1. Introduction 

The purpose of the meeting is to explore the extent to which non-profit and for-profit cultural organizations – museums, orchestras, opera companies, theaters, dance companies on the one hand and the gamut of film, publishing, media, fashion, music, commercial theater, video and related enterprises on the other – have things to learn from one another with respect to both the effective management of creative processes and finding an audience or market for the fruits of their labors. This note suggests some lines of inquiry.

The ultimate purposes or mission of the creative industries in the private sector and arts organizations are, ostensibly, very different, as are the legal structures within which they operate and their underlying economics. They nevertheless share a common need to manage creative individuals and processes to produce specific results, to innovate constantly and to stimulate consumer or audience response to innovation - with either undivided attention or a weather eye on the bottom line. And although the legal structures suggest an absolute divide between the mission-driven non-profit sector and the money-driven for-profit sector, the reality is that, in terms of organizational behavior, there is a much more graduated and nuanced picture.

The organizational differences are significant and surprising. The paradigm for successful management of creative industries, on which there have now been a number of studies, would appear to look radically different from the prevailing paradigm in the non-profit world – flatter, more decentralized, with significantly higher levels of investment in professional development, and financial incentives playing a significantly greater role in motivational structures. 

Non-profit cultural organizations, in contrast, would appear hierarchical by comparison with this ideal – if not with the average - and recent writing on pay and remuneration has demonstrated that the sustained repression of pay and benefits is inhibiting and in some cases crippling arts organizations as they try to adapt to a changed environment and to recruit and retain staff of the appropriate caliber. They are also experiencing a high degree of stress generally as a period of undercapitalized expansion has left them ill-equipped to deal with a rapidly changing environment where flexibility, a commitment to quality and innovation and a strongly branded identity – all of which require investment capacity – would appear to be central attributes of success.

Furthermore, the increasing conglomeration and vertical integration of many areas of the creative industries such as music and film would appear to be in stark contrast to the non–profit ‘cottage industry’ model, where a single small entity is likely to be responsible for content, marketing and audience development (although it is important to note that this vertical integration has, in the views of many, reduced the capacity of the creative industries to innovate effectively).

Our agenda over the one and a half days we have set aside is to explore the overlapping territory of the for- and non-profit creative sectors with the following questions in mind:

• Is there a core commonality in the management of creative industries and the management of cultural organizations? If so, what?
• Are there distinctive approaches to the management of creativity and to harnessing it to a larger organizational purpose, whether that purpose is profitability or collective artistic endeavor?
• If so, why do these processes appear so different in the typical cultural organization and the typical ‘creative industry’? Are these differences apparent or real?
• Is there a ‘quiet crisis’ in the non-profit cultural sector brought on by the gap between managerial and financial resources and structures on the one hand and the functional requirements of a vibrant cultural sector on the other? Would the non-profit arts be more effective and efficient if content creation and audience development were somehow uncoupled? Do comparisons with the private sector suggest a way forward? Or indicate priorities for change within the non-profit field?
• Is there scope for more creative management within the framework of the non-profit 501(c)(3)? Are there other models that could be adopted? Are there hybrids? Are there opportunities for more effective collaboration?

The rest of this note explores some of these issues in greater detail.

2. Managing creativity

Just as the Industrial Age gave way to the Information Age, the current stage of advanced capitalism has been dubbed the “Creative Age”, in which it is not only efficiency or experience that makes a business successful, but the ability to innovate constantly and introduce those innovations rapidly, no matter how mundane or practical the underlying good or service. Whether it is T-shirts, bottled water or financial services, image (‘legibility’) has become as important as functionality or value for money, which are either the baseline for consumer expectations or, as in the case of many luxury or symbolic goods, simply not a consideration that informs consumer choice. This means businesses face the challenge of constant innovation and differentiation to keep market share. As a result they are understandably preoccupied with the development of new organizational models that will better foster creative innovation in the workplace.

"Welcome to the no-collar workplace. It is not merely the result of businesses trying to be hip and trendy, but an adaptation to the rise of creative work. Its core principles and practices are spreading because they are efficient, in the sense of being well suited to mobilizing talent around creative tasks. This workplace integrates elements of the flexible, open, interactive model of the scientist’s lab or artist’s studio more than the machine model of the factory or the traditional corporate office." – Richard Florida (1)

Less breathlessly:

"Creativity comes with a price. The costs within a competitive industry of maintaining a creative atmosphere and of retaining key personnel can be high. Top managers are increasingly aware of the extent that to which “climate” and “corporate culture” can translate into expensive, tangible investment. Yet the costs of failing to foster creativity can be significantly higher." – John Kao (2)

Art schools, according to a recent Harvard Business Review, have become as important a source of talent as business schools, as recruiters from large corporations hunt for minds that are skilled at innovative and creative thinking. The rationale is that it is easier to teach a creative person the practical skills necessary to do a certain job, while reaping the benefits of their fresh perspective on the industry, than to teach a candidate with concrete job-related knowledge how to think creatively. Somewhere in the bald assertions that tend to characterize writing about management, there is an important kernel of truth here.

Yet the observation has been made that some for-profit organizations within the cultural sector are actually more likely to have rigidly hierarchical approaches to management than other private sector companies, due in part to the number of mergers in recent years between companies of various media. While mergers bring about a greater diversity of activities, they also bring about a higher level of bureaucracy which can conflict with creative activities. As Richard Caves puts it, “However capable conglomerate organizations are of pursuing streams of rents, they are limited by their infelicity for organizing creative work.” (3)

The specific challenge is that of squaring an appropriate degree of financial accountability and efficient innovation. When Time Warner acquired the videogame company Atari, founded by Norman Bushnell, it seemed to be the perfect partnership of creativity and business strategy. However, the rigid managerial structures imposed on Bushnell created an environment that he found intolerable, leading to Bushnell’s departure. (4)” The music industry experiences similar issues: Berry Gordy, who founded Motown Records on a basis approximating the factory production model developed early on by the U.S. automobile industry, lost substantial market share to other companies that adopted more integrated styles of management, enabling them to adapt more easily to the rapidly changing popular music market. (5)

Some businesses have therefore looked to the arts and culture sector for inspiration – to orchestras, for example, or jazz ensembles, as examples of the juxtaposition of creativity and discipline. The Orpheus Chamber Orchestra has a sideline in commercial residencies, and the placing of individual visual and performing artists in company workshops in creativity is a relatively well-established revenue generator for some arts organizations. There has been little systematic study of the results of these interventions and opinions as to their efficacy often sound like a debate on the merits of alternative medicine, where one’s basic orientation towards the proposition has to serve as a guide in the absence of confirming or disaffirming evidence.

The non-profit arts sector itself has had mixed success balancing the flexibility and openness necessarily for creative thinking with the accountability and efficiency needed to run a viable business. Some of the reasons:

• The privileges of section 501(c)(3) of the federal tax code come at a price. The fiduciary responsibilities of non-executive boards and the paradigm of good governance that has developed around those responsibilities both emphasize accountability for both process and results and tend to encourage hierarchical rather than flat structures. The advance of Sarbanes Oxley-related preoccupations into the non-profit sector and the aftermath of corporate governance debacles such as Enron is likely to accelerate this trend rather than diminish it. The cultural sector will almost certainly enjoy closer supervisory attention in the next five years than it has in the past five years from Attorneys General and the IRS.
• The business model that comes with red-ink businesses is a cumbersome one, reliant as it is on contributed income. Richard Caves again: “The growth of bureaucracy in arts organizations stems not just from its enlarged size but also from the need for donations, which require the organization of fundraising and the bureaucratic display of orderly procedure and accountability.” (6) More generally, the increasing preoccupation of foundation and government funders with evaluation of outcomes and outputs – all in itself entirely legitimate – similarly shifts the balance between accountability and the fostering of innovation. As Paul Light describes it: “The non-profit sector has never been under greater pressure to improve its organizational performance. Its funders have never been so insistent about economy and results, while its clients have never been more demanding about efficiency and responsiveness. How the non-profit sector does its work is becoming almost as important to funders and clients as what the sector actually delivers by way of goods and services.” (7)
• Non-profit arts organizations’ appetite for a central role in civic affairs, whether for mission-related purposes or simply in pursuit of dollars, makes them more risk-averse that they would be if their focus was more directly on their responsibilities for an organization producing with an agenda that includes educational outreach, urban regeneration, tourism and ambitious social reform. They are less likely to have a high appetite for innovation than one that is single-mindedly pursuing artistic innovation, subject only to the constraint of available funding.
• Systemic undercapitalization – specifically, lack of venture capital or access to it or often even a language in which to describe its need – prevents organizations from being able to take and manage the risk that is inherent in innovation because they do not have the depth of funding required to off-set the risky with the less-risky.

So there is some way to go in terms of developing a model that successfully combines organizational autonomy and accountability, the force field in which creativity needs to exist in both the for-profit and non-profit sectors, and the conflicting tensions would appear to be growing stronger – with an economic imperative for increasing innovation and a political and organizational imperative for increasing accountability.

Do the two sectors have a common challenge in finding managerial models that square more comfortably the creation of circumstances that encourage innovation with appropriate mechanisms of accountability? If so, what do we have to learn from each other?

3. Knowing or inventing your market

The successful business produces well and efficiently what the consumer demands. But the nature of an economy which deals primarily in symbolic goods, or at least goods where the symbolic aspect is a large part of their value, means that businesses must not only cater to consumers’ desires, but must anticipate and create them. This is a much more risky proposition and one that has an important parallel in the non-profit sector, where the impetus is not simply to meet consumer demands (a.k.a. entertainment) but to create a context in which the consumer is willing to be challenged to move beyond his or her set responses and expand the vocabulary of response (a.k.a. art). Both wings of the creative industries seek not only to respond to known consumer preferences but to form them, even if their motives for the formation of tastes may differ. The need for approaches to marketing that allows the familiar to be a conduit to the unfamiliar is therefore common ground.

The for-profit side of the house knows this and has intricate and well-funded systems to market and publicize its product and to stimulate the desires and fears to which their products and services are a profitable response. Marketing departments spend enormous amounts of time and money gathering information about their current and potential markets and finding innovative ways to brand, advertise, place, market and otherwise inveigle their product into the consumer’s consciousness. Vertical integration and global conglomeration increase the capacity of the for-profit world to do this (although the technological advances that allow integrated marketing and distribution also increase the risk of piracy and intellectual property theft). The sort of brand strategies, product placement, guerilla marketing and similar approaches used by fast moving consumer goods companies such as Nike, with which the arts are ultimately competing for attention in the consumer’s crowded mind and calendars, place them at an incomparable advantage.

Marketing for the non-profit arts remains relatively speaking, Neanderthal, and compromised by the combination of lack of resources and by an over-reaching scale of ambition. In particular social agendas for wider access often create multiple agendas for marketing that have a political and moral logic, but little financial logic. The problem is not only one of resources or political and social ambition. Many non-profit arts organizations face tremendous challenges because of the specificity of their product. Reproduction is either impossible, as in the case of original works of art, or considerably lowers its value, and consequently its attraction for the consumer. Limited mobility and duration of events – whether theater runs or exhibitions – also prevent these entities from engaging a broader audience base. (8)

In general, as a result arts organizations employ a more grassroots approach to marketing, using education/community outreach programs to initiate dialogue and advertising with local media. In part because of the constantly changing funding requirements, non-profit arts find it difficult to develop a consistent marketing approach. They often pursue audiences on the basis of specific programming, not a sustainable long-term strategy.

Do the relatively low levels of available funding, the complexity of the strategic agenda and the nature of the product make the sort of marketing approaches that the creative industries adopt simply inapplicable to the non-profit arts? Or should the non-profit sector accept that it must change the ratio of production to marketing budgets, and take a more mature and focused approach to strategic marketing?

4. Collaborations

While the distinction between for- and non-profit is one that can be defined with some legal and economic precision, the reality is considerably more complex. All motives are mixed and nuanced, and behind the legal vehicles lie a wide range of ambitions and practice and as a result, considerable scope for creative collaboration. It is unclear whether this scope is as fully exploited by either party as it might be.

Below are briefly described some six areas where it has been argued that there is scope for closer collaboration than currently exists.

i. Community and economic development

Both the for-profit and non-profits organizations are important contributors to community and economic development, and their impact can be increased when they combine forces. Academy Award-winning Peter Jackson’s decision to remain in his native Wellington to build his studios for the Lord of the Rings trilogy brought about immense visibility to the city besides attracting talented creative professionals from all over the world. Non-profits are deeply rooted in the local community, and can serve as a mechanism to give the for-profit organization credibility and root it within the community. Partnering with local non-profits that often have strong civic ties strengthens the artistic network and grants the for-profit access to a larger audience base. For-profits, in turn, benefit their non-profit partners by bringing in professional talent and increasing the visibility of the community to the outside. Non-profit organizations maintain their competitive advantage through their community roots and local delivery mechanisms. (9) Together they provide job opportunities for locals, spur investment in the community and attract tourism dollars. For-profit industries that can afford to take a long-term view could probably usefully recognize that it is in their interest to make a long-term commitment to the community and invest in and contribute to non-profit arts in order to cultivate a community supportive of cultural industries.

ii. Building the Talent Base

While the needs and priorities of both sectors may differ, they will always be sharing the reservoir of creative artists and it is to their collective benefit to support arts programs at all educational levels. Encouraging creativity through art programs in schools builds a community of art-literate individuals who grow up to be active consumers of, participants in, and contributors to the creative sector. In addition, it begins to encourage the creative skills that are in high demand in the new economy. This is particularly critical in underprivileged communities, since they are most likely to be suffering from the loss of manufacturing and other jobs overseas. Much of the most innovative and commercially underexposed creativity is coming from these communities already. The explosion of hip hop music both commercially and underground is one example of the potential that lies in extending access to creative education to a more diverse pool of people. Non-profits, which tend to be deeply embedded in the local community already, are well-suited to offer outreach and educational programs that reach the maximum number of people. For-profits can contribute financially and otherwise to scholarships, mentoring programs, internships and classes to develop new talent. The entire creative sector gains from the increase in art literate individuals who feed into their pool of potential talent and consumer market.

iii. Programmatic Collaborations

For-profit and non-profit entities already engage in a number of cross-sector collaborations. Non-profits are often described as the research and development arm of the creative sector, albeit an arm sometimes deprived of the life-blood required to function as fully as it might. The most valuable contributions of the not-for-profit arts are in their development of the most experimental work of artists, the work least likely to be supported by for-profit interests. (10) The for-profit sector, recognizing that this experimentation might contain elements which they will appropriate in the future but are not currently financially justifiable under a commercial rationale, have an interest in supporting the non-profit arts in general for these endeavors. Non-profit organizations are also more likely to have their finger on the pulse of new developments and talents in the art world, both nationally and internationally, whether or not they are currently popular or well-known. For-profit entities, on the other hand, may have more knowledge of and access to newly developed technology, which can help non-profits access wider audiences more efficiently. They can also provide administrative support in areas where non-profit organizations may be undercapitalized, such as personnel and marketing.

iv. Distribution

A number of private sector enterprises have assisted small publishers and independent filmmakers with distribution so that they can reach a wider audience with their product. For-profit companies benefit by having access to new content as well as gaining credibility in certain niche markets. The proliferation and distortion of the designation “independent” across a number of different media testifies to this. Whether in film, music or fashion, the “independent” label is now more a marketing tool than proof of a non-corporation affiliated identity. For many cultural consumers, particularly the young, “street-credibility” is something that can only be accessed through face time and commitment and is inherently in opposition to commercial pursuits. Many corporations are seeking out access to these markets through partnerships with non-profits that may be seen as more “legitimate” by their target audience. Non-profits sometimes face the dilemma of having to choose between expanded distribution for their product and remaining as independent from corporate influence as their audience desires. 

v. Funding

Although there are a number of partnerships existing between the private sector and the arts, presently there exists no formalized system of giving to the arts in the for-profit cultural sector. (11) There are a number of initiatives that can be pursued to create a more stable financial environment for non-profit arts organizations while at the same time increasing the visibility of their for-profit partners. For-profits can serve as venture capitalists for arts organizations to develop new works, with the for-profit eventually taking on some of the artists itself. Again, the for-profit creative industries benefit from the mere existence of a healthy and vibrant non-profit sector, even if they are unable to incorporate its producers or products specifically.

vi. Cultural Policy

Policies that affect one aspect of the sector affect the cultural climate of the country as a whole. Decreases in public funding for non-profit arts, or changes in how the arts must behave to access that funding, influence the for-profit world as well. It may mean a less educated public or a declining talent pool. It may also mean less opportunity for new work to get exposure, putting more pressure on the for-profit sector to seek out and fund alternative incubators of talent. The for-profit sector is currently rarely, if ever, a part of cultural policy dialogues on public arts funding and economic impact issues. They are slightly more vocal about intellectual property and censorship issues, as it is more obvious how these affect their bottom line. It is important that the entire sector be active in cultural policy advocacy in general, forcing officials to act on the growing research that shows the vast contribution that arts and culture makes to the economy, education and civic life.

Are these candidates for more effective collaboration simply more or less naïve stalking horses to seduce the for-profit sector into subsidizing the arts or do they suggest a more strategic approach to inter-relationships to the benefit of both parties?

While the areas listed above reflect ways that the for-profit and non-profit sectors can in theory collaborate and help each other, there are some inherent differences that pose obstacles to the establishment of long-term partnerships. Some of these differences reflect a lingering (mis)perception of a stark division between “high art” and “commerce.” Yet there are more fundamental differences in mission and values which may be more difficult to resolve.

Ownership

Copyright laws and associated policies create a very complex relationship between the for-profit and non-profit entities where ownership of the creative good is concerned. The complexities of copyright laws are difficult to comprehend, and categories for ownership can span multiple users. Ownership of the creative good, as well as restrictions on its appropriate usage, can be an obstacle to collaboration between various creative industries, regardless of profit status. Museums often have different policies regarding the sale of work and leasing to commercial entities that can prove problematic for partnerships both inside and outside of the non-profit sector. This tension also exists in the for-profit sector between artist and management. Prince left Warner Brothers and changed his name when he was denied ownership of his current and future work. (12) A non-profit organization may lose control of ownership of creative work if it chooses to partner with a for-profit institution. Because property laws are complex, for-profit industries may have an advantage in the negotiation process as they are more likely to have the funds to retain experts on staff. This is an area fraught with paranoia and hard luck stories.

i. Core Values/Artistic Integrity

The core values of the for-profit entities and non-profit entities may prevent them from pursuing artistic collaborations. Non-profit organizations, primarily mission-driven, will seek projects that serve their missions. For-profit entities on the other hand, will pursue projects that will be profitable. Conflict may arise if the non-profits refuse to sacrifice artistic integrity for the sake of profit or for-profit organizations refuse to sacrifice profit for fidelity to the artistic purpose. This dissonance between commerce and creative integrity exists within the different arms of the non- and for-profit industries themselves, but the situation only becomes more complex when more than one organization is involved, representing different positions on the spectrum.

ii. Asymmetry of Benefits

For-profit businesses often have difficulty understanding why it is beneficial for them to contribute resources to non-profits that could be utilized better elsewhere. Although it may be more obvious how non-profits benefit in the short term from the influx of funds and expertise from their for-profit partners, the situation is by no means as asymmetrical as often portrayed. Even when sponsorship of non-profit programming proves to be a loss-making initiative, the support and sustenance of the non-profit arts is critical to the survival of the entire creative sector in the long term.

To what extent do these sometimes rather abstract considerations affect the scope for collaboration or is it simply lack of common interest that prevents greater cross-fertilization?

5. Cultures, structures and funding

The fundamental difference, it could be argued, between the for- and non-profit cultural sectors is not in their motivations but in their economic logic. The for-profit sector may be driven by rate of return on capital, but it is populated by people with more subtle drives and whose values are informed by more than the bottom line. And the non-profit sector ignores the market at its peril, and is filled with shrewd impresarios who understand the value of a long-running musical or a blockbuster.

The inescapable difference, it could be argued, is that where you generate surpluses rather than deficits, you have the possibility of a level of capitalization that allows you to invest in your future. Where you do not, then securing the funds required for investment in people (including, not trivially, health benefits), in infrastructure, in marketing, in product development is significantly compromised. This simple difference informs not only the chosen legal structure but the culture of the organization. It is significantly more difficult to create the conditions for creativity to flourish and for creative teams to be managed in the non-profit sector when the siren song of a decent wage and access to the resources – intellectual and material – to do a better job are available across the way in the for-profit sector. There is therefore a constant migration of talent, leaving behind, possibly, more committed or, possibly, the less mobile.

Given the range of motivations and of rates of return, is there a case for considering the structuring of partnerships that allow a greater degree of movement between for- and non-profit sectors so that each can replenish the other? Does the non-profit paradigm need looking at again, given the onerous and idealized expectations it places upon idealized boards and staff?

6. Intellectual property

The increased value given to knowledge and creativity together with the growth in technology available to reproduce and disseminate any form of media has necessitated strengthening intellectual property protection. Copyright serves the purpose of encouraging creativity and innovation by those who create by helping to ensure that they benefit financially from their ideas for a finite period before those ideas’ utility is further exploited by their joining the unprotected ‘commons’. The optimal balance between private advantage and public access as measured by duration and scope is a contested area, and increasingly so as the patterns of ownership of rights and the gap between legal and moral claims widens, both as a result of changes in the climate of opinion and the impact of technology.

The rapid increase of internet use and other information technologies have provided users with unlimited access to information and other creative goods, raising concern worldwide regarding protection of intellectual property. The TRIPS agreement, signed in Marrakech in 1994, was initiated to create a unified body that would seek to protect and enforce intellectual property rights for creative workers worldwide. (13) Piracy can have devastating effects on these industries, most notoriously the music industry. Napster, a file-sharing program that allowed users unlimited free access to the music files of other users, set off a frenzy to secure legislation to protect the intellectual property of musical artists and record companies. (14) There have been well-publicized cases of prosecution for illegal file-sharing, and companies are now developing new software that allows users to access music on the internet for a small fee. More anti-piracy products and legislation are in development, but this area of regulation requires constant attention as new technologies are continually being developed by the other side as well.

At the same time, because innovation is often a product of inspiration from existing creative works, copyright protections which are too rigid can limit creativity. Many of the best innovations are new amalgamations or alterations of existing products or ideas and it would be difficult to argue that any artistic work is unequivocally original. If artists are prevented from accessing a wide range of creative ideas and products this process may be stunted. In addition, for individual artists and the non-profit arts, it is often more important for the creative work to be experienced than for the artist or organization to receive maximum compensation. Where for-profit industries want to set prices to maximize profit and limit free access, non-profits might prioritize maximizing exposure or access. This reflects a difference in the primary product of the organization: the primary product of the non-profit is the organization itself, not a particular work or good. Opponents to the Napster crackdown, some of them artists whose work had been pirated, argue that their contracts with the record company harm them far more than the free downloading of music by consumers. In fact, they actually benefit from the exposure they got from Napster which draws listeners to their live shows, for which they receive a larger percentage of the profits, and increases the interest in certain lesser known musical genres. Napster could even function as a sample listening station for users who want to hear music before they invest in the CD. Consumer advocates of the original Napster and similar services argue that they should be able to exchange music with a network of their peers, no matter how large that network may be. Restricted peer-to-peer networks are appearing as alternatives to unrestricted file-sharing, but these too are receiving criticism by those who want stricter intellectual property protection.

The lack of information, constant development of new ideas and technologies and policy changes makes it extremely frustrating for creative workers to understand the process of copyright protection. Intellectual property protection requires a strong regulatory infrastructure and mechanisms to enforce these policies. It also requires an awareness of the limits of what individuals or companies can reasonably claim to own and for how long. A balance needs to be struck between the protection of the artists’ rights and information or knowledge that needs to be public to be relevant or have an effect.

Do policy makers, artists and creative industry professionals and administrators need to work together more effectively to develop and publicize a system of intellectual property protection that encourages innovation while still allowing it to be accessed by as wide an audience as possible?

--

(1) Florida, p. 117

(2) Kao, p.19

(3) Caves, p. 315

(4) Kao, John. P. 49

(5) Cowan, p. 34

(6) Caves, p. 237

(7) Light, p. v (foreword)

(8) Colbert, p. 44

(9) Saxon, Harrold and Aaron J. Heffron, p. 2

(10) Arthurs, p.5

(11) Arthurs, p. 6

(12) O’Lain, p.1

(13) Lehman, p.1

(14) Howkins, p. 64

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