New business models – is learning the answer?

Two young gallery visitors enjoying a learning activity at MIMA

Is your organisation finding it hard to secure the resources you need? Are you interested in exploring new ways to generate income and achieve your mission? Then John Falk and Beverly K Sheppard’s excellent book Thriving in the Knowledge Age: new business models for museums and cultural institutions is for you! This book offers a very practical framework to think about what a ‘business model’ means for arts and cultural organisations, and why it might be useful to consider what we do in these terms. But the book is also premised on a vision of the role museums can play in our lives in terms of learning.

To take each of these in turn:

1. Why is talking about ‘business models’ useful? And what does ‘business model’ mean in this context?

Falk and Sheppard open their book with a quick explanation of what is meant by a business model – but quickly move onto why we need to think about reviewing and refreshing our models. Their opening chapters offer a view of the key external drivers that are impacting on museums and cultural institutions – both in terms of challenges such as how the internet is changing our expectations as consumers, and the opportunities to which museums could respond – such as a growing demand for social and family experiences, particularly those centred on informal learning.

Falk and Sheppard offer a helpful definition of what a business model is:

‘The mechanism by which a business intends to manage its costs and generate its outcomes […] The theory that undergirds how, why and in what ways an organisation conducts its business.’ (p.20)

Whereas a business plan is primarily focussed on the strategic positioning of a business within a market or ecosystem, the term business model includes the structural or operational characteristics of how you do business. In my experience it’s not uncommon for a ‘business plan’ to include aspects of the business model.

We all have a business model, but often it’s not explicit. So for example, the business model of Autograph ABP (of which I’m a trustee) is to promote photographers concerned within issues of human rights and identity through exhibitions, publications and events in our gallery at Rivington Place, and in partner galleries around the world, funded through a mixture of public subsidy and earned income. We’ve been developing our model recently by acquiring a building which generates additional income streams through rental income and we’re currently investing in digitising and acquiring rights to an archive with a view to increasing our sales income (which would also support our mission of supporting artists by generating income and achieving exposure for them).

The authors suggest there are four main questions which a business model needs to address:

1. Purpose – what is the mission? Who do you exist to serve? What need are you meeting?
2. Assets – what assets do you have? They include facilities, skills, knowledge and brand as part of your assets – not just the physical assets you might think of – such as buildings or collections.
3. Partnerships – how do you work with other organisations to leverage your impact?
4. Business strategy – how do you generate enough income to do this?

I think we often fall into the trap of thinking of the business model just in terms of this final area – how we generate the income we need. But thinking just about income strategy means we miss out on a whole range of other options for how we can achieve our mission more effectively.

The other aspect I really like about this model is the focus on assets (in their broadest sense) – looking at what organisations can do from a position of building on our strengths. Our key asset, the authors argue, is our knowledge and skills – our human resources. Chapter 6 explores this theme in greater depth and sets out suggestions as to how we can ensure our organisations are productive and creative. I particularly enjoyed the description of creativity-killers (adapted from Dr Teresa Amabile at Harvard Business School) in Chapter 6 which includes those old favourites: micro-management and excessive pressure and competition (p.122).

Business theory is not a big feature of the book, and is in fact limited mainly to Chapter 9 in which the authors recommend an approach based on the business researchers Fred Crawford and Ryan Matthews. Simply put, the strategy is to ‘determine how to best use [its] assets to maximise the value provided to customers’ (p191). ‘Value’ covers five areas: access, price, experience, service and product. It is argued that no one business can excel in all five areas – instead Crawford and Matthews recommend aiming to be really good in one area, and reasonable in the others. Falk and Sheppard explore what this model might mean for museums, concluding that ‘your museums objects and exhibits are fundamental to your business, but they can no longer be counted upon to be the exclusive driver of your business strategy’ (p.214). That means focussing on maximising either service or experience in your business model – a helpful summary of what this might look like is provided in a table (p.193) and various case studies.

2. Understanding audience’s needs and motivations and learning as the key purpose for museums today

The other key message of this book is that we have to be attentive to our audiences and understand their needs:

‘The central tenet of this book is that resources will always be available if your institution is in sync with your constituency’(p.166).

Chapter 5 explores what audiences are looking for in museums, based on existing research. John Falk has widely published on understanding visitor motivations and outcomes of visits in the museums sector – and advocates segmenting audiences according to motivation rather than demographics. Falk categorises museum visitors as follows: The Explorer, The Facilitator, the Professional/Hobbyist, The Experience Seeker, The Spiritual Pilgrim. Similar approaches are being used in the UK by leading arts marketing consultancies such as Morris Hargreaves McIntyre and Arts Council England now use a segmentation model in their some of their audience research. This book draws heavily on Falk’s experience with examples of how focussing on understanding and responding to visitor needs has had benefits for the business model in various institutions – mainly in the museums sector in the US, but the principles are clearly relevant to other sectors and contexts.

Interestingly in many of the organisations cited as case studies there has been a shift in the business model from quantity (typified by the blockbuster exhibition) to quality of visitor experience resulting in higher levels of repeat visits, and higher levels of impact (and spending) from each visit. The book opens with a thought-provoking future vision of what this kind of museum business model might look like (especially in terms of using technology).

The final piece ‘advice’ in this book, and one of its strongest messages, concerns the lack of investment in research and development of business models (and related areas such as high quality visitor studies) in the museum and cultural sector. The authors cite other industries and sectors which invest significant proportions of their resources in research and development – in contrast with the museums sector where investment is very patchy – and call for collaborative action:

‘Each institution will need to make its own personal investments; investments in institutional marketing and evaluation represent one such important contribution. But the investment in exploratory studies and efforts to develop new and innovative strategies and ideas transcend the capabilities of most individual institutions. That investment will need to come from the collective whole.’ (p.242)

The underlying vision for museums, underpinning this book, is the role they can play in supporting self-directed learning (or what the authors refer to a ‘free-choice learning’). Chapter 7 explores this aspect in detail, but throughout the book is focussed on the notion of museums enabling high quality, individual learning opportunities.

If you’re involved in planning your organisation’s future activities and operations, then I’d commend this book to you. The approaches and framework outlined, and the useful sections with questions to discuss within your organisation.

On this theme of learning and the future of learning in cultural organisations, I also found this article by Tate’s new Learning Director Anna Cutler thought-provoking. Offering an overview of current thinking on learning from different perspectives, this paper highlights some of the structural and practical obstacles (she calls them ‘knots’) we need to overcome to further learning activity within cultural organisations, and offers solutions.

Learning then, appears to be at the heart of how some are thinking about the future of our cultural organisations. This very much appeals to me, but I wonder to what extent this passion for learning extends beyond museums?

Do you find Falk and Sheppard’s approach to thinking about business models useful? Are there other approaches or theories which you’ve used? How did they compare?