Lean and Strategy Deployment Non-Profits
Case Example of Strategy Deployment
A number of years ago, a famous Chicago institution, “The Old Town School of Folk Music” (OTSFM), was having a near death experience. On revenues of a few hundred thousand per year (perhaps $1 million in today’s equivalent dollars), the school was losing an amount equal to 40% of revenues per year, with no money in the bank. The school had ceased to be relevant to its markets, and new customers were not being attracted to the school’s programming. In order to survive, the school needed to develop a new strategy. So it developed three:
1. The school could not pay its bills, so one strategy was to reduce costs and raise cash. Goal: Return to net profitability within 12 months.
2. Develop relevant new products to attract new customers. Goal: Increase revenues by 40% per year through new product offerings.
3. Raise money to renovate the school’s main building and conference hall. Goal: Raise $600,000 over the next 24 months.
A new Executive Director, Jim Hirsch, was hired at the beginning of the turnaround. One member of the Board and Jim reviewed all of the financial numbers and decided what they could control, and where cuts were necessary. Reducing costs was very painful as it required laying off guitar instructors, who were struggling to make a living as artists. The little that the OTSFM paid them was still a meaningful amount in their lives, but an expense the school had to reduce in order to survive. Amazingly half of the staff agreed to work for free, during the transition. They understood the situation faced by the school. Each creditor, and there were many, to whom the school owed money, was met face-to-face. A plan was offered to pay them; if they could extend a little more credit to the school.
Growth takes time to build, but cost reductions can happen (no matter how painful) immediately. The school faced several tough choices. The school owned two buildings. It was a painful choice, but the school needed to sell one of its buildings, so that bills could be paid and agreements kept.
The school also needed to look at its programs and concert offerings to the public. The school’s programs were pretty much geared to a middle-class, middle-aged, white-faced public. If the school wanted to survive over the long term, it needed to offer more exciting products (concerts, lessons, etc.) and draw in a broader, more ethnically diversified customer base. The OTSFM expanded its concert offerings and guitar instruction lessons. A new ‘Wiggleworms’ program was put together to teach music to little children (under 5 years old), and Jim put together a “Latin Music Festival” that was the first such offering in Chicago by a non-Latino institution. Both of those programs resulted in significant revenue increases for the school.
Execution of the above changes was primarily done by the school’s staff. The board (a group of volunteers) took responsibility for raising $600,000 to do the renovation. Just like a good song needs a ‘hook’ to resonate with a listener, the school needed a ‘hook’ to interest funding organizations and individual contributors. The school’s success with its new products for a diversified audience was a primary reason funding organizations agreed to provide support to the school’s capital campaign.
A number of other changes were also made, but cost reductions came first. Key metrics were directly related to the above goals and were monitored on a weekly or monthly basis they focused on: reduce excess teaching capacity, free up cash, pull down all non-vital costs, make and keep agreements, fulfill all commitments made, and raise new revenues.
Fifteen years later, the school has had a renaissance. Its annual revenues are in excess of several million dollars. It successfully renovated its old building, later a new one was purchased and renovated with money from an even larger capital campaign. The new venue has a larger concert stage and teaching capacity. That new building helped to lead the way for revitalizing a Chicago neighborhood. Currently, the school’s concerts and teaching programs are full, and there is a very healthy involvement of volunteers, customers and staff. It impacts more people’s lives today than at any time in its past.
The above story is excerpted from our most recent book, "Escape the Improvement Trap." A story about why most organizations fail to improve their competitive position, even though they get better after adopting an improvement methodology like lean or six sigma. http://tinyurl.com/44osfyu
You can check out the Old Town School of Folk Music at http://www.oldtownschool.org/
A number of years ago, a famous Chicago institution, “The Old Town School of Folk Music” (OTSFM), was having a near death experience. On revenues of a few hundred thousand per year (perhaps $1 million in today’s equivalent dollars), the school was losing an amount equal to 40% of revenues per year, with no money in the bank. The school had ceased to be relevant to its markets, and new customers were not being attracted to the school’s programming. In order to survive, the school needed to develop a new strategy. So it developed three:
1. The school could not pay its bills, so one strategy was to reduce costs and raise cash. Goal: Return to net profitability within 12 months.
2. Develop relevant new products to attract new customers. Goal: Increase revenues by 40% per year through new product offerings.
3. Raise money to renovate the school’s main building and conference hall. Goal: Raise $600,000 over the next 24 months.
A new Executive Director, Jim Hirsch, was hired at the beginning of the turnaround. One member of the Board and Jim reviewed all of the financial numbers and decided what they could control, and where cuts were necessary. Reducing costs was very painful as it required laying off guitar instructors, who were struggling to make a living as artists. The little that the OTSFM paid them was still a meaningful amount in their lives, but an expense the school had to reduce in order to survive. Amazingly half of the staff agreed to work for free, during the transition. They understood the situation faced by the school. Each creditor, and there were many, to whom the school owed money, was met face-to-face. A plan was offered to pay them; if they could extend a little more credit to the school.
Growth takes time to build, but cost reductions can happen (no matter how painful) immediately. The school faced several tough choices. The school owned two buildings. It was a painful choice, but the school needed to sell one of its buildings, so that bills could be paid and agreements kept.
The school also needed to look at its programs and concert offerings to the public. The school’s programs were pretty much geared to a middle-class, middle-aged, white-faced public. If the school wanted to survive over the long term, it needed to offer more exciting products (concerts, lessons, etc.) and draw in a broader, more ethnically diversified customer base. The OTSFM expanded its concert offerings and guitar instruction lessons. A new ‘Wiggleworms’ program was put together to teach music to little children (under 5 years old), and Jim put together a “Latin Music Festival” that was the first such offering in Chicago by a non-Latino institution. Both of those programs resulted in significant revenue increases for the school.
Execution of the above changes was primarily done by the school’s staff. The board (a group of volunteers) took responsibility for raising $600,000 to do the renovation. Just like a good song needs a ‘hook’ to resonate with a listener, the school needed a ‘hook’ to interest funding organizations and individual contributors. The school’s success with its new products for a diversified audience was a primary reason funding organizations agreed to provide support to the school’s capital campaign.
A number of other changes were also made, but cost reductions came first. Key metrics were directly related to the above goals and were monitored on a weekly or monthly basis they focused on: reduce excess teaching capacity, free up cash, pull down all non-vital costs, make and keep agreements, fulfill all commitments made, and raise new revenues.
Fifteen years later, the school has had a renaissance. Its annual revenues are in excess of several million dollars. It successfully renovated its old building, later a new one was purchased and renovated with money from an even larger capital campaign. The new venue has a larger concert stage and teaching capacity. That new building helped to lead the way for revitalizing a Chicago neighborhood. Currently, the school’s concerts and teaching programs are full, and there is a very healthy involvement of volunteers, customers and staff. It impacts more people’s lives today than at any time in its past.
The above story is excerpted from our most recent book, "Escape the Improvement Trap." A story about why most organizations fail to improve their competitive position, even though they get better after adopting an improvement methodology like lean or six sigma. http://tinyurl.com/44osfyu
You can check out the Old Town School of Folk Music at http://www.oldtownschool.org/
Labels: lean enterprise, lean leadership, NGO, non-profit
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