Previous: Assumptions that Assume Quite a Bit
My ongoing analysis of the Orchestra’s strategic plan continues. My previous posts examined the Mission Statement and Executive Summary and Overview of the Current Situation. Here we get into the “Achieving financial Sustainability” section (page 16-23) that provides nuts and bolts about what you hope to achieve, and how you will go about doing it.
You start with a set of fairly straightforward goals, which hit most of the big points; you promise more ambitious efforts in the usual areas: contributed income and earned income. You also express a goal to capitalize on the luster of the newly-refurbished Orchestra Hall.
Well and good.
But I do have some potential red flags. On the one hand, you’re trying to hit all the key areas, but it feels to me like “more of the same, but with greater feeling.” How will this be different? Weren’t your previous efforts ambitious? Where is the line between ambitious and realistic? And since on earlier pages of this document you painted such a grim picture of the state of classical music, classical audiences and an outlook for orchestras specifically… I’m surprised you plan to be more ambitious. I don’t follow your internal logic—or maybe you don’t believe your own dire scenario that you lay out on page 7 of your strategic plan? I’m curious as to what you have in mind.
Another word about the refurbishing of Orchestra Hall. Having worked there for many years, I fully—fully—understand its limitations as a venue and applaud the work you are doing. But as I mentioned above, in this very document, you painted a picture of ever-declining audiences. You argue that audiences at Orchestra Hall have mirrored this national trend, and ticket sales are down. (As I mentioned in my previous post, I don’t necessarily agree with you, but that is your argument.)
I’m curious as to why, if you believe this to be true, your solution is to emphasize the building. Isn’t that counterintuitive? Yes, there will be a burst of interest when it first opens (the so-called “glow effect” you mention), but will that be sustainable if, in your own words, the music’s audience is declining? Following your own argument, isn’t the $50 million refurbishment of Orchestra Hall just a very expensive, temporary solution to a long-term structural problem? Using your own word, is this sustainable?
While we’re on the subject of the renovation of Orchestra Hall, writer Tom Peters has written about the real-world results of the problems of prioritizing a building over the activity that takes place inside it. In a column “Baseball and Beethoven: The Minnesota Orchestra, the Marlins and the Perils of Market Correction,” he explores the similarities between strategies of the Orchestra and baseball’s Florida Marlins. Like the Orchestra, the Marlins built a shiny new stadium while implanting massive payroll cuts that gutted the team. The result? Attendance tanked. It didn’t matter how nice the new facility was, because with a forgettable team on the field there was no reason to visit it.
He is not alone. Michael Kaiser, head of the Kennedy Center in Washington, has also written an interesting article on this theme, and been forced to ask, “How many more arts institutions must face financial woes, labor unrest, reduced performing schedules and even closure because they commit to capital projects that are beyond their means?” Plus, does the recent news from Nashville at all give you pause? Their attempt at a “build it and they will come” solution to declining audiences has been a well-publicized disaster.
I point these things out not because I think you shouldn’t have refurbished Orchestra Hall, but to point out that doing so at the expense of the activities that take place inside it is a recipe for disaster. At least as much consideration should have been given to keeping the Orchestra playing at the top of its game.
Earned revenue. I was hoping that the after the various teasers and introductions, this part of the plan would move more specifically into the details of what you wanted to achieve and the concrete steps you were going to take to make them happen.
Unfortunately, it doesn’t appear to be the case.
Right from the get-to, there are problems. On page 17 you list your strategies to increase earned revenue; but in looking over the list many of your strategies are, with respect, buzzwords without clear meaning, fairly obvious, and lacking any kind of detail. For example, you plan to align supply and demand of concerts. Align with what? How will this be determined? Who will determine it? What are the values that shape this alignment? You could present nothing but way-out, avant-garde concerts every week to 200 people. That would align your supply with demand. Would it be good for the organization? Would that help your revenue goals?
There are a few things listed that I find it hard to believe you’re not doing already, such as positioning Orchestra Hall as a comprehensive performing arts center or conducting market research into audience interests. What will be different from what you do now? What will these new efforts lead to?
You explain that you plan to increase corporate sponsorships. With respect, how do you plan to do this? I know several members of your development team and they are masters of their craft. I have nothing but admiration for them and their abilities, and I know that most arts organization look at your list of corporate sponsors with raw envy. So what do you propose to have them do differently? Do you suggest that your staff hasn’t been working diligently trying to attract the attention of every good sized company in the state? Are there businesses they have overlooked?
But mostly, when I look at your strategies, I don’t see… well, an overarching strategy.
For example, this section deals mostly with marketing, which ultimately seeks to raise money from your audience members. So let’s back up one second to talk about audiences and the strategies to engage them.
Are you trying to broaden your audience base? Diversify it? Deepen it? These often get lumped together, but they are very different ideas and the strategies to achieve them do not overlap.
Broadening means attracting more audience members like those currently attending (and usually, are already inclined to attend). It is essentially an effort to cast the nets as widely as possible to get more people in the seats. The whole focus is to continually and rapidly find new patrons, and tends to be somewhat of an indiscriminate strategy. Mailing a flyer to all addresses in the city of Minneapolis, for example. Because the emphasis is on attracting new people, and not necessarily on keeping them, this strategy can have a relatively high rate of attrition as some people will casually give you a try and move on. The hope is that with enough people coming through your doors, some are bound to stay around.
To deepen your audience base, however, you have to get fewer numbers of people who already support you somehow to engage with you at a higher level. In short, you try to turn your existing friends into your best friends. You may ask them to go from casual ticket buyers to season subscribers, or move them from casual contributors to major donors. This strategy relies heavily on targeting people, segmenting them into discrete populations and applying very specific strategies to get them to take specific actions that move them in a specific direction. In many ways, the ways you work to deepen your audience are directly at odds with the strategies need to broaden it.
Diversifying an audience means you are implementing strategies to specifically attract people who do not normally attend your performances… say, bringing in more youth aged 18 to 30. It requires a comprehensive view of your audience base as it is now, as well as a clear idea of who you want to attract, for what reason. You need an understanding of what barriers this new population faces, plus a clear sense of what methods would convince these folks to attend—in short you need a very, very specific pool of research and a clear strategy before you even begin.
Not only are the strategies different for each, but the revenue generated will be different, too. What do you plan to do?
With that as a preamble, we can apply those the same questions for revenue: do you want to broaden, deepen, or diversify your revenue streams?
There isn’t a right answer; but you can’t do all three at the same time, at least in equal proportion. How many resources are you going to allocate to these different approaches? What are your expected rates of return?
I don’t see any indication that you’ve given these questions much thought. Instead, this feels like you’ve thrown a whole bunch of ideas together that will hopefully make money.
Turning the page, I am initially struck by relief that the vague catchphrases tossed out previous have given way to more tangible objectives.
But initial hope gives way again to frustration. Interestingly, the “key targets” page raises a completely different set of issues. Others have already documented the problems on this page. Essentially, you throw a barrage of numbers (this is, I might add, one of the very few places in the document that has specific metrics) that makes it feel like you have a clear idea of what you want to achieve.
The problem is that the numbers don’t stand up to scrutiny. For example, Emily Hogstad has examined your data and come up with some disturbing finds. You state you are striving for 80 percent paid capacity at Orchestra Hall post-renovation, up from a previous capacity of 69 percent. Sounds good. But as part of the renovation, several hundred seats were removed from the Hall, dropping the overall seating capacity. Sixty-nine percent of a 2,450-seat hall is 1,691 tickets sold, while 80 percent of a 2,092-seat hall is 1,674 tickets sold.
So apparently your goal is to sell 17 fewer tickets per concert than you do now—even as you proudly point out you hit your capacity targets.
Another point. You suggest that between FY2014 and FY2015 you plan to increase concert revenue from $8.7 million to $8.8 million and rental fees from $0.9 million to $1.0 million. Okay, sounds good. But how? Your deliverable reads, in its entirety, “2% revenue increase.” How so? Inflation? I concede that later you do include the words “continue to optimize revenue through dynamic pricing, ticket fees and other pricing strategies,” but that appears to be an ongoing task that occurs in all other seasons as well. Is your plan, therefore, to achieve those revenue goals solely by making ticket prices more ever more sensitive to demand—even though you’ve been doing so, in your own words, since 2011?
And again, how does this fly with your earlier statements that audiences will continue to decline? By your own reasoning, won’t you have to work significantly harder simply to hit existing benchmarks?
One thought. I can’t shake the feeling that you have chosen the worst year of the recession as your baseline so that you can take credit for any growth that occurs naturally as the economy recovers. Indeed, you’ve given no other indication of how you will achieve this projected growth.
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While we’re in this section, let me take a moment to discuss something that would help your plan immensely, especially here: SMART goals.
I know, I know… the last thing the world needs is another consultant forcing some industry buzzspeak on you, but I do think this concept will help.
SMART is an acronym for the five crucial qualities an effective goal should have: they should be specific, measurable, achievable, relevant, and time-based. It’s a simple tool used by businesses, governments, and non-profits to go beyond the realm of fuzzy goal-setting into an actionable plan for results.
Specific: Great goals are well-defined and focused. “Sell 300,000 tickets to events at Orchestra Hall” focuses attention far more than “Increase ticket sales.”
Measurable: A goal without a measurable outcome is like a sports competition without a scoreboard or scorekeeper. Numbers are an essential part of any plan, so put concrete numbers in your goals to know if you’re on track.
Attainable: Far too often, organizations set goals beyond reach. Dream big and aim for the stars, but keep one foot firmly based in reality. Reviewing past history is a good start, but not enough—check with your peers or industry statistics insure you’re being realistic.
Relevant: Achievable goals are based on the current conditions and realities of the overall climate. You may desire to have your best year in ticket sales or increase revenue by 50%, but if a recession is looming or new competitors have arrived on the scene, then your goals aren’t relevant to the realities of the market.
Time-Based: Organizational goals and objectives just don’t get done when there’s no time frame tied to them. Make sure you give yourself a realistic deadline, and stick to it.
Bad example of a SMART goal: “I want to lose weight”.
Good example of a SMART goal: “I want to lose 20 lbs by April 15th 2014. I will perform a half hour of cardio and half hour of strength training per day, 5 times a week and I will only eat starchy carbohydrates 3 times a week.”
One final note about SMART goals—one potential downside to them is that they focus attention on activities, not larger goals. Make sure that you have firm, universally agreed upon organizational goals, and then use SMART goals to achieve them.
With all this in mind, look back on your strategic plan. Not everything here is bad, but how does, say, “Maximize concert revenue” stack up as a goal?
This analysis is already getting too long, and I don’t know if it helps to pile on here, but nearly all of my earlier comments hold true of this page as well. To be brief—aren’t you already doing each and every one of these things? More than that, isn’t every orchestra, arts organization and non-profit doing each and every one of these things? Lacking any specifics, how will you know you’ve succeeded in “increasing board giving” or “considering new programs”? You don’t necessarily have to use the SMART model I mentioned above, but please get some specifics here.
One of these strategies does require a more specific call-out—increasing board giving. Isn’t one of the driving features of the new business model that the board members are tired of bailing out the organization with large gifts each and every year? So why—and how—do you propose to induce them to give more? Unless they are going to increase their giving permanently, instead of agreeing to short-term increases to get the new business model up and running, this strategy raises serious questions of long-term sustainability.
Again, much of what I can say about these pages has already been said. You are free to set your own metrics of success, and unlike other sections of this plan you do assign numbers and specifics—I hope that from your experience they are realistic and attainable.
But that brings up a couple of questions. The first one is to note that for the numbers here to be realistic and attainable, they must be based on data that reflects your organization’s history, your peer organizations locally and orchestras nationally. As I said earlier, I don’t have confidence that you have such data—or at least that it is current. Presumably you have done a recent capacity study (I believe such a document was mentioned in your “independent” financial analysis). So what does it say? How does it inform these figures and goals?
In short, how do you arrive at these numbers?
A second question is perhaps outside the scope of this plan, but it has to be asked. It is clear through the minutes from your board meetings, your public statements, and the fact that you bought up all kinds of Internet domain names that you anticipated a rough labor negotiation as far back as 2009, if not possibly earlier. Many have speculated, in fact, that you had planned to cancel the season well in advance. How does that impact the goals you lay out here? Clearly some donors have been put off by the dispute—as you no doubt expected. Have you adjusted your numbers accordingly?
And finally with this chart, you attempt to summarize all the previous data of the document and lay forth your argument for what has to happen next. In brief, all the revenue you’ve discussed, including the new revenue mentioned in the last few pages, will lead to an “annual imbalance” of $6.3 million.
There is no way to sugar coat this—this statement is specious, speculative, incomplete… and just plain embarrassing.
First of all, you don’t use specific years on this chart, but your use of the word “annual” suggests that this year’s financial shortfall will be a constant every year going forward. Apparently the weakness of the endowment, diminished contributions and reduced ticket sales of 2008 are hard-wired into the Orchestra’s programming, and will be with the Orchestra forever as a new normal. In my earlier posts, I discussed how national trends from arts groups locally and orchestras around the country reveal your assumption to be inaccurate. Maybe the Orchestra hasn’t specifically seen a recovery, but all indicators suggest that there is a recovery taking place out there that’s ready to be taken advantage of. And, your peer organizations are doing so already. Labeling your current fiscal problem as “annual” is sloppy and downright misleading. Far better would be to add projections for two or three additional years; this would present more concrete evidence that the gap will persist as you claim, and show how it would shrink or grow over time. Otherwise, this looks like a single-year problem.
Along those lines it is important to remember this is a projection, not an Absolute Truth. As such, you should be much more thorough in explaining the assumptions that go into your numbers. Is this a worst-case scenario? Fine, state that. Then give a best-case scenario. What you have looks like a clear attempt to scare stakeholders into compliance.
And let’s talk about the annual operating expense number itself. What greatly disturbs me is, again, this number doesn’t take into account the full scale of Orchestra’s expenditures. Again, your “independent” financial analysis made note of underfunded pensions and debt financing that add millions to your bottom line–$9.3 million in bond repayments alone. Comparing this total to the one given on page 11 (essentially the same total, but with greater detail), it is clear that that these big ticket items aren’t included in this number. What else have you left off?
On the flip side, how are you accounting for revenue of the $100 capital campaign? Is that on here? Part of the stated purpose for your Building for the Future campaign was to support artistic initiatives, so shouldn’t some of that money be here? On page 21 you specifically list a goal of bringing in $12 to $18 million in fulfilled pledges each year. If nothing else, wouldn’t that exponentially increase the size of the endowment draw, even if the endowment weren’t to grow naturally with the market? A 5% draw on $100 million is $5 million. If you fulfill your goals and add $45 million to the endowment, a 5% draw would bring in $7.25 million, which would put a dent in that annual imbalance.
This is why the musicians, the state legislature, the state’s largest paper, and nearly every independent person observing this dispute has urged you to produce a real independent analysis—your “facts” simply raise too many questions to be accepted on face value.
And here we hit the crux of your argument. This one page says it all—new revenue is insufficient, all expenses must be restructured, and long-term obligations will be examined.
Let me say that I don’t inherently disagree with you on these points.
First, as I mentioned, there is no indication that you cannot raise new revenue other than… well, that you asserted it to be true. Finances are complicated and you undoubtedly have more information than I do, but I point out again that you’ve based all your assumptions and benchmarks on the realities of 2008. As I’ve pointed out, many sources have mentioned that ticket sales, fundraising, and investments have come back to pre-recession levels. All around the country. You were, in fact, able to raise $100 million of the Building for the Future campaign over the last few years. Therefore I will need a much, much more detailed financial analysis and capacity study before I believe you cannot increase your revenue now. I’m sorry, but your “independent financial analysis” that you recently produced was funded by you, was restricted to exploring those questions you wanted answered, and conducted using data you provided.
Second. Sure, expenses can be cut—but not solely at your discretion. You have to negotiate with the union for cuts to the musicians’ salary… the extent of which will, by definition, be determined as part of the negotiations. Thus, it is foolhardy to presuppose specific cuts for this plan—at this point they’re all still hypothetical.
I would also assume that if the entire purpose of the new contract is to save money, that each of the 200 or so changes you propose to make to the contract have a specific savings attached to them, and that is the only reason they are being proposed, correct? Therefore, I think it would be valuable to see a list of the specific dollar amounts saved on each proposed change, such as mandatory participation in outreach activities. Plus, since it is clear that many of the activities covered by the contract still incur real-world expenses (i.e. a musician still has to get to a community outreach event, even if the Orchestra no longer picks up the tab), I’d like to see who does assume the costs the organization saves.
I also note that executive compensation is conspicuously absent from your list of expenses to be restructured.
Finally, you will address long-term expense obligations. That makes it into your strategic plan? That you will “address” how you will pay your bills? Why haven’t you addressed this before, in your daily operations? Instead of addressing these expenses, why don’t you just pay them?
One point I will concede here—you may be implying that you will change the way you will pay them (I hope you don’t mean “start” to pay them). I agree this has many implications—you could conceivably pay them off in full right now, but that would leave a gigantic hole in your budget. Or you could restructure the debt and pay it off over 5 years, 10 years…. As the board leaders also run financial institutions, you know better than I what the options are; but I point out that each option has widely varied ramifications for the Orchestra’s finances, and would result in graphs and charts that look very different in your strategic plan.
And one final thought. Let us suppose that I were to agree with you entirely and concede the need for each and every one of these items. Do you not find it odd that there is no indication of how they will be implemented? Do they go into effect immediately? Over time? Are any of these items contingent on the others? Which are the top priorities? How will you communicate these things? These are big changes—how will you build consensus around them, or manage dissent?