Pay for success and systems thinking

“We are living in a complex, fast-changing world.”

“It’s time to break down the silos.”

These are messages being heard across the social sector, and they’ve forced a reexamination of how we think about and tackle social issues. Systems thinking, a way of thinking and working used to examine and address the root causes of complex social problems, offers one way to wrangle with this complexity and collaborate more effectively by breaking down silos that prevent systems change.

A lot of recent discussion about systems thinking is thanks to MIT management professor Peter Senge’s seminal work The Fifth Discipline, required reading for anyone interested in how organizations learn, grow, and perform. As Senge puts it, “The quest [of systems thinking] is to look at a problem more comprehensively.” In addition, as described by Senge and author David Peter Stroh, systems thinking:

• Emphasizes examining and understanding entire systems—the environment around the issue (e.g., chronic homelessness or high recidivism rates) that includes key stakeholders, organizations, resources, relationships, related issue areas, etc.—in order to find an appropriate solution, rather than just relying on one organization or stakeholder’s perception of the problem;
• Calls on each stakeholder to acknowledge their role in creating the existing system and perpetuating the existing problem, instead of looking for others to change in order to create solutions;
• Examines and seeks to improve the relationships between stakeholders and their problem solving activities, instead of simply maximizing how effectively each stakeholder carries out their role.

Through these mechanisms, systems thinking expands our understanding of the underlying issues fueling complex social problems, and sets us up to address them more effectively through enhanced collaboration and organizational responsibility. Systems thinking is already embedded in the pay for success (PFS) model in multiple ways:

• PFS is designed to address complex social problems. Existing PFS projects tackle issues as complex and diverse as homelessness, juvenile recidivism, and maternal and child health. All of these issues require a deeper look at the surrounding environment and challenging stakeholder views in order to be solved.

• PFS engages multiple stakeholders. Successful PFS projects require that multiple actors with diverse motivations come together to discuss a social problem. In order for this collaboration to be effective, each stakeholder must have a sense of their ambitions and what a good outcome looks like for them, as well as the ability to communicate these ideas effectively. This collaboration is not only needed to get the project off the ground, but it can also benefit the community for years to come as stakeholders form relationships and identify other possible areas for collaboration.

• PFS is about spurring lasting change. PFS is ultimately meant to change the way government pays for services by shifting government orientation toward outcomes-based decision-making. Salt Lake County Mayor Ben McAdams spoke to this contagion effect at Urban’s Future of Pay for Success event in October 2015, explaining how PFS can help generate a “culture of outcomes” in government.

• (Most) PFS projects use data to assess current systems. Systems thinking tells us that each of us carries around our own mental model that determines how we see the world. This model is shaped by our individual and organizational perspectives and experiences. The existence—and inherent conflict—between these many different mental models among individuals and organizations makes gathering data crucial to understanding reality. Data collection and analysis is vital in many phases of PFS, but it is especially important at the beginning when selecting an appropriate problem to solve, and during the evaluation design and implementation phases.

• (Most) PFS projects set up opportunities for continuous learning. Rather than evaluate success once a project is over, many existing PFS projects measure outcomes at designated intervals throughout the life of the project. This allows for earlier success payments (which investors and governments prefer) and, even more importantly, allows for opportunities to receive and respond to data-based feedback, creating an opportunity for continuous improvement that helps the service provider improve their performance as well as their understanding of how their model works.

Systems thinking, with its focus on strengthening stakeholder connections, data-driven examination of the root causes of problems, and orientation toward learning, can drive PFS projects to new heights. Existing and future projects should take advantage of the PFS model’s system orientation to make change that endures far into the future. 

As an organization, the Urban Institute does not take positions on issues. Scholars are independent and empowered to share their evidence-based views and recommendations shaped by research. Photo via Shutterstock.