Delayed gratification (financial strategy 2 of 3)

woodland_pan.jpg

Eyreton Wood - managed by the Isle of Man Woodland TrustThis blog looks at two ways in which organisations need to be willing to forego current spending to secure a healthier future – delayed gratification of the financial sort.

Asset strategy

Fixed assets

come in two flavours: tangible and intangible.  Tangible assets are the ones you can see and touch – buildings and equipment mainly; intangible assets are the ones you cannot – brand, intellectual property and knowledge.  What they have in common is that they are both investments in the longer term ability of an organisation to generate revenue and deliver on its mission.  

Tangible assets

Until recently many organisations did not plan for the replacement or renewal of their asset base on the basis that either they were not responsible for the upkeep of the buildings they occupied or that grants would be available to fund a purchase when needed.  As local authorities divest themselves of assets and public funding shrinks, neither of these assumptions will hold true for most organisations.

The twin starting points for developing an asset strategy are:

What assets do we currently have?

What assets do we need to achieve our aims?

For each asset that you currently own and want to retain you need to know:

What do we need to spend to maintain this asset?

When will we need to upgrade it or buy a new one?

How will we fund the upgrade or purchase?

What

depreciation

charge are we charging on this asset and to which fund on on the balance sheet?  If the depreciation charge is going against a restricted fund balance it is not helping you to build cash to fund the next purchase.

For every asset you want to acquire:

How will you fund its purchase?

How long will last?

How much will you need to spend maintaining it?

What depreciation charge do you need to factor into your financial projections?

An asset strategy will usually cover a longer period than a business plan, typically 5 to 10 years, and may be needed for several decades if the organisation occupies a large building on a long lease.

Intangible assets

There is a cliché in management literature ‘what gets measured gets managed’ (

Peter Drucker

).  Intangible assets are hard to value and do not usually appear in the accounts of visual arts organisations.  Partly as a result of this, they are frequently not managed or recognised but they are one of an organisation’s most valuable assets and one of its most likely sources of new income.  

During your next business planning process, do consider these questions

What intangible assets have we created?

How do they help us to deliver our core purpose?

Could we exploit some of them more effectively to attract more resources ot our organisation?

What do we need to do to keep these assets in good shape?

Reserves

During the last decade there has been considerable talk about the value of and need for reserves both within

charity

and

arts

circles. The issue has slipped down the agenda recently as the focus has shifted to balancing the books and to finding new operating models but I believe, not only is it impossible to write a good business plan without considering reserves, but that the current emphasis on income generation makes a good reserve strategy essential to survival.  

For an introduction please listen to the interview at the bottom of this post, recorded earlier this year, with

Jon Treadway

, then Director, Regular Funding at Arts Council.

In broad terms, organisations need reserves (of the unrestricted or free variety) for 5 reasons:

1.

To allow the organisation to deal with unexpected and unwelcome (eg sudden loss or illness of key staff, bad debt, poor trading results) without having to immediately embark on a cost cutting exercise.

2.

To allow the organisation to respond strategically to changes in the external environment.  For example, to fund the costs of change if an organisation decides to move to a new business model.

3.

To invest in opportunities whether of the artistic or income generation variety

4.

To provide working capital, of which more in my next blog

5.

To allow the organisation to wind up solvently and pay off all its creditors, including its staff, if the organisation is no longer viable.

In working with clients I am often told that they are aiming for reserves of three months operating costs as that is what the Charity Commission recommends – this is not correct.  The

Commission

recommends that charities set reserve policies and targets that reflect the nature of the businesses that they are running.  The three month ‘rule’ has arisen because this is not a bad guestimate of the cost of closing down a relatively simple and small charity with no substantial long term commitments eg market rate leases.  

All organisations, whether or not they are charities need to establish levels of reserves that are appropriate to them.  Several years ago PriceWaterhouseCoopers undertook a review of reserves for the Arts Council and included a number of visual arts organisation within their sample group.  Their work produced the following matrix to help organisations determine what their reserve levels should be – I really recommend thinking about where your organisation fits on these two spectra.

Slide1.jpg

As more arts organisations start behaving in more commercial ways they will need to pay attention to the key issues of capital (assets and reserves) in a similar manner to for profit businesses.  I am minded of a comment made by a partner I worked for the in the City: in my early days I asked how he could decide which businesses we might save and which we could not, his reply was simple - the bigger the pggy bank the better the chances!

The next post will continue this theme and look at the r-word –

risk

.

Thanks for reading

Susan

PS

If you are not a fan can I recommend

The Artful Manager

blog by Andrew Taylor of the Bolz Center for Arts Administration at Wisconsin?  Definitely worth a look if you are struggling to write a new business plan.  

Reserves interview with Jon Treadway

A financial strategy: don't run a business without one! (Part 1 of 3)

Jill Townsley, Till Rolls at Compulsive, Obsessive, Repetitive at Towner courtesy of the artist and Towner A financial strategy is not a list of income and expenditure which, when totalled, equals zero or a small positive number; nor is it the pious statements included in trustee reports about a reserves policy and the management of risk.  A financial strategy sets out how you will secure and spend the financial resources of your organisation in support of your core purpose and aims.  Designing such a strategy is as much an art as a science.  It is an exercise in which you mange the tensions between the urgent (the short term) and the important (the medium/longer term).  It is the place in which the hard choices get made.  It is always a work in progress.

I have set out below the likely components of a financial strategy for a visual arts organisation.  In addition to the brief comments offered, the links will take you to additional ideas, insights and resources.

Funding

Funding models within our sector are changing rapidly and they will continue to evolve both in response to macro economic realities and long-term structural changes in the economy and society – the good times are over!  Against a background of declining public funding, a sluggish economy, static if not falling real personal incomes for many and increasing funder demands for a more diversified income base, organisations need to understand both their existing funding model and the one they want to move to.

What is your current funding model?

  • Where does your income come from?
  • What is the balance between unrestricted and restricted income?
  • What level of risk is associated with each source?
  • Are you overly reliant on one source?
  • Is your funding model well aligned with your core purpose or are those ‘shoddy compromises’ getting too uncomfortable?

What should your future funding model look like?

  • What sources will reduce or disappear?
  • What new opportunities can you identify?  What would you need to do to develop these sources?  How long would it take for these new initiatives to pay off?
  • What contingencies will you need to make against uncertain income sources?
  • Can you reduce your dependence on one or two sources?

Delivery or cost model

Understanding the cost side of the equation is all about where the money goes. If you are going to make the money you have go further (and the alternative is, at best, a smaller programme) it is vital to understand how the resources you are buying deliver the work you do.

  • How does your current cost base break down between fixed (i.e. costs you cannot change in the short term without incurring a liability such as salary costs) and variable/direct costs which vary with the level of activity
  • What is the balance between staff and other costs?
  • Which activities need investment, which activities contribute to overheads and which ones really make profits you can invest in your core activity?  (Will anyone whose café or shop really generates a profit after a full allocation of overheads tell everyone else how they do it?)

How do you want your model to change?

  • In general terms the more uncertain your income base, the more flexibility you should aim for in your cost base so you can shrink and grow the organisation as funding waxes and wanes.
  • How can you raise productivity within your staff team?  Examples could include: training, better use of technology to reduce costs, redesigning job roles and processes and changing opening hours.
  • Could you outsource some functions or share them with other organisations?
  • What changes do you need to make if your organisation wants to increase its earned income? Do you need to employ different people or re-skill the ones you have?  Do you need to implement new systems to manage your new business?  Do you need to create new budget lines for investment in new products, start up costs and sales?

This concludes part one of this three part post: next I will take a look at assets and reserves.

Thank you to Matthew Rowe, Jill Townsley and the team at Towner for providing me with the perfect picture for this post: a beautiful and bewitching new work made from till rolls and, as ever, thanks for reading

 Susan

'If all you have is a hammer, everything looks like a nail' Bernard Baruch

I invited my good friend and colleague Dawn Langley (the former Director of Organisational Development at Arts Council) to write a blog about the value of toolkits in re-thinking business models following her great work on the Business Survival Toolkit'.  It is, I feel, a particularly timely piece for future NPOs putting together their business plans this summer.

I have, I now realise, many toolkits in my life both abstract and concrete. There are the obvious ones for the car or the house, although the former is now much less used with the advent of automotive technology. I have my camera kit, my jeweller’s tools, and various other collections I have loosely assembled. They all have some things in common… 

  • They help me create as well as fix or repair
  • They are practical, meant to be used
  • They are often used in combination
  • They require me to think about the job in hand and select appropriately

I have favourite tools, probably beyond their useful life but that are like old friends and constantly useful. Pristine tools that I know I will have a use for someday but in the meantime they will stay neatly wrapped and protected and new discoveries that open up the possibilities. I have bookshelves full of ideas that I see as tools in waiting.

I realise with the Business Survival Toolkit I am in a privileged position. I know how it came about. I know its structure, and the many tools intimately. Simply put, I know how to find exactly the tool I want when I need it. I imagine that coming across it for the first time this could be a daunting task. For some of you just wandering through and clicking on the odd tool will be the best way to explore, for others it may be better to approach it with a clear purpose or question in mind.

The toolkit has a basic framework of four phases – reviewing, visioning, planning and implementing. Like my own toolkits I have tried to include old favourites as well as new thinking. It also has two key messages: 

  1. Act now
  2. Thinking is free so do it more often (sound advice from Kevin Duncan in his book on Small Business Survival)

The tools will not tell you what to do but they are designed to help you find new ways of thinking about the future of your business or practice.

However you come across the tool you choose from the toolkit I really encourage you to lift it off the page and make it your own. Adapt it, tweak it, reflect on it, and share it. It is only with use that tools fulfil their purpose. I hope you enjoy trying them out.

If Dawn's piece inspires you to try out some new tools I can recommend the following:

Tools for Tomorrow from NCVO (also see their own list of useful tools and guide to strategic planning

Tools for success from Centre for Charity Effectiveness at Cass Business School

(Dawn also blogs with Jon Treadway at Bad Culture)

Thanks for reading

 

Collaboration - why bother?

Two of Grayson Perry's works, 'The Frivolous Now' (2011) and 'The Rosetta Vase' (2011), on either side of one of the British Museum's artefacts, an ancient Egyptian handle made in the form of the god Bes

During the last year or two no ‘buzz word bingo’ card for an arts conference would be complete without entries for ‘collaboration’ or ‘innovation’; these admirable attributes are to be found in power point presentations, mission statements, business plans and funding applications.  We are all, it seems, collaborators and innovators now.  I am, as you have probably realized by now, a bit cynical about this whole hearted embrace of these two ideas – not because I do not think that both are excellent ways of working to aspire to but because I am not convinced that everyone who uses these words understands what they mean and how to make them a reality.  Like anything else in life worth having, they both have a price and I am not sure that we are being honest with ourselves about the cost of collaboration or of innovation.

The rest of this blog looks at collaboration – innovation will have to wait for another day!

Collaboration is something of a catch-all expression: it covers everything from networking through the co-ordination shared resources to joint leadership and decision making which falls just short of legal merger.  Researchers have developed a very useful taxonomy – the five levels of collaboration.  What I find most striking about these levels is the great variety they encompass and how the relationship between reward (more impact and mission delivery) and risk (erosion of ‘sovereignty’) develops as the collaboration deepens and engages more and more of the partner organizations.

Given that collaborating is not risk-free why, from a business perspective, do it?

Collaboration allows you

  • To use resources (assets, skills, expertise and networks) you do not own and have not had to invest in developing.  This makes for a more flexible and adaptable cost base.
  • To provide a wider range of experiences for your staff and audiences
  • To make public investment go further
  • To address complicated and complex problems which you could not tackle alone.  (For example see this report by the Australian Public Service Commission on the delightfully entitled ‘wicked problems’)

It does not, in most cases, save you much money but it does allow you to access higher quality services or products that you might otherwise be able to.

Working with others is almost always harder than working alone.  It is particularly challenging in a sector that lacks the ‘objectivity’ of the profit motive and in which organizational identity is rooted in the uniqueness of an artistic offer.  Real joint working will always challenge the status quo as two or more ways of doing things collide.  Relationships will need to be negotiated and compromises made.  The need for clarity around both ends and means will shine a spotlight on existing and inherited practices and assumptions. 

True collaboration that brings real results is hard but it can be truly transformative.

During my research I found many examples of visual arts collaborating and co-operating to increase their impact and resilience.  The following are just a small sample of the many ‘species’ of collaborations that form a crucial component in the visual arts ecology.  Their origins, motivations and purposes are many. 

Professional networks and trade associations

Turning Point itself

VAGA

VAUK

NFASP

a-n AIR

A benchmarking club

MyCake

An invitation only club convened by a leading organisation

Plus TATE

A collaboration with other art forms based in the same city and borne out of the desire to respond to a very specific opportunity

LARC

A collaboration with other third sector organisations in the same county

Consortico

A joint venture with a commercial gallery based on personal contacts

Smiths Row

A collaboration between two university galleries led by a husband and wife team

Whitworth Art Gallery and The Manchester Museum 

The Turning Point network exists

to connect people working in the visual arts with each other, and with professionals in other fields around the world, in order to share information, ideas and resources.

It would be great if members of the network used this site to share their own collaboration stories, about why they collaborated, what worked, what didn't and what was learnt.

Thanks for reading

Susan

Building better businesses - guest blog from David Brownlee

Building Better Businesses

I admit that the title wasn’t immediately appealing, but ‘Business Models in the Visual Arts’ was one of my favourite reads of 2011.  In a straightforward English (no MBA required), Susan Royce painted a picture of an increasingly successful sector that was at risk due to weak business models.  Never pulling her punches, she accurately described the key obstacles for the sector and came up with a list of practical suggestions for how visual arts organisations could develop better and more sustainable business models.  Top of her list was increased ‘audience focus’.  This is the mantra of Audiences UK and fundamental to our manifesto.

Other key recommendations were centred on Business Skills Development, Smarter Support Operations and Financial Strategy.  Underpinning all of these key areas is a four-letter word that some professionals in the visual arts really don’t want to hear.  I’m worried that as soon as I mention the word, half of you will stop reading, and I know those who turn away would benefit most by hearing what we’ve got to say.  Stick with me. Please.

The word is data.  You need it to make informed business decisions.  You can use (and abuse it) to make your case, prove your impact and increase your funding.  It needn’t be boring and it is not the exclusive domain of cultural organisations that sell tickets.

After working with the Arts Marketing Association and over fifty visual arts organisations on a training needs analysis, we’ve specially designed four training courses that match what the sector feels it needs to know about using data.  With fantastic trainers, a range of bespoke sessions aimed at Chief Executives, Marketers and Fundraisers in the visual arts, we think the value of the training will be enormous.  Thanks to funding from Arts Council England, all training sessions will be free of charge.

With just 150 free places, one might expect that these courses, designed to help build better visual arts businesses, would be filled immediately. But everyone I talk to says they think it will be a ‘hard sell’.  Susan’s report would back this up:

‘The culture of the contemporary art world has a strong individualistic flavour and a traditional ambivalence towards, if not rejection of, the values of the economic world. From a purely business perspective this is problematic: business is a collective endeavour and it is hard to be good at something you do not value.’

Has there been a sea-change in the attitudes of the sector in the last six months?  Has it stopped being ambivalent about the values of the economic world and does it now really want to be better at business?  Levels of bookings for our demand for our training should be an interesting indicator.

If you work in the Visual Arts and want to know how you can use data to build a better business, you can find out more about the national training programme and book your place here.

David Brownlee, Chief Executive, Audiences UK

The business blog is back!

Antony Gormley, Blind Light at the Hayward GalleryFor a limited run only, my guests and I will be sharing our ideas on some of the key challenges for the visual arts sector in building better business models.

This week’s focus is on engagement and in the following weeks we will be looking at

  • What we mean by collaboration and how to make it work
  • Managing the money in tough times
  • How to be the change you seek

If you have a comment to add, an example to share or a bone to pick – do get in touch!

Re-thinking engagement

Let’s kick off with some thoughts from Sarah Boiling at Audiences London on both the problems we face and some solutions.

The hardest question that I have sought to answer during my research is this: from a purely business perspective, why should an organisation engage with (i.e. invest scarce resources in getting to know and building a relationship with) people who get in free for free?

The answer, I am convinced, is in how engagement connects the programme and the funding.  I was really struck by this 2009 article on non-profit funding models from which this quote is taken.

…non-profit leaders are much more sophisticated about creating programs than they are about funding their organisations…..all non-profits [are] in two ‘businesses’ – one related to their program activities and the other related to raising charitable ‘subsidies’

For me engagement provides the bridge between the ‘two businesses’ in six very important ways. 

Public benefit

Many TPN members are charities; they are beneficiaries of the deal by which UK nonprofits get tax breaks (business rates relief, exemption from corporation tax and gift aid), state funding and lottery proceeds in return for delivering public benefit.  Their charitable status is thus a key element in how their businesses work.  How can an organisation demonstrate that it is delivering public benefit and impact (as charities are increasingly required to do) without engaging with those whose lives are hopefully being enhanced?

Funders’ expectations

Funders, both statutory and private, are making their priorities very clear in this area.  I understand that all NPO agreements will include at least one KPI (key performance indicator) relating to audience engagement.  Paul Hamlyn Foundation says ‘The Arts programme aims to increase access to and enjoyment of the arts in the UK.’  If we do not engage with and develop audiences we will find it harder and harder to secure funds, not least because other artforms (e.g. theatre) and other sectors (e.g. museums) are already doing it better.

Paying customers

Do you have a shop or a café?  Do you have sales of artists’ work?  Do you hire out your spaces to artists or commercial/public/third sector organisations?  Do you have some paying shows?  If so, you have paying customers and the first rule of successful marketing is to know your customer; otherwise you will be offering the wrong product at the wrong price to the wrong people.

Philanthropy

Currently a very hot topic – as Jon Treadway (formerly Head of Regular Funding, Arts Council England) explains.

Cards on the table - I do not believe that major donor philanthropy has much potential to deliver outside London and possibly one or two big metropolitan areas – there are simply not enough high net worth individuals who are interested in culture to make the effort worthwhile.  However, I do believe that many network members could take advantage of social media and the relative cheapness of computer based patron management systems to build successful and financially useful friends and member groups.

Volunteers

Volunteers are already a key element in the business models of many visual arts organisations as trustees, gallery assistants and unpaid interns.  Tomorrow’s volunteers are mostly likely to be found and mostly easily sourced among those who already love the venue or organisation.

Advocacy

In the past two years there has been much talk in the sector about the need for better advocacy.  I fully support the need for us to make our case better but there is a danger that we talk only to ourselves and those who agree with us – what we really need to do is to persuade those without our self-interest to advocate on our behalf.  We need our visitors to tell their friends about the great show they have just seen – word of mouth is, after all, the best marketing there is.  We need our participants to speak up for cultural provision in political debates.  But we cannot expect this commitment and support if we are not willing to invest time and money in quality conversations with our audience.

If you are interested in exploring any of these issues further – click here – and thanks for reading

Susan

We're not in Kansas anymore

© Anna Steinberg

The title of this post comes from All About Audiences' excellent conference which I had the real pleasure of speaking at earlier this week on the subject of business models for a new world. I would like to thank Ivan and his team for an excellent day, all of the participants in my break out session for some great ideas and everyone who has contributed to my thinking in this area over the last year.

My final report has just been published - see here.  The world has changed a great deal since I began my work nearly a year ago although I hope that many of the observations I made then still hold true.

However this post is really about an absolutely wonderful new toolkit - the business survival toolkit which Creative & Cultural Skills has developed specifically for our sector and our sole trader/small scale organisations.  It really will reach the parts other toolkits cannot reach!  If you are struggling to get your head around this new, not Kansas, world this is the place to start.  

Thanks for reading

Susan

Plan B - learning to live with less

 

 

On 29 March those organisations that submitted an NPO application will learn whether they are ‘in’ or ‘out’; in the following months the fortunate ones will agree with the Arts Council what being ‘in’ will mean for them in financial terms.  

I discussed this process recently with a colleague David Worthington (UK Design Alliance, Media Square and CC Skills) and was really struck by his take on where the design industry, and indeed the wider creative industries were; they had, he believed ‘learnt to live on less’.  I am not convinced that we have yet reached this level of acceptance.  Hearsay suggests that many NPO applications, and their accompanying business plans, were predicated on levels of future public funding which seem, at best, unlikely.  Cutting costs is not the same as learning to live with less: it is only the first stage.

Organisations which respond successfully to a major financial shock be that a drop in income or rise in costs, usually do three things.  First, they cut costs to survive, to buy themselves time and to generate some money to invest in the next task.  Secondly, they work on improving the performance of their people and assets.  Lastly, and usually 2 – 3 years after the initial shock, they are in a position to focus on growth.  Examples of the types of actions that are needed in all three phases can be found here

No business ever secured its long-term future by cutting costs alone; viability comes from re-designing and re-making the organisation’s business model to succeed in the light of changed circumstances.  It is not possible to ‘skip’ from cost cutting to revenue growth without paying some serious attention to ‘performance’.

Over the coming week I, and my fellow contributors, will be offering readers of this blog some ideas around adapting existing business models and creating new ones.  Obviously we cannot hope to cover everything so I have included an initial resources list here.

If you have a good idea, case study or example to share please join in. 

Thanks for reading 

Susan

 

 

Five levels of collaboration

I really wanted to talk about models of collaboration in my workshop tomorrow but in an hour there simply will not be enough time so I have settled for posting up some slides here instead.  

What I like about this way of thinking about collaboration is that it makes clear how many different forms of collaboration there are.

Hope it helps

Susan

 

 

Report on business models in the visual arts

Here is the link to my draft report on business models in the visual arts.

I would like to thank the Network for asking me to undertake this work and everyone who answered my questions, prompted my thinking and pointed me in the direction of interesting ideas and case studies.

This is a draft; I would really value your feedback on both the report and on where you think the Network might go with some of these ideas next.  You can comment on this blog, email me at susanjroyce@gmail.com or do the old fashioned thing and catch me at Eastbourne next week.

At the national conference I will be leading a workshop that seeks to explore some of the issues I (and many others have rasied) around collaboration and shared services.  If there are specific questions you want to consider at that session - do get in touch.

Thanks

Susan

Welcome back!

It has been sometime since I sat at my computer to pen (type?) a new post - holidays and some unwelcome ill health have lead to more 'slippage' than I would have liked and for those of you eager for news of the report and the workshops, I am truly sorry for the delay.

I am completing the report at the moment and will let you have an update on timings as soon as possible.

Eight Business Models Prototypes for publishing a book from Business Model Generation http://yongfook.com/business-model-generation

In the meantime, I would like to commend 2 books to you, one has been around for a while and the other is brand new.  Re-imagine by Tom Peters (http://www.tompeters.com/reimagine/conversation.php) came out in 2003 and is sub-titled 'Business excellence in a disruptive age'.  Peters is a first division management guru, ex Harvard, ex McKinsey and the author of the work which re-wrote the corporate playbook in the early 1980s. This pedigree is not, however, why I am recommending the book - I am recommending it because (a) the guy knows his onions and (b) it is a truly innovative, visually exciting and inspiring book which will question your thinking, stimulate new ideas and be a fun read too.

The second is a new publication called Business Model Generation by Osterwalder and Pigneur - http://www.businessmodelgeneration.com/.  It is fabulous, does not assume you have an MBA (or even like numbers) and offers the best framework for describing a business model I know.

Thanks for reading

Susan

Budgeting for 2010/11: a Catch-22

There was only one catch and that was Catch-22, which specified that a concern for one's own safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn't, but if he was sane, he had to fly them. If he flew them, he was crazy and didn't have to; but if he didn't want to, he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle. Joseph Heller, Catch 22

Talking with friends, colleagues and clients in recent weeks I have been struck by the real challenges faced by arts organisations in planning for next year.  It seems to me that many leadership teams and boards face a real Catch-22: how to balance the urgent need to budget for austerity with the important need to plan for an uncertain future.  

Budgeting for the short term against a background of substantial drops in income (quantum unknown) is about cutting costs as income generation takes time to bear fruit.  How severe those cuts need to be depends:

  • on your view of the likely drop in funding 
  • the possible impact of the cuts on your customers' behaviour eg artist studio holders, public sector employees who use your cafe but may be made redundant
  • on the organisation's reserve levels
  • the cash profile of its business model

Cost reduction usually involves

  • more central control over the spending of money
  • reduced discretionary spending (training and marketing are the usual first targets)
  • looking at ways to reduce staff costs (almost always a major cost in arts organisations) through recruitment freezes, redundancies, wage freezes or reductions, reductions in working hours etc
  • re-negotiating contracts

 Planning for an uncertain future on the other hand needs to focus on

  •  creating and nurturing individual and organisational capacity especially flexibility and knowledge sharing
  • finding the time and resources to explore and exploit new opportunities around say income generation, audience development, joint working
  • active stakeholder management
  • developing appropriate financial strategies around risk management, reserve levels and contingencies

Austerity budgeting is largely tactical and often about 'command and control' management and collective introspection whilst planning for an uncertain future is a strategic process which should nurture and develop the people you do have whilst being focussed on and responsive to the external environment. A real Catch-22!

Are we, I wonder, 'merely' heading into a nasty period of belt tightening or are we at the beginning of a radical re-structuring of the arts 'industry'?

 At the moment I don't have many answers, but I do have some ideas, which I will be trying out on you over the coming weeks.

Thanks for reading

Susan

Management is doing things right; leadership is doing the right things - Drucker (again)

How do leadership and management relate to business models?  How do you distinguish between them?

For a short and snappy answer to the definition question I like Peter Drucker's quote but for something slightly more rounded I think John Kotter's explanation is the best I know.  (Kotter is THE man on change - author of Leading Change, Our iceberg is melting etc - see http://www.kotterinternational.com/Default.aspx).  For Kotter (and me) management is about

  • Planning and budgeting
  • Organising and staffing
  • Controlling and problem solving 

Good managment produces a degree of predictability and order and has potential to produce consistently the short term results expected by stakeholders.  

Leadership, on the other hand, is about

  • Establishing direction
  • Aligning people
  • Motivating and inspiring

Good leadership produces change, often to a dramatic degree, and has potential to produce extremely useful change.

In the arts in recent years we have talked a great deal about leadership but very little about management and that, for me, is a mistake.  Successful organisations need both good (preferably great) leaders and managers - the best plans and business models are nothing but dreams without the ability to execute them.  The threefold model I am developing (attractiveness, agility and ability to deliver) requires a blend of both skill sets.  Being attractive to a range of co-investors (funders, audiences and collaborators) is down primarily to leadership; being agile calls for both as it is a mixture of culture and process; the ability to deliver on your organisational promises is primarily a management challenge.

In my experience, arts organisations are full of very bright, very keen, highly intelligent and creative people often doing jobs for which they are stunningly over-qualified.  It has therefore been possible for arts organisations to 'get by' with little in the way of people management, either of the performance or development sort.  I have a sneaking feeling that this is about to change - as resources become more scarce, managing those resources well is going to matter A LOT.

Thanks for reading

Susan

Self evaluation framework

Arts Council England has just published its new self-evaluation framework - http://www.artscouncil.org.uk/selfevaluation/.  It is a really useful starting point for organisations who want to take a good look at what they do and how they do it (and in the current environment, who doesn't).  There is also some excellent signposting of other useful resources.

If you dislike change, you're going to dislike irrelevance even more - Shinseki

This is one of my favourite change quotes, partly because it comes from someone charged with one of the hardest jobs in change management I can think of - remaking the US Army after the Cold War.   It also goes to the heart of one of my objections to the word 'sustainable' - the suggestion of permanence - the belief that once an organisation finds a winning business model all it has to do is stay with it.  This myth has been exploded repeatedly, think of British shipbuilding, motorcycle and car manufacturing, consumer electronics etc etc, but it persists.

Good business models work, in part at least, because they are in tune with their times; when the times change they must change or die.  (For a great and readable example, see Lou Gerstner's book on the IBM turnaround Who says elephants can't dance?).  

We are, commentators mostly agree, somewhere between 5 and 10 years into a possibly 50 year Information Revolution; a revolution at least as powerful and disruptive as the Industrial Revolution but packed into a much tighter timescale.

Interestingly enough, while many artists have embraced this technology to make work in wonderful new ways, arts organisations have been slow to take advantage of the benefits of the new technology in their businesses, as the AmbITion programme found (http://www.getambition.com/).  I would like to encourage visual arts organisations to explore how the new technologies can be used to give them a crucial component in successful business models -  relevant, accurate and timely information - in cost efficient and effective ways.  Accounting software is boring (and I say that as an accountant) but it can, if correctly configured, give organisations crucial information about the real cost of different activities allowing for informed decision making rather than inspired guesswork.  Other solutions can help visual arts organisations meet one of their greatest business challenges - a lack of knowledge about their customers.  For example, http://www.hi-arts.co.uk/audiencebase - a free audience development tool (thanks to David Brownlee of Audiences UK for the information).

Change is neither good nor bad - it is how we respond to it that matters.

And I will finish this post with another quote from the late Peter Drucker.  During my research, many of those I have spoken to have characterised the visual arts as entrepreneurial; I wonder if this quote rings true 'The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.'

Thanks for reading

Susan

PS If you have not yet seen Mark Robinson's work on Adaptive Resilience - do so - its great stuff. His blog is here http://thinkingpractice.blogspot.com/ and Arts Council England published his work here http://www.artscouncil.org.uk/publication_archive/making-adaptive-resilience-real/ under a creative commons licence (hurrah!)

Lots of questions!

I am at that point in my research where I have too many questions and not enough answers so I thought I would share a couple of them with you in the hope of some external enlightenment.

My first question concerns the title of my work ' sustainable business models'.  Sustainable is such a worthy but rather stodgy word, the financial equivalent of 1970s nut roast; it has also become entangled with the climate change and environmental debates (an area I am touching on but not delving deeply into as this is being tackled elsewhere, notably by Julie's Bicycle and a consortium of the London galleries).  What about 'successful business models' instead?  I assume that what network members really want to know about is about what works!

The next interesting area requiring the application of 'the little grey cells' is the question of 'overheads' especially 'bricks and mortar'.  Even before 'The Great Reset' (to borrow Richard Florida's evocative phrase) many business commentators and futurologists were stressing the power of ideas rather than things to create value and the attractiveness of being able to use assets only when you need them but letting someone else have the bother of managing them (eg cloud computing).  Against this background, the arts have invested millions of pounds in wonderful and iconic new spaces for contemporary art.  How can this possible circle be squared in a world of free access?  I suspect that the answer must lie in forming much closer, more knowledgeable, richer (and more remunerative) relationships with at least some of your audience/visitors.  How far are the ideas put forward by Falk & Sheppard in Thriving in the Knowledge Age useful to this sector?  This goes far beyond issues around increasing secondary spend and making cafes pay (although both are worth doing) and into the realms of real engagement.

Lastly,  good business models and successful business strategies do not just spring into being, they are crafted through hard work and rigorous thinking and leading thinkers on business strategy all agree on the absolute need to align organisational culture with financial objectives.  For example, Kaplan & Norton (of Balanced Scorecard fame) talk about the need to take into account and balance 4 key perspectives: learning & growth, business process, customer value proposition and financial strategy.  

How far does the culture of the visual arts sector support this kind of hard thinking and value those who do it?  How pervasive is the 'disavowal of the economy'? Does the 'subscription model' (Taste Buds 2004) handicap organisations in developing successful and innovative models of operating?  

More food for thought in due course

Thanks for reading!

Susan

Sustainable business models for the visual arts

My name is Susan Royce; I am a chartered accountant and change consultant who has worked in the arts for over 10 years.  I have also been the chair of Axis for the last 8 years and collect contemporary work when my bank balance permits.

Image: Susan Royce

In response to requests from the Turning Point Network, I have been asked by the Arts Council to look at what makes a sustainable business model in the subsidised visual arts sector.  

Virtually all of the literature on business models assumes that the business itself is profit making and that its main goal is long term shareholder value so my first challenge has been to consider how to think about the sustainability of businesses which are mission-led, subsidised and set up as not for profits.  

My first major conclusion is that you cannot understand or explain business models in this sector if you confine yourself to the numbers.  It is vital to consider all of the resources which an organisation attracts and deploys - cash, of course, but also people's time, the organisation's brand and the networks it and its staff are a part of.

Building on this I believe that sustainable business models exhibit 3 traits:

  1. They are attractive- their mission, vision and values attract support from a wider range of sources
  2. They are agile - their organisational culture, internal processes and financial structures allow them to operate flexibly responding to both opportunities and threats in good time and without derailing the organisation
  3. They can deliver - their culture, people and processes promote the efficient and effective use of the resources at hand

I shall be enlarging on all these themes over the next few weeks and I would really welcome any and all feedback.  

Susan