Managing Monasteries. Strategy and Organizational Design

Table of Contents

1 Abstract..6

2 Introduction. 7

3 The Benedictine Community & Göttweig Abbey..8

3.1....... Benedict of Nursia..8

3.2....... The Rule of Benedict..8

3.3....... The Benedictine Confederation..9

3.4....... The Austrian Benedictine Confederation..9

3.5....... Göttweig Abbey..9

3.6....... Göttweig Abbey’s Organization..9

3.7....... Göttweig Abbey’s Vision, Mission and Core Values..10

3.8....... Göttweig Abbey’s Business Undertakings..11

4 Analysis of the current Business Situation Using Conventional Tools..12

4.1....... Porter five forces..12

4.1.1.... SWOT Analysis..15

4.2....... Value Chain Analysis..16

4.3....... Process Portfolio Matrix..20

4.4....... Who, What, Where, When and Why Analysis..21

4.5....... Summary of customer demands: “Customer Perceived Value” Analysis for GA guests..23

4.6....... Summary of customer key purchasing attributes..24

4.7....... Summary of GA’s main competitors..24

4.8....... Summary of Management & Control: Management Objectives at GA..24

4.9....... Analysis of Management operations and strategy implementation, using the Integrated Management System..25

5 Financial Analysis of the current Business Situation..29

5.1....... Key figures 2005-2008..29

5.2....... Profitability 2005-2008..31

5.3....... Defining Key Contributors to Overall Cost..32

5.4....... Defining Key Profit centers..35

5.5....... About Income, Cash Flows and Liquidity..37

5.5.1.... Going Concern Value..37

5.5.2.... Choice of Accounting Policy..37

5.5.3.... Liquidity..37

5.5.4.... Calculation and Interpretation of cash flows..38

5.6....... Du Pont Analysis..41

5.7....... Simplified Activity Based Costing Model..45

5.8....... Interpreting Financial Performance 2009..49

5.8.1.... Accommodation..50

5.8.2.... Tourism & Culture..52

5.8.3.... Business Interests..53

5.8.4.... Forestry..54

5.8.5.... Gastronomy..54

5.8.6.... Investment management..58

5.9....... Break Even Analysis..58

6 Analysis of the current Business Situation through Interviews..61

6.1....... Galbraith’s “Star” Model..61

6.2....... Customer Segmentation..63

6.2.1.... Mass Tourism – Bus Groups & Individual Tourists (Tourism & Culture and Gastronomy BU’S)..63

6.2.2.... Conference & Event Organizers and Wedding Parties (Gastronomy BU)..65

6.2.3.... Investment Management BU..65

6.2.4.... Lumber Buyers (Forestry BU)..65

6.2.5.... Classical Music Enthusiasts (Tourism & Culture BU)..66

6.2.6.... Travelers & Backpackers and Local Youth (Accommodation BU)..66

6.2.7.... Individuals or Groups Seeking (Spiritual) Reflection and Solitude (Accommodation BU)..66

6.2.8.... New Customer Groups..67

6.3....... Strategy and Organizational Design..67

6.3.1.... Strategy and Organizational Capabilities (Design Criteria)..67

6.3.2.... Structure..69

6.3.3.... Processes..71

6.3.4.... Lateral connections and meeting practices..74

6.3.5.... Rewards..74

6.3.6.... People Practices (and Culture)..75

7 Redesigning GA’s Business Organization..77

7.1....... Organizational Design Principles..77

7.2....... Strategy and OD Transition Process..79

7.2.1.... Clerical Strategy and OD..79

7.2.2.... Business Strategy and OD..79

7.2.3.... Reaching Equilibrium between clerical and business interests..80

7.2.4.... Leadership During Transition Phase..80

7.3....... Transitional Strategy and OD..80

7.3.1.... Recommended Transitional Strategy – Increase Sales & Marketing for Gastronomy and Tourism & Culture..81

7.3.2.... Recommended Transitional Organizational Design..81

8 Interpretation & Summary..83

9 List of literature..84

10 Appendices..85

Appendix 1: Decision Making Bodies..86

Appendix 2: Clerical Organization (“Hoheitsbereich”)..87

Appendix 3: GA’s Business Organization Structure (As-Is)..88

Appendix 4: Interview with the Cellarer..89

Appendix 5: Interview with the Tourism & Culture Manager..98

Appendix 6: Interview with the Gastronomy Manager..107

Appendix 7: Interview with the Commercial Director..119

Appendix: 8 „Project Plan“ House of Retreat..130

Appendix 9: Developing Design Criteria..132

Appendix 10 Practical Example Developing Design Criteria..135

Appendix 11: Guiding Matrix To Portfolio Decision..136

Appendix 12: Capabilities-driven Cost Cutting Process..137

Appendix 13: As-Is Responsibility Charting (VICARS)..138

Appendix: 14: Selecting Lateral Connections..142

Appendix 15: Recommended Transitional Business Organization Structure..143

About the authors

Johann Sebastian Kann

Johann Sebastian Kann (born 1979) is the Commercial Director of Göttweig Abbey since January 2009. Following his studies of business administration (Mag.rer.soc.oec.) and the completion of his Ph.D. in 2004 (Dr.rer.soc.oec.), he worked in several financial management positions. In terms of know-how, he stands for corporate strategy, finance and change management. Johann Sebastian Kann has one daughter and lives in Vienna.

Marcel Biersteker

Marcel Biersteker (born 1970) is a Senior Tester in the IT department of Global Refund GmbH in Vienna since November 2008. He studied maintenance engineering (B. Eng.) at the University of Amsterdam. After his graduation he started his career in the Non-Profit Sector as an Operations Manager in building up and managing unemployment and waste recycling projects. After retraining, he continued his professional career in the IT sector in several specialist and managerial positions. In terms of know-how, he stands for business analysis, people management and business process improvements.

1 Abstract

In 2010, Biersteker and Kann propose a framework to facilitate the management of business units within monasteries. This concept uses a concrete case understanding the significance of tradition within a monastery, combined with new management concepts in order to develop a new way of organizational design based on common goals. This thesis utilizes the findings of a detailed business & financial analysis, as well as qualitative interviews to critically reflect the organizational and financial performance of a specific abbey in Lower Austria. The authors observe how necessary governance (transparency) and financial management are for monasteries. The paper should be a contribution for state of the art management within church owned business operations.

In Ihrer Arbeit aus dem Jahr 2010 befassen sich die Autoren Biersteker und Kann mit dem Thema Management von klösterlichen Wirtschaftsbetrieben. Die Auseinandersetzung mit diesem Thema wurde anhand eines konkreten Beispiels detailliert ausgeführt. Zunächst befassten sich die Autoren mit der Bedeutung der Begriffe Werte, Regeln und Handlungsprinzipien nach dem heiligen Benedikt, anschließend mit dem Thema Einsatz von neueren Managementmethoden in eben genannter Organisation. Dies diente letztendlich der Entwicklung von gemeinsamen Zielen für eine neue „state of the art“ Organisationsform in 21. Jahrhundert. Die Arbeit bedient sich umfassender Erkenntnisse aus eine betriebswirtschaftlichen Analyse eines Stiftsunternehmens in Niederösterreich, sowie einiger qualitativer Interviews mit Entscheidungsträger im ebengenannten. Letztendlich zeigen die Autoren wie wichtig die Themen Governance und Wirtschaften in einem Stiftsbetrieb sind. Diese Arbeit soll einen Beitrag zur Förderung des Dialogs zwischen Wirtschaft und Kirche dienen.

2 Introduction

Göttweig Abbey (GA) was founded in 1072 by Bishop Altmann of Passau and is situated on the Göttweig Mountain, nearby Krems in the famous region of Wachau in Lower Austria. Because of its location, it is sometimes called the Austrian Montecassino. With the Wachau, Göttweig was in 2001 placed on the UNESCO World Heritage List.

The operational results of GA businesses have steadily declined over the recent years which have already resulted in the deferral of necessary infrastructural investments (e.g. roof repairs). If this trend continues, this may in the worst case threaten GA's long term existence as a self-governing entity.

This master thesis aims to be an objective report on GA’s business and financial situation, current strategy and organizational design (OD). Through analysis of long term and short term financial data and interviews with key business decision makers in the abbey, this thesis aims to analyze the current situation and to provide improvement suggestions.

In the first part of this thesis, the authors provide an introduction into Benedictine monasteries, the clerical and business strategy and organization of Göttweig Abbey to identify the common goals of the Benedictine monks. An analysis of the businesses of this monastery and a financial report provide the “hard facts” with regard to the causes for performance gaps and liquidity problems in order to assess the monastery’s financial vitality and to give recommendations for improvement. A “soft facts” analysis based on interviews with key decision makers within the monastery provides a further understanding of the current business strategy and organizational design.

Through the application of strategy and organizational design literature, the authors finally identify and formulate a “to be” framework.

3 The Benedictine Community & Göttweig Abbey

3.1 Benedict of Nursia

Benedict of Nursia (Italian: San Benedetto da Norcia) (480 – 547) was a saint from Italy, the founder of Western Christian monasticism, and a rule-giver for cenobitic monks. Benedict was canonized by Pope Honorius III in the year 1220.

Benedict founded twelve communities for monks at Subiaco, about 40 miles to the east of Rome, before moving to Monte Cassino in the mountains of southern Italy. (Wikipedia)

Benedict's disciples founded monasteries that became centers of culture, learning, health care, justice and the arts throughout the Middle Ages. Benedict's rule also established a primitive form of democracy in an age of tyranny, and also laid the foundation for modern human rights because within the community each person was treated with respect and honor. Benedictine monasteries value learning, good manners, discipline and self respect.

3.2 The Rule of Benedict

Benedict's main achievement is his "Rule", containing precepts for his monks. It has a unique spirit of balance, moderation and reasonableness and this persuaded most religious communities founded throughout the Middle Ages to adopt it. As a result, the Rule of Benedict became one of the most influential religious rules in Western Christendom. For this reason Benedict is often called the founder of western Christian monasticism. (Wikipedia)

Like the monasteries yesterday, modern-day Benedictine communities are a unique mix of the new and the old. They live at the cutting edge of modern technology, modern society, but remain in the deepest traditions of Benedict of Nursia (480-547) and his Rule.

It is obvious that monasteries developed special management systems and therefore were able to survive for centuries. The structure of the church hierarchy, the appointment of leaders, faith, and the nuances of dogma play a big role in spiritual communities. Actually the Rule of Benedict was a masterpiece of leadership principles. It focuses on proper management, motivation, and organization of daily work.

3.3 The Benedictine Confederation

The Benedictine Confederation of the Order of Saint Benedict (in Latin, Confœderatio Benedictina Ordinis Sancti Benedicti) is the international governing body of the Order of Saint Benedict. The Benedictine Confederation is a union of monastic congregations that nevertheless retain their own autonomy, established by Pope Leo XIII in his brief "Summum semper" (12 July 1893), subsequently approved by his successors. Pope Pius XII explicitly ordered this union to be regulated by a "Lex Propria", which was later revised after the Second Vatican Council. (Wikipedia)

3.4 The Austrian Benedictine Confederation

The Austrian Congregation is a congregation of Benedictine monasteries situated in Austria, within the Benedictine Confederation. The Congregation was founded on August 3rd 1625 by Pope Urban VIII, and now consists of 14 Benedictine monasteries in Austria. (Wikipedia)

The Statutes of the Austrian Benedictine Confederation (called “Statutes” from this point forward) describe what the goals are of a monastery, how monks must live there and how the business as well as spiritual institutions there should be managed. (The Austrian Benedictine Confederation, 2006)

3.5 Göttweig Abbey

A few remnants of the abbey’s medieval buildings have remained: Parts of the Erentrudis Chapel (built in 1072) and the Old Fortress, the Crypt with the Reliquary of GA’s founder, Bishop Altmann of Passau, the Gothic Choir of the Church, and a part of the Medieval Cloister, the "Lapidarium". Today's Baroque Monastery Complex was built according to plans of the Hofburg court engineer, Lucas von Hildebrandt, during 1720 to 1740, after the old Monastery was almost totally destroyed by fire in 1718.

3.6 Göttweig Abbey’s Organization

Appendix 1 provides a high level org chart of the different decision making bodies of GA. The daily leadership is provided by the Abbot who is assisted by a Prior and a Subprior (called the “Head Monks” from this point forward). The Abbot has the authority to make operational decisions to a certain level; above this threshold – as described in the Statutes – the Abbot has to consult (“consilium”) or get approval (“consensus”) from one or more of the following three councils (which are all chaired by the Abbot):

-The Chapter consists of all 55 monks of GA Convent, meets a number of times per year and is the highest decision making authority of GA. Decisions are made by consensus.

- The Senior Council (SC) consists of the Abbot, the Prior, three other monks and a variable number of additional monks. This council is religiously oriented and meets at least 4 times a year.

- The Commercial Council (CC) is business oriented and consists of all the SC members and a variable number of monks.

The presence and the roles & responsibilities of the Abbot and the Head Monks and the 3 named councils are stipulated in the Statutes. Over time, GA’s Abbots have – to a certain extent – delegated the day-to-day operation of GA’s businesses to the Cellarer (formally called “Wirtschafter” in the Statutes but more commonly known as the “Kämmerer”).

3.7 Göttweig Abbey’s Vision, Mission and Core Values

The fulfillment of GA’s diverse pastoral, cultural and social tasks form the core tasks of Benedictine monasteries in which God and the Catholic Church form the focal point. GA has the following clerical goals as laid down in the Statutes:

- To be a place of encounter

- Providing education and upbringing

- Nurturing the arts and culture

- Fostering science

- Providing pastoral care in the surrounding parishes

These activities – which can be seen as the clerical vision of Benedictine monasteries – are performed by the clerical organization (“Hoheitsbereich”) of which the org chart can be found in appendix 2. “Ora et labora et lege”. “Pray and work” – is the religious mission statement of the Benedictine Order.

GA’s business organization – which provides the financial means for these five clerical goals – does not have an outspoken vision or mission statement.

GA’s monks live by the Rule of St. Benedict i.e. the “house rules” for a monastic Benedictine community. Nearness to God, helping people, hospitality and faith determine the life of the monks and these rules can be seen as the Benedictine core clerical values. In an informal conversation with Dr. Kann, the current Abbot of GA summarized GA’s business values by the following key words: excellent customer service, friendliness, hospitality, integrity and social responsibility.

3.8 Göttweig Abbey’s Business Undertakings

GA is a regional economic motor and about 80 persons are employed in GA’s businesses:

- Forestry

- Tourism and Culture

- Gastronomy

- Business Interests

- Investment Management

- Accommodation

Appendix 3 displays the consolidated As-Is org chart of GA’s businesses as derived from interviews and from GA’s current org-chart.

4 Analysis of the current Business Situation Using Conventional Tools

Business is about creating value. Value, in its broadest sense, refers to the amount of money customers are willing to pay for a good or a service. The challenge for managers and their businesses is, first, to create value for customers and, second, to extract some of that value in the form of profit for the firm. The difference between the value of a firms’ output and the cost of its material inputs is called value added. The value added created is distributed among different parties: employees (wages and salaries), lenders (interest), government (taxes), and owners (profit) (Grant, 2008). Whether businesses should operate exclusively in the interest of their owners is clear at GA. The responsibility of business units within GA is to employ people, run the infrastructure, serve guests and customers, as well as operate profitably to support the existence of GA in the long run.

Based on his experience within GA and further sources, Dr. Kann provided the input for the following conventional analysis tools.

4.1 Porter five forces

First a profound understanding of the competitive environment of GA is established around Porter’s five forces of competition framework, which links the structure of an industry to the competitive intensity within it and to the profitability that it realizes. Although every industry is unique, competition and profitability are the result of the systematic influences of the structure of that industry. Porter’s framework provides a simple, but powerful organizing framework for classifying the relevant features of an industry’s structure. (Porter, 1998) In the following table, the methodology of that model is explained:

[Figures and tables are omitted from this preview.]

Figure 1: Porter five forces model (Porter, 1998)

Next, the Porter framework is applied and the causes for low profitability are diagnosed:

[Figures and tables are omitted from this preview.]

Figure 2 : Applied Porter five forces model

Conclusion

To summarize key findings of the Porter 5-forces industry analysis:

- The overall rivalry between existing abbeys is low. The industry attractiveness is low due to the fact that the GA’s businesses (tourism, gastronomy, forestry, wine) operate in low-margin markets.

- Strong regional companies keep the threat of new entrants low.

- Based on customer and market segmentation, tourist and gastronomy customers have high bargaining power.

- Due to many substitutes, the bargaining power of suppliers is relatively weak.

- The midmarket segment shows higher competition.

4.1.1 SWOT Analysis

Distinguishing between the external and the internal environment of the firm is common to most approaches to strategy analysis. The best known and widely used of these approaches is the “SWOT” framework. In that framework internal factors can be classified as strengths or weaknesses, and those external to the firm can be classified as opportunities or threats (SWOT Analysis on Wikipedia, 2010). The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. Therefore, the SWOT framework is applied to diagnose the causes for strategic fit.

Strengths

GA's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage:

- GA is well known

- Regional environment (Krems, Wachau, Danube)

- Quiet location

- GA Gastronomy with plenty of capacity for mass-tourism and events

- Uniqueness of the monastic ambience

Weaknesses

The absence of certain strengths may be viewed as a weakness. The following weaknesses are identified:

- Not a touristic attraction compared to other Wachau destinations

- Lack of good transport connections

- Poor reputation amongst customers

- High cost structure

- Lack of access to key sales channels

- Few product packages

- Its slogan (“Place of encounter”) does not position GA

- Monks are uncertain of marketing mix and degree of commercialization of GA

- Few cooperations

In some cases, a weakness may be the flip side of strength.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:

- Identify unfulfilled customer needs

- The arrival of new technologies

- Expand PR and communications

- Increase Gastronomy and Service quality

- Define positioning

- Newsletters

- Special Packages for customer targets

Threats

Changes in the external environmental present threats to GA:

- shifts in consumer tastes away from GA's touristic attractions

- emergence of substitute products in Krems (museums, restaurants, bars, bistros and hotels)

- bad reputation in the area

- financial and economic crisis 2008-2010

4.2 Value Chain Analysis

To better understand the activities through which a firm develops a competitive advantage and creates value, it’s useful to separate the business system GA into a series of value-generating activities referred to as the value chain. This model was first described and popularized by Michael Porter in his best-seller, Competitive Advantage: Creating and Sustaining Superior Performance (Porter, 1998) Primary value chain activities are supported by secondary value chain activities:

[Figures and tables are omitted from this preview.]

Figure 3: Value chain activities GA

Value chain activities are not isolated from one another. Rather, one value chain activity often affects the costs or performance of other ones. Linkages may exist between primary activities and also between primary and support activities. It is in these activities that a firm has the opportunity to generate superior value. A competitive advantage may be achieved by reconfiguring the value chain to provide lower costs or better differentiation. The value chain model is a useful analysis tool for defining a firm's core competencies and the activities in which it can pursue a competitive advantage as follows:

- Cost advantage: by better understanding costs and squeezing them out of the value-adding activities.

- Differentiation: by focusing on those activities associated with core competencies and capabilities in order to perform them better than do competitors. (Porter, 1998)

[Figures and tables are omitted from this preview.]

Figure 4: Cost drivers within value chain activities GA

A firm may create a cost advantage either by reducing the costs of individual value chain activities or by reconfiguring the value chain. Once the value chain is defined, a costs analysis can be performed by assigning costs to the value chain activities. The costs obtained from the accounting report may need to be modified in order to allocate them properly to the value creating activities. (Porter, 1998)

Two cost drivers are identified: Unplanned interruptions and capacity utilization related to the value chain activities: Sales and Operations/ Production. GA might be able to develop a costs advantage by controlling these drivers better. A cost advantage also can be pursued by reconfiguring the value chain. Reconfiguration means structural changes such a new production process, new distribution channels, or a different sales approach.

Differentiation stems from uniqueness. A differentiation advantage may be achieved either by changing individual value chain activities to increase uniqueness in the final product or by reconfiguring the value chain.

Several drivers of uniqueness are identified:

- Personnel

- Quality

- Motivation

- Know-how of employees

- Scale (e.g. better service as a result of large scale)

Many of these also serve as cost drivers. Differentiation often results in greater costs, resulting in tradeoffs between cost and differentiation. There are several ways in which a firm can reconfigure its value chain in order to create uniqueness. It can forward integrate in order to perform functions that once were performed by its employees. It can backward integrate in order to have more control over its inputs. It may implement new processes or new standards.

Conclusion

Ultimately, GA may need to be creative in order to develop a novel value chain configuration that increases product/service differentiation.

4.3 Process Portfolio Matrix

The Process Portfolio Matrix below groups GA’s processes in terms of Customer Value and Company’s Profit. (Cilek, 2009)

[Figures and tables are omitted from this preview.]

Figure 5: GA’s PP Matrix

The Key Processes in terms of providing high value to the customer and offering a large contribution to the GA’s income are the Forestry, Accommodation (House of Retreat and Youth Hostel) and Gastronomy production & service processes.

Conclusion

In the PP Matrix analysis the following areas of potential improvement have been identified in “Tourism”, “Gastronomy” and “Accommodation”. Four processes have a high importance to the customer but the customer is not satisfied with the outcome of the process:

- Low reliability on quality: “Gastronomy” and “Accommodation” do not get the correct information regarding incomings (number of people, date...) from the reservation person.

- For a warm welcome and professional placement of incomings motivation of employees is low.

- Communications internally and externally are inefficient: production flexibility in fulfillment of short time/special orders is low.

- Conceptual PR, Design and Technical Implementation of innovative / new products are weak. Main problems are the saturated market in which GA competes and the chronic low annual marketing budgets.

4.4 Who, What, Where, When and Why Analysis

Using Kotler (Kotler & Bliemel, 2006), the authors answer the so called 5-W questions (Who, What, Where, When and Why) for Mass Tourism and Events within GA:

[Figures and tables are omitted from this preview.]

Figure 6: GA’s 5-W Analysis (Stojec, Lintschinger, Kann, & Biersteker, 2009)

4.5 Summary of customer demands: “Customer Perceived Value” Analysis for GA guests

Using Kotler (Kotler & Bliemel, 2006), the authors perform a “Customer Perceived Value” analysis for the business units Tourism & Culture as well as Accommodation.

[Figures and tables are omitted from this preview.]

Figure 7: GA’s CPV Analysis (Stojec, Lintschinger, Kann, & Biersteker, 2009)

4.6 Summary of customer key purchasing attributes

[Figures and tables are omitted from this preview.]

Figure 8: Relative importance of GA’s Key purchasing attributes

4.7 Summary of GA’s main competitors

Using Kotler (Kotler & Bliemel, 2006) and Klösterreich (Klösterreich, 2010), GA’s competitors are identified:

[Figures and tables are omitted from this preview.]

Figure 9: GA’s Main Competitors

4.8 Summary of Management & Control: Management Objectives at GA

Quality is essential for the owners of GA. Therefore GA defined following Quality Principles:

- “Quality is to meet the requirements of our customers”

- “Quality concerns all”

- “Quality is team work”

Above mentioned Quality Principles are from the perspective of the owners inevitable for the success of the organization (Kenneth A. Merchant, 2007)

Customer satisfaction is for the Abbot and the Head Monks’ top priority. It is their ambition to see customer focus as integrated part of the business units of GA.

In order to meet the overall target “quality”, the Abbot and Head Monks are aware that the development of GA depends on knowledge, skills and loyalty of the employees. Therefore the monks themselves promote their employees through personal meetings and contact.

GA only wants to co-operate with suppliers and subcontractors if they meet GA’s spiritual values and quality standards. Suppliers and subcontractors are seen as equal partners and therefore work throughout many years with GA.

Regarding Financial Values the Commercial Council, the Senior Council and especially the Cellarer aim for profit and stability to both enhance GA and all its employees.

On top of the special Management Objectives within GA, business unit managers see it as important to optimize all processes according to the needs of clients. To obtain such a high level of service it is commonly agreed since 2008 to:

- Develop and promote the organization – all areas

- Perform timely delivery in perfect condition – Operations

- Be successful in acquisition and customer care for profitable clients – Sales

- Perform correct and efficient invoicing – Finance & Administration

- Accept and forward all information necessary from and to external and internal customers - Sales

- Ensure availability and security of IT-system – IT

- Develop and create competitive prices – all areas

- Run the company successfully – Abbot an Head Monks

- Keep information flow throughout the organization – all areas

4.9 Analysis of Management operations and strategy implementation, using the Integrated Management System

Although different models of Excellence and Performance Management exist in many organizations, their implementation often remains difficult or does not provide the expected long-term success. The Integrated Management System (IMS) can be used as roadmap and status quo analysis (Lee, 1999). In the following analysis the status quo was made:

[Figures and tables are omitted from this preview.]

Figure 10: GA’s Questionnaire for the Integrated Management System (IMS)

Looking at the overall results of the IMS analysis, short-term, business related activities are one of GA’s strength. Established performance evaluation, clear job design and assessment, as well as given tasks and assignments are parts of GA’s operations. As opposed to these strengths, there are major weaknesses in the strategic planning, project management, and management development, behavior and execution i.e., the culture of feedback and self- monitoring and the employees’ attitude and spirit.

Lack in clarity in task, competencies and responsibilities, slows down the efficiency and productivity of the work force. Finally, one key weakness identified is that the organization is not developing in a pace as to follow strategic and product innovations. An example is the hiring of new managers, which is not grounded in the required organizational changes and developments. Management meetings are regular, but are actually brainstorming sessions, and the management uses them to deal with operational business issues at hand.

Conclusion

As a result, the resources and capabilities for reaching the MbO are not developed.

[Figures and tables are omitted from this preview.]

Figure 11: GA’s Integrated Management System (IMS) ® adopted from Malik ManagementZentrum St. Gallen

5 Financial Analysis of the current Business Situation

GA is a statutory body, a corporation under canon law owned by the monks living in this abbey, independent from Rome or the Vatican. GA has one indirect subsidiary, the Weingut Stift Göttweig GmbH, holding a participation of 10%. Apart from this activity, GA holds a participation of a few percent in a registered bank (Bankhaus Schelhammer & Schattera).

The following financial analysis describes the current business situation of the business units within GA.

5.1 Key figures 2005-2008

Compared to 2005, 2006 and 2007, GA’s financial performance in 2008 was below average:

GA’s operating income was over the past years mostly negative, due to high overhead costs and significant problems in various business units. The generated net income in 2008 amounted to € - 1.8 million.

[Figures and tables are omitted from this preview.]

Figure 12: GA’s Key figures 2005-2008

GA had consolidated revenues of on average of around € 5.3 million / year over the past 16 years (1992-2008). According to the consolidated 2008 financial statement, GA generated in the fiscal year 2008 revenues of € 6.089 million. The consequences of the financial and economic crisis 2008 cannot be predicted, but the interim financial statements of 2009 prepared in accordance with the provisions of Austrian Commercial Law (Unternehmensgesetzbuch, UGB) show that revenues in 2009 remained constant at 2008 level.

[Figures and tables are omitted from this preview.]

Figure 13: Consolidated revenues GA 1992-2008

Liabilities vis-a-vis credit institutions increased in 2004, 2005 and 2006, due to heavy investments in infrastructure, the GA archive, gastronomy and event rooms.

[Figures and tables are omitted from this preview.]

Figure 14: Total Liabilities GA 1992-2008, Capital resources

In the financial statement as of 31 December 2008 the balance sheet total amounted to € 15.818 million. The assets comprised mainly of property and land in the amount of € 8.95 million and assets under management in the amount of € 5.804. Cash, receivables and intangible assets amounted to € 1.064 million. The long term liabilities comprised mainly of loans in total of € 13.194. The equity amounted to € 2.624 million.

[Figures and tables are omitted from this preview.]

Figure 15: Equity versus Liabilities, Split up 2005-2008

Looking at the constantly growing liabilities, comparing them with the equity situation over the past 16 years, GA is not properly leveraged.

5.2 Profitability 2005-2008

Return on Invested Capital (ROIC) is defined as operating profit before interest after tax, divided by fixed assets plus net current assets. ROIC measures the return on the capital invested in the business. ROIC is also referred to as return on capital employed (ROCE). (Higgins, 1998)

The declining trend had begun at GA end of the 1990s. The Cellarer could not bring about a change of strategy and significant cost cutting, as well as a major upturn in profitability.

[Figures and tables are omitted from this preview.]

Figure 16: Profitability ratios GA 2005-2008

Conclusion

GA’s negative ROCE is wholly the result of negative return on sales margins. This negative margins result from a substantial high ratio of COGS to sales. This is the result of high costs (labor and materials) and of low sales prices. Additional analysis we made found out that GA’s high COGS/sales ratio is the result of low productivity of labor. For this we looked at the sales per employee, customers per employee and net attendance per employee (productive hours per year at workplace) ratios.

To understand the sources of GA’s poor financial performance it is useful to understand also the key contributors of overall costs at GA.

5.3 Defining Key Contributors to Overall Cost

GA’s overall OH costs range between 15 and 20%. In 2008 the overhead costs amounted to 15,52% of its revenues.

[Figures and tables are omitted from this preview.]

Figure 17: Over Head costs 2005-2008

There are many cost drivers affecting GA, however, the following list of cost drivers seem to have a more significant impact than others:

Infrastructure: GA grounds and facilities are substantial (around 18.000m2) and this significantly affects insurance, maintenance and other related costs.

[Figures and tables are omitted from this preview.]

Figure 18: Infrastructure Cost centers 2005-2008

[Figures and tables are omitted from this preview.]

Figure 19: Infrastructure costs of GA 1992-2008

Community: this significantly affects the monastery overhead costs.

[Figures and tables are omitted from this preview.]

Figure 20: Spiritual Cost centers GA 2005-2008

[Figures and tables are omitted from this preview.]

Figure 21: Spiritual/ Monastic costs of GA 1992-2008

Process complexity/flaws: the degree of complex cross-departmental products as well as running an organization that serves diverse clients surely impact total costs.

Decentralization: certain departments, such as Maintenance, Housekeeping, HR and Accounting are not centralized: This affects the cost of communication.

IT diversity: different departments run different licensed software at the same time which affects maintenance costs.

Personnel costs: this impacts productivity in general and accordingly impacts costs. Salary and wages were more than a third of revenues as of 2008. GA’s operations employ around 80 employees and are supported by 50 monks.

5.4 Defining Key Profit centers

GA’s summary of the results from 2008 indicates that the Forestry segment was a very strong income generator. Within the past few years, Investment (Asset) Management tended to be a very solid income source. However the financial and economic crisis 2008 eliminated a massive volume of wealth, resulting in high depreciations.

[Figures and tables are omitted from this preview.]

Figure 22: Performance of Profit centers GA 1992-2008

[Figures and tables are omitted from this preview.]

Figure 23: Key facts of Profit centers GA 2005-2008

When evaluating a company’s performance, the focus is on profit. However, “profit” can have different meanings, so it is preferred to refer to accounting profit as “net income”. Net income is the difference between revenues and expenses. Revenues and expenses may not be mistaken with cash flows.

[Figures and tables are omitted from this preview.]

Figure 24: Profit/ Loss 1992-2008

The discussion about restructuring and turnaround management came in 2008 when the financial crisis came and Göttweig Abbey faced a loss of € 1.799 million – the highest in the past two decades. This loss made bankers and consultants even predict doing business would spell the end of GA in 30-40 years time. 2008 caused a period of potentially tumultuous change.

[Figures and tables are omitted from this preview.]

Figure 25: Results of operations GA 1992-2008

5.5 About Income, Cash Flows and Liquidity

Although analysis of net income provides an indication about the financial health of a company, there are several reasons why cash flow and liquidity can provide more information about a firm when used together with the income statement:

5.5.1 Going Concern Value

Income does not look at changes in accounts such as receivables and inventories because the assumption is that the company will be an ongoing undertaking and will eventually turn those assets into income. However, in some cases the amounts listed for those accounts may not be a true indication of their value – receivables may not be collectable and inventories may be overvalued. The pattern of cash flows from collections and cash paid for inventories can be compared through the income statement. (Higgins, 1998)

[Figures and tables are omitted from this preview.]

Figure 26: Book value of GA total assets 2005-2008

5.5.2 Choice of Accounting Policy

Cash flow is less likely than accounting income to be affected by management’s choice of accounting policies and estimates. Cash flow can allow an analyst to determine whether changes in net income are true economic changes or caused by earning manipulations. (Higgins, 1998)