Abstract
This report is based on the development of The Washington Opera especially its “world-class” strategy. Between 1995 and 1998, the trustees of TWO established three steps. This case analyzes its “world-class” strategy and problems it brings. It appears that TWO’s first two steps were almost successful, but its ambitious developments resulted in financial problems when processing the third step. In order to make it a world-class opera, this report recommends TWO extend additional services and publish show records or videotapes to raise money and balance expense and income firstly; secondly, focus on budget-led strategy and try to build a new opera facility; thirdly, concern inside organization issue and adopt the steady moderate expansion to solve human resources problems.
Introduction
The Washington Opera was hoped to become a world-class opera company between 1995 and 1998. Its trustees developed three ambitious steps during three years: they recruited Placido Domingo as the artistic director; they doubled their operating budget; they planned to build a new opera house. However, the high speed of developments resulted in many problems. This case study aims to evaluate the realistic and problems of the TWO’s world-class strategy, to analyze its financial and human resources issue, and then try to find some recommendations on how to replan their steps to be a world-class opera and give some possible strategies to increase their finance income.
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Background
Opera is a traditional art form with “an aristocratic ancestry” (Salzman, 1991) and was gradually growing to be one of the most popular performing arts in the US. Many factors could affect the financial success of an opera production. TWO was founded in 1956 with just two operas each season in the beginning and rose to 79 performances over 26-week season by 1998-99. It had a high rate of audience attendance with an average of 98 percent since 1985-86 and 60 percent in 1998-99 with the balance came from individuals, corporations, and foundations. The number of its involved staff each season ranged from 65 to a total of 600. Moreover, TWO had set a home at The Kennedy Center for the Performing Arts with the commitment to develop local singers and enlarge its size.
Methodology
Both quantitative and quantitative data will be used in this case study. On the qualitative side, the finding will focus on its world-class strategy and human resources problems. References from journals and websites related to the recommendations will be used as supports; on the quantitative side, data about its own finance and the competitive companies’ will be collected and analyzed from the provided academic documentation.
Findings
1. “High-Growth World-Class” strategy
This strategy included three steps. The first step within the process was hiring Domingo as their new artistic director. The board was looking for a broader vision and aimed to divide the artistic work from general tasks. Art could bring a fresh perspective to operations (Murphy, 1997).
It seemed as if Domingo was an appropriate option for TWO due to his artistic background. This step was successfully completed while Domingo arrived TWO in 1996. The second step was to fulfill Domingo’s plans. TWO and Domingo believed that they could create a win-win situation based on Domingo’s experiences. However, he might not be a competent artistic manager due to the fact that he had not learned to make decisions when the fund was not enough to support his prospect. Besides, the financial report indicated that TWO made a great amount of profit in the 1995-1996 season; however, during the 1996-1997 season which was led by Domingo, TWO not only did not make money but began making a loss.
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Since TWO wanted to expand their operation and The Kennedy Centre disagreed about lengthening their performing season, the board bought W&L building to accomplish their third step: Finding a new performing venue. However, the budget of renovating was not affordable for TWO. The board reconsidered the initiative from the Kennedy Centre, which tried to integrate the two companies. They began negotiations with the government to build a new opera at the existing Convention centre. Nevertheless, they could not achieve agreement after several months’ discussions. With the growing pressures, TWO only had three options: (1)Launched a three-five year fundraising campaign for the new opera house, meanwhile, rented The Kennedy Centre and Constitution.
The main advantage of this option was TWO could get more time to raise money and be prepared, while the disadvantage was TWO was not able to expand their operation and performing season in the near future. (2) Opened a negotiation with the government and Congress to renovate Convention Centre as their new opera house and sold the W&L building. The main advantage of this option was the money from selling W&L building could be used to pay the cost of Convention Centre renovating.
The disadvantage was the government might disagree with TWO which means this solution would be out of options. (3) Negotiated a long-term lease with The Kennedy Centre and sold the W&L building which meant abandoning the new opera house idea. The advantage was the money from selling W&L building could be used to implement Domingo’s plans. The disadvantage was the expanding plan would be uncompleted.
2. Financial issue
The plan of TWO to be a leading opera company did need vast amounts of money to implement it. Therefore, the demand of expanding the financial support was urgent. Table 1 indicates that the net income reduced dramatically during 1994 to 1999 and became a deficit ultimately. To raise money was possibly difficult for a non-for-profit company. The main revenue sources of TWO came from two primary parts- operating revenue and contributed revenue. Contrasting the figures of both revenue sources (see table 1), the percentage of contributed revenue was basically 1/3 of whole revenue, which meant contributed revenue was significantly important to TWO.
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According to table 2, the number of customers who earn over $50,000 per 100 households was the smallest one among the three opera houses, while the figure of high-level donors which excluded board donations was smallest as well. In the respect of donations from local Fortune 500, it seems like TWO had no advantages not only among these three opera houses but also compared to another two local organizations- Washington Ballet and The NSO. All the above data suggested that there was still some potential space for TWO to improve its donation income and upscale its market.
Although the table 2 indicates that the budget and the average cost per performance of TWO were lowest compared to Chicago opera house and San Francisco opera house, TWO still could not gain enough profits from selling tickets to keep balance. Table 3 shows that the percentage of expense covered by tickets was 70% in total. The percentage of each production was on average between 61% and 83%. Thus, it was necessary for TWO to increase the number of performance of each production to sell tickets to cover expenses.
In step 2, there were six solutions proposed to solve problems which would represent approximately 45 to 60 percent increase over TWO’s current budget. 3. Organizational Issue- Human Resources When TWO tried to extend their scale to reach world class, its support systems had not been ready. Some fundamental problems were challenging them. In particular, the labor contract negotiations with the orchestra and chorus were the most important. Since the board was focusing on other developments, both the orchestra and chorus members felt themselves be neglected. Firstly, during the succeeding years after Placido Domingo became artistic director, TWO had recruited some impressive international singers and musicians for its orchestra. However, both the orchestra and chorus were underpaid compared with their counterparts in the opera companies in Chicago and San Francisco, which paid a generous salary and benefits to their choruses.
Secondly, the contract negotiations went underway in June 1998.However, the former contracts were set to expire on August 31 1998.The representative for musicians argued that nearly half of the orchestra members had applied for other jobs in other orchestras in the past two years. The stressful work during the opera season and the inadequate wages compared with other orchestras were the main reasons. In addition, the chorus argued that they deserved to be paid as much wages as their counterparts in other operas since they were professionals. They felt that their relatively low levels of pay showed a lack of respect for their professional talents.
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Unfortunately, the chorus negotiation was still in stalemate eventually when the season’s rehearsals had begun. The chorus went on strike. Since TWO was eager to reach world class level, unstable factors like labour relations conflict inside the organization would substantially hold back its progress. Without the high cohesion from the employees, a company cannot expand its scale smoothly.(Mulvey&Klein,1998) This also indicated its inability to operate the opera. They had underpaid wages to their musicians and singers compared with other opera houses before their ambitious development. In this case, it’s questionable that its finance can support an even larger organization after it developed. Its rapid growth seems difficult to control.
Recommendations
Minding costs and being realistic
To avoid serious financial issues lead TWO to failure, they should switch their marketing strategy from artistic-led (even Domingo-led) into budget-led. They should make sure the financial support is enough to accomplish new plans instead of keeping increasing budget. Increasing the budget does not mean profits will improve as well (Findlay, 1991).
Budget-led strategy indicates that TWO could implement new plans once the cost is under budget. During 1998-1999, TWO made more profits than previous seasons; however, the cost increased as well.
Based on this, TWO should make sure that the amount of opera productions in a season could attract maximum audiences when the cost is under the budget. Since it was The Kennedy Centre to start the negotiation, TWO should seize the opportunity to discuss lengthening the performing period. Although it means that TWO could not successfully achieve their “world-class” goal, it seems as if TWO is able to solve current problems then move to expand in the future. Furthermore, once TWO sales the W&L building, they could use the money to implement Domingo’s plans which could make greater profits. Therefore, the suggestion is to choose the third option.
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Money raising
The biggest challenge for TWO was facing the financial problem which blocked TWO to reach its target. The finding section showed that it was carrying out multiple schemes at the same time that caused an unfunded problem which put TWO in a dilemma, thus TWO might have to delay parts of its schemes. Despite increasing contributed revenue could be effective rapidly in a short time, improving commercial operating was a sustainable and long-term way for an enterprise, which might need to make a relatively big change in terms of marketing strategies. These solutions presented by McKinsey indeed could solve their problems theoretically, but they did not discover deeply on the issue about specific measures of marketing products effectively.
TWO could cooperate with a for-profit retailer to comprehensive improve its marketing strategies. Except for formulating and consummating marketing plans for intrinsic programme, TWO could extend additional services in the opera house such as restaurants, cafes, souvenir shops as auxiliary earning. TWO could also hold an monthly open tour which welcomes tourists to visit the opera house, especially the backstage. Furthermore, it could also publish records or videotapes of opera shows to make profits as well as gain great reputation.
Raise the morale before expanding the scale
It is unquestionable that human resource is the foundation of an organization.(David et al 1999) Higher employee commitment can become the added value of an organization. In contrast, labor relations conflict will impede the organization. The executive level of TWO should have noticed this problem in the early stage of expanding plan and be active in offering ways to tackle the problem, such as raising wages and benefits and appreciating their talents. However, financial circumstance might still be the obstacle to fulfill it.
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Conclusion
TWO desired to become one of the best opera houses in the USA by expanding their operation; however, they did not realize that they have to fix internal problems such as underpayment and low employees commitment before they broaden their business. The decision of buying W&L was without careful consideration which made TWO spends more money and time to re-decide their location. The above facts resulted in TWO being forced to face a financial issue. To improve their operation, firstly, TWO should solve organizational issues. The relationships between employer and employees should be maintained to ensure they have stable internal support.
Secondly, TWO have to evaluate financial status and execute fundraising projects. They could also consider opening a restaurant or café in the opera house to increase extra income. Thirdly, TWO should sign a lease to rent The Kennedy Centre as their long-term performing house before they are prepared to expand. TWO attempted to accomplish too many aims simultaneously. This led them to a difficult situation of balancing expense and income. The “High-Growth World-Class” strategy was not completely suitable for The Washington Opera. A more moderate expansion is suggested.
References
Findlay, D. W., 1991, Budget deficits, Short-term real interest rates and the specification of expected inflation: an empirical investigation, Applied Economics, 23, pp. 1147-1158. Lepak, D. P. & Snell, S. A., 1999. The Human Resource Architecture: Toward a Theory of Human Capital Allocation and Development[online]. Available from: http://www.jstor.org/stable/259035?seq=5&Search=yes&searchText=1998&searchText=commitment&searchText=Human&searchText=resource&list=hide&searchUri=%2Faction%2FdoBasicSearch%3Ffilter%3Djid%253A10.2307%252Fj100682%26Query%3DHuman%2Bresource%2Bcommitment%2B1998%26Search.x%3D0%26Search.y%3D0%26wc%3Don&prevSearch=&item=1&ttl=172&returnArticleService=showFullText&resultsServiceName=null [Accessed 12 September 2012]. Mulvey, P. W. & Klein, H. J., 1998. The Impact of Perceived Loafing and Collective Efficacy on Group Goal Processes and Group Performance [online]. Available from: http://ihmcumaps.ihmc.us/rid=1K9FDCH1C-FY5JN2-TTY/Perceived%20Loafing%20-%20Mulvey%20%26%20Klein,%201998.pdf [Accessed 12 September 2012]. Murphy, P. D., 1997, Art and the natural environment, Organization and Environment, Vol.
