My conversations at the Salzburg Global Seminar last week reinforced the inherent tensions in the business of arts and culture. Example 1: We build organizations to resolve cost and scale problems. Organizations, by their design, seek to reduce or mitigate risk. Art is risk. Tension ensues. Example 2: We require more capital or cash to do our creative work than the commercial market will bear. We add the public and philanthropic markets to bridge the gap. We believe we’re escaping or abating market forces, but we’re actually now responsible to multiple markets. Tension ensues.
But current readings suggest that this is not a problem unique to the arts. Rather, organizations/corporations in many fields combine incompatible requirements under a single umbrella. John Hagel and Marc Singer described just such a tension in their Harvard Business Review article back in 1999, ”Unbundling the Corporation.” Said they:
No matter how monolithic they may seem, most companies are really engaged in three kinds of businesses. One business attracts customers. Another develops products. The third oversees operations. Although organizationally intertwined, these businesses have conflicting characteristics. It takes a big investment to find and develop a relationship with a customer, so profitability hinges on achieving economies of scope. But speed, not scope, drives the economics of product innovation. And the high fixed costs of capital-intensive infrastructure businesses require economies of scale. Scope, speed, and scale can’t be optimized simultaneously, so trade-offs have to be made when the three businesses are bundled into one corporation.
Most arts organizations juggle these same three demands — customer relationships, product/program innovation, and infrastructure — without realizing the inherent competition between them.
In the past, as Hagel and Singer suggest, there wasn’t much choice, because logistics, transaction costs, and other ‘frictions’ of the marketplace required consolidation. As the marketplace becomes ever more ”frictionless” through digital technologies and business innovation, it’s now possible to ”unbundle” those functions into separate businesses that can focus on a more singular goal.
The modern performing arts center is a classic example of three businesses bundled into one: they are customer relations machines because the have to be, they attempt program/product innovation (although this particular goal often loses to the other two), and they are operational beasts with massive infrastructure. As a result, they strive for scope, speed, and scale simultaneously only to be frustrated on all fronts.
Could there be an ”unbundled” version of the major performing arts center? Of the resident theater company? Of the regional art museum? Are there already examples of such unbundling we should be exploring?
Thanks for this: a great and important point, and question. What could unbundling be if the different pieces worked together? Would it be one working to funnel to another part of the organization or could they actually be independent businesses that co-operate in a less formal manner and are still interdependent, like a film production company and HBO. Not sure if that’s the most apt comparison, but it popped into my head.
This is gibberish of a quasi academic nature, expressed by people with too much time on their hands.
The key to successful “product innovation” as it is so unfortunately called in the context of this post, is artists with a strong point of view at the helm of companies — not managers, who should be in a supportive role.
While the observation that for-profit companies have the same conflicts, shouldn’t we take this to mean that non-profit groups have, paradigmatically, become to beholden to the for-profit model?
We should be thinking less about business models and more about how to support the work of artists. Most non-profit regional theatres are ad hoc freelance employers, not real “companies” in the sense of a group of artists committed to their work over time. They might as well be for-profit, except that the freelance, seasonal model can’t create that kind of audience excitement — or even “brand loyalty” anymore. Companies with real, distinct identities stand a chance of attracting donors best.
There is little point in arts organizations that are focused on solving organizational model problems if the art they make isn’t at the center of what they do. Very little point.
Thanks Ron, great points. I use ‘product innovation’ to make the comparison, not because I believe it to be a great phrase to describe the artistic process or creative work. But fair enough.
And it’s interesting that you make a distinction between ‘managers’ and ‘artists at the helm of companies.’ You’ll have to tell how the latter doesn’t require at least some of the skills of the former (or the former doesn’t require a sense of the latter). It strikes me that a manager with no passion or perspective on the art is a bad choice for an arts endeavor. But it also strikes me that an artist with no capacity to manage/lead/direct/inspire their colleagues is a bad choice as well.
‘Manager’ or ‘artist’ strikes me as a spectrum, rather than a polar choice.
Beyond theoretical wondering, I don’t see how to separate these co-dependent aspects of business, whether arts or otherwise.
Can you take away infrastructure and still accomplish goals of execution?
Can you take away the “customer relations” aspect, when art is often about audience as much as expression, or most often BOTH?
And do you have a purpose without the program innovation or the programming itself? (Decidedly not, as was already pointed out.)
I do think it’s important to realize the seemingly conflicting nature of these bundled aspects, but I might think that keeping them bundled under a shared umbrella could be most beneficial ASSUMING all parties involved are working towards the same ultimate goal/mission– of course, this is the programmatic part that is most often sacrificed.
Otherwise, you have:
ART with no practical structure or ability to share with audiences, or audiences to partake.
AUDIENCE “RELATIONSHIPS” with no art. So who/what is the relationship with?
INFRASTRUCTURE with no greater purpose.
I’m not clear on what the singular goals of each of these segments would be, even.
Do we, instead, consider an artistic mission as the “organization” and count on contracting others to organize infrastructure using outside resources? Same for customer relations?
I see obvious downsides to that model, not limited to: disjointed operations, communication issues/lag time, loyalty to mission/goals, high cost of essentially subcontracting?
Things to think about.
Great post, Andrew, and an important conversation. I’ll throw in one more business quote for consideration…Drucker said that “the purpose of a business is to create a customer.” But many arts leaders would argue that they are in the business of creating art. So where does the customer (prospective or existing) fit into the development of new artistic product? Too often the answer is “nowhere.” Dangerous place to be in an age where consumers expect an increasing amount of control over and engagement in their experience.
A fascinating post – thank you.
I have been wondering lately how many leaders (of major performing arts organizations / resident theatres / regional arts museums) have read THE FIVE MOST IMPORTANT QUESTIONS YOU WILL EVER ASK YOUR ORGANIZATION. The late great Peter Drucker wrote it of course, and it is arguably the best book ever written that addresses the concrete co-existence of innovation in an organization with bottom line business.
Drucker’s foundation in NYC – Leader to Leader – is ready able and willing to work with our country’s arts leaders on these very issues. (I am not affiliated with the foundation.) How can we make this happen?
A thought-provoking piece. I must say that, having been at the same seminar in Salzburg, I was quite taken aback by the tension between artist and organization and some of the views that were expressed. Perhaps it’s because I work for a presenting, and not a producing, company. But it reminded me of a brunch a few months ago, when a former student of my husband’s, who now works for a major Broadway producer, observed that part of the reason she went into commercial theater was that the decision-making process was so much clearer. Every decision hinged on whether it was good for the investors and would ultimately increase their likelihood of return. She talked especially about the bureaucracy of nonprofit organizations and how everything needs to be cleared by so many layers of management/major donors/etc. As someone who long ago gave up the artistic creation to focus my skills on the business side of that process, it’s been startling to recognize the tensions that exist between the two — and to realize that they exist despite the best intentions of both parties to the equation.
Unbundling a corporation can be extremely difficult when a company is run by an accountant or legal person. Risk is the only thing they think about.
Once an arts organization creates a development department, “customer relations” inevitably infiltrates and comes to dominate every other part of the nonprofit bundle.
Very useful line of thinking, Andrew.
Bill
Bundling, unbundling. Where’s the PRACTICAL advice here? What’s working and what is not? We have an industry in decline — passionately articulated by Ben Cameron on many occasions — yet we continue to ramble on about theories culled from pop-management writers. What is Singer and Hagel are nothing more than the new Richard Florida?
One way to solve the tensions that are expressed in the article and many of the responses is the joint leadership model that exists in many theatre and dance companies in my part of the world – Australia – and that presumably also exists in other countries.
As long as the relationship between the artist-as-leader and the manager-as-leader is strong with effective communications, trust and shared commitment to the artistic vision, a complex arts organisation can be well managemed.
I don’t think this is entirely gibberish- it’s an interesting question that must be explored. I think unbundling would be too complicated with too many risks, and I see value in Ann’s suggestion, that co-leadership might be a viable solution.