Intransitive Preference Theory - Case Study Example

Executive Summary This report explains the dilemma facing Ms Nicole Atkins and her options between expansion and competitive tariff/pricing.The report accounts for the now many tennis courts which will be needed in July 2004 .However it is stated that 2004 may go with out too many new building initiatives but the year 2005 will need an over all rehaul of the tennis services if they are to be considered as means of expanding the profit base itself.Finally the report addresses the broader issues facing the Golden Shores Company in terms of the reliance upon, and the relationship between, tennis and the Company's principal business and the effects on the relevant stakeholders. The dilemma The dilemma being faced by Atkins is similar to the one faced by many expanding business organisations that is to decide whether or not expand their operations beyond a certain point in terms of cost and profitability. Therefore this problem arises in terms of capacity and pricing in the over-all tennis strategy for Golden Shores.The tennis feature of the resort is steadily increasing in popularity and is about to hit the full capacity in terms of space and hours available keeping in mind the weather conditions which may range from rainy to unbearably hot.At the same time the demand for this has not reached full potential and now Atkins must decide whether or not to build more tennis courts when the tennis operations are making little or no contribution to resort operations.Its profitability is also doubtful given the figures provided in the appendix of the case study.Also the tennis court has high fixed costs and low percent capacity utilization and this cuts down the incentive to work on this aspect of the resort.At the very least this should be around 25 percent to the total revenue created by the resort to be graded as profitable taking into account the inflation adjusted figures in the coming years to even consider having additional buildings.At this point it is known and can be gleaned from the statistical figures that if this tennis feature is properly expanded it is a great economic opportunity for Golden Shores as the tennis feature has in it invested a lot of money in terms of the facilities, promotion, advertising, and management time and should be a source of profit rather than a factor for property appraisal during purchase. This growing seasonal demand versus the diminishing capacity is an operational challenge at Golden Shores.The problem remains that this demand is not permanent or steady through out the year.The aim would thus be for a profit sustainable methodology to apply to the capacity planning decision that faced operations management for the tennis facilities. Some statistical calculations Next pertaining to the query about the number of tennis courts which will be needed in July 2004 and its comparison to the present capacity as well as the way ahead for the planning for the next season in terms of capacity by Ms Atkins it is possible to show the following workings. These workings take into account the peak months of usage as well as the past use of the facility.The rate at which the demand is increasing and the cost of utilising 100% capacity of each court alongwith tariff management. It can be seen from Exhibit 3 that July and August are the peak months for Guest nights with the total court hours peaking to 2885 hours. The factors or the formula I would suggest for Ms Atkins would be to focus on capacity decisions which determine other measures of service management such as productivity, growth, change, and competition. GS tennis courts will have to as a part of the service industry provide services as and when they are demanded because it cannot be inventoried.The cost would the demand variability which will lead to alternating periods of idle service workers or facilities and consumer waits. This cost has to be subtracted as a trade off to the cost of idle resources versus consumer retention since a dissatisfied consumer base is likely to hurt the long-term profits and success of GS since the consumers will not return for future relaxation and will tend to visit less often.Other risks include negative advertising by bad feedbacks. Based on the above the recommended rate structure @ $10 per court hour regardless of the composition courts as opposed to @ of $4 per hour per person stands correct.The tariff discount has to be slashed after two hours of play which should then lead to uniform tarrifs for all playing hours. Furthermore the premium charge for all weather courts and a discontinuation of the student and package discounts stand correct. However whereas this is a good strategy for 2004 by 2005 there will be inevitably an expansion required as this tariff structure will hopefully boost the sales of tennis facilities at GS and this means the need for increased space.However it should be remembered that the resort is for relaxing and not for ruining the rest and relaxation of the current consumers and any decision as to increasing demand or further building must account for ethical decision making rules.However given the current figures in the tables it is submitted that the number of tennis courts in 2004 will have to increase by 10 percent which is a safe estimate for the increasing demand. Literature review for the operational decisions along with justifications: While advising the GS(Golden Shores) resort it is necessary to employ a four fold view in mandating and approving the expansion.In this section the aim is to reflect upon some of the theoretical premises upon which I have been able to base my advice. It has long been recognised by the academia that decision theory does not lie entirely within any one discipline and draws upon a number disciplines like psychology, economics, mathematics, statistics and social sciences. Much of decision theory therefore does not sit comfortably within any one discipline. Furthermore it embraces work from philosophy in the form of work relating to ethics (Bacharach and Hurley, 1991) mathematics of decisions (French, S., 1986) economics and rational choice behaviour (Bacharach and Hurley, 1991) and politics and ethics (Sutherland, 1992).In this vein my decision is firmly based on ethics as I have refused to let the low cost of currently having an overcrowded tennis court tempt me into disregarding the need for better facilities for the consumers.At the same time the environmental factors mandate a perusal of the theories of leadership, corporate social responsibility and business ethics becomes a pivotal concern here. Nisberg (1988:43) has defined business ethics as "a set of principles that guides business practices to reflect a concern for society as a whole while pursuing profits". He further refers to ethics as what is right, good or consistent with virtue. The aim is to undertake only those changes at GS which will not unreasonably affect the natural environment and the present customer service.Corporate Social Responsibility by the leadership is the degree of moral obligation that may be put upon corporations apart from the normal laws of the state. The leadership in the corporation has to realise that the corporation is an individual and is amenable to treatment as an individual under the law (Nisberg, 1988, p. 74).Academics have applied a number of different philosophies to business and leadership ethics as (e.g., Ferrell and Gresham, 1985). Social psychologists have also considered moral philosophies to play a pivotal role in the shaping of leadership decisions. Forsyth (1980) has argued that ethical decisions can be explained in terms of idealism and relativism and defined (1980, p. 175) relativism as "the extent to which an individual rejects universal moral rules" when making ethical judgments and idealism as the degree to which the individuals "assume that desirable consequences can, with the 'right' action, always be obtained" (Forsyth, 1980, p. 176). The next basis of my decision was to explore an approach which would take into account all the intrinsic technical and financial hurdles present in the decision making process for GS resort. This necessitated the use of the PESTEL and Business scorecard approach. My aim was to arrive at a balanced Business Score Card approach to reach a decision for the tennis court location and facilities. The balanced scorecard was the Brainchild of Kaplan and Norton and has been endorsed academically as means of measuring sound business performance which will be represented by what Kaplan has termed as "a balanced presentation of both financial and operational measures". The background to this approach is the author's quest in setting up a range of measures which will give the top managers a fast yet coherent view of the business. The balanced scorecard approach allowed me to judge whether the results if the company's operations are financially and politically feasible , which are the "operational measures that are the drivers of future financial performance". Kaplan and Norton define this approach as allowing managers to form a fourfold view to approaching their business that is how the customers perceive you as a company(Customer Perspective),what your company excels at ( Internal Perspective),whether the present setup allows you to continue to improve and create value(Innovation and Learning Perspective) and last but not the least how you look at shareholders.(Financial Perspective).This fourfold view then not only minimises the information overload but also allows the decision making manager to put everything on a paper. The method is popular with all the big corporate entities like Rock water (part of Brown and Root), Intel and Apple computers, BP Chemicals, Milliken, Nat West Bank, Abbey National and Leeds Permanent and public sector organisations like the NHS. There will be a number of decisions here which has been based on a number of considerations like the PESTEL factors which are beyond the control of the companies or their board and management and have to be accepted for whatever they stand for.(PESTEL stands for political, economical, socio-cultural, technological, environmental and legal issues facing the managers and employees).In this vein the business scorecard analysis helped me to understand the external compulsions and to devise internal regulations to manage these problems for example in the issue of trade unions and employment contracts etc. The business scorecard approach thus relies heavily on its precision and relevance and will ideally be a success where it is possible to deliver information which is the backbone of the strategy, and can function as the cornerstone of both the Resorts tennis feature's current and future success by balancing short-term, essentially financial performance, with long-term growth opportunities; balance internal and external perspectives by ensuring that comparison against current competitors is undertaken, in addition to comparison with the organization's own past performance; highlight performance by adopting a broad perspective: financial, business processes, customer/market interfaces and employee motivation; act as an integrating tool, both horizontally (across functionality) and vertically (through levels of management), by communicating the business strategy and the organization's priorities; serve as a dynamic, continuous process used to evaluate performance and redefine strategy and measures based on results.(Kaplan and Norton 1993). It is also quickly worth mentioning that the Business card approach is aimed at good governance and is seen as a firm's results that emanated from a series of contracts between several types of stakeholders. This means that the sole aim is not to maximise profit or reduce costs. There should be an effort to evaluate the costs of the deprived and marginalised patients. Therefore this scorecard allowed me to assess with in a single report how approaches can be adopted in the last post merger corporate entity to make the company more customer orientated and how to improve its product development and management. When all these perspectives are viewed together it is possible to see whether the development of any one perspective is damaging the development of another. The diagram below adopted from Kaplan and Norton shows how these perspectives can be brought together onto a single table for a comprehensive perspective of the GS dilemma.(Kaplan and Norton) Based on this approach there are additional problems that may have to be taken into account include the consideration that if the Resort were to be increased for capacity for tennis the shareholders of the member companies would expect a real return of at least 15% - 20% a year on their investment. This could be increased even further if Golden Shores considers that it wants to be refinancing the deal. Refinancing occurs when the resort consortia borrow money to finance the building costs once the risky phase of construction is complete. There are a number of additional issues that need to be addressed during the decision making process: 1. The accounting scheme has to justify not only a cost benefit but an ethical analysis.The resort cannot be stretched beyond its potential to jeopardise the relaxing feature of the resort and to cause unnecessary over crowding.. 2. Another issue is the difficulty in making predictions as to the number of courts and related services you will need to provide. The greater this number, the higher your costs will be. In previous expansions for the resort the reconfiguration of services has resulted in profit losses of between 20% and 40%. The managers dilemma is s compounded by the predicted growth in the owners in the resort over the next 5 years and this growth will be particularly acute amongst the middle aged population settling in with their families. One way in which the resort managers have attempted to address this is to try and increase the number of courts but again the cost issue haunts them. 3. A third issue relates to the quality of the buildings/tennis courts - the higher the quality, the higher the costs to the resort. Decisions relating to this matter may be complicated by penalties for overdue completion, although no such penalties exist for shoddy construction work. When deciding on the amount of resources to commit to buildings the operations managers should also take into account that stakeholders expect such expansions to be fairly profitable. 4. They will also need to make a decision as to whether they should contract out ancillary services (i.e. support staff such as maintenance, catering, cleaning, laundry and portering) or whether they can provide them themselves.This is because if the expansion goes through contracting these services out is the most profitable course of action for the resort and is a more attractive proposition than other organisational forms. 5. Other means of profit maximisation open to the consortium are charging visitors and tourists fees for parking and rental fees for specific facilities. Towards some conclusions All the approaches mentioned above solely cannot be relied upon solely to bring about business stability and a good business score card will not always reflect the guaranteed quality results particularly if there is a lack of proper analysis dialogue, commitment and action which are all the success factors in the development of a sound scorecard. As a decision maker I do not have perfect information or the perfect skills and thus it has often been said that the balanced scorecard approach has the dangers of ignoring the uniquely cultural and individual needs of the organisation and this cannot be a one size fits all scenario. Therefore based upon the above organisational theories I have produced a capacity decision document for the Golden Shores Resorts tennis feature and its capacity planning. References 1. 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