Rethinking How to Finance System Health
Rob Ricigliano (Systems and Complexity Coach) and Anna Muoio (New Capitalism Project)
In the story “Which Way to Millinocket,” a tourist is lost on the backroads of Maine and stops to ask a local for directions. After several frustrating attempts to find a route to Millinocket, the local says in resignation, “Come to think of it, you can’t get there from here.” A frustrating truth for those working to improve the health of complex systems is much the same. We can’t get there from here — funding that goes mainly to programs built to solve individual problems will not lead to healthier systems.¹ ²
This kind of project-level funding, also known as funding point solutions, is appropriate to address urgent and immediate needs, such as responding to crises like the Covid pandemic or a houseless population at risk from exposure. However, they are insufficient when addressing the underlying systemic drivers that continue to fuel these urgent needs. It’s like working to ameliorate the painful symptoms of polio but not doing anything to eradicate the disease. To put it bluntly, if the only means for providing financial support for system health work is to fund point solutions, then we will fail.
Core to this problem is that we’ve built a set of norms, practices, and organizations to deliver funding for point solutions. This point solution funding architecture prioritizes and makes fundable impacts that can be attributed to the work of a project and that is often delivered by one organization funded to optimize its specific theory of change. In turn, this drives a landscape marked by a sense of scarcity, where leaders and organizations (both implementers and donors) compete for funds and credit. It drives fragmentation of interventions with little coherence around who is doing what, where, and why; and little to no incentive (or funding) for leaders to work through more cooperation.
In short, the point solution funding architecture undercuts our ability to fund other critical drivers of system health that go beyond individual projects. Changing the way we fund system health work will not be easy.³ Three partial correctives that might help are:
- Investing in strengthening enabling conditions for system health;
- Building and funding system health financing facilities;
- Creating portfolios that are formed and managed by a collection of actors who co-develop and share a broader system view.
“The world is rich in problems to address, but poor in clear pathways to do so. For philanthropists, this sobering reality makes figuring out the how much harder than deciding on the what.” ⁴
Invest in Strengthening Enabling Conditions for System Health
Funding at the ecosystem level means attracting and deploying investment that recognizes and is directed towards three sources of value — the proximate project, enabling conditions, and system health outcomes:
- Proximate Project Outcomes: These are outcomes produced by various point solutions designed to deliver targeted, time-bound, measurable impact; and which, ideally, come from, contribute to, or support the creation of enabling conditions. For example, specific social service programs, capital investments in physical infrastructure to support communities, appropriate technology development, reports and recommendations designed to educate and influence, and policy changes.
- Enabling Conditions Outcomes: These are outcomes that increase the probability of improving overall system health. For systems to evolve, project-level impacts need to combine or interact in ways that change core dynamics, conditions, and connections in a system that either hold problems in place or drive new patterns that improve the health of the system overall. There are two types of enabling conditions:
- Context-Specific Enabling Conditions. These are conditions that relate to particular characteristics of a system that may not be present or relevant to other types of systems. For example, for an initiative aimed at reducing enslavement of people in corporate supply chains, an enabling condition might be whether investors consider supply chain opacity and the risk of enslavement of people in rating the riskiness of an investment. Or, for an initiative aimed at reimagining capitalism, an enabling condition could be building field-level capacity for promoting alternative narratives that counter the dominant (and destructive) narrative about the purpose of the economy.
- Generic Enabling Conditions There are certain conditions that research and lived experience suggest improve the health of any ecosystem and are often the “invisible” work of aligned action that can be hard to track, measure, and document. As such, they do not fit into a traditional calculus of value. For example, open networks that improve the quantity and quality of relationships among a range of ecosystem actors; increasing the flow of information and learning throughout an ecosystem; building trust among diverse leaders; improvements in the ability of system actors to build a shared understanding of the complexity of their system; the long-term, hard, and patient work of supporting a group, including donors and implementers, to build a shared vision for a system’s health to guide greater alignment; reduction of fragmentation; and increased uptake of more strategic action. - System Health Outcomes: These are outcomes that serve as key measures of system health for people and the planet and are the result of outcomes at the proximate and enabling condition levels. These outcomes are ends in themselves as opposed to projects and enabling conditions which are a means to improving system health outcomes. For example, the level of individual or community well-being, indicators of environmental health, and decreasing levels of violence or poverty.
Funding for proximate project outcomes/point solutions is the current norm and attracts the lion’s share of funding. Social impact bonds invest in overall system outcomes. Enabling conditions are the most neglected when it comes to investing in system health. Funding the enabling conditions requires new investments that go beyond time-bound projects and involve outcomes that are not attributable to an activity, implementer, or funder. As such, they don’t often fit into the existing funding architecture or time frames driving the deployment of philanthropic dollars.
Take for example the Mi’kmaw Native Friendship Centre, a holistic community center in Halifax, Nova Scotia. Jayne Engle, who co-leads the 7th Generation City initiative, introduced us to the Friendship Centre. As Jayne describes it, the Centre delivers full life cycle programs, from maternal health, to parenting and after-school education, environmental stewardship, housing and shelter for the most marginalized communities, and Elder support. Most programs aim to serve primarily Indigenous communities, however one community-driven and capability building platform, called Every One Every Day, provides a peer-to-peer learning and collective making neighborhood shop, that is a social infrastructure inclusive of everyone. All of the work embeds commitments to Indigenous Truth and Reconciliation.
The Centre is deeply valued by more than 7,000 participants annually. It attracts funding for programs it offers as well as for the physical infrastructure. However, the Centre also contributes to important enabling conditions that support a healthier system in Halifax, such as deeper relationships among community members and strengthening of social cohesion and local resilience, including in times of disaster. Value is created through the social infrastructure being built by participants — Indigenous, African Nova Scotian, newcomer, and other non-Indigenous communities, who are co-producing increased trust between people and organizations and greater learning about Halifax as a complex, adaptive system. These conditions are essential to improving the health and resilience of Halifax; but because they are not qualities that the Friendship Centre alone can claim credit for, they tend not to be something that can be used to raise additional funds.
Build and Fund System Health Financing Facilities
One key to moving beyond a point-solution funding architecture, and toward funding the enabling conditions so critical to system health, is to build a facility that can look and act holistically across a system. This facility makes system health its primary objective rather than the health of a single organization, individual donor, or isolated project. It is a structure that brings a range of system actors, including the holders of financial capital, into an ongoing and dynamic relationship. The facility might take a range of forms — an open network, retooled existing organization, collaborative fund, etc. The label matters less than its functions.
This facility would provide structure and support to help leaders drive and govern their aligned, system-health oriented work. Their proximity to the system and commitment to center shared vision and agendas — not solely their organizational missions — helps shift the gravity away from isolated interventions and funding strategies. This necessitates a different way of orienting behind system health and a sober-eyed recognition that these outcomes won’t emerge “naturally” or as byproducts of numerous point solutions.
Key attributes of a system health facility include:
Providing core “generic enabling conditions” that are historically difficult to fund and critical for system health by providing resources, capabilities, and functions that do not happen on their own. These functions must be valued, funded, and attended to — systematically and over time.
- Connection and Collaboration: The health and resiliency of natural ecosystems is greater depending on the number and quality of connections across the system. The same is true of human ecosystems. A strong system health facility is able to convene diverse actors from across the system. It also creates a space for those actors to co-operate, pool resources, and make decisions about how to adapt their experiments over time. A key function of the facility is to combat the tendency, aided by the point-solution funding architecture, for donors and implementors to compete for funding and recognition.
- Learning: It is flexible and iterative — allowing experiments to unfold without trying to assume a multi-year plan for implementation. Complex issues defy tidy logic models. Financing system health must support the experimentation, learning, and adaption that is part of the business of system health. The facility can serve a key function of increasing the pace and dissemination of learning across the ecosystem. This requires a commitment to supporting the experimenting, failing, succeeding, learning, and adapting throughout the expanding ecosystem of leaders and interventions which tends to be an uncomfortable proposition in a more direct-outcome, project-level funding ecosystem.
- System-level sensing and sense making: The facility must enable a dynamic system-level view that is shared across a significant number of key system actors. It is fueled by facilitated processes and methodologies where ecosystem leaders and portfolio participants have the agency to identify shared problems and key learning questions, and engage in the reflective capacity and ongoing sensemaking across specific interventions to remain adaptive. Neither co-operation nor iteration will happen without active facilitation among ideas and the people driving them — a critical enabling condition that is often under-funded, if funded at all. This necessitates a shift from the individual (leader, organization, donor) to the voluntary collective which, together, creates the coherence needed to explore the impact of true movement ecologies.⁵
Building new portfolios that bundle system health outcomes, enabling conditions, and point solutions. The facility can move beyond the point-solution architecture by:
- Looking across, valuing, and investing in the three levels of outcomes that drive system health by better integrating the value of all three layers.
- Providing different time scales of returns (near term of 1–2 years, aggregate 3–10 years, system ongoing).
- Combining different types of funding that have different risk profiles and needs for return (e.g. using some philanthropic capital to de-risk other types of investment capital).
- Putting system actors in control of allocating financial capital across the portfolio of interventions while remaining committed to the connection, learning, and sensing articulated above.
Take for example Hawaiʻi Investment Ready (HIR) which runs the Hawaiʻi Food Systems Accelerator program. The initiative built a system health facility which takes the form of a network of enterprises and funders from across the sustainable food system in Hawaiʻi. It aims to “build relationships and increase collective capacity to seed possibilities for deeper systems-level collaboration and problem-solving.” In particular, HIR:
- Provides backbone support to the network of food system actors;
- Uses experts in complex systems to help the network develop a shared, system-level view (system sensing and sensemaking);
- Helps network members identify enabling conditions and pathways for improving system health (over a 20–25-year horizon), and share what they need to pursue those pathways;
- Strengthens connections, relationships, and trust between network/system actors so they can work better together;
- Builds blended capital stacks, from across the private sector, government, and foundations and uses philanthropic funds to de-risk other investments;
- Holds weekly coffee hours and monthly learning meetings to maintain relationships, build system consciousness, and accelerate and widen the flow of important information.
HIR’s work touches on several generic enabling conditions for improving health of the food system in Hawaiʻi. It directs the flow of capital toward enabling conditions and not just toward individual projects. It provides backbone support and convening power to build and sustain a system health facility. And, like others playing a similar role have found, these functions are critical to system health despite being the hardest activities to fund.
Create Portfolios that are Formed and Managed by System Actors
The System Health Facility has two other key attributes that go beyond the point-solution funding architecture by changing the role of those that provide financial capital. In particular, the System Health Facility:
- Provides greater transparency and accountability to the system: The facility creates a voluntary separation between individual donors and the allocation of capital to projects. It does this by bundling types of capital from different sources and moving allocation of that capital solely out of the hands of individual donors. In turn, this increases transparency and creates a level of collective accountability that sits above any individual funder.
- Supports more democratic and adaptive governance: Decision making about disbursement of the funds is made by a dynamic community of system actors themselves. This allows leaders on the frontlines of change to adapt their efforts and the allocation of financial capital as new opportunities or challenges emerge. This pushes the edges of how funds are typically governed and allocated. Adaptive challenges require an adaptive ecosystem of change makers fueled by an equally adaptive funding mechanism and voluntary investor cohort excited about the new investment opportunity.
Take for example the New Capitalism Project (NCP), a field-level “utility” to support leaders and funders in bold and co-operative efforts to reimagine capitalism. NCP’s Economic System Health Lab, launched in 2022 and hosted by the Global Impact Investing Network, is an experiment in how to support critical enabling conditions and build new portfolios of interventions. The Lab currently supports the development of ten ideas surfaced from leaders most proximate to the system. Each idea in this portfolio works to manifest a key part of the shared vision developed by a cohort of system leaders, as well as tackle the set of identified barriers to it. It strives for far greater coherence and cooperation than currently exists in this ecosystem.
NCP is also experimenting with more democratic ways of decision making and operating on several levels. The shared vision and portfolio strategy that sit at the center of NCP’s work was developed by a group of leaders from the ecosystem who worked over many months to bridge differences and explore how they could ladder up to a larger movement for change. From this group, a governing team of leaders with diverse life experiences representing a range of organizations — from impact investing to indigenous economics and policy to economic justice — selected ten leaders and ideas to join the Lab and turn vision into action. These system actors were empowered to allocate $500,000 of the raised philanthropic funds (via ten $50,000 planning grants) to support leaders in the Lab in developing their hunches into ideas that make up the system health portfolio of interventions.
In doing so, the leaders built what is so integral to system health work — trust and awareness of how their own work fits into a broader whole and a commitment to stay in relation with each other as the move to experiment with their ideas. In many ways, coming up with new ideas isn’t the hardest part of system health work. Rather, it is cultivating the fertile soil in which ideas can germinate and leaders can work together in more connected and adaptive ways, perhaps the most important enabling condition.
So What’s New About This?
Moving decision making out of the hands of providers of financial capital is not new. Those who embrace trust-based philanthropy and participatory grantmaking have been doing this for years. And these practices can still be used to serve the point-solution architecture so long as they apply to the work of a single donor or fund.
What we hope is additive is taking the thinking and practice behind an innovation like trust-based philanthropy and applying it at the collective or whole-system level to create a structure that moves us beyond the project as the unit of action, or the funder (and their fund) as the primary actor. It is a recognition that those trying to improve the health of a complex system, especially donors, see themselves as part of their own “change system,” as Sanjay Purohit would put it. In turn, we hope the building of new system-level financing facilities is a key enabling condition for improving system health.
[1] First a note on language: We are referring to this as system health work instead of system change work because the word “change” casts this endeavor as being more linear and time bound than it actually is. “System change” can imply that the task is to move a system from one state (A) to a new state (B) and once that is done, you have achieved system change. While that is not untrue (e.g. key elements of systems change all the time), it belies the ongoing, infinite nature of systems. In contrast, the word “health” implies an ongoing task (e.g. while your health might wax and wane over your lifetime, your health is an ongoing concern.) Other common alternatives to the term system change are “shifting systems” or “system transformation.” Both are improvements on system change. They stop short of naming the goal (healthier systems) and emphasize the ongoing nature of system health work.
[2] Also, we want to credit conversations with Raj Kalia and Jayne Engle of Dark Matter Labs and Ilse Treurnicht of Twin River Capital for providing the early inspiration and ideas for this blog. Discussions began at the 7GenCities Civic Infrastructure Financing gathering in July 2023 (see report here).
[3] There are leaders and organizations across the globe highlighting the need to shift away from a point-solution funding architecture. We are grateful to be in conversation and learning from many of them, including: UNDP Strategic Innovation, Dark Matters Lab, Transformation Capital, FEST, TWIST, the Griffith Centre, to name a few.
[4] “Ten Ways to Make a Big Bet on Social Change,” Stanford Social Innovation Review.
[5] With gratitude to the powerful work of the Ayni Institute and their Movement Ecology framing.
