Impact Management | January 25, 2024

Disrupting Dysfunction: Working from inside and outside to drive systems change

Dennis Price and David Bank
ImpactAlpha Editor

Dennis Price

ImpactAlpha Editor

David Bank

ImpactAlpha, Jan. 25 – Systems change is a contact sport for grownups, says Gillian Marcelle. 

“There will be betrayal. There will be sabotage. There will be resistance. There will be backlash,” Marcelle, founder and CEO of Resilience Capital Ventures, tells Monique Aiken on the Into the Record podcast from Make Justice Normal. “If we engage in this work as a collective, and we are drawing on all of our resources, including art and culture, I think that we will triumph.”

In this moment of resistance and backlash, collective successes are crucial for building popular support, delivering tangible positive impact, and mobilizing even greater momentum and resources to meet urgent challenges and drive transformational change. 

Take the case of Recidiviz, a San Francisco-based nonprofit social enterprise committed to criminal justice. Recidiviz identified a problem with data fragmentation within the US prison system that was leading to people remaining incarcerated even when they were eligible for parole. Their platform fixes this problem and has helped over 100,000 people accelerate out of the system.

At first, the organization set out to make data available to outside advocates working on reform. They quickly learned that it was people working inside prisons, including corrections agencies and public agencies, that don’t have the data. What they do have, they don’t know how to use. 

“We shifted the strategy to work with the corrections agencies themselves to solve their problems,” Recidiviz’s Serena Chang told ImpactAlpha. They built the tool “by just talking to the people who are running the system, or in the system, or around the system.

“Data alone won’t fix the justice system,” Recidiviz states in its annual report. “But it’s helping agencies across the country find and fix broken processes.”

Leveraging infrastructure

The criminal justice nonprofit was the lead example in ImpactAlpha’s recent article on Draper Richards Kaplan Foundation’s “leverage-first” funding strategy that seeks to drive change by providing grants for-profit and non-profit ventures working within existing infrastructures of health, education and criminal justice, rather than disrupting them. 

Helping public agencies and prison operators manage their records and process may not be a “disruptive innovation,” in the sense made popular by the late Clay Christensen in the business strategy classic, The Innovator’s Dilemma.” 

But delivering results on the ground (e.g. accelerating more than 100,000 people out of prison) helps build constituencies among both criminal justice reform advocates and budget-conscious officials, many of whom face court-orders and other mandates to reduce prison crowding. Such efforts are resilient in the face of a polarized political climate, DRK Foundation’s Jim Bildner said in ImpactAlpha’s report on DRK’s analysis of the impact performance of its more than 200 portfolio companies. 

In an earlier post in Stanford Social Innovation Review, Bildner and DRK’s Stephanie Khurana acknowledge many complex societal problems can’t be fixed by working within systems.

“But in a world where policy change from the top down or from the outside is often impossible, another approach should be considered, especially for organizations seeking to get the most immediate impact for the resources they have.”

DRK’s reflection on social-change strategies, and Marcelle’s critique of it, sparked a vibrant debate on LinkedIn. Among the issues raised: Do such systems-improvement strategies represent a retreat, or reality? How best can systemic failures like racial, gender and economic injustice be redressed? How might incremental-change approaches and systems-change strategies become complementary, not contradictory? 

And: How can we harness the power of capital markets? And what is systems-change, anyway? 

System-level investing 

The complexity and interconnectedness of systemic risks, opportunities and impact has led some investors to look beyond individual investments and even their own portfolios to embrace a range of “systemic” strategies. 

Bill Burckart of The Investment Integration Project, or TIIP, says both incremental change and disruption play a role in transforming systems (disclosure: podcast host and ImpactAlpha contributing editor Monique Aiken is managing director at TIIP).

TIIP supports investors to take a systemic approach to change. An investment in a disruptive technology alone, for example, won’t alone solve complex social and environmental problems, says Burckart. “The incentives, the constraints, the legal and regulatory environments, the key components for awareness for action, all of those things have to be on a progression of shifting.”

Is systems change about disruption or incremental change? “Where we come down at TIIP is that it is both,” Burckart tells ImpactAlpha. Some innovative actors, for example, are able to go faster and demonstrate what the new paradigm and what that new system could look like. Certain incumbents, he says, have to move slower because of the constraints that they operate within.

Systems-level investors, according to TIIP, push on at least three levers. One, they must assess how their activities work to address a systemic issue. They must also evaluate how they can influence others in the financial community to address a systemic issue. And finally, they identify how certain actions may accelerate the shift of fundamental paradigms of a system. 

“If you’re taking a more incremental approach than you do have the vision for the new system in mind,” says Burckart. Absent that kind of goal setting, ”it’s hard to claim that you are ultimately driving a strategy that will achieve transformation.”

Bottlenecks, blind spots and blended finance

Incremental change isn’t enough, says Marcelle. “The way we are going to succeed in these changes that we’re making to financial and other systems is through changing the narratives, building movements, and then ensuring that the change agents have the tools and the practices that would enable them to be effective,” she told Aiken.

Resilience Capital Ventures helped design the Bahamas Sustainable Investment Program, a blended-finance facility that is mobilizing capital for climate-resilient infrastructure, coastal conservation and a clean-energy transition for the small island nation.

Marcelle’s Triple B Framework, for “bottlenecks, blind spots and blended finance,” emphasizes the role of structures, processes, cultural rules and norms in capital markets. Her definition of blended finance, for example, values other forms of capital (knowledge, social, cultural, relationship, network, and political), in addition to financial capital, as an equally important part of the equation.

“Systems changers don’t do tweaks,” Marcelle wrote on LinkedIn. “We take intentional steps with goals in mind.”

“Impact investors, including foundations, should be funding ecosystem strengthening and activators with long term programmatic financial capital and other forms of capital.” 

“By funding narrative change, movement building and techniques to support leadership and organizational resilience,” continued Marcelle, “the disruption and dismantling of the harmful status quo is supported beyond project lifecycles.”

As examples of individuals and social enterprises advancing disruptive systems change, Marcelle points to Maven Collective, Taishya Adams, Emily Anne Gendron, Vanessa Roanhorse, Cathy-Mae Karelse, Make Justice Normal, Amma Gyampo, Charlotte King, Dr. Tiara Moore, Dana Clare Redden, Daniel Smith, Ajaita Shah and Anil Gupta.

Joy Anderson of Criterion Institute suggests social enterprises can’t change systems on their own. “Most enterprises don’t have the power to transform,” she wrote. “They have to operate inside of systems that do not work.”

Even if an enterprise’s innovation can disrupt, they need to be operating with others, she says.

“Systems change is a team sport,” she says. “Impact investors need to do a better job understanding how to use their power to support and engage with political, social, cultural and market systems to find a collective path to transforming unjust systems.”

Criterion’s 20th “Convergence” event, set for March 18 and April 24 online, is themed “All Things Systems.” Among the questions to be addressed: How can finance be leveraged to redefine and reshape existing systems to be more inclusive, equitable, and sustainable for all? Who determines which emerging and ever-changing economic, socio-political, and market-related events are deemed systemic risks? How would we invest differently today if we believed a just and equitable future were possible?

Scaling deep

The tensions played out in a lively debate

“Systems that promote inequality and justice need to be disrupted,” said Leisa Perch of SAEDI Consulting. “We need to be clear-eyed and honest about that Incrementalism and tweakism are not serious responses.”

“Investors love disruption when it is profitable and doesn’t disrupt the social order,” added Transforming Power Fund’s Mark Greer. “Some of our systems need to not only be disrupted but dismantled.”

“Enterprises have the power (at best) to plant the flag and signal that system change is needed,” warned Sven Stenvers of Impact Seed. Needed, says Stenvers, is “a big swing in capital moving towards giving up power and risk/return rates to underserved communities.”

“Tweaking is not the answer,” added Kevin Jones, who founded SOCAP in 2008. Jones, who will host Neighborhood Economics next month in San Antonio, said, “My work used to be global, but the deeper work I can help with is place-based.”

“The point being made loud and clear is what’s needed is those who are sincere and willing in positions of influence over allocation, truly, to stand up,” says Emily Anne Gendron of Human Possible. “Wayfinders have been shouting into a void and being asked to move mountains with a fork.”

The debate highlights a difference in urgency about systemic change, argued Astrid Schulz of Armillaria, which last week acquired NeedsList, a crowdsourcing platform for humanitarian organizations. “It’s incumbent on funders who by virtue of holding the power and the purse to reimagine the way they do business, and let themselves be guided by the people at the literal and proverbial frontlines of change.”

A juxtaposition to scaling up and out is scaling deep, said Rachel Sinha of The Systems Sanctuary. Small moments lead to the big moments, says Sinha. “We know we need to scale, but you can’t build shiny objects on top of places that first need healing, or relationships strengthened.”

“Too much disruption and you’re not listening to the community, too little and you’re nibbling at the edges of broken paradigms,” said ANDE’s Devin Chesney. Individual enterprises, says Chesney, struggle to shift the incentives that drive system change. “Donors especially need to pull their heads up out of the individual transaction level and think about how their work might add up to bring about prosperity where there was desperation.”

“The system needs disruption,” said Bill Shireman of Future 500. “This goes well beyond tweaking, but not to destruction.” Those who only act inside are highly restricted from making bold changes, says Shireman. “But to disrupt is not to destroy.” To get to a more just system, he says, people inside and outside every existing system need to be engaged. “It’s different from revolution and evolution – it triggers transformation.”