Harvard Case - Larkin Motel
"Larkin Motel" Harvard business case study is written by David W. Young, James E. Reece. It deals with the challenges in the field of Accounting. The case study is 4 page(s) long and it was first published on : May 15, 2018
At Fern Fort University, we recommend that Larkin Motel implement a comprehensive strategy to improve operational efficiency, enhance guest experience, and increase profitability. This strategy involves a combination of operational improvements, strategic investments, and a shift in focus towards attracting a more profitable customer segment.
2. Background
The Larkin Motel, a family-owned and operated business, faces challenges in maintaining profitability due to increased competition, rising operating costs, and a declining customer base. The motel's current operational model, characterized by limited staff, outdated facilities, and a lack of marketing efforts, is insufficient to address these challenges. The owner, John Larkin, is considering various options, including selling the motel, investing in renovations, or implementing a new business model.
The main protagonists in this case study are John Larkin, the owner, and his family, who are actively involved in the motel's operations.
3. Analysis of the Case Study
This case study can be analyzed through the lens of strategic management, focusing on the motel's competitive position, resource allocation, and future growth potential.
Competitive Analysis:
- Porter's Five Forces: The motel operates in a highly competitive market with numerous competitors offering similar services. The threat of new entrants is moderate, while the bargaining power of suppliers and buyers is low. The rivalry among existing competitors is high, leading to price wars and a focus on attracting customers through discounts and promotions.
- Competitive Advantage: Larkin Motel lacks a clear competitive advantage, struggling to differentiate itself from competitors. The motel's strengths lie in its location and family-friendly atmosphere, but these are not unique enough to attract a loyal customer base.
Financial Analysis:
- Financial Statements: The case study provides limited financial information, but it highlights the motel's declining profitability and increasing operating costs. The motel's financial performance can be further analyzed by reviewing its balance sheet, income statement, and cash flow statement.
- Cost Accounting: The motel needs to implement a robust cost accounting system to identify and analyze its operating costs. This will involve utilizing activity-based costing to understand the cost drivers of each activity and allocate costs more accurately.
- Financial Performance Measurement: Key performance indicators (KPIs) should be established to track the motel's financial performance, such as occupancy rate, average daily rate (ADR), revenue per available room (RevPAR), and profitability.
Operational Analysis:
- Efficiency: The motel's current operations are inefficient, with limited staff and outdated facilities. This leads to increased costs and a subpar guest experience.
- Customer Experience: The motel's focus on attracting price-sensitive customers leads to a lower-quality guest experience. This can be improved by offering value-added services, enhancing amenities, and providing personalized customer service.
- Technology: The motel can leverage technology to improve its operations and enhance the guest experience. This includes implementing online booking systems, property management software, and digital marketing channels.
Strategic Options:
- Sell the Motel: This option provides immediate liquidity but eliminates the potential for future growth and profitability.
- Invest in Renovations: This option can improve the motel's facilities and attract a higher-paying customer segment, but it requires significant capital investment and may not guarantee a return on investment.
- Implement a New Business Model: This option involves redefining the motel's target market, value proposition, and competitive advantage. This requires a thorough analysis of the market, customer needs, and competitor offerings.
4. Recommendations
- Implement a Strategic Marketing Plan: Develop a targeted marketing strategy focused on attracting a more profitable customer segment, such as business travelers or leisure travelers seeking a higher-quality experience. This involves leveraging online marketing channels, building relationships with travel agencies, and offering value-added services.
- Improve Operational Efficiency: Implement a lean management approach to identify and eliminate waste in operations. This includes optimizing staffing levels, streamlining processes, and investing in technology to automate tasks.
- Enhance Guest Experience: Invest in upgrading facilities, improving amenities, and providing personalized customer service. This can include offering complimentary breakfast, upgrading room d'cor, and providing concierge services.
- Develop a Pricing Strategy: Implement a pricing strategy that reflects the value proposition and caters to the target market. This may involve introducing different room categories with varying amenities and pricing levels.
- Improve Financial Management: Implement a comprehensive cost accounting system to track and analyze operating costs. This will enable the motel to identify areas for cost reduction and improve profitability.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with the motel's core competencies in providing comfortable accommodation and personalized service. They also focus on enhancing the guest experience, which is consistent with the motel's mission to provide a welcoming and enjoyable stay.
- External Customers and Internal Clients: The recommendations prioritize the needs of both external customers and internal clients. They aim to attract and retain a more profitable customer segment while improving the working conditions and motivation of employees.
- Competitors: The recommendations consider the competitive landscape and aim to differentiate the motel from competitors by focusing on a higher-quality guest experience and offering unique value propositions.
- Attractiveness: The recommendations are based on a cost-benefit analysis and consider the potential return on investment. The focus on operational efficiency, strategic marketing, and guest experience enhancement is expected to lead to increased profitability.
6. Conclusion
Larkin Motel can achieve sustainable profitability by implementing a comprehensive strategy that addresses its operational inefficiencies, enhances the guest experience, and attracts a more profitable customer segment. This strategy involves a combination of operational improvements, strategic investments, and a shift in focus towards a higher-quality, value-added service offering.
7. Discussion
Other alternatives not selected include selling the motel, which would provide immediate liquidity but eliminate the potential for future growth. Investing in renovations without a clear strategic plan could lead to significant costs without a guaranteed return on investment.
Key assumptions underlying these recommendations include the availability of capital for investments, the ability to attract and retain qualified staff, and the willingness of the Larkin family to embrace change and implement a new business model.
8. Next Steps
- Develop a Detailed Implementation Plan: This plan should outline specific actions, timelines, and responsible individuals for each recommendation.
- Secure Funding: Identify potential sources of funding for investments in renovations, technology, and marketing.
- Recruit and Train Staff: Hire and train staff with the necessary skills and experience to support the new business model.
- Implement Marketing Campaign: Launch a targeted marketing campaign to attract the desired customer segment.
- Monitor and Evaluate Performance: Regularly monitor key performance indicators to track progress and make necessary adjustments to the implementation plan.
By taking these steps, Larkin Motel can transform its business, enhance its competitive position, and achieve sustainable profitability.
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Case Description
This case addresses the transition from cash to accrual accounting. It also demonstrates some of the difficulties in comparing one firm's data with industry averages.
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