A topic I had in mind for some time is controlling in cultural organizations and symphony orchestras. Controlling is a tool within business management that aims to ensure the fulfillment of previously defined objectives. The term “controlling” comes from “to control”, that is, “to control”, “regulate” or “manage”. Technically, it could be defined as follows:
“Controlling is a multifunctional management support system used to collect the necessary data for decision-makers to use in making decisions. It is a system that channels means of information and clusters them in groups while it summarizes the collected data in a target-oriented report, where all relevant data for decision-making are finally found in compressed form.” [1].
Whereas controlling systems have been consolidated in all private companies – for profit companies with a certain volume of production – it is apparent that for companies in the non-profit sector this is still unfinished business. Hardly any orchestra or cultural enterprise takes advantage of the many benefits of controlling, may it be for management, strategic definition or marketing.
This resistance to specific data collection and analysis – not only the legally required accounting, but also cost, service and performance accounting – is due to a generalized fear of being controlled or simply of everything new. Many workers in the industry misinterpret the term as a tool of control that violates their rights and privacy in the workplace. In other words, any attempt to establish a controlling system in cultural and creative industries must first be confronted with thoughts such as “they will control me”, “management doesn’t trust us” or “we don’t have time for this nonsense”.
While employees of private companies assume that a shareholder or his representatives supervise them, there is a tendency among employees of cultural and creative companies to forget that their company belongs directly to society or that, at least, its financial basis is based on citizens’ taxes. Let’s remember that these companies are financed in Spain nearly totally with public money, that they are based on the idea of non-profit and that they are constituted as legal entities in the hands of public institutions. This means, as I see it, that, as these employees manage something that belongs to everyone, control should be even greater and resistance less.
The purpose of controlling
As far as I am concerned, none of these ideas of rejection – which have their origin in emotions – is correct. The purpose of data collection and its subsequent study and analysis – depending on whether controlling is operational or strategic – includes the following points:
- Collection of truthful data on business and objectives (costs, expenses, revenues or receipts; but also in terms of number of spectators) and the constant contrast of actual data and target data.
- Documentation of data and its analysis, thus generating the conclusions which should empirically support strategic management decisions.
- Planning, forecasting and management consulting.
- Effective and efficient direction and management of resources.
- Control of fulfillment of general and specific operating business objectives and of individual projects or events.
Obviously, it is possible to use this data to control of a specific employee or department, too. I cannot deny that. However, I believe that a diligent worker has nothing to fear from the collection of numbers which will be, above all, collected in a digital format to allow management to base their decisions on facts. In order to be able to monitor a worker through the obtained data, tit should first be reclassified and analyzed under this specific point of view. Into the bargain, I would say: “we don’t have time for this nonsense”. No manager in his or her right mind collects data for the hypothetical case of a labor conflict, unless he or she has been given a good reason to do so.
In addition, a good general manager or executive director applies this system to him/herself and exposes him/herself for greater transparency and subsequent review by the authorities. Why are some people alarmed by something that in 90% of the market is normal? Application of Public Administration concepts and ideas to cultural businesses is not appropriate in the 21st century, as they are always fighting for their survival. And let’s not forget the often mentioned audience development programs that depend directly on this data (I will come back to this point later). I really don’t understand how it is possible to run an organization de lege artis without, at least, implementing a minimum of controlling.
The 10 benefits of a controlling system for symphony orchestras and other cultural organizations
Well, at this point I consider significant to state the clear advantages of this extra work for technical direction or management.
Reason 1 – Transparency
The first purpose and the greatest benefit of a controlling system is the plus of transparency it generates. Basically, there is nothing new to it in operational business – data is always collected – but what is new is the fact that it is done in an organized, regular and systematized way, with a strategic purpose. Standard practice in most symphony orchestras or other cultural organizations is to prepare data requested by management manually. This procedure is ineffective, very laborious and, above all, repetitive, since it is not done in a centralized manner.
To ensure overall transparency in an organization, internal information needs must be marked out in advance by the controlling team, sources of the information must be defined, and final reports must be conceptualized. It should be clear that this is a personalized system – for each orchestra or organization – and that there can be major differences on a case-by-case basis. It is also important to pool all information regardless of whether its source is internal or external, or whether its use will be with regard to the past or the future.
Reason 2 – Improved internal and external communication (including sponsors)
A controlling system will link the different levels of the organization, especially the strategic and operational levels. That is, in case of orchestras, the management and production level will be linked to the artistic level. By collecting data centrally and across levels, internal communication is automatically strengthened, and a network effect is created between the different departments.
However, that’s not all. I have often witnessed that negotiations with potential sponsors have failed because cultural organizations did not know how to speak their sponsors’ language. What I would like to focus on is, that private sector companies are profit-driven, and when considering to what extent they are interested in supporting a tertiary sector project, they need data that justifies the benefit for them, even if only indirectly. No matter how good our orchestra is, if we are not able to convert this “good” into figures that private companies understand, it will be very difficult to establish a lasting relationship with them. In the end, something similar happens with the public administration: to raise funds, we urgently need data that reflects why our organization is the one to be supported. Controlling can be the turning point between a successful negotiation and a failed one.
Reason 3 – Confidence in strategic operational and financial decision-making.
As I am really into strategic management, I often wonder how it is possible to make sound decisions without centralized and detailed data collection. No wonder that, at the end of a fiscal year, new uncovered expenses – or other legal, fiscal or operational problems – arise that must be compensated for by the public treasury because something has gone wrong along the way. How can it not go wrong if decisions are made based on intuition rather than on facts?
Therefore, I think the benefit of a controlling system is obvious: it gives greater certainty when making strategic and operational as well as financial decisions, while minimizing the elements of uncertainty in forecasting. Above all, in case of ad hoc decisions – those that arise unexpectedly and with urgency – it is very much appreciated to have a basis on which to decide – instead of acting in a disoriented and perplexed way without knowing if you have really done the right thing – or, at least, on which to reduce the chances of making a mistake.
Reason 4 – Creating a data warehouse or smart business
Controlling is also often referred to as a “management information system”, and the term “data warehouse” or “intelligent business” is often used to describe the collection of data that requires digital processing. These terms do not really differ in practice, since they all refer to a process of systematic analysis of data in digital format. Once achieved, a good database is called a data-warehouse or data store: a centralized place to obtain information for day-to-day and on-the-go use.
Reason 5 – Boost of the accounting system
Accounting is an information system that responds to external requirements to the company. It is a tool that guarantees basic and generalized information about the company – established by law – and is intended for legitimately interested third parties who enter into negotiations with the company. However, for the sake of making the right decisions, internal information is needed which must be accounted for in an individualized manner. This organisation-based approach is not even legally mandatory. The type of accounting provided for by the General Accounting Plan is often not useful either, so we are talking about a system that extends the information we obtain through accounting, which is obviously included in the data analysis we are dealing with.
It is necessary to emphasize once again that accounting is an information system required by the public authority. This means that it is an external system and therefore satisfies interests external to the orchestra. Accounting ensures basic, standardized information, primarily for people outside the organization so that they can know with whom they are dealing. Often other information and communication needs arise internally and these are satisfied by controlling.
I also believe that, especially in the case of symphony orchestras with their demanding level of work and their particular management hierarchy, particularities arise that management must respond to and that cannot be based on generalized accounting for an entire country. This is precisely why I find it so strange that such a few cultural managers talk about controlling within the sector.
Reason 6 – Legitimization of public contributions received
This point takes up the ideas expressed in point 2 of this list. Nowadays, it is increasingly important to be able to justify to society in a well-founded manner why our orchestra obtains public contributions amounting to millions of dollars. No matter how much we believe we are an added value for the socio-educational life of a region, no matter how much we consider ourselves artistically the main attraction of our town, no matter how famous we think we are, these are statements that are not empirically supported, unless we look for this empirical basis through controlling.
The good connoisseur will recognize that statements such as “the economic impact we have generated in the city has been…”, “the educational impact achieved this year has exceeded…” or “we have improved the levels of sustainability and equality” would be better reasons than the previous ones. In other European countries, orchestras even have data on the savings in CO2 emissions they generate. That said, I think the direction to go is clear, but we have to start with proper data collection. Now.
Reason 7 – Cost-effectiveness control
It is commonly known that the tertiary sector is not oriented to profitability criteria, and it is often necessary to explain to patrons, sponsors or sponsors how profitability is defined in a non-profit company. This alone would be worthy of another article.
Even so, the fact that their purpose is non-profit does not prevent us from assuming the criteria that govern for-profit companies, since this way of working ensures a balanced budget and avoids foreseeable losses.
Yet, above all, let us not forget that “non-profit” does not mean that profit is not legally possible or allowed. It means that if a profit is generated, it should not be distributed to partners or shareholders, but should be reinvested in the social purpose of the foundation or association in question. And wouldn’t it be a luxury to obtain a humble profit and be able to do another extra concert the following year?
Profitability is monitored with data, ratios and all kinds of information from the organization. And the tool to obtain all this is controlling. It’s as simple as that.
Reason 8 – Detect black holes and take action (risk management)
All of the above brings me to the next point: risk management. In the private sector, there are companies that are legally subject to a system of warning or detection of risks in advance. This system is called risk management. In recent years, a new profession (risk management officer) has even been created to collect data for the beforehand control of all kinds of risks, whether operational, financial, legal, social, political, pandemic (!), meteorological or many others.
In an orchestra, normally, it is not necessary to set up all these appliances, nor is it necessary to hire a person just for that, but to ignore at all data that indicate a risk is foolish. Controlling systems are implemented precisely tailored to the needs of a company or orchestra. It is a highly customized system, as I have already mentioned.
And as we have also said before, ad hoc decisions make us take risks because we have no reaction time or empirical information to rely on. These decisions are often made unexpectedly because we were not careful because we ignored the indicators, or because we thought we had the necessary information, and it turned out to be insufficient.
It is a fact that the vast majority of liquidity risks do not come out of the blue. They are usually due to an accumulation of data that we have ignored or that we did not know how to see because of a lack of adequate information. The same also happens with human resources or legal issues. As a general rule, we can say: Nobody is sued for no reason. There is always a prior history (clues ignored, answers not given) and, many times, poorly conducted negotiations based on a lack of information.
Reason 9 – Basis for audience development
If I have not yet been able to convince you that it is necessary to work with the controlling method in orchestras, I still have one key point that should convince even the most skeptical: audience analysis and audience development[2]. Everyone understands that orchestras have to fill their concert halls. In previous articles, I have pointed out why we have to work on our audiences. And now I ask you: where does the data come from that marketing and audience development colleagues need for their campaigns? That’s right: from controlling.
Reason 10 – Pricing (also in case of non-profit companies)
Although you should already be utterly convinced of the need for controlling, and since it’s better to have 10 reasons than 9, I’m going to add another point. Apparently – again(!!) – the tenth point is not essential in the non-profit sector. It is about pricing policy.
Just as the topic of profitability issues, it is said that pricing is of no interest for the cultural sector because we are funded by public money. Yes, our orchestra may be 95% supported by public money and, therefore, the definition of ticket prices and other products is not as crucial as in a for-profit company. Even so, I consider that leaving this issue aside shows little foresight because in the end, if we know our real value in the market, we can adjust exactly to the public and charge appropriately in each segment. Please keep in mind that, precisely because we are financed with public money, we should ensure proper management of all our assets. And so are our revenues. I don’t think I have to ask again now, but just in case: where do you get the information for fitting pricing? That’s right, from controlling!
Above, I mentioned the term “intelligent business” without explaining it. Is that clear now?
I hope I have been able to convince some of my readers of the benefits of controlling. I leave it for another blog post to explain exactly what controlling is in the day-to-day management of an orchestra and how it is established.
Nicole Martín Medina
Las Palmas de Gran Canaria
February 2023
Originally Spanish/Translation DeepL/Revision NMM
Note:
This article is available in Spanish and German:
SPANISH: https://nicolemartinmedina.com/10-razones-controlling-en-orquestas/
GERMAN: https://nicolemartinmedina.com/de/10-gruende-controlling-sorchestern/
****
[1] See: Schneidewind, Petra – Betriebswirtschaft für Kulturmanagement – Ein Handbuch p. 140
Controlling im Kulturmanagement – Eine Einführung p. 15
[2] Audience analysis and development has its own series on my blog: available only in Spanish for the moment.
