Balanced Scorecard Analysis – Otago Museum (750 words)

Balance Scorecard Case Question; As a recently graduated management accounting professional working for an independent consulting firm provide discussion for the Museum Board members with respect to the Balance Scorecard and any other matters you see important. OTAGO MUSEUM In January of 2010, Chris Farry, the Otago Museum's chief financial officer, was instructed by the museum's chief executive officer, Shimrath Paul, to design a comprehensive Balanced Scorecard (BSC) for the museum. It needed to indicate clearly the museum's strategic objective(s), the strategic business themes that support the objective(s), and the cause-andeffect relationships linking BSC dimensions with strategic themes and objectives. MUSEUM BACKGROUND The Otago Museum in New Zealand began operating on September 15, 1868. At that time, it was located in the post office building in Dunedin's Exchange area, a building in which it shared space with the University of Otago. As the Otago Museum's collections grew, so too did its need for larger premises. On August 11, 1877, the museum moved into its present site at 419 Great King Street. The cost to construct these purpose-built premises, which at the time featured two main galleries, was £12,500. In 1877, responsibility for managing the museum became vested with the University of Otago. This arrangement lasted nearly 80 years; and, during this time, the university oversaw two major additions to the museum and helped it to become what in 1929 was described as "the finest teaching museum in the Commonwealth."11 In 1955, the museum's ownership transferred to a trust board, which was authorized to attract funding from various local authorities in the Otago region. Generally speaking, the principal flinders continued in recent times to be the Dunedin City Council, Clutha District Council, Central Otago District Council, and Waitaki District Council. Further expansions of the museum occurred in 1963, 1996, and 2002. The latter two expansions were particularly noteworthy, for they very powerfully showcased the museum's attempt to go beyond its traditional role of displaying static work to creating an environment that was capable of engaging and interacting with visitors. Not coincidentally, the 1996 and 2002 expansions occurred under the leadership of Shimrath Paul. Paul, who became the director in 1995, brought a very fresh approach to the running of the museum. Unlike his predecessors, who were typically biologists or anthropologists, Paul was, among other things, an MBA graduate. As such, he brought a sense of business acumen, including a customer focus, that was less evident in the museum's prior directors. He also diversified the museum's income stream, which at the time of his arrival was about 95 per cent derived from the New Zealand government and the four local authorities noted above. Ever since 2009, only about half of the museum's funding came from these four sources, with the balance being comprised of gift shop sales, the museum cafe, the hiring of the museum's facility areas for conferences, weddings, seminars, etc., various special exhibition fees, and the selling of tours to the cruise boat lines as one of the latter's passenger activities. The museum had about two million items on display or in safekeeping. This number represented about 15 per cent of all museum-held items throughout New Zealand. The museum's collection could best be defined as broad-based. It held a wide array of displays showcasing birds, insects, marine animals, and fossils; owned a variety of significant Maori and Pacific Island artifacts; and boasted a collection of ship builders' models considered to be among the finest in the Southern Hemisphere. The museum had about 60 full-time equivalent employees. During a typical 12-month period, the museum attracted between 300,000 to 400,000 visitors. With a regional population of about 130,000 people, Otago Museum was the highest visited museum per capita in Australasia. As Dunedin was not an international gateway, it did not have a large tourist visitation, and maintaining high and increasing visitor numbers relied primarily on encouraging repeat local visitors. Dunedin's relative isolation meant that the museum had to offer an experience that consistently attracted the repeat visitor. In practical terms, this experienced translated into the imperative of changing exhibits and offering an excellent whole-visitor experience. 1 N. Peat, Otago Museum Collected Stories. Otago Museum, Dunedin, 2004. MISSION AND VISION The Otago Museum was a non-profit organization with the mission of providing "service and development" to its community.2 The museum prided itself on its ability "to acquire, record, research, conserve, communicate, and exhibit material evidence of people, knowledge and the environment for the education, entertainment and inspiration of local communities and visitors."3 The museum's vision statement, as stated in its annual report, was "To be an inspirational museum of which the people of Otago and New Zealand are proud." The vision statement was supported by a mission statement that, again as stated in the museum's annual report, was "To inspire and enrich our communities, and enhance understanding of the world through our collection, our people and the stories we share." In striving to accomplish its vision and mission statements, the museum had three primary areas of focus: culture, nature and science. These foci were further enumerated by the following six strategic objectives: 1. To develop our culture and capabilities 2. To continually evolve and grow 3. To increase engagement and quality of experience for our communities through access to and outreach from the museum 4. To actively care for, protect and develop our collections and physical environment 5. To increase our resources and use them wisely 6. To build and contribute to productive partnerships and strategic alliances The strategic objectives, and in particular the museum's ability to achieve the objectives, were underpinned by three key results areas: 1. Being seen as a community leader in the offering of knowledge, learning opportunities and experiences that are relevant, contemporary, topical, widely accessible and consistently high in quality 2. Having staff and the Otago Museum Trust Board work together to demonstrate effective, positive management of collections, resources, and skills 3. Ensuring a culture that is positive and continually developing, where everyone takes responsibility for individual and collective behaviour, demonstrating agreed values and redressing unacceptable ones, as determined collectively and also individually through self and peer assessment 2 Otago Museum Annual Report, 2006-2007. 3 Ibid. POSITION AS OF 2010 The museum had achieved large increases in its visitor numbers in recent years. The nearly 20 per cent increase in visitor numbers from 2007 to 2008 was partly attributed to its DiscoveryWorld Tropical Forest, which featured more than 1,000 imported tropical butterflies. Of course, other reasons behind its significant rise in patronage included its motivated workforce and its focus on customer satisfaction. As an example of this commitment, the museum had won several tourism and best workplace awards, including in 2006 when it won an Unlimited/JRA Best Places to Work in New Zealand Award under the category "One of the 10 best small workplaces." Management believed that a major driving force behind the museum's current success was its organizational culture. This culture was put together by the staff, board and large stakeholders at a strategic planning workshop. Management believed that a healthy culture must be dynamic — owned and implemented by the staff and supported, not driven, solely from the top. This culture in its strategic plan was: Through actively, positively and fully sharing our skills and positive attitudes with the team, our individual contributions can become key parts of the Museum's total strengths. Together our collective intelligence and abilities will create a work environment which invigorates, inspires and challenges us — and helps us to achieve our vision and mission for the people of Otago and beyond. Our culture is developed through the agreed behaviours being demonstrated and through the expectationthatsome behaviourswill not be acceptable within our team.4 An enumeration of the expected and unacceptable behaviours for working as a team at the museum, which was collated by the whole staff, is presented in Exhibits 1 and 2. COMPETITIVE ENVIRONMENT The Otago Early Settlers Museum, the Dunedin Art Gallery, and Olveston each embraced a goal that was similar to that of the Otago Museum. Namely, each organization sought to use its collections to enrich its visitors' understanding of the world. The Otago Settlers Museum was established in 1898 and was commonly heralded as one of New Zealand's finest social history museums. The museum's permanent and temporary exhibitions showcased Otago's rich cultural tapestry and diversity. The Dunedin Public Art Gallery was established in 1884 and remained in recent times one of New Zealand's most significant art museums. It housed a fine collection of European art, including paintings by Monet, Gainsborough, Turner, Rosa, Claude Lorraine, Burne-Jones and Tissot. The collection also featured New Zealand art from 1860 to the present, and had 4 Otago Museum Strategic Plan, 2006-2011. significant holdings of Japanese prints and the decorative arts. Olveston was the former home of David Theomin and his family. It was designed by London architect Sir Ernest George as an "eloquent expression of one man's dreams." Built in 1906, the 36-room house served as a portal to turn-of-the-19th-century early New Zealand life, albeit a rather privileged life. The Otago Museum needed to compete in this rather crowded competitive space. To assist with its strategic and operational planning, the museum operated what it called a Resources, Operations and Priorities (ROP) system. Each year the ROP system produced a detailed annual plan as well as a three-year plan and a 15-year development plan. Together these plans formed what the museum referred to as its "Statement of Intent." More specifically, the annual and three-year plans set out the museum's prioritized objectives and the required resources, especially the human and financial resources, needed to achieve these objectives for each of the two specific time periods. Some of the typical intentions showcased in the annual and three-year plans included the range and types of museum exhibits being contemplated, especially any new exhibitions; museum upgrades and renovations; and forecasts of the museum's financial performance. The three-year plan was less detailed and had a greater strategic focus than the annual plan. In addition, the three-year plan helped provide the context for and parameters around the setting of the annual plan, for it was always the case that the annual plan needed to link with the succeeding three years embodied by the rolling three-year plan. The adoption of a new annual plan and three-year plan began with senior managers heading off-site for a four- or five-day strategic ROP workshop. This strategic management workshop usually occurred in May. In preparation for the workshop, feedback was solicited from five key stakeholders: the Otago community, the four principal funders (Dunedin City Council, Clutha District Council, Central Otago District Council, and Waitaki District Council), visitors to the museum, staff, and the museum's board. The strategic workshops were also used as a forum for debating ways to capitalize on the museum's core competencies. Exhibit 3 presents what the museum's management saw as its strengths, weaknesses, opportunities and threats (SWOT). FINANCIAL POSITION According to the chief executive (CE), the museum operated on a very tight budget. Unlike its New Zealand peers, the museum received significantly less funding from the New Zealand government. Te Papa, for example, received about $30 million of national funding during 2009, while the Otago Museum received no national funding and less than $4 million from its four contributing local authorities. Consequently, the museum's senior managers often spoke about a gap between what they perceived as the museum's expected duty and the funding being provided. The museum attempted to bridge the funding shortage with the introduction of user-pay systems on specific touring exhibitions; profits from its shop and cafe; and charitable fundraising campaigns. Any remaining funding shortfall required the museum to reschedule or scale back the introduction of its plans, i.e., introduction of new exhibits, hiring of new employees, and museum upgrades and renovations. The museum's cafe, gift shop, and tourism and facilities operation were the three main ongoing "business units" expected to make significant contributions to the museum's funding base. The museum's cafe was operated by an outside contractor, who leased the museum space. The gift shop was directly run by the museum. Gift shop employees were responsible for recommending, sourcing and selling shop items. Discovery World Tropical Forest, an interactive science centre, levied a visitor's admission fee, $9.50 for adults and $4.50 for children, in order to be completely self-funding. There were a number of other more transitory or minor business units. The former comprised internationally sourced special museum exhibitions, which had a loan fee not able to be covered internally by the museum, where an admission fee was charged to assist with the costs. These admission fees were calculated to encompass all the exhibit's costs, plus a desired profit. Being the first New Zealand museum to source these exhibitions and organizing for the freighting and distribution of the exhibitions to other New Zealand and Australian museums was also used to offset the original exhibition cost and generate a small profit. The profit was intended to be used to support the museum's ongoing activities, including its community programs and any planned gallery redevelopments and structural upgrades. Other business units included the hiring of the museum's facility areas to the public and corporate for special functions, such as office parties, weddings, etc. Exhibits 4 to 7 present the financial statements for the year ended June 30, 2009. Exhibit 1 BEHAVIOURSEXPECTED FROM EVERYONE Passion Creativity Happy Accountability Commitment Adaptability Curiosity Determination Reliability Hardworking Initiative Know limits Detail focused Continuous learning Ethical behaviour Sharing each other's successes Responsibility Working to the best of our ability Solution-oriented Asking for help if you need it Pulling in the same direction Acknowledging others Constructive feedback/criticism Accept when you are wrong, get over it, move on, learn from it Brainstorming together Value others Enjoying ourselves and our teammates Strength through good group dynamics Focus on the big picture Working together Enthusiasm Imagination Positivity Organized Drive Flexibility Proactivity Loyalty Common sense Helpful Inspirational Balance Self-motivation Up for a challenge Problem solving Forthcoming with information Sharing Recognition of our individuality Think on our feet Development of self-empowering environment Appreciation and saying thank you Telling it like it is Giving help when others need it Acceptance of individual's capacity Pulling together Focused on common goals Challenge each other positively Moving outside our comfort zones Giving our personal best Team focus Fun Friendliness Social Cooperation "Can do" attitude Respect Openness and honesty Dedication Professionalism Supportive Self belief Sense of purpose Innovative Strong work ethic Trust and trustworthiness Recognition of our diverse skills Depth Risk aware but not risk adverse Pride in our work Understanding our place in the organization Listening and understanding Giving recognition Identifying opportunities Meeting both personal and group challenges and objectives Fantastic communication Adherence to systems Committed to meeting deadlines Wanting to be part of the team Healthy lifestyles Community focus Unconstructive negativity Complacency Narrow-mindedness Dishonesty Hostility Bureaucratic restrictions Bad attitudes Lack of communication Lack of caring Having a narrow focus Working in silos Put downs Inflexibility Wasting resources Wasting opportunity Blame Elitism Whinging/Grizzling Unproductive criticism Discourteousness Inaccessibility Exhibit 2 BEHAVIOURSNOT TOLERATED Insularity Lack of initiative Gossiping Sulking Not working in the same direction Exclusion Disinterest Not owning the goals Back stabbing Arrogance Self importance Disrespect Lack of vision Lack of imagination Unwillingness to help Rudeness Ignorance Lack of common sense Inhospitableness Judgmental Laziness SWOT Strengths An Otago-wide organization located in Dunedin Otago Museum Trust Board Act 1996 Well-developed and proven infrastructure and business practices Committed, highly skilled team Community sense of ownership and pride Ability to "make a difference" in our community Committed management team focussed on developing the organization and the people who are part of it Location between city centre and university Well-considered development plan Weaknesses Reliance on local authorities with small ratepayer bases for core funding Resources don't match ambition Reliance on revenue generation and fundraising Depreciation largely unfunded Flat organizational structure limits perception of development opportunities Visitor parking is limited Opportunities Revenue generation ideas Harbour development Settlers Museum redevelopment Offsite exhibition ideas Outreach bus National and international market for exhibits and exhibitions Threats Local community spending behaviour Limited number of quality exhibitions on touring circuit Skilled/experienced labour shortage in museum sector STATEMENT OF FINANCIAL PERFORMANCEFor the Financial Year Ended June 30, 2009 2009 Budget 2008 $ $ $ Income Grants - Government & other 248,265 244,321 270,603 New Zealand Lottery Grants Board - - - Local authorities 3,642,294 3,657,711 3,432,580 Public 1,952,377 1,454,525 2,365,700 Legacies & bequests 5,235 500,000 70,291 Investment income - Dividends 125,206 79,995 165,222 - Interest 607,117 433,293 637,160 Realized net gains/loss on sale of financial Instruments -147,676 - 251,134 Total income 6,432,818 6,369,845 7,192,690 Expenditure Employee benefits expense -2,577,716 -2,577,556 -2,600,211 Depreciation and amortization expense -1,114,959 -1,293,405 -1,163,797 Other expenses -2,667,506 -2,636,871 -2,409,319 Total operating expenditure -6,360,181 -6,507,832 _ -6,173,327 Surplus for the year $72,637 ($137,989) $1,019,363 STATEMENT OF FINANCIALPOSITION As at June 30, 2009 2009 Budget 2008 $ $ $ Current assets Cash and cash equivalents 6,467,451 220,355 4,367,360 Trade and other receivables 181,081 403,213 224,410 Inventories 153,821 129,757 155,174 Other financial assets 530,673 - 1,974,556 Other current assets 72,295 - 66,315 Total current assets 7,405,321 753,325 6,787,815 Non-current assets Other financial assets 3,782,282 7,455,615 4,419,321 Property, plant and equipment 15,765,629 16,733,801 16,723,427 Total non-current assets 19,547,911 24,189,416 21,142,748 Total assets 26,953,232 24,942,741 27,930,563 Current liabilities Trade and other payables 468,369 379,563 659,797 Employee entitlements 819,144 - 730,298 Total current liabilities 379,563 1,390,725 Total liabilities 1,287,513 379,563 1,390,725 Net assets 25,665,719 24,563,178 26,539,838 Equity Reserves 10,674,458 8,461,525 10,543,847 Capital 14,991,261 16,101,654 15,995,991 $25,665,719 $24,563,179 $26,539,838 STATEMENT OF RECOGNIZED INCOME & EXPENSE For the Financial Year Ended June 30, 2009 Available-for-sale financial assets valuation gain/(loss) taken to equity Net income recognized directly in equity Surplus for the year Total recognized income & expense for the year -874,119 219,668 Statement of changes in equity for the financial year ended June 30, 2009 Equity at beginning of year 26,539,838 26,320,170 Total recognized income & expense for the year -874,119 219,668 Equity at end of year $25,665,719 $26,539,838 2009 $ 2008 $ -946,756 -799,695 -946,756 -799,695 72,637 1,019,363 Exhibit 7 CASH FLOW STATEMENT Forthe Financial Year Ended June 30, 2009 Cash flows from operating activities Government, local authorities & the public Dividends Interest received Payments to employees Payments to suppliers Net cash inflow/(outflow) from operating activities Cash flows from investing activities Proceeds from maturity & sale of other financial assets Proceeds from sale of property, plant & equipment Purchase of property, plant & equipment Purchase of other financial assets Net cash inflow/(outflow) from investing activities Cash flows from financing activities Repayment of portion of Climate Control Levy Net cash inflow/(outflow) from financing activities Net increase in cash & cash equivalents Cash & cash equivalents at the beginning of the financial year Cash & cash equivalents at the end of the financial year 2009 Budget 2008 $ $ $ 5,890,126 6,035,942 6,101,572 125,206 79,995 165,222 603,864 433,293 565,954 -2,573,082 -2,577,556 -2,500,324 -2,736,138 -2,823,240 -2,146,411 1,309,976 1,148,434 2,186,013 1,160,712 - 2,483,441 -196,378 -1,104,600 -655,273 -174,219 - -356,987 790,115 -1,104,600 1,471,181 . . 58,869 - - 58,869 2,100,091 43,834 3,716,063 4,367,360 176,520 651,297 $6,467,451 $220,354 $4,367,360