Nonprofit culture in outcomes-based financing: Learn fast, fail smart, perform like a pro

In the evolving social sector landscape, Indian nonprofits face a critical question: Are they truly prepared to deliver and demonstrate outcomes of their interventions?

Traditionally, nonprofit funding has focused on inputs, with success gauged by the completion of planned activities. However, funders and stakeholders now ask the “so what” question – seeking clarity on the actual outcomes of interventions being funded.

This shift has paved the way for outcomes-based financing (OBF), where funding is linked to measurable and verifiable outcomes, thereby strengthening accountability to outcomes. The transition to an outcomes-focused approach necessitates fundamental changes in how nonprofits design, implement, and evaluate their programmes, as well as their organisational systems and processes to support this shift.

At the core of the transformation is the concept of outcomes readiness – a nonprofit’s ability to integrate outcomes-driven thinking into its strategy, processes, and capabilities. Readiness to participate in OBF introduces additional demands on these core functions, which can be thought of as ‘plus-plus competencies’ as illustrated in this outcomes readiness framework.

However, beyond technical adjustments in organisational capabilities and programme maturity, the most critical enabler of outcomes readiness is an outcomes-oriented culture – one that permeates every aspect of an organisation's operations and decision-making.

Organisational culture is the invisible thread that binds a nonprofit, shaping its values, behaviors, priorities, and actions. An outcomes-oriented culture and mindset prioritises results, accountability, and ongoing reflection and learning for continuous improvement, all grounded in data and evidence. Outcomes culture integrates three fundamental pillars – performance culture, knowledge and learning culture, and innovation culture, that are all interdependent and mutually reinforcing.

1) Performance culture

In a typical work setting, success is often measured by completing tasks, such as ‘did we hold the agreed upon number of training sessions?’ or ‘did we distribute the targeted number of tablets?’. A performance culture focuses on results and targets on the end results, such as ‘did the training actually improve skills and provide jobs for at least 70% of the trainees?’. This means setting clear, measurable goals on end results, not just activities, and tracking progress rigorously. This approach creates a results-driven mindset where teams are comfortable working toward concrete, time-bound targets.

2) Knowledge and learning culture

In many organisations, learning happens after something goes wrong. Teams reflect on mistakes, document lessons, and vow to do better next time. But in an outcome-oriented culture, learning isn’t just an afterthought – it’s built into daily operations. Teams proactively share insights, use real-time data to make informed decisions, and constantly tweak their strategies to improve outcomes.

3) Innovation culture

While most organisations adopt incremental improvements and adaptations to change, an innovation culture for outcome readiness emphasises agility, flexibility, and solutions. Teams at all levels, from leadership to frontline staff, actively test and refine strategies based on ongoing feedback. This enables quick pivots and iterative improvements to remain responsive in dynamic contexts. It also forms a continuous loop of ‘testing-assessing-refining'. A certain degree of decentralised decision-making and delegation of authority is essential for this way of working, along with a willingness to try new things, fail early and quickly, iterate and retry (aided by the non-profit’s ability to negotiate a risk-reward sharing between nonprofit and donor as part of an OBF project).

A real-life example where all these three sub-cultures come together can be seen in the way that training partners now operate under the Skill Impact Bond, India’s first and largest development impact bond for employment. Under this initiative:

1) The training partner sets clear, measurable, and quantified targets not just for enrolment, but for job placement and retention rates of women enrolled in its training programme at the beginning of every cohort.

2) The partner collaborates with its operational team, including front line staff, to plan and execute the activities to achieve these targets, often breaking them down into location or section wise targets.

3) The training partner collects and analyses almost real-time data on key progress indicators, identifying reasons for dropouts at every stage of the skilling cycle.

4) Using these insights, the partner designs and pilots micro-innovation strategies to reduce dropouts.

5) After multiple cycles of testing and evidence of success, these innovations and learnings are embedded in all programmes.

1) Sharpen your mission narrative to articulate outcomes clearly

Define specific, measurable outcomes aligned with the nonprofit's mission. Translate high-level goals into actionable metrics that reflect tangible progress. For example, instead of ‘improving education’ focus on ‘increasing literacy rates among children by 20% over two years’. Similarly, shift from activities such as ‘training 500 women’ to articulating and measuring outcomes such as ‘increasing employment rates among trained women by 30% within six months of programme completion’. Tie funding proposals and donor communications to measurable outcomes.

2) Review your leadership style

Leadership should champion an outcomes-focused approach in decision-making, allowing for innovation, initiative, and agility. Allow autonomy in operations, but accountability for outcomes, rather than the other way around where you micromanage activities but don’t set clear roles and responsibilities towards outcomes. Enable your teams to experiment, based on data and evidence, and if they fail, use that as a learning opportunity.

As an OBF funder noted, “There’s a lot of emphasis on the leader – on their conviction, confidence, and impact focus. They are not afraid to experiment and adapt, which allows them to ensure sustainability beyond the organisation's direct involvement."

3) Engage and empower employees

Train staff at all levels, especially front-line teams, to integrate outcome metrics into their work and also show them the real benefit of doing so. Encourage collaboration with staff in goal setting and success measurement. Recognise and reward contribution to outcomes, while ensuring that perverse or adverse incentives are not created. Clearly define performance expectations through Key Result Areas (KRAs) and Key Performance Indicators (KPIs) aligned with organisational goals and end outcomes, helping staff understand how their actions drive outcomes.

For instance, under the Quality Education India Development Impact Bond, the management teams of two service providers conducted multiple school visits throughout the year and implemented weekly check-ins with the field teams until the programme stabilised. To reinforce an outcomes focus, they collaborated with field teams to develop targeted strategies, such as an internal campaign promoting 35 minutes of daily digital learning tool usage per student. To ensure accountability, they tracked this metric at the school level. This direct engagement helped teams understand how their efforts contributed to broader programme goals and encouraged real-time course corrections.

As a nonprofit partner noted, “The outcomes focus of the DIB meant that each team member knew what was expected and what had to be achieved leading to a sense of purpose, clarity, and uniformity of goals. Our team members who are now moving to different programme are taking this target-driven mindset with them.”

4) Create fit-for-purpose data systems

Develop systems and tools to collect, analyse, and report data effectively. Ensure that the data collected is meaningful and actionable rather than overwhelming. Collaborate with beneficiaries, funders, and partners to define outcomes and success. Use feedback from stakeholders to refine programme and ensure relevance. Share results transparently to build trust and foster engagement.

Learn what is expected from Monitoring & Evaluation (M&E) under OBF here.

5) Set targets on outcomes

Start small by setting outcome targets on outcomes for smaller projects or regions by:

• Looking at your own previous initiatives. What were the baseline outcomes before your interventions? What improvements were achieved? Were these results consistent across different groups? What factors led to success?
• Reviewing impact reports from similar organisations or systematic reviews on interventions (for example, J-PAL or 3ie) to understand what has worked and benchmark your projected increases.
• Factoring in local context and risks to ensure targets are achievable and realistic.
• Conducting participatory goal setting with communities to ensure targets align with their realities.

6) Foster a learning environment

Emphasise that outcomes measurement is intended to drive learning and improvement, not punishment. Create a safe space for discussing failures and lessons learned and regularly review progress and adjust strategies. Provide on-the job learning opportunities and integrate a learning mindset into everyday practices to promote continuous improvement.

In conclusion, outcomes readiness empowers nonprofits to effectively demonstrate the value of their work to stakeholders, strengthen credibility and access innovative funding streams like OBF. However, this transformation goes beyond meeting external expectations. It is fundamentally about creating an organisational culture maximising the impact of interventions to deliver the greatest benefit for communities.

Note: This article draws on insights from in-depth interviews with nonprofits, funders, and ecosystem stakeholders engaged in OBF in India as part of the development of the Outcomes Readiness Self-Assessment. You can use the online self-assessment designed from these insights to assess if your MEL and other organisation functions are ready for OBF.