CLASS / COURSE: Business Strategy
Case Study Analysis.
Strategic Marketing Problems. Cases and Comments, Eleventh Edition
Chapter : Case: Amber Inn & Suites, Inc.*
ISBN: 9780131871526 Author: Roger A. Kerin, Robert A. Peterson
copyright © 2007 Pearson Education
Kerin, R. A. & Peterson, R. A. (2007). Case: Amber Inn & Suites, Inc. Strategic Marketing Problems. Cases and Comments (11th ed). Pearson Education.
Mcdonalds, A. (1993). Practical methods for the apprehension and sustained containment of supernatural entities. In G. L. Yeager (Ed.), Paranormal and occult studies: Case studies in application (pp. 42–64). London, England: OtherWorld Books.
Case: Amber Inn & Suites, Inc.*
*This case was prepared by Professor Roger A. Kerin of the Edwin L. Cox School of Business, Southern Methodist University, as a basis for class discussion and is not designed to illustrate effective or ineffective handling of an administrative situation. All names and the company data have been disguised. Copyright © 2005 by Roger A. Kerin. No part of this case may be reproduced without written permission of the copyright holder.
Late in the afternoon on April 4, 2005, Kelly Elizabeth, Senior Vice-President of Sales and Marketing at Amber Inn & Suites, Inc., met with Catherine Grace, Vice-President of Advertising. The impromptu meeting followed a day-long senior vice president conference with Joseph James, the company’s new president and chief executive officer. Mr. James, a seasoned hotel financial executive with 40 years of hotel management experience, was appointed the previous week following the sudden resignation of his predecessor. The charge given each of the company’s four senior vice-presidents was to prepare a one-hour presentation that described (1) his or her initiatives, expenditures, and outcomes for each of the past two fiscal years, and (2) planned initiatives and budgetary needs for fiscal 2006, beginning June 1, 2005. Mr. James also requested that each presentation provide the motivation for initiatives and expenditures so he could familiarize himself with company operations. Presentations would be made on April 11 to the chairman of the board, president and CEO, and chief financial officer following a tour of company properties by Mr. James.
Fiscal 2005 was projected to be the fifth consecutive unprofitable year for Amber Inn & Suites, Inc. Mr. James announced that his goal for the company was to achieve profitability within two years. Toward this end, he stated that the company would use growth in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) as a corporate performance measure and a basis for determining senior management and executive incentive compensation. The use of EBITDA for these purposes had been endorsed by the company’s Board of Directors. His overall corporate objective was a seven percent annual increase in EBITDA over the next two fiscal years. Each senior vice-president (lodging operations, corporate administration, information technology services, and sales and marketing) would be expected to address this objective when presenting their planned initiatives and budgetary needs. In addition, Mr. James requested that each senior vice-president restate the effect of prior years’ initiatives and expenditures from an EBITDA perspective as well as performance measures used previously. The company’s vice-president and chief accounting officer would supply available financial and operating data to prepare this analysis.
The charge given the four senior vice-presidents represented a significant departure from past practice. Previously the annual planning and budgeting process had been more “top-down” than “bottom-up,” and revenue focused rather than earnings driven; that is, budgets were initially prepared by the chief financial officer and the vice-president and chief accounting officer in consultation with the president and CEO who met with the senior vice-presidents to establish spending priorities within the budget. Budget amounts would be adjusted depending on the initiatives proposed and “a little negotiation,” said Ms. Elizabeth. According to Ms. Elizabeth:
The process seemed to work well during my tenure here. Sales and marketing was always generously funded. Brad [the previous president and CEO] was a veteran hospitality marketer who recognized the importance of sales and marketing initiatives and spending following the hotel industry’s downturn in 2002 and 2003 with the 9/11 tragedy and a soft business and pleasure travel environment. Brad was of the view that successful companies grow sales not prune expenses. Since 2003, when Brad and I joined the company, our media advertising budget has grown 55 percent and our sales budget increased 15 percent. Revenue growth has exceeded industry averages even with a decline in the number of operating properties and guest rooms and suites since fiscal 2003.
She went on to say:
The process outlined by Mr. James reflects a growing practice today. I was not surprised by the charge given us. Companies in the hotel industry are looking for and expecting a documented favorable financial return on their expenditures. Admittedly, sales and marketing has lagged behind other functions, such as lodging operations, in showing measurable profit results from its efforts. The new planning and budgeting process will be a challenge because it is “bottom-up” and profit driven rather than “top-down” and revenue driven. But it is a worthwhile undertaking to achieve profitability within two years. I hope the planning and budgeting process doesn’t turn into a cost-cutting exercise.
This case is about controlling expenses and increasing margins at Amber Inn & Suites, Inc. Amber Inn &......
SUBJECTS / CATEGORIES:
2. Strategic Business Management
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