This is one case study in Impact to Last: Lessons from the Front Lines of Social Enterprise, a REDF case study initiative.
The Center for Employment Opportunities (CEO) offers transitional job opportunities alongside job readiness supports to over 6,000 recently released, formerly incarcerated individuals annually as part of its enterprise providing basic services (e.g. road maintenance, custodial, and groundskeeping) to large public sector clients. By sticking closely to a rigorously tested model shown to reduce recidivism by over 20 percent, CEO has more than tripled its revenues from $7 million to over $25 million (FY15) in the last 15 years. CEO’s growth is the result of a number of important factors:
Centralized control and a single, unwavering model. CEO emphasizes fidelity to its enterprise model, which requires centralized organizational leadership and programmatic supports in New York. As the organization has expanded to 10 different sites, this structure provides for the disciplined execution of complicated programmatic elements including daily staffing, scheduling, and payroll of work crews.
Proof of concept and a consistent focus on metrics. Participation in a randomized control trial led by respected third-party evaluator MDRC in 2004 helped support relationships with significant funders for long-term operating support, and placed a focus on enhancing the way the organization measures and monitors performance. In addition, CEO participated in the Mathematica Jobs Study (2014), which revealed the strength of the social enterprise model.
Long-term, unrestricted funding that spurs and supports growth. Partnering for over a decade with the Edna McConnell Clark Foundation (EMCF) provided CEO with a new type of unrestricted funds tied to three-year strategic plans. Since their initial grant in 2003, EMCF has contributed $20 million to CEO, providing for several rounds of business planning and underpinning CEO’s growth.
Core customer in each expansion site. CEO has been most successful when a core government buyer has been in place. These institutional clients include the New York State Internal Service Fund and Caltrans.
CEO is learning quickly from its expansion. The organization now uses less growth capital to leverage a larger stream of business revenue and is able to supplement this growth capital with sustainable funding streams, including earned revenue and performance-based contracts, within 3-5 years of seeding a new region. CEO is also at the forefront of innovations in social finance, anchoring one of the first Pay For Success (PFS) initiatives in the U.S. CEO’s leadership in evidence-based practice is also reflected internally, as demonstrated in its rigorous testing of the conditions necessary for expansion, providing for more predictability on the path to achieving scale.
CEO is dedicated to providing immediate, effective, and comprehensive employment services to men and women recently released from incarceration.
Dependable, year-round work is a key element of CEO’s business model and mission to provide economic opportunity for employees. In New York, the program is based on contracting through a specially created Internal Service Fund (ISF) that allows state agencies to procure services without a contract. The New York State Department of Corrections and Community Supervision (DOCCS) houses the ISF; CEO bills DOCCS directly for expenses, and it is then reimbursed by the government agencies that hire CEO crews. These intergovernmental transactions simplify access to CEO’s services and provide for an ongoing stream of earned income. Because of the ISF, CEO was able to grow from a few working crews to 30 crews in New York City and approximately 40 crews statewide. It is important to note that the ISF was created by legislation that explicitly named CEO, and is unlikely to be recreated in other states. For a more replicable model, CEO looks to California, where the contract templates developed with Caltrans are making procurement for other state and local government agencies more streamlined.
To be sure, Anchor customers are the primary drivers of expansion for CEO. In CEO’s 20-year history, these customers have almost always been public agencies like the Internal Service Fund in New York and Caltrans in California. Ideal customers provide large, long-term contracts and have an understanding of working with alternative work forces. Not surprisingly, when Anchors (and the clear path to future investment they provide) have not been present, scale has been more difficult to achieve. CEO was drawn to Oklahoma by the availability of Growth Capital from the Kaiser Family Foundation. However, with a range of smaller contracts from cities and community colleges, CEO has had a tougher time building the large and consistent business the model requires. In Pennsylvania, on the other hand, growth will be more predictable, on the back of contracts with the Pennsylvania Department of Corrections and the Parks and Recreation Department in Philadelphia.
The local criminal justice system has been another important partner since the 1990s, when CEO first began working in partnership with an innovative parole commissioner and the Pennsylvania Department of Corrections in New York. This partnership formed the model CEO has used since. When CEO makes a decision to expand, a local criminal justice partner is an integral piece of the puzzle. The current policy environment in criminal justice, especially in California, leads CEO staff to believe there is a great deal of room for growth. In the coming years, California counties will be shifting more incarcerated individuals toward services and probation than jail, with a parallel growth in the size of the supervised population.
CEO delivers an identical, rigorous model of intervention at all 10 of its sites in three states: New York, California, and Oklahoma. The model has many unique features that enable successful implementation and contribute to strong, proven outcomes. It includes four phases for participants:
- Job readiness training
- Transitional employment
- Full-time placement
- One-year follow-up
Participants are referred to CEO by parole or probation officers on a rolling basis, and are placed in paid work crews. Participants must participate in a Life Skills class for five days prior to joining a work crew, where training and assessment occurs. Concurrent to transitional employment, participants meet with job coaches to become “job-ready,” and then with job developers to secure placement in unsubsidized work.
With a focus on efficiency, CEO’s central office provides administrative capacity and back office operations to all 10 sites, including payroll, scheduling, business analysis, HR, fundraising, marketing, and communications. There is also a CEO unit in New York tasked with auditing fidelity to the model at external sites. The model also provides space for discrete, local program enhancements at the margins. In Oakland, for example, CEO is testing financial literacy and career planning pilots.
Performance measurement is of the utmost importance to CEO, both internally and externally. Participant information and progression through the CEO program is tracked daily using Salesforce, a centralized, cloud-based data management system. This data helps the program team understand each participant’s progress and site performance, and also allows for clear communication with partners at parole and probation agencies about each individual they refer.
CEO was created as a pilot project within the Vera Institute of Justice in the 1970s to address employment barriers facing the formerly incarcerated following release, funded primarily by New York State. After spinning off from Vera in 1996, CEO spent the next eight years consolidating its funding base in New York and developing the internal capacity to operate with confidence as an independent entity.
CEO Builds Infrastructure
The first transformative development for CEO came in 2003, in the form of a pivotal funding relationship with the Edna McConnell Clark Foundation (EMCF). This funding relationship introduced a new type of capital for CEO: three years of unrestricted funds tied to the creation of a three-year business plan. Like many nonprofits, CEO had only received restricted programmatic funding previously, perpetuating an under-investment in internal infrastructure and capacity. The EMCF funding challenged the organization to leverage its model to serve greater numbers more effectively and, paired with an MDRC study described below, pushed staff to unleash a decade-long process of enhancing the measurement and monitoring of performance.
EMCF is primarily a youth development funder, providing operating capital to organizations working with low-income and marginalized populations, with a focus on educational attainment, employment preparation, and avoidance of risk. CEO is effective at achieving the outcomes EMCF seeks and, with a commitment to continuous improvement, has found a strong ally. As an EMCF staff member explains, “CEO is fundamentally a learning organization. [They] are dedicated to building an evidence base and understanding how their theory of change works and can best support the population they serve.”
EMCF has continued to provide capital to CEO, committing over $20 million since the first investment in 2003. These consecutive infusions of capital, and impetus to design and link new business plans to every renewal, have provided CEO with the resources to evolve its model and expand its program services and reach. Between 2004 and 2010, revenue nearly doubled at CEO, participants’ average wages post-CEO and year-one retention improved, and the organization expanded from one site to five throughout New York. This type of planning also allowed CEO staff to shift focus from simply looking for the next contract to creating needed infrastructure and organizational performance goals.
Proof of Concept Elevates CEO Model
In 2004, CEO was invited to participate in a randomized control trial of organizations that serve “hard-to-employ” populations, funded by the Department of Health and Human Services and conducted by MDRC. The study ultimately concluded that:
- CEO dramatically reduced recidivism
- CEO’s greatest impact was with the highest risk and recently released subgroups
- CEO increased employment
- The benefits of CEO’s program far outweighed its costs
Results published in 2010 show a 3:1 benefit-to-cost ratio of CEO’s program and an over 20 percent reduction in reconviction and returns to incarceration. CEO had the most pronounced impact on the most high-risk subgroups of program participants. Even before the results were finalized, CEO’s participation sent an important signal. It highlighted a track record of reducing recidivism and demonstrated a commitment to rigorously evaluating impact, helping to secure sustainable funding. Recently paroled individuals are a particularly challenging group to support, with high costs for associated programs. Proven solutions were in demand.
Significant New Funding Enables Initial Replication
CEO has a track record of identifying and taking advantage of discrete opportunities:
In 2009, at the height of the Great Recession, the American Recovery and Reinvestment Act (ARRA) came into effect and included employment-related funding in the Department of Justice budget, intended for distribution by the states. CEO won and utilized part of this funding to expand in upstate New York to Buffalo, Albany, and Rochester, ultimately replacing the government’s investment with longer-term support from the New York State Department of Criminal Justice Services.
In 2011, REDF and EMCF received federal grants from the Corporation for National and Community Services (CNCS) through its Social Innovation Fund (SIF), and both selected CEO as a sub-grantee. The SIF supports nonprofits scaling innovative solutions to challenges facing low-income communities, and those accelerating impact and building stronger evidence of success. CEO benefited from SIF funding from both REDF and EMCF as its operations fulfilled the requirement of providing economic opportunity. CEO’s award from REDF ($2.75 million) provided the growth capital, motivation, and intermediation needed to expand into California. CEO’s award from EMCF ($12 million over three years) supported national expansion— including sites in California and Oklahoma – in addition to increasing capacity in upstate New York. As with the ARRA dollars, SIF funds provided a foundation for CEO to leverage additional investment, including private funding from regional funders like Tipping Point Community, earned revenue from Caltrans, and government investment from San Diego Probation and the California Department of Corrections and Rehabilitation
In 2013, CEO was chosen to anchor New York State’s first Pay for Success initiative: a five-year, $13.5-million investment extending CEO’s services to an additional 2,000 individuals. Under the contract, funded primarily by private individuals through Bank of America Merrill Lynch, New York State will reimburse and pay a return to investors if CEO meets agreed-upon performance targets.
Revenues at CEO increased between 2009 and 2014 from approximately $17 million to $25 million.
Replicability and Discipline Lead to Rapid Expansion
CEO’s proven model has been critical to successful expansion. The organization’s component parts are not uncommon, but the way the pieces are managed and operated, which requires wholly-owned, direct replication, is. All expansion decisions are made with the understanding that CEO is “here to stay.”
There are many essential elements that result in the success of a replication site:
- Site selection. Sites are selected to be sustainable and scalable after extensive due diligence.
- Market demand and employee pipeline. Successful sites offer the availability of Growth Capital, long-term contracts for services, strong partnering local or county agencies, and a significant number of individuals in the parole or probation system that require employment services.
- Strong operational leadership. The Site Director is responsible for site operations and performance, business development with both prospective customers and funders, constant communication with the central office, and adjustment to local idiosyncrasies. In 2010 CEO, had five sites – all in New York State. In the last four years, that number has grown to 10, with the launch of Philadelphia as an 11th site in 2015
CEO takes full advantage of upfront growth capital when expanding to a new site and has learned how to use less grant funding to leverage more business revenue. The chart below chronicles three expansions – to Buffalo in 2010, Tulsa in 2012, and Philadelphia in 2015. The trend toward a lower requisite percentage of growth capital at start up is illustrative of CEO’s constant push to scale more effectively as well as decreased dependence on this capital over time.
Growth Capital as a Percentage of Total Site Revenue
CEO’s significant growth presents tremendous opportunities, but also poses challenges. In San Diego County, CEO launched a new site based on a relationship with the Chula Vista Public Works Department. However, the new presence was only stabilized once a Caltrans contract arrived a year later. Another requirement for expansion in San Diego was the development of relationships with the law enforcement and criminal justice communities. CEO started with the support of the District Attorney and Chief of Probation, but has also been focused on building strong partnerships with city and county leaders throughout the region since the site opened. The program in San Diego is now growing sustainably. We’ve had very good success in San Diego in terms of being able to scale the model starting very small and then expanding it,” says a local board member. “Being able to pull off the [Caltrans] contract and provide a lot of stability for work crews all the way into the future is remarkable.” In another example of a challenging expansion, CEO initially launched its Oakland, California site by partnering with an affiliate. In this case, CEO delegated considerable authority. The relationship did not endure and it was only when CEO converted to a model of direct replication that outcomes aligned with the proven model.
Performance and Impacts
CEO’s social impact has been significant: a total of 17,000 individuals placed in jobs over the life of the organization, including over 4,000 in 2014 alone. CEO also tracks outcomes, including wages earned, job placement, and rates of recidivism on a regular basis. In 2014, the average wage earned was $11.00 and 50 percent of placed individuals were still working after one year.
The MDRC evaluation also showed that recently released formerly incarcerated individuals who enrolled at CEO had significantly lower rates on all measures of recidivism a full three years after their participation in the program. CEO also participated in the Mathematica Jobs Study (MJS) more recently, which established the impact of social enterprise on improved economic self-sufficiency and life stability outcomes:
- Employment increased from 18 to 51 percent
- The percentage of total income from government transfers decreased from 71 to 24
- The share of SE workers living in stable housing increased from 15 to 53 percent
This evaluation was a critical component of CEO’s partnership with intermediary REDF through the SIF federal grant.
CEO’s revenue growth is one indication of financial strength. Others include the diversification of revenue sources (including reliance on government), availability of cash reserves, pre-funded private philanthropy, and margin for each location. These metrics have improved over the years. Revenue growth is trending up year-over-year, as are reserves. As the following chart illustrates, reserves have grown from $13,392 to $837,243 from 2003 through 2014 and make up nearly four percent of total revenues in 2014.
CEO usually partners with large public agencies when it expands. As the organization looks to the future, an open question is the extent to which the same Anchor role could be played by a private corporation.
There are two key challenges to partnering with private companies:
- Private sector clients rarely need eight hours of work per day, five days per week throughout the calendar year, according to CEO. If they do need this type of work, they usually hire internally. This means a site would need to bring on several private customers in order to patch together enough business.
- It is difficult for CEO to compete economically in the private market. CEO’s services are usually 10 to15 percent more costly than those offered by non-social enterprise peers, which tend to employ fewer people and incur no costs related to special supervision and data collection.
CEO staff has no intention of changing the business model, but believes partnerships with private corporations could work at locations large enough to handle the fluctuation in work that this collaboration would bring. The organization is also focused on some key operational issues, including:
- Hiring local leaders. Knowing when the acquisition of anchor customers and funders justifies the hiring of local leaders is always a question of timing that requires careful consideration.
- Building managerial capacity. Rapid growth has focused CEO’s attention on the balance between meeting current needs and investing in talent for the future.
- Performing financially. Expansion means more local control, which has raised the issue of how best to hold sites accountable for achieving financial sustainability.
Finally, federal and state government agencies have played a significant role in CEO’s growth —not only as Anchor customers, but through policies related to criminal justice and now social innovation, like Pay for Success. CEO is playing a more prominent advocacy role as a result, focused primarily on outcomes-based procurement. Government is more focused on metrics and outcomes than ever. And with a shift in local policy toward rehabilitation and probation rather than incarceration, the environment is ripe for CEO to scale further still— providing employment services to an increasing number of individuals