‘The Solution Revolution: How Businesses, Government, and Social Enterprises Are Teaming Up to Solve Society’s Toughest Problems’ by William D. Eggers and Paul Macmillan (Harvard Business Press Review; September 17, 2013)
Table of Contents:
i. Introduction/Synopsis
PART I: FROM PUBLIC PRESSURE TO CORPORATE SOCIAL RESPONSIBILITY
1. The Public Demand for Corporate Social Responsibility
2. The Response from Business
a. Corporate Social Responsibility Reports (CSRs)
b. Corporate Philanthropy and Philanthropic Projects
PART II: BIG PROFITS IN THE DEVELOPING WORLD
3. Unilever and the Wheel Soap Project in India (and Beyond)
4. The Direct-Sales-Agent Model
a. Living Goods, Health-Keepers and Toyola Energy
5. Profitable Public Services in the Developing World: Education in Kenya
6. Partnerships that Help the Poor Help Themselves: The Amanco Project in Mexico
PART III: PROFITABLE SOLUTIONS IN THE DEVELOPED WORLD, AND THE NEW GOVERNMENT APPROACHES
7. Recyclebank
8. The Pay-For-Success Model
a. Doncaster Prison
b. Social-Impact Bonds (SIBs)
9. The Prize Model
10. Open Data
11. Citizen-Sourcing
12. Conclusion
i. Introduction/Synopsis
Prior to the 19th century, public goods and social goals such as sanitation, health, affordable housing, education, and environmental protection were largely left up to individuals to sort out for themselves. Beginning in the 19th century, though, more and more governments—particularly in the industrialized, democratized world—began taking these responsibilities on themselves. In the latter half of the 20th century, the promotion of public goods and social goals expanded as governments in the developed world intensified their efforts at home and began spreading their attention to the developing parts of the planet, and large non-profits and NGOs started cropping up to help with the issues both domestically and abroad.
Recently, we have seen a new trend develop, as in the past two decades businesses and corporations have themselves increasingly entered the fray. Now, this may seem odd, given that business is often seen as indifferent—if not downright hostile—to public goods and social goals. However, several developments have occurred in recent years that have flipped this logic on its head.
To begin with, many consumers have begun to demand that companies display real concern and commitment towards the issues that mean something to them—and have begun to shun companies that fail to show a sense of social responsibility. This trend has caused businesses to respond in several ways. First off, most companies now assess the social and environmental impact of their business practices, and have taken measures to ameliorate them under a Corporate Social Responsibility report (CSR). Even more impressively, corporate philanthropy has skyrocketed in recent years; and, what’s more, companies are increasingly moving beyond donating, and are instead using their peculiar expertise to help directly with social projects and development efforts.
Business involvement with public goods and social goals goes well beyond just brand-building, though. Indeed, it turns out that big profits are also at stake. To begin with, many companies have come to realize that there is a fortune to be made by entering non-traditional markets and catering to the unmet needs of the world’s poorest people—and in helping them bootstrap themselves out of poverty. For though the so-called ‘bottom of the pyramid’ may not have much, they do have some, and collectively they represent an enormous business opportunity. Indeed, the bottom of the pyramid has been estimated to represent a $5 trillion market.
Still other businesses in the social economy are organizing themselves from the beginning around a particular public problem (such as traffic congestion or waste control), and then cleverly designing a business model that helps solve the problem—all while turning a profit.
Aside from these self-starting enterprises, other companies have been lured into the social economy by governments or non-profits who are looking to exploit their expertise—or who are looking to capture the benefits of competitive organizations more broadly (specifically increased innovation and efficiency)—and who are willing to pay top dollar to do so.
These types of collaborations (between governments, non-profits and businesses [and other types of groups]) have actually become quite a theme in addressing public goods and social goals—and author William D. Eggers makes a special point of addressing it in his book. The beauty of the arrangement comes from the fact that each type of organization has access to a special class of information, expertise, and resources, which, when brought together, can help yield solutions that are particularly effective.
As you might expect, many of the developments spoken of here have been made possible by recent innovations—everything from social networking, to crowd-funding, to crowd-sourcing, to micro-financing, to social investing, to prize and pay-for-success exchanges, to socially-responsible and impact investing etc.—and the author is sure to touch on all these as well.
Here is a trailer for the book:
*To check out the book at Amazon.com, or purchase it, please click here: The Solution Revolution: How Business, Government, and Social Enterprises Are Teaming Up to Solve Society’s Toughest Problems
What follows is a full executive summary of the new book by William D. Eggers called The Solution Revolution: How Business, Government, and Social Enterprises Are Teaming Up to Solve Society’s Toughest Problems.
PART I: FROM PUBLIC PRESSURE TO CORPORATE SOCIAL RESPONSIBILITY
1. The Public Demand for Corporate Social Responsibility
As mentioned in the introduction, one of the major impetus’ that has driven businesses into the solution sector has been public pressure (loc. 2178-90). In this new age of big wealth and even bigger problems, there is a growing sentiment that it is no longer acceptable for businesses to blindly chase profits. Rather, the expectation is that businesses will also keep the public good firmly in mind as they operate. And with the emergence of social media, this sentiment is only becoming more powerful. As Eggers explains, “the field of sentiment analysis has exploded with the emergence of social media. Millions of consumers now voice their views on companies, positive or negative, and in turn influence others. Negative reviews that appear via a common Google search or a wave of caustic tweets can have devastating effects on an organization’s reputation. Ratings extend the reach of an individual’s opinion beyond a circle of friends to anyone with a computer. And consumers increasingly realize that each purchase is a vote. Successful branding efforts now speak less to actual products and more to core traits that the company—and its consumers—want to embody… Companies that translate lofty aspirations into an elevated consumer experience can benefit from higher premiums and stronger brand loyalty… Transactions that once exchanged money for status symbols now trade in a new status entirely: social value: Companies such as American Apparel (which offers American-made, sweatshop-free clothing) and Origins capitalize on their customers’ desire to maximize social good alongside private utility” (loc. 2188; see also 1390).
In addition, the public pressure to induce businesses to behave in a socially responsible way is not only finding an outlet in where consumers are spending their dollars; rather, it is also finding form in where they are choosing to invest. Indeed, an increasing portion of the population is opting to invest in companies that demonstrate an explicit commitment to social and/or environmental goals—in addition to profits. Known as double- and triple-bottom-line investing, this practice has been picking up momentum in recent years. As Eggers explains, “socially responsible and environmental investment, for instance, accounted for 11 percent of all US assets under management in 2012, a 22 percent increase from 2010” (loc. 464). Elsewhere, the author adds that “socially responsible investing has grown to a $1 trillion industry” (loc. 172).
And it is not just consumers that are beginning to think in terms of social and environmental responsibility. Many business leaders themselves have stood up against the old model of business, and advocated instead for a newer, more nuanced approach. As the author explains, “the widely held notion of businesses’ role in society was succinctly captured in the title of Milton Friedman’s famous 1970 New York Times piece: ‘The Social Responsibility of Business Is to Increase Its Profits’. Recent years, however, have seen many business leaders rethinking this basic premise. John Mackey, the founder of Whole Foods Market, is at the forefront of this evolution. A proud libertarian, Mackey strongly and unapologetically champions the free market. Nonetheless, his central idea, which he writes about in his book Conscious Capitalism, is that investors are only one of multiple constituencies with which a company must engage. Customers, employees, vendors, and the community at large represent other important stakeholders. Since a company’s choices can affect each stakeholder, it should pursue value for all constituents to create lasting financial and social returns” (loc. 562).
Regardless of where the voices for change are coming from, though, many businesses have certainly begun to heed the call, and they are responding in many different ways.
2. The Response from Business
a. Corporate Social Responsibility Reports (CSRs)
One of the first and more popular responses has been the development of Corporate Social Responsibility reports. Essentially, these reports outline a company’s social and environmental goals, and chart out how the company hopes to achieve them—and they are catching on like wildfire. As Eggers explains, “in recent years, CSR has taken off. Contrast the mere seventy CSR reports published in 1990 to the thousands produced today. In 2006, only 25 percent of Fortune 500 companies produced CSR reports. Today that figure has climbed to 80 percent” (loc. 551).
And the evidence indicates that these reports do indeed impact both consumer (and investor) opinion, and the bottom line. As Eggers notes, “Paul Griffin and Yuan Sun of the University of California Davis and Berkeley studied a group of companies that have issued CSR reports. The researchers found that the companies’ shareholder perceptions improved and that the aggregate market value of the companies rose by $10 billion after the reports were released. Surprisingly, smaller companies benefited the most from reporting. A 2007 study from the Wharton School of Business demonstrated that companies striving to address the best interests of all stakeholders rather than just shareholders outperform the S&P 500 by a significant margin” (loc. 584).
b. Corporate Philanthropy and Philanthropic Projects
Still, many companies have gone far beyond just laying down a well-intentioned CSR. Take the much more concrete action of charitable donation, for example. Corporate philanthropy has been on an absolute tear in recent years. As the author explains, “many mature companies’ first involvement with the solution revolution is via corporate philanthropy. While companies have always invested in their communities, the sheer size of today’s contributions and their global impact is unprecedented. In a study by the Committee Encouraging Corporate Philanthropy, 214 respondent companies reported collectively giving more than $15.5 billion in 2010, billions more than the UN Development Program’s annual spending. Fully 82 percent of the respondent companies run their own foundation or trust” (loc. 588).
Nevertheless, many consumers remain relatively unimpressed with mere charitable donation. For the gesture falls short of showing an authentic concern about a given issue—which can only be achieved through getting actively involved. As an indication of this, consider that “in an Edelman global survey, the majority of consumers viewed corporate donations as insufficient, instead urging companies ‘to integrate good causes into their day to day businesses’” (loc. 641).
In response, some businesses have, indeed, begun moving beyond the arm’s-length giving of charitable donations, and onto more direct means of aid. As Eggers explains, “companies are increasingly applying their competitive capabilities and expertise to challenges that nonprofit organizations have struggled with for decades. [For example,] Cincinnati-based Procter & Gamble is partnering with UNICEF to wipe out tetanus in Africa by 2015. Profits from the sales of Pampers diapers contribute to free vaccines for expectant mothers and newborn babies, through a program that has immunized over 300 million to date and raised widespread awareness about the issue” (loc. 591). And other examples like this one abound (loc. 475-516).
PART II: BIG PROFITS IN THE DEVELOPING WORLD
These types of altruistic projects on the part of businesses certainly do their share of good. However, some of the most impactful contributions on the part of businesses these days are not altruistic at all, but mutualistic. That is, they are designed to do some good while also yielding some profit.
Enterprises of this kind have popped up throughout the world; however, some of the most significant projects are emerging in the developing world—where businesses are finding that there is a fortune to be made by catering to the needs of the poor—and in helping them bootstrap themselves out of poverty. It is here where we shall begin.
3. Unilever and the Wheel Soap Project in India (and Beyond)
One of the very best examples of a business finding a way to earn a profit while helping solve a societal problem is the Unilever Wheel soap project in India.
In the year 2000, Unilever came up with the idea of trying to bring soap (and hand-washing) to India’s poorest people. To do so would be a great boon, since hand-washing is known to be a powerful prophylactic against scourges such as diarrhea, which is a major problem in India—and indeed across the planet, for it “kills 1.5 million children a year worldwide, making it the second-most common cause of death for children under five” (loc. 2861).
Unilever faced many challenges, though. To begin with, India’s poor were not at all aware that soap is needed to kill germs that cause diarrhea. Second, even if they were aware of this, and were willing to spend some of their very meager earnings on it, there was no distribution infrastructure into India’s poorest communities. As Eggers puts it, “the business challenge was immense. Unilever had to sell soap to people who didn’t know they needed it, who couldn’t afford it, and who had nowhere to buy it” (loc. 2916).
One problem at a time, though. In order to overcome the knowledge deficit on the part of India’s poor, Unilever hired “Swasthya Chetna (Health Awakening), at the time the world’s largest private hygiene education program” (loc. 2898), to walk into India, and deliver a massive public awareness program around hand-washing aimed at the nation’s poorest people. Specifically, the program worked like this: “The Swasthya Chetna program began with a goal of educating 20 percent of India’s population—200 million Indians—to wash their hands after going to the bathroom. About 150 outreach teams speaking seven dialects spent two years traveling to eighteen thousand villages, where the team members shared lessons, posters, and literature on sanitation. To emphasize the message, they revisited each village, applauding good hygiene practices and offering additional instruction as needed. Their visits often included dramatic performances, hand-washing demonstrations, and the introduction of the concept of germs. Children rubbed their hands with powder, which simulated dirt and germs, and the kids then washed it off using plain water. But under a black light, their hands still showed traces of the powder, which glowed under the light. They then repeated the experiment, this time washing with soap. The glow was now gone, dispelling the myth that clean-looking hands are clean hands” (loc. 2908).
Despite Swasthya Chetna’s very involved education program, the entire scheme cost Unilever only $2.7 million (loc. 2908).
Now for the second problem: addressing the issue of affordability. In order to address the cost issue, Unilever designed a soap that came in very small portions, and thus was very inexpensive. What’s more, they designed their product with certain features that made it amenable to the particular environmental challenges posed in India’s poorest communities. As Eggers explains, “Unilever… created a specially tailored soap brand, Wheel. To protect the environment, the company made Wheel with a lower oil content, because the poor often wash in rivers. In addition, Wheel is sold in small quantities at very low prices, because customers cannot afford to buy more than a few days’ worth at a time” (loc. 2895).
Finally, the accessibility issue. How to get the product out to those who could truly benefit form it? Setting up stores would not be an option. Instead, Unilever enlisted the help (and enterprising spirit) of the poor themselves (in conjunction with the microlending community). As Eggers explains, “Unilever’s initiative began small, in the rural hinterlands of India, by tapping into organic networks of local female entrepreneurs. The company worked with microlending institutions to open lines of credit for these women. Once a woman could obtain a microloan to buy Unilever soaps, she could provide this essential resource to her entire village. She would typically charge a 7 percent markup, which allowed her to pay off the loan and draw a steady income” (loc. 2884).
The plan worked like a charm. Unilever was now able to get its product out to its intended target, and the positive results began mounting (loc. 2914). In fact, the plan worked so well that Unilever soon expanded the project: “what began with seventeen women expanded within a decade to forty-five thousand saleswomen, who in turn reached more than three million households” (loc. 2890).
The project was such a success, in fact, that Unilever has since replicated it in several other countries: today, “similar projects are flourishing for Unilever in Sri Lanka, Bangladesh, and some African nations” (loc. 2890).
Still, while Unilever is certainly pleased that its project has been able to help the poor in such an impactful way, the organization insists that its enterprise is not a matter of philanthropy, but of business. Unilever’s Harpreet-Singh Tibb puts it this way: “’Swasthya Chetna is not about philanthropy, it’s a marketing program with social benefits. We recognize that the health of our business is totally interconnected with the health of the communities we serve’” (loc. 2914).
4. The Direct-Sales-Agent Model
It was mentioned above how Unilever makes use of local entrepreneurs to help it sell its vaunted soap. However, Unilever is not the only company to make use of this strategy in the developing world—indeed, many other organizations are now beginning to do so (loc. 1519). And it’s easy to see why, because it turns out that the model (called the direct-sales-agent model [loc. 1517]) works brilliantly for churning out win-win-win outcomes.
a. Living Goods, Health-Keepers and Toyola Energy
Take the social enterprise LivingGoods for example. LivingGoods operates out of Uganda, where it provides local women with a sales kit that consists of a host of very useful and highly beneficial products (“everything from malaria nets and clean-burning cook stoves to nutrient-rich fortified foods” [loc. 1519]). The women carry these kits back to their communities, where they are incentivized to sell the items to their friends, family and acquaintances (loc. 1521). By building their businesses, the women not only help themselves, but those around them as well. As Eggers explains, “once an organization has provided the essentials, it offers the entrepreneurs incentives to build their customer bases. To do so, the entrepreneurs often leverage their own existing relationships. Compensation is linked to sales, encouraging strong performance and the expansion of the model. The formula is not unlike the one the cosmetics behemoth Avon International uses to sell its wares across one hundred countries through 6.5 million agents. Since the nineteenth century, when its founder started putting women to work as sales representatives, the company has been turning relationships into sales funnels and the financially dependent into enterprising businesswomen” (loc. 1525). (The exact same model, with virtually the same products, has also been employed in Ghana, by Health-Keepers and Toyola Energy [loc. 1520]).
Here is a short clip about LivingGoods, presented by its creator, Chuck Slaughter:
5. Profitable Public Services in the Developing World: Education in Kenya
Helping the world’s poor while earning a profit does not end with the direct-sales-agent model, though. Indeed, the strategies being used here have become wide and varied—and the products and services being promoted have moved well beyond consumer and health goods. Take the private education conglomerate Bridge International Academies, for instance. Bridge was started in 2007, in Kenya, by Jay Kimmelman, a technology entrepreneur (loc. 1458).
Jay witnessed Kenya’s deep education woes, and wanted to do something about it. Now, it is not that Kenya did not have a public education system at the time—it did. It’s just that the system was notoriously inefficient. As Eggers explains, “in a move to combat poverty, Kenya passed its Free Primary Education initiative in 2003, universalizing access to free primary education. But increased enrollment did not translate to increased funding. As a result, schools became overcrowded, supplies were exhausted, and educational systems that were already broken deteriorated further. As it turned out, ‘free’ primary education in Kenya is not necessarily free, either. Many public schools levy desk, exam, and school maintenance fees. Research has shown that government-run primary education costs many parents in Nairobi more than $3 a month. And teacher truancy is high. When teachers do show up, they spend on average only 90 minutes of the entire day on instruction” (loc. 1453).
Kimmelman felt he could better, so he (and his team) went about designing the most efficient and inexpensive primary education school they could. As Eggers explains, “Kimmelman’s original vision was that a financially self-sustaining and scalable education model was key to breaking Africa’s cycle of poverty. And to be scalable, the new schools had to be cheap” (loc. 1470).
Thus Kimmelman’s team created a bare-bones and fully standardized education-delivery system, replete with school blueprints, ordered worksheets, and scripts for teachers. As Eggers explains, “the result was its unique, yet highly repeatable ‘school-in-a-box’ model: a low-cost blueprint that can be used to create schools that allow local managers to operate on an extremely low-cost basis. The schools are designed to serve 1,500 students, but reach profitability once they enroll 200… With the entire network hinging on delivering an effective school-in-a-box, the contents of the box were critical. Before launching, the founders developed all the tools, curriculum, processes, and even growth plans for school managers—everything needed to run an ultra-affordable, but high-quality school. The box includes everything from construction to curriculum, from testing to teacher training. Teachers receive identical training and even read scripted lessons” (loc. 1477).
Since launching in 2009, the Bridge Academy model has proven to be very successful—both in terms of academic results, and profits. Indeed, its students consistently outperform the students of state-run schools on tests, and the popularity of the system has allowed it to expand rapidly. As Eggers explains, “as of May 2013, Bridge International Academies has grown to a network of eighty-three private schools spread across Kenya, serving roughly twenty-six thousand kids. Early studies show that Bridge’s students are drastically outperforming their government-educated peers (by more than 100 percent on core reading skills)” (loc. 1467).
And Kimmelman has no intention of slowing down anytime soon. On the contrary, once expansion in Kenya is complete, he ultimately wants to go on to spread his system throughout the developing world: “with a $1.8 million equity infusion from Omidyar Network, Bridge aims to expand into new sub-Saharan countries and to establish eighteen hundred schools by 2015—an average of about two a day. The effort will create jobs for fifteen thousand educational workers in local communities, representing another tonic to systemic poverty. Their ultimate goal: teach 10 million children in the developing world” (loc. 1488).
The following is a short clip about Bridge International Academies:
Of course, there is good reason to believe that Bridge International Academies will eventually run into some pretty stiff completion, as other organizations are already using similar models to offer education in other parts of the developing world (such as the NGO Gyan Shala in India, for example [loc. 1497-1513]). Nevertheless, whichever organizations end up providing education in the various parts of the developing world, this is one turf war that stands to bring great benefits wherever it spreads.
Just as uplifting, it turns out that public education is not the only public service in the developing world that is benefitting from profit-seekers. Indeed, it turns out that business enterprises such as Bridge International Academies are becoming more and more common in the developing world—in areas as diverse as health, education and housing etc. (loc. 713-33; 1448-1513; 3044-3126). And so long as businesses continue to find ways to make public goods and profits converge, this is a very healthy trend indeed.
6. Partnerships that Help the Poor Help Themselves: The Amanco Project in Mexico
Before turning our attention away from the developing world, let us finish with one final example. The example comes from Mexico, and has to do with a project aimed at helping some of the country’s most impoverished farmers. In this particular case, local authorities, working with the development organization Ashoka, recognized that poor farmers could greatly increase their yields with the help of a specific bit of irrigation equipment tailored to the farmers’ needs. So, the groups went about organizing the key players into a partnership. Here’s Eggers to explain: “in Mexico, where two million farmers were living on less than $2 a day, Ashoka and local organizations convinced Amanco, a major producer of water conveyance products, to make small-drip irrigation systems for struggling farmers. Community organizations promoted the technology, organized farmers into loan groups, and installed the systems. Farmers’ yields began to soar. Meanwhile, Amanco and its collaborators reaped the benefits of a brand-new $56 million-a-year market” (loc. 3473).
The Amanco project is an excellent reminder that there is often great profits to be made simply by helping the poor help themselves. And given that the poorest of the poor on the planet are estimated to represent a market of some $5 trillion (loc. 744), it is likelier than not that these opportunities will be in heavy supply moving forward—wherever the right business models can be hit upon.
Still, the developing world is not the only place wherein solving problems can be parlayed into big profits. Indeed, opportunities abound in the modern, industrialized world as well, and it is here where we shall direct our attention now.
PART III: PROFITABLE SOLUTIONS IN THE DEVELOPED WORLD, AND THE NEW GOVERNMENT APPROACHES
7. Recyclebank
Let us begin with recycling. Recycling has become ubiquitous in metropolitan centers in the modern, industrialized world. The practice not only allows for valuable materials to be salvaged from landfills, but also saves on transportation, processing and storage costs associated with garbage (loc. 922-25). The problem with recycling programs, though, is that in many jurisdictions (particularly in America) citizens simply aren’t using them as much as they could (some jurisdictions, for example, have recycling rates as low 2-10% [loc. 911]).
Enter Recyclebank. Recyclebank was created in the early 2000s, as the brain child of Ron Gonen and Patrick Fitzgerald—two grad students who had no experience in recycling, but who did have a passion for the environment, and a fine idea (loc. 922). The idea was to reward consumers for the amount of recycling they did—thereby increasing recycling rates and saving on waste disposal costs. Here’s Eggers to explain: “to reward individuals for recycling, the pair developed the innovative idea of installing cheap, versatile RFID chips on plastic recycling bins. During waste pickups, the hauling trucks would weigh the filled bins, scan the RFID code, and credit the household’s account accordingly (a sort of information-age upgrade to the old container-deposit laws that rewarded consumers for returning used bottles and cans). Points earned could be redeemed through an online exchange for rewards, similar to frequent-flier miles (loc. 935).
The project had 3 main requirements. First, the young entrepreneurs needed a way to manufacture the new RFID-equipped recycle bins (loc. 938); second, they needed businesses to sign-on for the rewards program (loc. 944); and third, they needed waste management companies and municipalities to jump on board with the project (loc. 944).
First things first, though: the recycle bins. At first, Gonen and Fitzgerald had a good deal of difficulty finding a bin manufacturer who felt the project was viable. Eventually, though, they came across a very interested party. Here’s Eggers to explain: “the two finally connected with Cascade Engineering, a $250 million firm well respected for its environmentally sustainable business practices. Cascade CEO Fred Keller was immediately interested in the Recyclebank concept. On a handshake, he agreed to supply the new company with RFID-equipped recycling bins, providing the lifeline the anxious entrepreneurs desperately needed. Gonen acknowledges that ‘without Fred and Cascade, the venture wouldn’t have launched’” (loc. 942).
Next came lobbying for business sponsorships. Fortunately, this requirement proved to be far easier to secure than the physical infrastructure, for Gonen and Fitzgerald found that many businesses were eager to associate their name with such an environmentally friendly project. As Eggers explains, “many companies quickly recognized the opportunity to reach environmentally conscious consumers and demonstrate their commitment to recycling. In a matter of months, the exchange added deals and discounts from large vendors such as Coca-Cola, Whole Foods Market, and Macy’s, as well as green offerings from local vendors” (loc. 948).
The final piece of the puzzle was for the program to be adopted by municipal governments. This was no easy task, though, as the project was as yet unproven, and it was difficult to forecast just how effective it might be. As we might expect, then, most of the cities that Gonen and Fitzgerald approached initially were skeptical that the program could modify public behavior, and so rejected the idea. Eventually, though, the city of Philadelphia decided to give the project a try, with a small pilot program in the community of Chestnut Hill.
Here’s Eggers to explain how the pilot project went: “in a matter of months, the neighborhood’s recycling rate tripled, from 30 to 90 percent. The model was working. The experiment was repeated across town in West Oak Lane, a lower- to middle-class area with a recycling rate that had been hovering at just 7 percent. Although adoption was slower initially, a full 90 percent of households were regularly recycling within months of the start of the program” (loc. 962).
In short, the initial results were spectacular! With this success rate, it didn’t long for other communities and cities to start signing up, and before long the business was expanding rapidly. And everywhere the business expanded, the success was repeated. To take just a couple of examples, “recycling jumped from 2 percent of waste to 65 percent in a matter of months in Wilmington, Delaware” (loc. 911); and in Hollywood, Florida, “increased recycling rates produced $500,000 in savings on waste disposal fees and more than $250,000 in recycling revenue within the first year of implementation” (loc. 976).
In the decade since its launch, Recyclebank has moved into hundreds of communities across America, and expanded into the UK (loc. 975). Thus today, the company stands as a true success story of the solution economy.
Eggers frames the success of the company this way: “Recyclebank took an existing technology and applied it in a manner that, with modest costs, prompts large numbers of people to voluntarily alter their behavior in socially beneficial ways. The technology makes tangible what had previously been invisible. It raises consciousness in its purest form. That sounds very 1970s, doesn’t it? Yet the proof is in the results; far more trash is recycled without overbearing enforcement mechanisms” (loc. 981).
Here is a short clip about Recyclebank, with co-founder Ron Gonen:
Now, Recyclebank represents a company who came to the government with a project that had the potential to help it with one of its problems. However, it is important to understand that in today’s environment it is just as likely for the government (or, at least some governments) to reach out to the private sector to instigate these types of partnerships.
8. The Pay-For-Success Model
a. Doncaster Prison
Take the UK government’s partnership with the privately owned Serco Group, for instance. The UK government recently hired on Serco to take over one of its prisons—Doncaster Prison, which is about an hour outside of London (loc. 2680). Serco is not being paid simply to run the prison, though. Rather, Serco’s remuneration is tied directly to how successful it is in reducing recidivism among the prison’s inmates. As Eggers explains, “operated by privately owned Serco Group, Doncaster Prison is part of a pathbreaking experiment to reduce recidivism by aligning provider payments with outcomes, with the ultimate goal of reducing the prison population without spurring an increase in crime. Ten percent of Serco’s payments from the government are contingent on reducing recidivism by at least 5 percent. If Serco fails to achieve the target, the company is out a cool £2.5 million. It’s a bold experiment, to say the least” (loc. 2692).
Bold or not, it’s easy enough to see the impetus behind this type of ‘pay-for-success’ approach. Traditionally, government-led programs have been criticized for being very costly, while often producing lackluster results at best. But given the fact that these programs were never properly incentivized to produce results, there is really very little reason to have expected otherwise.
In an effort to remedy this situation, the pay-for-success model takes the traditional government program, and infuses it with those market principles that have always spurred private enterprises to excel in terms of results and efficiency. And this is exactly what is happening at Doncaster Prison. As Eggers explains, “from the outside, Doncaster Prison… looks like any other—it’s big, imposing, and drab. Step inside, however, and it resembles a mixture of job training facility and community center. Bright signs cover the walls with warm and fuzzy proclamations such as ‘People are our business.’ A ‘Night at the Musicals’ poster and sign-up sheets to watch the play Oliver adorn multiple walls painted in bright shades of blue and yellow. For those aspiring to the stage, there is a chance to work at Second Shot Productions, a social enterprise housed within the prison walls and specializing in theater, television, filmmaking, and graphic design. The production company, along with several other organizations, is housed within the prison’s resettlement wing, where prisoners spend their final three months before being released back into the free world. The wing is designed to replicate the outside community within the prison walls. Case managers coordinate intensive job training, job readiness, and reintegration services, all directed toward preventing inmates from returning to prison. This is a huge departure from most prison systems, which leave released inmates largely on their own to deal with the shock of reintegration into society” (loc. 2686).
Here is a short clip about Doncaster Prison:
Now, it is still too early to tell just how successful Doncaster Prison will be at reducing recidivism among its inmates; however, it seems certain that the approach itself is well-designed for success. And it is for this reason that the UK government has decided to test it out with several of its public services. As Eggers explains, “the Doncaster Prison project is part of a much larger initiative. The UK government is engaged in an ambitious experiment to shift funding across a range of public programs—everything from welfare to work to youth services to offender rehabilitation—to focus on real-world results” (loc. 2696).
And again, the impetus behind the shift is clear: the cost of public services is becoming prohibitively expensive for governments (loc. 133-43). What’s more, the traditional approaches that governments have taken in providing these public services have simply not been very effective. Thus if governments are to continue providing public services without ruining the bank entirely, new methods must be found to provide these services more effectively and for less money, and the pay-for-success model is particularly well-suited to satisfy these goals.
b. Social-Impact Bonds (SIBs)
As attractive as the-pay-for-success model is on its own, another innovation has recently come along that has increased its allure even more. And that is the social-impact bond (or SIB). Essentially, SIBs allow private interests to invest in the pay-for-success programs of governments. As Eggers explains, “social-impact bonds (SIBs)… represent an attempt to ameliorate the problems of volatile funding, lack of accountability for results, and an overcrowded field of nonprofits. This new financial instrument allows individual investors to buy shares in a project that has a clear and quantifiable social objective, such as reducing a school district’s dropout rate by a targeted margin. If the target is met, investors recoup their full investment; a missed target means some money is lost, while an exceeded target earns an attractive return. Thus the SIB guarantees long-term financing while spreading the risk between the three parties: government (which pays for the outcome), investors (which are willing to fund the outcome), and providers (which deliver the outcome)” (loc. 2732).
Together with the SIB, the pay-for-success model has become a very enticing option for governments (and other organizations), and thus it is no surprise that the model is beginning to catch on around the world. As Eggers explains, “pay-for-success models are spreading globally. President Obama pledged $100 million to pay-for-success schemes in his 2012 budget. Instiglio, based in the Harvard Innovation Lab, is consulting with developing nations on using SIBs to improve school attendance, access to potable water, and financial literacy. The UK organization Social Finance Limited has received funding from the Omidyar Network to develop SIBs in Ireland, Scotland, Australia, Canada and Israel” (loc. 2804).
9. The Prize Model
Closely related to the pay-for-success strategy is the prize model. Here, rather than the government hiring on a private contractor to provide a particular social service, the government comes to the public with a particular problem that it wants to solve, and offers a monetary reward to whichever entrant provides the best solution to the problem. As Eggers explains, “the organizers set a challenge, offer a prize, and then stand back as a horde of smart, ambitious people vie to produce the best solution” (loc. 2611).
Interestingly (though perhaps not surprisingly), the prize model was not originated by a government organization at all, but by the nonprofit sector. And some of the most successful prize schemes have in fact come out of this sector. Take the Wendy Schmidt Oil Cleanup X Challenge, for example. This prize scheme was put on by the nonprofit X Prize Foundation—a pioneer in the prize model strategy (loc. 2610). The cleanup challenge was put on following the Deepwater Horizon oil rig accident of 2010, at a time when the spill was pumping some 2.5 million gallons of oil per day into the Gulf of Mexico (loc. 2597). The challenge was this: it “aimed to double the industry’s best oil recovery rate to 2,500 gallons per minute and to improve the efficiency of oil collection by 70 percent, exceedingly ambitious goals” (loc. 2601).
The prize, which was set at $1 million, drew the efforts of some 350 teams—two of which actually met the scheme’s very lofty targets (loc. 2604). Here is Eggers describing the winning solution: “the winner, Elastec/American Marine of Carmi, Illinois, designed a system that dipped rows of grooved, rotating disks into the water perpendicularly, lifting goopy oil at the start of the rotations and scraping it off before it returned to the water. The invention, resembling a floating combine harvester, collected 4,670 gallons per minute, almost quadrupling the industry’s former best effort” (loc. 2608).
Though governments may not have been responsible for originating the prize model, it is certainly a strategy that plays very well into helping them meet their goals, and thus it is no surprise that it is beginning to pick up traction among them. The American government, in particular, has been a big early adopter of the strategy. As Eggers explains, “the US government now uses prizes extensively. Challenge.gov, launched in September 2010, provides an online platform that federal agencies can use to create competitions. Within its first two years, Challenge.gov posted 212 challenges from forty-eight federal agencies and awarded more than $34 million in prize money” (loc. 2628).
To give you an idea of what one of these prize schemes looks like, consider the Heritage Health Prize. In this prize scheme, “an HMO is offering a $3 million prize for an algorithm to help health-care providers reach patients before emergencies occur… In this case a $3 million investment could help capture some of the $30 billion wasted annually on unnecessary hospital admissions—and save thousands of lives” (loc. 2356).
10. Open Data
Both the prize model and the pay-for-success strategy certainly hold great potential when it comes to helping governments come up with efficient and cost-effective solutions to the issues they face. However, what some governments are finding is that sometimes the best way to encourage solutions does not require specifying a problem or offering an explicit incentive at all. Sometimes, the best route is simply to release some of the hordes of data that the government holds, and let enterprising individuals and businesses (both for-profit and nonprofit alike) use the data to come up with creative solutions on their own.
As Eggers explains, “enterprising citizens can build real-world solutions out of data. Data from sources as disparate as crime records, reports of power outages, and personal accounts of corruption all tell a story to those who can translate it. The possible uses for government data far exceed what even the best government agencies can devise on their own. Making such data public taps the power of vast networks of capable groups of individuals” (loc. 2096).
Now, tapping into the creative power of the public may not be the only impetus behind the open-data movement; however, it is certainly one of them, and the movement itself is definitely picking up steam. As Eggers notes, “at least sixteen national governments have major open-data initiatives. More than a million government datatsets are now available worldwide, compared with just a couple of dozen a few years ago. From Australia to Kenya, from Denmark to Canada, open-data projects are under way at all levels of government. Norway, for instance, has created a searchable forum for data called the Open Data Hotel, which allows any person to upload any data to an exchange accessible to anyone with a computer. The World Bank has released more than two thousand economic and societal indicators. Extensive open-data initiatives by the United Nations and OECD followed” (loc. 2105).
And some enterprising individuals and organizations have indeed begun to use some of this data to design initiatives that greatly contribute to the public good. A few of the more impressive schemes were put on display recently at an event hosted by the US Department of Health and Human Services. As Eggers explains, “having recently released troves of data, HHS is using the event to debut some of the best web and smarthphone apps driven by open government data. One app, designed by Silicon Valley-based Palantir, matches patients to clinical trials. Another from the University of Rochester overlays Centers for Disease Control and Prevention data on the incidence of disease and related tweets on a map to track the spread of illness. A similar solution traces the path of a recent salmonella outbreak. Maya Designs, winner of a ‘code-a-thon,’ used the US Department of Agriculture (USDA) Food Environment Atlas to highlight sources of cheap vegetables in America’s food deserts, areas lacking supermarkets or grocery stores. Each program, if successful, promise to save or improve lives” (loc. 2071).
And while this particular event focussed on innovations in health care, similar ‘datapalooza’ events have been hosted around the issues of energy and environmental innovation as well (loc. 2075).
11. Citizen-Sourcing
Yet another interesting and innovative approach being experimented with by governments recently is citizen-sourcing. Citizen-sourcing essentially enables everyday citizens to contribute to the public good either by helping to identify civic problems, or even help fix them.
For example, a program called Citizens Connect in Boston encourages citizens to snap photos of infrastructure problems and other issues that they spot around the city, and send them directly to city officials. As Eggers explains, “in cities like Boston, public works problems pop up like mushrooms after a rainfall. Potholes develop, graffiti appears, road kill must be removed. In October 2009, Boston city officials launched a simple yet elegant solution to this dilemma: a cell-phone application that allows the user to simply take a photograph of a problem and send it to the city. The application automatically collects GPS information and allows the city to generate a work order for a public works crew. It even sends citizens who report a problem a notification when the work order has been completed. In this way, Boston uses the eyes and ears of thousands of its citizens to enhance its awareness of problems that need attention. The cell-phone application accounts for 20 percent of all service notifications the city receives” (loc. 1726).
Other such programs go beyond allowing citizens to identify problems, and instead provides them with an opportunity to help fix them. Take the Adopt-a-Hydrant program in Boston, for example. The program—which is essentially an app—“allows citizens to commit to clearing snow from a fire hydrant, to keep it clear for fire department access” (loc. 2132). And the app, which is open source, is now being adapted for various other uses in other cities. As Eggers explains, “Honolulu uses it to have citizens commit to checking batteries on its tsunami warning system, Seattle to clear storm drains, and Chicago to organize volunteer snow shoveling. At least five other cities are investigating uses for the app” (loc. 2133).
The citizen-sourcing approach is also being used to help governments with decision-making. In Washington, D.C., for example, the municipal government “invites locals to vote on new uses for dilapidated buildings, allowing developers and site planners to learn what nearby residents prefer” (loc. 2519). And in New Zealand, the government has even experimented with allowing citizens to preview and amend proposed bills. As Eggers explains, “New Zealand updated its Police Act by posting the bill as an online wiki, inviting citizens to edit the law as they saw fit. Government employees monitored the edits for ideas before presenting them to parliament. The exercise showed that data exchange is multidirectional: governments share data with entrepreneurs and citizens, but citizens can share it back, improving government responsiveness” (loc. 2107).
Meanwhile, other municipalities are experimenting with a variety of citizen-sourcing that falls under the umbrella of crowd-funding—wherein citizens are given an opportunity to fund government projects that are particularly important to them (thereby speeding up their completion). As Eggers explains, “governments have… begun to get in the game with Philadelphia and other cities launching crowdfunding platforms to fund local projects like tree planting and park restoration” (loc. 2515).
12. Conclusion
The days of governments and nonprofits trying to solve all the world’s toughest problems on their own is long gone. For the fact is that it is neither acceptable nor choice-worthy for businesses to neglect the world of solutions. Thankfully, businesses are beginning to respond to the public pressure, and take advantage of the market opportunities that abound.
At the same time, it is just as encouraging that governments, nonprofits and businesses are beginning to open up to the idea of entering into partnerships with one; for, as we have seen here, oftentimes the best solutions come out of the collaboration of these players.
*To purchase the book at Amazon.com, please click here: The Solution Revolution: How Business, Government, and Social Enterprises Are Teaming Up to Solve Society’s Toughest Problems
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