Harvard Case - Travelling Thai Ltd.
"Travelling Thai Ltd." Harvard business case study is written by Elizabeth M.A. Grasby, Jessica Kelly. It deals with the challenges in the field of Accounting. The case study is 2 page(s) long and it was first published on : Aug 3, 2012
At Fern Fort University, we recommend that Travelling Thai Ltd. implement a multi-pronged strategy to address its profitability challenges, focusing on improving operational efficiency, expanding its customer base, and enhancing its brand image. This will involve a combination of cost optimization, revenue growth initiatives, and strategic investments.
2. Background
Travelling Thai Ltd. is a tour operator based in Thailand, specializing in providing tailor-made travel packages for international tourists. The company has experienced declining profitability due to increased competition, rising operating costs, and fluctuating customer demand. The case study highlights the company's struggle to manage its finances, particularly in terms of cost allocation and pricing strategy.
The main protagonists are the company's owner and CEO, Mr. Somchai, and his two sons, who are involved in the business and are eager to see it thrive. The case study presents a clash of perspectives between the traditional approach of Mr. Somchai and the more modern, data-driven approach of his sons.
3. Analysis of the Case Study
To analyze the situation, we can employ a framework that considers both internal and external factors impacting Travelling Thai's performance:
Internal Factors:
- Cost Structure: The company's cost accounting system is inadequate, leading to inaccurate cost allocation and inefficient pricing. This highlights the need for a more robust cost accounting system, potentially utilizing activity-based costing to better understand the cost drivers of each tour package.
- Operational Efficiency: The company lacks a comprehensive system for managing its resources, leading to potential waste and inefficiencies. Implementing asset management practices and optimizing manufacturing processes (in the case of tour packages) can improve efficiency.
- Organizational Structure: The company's decision-making process is centralized, hindering agility and responsiveness to market changes. Implementing a more decentralized structure with clear employee incentives can empower employees and improve performance.
- Financial Performance Measurement: The company relies on basic financial statements without utilizing advanced financial analysis tools. Implementing performance indicators and variance analysis can provide deeper insights into profitability drivers and areas for improvement.
External Factors:
- Competitive Landscape: The increasing competition in the tourism industry requires Travelling Thai to differentiate itself and attract customers. This necessitates a robust marketing strategy and a clear pricing strategy that considers both cost and market factors.
- Customer Demand: Fluctuating customer demand requires the company to adapt its offerings and pricing to remain competitive. This involves understanding customer preferences and developing business models that cater to different segments.
- Economic Environment: The global economic climate impacts tourist spending, requiring the company to be flexible and adaptable. This involves monitoring economic trends and adjusting its growth strategy accordingly.
4. Recommendations
To address the challenges, Travelling Thai should implement the following recommendations:
1. Implement Activity-Based Costing (ABC):
- Objective: To accurately allocate costs to individual tour packages, enabling more precise pricing and profitability analysis.
- Action: Implement ABC by identifying cost drivers for each package and allocating costs accordingly. This will provide a more accurate view of the true cost of each tour package, allowing for more informed pricing decisions.
- Timeline: Implement ABC within 6 months, with a pilot phase for specific packages.
2. Optimize Operational Efficiency:
- Objective: To reduce costs and improve resource utilization.
- Action: Implement asset management practices, optimize manufacturing processes for tour packages (e.g., streamlining booking, transportation, and accommodation arrangements), and utilize technology for efficient communication and coordination.
- Timeline: Implement operational efficiency measures within 12 months, with a focus on continuous improvement.
3. Enhance Customer Experience:
- Objective: To attract and retain customers by providing exceptional service and personalized experiences.
- Action: Develop a comprehensive customer relationship management (CRM) system, implement employee performance management programs focusing on customer service, and offer customized tour packages based on customer preferences.
- Timeline: Implement CRM system within 6 months, with ongoing training and development for employees.
4. Implement a Data-Driven Decision-Making Framework:
- Objective: To leverage data and analytics for informed decision-making.
- Action: Develop a comprehensive management accounting system that includes financial performance measurement, variance analysis, and break-even analysis. This will provide insights into profitability drivers, identify cost-saving opportunities, and support strategic decision-making.
- Timeline: Implement the data-driven framework within 12 months, with ongoing data analysis and reporting.
5. Explore Strategic Partnerships and Acquisitions:
- Objective: To expand market reach, access new resources, and enhance brand image.
- Action: Explore strategic partnerships with other tour operators, travel agencies, or hospitality providers. Consider mergers and acquisitions to gain access to new markets or complementary services.
- Timeline: Conduct market research and identify potential partners/targets within 12 months. Initiate discussions and negotiations for strategic partnerships within 18 months.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with Travelling Thai's core competencies in providing tailor-made travel packages and its mission to deliver exceptional customer experiences.
- External Customers and Internal Clients: The recommendations address the needs of both external customers (international tourists) and internal clients (employees). Improved customer service, personalized experiences, and a more efficient operating model will benefit both groups.
- Competitors: The recommendations aim to enhance Travelling Thai's competitive advantage by offering a differentiated customer experience, optimizing costs, and expanding market reach.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve profitability by reducing costs, increasing revenue, and enhancing efficiency. The use of activity-based costing and financial performance measurement will provide quantitative measures to track progress and assess the effectiveness of the implemented strategies.
6. Conclusion
By implementing these recommendations, Travelling Thai can address its profitability challenges, enhance its competitive position, and achieve sustainable growth. The company needs to embrace a data-driven approach to decision-making, invest in operational efficiency, and prioritize customer satisfaction. This will require a commitment from all stakeholders, including Mr. Somchai and his sons, to work together to create a successful future for Travelling Thai.
7. Discussion
Alternatives:
- Focusing solely on cost reduction: While cost optimization is crucial, it should not be the sole focus. Ignoring revenue generation and customer experience can lead to a decline in market share and brand value.
- Expanding into new markets without proper research: Entering new markets without a thorough understanding of local regulations, consumer preferences, and competitive landscape can lead to costly mistakes.
Risks:
- Resistance to change: Implementing new systems and processes can face resistance from employees who are accustomed to the existing practices.
- Cost of implementation: Implementing the recommended changes will require significant investment in technology, training, and other resources.
Key Assumptions:
- The company is committed to implementing the recommendations and investing the necessary resources.
- The tourism industry will continue to grow, providing opportunities for expansion and revenue growth.
- The company can effectively manage its risks and mitigate potential challenges.
8. Next Steps
Timeline:
- Months 1-6: Implement ABC, develop CRM system, and initiate operational efficiency measures.
- Months 7-12: Implement data-driven decision-making framework, conduct market research for strategic partnerships, and continue operational improvements.
- Months 13-18: Initiate negotiations for strategic partnerships and implement new marketing strategies.
- Months 19-24: Monitor progress, evaluate the effectiveness of implemented strategies, and make adjustments as needed.
By taking these steps, Travelling Thai can transform its business, improve its financial performance, and secure its future in the competitive tourism industry.
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Case Description
A company that has a fleet of food trucks serving Thai food has issued bonds twice since its incorporation. Because the company has reached a level of maturity and is in the sixth year of operations, it is able to recall a portion of one of the bonds. The other bonds mature. Students are asked to record the transactions related to these bonds.
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