Management Of Financial Resource And Performance Commerce Essay

Management Of Financial Resource And Performance Commerce strainManagement of fiscal resources is crucial in any business. According to Harrison and Enz (2005, p.72), If pecuniary resources argon misused, they will not result in better human resources or superior physical assets and processes. Furthermore, strong financial resources are an even greater importance in the hospitality industry where it is a highly competitive surroundings and innovations are quickly imitated. If the financial resources are secured, the organization is able to invest in unique, valuable and difficult to imitate capabilities. Consequently, it freighter gain the competitive advantage. worldwide Hotels multitude PLC (IHG) is the worlds largest hotel operator in respect of the soma of rooms totaling 585,094 in a 2008 report. IHG mainly operates in the UK, the US, Asia Pacific, Europe, Africa and the Middle East. Moreover, this large hotel operator consists of seven hotel notices including InterContin ental, Crowne Plaza, Hotel Indigo, pass Inn, Holiday Inn Express, Staybridge Suites and Candlewood Suites. Intercontinental Hotels Group operates its hotels in three different ways- as a franchisor, an owner, and an operator. Since the biggest part of the business is franchising, IHGs focus lies on driving demands for its brands. On a global scale, the hotel operators distribution system includes global advertising, marketing campaigns, call centers, and local language websites (J wizs, 2009). Despite having a competitive advantage with its strong brand awareness and diversified properties worldwide, IHG needs to constantly monitor its environs and identify both internal and external factors. In this manner, its national and international strategies can hang in well suited to the growth environment and capabilities. While an audit of the business is necessary to analyze Intercontinental Hotels Groups current position, assessing the financial resources and performance carry a gre ater weight for decision making.1. EXTERNAL AUDITMacro (PESTLE) AnalysisAwareness of a changing environment is of central importance in create and implementing a robust strategy. PESTLE analysis is a framework used for environmental scanning in strategic management and is comprised of political, economical, social, technological, well-grounded, and environmental components. Political and legal factors can affect aspects of the UK hospitality industry. Tax regulations and employment laws can be altered due to the UK elections that recently took place. Hayman describes how the British Hospitality Association has asked the upstart coalescency government to delay the UK tourism industry by providing increased investment and reduced regulation (Anon., 2010). Another essential component in the external environment is the economical factor. The effects of recession have severely impacted the overall performance such as hotels occupancy rates and revenues of the UK hotel market. Amongs t these effects is the drop in international and national corporate market segment. A third component in the PESTLE analysis is the social factor. UK consumers have decreased their number of trips, number of nights spent in accommodation, and their overall expenditure. Another element in the macro-scanning is the technological factor. The rise of the internet has allowed study hotel chains to invest in websites and direct meshing systems allowing consumers to book, view, and review hotels. Finally, the environmental factor is in like manner of importance when analyzing the environment. Corporate Social Responsibility has slowly become integrated in many organizations business objectives. For a hotel to be socially responsible, it must follow through many policies such as abiding by the Energy Consumption laws and engaging with the local community. small (Porters 5 Forces) AnalysisThe factors in the macro-environment analysis can be used to determine how the firms industry enviro nment (micro audit) is affected. Porters five forces of competition framework can be used to analyze the intensity of competition and the level of profitability (Grant, 2005). These five forces include competition from substitutes, entrants, power of suppliers, power of buyers, and established rivals. The threat of substitutes for Intercontinental Hotels Group is high risk. During the recession, many customers were staying at budget hotels, which became increasingly popular amongst the leisure and corporate markets. Since the barriers to entry into the hotel industry are high, the threat of entry consumed is low. The barriers include are high capital requirements or entry costs, high fixed costs, no economies of scale, and resistance from the existing market. The power of suppliers is considered medium-risk for IHG. Since furniture and fittings must be of a certain standard relevant to a hotel, they are purchased in bulk from specialist contract suppliers. On the other hand, thithe r are no permutation costs for food manufacturers and processors. Another element of the five forces is the power of buyer, which is high in the case of Intercontinental Hotels Group. The buyers are sensitive to the prices charged by the hotels in the industry. Moreover, they can easily compare not only prices but also quality and ratings via Internet development various websites. Finally, the rivalry amongst established competitors is of high risk. The major competitors of IHG are Hilton Hotels Corpoproportionn, Starwood Hotels and Resorts Worldwide, Hyatt Corporation, and Accor. These large hotel chains offer similar products and services, which mean customers are willing to substitute.2. BUSINESS STRATEGYIn order for an organization to compete inside a particular industry, it must gain a competitive advantage over its competitors by establishing a business strategy (Grant, 2005). The main objective of a business strategy is to link an organizations internal capabilities and t he external environment. IHG not only continuously monitors the environment, but also ensures that the strategy remains aligned with external factors. The sum focus of Intercontinental Hotels Group is to create Great Hotels Guests Love. In 2009, despite economic hardships, IHG analyzed its operations and capabilities to focus on how to deliver Great Hotels Guests Love. This major hotel chains strategy concentrates on two key aspects where it chooses to compete and how it will win in the competing market. There are five key priorities in support of IHGs overall strategy. Some of these priorities include financial returns, its people, responsible business, and guest experience. The progress of these priorities is footstepd to ensure the procurement of Great Hotels Guests Love. Intercontinental Hotels Groups strategy is also tending(p) to regional objectives and priorities.3. INTERNAL AUDIT3.1 Human ResourcesIn order for a strategy to be carried out, human resource is required. Acc ording to Kaplan and Norton, human capital is the availability of skills, talent, and know-how required to support the organizations strategy (2004). Employees are not only critical to achieving sustainable competitive advantage, but also integral in an organizations business plans. single of IHGs key strategic priorities is to use its people to create a more efficient organization with strong core capabilities. Intercontinental Hotel Groups focus lies in developing skills to support its key goals for responsible business, guest experience and financial returns by managing employee engagement. Approximately 335,000 people are diligent globally across IHGs brands including franchised and managed hotels. The business has been balance cost reduction and restructuring programs while managing engagement for the people and guests during 2009. To achieve Great Hotels Guests Love this organization has developed a clear articulation of its values and the behaviors pass judgment from all employees, as well as creating the right environment for employees so that they can deliver the core purpose3.2 Mechanical ResourcesAnother type of organizational resource is non-human assets such as technology and reputation. IHGs central reservation system technology includes the operations of the HolidexPlus reservation system. This system electronically receives reservation requests entered on terminals turn up at most of its reservation centers, as well as from global distribution systems operated by a number of major corporations and travel agents. There are currently ten global reservation offices available to take hotel bookings from guests 24 hours a day in 26 different languages. IHG generates room sales globally through their branded websites. Kaplan and Norton state that an excellent reputation for performance a gigantic social dimensions not only attracts high quality employees, but also enhances the contrive with customers and socially conscious investors (2004). I HG believes that corporate responsibility (CR) is integral to the way it conducts business and also at the core of its strategy. Moreover, it assists in building competitive advantage. Intercontinental Hotel Groups CR strategy is focused in the environment and its communities in order to drive increased value for IHG, owners, employees, and guests.3.3 Financial ResourcesWhile human and mechanical resources are every bit important, the financial component of the strategy is just as crucial in a highly competitive industry such as the hospitality one. The balance act of both growth and productivity dimensions is the organizing framework for an organizations strategy map. According to Harrison and Enz, strong cash flow, low levels of debt, a strong credit rating, access to low-interest capital, and a reputation for creditworthiness are powerful strengths that can serve as a source of strategic flexibility, which means that firms can be more responsive to new opportunities and new thre ats (2005).3.3.1 Analysis of Key symmetrysCompanies will often track trends of key ratios over several long time to compare their numbers against industry averages from a major competitor to assess comparative financial strength (Harrison and Enz, 2005). The following are any(prenominal) key ratios using IHG financial information from its annual reporta. liquid state ratios help an organization determine its ability to pay short-term obligations such as debts and payables (Bertoneeche and Knight, 2001).i) An example of this is up-to-date balance, which can be formulated as followsCurrent Ratio= Current Assets/ Current Liabilities2008Current Assets= $544mCurrent Liabilities= $1141mCurrent Ratio= 0.472009Current Assets= $419mCurrent Liabilities= $1053mCurrent Ratio= 0.40Because the Current Ratio is below 1 for both years, it suggests that IHG is unable to pay off its short-term obligations if they were due at that point. The decrease of current assets is probably due to the reces sion period. Although this implies that the organization is not in good financial health, it does not necessarily mean that it will go bankrupt.ii) Another example of a liquidity ratio is the quick ratio also known as the acid test and can be figured as shown belowQuick Ratio= (Current Assets- Inventories) / (Current Liabilities)2008Current Assets= $544mInventories= $4mCurrent Liabilities= $1141mQuick Ratio= 0.472009Current Assets= $419mInventories-$4mCurrent Liabilities= $1053mQuick Ratio= 0.39The difference between current ratio and quick ratio is inventories. Inventory is excluded in quick ratio since some companies have difficulty turning their inventory into cash. In the case of IHG, the quick ratios for both 2008 and 2009 are similar to the current ratios. Since the hotel industry is mostly service oriented, on that point are not much inventories to turn into cash.b. valueability ratios are another key dimension to an organizations firm health. According to Harrison and Enz (2005, p.72), They are a harsh measure of overall financial success.i) One type of profitability ratios is net profit margin ratio can be calculated as followsNet Profit Margin= (Net Profit/ Revenues)* 1002008Net Profit= $262mRevenues= $ 1897mNet Profit Margin= 0.14 or 13.81%2009Net Profit= $214mRevenues=$1538mNet Profit Margin= 0.14 or 13.91%For every $1 generated in revenue, IHG made a profit of 13.81% in 2008 and 13.91% in 2009. Even though the net profit and revenues for 2008 are higher than that of 2009, there was a slight increase in the net profit margin.ii) Another profitability ratio is take in profit margin which can be immovable as follows swinish Profit Margin= (Gross Profit/Revenues)* 100%2008Gross Profit= $1045mRevenues= $1897mGross Profit Margin= 0.55 or 55.08%2009Gross Profit= $678mRevenues= $1538mGross Profit Margin= 0.44 or 44.08%Gross profit margin discloses the profit an organization makes on its cost of sales. IHGs gross profit margin decreased in 2009 due to lower revenues and higher cost of sales compared to 2008. This simply shows that the efficiency of operations and product pricing subsided.iii) Return on capital employed ratio compares the profit made by an organization with the amount of money invested. The formula is as followsROCE= Net Profit/ big(p) EmployedCapital Employed= Shareholders funds + Long Term Liabilities2008Net Profit= $262mCapital Employed= $1972m+$1= $1973mROCE= 0.13 or 13.28%2009Net Profit= $214mCapital Employed= $1684m+$156m= $1840mROCE= 0.11 or 11.63%According to the authors in Business Studies, the higher the ratio, the better indication of performance it is in terms of profit returned for the capital invested (Hall, Jones, and Raffo, 2004). Over the past two years, the ROCE has decreased from 13.28 per cent to 11.63 per cent. This means that less profit was made to cover the capital employed.c. A third key dimension to assessing an organizations financial standing is efficiency ratio, which evaluates how effectively capital is employed within the firm (Bertoneche Knight, 2001).i) Asset upset ratio reflects how assets are being effectively used to generate revenues. The formula is the followingAsset Turnover Ratio= Revenues/ Total Assets2008Revenues= $1897mTotal Assets= $3118mAsset Turnover Ratio= 0.612009Revenues= $1538mTotal Assets= $2893mAsset Turnover Ratio= 0.54From this ratio analysis, IHG had a decrease in its asset turnover rate from 2008 to 2009. For every $1 of assets it owned, IHG generated $0.61 of sales in 2008 and $0.54 in 2009. Since the ratios for both years are relatively low compared to other industries, the organization might not be utilizing its assets to a full potential. However, the profit margin ratio is higher compared to another sector of the hotel industry such as budget hotels.d. gear mechanism ratios illustrate the long term financial position of an organization. They can assess whether or not a business is burdened by its loans (Hall, Jones, and Raff o, 2004). The formula for gearing is as followsGearing= Fixed Cost Capital/ Long Term CapitalLong Term Capital= Shareholders Funds + Long Term loans2008Fixed Cost Capital= $1972mLong Term Capital= $1m + $1972m= $1973mGearing= 0.99 or 99.95%2009Fixed Cost Capital= $1684mLong Term Capital= $156m + $1684m= $1840mGearing= 0.92 or 91.52%Since the ratios for both years are higher than 50 per cent, IHG is considered a high geared company. This simply signifies that a much higher proportion of total capital is borrowed. Even though the gearing ratio decreased from 2008 to 2009, IHG is still considered as risky by creditors.After analyzing the key ratios previously formulated and comparing between 2008 and 2009, one can conclude that Intercontinental Hotel Group is not financially fit. Both liquidity ratios, current and quick, decreased from 2008 and 2009 signifying that assets cannot easily be turned into cash. Moreover, the decrease of profitability ratios including gross profit margin and ROCE indicate weakness of the business. The net profit margin, however, did slightly increase from 2008 to 2009. Furthermore, IHGS poor asset turnover ratio shows that the company is not using its assets effectively. Lastly, the organizations high gearing nature also contributes to the fact that IHG is reliant on borrowed business. Overall, it needs to make changes to improve its financial health.4. RECOMMENDATIONS/ CONCLUSIONThe utilization of an organizations resources must not only be effective, but also efficient (Pettinger, 1997). While the strengths of IHG management for both financial and non-financial resources can be enhanced, the weaknesses must not be overlooked. In order for IHG to carry out their strategic objective of creating an efficient organization, its human resource management must be committed to several practices such as selective hiring, focus on training and development, communication and information sharing, good level of compensation, and team working (Por ter, Smith, Fagg, 2006). In this manner, IHG will be able to achieve positive human resource outcomes, which can lead to quality and productivity. This in turn can heighten the organizational performance in terms of financial outcomes. Furthermore, IHG management can take general action to increase the stream of cash flows and drive value. Increasing business with current customers, runing global presence, reducing expenses and prosecute complementary alliances can all promote growth. According to DeFranco and Lattin(2007, p.119), Rather than focus on expansion in a single city, some companies elect to expand to new markets. The benefit of this type of growth is that it spreads the risk of expansion over several markets. For example, concierge services can incorporate the usage of iPad to visually assist the guests common questions such as directions. Another example is diversifying related products such as vacation ownership and corporate housing. By doing this, Intercontinental Hotel Group will be able to enhance its product image. Margins can be improved if IHG focuses on restructuring, efficiency, productivity, and cost control. Moreover, increasing inventory turns and getting best conditions from suppliers can aid in lowering the companys working capital. The organization can also optimize asset utilization by either lowering capital expenditures or improving turnover ratios (Bertoneche Knight, 2001). An example of a capital expenditure is restoring a property or adapting it to a new or different use. In the case of IHG, this can involve renovating or refurbishing one of its hotels. By lowering capital expenditures, the balance sheet can be affected positively.In conclusion, IHG has managed to successfully remain as one of the top hotel chains worldwide, it still needs to constantly be monitoring the external and internal environment to be able to compete in the hospitality industry. As more and more competitors are arising, IHG need to continuously re vise and review its strategic objectives, which include human resources, mechanical resources, and financial resources. By evaluating financial ratios, IHG can monitor the performance of its operations and evaluate its efforts to meet a variety of goals. By tracking a selected set of ratios on a symmetric basis, the organization is able to maintain a fairly accurate perception of the effectiveness and efficiency of its operations (Andrew, Damitio Schmidgallm 2007). Even though the hospitality industry is combat-ready and exciting, it poses many challenges such as low profitability, reliance on discretionary income, capital intensive, fluctuating sales volume and labor intensive. IHG has to ensure that it is able to castigate these challenges so that it can grow and increase its value..