Brainwaves - Creative tank is running on empty

Our media and creative industries are often poorly managed by richly gifted creative types who won’t – or, more to the point, can’t – piece together a sound strategic business plan.

Chris Ingram, of Tempus fame, agrees with this gloomy prognosis. And he should know; he’s made a few quid out of media.

This is a guy who started in advertising back at the beginning of the Swinging Sixties, when Austin Powers lookalikes roamed the streets of Soho without irony.

Ingram began his career as a messenger boy. Three years ago, he sold Tempus to WPP for 34 times the company’s annual bottom line. In many ways, he is the epitome of the self-made creative businessman.

You would therefore think he, of all people, would scoff at the idea of formal business training for creative entrepreneurs.

Wrong.

Better management

Last week I sat across the table from him at the first board meeting of the Centre for Creative Business, a newly formed company set up with Government seed funding to improve management skills in the creative sector.

The CCB is a not-for-profit joint venture between the London Business School and University of the Arts London. It aims to help plug the skills gap in the creative industries with high impact executive education courses aimed at creative entrepreneurs and executives.

As well as Chris Ingram’s backing, we also have another major media business figure on board. Vanni Treves, former chairman of Channel 4, is our CCB chairman.

But it is not only the business minds getting behind this skills gap – the brain drain of the 1980s in the science sector was a lesson well learned for the UK.

This Government is keen to hold on to our bright sparks and future business leaders by not losing them to the bright lights in the US.

Senior figures

Leading political lights, including Tessa Jowell, Patricia Hewitt and Ken Livingstone, agree that something needs to be done about this apparent skills gap.

You can see why the Government is so keen to get profitability and growth up in the creative sector. If we can produce more mighty oaks like WPP and Tempus, and fewer lifestyle companies that never get beyond the sapling stage, the prize for Gordon Brown at the Exchequer is huge.

There is now a growing band of industry and academic opinion that says advanced economies such as ours are undergoing a fundamental shift away from fast commoditising service and manufacturing industries.

There is a move towards using human creativity as a key differentiating point of advantage and a fundamental driver of growth across the board.

In the much-quoted marketing book The Experience Economy , authors Pine and Gilmore assert that the big brand winners in the new millennium will differentiate their products and services by the customer’s “experience” as they consume it.

They argue that this will be true for everything from coffee at Starbucks to mobile phones, restaurants and banks.

Of course, staging this customer experience for all products takes the kind of creativity found in abundance in the media and creative industries.

US academic Richard Florida goes further in The Rise of the Creative Classes , saying creativity is now the driving force of the global economy and is transforming the way we work, pursue leisure, form communities and conduct our everyday life. He goes on to argue that any country that fails to provide energetic and culturally diverse metropolitan centres to attract the new creative elite will fall behind in a terminal fashion.

It’s no wonder a recent report in Media Week highlighted the fact that a gang of 98 investment firms linked on the British Venture Capitalist Association’s website say they are now firmly in the market for media and creative industry deals.

More money

The predicted improvement in advertising revenues and the relaxation of media ownership laws under the Communications Act have indeed got the money men interested.

But for many firms in TV, marketing and other creative fields, sadly, the investors’ wallets will remain shut for the moment.

The reasons the money men have traditionally turned green when investment is mentioned haven’t gone away.Most of them stem from the fact that creative companies simply don’t invest enough in training in business skills to justify the investment risk.

You can see why an investment in a scientific product or nice solidmanufacturing plant might look safe in comparison. In addition to these worries, the Global Entrepreneurship Monitor, which measures investment in smaller companies in the UK and across the world, estimates the average age of a new venture is just 24 months.

So the conclusion remains that many creative ventures will not stay the course and those that do may well be smaller, and less profitable, than they could be.

Within media owners, management deficiencies are often a direct result of their traditional structure. Publishers and broadcasters have traditionally been split between editorial and sales, with staff promoted up one ladder or the other to a point where their responsibilities cross over.

Missing skills

Editorial people promoted into management positions are not usually equipped to make the strategic planning decisions required for effective business management – and sales people are likewise prone to favour short term wins.

The skills that are typically missing from media companies and other creative businesses can be summarised broadly into three groups:

? Organisational – the balance between management control and understanding how to manage people effectively and inspire them.

? Strategy – how to construct the different elements of a long term, workable strategic business plan.

? Implementation (perhaps more relevant to smaller companies) – how to implement plans, project-manage initiatives and finance them.

Of course, larger companies will often have effective internal or outsourced training programmes, but all too often a depth of understanding is still missing.

The lack of focus on the bottom line is supported by the widespread problem of “overtrading” in ad agencies, among others.

Recent research by the financial analysis outfit Plimsoll Portfolio Analysis of 1,000 UK agency businesses suggests that the problem of small, or nonexistent, profits affects more than half of those surveyed.

After analysing the filings at Companies House, the research showed that 238 agencies were overtrading (chasing total sales at the expense of making a profit).

It estimated that these companies typically made a pretax loss of 2.6%of turnover, which was often growing. It identified a further 374 companies it believes are suffering because they are cutting their profit margins to compete.

The fear is that overtrading is endemic to many other creative industries. And this becomes a vicious circle – no real profits equals no investment in training or anything else, which equals no growth.

The creative industries represent a very broad church in terms of disciplines, business structures and, of course, the size of business, but as a whole it represents a huge opportunity for the UK.

And for those aiming to take their business beyond the cottage industry level, or develop an established company into a more profitable enterprise, there are now organisations such as the Centre for Creative Business, which can help take some of the pain out of the process and position you on the fast track.

Greg Orme is chief executive of the Centre for Creative Business

This article was first published on Media Week