The time is now. For-purpose leaders and organisations need to uplift and embed impact across the organisation-wide strategy process, not as an afterthought, or face barriers to access impact funding.
Right across the for-purpose sector, organisations are facing the challenge of tightening government spending. As traditional government funding flatlines, with forecast budget cuts to federal Health and Social Services “as large as 50 per cent in coming years” and current levels of activity-based funding proving unsustainable, for-purpose organisations need a strategy that aligns with evolving and alternative funding sources. Meanwhile, demand for critical services shows no sign of slowing.
Organisations best placed to succeed are those who develop their strategy with clear social impact measurement and evidence – anchored upfront. Those who don’t will likely face funding barriers and risk missing out on critical evolving government funding models, philanthropy and impact capital.
These can’t be bolt-on solutions. The key is to embed and integrate impact in the organisation-wide strategy process from the outset.
Properly defining and measuring impact greatly improves an organisation’s access to outcomes-based government programs, as well as other impact-based funding sources such as catalytic philanthropy and social impact investment.
The shift underway to outcomes-based funding
While traditional government expenditure will continue to have a place, the government is under pressure to further consider funding models that incentivise innovation and long-term financial viability.
Traditional federal government budgets, including Health and Social Services, face significant cuts, as reported by The Australian Financial Review. The Health Department warns of looming “funding cliffs” with its budget forecast to decline from $1.69 billion in 2024-25 to just $893 million by 2027-28.
These kinds of challenges push policy toward outcomes-based models to replace poorly designed subsidy-based models that simply encourage more services, rather than incentivising or rewarding service outcomes and impact.
This is further highlighted by the recent report, Avoidable Costs: Better outcomes and better value for public money from the Centre for Policy Development, which illustrates the extent of avoidable government spending and makes the fiscal case for tackling social issues as early as possible.
The report recommends an Avoidable Costs Unit be established within the Commonwealth Treasury and within each state and territory treasury, noting that “repeatedly using public resources to address harms that could have been prevented is not only unsustainable, it’s avoidable”.
These ongoing funding challenges and evolving dynamics reinforce the benefit to organisations of demonstrating measurable outcomes.
Outcomes-based funding milestones
The shift from activity-based funding to outcomes-based funding won’t happen overnight but it is underway. Recent government initiatives demonstrate this: the Commonwealth Outcomes Fund, the federal Payment by Outcomes (PBO) trials, Philanthropy roundtables, and state-based funding initiatives including Victoria’s social impact bonds – Partnerships Addressing Disadvantage (PAD) – and Queensland’s launch of the Office of Social Impact.
The PBO trials are Australia’s first outcomes-based funding approach for jobs-focused social enterprises. The trials involved the Department of Social Services (DSS) partnering with White Box Enterprises to deliver long-term employment outcomes.
The results to date, alongside independent research, demonstrate that paying for sustained outcomes can deliver better, longer-lasting results than activity-based models for people experiencing disadvantage.
Embedding Impact in the strategy process
To succeed in this new funding reality, for-purpose leaders must strengthen measurable outcomes and embed impact-focused services across their organisations.
Deliberately involving external stakeholders directly in the strategy process upfront has significant upside, particularly when developing social impact. Input from industry partners and key funders – government, philanthropy, impact investors – helps shape the most viable, outcomes driven programs.
Adopting an Open Strategy approach encourages organisations to open up their strategy process, inviting broad input early, and enabling impact to be built into strategy from the outset all while keeping assumptions in check.
- Sector partners – co-develop services that solve more impactful problems for cohorts of clients and community, through shared knowledge.
- Client cohorts – involving the people closest to the problem, unlocks the nuance around specific programs that will deliver the maximum impact for that community.
- Funders – philanthropy and impact investors can help shape programs from the start, sharing their own learnings and expectations upfront to avoid misalignment.
- Government – agencies, stakeholders and peak bodies can clarify policy direction, enable multi-portfolio collaboration and set the broader social context.
In this evolving funding environment, for-purpose organisations must be on the front foot and consider impact, measurement and related funding models up front at a board, CEO and executive level.
Forward-thinking organisations who embed impact early into their core organisation-wide strategy, and open up the strategy process to key external stakeholders, will be best placed to unlock new and diversified funding pathways.
Those who develop their strategy with clear social impact measurement and evidence – anchored upfront – will stand out, while others will likely face funding barriers and risk missing out on critical evolving government funding, philanthropy and impact capital.
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Get in touch if you’d like to discuss how to embed impact into your strategy process, bring funders directly into the conversation and access impact capital.
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