(a) Prepare briefing notes for the Board which evaluate
the suitability, acceptability, and feasibility of the proposed
strategic pivot to expand Levwell’s hotel portfolio via a
franchise model, and recommend whether Levwell should
pursue the proposal, Commercial acumen 22 marks.
Briefing report
To: BOD
From: External senior consultant
Subject: SFA of franchise model
Date: December 20x5
Introduction: This Briefing note evaluates the suitability, acceptability, and
feasibility of the proposed strategic pivot to expand Levwell’s hotel
portfolio via a franchise model and recommends whether Levwell should
pursue the proposal.
Suitability:
Home country : Essland recently recovered from an economic downturn,
this has resulted in inflation which has reduced demand for hotel
accommodation in Essland.
As a result of the inflation, it has lead to the an increase in total costs for
Levwell.
Target city : The target cities have also faced a recent economic downturn
and are recovering from, the target countries are affected by inflation
resulting in in rise in costs.
Thus the most plausible target cities for this model shall be the key cities
of Essland that are least affected by the economic downturn.
Target company : The target companies for a franchise model would be
independent hotels which have similar medium volume, cultural
structures to Levwell or the independent hotels where the culture can be
easily implemented.
Feasibility :
Human resources: Levwell has high turnover rate and temporary staff, the
Franchisee would have to bear the costs of hiring and retain the staff, the
sole focus of Lewell shall be on brand marketing and systems compliance
only, though Levwell does not have acquisition or franchising experience
from the past and it has the experience of managing the hotel businesses.
Financial resources: Levwell has a good average operating profit margin of
13% as compared to the industry average of 10% and the revenue figures
of Levwell are strong, Levwell has the financial resources for expansion,
inspite of that , The costs of building / refurbishing the hotels and the
operational costs will be transferred to the franchisee.
IT and brand: Levwell has a central IT department that is responsible for
maintain and upgrading the information systems, Levwell uses Hotel
management services (HMS) for managing its operations efficiently. Its IT
systems are hosted in in-house servers, For the franchisee model Levwell
will focus on maintaining systems compliance,
The Levwell brand is also known for its hotels having cultural
differentiation, Levwell will focus on brand marketing and management in
respects of the franchises.
Acceptability
Shareholders acceptance –
The Returns from a franchise model are better than having to expand into
new markets with expensive real estate, The revenue will be in terms of
the lisence fee and a royaty of 5% on the hotels gross revenue. The risks
are also transferred and this model will allow Levwell to open new
locations at a pace they could never achieve if they had to buy the
building. If the franchise model has good potential to boost the market
shares and the revenues of the company then it might be accepted by the
shareholders.
Culture – The difference of culture might occur due to the franchisees
based in different cities, the differentiation in culture is the speciality of
the brand Levwell, the organsiational culture shall be similar or easy to
implement in the franchisee then it shall be acceptable.
Concluding remarks – I believe that Levwell should opt for a franchise
model, it will help them boost their revenue, market share and overall
branding.