Changing the World Bank’s Incentives from Inputs to Outcomes

World Bank President Ajay Banga recently stated that one of his top priorities was to shift the institution’s incentives from inputs (i.e., loan approvals and disbursements) to outcomes (i.e., the actual impacts of lending on developing countries). This is an old challenge, highlighted by the Wapenhans Report back in 1992, that criticized the organization’s “approval culture” and lack of focus on project implementation. In response to this challenge, former presidents worked to boost organizational effectiveness beyond financial goals. Jim Wolfensohn developed the “knowledge bank” concept to emphasize the non-financial dimension of the Bank’s performance and implemented the matrix to enhance project quality. To overcome regional silos and more effectively identify and spread integrated solutions, Jim Kim established global practices.

President Banga notes that despite prior reform attempts, the institution is still designed to measure dollars or projects rather than outcomes. Two questions will be covered in this blog post: (i) Why have input-driven incentives remained so persistent? (ii) What could President Banga do to bring about change?

The persistence of approval and disbursement incentives is explained by strong motives

The World Bank and other multilateral development banks’ incentive structures cannot just be explained by organizational inertia. If a serious attempt is made to change the organization’s course, understanding the reasons behind why incentives are wired in that way is the first step.

First, to fulfill some crucial lender and borrower needs, approvals and disbursements goals are foremost necessary. They direct the use of capital resources and provide the Bank with the simplest and most obvious measure of their activity in supporting developing countries. A drop in lending would be a signal that the Bank is not doing its job. Approvals and disbursements are also crucial steps in the availability of resources from the perspective of the borrowers. Borrowers frequently base their funding requests to maintain positive or at least neutral flows with the Bank.

Second, the effort required by project teams to move operations just to approval and disbursement is a full-time job. These are requirements established by the Board to ensure quality and fiduciary standards and to minimize un-intended side effects like environmental and social safeguards. The problem is that they have been accumulating workload and having an impact on incentives. Staff members and managers are aware that even a small error in a transaction that results in a reputational problem can permanently harm a professional career, reinforcing a compliance mindset.

Finally, key governance decision making procedures are centered on lending approvals. The Board must approve all lending operations and devote countless time to review their merits, even if provides none or very little value added. This concentrates management attention on multiple and exhausting reviews prior to approval to minimize criticism. At the implementation or completion stages, where actual results can be evaluated, no equivalent management or Board space is provided. A Board playing a more strategic role and devoting more attention to outcome accountability will send a completely different message.

What steps can be taken to encourage the Bank to prioritize outcomes?

It will be challenging to transition the Bank to outcomes, as President Banga correctly notes. Presidents of the World Bank have traditionally focused their change initiatives through costly reorganizations that have had little impact on the institution’s true incentives. Progress is possible if the change strategy is ongoing and sustained. The world’s best led governments have been working on it for decades and can offer helpful lessons on what to do and how to do it. Singapore, for instance, which leads the World Bank indicator for government effectiveness, has a lot to offer in this regard. Based on these experiences, we look at four aspects of outcome-based performance below that can offer the World Bank some useful guidelines.

Outcomes as leadership

In organizations, leadership is measured up by walking the talk through taking risks. If President Banga is serious about outcomes, he will need to commit to a specific number of outcomes for which the institution will be held accountable over the course of the next five years (for instance, a target on national defined contributions on climate change met or on the percentage of population in fragile countries covered by safety nets). The International Fund for Agriculture and Development (IFAD), for instance, has set specific outcome targets in terms of income generated by small farmers. Making a clear statement about the difference the institution wants to make and establishing an ambitious course for all staff require this. The World Bank’s scorecard tracks high-level development outcomes and outputs from operations; no commitments are made to outcome targets, not even to output targets. The experience of governments managing by outcomes demonstrates that it entails setting challenging targets. It is true that uncertain and uncontrollable factors influence their achievement, but the institutional machine can only move in that direction if a relevant aspirational horizon is set.

This requires a change management capacity to implement the retooling changes required to fulfill outcome commitments. This could be a small, expertly led, intensely focused team that reports directly to the president. The Bank has no shortage of experts in public management reform who have provided performance management advice to developing nations. Their development project would be to switch the Bank to outcome incentives. They can take the lead in reviewing internal management tools like lending instruments or performance appraisal and reward tools that now exhibit little consistency with an outcome-performance focus.

Outcomes as focus

Priorities can be established and adhered to with much more discipline when there are clear, predetermined outcomes. The World Bank and other development organizations have developed an extensive catalogue of interventions spread across many different sectors. This leads to fragmentation and lack of scale of projects, which are created more for the purpose of demonstration than for adequately addressing a need or problem at a relevant scale. Moving to outcomes is linked to defining real priorities, leading to more selective programming and resource allocation. To achieve this, lending should be focused on interventions that have already produced transformative results and have the potential to be scaled up. An internal procedure could be established to choose the interventions with the greatest potential for scaling once the outcomes priorities have been established. As a result, the project portfolio will be smaller, and the Bank will be better able to support implementation.

The Country Partnership Frameworks can serve as the platform for scaling up commitments. They already have outcome targets and indicators, but there is no priority given to scaling. To achieve results on a significant scale, it is crucial that they identify funding gaps and calculate the lending envelopes that would be required over time. Using national initiatives and counterparty resources is essential to increase scope and sustainability. At the national or regional level, partnership agreements with other development organizations, for-profit businesses, or philanthropic groups may also include mutual accountability metrics on results based on achieving impact at scale. 

Outcomes as management

Managers need to be given sufficient authority to manage; authority must be provided to organizational actors who are in the position to influence events. There is proof that the most important factor influencing project outcomes is the contribution of the project managers. Convincing evidence collected by the Bank shows that project leaders are far more relevant for explaining positive project results than countries or sectors of intervention. This debunks the idea that attribution is impossible because results take longer than the time project managers stay in their jobs. It also raises the question of what skills, if any, can be recognized and replicated to make project managers successful.

However, project managers at the World Bank do not enjoy the same level of power and recognition as their counterparts in the private sector do in businesses that operate through project structures. Even though they work in a much more demanding environment and oversee much bigger projects, their managerial status is greatly diminished. The Bank values their ability to manage administrative requirements and their technical expertise and treats them primarily as professionals. As a result, they are not given management rights corresponding to the responsibilities and risks they must handle to achieve results. If incentives are to be moved to outcomes, examining the allocation of authority to manage in Bank operations and streamlining procedural requirements should be a top priority.      

Outcomes as accountability

Accountability is the cornerstone of management. Without it, the entire management structure will crumble. Accountability works its way down from the top of the organization using both formal and informal channels to affect daily actions. President Banga committing to the outcomes for which he will be held accountable would start a virtuous circle of transparency and accountability. Corresponding demands will be placed on the senior management team, and from there down to the organization. There is no denying that the Bank has a meritocratic culture, but it is less certain that accomplishments of outcomes have received precedence. Specifically, contributions to a scaling impact should be an important addition to performance management criteria.

There is evidence that a challenging outcome orientation is a powerful motivation mechanism for staff already inclined to serve for a social goal. This needs to be reflected in expressions that gradually influence shared values and beliefs, like what is emphasized in communication, what achievements are celebrated informally or what values prevail in crisis situations. Staff are always looking for this kind of signal as a clue to what is really expected from them, and experience says that they are very good at finding out and operating accordingly.