The Economic Challenge: Responding with Administrative Strength
The question I am now hearing more than any other from people associated with orchestras goes something like this: "What effect is the current economic crisis going to have on orchestras?" If I could answer that accurately, I would be a rich man--probably even maintaining my riches through the current recession (or "probable recession," or "almost-recession," or "maybe it will become a recession"). Why economists think we should have faith in them, by the way, when they cannot even agree on what to call whatever we are experiencing, is a question I cannot answer.
People whose lives are affected by the health of orchestras--musicians, management staff, volunteers, trustees, and those who love the music--all feel a sense of insecurity, one that's intensified by the inability of anyone to provide really useful answers. I certainly don't claim to have that ability, but I do have some thoughts.
The volatility of this economic environment points up the need for orchestras of all sizes to invest in the kind of organizational infrastructure that will allow them to analyze what is happening to them quickly and correctly. This may sound simple, but in fact orchestras have traditionally underfunded infrastructure, from adequate staffing to adequate informational systems and record keeping. In order to understand what is happening to your organization you need complete, up-to-date information, and the equipment and people with the ability to analyze that information in different ways. That at least gives you the option of trying to respond to the environment.
Historically there has been an understandable emphasis on investing in the artistic component to the detriment of the administrative side. I yield to no one in my passion for the music, and my belief that the music is what we're all about; I did not get into orchestra administration because I loved meetings, and I am well aware that no one will ever buy a ticket to see me manage. But the pressure from many quarters, including boards, to keep our organizations "lean and mean" has, in many cases, kept them administratively undernourished.
I'm well aware that the current economic climate is not the time for new investments--but I will observe that those who will best survive it are those who are administratively equipped to understand and respond to conditions. And when we are in better times, as we surely will be at some point, those kinds of investments are likely to pay dividends that will, in fact, help in the production of the best music possible.
I will also observe that as times get tough, the first instinct of many boards is "we must cut expenses." And that often leads to thinking that ignores one unchanging reality: In an operating budget, the revenue and expense sides of the ledger are inextricably intertwined. Wishful thinking will not change that fact. This does not mean that expenses cannot be cut. But it does mean that the exercise of reducing expenses must be engaged in with real analysis, and real understanding of the likely impact on revenue. Cutting 20 percent out of the marketing budget with no concomitant reduction in projected ticket income is nothing more than a statement of belief that 20 percent of your marketing budget was a complete waste in the first place. Reducing guest artist expenses with no adjustment to ticket revenues ignores the reality that more expensive guest artists sell more tickets.
I was very fortunate when I managed the Chicago Symphony Orchestra: I had a very smart board with some of Chicago's most important corporate leaders on it. When the economy turned south in 2001 and it was clearly going to result in annual operating deficits for the first time in over a decade, the board made it clear that budget adjustments were necessary. But we put together a special task force that included the CSO's senior management team plus the board chair, finance committee chair, and three vice chairs--all of them either corporate CEOs or professionals from the finance world. That group of people, who were dealing with the same economic climate in their own corporate worlds, gave us two half-days, about four hours each, of meeting time, where we went over the budget line by line and discussed varying views of what impact different expense reductions might have on either the financial bottom line or the artistic level of the CSO. Reductions were made--significant ones--but they were intelligently done because of the joint participation of CSO management and board leadership. This is the right approach, one that brings a breadth of wisdom and the value of different perspectives into the process together. As we go through the coming storm, I hope that this is the approach that orchestral organizations will take in tackling these tough problems. I'll have more to say about the economy next week.
The volatility of this economic environment points up the need for orchestras of all sizes to invest in the kind of organizational infrastructure that will allow them to analyze what is happening to them quickly and correctly. This may sound simple, but in fact orchestras have traditionally underfunded infrastructure, from adequate staffing to adequate informational systems and record keeping. In order to understand what is happening to your organization you need complete, up-to-date information, and the equipment and people with the ability to analyze that information in different ways. That at least gives you the option of trying to respond to the environment.
Historically there has been an understandable emphasis on investing in the artistic component to the detriment of the administrative side. I yield to no one in my passion for the music, and my belief that the music is what we're all about; I did not get into orchestra administration because I loved meetings, and I am well aware that no one will ever buy a ticket to see me manage. But the pressure from many quarters, including boards, to keep our organizations "lean and mean" has, in many cases, kept them administratively undernourished.
I'm well aware that the current economic climate is not the time for new investments--but I will observe that those who will best survive it are those who are administratively equipped to understand and respond to conditions. And when we are in better times, as we surely will be at some point, those kinds of investments are likely to pay dividends that will, in fact, help in the production of the best music possible.
I will also observe that as times get tough, the first instinct of many boards is "we must cut expenses." And that often leads to thinking that ignores one unchanging reality: In an operating budget, the revenue and expense sides of the ledger are inextricably intertwined. Wishful thinking will not change that fact. This does not mean that expenses cannot be cut. But it does mean that the exercise of reducing expenses must be engaged in with real analysis, and real understanding of the likely impact on revenue. Cutting 20 percent out of the marketing budget with no concomitant reduction in projected ticket income is nothing more than a statement of belief that 20 percent of your marketing budget was a complete waste in the first place. Reducing guest artist expenses with no adjustment to ticket revenues ignores the reality that more expensive guest artists sell more tickets.
I was very fortunate when I managed the Chicago Symphony Orchestra: I had a very smart board with some of Chicago's most important corporate leaders on it. When the economy turned south in 2001 and it was clearly going to result in annual operating deficits for the first time in over a decade, the board made it clear that budget adjustments were necessary. But we put together a special task force that included the CSO's senior management team plus the board chair, finance committee chair, and three vice chairs--all of them either corporate CEOs or professionals from the finance world. That group of people, who were dealing with the same economic climate in their own corporate worlds, gave us two half-days, about four hours each, of meeting time, where we went over the budget line by line and discussed varying views of what impact different expense reductions might have on either the financial bottom line or the artistic level of the CSO. Reductions were made--significant ones--but they were intelligently done because of the joint participation of CSO management and board leadership. This is the right approach, one that brings a breadth of wisdom and the value of different perspectives into the process together. As we go through the coming storm, I hope that this is the approach that orchestral organizations will take in tackling these tough problems. I'll have more to say about the economy next week.
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