How has Covid19 pandemic impacted the cultural sector on the structural level? What cultural institutions can do to survive this crisis? Is digitisation really the cure or not? How should the government support the cultural sector? Why a multi-disciplinary dialogue across the industries is so important and who should facilitate that process? These were some of the questions Dina Ivanova discussed with David Bardolet, Associate Professor of Practice, Strategy and Entrepreneurship at SDA Bocconi School of Management in Milan, Italy and Associate Dean at SDA Bocconi Asia Centre in Mumbai, India, the school’s pan-Asian hub in India.
David Bardolet got his Ph.D. in Management from the University of California, Los Angeles (UCLA) in 2007 and has been at Bocconi University since then. His research has been published in the Journal of Management, Strategic Management Journal and Industrial and Corporate Change, among others, and he most recently contributed a chapter to the book “Managing the cultural business: Avoiding mistakes, finding success”, edited by M. Addis and A. Rurale (Routledge, 2021).
What has been the structural impact of the crisis on the cultural sector from the strategic perspective?
One of the most obvious areas of negative impact has been the financial one. When an organisation goes for one full year with a big loss of revenue in a budget that is already tight, it loses people and valuable resources. This can lead to a structural loss in terms of capital and people and even though that can be recoverable at some point, there is likely to be a long-term effect. So this is a clearly negative impact. It still remains to be seen how negative or positive some other effects will be. The distribution across companies will likely be different, and it will depend on how the companies act today.
For example, one of the biggest structural changes forced by Covid is the fact that many companies -probably for the first time ever – had to figure out how to operate without an audience. And the cultural industry is the archetypal industry that requires an audience! This fundamental factor has been taken away, which has forced these institutions to deeply rethink the cultural experience. How do we diffuse a particular type of art in a way that does not require people coming in? Some companies will not find the way out of this question and their model will not be viable anymore.
However, some other companies out of necessity have started experimenting with digital channels in different ways to re-create that experience, so a lot of innovation and positive impact will come out of this. Therefore, on the negative side there will be some casualties and a loss of capital, both human and economic, but on the other side, there will be a lot of good innovation coming in. One could say, for instance, that some companies were already looking at the digital space and the pandemic has simply accelerated this process.
Do you believe that moving to the digital space is the solution?
Once we overcome this health crisis, I think there is still a lot of space for a cultural experience “in the flesh”. The evolution is similar to what has happened to universities. We do not have the students on campus, so we have to learn how to do it online and this opens up opportunities. We will figure out that some programs are better online, but some educational and cultural experiences are always better off in presence. It will just expand the range of possibilities and models. I would not say that because of Covid now everything good has to happen on a digital platform. Covid will accelerate the evolution of some really good and powerful digital platforms, but there will also be plenty of space for a more traditional approach. What is already clear, is that maybe before there was only one way of doing things in this industry and now, we will have a wider range of models that can be used.
Many performing arts institutions and museums are closed all over the world and will remain that way for some time. There were some revenue models that worked for these sectors, however, that may no longer be the case. How do these institutions need to change their revenue models to adapt to a new reality and ultimately survive this crisis?
The most straightforward way, which is something every company looks at during the crisis is becoming more flexible on the cost side. Being flexible is not always about cutting costs. For example, sometimes it is simply about having some costs that can be reduced quickly and proportionally when the revenue drops and increased when the revenue picks up again. Therefore, the approach is to focus on ways of reducing the fixed costs in the cost structure and being more careful in making investments, in a more flexible way, perhaps not committing to big expansions in capacity or other assets, because maybe in five years we will have another big crisis or an unexpected change in customer behaviour for whatever reason. The more fixed contracts with large share of committed costs and big assets you have, the more exposed you are to uncertainty. So in a way Covid could be an opportunity to rethink how to be a bit more flexible with these costs. We are talking, for example, about large performing arts institutions or museums that maybe over time have become very comfortable with their model because they were attracting many people and donors and because the revenues were good, and they felt that they could afford those big investments into the future.
I think that one nice feature of the arts world is that many of its organisations are already quite flexible in terms of costs because they have to. They have small budgets and are always very careful not to overextend themselves. But we are always in danger of falling into a rigid cost structure that will serve us ill in case of a crisis. Therefore, there is an overall need to become more flexible, and that means not only becoming flexible in the Profit and Loss account, but also becoming more flexible by establishing more partnerships and sharing of resources with other institutions. And for the institutions that cannot find their way into this flexibility, I think we will see a lot of industry consolidation, which is what we usually see in other industries that are going through tough times. Bigger and more stable institutions will absorb smaller and more exposed ones. We will see much more of that. This is what companies are led to by repeated crises.
Another change that organisations could learn and implement is thinking in terms of future scenarios and preparing for them. Instead of trying to predict how the world will look like in three years, it is better to contemplate three or four possibilities and create an institution and a model that can survive in all of them if possible or at least in most of them. Strategy practitioners have been talking about scenario planning for decades but because it is so contrary to our way of thinking, companies just don’t do it.
For example, had arts companies undertaken a thought exercise as to what might happen if people were physically unable to attend their venues for an entire year, they would have had a contingent plan in the drawer for that moment and would have been better prepared in general when Covid happened. Scenario planning is about rediscovering the value of taking a step back and thinking about the bigger picture. It requires effort, time, some technique, and methodology, but it needs to happen.
During our sentiment survey of performing arts institutions the top executives reported digital, marketing and audience engagement among the top competencies they were currently missing but needed to survive the crisis. For countries where the sector is very publicly regulated it would be very hard to manage the cost base for big players. Fixed labour costs constitute a large share and the organisation is facing a real conundrum as it needs to develop digital, marketing and audience engagement capabilities but is does not always have enough people with the necessary skills, the time to retrain them and the extra budget to invest in this. This poses a dilemma for the policy makers in some countries. What would be your response to that challenge?
Inthat situation flexibility on the cost structure might be less possible. Being a strategy professor, I would look at the full equation from the sustainability point of view. If the costs are difficult to improve, then one should go to the revenue and look at ways of increasing it, which is what many of the institutions you describe have to do in the coming years. Marketing tools, digital and non-digital, have obviously a role in that and hence the interest. But talking about the need to expand digital, marketing and engagement capabilities, I would recommend cultural institutions not to become obsessed with learning the technical aspects of digital or other marketing channels. One has to have digital and use marketing to increase their revenues, and that’s what’s going to give them the sustainability and the base to keep growing. But fundamentally, it is not about doing digital well, or learning what digital can do but asking the question – how can you increase your revenues? Start there and pretty soon arts companies discover that doing digital marketing is much easier than figuring out how to reach a certain audience with the right value proposition or how to monetise certain activities.
First, you should think about the path by which the revenue should increase, and only after that you might realise that you need to create a digital platform, or you need to learn to establish an online community for the people who will visit you or something else. The same applies to non-digital marketing. Marketing is a way to communicate what you really offer – the core value proposition- to the people you are targeting and, in that way, it is precisely the means to an end and companies often forget to spend time defining that end.
Performing arts institutions have adopted different approaches with some streaming their performances for free and others charging a very small fee for a ticket. Vienna Opera Theatre, for example, has lifted a monthly subscription fee for its performances streamed on their platform during the lockdown. What is your view on these practices?
When streaming for free you always worry about customers under-valuing your offer. If you give it for free, you are worried that they are going to get used to paying nothing for something and will never pay again. I would distinguish two cases regarding this fear. If you are a large important arts institution, I would worry about that effect and would prefer to keep a price that is reasonable but lower than usual. There is also a loyalty effect about giving a break to the subscribers, as it is a difficult situation for everybody. There is that additional goodwill that one can buy. However, if we are talking about a smaller institution, I would not worry very much about this “under-valuing” effect. If you are a smaller institution and you are able to sustain that free price, the priority should be to keep the small customer base that you have at all costs, and maybe even increase it. But every institution knows its customer base, if they do not mind paying 3-5 euros for a show online, then by all means charge that. You have to figure out where is your tipping point when people start saying that this is too much, but if it has to be zero, it can be zero.
From the perspective of the policy making and governance, what does the state need to do to support the cultural sector? For example, there will be an additional stream of funding coming to Italy from the EU with the Recovery Fund. How money should be allocated to the cultural sector and what are the important things to consider?
My main advice would be – don’t pick winners and losers in a situation like this. The objective should be to save everybody or as many people as possible within the cultural sector and then make further decisions once everything is more stable. The priority should be to keep everybody afloat and then let companies and customers figure out how they want to establish their relationship, let society decide how it wants to consume culture with all the options on the table and all the innovation and thinking that art institutions have done in these months, and then pick a model based on that.
There should be of course some minimal conditions. If you are an institution that needs money to survive, you always have to present a reasonable plan for that. But I would not prioritise where the money goes a lot at this point. We should not let the economic crisis dictate the way the cultural sector is structured; that seems too artificial for what culture is about. For instance, if the government managed that allocation in a short-term business-like way, that probably would mean that the institutions in trouble would fall and those that are not would survive. That to me would be a very short-term view to approach this problem.
On another note, governments could really get involved in the diffusion of ideas and conversations. It is a moment of transition, and the more conversations you have, the more everybody knows what the big issues are as well as potential solutions to those issues, practices, and models. There needs to be that exchange and sharing of information for the alliances and new models to happen and to a large extent the government could facilitate that. There are a lot of small institutions that are fighting a lonely fight in their cities. Governments could not only provide funds to those companies but also information and avenues to share models and practices with other institutions.
One of the areas that are underrated is relationships with the business world, as there’s not enough dialogue between the cultural sector and the commercial sector. The relationship is often limited to sponsorships and fundraising only. In our research of performing arts institutions, we discovered that although they consider business relationships among the top missing competences at the moment, it was put last in terms of priority areas, despite the potential to bring an additional revenue stream, so much needed to survive the crisis. What is your reflection on this?
There is an ongoing high attention and interest in CSR on the corporate side which opens up a lot of possibilities to get integration with arts institutions. There is also an ongoing trend in the business world for companies to become more creative. The cultural sector has a lot of creative people, so I imagine that there has got to be a way to create a win-win relationship by using the creative skills of the cultural sector, and vice versa, bringing the business skills into the arts world in a way that adds value to both sides.
More and more people from the business world get involved in the arts sector and bring those capabilities. In art institutions, boards are being used to bring money first and foremost, but these new board members are people who have a lot of business acumen and skills because they are coming from big corporations or they are CEOs or former CEOs. I think sometimes just fully using those skills would be very beneficial. If you ask them to do a 2-day exercise about scenarios, sustainability or project management (and some do), this could bring value to the cultural institution. Therefore, using the boards well, not only for financial purposes is another way that could really help. Many interesting things can be done in a multi-disciplinary dialogue and co-operation between sectors and organizations, and now is a good time to explore those opportunities.
Editor: Dina Ivanova
Originally from Latvia, spent 20 years in the UK. MBA graduate, obtained her Master in Arts Management at SDA Bocconi. Left the corporate world to follow her passion for Opera and the Arts, keen to share it with people of all ages through education.
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