Monday, December 8, 2014

25th anniversary guest blog series: The case for SIBs

Rough sleepers in London. Newly-released prisoners in New York. Foster kids in Manchester and unemployed immigrants in Belgium.

Four very different social issues, but with one important thing in common: they’re all the subject of new interventions funded by social impact bonds.

For the uninitiated, the basic principle behind social impact bonds is that rather than governments (or some other donor) funding a particular set of activities in the hope that it will lead to a certain set of outcomes, they instead define a set of outcomes up front – and only pay if those outcomes are achieved (usually in a set timeframe).

The provider then raises capital to cover the cost of the intervention from third party investors – who agree to invest on the basis that their returns will depend upon the success of the intervention. This is not a bond in the typical sense used by investors: it may be time-bound, but the risk/return profile is more like equity. The ‘bond’ here refers to the three-way contract between service commissioners (usually government bodies or donors), service providers and investors.

The concept is still relatively new, but it’s already gaining traction around the globe. As of the end of October, some 26 SIBs were in operation worldwide (of which Bridges Ventures’ funds have invested in seven), with dozens more in the pipeline. They span a diverse range of social issues, and have already raised around $120m in capital from a broad range of investors, including individuals, pension funds, foundations and investment banks.

So why all the fuss? For governments, the concept is attractive because it allows them to test new approaches to difficult social issues – and since they only pay for successful outcomes, the cost of failure becomes lower. When providers are being paid to perform a set of pre-defined activities, they have little room to experiment, and no incentive to surpass expectations. With SIBs, because the focus is on outcomes, providers have much more leeway to innovate in the way they deliver their service – and the better they do, the better the outcomes for beneficiaries and the more they get paid.

It’s also an attractive proposition for investors, for three reasons. An SIB can provide an opportunity to address the sort of social issues investors might not be able to access elsewhere in their impact portfolio (because these are usually state or donor-funded services). The link between payment and outcomes creates a direct alignment of interests between all the parties involved, which ought to increase the likelihood of success. And over time, the hope is that SIBs can deliver attractive risk-adjusted returns – in a way that is not necessarily correlated to the broader economic cycle. Taken together, this ought to draw in more private capital to help tackle difficult social problems.

Of course, there’s still plenty that can go wrong, especially since SIBs often involve relatively unproven interventions. To mitigate the risk, it’s vital that the SIB is structured properly up front, with the right incentives and metrics, and managed properly thereafter – which means that the provider has to have the right team, and that investors need to be very engaged and hands-on throughout (if they don’t have the capacity to do this themselves, they can use an intermediary, as Greater Manchester and Merseyside local authority pension funds have done by investing in Bridges’ Social Impact Bond Fund, for example).

Clearly there will be successes and failures in this early cohort. But judging by the pipeline of potential SIBs globally, policy-makers are enthusiastic about the idea, and not just because SIBs can bring in funding and new ideas.

Some of us believe that SIBs might turn out to be a more efficient way of commissioning public services. Many organisations across all sectors have already made the change from providing critical services in-house to buying outcomes they can better cost and monitor.  And they’re finding that when given the opportunity to be paid for successful outcomes rather than prescribed inputs, providers have developed and invested in entrepreneurial solutions – which ultimately leads to better and more cost-effective services.  If SIBs can have the same impact on public sector services, the scope for this market to grow may be beyond even the most optimistic forecasts.

Antony Ross is Partner, Head of Social Sector Funds at Bridges Ventures


About the series

OPM is celebrating its 25th anniversary this year, and as a public interest organisation, we’ve always contributed to the debate about the future of public services.

With this and the next general election in mind, we’ve asked a number of senior thinkers to give their views on the challenges and opportunities facing public services and society in the near future.

This is one of a series of guest blogs, which we’ll be adding to in the coming weeks and months. To read previous posts in the series, go to our news and comment page.

Monday, December 1, 2014

Social impact bonds: a little less theory, a little more practise

A few weeks ago OPM played host to a delegation of senior academics from Meiji University, Tokyo, as part of a research project funded by the Japanese Government into social impact bonds (SIBs). The purpose of their visit was to conduct empirical studies of social impact investments, especially SIBs, already implemented in the UK and US. Their aim was the launch of the first Japanese SIB in the hope that the Japanese government will adopt similar social impact investment schemes in the future.

At OPM we were in a unique position of being able to share with our Japanese colleagues what we have learned from evaluating two very different SIB models to date. The first evaluation was of what has now become widely known as the ‘Essex SIB’, based on the delivery of Multi-Systemic Therapy by the charity Action for Children to reduce the likelihood of children going into care. This was the world’s first SIB to be commissioned by a local authority and only the second to be implemented in the UK. The second SIB to be evaluated by OPM was the ‘Peninsula LIST Project’, which although still in its planning stage, is no less ambitious in its desire to experiment the commissioning of public services across geographical and sectoral boundaries in the South West of England.

Social impact bonds, or payment-by-results contracts designed to achieve specified ‘social outcomes’, have been much heralded for their potential to unlock private investment for services that government, and particularly local government, would not otherwise have funded. However, for all the hyperbole championing SIBs as the answer to our most intractable social problems when public expenditure is constrained, there has been a noticeable gap for some between the rhetoric and the reality. The SIB model is still very much in the embryonic stages of development, and given its short history this is hardly surprising.

Much of the narrative so far has been dictated by the unchartered territory that SIBs are exploring. There are 26 self–declared SIBs worldwide, with at least another 100 in development. They are being used in very diverse contexts – around the world and across social issues – in order to unlock better outcomes for vulnerable individuals. The first wave of SIBs have been experimental in nature. OPM’s evaluations reveal that lengthy periods of planning were not only required to focus on the form of financial instrument and the establishment of a robust counterfactual, but also in order to agree sensible outcomes measures upon which payment schedules could be defined. Many others have encountered implementation challenges and invisible costs, while surfacing questions about the scale of potential savings. The approach has also demanded a significant behavioural shift in all parties involved:

In the beginning SIBs may have appeared as an innovation in public finances driven by government enthusiasm for payment-by-results contracts during periods of austerity, shifting the risk of investment onto a range of funders motivated by a desire, to a greater or lesser extent, to achieve ‘blended returns’ for their capital by uniting both their money and their values. But there are now signs that a future proliferation of the model may be accelerated by a greater variety of social investors and service providers entering the market, each prepared to tolerate different levels of risk in exchange for different levels of financial and social returns.

OPM’s Director of Evaluation, Research and Engagement Dr Chih Hoong Sin was recently invited to speak at the launch of a new Bank of America Merrill Lynch social impact bond report, authored by Bridges Ventures, reflecting on lessons learnt and to provide a set of practical recommendations for government, service providers and investors. This is no coincidence. Financial institutions are beginning to view SIBs as a genuine opportunity to meet the demands of this expanding pool of investors in the market wishing to align their financial returns with social benefits, as crucially, it is their younger clients who are motivated more by social impact and less by financial return.

The momentum behind social impact bonds as a major source of social change funding is building. But for the promise to be fulfilled a proven framework is needed that is built on a robust evidence base particularly for preventative or early interventions, to be of benefit to Government or donor, investor, service provider, and service user. Unlike most of the existing published literature that deals with the aspirations and desirability of SIBs, OPM’s studies highlight the operational issues around procuring and delivering services through an SIB model. This is why these independent evaluation findings are of fundamental importance in contributing to the understanding of what does and doesn’t work for SIB structures and designs.


If you would like to find out more about OPM’s evaluations of the ‘Essex SIB’ and ‘Peninsula LIST’ projects, please contact Chih Hoong Sin, Director of Evaluation, Research and Engagement on or 020 239 7877.

Monday, October 13, 2014

25th anniversary guest blog series: Think function, not form when it comes to public service reform

‘Public Service Reform’ is a phrase on everyone’s lips. Accompanied by buzzwordy encouragements to be radical, innovative, creative, etc. All part of an essential lexicon for the modern day, thrusting public sector progressive looking to impress.

And, of course, there’s nothing wrong with nurturing ambitions to be forward thinking for our citizens –  not least because public policy and the financial imperative of deficit reduction are driving a smaller state in which citizen self-reliance is intended to have more prominence (and councils less). So, not just cutting the cash, but changing expectations too.

And in this rush to be leading edge, our vocabulary has also been augmented by the sexy pillow talk of ‘completely reinventing local government’. Most frequently, there are tales of shared services (yawn) and, a bit more exciting, mutuals (or cooperatives or employee owned do dahs, or whatever!).

Again, nothing wrong with this either. But, for me, to start with structures is to neglect the key dynamic in any change programme – the human beings themselves; and the values, culture and behaviours that they need to hold and exhibit if we really are to have a revolution in public services.

Here in Birmingham, a place not unaccustomed to the pressure to reform and improve, and in my role as SOLACE President, I am concentrating as much (in fact, a little bit more) on thinking through the questions of what are our values, purpose and workforce requirements as much as I am considering what service models will work to the best advantage of our communities over the next 10 to 15 years. Or, to use a much shorter and well-worn maxim, function before form.

This is simply because we know that it’s not enough to say ‘let’s be radical’ for radical to happen. Of course, I regularly and disingenuously invite my colleagues at the drop of a hat to use their imaginations to the full and ignore the shackles of the organisation’s historical customs and practices – but such mandation does not a revolution bring. Real, tangible change will only be the result of creating a story – a narrative (yes, I have my own jargon habits too) – that is written by the organisation itself about the kind of people it needs to come up with the right kind of changes for the future – and then make them happen.

So, as part of a zeitgeist (not that I’d know a zeitgeist even if it came up to me and smacked me on the chops) that gaily heralds a new era of revolutionary public service operations, there also needs to be a beating heart that’s interested in the public servants themselves and, from my perspective, seeks to strengthen and/or engender such qualities as empathy, respect and trust as the pre-requisites for creating a brave new world.

Amen brothers and sisters.

Mark Rogers is the Chief Executive of Birmingham City Council


About the series

OPM is celebrating its 25th anniversary this year, and as a public interest organisation, we’ve always contributed to the debate about the future of public services.

With this and the next general election in mind, we’ve asked a number of senior thinkers to give their views on the challenges and opportunities facing public services and society in the near future.

This is one of a series of guest blogs, which we’ll be adding to in the coming weeks and months. To read previous posts in the series, go to our news and comment page.

Friday, February 7, 2014

Coming together to reshape services in Camden


In the middle of 2010, Camden Council initiated a programme looking at various policy options across the whole organisation. Officers were asked to provide options for operating in an environment where financial resources could be reduced by more than 20 to 30 per cent.

To supplement this work, the council wanted to understand what impact these different options might have on different areas within the borough, and whether there were any opportunities (or risks) that had been missed by taking a service-by-service approach, rather than place-by-place.

What we did

To gain a better understanding of the council’s savings proposals and how they will affect services, we ran ten workshops exploring how the council could shape service delivery for each area.
The process was not only about working with ward members and key stakeholders to share ideas for efficiency, but also creating practical solutions. In addition to informing the council’s savings programme, the workshops fed into the council’s work already underway on place shaping and its community investment programme.

During the first part of each workshop, participants were asked to reflect on their area’s characteristics and challenges. They then considered the potential impact of the council’s agreed and proposed savings for their area. In the final session, participants were asked to think about ways to ameliorate the negative impacts they had identified, and how to achieve the best outcomes for people.

These discussions resulted in some broad areas of common focus, particularly in relation to better use of public buildings, more effective pooling of resources and learning between council and voluntary providers, and support for volunteering.

Social impact

Through the workshops, the council has been encouraged to tackle local challenges with staff, partner agencies and voluntary groups in a more collaborative way. Under this approach, the traditional focus on ‘delivering services’ is giving way to fluid conversations that bring together relevant people – council and non-council – in more of a ‘task-and-finish’ approach. These informal, facilitated exchanges are enabling deeper engagement than a formal ‘presentation-then-Q&A’ model of consultation, which can feel much more adversarial and be ultimately less productive. Informal approaches also encourage participants to think and share ideas more openly rather than taking positions to be attacked and defended.

Exemplar projects identified at the workshops are now being developed in each of the ten areas in Camden, involving council officers, elected members and a range of other people.



Friday, February 7, 2014

Quick wins for local councils and disabled people


The RNIB, as a national organisation representing more than 15,000 members and campaigners, was acutely aware that disabled people across the country stood to be amongst the hardest hit by the cuts in public spending.

Almost two million people in the UK have a sight problem which has a serious impact on their daily lives. The vast majority of these people rely on a core bedrock of services – e.g. accessible information or support with getting around or regaining employment – in order to live independently. Much of this support is provided by local councils.

These services are not luxuries, and often don’t cost much. Yet if withdrawn the impact on people’s lives can be dramatic. At the same time the RNIB knew that to make the case for even modest continued investment, they needed independent evidence of impact, and practical recommendations – which is where OPM came in.

What we did

A wide range of RNIB members from nine places across England were invited to take part in the research, including young and old people with different backgrounds and experiences.

The research included focus groups, in-depth ethnographic interviews to ‘tell the story’ of a day in the life of a blind or partially sighted person, and three participative case studies exploring the good work three local authorities were doing (Leicester, Plymouth and South Tyneside).

OPM and the RNIB launched the report based on the findings from the research at the national Local Government Association conference, with speakers including the (then) leader of South Tyneside Council.

Social impact

The research went a considerable way to achieving its aim of raising awareness of the practical steps needed to improve outcomes for disabled people when the findings were covered by The Guardian, as well as in local papers where the research had taken place.

Since the launch of the report the RNIB has continued to work with a network of local authorities to encourage and support them to adopt best practice like the innovations showcased by the research.