What is Your Budget Saying About Your Library?
by Leslie Jacobs and
Roger Strouse, Outsell, Inc.
Leslie Jacobs is vice president of Outsell, Inc.
Roger Strouse is director and lead analyst at Outsell, Inc.
Budgeting for Better Position
There's no doubt about it—corporate libraries are under scrutiny in 2002.
Executive management is paying closer attention to the bottom line than it has in several years. With this increased scrutiny, functions that don't directly contribute to that bottom line are prime targets for cuts and shut downs. In many companies, the budget is senior management's most direct contact with the library—so what is your budget saying about your operation?
Handling of Budgeting/Accounting of Services
How does your library or unit handle budgeting or accounting for your services?
For most corporate libraries, there are six months until the new fiscal year starts, so let's take a look beyond the pure mechanics of budgeting and address some issues that may help you create a budget strategy and place the library in a stronger position for 2003.
Where Does Your Budget Reside?
In Outsell's 2001 Information Professional Study1, 54 percent of respondents said their budgets are considered corporate overhead.
When corporate executives are watching the bottom line of expense, budgets that stand out as overhead are more likely to be cut. During times of fiscal duress—whether caused by recessions or by issues intrinsic to the corporation—the functions behind those overhead budgets are first to be eliminated. Information functions that have their budgets imbedded in line-of-business units (such as research, product development and some marketing functions) are the most likely to survive. Information budgets that are imbedded in these business units may be there because the information function itself reports into the business unit or because a portion of the costs for the information function has been allocated to the business units.
Should you take action if your library reports into an overhead category? While it may be worth finding out if your library is reporting to the most appropriate place in your company, the more important issue is the costs associated with the library.
Are You Recovering Costs?
Generally, when librarians create budgets, they address only one side of the equation—the funds needed to pay staff, buy content, create and deliver services, etc. In short, they function as a cost center, rather than a profit center. Libraries have traditionally operated on a cost-benefit model, with costs appearing in the budget. The benefits are usually presented anecdotally, by satisfied customers, through metrics showing the amount of work the library has performed. But the value proposition for libraries has changed and appearing purely as a cost center is a red flag to senior management. While a few libraries have repositioned themselves as a profit center, most are at least looking to break even.
Charge back
How does your library or unit charge back?
Approaches that may be considered and the rationale for picking one versus another vary widely depending on the situation. Among those that should be considered are:
· hourly service charges;
· an annual retainer fee;
· automatic billing based on use;
· direct billing by the vendor;
· pro-rata sharing of the total cost for specific services;
· negotiated project-specific charges;
· a fixed fee for a maximum number of inquiries or for specific sources;
· billing based on a vendor's usage-sensitive rates; or
· a combination of any of the above.
As you might expect each of these may have several variations and must be tuned to meet the applicable organizational, financial, accounting and political climate. Additionally, it is typical that no single approach will be equally applicable to all information center services, nor will it be received by the users as a fair representation of the varying activities they may request the information center to perform.
Common Models in Place for Content Cost Recovery Include:
Up-Front Allocations—These are very popular because they require a firm commitment from business units before purchasing or renewing content. The accounting is more readily managed than some other methods, since the allocation for each product happens at initial purchase and then at renewal time—usually an annual occurrence. Generally, business units or geographical locations commit to a dollar amount or to a percentage of the product cost for the term of the contract. Most up-front allocation schemes are usage-based, using historical usage patterns or potential numbers of users per business unit. Other schemes include business units' percentage of total headcount or revenues. Sometimes allocations may be based on the business units' ability to pay.
Charge for Usage—This model tends to work best with products that have pay-as-you-go pricing. Users, or information professionals working on behalf of users, are required to enter an accounting code for each session on such a product. The actual charge can occur at whatever time interval makes sense for the business. Although it is hard to apply to fixed-price contracts, this scheme is popular with consulting firms, investment banks and others in the business services sector where costs are passed through to external clients.
It is critical to have a solid understanding of potentially billable groups, their total information needs and past usage patterns. Completion of a formal needs assessment as prerequisite to initiating charge-backs is ideal. But at a minimum, a fairly complete understanding of needs is essential. It is important to understand that when the information center moves to recover costs, it is becoming an internal vendor with a potential customer set. The process needs to be approached just as a vendor would accomplish it. In essence, the information center becomes a business.
It is important to have executive support and commitment prior to initiating any type of charge-back approach. Validate your plans with as many people as possible at all levels in the organization, both as you plan and after you have completed implementation. Frequent and complete communication with explanations and rationale will eliminate many of the problems before they occur. The process of creating a cost recovery system offers the opportunity to educate senior management on the library budget so that they better understand and value it.
Are You Showing Return on the Library Investment?
While cost recovery is a major step in justifying the library's budget, the fact remains that the company is still paying for the staff, content and other library purchases. That's why proving return on investment (ROI) has become more important to libraries over the last several years. Showing return on dollars spent is not only important to senior management, but also to the individual business units, which may fund the library. Determining ROI allows library customers and executive management to understand the benefits realized from the library's staff and services. It provides a quantitative measure for intangible offerings and makes budgetary decision-making more tangible.
A common example of a tangible benefit is labor savings. This can include time saved looking for and using information, or time saved on the job because information was applied more effectively. Outsell's normative database provides this benchmark: $5,000 in revenues generated per interaction when users indicated revenue generation as an outcome. We also have evidence that individual users have reported revenue generation dollars in a single interaction of up to $9 million.
Other examples of tangible benefits are increased productivity, improved quality, increased sales and a shorter marketing time. The success of the tangible benefits section of an ROI survey depends on the ability of respondents to estimate, in dollars or time, the benefit received.
Therefore, the questions asked of users to help estimate ROI must be carefully framed.
Some firms calculate the ROI by comparing the savings side of the library with the cost of operation. But this represents only one factor within the cost side of the ROI equation. To accurately assess the costs associated with using a service, one most also include:
· the time spent evaluating information products;
· the labor and capital expense to roll out and install information products;
· training time and costs;
· time spent gathering and using the information; and
· time spent accessing service and support.
In other words, there are benefits associated with the library function, but there are also costs incurred to keep its products and services up and running.
An ROI study, which results in a quantitative presentation of the library's contribution to the firm's bottom line, is an extremely useful tool in justifying the budget. (However, as the chart shows, it is the tool librarians use the least in measuring their contribution.)
Is Your Budget Tied to the Company's Bottom Line?
An even more compelling value proposition these days is to follow the money to other content management opportunities that very likely exist, but aren't recognized as such, in the company. The best way to identify these opportunities is to use your contacts in line-of-business departments to learn about key revenue-generating initiatives and determine where the library's expertise can add value. Here are some ideas of what to look for:
Customer Support/Technical Support Sites—The Web is now used as a way to save money on customer support activities. However, the content is often poorly organized and difficult to search due to inadequate search engines. Taxonomy development and content management skills are critical to building and managing successful technical support Web sites. And who is better equipped to handle the job of customer support Web manager than an information professional?
E-commerce
Types of research and analysis conducted
Which of the following types of research and evaluations do you conduct or have as part of the management of your function?
At the heart of any company's revenue-generating strategy these days is e-commerce. IT professionals followed the money here, building the infrastructure for their organizations to conduct business via the Web. Now the focus is on content. Here again the taxonomy development skills (how to present the firm's products in a way that makes sense to buyers from around the world) and information content expertise (i.e., locating, gaining permissions and linking favorable reviews and other published articles on your company's products) are critical to improve sales.
Selling the Firm's Content—We're seeing many companies, particularly those in the service sector such as consulting and financial services, looking at ways to "monetize" their own internally generated content into external content opportunities. This offers a new distribution channel and product packaging to clients who might not be able to buy top-tier services. In addition, many companies are looking at ways to aggregate their own content along with external content and provide it to customers. Evaluating, selecting, licensing and organizing this content are things that information professionals bring to the e-commerce table; it's simply a matter of repositioning and repackaging your existing competencies.
While management opportunities also exist for harnessing and managing internally generated content for use within the company, research shows that these knowledge management initiatives are operated with limited resources2. Like the library, these KM initiatives are faced with proving their bottom-line value to the corporation. Increasingly, we find that companies concern themselves with turning their internal content into external revenue-generating opportunities. That's where the funding opportunities exist.
Is Your Budget Just a Portion of the Company's Overall Content Spending?
Most users prefer to find information on their own, and 79 percent of those self-seekers usually obtain information from the open Internet. Obviously there are several potential pitfalls here. While some users are sophisticated enough to question the quality and timeliness of their sources, many don't think to do so until they've been burnt. And, of course, so many of the most valuable sources just aren't easy to search effectively, even if they are on the Internet. At the same time that users prefer the Internet, they say that their top barriers to getting information include determining the quality and knowing what's available3.
Portal or web site metrics
If you have a library portal or Web site, what metrics do you collect on that portal or Web site?
In many companies, this user spending is illusive. Much of it happens over the Web and on credit cards, and doesn't show as information content on the departmental budget. Senior management is usually unaware of the dollars being spent on content that is rarely shared throughout the company and is frequently redundant. Obviously, there is an opportunity for libraries to increase cost effectiveness by providing training and information literacy programs.
There is an even larger opportunity here for libraries to save money for the corporation, while justifying the library's content budget. The opportunity includes providing evidence that the library offers greater cost efficiency in managing external content, rather than letting user departments do it on their own. By consolidating external content buying there usually are discounts that can be leveraged across the company. Research shows that knowledge workers each spend an average of $1,500 per year on external content4. Those individual purchases, along with department spending, add up to big bucks in major corporations every year. Yet very few companies have implemented an information asset management program. If the library can save more than it costs the company each year, that will get the CFO's attention and ease any concerns about the library's budget.
Does Executive Management Understand What You're Doing With all That Money?
Virtual libraries and electronic information offerings have become so commonplace within the corporation that management frequently doesn't connect them with the library that developed them or understand what is required to support them. Only 36 percent of corporate information centers have placed icons or other branding mechanisms on their intranet offerings5. This is coupled with the fact that more than half of those corporate libraries with portals or some other intranet presence do not collect the critical data needed to show the value of their virtual presence.
As a result, the library's contribution has become even more invisible. And if it is visible with a physical presence, management challenges the value of having a physical collection that takes up valuable floor space in a world they perceive as electronic-only. As a librarian from a recently closed corporate library told us, " In a nutshell, we had made it so seamless for users, that they had no idea of what it takes to make it so easy. We thought we were doing them a favor."
It seems that too many information professionals think of marketing as marketing communications, and miss the importance of other aspects. As a result, they don't take advantage of opportunities to market their value to senior management.
In creating these seamless information products and services for users, information managers need to write formal product development plans, and then garner senior management buy-in for them. These formal plans provide a platform for detailing the work that goes into an information offering, and serve as tools for educating senior management about the library budget.
Are You Spending on the Right Things?
Research shows that the majority of corporate library users receive measurable benefits from using the library6. These include time-savings, cost-savings and revenue generation. At the same time, users have relatively low preference for using the library as their primary information source. Given this information, how do we know if we're spending on the right things?
Total library budget
Approximately what is your total library budget (or budget you're responsible for) this year?
To answer this question, libraries need to take a hard look at the performance of the products and services that have been put in place over the last several years by conducting an evaluation.
At a very high level, the evaluation would include:
· tracking user needs, which may have changed since the service was introduced, and understanding how these may impact product enhancements;
· keeping abreast of technology changes that will impact product viability;
· assessing content utilization to determine necessary changes;
· determining the product's viability via ROI, or other internally-defined measures; and
· determining the investment required for continuing and/or refining the product.
The overall output from this evaluation helps to determine whether an information product or service should continue as is, be modified or be retired.
In conjunction with evaluating product performance, it is important to study the user's level of loyalty to the information function and its services. Users' statements about why they need the support of a library can further illustrate what is unique and critical about the library's services to executives. Cost-savings arguments alone may not serve to show why the in-house library is superior to other options, but loyalty data can bridge this gap by providing examples from users themselves.
Loyalty research, unlike needs assessment or cost-savings research, delves into what makes one information-gathering option different from (and better than) the others. Loyalty should not be confused with customer satisfaction research, which determines whether a user has had a positive interaction. The purpose of a loyalty study is to drill down into what's most important to users and to determine what changes will have the greatest impact on improving overall loyalty among users and decision-makers. Because respondents in this type of research are asked about their impressions of the library vis-à-vis other sources of information, loyalty studies are key to taking the ROI statement beyond just cost-effectiveness, to the point of proving the library is the best among all the cost-effective options. Otherwise, the ROI study simply proves that it's cost effective to invest in information solutions, but not necessarily the corporate library. It is important to ask users questions that will determine how they feel about the different information tools and solutions available to them, not just the library.
How Does Your Budget Compare to Other Companies' Information Budgets?
If you've taken everything we've discussed so far into consideration in creating your budget, your library should be in good shape. One final factor that may help is how your budget compares to other libraries. Benchmarking against other libraries in your industry, and of your size is a reality check for you, and a positioning point with senior management.
Since more and more libraries are allocating costs up front, some costs are moving out of the library budget per se, so the total library budget numbers may not accurately reflect the total amount spent on information for a company. This is further supported by the fact that the percentage of library budgets being spent on content appears to be declining.
Budget breakout
What percent of your total budget is spent on each of the following?
Content Budget
Industry Mean Content per Potential Content Budget
Budget User Per Actual User
Manufacturing (n=22) $175,128 $20.05 $262.56
A more accurate benchmark may be the budget per user, as the example for manufacturing, below, illustrates.
Corporate libraries must present a meaningful value proposition to senior management if they are to survive. The library's budget can, and should, be used as a tool to promote that value to senior management. The key is to ask the tough questions before senior management asks them, and to do the work necessary to ensure that the budget—and the library—receives management's seal of approval. 
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