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