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We've come a long way from the difficulties of recent years, and some key metrics are starting to show a positive trend. But we’re not out of the woods yet, writes David Reece

Lego bricks
Cross-departmental collaboration allowed LEGO to innovate successfully

Snizhana Galytska/iStock

Depending on who you ask, things are looking up for the economy, but it’s an uneven recovery at best. Inflation has dropped from 4% at the beginning of the year to 2.3% in April, the lowest level in nearly three years, almost exclusively because of a 27.1% drop in energy prices. Although, services inflation remains high at 5.9% and only down marginally since March at 6%, and mobile bills and rents continue to rise.

From a customer perspective, GfK's consumer confidence index is improving, up to -17 in April, a marginal improvement from -21 earlier this year but going in the right direction. The public’s perception of their personal financial situation also continues to improve, sitting at +7, up 15 points from May last year. 

Despite this consumer spending isn’t keeping pace. Retail sales fell by 2.3% in April, following a slight drop the previous month, though we can partly blame the wet weather for that. Either way, we’re going to need a lot more Taylor Swifts with the singer’s Eras Tour forecast to inject £1bn into the UK economy.

Still a mixed picture for the arts

In the arts we’re also seeing a mixed recovery, too. On a positive note, more people are booking tickets, many of them first timers and, as seen in a recent report from Indigo Ltd and Spektrix, the retention rate of first-time visitors in 2023 has improved year-on-year for the first time in seven years.

Not only that, but younger people are also showing more interest in the arts. According to a recent report from Dewynters, the future for theatre is definitely looking bright. Millennials and Gen Z over-indexed the most for theatre attendance despite the cost-of-living crisis affecting them more than older groups. 

However, we also know audiences are less frequent, pickier about what they spend on, and less willing to take risks. Though that depends on how you define risk. A recent Sky News article wondered if this was a golden age for original musicals in the West End, commenting: “The success of original shows - Six, Operation Mincemeat - is proof audiences are ready to take a risk.”  

But let’s not forget the massive pulling power of word-of-mouth marketing in reducing risk. If everybody’s talking about it, it must be good. In the subsidised sector, on the other hand, it comes against a backdrop of funding cuts, and the loss of some 35,000 jobs during the pandemic, leaving arts leaders to do more with less. Something’s got to give.

Risks of diversifying

There’s been a recent focus on income diversification to achieve greater financial resilience. As set out in its Let's Create strategy, ACE expects organisations to "develop business models that help them maximise income, reduce costs and become more financially resilient". 

Sounds good on paper, but trying to do too many things can reduce operational efficiency, stretch resources thinly and, at worst, dilute brand identity. As Catherine Mallyon, the RSC’s former Executive Director put it: “Income generation is harder than ever, emphasising the need for vigilance and imagination.” 

LEGO embraces innovation 

If there’s one company outside the arts that understands the power of imagination, it’s LEGO. Reading the excellent Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry, I was struck by the parallels with the arts sector. 

In the early 2000s, LEGO had expanded into areas outside its core brand – clothing, video games and theme parks – and saddled itself with significant debt in the process. But a change in approach by new CEO, Jørgen Vig Knudstorp turned things around. By focusing on less, LEGO managed to do more, cutting what wasn't working and getting back to its core values and mission. 

One of the ways LEGO achieved this was through their innovation management system to foster innovation while remaining true to their core brand. Starting with incremental changes, carefully evaluating alignment with core values and prioritising the things that build on existing strengths. 

A customer-centric approach

A key component of LEGO's success was its customer-centric approach. Arts organisations already gather insights and analyse patterns of demand, though not always across the entire organisation. And while they might know a lot about existing audiences, understanding the needs of potential audiences is often missing. This runs the risk of making customer-driven decisions based solely on an existing customer base, potentially missing the opportunity to find a new market. 

LEGO engaged customers in the innovation process by inviting them to participate in co-creation activities, collaborating with adult fans to develop new product ideas, gather feedback on prototypes, and refine designs, ultimately leading to fully customisable experiences. 

If the arts were to do the same, they would need to think about audiences they’re missing and what it would take to improve the experience for them. For example, recently the City of Birmingham Symphony Orchestra decided to allow phones in concerts, a potentially divisive move but one that acknowledged how younger audiences like to engage with entertainment. It was a step toward embracing modern habits, increasing accessibility and harnessing the power of social proof. 

LEGO's partnerships with other brands, like Star Wars, opened up new markets, and expanded its customer base. Similarly, the Birmingham Royal Ballet's collaboration with Black Sabbath, and Birmingham Hippodrome and Rambert's take on Peaky Blinders brought fresh perspectives and attracted new audiences. Both are great examples of the ability of the arts to tap into popular culture while remaining true to core values.

Collaboration and maintaining discipline

Cross-departmental collaboration allowed LEGO to innovate successfully because individual departments were not left to work in isolation. Ideas were shared and teams were aligned to common goals.  

How many arts organisations have a cross-departmental working group for developing new ideas? How many arts organisations have a mechanism for allowing everyone in the organisation to put forward new ideas?

This is about empowering teams to pursue different ways of achieving results, being clear on the outcomes but experimenting with the processes. Jørgen Vig Knudstorp's leadership style encouraged a culture of experimentation while maintaining discipline in execution.  

Start small, test, refine, act: a process the National Theatre adopted before introducing early evening performances, first testing alternative start times with audiences in a major research study by Baker Richards. To reduce the risk, it identified the optimal time and the audience it was targeting before implementing the change.  

To maintain discipline in execution, ensure you set clear, shared objectives. Define measures of success to stay on track and ensure everyone has access to them. These are not just for measuring customer engagement, but also financial (difference to the bottom line) and social impact (what new audiences are coming).  

And it’s not just about optimising; it’s about exploring new possibilities and seeing where they lead. The journey may surprise you.

David Reece is Deputy Chief Executive at Baker Richards.
@BakerRichards | @davidnreece

This article, sponsored and contributed by Baker Richards, is part of a series sharing insights into how organisations in the arts and cultural sector can achieve their commercial potential.

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Photo of David Reece