Research Brief 4

Cost Centers and Measures in the Networked-Information Value Chain

The operations of publishers, libraries, and intermediary organizations-such as bibliographic utilities and abstracting and indexing services-are facing great changes owing to the increased use of networks and networked information. This Research Brief describes an ambitious project to study the life cycle of the scholarly communication and publication system, along a chain that stretches from the authors who create work to the readers at whom that work is directed. Sadly, the project’s principal investigator died before the study was finished. Nevertheless, it offers valuable lessons.

In 1994, the Council on Library Resources provided the Coalition for Networked Information (CNI) with support to address the following question: How will the transition from a largely print-based system to one that is largely network-based affect the cost structures of the system? The current system is under intense cost pressures: serials prices have risen sharply; the volume of information has increased exponentially; the creation of print-based materials is labor-intensive, and storage space is becoming more costly. In this project, eventually titled “Cost Centers and Measures in the Networked-Information Value Chain,” CNI proposed to create a basis for addressing questions of cost, now and in the future.

The project was meant to establish a context within which to view scholarly publishing in the networked environment, so that all sectors served by CNI might discuss and assess costs within a common framework. Paul Peters, then the director of CNI, decided to ask the cost questions in terms of a “value chain,” a sequence of productive relationships that link the creators of intellectual work with its users. The first priority was to articulate the constituents of that value chain. They were determined to be authors, publishers, intermediaries (such as OCLC), buyers (such as libraries), and readers. The two ends of the value chain-authors and readers-were addressed only indirectly, as they were perceived by the publishers, intermediaries, and buyers.

“Cost centers,” another key term in the project’s plan, were conceived of as groupings of processes engaged in by publishers, intermediaries, and buyers that “add value” to the author’s original work. Such processes would include, among many others, marketing, indexing, delivery, and storage. “Networked information” was defined as information retrieved through, created by, or preserved in networks. This is information for which there are no tangible artifacts of transmission and storage.

The First Phase

Ubell Associates was retained to design and conduct a series of focus-group sessions with publishers, intermediaries, and buyers. The project sought to capture impressions from each of these groups-first, about how costs are generated along the value chain, and, second, about how networks and networked information are changing the generation of costs. What is driving the changes? How can they be measured? Can a long-term strategy be devised for tracking issues of cost that arise from the attempt to use networks and networked information to advance scholarship and intellectual productivity?

Much of what Ubell Associates learned-by phone and by written survey (questionnaires were mailed to some 18,500 librarians working in industry, the academy, and government)-was not surprising. For example: journal budgets have not kept pace with journal costs, and there is little optimism that book or periodical budgets will increase in the near future; inflationary increases have outpaced materials budgets, to the extent that many libraries can purchase only about 60% of the titles they purchased five years ago; document-delivery services are expensive but essential, and improved interlibrary loan services have made it more acceptable to cancel journal subscriptions; most libraries now spend between 20% and 30% of their overall budgets for secondary electronic services (indexing and abstracting), and, to ease the strain on their budgets, many charge users for these services; librarians expect that budgets for electronic products and services will increase by 70% in the next several years, that computing and electronic access will grow substantially, and that libraries will become less dependent on paper publications.

The project’s survey of 7,866 libraries in the United States and Canada revealed that library expenditures for electronic products are growing rapidly, while print budgets are static. Only a third of librarians spend money on online journals (law and government libraries are the principal users). Librarians project modest growth in document-delivery expenditures, and, in choosing document-delivery services, speed and price are the most significant factors. Medical and business libraries make the heaviest use of online services. Ninety-five percent of libraries are networked; about a third offer remote access to their users, and about three-fourths have access to the Internet.

After the initial rounds of surveys and focus groups, the project grew uncertain as to its course. The next step was to have been to define the processes that were part of the cost centers, so that cost studies could be developed by publishers, intermediaries, and buyers. Paul Peters hired the consultant Kaye Gapen, of Northern Lights Inc., to do the cost-center definitions after Ubell Associates withdrew from work on the project. Her preliminary definitions included the following:

• For publishers-general and administrative costs, acquisition costs, marketing, sales, promotion, the management of rights and protections, copyediting, and manufacturing;
• For intermediaries-selection, editorial activity (abstracts, indices), marketing/sales/promotion, general and administrative costs, and research and development;
• For buyers-selection, acquisition/de-acquisition, storage, preservation and archiving, access and delivery, and general and administrative costs.

Paul Peters’ death in late 1996 triggered the suspension of the project. In the two years that separated the initial plans for the project from its termination, the growth of the Internet and the World Wide Web and the development of application tools that support information design and content management changed the environment for electronic publishing. Suddenly, every individual and every organization had the potential to be a creator and a distributor of new knowledge. The consequences were potentially momentous for the scholarly communi-cation network. It became Gapen’s task to conclude the project by drawing lessons from the approach and the incomplete data and by incorporating any additional elements relevant to a final analysis.

Universities and the Value Chain

Gapen introduced a discussion of new roles and possibilities for universities. One of the interesting findings of the CNI project was that universities-prominent in the “buyers” category of the value chain-are significantly extending the reach of networked information. University presidents have made strategic decisions to invest millions of dollars in technologies that are transforming information flows and personal communications throughout the world. By encouraging better connections between information and knowledge, electronic publishing is changing the boundaries between academic disciplines and emerging as a cost-effective mechanism in which the structure and the frequency of publication are not constrained. The context for presidential decision-making about the pricing of scholarly communication and policy toward academic intellectual property has changed.

On campuses, there has been a shift in the relative importance of the library and the university as buyers. It is not that the library-as-buyer has been removed from the discussion, but that the university-as-buyer has become so prominent. Universities-as-buyers are making institution-wide investments in value-chain functions. These investments compare to those made by publishers and intermediaries, but universities have the most complex set of environmental elements, and that complicates their decision-making. They are investing on a large scale in technology and human-resources infrastructure to support both current programs and new, technologically driven initiatives.

Universities have new opportunities, which promise programmatic and financial advantages, and it seems likely that they will focus on three areas that relate to the CNI project’s defined “cost centers and measures in the networked information value chain”: networking and Internet II; intellectual property management; and digital curricula and distance education. The final CNI report notes: “The potential to author, package, and distribute information products and packages relates directly to similar investments made by publishers and intermediaries. Any electronic publishing project will involve the ownership of intellectual property, technical and human resources for development, networked access and delivery, and a business-support capability.”

Universities may find a rich new source of revenue in “intellectual content,” and, for that reason, it is essential that they, and others, move quickly to address intellectual-property issues. The ownership of intellectual content derived from research may powerfully affect the cost of formally published materials and the assessment of opportunities for generating revenue from distance-learning and curricula-development initiatives.

Universities are organized in a way that permits both vertical and horizontal integration. They have the resources and the programs to encompass most of the major cost centers in the value chain. They are buyers; they comprise authors, libraries-as-buyers, and readers; they are capable of acting as publishers and intermediaries. Their new product mix can include networked books, journals, distance-education programs, digital curricula, intellectual-property management, and the as-yet-undefined derivatives of technological capacities such as Internet II.

Various new approaches to scholarly communication already complement, and are even beginning to supersede, print publishing. The range and the number of electronic journals will continue to grow, and electronic publications will spawn new capabilities. The cost of creating and using such publications will begin to reflect the value of these innovative forms of scholarly communication. Something similar is also likely to be true for distance-learning and curriculum-support packages. University funds are necessary for the growth of all these innovative alternatives.

Observations and Recommendations

In Kaye Gapen’s view, the attempt to identify cost centers does provide a workable modeling foundation that others can incorporate into future thinking about assessing and tracking costs. The observations and recommendations that follow come from her final report.

1. The ground rules established at the outset of the project proved unworkable. The value chain has not been stable: authors and readers have become more prominent value-chain participants because of advancing technology. As a result, publishers, intermediaries, and buyers are all thinking of new ways of adding value-and, therefore, new cost centers.
2. The focus-group discussions revealed that publishers and buyers (libraries) did not think of information and communication technologies as ways to “make new markets.” Nor did they regard authors and readers as strong, active players in the value chain. In a sense, then, it does not matter what they thought about the cost centers or their role in the value chain. At the time of the focus-group discussions, the participants missed the transforming effect of the digital medium.
3. Categorizing libraries as “buyers” was an inadequate reading of the reality. Changing the focus to the larger enterprise-the university-is a more realistic and useful representation. Once that is done, it becomes easier to discern the probable dramatic shifts in costs along the value chain.
4. All contributors to the value chain, including authors and readers, must be part of future work on economic models, and, for the next several years at least, it will be essential to have several cost models. Frameworks and models must be sufficiently robust to take account of organizations such as libraries, where cost centers that support interrelated sets of scholarly communication behavior are created. And accounting procedures must be sophisticated enough to supply numbers that show actual costs and reveal cost shifts. Identifying costs continues to be problematic, especially for libraries and universities. We need to look for major shifts in financial/dollar investments and exploit the potential to leverage investments. Universities, for example, might be able to leverage more of their investment in technology, infrastructure, and faculty members.
5. Cost and performance attributes are converging. Cost to the exclusion of performance attributes is an insufficient measure. In the networked environment, the two are interrelated, and performance attributes are an integral part of cost centers.
6. Organizations wanting to explore these issues should do the following:

• Use macroeconomic models to reveal major shifts in investments by all contributors to the value chain.
• Regard universities, rather than libraries or any other individual university component, as the significant agents. The potential for major changes in the value chain exists in and through universities.
• Understand the role of intermediaries, for they, more clearly than universities, realize that they can create markets (for example, by providing faculty members with tailored packages of relevant content on a weekly basis, or by packaging faculty members’ new research and extending the distribution to relevant corporate organizations with an interest in the results).
• Assess the impact of having universities and faculty members retain their intellectual property.
• Consider the impact of university/corporate partnerships in supporting new kinds of scholarly communication, for in such developments one can probably discern the future.

Research Briefs are occasional papers published by the Council on Library and Information Resources (CLIR) to describe the outcome, or the current status, of projects undertaken within its programs. CLIR encourages duplication of these papers and requires no permission for their further distribution.