So many of our current discussions about new business models and funding structures for arts and culture take it as a given that the organization is the appropriate frame of reference. How can we make arts organizations more vital, more responsive, more sustainable? As if the organization is some universal unit of measure, and always the best unit for understanding and advancing positive change.
In fact, the idea of an organization is a fiction — a useful fiction to be sure, but a fiction nonetheless. It’s a group of resources and people, bound by contract or other agreement, and credentialed by a web of city, state, Federal, and common law. Organizations evolved to solve a particular set of problems. And even though the problem set has changed, our organizational bias remains.
So why does an organization exist, and what’s it for? This is a question long discussed among economists, most famously by British economist Ronald Coase more than 70 years ago. The ‘theory of the firm’ that began its evolution back in the 1930s explores these essential questions (via Wikipedia):
- Existence — Why do firms emerge, why are not all transactions in the economy mediated over the market?
- Boundaries — Why is the boundary between firms and the market located exactly there? Which transactions are performed internally and which are negotiated on the market?
- Organization — Why are firms structured in such a specific way? What is the interplay of formal and informal relationships?
- Heterogeneity of action & performance — What drives different actions and performances of firms?
Coase suggested that the key concern in most of the above was transaction cost — the energy, effort, and expense of a buyer or seller defining his or her preference, understanding their choices, finding a seller or buyer, and negotiating the terms of the transaction. If everyone was acting individually, said Coase, those costs would be huge and intractable. The firm, or the organization, helps coordinate and absorb many of those costs.
But enough of the economics lesson. My experience with arts organizations and their particular requirements suggest three main benefits of the organizational form, all of which are now subject to radical change:
- Coordination — Arts and cultural production is often extremely complex and interconnected. Arts organizations can establish contracts and processes and relationships networks that can coordinate those complexities better than a group without a formal organization. This, of course, is changing as the Internet enables coordination without formal organization.
- Control — Full-time employment contracts presume that the employer can direct and evaluate the performance of their staff. Organizations, therefore, have a greater level of control not only of the assets they own, but the people they employ (in theory). It’s certainly possible for groups of people to work toward a common goal without a common employer. But it’s also more challenging to hit a specific target. Of course, the sibling of central control is stasis. The costs of central planning and coordination are growing ever higher when the world changes ever faster.
- Capital — Actually a combination of coordination and control, but worth its own bullet item. Arts and cultural endeavors often require large amounts of capital — highly specialized buildings or equipment like fly rigging and Stradivarius violins, and aggregations of monetary resources that provide endowment interest or balance the roller coaster of cash flow. The organization allows the persistent collection of capital, rather than attempting to coordinate other people’s capital all the time. It can buy and control real estate, attract and hold contributed income, or sign rental/lease agreements for access to capital. The organization isn’t the ONLY way to do this. And this may well be the most active innovation area coming in the next decade.
My first question to any individual or group talking about defining new business models is: What’s your current business model, and what exactly is wrong with it? I’m increasingly wondering whether our myopia about organizational forms — their purpose and their point — should be the question BEFORE that.
Andrew, I think you would like the book The Networked Nonprofit by Beth Kanter and Allison Fine (if you haven’t read it already). They very much touch on the coordination without organization issue.
They talk about the rise of Millennials, or digital natives, those who have grown up in today’s social media world. These Millennials no longer owe allegiance to any particular company or organization; they self-organize as “free agents” around a particular cause or concept.
As well as organizations, I think similar questions can be asked about communities. I’ve made some connections with one of my favorite books, Benedict Anderson’s Imagined Communities, over at my blog: http://mcmvanbree.com/dutchperspective/imagined-online-communities
Interesting thoughts, Andrew.
Last month, I stumbled across Bill Landsberg’s article from a 2008 issue of The International Journal of Non-Profit Law. It got me thinking about the non-profit niche and how it’s meant to fill in gaps left “unattended” by government and for-profit ventures. The article cuts to the heart of why there are nonprofits in the U.S. (love that he refers to Alexis de Tocqueville!) which may address your question about the purpose and point of organizations from a slightly different perspective.
I found “The Non-Profit Paradox” online at http://www.icnl.org/knowledge/ijnl/vol6iss2/special_7.htm#_ftn1
(Landsberg’s assertion that “strategic planning is unnecessary and perhaps counterproductive” for non-profits really caught my attention.)
This discussion of single-purpose, limited-time association may seem to be connected to the information age, but I first heard it described at the Wisconsin School of Business by Andre Delbecq in 1974. His point was that, in order actually to accomplish anything, formal structure needed the grease of “interstitial adhocracies” — collections of specialists in a variety of areas who coalesce around a particular project.
Productions in the commercial theater have always been done this way: Every touring production is its own LLC. For a fascinating look the most prominent example on Broadway at the moment (I’m deeply into citing the NY Times today), see http://www.nytimes.com/2010/09/10/business/10spider.html?scp=1&sq=spider%20man&st=cse