A Whole New World: funding in complexity

wholenewworld.pngYesterday I was at the launch of a fascinating report on how to better fund organisations that aim to achieve change in complex systems. Though the report draws mainly on public sector commissioners and charitable funders in the social sector in the UK, it is relevant far beyond that. We can take many if not most of the principles the report found and with some tweaking apply them in funding for international development.

The aim of the report is to attempt to answer the question “How should organisations which have a desire to help improve people’s lives, and resources to allocate to achieve this goal, manage the distribution of those resources most effectively?” This question is certainly also relevant for international development, as its goal equally is to improve people’s lives – even though many organisations and initiatives have much narrower aims – which is a problem in itself, but that’s for another post.

The report shows that a new paradigm of funding in complexity is emerging, transcending the currently dominant paradigm, which draws on New Public Management (NPM). This paradigm is based on the idea that “funders should be concerned with how their resources achieve particular ‘outcomes’ or ‘impact’, and that they should use measures of outcomes as the basis for their decision-making about who they fund, and how they should manage the performance of those organisations they support.” Sound familiar? This leads to the dominance of approaches like Outcomes-Based Commissioning (essentially all commissioning that is based on a logframe) and Payment by Results.

According to the authors of the report, “[t]here is an increasing recognition that the current paradigm, particularly within the public sector, does not enable people to respond effectively to the challenges of a complex world. … Unfortunately, in complex environments, making funding and performance management choices on the basis of outcome-metrics produces a paradox: when funders make choices on that basis, it makes producing real outcomes in people’s lives more difficult.” (One of the authors of this report has explored this in an earlier paper – unfortunately that one sits behind a paywall.)

So what are the findings of the report? First of all, the authors present three key terms that sound equally familiar to me as the problem analysis: funding needs to become more human, systemic and adaptive. Also familiar, right? Particularly the systemic and adaptive parts are very prominent topics in the market systems development community and beyond.

So what are the findings of the report? Luckily, the authors condense everything in a handy table at the back of the report, where they also compare and contrast it with the current NPM paradigm. Here the principles they identified:

wholenewworldprinciples.png

They also present insights on the roles of the different actors involved (also on the left the complexity-friendly funding approach, right NPM):

wholenewworldorles.png

Finally, they look at culture and processes:
wholenewworldcultureprocesses.png

While this all sounds oddly familiar, there are a couple of things in there that struck me. Starting with the very first principle ‘motivation is intrinsic’. Wow, how could one ever doubt that? But indeed, our whole incentive system is built on the assumption that people always need carrots and sticks to deliver positive change. The authors link that back to the roots of the NPM paradigm: Public Choice Theory. This theory argued that “the intrinsic motivation of those who undertake social interventions cannot be trusted to produce effective and efficient public services. Instead those people must be extrinsically motivated – through the incentives created by market forces, and through the use of performance targets.” Ouch! Nowadays research has made it fairly clear that external incentives destroy internal motivation.

Another principle that jumped out to me is that “Outcomes are emergent properties of complex systems – they cannot be attributed to people, organisations or programmes.” This clearly reflects complexity theory. Nevertheless, this does not mean that we cannot try to understand better how a particular outcome has come about. At the minimum, we can try to retrace what happened when and who did what and try to understand how this influenced the system. The evaluation community is working hard to make evaluation work in this space. I recently tried to condense some of their insights into a paper.

How can we apply the insights to work in international development. First of all the structure of delivery is slightly different. While in the cases the report builds on, funded organisations are directly delivering services and funders are tasked to improve this system of service delivery, in international development we often have an intermediary organisation that does the implementation (see illustration below). Funders (both public and private) fund an ‘implementing agency’ to improve the way the system works (at least this is the case in so-called ‘systemic approaches‘, as opposed to direct delivery and humanitarian approaches). Nevertheless, the aim is for the funder, whether directly or through an implementing organisation, to improve the way complex issues are tacked. The principles might apply to a larger or to a lesser degree to the funders themselves or to the implementing organisation.

fundingstructure.png

It would be interesting to think this through with a group of people in international development to see how these principles could be reformulated and maybe retargeted to increase their relevance for the different structure. Also, it would be interesting to validate them by running them past a number of progressive actors from the fields of Market Systems Development, Doing Development Differently and Building State Capability, to name just two fields where progress is made in understanding how to better navigate complex challenges.

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