The following sections give an overview of some standard business principles and practices as they apply to cultural heritage organizations and other nonprofit entities.
The environmental scan is perhaps the most general of all business practices that are likely to influence organizational success. Knowing about economic, social, technological, environmental, and general business trends is likely to support an organization’s long-term planning effort and the development of strategies for success. Environmental scanning allows an organization and its leaders to look into the future.
This topic energetically addressed by the former Secretary of Labor Robert Reich in his book, The Future of Success (2001). He points out a number of trends in society and business that have bearing in the nonprofit world of cultural heritage organizations. For example, data on the work habits of residents of the United States show that the amount of leisure time available for cultural heritage visits or library use has declined. Families are having fewer children. Technology is the engine behind much of the change in the workforce and in communities, but it does not explain it all. When the refrain, “better, faster, cheaper” seems to be ubiquitous, how can a museum, historical society, or library capture the attention it needs to be sustainable?
Successful Products and Businesses in the Digital Asset Environment
How did the QWERTY keyboard come to be the standard? How does innovation settle down into something reliable? When an idea is new, there is a lot of innovation in product development. At some point, a dominant design for the product or service category emerges. This triggers a shift in the pace of innovation, and the number of competing firms drops. The remaining organizations provide commodities that are not easily differentiated. They compete on the basis of providing the product or service faster and cheaper (Utterback 1994).
In the digital library and museum communities, this process translates into a different pattern with the highly desirable result of promoting interoperability across independent platforms, as the concept of dominant design is replaced with the concept of “best practices” that are based on generally accepted standards. While the library and museum communities are involved in arriving at best practices, it happens for each cultural heritage community at a different pace, and different issues affect agreement on the best practices. Libraries and museums never see the emergence of a dominant design in commodity or business-practice terms, because each one has unique content to contribute to the digital asset world available through the Web. Therefore, while the entire concept of market consolidation does not apply, best practices emerge through a similar process in both types of organizations.
At the outset, early adopters advance a new activity. If these early efforts are successful, a period of rapid adoption by others follows. At the next stage, nearly all organizations are engaged, at least to some extent, in the activity. Given this pattern, the challenge in building a successful business plan is to define successive activities with which to repeat new activity-adoption patterns, scaling activity upward for increased production. One example of this adoption process can be seen in the implementation of the Dublin Core metadata standard for describing digital objects. Today, many library and museum digital imaging modules support Dublin Core as the metadata standard. While more libraries than museums are now involved in digitization activities, many still do not have online collections (IMLS 2002, 5). This is because of the cost of such activities; a lack of knowledge of issues related to digitization standards, project planning, and the like; and the fact that the entire community has not yet caught pace with the early adopters. It will be quite some time before this adoption pattern, so well established in the business world, takes hold in the world of digitization for libraries and museums.
Nonetheless, the influence of early adopters is highly significant. Funding agencies such as the National Science Foundation (NSF) and IMLS are supporting the early adopters to enhance the likelihood of emulation and the development of best practices, recognizing that such developments will make it easier for more organizations to bring their collections online. Cultural heritage institutions are expanding into digitization activities and the markets associated with them.
“Build or Buy” and Outsourcing
Organizations continually need to balance the richness that comes with diversity and innovation against the need to spend resources wisely. This is particularly true for organizations that engage heavily in research or experimentation. Experimentation admits both success and failure as outcomes. Standardization lowers risk and overall costs, at the expense of breakthroughs in new forms of learning and practice. There is a natural tension that requires a persistent balancing effort. Innovation and experimentation may be applied to one component of a technology-based system; savings through standardization, outsourcing, or use of commercial software (instead of developing customized, in-house solutions) might be necessary in another.
One often-debated issue, particularly in large academic research libraries, is whether to build or buy technologies and services; for example, whether to purchase software or create it, or whether to outsource conservation and binding or create in-house facilities. An institution should aim to provide appropriate quality and access to digital resources by weighing in-house application development or use of open-source software against the adoption of commercially supported products until the time when a commercial-based quality product becomes available with appropriate capability and a reasonable cost, or until the organization is positioned to absorb the costs of developing and supporting the technology in-house.
The challenge is to determine the criteria on which to base such choices. Libraries and museums can choose from among many models for in-house product development (e.g., for interfaces, search engines, image creation-and-management systems, inventory management systems). There are also many choices for commercial outsourcing. Solving the build-or-buy dilemma requires assessing products on the market as well as analyzing the nature of the organization. Major research universities have developed their own digitization tools and solutions, not only because they had the expertise and resources but also because they had a pre-existing culture of research and experimentation. In the last year or two, many new products that are suitable for cultural heritage institutions, including several developed by universities, have come onto the market. These products have reduced the need for in-house development, except in specialized areas, such as complex multimedia or rare languages. Even the large research university should analyze available products before committing to an in-house development effort. Most other organizations should focus on assessing commercially available products and services. Cultural heritage organizations lacking substantial in-house technical staff should be fully informed about the staff requirements of using open-source software products. Although such products offer the latest solutions developed by high-quality technology organizations, they may require considerable time to install, customize, and maintain.
In addition to licensing a product, digitization initiatives may outsource activities to another agency, with quality control being the principal responsibility of in-house staff. Educational, governmental, and nonprofit organizations may decide they are better served by outsourcing, handling only those activities that directly relate to their core competencies. Outsourcing allows an organization to concentrate on activities only it can undertake, such as resource selection; development of pricing, promotion, and marketing strategies; interaction with stakeholders and constituents; and fund raising.
Strategic necessities are capabilities and services that an organization needs to stay in business and that do not differentiate the organization or its digital asset management initiative in the view of its stakeholders. Business systems and network infrastructure are examples of strategic necessities for cultural heritage institutions planning online access to their collections. Strategic necessities are commodities—such as the invisible yet very important infrastructure required to create metadata—that an organization seeks to acquire at the lowest-possible cost. However, even strategic necessities must be chosen carefully, and some institutions may consider outsourcing. For instance, metadata tools must be selected strategically to support the organization’s goals for interoperability.
Rate of Creation and Persistence of Information
The rate of creation of information and its persistence (i.e., volatility) differ from one discipline to the next. For example, in computer science, information is created at a high rate but its persistence is low because of rapid technological innovation. In pure mathematics, in contrast, the rate of creation is low but persistence is high—it is not unusual to see results produced in the eighteenth or nineteenth century directly affecting recent developments in the field. Volatility, and its associated costs, are important factors in deciding how to package, bundle, and price products and services.
For cultural heritage institutions, the rate of creation (in the aggregate) of digital objects that make up Web-based collections is high and the need for persistence are high, since most of the organizations providing the collections feel they have a responsibility to preserve and maintain access to the digital resources over time. While the rate of creation is high, in the aggregate, across all cultural heritage communities, each institution should take the rate of creation and its cost, along with the long-term cost of persistence (i.e., digital object preservation strategies), into account in developing a business plan. If the organization is committed to a high level of persistence, it must be selective. No institution is likely to have the resources to create digital access to all artifacts in its collections; consequently, collection development policies become an important way for an organization to differentiate itself. On the other hand, it is not unusual to see museums or historical societies remove access to digital exhibits (admittedly perhaps not wisely), because providing long-term access to the digital surrogate is not a valued element of their missions. If this is the case, the volatility of the digital collection is higher and long-term costs are lower, although the cost of the high initial rate of creation is not amortized. This idea of volatility of digital collections needs to be reviewed and applied in light of an organization’s whole physical collection when that organization is developing a strategy and business models for online access.
Pricing Strategies Related to Value
The value of a library or museum is established by its visitors and users. “From an organization’s perspective, pricing differentials represent a spectrum designed to fit different market segments. Prices should be designed to capture the different perceived values of the offering among the segments served” (Kotler and Kotler 1998, 264). In the classic business environment, the term value proposition refers to added value, or opportunity for favorable return on investment, for a stakeholder group. This concept applies well to the educational, governmental, and nonprofit business arena, since each market and each stakeholder group has a value proposition. Different value propositions involving distinct values and benefits usually exist for different stakeholder groups (e.g., patrons, faculty, visitors, students, board members, staff, sponsors, funders, donors). Each group will recognize a different degree of added value for the project or service. For instance, a data set prepared by the library for researchers is likely to have limited value for the KÐ12 community, and while the pre- and post-visit lesson plans prepared by the museum educator to be used in conjunction with the museum visit and the Web site will be highly valued by middle-school science teachers, they will be of little value to geologists. Assessment and market research are necessary to determine how each audience values the organization and its products and services.
Questions of pricing strategy are particularly important to any organization that plans to “sell” any of its services. The organization can sell its product on a transaction basis, on a subscription basis, or through licensing. A decision to make the product available at no cost is part of the pricing strategy, since that free good may attract customers to other products and services offered by the organization. Some nonprofit organizations are also faced with the expectation that core services be free and in the public good, in accord with their missions. Possibilities for a pricing strategy include the following:
- Define a mix of products and services that are partitioned among three levels of service: (1) freely available; (2) available by subscription; and (3) available on an added-value basis. An added-value service would provide the resource in an enhanced way; for example, it might make high-quality photo prints available on a cost-plus basis. Pricing for subscription and added-value services is cost based, but includes 10 percent to 20 percent intended to generate excess revenue over expense that supports nonÐrevenue-producing activities or provides a cushion for hard times. It is possible to implement a process that periodically rotates components from subscription status to freely available and added-value-to-subscription status. Cultural heritage organizations might add new products and services as added-value offerings.
- Instead of assuming that the newest additions to the collection are the most valuable, assume that the collection as a whole is the asset and benefit of subscription. This approach allows for new material to be made freely available for some period of time as a draw, and then archived in the collection and made available by subscription. It also allows for the mechanism of virtual exhibition, in which particular artifacts would be showcased in the freely available partition for a specified period of time.
- Declare market share the goal, thereby committing to lower subscription rates as the number of subscribers increases for a given mix of subscription-based components.
- Make low-resolution thumbnails or access images available at no cost but charge for high-resolution images in digital format or make print images available on a fee-for-service basis.
- Offer individual subscriptions that are locked to a particular Internet provider address.
- Offer group-rate subscriptions at a discount based on a fee schedule that yields more revenue than would be realized from a lower number of individual subscriptions at the higher rate.
- Offer levels of sponsorship that provide for the appearance of sponsor logos on the Web site and on printed materials.
Decisions on a pricing approach should be informed by market research, product assessment, and an ongoing review of constituent response. Because value and price go hand in hand, the organization must have a good idea of the value established by the organization’s markets.
Cost-benefit analysis is tricky, particularly for educational, governmental, and nonprofit organizations, whose costs are real but whose benefits are often intangible and not easily quantified without longitudinal outcomes assessment. Experience suggests that evaluating opportunity costs and assessing budget-related pieces of a project scenario are more useful constructs for analysis than is cost-benefit analysis. For a given outlay of resources, what alternative investments are possible, and what are their payoffs? Is a particular investment that supports the mission of the enterprise a key part of the pricing puzzle? Responses to such questions provide a reasonable way to assess paths that will lead to informed pricing choices.
Web-Based Business Processes
The Web has become the major component in the digital library. An organization’s Web site is the major vehicle for distributing its digital content. Web exhibits, image content databases, marketing communications, learning tools, electronic commerce, associated authentication requirements, and interactive services may all be present on the Web site and must be integrated into the business plan. Electronic communications such as listserv alerts can serve as the principal means by which an organization notifies markets of its offerings. Both the listserv and the Web site should be used to build community. In the business template that follows, these Web-based business practices are considered both in the communication plan and in the distribution template. As institutional Web sites become more sophisticated and more important to visitors, their strategic importance will increase. For example, it would be possible in the future for a museum or library to use its Web site as a way to
- create digital exhibition catalogs that reach new audiences and attract different visitor markets
- distribute exhibitions online after the physical exhibition closes
- create digital collections that are presented as galleries would be organized in a physical building—by artist, topic, or genre
- create and present searchable digital image databases
Branding and Credibility
Branding is a term used in the consumer product environment that has been adopted by electronic products and services. Libraries and museums present their digital offerings in a way that also presents the organizational identity; in this way, the digital resource user associates the resource with the organization providing it. Cultural heritage organizations enjoy a level of credibility seldom attained by for-profit enterprises. In addition, the public tends to be aware of the existence of libraries and museums, so they should not have to build brand awareness from the ground up. However, cultural heritage organizations do have to build awareness that they are operating with some sophistication in the digital world. This is particularly important for the museum community.
In 2002, Kravchyna and Hastings published results of a survey of museum goers. They found that “most people (57%) visit museum Web sites before and after they physically visit the museum. Further research will be needed to understand exactly what information teachers (48% [of Web visitors]), students (53%), visitors (60%), and museum staff (57%) need before they go to a specific museum, as well as why they visit museum Web sites after they physically visit the museum. Scholars (58%) and teachers (48%) present the highest percentage of virtual visits, even if they do not physically go to the museum. It may be explained that these two audiences visit museum Web sites for research purposes” (Kravchyna and Hastings 2002). The challenge is to consolidate, sharpen, and extend brand awareness. Cultural heritage organizations can augment brand awareness by publicizing the availability of services. They can rely on the natural professional communities aligned with a library or museum to extend awareness. They can also build on the widespread understanding that libraries and museums have a strong responsibility for stewardship (long-term care and preservation) of their collections. This high level of credibility gives them an important strategic and competitive advantage.
Cultural heritage institutions are entrusted with collections for which professional or scholarly communities, as well as foundations and the public, are stakeholders. This stewardship role is critical in allowing museums and libraries to differentiate themselves from the many Web sites, both commercial and noncommercial, that offer digital content. Stewardship is an essential marketing concept not only for developing a business plan but also for expanding and managing a collection for online access and digital preservation. Stewardship is a role that is much appreciated by the public, including students. In a series of focus group interviews conducted in 2001 as part of the CDP’s evaluation program, students and other user groups were asked about the benefits of access to digital versions of museum content. Focus group participants noted preservation of the original objects as a primary benefit (Fry, Lance, Cox and Moe 2001).