You’re the general manager of a hotel situated along a beautiful stretch of beach on a tropical island. One of the oldest of six large resorts in the immediate area, your hotel is owned by a group of foreign investors. For several years, it’s been operated as a franchise unit of a large international hotel chain, as have all the other hotels on the island (such as Hilton, Hyatt, Marriott, and Sheraton) by a group of foreign investors. For several years, it’s been operated as a franchise unit of a large international hotel chain, as have all the other hotels on the island (such as Hilton, Hyatt, Marriott, and Sheraton).

For the past few years, the hotel’s franchisee-owners have been taking most of the profits for themselves and putting relatively little back into the hotel. They’ve also let you know that their business is not in good financial health and that the revenue from the hotel is being used to offset losses incurred elsewhere. In contrast, most of the other hotels on the island have recently been refurbished and plans for two brand-new hotels have been announced for the near future. 

A team of executives from franchise headquarters has just visited your hotel. They’re quite disappointed in the property, particularly because it’s failed to keep pace with other resorts on the island. They’ve informed you that if the property isn’t brought up to standards, the franchise agreement, which is up for review in a year, will be revoked. You realize that this move would be a potential disaster because you can ill afford to lose the franchisor’s brand name, access to its reservation system, or any other benefits of the franchise arrangement.

Sitting alone in your office, you’ve identified several seemingly viable courses of action:  

1. Convince the franchisee-owners to remodel the hotel. You estimate that it will take $8 million to meet the franchisor’s minimum standards and another $10 million to bring the hotel up to the standards of the island’s top resort. 

2. Convince the franchisor to give you more time and more options for upgrading the facility. 

3. Allow the franchise agreement to terminate and try to succeed as an independent hotel. 

4. Assume that the hotel will fail and start looking for another job. You have a pretty good reputation, but you’re not terribly happy about the possibility of having to accept a lower-level position (say, as an assistant manager) with another firm.

Exercise Task 

Having mulled over your options, do the following: 

1. Rank-order your four alternatives in terms of probable success. Make any necessary assumptions. 

2. Identify alternatives other than the four that you identified above. 

3. Can more than one alternative be pursued simultaneously? Which ones? 

4. Develop an overall strategy for trying to save the hotel while protecting your own interests.