All three sectors are undergoing a period of significant change.
The business sector continues to see low growth and is now considering this as a long term reality, rather than a few years of global financial slow down. A longer term low growth environment will require new ways of working as well as a change of expectations. Government is not able to keep up with the ever growing costs of the social, environmental and economic issues that we face and is considering approaches beyond privatisation and increasing taxation. The social sector is experiencing both funding cuts and a flattening in public fundraising and is turning to social enterprise and other innovations to address this.
One of the positives of of this situation is that the sectors are looking at greater levels of cross sectoral collaboration and innovation to find solutions. We are also seeing a greater focus on outcomes over outputs and ways in which those outcomes can be financed.
However, along with the innovation comes a fear of what this change will bring and whether we will be better or worse off. The social sector is particularly concerned about new payment by outcomes approaches and whether smaller organisations will be able to participate as their low cash reserves may exclude them. Whilst social impact bonds are clearly the domain of the larger organisations, payment by outcomes can be approached in the form of a continuum, with the creation of quality, measurable outcomes remaining the focus.
The first step on the continuum would allow small organisations to participate without taking any substantial risk. They could engage in an outcomes based approach, build capacity and receive a small financial incentive should they create the outcomes as agreed. Small organisations would have the option to choose to take increasing risk over time as appropriate or remain with a simple contracting by outcome approach. Benefits are still being created for government, as cost savings are not the only issue at stake in payment by outcome. Given the size of government spending, even contracting by outcome would be preferable as government would know that outcomes their spending is creating.
Beyond the equal opportunity to participate, the social sector is also concerned that measuring outcomes will simply be additive, and they will be obliged to measure and report on inputs, outputs and outcomes, thereby simply increasing the compliance burden in government contracting. Therefore, it will be essential that government adopt the complete approach and focus only on outcomes, leaving the management of inputs and outputs and the solution design to the provider.
A shift to outcomes will allow us to focus on and fund programs that create tangible impact in the lives of others. It will see an improvement in the return on the investment that government makes. But it will also redefine the relationship between sectors and this may be the most complex element of a payment by outcomes by outcomes approach.