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Social Innovation With Our Eyes Wide Open

June 19, 2014

Headshot_laura_callananDon’t get me wrong: I love social innovation.

I was a consultant in McKinsey's Social Innovation Practice. I have spilled ink over some of the most popular social innovation topics of the day: impact assessment, sustainable capitalism, and – that current sweetheart – social impact bonds.

But it's my up-close-and-personal encounter with SIBs that has shown me there is way too much hype when it comes to social innovation. Consider some of these claims:

  • SIBs help diversify your investment portfolio because they are entirely uncorrelated with the market. (So is a trip to Atlantic City.)
  • SIBs are great for government because they shift all the risk of new programs to private investors. (Ask the investors if that's a deal they want to take.)
  • SIBs can be used to finance pilots and start-ups. (Ask the same investors how they feel about being paid only if there are results on something with no track record.)
  • SIBs can be used to fund every kind of program – from seeds and fertilizer for small holder farmers in Africa to restoration of blighted neighborhoods in the U.S. (SIBs are pretty expensive and complicated, so if there are other ways to channel aid, harness markets, and use existing community development tools and tax credits, don't use a SIB just because it sounds cool.)

This is not to say that SIBs lack the potential to do a lot of good. I believe they can be a valuable tool for scaling proven programs and supporting government performance transformation. But SIBs are a tool, not a silver bullet.

I highlighted some of the potential pitfalls of social impact bonds and other "pay for success" strategies in an article back in 2013. For individual nonprofits, this includes the challenge of having to prematurely meet a high bar of evaluation and having sufficient infrastructure and capacity to scale their programs. For the social sector as a whole there are other potentially negative implications: quashing innovation by focusing myopically on proven programs; starving nonprofits of investment in their ongoing operations and infrastructure by paying only for the results they deliver; driving nonprofits to serve the constituents who are most likely to succeed in order to meet performance targets; or inadvertently pressuring nonprofits to just plain fudge the outcome numbers.

Unfortunately, the hype and over-promising is not limited to social impact bonds. All the new tools in the social innovation tool box – big data, crowdsourcing, impact investing, social entrepreneurship, and the like – can be effective in helping poor and vulnerable people and protecting the planet. But if they are misapplied or used poorly, they can create problems instead of solutions.

Let's look at social entrepreneurship. The movement has encouraged smart, motivated thinkers who challenge the status quo, embrace market-based models for good, demonstrate effective new interventions, and look for ways to grow them.

But other things have come along, too. One is the cult of the hero-founder, which can distract from the real mission of an organization and undermine the development and retention of a deep and talented team. Another is an excessive number of start-ups in ecosystems that lack the funding, infrastructure, and experience to truly grow enterprises to scale. And perhaps most problematic, a preference for market-based solutions when a market model doesn't fit the problem being addressed. As Paul Farmer brilliantly put it in his loyalist's critique of social entrepreneurship: "Does anybody really think that a mother in Africa will love her newborn child more because she paid some sort of user fees for prenatal care and obstetrics?"

I'm not suggesting we should stop innovating as we seek to "improve the well-being of mankind" or follow our belief that "every person deserves the chance to live a healthy, productive life." I also recognize that, when trying to do something really difficult, optimism can be as important as bright ideas and penetrating insights. I just ask that we all bring our critical minds – as well as our open hearts – to the job of social change. Let's celebrate the potential in the new approaches but also integrate them with prior experience and test them with our constituents. Let's recognize that even the best new ideas can disadvantage someone in the system. Let's remember that a tool is just a tool.

Let’s innovate with our eyes wide open.

Laura Callanan is a senior fellow at Foundation Center. This post originally appeared on the site of the Institute for Business & Social Impact at the Haas School of Business, University of California Berkeley. For Laura's four-part series on social sector leadership, click here.

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