The private sector is driven by profit – why aren’t we driven by impact?

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Is it really controversial to say that charities are insulated from the market dynamics that drive success or failure in the private sector? If you don’t like a product you’ll stop buying it. But if the homelessness charity you support doesn’t provide an effective, impactful service to its beneficiaries, well, how will you know? The “buyer” and the “consumer” of a charity’s products are rarely the same.

This should be an issue that charities openly acknowledge, not something that needs to be pointed out, as Dan Corry of NPC did at his recent RSA lecture. The lack of direct market forces doesn’t inevitably lead to ineffective services either – charities can, and some do, produce superb impact in spite of this. But it would help if the markets in which charities operate weren’t quite so hopelessly dysfunctional.

Bluntly, charities are not incentivised to produce impact – and, by impact I mean a positive and significant change in a beneficiaries’ life. They are not held accountable for this by their funders and supporters. Failure to produce the changes alluded to in mission statements are not punished by the withdrawal of funds (there are other reasons why that happens).

Success, even if it can be identified, is not necessarily rewarded. Growth is rewarded, as is aligning your organisation with the government of the day, or the objectives of a large grantmaker. As Dan Corry pointed out, much of the most creative thinking and effort in the charitable sector goes into fundraising. Fundraisers are always looking for a great story to tell – but it rarely ends up being about the proven impact of the organisation.

Is this because impact is hard to measure? I’d argue that it’s because impact is hard to make. The focus on impact measurement too readily assumes that impact is being made, if only we could find a way to attach a metric to it. In fact, too few charities manage their resources to produce impact (as opposed to managing for growth, or for funder satisfaction). The result is that the enthusiasm, passion, and good intentions powering the voluntary sector all too rarely translate into meaningful outcomes for their beneficiaries.

Funders – of all stripes – need to play their part here. How many grantmakers or government departments really “enquire within” when they fund an organisation – to find out the nature of the intervention, the quality of their performance management and data, the monitoring of individual outcomes and the feedback loops in place to get an individual beneficiary back on track. These things are what will tell you whether an organisation is capable of producing outcomes consistently for the people they claim to – and whether your funding could help them to improve further, or reach more people.

Changing funders is a lengthy work in progress. But of course, they can never be wholly, or even largely, accountable for impact. This rests in the hands of charities. Managing for impact – driving impact, as we at Impetus-PEF call it, is a choice that any organisation can make. It needs to be made by trustees and management teams, and implemented rigorously and ruthlessly at every level of the organisation.

It won’t happen overnight. But it will connect charities to beneficiaries in a way which managing for growth never can. Charities can’t solve the misaligned incentives of the philanthropic market on their own. But they can align their own efforts with the outcomes they want to produce much more effectively than most do now.

Impetus − The Private Equity Foundation
About The Author
Jenny North is Director of Policy and Strategy at Impetus-PEF. Jenny joined Impetus-PEF from Relate, where she served as Head of Public Policy for six years. Prior to this she held policy positions with Maternity Alliance and New Policy Institute. Her experience also includes working at the Home Office as a Crime and Policing Analyst. Jenny holds a degree in Philosophy and Theology from Oxford University. Follow Jenny on Twitter: @JayEeeEnn

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