The Elite group is the largest hotel group in both the UK and Europe. It was formed in 1973 by the merger of Viscount Group and Comet group, who were both well established at the time of the merger. Until the mid-1980’s the company performed well, but didn’t carry the image or strategies, which could transform it into a market leader. The board resorted to new leadership to make this possible. John Avis was appointed Managing Director to restore financial control and seek financing to return the company to profitability.
He was recruited from a major North American group. Avis’s mission was to transform Elite into a prestigious chain of hotels, which attracted customers who wanted 5 star-luxurious services. His approach was to introduce a high price/ high quality business strategy. With emphasis placed on instilling high level customer service and quality, was the basis for distinguishing the company from its competitors and creating a single-strong brand image. This has been the driving force for Elite’s success through the mid-1980s.
The strong quality brand image was financed by a rights issues and loan capital. Avis had created such formula for success that the financial community provided money when it was required. Avis had created this strong relationship. The late 1980’s early 90’s has seen a change in fortunes. Recession, more competition, threats of terrorism and increased costs has contributed to the company perusing a strategy of cost reduction, in order to maintain credible profit levels. The external environment affects the hotel industry considerably.
Cost reduction initiatives have created there own problems in the management control system so much so that the financial community didn’t want to help. This poses the question whether what Avis created has long term value. This report will critically evaluate the management control system of Elite Hotel Group and recommend changes which can be made to the problems found in the system. Elite group has been extremely successful in the luxury end of hotel retailing; however, external factors have shown to hamper Elite’s financial performance.
The strategy of high quality/ high prices which worked in the mid-80’s cannot be sustained in the current climate. Reducing costs under the premise of maintaining a high degree of quality has not worked for reasons explained later. Elite operates in a narrow market. Trade is only transacted with those well off. Occupancy rates suggest that even the wealthiest are reluctant to spend money. There’s less opportunities to increase revenues.
Furthermore, the annual report shows that costs are rising and profits are low, therefore there are fewer funds to pump into high quality refurbishments. With rising costs, increased competition it seems reasonable to suggest that Elite should re-think its target market. Moving from a luxury to a semi-luxury market will bring more business. Lowering quality, prices can be lowered since costs are lower, this will attract a larger proportion of the public. This means higher occupancy rates despite environmental forces.
Elite’s affiliation to quality and customer service means that the ground work has been done to keep these aspects core to the business, however not at the levels which are suffocating the company. Managers can reduce costs without worrying about sustaining quality. Wilson and Chau (1993) state that there is no universally right way for a management control system to operate. This suggests that the management system can change according to this new mission, if it means better profits. Alternatively, Dent (1990) provides that by creating a new environment reduces pressures of environmental uncertainty.