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Adrian Mutandiro

Wayside Inns Inc.


About the company/background

Motel operating, public company located in Kansas City


Business operations are based on licensing of established motels

Strategy

Create chain private motels to improve flexibility, easily attain high growth
strategies and implement comprehensive marketing plan developed for the
past seven years
Compete at a lower price point by providing basic/stripped down services
Avoid seasonality demand fluctuation by targeting mainly the business
traveler
Increases inflow of customers by
locating properties near interstate
highways/major routes and spreading out rooms per area
Ensure compensation criteria covers most areas of concern
Reduce the rate of turn-aways by expanding existing properties (76-116
roomed)
Increase profitability by sale of properties with no ROI/too great a financial
burden
Improve customer satisfaction by being efficient in quality of control of
present properties

Stakeholders

Management
Employees
The general public (customers)

Issues
Inability to expand geographically due to restrictive contracts
Turn-away instances occurring due to properties at full capacity
Some variables that the manager has no control over
compensation

may

lower

Key Variables

Develop their own chain of motels


Provide basic amenities only for its facilities (lowers price by between 15-20%
compared to the competition)
Target specific markets in their line of motels (the business traveler)
Locate properties near interstate highways/major routes
Spread out rooms over a large area as opposed to having a single hotel with
many rooms in only a single area

Adrian Mutandiro

Motivation of personnel using a multifaceted compensation system (Sales


Volume, ROI, Years of Service, Fringe benefits)
Expansion of existing properties (76-116 roomed) deemed to be operating at
near/full capacity
Sale of properties with no ROI or of too great a financial burden
Aggressive management, reduction of construction costs, efficient quality of
control of present properties

SWOT Analysis
Strengths

Competence and experience


Achieve low costs
Multifaceted incentives to motivate staff to achieve objectives

Weaknesses
Restrictive contracts limit expansion
Turn-aways due to properties at full capacity
Variables that the manager has no control over may lower compensation,
leading to de-motivation
Opportunities

Create chain private motels without restrictions


Expansion of existing properties

Threats

The competition from other motels


Lowered ROI brought about by the 40-room expansion

Recommendations
Wayside Inns Inc. is a strong company, but a number of changes will need to be
implemented to do even better. These are:

Fairer rewards systems that take into account factors out of managers
reasonable control
Lower/ditch the fringe benefits as a form of compensation as it is not tied to a
performance measure

Adrian Mutandiro

Figures

(Revenue after expansion Revenue before expansion)/Revenue before


expansion
(1485859-1049729)/1049729*100%
= 41.5%
Expansion by 40 rooms will increase revenues by 41.5%

Not all is because of the expansion, though.


Rise in average room rate % = (30.1 27.25)/27.25*100% = 10.5%

(Income after expansion Income before


expansion
(624235-397504)/397504*100% = 57.04%

expansion)/Income

before

Operating income will go up by 57.04%

ROI = EBIT/Investment
Actual Figures (1991)
397504/1469738*100% = 27.05%
Expansion Figures
624235/2572789*100% = 24.25%

Return on investment is lowered comparatively after the proposed expansion

Questions
Question 1 - Is the proposed investment likely to be a good one for Wayside Inns,
Inc.?
Overall, it will be a good decision, because the positives outweigh the negatives:

Conversion of present turnaways into actual earnings


Expansion reduces pressure on properties running at full capacity
Protection against competition that may have expansion in mind too

The negative effect here is that ROI is lower in comparison with the previous year

Question 2 - Is Layne Remberts concern justified?

Adrian Mutandiro
No, it is not. Based on the calculation, the overall compensation is higher.
Additionally, the ROI component itself shows an increase from $9743 to $10914.

Question 3 - Is the current compensation package for in managers as appropriate


one? If not, what would be?
The current compensation management system is appropriate based on the
following:

Base salary the years of service combined with relative sales volume are a
good way to compensate the loyalty employees as well as their relative
performance respectively. No unfairness is indicated in the case in terms of
seniority.
Sales volume incentive as the name suggests, the compensation is tied to
sales performance.
ROI Bonus this bonus is also tied to a measure of performance, namely the
amount of money generated per dollar invested in the business.

However, certain improvements need to be made. These include:

Since it was mentioned that the customer retention was also a key to
success, Management needs to measure customer satisfaction in some way.
A system can be devised to collect customer opinions on their overall
satisfaction with the service (similar to what is done in companies such as
Amazon). These can be tallied up and form a basis for compensation.
A significant reduction of fringe benefit to the bare minimum essentials. They
are simply unnecessary, add to overall company costs and are not tied to any
performance measure at all.

Question 4 Should the performance measurement system for a regional general


manager be focused upon the same factors that are used by Kevin Gray and
Wayside Inns to evaluate and compensate an inn manager? (An RGM has
responsibility for a geographical area containing anywhere from 10 to 15 motels).
The performance measurement for the two should be different considering the have
different duties. For the regional manager, his performance should be based on the
time dedicated to the various motels in terms of assistance, ideas implemented
because of that regional manager and so on. The results of the performance of the
motels are largely out of his hands, which is the apparently the major disadvantage
of being a regional manager. There should be a compensation based on the regional
managers span of control, since he is taking on a significant task.

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