Introduction
Bone star hotel is located in Namistan in the Middle East. The company merged with Krieg Corporation in 2001. However, Krieg Corporation took a majority shareholding in the company. Krieg Davis did not have much information about the company’s performance at the time of the acquisition. Steve Mackenzie was the appointed auditor of the company’s financial performance. The matters that arise from that audit forms the basis of this synopsis. According to the information gathered and matters drawn from the audit engagement, Bone star limited is subject to critical analysis. Although the management and staff of bone star limited did not fully cooperate with Mackenzie, the limited information gathered from the information is useful for critical evaluation of the external and internal environments of the company.
Pert Analysis
Before the acquisition of bone star limited by Krieg Davis in 2001, Namistan had experienced relative peace and tranquillity since the company broke away from the Soviet Union. The political environment at the time of acquisition is, therefore, right for business. Being in the hospitality industry the political environment is paramount to the success of the company. During its heyday, the company was a force to reckon within the hospitality industry but at the time of its acquisition, the company had been registering very low occupancy levels that may question its viability as an investment powerhouse. In the post-independence period, the company experienced a high turnover level of managers that may indicate changes in the regulatory environment of the firm.
The economic environment of the firm at the time of acquisition was ideal for business. The GDP of Namistan was on an increase and the nation had begun to attract foreign investors. Economic reforms and a good harvest meant that the people had more disposable income. With a population of 1.5 million people in the capital city of Elhan, the hospitality industry was not short of customers.
Krieg Corporation is a multinational company in Berlin, Germany whose main objective was to acquire underperforming companies to refurbish and renovate them in an attempt to exploit their full potential. Bone star limited forms a good target for the company. Favorable social, political, and economic factors make it a perfect company for acquisition. Mismanagement and failure to embrace technology are responsible for the company’s slump in performance and not external factors, which are beyond control1.
Bone star limited did not have a website or an online communication platform thereby undermining its use of IT as a business aid. Such poor infrastructure is a major hindrance and if checked the company may just be able to reclaim its lost glory. An attempt by Lincoln to purchase Bone star from the Krieger Corporation was marred with obstacles created by the local stakeholders who play a major role in the corporation. Bone star limited has numerous buying or leasing options at its disposal and this shows that other corporations have faith in the Corporation and its potential for growth and profitability.
Industry Analysis
The hospitality industry in the Elhan, the capital of Namistan, where the Bone star is located is mainly characterized by four or five-star hotels constructed after independence as opposed to Bone star’s three-star ranking. Occupancy levels of most hotels in the region average between 75% and 85%. Apart from four-star and five-star hotels, others have a lower level of approximately 40% occupancy that is composed mainly of foreigners. Branded and unbranded hotels compete for the local and international travelers that formed the bulk of the market. However, branded hotels are preferred over unbranded ones. The quality of branded hotels in the area is generally satisfying to customers’ needs2.
Due to poor infrastructure, mismanagement, and poor services, Bone Star is incapable of competing with other well run corporations in the industry. Well-educated expatriates in the hospitality industry professionally run four-star and five-star hotels, which boosted the largest market share of revelers.
Mr. Mackenzie during the first day of the audit was assigned to a room that had dilapidated facilities. From the mattress to the heaters and in general, the interior decor of the room seemed old and inhabitable. According to the financial reports, the Bone star managed only to break even and do nothing more. The company was merely surviving but not growing making it incapable of operating in the same league as other competing firms.
The management of Bone star seems to be having their priorities mixed up as was confessed by the manager Mr. Kaplan. The manager at one point in an interview with auditors suggested that the office rental business was doing better than the hotel room services. This casts some doubt about Bone Star’s position, as a player in the hospitality industry, whether that is the industry that Bone star should be operating. Investments in administrative offices compromised the development of the hotel and casino, management seems to focus more on office space rentals instead of room space rentals thereby undermining the performance of the hotel.
Suppliers to the industry demand payment on a cash-only basis. Entry into the hospitality industry is limited by stringent regulations and high set-up costs required to establish a business in the area. Casinos are the highest revenue generators with a bulk of the income coming from local gamblers. Arlington and Lincoln are interested in the purchase of bone star limited as is confessed by Lincoln in a discussion with Mackenzie. The availability of ready buyers indicates that bone star is a viable investment in the hospitality industry. Foreign investors face a very difficult task when it comes to acquiring businesses in Elhan as can be witnessed by the high rate at which expatriates left the country without any logical explanations. Entry into the hospitality industry in Namistan is difficult whereas exit is very easy. This is advantageous for firms operating in this industry, as it is difficult for more firms to join the industry thereby diluting the market.
SWOT Analysis
Strengths
Bone star having been acquired by a US company and adopted the US dollar as its currency of choice, benefited immensely as exchange rates fluctuated in favor of the dollar. Bone star invested a lot in office space as opposed to hotels and other entertainment facilities. This provides the firm with an opportunity to improve its administration matters greatly. The Casino had once been the company’s pride before declining in performance and stature that was preceded its eventual collapse. Its previous history of good performance may be used as a benchmark to revitalize the casino back to its former glory. Previous success indicates that the casino has a lot of potentials.
Weaknesses
Poor infrastructure and technology used by the firm is a major weakness that has to be checked if Fishbone is to compete with other firms in the industry. The communication channel between Krieger and fishbone is not efficient enough to allow close supervision of the company. The staff and management of Fishbone therefore work almost unsupervised. Failure of the workers to corporate with the auditor reveals that malpractices are being carried out behind the scenes.
People who were professionals in the hospitality industry ran most hotels in the region; managers with basic on the other hand ran bone star culinary skills hence could not compete in the industry. Also, the services being offered were basic and nothing compared to what other firms were offering.
The stakeholders of Bone Star Corporation seem to be satisfied with the poor performance of the firm. There seems to be an underground cartel sharing profits of the corporation in exchange for accepting the current poor state of affairs in the corporations. Stakeholders’ meddling in the affairs of the corporation is a major weakness that the firm faces if it has to grow. Meddling clearly shows that the stakeholders do not respect the position of the firm as a separate legal entity.
Opportunities
Mismanagement of the firm under the administration of Mr. Kaplan was the reason for the poor performance of the company. Having been taken over by Krieg Corporation, injection of funds and a change of management may set the company back on the track to recovery. The acquisition by Krieg a multinational company provides bone star with an opportunity to redeem itself.
Other firms in the industry have embraced technology whilst at Bone star most operations are still being carried out manually; this presents the company with an opportunity to digitalize its systems and consequently reap the benefits of technology. A computerized system would reduce greatly the cost of production and improve the quality of operations.
Threats
It seems like, under the management of Kaplan, Bone Star focuses more on office rentals as opposed to the hotel. The company’s casino at the time of the acquisition had already been shut down due to mismanagement. Neglect of hotel facilities may also lead to its collapse. Poor infrastructure coupled with lack of investments in the hotel may force the company to shut it down, as was the case for the casino. If left unchecked Bone star risks being irrelevant in the hospitality industry.
The communication between Krieger’s head office in Germany and Bone Star is very poor. Mr. Kaplan is left to run the show hence making it easy for him to get away with almost anything. There is no accountability even to the local stakeholders. They seem to be satisfied with illegal profit-sharing mechanisms.
The fact that Mr. Kaplan also runs three other businesses of Krieger Corporation is very risky, as he seems to be having too much power. If the leadership structure of Bone Star is not altered, dictatorial tendencies may develop and this shall negatively affect the corporation3.
Competitive Analysis
Bone Star Hotel Analysis
Bone star limited offers a limited variety of products and services in the hospitality industry of Namistan. Apart from a hotel with a three-star ranking, the corporation also has a casino, which was shut down a few years ago. The premises of the company are owned by local stakeholders who exercise some form of control on the company’s decision-making hence casting some doubt on its sovereignty.
The overall condition of the kitchen, bar, restaurant, cafe, and casino is a pale shadow of its former self. An inspection by Mackenzie revealed a poor state of affairs that requires an immediate overhaul. Despite the poor state of affairs, it is ironic that the restaurant and kitchen staff had well-furnished offices at their disposal. There is obvious neglect of crucial functions of the firm at the expense of provision of better working conditions for the staff.
Workers at Bone star think that the company is performing poorly. They say that the company would require an injection of funds and leadership reforms if t were to compete with its rivals. Despite this acknowledgment, the employees are loyal to Kaplan and have no problem with the maintenance of the status quo as long as they continue receiving their salaries. Professionals unlike other firms in the industry do not run the company therefore mismanagement and abuse of the company’s resources is rampant. There are numerous discrepancies in the company’s financial statement indicating that mismanagement is the main reason behind the company’s poor performance. Krieger limited only requires minimal cash injections and improvement of the management to turn around the fortunes of the firm. The corporation’s priority is also questionable because restaurant space was reduced to create more office space. This could be seen as a selfish move by the senior management of the firm4.
Competitor Analysis
Compared to the other three firms owned by Krieger, which at the time of acquisition recorded marginal losses, the bone star is a viable investment. An analysis of other firms in Bone star’s industry indicates that the corporation is lagging. Lack of qualified professionals, unscrupulous business activities such as preparing the books of accounts creatively greatly undermines the company’s performance.
After independence, hotels that joined the industry were major of four or five-star ranking, the preference for branded hotels therefore make Bone star incompetent as can be seen in the hotel-ranking grid. Namistan’s gambling culture is satisfied by casinos of other corporations since the fall of Bone star’s casino. Being that competitors derive most of their earnings from casino proceeds, this is a big blow to Bone Star limited. Stringent licensing and regulation policies of casinos in Namistan means that the few companies with casinos would continue to enjoy super-profits as the number of visitors increases without an increase in casinos.
Approximately half of the hotels in Elhan had casinos and saunas, which is considered a major part of their business. Bone star does not have any other special services on offer to its customers apart from the basic services. Revenues of most hotels in the industry were generated from services offered alongside their basic services. Bone Star stands to lose out a lot on the market share.
Due to the high number of visitors, some hotels had resorted to operating 24 hours a day to capitalize on both day and night visitors. Workers worked in shifts to meet the cutthroat nature of business in the hospitality industry. There are no such plans for bone star limited; instead, the management seems to be drifting the company away by investing more in office space rentals.
Key Success Factors
Despite the mismanagement, underperformance, and technological underdevelopment of bone Star Corporation, the company is still able to carry out its operations. This may be attributed largely to the diversity of investments under the Bone star stable. In the pre-independence period, the firm was mainly dependant on casino revenues as the main source of finance. Increment in office space has gone a long way towards diversifying the functions of the firm. Office rentals revenue contributes to the bulk of the company’s cash inflows hence acts as a buffer when business is low at the hotel. The location of Bone star limited in central Asia automatically makes it a major tourist destination. The region generally receives many foreign visitors. Local tourism is also high in this country as local visitors form a large percentage of guests in most restaurants and hotels. When foreign tourism is at its off-peak season, local tourists can be counted upon to generate revenues for hotels. The company has received many suitors in the form of an investor wanting to purchase or lease its major functions. Stringent stakeholder regulations and firm leadership provided by Mr. Kaplan meant that all interested parties are kept at bay preventing Bone star from disintegration. The company has remained intact over the years thus guaranteeing large-scale operations. Bone star is, therefore, able to reap from economies of scale that come from such large-scale operations.
Despite its recent woes, bone Star Corporation has a rich history and reputation as one of the longest-serving players in the hotel industry of Namistan. This makes it hard for the corporation to collapse. As is reported in the financial statements the company can break even. Its failure to fund more investments means that as long as the salaries of the workers and operating expenditures can be met, the company can continue with operations, all factors remaining constant.
Key Issues and Responses
From the analysis above the hotel has so much room for improvement. However, the hotel is grappling with technological advancements in many business areas that it engages in. The other big change that Bone Star Hotel is facing is the dynamism of customer tastes and preferences. This is manifest in cuisines, service expectations, and afters service extras. This means that it has to keep on redefining its business and service packages to suit the customers. Competition is also a critical thinking area when we analyzing Bone Star hotel. The company faces many competitors and the level of competition means that the company has to rethink its strategic positioning. There are critical areas that need to be revised. Others are strength areas where emphasis and resources should be channeled to enhance that position. Management of the hotel should work with the board of directors and junior management to formulate strategies, procedures, and policies to ensure that the hotel is safe from the storm of competition it is experiencing.
Conclusion
Bone star hotel is a company with a lot of potentials as can be seen from the comprehensive analysis of the firm’s external and internal environments. Albeit the manager of the firm Mr. Kaplan failed to furnish the auditor with all relevant materials about the company, it can be concluded that the decline in performance is attributable to mismanagement and lack of qualified personnel in key positions of leadership. Failure to embrace technology and use of dilapidated infrastructure such as the elevators in the building’s premises greatly undermines the firm’s competitiveness as compared to its five-star rivals5.
A complete overhaul of the company’s infrastructure is required if it is to compete with rivals in the industry or even remain relevant shortly. Many human resource issues also arise from the audit of the company. The worker’s loyalty to Mr. Kaplan is a major obstacle to the development of the firm. Workers need training on change and change management. Their willingness to maintain the status quo despite the poor state of affairs ought to be addressed. The workers are willing to work despite their acknowledgment of the poor state of affairs, this shows that they are mainly motivated by money. Money is a good motivator but not an efficient one. Hence, the company should look for other ways that make working in the company fun and interesting. The motivation package should also address the fact that these employees are human beings. The company should look for policies that massage that personal side of employees. The workers will feel appreciated that way instead of money motivation.
My Assessment: Between the Lines
Being in the hospitality industry, the image of bone star limited as a brand is very important, the management of the company opted to invest more in the administrative offices of the company instead of the restaurant, which could sell the company more. It is ironic that even though the company invested so much in office space, most of the administrative functions of the firm are carried at the front office. This highly centralized system could yield a lot of confusion and due to so many bureaucratic procedures. The appointment of Kaplan as the head of two other firms of Krieger Corporation made it easy to conceal interdepartmental financial information. The appointment of different managers to head the different departments would institute appropriate checks and balances in the corporation’s leadership hence cultivate a culture of accountability.
Mr. Mackenzie was successful at auditing the company and consequently issuing an opinion as to the truth and fairness of the state of affairs. Albeit the management and workers of the firm corporate in shielding the truth from Mr. Mackenzie, his findings are effective and accurate hence are reliable. It is rather important to follow the opinions of experts when it comes to business improvement. Nevertheless, most of the assessment should be carried out internally. This means management should a procedure in place, which reliably recognizes the day-to-day happenings of the company and develops policies to mitigate or improve them. This reduces the need for external service outsourcing as if it is the case with Bone Star Hotel. The overall implication is that it reduces the cost of doing business, which increases profitability levels.
Bibliography
Bien, M, Property Investing All-in-One for Dummies, Prentice-Hall, New York, 2007.
Hoesli, M, & B Macgregor, Property Investment: Principles and Practice of Portfolio Management, Wiley and Sons, New York, 2000.
Zutshi, S, Property Magic 2010: How to Buy Property Using Other People’s Time, Money and Experience, Wiley, London, 2010.
Footnotes
- Zutshi, S, Property Magic 2010: How to Buy Property Using Other People’s Time, Money and Experience, Wiley, London, 2010.
- Hoesli, M, & B Macgregor, Property Investment: Principles and Practice of Portfolio Management, Wiley and Sons, New York, 2000.
- Hoesli, M, & B Macgregor, Property Investment: Principles and Practice of Portfolio Management, Wiley and Sons, New York, 2000.
- Bien, M, Property Investing All-in-One for Dummies, Prentice-Hall, New York, 2007.
- Bien, M, Property Investing All-in-One for Dummies, Prentice-Hall, New York, 2007.