workplace equity allows the investor to look across the entire corporate value chain and ask, “How are women’s leadership and equal rights valued?” The answers to that question can lead investors to new areas of opportunity. For example, research shows that the financial returns of companies with three or more women on their board are substantially higher than for companies that have no women on their board.10 But the power of a gender lens to illuminate risks and opportunities hardly stops at the boardroom door. Evidence shows that inclusive environments are associated with better organizational outcomes and that gender-diverse teams at all levels make better decisions.11 Investors are beginning to see financial opportunities in taking gender into consideration. The Women and Girls Equality Strategy (WGES) is an investment approach developed by U.S. Trust in collaboration with the Women’s Foundation of California. The foundation was eager to advance its mission—the economic security of women and girls—through its investments in addition to its grantmaking. Operating in a fiduciary environment where investments must comply with “prudent investor” laws that mandate judicious choices about the tradeoffs between risk and return, the foundation

also needed to maintain market rate returns. “We wanted to align our investments with our values, and also to use a gender lens to identify smart investments in companies we’re proud to own,” says Judy Patrick, CEO of the Women’s Foundation of California.

U.S. Trust (which employs one of us) leveraged its Socially Innovative Investing platform to create a strategy that looks holistically at how companies engage women—as consumers, employees, and agents of global change. One important metric that investors are beginning to use is the number of women on boards of directors.

For example, Morgan Stanley’s Parity Portfolio uses this number as an investment screen. The WGES approach adds other metrics to analyze how gender equity plays out throughout the organization.

WGES examines quantitative criteria to compare companies with sector peers on factors such as pay equity; recruiting, retaining, and promoting women; supply chain and subcontractor relationships; gender impact of goods and services; and portrayal of women in media. The strategy considers both policy and practice; for example, the existence of policies for inclusive hiring as well as the track record of payments for discrimination lawsuits.

Companies that score well in the analysis are also likely to have fewer environmental penalties, labor violations, and product safety recalls. In short, they are well-run companies. A gender lens, as it turns out, provides another important set of metrics for separating high-quality companies from the others. “We employ a disciplined process of portfolio construction that combines this social analysis with fundamental research and an optimization process,” says Jason Baron, managing director and portfolio manager at U.S. Trust.

“It mitigates against any unintended bias and enables us to design for clients’ needs—and attribute any outperformance to selection of companies based on their gender analysis scores.” In 2013, WGES beat their S&P 1500 benchmark by 3.6 percentage points.12 The goals of gender-focused investment vehicles are both to generate returns and to use the power of these investments to help push companies toward gender equity. Several trends point to the increased value of using a gender lens to look across an entire value chain. Take education: As women are increasingly educated, investors must consider which firms will win the war for talent. Governments like that of Japanese Prime Minister Shinzo Abe are seeing the economic benefit of women in the workforce and are establishing incentives for corporations that excel in gender diversity. Coca Cola has embarked on an ambitious campaign, called the 5x20 program (the goal is to empower 5 million women entrepreneurs across Coca Cola’s value chain by 2020), to leverage women’s participation throughout its business.13 The Calvert Foundation, a social investing intermediary, found that the process of launching the pioneering Women Investing in Women fund (a gender-focused investment vehicle) energized its staff and created new client relationships and opportunities.

Including gender equity in investment evaluation metrics drives transformative conversations about realities inside and outside organizations. To date, organizations have relied on important, but crude, measures such as counting the number of women at various levels of management. If counting continues to predominate, it risks provoking the backlash of tokenism. Using a gender lens on workplace equity broadens the questions to recognize other dynamics.

For example, understanding the gendered context in which people operate—such as research demonstrating that women can be either

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likable or competent but not both, or that in some cases domestic violence can increase when women’s income increases—helps leaders innovate more effectively.

Various organizations are working to fill the data gap on both gender policies and outcomes. For example, EDGE, a certification process for corporations, looks at the trifecta of policies, outcomes, and employee self-reports. The latter provide an essential understanding of the gendered experience in organizations. That is, innovation will not increase simply by having meetings with more women in a room if these women do not feel free to express their opinions. The certification process highlights areas of opportunity in creating workplaces that harness everyone’s talent.14 Creating Products and Services

analysis to identify a whole series of best practices, from product design (observe women cooking and involve women in the design esthetics), to production (give women the opportunity to manufacture components), to financing (support financial institutions in lending to women and consider rent-to-own or micro-consignment strategies), to distribution (use gender-informed marketing messages and offer trial periods to female distributors).16 “Previously, we found that cooking energy companies didn’t fully understand how a gender-informed approach could help their bottom line. Gender requirements were generally donor-driven and not seen as something that could improve their effectiveness,” says Corinne Hart, director of Gender for the Global Alliance for Clean Cookstoves. “But now they are seeing how using a gender lens can enhance their business model and increase sales and adoption of their products and services.”

In some ways, businesses are adept at creating products and services for women and girls. Consider the huge businesses devoted to women’s apparel, beauty products, and feminine hygiene. But Lessons Learned thinking about providing products and services for women and girls Several lessons can be drawn from these three different approaches that will help investors use a gender lens to guide their decisions. The risks being translated into “sell more stuff to women.”

The approach of the gender lens investing movement is different. first is that systems matter. For investors, it is easy to focus on the The goal is to create opportunities and reduce risks by designing prodspecific investments without thinking of the systems in which they are embedded. For example, when microfinance works for women, it ucts and services (and their value chains) that empower women and is not just because of the loans, but also because of the entire set of girls and improve their lives. This means changing the design process from designing for women to designing with women. It is not about principles and programs that have been created to support women taking products and making them pink. Successes in producing clean entrepreneurs. When the loan comes with technical assistance, a cookstoves, in reducing infant mortality, in improving feminine hycommitment by the women to have a different relationship with their giene, and in other areas come from collaborative innovation. husbands, and a loan compact that includes support groups, results Companies incur two costs if they don’t think about gender as improve. Similarly, encouraging women entrepreneurs anywhere in the they design their products and services: The first is missed market world without confronting the biases in the entire funding system will opportunities and the second is the reputational risk that could not increase the number of women-owned businesses. Using a gender come from badly designed products. Some companies are now lens is about changing processes, not simply working within them. taking up this challenge. For example, automobile companies have recently begun to test the safety of their cars with female-size crash test dummies in the driver’s seat. And some drug companies are Design with women, not for them. Women should be involved at every stage of beginning to think of the problems and missed opthe discussion about investing with a gender lens, and in significant enough numportunities of not adequately testing pharmaceutibers that they are not merely tokens. cals on women. (Clinical studies are disproportionUse a gender lens to expand rather than narrow opportunities. A gender analaly based on men.15) ysis is not only a screen that narrows the scope of action; it can also uncover hidThe Global Alliance for Clean Cookstoves is demden opportunities or unexpected insights. onstrating the power of investing in products for women. Clean cookstoves and fuels can improve Don’t be afraid of quotas. Quotas are a blunt instrument, but often a useful way to start a conversation. For example, by asking if there are at least three women on a health outcomes related to emphysema, cataracts, and company’s board of directors, one can begin a conversation about why there are not. heart disease as well as alleviate economic burdens that disproportionately fall on women and girls. The Use a gender lens across the entire value chain. Opportunities for shifting value and empowering women can come during all phases of the process, including fiorganization now has more than 1,000 partners worknancing, design, production, distribution, and after-sales service. ing to build a global market for clean cookstoves and fuels. What they have found, however, is that adopDon’t ask women to change to fit the system. It’s not enough to have a merition of the new cookstoves has been spotty. Some of tocratic system, because the criteria people use are often gendered. Instead, find ways to change the system so that outcomes are truly equal. the challenge lies in designs that do not fit the needs of the women: They are engineering solutions from Assume implicit bias against women until proven otherwise. Men and women companies mainly in developed economies delivering alike are socialized within a gendered system. Look for unconscious bias in metproducts to people in resource-poor environments. rics, decision-making processes, and “how things are done around here.”

To get people to adopt the new cookstoves, the Start. There are lots of subtleties, but it is important to start the process. Focusalliance has gone beyond thinking of women as only ing on gender can feel like a minefield, but the upside of uncovering hidden opporthe users of the products. They have used gender tunities is too good to pass up.

Tips for Gender Lens Investing

Stanford Social Innovation Review / Fall 2014

The second lesson to be learned about gender lens investing is that metrics are important for creating incentives and for tracking progress, but our current methods are often not sophisticated enough to measure all that is important. Counting the number of women—on corporate boards of directors, in hedge funds—is a good start, but it is not enough. Asking about metrics, collecting data, and reporting the results trigger dialogue and actions to reduce inequities and uncover opportunities, but creating metrics that can reveal systemic issues is hard. As University of Oxford professor Linda Scott and her colleagues show in their three-year field study of Avon resellers in South Africa, we cannot understand the impact of women’s entrepreneurship until we define success according to the criteria of the women themselves.17 There, key outcomes not often measured in studies of microfinance were changes in self-perception, improvements in self-confidence, and development of expertise that the women experienced.

The third lesson for gender lens investing is that women must be at the table in all of these conversations, and in adequate numbers.

As Christine Lagarde, then France’s Finance Minister, famously said, “If Lehman Brothers had been ‘Lehman Sisters,’ today’s economic crisis clearly would look quite different.”18 A token woman on a panel or on a leadership team does not make for effective representation.

(In fact, research shows that tokenism can often be worse.19) This cannot be a women-only conversation. We are all implicated in the current gendered systems of capital allocation, and the only way out is for everyone to see the world through gender lenses.

Moving Into the Mainstream

The important question we must now answer is how to move gender lens investing from the fringe to the center of the discussion.

The sustainability movement took years to be taken seriously but has now entered the mainstream with thematic investment funds attracting assets and corporations like Wal-Mart Stores producing sustainability reports and being asked by their shareholders to address environmental, social, and governmental issues. As we reflect on what it will take to build the field, we see three immediate barriers as well as some openings that make us optimistic.

First, there are not enough investment vehicles that leverage a gender lens. One fix for this deficiency is for investors to demand access to these types of investments. This can be a virtuous or vicious cycle: Without demand, supply will be suppressed, but greater demand can instigate innovation. A quicker fix is for investment managers to add gender metrics to their existing analyses.

Second, we lack the data needed to design smart investments.

We have to get to the point where gender-disaggregated data is a de rigueur consideration when making investments. And we need different kinds of data that support gender analyses (such as the surveys that EDGE is now doing). Some of these data should include case studies that can show how investing with a gender lens can be done. More data will create both the “proof points” to justify action and the “signposts” for those who want to act.

Third, concurrent with the development of data, the field needs to develop expertise in bridging the two domains of gender and finance. Investors and financial institutions need skills in doing a gender analysis. Women’s empowerment organizations would benefit from expertise in using finance as a tool in the toolkit. Today, few people can speak both languages, and few organizations know

how to make the connections. Building the field will be essentially about finding ways to build these forms of expertise.

The financial crisis from which we are just emerging has caused many people to question the foundations of the existing system.

Moments of crisis can create opportunities for systems change.

Can a gender lens help us move forward from the current upheaval in financial markets and the broader economic crisis? Given the increasing attention to women and the economy, can a gender lens on investing offer tangible solutions for making progress? n This content represents the thoughts of the authors and does not necessarily represent the position of Bank of America or U.S. Trust. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation. Bank of America, N.A., member FDIC. Investment products are not FDIC insured, are not bank guaranteed, and may lose value.

N ote s

1 US Secretary of State Hillary Clinton’s remarks to the APEC Women and the Economy Summit, Sept. 16, 2011,http://www.state.gov/r/pa/prs/ps/2011/09/172599.htm, accessed June 24, 2014.

2 Giving Credit Where It Is Due, Global Markets Institute, Goldman Sachs, Feb. 2014.

3 Gender Handbook, Criterion Ventures, 2012, http://criterioninstitute.org/resources/ files/2012/08/The-Gender-Handbook-for-Investors.pdf, accessed June 24, 2014.

4 P. Roberts and S. Johnson, “Data-Driven Insights about Impact Entrepreneurs and Accelerators. 2013 Mid-Year Data Summary,” presented at the ANDE Metrics Conference, June 12-13, 2013, Washington, D.C. 5 International Finance Corporation, “Banking on Women.” http://www.ifc.org/wps/ wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/Industries/ Financial+Markets/MSME+Finance/Banking+on+Women/, accessed June 24, 2014.

6 Alison Wood Brooks, Laura Huang, Sarah Wood Kearney, and Fiona Murray, “Investors Prefer Entrepreneurial Ventures Pitched by Attractive Men,” Proceedings of the National Academy of Sciences of the United States of America, Feb. 2014, doi: 10.1073/ pnas.1321202111.

7 Jose Ernesto Amoros and Niels Bosma, Global Entrepreneurship Monitor 2013 Global Report.

8 From Sharon Vosmek’s speech on inclusive innovation given at Stanford University, Nov. 20, 2013, (http://ecorner.stanford.edu/authorMaterialInfo.html?mid=3232).

9 Illuminate Ventures, 2012, http://www.illuminate.com/, accessed June 24, 2014.

10 “European Commission Women on Boards Fact Sheet,” an overview of multiple research studies, can be found at http://ec.europa.eu/justice/gender-equality/files/ womenonboards/factsheet-general-1_en.pdf, accessed June 24, 2014.

11 Anita Williams Woolley, Christopher F. Chabris, Alex Pentland, Nada Hashmi, and Thomas W. Malone, “Evidence for a Collective Intelligence Factor in the Performance of Human Groups,” Science, Oct. 2010, 330 (6004): 686-688.

12 U.S. Trust Investment Group analysis. Past performance is no guarantee of future results. Performance reported gross of fees. The S&P 1500 Index is a stock market index of US stocks that includes all stocks in the S&P 500, S&P 400, and S&P 600.

13 See http://www.coca-colacompany.com/stories/5by20/infographic-5by20-by-the-numbers for an overview of the process and results of this value chain review as of 2014.

14 Comments from the initial companies to be certified by EDGE can be found at http:// edge-cert.org/userfiles/file/Press%20release_28_10_2013.pdf, accessed June 24, 2014.

15 Paula A. Johnson, Therese Fitzgerald, Alina Salganicoff, Susan F. Wood, and Jill M. Goldstein, “Sex-Specific Research: Why Women’s Health Can’t Wait,” a report of the Mary Horrigan Connors Center for Women’s Health & Gender Biology at Brigham and Women’s Hospital, http://www.brighamandwomens.org/Departments_and_ Services/womenshealth/ConnorsCenter/Policy/ConnorsReportFINAL.pdf 16 Global Alliance for Clean Cookstoves, “Gender Guide,” http://www.cleancookstoves.org/our-work/gender-guide.html, accessed June 24, 2014.

17 Linda Scott, Catherine Dolan, Mary Johnstone-Louis, Kimberly Sugden, and Maryalice Wu, “Enterprise and Inequality: A Study of Avon in South Africa,” Entrepreneurship Theory and Practice, May 2012, 36(3): 543-568.

18 “Lagarde: What If It Had Been Lehman Sisters?” The New York Times, May 11, 2010.

19 Janice Yoder, “Rethinking Tokenism: Looking Beyond Numbers,” Gender and Society, June 1991, 5(2): 178-192.

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Nonprofit organizations led the way in developing microcredit offerings for the poor. Then for-profit

, companies took over large swaths of that newly created market. Yet research on the needs and

habits of the poor shows that nonprofits continue to serve a vital function when it comes to bringing financial services to those who need them most.

F

The Next Stage of Financial Inclusion

By Dean Karlan

Illustration by Christopher Silas Neal

Illustration by Christopher Silas Neal

inance can be a glue that holds all the pieces of our life together. It enables money to be in the right place at the right time for the right situation. To borrow and save is to move money from the future to the present, or from the present to the future. To insure is to move money from a “good” situation to a “bad” one. Ideally, we would never have to think about finance. It would be seamless, operating in the background. It would allow us to invest and consume exactly as we deem optimal, given all the other constraints that we have in life.

For finance to work this way, four conditions need to be in place: enforceability of contracts, an absence of transaction costs, perfect competition, and fully rational consumer behavior. No country fully meets these ideal conditions, of course. But in developing countries, the situation is especially challenging: Contracts are often not enforceable; long physical distances drive up transaction costs; a lack of competition gives a small number of firms an inordinate degree of market power; and behavioral biases (which

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are present in wealthy countries, too) lead people to make systematic and costly mistakes.

For a long period, such inefficiencies prevented financial markets from emerging in these countries, and the result was stark: The poor had little access to credit and little ability to build savings through formal institutions. The obstacles were simply too high for traditional banks to want to serve them, and no one else was filling the gap. Then, starting in the 1970s, Muhammad Yunus changed the landscape of finance for the poor. He developed a new business model—known as microcredit—that lowered transaction costs for the lender and removed some of the information asymmetries that made it difficult to lend. This innovation required some tinkering, some exploration, and a great deal of risk. In its early stages, the microcredit movement was not financially sustainable; it required a subsidy. For that reason, donors and nongovernmental organizations (NGOs) played a central role in building the movement.

Today, the business of providing microcredit has reached a stage of relative maturity. Significantly, for-profit companies and investors are now shifting into this space, and in some cases nonprofit organizations have even converted to for-profit entities. In Mexico, for example, Compartamos Banco started as a nonprofit organization and then converted to a for-profit operation; it was the first micro­ lender to become a publicly traded company. SKS Microfinance, based in India, followed a similar path.

As lenders have made that shift, at least one NGO—Unitus—has disengaged from the microcredit field in order to focus on needs that the for-profit sector isn’t serving. Joseph Grenny, a cofounder of the organization, explains that decision: “Unitus found that for-profit microcredit providers in a robust competitive marketplace tended to provide better loan products to the poor at better interest rates than NGOs. And yet in some regions of the world that ­robust competitive marketplace could not develop because inefficient NGOs who dominated the sector operated with grant capital…. In the financial inclusion sector grant funds at some point become an obstacle to progress rather than an accelerator of change.” 1 Grenny may or may not be correct in suggesting that nonprofits pose an “obstacle to progress.” What matters, though, is the perception that led a large NGO like Unitus to direct its operations away from microcredit and into other activities.

The time has come, in short, to take stock of the broad movement to expand access to financial services among the poor. What’s next for that movement—the movement for financial inclusion? Where should donors and NGOs who care about financial inclusion now turn their attention?

It’s not as though advances in the microcredit industry have solved the problems that result from a lack of financial inclusion.

Recently, there has been a flurry of randomized trials designed to measure the impact of microcredit projects, and these studies have shown strikingly consistent results: Microcredit is having a positive yet relatively modest impact on people’s lives. Across a set of studies that cover eight countries (Bosnia-Herzegovina,2 Ethiopia,3 India,4 Mexico, 5 Mongolia, 6 Morocco,7 Philippines, 8 and South ­A frica9), ­researchers found only one instance (South Africa) in which microcredit borrowers experienced a large increase in income. (In that case, significantly, the lender departed from the standard model of targeting entrepreneurs and instead targeted consumers.) In

Dean Karlan is professor of economics at Yale University and president and founder of Innovations for Poverty Action.

The author wishes to thank Plan International for supporting work on this article. (He has retained unrestricted intellectual freedom in developing the article’s content.) He also wishes to thank Ted Barnett, Sana Khan, and Glynis Startz from Innovations for Poverty Action for their assistance, and Deborah Kenchington, Jane Labous, and John Schiller (all from Plan International), along with Abhijit Banerjee, Alex Counts, Chris Dunford, Julia Levinson, Alex Rizzi, and Chris Udry, for their comments.

addition, the programs covered by these studies produced few if any downstream impacts in areas such as health, education, and female empowerment. These studies show that although microcredit rarely leads to an increase in aggregate income or long-term consumption, it can help borrowers cope with risks and shocks by improving their ability to smooth consumption and retain assets.

There is also some evidence (although it is not overwhelming) that microcredit initiatives can lead to greater investment in enterprise.

Those positive outcomes are important, but they are hardly transformative in scope or scale.

In light of these findings, and in light of the move by for-profit companies to provide microcredit services in more and more markets, is there a role for nonprofits in the field of financial inclusion?

To be more specific: Is there a place for subsidies in that field? Donors and NGOS, after all, should not subsidize an activity when investor money is readily available to serve that purpose. They should, however, provide subsidies when there is an opportunity to close a gap created by market failure.

Broadly speaking, there are three important roles that non­profits can play in the financial inclusion arena—roles that do require subsidy: reaching populations that for-profit institutions have little or no incentive to target; building trust between those institutions and the populations they serve; and promoting innovation. With the first of those roles, subsidies may be necessary over a long term.

With the second and third roles, subsidies will ideally be necessary only until the relevant financial markets become fully developed.

SERVING THE UNPROFITABLE

When a service provides a vital social benefit, there may be a justification for subsidizing that service. For many years, that was indeed the justification for traditional microcredit operations. But as business processes improved, and as costs and risks decreased, the need for subsidies became less crucial in many segments of the microcredit market. Even so, there is a strong case for using subsidies to provide financial services to underserved groups that for-profit institutions do not yet target. In particular, certain populations are simply too rural, too poor, or too young for those institutions.

Too Rural | Rural areas suffer from being not only poorer than urban areas, but also more costly for financial institutions to reach.

The high fixed costs of serving clients in those areas often makes for-profit microcredit operations unsustainable. Furthermore, even in markets where formal microcredit is present, many are wary of borrowing from a microlender. The reasons for their reluctance include concern about price, fear of reprisal in the case of default, and discomfort with the formality of institutional lenders.

In response to these challenges, NGOs such as CARE,

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Catholic Relief Services, Freedom from Hunger, Oxfam, and Plan ­International have begun to promote a mechanism of financial inclusion—sometimes called “savings-led microfinance”—that focuses on creating community savings groups. NGO field officers present the savings group model to locals at a public meeting and invite attendees to form groups. Although there are many types of savings groups, each type follows a similar structure: About 10 to 30 people come together to make a weekly contribution to a shared pot of savings. Rotating savings and credit associations designate one member of the group to receive the weekly group contribution as a loan, which the member then repays in weekly installments. Accumulating savings and credit associations, meanwhile, collect money into a common fund, and members who need credit can then draw from it.

The theory behind savings groups is multifaceted. They act as a communal commitment device, in which people make a pledge to save and then rely on their peers to help make sure that they do so. That device may help them overcome personal temptation and money management challenges, or it may help them keep a commitment to save in the face of pressure from spouses or family members.

The tight social bonds created within these savings groups also help to ensure loan repayment; in effect, group members pledge their social collateral to obtain a loan.10 Participants pay interest on their loans, but because they also function essentially as co-owners of a bank, they get back part of the interest that they and other group members pay into a common pot. All paid interest, therefore, remains within their community as

earned income. The savings group approach has other advantages. It requires no initial outside capital, and it allows for a smooth transition of banking operations to a for-profit financial institution once a savings group becomes large enough to be profitable. (In several African countries, for instance, savings groups have undergone exactly this type of transition in partnership with Barclays Bank. In Tanzania, similarly, Plan Tanzania launched savings groups that now have links to formal accounts at the National Microfinance Bank.)

For that reason, and because the setup costs for a savings group are fairly small, this model is relatively easy to scale up.

There are important limitations to the savings group model. Benefits have to accrue without any infusion of capital, and it may take considerable time for people to accumulate enough savings to make a noticeable difference in household income or consumption. Those who participate in savings groups, moreover, are not necessarily the poorest members of their community. In one study, conducted in Mali, researchers found that more-connected women in a village were more likely than others to participate in a savings group.11 Innovations for Poverty Action (IPA) has conducted randomized trials of savings group interventions in four countries (Ghana, ­Malawi, Mali, and Uganda). Overall, these studies have shown modest but positive impacts.12 (See “Savings Grace” below.)

Too Poor | For many years, the microcredit movement has aimed to help the poor build sustainable livelihoods through microenterprise, cash-crop farming, and the like. Yet some people are essentially too poor to access microcredit. In some cases, microcredit institutions require a borrower to have an existing source of income before they will extend a loan. Members of a lending group might not perceive a would-be borrower as creditworthy. Sometimes people are n Mali, a consortium that includes Plan International, Oxfam, and Freedom from Hunger (FFH) has simply unwilling to accept the risk or the price of the loan. A implemented savings group programs in certain rural areas of the country. Over a three-year period, microloan, moreover, will most Innovations for Poverty Action (IPA) conducted a randomized evaluation of one such program— likely not benefit someone who is a program that covered 500 villages located in parts of central Mali that are too remote to support too unhealthy to work, or somef­ormal financial institutions. one who does not take in enough The program uses the model of an accumulating savings and credit association: Members take out calories to maintain a livelihood. loans from a shared fund into which each of them contributes. They rely on technical support from an In these cases, a subsidized proNGO, but they are fully responsible for managing the fund. They make decisions on who will receive a gram may be necessary. loan, and they set the terms and conditions of each loan. The group can offer flexible payment options Consider the Ultra Poor to borrowers—for example, by allowing a member who is sick to forgo payment for a week. At the end of Graduation Model, a global inithe yearly savings cycle, members receive lump-sum payouts from the fund. tiative launched by the ConsulFor the randomized trial, which IPA conducted in conjunction with FFH and Oxfam, IPA measured tative Group to Assist the Poor outcomes that involved variables such as access to finance, economic activity, food security, consumpand the Ford Foundation. Gradution smoothing, social capital, and intra-household bargaining power. The NGOs promoted the savings ation Model programs provide groups in 209 of the 500 villages and did not promote them in the remaining villages. IPA researchers beneficiaries with a holistic set conducted several household surveys to collect information on 6,000 households in all. of services that includes liveliThe study yielded mixed results. Even three years after the start of the intervention, there was little hood skills training, productive evidence of increased investment in business or agriculture and no evidence of increased investments asset transfers, consumption in education, in health or health expenditures, in women’s bargaining power, or in levels of community support, access to savings opinvolvement. In certain measures that reflect levels of financial inclusion, however, the results were portunities, frequent monitormore promising: In treatment villages, households increased their total savings and livestock holdings, ing in the form of weekly visits, and they enjoyed higher levels of food security. In particular, they experienced smoother patterns of and, in some cases, health inforfood consumption over the course of a year. mation or health care. The goal The bottom line is simple: By setting up savings groups, NGOs can make modest but important of the Graduation Model is to ­improvements in the lives of the poor, and they can do so at low cost.

Savings Grace

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enable beneficiaries to form an asset base and to become engaged in sustainable income-generating activities within a two-year period.

IPA and the MIT Jameel Poverty Action Lab have led randomized trials in seven countries (Ethiopia, Ghana, Honduras, India, Pakistan, Peru, and Yemen) where Graduation Model programs are under way.

Preliminary results show that these programs cause an increase in household income and in consumption—food consumption, in particular. Overall, these results show consistent and large positive impacts, even after allowing for the high cost of program implementation.

Graduation Model programs, to be sure, offer far more than ­“financial inclusion.” But I cite them as a potential model for NGOs in the financial inclusion field because they require subsidies—something that NGOs are, of course, built to provide—and because they achieve what many NGOs in that field have been trying to achieve with microcredit: They help the ultra-poor escape poverty through the development of income-generating activities.

Too Young | For regulatory reasons, and sometimes for business reasons, young people are another group that the for-profit sector often fails to reach. Those under the age of 18 are typically unable to open bank accounts, and even when they have a legal right to do so, the business case for banks to provide that service is less than clear. In some markets, financial institutions target young people in an attempt to build brand loyalty, but that is not a common practice in the developing world. To fill this gap, many NGOs now run saving and financial education programs aimed at this population. Evaluations of these programs have shown promising results.

Super Savers, for example, is a program implemented by the Private Education Development Network in Uganda. The program, which provides primary school students with a safe way to save money, was the subject of a randomized trial conducted by IPA. In the study, researchers assessed the impact of various payout ­arrangements. In one variation, students who saved money within the program received cash payouts, but they did so in circumstances that effectively “nudged” them to buy school supplies with their cash. (The supplies were available for sale at the same time and in the same place where they could make withdrawals from their ­accounts.) In a second variation, students received their payout in the more restrictive form of a voucher that required them to make an education-related purchase. Students in a third group served as a control. In addition, a random half of each treatment group received a “parental outreach” sub-treatment in which the students’ parents learned about the program. The results were as follows: ■■ Students

in the cash payout group saved more within the ­ rogram than those in the voucher group. p ■■ Students in the cash payout group who also received the ­parental outreach sub-treatment bought more school supplies than both those in the voucher payout group and those in the control group.

■■ Students in the cash payout group had higher test scores than both those in the voucher payout group and those in the ­control group.

These short-term findings suggest that saving at school can help young people build good habits and that those habits can ­affect educational outcomes. They also suggest that a less restrictive arrangement can be more effective than one that is highly restrictive.

Longer-term results will shed light on whether programs of this kind instill financial habits that last into adulthood. In any event, this intervention offers a clear example of an effort to deal with market failure: It is unlikely to pay off until the children who participate in it become adults, and they (or their parents) may be unwilling to pay a sufficiently high price for this service. Banks, of course, cannot charge the future adults who will benefit from the service. When the benefits of a program lie far in the future and when ­f uture beneficiaries are not in a position to cover the current costs of the program, the case for subsidizing those costs is fairly strong.

BUILDING TRUST

Several trust-based market failures exist that often prevent ­consumers and firms from coming together to complete a useful transaction: The two parties may have a perfectly good exchange to make, but one of them does not believe that it can rely on the other.

We can see evidence of this problem in non-financial situations.

In Uganda, IPA collaborated with a for-profit firm and a nonprofit organization to conduct a randomized test that functioned essentially as a horse race: Using a single team of marketing agents, IPA coordinated a door-to-door sales effort that involved selling medicines, and researchers randomized whether on a given day those agents represented the nonprofit or the for-profit firm.13 By designing the test this way, IPA was able to hold constant the training of the agents, and to ask simply whether customers were more likely to buy a product from a nonprofit than from a for-profit company, or vice versa. IPA also randomized whether the product being sold was well known (Panadol, a pain reliever) or not (Zincaid, a product that helps improve water quality). The results were striking: For the well-known product, there was no difference in the purchase rate.

The marketers, when wearing shirts emblazoned with the logo of the for-profit firm, sold that product to 78 percent of households; when they wore a shirt with the nonprofit logo, they sold the product to 79 percent of households. For the unfamiliar product, the difference in purchase rate was large and significant—31 percent (when agents represented the for-profit firm) versus 49 percent (when they represented the nonprofit).

In the financial inclusion arena, trust problems become manifest in several ways. Households will not save if they do not trust a bank to engage in prudent practices, or if they worry that their savings might be unavailable for withdrawal. People will not borrow if they think that a lender is not forthright about the full cost of a loan, or if they fear that the lender will use extreme measures—such as public shame or physical violence—to collect a debt. Farmers will not insure their crop if they do not trust an insurance company to pay out when they submit a claim.

A randomized evaluation of a rainfall insurance program in the Northern region of Ghana demonstrated the importance of trust in marketing a financial product.14 In the first year of the program, ­researchers offered farmers either free or subsidized rainfall insurance. Then in the second year, researchers observed whether the first-year experience affected farmers’ decision on whether to buy insurance. (Each farmer was offered insurance at one of several randomized prices.) A clear pattern emerged: Farmers who received an insurance payout (that is, after experiencing bad rainfall) were more

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likely than farmers in a control group to buy insurance the following test yielded some telling results: Demand for insurance was 36 peryear. But farmers who did not receive a payout (that is, because they cent higher in households served by an endorsed insurance educator experienced a normal level of rainfall) were less likely than farmers in than in those served by a non-endorsed educator. Another finding showed that demand for insurance was significantly higher in vilthe control group to buy insurance the following year. What’s more, lages where visits by endorsed educators had taken place. in cases where more people in a farmer’s social network received a payout, the farmer was more likely to buy insurance the following year. The implication is fairly stark: To these farmers, the lack of a PROMOTING INNOVATION payout actually had a worse effect on their willingness to trust than The nonprofit organizations that led the microcredit movement having no experience with the product at all. ought to be proud of what they have achieved. The fact that forNonprofits have the potential to play a critical role in solving profit companies have mimicked them, and in some cases pushed this problem of trust. People may find them to be more credible, them aside, is a testament to their success. They innovated, and then and more likely to be acting in clients’ interests, than a for-profit for-profits imitated. So one crucial role that nonprofits can play is microfinance institution (MFI). They are in a position to provide this: Keep innovating. Focus on developing services that improve the honest information on which MFIs are most trustworthy and on financial opportunities available to clients—in particular, ­services that may eventually cease to require a subsidy. which products are most suitable to consumers. They might, thereWhy not rely on for-profit companies to spur innovation in the fore, play the role of “verifier and endorser” on behalf of particular financial inclusion arena? After all, when for-profit firms expect to MFIs. Going a step further, an NGO might establish guidelines for reap windfall profits, they have shown themselves to be very willlenders, monitor their activities, and certify whether they engage ing to spend large quantities of money on high-risk innovations. in responsible practices: Are there hidden fees? What methods (Take pharmaceutical research, for example.) For various reasons, does a lender use to collect bad debts? Does the lender present however, that logic may not apply to the field of financial inclusion. financing costs in a transparent and usable fashion? (See “Smart Move” at right.)

The endorsement or certification of MFIs that provide high-quality products may be the simplest and most cost-effective way to overn recent years, people in the nonprofit world have started to create formal, sector-wide efforts come the trust gap. But NGOs can to fill the trust gap that continues to hinder the drive toward greater financial inclusion. In 2008, also build trust more actively by co-­ the Center for Financial Inclusion (a unit of the nonprofit Accion International) convened industry marketing new products alongside leaders from around the world to launch the Smart Campaign, an initiative to establish a set of for-profit firms. Collaborative mar“client protection principles” and to embed those principles into the microfinance industry. The keting of products has the benefit seven principles cover the following topics: appropriate product design and delivery, prevention not only of increasing overall trust of over-indebtedness, transparency, responsible pricing, fair and respectful treatment of clients, in an MFI, but also of aligning conprivacy of client data, and mechanisms for complaint resolution. sumers with products that feature In its early years, the campaign worked to raise awareness of client protection among micro­ the best terms for their purposes. finance institutions (MFIs), investors, donors, and other stakeholders and to encourage those groups Consider again the example to improve their practices. The campaign also created a set of indicators against which institutions of rainfall insurance. In India, recould assess their performance, and it developed training tools to address specific weaknesses. searchers tested several methods Over time, however, Smart Campaign leaders realized that self-reporting and self-policing alone to increase the purchase rate of that would not instill confidence in clients that MFIs were actually following the client protection prinproduct.15 Before the start of monciples. In 2010, therefore, the campaign began work on a Client Protection Certification program. soon season, a trained insurance Through a series of pilots, the campaign tested and finalized a certification method and a list of educator visited households to presclient protection standards. The full program launched in January 2013, and the campaign has ent information on the features of l­icensed four specialized microfinance rating agencies (M-CRIL, Microfinanza Rating, MicroRate, and a certain insurance product, and Planet Rating) to conduct certification missions. So far, nine MFIs have become Client Protection households were given the option Certified, and dozens more are undergoing evaluation to achieve that status. to buy it. In one test, researchers Information on certification status has the potential to inform a wide range of industry practices, sought to find out whether endorseincluding investors’ decisions about which MFIs to support and regulators’ efforts to address client ment by a trusted person would improtection issues. Many industry stakeholders—including investors like Deutsche Bank and Oikoprove the purchase rate. BASIX, a credit, and international networks like the Microfinance CEO Working Group—have publicly commitmicrofinance institution, sent out ted themselves to encouraging affiliated MFIs to become Client Protection Certified. The long-run agents to accompany and endorse vision of the Smart Campaign is to create a “trust mark” that microcredit clients can use in selecting a certain number of insurance edutheir financial services provider. cators during household visits. The Naturally, self-regulation involves many potential problems. MFIs, like any organization, have an agents were locals who had worked incentive to misreport information on everything from their product design to their enforcement pracclosely with people in their village tices. Certification efforts like the Smart Campaign might change the behavior of lenders, or they on a series of financial products. The might simply create another hurdle that MFIs must jump over in their quest for investment funds.

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When all of the upside of an innovation is likely to accrue to clients, and not to a firm, the firm has little incentive to invest heavily in research and development. That is especially true in cases where it is difficult to reverse a change. If banks, for example, find that it is not profitable to offer credit with a delayed repayment schedule,16 or at lower interest rates,17 it may be difficult for them to revert to an earlier, more profitable practice.

Another reason that for-profit firms are unlikely to invest in this area is that the financial returns from a process innovation may be small or nonexistent. Patenting business process ideas is difficult, and for-profit companies must assume that other players in the ­financial services field will soon take up any profitable innovation— and will neutralize their profitability by doing so.

NGOs may be better suited to exploring such improvements.

Their goal, after all, is not to reap financial profits, but to increase the welfare of a population. Nor do they have to worry that competitors might erode the returns on their investment. On the contrary, if other parties put them out of business by offering a similar product or service, they have a ready response: Mission accomplished! Rather than viewing an investment in innovation through the lens of “costs” and “expected returns,” NGOs need worry only about the opportunity cost of not using that money in some other way.

Here, I put forward two examples of potential innovation in ­financial inclusion: the use of equity in place of debt, and the use of flexible repayment schedules.

The practice of offering equity, rather than debt contracts, is one area of innovation that is ripe for exploration. In conservative Islamic regions of the world, the use of microcredit is often limited because many Muslims do not believe that the standard microfinance models are compliant with Sharia law. In response, people have begun to experiment with so-called “Islamic financial models,” which usually replace the tools of debt and interest with methods of leasing or selling assets. These models take various forms: Murabaha, which allows an asset to be sold in cash installments with an agreed-upon markup; Ijarah, in which users pay a monthly fee to lease an asset; and Musharaka, a partnership in which participants provide financing, time, or other resources to support a project and then share profits and losses. Evaluating these and other alternative ways for people to access capital is an excellent task for NGOs. In fact, some of these models might be applicable beyond the Islamic world. Limiting debt and focusing on equity, after all, could be an attractive option for other kinds of customers.18 Equity, for instance, provides a way for small business owners to invest in growth without having to repay a loan. But how can financial institutions make such models profitable enough to work on a large scale? By exploring such questions, NGOs can help to develop new financial services.

Experimenting with repayment schedules is another promising avenue of innovation. In corporate project finance, cash flows get matched: A firm that borrows money to build a factory typically does not start paying back principal until the factory has begun to generate revenue. This matching of inflows to outflows is not a standard practice in microcredit. Instead, MFIs typically require regular payments. Yet many MFI clients have highly variable incomes. So adding flexibility to repayment programs could decrease default

rates, increase an MFI’s potential client base, and increase the size of potential loans. Informal providers, such as moneylenders, already have the ability to implement this kind of flexibility. Their monitoring is so comprehensive that they can tell whether a borrower who misses a payment is likely to make it up later. MFIs could build a similar capability into microcredit products by (for example) providing clients with vouchers to present in lieu of payment.19 In a similar vein, introducing a more generous grace period early in the loan repayment cycle could help borrowers. Currently, most MFIs require repayment of a loan to start almost immediately. Because it often takes a while for business investments to generate a profit, strict repayment schedules may discourage profitable but risky investments. Could changing the structure of repayments generate more investment and higher long-term income?

To answer that question, a team of researchers ran a field experiment with a population of poor, urban borrowers in India. 20 Working with an NGO, the researchers increased the normal twoweek grace period to two months for one group of clients and compared the results for that group with the results for clients who had to comply with the usual two-week repayment period. For clients in the treatment group (that is, those who had the longer grace period), the likelihood of starting a business was 4.5 percent, compared with 2 percent for clients in the control group. Three years later, weekly business profits for clients in the treatment group were 41 percent higher, and monthly household income was 19.5 percent greater, than they were for clients in the control group.

Yet those improvements came at a cost. Default rates after one year were much higher for the treatment group (6.2 percent) than for the control group (1.7 percent).

Noting that clients were willing to pay more for the longer grace period, the researchers modeled lender profits in a world where ­clients could choose either option. Lenders, according to this analysis, could break even with the longer grace period if they charged an interest rate that was more than twice as high as the normal rate—but only if there was no change in the quality of clients. So the viability of this repayment model among for-profit institutions is unclear. There is a notable trade-off between increased revenue and increased risk. But further experimentation by NGOs could improve that equation by showing how to decrease default rates and how to make the strategy more cost-effective.

Efforts of that kind are already under way. Kiva, a nonprofit ­organization that allows people in the United States to lend money to microcredit institutions around the world, recently began a program called Kiva Labs. Through that program, donors can enable innovation in microlending by providing subsidies that encourage lenders to absorb additional risk. As a result, lenders are motivated to tinker—to find ways to alter their loan contracts so as to improve access to credit among the poor.

Naturally, not all innovation will work. For that reason, donors and NGOs need to commit themselves to rigorous testing of their efforts and to sharing what they learn from their failures as well as their successes.

THE CHANGING ROLE OF NONPROFITS

The nonprofit community cleared a path for private-sector institutions to provide financial services to the poor on a for-profit basis.

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This achievement has created a conundrum: What is the next step for donors and nonprofits that view the advancement of financial inclusion as part of their mission? They could shift their focus entirely, by investing their resources in a field such as health or education. (They should, after all, direct those resources to activities that require a subsidy.) But that would be an unfortunate move. It would leave in place several market failures that persist with respect to providing financial services to the poor.

Here, I have outlined three roles that nonprofits can adopt to help mitigate those market failures. First, despite the expansive reach of the microcredit movement, there are many potential beneficiaries whom the industry has not yet reached. The too rural, the too poor, the too young—these groups make up important market segments from a social welfare perspective. Nonprofits may be able to resolve the cost issues that come with serving them. Then, as was the case with microcredit, for-profit firms are likely to enter these newly established markets.

Second, a lack of trust raises a large barrier to developing certain ­financial services markets. Nonprofits, insofar as people are inclined to trust them, can help people gain confidence in the products and services that financial firms provide.

Third, many of the products currently offered by the microcredit industry are rigid and formulaic, and for-profit firms are often unwilling to take on the risks associated with exploring new product options. That is particularly true when a novel offering is likely to benefit clients more than it does any given firm. Thirty years ago, the same limitation applied to the microcredit field, and non­profits took the lead in figuring out how to make lending to the poor a sustainable business. They can and should continue the charge for innovation in this field.

Before nonprofits can play these roles successfully, they need to understand their larger role as advocates of financial inclusion. An understanding of that role starts with a recognition that ­nonprofits face a fundamental and intrinsic incentive problem. Compare their incentive structure with that of a for-profit firm. The latter type of organization has a straightforward mission: Earn profits. (Some businesses claim to have a “double bottom line,” but that designation does not lessen their need to make a profit.) If a firm is profitable, it will stay in business. But if the firm pursues a bad idea, or if it implements a good idea badly, it will lose money. Eventually, an unprofitable firm will cease to exist. With a nonprofit, by contrast, the ability to achieve a given mission is distinct from the ability to raise money. A nonprofit may be brilliant at designing and implementing programs but horrible at fundraising; in that case, it will go out of business. Or it may be brilliant at fundraising but horrible at designing and implementing programs; in that case, it will stay in business.

There are different ways to deal with this problem. Donors should demand accountability from their nonprofit grantees, and nonprofit managers should insist on program accountability as well.

Ultimately, though, nonprofits must focus on playing a role that reflects their core strengths: In part by deploying subsidies, they can investigate whether a given model or approach actually works.

In the three areas of opportunity that I have discussed, the long-term aim of the movement for financial inclusion should be to transfer successful practices to the for-profit sector. The reason

is simple: Because of its incentive structure, the for-profit sector is well equipped to implement and sustain such practices on a large scale. But we are not yet at a point where for-profit firms can take responsibility for the entire field of financial inclusion. Many gaps remain within the financial services market. Nonprofits can work to figure out how best to fill those gaps, and ideally they will leave behind a clear trail of evidence from which others can learn. If they succeed in making financial exclusion a relic of the past—if one day they notice that for-profit firms have again entered their space and competed them out of business—then they will have achieved an essential part of their mission. n N OTE S

1 Joseph Grenny, email correspondence to Dean Karlan, October 22, 2013.

2 Britta Augsburg et al., “Microfinance at the Margin: Experimental Evidence From Bosnia and Herzegovina,” American Economic Journal: Applied Economics (forth­ coming), 2014.

3 Alessandro Tarozzi, Jaikishan Desai, and Kristin Johnson, “On the Impact of ­Microcredit: Evidence From a Randomized Intervention in Rural Ethiopia,” ­American ­Economic Journal: Applied Economics (forthcoming), 2014.

4 Abhijit Banerjee et al., “The Miracle of Microfinance? Evidence From a Randomized Evaluation,” American Economic Journal: Applied Economics (forthcoming), 2014.

5 Manuela Angelucci, Dean Karlan, and Jonathan Zinman, “Microcredit Impacts: Evidence From a Randomized Microcredit Program Placement Experiment by Compartamos Banco,” American Economic Journal: Applied Economics (forth­ coming), 2014.

6 Orazio Attanasio et al., “Group Lending or Individual Lending? Evidence From a Randomized Field Experiment in Mongolia,” American Economic Journal: Applied Economics (forthcoming), 2014.

7 Bruno Crepon et al., “Impact of Microcredit in Rural Areas of Morocco: Evidence From a Randomized Evaluation,” American Economic Journal: Applied Economics (forthcoming), 2014.

8 Dean Karlan and Jonathan Zinman, “Microcredit in Theory and Practice: Using ­Randomized Credit Scoring for Impact Evaluation,” Science, 332, 2011.

9 Dean Karlan and Jonathan Zinman, “Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts,” Review of Financial Studies, 23, 2010.

10 Abhijit Banerjee, Timorthy Besley, and Timothy Guinnane, “Thy Neighbor’s Keeper: The Design of a Credit Cooperative With Theory and a Test,” Quarterly Journal of Economics, 109, 1994; Maitreesh Ghatak and Timothy Guinnane, “The Economics of Lending with Joint Liability: A Review of Theory and Practice,” Journal of Development Economics, 60, 1999; Dean Karlan, “Social Connections and Group Banking,” Economic Journal, 117, 2007.

11 Lori Beaman, Dean Karlan, and Bram Thuysbaert, “Saving for a (Not So) Rainy Day: A Randomized Evaluation of Savings Groups in Mali,” working paper, 2014.

12 Ibid.

13 Greg Fischer et al., “To Charge or Not to Charge: Evidence From a Health Products Experiment in Uganda,” working paper, 2013.

14 Dean Karlan et al., “Agricultural Decisions after Relaxing Credit and Risk Constraints,” Quarterly Journal of Economics, 129, 2014.

15 Shawn Cole et al., “Barriers to Household Risk Management: Evidence From India,” working paper, Harvard Business School, 2012.

16 Erica Field et al., “Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence From India,” American Economic ­Review, 103, 2013.

17 Dean Karlan and Jonathan Zinman, “Long-Run Price Elasticities of Demand for ­Microcredit: Evidence From a Countrywide Field Experiment in Mexico,” working paper, 2014; Dean Karlan and Jonathan Zinman, “Credit Elasticities in Less Developed Economies: Implications for Microfinance,” American Economic Review, 98, 2008.

18 See Centre for Women Co-operative Development, “Islamic Microfinance Case Study,” presented at the Conference on Islamic Microfinance in Jeddah, Saudi ­A rabia, 2012.

19 See Dean Karlan and Sendhil Mullainathan “Rigidity in Microfinancing: Can One Size Fit All?” QFinance (newsletter), 2007, http://www.qfinance.com/ financing-best-practice/rigidity-in-microfinancing-can-one-size-fit-all?page=1 20 Field et al., “Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor?”

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The gap between the lab and the field—between the work of scientific discovery and the achievement of

, social impact—has grown wider in recent years. So, not coincidentally, has the gap between philanthropic

funding for university-based research and venture funding for the commercialization of products and services.

But the emerging practice of philanthropic investment holds the potential to close this dual gap.

A New Vision for Funding Science

By SARAH KEARNEY, FIONA MURRAY, & MATTHEW NORDAN

T

he power of science to change the world should be self-evident. Consider the immeasurable impact that science and engineering innovation had on social conditions during the 20th century. The first half of the century produced the assembly line, the airplane, penicillin, and a vaccine for tuberculosis; the second half brought the eradication of polio and smallpox. Scientists harnessed the power of the sun with photovoltaic cells, invented the birth control pill, and sequenced the human genome.

Work done in research laboratories sparked a Green Revolution: In the 1960s, rice yields in India were about two tons per hectare; by the mid-1990s, they had risen to six. In the 1970s, rice cost about $550 a ton; in 2001, it cost less than $200. By June 2012, more than one-third of all people on earth had used the Internet—a system built on the backbone of science and engineering research conducted in the 1960s.1 In each of these cases, the results of scientific discovery yielded both public goods and private fortunes.

Today, research discoveries languish in ivory towers for lack of entities that are willing, able, and properly structured to invest the capital necessary to build lasting organizations that can move those discoveries from the lab to the field.2 People in the university community lament the growing “idea-to-impact gap” (sometimes known as the “valley of death”).3 Because of this gap, corporate leaders find few promising innovation-driven companies to acquire. Government agencies in scientifically advanced nations cite this gap as a rationale for allocating taxpayer funds to domestic commercialization efforts.4 Conventional wisdom holds that venture capital can fill this gap.

Over the past three years, we have explored the role that impact But the venture asset class has come to focus on developing varieties investment by philanthropists can play in funding science. Philanthroof consumer-oriented digital innovation over short time periods. It’s pists, we have found, are overlooking the middle ground that lies beoptimized to support Instagram, not impact. And its investment crite- tween their grantmaking to universities and their investment in venture ria are very narrow: nothing too long-term, nothing too expensive, and funds. This middle ground is precisely where exciting and potentially nothing that involves too much technology or market risk. In “What life-changing technologies can thrive. Instead of focusing on ways to Happened to the Future?”—a manifesto issued by the Founders Fund, “fix” venture capital, we argue that the philanthropy and impact ina Silicon Valley-based investment firm—the author notes, “In the late vestment communities can join to create new vehicles that support the 1990s, … venture investing shifted away from funding transformational creation, translation, and deployment of socially beneficial innovations. companies and toward companies that solved incremental problems or In this article, we outline the parallel histories of science phieven fake problems.… VC has ceased to be the funder of the future, and lanthropy and venture investing. That dual history, in our view, has instead become a funder of features, widgets, irrelevances.”5 culminated in a bifurcated financial system and has contributed to

PHOTOGRAPHS BY ISTOCK (BEAKER, MONEY), PHOTO ILLUSTRATION BY DAVID HERBICK

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PHOTOGRAPHS BY ISTOCK (BEAKER, MONEY), PHOTOILLUSTRATION BY DAVID HERBICK

Stanford Social Innovation Review / Fall 2014

the idea-to-impact gap. We also propose a solution to that problem: philanthropic investment, or the use of grantmaking to fund earlystage technology ventures that hold the promise of achieving significant impact at a large scale.

THE BIFURCATION OF SCIENCE FUNDING

Why, in our own era, has it become so challenging to fund the commercial development of transformative scientific discoveries? To answer this question, it is useful to observe the history of investment in science for social and economic purposes.

The story of financial support for science research and commercialization in the United States is one of increasing bifurcation. In the

beginning, those who conducted scientific work also funded it. In the early 19th century, gentleman scholars like Thomas Jefferson worked at science as they worked at politics, literature, and farming; it was, in short, an important part of being a gentleman. By the middle of the century, however, science had emerged as a matter for specialists. This transformation had implications for funding: Scientists now focused on securing external patronage for their research.6 Foundation support | After 1880, philanthropists began to organize their efforts formally, and they introduced a greater degree of regularity into science funding, particularly by helping to establish the new research-oriented universities that emerged during that period. Philanthropic foundations hired professional staff members

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to engage with the scientific community, and they commanded the resources necessary to support an increasingly complicated and ­expensive search for knowledge.7 In the period after World War I, the visibility and prestige of science reached new heights. Foundations invested $100 million in science between the two world wars. Between 1918 and 1925, for example, the General Education Board (established by John D. Rockefeller in 1903) invested $20 million in astronomy, physics, chemistry, and biology.

Similarly, the Carnegie Corporation and the Rockefeller Foundation each gave approximately $8 million to the National Research Council, which served as a trade association for science. The council developed markets for PhDs in industry, created communication networks, and encouraged cooperative research projects.8 By 1925, at least a dozen large foundations sponsored research on a large scale.9 In part because of changes in tax policy, charitable donations of all kinds—including donations to support science and ­engineering— increased steadily throughout the 20th century. In 1955, annual giving from individuals, foundations, and corporations totaled $7.7 billion. By 1998, annual giving had risen to $175 billion.10 Scientific discovery, engineering, and medicine have always received significant funding from individual givers. Today, philanthropic contributions account for almost 30 percent of US universities’ funding for research expenditures.11 Venture capital | In parallel with the expansion of philanthropy to support fundamental discovery in universities, wealthy individuals were pioneering the use of for-profit investment vehicles to fund entrepreneurial start-ups—a practice known today as venture capital.

Consider the case of Venrock, an early-stage venture capital firm that originated as an investment arm of the Rockefeller family. In 1938, members of the family invested in Eastern Air Lines, then headed by CEO (and former World War I flying ace) Eddie Rickenbacker. To make that investment, Laurance Rockefeller, a grandson of Standard Oil magnate John D. Rockefeller and an aviation enthusiast, pooled his money with personal checks from five siblings. In the years that followed, the Rockefeller group backed dozens more early-stage companies, and nearly all of them were science- and engineering-driven enterprises in fields such as aviation (McDonnell Aircraft), imaging (Itek), rocketry (eReaction Motors), analytical instruments (Thermo Electron), and power (United Nuclear). In 1946, the Rockefeller family formalized its ad hoc investing activity into a fund called Rockefeller Brothers Inc. Other wealthy families followed a similar pattern in their investment activity. In 1911, for example, Carnegie Steel cofounder Henry Phipps formed Bessemer Securities. In the 1930s, the financier John Hay Whitney began investing in high-tech start-ups such as Pioneer Pictures and Technicolor Corporation. These investors were amateurs, but they blazed a trail for the venture capital asset class as a whole.

In the late 1960s, the Rockefellers brought in outside managers to professionalize the firm’s venture investment activity and dubbed the new entity Venrock. These managers continued to invest family money on an “evergreen” basis (that is, by re-investing proceeds with no fixed date of liquidation), and the firm continued to focus on science- and engineering-driven enterprises, both in established industries such as electronics and computing (Intel, Apple, and 3Com) and in other categories marked by rapid technological change—in particular, health care.

In the meantime, a new breed of venture capital partnerships emerged. Partners in these firms didn’t invest their own cash, but

Sarah Kearney is founder and ­executive director of PRIME Coalition, a nonprofit organization that enables families and foundations to make philanthropic investments that mitigate climate change.

Fiona Murray is associate dean of innovation and Alvin J. Siteman (1948) Professor of Entrepreneurship at the MIT Sloan School of Management. She is also faculty director of the Martin Trust Center for MIT Entrepreneurship.

Matthew Nordan is cofounder and managing partner of MNL Partners, a firm that develops energy and environmental projects in global markets.

rather drew their funding from foundations, trusts, pension funds, and other third-party investors. American Research and Development (ARD), founded in 1946, was the most influential of these firms. ARD alumni founded other East Coast VC firms, among them Greylock, Morgan Holland Ventures, and Fidelity Ventures. Similar operations sprang up on the West Coast—among them Draper and Johnson Investment Company, Sutter Hill Ventures, Kleiner ­Perkins Caufield and Byers, and Sequoia Capital. What distinguished these newcomers was a financing model that matched the needs of thirdparty capital providers: Instead of developing “evergreen” funds, these firms offered “closed-end” funds. Typically, those funds have a nominal 10-year lifetime that requires portfolio companies to go from initial investment to acquisition or IPO within a decade.

The rise of the Internet in the 1990s saw two changes in the venture asset class. First, the amount of money invested in venture funds grew dramatically, from $8 billion in 1995 to $105 billion in 2000, at the height of the Internet bubble. (More recently, that figure has stabilized at $25 billion to $30 billion per year). Second, the investment focus of VCs shifted toward software and Internet companies that require less capital to scale up and produce faster returns than science-driven companies. In other words, businesses like Groupon, Twitter, and Instagram stole the limelight from businesses like Intel, Genentech, and 3Com. INSIDE THE IDEA-TO-IMPACT GAP

By the early 21st century, the separation of capital along the ideato-impact continuum was complete. Today, the process of funding science operates within established legal boundaries that delineate how investors interact with nonprofit and for-profit organizations.

Nonprofit institutions (including universities) receive grants from government agencies, corporate donations, and private philanthropy to conduct basic science and engineering research. When that research yields ideas (and intellectual property) with commercial potential, for-profit entities step in to license those ideas and to translate them into marketable products. This bifurcated system isn’t equipped to support innovations that have a long time horizon for development.

The energy sector offers a prime example of a technology field that suffers from a lack of early-stage investment. Energy is one of the world’s most important industries, accounting for 10 percent of global GDP. (By comparison, only about 3 percent of global GDP derives from commerce on the Internet.) Yet energy has historically accounted for only 1 percent to 2 percent of venture capital investment. A burst of VC investment entered the energy field in the second half of the 2000s, when fossil-fuel prices soared, but by 2013 investment had plummeted back to historical levels.

When we look back at earlier radical energy innovations that reached broad deployment, we see that the funding sources that

Stanford Social Innovation Review / Fall 2014

enabled their development are essentially gone. Nuclear fission originated with the Manhattan Project, an unprecedented mobilization of public money; no comparable stream of government funding exists today. Photovoltaic cells emerged from AT&T Bell Laboratories, a corporate R&D institution; Bell Labs—and similar entities like ­Xerox PARC—are now just shadows of their former selves.

Recent efforts to reverse this trend have gone only so far. Since 2009, the US Advanced Research Projects Agency-Energy (ARPA-E) has spent more than $800 million to fund more than 350 breakthrough energy technology projects. ARPA-E focuses its grantmaking explicitly on projects with commercial potential. Even so, only a handful of its awardees have been able to raise institutional risk capital to supplement their ARPA-E funding.

Most explanations of the science funding gap fail to recognize that the shortfall has two causes: First, compared with software investments, many science-driven investments have a relatively unappealing risk-return profile. Second, and equally important, the financial interests of investors who participate in the innovation process are often not in alignment with the social goals of scientist-entrepreneurs.

One venture capitalist, speaking in 2013 at an American Academy of Arts and Sciences roundtable on energy finance, put it this way: “I

will not invest because of climate change. My limited partners expect financial returns within a certain timeframe.”

For-profit investment vehicles for early-stage companies fail to account for investors’ charitable objectives or the potential social returns of such innovations. Conversely, tax-shielded charitable funds are rarely used to support for-profit technology companies, even when those companies advance desirable social outcomes. In each case, neither purely philanthropic motives nor purely profit-based motives are sufficient to justify investment. As a result, capital to build companies in areas such as energy, water, and health care remains in short supply.

A NEW ROLE FOR PHILANTHROPY

We believe that a solution to this problem lies in the emergence of a new breed of philanthropic investors—individuals and institutions that aim to bridge the divisions that mark the funding of science today.

Consider the Bill & Melinda Gates Foundation. Over the past halfdecade, the Gates Foundation has deployed a considerable amount of capital to bridge the idea-to-impact gap within the health-care field.

In 2011, for example, the foundation made a $10 million equity investment in Liquidia Technologies, a for-profit venture that develops and commercializes vaccines that prevent infectious diseases. The foundation made this transaction as a program-related investment (PRI); for financial and legal purposes, therefore, Funding Lab-to-Field Investment: Pioneering Approaches it counts as a grant. And in 2013, the foundation made a PRI in the Global Funder Description Legal Structure Nonprofit For-Profit Health Investment Fund (GHIF), a traditionally structured venture fund that Breakout Labs makes small grants to science projects that are too Private Breakout Labs speculative for venture capital but also unsuitable for traditional foundation San Francisco supports medical research and developgrants. It aims to generate concessionary financial returns as well (grantmaking) ment. That PRI took the form of a loan as social returns. guarantee that allowed investors in The Chesonis Foundation has made grants to support university-based Private Angel Investing Chesonis Family GHIF to hedge as much as 60 percent science and engineering research in energy and the environment. In foundation Foundation addition, the Chesonis family and its co-investors have made angel (grantmaking) of their invested capital, and it helped Rochester, N.Y. ­investments in spinout companies that originated in university labs.

GHIF raise $108 million.

Those investments, which target clean-tech companies, occur at an earlier stage than venture capital firms are typically willing to invest.

Following the lead of the Gates Foundation and other pioneering phiThe Cystic Fibrosis Foundation invested nearly $75 million to Public Charity copy Cystic Fibrosis lanthropists, we advocate a model help Vertex Pharmaceuticals, a for-profit biotechnology company, Foundation develop a cystic fibrosis drug called Kalydeco. In return, the foundathat occupies the space between reBethesda, Md. tion received rights to a royalty on sales of the drug. Following the search grants and for-profit risk capilaunch of Kalydeco, the foundation sold part of its royalty rights for ­$150 million, and it intends to re-invest that money in other projects tal. Of particular interest to us are at large, for-profit pharmaceutical firms. impact investment approaches that The Harrington Project encompasses two investment organizations: Public Charity Venture Fund blend philanthropic and financial The Harrington the Harrington Discovery Institute (nonprofit) and BioMotiv (forProject perspectives. A handful of organizaprofit). The Harrington Discovery Institute makes grants to support Cleveland projects by physician-scientists who conduct research on unmet tions are already blazing trails at the clinical needs. Subsequently, BioMotiv invests in those projects and boundary between nonprofit and forlinks them to late-stage commercialization partners. profit investment in science and engiThe Deshpande Center, although it is based in a traditional nonprofit Public copy MIT Deshpande neering, and they are pursuing a wide setting, focuses on enabling rapid venture creation. Founded with Charity Center for variety of methods. (See “Funding a grant by the Deshpande family, the center awards grants to MIT (account Technological faculty members whose work has the potential to achieve social within MIT) Lab-to-Field Innovation: Pioneering Innovation and economic benefits. The aim of its grantmaking is to enable Cambridge, Mass.

Approaches” on this page.) researchers to move from the discovery stage to the proof-ofconcept and technical prototype stages.

The model that we propose will be compelling to a wide range of philanVillage Capital runs accelerator programs around the world and Public Charity Venture Fund Village Capital acts as a convener of people with an interest in early-stage impact thropic asset owners. Here, we will foAtlanta investment. In some cases, those efforts focus on science-based cus on charitable foundations. The US domains such as energy and agriculture. Although Village Capital is a grant-supported nonprofit, it works closely with investors who Internal Revenue Code requires each operate in the for-profit sector. foundation to spend at least 5 percent

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of its assets annually on efforts to further one or more charitable purposes. (The advancement of science counts as one such purpose.) To fulfill the 5 percent mandate, foundations historically have made grants to public charities without an expectation of receiving a financial return. In 2011, grant disbursements from foundations totaled $47 billion.12 Today, however, foundations are increasingly forging impact investment strategies that involve deploying assets on both sides of their house—on the 5 percent side, where grantmaking takes place, and on the 95 percent side, where endowment managers work to preserve foundation capital.

On the endowment side, foundation leaders have begun to apply positive and negative screens to the investments they make. A recently launched movement called Divest-Invest Philanthropy, for example, highlights the power of large foundation endowments to shape social outcomes.13 Citing both ethical and financial reasons, the movement calls on foundations to divest their endowments of holdings in fossil-fuel companies. To date, the dialogue around this movement has focused on avoiding harmful investment activities (“divest”). But no less important, in our view, is the need to support helpful activities (“invest”).

The use of direct investment—often called Mission-Related ­Investments (MRI)—allows foundations to put the full weight of their assets toward the pursuit of philanthropic goals. (In 2011, the endowments of US foundations were collectively worth an estimated $600 billion.) With an MRI, a foundation uses endowment funds to support a business whose products or services align with the foundation’s mission. As a rule, MRIs promise a market-rate return and therefore meet “prudent investor” requirements. Endowment managers have a fiduciary duty to preserve capital over time, and the US tax code mandates that they refrain from making high-risk investments that might jeopardize the longevity of their foundation. As we have noted, however, many early-stage ventures in science and engineering cannot meet that standard. MRIs offer one tool for philanthropic investors to deploy, but they will not be sufficient to fill the idea-to-impact gap.

THE PROMISE OF PROGRAM-RELATED INVESTMENTS

There is another side of impact investing that has greater potential to close the idea-to-impact gap in science and engineering. By its nature, that gap can be filled only by concessionary investment—by vehicles in which investors concede, or give up, something that they would otherwise expect in return for their money.14 Foundations can make such investments in the form of a PRI. With a PRI, a foundation channels grant funds (that is, money that comes from the “5 percent” side of its operations) to a for-profit company that does “program-related” work. Such work is programrelated insofar as it advances a programmatic goal of the foundation.

The US tax code requires a PRI to meet a two-part test: The investment must “significantly further” the charitable goals of a foundation, and it must be such that the foundation would not have made it “except for [its] relationship” to those goals.15 The concessionary nature of a PRI is not based solely on the magnitude of expected returns. A PRI-making foundation can make concessions according to various investment criteria—the timeline for drawing financial returns, for example, or the perceived market, technology, or regulatory risk of the investment in question. Although it has become the norm to structure a PRI as low-interest debt, doing

so is not a requirement. In any event, the value proposition for philanthropists is clear: Making a grant in the form of a PRI gives a foundation a powerful tool for moving critical ideas out of the laboratory and into the commercial marketplace. Even though PRIs come out of grant coffers, they offer a foundation the possibility that it will recoup money that it can redistribute to other charitable causes.

Given this compelling proposition for grantmakers, it is surprising that the use of PRIs to bridge the idea-to-impact gap is not more common. According to the best available data, foundations made fewer than 5,000 PRIs between 1998 and 2010, and together those investments constituted less than 2 percent of total grantmaking. Among those PRIs, less than 1 percent—about 35 in all—went to grantees in science and engineering fields.16 Although few in number, most of those PRIs went to support technology as it moved from a lab environment to commercial development. These data lead us to two conclusions: First, PRIs do have the potential to bridge the idea-to-impact gap in science and engineering innovation. And second, there are high barriers that prevent asset holders from using PRIs in this way today.

Some of those barriers are philosophical. Many philanthropists express concern that PRI-making might cross well-defined boundaries and violate important institutional norms. Is it inappropriate to direct grant dollars away from traditional public charities and toward profitseeking businesses? How can philanthropists and investors ensure that PRIs do not duplicate traditional, finance-first investment activities?

In addition, our research suggests that these barriers arise because of the historic separation of the social logic of philanthropy from the economic logic of endowment management. These two areas of practice are organizationally distinct within private foundations: The grantmaking side of a foundation aims to advance a charitable mission by funding programs, whereas the endowment side strives to preserve a corpus of assets. People on each side of the divide have their own affinity groups, their own governing bodies, and their own best practices.

Three barriers related to that separation are worth noting.

Mismatch of expertise | PRIs, by construction, require the expertise of both grantmakers and for-profit investors. But these groups do not have a common language or a common body of expertise. Sourcing deals, conducting due diligence, structuring investment terms, and making board-level strategic decisions for technology start-ups are not activities that grantmakers are trained to do. Money managers, for their part, have little expertise in analyzing the social impact of an investment or the concessionary nature of a financial vehicle. On the contrary, they are trained to focus on financial returns and to follow prudent investing practices.

Legal uncertainty | Another formidable barrier—one that is grounded both in regulatory reality and in the risk-averse culture of the legal community—involves the legal consequences of accepting investment risk. Attorneys are systemically inclined to discourage PRI-making in order to protect their clients, and few attorneys today have experience in advising clients on transactions of this kind.

Policy-driven inertia | Many foundation administrators shy away from making grants to recipients other than public charities. After the Tax Reform Act of 1969, which tightened the tax rules that apply to the philanthropic sector, US foundations began to avoid risktaking behavior and settled into a routine in which the easiest grant to make is a general-purpose grant to a public charity.17

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Given the urgent nature of global problems like climate change, water scarcity, and poverty—and given the need for science- and technology-based solutions to those problems—we believe that ­taking action to break down these barriers is imperative.

AN AGENDA FOR PHILANTHROPIC INVESTMENT

The idea-to-impact gap should matter a great deal to the individuals, families, corporations, and foundations that have already invested in science, engineering, and medicine. It should matter to any investor who yearns for real-world results. And it should matter to the billions of people affected by a lack of electricity, an absence of clean water, a changing climate, an inefficient manufacturing sector, and the persistence of diseases like cancer and dementia.

As scientists, funders, and other stakeholders explore various forms of philanthropic investment, some parts of their journey will be straightforward. Within the university-philanthropy complex, structures already exist to find good ideas in university labs, to create entrepreneurial start-ups, and to partner with government agencies and large corporations in supporting those young companies.

But the work of expanding access to much-needed risk capital will be more complex. That is where pioneering needs to happen. Our hope is that leaders will emerge who have the courage to explore this new territory where impact investing overlaps with funding for science. Here, we offer an initial agenda for those leaders to follow.

■■ Entrepreneurs

need to educate themselves about the decisionmaking processes and legal constraints that are unique to philanthropic asset owners. Appealing to that group of funders requires a different approach from the one that they use in pitching to traditional venture capital firms.

■■ Asset owners need to collaborate with each other in order to aggregate funds at a sufficient scale. Collaboration at this level is especially crucial in domains that have certain common elements: large charitable goals, a misalignment with the structure of traditional venture capital, and the potential for market adoption of commercial products. PRIME Coalition, an entity that we are helping to lead, is one such effort. It is a network of philanthropists who share an interest in market-based solutions to climate change. That model, we believe, holds promise not only in the climate field, but also in other areas that depend on advances in science and engineering.

■■ Scholars need to refine the vocabulary of impact investment so that investors and other stakeholders can untangle the various policy, tax, and accounting issues that affect this emerging field.18 ■■ Investment managers need to be willing to move from one compensation structure (in which they receive management fees and carried interest) to another (in which they receive budgetbased salaries and impact-based bonuses). Likewise, grantmakers need to be willing to pay top salaries for high-quality talent.

■■ Impact investment intermediaries need to acknowledge the importance of science and engineering. They need to build ­impact measurement regimes around projects that fall between the traditional categories of charity and investment.

And they need to expand their focus from the deployment of proven technologies to the development of technologies that are unproven but highly promising.

In 2013, Sir Ronald Cohen and William A. Sahlman put forth a striking claim: “Social Impact Investing Will Be the New Venture Capital.” They called on impact investors to find the same courage that the early institutional backers of the venture capital industry displayed, and they offered a vision of how investors could enable progress on social issues while also delivering financial returns.19 Our proposal is a concrete response to that broad agenda. Also in 2013, Peter Buffett issued a bold call to his fellow philanthropists.

He urged them to “[try] out concepts that shatter current structures and systems.”20 Although Buffett made no mention of science and engineering innovation, we believe that building a philanthropic bridge between the ivory tower and traditional capital markets would meet the standard that he set. In that spirit, we encourage philanthropists of all stripes to pioneer new forms of philanthropic investment—new approaches that support the kind of innovation that the world desperately needs. n N OTE S

1 Jason Pontin, “Why We Can’t Solve Big Problems,” MIT Technology Review, NovemberDecember 2012.

2 Eric M. Meslin, Alessandro Blasimme, and Anne Cambon-Thomsen, “Mapping the Translational Science Policy ‘Valley of Death,’” Clinical and Translational Medicine, 2, 2013.

3 Members of the 2005 “Rising Above the Gathering Storm” Committee, Rising Above the Gathering Storm, Revisited: Rapidly Approaching Category 5, Washington, D.C.: The National Academies Press, 2010.

4 Erika Check, “NIH ‘Roadmap’ Charts Course to Tackle Big Research Issues,” Nature, October 2, 2003; House of Commons Science and Technology Committee, “Bridging the Valley of Death: Improving the Commercialisation of Research,” House of Commons (United Kingdom), March 4, 2013.

5 Bruce Gibney, “What Happened to the Future?” Founder’s Fund, January 7, 2014, http://www.foundersfund.com/uploads/ff_manifesto.pdf 6 Howard S. Miller, Dollars for Research: Science and Its Patrons in Nineteenth-Century America, Seattle: University of Washington Press, 1970.

7 Waldemar A. Nielson, The Golden Donors: A New Anatomy of the Great Foundations, New York: E. P. Dutton, 1985.

8 Robert E. Kohler, “Philanthropy and Science,” Proceedings of the American Philosophical Society, 129, 1985.

9 Ibid.

10 Thomas J. Billitteri, “Donors Big and Small Propelled Philanthropy in the 20th ­Century,” The Chronicle of Philanthropy, January 13, 2000.

11 Fiona E. Murray, “Evaluating the Role of Science Philanthropy in American Research Universities” (working paper), National Bureau of Economic Research, June 2012.

12 Antony Bugg-Levine and Jed Emerson, Impact Investing: Transforming How We Make Money While Making a Difference, San Francisco: John Wiley & Sons, 2011.

13 Ellen Dorsey and Richard N. Mott, “Philanthropy Rises to the Fossil Divest-Invest Challenge,” Huffington Post, January 30, 2014, http://www.huffingtonpost.com/ellendorsey/philanthropy-rises-to-the_b_4690774.html 14 Paul Brest and Kelly Born, “Unpacking the Impact in Impact Investing,” Stanford Social Innovation Review, August 14, 2013, http://www.ssireview.org/articles/entry/ unpacking_the_impact_in_impact_investing 15 “Program-Related Investments,” US Internal Revenue Service, http://www.irs.gov/ Charities-&-Non-Profits/Private-Foundations/Program-Related-Investments 16 Sarah J. Wood, “The Role of Philanthropic Capital in Entrepreneurship: An Empirical Analysis of Financial Vehicles at the Nonprofit/For-Profit Boundary of Science and Engineering,” master’s thesis, Massachusetts Institute of Technology, 2012.

17 John R. Labovitz, “1969 Tax Reforms Reconsidered,” in The Future of Foundations, The American Assembly, 1973.

18 Brest and Born, “Unpacking the Impact in Impact Investing.”

19 Sir Ronald Cohen and William A. Sahlman, “Social Impact Investing Will Be the New Venture Capital,” HBR Blog Network, January 17, 2013, http://blogs.hbr. org/2013/01/social-impact-investing-will-b 20 Peter Buffett, “The Charitable-Industrial Complex,” The New York Times, July 27, 2013.

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Stanford Social Innovation Review / Fall 2014

Insights From the Front Lines

A Good Ending Leaders at the Atlantic Philanthropies are modeling best practices for winding down a large, high-profile foundation.

By Christopher G. Oechsli & David La Piana

Illustration by anna parini

W

e usually think of large private foundations (those with assets of more than $1 billion) as permanent endowments.

Names like Ford, Carnegie, Rockefeller, and ­Packard summon the image of a donor whose ­vision—and wealth—lasts well beyond his or her lifetime. But a countervailing trend is emerging. Many prospective philanthropists and established foundations are now considering or actively pursuing a limited-life strategy. They are, in other words, planning to close at some future date.

Researchers at the Sanford School of Public Policy at Duke University have identified 45 foundations that have completed an intentional spend-down, along with 29 other foundations that plan to follow such a course. Several factors are contributing to the rising interest in a limited-life model.

First, many donors today want to see their philanthropic vision carried out in their lifetime. Second, many of them want to tackle big problems that cry out for large-scale, resource-intensive solutions. And third, there is a growing disillusionment with the slow pace and the bureaucratization of many perpetual foundations.

The concept of a limited-life foundation is not entirely new. Ben Franklin set a precedent for this approach when he stipulated in a bequest that his assets were to be used to support apprentice tradesmen for a period of 200 years—until 1990, at which point the remaining funds would go to communities in his home states of Massachusetts and Pennsylvania. The Rosenwald Foundation, founded by Sears, Roebuck & Company executive Julius Rosenwald, intentionally disbursed its entire endowment shortly after

the death of its donor. More recently, Bill and Melinda Gates announced that their $36.8 billion foundation would close 20 years after both of them have died.

Then there is the Atlantic Philanthropies, which one of us (Oechsli) leads and for which the other (La Piana) serves as an adviser. Atlantic plans to complete all of its grantmaking by the end of 2016 and to close its doors entirely not long thereafter.

Closing Time

Chuck Feeney, founding chair of the A ­ tlantic Philanthropies, earned a fortune from the sale of his company, Duty Free Shopping (along with investments in the General Atlantic Group), and donated most of that fortune to the foundation. As the size of the Atlantic Philanthropies endowment grew, he developed a commitment to the ideal of

“giving while living.” In 2002, he and the Atlantic board formally adopted a limitedlife strategy.

To date, Atlantic is the largest foundation ever to plan for a complete closure. By the time it closes, Atlantic will have made charitable commitments of more than $7.5 billion. In keeping with its limited-life strategy, the foundation has purposely made grants in excess of endowment returns.

Today, its assets are valued at $2.2 billion, nearly one-third of which has already been committed to grantees. For the next couple of years, we will retain programmatic and contingency reserves, and we will oversee our final grants. Then, in about 2018, we will dissolve the foundation.

Exit Plan

As we wind up our grantmaking and wind down the organization, we know that we have much to learn. But we have already learned some lessons that we wish to share.

Here, we offer a practical resource aimed at helping colleagues who are considering or already implementing a limited-life strategy.

Your assets | Making several billion dollars worth of effective grants over a defined period is no easy task. One option, of course, is to liquidate everything years in advance of shutting down and to spend against a predictably declining cash account. In that scenario, however, you risk forgoing a great deal of investment income that could support your work.

At Atlantic, we created a large investment reserve that allows us to maximize the impact of our culminating work. Within a framework that we call Global Opportunities and Leverage, or GOAL, we are making several large final grants that reflect—but also go beyond—many of our prior philanthropic investments.

We have also created other

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Stanford Social Innovation Review / Fall 2014

Christopher G. Oechsli is president and CEO of the Atlantic Philanthropies.

Visit ssireview.org to learn more about the Atlantic Philanthropies and its limited-life strategy.

David La Piana, managing partner at La Piana Consulting, serves as an advisor to the Atlantic Philanthropies.

reserve funds that will provide a hedge against legal liabilities, and those funds will enable us to end with a small cash balance.

Chuck Feeney has said he’d like to bounce the last check that we write in order to show that the foundation really has spent down all of its assets. Joking aside, though, here’s how we envision the foundation’s last day: Sometime between 2018 and 2020, an attorney in Bermuda (where we are incorporated) opens a desk drawer, pulls out our file, and sees that there are no outstanding liabilities. She also sees that there are several million dollars left in our bank account and writes checks to a list of final beneficiaries. Then she tears up the checkbook and closes the file.

Your grantees | A major funder is likely to have large investments in many nonprofit organizations, and those nonprofits may not be prepared for a sizable loss of revenue. A variety of strategies are available to keep grantees from going out of business: endowing organizations, paying off mortgages or other debt, investing in enhanced organizational capacity, and so forth. Another option is to encourage grantees to consolidate operations or to share back-office functions. A third option is to help a grantee organization recognize that, like Atlantic, it can achieve its mission most effectively by pursuing a limited-life strategy.

The most important tool, in our view, is each grantee’s multi-year budget projection.

Atlantic works closely with certain grantees to help them use that tool: What will life be like at their organization without Atlantic funding? What does their path to sustainability look like?

Managing this transition requires frequent, consistent communication with grantees. We have built our exchanges with grantee leaders on a commitment to clarity and on a belief that even bad news will be manageable if we provide plenty of notice about our plans.

Your staff | In a limited-life foundation, everyone recognizes that the enterprise will end at a certain point. The duration of roles for each employee will vary, however. Our

3“NOT Spending Down: CEO Update” blog post 3“Chuck Feeney on Giving While Living” video 3 Other videos

approach at Atlantic has been to provide everyone with a roadmap that clearly indicates his or her final day at the foundation. Many employees, of course, will start to look for another job well before that final day. That’s where retention bonuses come into play: By giving your most important employees a financial incentive to stay until their end date, you can ease their transition and also promote organizational stability. At Atlantic, we’ve followed that course with all of our employees.

Even when each staff member knows his or her trajectory, speculation and anxiety can be prevalent. To limit that problem, we decided to cluster staff reductions in regular six-month cycles. That way, our

last years. At first, the board has a lot to do, as the foundation develops its final grantmaking strategy, plots out an investment trajectory, and oversees a plan for releasing staff members. Over time, though, it will make sense for the board to shrink, perhaps substantially. At Atlantic, we decreased the size of our board in 2012 from 11 directors to 7. Further attrition through term rotation will shrink the board to just 5 directors by the time our doors close.

Your legacy | All philanthropists aim to leave a legacy—to extend their influence into the future. Chuck Feeney puts it this way: “What will we have to show” for our work? One approach to promoting a legacy

The limited-life strategy requires leaders to focus on deepening and magnifying the impact of an ­organization even as it shrinks. people can breathe easier between rounds of departures.

Your leadership | Foundation leaders are usually charged with growing their organization. The limited-life strategy requires leaders to focus instead on deepening and magnifying the impact of an organization even as it shrinks. Not all managers will have the skills or the attitude needed to lead that sometimes contradictory process.

CEO leadership, in particular, will be quite different in the final years of a foundation’s life span from what it was in earlier years. The CEO of a large foundation often delegates day-to-day functions to senior managers while focusing on big-picture strategy. But what happens when the strategic questions are settled and the foundation enters its final phase? At that point, we have found, a CEO has three primary tasks: ensuring sound execution, keeping staff members engaged in their work even as their numbers shrink, and enhancing the legacy of the foundation.

The role of a foundation board also changes as an organization approaches its

is to fund physical infrastructure. Another approach is to provide endowments or large general operating grants that will allow grantees to continue their programmatic work. Yet another approach (one that we are exploring) is to invest in the long-term development of human capital.

At Atlantic, we have funded our share of buildings. So far, we have invested more than $2.2 billion in more than 500 significant facilities, including hospitals and clinics as well as educational, research, and cultural institutions. But we have also backed major social change efforts, such as the development of a national health system in Vietnam, the peace and reconciliation processes in Northern Ireland and South Africa, and the reform of US immigration, criminal justice, and health policies.

For us, everything now comes down to ensuring our legacy. That means continuing to make big bets on transformational ­opportunities—big bets whose impact will endure beyond the existence of our foundation. It also means helping other foundations learn the art of ending well. n

Illustration by anna parini

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Stanford Social Innovation Review / Fall 2014

Rethinking Poverty Recent discoveries in brain science shed light on what holds the poor back—and on how to help them get ahead.

By Elisabeth D. Babcock

Illustration by anna parini

M

argaret grew up in the Patterson Way Apartments, a notorious drug-infested public housing development in South Boston.

By the time she was 16, both her mother and her father had died, and her guardian, an older brother, was selling crack cocaine out of their apartment. Nine years later, he too had died, and another brother had become a drug addict. Only she and one remaining brother missed a similar fate.

“Back then,” Margaret has written in an unpublished memoir, “you would find syringes everywhere in my neighborhood, from the common hallways to the rooftops of our buildings…. That’s when I noticed the deals that the neighbors were making and the constant presence of strangers in [our] hallway…. I remember thinking, ‘How am I going to make this better?’” (Margaret is not her real name.)

In 2009, Margaret enrolled in Career Family Opportunity (CFO), a program offered by Crittenton Women’s Union (CWU).

At that time, she had no education beyond high school and was a 30-year-old unemployed, unmarried mother with a limited work history. For her entire life, she had lived in South Boston public housing—an environment in which she was surrounded by people who, like her, had no idea how to better their lot.

Four years later, Margaret had attained her associate’s degree, had paid off $1,552 in unpaid taxes, and had saved almost $1,000. Today, she is the full-time manager of ­community learning programs at a local community center. “My job allows me to have a rippling effect on my community,” she writes. “I’m trying my best today to live well

and to teach my son to be the best little person who he can be. I’m a productive, inspiring, and helpful member of my community, and I have never been more proud.”

Margaret’s story illustrates the impact that an anti-poverty program can have if it targets the core circumstances that cause poverty to become intractable. In recent years, scientists have discovered that the stresses of poverty often overwhelm the critical-thinking skills that people need to chart and follow a pathway out of their condition. Fortunately, we are also discovering that carefully structured programs like CFO can enable people to improve those skills.

The Wages of Stress

Those who are familiar with the reality of poverty today know that transformations like Margaret’s are rare. The erosion of the

public safety net, the increasing prevalence of low-wage employment, and decreases in low-wage earnings have combined to place low-income families under constant pressure as they struggle to work, to care for their families, and to maintain their access to public benefits. Added to these burdens is the fact that most jobs that would improve their circumstances—jobs that pay familysustaining wages—require a post-secondary education, and for most people in low-income families, the effort to obtain higher education complicates their already very complex lives.

For people like Margaret to succeed in moving their families out of poverty, they must make every decision about how to spend their limited time and money very wisely. The more limited those resources are, the more crucial every decision becomes. But, as we have come to learn, the circumstances of living in poverty often undermine people’s decision-making skills.

According to an emerging body of brain science, the stresses that come with being poor negatively affect the strategic thinking and self-regulation skills that people need in order to break the poverty cycle. These skills, known as executive function (EF) skills, are fundamental to our ability to solve problems, to multitask, to juggle priorities, to control impulses, to ­delay gratification, and to persist in the pursuit of goals.

Researchers at the Center on the Developing Child at Harvard University and elsewhere have shown that living in poverty compromises EF skills in at least two critical ways: First, poverty creates powerful stresses that swamp our thinking and create a “bandwidth tax” that decreases the quality of the decisions we make.

And second, the stresses associated with poverty can alter the way the brain develops in children who are subjected to them.

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Stanford Social Innovation Review / Fall 2014

Elisabeth D. Babcock is CEO of Crittenton Women’s Union, a Boston-based nonprofit organization that provides research, advocacy, and direct services with the aim of ­helping low-income women break the cycle of poverty.

Recent discoveries in brain science demonstrate that stress compromises ­memory, making it harder for people to remember several things at one time. Stress also makes it harder to maintain mental flexibility, to shift back and forth between potential approaches to solving problems, and to weigh the future implications of current decisions. As a result, many who have been raised in conditions of significant stress—or who are currently undergoing acute stress—struggle to keep track of the multiple problems in their lives, to analyze those problems, to explore options for dealing with them, and to set priorities for how best to move ahead.

Brain science also shows that stress hi-

framework is an EF-informed “scaffold” structure that helps participants concurrently attain progress in the five areas that our research has shown to be pivotal to fostering economic mobility: family stability, well-being, education, financial management, and career management.

The Bridge serves as a decision-making and skill-building tool that allows participants to analyze and identify their strengths and weaknesses and then to set intermediate and long-term goals in all five of those areas.

They do so using a single piece of paper that allows participants and staff members to see—all at once—a summary of the challenges that participants face, the interconnections between those challenges, and po-

Scientists have discovered that the stresses of poverty often overwhelm the critical-thinking skills that people need to chart a pathway out of their condition. jacks our good intentions and increases the likelihood that we will be swept away by our impulses. Even if we manage to develop a good plan, we will find it harder to stick to it if we are under stress or if we have experienced significant stress during childhood.

In sum, getting out of poverty requires people in low-income families to manage very complicated lives, to optimize decision-­ making, and to persevere in the face of huge odds. Yet recent advances in brain science show that poverty also creates crippling stresses that significantly hamper people’s ability to develop and sustain EF skills. So how can organizations that work with low-income families resolve this vicious Catch-22?

A Single Piece of Paper

Seven years ago, CWU began to build a new framework that enables people to buttress their strategic thinking skills and to follow through on their goals in the face of daily life challenges that would normally throw them off-course. Called the Bridge to Self Sufficiency, or the Bridge for short, this

tential remedies. The Bridge scaffold serves as a problem-solving, organizational, and memory-aid tool in much the same way that others might use a written list or a software application to help them track their to-do items. The primary difference is that the Bridge is designed to organize the tasks that are most important for moving out of poverty and to display them visually on a single page.

At CWU, we refer to the process of using the Bridge scaffold—along with a set of reinforcing frameworks—as Mobility ­Mentoring. We developed the Mobility ­Mentoring approach to mitigate the specific EF-skill challenges that poverty tends to exacerbate. The aim is to sharpen the clarity of participants’ intentions and to strengthen their personal resolve. Specially trained staff members, called Mobility Mentors, act as coaches who work with participants to help them identify realistic goals and plans. In addition, Mobility Mentors connect participants with the resources they need to achieve those goals.

Through the Mobility Mentoring process,

participants use contracts, measurement frameworks, and incentive systems to reinforce the goals that they developed using the Bridge. Mobility Mentors measure the goal attainment of participants in face-to-face meetings that take place at intervals of no more than six months and often (especially during the early stages of the program) more frequently. In this way, staff members create a routinized process by which participants become more adept at analyzing problems, developing options, weighing alternatives, selecting a plan, and adhering to a course of action. That coaching work ensures that over time the Bridge scaffold evolves from an externally prescribed process into an internal set of EF competencies that frees participants from the need for further coaching.

Using tools like the Bridge and Mobility Mentoring, we have discovered, can have real payoffs. In the five years since incorporating those approaches into the South Boston CFO program, we have seen public housing residents who are in the program graduate from community college at more than twice the rate of other community college students in the Boston area. In addition, we have seen members of that population save three times as much on average as the typical member of a low-income American household. Almost one-third of participants in these programs are now in family-sustaining jobs that pay from $45,000 to $50,000 per year. Within one year of introducing Mobility Mentoring into transitional homeless shelters, moreover, the proportion of residents who were regularly working or going to school increased from 45 percent to 80 percent, and those with personal savings of $150 or more went from 0 percent to 43 percent.

Findings from brain science show us that the stresses of poverty can compromise people’s decision-making skills in ways that virtually assure that the odds will be stacked against their efforts to gain upward mobility.

Yet those same findings suggest that even in adulthood people can benefit from coaching and other services that improve EF skills.

It’s better living through science—and, in our experience, it works. n

Illustration by anna parini

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Stanford Social Innovation Review / Fall 2014

Get Rid of the Grid?

An emerging business model that aims to reduce energy poverty holds real promise. But it needs a jump-start.

By Pepukaye Bardouille & Dirk Muench

Illustration by anna parini

C

onsider this all-too-plausible scenario: You are visiting a small rural village somewhere in sub-Saharan Africa. The sun has just disappeared behind the horizon. To your left, kids run from a dusty, makeshift soccer field toward the simple houses— most of them built of nothing but wood and soil—where they live. It is pleasant now, and you enjoy a light breeze. But just 15 minutes later, it is dark. Night has fallen, and all you hear are muffled voices and some indistinct animal sounds. You wait for the lights to go on, wait for the village to re-appear from the night, but nothing happens. In the darkness, you feel uneasy. Then, suddenly, your iPhone 5 rings.

In 2005, just 5 percent of sub-Saharan Africans had a mobile telephone. In 2014, less than 10 years later, mobile network operators (MNOs) boast more than 250 million unique subscribers (30 percent of the total population), employ more than 3 million people, and generate revenues of more than $20 billion per year. Over the same period, meanwhile, the number of household electricity connections in the region has barely kept up with population growth. Indeed, only about 30 percent of the population has a connection to the electrical grid.

Over the past six years, according to a 2013 report, companies in the mobile phone sector in sub-Saharan Africa have attracted roughly $44 billion in commercial capital. Over the same period, companies that provide energy services to households in the region have attracted less than $100 million in capital, and less than 25 percent of that amount has come from commercial investors. That disparity is all

the more surprising given the size of this potential market. There are 125 million energy-poor households (corresponding to more than 550 million people) in subSaharan Africa, and last year they spent an estimated $20 billion on meeting their basic energy needs (through the purchase of kerosene and batteries).

Together with other people in the international development and impact ­investment communities, we have worked for many years to identify ways to provide basic energy services to the millions of offgrid households that still exist in emerging markets. One rural electrification initiative after another has raised people’s hopes, and one after another, they have either failed to grow or failed, ­period. ­National electric grid expansion has not kept up with population growth; retail sales of

solar equipment (such as portable lanterns and roof-mounted home systems) have ­increased dramatically but still have a market penetration of less than 5 percent; and even the best mini-grid projects have not managed to scale up in a meaningful way.

It often seems as if there are more conferences and reports about access to energy than there are electrified villages in all of sub-Saharan Africa.

At some point in 2012, we realized that this situation is poised to change. There is a real chance to expand energy access as fast as MNOs were able to expand mobile phone access. The vehicle for doing so, we believe, is a model called the distributed energy service company, or DESCO. Put simply, we see in the DESCO model the potential to provide rural households and small businesses with a better service than they currently have, for less money than they currently pay, and to do so while generating attractive wages for employees, opportunities for entrepreneurs, and ­financial returns for investors. It’s possible to provide households with enough energy for basic appliances—LED lights, mobile phones, television and radio sets, and even small productive equipment, such as a sewing machine or a refrigerator—for a fee that is lower than their current expense for kerosene and for the batteries that they use for flashlights. And any business that can offer a better service for less, while making a profit as well, is a business with potential.

Flipping a Switch

DESCOs don’t sell products for cash as a distributor of energy access products would.

Rather, they install electricity-generating ­assets—such as a rooftop ­solar system or a connection to a microgrid—at dwellings and small businesses and then collect payments from customers.

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Stanford Social Innovation Review / Fall 2014

Pepukaye Bardouille is a senior operations officer at the International Finance Corporation (IFC). She works on IFC’s Clean Energy Advisory Team and leads a wide range of IFC activities related to energy access.

Dirk Muench is cofounder and managing partner of Persistent Energy Partners, a firm that invests in, incubates, and advises businesses that provide clean energy to off-grid customers in sub-Saharan Africa.

Those payments might ­occur on an ongoing basis (as in a lease model) or until a customer has effectively purchased an asset (as in a rent-to-own model). In any event, a DESCO operates much like a utility company.

Unlike a typical utility, however, a DESCO focuses not on selling as much electricity as possible, but on providing customers with the services that they want— electric light; a way to charge their mobile phone; the ability to use a radio, a TV, or a personal computer—at a price that they are willing to pay. The logic of the DESCO model works along the following lines: Customers currently spend $10 per month to light their homes with a couple of kerosene lamps. A DESCO might offer those users un-

Leveraging mobile services—mobile data to manage the assets and create an incentive to pay, and mobile payment technology to monetize the assets cost-effectively—will enable DESCOs to keep their costs at a sustainable level.

Moving Out of the Dark

Demand for electricity certainly exists, and the DESCO model has great potential. Leading companies such as M-Kopa Solar (Kenya), Off.Grid:Electric (Tanzania), and Mera Gao Power (India) have started to accelerate their customer acquisition rates. Prominent early-stage venture capital firms (Khosla Ventures, Vulcan Capital) and strategic investors (­Solar City, Schneider Electric)

It often seems as if there are more conferences and reports about access to energy than there are ­electrified villages in all of sub-Saharan Africa. limited light from four LED light bulbs, plus an outlet to charge their mobile phone, for $7 per month. It’s a great deal for customers, and it’s good business for the DESCO. This is a big market to capture: In subSaharan Africa, households collectively spend more than $10 billion every year on lighting alone. What’s more, DESCOs don’t need to create demand for a new offering; they need only shift the spending that energy-poor customers already lavish on inferior services. So why haven’t people adopted the DESCO model on a large scale before now?

The big change that has transformed the situation over the past five years is the proliferation of mobile phone services. Consider how a DESCO operates: The company installs numerous small, inexpensive ­village grids, or numerous solar home systems in rural areas, and customers pay for services in small amounts over time. For this business to be profitable, the DESCO needs to minimize its costs for maintenance, customer service, and payment collection.

have begun to enter this emerging sector.

But there are important obstacles that block expansion of the DESCO model.

The DESCO sector is in its infancy. In sub-Saharan Africa, there about a dozen companies that pursue the DESCO model.

The largest of them (M-Kopa) has about 75,000 customers; the entire sector serves fewer than 250,000 households. (Remember: The region is home to more than 125 million households without access to ­energy services.) And, to our knowledge, none of the companies that are pursuing a DESCO model has yet reached a true break-even point—let alone profitability.

To reach a meaningful scale, the DESCO sector needs to attract support from several important entities.

In the near term, the sector needs entrepreneurs who recognize the potential of the DESCO model and who are ready to adapt it to markets such as sub-Saharan Africa. The sector also needs risk-tolerant ­c apital—capital that ranges from grant funding to commercial venture financing.

Equally important, the sector needs skilled investors who can manage that capital and work with entrepreneurs as they grow their businesses. In the medium term (one to two years from now), the sector will need institutional investors who are willing to fund the capital-intensive DESCO model in the same way—with debt capital—that they supported the microfinance sector after it graduated from a nonprofit activity into a robust commercial endeavor.

Before investors will deploy serious capital, however, governments need to revamp their approach to regulating energy services for people without access to a national grid.

Regulators need to shift away from setting universal rate structures that apply to all energy providers. Those rate structures protect customers from utilities that operate as a monopoly. But in a market where competition exists—and the DESCO sector is such a market—regulators should enable customers to make their own choice.

In particular, regulators need to recognize that pricing for DESCO services functions in a way that is fundamentally different from how pricing works in a traditional, grid-based utility system. Recall the example that we used earlier: A DESCO charges $7 per month for the use of four LED lights, together with mobile phone charging. Because of recent gains in energy efficiency, the DESCO uses only about one kilowatthour per month to deliver that service. So if regulators mandate a rate of (say) 30 cents per kilowatt-hour, they reduce the revenue of the DESCO by more than 90 percent. In effect, they make it impossible for DESCOs to operate. As a result, customers will have no option but to continue paying $10 per month for kerosene light.

Ten years ago, building a business around mobile phone services in sub-Saharan Africa seemed like a crazy idea. By comparison, the idea of building a business around the DESCO model seems obvious—so much so that, in our view, it’s only a matter of time before people in every African household will use a DESCO service to charge their mobile phone at home. n

Illustration by anna parini

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Stanford Social Innovation Review / Fall 2014

Equal Effort Behind the recent advance of gay marriage rights lay a decade of careful planning and diligent collaboration.

By Sylvia Yee

Illustration by anna parini

T

en years ago this fall, the fight for marriage equality for gay and lesbian couples in the United States looked like a lost cause. When Massachusetts became the first state to extend the freedom to marry to same-sex couples, in May 2004, the reaction from opponents was fast and furious. Within six months, voters in 13 states ­approved amendments to their state constitutions that banned same-sex marriage, bringing the number of states with such amendments to 17.

Fast-forward to 2014. Same-sex marriage is now legal in 19 states and the ­District of Columbia. It’s been a truly stunning shift.

Ten years ago, 2 percent of the US population lived in a marriage equality state; today, more than 40 percent of Americans do. One year ago this summer, moreover, the US Supreme Court ruled that the federal government must treat same-sex married couples equally under the law, no matter where they live.

How did this turnaround happen? How did marriage equality shift from what many considered to be a fringe issue—and a politically charged one as well—into a mainstream concern that now draws support from a majority of the American population? As an early funder of the marriage equality movement, I have had a front-row seat from which to ­observe this transformation. (In 2001, my organization—the Evelyn and Walter Haas, Jr. Fund—became the first foundation to make marriage equality a priority.)

There are, of course, enormous cultural factors in play—the rise of a more socially tolerant younger generation and the increased visibility of gay people in

mainstream media, for example. But in my view, the turnaround resulted in no small part from the way that gay rights leaders bounced back after the 2004 defeats and came together around a long-term, crossorganizational strategy for social change.

There is still a great deal of work to do to secure equal marriage rights across the country. Even so, the success of the marriage equality fight over the past 10 years holds important lessons for leaders and funders of other social change movements.

All Intents and Purposes

Reflecting on the twists and turns in the drive for marriage equality, I believe there is one overriding factor that has enabled the progress of the past decade. That factor is intentionality. After surveying the wreckage of 2004, funders and their partners in the

gay and lesbian rights movement launched a deliberate effort to turn things around.

Among the critical components of this effort were a common game plan, a collaborative approach to funding the movement’s work, and a set of shared messages that helped generate public support for change.

Intentional planning | The months after November 2004 were a dark time for the movement to promote gay and lesbian rights.

Many participants in the movement doubted that pushing for marriage equality was the way to go. They said that such a push was premature or that other fights—such as ­securing basic civil rights protections—were more important. But two arguments tipped the scales in favor of making marriage a priority: First, marriage is the gateway to more than 1,000 other rights and benefits conferred by the federal government, from Social Security survivor benefits to the ability to sponsor a spouse for immigration. And second, winning the right to marry would provide a marker of social acceptance that would lead to other advances toward true equality for gay and lesbian people.

But the long string of losses at the ballot box taught funders and movement leaders that something had to change. In response, the Gill Foundation, the Haas, Jr. Fund, and other foundations supported a process in which 22 movement leaders worked to craft a new game plan—a strategy that aimed to achieve marriage rights (or some other form of relationship recognition) for same-sex couples in 30 states within 20 years. This 20-year plan, which still guides the movement today, brought an unprecedented level of focus to the work of advancing marriage equality across the United States.

Intentional alignment

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The new strategy focused on reaching a tipping point by moving more and more

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Sylvia Yee is vice president of programs at the Evelyn and Walter Haas, Jr. Fund. Over the past 12 years, the Haas, Jr. Fund has invested more than $60 million in support of the fight for marriage equality and nondiscrimination against gays and lesbians.

states into the marriage equality camp. Although the strategy involved making painful choices about which states to target, it also allowed diverse players—foundations, 501(c)(4) donors, legal groups, and state and national organizations—to follow a common game plan. We did so in part by creating or strengthening collaborative funding arrangements. Too often, funders act separately to support groups whose work may be uncoordinated with (or even redundant with) the work of other players. In this case, however, funders deliberately aligned their investments with consensus priorities that were part of a bigger plan.

One vital source of pooled funding has been the Civil Marriage Collaborative, an entity created in 2004 by some of the same groups that launched the 20-year plan. The collaborative has awarded nearly $20 million to support research, public education campaigns, and a wide range of other activities. At a time when foundations often come under fire for pushing collaboration on grantees without taking the same pill themselves, the Civil Marriage Collaborative provides an example of funders and grantees coming together to advance a shared strategy for change. According to Funders for LGBTQ Issues, foundation support for marriage and civil-union advocacy grew from slightly more than $2 million in 2002 to nearly $12 million in 2012.

One organization that has played a crucial role in aligning the movement is Freedom to Marry. Started in 2001 with a grant from the Haas, Jr. Fund, Freedom to Marry has become the unifying voice for marriage equality nationwide. It now attracts broad foundation and individual donor support, and its staff—starting with its founder and president, Evan Wolfson—includes some of the movement’s most seasoned and successful strategists.

Intentional messaging | As the marriage equality movement set out to work toward its 20-year goals, it soon became clear that the messaging that advocates were using to talk about marriage wasn’t working. For many years, movement leaders had framed

Visit ssireview.org to learn more about the Haas Jr., Fund and the marriage equality movement.

3“What’s Next for the Marriage Movement” blog post 3“The Haas, Jr. Fund’s History With Marriage Equality” timeline

their effort in terms of “equal rights under the law.” Messaging tended to highlight the many rights and benefits—including rights as basic as hospital visitation—that restrictions on marriage had denied to gay couples. The losses of 2004 and afterward showed that this argument was falling flat with the public.

In 2006, the Haas, Jr. Fund and several partner organizations made a significant investment in psychographic research that explored what really goes on inside people’s minds when it comes to marriage equality.

On the basis of that research, my colleagues

with the movement’s loss on Proposition 8, a ballot initiative in California that amended the state’s constitution to deny same-sex couples the freedom to marry. Following that defeat, it would have been natural for people in the movement to rethink their goals and priorities. After all, if the movement couldn’t win in California—which has the largest LGBT population of any state in the country—then what hope did it have in other states?

But instead of changing course, the movement doubled down on its 2004 plan.

On multiple fronts, funders responded to

The success of the marriage equality fight over the past 10 years holds important lessons for leaders and funders of other social change movements. and I arrived at a crucial insight: When we straight people think about marriage, we don’t think about hospital visits or taxes or dental plans. We think about love, family, and commitment.

These findings led the movement to change the language and the imagery that it uses to communicate with the public about marriage equality. Advocates, for example, have become adept at sharing stories of gay and lesbian couples who want to marry not so that they can gain new rights and benefits, but for the simple human reason that they love each other. The coordinated use of such messaging has contributed to dramatic gains in public support for marriage.

This shift in messaging has also had a huge impact on gay people: It has enabled them to claim the issue of marriage equality directly and emotionally. As a result, they are now able to find and use their voice both within their communities and in the media.

All Hands on Deck

The intentionality of the marriage equality movement has enabled participants to stick together through many ups and downs over the past decade. A low point came in 2008

the Prop. 8 loss by increasing their investment in the fight for marriage equality.

As 501(c)(3) foundations stepped up their support for public education, research, and organizational infrastructure, a separate group of 501(c)(4) donors worked on lobbying legislators and funding initiative and electoral campaigns. Even though these groups of funders were not allowed to coordinate their activities, they shared the same core vision and strategy.

The results speak for themselves. The patient, deliberate, and strategic approach of the marriage equality movement has yielded a steadily growing roster of wins at the state level. In November 2012, for example, voters in four states embraced the freedom to marry at the polls—a sea change from the series of defeats that the movement suffered in 2004. And California, too, has become a marriage equality state.

The work of the movement is not over.

Despite state-based wins and despite a wave of pro-marriage federal court decisions, most Americans still live in states that deny same-sex couples the freedom to marry. But the finish line is in sight, and a plan to reach it is in place. n

Stanford Social Innovation Review / Fall 2014

ADRIENNE DAY is a journalist based in

H I G H L I G H T S F R O M S C H O L A R LY J O U R N A L S / B Y A D R I E N N E D AY

n June 2014, the Stanford Center on Philanthropy and Civil Society (Stanford PACS), the academic home of SSIR, hosted its inaugural Junior Scholars Forum. The forum brought together young researchers—graduate students, postdoctoral fellows, and junior faculty members—whose work covers civil society, the nonprofit sector, and philanthropy. The purpose of the event was to increase the sense of intellectual community across disciplines and to support high-quality research.

In this edition of Research, we are delighted to collaborate with Stanford PACS in highlighting work by a rising generation

of scholars—scholars who combine academic rigor with a passion to do relevant research. Making findings from a broad range of scholarly work accessible to our readers has been a guiding principle of SSIR since its beginning. In that spirit, we here offer reports on research papers by four scholars who participated in the Junior Scholars Forum. Their work on global philanthropy, the evolution of fair trade, the multiple narratives that inform international development, and the role of social work in urban China represents state-of-the-art research and provides important insights for practice. —JOHANNA MAIR, Academic Editor of SSIR

to constrain fair trade.

“A lot of the decolonization processes happened after World War II, when fair trade was just getting under way,” says Shorette. “The British worked to set up economic and political institutions so that their colonies would be successful following independence.

The French and Portuguese really didn’t. They fought wars to keep those colonial relationships, and when [those wars] ultimately ended, they more or less severed ties with their colonies.” Another factor that correlated strongly with fair trade activity during the direct sales era was the presence of the US Peace Corps: The more Peace Corps activity there was in a country, the more robust its fair trade market was likely to be.

The advent of certification changed all that. “After the market got reorganized around the labeling system, colonization and Peace Corps ties no longer mattered,” says Shorette. “Even if you have a million Peace Corps volunteers in a country, it doesn’t predict any more or less fair trade activity.” Instead, what

countries from 1970 to 2010. She then used a complex statistical regression to model changes in the level of fair trade activity in each country. “I expected the transition from a direct sales network to labeling to be important, but I didn’t expect it to have such a profound effect,” Shorette says. “[Labeling] doesn’t just enable the market; it changes how everything else affects the market.”

A hallmark of Shorette’s research is that it focuses not so much on the consumption of fair trade products as on their production. “What I really like about her paper is that it fills in the back story about what’s necessary for people to produce fair trade goods,” says Emily Barman, an associate professor of sociology at Boston University, who studies market-based efforts to improve social welfare. That information is crucial, Barman notes, for those who are “trying to figure out how to grow these types of markets, and how to grow other market-based solutions—such as impact investing or microfinance—to social problems.” ■

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S O C I A L LY R E S P O N S I B L E BUSINESS

How Fair Trade Grew rom coffee shops to grocery aisles, products that feature a Fair Trade logo are now ubiquitous in developing countries. But that’s a relatively recent development. Although the fair trade movement emerged in the 1950s, the current system—one that is built around certification and labeling—didn’t come along until 1987. Before labeling, only people who had connections to a direct sales network could buy fair trade goods.

Kristen Shorette, an assistant professor of sociology at Stony Brook University, has studied the factors that have constrained or enabled the fair trade movement. During the direct-sales era, she has found, one factor that determined the amount of fair trade production in a given country was its experience of being colonized by a European power. A legacy of British colonization tended to enable fair trade markets, whereas a legacy of French or Portuguese colonization tended

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ILLUSTRATIONS BY BEN WISEMAN

New York City. She has written for numerous publications and serves as contributing editor at Demand, a publication of the American Society of Mechanical Engineers.

now predicts a high level of fair trade production is whether a country has ties to international NGOs—particularly those that promote human rights and environmental conservation. That’s because certification systems have become an increasingly common way to advance those goals. “The move to labeling negates the effect of international political ties, but it heightens the effect of being connected to world society,” says Shorette. Links to INGOs “don’t cause fair trade,” she explains. “But they are an indicator that a country is more in tune with global culture.”

Shorette located a list of all producer associations that belong to the World Fair Trade Organization, determined when each of them was founded, and compiled data on how many of them were present in 113

Kristen Shorette, “Institutional Foundations of Global Markets: The Uneven Emergence and Expansion of Fair Trade Production, 1970-2010.”

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PHILANTHROPY

As Giving Goes Global cholars have been studying US charitable activity ever since Alexis de Tocqueville wrote about the power of “voluntary associations” in his book Democracy in America.. But relatively little scholarship has focused on charitable organizations outside the United States.

Meanwhile, those organizations have been steadily growing in number. What accounts for that growth?

Wesley Longhofer, an assistant professor of organization and management in the Goizueta Business School at Emory University, studies worldwide philanthropic activity and focuses in particular on grantmaking foundations.

His current research has two parts. The first part draws on information gleaned from the World Values Survey (WVS), a cross-national survey designed to capture differences in values and how those values relate to political and social indicators.

In a “wave” of WVS conducted from 2005 to 2008, respondents were asked about their membership (or lack thereof) in a charitable or humanitarian organization. Using WVS data from 35 countries, Longhofer examined the factors that influence people to join a charitable organization or to start a charitable foundation. Among the factors that he reviewed are age, employment, income, church attendance, and an attribute that Longhofer calls

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“cosmopolitanism”—that is, the degree to which people see themselves as part of a world community. He also looked at how the occurrence of a natural disaster affects membership in charitable organizations.

Individuals, Longhofer discovered, are motivated to join a charity or to start a foundation not when disaster strikes or when they become aware of an unmet need, but as a result of cultural expectations about how people should confront social problems. He attributes the expansion of philanthropic activity to what some scholars call a “global moral order”— to a framework that values individual virtue and champions voluntary associations as a vehicle for advancing social justice and human rights. “I found no evidence that foundations are a response to a crisis or a need,” Longhofer says. Instead, they arise from a “belief that virtuous organizations matter,” he explains: “We praise virtue, and so we join virtuous organizations like NGOs.” And the same pattern, he suggests, holds for the creation of charitable foundations.

In the second part of his research, Longhofer examines the role played by grantmaking organizations in 106 countries between 1970 and 2005. To do so, he performed a statistical analysis of data taken from the Europa International Foundation Directory, which features descriptive information on more than 2,500 foundations, trusts, charities, and other grantmaking entities around the globe. He found that organized philanthropy is increasing in places where it previously had only a modest presence—in India, for example, and in parts of the Middle East. The foundations that are emerging in those regions tend to resemble their US counterparts. Software entrepreneurs in Bangalore, for example, “often cite [Mahatma] Gandhi and [Bill] Gates as their two models” for charitable activity, Longhofer says. “International norms really matter,” he adds. “Organizations are now trying to harmonize philanthropic laws so that it’s easier to set up foundations across countries.”

One notable finding from Longhofer’s research concerns the importance of large crossnational institutions such as the Clinton Global Initiative.

Those organizations provide a critical source of legitimation for organized philanthropy, and they deserve more attention than they have received so far. “The global humanitarian system is becoming much more complex,” Longhofer says. “It’s important for scholars to map out the changing landscape of that global system.”

Dennis R. Young, a professor of public management and policy in the Andrew Young School of Policy Studies at Georgia State University, echoes that view. “What happens in philanthropy at the national level is affected by what’s happening in the world,” says Young, who notes that Longhofer’s research helps to illuminate that process.

“Philanthropy is increasingly significant in [many] parts of the world, and it works in a global context. There are connections that you can’t ignore if you really want to understand it.” ■ Wesley Longhofer, “Institutional Origins of Global Philanthropy.”

CIVIL SOCIETY

Social Work as a Social Wedge n democratic societies, social work has a long history as a formal profession. But in China, social work began to emerge only eight years ago, after the state passed legislation that called for “a battalion of social workers to construct a harmonious socialist society” and for the institution of a national social work exam for university graduates. That legislation paved the way for the emergence of a new kind of non-governmental organization—the social work agency, or SWA—in urban China.

Registered with the state but enjoying a degree of institutional independence, SWAs are staffed largely by young social workers who embody values that favor the advance of civil society.

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The scholarly papers covered in this edition of Research are as yet unpublished. To learn more about them, readers can contact the author of each paper: Ling Han (L2han@ucsd.edu), Wesley Longhofer (wesley.longhofer@emory.edu), Alison Schnable (schnable@princeton.edu), and Kristen Shorette (kristen.shorette@stonybrook.edu).

So argues Ling Han, a doctoral candidate in sociology at the University of California, San Diego, who studies SWAs and how they are helping to bring about social change in China. Traditionally, she explains, the provision of social services has been the responsibility of “community residents’ committees” (CRCs), which are staffed mainly by state retirees and which act on behalf of work units and local governments.

But in recent years, SWAs have begun to supplement the work of CRCs. “Right now, the CRCs are having difficulties accommodating everyone, so the SWAs are performing services, such as for the elderly or the young,” says Han. “The SWAs fill in for [the local] government and, at the same time, try to incorporate some of their expertise into this work.”

The SWAs have a structural advantage over most

NGOs that operate in China.

Unlike other NGOs, they are funded and tacitly endorsed by the state. Yet their work does not necessarily reflect the state’s core values. In effect, they occupy a unique intermediary role between the state and the Chinese people. As a result, Han suggests, they are in an ideal position to embed the humanistic values of their field—values such as social justice and personal empowerment—into the provision of urban social services. The SWAs occupy a “contested” space in China, according to Han: “The state wants the SWAs to resolve social tensions, and the SWAs want to advance their profession.”

For her research, Han selected nine organizations from a database of 63 SWAs in Beijing. To study those groups, she used qualitative research methods, including in-depth semi-structured interviews and participant observation techniques. (In some cases, that is, she accompanied social work professionals in the field as they implemented their projects.)

Han found that although SWAs enjoy a high degree of leverage in the service-provision sector, they have yet to take full advantage of their expanding role within Chinese society. “The SWAs need to set up more specific objectives, especially about how to advance their professional autonomy,” she says.

Han’s research covers a development that, though still in its early stages, could have

a profound effect on Chinese civil society. “This kind of community-building effort was rare before [the rise of the SWA]. There were very few organizations that the government trusted to deliver such services,” says Meng Zhao, an assistant professor of organization and strategy at the Moscow School of Management Skolkovo. SWAs, he suggests, “represent a very important group of organizations that may grow into something very powerful and interesting in the next couple of years.” ■ Ling Han, “Contested Social Work: Service-Provision NGOs and Community Change in Urban China.”

INTERNATIONAL DEVELOPMENT

The Stories That NGOs Tell n 1990, there were about 900 US-founded nonprofit organizations that provided international development aid. Since then, more than 10,000 such non-governmental organizations have entered the field. Inexpensive international flights, the advent of email, and near-universal cell-phone coverage have enabled the proliferation of small, relatively low-budget organizations around the globe.

Recent research suggests that these new organizations are on the whole very different from the Oxfams and UNICEFs of yore. Most of them are less than 25 years old, were started by people who are neither international development professionals nor trained aid workers, and are sustained by volunteers

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rather than paid staff members, according to Allison Schnable, a doctoral candidate in sociology at Princeton University.

“Because these are not bureaucratized, professional organizations, they are not approaching development in the same way as are the experts in [Washington] D.C.” and elsewhere, Schnable says.

In her work, Schnable distinguishes between two “narratives” that NGOs tend to use.

Older, more traditional aid organizations follow an “elite” narrative that focuses on building legal and political institutions. That narrative is also prevalent in academic institutions and in official development agencies. Newer, more volunteer-driven organizations, meanwhile, promote a “popular” narrative that downplays institution building in favor of providing goods and services, or of developing the religious, educational, or economic capabilities of aid recipients.

“The [popular organizations] tend to see aid in terms of replicating the sort of mobility they’ve had in their own lives: What is it that’s missing in Tanzania that we have in my home town?” Schnable says. So they tend to provide resources that they perceive as lacking within a beneficiary community, or else—through education, business training, or religious instruction—they try to mold aid recipients into the kind of people who (in their view) can break out of the cycle of poverty. The “elite” narrative, by contrast, emphasizes the value of providing technical expertise and the role that

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competent, democratically accountable institutions play in providing aid. Elite groups, Schnable explains, “are concerned with how aid affects the government or the broader macro-economy” of a country.

To conduct her research, Schnable used IRS records to identify more than 11,000 USfounded NGOs that were active at the end of 2011. She also interviewed 43 people from five grassroots NGOs that she selected for in-depth case studies. For 150 organizations, moreover, she carried out a content analysis of each group’s website. Pairing that analysis with the IRS data, she studied the relationship between the age, the income level, and the

approach to aid of the various NGOs in her sample. “What I saw on their websites, and especially in interviews with these grassroots organizations, is that they have much less interest in—and even a real impatience with—the [elite] institutions,” Schnable says. “Their idea seems to be that you have to provide these services now, develop these sorts of people now, and the rest will come later. It’s a real contrast to the ‘expert’ way of talking about aid today.”

That popular narrative can be very limited in scope, she observes: Groups that focus on immediately providing goods and services often unintentionally compromise broader goals

october 29, 2014

because they undermine the growth of local institutions and they lack a blueprint for longterm sustainable development.

Ann Swidler, professor of sociology at the University of

California, Berkeley, notes that (to her knowledge) Schnable is the first scholar to categorize and analyze all US-founded NGOs. “As Schnable points out, these [newer grassroots organizations] often neglect factors—like political corruption and lack of physical infrastructure—that stand in the way of development,” Swidler says. “Well-intentioned volunteers and donors also assume that they can transform people simply by educating or ‘enlightening’ them about better ways to live. Most do not provide the sort of consistent, long-term material support that might really change people’s lives.” ■ Alison Schnable, “Exporting Bootstraps: Aid Narratives and Grassroots NGOs.”

I Stanford UNIVERSITY

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Stanford Social Innovation Review / Fall 2014

TIMOTHY OGDEN is managing director of the Financial Access Initiative at NYU and executive partner at Sona Partners, a thought leadership communications firm. He has edited numerous business books and is co-author of Toyota Under Fire (2011).

REVIEWS OF NEW AND NOTABLE TITLES

No Value REVIEW BY TIMOTHY OGDEN

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orried that capital accumulation is driving ever-greater wealth inequality? Concerned that we have already lost the climate change battle? I have good news. According to Jeremy Rifkin, author of The End of Work and The Third Industrial Revolution, you can rest easy. In his new book, The Zero Marginal Cost Society, Rifkin argues that we are about to enter an era when the Internet of Things, “free” energy, and what he calls “the collaborative commons” will make anything and everything available for practically nothing.

Together, he contends, those developments will overthrow capitalism as the world’s dominant economic model.

If you think that idea sounds silly, well, you’re right. And Rifkin expounding on it for 300-plus pages of 10-point text—all of it buttressed by 770 endnotes—doesn’t make it any less so. To be fair, those 770 source notes offer a comprehensive tour of trends that will definitely shape the near future.

But Rifkin’s assembly of this information into a narrative hits all the low notes that are common to “big think” books: ■

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Attacking nebulous concepts that you don’t define? Check.

Name-dropping your consulting company, which just happens to specialize in charging people to solve problems that you’ve invented? Check.

Writing jargon-filled sentences that might mean anything (or nothing)? Check.

Invoking historical inevitability to mask poorly supported premises? Check.

Ignoring issues of political power and economic incentive that shape our daily lives and our future? Check.

I found Zero Marginal Cost Society to be so utterly unconvincing that I have to take seriously the possibility that I simply don’t get it. I kept going back to the book, looking for an insight that would make everything click. I never found it.

THE ZERO MARGINAL COST SOCIETY: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism Jeremy Rifkin 356 pages, Palgrave MacMillan

Central to the book is the idea that developments such as the emergent “sharing economy” will overthrow capitalism. “The Collaborative Commons is ascendant,” Rifkin writes, “and, by 2050, it will likely settle in as the primary arbiter of economic life in most of the world.” By his reckoning, we’re moving into a post-consumption society in which the ownership of stuff no longer matters. Who needs to own a chainsaw, or even a car, when you can share one? As Catherine Rampell pointed out recently in The Washington Post, even preschoolers recognize that companies like Uber and Airbnb have nothing to do with sharing as most of us understand it. Someone who owns capital charges others for temporary access to it. How others pay that charge—through barter, with currency, or by some other means—is not particularly relevant. The so-called sharing economy is still capitalism.

What is relevant is how people accumulate value that they can exchange for what they need and want. Rifkin believes that large, centralized organizations will crumble as customers and employees realize that those organizations no longer serve a purpose. “What if,” he asks, consumers “began to use the distributed, collaborative nature of the Internet to create lateral economies of scale”? What if they could “[skip] all the

middle men, markups, and margins on the traditional capitalist value chain”?

“What if,” indeed. A future in which most people are micro-entrepreneurs (to borrow a term from the international development sphere) is not likely to be a bright one. That, as Rifkin notes, is what the world looked like before the Industrial Revolution. There’s a reason that people desperately tried to escape that world—and that people in developing countries are still trying to escape it. In developing economies, micro-entrepreneurship (farming, petty trading, cottage manufacturing) accounts for a large part of many families’ income, and most people in that situation report that what they want is not to expand their microenterprise, but to land a secure, decent-paying job.

In developed countries, meanwhile, micro-entrepreneurship has returned in the form of uncertain jobs and lingering unemployment. Those who have been able to use Etsy, Uber, or TaskRabbit to find a happy replacement for a traditional job are few and far between. As other writers have noted, hustling to survive in the sharing economy that Rifkin lionizes is as likely to be soulcrushing as not.

Still, Rifkin argues, perhaps it won’t be so hard to scramble for what you need once everything has become practically free. He cites John Maynard Keynes’s vision of a future in which little labor will be required to meet everyone’s basic needs and people will spend much of their time in leisure— and he says that this vision will soon be realized. Yet the Keynesian utopia has failed to materialize for a very simple reason: There is always something more to desire.

Barter and sharing economies are tremendously inefficient; that’s why they have only a niche presence today. Technology reduces some of those inefficiencies, but not by any means all of them. Rifkin suggests that cooperative associations will soon overthrow corporations as the dominant way to organize activities that require large amounts of capital and coordination. The reason that corporations are so prevalent is that they provide the cheapest way to align the competing

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CATHERINE DIMARTINO is an assistant professor of teaching, literacy, and leadership at Hofstra University. Previously, she worked at the Rand Corporation, held a fellowship at Educational Testing Service, and was a social studies teacher at the middle school and high school level.

interests of multiple stakeholders—from investors to managers to employees. Nothing about the Internet, solar power, or 3D printing will change the fact that individuals have conflicting needs and desires.

In fact, there is a remarkable technology for turning competing interests into the common good, but it isn’t new: markets. Markets are imperfect, but they work better for this purpose than most alternatives in most situations. Even for Rifkin, the future consists of people trading in markets. After all, people still need a venue in which they can “share,” barter, and trade. In other words: Meet the new boss, same as the old boss. ■

Taking a Charter Flight REVIEW BY CATHERINE DIMARTINO

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he third paragraph of On the Rocketship, by Richard Whitmire, starts with a telling phrase: “Few startup guys (and I use ‘guy’ throughout the book as a mind-set, not a gender designation).” Indeed, this book is primarily about guys— most of them white, most of them wealthy, all of them entrepreneurs—who seek to improve public education for poor, minority students. Whitmire focuses in particular on John Danner, cofounder and CEO emeritus of Rocketship Education, a network of charter schools that aims to become the “disruptive innovation” that will “[topple] outdated school models.” Reed Hastings, founder of Netflix, and Don Shalvey, founder of Aspire Public Schools, also appear as important players in the story. If you are a Silicon Valley entrepreneur turned educator, this book will fascinate you. If you are a prospective charter school founder, the examples in the book will give you some guidance. If you are an experienced educator, the hubris of the book and of the people in it will frustrate you.

Whitmire begins by recounting Danner’s evolution from being the CEO of an early

ON THE ROCKETSHIP: How Top Charter Schools Are Pushing the Envelope Richard Whitmire 334 pages, Jossey-Bass

Internet company called NetGravity to serving as a Teach for America teacher to launching Rocketship in 2006. Danner, drawing on his experiences in Silicon Valley, arrived at a vision that embraces blended learning—a model that combines the use of personalized software with standard classroom instruction. At Rocketship Mosaic, an elementary school in San Jose, Calif., 16 teachers can accommodate 630 students; a traditional elementary school would require 21 teachers to serve that population. Finding the right technology to support Danner’s vision was a challenge in the early days of Rocketship, but the company now works closely with DreamBox Learning, an online software vendor that focuses on math instruction.

(Danner sits on the board of DreamBox.) Ethnographic in nature, On the Rocketship features vivid accounts of the journey undertaken by Danner and other Rocketship stakeholders, and it offers memorable cautionary tales that show how and how not to build a charter school network. Whitmore describes in great detail Danner’s efforts to secure funding and support from fellow Silicon Valley millionaires, his and his colleagues’ fights with local school boards over the location of charter schools, and the community organizing necessary to recruit parents who will send their children to a Rocketship school. Other charter entrepreneurs will derive valuable lessons from the book.

At the level of style, though, the book will disorient readers. Whitmire interrupts his in-depth narrative chapters with italicized, half-page-long updates about the charter

school movement in general. He would do better to place these vignettes in a separate chapter or to display them visually as part of a timeline about the movement.

More important, Whitmire makes a bold, large-scale policy argument without offering the large-scale data to back it up. In the current political climate, the difference in achievement scores between charter schools and traditional public schools is hotly contested. Whitmire, however, bases his analysis on a narrow selection of achievement data—in effect, on a sample size of one. The subtitle of the book should be in the singular: “How One Charter School Organization Is Pushing the Envelope.”

Even within his narrow data set, moreover, Whitmire skews his presentation of achievement scores. Take his comparison of achievement levels of two elementary schools in San Jose. “At Rocketship Mateo Sheedy, 76 percent of students test at proficient in and above in reading, 93 percent in math,” he writes. “That compares to 54 percent of Washington [Elementary School] students scoring proficient in reading, 56 percent in math.” Those figures are from 2012, and Whitmire uses them to argue for opening additional Rocketship schools in the Washington Elementary catchment area. Yet he relegates the data for 2013 to an endnote.

That year, as it turns out, scores at Mateo Sheedy dropped significantly (to 57 percent for reading and 82 percent for math). These results, to be sure, are still better than the scores of students at Washington (52 percent for reading and 60 percent for math), but they raise the question of whether Rocketship’s early success is sustainable. (In fact, according to a recent Economic Policy Institute study, test scores at all Rocketship schools have fallen over the past four years.)

Whitmire’s unlimited access to the principal figures in the charter school movement, coupled with his less than forthright use of endnotes, piqued my curiosity. I flipped to the acknowledgments section, where I learned that the Eli and Edythe Broad Foundation and the Doris & Donald Fisher Fund—two leading charter school champions—contributed

Stanford Social Innovation Review / Fall 2014

CATHY CLARK is director of the CASE i3 Initiative on Impact Investing at Duke University. She is a co-author, along with Jed Emerson and Ben Thornley, of the forthcoming book The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism.

funding to Whitmire’s book project. I also learned that Joe Williams, a prominent charter advocate, advised Whitmire on developing the book. So On the Rocketship has a clear agenda: to further the charter school movement. The influence of these vested interests calls into question Whitmire’s journalistic objectivity, and it makes his book a work of advocacy rather than one that fully informs the public. ■

A Guide to “Good” Investment REVIEW BY CATHY CLARK

I

n 2008, the Rockefeller Foundation brought together a small group of global leaders at its conference center in Bellagio, Italy. Those leaders had a vision of unlocking billions of dollars in a quest to achieve both social impact and financial return. They fastened on a term for what they envisioned: “impact investing.” Since then, this term has enjoyed remarkable success. It manages at once to convey the rigorous discipline of investing and to evoke the tantalizing ideal of making an “impact.” Even though a great deal of what we now call impact investing has existed for decades, the new term has come to serve as a powerful beacon. It has also helped a diverse set of players—foundation officers in inner-city Baltimore, solar panel investors in Uganda, financial advisors in Hong Kong, pension fund investors in California—to see themselves as part of a common effort.

Which brings us to The Power of Impact Investing. Its authors, Judith Rodin and Margot Brandenburg, are the president and former senior associate director (respectively) of the Rockefeller Foundation, and they have led a multi-year, multimilliondollar effort to fuel a powerful investment movement. Their primary aim, they write, is to engage readers in that effort: “Most of all, we want you the share our excitement about the opportunities that are opening up

for investors. We want you not only to grasp the ‘how’ of impact investing but also to gain an understanding of the ‘why.’”

Indeed, the book serves as a welcoming invitation to join a global movement that uses investment dollars—as opposed to relying on government or philanthropic grant funding— to solve intractable social and environmental problems. The book includes many recent examples of impact investing, most of them drawn from field-leading organizations and projects that the Rockefeller Foundation has funded. (The CASE i3 Initiative on Impact Investing, which I direct, has been a Rockefeller grant recipient since 2011.)

The middle chapters of the book are what I found most compelling. A chapter devoted to “Impact Investing Opportunities” covers the potential recipients of capital, including social enterprises, social venture funds, and social impact bonds. The chapter ends with a brief discussion of the current mismatch between the supply of capital and the demand for it: Are there just not enough deals, or are investors mistakenly skipping over deals that need a little work to make them investable? Rodin and Brandenburg seem to lean toward the latter view. “For investors willing and able to roll up their sleeves, the sky may be the limit,” they write.

In a strong chapter titled “Support Systems,” the authors discuss performance measurement, legal organizational forms, public policy measures, and other essential building blocks of impact investment. Next, in “A Global Movement,” Rodin and Brandenburg survey the global and regional challenges that impact investors face. Their discussion of developments in Africa, East and Southeast Asia, India, and Latin America is rife with detail about institutions, people, and economic conditions in each market. They also write about trends that cut across regions: Lessons from investing in India are finding fertile ground in Africa, for example.

At the same time, the book is notable for what it does not include. Using a storyoriented approach rather than data-oriented approach, the authors provide very little information about financial performance

THE POWER OF IMPACT INVESTING: Putting Markets to Work for Profit and Global Good Judith Rodin and Margot Brandenburg 150 pages, Wharton Digital Press

or risk. And financially motivated investors will find little data here to convince them that impact investments should be part of their portfolio. The book will probably work best as a primer for investors who want to learn about this emerging field. That seems to be what the authors have in mind: They title their last chapter—rather than their first—“Getting Started.”

Unlike most previous writing about this field, the book succeeds at the level of tone and style. It’s forthright and free of jargon.

It elegantly weaves together stories of institutions and individuals who have discovered just how much impact their investments can achieve. It opens, for instance, with the tale of an investor who set out to be a philanthropist and then discovered that an impact fund would allow him to leverage his dollars in a more significant way. Nearly every chapter includes this kind of personal perspective.

The authors start by describing a problem faced by an investor or entrepreneur. Then, after discussing some aspect of the impact investing field, they invite readers to engage directly in that topic.

Rodin and Brandenburg give credit to many of the field’s pioneers, and they deftly explain the motivations of its leading players today. The broad accessibility of their book, I believe, will allow it to play an important role in spreading the message about impact investing to new audiences. Because the stories that the authors tell have universal appeal, I have no doubt that the book itself will have a big impact. ■

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Stanford Social Innovation Review / Fall 2014

I mages that inspire

The Gift of Life

W

ith approximately 250 million people, Indonesia has the fourth largest population in the world (following only China, India, and the United States). It also has the unfortunate distinction of having one of the fastest rates of growth for HIV/AIDS in the world. And the epicenter for HIV/AIDS in Indonesia is Papua, the country’s largest and easternmost province. Mama Yuli, pictured here holding two anti-retroviral (ARV) pills, is one of the fortunate ones. She contracted HIV in 2004 from her husband, who later died of AIDS, and has been on ARV drugs for most of the last decade. Yuli lives in the capital of Papua, Jayapura, and received assistance from Mother’s Hope Foundation, a local NGO based in the city. Most people with HIV/AIDS in Papua, however, are not receiving ARV treatment. Many of them are indigenous Papuans who are unaware of the availability of ARV therapy, are ostracized and don’t seek treatment, or live far from a health clinic. One organization that is trying to overcome these problems facing rural Papuans is Klinik Kalvari, which provides free HIV/AIDS testing and treatment to people living in the mountainous region of Wamena. —Eric Nee

Photograph by Andri Tambunan

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