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Strategy for Museums

Professor Michael E. Porter


Harvard Business School

American Association of Museums


Boston, Massachusetts
April 28, 2006

This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard Business
Review, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or
by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Additional information may
be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu.

Copyright 2006 © Professor Michael E. Porter


How Museums Think About Competition

Threat of Substitute
Products or Services

Bargaining Power Rivalry Among Bargaining Power


of Suppliers Existing of Buyers
Competitors

Threat of New
Entrants

• The worst error in strategy is to compete with rivals on the same dimensions
American Association of Museums 04/28/06 2 Copyright 2006 © Professor Michael E. Porter
Flawed Concepts of Strategy

• Strategy as aspiration
– “Our strategy is to have one million visitors…”
– “…double our endowment…”
– “…grow revenue…”

• Strategy as action
– “Our strategy is to expand the collection…”
– “… build a new building…”
– “… mount ten special exhibitions per year…”

• Strategy as vision / mission


– “Our strategy is to serve our community…”
– “…to advance science…”

American Association of Museums 04/28/06 3 Copyright 2006 © Professor Michael E. Porter


Setting the Right Goals
Corporations

• The fundamental goal of a company is superior long-term return


on investment

• Growth is good only if superiority in ROIC is achieved and


sustained

• Profitability must be measured realistically, capturing the actual


profits on the full investment for each business

American Association of Museums 04/28/06 4 Copyright 2006 © Professor Michael E. Porter


The Purpose of Museums

• The fundamental purpose of a museum or any other organization


is value creation

Social Benefits
Value =
Resources
Expended

• For museums, there are invariably multiple social benefits, which


lead to multiple goals
American Association of Museums 04/28/06 5 Copyright 2006 © Professor Michael E. Porter
Strategy Foundations
Defining the Value Chain

Firm Infrastructure
(e.g. Financing, Planning, Investor Relations)

Human Resource Management


Support (e.g. Recruiting, Training, Compensation System)
Activities
Technology Development
(e.g. Product Design, Testing, Process Design, Material Research, Market Research) M
Value
Procurement a
(e.g. Components, Machinery, Advertising, Services) r What
g buyers are
Inbound Operations Outbound Marketing After-Sales i
willing to
Logistics Logistics & Sales Service pay
n
(e.g. Incoming (e.g. Assembly, (e.g. Order (e.g. Sales (e.g. Installation,
Material Component Processing, Force, Customer
Storage, Data Fabrication, Warehousing, Promotion, Support,
Collection, Branch Report Advertising, Complaint
Service, Operations) Preparation) Proposal Resolution,
Customer Writing, Web Repair)
Access) site)

Primary Activities

• Competing in a business involves performing a set of discrete


activities, in which competitive advantage resides
• The value chain is unique to each business
American Association of Museums 04/28/06 6 Copyright 2006 © Professor Michael E. Porter
Strategy Foundations
The Museum Value Chain

Firm Infrastructure
(e.g. governance, planning, budgeting, information tech., facilities)
Fundraising
(e.g. earned revenues, proposals, solicitations, events, donor relations)
Human Resource Management
(e.g. recruiting, training, compensation system)
Program and Content Development S
(e.g. scholarship, exhibit design, market research)
u
Educational Programs r
(e.g. local school outreach, adult classes, special tours)
p
Social
Benefits
Assembly and Exhibition Hospitality Marketing Visitor / l
Preservation Services & Sales Constituency u
(e.g., curating, Services s
(e.g., acquisition, display, support (e.g., shops, (e.g.,
authentication, materials) restaurants, promotion, (e.g., member
cataloguing) maintenance) advertising, outreach,
catalogs) special events)

American Association of Museums 04/28/06 7 Copyright 2006 © Professor Michael E. Porter


Strategy Foundations
What are the Different “Businesses” in which the Organization
Competes?

Program A Program B Program C

Program D Program E

American Association of Museums 04/28/06 8 Copyright 2006 © Professor Michael E. Porter


Strategy Foundations
Operational Effectiveness Versus Strategy

Operational Strategic
Effectiveness Positioning

• Assimilating, attaining, and • Creating a unique and


extending best practices sustainable competitive
position

Run the same race faster Choose to run a different race

American Association of Museums 04/28/06 9 Copyright 2006 © Professor Michael E. Porter


Defining Value for Museums

• Defining value depends on choosing, specifying, and weighting goals

Collection
Collection Visitation
Visitation

Visitor
Visitor
Education
Education Experience
Experience

Research
Research //
Scholarship
Scholarship

• Measuring value is central to any strategy


American Association of Museums 04/28/06 10 Copyright 2006 © Professor Michael E. Porter
Mission Statements
Selected Museums
Guggenheim Museum, New York
The mission of the Solomon R. Guggenheim Foundation is to promote understanding and appreciation of art,
architecture, and other manifestations of modern and contemporary visual culture; to collect, preserve, and
research art objects; and to make them accessible to scholars and an increasingly diverse audience through its
network of museums, programs, educational initiatives, and publications.

Metropolitan Museum of Art, New York


The mission of The Metropolitan Museum of Art is to collect, preserve, study, exhibit, and stimulate
appreciation for and advance knowledge of works of art that collectively represent the broadest spectrum of
human achievement at the highest level of quality, all in the service of the public and in accordance with the
highest professional standards.

American Museum of Natural History, New York


To discover, interpret, and disseminate - through scientific research and education - knowledge about human
cultures, the natural world, and the universe.

Smithsonian Institution, Washington, DC


The Smithsonian is committed to enlarging our shared understanding of the mosaic that is our national identity by
providing authoritative experiences that connect us to our history and our heritage as Americans and to
promoting innovation, research and discovery in science.

MoMA (Museum of Modern Art), New York


The Museum of Modern Art is dedicated to being the foremost museum of modern art in the world…The
Museum of Modern Art seeks to create a dialogue between the established and the experimental…in an
environment that is responsive to the issues of modern and contemporary art, while being accessible to a public
that ranges from scholars to young children. The ultimate purpose of the Museum was to acquire the best
modern works of art. While quality remains the primary criterion, the Museum acknowledges and pursues a broader
educational purpose: to build a collection which is more than an assemblage of masterworks, which provides a
uniquely comprehensive survey of the unfolding modern
American Association of Museums 04/28/06 11
movement in all visual media. Copyright 2006 © Professor Michael E. Porter
Defining Value for Museums
Specifying Goals

E.g., E.g.,
• Comprehensiveness • Number of visits
Collection
Collection Visitation
Visitation
• Rarity • Repeat visits
• Sophistication • Types of visitors
• Popular appeal (sophistication, age, etc.)
• Restoration • Time spent per visit
• Spending per visit

Visitor
Visitor
Education
Education Experience
Experience
E.g., E.g.,
• Whom to educate • Level of interactivity
– Children
• Amount and
– Enthusiasts
sophistication of
– Educators
information
– As many people as
Research provided
possible Research // • Extent of ancillary
• Means of education
– Didactic
Scholarship
Scholarship services
– Experimental
E.g.,
• Original vs. applied
• Scholarly vs. popular
• Conferences vs. publications
American Association of Museums 04/28/06 12 Copyright 2006 © Professor Michael E. Porter
Five Tests of a Good Strategy

•• A
A unique
unique value
value proposition
proposition
compared
compared to
to other
other organizations
organizations

•• A
A different,
different, tailored
tailored value
value chain
chain

•• Clear
Clear tradeoffs,
tradeoffs, and
and choosing
choosing what
what
not
not to
to do
do

•• Activities
Activities that
that fit
fit together
together and
and
reinforce
reinforce each
each other
other

•• Continuity
Continuity ofof strategy
strategy with
with
continual
continual improvement
improvement in in realizing
realizing
the
the strategy
strategy

American Association of Museums 04/28/06 13 Copyright 2006 © Professor Michael E. Porter


Defining a Strategic Position
Whole Foods Markets
Distinctive
Distinctive
Value
Value Proposition
Proposition Activities
Activities

• Natural, fresh, organic, and prepared foods • Well-lit, inviting supermarket store formats with
and health items with excellent service at appealing displays and extensive prepared
premium prices foods sections
• Produce section as “theater”
• Educated, middle class, and affluent
• Café-style seating areas with wireless internet
customers passionate about food as a part for meetings and meals
of a healthy lifestyle
• Each store carries local produce and has the
authority to contract with the local farmers
• Information and education provided to
shoppers along with products
• High touch in-store customer service via
knowledgeable, non-unionized, highly
motivated personnel
• Egalitarian compensation structure
• Own seafood procurement and processing
facilities to control quality (and price) from the
boat to the counter
• Donates 5% of profits to non-profits
• Each store has “green projects,” directed by
employees to improve environmental
performance
American Association of Museums 04/28/06 14 Copyright 2006 © Professor Michael E. Porter
Translating Goals into a Value Proposition

What
What Which
Which
Customers?
Customers? Needs?
Needs?

E.g., E.g.,
• Adults vs. children • Appreciation
• Enthusiasts vs. less • Experience
knowledgeable
patrons
• Participation
What
What Price?
Price?
• Tourists vs. locals
• Current vs. future
generations E.g.,
• Free
• Membership
• Fee per admission

American Association of Museums 04/28/06 15 Copyright 2006 © Professor Michael E. Porter


Five Tests of a Good Strategy

•• A
A unique
unique value
value proposition
proposition
compared
compared to
to other
other organizations
organizations

•• A
A different,
different, tailored
tailored value
value chain
chain

•• Clear
Clear tradeoffs,
tradeoffs, and
and choosing
choosing what
what
not
not to
to do
do

•• Activities
Activities that
that fit
fit together
together and
and
reinforce
reinforce each
each other
other

•• Continuity
Continuity ofof strategy
strategy with
with
continual
continual improvement
improvement in in realizing
realizing
the
the strategy
strategy

American Association of Museums 04/28/06 16 Copyright 2006 © Professor Michael E. Porter


Making Strategic Tradeoffs
US Home Improvement Industry
Home
Home Depot
Depot Lowe’s
Lowe’s
Value Proposition Value Proposition
• Predominately male, experienced customers • Female shoppers and casual
and contractors do-it-yourselfers
• Building material, home improvement, • Extensive home decor, appliance, kitchen,
and lawn & garden products and lawn & garden offerings

Set of Activities Set of Activities


• No-frills, warehouse design • Appealing store layout
- Merchandise stored in large racks and - Wider aisles, brighter lighting, lower ceilings
stacked on the floor - “Stores-in-the-store” featuring fully-equipped
kitchen & bath studios, lighting displays, etc.

• All customers (including contractors) serviced • Contractors serviced by separate corporate


out of same stores division with different yards
• Bulk deliveries of products directly from • Hub-and-spoke distribution with just-in-time
vendors usually during the day delivery usually after hours
• Every-day low prices with volume • Every-day low prices without volume
discounts discounts

• Home Depot is at risk of undermining its strategy through imitation


American Association of Museums 04/28/06 17 Copyright 2006 © Professor Michael E. Porter
Five Tests of a Good Strategy

•• A
A unique
unique value
value proposition
proposition
compared
compared to
to other
other organizations
organizations

•• A
A different,
different, tailored
tailored value
value chain
chain

•• Clear
Clear tradeoffs,
tradeoffs, and
and choosing
choosing what
what
not
not to
to do
do

•• Activities
Activities that
that fit
fit together
together and
and
reinforce
reinforce each
each other
other

•• Continuity
Continuity ofof strategy
strategy with
with
continual
continual improvement
improvement in in realizing
realizing
the
the strategy
strategy

American Association of Museums 04/28/06 18 Copyright 2006 © Professor Michael E. Porter


Mutually Reinforcing Activities
Word-of- Zara Cutting-
mouth edge fashion
marketing at moderate
and repeat price and
buying Widely quality
popular
styles

Customers
chic but
Very cost-
Global
Little media frequent team of
conscious
advertising product trend-
changes spotters

Advanced
Production production
Extensive in Europe machinery
use of
store sales
data
Tight
Prime store
coordination Very
locations in JIT delivery with 20
high traffic flexible
wholly-owned
areas production
factories
system

• Fit is leveraging what is different to be more different


Source: Draws on research by Jorge Lopez Ramon (IESE) at the Institute for Strategy and Competitiveness, HBS
American Association of Museums 04/28/06 19 Copyright 2006 © Professor Michael E. Porter
Continuity of Strategy

• Allows the board and the staff to understand and embrace the strategy

• Builds truly unique skills and assets related to the strategy

• Establishes a clear identity with patrons, funders, and other outside entities

• Strengthens alignment of activities across the value chain

• Successful organizations continuously improve in realizing their strategy

In contrast,

• Reinvention and frequent shifts in direction are costly and confuse everyone
American Association of Museums 04/28/06 20 Copyright 2006 © Professor Michael E. Porter
Barriers to Defining Goals and Setting Strategy
for Museums
• Multiple, conflicting, or unclear • Unpredictable or limited
goals revenue streams lead to
program proliferation or short-
term focus
• Lack of board consensus on
goals • Legacy collections and facilities
constrain future direction
• Donor / funder desires and
priorities • Tactical problems consume
managerial attention

• No clear way to measure


performance

• Limited cost information at the


activity and program level
obscures value

• Severe risk of agenda / program proliferation


American Association of Museums 04/28/06 21 Copyright 2006 © Professor Michael E. Porter
Strategy Should Drive Other Choices

Goal
Goal Definition
Definition

Strategy
Strategy Definition
Definition

Funding
Funding Geographic
Geographic
Outsourcing
Outsourcing Partnerships
Partnerships
Structure
Structure Coverage
Coverage

American Association of Museums 04/28/06 22 Copyright 2006 © Professor Michael E. Porter


The Role of Leaders in Strategy

• Lead the process of choosing the organization’s unique position


– The choice of strategy cannot be entirely democratic

• Clearly distinguish strategy from operational effectiveness

• Communicate the strategy relentlessly to all constituencies

• Maintain discipline around the strategy, in the face of many


distractions.

• Decide which “competitor” changes, technologies, and customer


trends to respond to, and how the response can be tailored to the
organization’s unique position

• Measure value and progress against the strategy

• Commitment to strategy is tested every day, especially in non-profit


organizations
American Association of Museums 04/28/06 23 Copyright 2006 © Professor Michael E. Porter

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