DB FPX 8415 Assessment 3 Company Analysis Framework

Name

Capella university

DB-FPX 8415 Strategic Decision Making

Prof. Name

Date

Introduction

The COVID-19 pandemic, which began in 2020, significantly affected industries worldwide, leaving many businesses reevaluating their operational strategies to survive in the current environment. The Leisure and Hospitality sector was among the hardest hit at the onset of the pandemic. The economic and global disruptions caused by COVID-19 will influence the recovery trajectory of the hospitality industry. Post-COVID operations will demand unprecedented adaptability from hotels as they develop, implement, and manage safety measures to rebuild customer confidence and stimulate renewed demand. Investors may find that the early stages of recovery present the most opportune time for strategic investments in the industry.

Seyitoğlu and Ivanov (2020) introduce a conceptual framework for service delivery design in the hospitality sector following COVID-19. The authors identify three service delivery systems within the industry: robotics, human-based, and mixed. Traditionally, the hotel industry has relied on human staff for all front-of-house and back-of-house operations. However, over the past couple of decades, technology-mediated services, such as online reservations, have become increasingly common in the hotel sector. The COVID-19 pandemic severely disrupted the hospitality industry, leading hotels that previously depended on international labor to face staffing shortages as many workers returned to their home countries.

Laborers have also transitioned to other industries that offer more lucrative cash flow. As a result, hotels have had to rethink their operations to create a safer and more inviting environment for their guests. While robotics have begun to replace some tasks previously performed by humans, this approach does not suit all markets. Some customers still prefer face-to-face interactions, making hotels that rely solely on robotics for front-of-house and back-of-house operations less appealing. Consequently, some hotels are adopting a hybrid model that combines both human staff and robotics. Each of the three service delivery systems proposed by Seyitoğlu and Ivanov (2020) has its own advantages and disadvantages.

DB FPX 8415 Assessment 3 Company Analysis Framework

The framework outlined by Seyitoğlu and Ivanov (2020) consists of six sections relevant to service delivery system design (SDSD), with “demand” being the most pertinent to acquisition strategies. Customer safety and security expectations will shape the acquisition approach and are fundamental components of the acquisition framework. Understanding customer perceptions and considering demand are essential for a hospitality firm’s positioning strategy (Seyitoğlu & Ivanov, 2020). Customers are increasingly prioritizing their health and safety, necessitating a remarkable level of adaptability in post-COVID hotel operations.

Social distancing and maintaining hygiene and cleanliness at various touchpoints throughout the customer journey are vital for restoring customer confidence and generating renewed demand. Industry 5.0 can be advantageous for the hospitality sector, as it emphasizes personalized service, efficient supply chains, agility, smart work environments, the use of big data for real-time customer preference insights, highly customized services at lower costs, and digital enhancements—all of which can enhance customer satisfaction, loyalty, and perceived service quality (Gopalakrishna et al., 2021). Hotel owners must prioritize reimagining existing spaces and streamlining services in response to the new normal while keeping guest experience and profit optimization in mind.

The location of a hotel is critical for attracting tourists and influencing their decisions. It plays a significant role in occupancy rates, revenue per room, and overall profitability. Hotels situated in areas with higher population densities and economic activity typically experience greater demand and represent a region’s share of domestic and international travel for business or leisure. In 2022, the Southeast accounted for the largest share of industry establishments, representing 28.5% of locations, followed by the West with 16.3%.

DB FPX 8415 Assessment 3 Company Analysis Framework

In 2022, the Southwest, Mid-Atlantic, and Great Lakes regions accounted for 14.7%, 10.6%, and 11.6% of establishments, respectively (Ristoff, 2022). Morgan-Eskola Hospitality Partners (ME-HP) LLC is interested in establishing a European-style boutique hotel and spa in major cities such as San Francisco, Los Angeles, New York, Chicago, and Boston, with one location in each city. The degree of financial risk preparedness among the examined hospitality businesses was influenced by their geographic location (Wieczorek-Kosmala, 2021).

Building on the conceptual framework proposed by Seyitoğlu and Ivanov (2020), location will be a crucial factor for successful acquisition and future profitability. The cities targeted by ME-HP are major metropolitan areas with established infrastructure and accessible healthcare. While these locations appear promising, further investigation is necessary. Hotel location is the second key element of the acquisition framework.

The third aspect of the acquisition framework is the workforce. The COVID-19 pandemic compelled hotels to halt operations, leading management to lay off staff to ensure they could cover fixed costs. Many hospitality employees now feel they were regarded as mere numbers, insignificant parts of a larger machine. Those who believed they were essential to the business were often let go with surprising ease (Adams, 2021). The hospitality industry is currently struggling to fill vacant positions. While hotels can invest in robots to handle many service-related tasks, they still require human staff to operate and maintain these robots and to ensure a positive guest experience.

DB FPX 8415 Assessment 3 Company Analysis Framework

The hospitality sector must invest in its workforce and establish new standards that provide higher wages, create opportunities for skill enhancement through education and training, and facilitate the re-skilling of professionals for various roles within hospitality operations. This is a critical time for the industry to invest in the individuals who drive it, fostering passionate professionals by equipping them with exceptional skills and the opportunity to earn a living while serving guests with pride. The hospitality industry needs to shift its operational mindset, starting from its foundational principles (Adams, 2021).

Brand awareness is crucial in the hotel and service industry as it represents a form of intangible competitiveness. Effective branding in hospitality can build credibility and trust, opening new revenue streams by encouraging guests to advocate for the business. Advances in both online and offline technology present significant opportunities for hotels to distinguish themselves from competitors. The unique selling proposition of the hotel industry must be more comprehensive, extending beyond just health and safety to encompass the overall guest experience.

Seyitoğlu and Ivanov (2020) emphasize the necessity for research and development, promotion, branding, and image creation to help hospitality firms position themselves with their unique services, differentiate from competitors, and persuade customers to choose their offerings (Seyitoğlu & Ivanov, 2020). Brand recognition should be a key consideration in the acquisition process, representing the fourth element in the development of an acquisition framework.

DB FPX 8415 Assessment 3 Company Analysis Framework

The hotel industry differs from other sectors, such as high-tech or equipment-intensive industries, as it has historically faced a greater need for financial capital for fixed assets and human resources (Zhang et al., 2020). As a capital- and labor-intensive industry with high financial and operational leverage, the reduced demand resulting from the COVID-19 pandemic has tested the resilience of hospitality businesses. Sales revenues plummeted during the lockdown, making it difficult for businesses to cover fixed costs and leading to severe liquidity challenges and potential bankruptcies.

In the context of risk preparedness, having high financial slack is advantageous due to its buffering capacity (Wieczorek-Kosmala, 2021). Hospitality businesses with substantial financial slack are better positioned in terms of profitability and liquidity. A conceptual model presented by Wieczorek-Kosmala (2021) illustrates that businesses with low or insufficient financial slack have depleted their resources, raising concerns about their ability to manage liquidity pressures that arose after the COVID-19 outbreak (Wieczorek-Kosmala, 2021).

Financial metrics such as expected revenue, growth rates, debt-to-equity ratio, liquidity, and valuation are critical factors that can make a company an attractive acquisition target. The conceptual framework proposed by Wieczorek-Kosmala (2021) is essential for achieving financial risk preparedness and long-term sustainability. Financial slack and liquidity represent the fifth component of the acquisition framework.

DB FPX 8415 Assessment 3 Company Analysis Framework

An acquisition is a strategic element of corporate strategy that involves the buying, selling, and combining of companies or assets to foster enterprise growth and enhance shareholder value. Acquisitions can strengthen financial power, increase market share, and boost business activity, enabling the newly formed entity to further develop and expand within its sector. They also present opportunities for synergy by driving efficiencies through economies of scale. Establishing acquisition criteria is vital for businesses considering the acquisition of another company.

To develop an effective acquisition strategy, it is crucial to determine the criteria that will be used to evaluate potential companies. Investors interested in the hospitality sector should consider acquisition criteria such as access to a multi-skilled and flexible workforce, affiliation with a franchising chain, the advantage of word-of-mouth referrals, proximity to key markets, the ability to quickly adapt to new technologies, and effective inventory management. These factors are key to success in the hotel industry, according to IBISWorld (Ristoff, 2022).

Morgan-Eskola Hospitality Partners (ME-HP) LLC can enhance their decision-making process regarding a potential acquisition by implementing a decision-making framework. By utilizing a multi-criteria decision-making approach, ME-HP can make informed, fact-based choices. A structured, transparent, and consistent framework for asset management decisions encompasses people, processes, governance, and decision-support tools. This model should include a comprehensive set of criteria and metrics, such as Human Capital, Technology, Financials, Intellectual Property, and Synergies.

Reflection

A strategic decision-making framework offers a comprehensive perspective on new market opportunities, positioning investors for success. While investors must act swiftly, they also need to conduct thorough due diligence to avoid the potentially high costs of failure. An effective strategic decision-making framework provides critical insights into the market’s size, shape, and direction (i.e., market potential). Strategic decision-making is essential for distinguishing a business from its competitors.

According to IBISWorld, the hospitality industry is expected to continue its growth trajectory, with particularly strong expansion in segments such as extended-stay hotels, boutique hotels, spa and health retreats, and resorts (Ristoff, 2022). Hotels represent a unique type of real estate investment, functioning both as real estate assets and operating businesses reliant on a service delivery system. Hospitality firms must design an appropriate service delivery system that aligns with customer expectations while also fitting the firm’s resources and capabilities (Seyitoğlu & Ivanov, 2020).

The economic repercussions of the COVID-19 pandemic have placed considerable financial strain on hotel owners, potentially affecting the long-term viability of many hospitality businesses. Morgan-Eskola Hospitality Partners (ME-HP) LLC must thoroughly understand the target’s market position and market dynamics, as well as any legal or regulatory factors and liabilities, company culture, staff morale, brand awareness, distribution channels, and customer considerations to fully grasp the advantages of the acquisition. This comprehensive understanding can be achieved through the application of a strategic decision-making framework.

References

Adams, C. (2021, October). Why the hospitality industry must reinvent itself as labor shortage still looms. Forbes.

Gopalakrishna, P., Haldorai, K., Seo, W., & Kim, W. (2021). COVID-19 and hospitality 5.0: Redefining hospitality operations. International Journal of Hospitality Management, 94.

Pillai, S. G., Haldorai, K., Seo, W. S., & Kim, W. G. (2021). COVID-19 and hospitality 5.0: Redefining hospitality operations. International Journal of Hospitality Management, 94, 1–11.

Ristoff, J. (2022). Hotels & Motels in the US (72111). IBISWorld.

DB FPX 8415 Assessment 3 Company Analysis Framework

Seyitoğlu, F., & Ivanov, S. (2020). A conceptual framework of the service delivery system design for hospitality firms in the (post-) viral world: The role of service robots. International Journal of Hospitality Management, 91, 1–10.

Wieczorek-Kosmala, M. (2021). COVID-19 impact on the hospitality industry: Exploratory study of financial-slack-driven risk preparedness. International Journal of Hospitality Management, 94, 1–14.