Analysis Of Raytheon Technologies’ Business Strategy Essay Example

Introduction

In today’s exceedingly aggressive commercial enterprise landscape, groups must strategically analyze and align their strategies to benefit from a sustainable aggressive advantage. This commercial enterprise analysis thoroughly examines Raytheon Technologies’ general commercial enterprise strategies, market approach, business model, corporate method, company structure, and strategic match. The study incorporates key strategic frameworks, which include AFI (Analysis-Formulation-Implementation) and VRIO (Value-Rarity-Imitability-Organization), to assess the corporation’s strategic function and discover its resources of aggressive gain.

Using a hybrid cost leadership and differentiation strategy, Raytheon Technologies aims to provide aggressive prices while handing over unique features and great merchandise. The company positions itself correctly in the marketplace by tailoring its services to specific client segments. The business model analysis explores the agency’s core products, revenue era strategies, patron value proposition, and profit proposition. Furthermore, the evaluation delves into the corporate approach, assessing the organization’s expansion into new product strains, geographical markets, and vertical integration sports. Examining the general corporate structure and critical control structures explores the enterprise’s method of diversification, vertical integration, and globalization, the side of its involvement in worldwide alliances.

Lastly, the strategic suit evaluation evaluates the alignment between Raytheon Technologies’ enterprise and corporate strategies, emphasizing the compatibility and synergy between the two. This analysis leverages strategic frameworks consisting of AFI and VRIO to identify the assets of aggressive gain and verify the strategic effectiveness of the organization’s initiatives. By completing a complete evaluation of the organization’s strategies, market method, enterprise model, corporate approach, company structure, and strategic match, this business analysis affords precious insights into Raytheon Technologies’ strategic role and ability to triumph inside the dynamic enterprise surroundings.

Generic Business Strategies

Raytheon Technologies, a leading company in the industry, employs a hybrid strategy that combines cost leadership and differentiation to gain a competitive advantage in the market, catering to a broad customer base while maintaining a competitive edge. Regarding cost leadership, Raytheon Technologies focuses on operational efficiency and cost control measures to offer competitive prices. It implements strategies to minimize costs throughout its value chain, such as leveraging economies of scale through bulk purchasing of raw materials and components. Streamlining manufacturing processes and reducing waste also contribute to cost reduction. Additionally, Raytheon Technologies negotiates favorable deals with suppliers to secure cost advantages.

Differentiation is significant for Raytheon Technologies as the company emphasizes product distinctiveness to stand out in the marketplace. It aims to deliver specific capabilities, outstanding merchandise, and excellent customer service to create a strong brand image. Research and development are vital investments to innovate and introduce cutting-edge technologies, ensuring superior performance and functionality of its products. Raytheon Technologies also prioritizes design aesthetics to create visually appealing products that resonate with customers (Palepu et al., 2020). Differentiation extends to the consumer experience, focusing on providing exceptional after-sales service and support.

In addition to cost management and differentiation, Raytheon Technologies employs a focused approach. It identifies distinct patron segments based on their wishes and options and tailors its products, advertising, and marketing efforts. This approach permits the employer to create centered offerings that resonate with clients and differentiate itself from the competition. Raytheon Technologies captures an enormous market share by catering to particular segments’ precise necessities.

For example, Raytheon Technologies may also target price range-aware clients by providing price-effective options without compromising excellence. It may also introduce entry-stage products or provide discounts and promotions to draw rate-sensitive customers. Conversely, it could cater to the luxury-seeking phase by imparting premium merchandise with particular features, beautiful materials, and terrific craftsmanship. Raytheon Technologies maximizes its market reach and attraction by tailoring its products and marketing techniques to precise customer segments.

The hybrid method followed by Raytheon Technologies lets the corporation leverage the benefits of price management and differentiation. It achieves operational efficiency and cost management to provide competitive costs even as it specializes in uniqueness to command top-class service fees. This strategic approach strengthens the enterprise’s market position, enhances consumer loyalty, and drives a sustainable boom.

For instance, Raytheon Technologies may additionally target the finances-aware phase via providing value-powerful options without compromising pleasant. It might also introduce access-degree products, discounts, and promotions to draw charge-sensitive clients. Conversely, the employer may cater to luxurious-looking by imparting top-rate merchandise with unique capabilities, tremendous materials, and first-rate craftsmanship. The company maximizes its marketplace reach and purchaser appeal by tailoring its merchandise and advertising strategies to specific patron segments.

The hybrid method accompanied by Raytheon Technologies allows it to leverage fee leadership and differentiation benefits; the organization can provide competitive costs to many clients by attaining operational efficiency and cost controls. Simultaneously, specializing in product differentiation lets Raytheon Technologies command top-rate prices for its superb services. This strategic approach strengthens the business enterprise’s market function, complements purchaser loyalty, and drives sustainable growth.

Marketplace Approach Analysis

Raytheon Technologies’ marketplace method is targeted around a comprehensive market segmentation strategy, allowing it to position itself effectively in a competitive environment. The agency creates a full aggressive benefit and maximizes its marketplace proportion by identifying specific purchaser segments and tailoring its products, advertising, and marketing, and advertising and marketing efforts to fulfill its precise wishes.

Market segmentation is vital in Raytheon Technologies’ standard advertising and marketing strategy. Through thorough market research and evaluation, the organization conducts a complete evaluation to pick out numerous consumer segments based on demographics, psychographics, and buying behavior. This manner involves considering factors including age, profits level, lifestyle, choices, and usage styles to apprehend distinct purchaser corporations’ various needs and desires.

Raytheon Technologies strategically selects the segments that align with its core abilities and increase targets once the patron segments are displayed. The selection manner includes evaluating each segment’s beauty and size and considering market potential, competition, and profitability. Based on these exams, the business enterprise determines its number one target segment and allocates its resources accordingly.

Raytheon Technologies develops a clear and compelling value proposition for each target segment to position itself in the market (Täusche et al., 2018). It involves differentiating its products and tailoring its marketing messages to address each segment’s unique pain points, goals, and aspirations. By catering to the specific needs of the target segments, the company creates a strong market presence and establishes itself as the preferred choice among customers.

Product differentiation is a critical factor in Raytheon Technologies’ market approach. The business enterprise invests closely in research and development to innovate and introduce cutting-edge technologies and features that set its products aside. The agency constantly displays unit marketplace developments and client remarks to count on rising needs and live ahead of the competition. Raytheon Technologies creates a strong value proposition that attracts customers and fosters brand loyalty by providing unique and superior products.

The company implements effective marketing and communication strategies to reach and engage its target segments efficiently. It leverages diverse channels, digital advertising and marketing, social media, conventional advertising and marketing, and public relations to create attention, generate interest, and power purchase decisions. The advertising messages are carefully tailor-made to resonate with every segment’s values, aspirations, and possibilities, setting up an emotional reference to clients.

Raytheon Technologies emphasizes delivering exceptional customer experiences throughout the customer journey. It invests in customer support, assistance, and post-sales activities to ensure customer satisfaction and loyalty. It may include offering personalized recommendations, convenient and seamless purchasing options, hassle-free returns, and prompt resolution of customer issues. The company strengthens its customer relationship by providing a seamless and positive experience, encouraging repeat purchases, and generating word-of-mouth referrals.

The corporation uses its market approach to benefit a competitive aspect in a competitive marketplace environment. It identifies market gaps by carefully analyzing competitors’ strengths and weaknesses. Constant monitoring of competitors’ actions, pricing strategies, and product innovations allows the company to adapt and respond effectively. The goal is to position itself as a market leader by consistently delivering superior products, exceptional customer experiences, and innovative solutions that surpass the services offered by competitors.

Overall, Raytheon Technologies’ marketplace approach revolves around thorough marketplace segmentation, strong positioning, product differentiation, customized advertising techniques, wonderful purchaser stories, and a keen recognition of the aggressive environment. This strategic approach permits the enterprise to seize market proportion, foster purchaser loyalty, and power a sustainable boom in an extraordinarily competitive marketplace.

Business Model Analysis

Raytheon Technologies’ commercial enterprise version revolves around its center products, which comprise a variety of patron electronics, such as smartphones, capsules, laptops, and intelligent domestic gadgets. These merchandises are famous for their superior technology, glossy layout, and user-friendly interfaces.

Revenue generation for Raytheon Technologies mainly comes from the sale of those products. The agency employs an aggregate of direct sales through its retail shops and websites and partnerships with authorized companies and outlets. This multi-channel approach guarantees extensive market reach and accessibility for clients to buy their merchandise (Zott et al., 2013). Additionally, the organization may generate extra sales through prolonged warranties, add-ons, and virtual content material, improving client enjoyment and maximizing sales streams.

Raytheon Technologies’ customer price proposition centers around presenting technologically superior and progressive products that beautify the overall customer revel. The organization aims to satisfy purchaser needs and create long-time loyalty by supplying contemporary features, intuitive interfaces, and dependable performance. The enterprise invests closely in studies and development to constantly innovate and live ahead of marketplace developments, making sure its merchandise remains suited and competitive.

The profit proposition of Raytheon Technologies lies in its potential to leverage economies of scale, green delivery chain management, and fee control measures to hold aggressive pricing while attaining healthy income margins. The company’s cognizance of operational performance and fee management allows it to provide aggressive customer fees. Furthermore, the business enterprise’s emphasis on product differentiation enables it to command top-class costs for its precise and progressive merchandise, contributing to its average profitability.

By combining revenue generation through product sales, additional revenue streams, and a strong customer value proposition, Raytheon Technologies ensures a sustainable and profitable business model. The company’s ability to leverage its technological expertise, design capabilities, and efficient operations allows it to deliver value to customers while achieving its financial objectives.

Corporate Strategy Analysis

Raytheon Technologies has strategically multiplied its unique product line to consist of diverse client electronics, diversifying its services to cater to diverse client needs. This expansion lets the corporation provide a comprehensive range of merchandise that meets the various demands of its consumer base.

Regarding geographical scope, Raytheon Technologies operates globally, serving clients in numerous nations and regions. This worldwide presence enables employers to attain a bigger market and capitalize on possibilities in distinct locations. It also lets the enterprise conform its product, advertising, and marketing strategies to align with unique regions’ alternatives and necessities, enhancing its aggressive benefit.

In sheer scope, the employer engages in activities across the complete fee chain, such as product layout, manufacturing, advertising, and after-income offerings. By being worried about these vertical activities, the enterprise guarantees higher manipulation and the best during the process. This palms-on approach allows the organization to hold excessive standards and deliver superior services and products to its clients.

Vertical integration is a fundamental approach hired by Raytheon Technologies, which entails preserving control over vertically associated sports inside the cost chain. For example, the organization may personalize its private manufacturing facilities, research and development facilities, and distribution networks. By integrating those sports, the employer streamlines operations, optimizing performance and ensuring product excellence. Vertical integration additionally offers the organization more management over fees, ensuing in fee financial savings and improved profitability. Furthermore, it fosters innovation and allows the organization to live at the forefront of technological improvements in the industry.

Through its corporate strategy, Raytheon Technologies has strategically accelerated its product services, hooked up a global presence, engaged in vertical activities across the value chain, and pursued vertical integration. These strategic alternatives allow the business enterprise to decorate its competitiveness, deliver superior products and services, and force innovation in the consumer electronics industry.

Corporate Structure and Key Management Systems: Raytheon Technologies adopts a strategic approach that mixes diversification, vertical integration, and globalization techniques. Diversification lets the enterprise Raytheon Technologies increase its product portfolio and cater to a wider variety of clients, thereby growing its market presence and growth possibilities (Sammut-Bonnici, 2014). The organization can meet its diverse consumer demands by supplying many products.

Vertical integration is vital in the agency’s company approach, enabling better manipulation and optimization of critical activities within the value chain. By vertically integrating, the business enterprise can oversee numerous production techniques, from sourcing raw substances to distribution. This control allows the enterprise to streamline operations, enhance efficiency, and hold product first-class.

Globalization is another substantial factor of the organization’s method. Through globalization, Raytheon Technologies expands its marketplace into extraordinary areas, taking advantage of world boom possibilities. The agency can tap into a more significant purchaser base and diversify its revenue streams by entering new markets. Globalization allows the organization to evolve its products and advertising techniques to suit various regions’ unique needs and preferences, improving its aggressive advantage.

Global alliances play an essential function within the organization’s company strategy. By taking part with strategic companions, generation organizations, software developers, and content material creators, Raytheon Technologies complements its product services and affords a more extraordinary complete customer experience. These alliances permit the corporation to leverage the knowledge and assets of its companions, foster innovation, and make bigger its market attain. By forming alliances with key industry players, the organization profits, gets admission to new technologies, develops modern solutions, and stays ahead of the opposition.

Strategic Fit Analysis

The strategic match evaluation examines how the business and corporate approaches of Raytheon Technologies align with each other and contribute to the organization’s overall achievement. The employer’s enterprise method, which incorporates fee management, differentiation, and recognition, aligns with its company’s diversification, vertical integration, and globalization method. The hybrid business method of value control and differentiation lets the corporation cater to a vast client base while maintaining an aggressive market edge. It aligns with the company’s method of diversification because the business enterprise expands its product portfolio to satisfy the desires of various purchaser segments.

Furthermore, the employer’s attention to product differentiation helps its corporate vertical integration methodThe employer ensures its merchandise’s exceptional performance and innovation by owning and controlling vertically related activities along the fee chain, including product layout, production, and distribution. This integration strengthens the enterprise’s competitive gain by offering extra control over costs and friendly supply chain strategies (Prajogo, 2016). Additionally, the corporation’s company approach to globalization aligns with its commercial enterprise approach by enabling marketplace growth into exclusive areas and capitalizing on worldwide boom opportunities. The organization leverages its robust logo popularity, generation, and revolutionary product offerings to enter new markets and establish a worldwide presence. This globalization method enhances the enterprise by growing market reach, diversifying revenue streams, and gaining access to new client segments.

The strategic suit between the enterprise and corporate strategies is vital because it ensures that the enterprise’s various strategic projects paint collectively harmoniously, helping every differing’s targets and growing synergies. It allows the company to leverage its core talents, sources, and capabilities efficiently. The alignment between enterprise and corporate techniques allows the business enterprise to capitalize on marketplace possibilities, mitigate dangers, and attain sustainable increases in a competitive enterprise landscape. Overall, the strategic suit analysis confirms that the organization’s enterprise approach, marketplace method, commercial enterprise model, and company strategy are adequately aligned and bolstered. This alignment strengthens the company’s competitive role, enhances its operational efficiency, and maximizes its potential to supply client prices while generating sustainable profitability and lengthy-time period fulfillment.

Conclusion

In conclusion, Raytheon Technologies has demonstrated a solid strategic framework and business model that aligns with its corporate strategy. The company’s focus on cost leadership and differentiation allows it to offer competitive prices while delivering high-quality and innovative products. The marketplace segmentation technique permits the corporation to effectively target and cater to the numerous needs of different purchaser segments. With a sturdy emphasis on product differentiation and continuous innovation, Raytheon Technologies maintains an aggressive facet in the marketplace.

The corporation’s company method of diversification, vertical integration, and globalization enhances its business approach and supports its ordinary boom targets. By expanding its product strains and geographic attain, Raytheon Technologies taps into new markets and capitalizes on international increase possibilities. The vertical integration approach guarantees control and high quality for the duration of the price chain, allowing the enterprise to optimize performance and supply superior merchandise. Additionally, international alliances are vital in enhancing the corporation’s offerings and increasing its market attain through strategic partnerships.

The healthy strategic analysis confirms that Raytheon Technologies has efficaciously aligned its business and corporate strategies, considering the powerful usage of its core abilities and sources. This alignment contributes to the corporation’s competitive function, operational performance, and patron cost of transport. By constantly evaluating and refining its techniques, Raytheon Technologies can maintain its aggressive gain and capture emerging possibilities inside the dynamic commercial enterprise panorama.

Overall, Raytheon Technologies exhibits strategic prowess and a sturdy basis for long-term achievement. With its patron-centric approach, recognition of innovation, and international presence, the agency is well-placed to navigate the challenges and capitalize on the possibilities of the evolving marketplace.

References

Palepu, K. G., Healy, P. M., Wright, S., Bradbury, M., & Coulton, J. (2020). Business analysis and valuation: Using financial statements. Cengage AU. https://books.google.com/books?hl=en&lr=&id=IDT6DwAAQBAJ&oi=fnd&pg=PR13&dq=Palepu,+K.+G.,+Healy,+P.+M.,+Wright,+S.,+Bradbury,+M.,++Coulton,+J.+(2020).+Business+analysis+and+valuation:+Using+financial+statements.+Cengage+AU.&ots=uJim9Woi9_&sig=v_OGjSuQSejwsL4qc5-VtJzVrKs

Prajogo, D. I. (2016). The strategic fit between innovation strategies and business environment in delivering business performance. International Journal of Production Economics171, 241-249. https://www.sciencedirect.com/science/article/pii/S0925527315003114

Sammut-Bonnici, T., & Galea, D. (2014). PEST analysis. https://www.um.edu.mt/library/oar/bitstream/123456789/21816/1/sammut-bonnicipest.pdf

Täuscher, K., & Laudien, S. M. (2018). Understanding platform business models: A mixed methods study of marketplaces. European Management Journal36(3), 319-329. https://www.sciencedirect.com/science/article/pii/S0263237317300853

Zott, C., & Amit, R. (2013). The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization11(4), 403-411. https://journals.sagepub.com/doi/pdf/10.1177/1476127013510466

Case Study: Automotive Builders Inc.: The Stanhope Project Free Essay

Synopsis

Automotive Builders Inc. (ABI) began its operation after the emergence of World War I as a Firm Equipment Company. The Company produced diesel engine parts used by farmers in their tractors. The firm made profits with the growth of farming and the need for agricultural products worldwide. Consequently, by the 1940s, it had grown into a multimillion-dollar firm (Meredith and Shafer 331). During the Second World War, the Company switched to the production of truck parts and tanks on a large scale for the military. After the Second World War, the firm converted to operating in the expanding automobile industry by engaging in the production of automotive parts (Meredith and Shafer 331). To reflect and implement the major change, the Farm Equipment Company’s name was changed to Automotive Builders Inc. (ABI) even though they still supplied the farm equipment market.

ABI has been expanding and making a profit by engaging in the farm equipment market and the automobile industry. However, the competition from Japanese manufacturers has been a challenge. It is also evident that overseas’ labor costs were significantly lower than domestic labor costs, giving their rivals competitive powers and causing disadvantages that were not to be taken for granted (Meredith and Shafer 331). Most domestic tractor manufacturers started to source their spare parts and tractor components. Concerning that, one of the main engine manufacturers had let its suppliers understand that it was negotiating a contract for 100% sourcing for high-efficiency engines to replace the conventional ones in the market. The situation was challenging for ABI since failure to bid would invite more competition into their profitable and successful business. Hence, they needed to bid on the contract to protect and ensure their competitive advantage in the industry (Meredith and Shafer 331). Success in their bid would mean that ABI has 100% sourcing in the replacement and original equipment markets (Meredith and Shafer 332). Additionally, the high investment shows that ABI could outcompete its rivals. The proposal regarding the major project needs consideration of interconnected factors such as profitability, sustainability, and protection before making the decision to invest.

Problem Analysis

Even though there are many problems evident in Automotive Builders Inc. (ABI), the five problems identified in the presented case study include competitive pressure from Japanese manufacturers, price disadvantages, single-sourcing of tractor components, quality differences between the Japanese and American farm equipment, and capacity limitations of existing plants for the new engine. The identified problems pose challenges to ABI because of the ever-changing and dynamic marketplace that requires strategic planning and change implementations.

Competitive pressure from other manufacturers, such as Japanese manufacturers, is a problem that needs countermeasures for ABI to remain profitable in the industry. The entry of the Japanese manufacturers, together with other potential entries, is causing significant losses in terms of market shares (Meredith and Shafer 331). It is a threat to profitability and sustainability, as well as the market position of ABI. Entry of new firms into a particular industry often threatens existing firms. Proper strategic strategies and measures are needed to give a competitive advantage.

The price difference and disadvantage are because of the high cost of domestic labor. It is evident that labor cost at the domestic level is higher than overseas labor cost. Consequently, getting products overseas is cheaper than obtaining them from ABI (Meredith and Shafer 331). Because of the scenario, ABI’s products face competition from external factors like overseas markets. It also affects the ability of ABI to attract customers.

The third problem identified from the case study is the single sourcing of tractor components. ABI is focusing on improving the quality of its products and the costs by adopting the single-sourcing of tractor components. Even though the strategy provides better control over cost and quality, it increases the risk related to over-reliance on a single supplier (Wieland 60). Notably, reliance on a single supplier can lead to business failure if the supplier faces challenges such as political instability or an unfavorable business environment created by domestic rivals. Therefore, mitigation measures should be implemented to counter the risks and uncertainties.

The fourth problem is the quality differences between Japanese and American farm equipment. Many customers prefer quality products and services (Wieland 62). Currently, the noticeable quality difference between the Japanese and the American farm equipment, including tractor components and tractors, is impacting ABI’s market position and reputation (Meredith and Shafer 331). It is evident that customers prefer Japanese equipment because of the cost and their superior quality.

Finally, the fifth problem is the capacity limitations of existing plants for the new engine. ABI’s existing plants cannot accommodate the volume of engine production demanded or in demand by the “Big Red,” which is the major manufacturer in the project (Meredith and Shafer 332). Therefore, ABI should strategically address the identified problems.

Alternatives

  • To counter the competitive pressure from other manufacturers, such as Japanese manufacturers, ABI should focus on improving their farm equipment’s performance, reliability, and features to make them more appealing to their customers.
  • For the price difference and disadvantage, ABI should focus on streamlining its production processes by identifying and eliminating the inefficiencies. The alternative will help in reducing the cost of labor without compromising or affecting the quality of products.
  • Concerning the third problem, single-sourcing of tractor components, the alternative is diversifying the supplier base. The firm can do this by exploring partnerships with various suppliers to reduce their reliance on one source for tractor components.
  • ABI can establish strict measurement systems for quality to mitigate the problem regarding quality differences between Japanese and American farm equipment.
  • For the fifth problem, which is the capacity limitations of existing plants for the new engine, the alternative solution is to expand the production capacity. ABI can do this by building new plants or expanding the existing plants to meet the requirements and demands of the new engines (Wieland 64). The alternative would ensure sustainability.

Recommendations

  • For the first alternative, which is improving the performance, reliability, and features of their farm equipment to make them more appealing to their customers, the recommendation is to invest in research and development of innovative technologies to help in understanding the preferences and needs of customers (Gallagher 102). The recommendation focuses on improving product development efforts to counter competition from other firms.
  • For the second alternative, the recommendation is to thoroughly analyze the production systems and processes to identify areas that need improvements. Implementing automation and manufacturing principles is essential to optimize labor utilization and the reduction of costs (Cokins 45). Such principles would help in countering the identified problem.
  • ABI can identify high-quality and reliable suppliers for their critical tractor components to diversify the supply base. Additionally, the firm can establish beneficial long-term relationships with numerous suppliers to ensure a stable and sustainable supply chain (Basu 28). A large supply base helps mitigate risks when a single supplier experiences challenges, such as political instability in their parent country.
  • To establish strict measurement systems for quality, the recommendation is to consider implementing a quality management system, including rigorous inspections, testing protocols, and adherence to the demands of the industry.
  • For the fifth alternative, ABI needs to conduct a feasibility study and research to identify and evaluate the cost-effectiveness and interconnected factors regarding expanding the existing plant or establishing new plants.

In conclusion, the identified problems, their alternative solutions, and the recommendations are based on ABI’s business and strategic position. Notably, ABI has been expanding and making a profit by engaging in the farm equipment market and the automobile industry. However, the competition from Japanese manufacturers has been a challenge. The Company needs to expand its production capacity while implementing measures to counter competition.

Works Cited

Basu, Ron. “Why Global Supply Chain Management Is Also Total Supply Chain Management.” Managing Global Supply Chains, vol. 2, no. 1, 2023, pp. 18–29, https://doi.org/10.4324/9781003341352-3.

Cokins, Gary. Strategic Business Management: From Planning to Performance. American Institute of Certified Public Accountants, Inc., 2017.

Gallagher, Mark. The Business of Winning: Strategic Success from the Formula One Track to the Boardroom. Kogan Page, 2014.

Meredith, Jack R., and Scott M. Shafer. Operations and Supply Chain Management for MBAs. 6th ed., Wiley, 2016.

Wieland, Andreas. “Dancing the Supply Chain: Toward Transformative Supply Chain Management.” Journal of Supply Chain Management, vol. 57, no. 1, 2020, pp. 58–73, https://doi.org/10.1111/jscm.12248.

Case Study: Marriot Inns Ltd Sample Assignment

Financial information refers to the data and documentation that convey a company’s financial activities and performance. It contains various financial statements, reports, and calculations that shed light on the company’s financial health (Atrill and McLaney, 2018; Yström, 2019). This case study aims to examine the performance of Marriot Inns Ltd, from the perspective of Christina Parks, a director at the management consulting firm, at the end of the year 2021. The main problem being addressed is how Pauline Changer, an advisor, can guide the management of Marriot Inns Ltd to improve the business by leveraging the findings from case analysis and implementing strategic measures to improve profitability, liquidity, and cost control. The objectives of the case study involve understanding the purpose and characteristics of financial information, analyzing financial ratios, and preparing a detailed report on the company’s performance. The findings and recommendations from the study will assist in making informed decisions and implementing strategies to enhance profitability and liquidity.

Financial Information

This section will provide a comprehensive understanding of the function of financial information and describe the distinguishing characteristics of high-quality financial information. Financial information is data and records that provide insights into an organization’s financial operations and condition. It includes a wide variety of information, such as financial statements, reports, and records that go into depth on such as income, expenditure, assets, liabilities, and cash flow (What is financial information? – QuickBooks global, 2023). This data is necessary for assessing a company’s financial performance, position, stability, and changes within the reporting entity. According to Robinson (2020, p. 6), financial information provides a comprehensive view of a reporting entity’s economic resources and obligations and the impact of various transactions and events on these resources and obligations. In addition to historical data, some reports may include supplementary information regarding management’s forecasts, strategies, and other forward-looking information (Weetman, 2019, p. 13). To be valuable, financial information must be relevant and faithfully represent the intended information. Additionally, its usefulness is enhanced when comparable, verifiable, and understandable.

The Characteristics of Good Financial Information

Faithful Representation

The purpose of financial reports is to illustrate economic phenomena through a combination of written explanations and numerical data. Financial information must accurately convey the essence of those phenomena it purports to represent to be beneficial (Palepu et al., p. 5). In numerous instances, a phenomenon’s economic substance and legal form coincide. However, if there is a discrepancy between the two, information based exclusively on the legal form would not accurately depict the true character of the economic phenomenon. To be an accurate representation, financial information must possess three characteristics. It must be complete, unbiased, and error-free.

Comparability

Financial information must be comparable across time, entities, and industries. Users should be able to analyze and benchmark an organization’s financial position and performance over time and in comparison to other equivalent entities (Robinson, 2020, p. 8). Users make choices by weighing many options, such as buying or selling an investment or investing in one reporting organization as opposed to another. When information about a reporting entity can be compared to comparable data about other entities and data about the same entity for a different period or date, it becomes more relevant.

Understandability

Financial information should be conveyed in a manner that is easily understood. It should use language and formats that are apparent to all users, including those with limited financial knowledge (Qualitative characteristics of accounting information, 2023). Complex financial concepts must be conveyed concisely and clearly. Information is more easily understandable when it is organized and presented clearly and concisely. However, it is essential to recognize that certain phenomena are inherently complex, making their simplification challenging. It may be tempting to omit such complex information from financial reports to improve their readability; however, doing so would render the reports incomplete and potentially misleading (Xu et al., 2018, p. 74). It is essential to balance providing detailed information and presenting it in a manner that users can understand.

Relevance

Financial information should be relevant to its consumers’ requirements. It should provide valuable insights and facilitate the formulation of informed decisions. Relevance implies the information is current, accurate, and applicable to the intended function.

In summary, maximizing the qualitative attributes of financial information is a crucial goal. Enhancing qualitative characteristics is an iterative process that does not adhere to a particular sequence. In some cases, prioritizing one qualitative characteristic may necessitate sacrificing another.

Ratio Analysis

In this section, we will analyze the financial performance of Marriot Inns Ltd and compare it with the average ratios of the Hoteliers Federation members. The analysis will focus on key financial ratios related to profitability, liquidity, and cost management. By examining these ratios, we aim to evaluate Marriot’s financial health and identify areas for improvement.

Ratios Marriot Inns Ltd Hotelier’s

federation members

2019 2020 2021 2021
i. Return on Capital Employed

Net profit before tax and dividend / Capital employed x 100

· According to Weetman (2019, p. 346), the greater its value, the more effectively a business utilizes its capital.

· Compared with the Hoteliers’ ROCE of 26% in 2021, Marriot’s of 22.48% signifies that the company generated $3.52 less profit for every dollar of its capital employed.

0.73/2.71

26.94%

0.87/3.12

27.88%

0.78/3.47

22.48%

26.0%
ii. Asset Turnover Ratio

Net sales ÷ Total Assets

· The greater the asset turnover, the more effectively a business uses its investments to generate sales revenue (Ratnaningtyas and Nurbaeti, 2023).

· Compared to the Federation’s asset turnover rate of 1.79 times in 2021, Marriot’s asset turnover rate of 1.23 times indicates that the company generated 0.44 times fewer sales revenue per dollar of its total assets compared to market averages.

4.90/2.71

1.81 times

5.30/3.12

1.70 times

6.60/3.47

1.90 times

1.79 times
iii. Net Profit Margin

Net profit / Sales Revenue x 100%

· It is a metric that indicates how much profit a business generates per dollar of revenue (Syriopoulos et al., 2022).

· In 2021, Marriot’s profitability lagged substantially behind the average performance of its competitors by $9.20.

(0.37/4.90)x100

7.55%

(0.41/5.30) x 100

7.74%

(0.35/6.60) x 100

5.30%

14.5%
iv. Current Ratio

Current assets/Current liabilities

· It indicates a company’s capacity to meet its short-term obligations with its current assets (Current ratio formula, 2023).

· In 2021, Marriot’s current ratio was short by $0.19 by the industry average.

1.66/1.35

1.23:1

1.91/1.56

1.22:1

2.49/1.90

1.31:1

1.5:1
v. Acid Test Ratio

(Current assets−inventories)/Current liabilities

· It prioritizes current monetary assets as a means of meeting its short-term obligations.

1.17/1.35

0.87:1

1.36/1.56

0.87:1

1.89/1.9

0.99:1

1.03:1
vi. Debtors Collection Period

The debtors collection period is calculated as:

Debtors / Sales x 365

· This performance indicator evaluates the average collection period for an organization (Weetman, 2019, p. 341).

· Compared to the Federation’s average collection period of 83 days in 2021, Marriot’s collection period of 102 has a 19-day delay in debt collection.

(1.14/4.9) x 365

85 days

(1.32/5.30) x 365

91 days

(1.84/6.60) x 365

102 days

83 days
 vii. Gearing Ratio

Loan capital / total capital employed x 100

· According to Bragg (2023), the gearing ratio compares the owner’s equity to debt.

· Compared to the Federation’s debt-to-equity ratio of 32% in 2021, Marriot’s ratio of 175% is much greater.

2.21/2.71

81.55%

2.21/3.12

70.83

2.21/3.47

63.69%

32.0%
viii. Labor Cost As % of Sales

Labor Costs/Sales x 100

· It illustrates the proportion of a company’s expenses to its total revenue.

· A greater value indicates that a greater proportion of the company’s revenue is being consumed by expenditures, resulting in a lower net profit.

0.93/4.90

18.98%

0.98/5.30

18.49%

1.25/6.60

18.94%

18.1%
ix. Operating Costs As % of Sales

Operating Costs / Sales x 100

· This ratio reveals how effectively a company manages its expenses relative to its revenue generation.

· In 2021, Marriot’s labor costs as a percentage of sales were 2.6% higher than the market average.

4.17/4.90

85.10%

4.43/5.30

83.58%

5.82/6.60

88.18%

85.5%
x. Room Maintenance Costs As % of Sales

Room Maintenance Costs / Sales x 100

· This measure provides insight into the cost-effectiveness of the business’s room or accommodation maintenance in relation to its revenue generation.

· Marriot’s low room maintenance costs as % of sales imply cost-effective maintenance strategies and well-maintained buildings that need less maintenance.

0.44/4.90

8.98%

0.49/5.30

9.25%

0.61/6.60

9.24%

9.5%
xi. Administrative Costs As % of Sales

Administrative costs / Sales x 100

· This metric enables stakeholders to evaluate a company’s capacity to control administrative costs and maximize profitability.

· Administrative costs as a percentage of sales should be as low as possible, as this indicates better cost management and the potential for greater profitability (Demerjian, 2020, p. 420).

0.19 /4.90

3.88%

0.22 / 5.30

4.15%

0.27 / 6.60

4.09%

4.5%

A Detailed Report on The Company’s Performance

This section presents a comprehensive analysis of Marriot Inns Ltd’s performance in terms of profitability and liquidity, comparing it with the sector’s average over three years. To assess Marriot’s Inn Ltd’s profitability, the report will examine two crucial ratios: return on capital employed (ROCE) and net profit margin, while the liquidity analysis will focus on the current ratio and acid test ratio.

Profitability Analysis

Return on Capital Employed (ROCE) is a financial ratio that measures a company’s efficiency in utilizing its capital (Lisek et al. 2020, p. 57). It is calculated by dividing the operating profit before tax by the sum of debt (non-current liabilities) and equity (Weetman, 2019, p. 346). A higher ROCE indicates better capital utilization by the company.

Compared to the Hoteliers Federation’s ROCE of 26% in 2021, Marriot’s Inns Ltd’s ROCE of 22.48% signifies that the company generated $3.52 less profit for every dollar of capital employed, indicating suboptimal capital efficiency. Analyzing Marriot’s ROCE over the past three years, it increased from 26.94% in 2019 to 27.88% in 2020, declining to 22.48% in 2021. Despite continuous growth in sales, the rate of capital increase employed outpaced the increase in profitability in 2021, leading to a decrease in ROCE for that year.

Net Profit Margin

The net profit margin is a financial ratio that measures the amount of profit generated per dollar of sales revenue and provides insight into a company’s profitability. It represents the proportion of each dollar of sales that results in net profit (Net profit margin, 2023). A higher net profit margin indicates that the company is managing its costs effectively and generating more profit from its revenue. In contrast, a lower net profit margin indicates that various expenses consume a substantial portion of sales revenue, resulting in decreased profitability.

Marriot’s net profit margin is 5.30% compared to the industry average of 14.50% in 2021. This means that for every dollar of sales revenue, Marriot’s net profit is $9.20 less than the industry average. Despite consistently high and increasing sales levels over the past three years, Marriot’s relatively low net profit margin can be attributed to high operating costs, potentially stemming from inefficiencies associated with traditional technologies. The company’s net profit margin increased from 7.55% in 2019 to 7.74% in 2020 before experiencing a sharp decline to 5.30% in 2021.

Based on these findings, Marriot can increase its net profit margin by either generating a higher volume of revenues while maintaining the same level of operating costs or by reducing the costs required for a given level of sales volume.

Liquidity Analysis

Current Ratio

The current ratio is a financial metric that indicates a company’s liquidity and ability to fulfill its short-term financial obligations. According to Weetman (2019), it assesses the relationship between a business’s current assets and liabilities. In 2021, Stratford’s current ratio of 1.31:1 indicated that the company has $1.31 in current assets for every $1 in current liabilities. Even though this indicates a reasonable ability to satisfy imminent obligations, it falls short of the industry standard represented by the Federation’s current ratio of 1.50:1. The variance of $0.19 suggests that Marriot Inn Ltd may have a slightly reduced liquidity level compared to the industry benchmarks. There is a modest decrease in Marriot’s current ratio from 1.23:1 in 2019 to 1.22:1 in 2020, followed by an increase to 1.31:1 in 2021.

Quick Ratio

The acid-test ratio, also known as the quick ratio, evaluates a company’s ability to satisfy its immediate obligations with its most liquid current assets (Rashid, 2018, p. 113). In contrast to the current ratio, which includes all current assets, the acid-test ratio concentrates on current monetary assets that can be quickly converted into currency to settle short-term liabilities (Akbarinasaji and Bener, 2016). In 2021, Marriot’s acid-test ratio of 0.99:1 indicates that the company has only $0.99 worth of liquid assets available for every dollar in current liabilities. This suggests that Marriot may have difficulty fulfilling its short-term obligations solely with its liquid assets. Compared to the Federation’s ratio of 1.03:1, Marriot falls short by $0.04, highlighting its liquidity issues. Analyzing Marriot’s acid-test ratio over the past three years reveals a ratio of 0.87:1 in 2019 and 2020, indicating that the company’s liquid assets continue to fall short of its current liabilities. In 2021, however, there was a significant improvement, with the ratio rising to 0.99:1.

Conclusion

In conclusion, Marriot’s Inns Ltd performance demonstrates a reasonable capacity to meet short-term obligations, although it falls slightly below the industry average. In terms of profitability, the performance of Marriot reveals suboptimal capital utilization and a lesser net profit margin than the industry average. Below are the alternative courses of action I have formulated based on the analyses to assist Pauline Changer on how she can provide guidance to the management of Marriot Inns Ltd with the formulation of tighter management control within the company. Firstly, I advise Marriot’s management to invest in research and product development. This can result in various benefits for Marriot Inns Ltd. These include generating revenue from new product lines, increasing the net profit margin, improving the return on capital employed, and decreasing costs as a percentage of sales. In addition, I advise the management to develop strict credit policies to reduce debt to equity ratio. Lastly, another suggested course of action for Marriott Inns Ltd is to hire a third-party auditor to establish a tighter accounting system.

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