Metrics drive behavior. The key performance indicators an organization uses to measure success, will inevitably become a guiding force for conduct. An example of metrics gone wrong would be the case study of Wells Fargo evaluating the success of their branch offices by using the metric of new accounts opened. This measure became such a driver that employees began opening accounts for current customers, without their knowledge, in order to report more accounts opened each quarter.
This metrics-driven malpractice ended up costing Wells Fargo more than $327MM in fees and class action lawsuits. What you measure matters, and it can drive both good and bad behavior.
For-profit companies exist in constant accountability to the market, while not-for-profit organizations have their own set of metric and behavior challenges due—at least in part—to a lack of economic accountability. Many not-for-profits simply use the saddest pictures of children in their marketing material, and donors open their checkbooks. Once the donation is made, very rarely is there a report of what that investment actually accomplished. That, however, is changing.
Access to data has become so ubiquitous that not-for-profits now have as much potential for more complex metrics as everyone else. This is great news for organizations whose work is effective and compelling, and bad news for organizations that have enjoyed an environment of little accountability for the method and amount of money spent.
One of the clients that Better Good Group has had the privilege to work with in this first year is Local Initiatives Support Corporation (LISC). They are a national organization operating in 41 states for the purpose of supporting projects to revitalize communities and bring greater economic opportunity to residents. They provide capital investment, strategy, and partnership to projects in the areas of education, housing, business development and financing.
Better Good Group has been contracted by LISC to help build and implement their strategy for the Pay For Success model. Through data distillation and targeted metrics we design a model that rewards not-for-profit organizations for their success and provides capital to scale high performing programs.
It has been exciting to be part of this innovation in social impact funding. For years not-for-profits have followed a very traditional fundraising model with little-to-no back-end accountability. Generous donors believe in the cause and choose to donate funds, but they rarely know whether those funds have led to the societal change that was promised.
Performance based evaluation—like Pay For Success—is allowing donors, foundations, and other sources of capital to see metrics-based evidence that their investment was worthwhile. This model is also helping not-for-profit organizations make a more compelling request for donations, as they are able to validate the results of each gift.
As donors get increasing access to data, they are able to better discern how and where to invest their generosity portfolio. This is absolutely the future of not-for-profit funding. An effective organization connects their core strategy to the evaluative metrics and aligns the entire institution around that strategy. Through our work with LISC, Better Good Group is able to be at the forefront of this foundational innovation in the not-for-profit economy.
The basic principle of performance-based funding is illustrated below.
Founder, Better Good Group LLC