Creative industries

From Academic Kids

The Creative Industries are a growing sector of the global economy, focussed on creating and exploiting intellectual property products such as films, games or fashion designs, or providing creative services, usually to other businesses.

Definitions of what are and are not creative industries vary but typical lists include:

Economic role and potential

As many first world countries now struggle to compete in traditional markets such as manufacturing, many see the creative industries as a key to a new Knowledge Economy, capable perhaps of delivering urban regeneration, often through initiatives linked to cultural heritage and tourism. It is often argued that, in future, the ideas and imagination of countries like the United Kingdom will be their greatest asset. Indeed, UK government figures reveal that the UK's creative industries account for over a million jobs and brought in 112.5 billion to the UK economy (Creative Industries Mapping Document 2001).

Firms in the creative industries encounter a series of barriers to growth as they mature and there is no inevitable ladder that stretches from micro-business to public company. In fact, many of the founders of firms do not actually wish to grow but would better be characterised as Lifestyle Businesses. This is not to denigrate what they do in any way (many win multiple awards and collectively they generate wealth and provide large employment opportunities for many people) but Lifestyle Businesses tend to be less sustainable in the face of economic downturn or changing market conditions.

Success factors

Long-term success and sustainability for firms operating in the Creative industries depends on balancing the creative-, commercial- and social-capital building urges of the key individuals involved.

  • A firm that lacks a strong creative urge will not produce distinctive work. A firm that is dominated by this urge may do brilliant creative work and even win awards, but is unlikely to prove sustainable
  • A firm that lacks a strong urge to build commercial value will not have the foundations to survive the inevitable ups and downs of business. A firm dominated only by this urge is unlikely to provide a nurturing home for key creative talent and so, in time, will lose its distinctiveness or simply go bust. Many Cultural organisations fall into this category and depend on public subsidy or sponsorship to survive: such organisations are closely related to but distinct from the true Creative industries.
  • A firm that lacks the urge to build a positive learning environment of opportunity for its staff and wider stakeholders will lose their commitment rapidly, for Lifelong Learning is a key element of the Knowledge Economy. Firms that are dominated by the urge to build social capital are likely to suffer all the limitations of Lifestyle Businesses.

Measuring performance

Organisations such as the Pembridge Partnership (http://www.pembridge.net) have studied the indicators of success in creative industries firms and suggest that a range of financial benchmarks can be established for companies operating in this sector, such as:

Gross Profit Sometimes described as ‘the fundamental food of the business', this is also known as Gross Income, Gross Revenue, Revenue, or Net Revenue. For the purpose of this analysis it is defined as Turnover less recharges in a given period. Unit of Measurement is “k”, referring to a year. The Gross Profit figure excludes public subsidies or grants.

Gross Profit Per Head An indication of 'How well the people generate this food', a.k.a. Productivity, Output, Gross Income Per Employee, Fee Per Head, Net income Per Employee. We define this here as Gross Profit per full time employee in a given period. Unit of Measurement is “k”, referring to a year.

Gross Profit Growth This is a measure of the speed and direction in which the firm is running, a.k.a. Growth, CAGR. Here it is defined as the amount by which Gross Profit has grown over a year. Unit of Measurement is “%”

Operating Profit Margin Colloquially, the 'sweet music of a well-oiled machine', a.k.a. Margin, Profit Margin, Operating Margin; Net Pre-Tax Profit as % of Turnover. Defined here as that portion of Gross Profit which is Operating Profit in a given period. Unit of Measurement is “%”, referring to a year.

Financial benchmarks such as these are not the only indicators of success, and in isolation none can say what is right or wrong with a company, just as blood pressure or temperature alone cannot diagnose olympic potential or the cause of sickness in a person. But taken together with measures of softer qualities such as a firm's investment readiness, entrepreneurship, competitiveness, skills and ability to innovate, they are a useful tool for managers and investors.

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