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Hi Life Hotel CASE SBL DEC 2018 + Model Answer
Strategic Business Leadership (SBL)
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Strategic Professional – Essentials
Strategic Business
Leader
(SBL)
Tuesday 4 December 2018
Time allowed:
4 hours including reading, planning and reflective time.
This question paper is an integrated case study with one section
containing a total of 100 marks and ALL tasks must be completed.
All tasks contain Professional Skills marks which are included in the
marks shown above.
Do NOT open this question paper until instructed by the supervisor.
You must NOT write in your answer booklet until instructed by the
supervisor.
This question paper must not be removed from the examination hall.
SBL
The Association of
Chartered Certified
Accountants
SBL ACCA
2
‘HiLite’ hotels (HiLite) is a listed hotel chain, located in the country of Deeland. Deeland has a developed economy, which
has experienced strong growth in the last 15 years. Deeland also has a highly-developed tourism industry.
HiLite’s competitive advantage is built on its highly competitive pricing strategy, and this has been a significant factor
in its current position as the leading hotel brand in Deeland. HiLite normally attracts those travellers seeking ‘no frills’
accommodation, at a reasonable price and as such, is referred to as a ‘budget’ hotel chain. Every HiLite hotel room provides
an en-suite bathroom, TV and free Wi-Fi internet access and each hotel offers a complimentary breakfast service. However,
HiLite hotels do not provide additional services such as bars, restaurants or leisure facilities. Every HiLite hotel has a similar
layout and design, and are mostly located at airports, city centre locations and close to major transport routes, such as
Deeland’s main road networks and train stations.
HiLite was founded about 40 years ago beginning with two hotels in the capital city of Deeland. Since then it has grown
significantly, operating 510 hotels (approximately 46,000 rooms) by the end of the 20X7/20X8 financial year (Note: HiLite’s
financial year end is 30 June). It is now the largest hotel chain (in terms of number of hotels) in Deeland. Since it was
founded, all of HiLite’s growth has been achieved organically within Deeland, with investment being gradually made in new
‘HiLite’ branded hotels each year throughout Deeland. Although it is currently the leading hotel brand in Deeland (in terms
of market share), HiLite faces fierce competition from several home-based and international hotel chains.
In the last 10 years, HiLite has made significant investment in web-based technology, which has resulted in over 75%
of room bookings in the 20X7/20X8 financial year being completed through the HiLite website. HiLite operates with low
numbers of staff in each hotel but the staff in these hotels is highly trained to provide excellent customer service. HiLite
values its staff highly, and is strongly committed to staff development and retention. HiLite pays above the Deeland national
minimum wage in order to encourage staff commitment and loyalty.
You are a senior business analyst working within the business analysis department of HiLite. You report to the chief business
analyst, who reports directly to the finance director on a wide range of business and strategic issues.
The following exhibits should be used to undertake the tasks asked of you by the chief business analyst and the finance
director:
Exhibit 1: Chief Executive’s Statement: Report on Performance for year ending 30 June 20X
Exhibit 2: Deeland Hotel Industry Report 20X
Exhibit 3: Factsheet relating to HiLite’s proposed acquisition target
Exhibit 4: Deeland Daily News article
Exhibit 5: Extract of a senior management team briefing
Exhibit 6: Board meeting minutes November 20X
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2 Following a subsequent decision by the HiLite board, the proposed acquisition of the Comfi Stay hotel chain has recently
been announced to the Deeland stock market and, generally, the market has reacted positively to the announcement. However, there have been some negative press reports in the Deeland Daily News about the proposed acquisition, criticising HiLite. The chief executive of HiLite is very concerned about these reports and has asked the business analysis team to consider HiLite’s response.
Required:
(a) Prepare a draft press release responding to the criticisms assessing the social and environmental impact of
HiLite’s proposed investment in Veelandia, with a view to reassuring its stakeholders of HiLite’s intentions to maintain its high principles and standards in acquiring the Comfi Stay hotel chain. (10 marks)
Professional skills marks are available for demonstrating communication skills in clarifying and conveying
relevant information to HiLite’s stakeholders. (3 marks)
Although HiLite’s shareholders have generally responded favourably to the proposed acquisition of the Comfi Stay hotel
chain, HiLite’s board is considering how it should effectively communicate with all of its key stakeholders to ensure that they understand the strategic decisions and direction of the business. The finance director has recently asked the board to consider the use of integrated reporting in assisting in this communication and in building relationships with HiLite’s key stakeholders.
Required:
(b) The finance director has asked you to provide her with briefing notes which she will use to assist her in
discussions with HiLite’s Board members, which assesses the role and benefits of integrated reporting in assisting effective communication and in building relationships with HiLite’s key stakeholders. (12 marks)
Professional skills marks are available for demonstrating evaluation skills in using appropriate professional
judgement to assess how useful integrated reporting could be to the stakeholders of HiLite. (3 marks)
(28 marks)
5 [P.T.
3 At the most recent board meeting of HiLite, a discussion occurred on the potential threat of disruptive technologies in
the hotel industry. Following this meeting, the chief executive has requested further information for the board on this issue.
Required:
(a) The chief business analyst has asked you to write a report for the next board meeting which discusses the
potential challenges to HiLite posed by the development of the disruptive technologies which are emerging in the hotel industry, and highlight the potential application of disruptive technologies which may be considered by HiLite. (14 marks)
Professional skills marks are available for demonstrating scepticism skills in probing and challenging the
opinions of the board. (4 marks)
At the board meeting, the finance director presented information on three risks in HiLIte’s current information systems
environment and the board has requested further analysis of these risks.
Required:
(b) The finance director has asked you to prepare three presentation slides (one for each risk identified) and
accompanying notes for the next board meeting assessing the potential outcomes of each of the information systems risks identified by the finance director and recommend actions for each risk which HiLite should take in order to control these risks. (12 marks)
Professional skills marks are available for demonstrating commercial acumen skills in demonstrating insight
and understanding of the information system risks and controls. (3 marks)
(33 marks)
7 [P.T.
Key Performance Indicators (Year ended June 20X8)
Commitment to shareholders Revenue Growth 9·1% (Target 8%)
Pre-tax Profit growth 9·5% (Target 9%)
Commitment to staff Staff retention rate 52% (Target 55%)
6·2 training days per employee (Target 5·5 days)
Commitment to customers Customer satisfaction 91·6% (Target 90%)
Customer return visits 47% (Target 45%)
Commitment to the environment 2·4% reduction in CO 2 emissions (Target 3%)
Re-cycling of 85% of waste (Target 83%)
Focus for the Future
We have identified four key strategic themes to ensure the continued success of our brand.
1 Focus on growth and innovation in our core HiLite business
We must continue to develop our market-leading customer focus with further product innovation and consistent delivery of
quality service and value. Innovation is vital to our future success. We must improve our digital capabilities to ensure we
stay ahead in this rapidly changing environment.
2 Focus on our strengths to grow internationally
There are exciting market opportunities for establishing the HiLite brand outside Deeland. As international growth is a new
area of development for HiLite, we will need to focus our resources on the best opportunities which will produce the highest
returns and match our high expectations of quality, value for money and commitment to staff and sustainability.
3 Focus on supporting future growth through investment in technology and staff
To deliver long-term sustainable returns we must invest for the long term to ensure we have the skills to become more agile
in digital capabilities and build efficient and sustainable infrastructure. We are committed to creating a great place to work,
with a strong commitment to equality and diversity. We will continue to commit to staff development opportunities which
will help them realise their potential, investing around $10 million annually in skills and development programmes. We
welcome the introduction of the new Deeland National Living Wage, which we implemented six months in advance of the
Government’s launch date.
4 Focus on sustainability
We will continue to build on our focus and reputation of operating as a sustainable and environmentally friendly business.
We are committed to continued development and investment in sustainability and environment management systems to
reduce our levels of wastage, decrease our CO 2 emissions and work towards becoming a carbon neutral business. Over the
next three to four years we will need to upgrade our systems and infrastructure to improve our sustainable position. All of
our staff will continue to be trained in environmental management and sustainability awareness and targets will continue to
be set for every hotel to encourage sustainable behaviour.
Bernie Vokes
BERNIE VOKES – Chief Executive
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Exhibit 2: Deeland Hotel Industry Report 20X
by Professor R. STEEP, Chief Analyst of the Deeland Travel and Hospitality Institute
As 20X8 draws to a close, it looks like it will be a largely positive year for many hotels in Deeland, but that does not mean
businesses can become complacent.
Tourism has continued to thrive in Deeland, despite the continued global effects of the recession, with hotels seeing an
average rise in visitors by over 8% on 20X7. Deeland has a highly-developed hotel and travel industry. Both online travel
agents (OTAs) and traditional high street travel companies are thriving in Deeland. Online hotel booking websites and price
comparison sites are driving businesses to be more competitive and offer better and more flexible pricing options.
Continued investment
This has to a significant extent been assisted by the Deeland government’s continued investment in national infrastructure,
particularly the new airport recently opened in Boria, Deeland’s second largest city. This generated an additional 2·5 million
international visitors last year, approximately 80% of them visiting Deeland for leisure. In addition, both at national and
regional level, investment has been high in road and rail network development.
This has also led to a growth in business activity in the economy, which in turn has created more opportunities and
created a highly competitive environment. In 20X8, two new national branded chains of hotels have opened in the main
tourist centres of Deeland. National competition remains intense and both Waterbay Leisure and ZeezeeHols Group, two of
Deeland’s most long-established luxury hotel chains, have both gone out of business this year. This is a stark warning for
those Deeland hotels which do not remain competitive and customer-focused.
It is clear that innovation is critical to the survival of hotel businesses, and technology continues to be a key driver in the
market place. Most of Deeland’s hotel chains are now offering online booking facilities and as a minimum are developing
online apps for multiple platforms to enable guests to communicate and manage bookings more effectively.
Impact of stakeholders
Deeland’s travellers continue to be highly demanding leisure and business customers, expecting high standards but also
good value for money. A recent survey of online hotel customers clearly indicated that 70% would shop around for the best
deal in the best location. The hotel and travel industry was hit hard in many countries by the recession and a number of
hotel and travel companies went out of business. However, those which survived did so by focusing on customer needs and
operating efficiently.
The government also continues to value the hotel and travel industry. Nearly half of the universities in Deeland offer travel
and tourism qualifications which are highly regarded throughout the region. The government has recently announced further
investment and tax breaks for employers offering job creation schemes in a wide range of industries, including travel and
tourism.
Customers want an outstanding, personalised experience
If the hotel industry in Deeland wants to deliver an outstanding, individualised customer experience, it must understand
customers’ needs. This will be a challenge because customers’ needs are continually evolving and they are increasingly
demanding personalised communications (via multiple electronic platforms), excellence in delivery as well as a demand for
value for money.
Recruiting and retaining the right people
Many of Deeland’s hotels are finding it increasingly difficult to recruit and retain individuals with the right blend of interpersonal
and technical skills. Developing and implementing an effective recruitment strategy and retaining skilled employees are
difficult. Recent research shows that the hotel sector has some of the highest staff turnover rates of any industry (average
staff turnover rate per hotel in 20X8 is likely to be as high as 60% per annum).
20X8 – A challenging year for Deeland’s Hotel Industry
Challenges in the hotel industry for 20X9 and beyond
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Exhibit 3: Factsheet relating to HiLite’s proposed acquisition target prepared by Chief Business Analyst of HiLite
KEY BUSINESS/INDUSTRY DATA
Comfi Stay is a family-run business, which has lacked investment in the last 10 years.
All 20 hotels in the chain have been in operation for over 18 years and are located in main coastal resorts of Veelandia.
These are in premium locations but with out-dated facilities.
Mid-range hotels, some with additional leisure facilities such as gyms and pools. Not classed as budget hotels.
Veelandia is 5,000 miles from Deeland. It has a developing economy, but low wage rates and there is some evidence
of poor employment practices in the country. Some evidence of use of under-age labour (minors) in the hotel industry has been found.
- Veelandia has a thriving tourism industry.
KEY INVESTMENT DATA: (based on a 6-year investment plan)
NOTE: All figures used have been converted into Deeland’s home currency ($)
Additional Information:
- It is expected that some of Deeland’s hotel managers would need to relocate to Veelandia (for approximately
3–12 months, on a temporary basis) to assist in training and staff development in the first year of operations and will be required to carry out on-going mentoring activities for the next two years.
- Finance for this investment would be available through a combination of equity and debt finance.
####### Comfi Stay Hotel Chain
Environmental Investment
11 [P.T.
Exhibit 4: Newspaper article following the recent announcement of HiLite to acquire the Comfi Stay Hotels chain in
Veelandia
Deeland Daily News
Has HiLite hit a low?
Business Briefing: Hotel News
Senior Business Reporter, A Talling questions the motivations of HiLite’s latest business venture.
HiLite hotels recently announced it was making an approach to buy the struggling Comfi Stay hotel chain in Veelandia. Comfi Stay’s owners, the DeWalt family, announced their intention to sell the business three months ago, having seen revenues decline steadily in the last three years. Its Chief Executive and founder Anders DeWalt admitted in an interview last month that the family has failed to recognise and keep up with the investment demands of a modern hotel, but was confident that a new owner could revitalise the business. But is its potential acquisition by HiLite a positive move for the Deeland-based budget hotel business?
Reading its recently published Chief Executive’s Statement, HiLite is a business which clearly prides itself on the value it places on its staff and maintaining strong employment rights. However, staff in Comfi Stay hotels are currently paid well below the rate of pay earned by their equivalent staff in Deeland. They also work longer hours per week with few employment rights, such as holiday or sick pay. Most of Comfi Stay’s staff are women, who are offered few opportunities for training or staff development. In addition, Comfi Stay’s policy of only employing men as hotel managers and senior staff in its hotels would seem to be in stark contrast to the strong focus on equality within HiLite’s employment practices.
Staff pay and conditions may not be the only concern for HiLite. Comfi Stay was fined by the government of Veelandia less than two years ago for polluting the local waterway in its main coastal tourist town, with an outflow of untreated effluent. The cause was outdated waste and toilet facilities which it said would be addressed, but limited recent investment in the Comfi Stay hotel chain suggests otherwise. HiLite will have to invest significant sums of money to make the hotel chain a viable and sustainable part of its business, if it wishes to adhere to its high expectations for environmental sustainability.
Although Veelandia has a thriving tourist economy, which has in fact grown since the global economic recession, it is a country of limited environmental awareness. National recycling levels are 50% less than other countries in the region and its reported CO 2 emissions are the worst in the region.
So why is the Comfi Stay hotel chain of interest to HiLite? Seemingly, foreign companies like HiLite wish to exploit this low wage economy, where a poorly educated population is happy to be in employment at whatever the rate of pay and where profits can be maximised by exploiting locals and tourists alike, with scant regard for the impact on its people or its environment. For an organisation like HiLite, this must be a questionable, and some may suggest, an unethical direction of development for HiLite to follow.
13 [P.T.
Exhibit 6: Board meeting minutes – November 20X
Board members:
Present: Chairman, Chief Executive, Finance Director, Operations Director, Sales and Marketing Director
Proceedings:
Meeting called to order at 2:00 p by Mr L Crane, Chairman
Opening statement
The Chairman opened the meeting, stating that the meeting had been scheduled to discuss the challenges faced by
HiLite in managing and developing its information systems. He noted that he personally found the rapid development in
information technologies difficult to keep pace with, but was confident that HiLite would develop appropriate responses to
these developments.
Agenda item 1: Disruptive technologies
The first agenda item was introduced by Jay Brown, the Sales and Marketing Director.
Miss Brown expressed her concern that the ‘hotel’ concept is under threat, as there have never been more alternatives for
customers to staying in a traditional hotel. In particular, she explained the emergence of ‘Rent-a-Room’. She had emailed
the handout below to the board in advance to help their understanding of a new threat.
Mr Tomas Myer, HiLite’s Operations Director stated his belief that the Rent-a-Room concept is a limited threat to HiLite’s
established business model. His opinion was that ‘It’s just people sleeping on the floor of a friend’s house and raiding their
fridge in the morning. It’s hardly what we offer. Customers want far more than that.’ He also expressed his belief that this
would be a short-lived phenomenon: ‘The threat from Rent-a-Room is clearly more of an ‘if’ rather than a ‘when’. I think we
should not over react and just let this blow over.’
Mrs Elizabeth Fox, HiLite’s Finance Director, commented that technology was likely to be a key disruptive influence on
the future of the hotel industry. She explained that modern travellers and primarily the ‘millennials’ (those people born
approximately 20–40 years ago) are looking for value for money, flexibility and the ability to manage their whole stay,
from booking through to flexible check-out, all via their smartphones. She also noted that smartphone apps are now being
developed to enable smartphones to be used as an alternative to a key for door entry systems to hotel rooms.
Other technological developments in the hotel industry were discussed, including the emergence of online travel agencies
(OTAs) and hotel comparison and booking sites, and the development of personalised technologies, such as smartphone
apps which provide guests with personalised services such as customised local offers from business partners, including
booking facilities at local restaurants and cheap tickets for local attractions. Elizabeth Fox concluded the discussion with the
statement that ‘Hotels can no longer simply rent rooms – we need to give the traveller more reasons to book with us directly.’
Explanation of Rent-a-Room
‘Rent-a-Room’ is a totally online marketplace which offers ‘flexible hospitality’, enabling guests to quickly and conveniently book short-term room lodgings with third party ‘hosts’. These include apartment rentals, homestays, hostels and hotel rooms.
Rent-a-Room receives a percentage service fee from both the guests and the hosts for every booking made. It has over 2 million accommodation listings in 60,000 towns and cities across the world.
Notably, it doesn’t own any of the lodgings it advertises.
Many of the hosts listed with Rent-a-Room offer high speed internet and Wi-Fi facilities plus extras such as web-movies and the prices charged are often far lower than our hotel room prices.
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The Chief Executive, Bernie Vokes, summarised by stating that HiLite could not ignore disruptive technologies and that
before any decision is made on how to react to these, HiLite must assess the extent of this strategic threat, before identifying
relevant responses.
Agenda item 2: Information systems risks and controls
The Finance Director opened the discussion on information systems risks and controls with the statement that, although
HiLite has invested significant amounts of money in its website in the last few years, it has not developed a clear information
systems strategy. Also, she expressed her concern that control and management of the risks to its IT/IS environment have
not been adequately addressed.
The Chairman commented that HiLite has not experienced any breaches of its information systems and that therefore,
‘we must be doing something right’. The Finance Director presented to the Board what she considered to be the three key
information systems risk considerations in the slide (Appendix 1) below. The Finance Director recommended that these risks
should be prioritised and that HiLite must take appropriate action to control these risks.
The Finance Director presented Appendix 1 to the Board.
ACTIONS TO BE ADDRESSED BEFORE THE NEXT BOARD MEETING:
- Identify the challenges posed by disruptive technologies and recommend applications for disruptive technologies by
HiLite.
Identify appropriate actions to control HiLite’s information systems environment.
Investigate the possibility of recruiting an IT Director.
Meeting was concluded at 3.
APPENDIX 1:
End of Question Paper
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Strategic Professional – Essentials, SBL Strategic Business Leader (SBL) December 2018 Answers
Note It is not always possible to publish suggested answers which comprehensively cover all the valid points which candidates might make. Credit will be given to candidates for points not included in the suggested answers, but which, nevertheless, are relevant to the requirements.
In addition, in this integrated case study examination points made in one question may be re-introduced or fully developed in other question(s) as long as these are made in the specific context of the requirements of the part of the question being answered.
The suggested answers presented below may give much more detail than would be expected from most candidates under examination conditions; they may also have used a particular approach or model which should not be taken as the only approach or model which could have been used. Different approaches and structuring of the answers are expected and full credit will be given for relevant and appropriate solutions to the tasks given. The answers provided here are therefore intended to support revision and tuition for future examinations.
Finally, it should be noted that candidates will not get full professional skills marks in a task requirement if they have not presented their answers according to the format asked for. For example, if a task is to be completed using a report and evaluation skills are tested, even if the answer has met the specifically stated evaluation criteria, candidates will not be able to earn all the professional skills marks available if they have not used the report format.
1 (a) Briefing notes: Factors enabling HiLite’s success in Deeland
If we are to consider developing the HiLite brand within another country, a useful starting point would be to understand the key factors which have made HiLite so successful in Deeland, and then assess the availability of these same factors and conditions in other countries. This would allow us to evaluate the viability of such a strategy and assess our ability to achieve sustainable competitive advantage overseas. Below are key factors present in Deeland which have helped HiLite to be successful.
Factor conditions
We should start by assessing the factor conditions, which include the physical resources, human resources, knowledge and infrastructure present within Deeland, which HiLite is able to access. Deeland has some advantages in regard of its factor conditions, as it has a well-developed infrastructure, based on sound local and national investment policies in air, road and rail travel. A new airport has recently been constructed in Deeland’s second largest city, generating an additional 2·5 million overseas passengers to Deeland last year. This is likely to have a significant impact on tourism and the number of visitors to Deeland and therefore will obviously assist in supporting the hotel industry and, of course, our own business.
As a business, we have exploited the transport infrastructure which Deeland offers, locating our hotels on major road networks and near to rail stations. National and regional level investment in such infrastructure has been a great advantage to our business.
Also, Deeland’s education system is another endowment to HiLite’s service supply. The education system supports the travel and tourism industry with many of Deeland’s universities offering highly regarded travel and tourism qualifications, which in turn leads to the availability of highly skilled human resources within the hotel and tourism industries. However, we must be aware that although the education system supports the provision of labour in the industry, we appear to have a problem in recruiting and retaining skilled staff and this is something we must work on in the future.
Therefore, Deeland has positive factor conditions in both infrastructure and human resources which have had a positive effect on the success of our business.
Demand conditions
When an organisation is located in a country where the home market demand is strong and where home-based customers are sophisticated and require high standards of innovation and/or quality, this can assist it in achieving sustainable competitive advantage.
In the case of Deeland, it is evident from the recently published 20X8 Hotel Industry Report, that travellers in Deeland continue to be highly demanding customers, who expect high standards but also value for money. It is noted in the report that a recent survey of online hotel customers clearly indicated that 70% would shop around for the best deal in the best location. This indicates that our customers are sophisticated and this must drive us to respond to their needs.
Therefore, focusing on our customers’ needs and our particular focus on value for money, as highlighted in the Chief Executive’s Report on Performance, has helped HiLite to offer services which are in line with customer demands. This has allowed us to maintain and strengthen our competitive advantage, whilst other organisations, such as Waterbay Leisure and EzeeHols Group, two of Deeland’s most long established luxury hotel chains, have both gone out of business this year. It is evident that they have not responded effectively to the needs of its home-based customers.
Related and supporting industries
The success of an industry can also be influenced by other industries/organisations which support it and supply it. In the case of HiLite, our location in Deeland provides us with an advantage due to the highly developed hotel and tourism industries within the country. Travel companies both online and on the high street are thriving in Deeland, which clearly will support and enhance the business opportunities of HiLite.
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Online hotel booking websites and price comparison sites are also a key factor in driving the success of hotel businesses. In particular, the price comparison websites, comparing our prices with our closest competitors drives our business to be more competitive and to offer better and more flexible pricing options for customers. Only those hotels which can respond to this and are adaptable and flexible to customer pricing demands will survive and remain competitive. This is a potential reason why the two luxury hotel chains mentioned in the previous section have gone out of business this year.
In addition, growth in the business activity in the overall economy of Deeland, will also support the development of more business travel in the country which is another factor in supporting the growth and development of our business traveller provision and opportunities in Deeland.
Firm strategy, structure and rivalry
Success can be influenced by the way an organisation is created, organised and managed. Evidence suggests, from the comments made in the recent Chief Executive’s Report on Performance for 20X7/20X8 that in Deeland there is continuing growth of the budget hotel market, as the luxury and mid-price sectors continue to decline. This is an obvious advantage for HiLite, as we are the leading budget brand hotel chain in Deeland. Therefore, we are perfectly placed to exploit the overall market conditions in the economy. Our brand is a key strength and we must ensure we maintain this strong brand image and customer loyalty to the brand.
Our brand itself is the focus of our overall strategy, which is one of value for money and overall operating efficiency in order to ensure the best price for our customers. As stated above, we have highly demanding business and leisure customers in Deeland who are looking for value for money and best price and are prepared to shop around for this. Therefore, our strategy of a value for money approach, as highlighted in the Chief Executive’s Report on Performance 20X7/20X8, should assist in building upon this demand from customers and provide us with sustainable competitive advantage.
Competitive rivalry is also a key consideration, with growth in business activity in the economy driving more opportunities and creating a highly competitive environment. As can be seen in the Hotel Industry Report for 20X8, two new national branded chains of hotels have opened during this year in the main tourist centres of Deeland and national competition remains intense. This rivalry is a key factor in encouraging us to innovate and be flexible to our customer demands, in particular to respond to key trends in the industry, such as technological developments and in particular, the threat of disruptive technologies. The two luxury chains of hotels which have recently gone out of business in Deeland may indeed point to the fact that the intensity of rivalry in the industry is affecting the luxury end of the market more adversely than the more flexible budget hotels. This supports our overall strategic position as a budget hotel operator.
Government support
It is clear that the Deeland government is supportive of the travel and hotel industry in a number of ways. As already mentioned, investment in infrastructure at both a regional and national level is a major influence on attracting travellers to Deeland, in particular the investment in the new airport, as previously highlighted. Additionally, support in the education sector to develop skilled and well-trained staff for the travel and tourism industry is also a key factor in ensuring a high level of supply of talented and well-educated staff for our hotels.
A further factor highlighted in the Hotel Industry Report 20X8 is that the government of Deeland has recently announced investment and tax breaks for employers offering job creation schemes in a wide range of industries, including travel and tourism. Again, this points to a high level of government support to encourage a thriving business economy, including the tourism and hotel industry. HiLite could take advantage of such tax breaks.
(b) Tutorial note: Under exam conditions, candidates would not be expected to replicate the financial table presented in Exhibit 3 within the body of the report which they have been asked to present to the finance director. It has been included in the answer below for the purpose of demonstrating how a professionally presented report should have been provided to the finance director in a real-life situation.
To: The Chief business analyst From: Senior business analyst Date: xx/12/20X
An evaluation of the proposed acquisition of the Comfi Stay hotel chain
Introduction
The following report presents an evaluation of the proposal to acquire the Comfi Stay hotel chain located in Veelandia. The report will consider the financial viability of the proposal and also consider a range of other criteria upon which to base the final decision and will evaluate the implications of this proposal for HiLite.
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must be a priority for HiLite, as our own reputation could be damaged by association with the Comfi Stay hotel chain if we do not address these issues. However, we will also be sensitive to cultural differences and only make changes where necessary.
Acceptability of the acquisition
When considering the acceptability of the proposed acquisition of the Comfi Stay hotel chain, we need to evaluate whether it is consistent with our current objectives in terms of risk and return, and importantly whether it will be acceptable to our stakeholders.
When considering the calculations of net present value, it would be prudent to test the sensitivity of some of our assumptions to evaluate the overall impact of and potential sensitivity of these factors on the final outcome. For example, a failure to achieve the expected occupancy levels from year 3 onwards could reduce the final NPV significantly, as expected revenues would be significantly reduced. Any combination of variable changes needs to be tested, to assess our sensitivity to potential changes in the underlying assumptions made and the risks which these changes may pose. We must also verify the accuracy of our assumptions.
We also need to consider acceptability of the proposed acquisition to our stakeholders. Our own staff based in Deeland may be largely indifferent to the decision, but those hotel managers who may be requested to re-locate may potentially be reluctant (or conversely may indeed be enthusiastic at the proposal). We must ensure that this is communicated effectively to these hotel managers in good time, should the decision to acquire Comfi Stay be made. Staff in Veelandia will likely react positively to this investment, if it means that employment will continue and there is likely to be a high possibility of improved employment rights and an improvement in working conditions and opportunities for training.
Our shareholders are likely to be favourable towards the strategy if it creates a positive return on shareholder wealth. The chief executive has clearly stated in his Report on Performance that this is a proposed strategy and therefore shareholders will be accepting of this business development opportunity, as long as it impacts favourably on the profits of the business. However, we must be mindful of the impact of this decision on our shareholders if they believe this decision may impact adversely on our reputation, as this could indeed impact adversely on shareholder wealth. Effective and regular communication with our shareholders must be carried out.
Customers in Veelandia may not favour this direction for Comfi Stay hotels if it means an increase in prices. However, hotel refurbishments and updates should increase the quality of the hotel offering, which have clearly become outdated due to lack of investment. This improvement to the quality of the Comfi Stay hotels should satisfy potential customers.
We also need to consider how the wider community and the media will react to this decision. There is a risk that it will be seen as unfavourable by the wider public, as Veelandia does not operate to the standards of Deeland and may be seen as being unethical to operate in a low wage economy. We must make it clear to these stakeholders that it is our intention to operate at the highest ethical standards within Veelandia, should the acquisition be successful. For example, we should follow strict guidelines on offering a fair wage to employees and not allowing under-age workers.
Assessment of resource requirement of the proposed acquisition
We must also consider whether we have the resources we need to carry out the acquisition of the Comfi Stay hotel chain. It would appear that we have the necessary funds available to undertake the strategy, through a combination of debt and equity. We are a highly profitable business and shareholders will be expecting us to continue the growth in profit which we have achieved in recent years. Therefore, shareholders should be supportive of such an investment through equity and debt finance.
We also need to consider our core competences and our strategic capabilities required to undertake this acquisition. We have never undertaken an acquisition strategy before, therefore we must assess our own management skills and capabilities to undertake this strategy successfully. Without the necessary expertise, we could make a number of errors in the process of acquisition, resulting in its failure. We may need to consider hiring external consultants to assist with the acquisition process.
We must also assess our skills and competences to operate and manage these hotels in Veeladia. We have highly skilled staff who can be used to train and work with the Comfi Stay hotel staff to ensure that we manage the transition carefully and successfully. However, it is likely that local staff will not have the same level of training, commitment and loyalty which will need to be developed if the venture is to succeed. This may be a large barrier to overcome. However, the planned investment in training local staff is significant and therefore this should go a long way to ensuring that the proposed acquisition is successful. However, on-going management and monitoring of local staff and management will be critical.
Concluding comments
There are a number of positive factors to suggest that the acquisition of Comfi Stay hotel chain is a viable strategy for HiLite. However, the board of directors should prioritise which aspects of the decision criteria are most important to the success of the venture before making a final decision.
2 (a) PRESS RELEASE
For immediate release
HiLite’s proposed acquisition of the Comfi Stay hotel chain, Veelandia
HiLite Hotels, Deeland’s most popular and largest budget hotel chain, has recently announced its intention to acquire the family-run ‘Comfi Stay’ chain of hotels, located in Veelandia. Since the announcement, there have been some concerns raised that the acquisition of the Comfi Stay hotel chain goes against the high principles and standards which HiLite strives to attain.
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HiLite wishes to make clear the following points in response to these concerns:
- Employees’ rights
Although the Comfi Stay hotel chain is located in a low wage economy, it would be HiLite’s intention to ensure that its staff located in Veelandia are not exploited in any way, and if it is found that child labour is being used or staff are working excessive hours, then this practice will immediately be ceased on acquisition. HiLite values its hotel staff highly and is committed to ensuring that it is a great place to work, and this commitment will also be given to its hotel staff in Veelandia.
It is not unethical for HiLite to pay staff in Veelandia below the rates which its staff in Deeland are paid, particularly if the wage rates are favourable when benchmarked within the local economy, for similar employees in the hotel sector. This is common business practice across many industries operating in multiple locations. However, as stated above, it is not the intention of HiLite to exploit staff located in Veelandia. HiLite invests around $10 million annually in skills and development programmes for its staff in Deeland, and has implemented the new Deeland National Living Wage six months in advance of the government’s launch date. Therefore, rates of pay will be reviewed for all staff and will be commensurate with the role undertaken and the expected and fair wage rate in Veelandia. We will provide training opportunities for all staff and will also offer employment contracts which will give employees security of employment.
- Employment opportunities
HiLite’s intention is to provide employment and development opportunities for the staff employed in all of its hotels. Over the next six years, HiLite intends to invest $10 million in training and staff development in Veelandia to ensure staff there are as highly skilled as those operating in Deeland.
In line with our diversity and equality policies, HiLite will immediately cease the policy of only employing male hotel managers and will implement a policy of selection for senior roles based upon experience and suitability for the role and not based upon gender, age or ethnicity. Obviously, HiLite will need to ensure cultural sensitivity in all of its employment activities but will ensure that its own employment policies, in terms of equality and diversity, are adhered to, wherever it is located throughout the world.
- Environmental investment
In terms of the environmental impact of the decision to acquire the Comfi Stay hotel chain, HiLite intends to invest $6 million over the next six years in environmental investment in the Comfi Stay hotels. This should go some way towards prevention of further incidents of pollution which have recently occurred in some of its hotels.
In addition, a thorough investigation of environmental practices and policies of the whole business and at individual hotel sites would need to be carried out to assess any further investment, training or policies which need to be implemented throughout the Comfi Stay hotel chain. It will be expected that all of Comfi Stay hotels will operate to the same environmental and sustainable standards as all HiLite hotels, once the environmental investments are fully operational.
Targets will be set and monitored by HiLite for all of the Comfi Stay hotels in terms of recycling, CO 2 emissions and levels of wastage, in line with those operated throughout the rest of the business and training will be given to all staff in environmental management activities. These targets will need to be set to reflect the local resources available to each hotel to undertake environmental management activities such as the existence of local re-cycling depots.
- Long-term approach
It would also be HiLite’s long-term intention to work with the government of Veelandia and the travel and tourism industry in the country to try to work together on improving the environmental awareness in the whole industry.
HiLite intends to take a pro-active approach to managing the social and environmental impact of its activities in Veelandia. Experienced hotel managers from HiLite will be seconded to Comfi Stay hotels to ensure a smooth transition and to assist in the training of local staff to run and manage the operations effectively. Although the Comfi Stay hotels are located 5,000 miles away from the main operations of the business, they will be expected to adhere to the corporate guidelines and standards set by HiLite.
It is the intention of the management of HiLite to invest in re-vitalising the Comfi Stay hotel chain to develop long-term employment opportunities for staff and to provide a great location for international travellers to visit.
For any further information please contact our Sales and Marketing Department.
(b) For the attention of the Finance Director
Notes on the role and benefits of integrated reporting to stakeholders
Aims of integrated reporting in effective communication
If we are to implement an integrated reporting approach, we should do so with the aim to improve the quality of information we provide to our stakeholders and to promote a more efficient approach to our corporate reporting activities which consolidates and draws upon different communication strands and methodologies. This should enable us to present a more efficient, cohesive approach to stakeholder communication.
Role of integrated reporting
HiLite’s integrated report should be designed to benefit all of our stakeholders who are interested in how we create value over time, including our hotel staff, the hotel customers, local communities where our hotels are located, suppliers and, of course, our investors. Importantly, our ability to create value is linked directly to the value we create for those stakeholders.
Hi Life Hotel CASE SBL DEC 2018 + Model Answer
Module: Strategic Business Leadership (SBL)
University: Association of Chartered Certified Accountants
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