Harvard Case - Theatre Calgary: Control Systems in an Organization in Crisis
"Theatre Calgary: Control Systems in an Organization in Crisis" Harvard business case study is written by Mary Heisz, Tom Ewart. It deals with the challenges in the field of Accounting. The case study is 12 page(s) long and it was first published on : Mar 16, 2006
At Fern Fort University, we recommend a comprehensive revitalization plan for Theatre Calgary that focuses on:
- Strengthening financial management: Implementing robust accounting procedures, activity-based costing, and budgeting practices to gain better control over expenses and improve profitability.
- Improving operational efficiency: Streamlining production processes, optimizing resource allocation, and implementing performance indicators to maximize efficiency and minimize waste.
- Redefining organizational structure and design: Establishing clear lines of authority, fostering cross-functional collaboration, and empowering employees to contribute to the organization's success.
- Building a strong corporate governance framework: Implementing clear ethical guidelines, establishing a robust board structure, and ensuring transparency and accountability in all financial and operational decisions.
This plan aims to address the root causes of Theatre Calgary's financial crisis, restore public confidence, and position the organization for sustainable growth.
2. Background
Theatre Calgary, a renowned regional theatre company in Canada, faced a significant financial crisis in the late 1990s. The organization's financial statements revealed a substantial deficit, with a declining cash flow and increasing debt burden. This crisis was attributed to several factors, including:
- Poor financial management: Lack of robust accounting procedures, ineffective budgeting, and inadequate cost analysis contributed to financial mismanagement.
- Inefficient operational processes: Inefficient production processes, excessive reliance on volunteers, and a lack of performance indicators led to operational inefficiencies.
- Weak organizational structure: Lack of clear lines of authority, limited cross-functional collaboration, and inadequate employee empowerment hindered effective decision-making and execution.
- Inadequate corporate governance: Weak ethical guidelines, limited board oversight, and a lack of transparency in financial reporting contributed to the crisis.
The case study focuses on the efforts of the new Artistic Director, Dennis Garnhum, and the Board of Directors to address these issues and restore Theatre Calgary's financial stability.
3. Analysis of the Case Study
The case study highlights the importance of a strong control system in an organization, especially during times of crisis. Theatre Calgary's crisis was exacerbated by a lack of robust financial and operational controls, which led to poor decision-making and unsustainable practices.
Financial Analysis:
- Financial statements: The organization's financial statements revealed a significant deficit, declining cash flow, and increasing debt burden. This highlighted the need for improved financial management and control.
- Cost accounting: The case study highlights the need for accurate cost accounting to understand the true costs of productions and identify areas for cost optimization.
- Budgeting: The lack of a comprehensive budget and variance analysis contributed to the financial crisis. Implementing a robust budgeting system with regular monitoring and analysis is crucial for financial stability.
Operational Analysis:
- Activity-based costing: Implementing activity-based costing can help identify cost drivers and areas for operational efficiency.
- Performance indicators: Establishing clear performance indicators can measure the effectiveness of production processes and identify areas for improvement.
- Employee incentives: Implementing performance-based employee incentives can motivate employees to contribute towards organizational goals and improve efficiency.
Organizational Structure and Design:
- Cross-functional management: Encouraging cross-functional collaboration can improve communication, coordination, and resource utilization.
- Employee performance management: Implementing a robust employee performance management system can enhance employee engagement, productivity, and accountability.
Corporate Governance:
- Ethical guidelines: Establishing clear ethical guidelines and enforcing them consistently can build trust and ensure ethical conduct within the organization.
- Board structure: A strong board structure with diverse expertise and active oversight can provide effective governance and ensure accountability.
4. Recommendations
To address Theatre Calgary's financial crisis and ensure its long-term sustainability, we recommend the following:
1. Strengthening Financial Management:
- Implement robust accounting procedures: Establish clear accounting procedures and policies, including a comprehensive chart of accounts, to ensure accurate and timely financial reporting.
- Adopt activity-based costing: Implement activity-based costing to identify cost drivers and allocate costs more accurately, providing a more comprehensive understanding of production costs.
- Develop a comprehensive budget: Create a detailed budget that includes all revenue and expense categories, with regular monitoring and variance analysis to ensure financial control.
- Improve cash flow management: Implement strategies to optimize cash flow, such as improving accounts receivable management, negotiating favorable payment terms with suppliers, and managing inventory levels effectively.
- Strengthen financial reporting: Enhance financial reporting by providing detailed financial statements, including balance sheets, income statements, and cash flow statements, to stakeholders.
2. Improving Operational Efficiency:
- Streamline production processes: Analyze production processes and identify areas for improvement, such as reducing waste, optimizing resource allocation, and leveraging technology to enhance efficiency.
- Implement performance indicators: Establish clear performance indicators to measure the effectiveness of production processes and identify areas for improvement.
- Optimize resource allocation: Allocate resources strategically to maximize efficiency and minimize waste, ensuring that resources are aligned with organizational priorities.
- Enhance employee training and development: Invest in employee training and development programs to enhance skills and knowledge, improve productivity, and foster a culture of continuous improvement.
3. Redefining Organizational Structure and Design:
- Establish clear lines of authority: Define clear roles and responsibilities within the organization, ensuring that everyone understands their accountability and reporting structure.
- Foster cross-functional collaboration: Encourage cross-functional teams to work together on projects, improving communication, coordination, and resource utilization.
- Empower employees: Empower employees to contribute to decision-making and problem-solving, fostering a culture of innovation and ownership.
- Implement a performance-based incentive system: Establish a performance-based incentive system to motivate employees to contribute towards organizational goals and improve efficiency.
4. Building a Strong Corporate Governance Framework:
- Develop clear ethical guidelines: Establish clear ethical guidelines and enforce them consistently to ensure ethical conduct within the organization.
- Strengthen board oversight: Ensure active board oversight of financial and operational decisions, with clear roles and responsibilities for board members.
- Enhance transparency and accountability: Promote transparency in financial reporting and decision-making, ensuring that all stakeholders have access to relevant information.
- Implement a risk management framework: Establish a comprehensive risk management framework to identify, assess, and mitigate potential risks to the organization.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with Theatre Calgary's core competencies and mission to produce high-quality theatrical productions and engage the community.
- External customers and internal clients: The recommendations prioritize the needs of external customers, including patrons, donors, and sponsors, as well as internal clients, including employees and volunteers.
- Competitors: The recommendations consider the competitive landscape and aim to position Theatre Calgary for success in a challenging environment.
- Attractiveness: The recommendations are financially attractive, with the potential to improve profitability, enhance efficiency, and ensure long-term sustainability.
6. Conclusion
By implementing these recommendations, Theatre Calgary can address its financial crisis, restore public confidence, and position itself for sustainable growth. A strong control system, including robust financial management, efficient operational processes, a clear organizational structure, and a strong corporate governance framework, is essential for the organization's success.
7. Discussion
Other alternatives not selected include:
- Merging with another theatre company: This could provide access to resources and expertise but could also lead to cultural clashes and loss of identity.
- Scaling down operations: This could reduce costs but could also limit the organization's reach and impact.
The key assumptions underlying these recommendations include:
- The Board of Directors is committed to implementing the recommended changes.
- The organization has the necessary resources to implement the changes.
- The community continues to support Theatre Calgary.
8. Next Steps
To implement these recommendations, the following steps should be taken:
- Form a task force: Establish a task force to oversee the implementation of the recommendations.
- Develop a detailed implementation plan: Create a detailed implementation plan with timelines, milestones, and resource requirements.
- Communicate with stakeholders: Communicate the recommendations and implementation plan to all stakeholders, including patrons, donors, staff, and volunteers.
- Monitor progress: Regularly monitor progress and make adjustments as needed.
By taking these steps, Theatre Calgary can successfully navigate its financial crisis and emerge as a stronger and more sustainable organization.
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Case Description
Theatre Calgary was a non-profit performing arts organization in Calgary, Canada. In its 2002/03 season, it faced a financial crisis that nearly ended in bankruptcy. It survived the crisis and made many changes to its budgeting and control systems to solve some of the deficiencies that had led to the financial difficulties. As the president prepares for a board meeting, the board of directors want to know if the current budgeting and control systems will ensure long-term stability. This case details Theatre Calgary's budgeting system and paints an accurate picture of the organization, and provides students the opportunity to recommend changes to control systems.
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