Linking Pay for Success to Collective Impact Initiatives (Third Sector Capital Partners)

Across the country, a growing number of governments are contracting for human services on a performance basis. Many are implementing innovative cross-sector models like Pay for Success (PFS), with many more considering the model for services in their own communities. This increased appetite for Pay for Success (PFS) partnerships has redirected taxpayer dollars toward interventions that provide data-driven solutions for social impact.

Because PFS is well suited to complex social challenges, there are situations where it is unrealistic to expect a single service provider or intervention to address the multifaceted needs of a target population. Could PFS intermediaries codify an approach to supporting collaborative program interventions? Third Sector recently partnered with graduate students at the Harvard Kennedy School to explore this question, which has been a topic of interest at the school’s Government Performance Lab.

In recent years, Collective Impact (CI) has emerged as an alternative framework for partnerships among nonprofit service providers. In a frequently cited 2011 publication, FSG defined CI as “an innovative and structured approach to making collaboration work across government, business, philanthropy, non-profit organizations and citizens to achieve significant and lasting social change”. They explain that CI goes beyond formalized partnerships—it requires centralized data and governance infrastructure, dedicated staff, and structured processes rooted in results-based accountability. At its best, this arrangement yields a common theory of change, shared outcomes and indicators, and mutually reinforcing actions among all partners.

To date, CI has mainly proliferated among “cradle-to-career” partnerships in youth development and education, though local efforts demonstrate potential in areas such as public health and juvenile justice. While networked approaches to social services are not entirely new, the method has received increased attention thanks to high-profile efforts like Cincinnati’s Strive Partnership, Somerville’s Shape Up Somerville program, and the Promise Neighborhoods movement.

If effectively integrated, this pairing could unlock new possibilities for those working to fight some of society’s most intractable challenges.

CI and PFS offer a compelling foundation for performance based contracting with networked nonprofits, as they both emphasize cross sector partnerships, evidence based decision making, and long-term approaches to social problems. Key benefits from merging the frameworks include:

1. A Data Driven Feedback Loop. Applying performance-based contracting to CI would reward outcomes instead of activities. Rather than incentivize the delivery of specific services, a PFS-informed CI initiative would incentivize their performance. This increased accountability would scale up proven interventions, eliminate program redundancies and improve operational efficiencies among participating agencies. These efforts could also help fill service gaps that innovative CI efforts have begun to illuminate.

2. Reduced Project Design Costs. While PFS funders agree to pay for service delivery and project milestones, they do not typically support activities such as negotiations, needs assessments and staff training. These burdensome expenses could be mitigated by the “backbone agencies” that coordinate service delivery across CI partnerships. Practitioners could leverage economies of scale through these centralized entities, which perform administrative functions that could reduce program overhead.

To effectively blend the approaches, however, practitioners must remain mindful of the new challenges that a blended approach would introduce. An integrated approach would complicate the processes surrounding service provider selection, impact attribution, and stakeholder management. Given our analysis of each approach, we offer the following recommendations to funders and practitioners with an interest in combining the methods:

1. Redefine Success Metrics: CI initiatives often focus on population-level improvements (i.e. graduation rates), whereas PFS projects measure success at the individual-level for those in the target population (i.e. drop-out rates for high-risk youth). A blended model can bring the rigor of valuing improved outcomes inherent in PFS with a clearer path to scale through CI. While there are some tradeoffs between these measurement focuses, a shared approach can create accountability for delivering results to those most difficult to serve without losing focus on moving the needle.

2. Pilot with Backbone Agencies: PFS providers are usually selected through competitive bidding processes. Rather than having governments source each service delivery partner, PFS intermediaries should have the flexibility to partner with existing backbone agencies. Engaging with a centralized hub would facilitate specialized project planning and reduce the marginal transaction costs that accompany additional service providers.

CI initiatives offer access to additional data, contextual knowledge, and provide and opportunity for service providers to save resources. Likewise, PFS brings access to additional capital and a stronger focus on valuable outcomes for CI initiatives that may lack appropriate funding mechanisms. If effectively integrated, this pairing could unlock new possibilities for those working to fight some of society’s most intractable challenges.

Ernest Brown, Senior Analyst, works from Third Sector's San Francisco office.

Hayling Price is currently an MPP/MBA candidate at the Harvard Kennedy School and Harvard Business School.

For more information, please contact Ernest here.