For years, foundations have experimented with a broad range of theories and tools for generating social change. To frame our thinking about the ways in which foundations go about generating change, it may be useful to distinguish between macro-level strategies and micro-level tactics. At the strategy level, foundations typically adopt one or more theories of change that express their underlying beliefs about how progress is achieved in a given domain. At the level of tactics, foundations select one or more theories of leverage that dictate how their strategy will be implemented and the kinds of philanthropic tools that are likely to work best.

To start to build a framework for thinking about this complex subject, I lay out below some of the more prominent theories of change and leverage that foundations have experimented with in recent years. The lists are not exhaustive, but rather merely suggestive of how one might think about the questions of "How do foundations create change?" in an organized manner.

PART I: THEORIES OF CHANGE

While foundations have experimented with many different strategies for achieving their objectives, it is possible to group these many approaches into five broad categories. Each has its own logic and purpose, though all five tend to intermingle in practice:

A. Training individuals for leadership in a field

B. Building stronger organizations

C. Establishing new inter-organizational networks

D. Influencing politics

E. Generating new ideas and proposals for a field

Some foundations believe deeply that change is ultimately achieved from the "bottom up." This means starting with the training of leaders, moving on to building stronger organizations, connecting these organizations into strong networks and collaborations, mobilizing these actors to lobby the political system, and finally producing new ideas and policies. Other foundations have taken the opposite approach and sought to bring change from the "top down." This means starting with the production of new ideas on the national scene, seeking to introduce these ideas into politics, building networks of dissemination, assisting organizations with the implementation of new programs, and then training individual leaders to bring change at the local level.

When multiple strategies are pursued simultaneously, each can and does interact with the others. If implemented skillfully, these strategies can reinforce one another and lead to interesting synergies. One of the key challenges in philanthropy is to decide which of the following five strategies represents the most sensible starting point for action -- given the field one is committed to influencing.

A. Individuals

One place to look for impact is the individual. Many funders concerned with maximizing effectiveness have come to focus on training and developing individuals for leadership in fields where change is needed. Focusing on building skills and creating opportunities for individuals is appealing because it promises to create an army of change agents, ready both to change practice in the field and to lead efforts to change public policy. There are important issues of independence and control that arise when foundations seek to change a field by training and developing new leaders. After all, the individuals taking part in such efforts need to be able to pursue an agenda that is their own, not one that is seen as advanced by the funder. Still, many foundations have attempted to walk the fine line between neutral professional development programs and initiatives that advance a policy agenda through the cultivation of leaders. Training and developing people in a given field can require a long-term perspective, especially when the field already has entrenched leadership or when the field is young and still evolving. Often such efforts take the form of summer institutes, seminars, executive programs, distance learning, fellowships, sabbaticals, and other efforts to identify and encourage talented people to take on greater responsibility for shaping a field.

B. Organizations

Another way to bring change to a field is to create and support strong organizations. In the search for ways to build capacity within nonprofits, many foundations have come to make an initial round of grants aimed at providing nonprofits with technical assistance, planning and capacity building advice -- so as to position nonprofits to move ahead on a larger scale with their programs. Often this assistance takes the form of consulting on topics ranging from board development to marketing to capital construction. While some nonprofits bristle at any intrusion into their planning and operations, foundations often see capacity building as critical to positioning nonprofits to have broader influence and visibility. A few foundations have taken a very different approach to building stronger non-profit organizations: They have provided general operating support to nonprofit organizations with the goal of helping to build organizational capacity. By providing unrestricted funds, these funders believe they are able to strengthen the critical infrastructure of nonprofits and allow them to offer more effective programs in the long run. Working to support stronger organizations can be seen as a theory of change that prioritizes "institution building" as a critical ingredient in broader efforts to change a field.

C. Networks

Facing limited resources and a long list of worthy causes, foundations have long sought to support collaborations and the creation of strong networks among nonprofit organizations. These networks can support the sharing of best practices, the pooling of resources, and the mobilization of advocacy efforts. Funding the creation of systems of collaboration is appealing because it appears to resolve some of the most glaring shortcomings in the nonprofit sector, namely the duplication of effort and inability to learn from others what works. Recently, the idea of building networks of capacity within all different fields of activity has gained even more currency because it appears to be a promising way to take small programs and local innovations to scale. By bringing people together and creating lasting networks of communication and collaboration, philanthropy is ultimately able to create the building blocks for broad movements and to overcome the isolation that many non-profit organizations experience. Of course, networks of communication and collaboration can be transformed into policy and political movements when events and opportunities open the door to action. The network theory of change has grown in appeal as many foundations have grown dissatisfied with the results of funding many disparate efforts that lack breadth and longevity.

D. Politics

Philanthropy has attempted to shape policy by entering the political arena and exerting pressure on the political process through at least three different approaches. First, foundations support projects that stimulate civic engagement by exposing citizens to politics and mobilizing them to take action. Often civic engagement is translated into direct political action by organizing at the grassroots level around interests and causes, be it through the registration of voters and get-out-the-vote efforts, organizing town hall meetings and debates, or any number of other participation and empowerment activities aimed at bringing the individual back into the public sphere and promoting political engagement. Second, foundations often turn to nonprofits and ask them to play an important role in informing and educating the public and policy makers. Advocacy efforts take place at the local, state, national and transnational levels, and often take the form of policy research and public information campaigns. Third, foundations make grants to nonprofits that engage in direct lobbying around specific legislative issues. Different from advocacy in that it focuses on specific bills of legislation, support of nonprofit lobbying is a way to translate philanthropic dollars into direct political action. The many different forms that foundation-supported political action take should not obscure the common element that unites these attempts at generating change: the use of philanthropic funds to access political power and shape policy.

E. Ideas

The needs of the poor and disenfranchised have long pulled hard on the checkbooks of foundations. In the search for documented results, many foundations have found it satisfying to support "direct service" efforts, where contributed funds are used to improve the lives of people. Efforts to convert philanthropic funds into increments of service delivery capacity have their limits, however. Since there is never enough money to support the need for services, many large, politically engaged funders have gravitated toward a theory of leverage aimed at moving toward policy research and idea creation. Funding policy research can have a tremendous impact when successful, as ideas from nonprofits filter through the public realm into politics. By funding efforts aimed at shaping both public opinion and elite policy opinion, grantmakers can achieve substantial impact. Informing policy debates in fields ranging from health insurance to welfare policy can turn modest philanthropic investments into major interventions in public life. For this reason, many funders see "idea philanthropy" as a far more potent tool for effectuating broad change than the incremental improvement of small segments of the service delivery system. The challenge of creating new and powerful ideas depends not just on "being right," but on ensuring that the ideas gain currency and infiltrate both practice and policy.

Together, these five theories of change raise a large and difficult question: When, under what circumstances, and in what fields of activity should a donor rely on any one of these five core strategies? Answering this question may be one of the most important conceptual challenges facing the field of philanthropy today. I leave it wholly unanswered here.

PART II: THEORIES OF LEVERAGE

Foundations have long relied on many different tactics to create impact. These tactics -- in one way or another -- all aim at creating leverage. By leverage, foundations mean a way of maximizing the impact of their contributions, ideally creating significant activity or change with the modest use of grant dollars. The idea of philanthropic leverage is simply to get the maximum bang for each philanthropic buck given away. To do so requires turning grants from closed-ended commitments into catalytic forces leading to greater productive work. Finding ways to achieve such results is important in philanthropy because the amount of money available to most funders is limited when compared to the scope of human problems awaiting attention. Within the context of the needs and resources available, the idea of philanthropic leverage has understandably only gained greater appeal over the years. Even though huge amounts of money are at stake, philanthropy's "tool box" -- its ideas about how to generate leverage -- is surprisingly full of old, blunt, and rusty implements. What follows is a brief taxonomy of the most prominent tactics for producing philanthropic leverage that have emerged over time.

A. Programmatic Tactics

A first set of leverage tactics is connected to the kind of program that is funded. These tac-tics aim to increase the effectiveness of grants by choosing to support special classes of programs. I identify here seven major tactics that I believe have either received substantial public attention lately or that have already channeled substantial philanthropic resources.

1. Support directed at geographical communities, not program areas

2. Funding of new initiatives and pilot programs

3. Support for nonprofit collaborations, not isolated work

4. Private funding for public programs

5. Funding of commercial ventures within nonprofits

6. Support for organizations designed and set up by grantmakers

7. Funding of independent evaluations

All of these tactics focus on the kind of activity that is funded, rather than on the nature and terms of the grant itself.

1. Geographical communities, not program areas

Most foundations today organize their grantmaking around program areas such as social services, health, education, arts, and environment, or narrower fields such as community development, early childhood development, and youth violence prevention. While foundations may focus on the needs of a city or state, most grantmakers think about their programs in terms of subject matter. Program staff are hired to work in substantive areas and are expected to be become experts in their fields. A new theory of leverage has emerged recently to challenge this basic way of organizing philanthropic work. A few foundations have recently jettisoned traditional program areas in favor of a broad, cross-functional focus on specific geographical communities. The logic behind this move is simple enough. Problems are not categorical but rather adhere to communities in ways that make their resolution dependent on addressing a full range of interrelated issues within communities. By focusing on specific counties, towns, and city neighborhoods, funders believe that they can get leverage by focusing activity in confined areas. The move to geographical areas is intended to conceptualize social problems in a more realistic and holistic way. Rather than reify problems by categorizing them through traditional programmatic labels, this new way of thinking about grantmaking activities aims to achieve leverage through the coordination and concentration of effort.

2. New initiatives and pilot programs

To increase their impact, some foundations believe that nonprofits need to be coaxed into experimenting, innovating, and expanding. To encourage organizations along these lines, funders often seek out proposals for activities that represent a new activity or a strategic expansion of services, rather than long existing activity. This theory of leverage is particularly popular in the foundation world, where newness is a critical ingredient to any successful proposal. Foundations want to employ their funds in ways that encourage change and one way to do so is to favor grant requests for activities that are not currently ongoing. Of course, for nonprofits, the emphasis on novelty, innovation, and expansion can be problematic, especially when maintaining existing activities can in itself be a challenging proposition. This theory of leverage has led to a set of clever counter moves within the nonprofit community, moves designed to repackage existing activities in ways to make them appear novel. To the extent that such strategic gaming is going on, the effectiveness of funding new initiatives is diminished because it saps considerable energy from nonprofits and makes the donor-donee relationship more dysfunctional.

Philanthropic leverage has also come to be associated with the funding of pilot programs, which are intended as models that government and other private funders can replicate and take to scale. The lure of pilot or demonstration programs is that they do not start and end with specific funded activities, but instead hold the promise of having lives of their own. By attaching the term "pilot" to an initiative, funders can without much cost express a desire to see their efforts evaluated, recognized, and expanded if they turn out to be successful. The main drawback with this theory of leverage is that all too often it is just that, a theory. Few projects ever get replicated and the moniker "pilot project" has come to be attached to just about any new project. Nonprofit organizations have also wizened up to the name game. Many proposals are described as pilots in order to excite funders and play into their desire for leverage. The gap between the rhetoric and the reality of pilot and demonstration programs is best seen in the huge number of pilot efforts that are routinely announced and the paucity of replication efforts that funders have embraced.

3. Support for nonprofit collaborations, not isolated work

One of the earliest principles of Victorian charity was to make all necessary services available to the poor in one place. This place was often a settlement house where poor immigrant families could turn for assistance with their problems, be they educational, financial, or social. Over time, as many parts of the nonprofit sector have become increasingly dominated by professionals, boundaries between service delivery fields have emerged, making integrated programs harder to find. Some foundations in recent years have seen a possibility for leverage through a return to these earliest philanthropic ideas about one-stop shopping for services -- albeit presented in the more fashionable language of collaboration and program integration. The fostering of collaboration among nonprofit organizations is appealing because the specialization of nonprofit services has made navigating the system increasingly difficult for many clients. To encourage collaboration, some foundations give preference to grant requests that include plans for cross agency coordination. Leverage is achieved by reducing the redundancy and isolation of providers and thereby improving the effectiveness of the entire service delivery system.

4. Private funding for public programs

Not content with the funding of nonprofit organizations, a few foundations have begun to make grants directly to state and local government agencies. On the surface, such a tac-tic would appear to be "leverage-free" given the ability of government to raise revenues through taxation. However, times have changed. Many state and local governments are strapped for cash and have little discretionary spending ability. Enter foundations offering grants with the stipulation that government carry on the program (birth control clinics in schools, for example) after the grant period is concluded. Significant leverage is achieved by locking government in to funding an activity that it receives for free for a short period of time. There are significant questions about democratic accountability related to these strategies, because they do appear to compromise local decision making. However, aggressive funders do not shy away from putting such conditions on grants to government, seeing an opportunity to press an agenda in the long run by funding it in the short run.

5. Funding of commercial ventures within nonprofits

One of the most important changes in the nonprofit sector in recent decades has been the rise of earned income as a source of agency revenue. Unlike contributed income, revenues from fees and ventures have no strings attached, and as such are attractive to many organizations. At the same time, funders have become aware of the entrepreneurial skills present in some nonprofits and have responded with an approach to building leverage that targets the commercial impulse of nonprofits. A growing number of foundations now make grants to help nonprofits start or expand commercial ventures. While these activities are often substantially related to the mission of the nonprofit, at times they are unrelated. By supporting a nonprofit's ability to generate a stream of commercial income, funders see significant leverage. Philanthropic funds are not just converted into one-time programmatic activities, but instead they are used to build income-producing capacity that will go on long after the grant funds are gone. For nonprofits, an emphasis on commercial revenues is both potentially liberating and distracting. Running successful ventures demands staff time and resources. Still, for some nonprofits, the availability of philanthropic funds to build capacity to move away from a dependence on contributed income is a potentially empowering proposition.

6. Funding for organizations designed and set up by grantmakers

The continuous search for leverage has led a few large foundations to take the drastic step of stepping outside the existing market of nonprofit service providers in order to set up independent nonprofits to carry out the foundation's interest and agenda. The move to create new organizations represents a return to the idea embodied in operating foundations, namely that there are some missions that are most effectively and efficiently pursued through internal operations rather than through the external market of nonprofit providers. Most often, the decision to set up a new organization is related to an effort to shape public policy, coordinate a group of existing organizations working in a common area, or carry out some other function not directly related to service provision. Few foundations explicitly set up new organizations to compete with existing nonprofits. Instead, the leverage often comes from creating an umbrella organization that meets a need not currently met by other nonprofits. Sometimes the organizations that are started have a limited life, while other times they evolve into enduring entities.

7. Funding for independent evaluations

By monitoring closely the work of a recipient, it may be possible for foundations to achieve significant leverage. A grant gives the funder access to the recipient organization that can be used to diagnose program performance and make recommendations about achieving greater programmatic results. Systematic evaluation is often anchored in a theory ofage, one that sees grantmaking as a first step toward building knowledge and expertise. Of course, one of the problems with using evaluation and access to achieve leverage is that not all nonprofits are eager to have funders or evaluators poking around their programs. Moreover, while it might seem obvious that evaluation data can help foundations make better decisions in the future and use funds more effectively, it is not clear how often this occurs in practice, given the often anecdotal, and nongeneralizable nature of evaluation reports.

B. Grantmaking Tactics

Beyond funding different kinds of activities, foundations employ tactics that are centered on the nature and character of the grant itself. By adjusting the procedures and conditions connected to their grantmaking, many foundations believe they can achieve substantially greater impact and leverage. I focus here on nine prominent grantmaking tactics that have at various times held out great promise for improving the ability of foundations to achieve change and impact.

1. Project grants, not general operating support

2. Short term grants

3. Matching grants

4. Loans and program-related investments, not grants

5. Large grants

6. Grants driven by proactive RFPs

7. High-engagement grantmaking

8. Joint funding

9. Technical assistance, planning, and capacity building grants

Each of these tactics focuses on the grantmaking process, not the kind of program that is being supported.

1. Project grants, not general operating support

Leverage may be gained by increasing the control and oversight that donors are able to exert over donees. One way this power is established is through the narrow circumscribing of purposes for which grants can be used. Many donors now seek to target their giving to specific programs or projects within organizations with the idea that these constraints make accountability, reporting and assessment easier. By focusing grants on projects, donors are able to pick and support specific activities within an organization's portfolio of programs. Because of the greater accountability that is possible when the terms and purposes of a grant are focused on specific activities, many donors believe that project giving is particularly effective. For nonprofits, the rise of project grants has been a mixed blessing. It has allowed proposals to be narrowly targeted and encouraged detailed planning. However, it has made the securing of unrestricted general operating support increasingly difficult. As more and more funders have sought leverage through project giving, some nonprofits have complained about the difficulty of sustaining core activities.

2. Short term grants

"Get in and get out" is the motto of many large institutional funders. Long-term financial commitments have become less and less popular over time as donors have developed a theory of leverage related to length of philanthropic support. By not getting involved with recipients for more than three to five years, many institutional donors attempt to "seed" activities, then move on to other efforts. Short-term support allows the funder to direct money to a larger number of organizations and in the process increase the overall reach of their grantmaking. Again, this theory of leverage has posed problems for nonprofits that see the plug pulled on funding, sometimes at inopportune times.

3. Matching grants

One of the most obvious ways to create leverage is to make the receipt of a grant contingent on an organization's ability to raise additional funds. Matching grants can take many forms. They can require a one-to-one match, a three-to-one match, a five-to-one match, or any other ratio desired by the funder. Often matching grants are a critical part of large annual fund drives at major cultural institutions. Solicitations are made to individual contributors with the assurance that every dollar contributed will be matched and made to go further. For some donors, the existence of a matching program will make donating funds more appealing. On the surface, these contingent grants look like carrots extended on sticks that cannot help but motivate. One of the most serious problems with matching grants, however, is that they often reinforce behavior that would have occurred even without the introduction of the matching grant. In this sense, it is very hard to assess the impact of matching grants and whether or not they really do create leverage. Thus, the more times a match is achieved, the greater the likelihood that the funds did not stimulate new giving, but instead simply added to sources that would have been received with or without the presence of a matching offer.

4. Loans and program-related investments, not grants

Why give away money once and forever, when it can be loaned and recirculated over and over again? The starting premise of loans, be they for capital building or program expansion, is that leverage can be achieved by using philanthropic funds in a way that maintains grantmaking resources and allows for a much greater range of assistance being offered over the long run. Loan funds also build accountability and create a sense of responsibility that a grant just cannot duplicate. Program-related investments go one step further and attempt to achieve synergies between the investment needs of large institutional donors and their grantmaking objectives. By drawing on investment assets, PRIs achieve leverage by bringing endowment assets into the service of social objectives.

5. Large grants

Suspicious of the impact of small grants spread widely across a large number of recipients, many foundations have sought leverage by making fewer and larger grants. The goal of such a strategy is to move away from "spray and pray" gift giving towards an approach that puts significant resources behind selected initiatives. The larger the grant, the larger the stakes become. For donors wanting to achieve leverage, concentrating giving on a few large initiatives has at times been difficult, given expectations among recipients and the difficulty of complete rejection. After all, making a small consolation grant has long been a way of avoiding tough choices and alienating community groups. Beyond the politics of saying "no" many times in order to say "yes" a few times, an important question that this theory of leverage raises is whether recipient organizations have the capacity to absorb large commitments of funds all at once or whether large grants need to build up over time in order not to overwhelm the capacity of smaller recipient organization.

6. Grants driven by proactive RFPs

Many funders refuse to sit quietly in their office for the mail to arrive each day with ever more requests for grants. While there is never a shortage of demands on donors, often the proposals that arrive over the transom disappoint, either in terms of subject matter or sheer coherence. As a result, donors have begun taking a more proactive stance when it comes to soliciting grant proposals. This sometimes involves contacting specific nonprofit organizations and encouraging the submission of the proposals, particularly if the donor has had a positive grantmaking relationship with the organization in the past. Other times, proactive foundations simply open the door more widely through the creation of a request for proposals (RFP) that is advertised and open to any organization willing to deliver a proposal meeting the guidelines. Often RFPs spell out in great detail what the donor wants to accomplish and how the program should be carried out. There is at least one aspect of the leverage achieved through RFPs and other proactive approaches that is controversial: It appears to be based on the assumption that the donor knows more about how to solve a given social problem than the service delivery community. Given the pressure to be responsive, listen to needs, and "fund from the bottom up," RFPs and other proactive "top-down" approaches can ruffle some feathers.

7. High-engagement grantmaking

Philanthropy has traditionally been driven by detailed paperwork and a certain hands-off etiquette. Grantmaking starts with the submission of elaborate proposals by nonprofits, which are read and reviewed by donors. Site visits and meetings may occur during the grant making process, especially if additional information is needed to arrive at a fair decision. Once the grant decision is reached and a check is mailed to the recipient, donors and donees rarely speak again for a year or until the period of the grant is over and a report is due. Sensing that this low level of engagement may not be optimal, some individual donors and foundations have begun to experiment with higher engagement grantmaking. Based on a theory of leverage that holds that donors have something more than money to contribute to nonprofits, donors have been trying to reshape donor-donee relations in order to construct active, consultative relationships that start before proposal review, that build during program implementation, and that extend after the grant cycle is over. High-engagement grantmaking requires that the donor have skills (managerial, legal, accounting, or other) that are useful to nonprofits and that recipients are open to receiving this non-monetary input. Not all relationships can or should aim toward a high-engagement model, especially if the amount of funds involved is relatively modest. However, in case