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January 22, 2001

The new medicis

Those were the days. This text, which was written for Japan’s Hakuhodo advertising agency, is a reflection on the changing nature of sponsorship. At the time (1990) I was convinced I had invented a killer business concept - ‘cultural engineering’. Unfortunately, when Japan’s bubble economy abruptly collapsed in 1992, so, too, did my concept: it turned out that the ‘cultural imperative’ lauded in my text was not an imperative after all - it was an easily dispensed-with luxury. Japanese companies cancelled all such activities (which included 70 per cent of my then company, Design Analysis) in a matter of weeks when the economy went bad.

1 The cultural imperative

Passive, hands-off patronage of the arts is a modern invention. And a short-lived one, if you believe the signs. Profound changes to the nature of modern business - some of them dating back 40 years, some unfolding within the last five - have created a 'cultural imperative' for advanced organisations. For them, culture can so dramatically enrich business performance that cultural policy is moving to the centre stage in discussions of strategy; it is no longer segregated from other marketing or communications tactics.

It is a dramatic change. After all, the notion that 'culture' should operate in a privileged, protected realm, free from interference by state or business, is deeply rooted in 20th century industrial culture. A few years ago, imagine the outrage if John D Rockerfeller had commanded Jean Dubuffet to paint 'The Glorification of Standard Oil': such things simply are not done by modern patrons who claim to be motivated by notions of disinterested civic duty and public service. All mention of marketing, or corporate identity, is rigorously excluded from the traditional scenario.

But things were not always so clear-cut as the American critic Joseph Alsop recalls: "During the 17th century Cardinal Barberini, whose uncle was Pope Urban VIII, commissioned Pietro de Cortona to paint the ceiling of his new palazzo - a space the size of an (American) football field - with a vast narrative glorifying...Pope Urban VIII! 'Cortona did not flinch, nor hanker to paint something more relevant; instead, he cheerfully produced one of the most marvellous works of decorative art of the seventeenth century'. From the first Babylonian, Chinese, Greek and Roman civilisations, through to the Middle Ages and the industrial revolution, bankers, politicians and potentates have employed culture overtly as a weapon of policy: the arts were always involved intimately in the articulation and exercise of power.

It is in this context that the time has come to look critically at the contemporary myth of 'passive' patronage. We would argue that it is only with the modern concept of 'artistic license', and the growth of a market which derives value from the idea of artistic autonomy, that art entered its privileged realm, supposedly protected from the venal ambitions of the less enlightened patrons in earlier historical periods.

Various factors sustained the myth of passive patronage for much of the twentieth century: the decline of religion; the rise of the merchant classes; changes in the techniques and tools of artistic production; new patterns of consumption; the emergence of a museum culture; the rise of the curator, the dealer and the critic. Above all, the art marketing system has moved from the margins to the centre of society, and has successfully given artefacts the status of financial instruments, like banknotes, or gold bars. Critics have already noted that this superheated financial context questions the freedom of the artist: what price artistic autonomy when paintings sell for $40 million?

This much, many have observed already; the past 30 years have been punctuated by a number of important critiques of the 'art system.' Today, however, things are changing once again. Profound changes to the nature of competition in world markets, combined with the steady 'dematerialisation' of business, is changing, fundamentally, the relationship between patrons and artistic production. Cultural patronage has become a powerful weapon in competition between firms, cities, even states - and it is this business imperative, rather than the brickbats of critics, that, in our judgement, will destroy the myth of passive patronage.

Culture and commerce have been on convergent paths throughout the past 40 years, as a change in emphasis occured in the advanced economies - from production to information.

During the 1950s and 1960s, advertising emerged as a potent means of modifying consumer behaviour. With the growing sophistication of mass production systems, differences between products of functional performance diminished; even as cars, appliances, even washing powders became more technically sophisticated, the emphasis in marketing on their function decreased. In this sense, it was advertising that began the so-called 'softening' of the Western economies, as companies realised that managing perception, not just improved product performance, was the key to competitive success.

Then, during the 1970s, the development of marketing provided business with new tools - research and statistical skills by which it could analyse the composition and behaviour of consumer groups in ever greater detail, and with more subtlety. Marketing soon altered the parameters of discussions about business strategy: the convergence of information about the profile of consumer markets, with the growing flexibility and responsiveness of production, and the new tools of global communications, rapidly increased the 'dematerialization' of business. With marketing, information - in the form of data about consumers, or programmed production, or communications - became more important than matter.

After advertising and marketing, a third transformation occurred in business during the 1980s when design - which had, until then, been a specialised, technical activity, moved to centre stage as the new agent of perception management. In particular, one offshoot of old-style design, corporate identity, boomed: by 1990, it had become a $30 billion communications niche sector by itself. The explosion of interest in - and spending on - CI, reflected a move away from the marketing of individual products to a more global concept of 'branding' in which fashioning a company's image became as important as fine-tuning its products, or its product advertising.

During the late 1980s, the process of corporate identity management became steadily more sophisticated. For many years, corporate identity remained essentially a matter of visual identity - and in particular a company's logo or letterhead.

But steadily, our understanding of identity has broadened.

It is no longer enough to introduce a new visual identity - a complete combination of strategic, organisational and behavioural change is required. For example, management structures need to become less hierarchical and more 'horizontal' to improve the dissemination of know-how. 'Identity' also involves innovativeness, both within a company and between the company and outsiders. And 'identity' does not just influence a company's staff - it is also a powerful element in the attraction of new recruits, an important issue as labour shortages increase. For all these reasons , changes in accounting procedures in Europe and the USA led to the formal valuation of brand identities: thanks to the tax inspectors, and M&A boom, intangible concepts like the name of Coca Cola, or Sony, are now ranked on a world scale. With this objectification of their value has followed, inevitably, a further increase in investment.

Just as the value of a company's intangible assets, and in particular its corporate identity, has been reassessed, so, too, the tools and tactics available to manage and improve such intangible assets have multiplied. For two reasons - both technological. First, information technology has provided business with an ever more detailed and up-to-date picture about consumer behaviour - its the audience has become fragmented, but business has a clearer understanding of the fragments. With new database segmentation, for example, it is now possible to predict the performance of certain kinds of direct mail before it goes out. Secondly, the mediums of communication have become fragmented - with the result that mass communications, such as television advertising, are proving steadily less and less cost effective.

The phenomenon of 'niche markets' will be familiar to readers of this book, and does not require further detail here; but a note about the decline of mass communications is warranted. In the UK, for example, the total amount of television viewing declined by 6.5% between 1985-1990; among wealthier consumers, the decline was more pronounced - socio-economic AB consumers watched 9.3% less television during this period. In the words of The Independent, a London newspaper, 'television is simply becoming more peripheral to more people'.

The irony is that many business strategists thought the spread of mass communications would create a new class of 'global consumer', and the 1980s concept of the 'global product' was a direct result of this expectation. Unfortunately for this theory cost savings from economies of scale in manufacturing global products, even where they have been achieved, tend to be offset by the increased costs of the specialised marketing communications that have to be employed in different markets

Now, the trend is towards what I have called elsewhere (*) 'deep marketing' - a complex, multi-faceted, constantly changing strategy in which a wide variety of communications tactics are combined with a growing integration of research, design management, production and marketing processes.

Deep marketing addresses not only the outside world of consumers, but also the inside world of a company's own people. And the range of tactics to be used (see Table XX) grows longer by the day. Today, specialised marketing and communications are a $650 billion industry world-wide.

Deep marketing is a response to a shift from products to services which has transformed the nature of competition in the following way: firms now compete for the attention of consumers who are more visually literate, more sophisticated, more culturally aware, than at any time in history. In buying a car, a pension plan, a computer, or a box of muesli, consumers have come to assume that competing products will probably perform more or less equally well - where they discriminate is in the value added to a product, and a product's firm, by intangible factors such as its image and style, service, or perceived sophistication.

But if the 1980s were dominated by the sophisticated use of visual imagery to enhance the brand identity of whole companies, the 1990s and beyond will witness a new industrial culture based on learning and creativity within, and between, companies and their customers - the 'aestheticisation of business'.

As the business theorist Charles Hampden Turner explains, 'we are all, now, in an economic race to learn. The wealth-creating capacities of a nation are no longer contained in their physical resources, nor even in their comparative economic advantages, but in the innovativeness and learning of their culture...the more knowledge that is organised into a product, the less the likelihood of competition'.

Hence the cultural imperative. Companies - and the argument holds just as well for cities, or indeed states - can no longer compete only with products, or with their image: they must find another way to express their intelligence, their individuality, their sophistication. And their new tactic? It is cultural engineering, as this following sections explain.

2: Cultural strategy

A great deal of confusion has been caused by the failure to distinguish between three quite different uses of the words 'corporate' and 'culture': ONE: among management theorists during the mid-1980s, 'corporate culture' became a fashionable term to describe aspects of a company's socio-technical psychology; 'corporate culture' was a way of describing a whole company's 'state of mind'. Although an imprecise discussion at best, the content was important; the way in which managers related to each other, their ability to innovate, and the ability of a company's structure to support innovation, was seen to be as important as technological or marketing prowess in the battle for competitive advantage;

TWO: a second use of the word culture referred to sponsorship of arts events; as we described earlier, the concept of business funding artistic enterprise dates back centuries, but in the USA, in particular, the notion of strategic philanthropy was strong during the 1970s and 1980s. The traditional disinterested patron of grand cultural events still existed, with the great foundations - Carnegie, Mellon, Ford, Rockefeller, Getty - continuing to dominate the arts funding scene; but they were joined by hundreds of other corporate patrons, many of them operating at a local level, who helped expand the 'cultural economy' dramatically: in the USA, corporate donations to the arts broke the $1 billion a year mark in 1988. In recent years, the more savvy players (IBM, Mobil) have repackaged their philanthropy and patronage as social policy, creating quite detailed criteria for the distribution of funds not just to artists, but also to community groups, educational bodies and health. Strategic philanthropy produced a new breed of sponsorship consultant who matchmakes the Big Culture producers (opera, theatre, art shows) and corporate or private sponsors. Various techniques are employed to make sure the sponsor gets his or her money's worth - from the selection of appropriate events to minutiae of the opening night party. THREE: Now, a third interpretation of 'culture' and corporate strategy is emerging in which the internal 'state of mind' of the company is perceived to have entered a new, synergistic relationship with the 'outside' world of consumers, technological change and exploding communications. A new industrial culture of continuous innovation has been identified in which cultural projects are transformed into a medium for communication between the company and the external environment. In other words, because the concept of a learning organisation, described by Charles Hampden Turner, entails a constant relationship between staff, consumers, consultants, scientists, and so on, a new communications medium is needed to support that relationship. The medium is culture in both senses - internal behaviour, and external cultural event - but the combination is entirely new. Managing the creation of this new medium is a process we call cultural engineering.

In most business literature, the parameters of cultural engineering are drawn rather tightly around sponsorship of traditional categories of 'culture' - fine art, opera, theatre, music, and so on. Even within these traditional categories, spending on cultural projects has exploded. In Europe, for example, it is estimated that arts sponsorship in the UK, France, Germany, Belgium and the Netherlands has reached $400 million; this level of growth is attributed to the growth of arts sponsorship associations, and the introduction of fiscal incentives by national governments. But these figures tell only part of the story; the emphasis on financial contributions, donations in kind, and specialist advice, varies from country to country, with UK businesses giving mainly money, and West German companies concentrating on goods and advice. Given that professional sponsors usually spend up to three times as much on marketing support, as they spend on the art event itself, then the total sponsorship economy in these five European countries alone is probably nearer $2 billion.

Although reliable world-wide figures are not available, the world-wide sponsorship economy - the sum of cash grants, help in kind, and back-up marketing budgets - is probably $5-8 billion. Add in capital grants to infrastructure projects, such as museums, art galleries and theatres - many of which receive free land, or low-rent premises in otherwise commercial developments, and the figure rises to nearer $20 billion.

New categories of cultural engineering

Restricting the category of 'culture' to traditional art events - even when it produces a $5-8 billion niche marketing activity - grossly underestimates the real size of the investment by business in culturally-related programmes. For, if one accepts the lessons of the corporate identity movement that all a company's activities contribute to its image - from the state of the office interior, to the quality of its advertising - then the size of the cultural economy explodes.

Consider the advertising industry. According to the British marketing services conglomerate WPP, the world-wide fee income for the advertising sector is over $100bn - and according to many cultural critics of the 'post-modern world', advertising and mass communications have become so pervasive that they must be judged in part at least as cultural activity. In the UK, for example, more than 75% of art school graduates go on to work in advertising or the media. The most effective advertising not only exploits existing cultural references in its contents (pop songs, artists, famous designers, fashion concepts, are all regular subject matter for advertising).The best advertising creates new cultural forms of its own: one thinks of computer graphics wherein artists have created a whole new experimental aesthetic in the course of their work in advertising.

Of course, the theory that business is becoming more 'aesthetic', in the broadest sense, does not mean that these billions of dollars are perceived by the corporate business people who spend them as cultural expenditure. On the contrary, the great majority of companies still make a big effort to segregate sponsorship from other marketing activities - and in the whole world, there are probably no more than 30-40 companies that consciously integrate all these aspects of their business into a unified strategy. But this is not the point. In our view, these 30-40 companies are the most advanced in the world, and in many respects are useful models for the future.

Interestingly, the concept of a new industrial culture, in which producers, consumers and experts are united by a continuos process of innovation, is understood by meta-industrial organisations rather better than ordinary companies. One thinks, for example, of city governments which, in recent years, have found themselves forced into intense rivalry and competition with other cities around the world. Some of the ways in which these non-traditional cultural activities are managed are introduced in the following sections.

The Cultured Company

In this brief survey, we described a progression from advertising (1960s) , through marketing (1970s), to Corporate Identity (1980s) and 'Deep Marketing' (1990s); in Deep Marketing, wherein companies employ a constantly changing mixture of communication techniques, Cultural Engineering plays a central role as the medium for communication between the company and its external environment. We also explained the important way in which this definition of Cultural Engineering combines the two earlier uses of the words 'corporate' and 'culture': 1] corporate culture as 'corporate state-of-mind' or 'the way we do things around here'; 2] the hands-off, philanthropic of arts events by corporations. By combining the two ideas in Cultural Engineering, we proposed that a company's involvement in external cultural activities would, in itself, change the company's internal culture.

Despite our argument that 'hands-off' sponsorship is in decline, this model remains highly influential, particularly in Japan and in Europe; (in the USA, there are some indications that the recession is causing some big sponsors to question the value of these activities). But in Japan, in particular, the concept of disinterested philanthropy is strongly reinforced by a tradition of civic duty. Long before arts sponsorship was discovered in Japan, the owners and leaders of companies felt a collective responsibility to repay to the community some of the profits gained in their business lives - a concept more-or-less completely absent from most Western industries, in the 20th century at least.

Our argument is not that civic duty or social responsibility is wrong - but that, when applied to sponsorship of the arts, it cannot be 'hands-off'. The sheer scale and importance of corporate funding for the arts will influence culture, whether the donors wish it or not. In the 1990s, corporate leaders will have cultural responsibility forced upon them; they cannot escape it.

Some corporations solve this problem by refusing ever to donate large sums to a single cultural activity: in Britain, for example, companies like Shell, or the Midland Bank, donate large sums each year - but in small quantities to large numbers of recipients. This process requires considerable in-house management: selecting from among many thousands of applications each year takes a lot of expert work.

In the USA, corporations have solved the 'responsibility problem' by devolving the sponsorship to local branches, which often choose to concentrate on social or educational activities, such as schools, parks, and public amenities. This policy can be highly effective in helping a multi-national company integrate itself into local communities (and markets). This policy of distributed sponsorship', with a strong social emphasis, will certainly appeal to companies for whom the Cultural Engineering concept is unattractive.

But for many sophisticated, knowledge-based enterprises, the use of culture to create an innovative, creative and learning organism - the company of the future - offers tremendous opportunities. The question for them is this: how to manage the transition?

One must distinguish, here, between the American concept of Strategic Philanthropy - or the slightly different French concept of mecenat - and cultural engineering in the sense we have described it.

In the former situations, external cultural projects are selected on the basis that they meet clearly defined objectives set by the sponsoring company. So, a company may wish to develop its image as an intelligent company, in which case the choice or selection of event is crucial. So is the mechanism by which the identity of the sponsor is conveyed. In sports sponsorship, and increasingly in arts sponsorship, sponsors typically devote 300% more than the cash subsidy to promotion of their own role as sponsors. Increasingly, the French mecenat model emphasises the development of in-house expertise in cultural management, so that companies need not just react passively to proposals from outside producers, but may proactively develop projects, jointly with museums or theatres. Shiseido's new Culture Division offers an advanced model of this kind, with a Senior Manager reporting directly to the President. But in Europe, the opposite phenomenon may also be observed - the management of arts sponsorship drifting down the management hierarchy, away from the President and towards the Brand Managers who are better placed to target arts events at specific consumer groups. This phenomenon is paralleled by a decrease in the influence of the CEO on the choice of events: the President's personal preference for opera is giving way to the Brand Manager's more intimate knowledge of what turns on his customers.!

But there are two new challenges for top management: first, how to integrate external cultural events with the internal development of its own people - using external sponsorship to change inerenal 'state-of-mind'; and second, how to extend the management of culture from traditional arts events to the various components of Deep Marketing: architecture, design, advertising, corporate communications, training, and so on.

There are no simple answers to these two questions. Managing cultural policy is like managing change (another business buzzword of the 1990s): a complex process operating at different levels and changing through time. That said, certain components of a Cultural Engineering strategy may be listed:

A] Involve all levels of management: For an organisation to change its state-of-mind, it is not enough simply for the CEO or President to issue edicts: junior and middle managers need to be involved in commissioning, organising, and exploiting cultural projects - in collaboration with artists and cultural producers. This is not to say that managers should interfere with the artist's independence - but he should be intelligently involved as a partner in the creative process.

B] Develop in-house expertise: It follows that companies should not rely on sponsorship consultants to tell them what to do; consultants have a crucial role to play as 'brokers' or contact-points - but they should be used as support services for work rooted inside the organisation. Cultural training will be needed to help managers; at the moment, such training is almost non-existent (*) - companies will need to work with museums, universities and art schools to create the training systems needed.

C] Integrate traditional culture with other mediums: many of the managers who will be required to get involved in cultural work (art exhibitions, concerts, theatre and so on) will also be involved in design management, advertising campaigns, research policy, corporate communications, and so on. The whole essence of a 'learning company' is that these different subjects are connected. Practically, this means a company's management structure must promote interaction: * when a building is commissioned, the most culturally advanced managers should be involved in briefing the architect; * when an advertising campaign is developed, the company's involvement in an art exhibition should be included as part of the research phase * in new product development, designers would benefit from exposure to craftsmen, sculptors, or other artists; * when a company is developing training policies, it should include contact with cultural institutions, as well as universities and management schools, in the mix * art and technology can interact with each other in surprising and profitable ways - but such interactions need to be organised, and not left to chance, or to the initiative of artists. Research managers, in particular, will need to begin using artists as a new breed of researcher D] Treat cultural programmes as an investment, not an optional extra: The concept of '1% for art', in which companies promise to spend 1% of their gross profits on arts sponsorship - is good for artists and cultural producers - but it is not, in our opinion, a valid policy for business. The reason: if cultural engineering is to be taken seriously, some companies may need to spend more than 1% - and others might validly spend less. The problem with '1% for art' policies is such budgets are separated from central research, training or marketing programmes: '1% budgets', by their nature, tend not to be monitored, managed or evaluated. Cultural budgets should be included with research, marketing, training, or corporate identity, and not segregated as a special case. Cultural programmes create new knowledge, and new values - therefore they should be treated as an important investment.

E] Cultural engineering is only one of the answers: To repeat: in future, companies will develop Deep Marketing expertise, in which many skills and tactics will be used simultaneously. Cultural Engineering is a key element, but it is not the only one.

F] Every company's culture policy will be different. In today's most advanced companies, there is already considerable integration between Cultural Engineering, Design Management, Corporate Identity and so on. For companies such as Seibu Department Stores (retailing) Olivetti (information products) or Armani (fashion and merchandising), these different functions are already deeply 'cultural'. These companies possess a culturally advanced 'state of mind'; they are the prototypes of 'the cultured company'. But each one is also different: none of these companies has adopted an abstract model of cultural policy, but has exploited its history, and its existing skills, as well as new external opportunities, such as changing consumer tastes, new technologies, and so on.

end

Posted by John Thackara at January 22, 2001 05:09 PM

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