Paul McDowell, chief executive of the crime reduction charity Nacro, has criticised charities that focus on finding funds for their existing work rather than taking what he called an innovative approach.
Giving a lecture at Cass Business School in London last night, he said: "Many charities ask if they can find someone to continue funding what they already do. Instead of thinking innovatively, they look at all sorts of different ways, such as trust funding, corporates and the government, to keep on delivering the same services."
He said that in some cases this was acceptable because charities had done research that demonstrated their existing work had successful outcomes. "But unless they can prove that they have good outcomes, I think the approach is difficult to justify," he said.
McDowell told the meeting that he ran Nacro like a business. "If you don’t run your charity like a business, you are going to go under," he said. "That’s the bottom line."
He said he was broadly in favour of a payment-by-results system for charities that delivered public services.
"There is a lot of scepticism about what payment by results will mean for the voluntary sector," he said. "But I think it brings simplicity into an inherently complex world."
He said payment by results would also make charities more independent from the government. "At the moment, the dependence Nacro has on the government is absolute," he said. "We don’t get a choice but to bid for contracts and deliver services their way and to meet their timetables.
"If under payment-by-results we were rewarded for achieving outcomes, it would be our money, so we could use it to influence the government’s agenda by campaigning if we wanted."
He warned, however, that payment by results could also lead to "locality-based thinking".
"With payment by results you have to confine your targets to clear and measurable boundaries," McDowell said. "These are often geographical boundaries, as has been the case with the social impact bond at Peterborough prison."
He said it could be difficult to find enough up-front funding to run good projects under a payment-by-results model. "At a time of recession, there may not be enough money to make it work," he said. "If funding isn’t available to fund all of it, compromises will have to be made."
Third Sector reported in April that Nacro had made 100 redundancies because it lost government contracts.