Nexii’s Justine Raschio attended the two day intensive workshop hosted by ACTKnowledge in New York City in January to explore and experience the ACTKnowledge’s version of the theory of change process. 

The theory of change process for ACTKnowledge is derived from successful social change models, but the application of the process has significant similarities to how the sciences have used the scientific method for generations to test and expose the robustness of a theory and hypothesis with trials, control groups, studies, etc. A theory of change, as understood from the workshop and Nexii’s own experience, is the visual output (a mapping of casual linkages) that is developed through a participatory and collaborative group dialogue on the key operational activities to be implemented to meet a specific series of targets that can likely create an enabling environment for a primary purpose to be realised. Broadly defined like this, a theory of change can be flexible and used to reach commercial, charitable, non-profit, public or impact investing potential, which is critical as the differences between these types of entity structures are beginning to blur, and hybrid models are emerging to better position entities to deliver improved products and services. Increasingly also, variations of the scientific method, like a theory of change, are being repurposed and made relevant to other disciplines to test the viability of ideas and intended outcomes.

This article aims to reflect on the significance of ACTKnowledge’s version of the theory of change as a planning, evaluation and communication tool for high impact initiatives, intermediaries and investors in the impact investing field. Furthermore it is interesting to question and strategise how this method feeds into other impact monitoring and evaluation tools (Social E-valuator), taxonomies (IRIS) and ratings systems (GIIRS). 

For example, if the primary purpose (hypothesis or ultimate goal – getting back to the similarity to the scientific method) of a social enterprise in rural Botswana (with grants from the local government and NGOS, as well as investment from a family office in Switzerland) is to have 85% of the local community consistently (let’s say twice a year) testing and following through on post-testing plans for HIV/AIDS to ensure a healthy, employable workforce by 2030, the social enterprise may use the theory of change process in planning for the next three years by:

1.)    The executives, management, and staff of the social enterprise would firstly convene to air their assumptions. In the Botswana example, it would be important to air the assumption that HIV/AIDS is prevalent in the communities in which the social enterprise is working. It could be possible that there is a confounding factor, aside from HIV/AIDS, that is preventing the local population from high productivity.

2.)    Secondly the group would define and ensure group understanding of the initial targets they must meet to build the enabling environment in which the primary purpose can be achieved. Initial targets in this example might be that there is a full service testing center in the community, that education is available to student-age members of the community, that there are water and sanitation services available, that there is a functioning local government in the community, etc. Of course some of these initial targets will be outside the scope of activities the social enterprise takes on, but highlighting the entire system changes that need to take place emphasis which partnerships will be critical for the advancement of the primary purpose.

3.)    Once the abovementioned initial targets are set, the key operational activities to reach these targets can be outlined.

4.)    Next indicators are tied to the key operational activities to establish a baseline, monitor and measure success to meeting the initial targets.

5.)    After the activities and indicators have been outlined, the theory of change process closes and feeds into the development of action plans (why, who, when, where, how), financial projections, and resource allocation.   

Most importantly for planning purposes, clearly understanding why (the rationale behind linkages to achieving the initial series of targets, developed through a theory of change process) the primary purpose of high impact initiative should be pursued aids in accurately defining how (through the action plans, projections and allocations developed subsequent to a theory of change process) it will be achieved, because it maintains the focus on the development of an entire system and not on specific parts in isolation from one another. However, the only way to ensure the theory of change is updated to reflect to the latest iterations of the theory as well as progress made on meeting initial targets is to address it at every management meeting.

This holistic approach benefits the evaluation of high impact initiatives because the visual output of a theory of change process allows both financial and impact advisors and auditors to distinguish between the failure of the theory, and failure of implementation.[1] Helene Clark, the director of ACTKnowledge, says “the aim in evaluation is to see if whether the theory of change map holds.” Furthermore, Helene adds, “if a participant in the process stumbles over explaining a casual linkage or the specific parts in the story, there is problem with part of the theory that will impede the roll out of the strategic planning and resource allocation.” In our Botswana example, if all of the action plans were implemented as intended, the indicators monitored showed success, and the initial targets were met, but the workforce is not more employable in 2030 than they were in 2012, then likely there is a failure in the theory. Whereas if there isn’t a more employable workforce in 2030 and through tracing the initial targets, the indicators, and key activities of the system through to the actions plans, and it is found that the action plan was not executed as intended, it is likely there was a failure of implementation. Furthermore this ability to distinguish between ideas and operations can be useful for high impact initiatives to more accurately define the taxonomies that speak most to their primary purpose and to the key activities that will bring it to fruition, and also to understand ratings they may receive from the likes of GIIRS, etc. As high impact initiatives are better able to communicate the complexity of their hypotheses for change they may be able to better compare and contrast the feedback they receive from ratings systems and potentially may be able to better inform the development of taxonomies and ratings systems or agencies going forward.

Through a more structured, rigorous and thoughtful process (like a theory of change, or another variation of the method should one become available), high impact initiatives will be better positioned to communicate to potential investors and grant makers about how the business model feeds into and makes possible the success of the impact initiative. Initiatives will be able to visually demonstrate the causal relationship between the business activities to the initial targets and indicators that have been defined as the milestones to define a success in reaching the high impact primary purpose. Specifically, ACTKnowledge believes that the method of theory of change they have developed can help a high impact initiative prove the plausibility (identifying everything that is necessary and sufficient), the feasibility (identifying the capacity, reputation, resources, etc., that will be required) and the testability (identifying the scope, monitoring and evaluation necessary to scale and/or replicate) of their primary purpose. In reverse, now that investors and donors will have deeper insight into the keys areas of vision, operations and evaluation (essentially the reason why the high impact initiative thinks the change they are looking to see in the world will happen), they will become better equipped to evaluate their current portfolios of impact investments, as well as to improve their impact due diligence on future investments.

To the benefit of high impact initiatives, intermediaries, and investors “using a theory of change process will help to reconstruct what the intentions were behind the actions taken.”[2] Currently, “people tend to get too focused on what they are going to do and less about the results,”[3] and a using a theory of change-like process can help to bring both investors and intermediaries back to the heart of the initiative they are evaluating for investment.  

Dr. Clarke describes it simply, “when two long term outcomes (attractive financial returns and sustainable high impact) are dialectic, it is critical to understand the conditions and pathways that enable the daily activities to achieve the outcomes work in support of one another, and that the outcomes are never seen in competition.” Additionally, the significance for Nexii and the impact investing field of the theory of change process is that it will (there is no question) help to highlight for the entire ecosystem the inputs of high impact initiative that are within their sphere of control, the outcomes the initiative is looking to achieve, which is in their of sphere of influence, and the ultimate impact or state of being they believe is possible in the world, which is their sphere of interest.[4]  The question will then be to the impact investing community, what leverage, the investment (capital, technical assistance, etc.) we can commit to provide, to realising the intended outcomes of high impact initiatives at scale?