Governance as a lever for business model innovation in the performing arts

Governance Klein

By Dr. Alexander Alexiev, Prof. dr. Xavier Castañer and Jori Gerritsen MSc.

Important changes are occurring in the performing arts world. Hit by the crisis and changing government attitudes towards supporting and subsidizing culture, performing arts organizations in many Western European countries need to identify new sources of income and develop new models for improving performance. Whether these organizations will survive these turbulent times will likely be dependent on the aptitude and competences of their management teams.

 

In 2012 Statistics Netherlands published a report showing that the professional performing arts sector had recently suffered significant declines both in the revenues that it independently generated and in the subsidies it obtained from the government. Many organizations in this sector have since responded to these changes by consolidating operations, increasing their degree of autonomy, undertaking privatizations, and investing in relationships with subsidy providers and critical stakeholders. Innovation and entrepreneurship have become buzzwords in a sector that has traditionally been wary of management talk and the purely economic justification of strategic organizational choices.

In an ongoing research project, we are aiming to describe the patterns in these organizations’ efforts to adapt to current challenges. We are investigating how their management can contribute to successful outcomes in such turbulent circumstances. Unlike most traditional sectors, cultural organizations must pursue a number of goals that may conflict with one another. On the one hand, they need to maintain their commercial viability, but on the other, they are keen to ensure the production of high-quality artistic output. They often need to attend to the demands of a diverse range of stakeholders, both locally and internationally. Our research seeks to identify the actions needed to ensure the effective attainment of their diverging organizational goals.

Our approach emphasizes the crucial role that senior management plays in navigating through these changes. The challenges outlined above have rendered many existing business models in this sector obsolete. Is it possible to adapt to these circumstances whilst maintaining critical aspects of one’s identity as a cultural institution? The essence of a business model for an organization is the logic by which it can sustain operation and create and distribute value for its stakeholders. Business model innovation then requires changing one or more of the elements of the existing model so that the chances of organizational survival increase and performance is improved. Many of these elements are interrelated, so changes in one may necessarily mean adapting the others as well.

As a complex but high-impact task, business model innovation needs to be high on the agenda of the governance of cultural organizations. Supervisory boards, which have the power to appoint an organization’s senior managers, need to see themselves and their top team members as the most important agents for change in an organization.

It is also necessary that the supervisory board and the management team provide a diverse range of knowledge and skills, combining specialist with generalist backgrounds and delivering competences from within and outside the industry. These competencies can be a source of new initiatives for business model innovation. Through a process of goal-setting and the implementation of these initiatives, it is possible to steer the organization towards a newly-formulated vision and profile that better serve important stakeholder groups.

One of our case companies is Stichting Dans- en Muziekcentrum Den Haag (DMC), a company that operates two central performing arts stages in The Hague: the Anton Philips Concert Hall and the Lucent Dance Theatre. A core aspect of its approach to business model adaptation is the active involvement of the supervisory board in changes to the composition of the management team. Here are some of the key initiatives that originated from this central group.

NEW VALUE PROPOSITIONS
Led by the supervisory board and the newly appointed director, DMC developed three new value propositions: - International and national excellence in the programme - Quality for a broad audience - Appealing to all the different societal groups in the city

NEW KEY RESOURCES TO SUPPORT THE VALUE PROPOSITIONS
To implement the value propositions mentioned above, DMC needed to adjust its set of core resources. It emphasized the need to develop a strong theatre brand that could attract new audiences. Another key resource that DMC envisioned was the building of a new theatre to replace the current stages. A new building would contribute to a stronger image: excellent productions at the national and international levels could be hosted, while the residents of The Hague would be attracted to a familiar landmark. The theatre also partnered with ’t Paard van Troje, the city’s main pop music stage, in order to collaborate in hosting events.

Perhaps the most important factor in the development of new resources was attracting key personnel for critical positions. Nearly the whole management team was renewed, as a new director, new marketing manager and a new commercial director were employed. An event manager with a special focus on specific population groups was hired to increase the diversity of the theatre-goers.

NEW CORE PROCESSES TO SUPPORT VALUE PROPOSITIONS AND KEY RESOURCES
The theatre invested in the automation and digitization of its systems in order to increase efficiency and enable changes in the other elements of its business model. For instance, a Customer Relationship Management System was developed, where customer profiles were maintained, enabling the theatre to reach relevant audience groups. Another adaptation of core processes was the introduction of key performance indicators and ‘targets’. This increased the level of responsibility and accountability towards realizing organizational goals. A new information system, which provided a connection between different current systems, also enabled progress to be monitored.

PROFIT FORMULA ADJUSTMENT
Revenue model and cost structure are essential elements in any business model. DMC changed its profit formula only incrementally, but in a coordinated manner with regard to the changes in value propositions, essential resources and processes. By increasing the quantity of programming, DMC aimed to increase revenue. At the same time, larger audience numbers were needed for the performances on the two stages. The adoption of a more professional attitude and more structured processes within the organization, ultimately leading to greater efficiency, could increase profitability again due to cost savings and higher revenues.

In conclusion, business model innovation requires an integrated approach to organizational renewal in the performing arts sector. This means that organizations must undergo change, but they must also take into account the interconnection of their value propositions, their activities and resources. They must remain true to their core values and promises to their diverse stakeholders. To succeed in this undertaking, supervisory boards need to work closely with management teams and consider business model innovation one of their highest priorities.

For further inquiries about the research project, please contact Dr. Alexander Alexiev, a.s.alexiev@vu.nl.