The Library as a Profit Center
Stephen C. Tweed
Tweed Corporation, Oil City, Pa.
The article is an excerpt from a presentation of the same title given by the author at the Fall Conference of the Texas State Chapter, Special Libraries Association, held in Dallas, September 16, 1983.
• Special libraries and information centers can increase their effectiveness by changing the way they are seen by the organizations they serve. Two ways that perceptions can be changed are: to change the methods used to account for the library financially; to change the way services are provided to better meet the users’ needs. Seven steps for increasing the real and perceived value of the library to the organization are proposed.
Any individual or organization that provides some product or service in exchange for something of equal value – usually money – constitutes a business. Special librarians are in the business of providing information services in exchange for the money in their department’s operating budget. Compensation is received for the services the librarian / information manager personally provides: salary, benefits, working, conditions, and job security.
In order to increase the budget or raise the library manager’s compensation, both the real and the perceived value of the services provided must be improved.
Tracking financial performance
There are five basic methods of tracking the financial performance of the library. One is to show how it contributes to costs; the other four are methods that demonstrate how the library contributes to the profits of the organization.
Most special libraries operate as cost centers; that is, every year a budget is prepared to include direct labor and material costs, and perhaps also fixed costs for the operation of the library. The budget is approved, and these funds are charged to the administrative expenses of the organization—in accounting, terms, “burden” or “overhead.”
When top executives review financial performance, one of the things they look at is expenses. If the library chronically has trouble getting the funding it needs and deserves to provide good service, it is probably because management views it as a “burden.” Yet, by changing how the library is perceived by the organization, it can change its value.
True profit center
The special library that operates as a true profit center is identified as a profit making segment of a business. It sells its services outside the company and is held accountable for its financial performance just as any other division would be. Revenues are generated by selling products and services. In most cases, the true profit center no longer serves as the internal service for the company.
An example of a true profit center would be a special library that establishes a computer database. Once the database comes into such demand that the company sees an opportunity by selling data services, the database is set up as a separate business unit.
Going one step beyond the true profit center, many library managers are deciding that they have had enough of corporate life and are leaving their organizations to start their own consulting and information service operation. These businesses range from one-person shops operating out of a spare bedroom, to large firms with many employees providing a multitude of services. Although risks are involved, many former librarians have found satisfaction in putting their skills to work for personal success and profit.
Protected profit center
The protected profit center is a special library that exists primarily to serve the needs of its own organization. However, this library offers some services which are in demand outside the company. Thus, the protected profit center begins to sell services on a limited basis. The profits from outside sales are put back into the operating budget of the library. While the library is not expected to show a profit at the end of the year, a sizable number of dollars is earned to offset operating expenses.
For example: the engineering records library of a major equipment manufacturer began receiving requests for information from the company’s customers. At first, it offered the information at no charge as an added customer service. As demand grew, more staff and equipment were required. The library director started to charge a fee for the service and found that clients did not mind paying for this valuable service. The director began to promote the services of the library to clients through the company’s sales force. Soon, he was recovering 45% of his operating budget through sales to customers. His boss was thrilled, and he got more money for staff, equipment and materials.
The advantages of the protected profit center are that additional funds can be generated that are not charged to administrative costs. Also, the library can provide a valuable service to the organization’s clients, for which they are willing to pay.
The disadvantage is that it is easy to get caught up in the excitement of earning money; one may lose sight of the real client – the organization’s own users.
Self-sufficient cost center
The self-sufficient cost center operates on a charge-back system. All services are charged back to the using department or division as they are used. The library has an objective to recover all or part of its operating budget.
An example of a self-sufficient cost center might be a library serving a company that is heavily oriented toward research and development. Each research project manager allocates money in his or her budget for information services. As the services are provided, the library charges the project account. At the end of the year, the library expense budget shows only a small portion of the actual cost of information services. In some instances, the net library account might equal zero, meaning that every dollar spent by the library was charged back to users.
At one chemical company, the manager of information services reported he was able to charge back $1,1179,485 of his $1,189,000 budget. By setting up this charge-back system, he learned that 85% of his business was from research and development, and 15% from the rest of the company.
The advantage of the self-sufficient cost center is that operating expenses show up as part of the cost of doing R&D, and not as an item of “burden” under administrative expenses. The disadvantage is that spending may be tied to how much the library takes in. If there is not an active clientele willing to pay for information services, the library may be limited in its ability to expand. There is also the danger that potential users will go elsewhere if they can purchase the same services for less.
The cost-justified center operates on its own budget, provided by top management from administrative expenses. Requests for services are recorded, and a dollar value is placed on them. Each year, the library has an objective to achieve a set level of savings or value recognized. Usually this value is some multiple of actual costs.
Example: A company has a very active cost-saving program. Project teams explore ways to take cost out of the manufacturing process without sacrificing quality. Frequently, members of project teams come to the corporate library for assistance. By assigning a portion of the savings from a cost-improvement project to the efforts of the librarian, they demonstrated the value of library services. In this example, the librarian was able to get credit for several hundred thousand dollars in cost savings—an amount equivalent to three times the library’s operating budget (and this does not even include all of the services that were provided but could not be documented and cost justified).
Since cost savings go directly into corporate profits, it is relatively easy to demonstrate the value of the corporate library without getting involved in a lot of money transfers. The disadvantage of the cost-justified center is that the justification is based on an assumption about the portion of savings or recognized value that results from the services of the library. If that assumption cannot be easily validated or reasonably supported, it may be challenged later by some bright executive with a sharp pencil.
There are many ways to generate revenue or justify expenses. It is clear that top executives respond to managers who demonstrate the ability to run a sound business operation that contributes to bottom line results in a measurable way. It is not important which model profit center one selects; what is important is that the library’s money-making potential is clearly understood by the top executives who making the decisions that affect its future. For those things top executives best understand things they can count—in dollars and cents.
The concept of the enthusiastic customer
Successful business people recognize that there are three types of customers: satisfied, dissatisfied and enthusiastic.
A satisfied customer is one who got exactly what was expected from a product or service; a dissatisfied customer believes that he or she received less than what was expected; and an enthusiastic customer is one who got more than was expected.
Without question, the best way to promote a business is through word-of-mouth advertising—having enthusiastic customers tell other people what a great job the library did for them. One firm in the hospitality industry discovered an interesting piece of information about its customers: the dissatisfied ones each told an average of ten people about their bad experiences, yet the enthusiastic customers were likely to tell only three other people. Based on this example, one would need 3.3 enthusiastic customers for every dissatisfied one just to break even.
Dissatisfied customers have two possible choices of action. One is to come and complain. Complaining customers are easy to deal with—the author discusses this in a seminar called “Techniques for Communicating with the Upset Public.” The second choice is to stop using the service or to purchase it elsewhere. Customers who follow this option are the difficult ones to deal with. You often don’t know that they are unhappy; they just don’t come back.
Developing a business strategy is a process that involves taking an in-depth look at where you are now, and where you want to be at some clearly defined point in the future. Consider, also, what must be done to get there, and the forces that will help or hinder the effort.
Begin by asking four strategic questions:
- What is your business?
- Who are your clients?
- What do they expect and
- How can you give them more than they expect.
Consider what would happen if the library’s services were no longer available. Many businesses take their existence for granted. They assume they are so important that their customers cannot do without them. Yet, many established firms have, in fact, gone under, and others have quickly stepped in to fill the breach.
A special library has three types of customers: consumers, clients and sponsors. The consumer is the one who actually uses the information you provide; the client recognizes the need for information and makes arrangements to get it; while the sponsor is the one who ultimately approves payment. Sometimes, the consumer, client and sponsor are three separate individuals; at other times, they are one. The key is to identify all three.
For example, the president of the company requests the corporate librarian to gather information on a company that has just introduced a competing product. In this instance, the president is consumer, client and sponsor. In another situation, the president has directed a cost-improvement project to make certain recommendations. The team needs some information and the coordinator comes to the library with the request. The library’s budget is approved by the vice president for administration. Here, consumer, client and sponsor are three separate people.
What do customers expect? To find out, observe their reactions to the service the library does for them. Ask them what they like and don’t like about the service. In Search of Excellence, by Peters and Waterman, devotes a whole chapter to being “Close to the Customer.”
In order to give customers as much and more than they expect, one must meet their basic needs, get the information to the right person at the right time, and then, go a little further—give a little extra information, a little better service, a little better price, and give it sooner than promised.
It does not take any more time or energy to be cheerful and friendly than it does to be dull and uninteresting. The most powerful “extras” are those things that help to develop rapport with customers. A relationship based on comfort, trust and confidence is the best way to gain an enthusiastic customer.
Generally, there are two contrasting library strategies. One is called “dusting the books.” This is used by the corporate librarian whose image is projected as being isolated from users needs and more concerned with maintaining the collection. When users come to the library for information, they get the impression they are interfering with the librarian’s work. Most librarians hate this image, but they allow it to exist.
Then there is the “Disneyland” strategy. Following the wisdom of the late Walt Disney, this librarian defines the unique factor that makes the library different and attracts users. The librarian demonstrates and flaunts this service, making certain that it receives good word-of-mouth publicity from enthusiastic users—hopefully, all the way to the board of directors. This unique factor is never taken for granted. And the librarian is always bright, cheerful and optimistic, treating users like Guests, with a capital G. To increase both the library’s real and perceived value to the organization, follow these seven steps:
- Define your business
- Identify your customers (consumers, clients, sponsors)
- Determine what they expect from you
- Find out how they will pay for it
- Select the right “profit center” for you
- Develop a business strategy
- Give customers more than they expect—with a smile!
The result will be a greater number of enthusiastic customers and greater recognition from management for the library’s contributions to the organization.Received for review Feb. 13, 1984. Manuscript accepted for publication June 19, 1984.
Stephen C. Tweed is president of Tweed Corporation, in Oil City, Pennsylvania, a management consulting firm specializing in business strategy and customer service.
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