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BUSS3 Winter 2010

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BUSS3 Winter 2010 Powered By Docstoc
					Welcome!
                     Today
Session   Topic
   1      Objectives and Strategies
   2      Marketing Strategies for Success
                         Break
  3       Financial Strategies & Accounts
  4       Successful HRM Strategies
              Lunch (back for 2.00 p.m.)
  5       Operations & Strategies for Exam Success
Today’s Case Study
  Session 1:
Objectives and
  Strategies
     Which TWO of these are LEAST LIKELY to be
Q1   considered corporate objectives?

 A    To increase market share to 20%

 B    To increase dividends by 10% p.a.

 C    To improve stock lead times

 D    To increase operating margin by 2%

 E    To improve the profitability of online sales
     Which TWO of these are LEAST LIKELY to be
Q1   considered corporate objectives?

 A    To increase market share to 20%

 B    To increase dividends by 10% p.a.

 C    To improve stock lead times

 D    To increase operating margin by 2%

 E    To improve the profitability of online sales
Q2 Functional or corporate objectives?
Objective                               Func   Corp
Productivity of the Northern Division
up by 15%
Group ROCE to be at least 12% p.a.

90% of office staff to use flexible
working
Increased average spend per
customer to £45
Build reputation for socially-
responsible activities
Q2 Functional or corporate objectives?
Objective                               Func   Corp
Productivity of the Northern Division
up by 15%
Group ROCE to be at least 12% p.a.

90% of office staff to use flexible
working
Increased average spend per
customer to £45
Build reputation for socially-
responsible activities
     Which of these corporate strategies is LEAST LIKELY to
Q3   be appropriate for a business significantly affected by
     the recession?

      Conserve cash by increasing required rate
 A    of return on investment projects

 B    Increase production capacity by 15%

      Improve gross profit margins by focusing on
 C    most profitable customers

      Cost minimisation by closing unprofitable
 D    trading locations
What are your immediate impressions
            of MRH plc?
• Profitable
• PLC – shares quoted on Stock Exchange
• Focused – on hotels (two segments)
• Significant influence of Hugo C-S & other
  major shareholders
• Multi-location business = complex ops
• Capital intensive
• Tall organisational structure
How might the corporate objectives of   Outline two ways in which Gill Clarke’s
MRH plc have changed after Hugo C-S     corporate aims are likely to be significantly
joined the Board as Chairman?           different to those of Hugo C-S

Speculative investor – more             Keen to focus on UK budget hotel
concerned about short-term              sector
performance?                            Perhaps more concerned about
Concern about “sluggish growth” –       long-term aims
change focus to revenue & profit        Aims will concern building scale to
growth?                                 gain efficiency savings
Objectives likely to include
international expansion
The hierarchy of objectives: e.g.

   Corporate
                Revenue growth of 10% p.a.
   Objectives

   Functional      15% share of a target
   Objectives           segment


     Unit       Revenue per year for each
   Objectives           location
Corporate objectives v functional objectives

     Corporate            Functional



               In charge of

      Master                Servant
Corporate objective:
Improve profits and return on investment in UK hotels by
focusing on better efficiency

          Marketing                            Finance
Promotion focused on increasing    Reduced or rationed investment
room occupancy                     in existing Classic Coastal hotels
Less product innovation?           Seaside seen as a “cash cow” –
Change in distribution: increase   so expected to generate cash
proportion of direct bookings      flow to finance international
rather than through coach          expansion?
operators                          Likely to be emphasis on cost
                                   minimisation
Corporate objective:
Invest in and established presence in European budget hotel
market to provide excitement for shareholders (higher share price)

          Operations                              HRM
Choosing the right locations for     Need to recruit Spanish staff &
the initial 10 Spanish hotels        management (workforce plan &
Understanding cultural issues        org structure)
operating hotels in Spain            How to communicate effectively
Managing a multi-site business       between UK & Spain
operating overseas                   Should authority in Spain be
What scale is required in Spain to   decentralised to Jose Santano and
be able to compete effectively?      his team?
  Session 2:
 Marketing
Strategies for
   Success
     Which TWO of these are EXTERNAL
Q1   INFLUENCES on marketing objectives?


 A    Effectiveness of customer service training


 B    Production capacity to meet demand


 C    Competitor promotional campaigns
      Changes in technology affecting the product
 D    life cycle

 E    Profitability of the business
     Which TWO of these are EXTERNAL
Q1   INFLUENCES on marketing objectives?


 A    Effectiveness of customer service training


 B    Production capacity to meet demand


 C    Competitor promotional campaigns
      Changes in technology affecting the product
 D    life cycle

 E    Profitability of the business
     Which ONE of these is a disadvantage of
Q2   test marketing?


 A    Reduces the risk of a full product launch

      Allows the marketing mix to be tested and
 B    changed
      Competition are kept in the dark about new
 C    products
      Test market may not be representative of full
 D    market
      Profitability of the business
     Which ONE of these is a disadvantage of
Q2   test marketing?


 A    Reduces the risk of a full product launch

      Allows the marketing mix to be tested and
 B    changed
      Competition are kept in the dark about new
 C    products
      Test market may not be representative of full
 D    market
      Profitability of the business
Q3   Which TWO of these statements are TRUE?

     Extrapolation uses trends in historical data to
 A   predict the future

 B   A moving average makes a trend line more volatile


 C   Correlation cannot be used for sales forecasting

     The regression line plots the relationship between
 D   two variables
     Strong negative correlation indicates a strong
 E   causal link
Q3   Which TWO of these statements are TRUE?

     Extrapolation uses trends in historical data to
 A   predict the future

 B   A moving average makes a trend line more volatile


 C   Correlation cannot be used for sales forecasting

     The regression line plots the relationship between
 D   two variables
     Strong negative correlation indicates a strong
 E   causal link
     Identify from the list below TWO likely features of
Q4   a marketing strategy of cost leadership?


 A   Significant brand or product differentiation

     High level of productivity and capacity
 B   utilisation

 C   Targeting a small number of market niches

 D   Lean production methods

 E   Focused on online distribution only
 Hotel Ads
Moviemaker
 Goes here
Getting to Grips
   with the
Marketing data
              Observations (1)
• Business v leisure: different type of demand
  – Leisure more seasonal
  – Business demand mainly Mon-Thurs
• Customer requirements differ:
  – Leisure: full service (e.g. meals, entertainment)
  – Business: communications; simple
• Distribution: direct v via agents/operators
• Scale and power of competitors
    That leaves
414,000 unbranded
   hotel rooms!
Premier Inn owned by Whitbread plc
Travelodge owned by venture capital
   Holiday Inn – multinational US
              business
Market Attractiveness
 Budget or Seaside?
Using the marketing data, identify two pieces of evidence which help you
 evaluate the relative attractiveness of the markets in which
               HotelSimple and Classic Coastal operate
    Using the marketing data, identify two pieces of evidence which help you
     evaluate the relative attractiveness of the markets in which
                   HotelSimple and Classic Coastal operate



Faster growth (10%) than the overall      Customers predominantly lower
UK hotel market                           socio-economic grouping & more
Segment is relatively small (£1.6n)       price conscious
c/w total market (£10.9bn) suggests       Must be hard to earn strong profits
plenty of scope for further growth        at such low prices + incur losses out
                                          of main holiday season
Budget market share dominated by          Market is highly fragmented – lots of
two leading multinational brands          independent hotels
(60%+ between 2 of them)                  Market also largely unbranded
Operating profits suggest significant     Is that an opportunity for someone
benefits of economies of scale            to build a leading seaside hotel
                                          brand?
Which market is more attractive in your view?
Which market is more attractive in your view?

     Faster growth
                            Slower growth
  Bigger competitors
                        Many small competitors
   Heavily branded
                              Unbranded
  Business & leisure
                        Older leisure customers
        demand
                        Third-party distribution
   Direct marketing
                            Generates cash
  Heavy investment
Sandy Balls, the Managing Director
of the Seaside division has set two
key objectives for Classic Coastal
for the next three years:

•Increase proportion of online
bookings to 20% by 2013

•Reduce the reliance on summer
                                            Sandy Balls
holiday coach group bookings and      Managing Director
increase off-season short break         Seaside Division
revenues by 50% by 2013
                         Internal Influence

Which is the             Whether MRH has the right people skills (marketing
significant influence?   & operations) to implement an effective e-commerce
                         strategy to enable online bookings to grow

Which objective will it Increase in online bookings to reduce reliance on
affect?                 travel agent & coach operator bookings


Outline the potential    Bookings made direct will reduce commission paid to
impact                   agents or margin to coach operators
                         But will coach operators see this as a threat?
Why is the influence     Existing customer base not heavy users of Internet –
significant?             will be a marketing challenge to reach them and
                         persuade to book online
       Other internal influences
• Culture: are the Classic Coastal hotels ready to
  handle larger numbers of online bookings?
• Operations: hotels used to handling
  requirements of large coach groups; different
  handling short-breaks
• Will finance be available to support the
  investment in e-commerce?
                         External Influence

Which is the             Customer demand for seaside hotels is mature; market is
significant influence?   slow-growth


Which objective will it Increase off-season short break revenues by 50% by
affect?                 2013 – this looks optimistic in a mature, low-growth
                        market?

Outline the potential    Classic Coastal may have the capacity (available rooms)
impact                   to handle 50%+ rise in short breaks; but can they attract
                         the demand?

Why is the influence     Many competitors trying to target additional revenue
significant?             from short-breaks
                         An unrealistic revenue growth target may prove de-
                         motivating for hotel management
       Other external influences
• Technological change: greater adoption of
  online booking by old customers may help
• Competitor response: will act to prevent a
  loss of market share, particularly in short
  breaks segment
• Customer response: coach operators will
  resist attempt by Classic Coastal to sell directly
  to customers rather than through coach tours
Exam Style Question:
To what extent is test marketing the
best way for HotelSimple to
evaluate the viability of expanding
into the Spanish market:
    Possible Points to Develop (1)
• Role of test marketing: to assess viability of a
  new product/market prior to main launch
• Aim: to gather insights into the optimal
  marketing mix
• By opening a real hotel:
  – Data & insights from real customers
  – Reduced risks of a full-scale roll-out
  – Learn much about different culture in Spain
   Possible Points to Develop (2)
• Some dangers
  – Just one hotel opened; based in an existing hotel
  – Test was conducted in a very different economic
    climate: has the market changed since?
  – Very small sample of customer replies
  – Competitors alerted to MRH intentions for Spain?
 Things to consider when planning the
                answer
• Test marketing is just one part of the
  evaluation process:
  – Detailed investment appraisal required
  – Needs the support of property experts
• Other data required
  – Market analysis (structure, growth, forecasts)
  – Does MRH have the operational capability to
    achieve sufficient scale in Spain?
  Session 3:
  Financial
Strategies for
   Success
Q1   ROCE is calculated by dividing:


 A    Operating profit by revenue

 B    Operating profit by capital employed


 C    Fixed assets by operating profit


 D    Working capital by net cash flow
Q1   ROCE is calculated by dividing:


 A    Operating profit by revenue

 B    Operating profit by capital employed


 C    Fixed assets by operating profit


 D    Working capital by net cash flow
     The use of the quick (or acid-test) ratio to assess liquidity rather
Q2   than the current ratio would be most appropriate for which
     TWO of these businesses?


 A     A firm of accountants

 B    An industrial bakery

 C    An online insurance broker

 D    A distributor of industrial components

 E    An internet service provider
     The use of the quick (or acid-test) ratio to assess liquidity rather
Q2   than the current ratio would be most appropriate for which
     TWO of these businesses?


 A     A firm of accountants

 B    An industrial bakery

 C    An online insurance broker

 D    A distributor of industrial components

 E    An internet service provider
     Which TWO of the following would be most likely to
Q3   result in an increased dividend yield??


 A    A significant increase in the share price
      A decision to retain profits rather than pay
 B    as dividends

 C    A significant increase in business profits

 D    A significant decrease in the share price

 E    A decrease in corporation tax
     Which TWO of the following would be most likely to
Q3   result in an increased dividend yield??


 A    A significant increase in the share price
      A decision to retain profits rather than pay
 B    as dividends

 C    A significant increase in business profits

 D    A significant decrease in the share price

 E    A decrease in corporation tax
Q4: Tick whether the following statements
are true or false…
Statement                                       True   False
Retained profits are a free source of capital


The value of a quoted company is usually
close to the value of its capital employed
Shares issued via a rights issue are usually
offered at a significant discount to the
existing share price
In general, it is better to finance long-term
assets with long-term finance
Q4: Tick whether the following statements
are true or false…
Statement                                       True   False
Retained profits are a free source of capital


The value of a quoted company is usually
close to the value of its capital employed
Shares issued via a rights issue are usually
offered at a significant discount to the
existing share price
In general, it is better to finance long-term
assets with long-term finance
  Time to search for some
clues in the financial data…
Spotting the clues in financial appendices

• Great for spotting trends in competitive
  performance (e.g. growth, profitability)
• Look for absolute changes (e.g. fall in profit
  levels)…
• And relative changes (e.g. decline in gross
  profit margin)
• Think about the implications of the financial
  data
          Some key points (1)
• A record of profitable growth (+)
• But higher interest payments suggest
  increasing levels of bank debt? (-)
• Dividend yield of 8% is a reasonable return in
  a period of low interest rates (+)
• But share price has fallen consistently (-)
• Value of business has fallen by £30m since
  2008 (-)
           Some key points (2)
• HotelSimple is the reason for the revenue &
  profit growth (+)
• Classic Coastal seems to be in slow decline (-)
• Over £60m extra invested in HotelSimple (new
  hotels) which has resulted in a lower ROCE (-)
• Classic Coastal ROCE in line with industry average;
  HotelSimple ROCE looks unacceptable (-)
• HotelSimple has a higher operating margin (+)
        Reduced revenue and profits at Seaside division



Conflicts with corporate objective to          Depresses MRH growth rate,
maximise returns and cash flow from            making investment less attractive
Classic Coastal

        Higher interest payments on bank debt used to
        finance expansion of HotelSimple


May reduce finance available for future UK     Significant for shareholders =
expansion                                      higher business risk & reduces pre-
But a corporate issue rather than divisional   tax profits
issue
Capital rationing
The MRH Board has historically set a
target ARR of 15% p.a. on capital
expenditure.

However, Hugo C-S wants to change
this.

He has recommended that from 2011
onwards all UK hotel capital
expenditure should be evaluated
using the payback method, with a
maximum target payback of 2.5 years
for Classic Coastal hotels and 6 years
for HotelSimple.
      Task: Evaluate Hugo C-S’s proposal to change the
              method of investment appraisal:

Arguments for the Change:                Arguments against the Change
Payback focuses the investment           Investing in hotels is all about the long-
decision on cash flow                    term!
MRH needs to improve cash flow to        Change will encourage short-term
reduce bank debt                         thinking
Payback encourages short-term (speed     Ignores the rate of return required by
of return) rather than long-term         shareholders
investment and spending on lower-risk    Payback ignores the profits and cash
Managers will find the use of payback    flows which arise after payback
simpler & easier to understand           achieved – which are still of interest to
Classic Coastal is the “cash cow” – so   shareholders!
justifies a lower payback period         Shareholders are mainly interested in
                                         profits rather than cash flows
     Other points to consider (1)
• Operating hotels is capital intensive – so
  choosing an appropriate way of rationing
  capital is important
• Hotels are a long-term investment, so method
  of investment appraisal needs to reflect this
• Can make a distinction between:
  – Hotel repairs/upgrades (e.g. new décor, facilities)
  – New builds / extensions (new locations, extra
    rooms)
     Other points to consider (2)
• 2 year payback for Classic Coastal
  – Consistent with corporate objective as a cash cow
  – But risk that hotels will become “tired”
  – Inconsistent with objective of 50% short-break
    revenue growth?
  – Will the move invest in e-commerce meet the 2-
    year payback test?
Improving the Profitability of Classic
              Coastal
Hugo C-S is unhappy with the current level of profitability earned
by the Classic Coastal hotels. He has encouraged Gill Clarke and
her management team to adopt a strategy of cost minimisation for
the Seaside division and has proposed the following actions:

 Reduce cost of sales for food & beverages through
centralised purchasing
 Negotiate better room pricing with the main coach tour
operators
 Outsource the division’s IT and payroll activities
 Remove the Classic Coastal 100% money-back customer
service guarantee
Exam Style Question:
To what extent is the cost minimisation strategy proposed for Classic Coastal likely to
damage the long-term performance of the Seaside division:
  Cost minimisation
Aims to achieve the most
  cost-effective way of
delivering a service to the
required level of quality
                Remember…
• Cost minimisation is not about reducing quality or
  short-changing customers
• It is about:
  – Organising the business efficiently
  – Removing non-essential elements of the product
  – Removing unnecessary complexity
• Cost minimisation which damages quality or
  customer service will damage long-term
  performance
Exam Style Question:
To what extent is the cost minimisation strategy proposed for Classic Coastal likely to
damage the long-term performance of the Seaside division:

  Define cost minimisation
  What do we mean by long-term performance? Profits? Share price?
  Successful cost minimisation will lower costs & increase price in the long-
  term
  How might it damage long-term performance?
  Depends on how it is implemented
  Yes - if effect is lower quality / customer service
  No – if quality is not affected and strategy enables Classic Coastal to offer
  even better value for money
  Cost minimisation strategies affect all the functional areas – think
  carefully about the impact on HRM, operations, marketing as well as
  finance
  Deal with the specific proposals
Cost minimisation action                  Impact on quality / customer service
Reduce cost of sales for food &           Low impact on customers
beverages through centralised             Sensible strategy to reduce costs
purchasing
Negotiate better room pricing with the A test of bargaining power
main coach tour operators              Risk of losing business if coach
                                       operators look for alternative hotels
Outsource the division’s IT and payroll   Low impact on customers
activities                                Potential HR impact – needs to be
                                          managed carefully
Remove the Classic Coastal 100%           Potentially very damaging
money-back customer service               Loyal customers will question motives
guarantee                                 Does this really reduce costs?
        Extra evaluation points
• How much scope for cost minimisation in
  Classic Coastal? What has already been done?
• Impact on staff – potentially de-motivating if
  they sense hotels are no longer been invested
  in
• Will cost minimisation stifle innovation?
  Inconsistent with objective of growing short-
  breaks?
  Session 4:
Successful HRM
  Strategies
 Circle the approaches typical of a SOFT approach to HRM


                     Autocratic         Employees
 Decentralised
                    Management       treated like any      Delegation
decision making
                       Style         other resource


Greater use of                                            High levels of
                    Investment in       Two way
 short term                                                employee
                       training      communication
  contracts                                               participation

                                         Appraisal
    Flatter
                     Centralised     systems focused     Theory Y style of
organisational
                   decision making      on personal       management
  structures
                                       development
                   Competitive pay
   Suited to                         Tight control and
                         and                               Employee
  democratic                           monitoring of
                    performance                          empowerment
leadership style                            staff
                   related rewards
HRM at MRH
Read Michelle Svenson’s HRM
briefing and identify two
potential HRM issues
          Potential HRM Issues
• Centralisation v decentralisation
• Organising HRM to ensure consistent quality (link
  with operations)
• Independence of Classic Coastal hotel managers
• Relatively poor HRM performance stats for
  HotelSimple compared with industry
Michelle’s HRM Plan
My priority for 2011 is to start the process of making the organisational structure
and performance of MRH plc more competitive. It is clear to me that the business as
a whole will benefit from greater centralisation (to improve decision-making)
delayering (to reduce costs) and flexible working (to reduce labour turnover). I also
wish to focus our hotel managers on overall hotel profitability rather than revenue
and room occupancy.

The performance of hotels in the Seaside division is adversely affected by too many
layers in the divisional hierarchy. I propose to combine the role of the Regional
Managers in that division with those of the Area Managers in HotelSimple UK. Some
of the cost savings achieved can be reinvested into a more generous Hotel Manager
incentive scheme. I propose to increase the available bonus for hotel managers to a
maximum of 25% of annual salary (currently 10%) assuming that performance
targets are met.

For 2011 and beyond, I also suggest that every hotel in the MRH group is treated as
a separate profit centre for the purposes of budgeting and incentive-related pay
           Initial observations
• Lots of change!
• Trying to do too much, too quickly?
• Michelle is new – more likely to face
  resistance
• Proposals are broadly consistent with
  corporate objective of “significant
  improvement in profitability”
          Centralised decision-making
Demonstrating Analysis – A03                                  Consider Evaluation

How will this improve the      Possible Issues or Problems    What will successful
competitiveness of MRH?                                       implementation depend on?

Better decision-making         Who handles a customer         Depends on what is
should mean more               complaint?                     centralised and what is left
competitive!                   In a hotel, customer service   for local managers to decide
Enable more consistent         is determined in the hotel!    Communication to
quality of service across      Hotel managers and staff       overcome likely resistance in
many locations                 need authority to take         Classic Coastal hotels
Allows better economies of     decisions on the spot
scale                          Risk that MRH management
                               become distanced from
                               customer needs
De-layered organisational structure
Demonstrating Analysis – A03                                 Consider Evaluation

How will this improve the      Possible Issues or Problems   What will successful
competitiveness of MRH?                                      implementation depend on?

Lower overheads (costs)        Period of disruption          Quality of communication
Quicker decision-making        Spans of control may          – explaining the changes
Improved communication         become too wide               Training – will combined
                               MRH may lose managers         role require new skills?
Improved motivation
                               with valuable skills and
                               experience
                Hotels as Profit Centres
Demonstrating Analysis – A03                                  Consider Evaluation

How will this improve the      Possible Issues or Problems    What will successful
competitiveness of MRH?                                       implementation depend on?

Common practice in multi-      Potentially time-consuming     Hotel teams clearly
location businesses            to set up and manage           understand nature of cost
Focuses all hotel              Should central costs be        allocations and targets
management and staff on        allocated (e.g. marketing?)    Budgets and targets are
profit                         Hotels in the group may        realistic and achievable
Everyone takes more            compete against each other     Profit centre targets are
responsibility for profit      – especially those close       consistent with corporate
Improved budgetary             De-motivating if profit        objectives
control = less excess cost &   centre targets are too tough
waste
Planning an Exam-Style Question

  To what extent do you agree that
     the introduction of flexible
  working practices at HotelSimple
    would enable the business to
 improve its poor record on labour
     turnover and absenteeism?
What is the question really asking? Can flexible working help make MRH more
competitive (if high labour turnover is a competitive disadvantage)

One argument for/benefit                     One argument against/problem
Point: helps recruit and retain good staff   Point: Can reduce operational flexibility
Significant to MRH because:                  (e.g. handling periods of peak bookings)
Staff quality largely determines quality     Significant to MRH because:
of customer service                          Hotel capacity management is crucial to
                                             maximising hotel profitability

Your decision / view (read question again before writing)
Flexible working is a potential solution, but underlying causes of poor labour
turnover & absenteeism may run deeper (e.g. quality of hotel managers, pay rates

What will it depend on?
The kind of flexible working offered – e.g. term-time working (-) or job sharing (+)

      Note: in exam, do at least TWO points for and against +
                 develop your “depends on” points
   Session 5:
 Operations &
Exam Technique
     Achieving lower unit costs due to higher
Q1   production level is known as:

 A    Optimal productivity

 B    Lean production


 C    Economies of scale


 D    Specialisation
     Achieving lower unit costs due to higher
Q1   production level is known as:

 A    Optimal productivity

 B    Lean production


 C    Economies of scale


 D    Specialisation
     Identify the TWO most CAPITAL INTENSIVE
Q2   businesses from this list:


 A    Fruit picking

 B    Oil refining

 C    Web hosting

 D    Hairdressing

 E    Accountancy
     Identify the TWO most CAPITAL INTENSIVE
Q2   businesses from this list:


 A    Fruit picking

 B    Oil refining

 C    Web hosting

 D    Hairdressing

 E    Accountancy
                                                Offshoring?   Outsourcing?
                                                    Y/N           Y/N

Virgin Media set up a call centre in Mumbai
to handle UK customer service calls

Speedo has its new hi-tech swimsuit made
by an external supplier in Poland

Sainsbury’s agree a logistics contract to
supply their UK stores with Eddie Stobart

tutor2u sends staff to open a sales office in
Singapore
              Maximising HotelSimple Occupancy

 Vince McGee (MD HotelSimple UK) has identified two potential
strategies to improve the capacity utilisation (occupancy rates) of
                      HotelSimple in the UK
1
  Introduce a customer
loyalty scheme targeted
   at regular corporate
 customers. Significant    2
   discounts offered for
                               Allow HotelSimple hotel
  reaching target room
                               managers to determine
    bookings each year
                                the room rates offered
                               each day (within a pre-
                                  determined range)
STRATEGY 1                                    STRATEGY 2
Customer Loyalty Scheme                       Hotel Managers in charge of Pricing

Potential Benefit: (in exam do at least 2)    Potential Benefit: (in exam do at least 2)
Incentive for regular customers to actively   Pricing reflects local market conditions
seek HotelSimple locations                    Better motivation for Hotel Managers
Potential Downside:                           Potential Downside:
Does the pricing discount offset the          Unnecessary loss of revenue
improved room bookings = no benefit to
revenue?                                      MRH hotels may compete against each
                                              other!

Which of your choices above is THE BEST OPTION for HotelSimple?
Loyalty scheme: corporate customers most likely to generate significantly more
bookings if the incentive is sufficiently attractive

What will successful implementation depend on?
Effective promotion & take-up; clear communication to hotels; evaluation on the
effectiveness of the impact of promotion on occupancy
   Innovation and
Competitive Advantage
Tune Hotels is aiming
 to use innovation to
 shake up the global
budget hotel market
 Could HotelSimple use
  the innovation being
demonstrated by Tune to
  support its strategy?
Cost and value strategy               Quality strategy
Customers feel that they are          Highest quality equipment for the
paying for what they use and not      basic room essentials (bed,
for what they don’t (e.g. gym)        shower)


Efficiency and flexibility strategy   Environmental strategy
Services are provided to meet         Less waste
actual customer demand
Evaluation – to what extent will innovation help
   MRH plc achieve its corporate objectives?

Innovation could help them because…
Customers are increasingly looking for a personalised hotel experience that
provides outstanding value for money
Improved added value can help MRH increase ROCE

On the other hand it may not help them because…
Innovation in providing customer service in a hotel industry is easily copied =
no sustainable competitive advantage despite the investment in facilities and
training
Significant changes in the hotel services offered may alienate the existing
customer base

The major risks for this strategy would be….
Investment / training required | Competitor response
BUSS3 Exam Essentials
         Case Study Facts
• Business – bigger, more complex,
  more products and markets
• Reference to each functional area,
  Finance, Operations, Marketing and
  Human Resources
• 4 appendices, 1 for each function
                         You need..
  To know                           To show
• How the achievement of            All exam skills
  functional objectives leads to    • Content (AO1)
  the realisation of corporate      • Application (AO2)
  objectives                        • Analysis (AO3)
                                    • Evaluation (AO4)
• The strategies available to a
  business to achieve its
                                    Key:
  objectives
                                    1. Select and analyse data to
• Recommend an appropriate              build arguments
  strategy for a business given its 2. Use variety of numerical
  objectives and resources              techniques across each
                                        functional area
      The Big Question – Q 4

Final Question: 34 marks out of 80

   42.5% of total marks for BUSS3

Requires you to consider all functional
 areas and ask you to make a specific
          recommendation
Let’s look at an example
Tips
   Approach to tackling 34 marks




Need to do this for each one of the functions, selecting and
     using data from each one of the appendices and
information from the case study to build a logical argument
         Focus on Finance
 Identify one piece of
  financial information
that would support and
  one that would argue
 against Jose Santano’s
         strategy
    Finance - some thoughts for
• ARR 22.8% significantly higher than existing
  ROCE
• NPV £5.7m positive
• Strong net cash flows once the hotels are built
  and opened
 Finance - some thoughts against
• Substantial investment (£40m) compared with
  the existing value of the firm (£120m)
• The ARR is calculated over 10 years – risky to
  predict profits over that period
• Will shareholders support the investment?
Ladies v Gents focus on Marketing
• Ladies – outline one argument, using the case
  study and information presented today to
  support Jose’s proposal

• Gents – One argument to argue that this will
  not be the right strategy for MRH plc
        Marketing thoughts for
• Market is fast-growing and under-developed
• HotelSimple brand well-suited to European
  market
• Spanish test marketing was successful in 2007
     Marketing thoughts against
• Competing against much better-resourced
  competitors
• MRH does not have the scale to become a
  “leading player in the international hotel
  market)
Quick thoughts on HRM and Operations
HRM                  OPERATIONS
Implications of ex   Points go here
Successful conclusions
Final Tips
Thank you
& have a
safe
journey
home

				
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