Oberoi hotels fictional case study


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Oberoi hotels fictional case study

  1. 1. A case study on 1
  2. 2. Abstract: Oberoi Hotels acquires a small banglore based chain of hotels. They Plan to retain half of the acquired hotels & rebrand them. Whereas rest half will be sold to increase liquidity & support further expansion plans. The company is planning the transformation of the acquisition in budget hotel segment where guest would stay for short duration. The hotels are situated in downtown location which is frequented by transit guests & tourists who come to see popular destination. The organisation feels that re-deployment of existing Mumbai based employees to lead in Bangalore would be an effective decision after they re-open. The Oberoi group envisions the ownership of 150 more hotels in 5 years & 300 hotels in 10 years. If the Bangalore plans succeed, It will set a tone of further expansion across country & internationally as well. The company never recruited anyone to work outside Mumbai & has trouble deciding the compensation. As per information on Internet, they understand : Existing salary of managers in Mumbai is Rs 55000 + bonuses Average salary of managers in Bangalore is Rs 60000 without bonus. The directors want to hire internal Managers to operate in Bangalore & they should be enticed to relocate to Bangalore. 2
  3. 3. Problem Identification: A) The management wants to review wether, I) Managers to be hires only locally? II) Managers to be hired from all over India? III) Managers team should be mix of local as well as non-locals? B) How should the compensations to be decided to lure the internal key staff to Bangalore hotel operation? C) How should the training plans are to be designed considering the hotel opens in One Month? 3
  4. 4. Boundaries: 1. The companies limited knowledge on recruitment & compensation design outside Mumbai. 2. Preference of Existing staff over Local staff due to fear of unknown. 3. Very short duration to design a comprehensive training program as hotel opens in 1 month. 4
  5. 5. Fast Facts: 1) It is mentioned in the case that company would prefer to station existing employees in the Bangalore but that doesn’t mean the ONLY want existing Mumbai based employees : It Means “ Local staff can also be employed” 2) The case says that if the Bangalore plans are successful then company would follow the same trend for future domestic & international expansions. 3) The internet information says average salary of Hotel Managers in Bangalore is Rs 60000 without scope for Bonus. Internet information is not a standard to be followed, it helps only in decision making. That mean the managers in Bangalore can be offered Bonuses. 4) As we know, a small hotel chain has been acquired, there must be some staff working for it. The same staff can be useful during recruitment process. 5
  6. 6. Possible solution for case:  Selection of staff – As we know there is a short period for hotel to be re-opened & the HR team does not know recruitment outside Mumbai, the staff of acquired hotel chain can be utilised. Doing so , will help us saving time in recruitment however the management vision of relocating existing Mumbai based staff is also right. The company is going through major change so we need someone having knowledge who can act as a change agent. Besides the existing staff knows company inside out so their contribution would be valuable. Hence “ There should a fine mix of local as well as existing employees”. The major key positions or managerial positions can be filled with existing staff to rewards their loyalty. However a small percentage of local key positions can also be accepted to coordinate with existing managers. The company can retain all non-management positions available from the acquired chain of hotels to save recruitment costs. 6
  7. 7.  Compensation designing – As seen in fast facts, there no restriction on offering bonus so company can have a breakthrough idea of offering bonus in Bangalore operations. This will hike the salary structure dramatically & motivate existing as well as local employee to give maximum inputs. The only catch here is, the bonus should not be offered as fix component in salary as its not wise to increase overheads for a rising company. The same can be offered on target basis. Most hotels have targets on the basis of occupancy ratios, ie a hotels needs to have a minimum amount of occupancy (or sale of rooms) to achieve desired profit levels. For example, A hotels having 100 rooms may decide to have Average Daily Rate (ADR) for each room of Rs 10000 at 100% occupancy. That means hotels potential sale was 100 X 10000 = Rs 1000000. However if the occupancy forecast falls to 75% then the room rate goes to , 1000000/75 = Rs 13333 In such case, it’s a loss to company as the clients will prefer other hotels for best price. Hence if the staff could maintain occupancy ratio to 100% or nearest possible to hundred they shall be given monthly bonus . 7
  8. 8. We all know the numbers on the CTC (Cost To Company)but the take home is vastly different. This is mostly due to one single component- Taxes. Taxes are applicable on most aspects of our salary. There are limited ways we can save on taxes by way of deductions- Most used sections under the IT Act, 1961 But, did you know we can save much more on taxes by structuring our salary better? Let us consider a few components which can be used to reduce the tax liability on our salary income:- I. Allowances/ Reimbursements- Allowances are normally paid irrespective of the employee actually incurring them. These are fully taxable if no bills are provided. However, if the expenses are incurred actually and bills provided, they are not taxable up to a specified limit under each head. II. Conveyance: For conveyance, up to Rs.800 per month is allowed as deduction without providing any bills. 8
  9. 9. iii. Medical Allowance: Bills have to be provided; up to Rs.15,000 per annum is allowed as deduction. This can be claimed for self, spouse, children, parents and siblings who are dependent on the assessee. iv. Leave and Travel Allowance: 2 trips in a block of 4 years is allowed and only travel within India can be claimed as deduction. It can be claimed for self, spouse, children, parents but only if the employee (assessee) is travelling along with them. There is no maximum limit on this, but the unutilized amount will be paid once the block is completed (after deducting taxes). v. Education Allowance: An amount of up to Rs.2,400 per annum is tax-free. vi. Qualification Allowance: An amount of Rs.24,000 per annum is tax-free. 9
  10. 10. vii. Training Allowance: An amount of up to Rs.14,000 per annum is tax-free if the employee provides relevant bills. viii. Telephone Allowance: An amount of Rs.12,000 per annum is tax free if the phone is used for official purposes and bills submitted. ix. HRA: House Rent Allowance can be claimed if one lives in a rented premises and the rent exceeds 10% of the salary. The actual HRA exempted from tax is least of the following: The actual amount of HRA received.  40% of salary. This increases to 50% if you are renting out the house in Metropolitan City  Rent paid minus 10% of salary (basic component + dearness allowance)  Salary for the purpose of HRA means: Basic + D.A (only if it is forming part of salary for retirement benefits) + commission (if it’s a fixed % of sales turnover). 10
  11. 11. ** So, The compensation for existing managers can be designed in the following way to lure them to relocate – ¤ BONUS ON TARGET COMPLETION *** Apart from the above structure, the existing managers can be assured that they’ll be given preference for promotions when expanding the company in future. 11
  12. 12.  Training – As the hotel is supposed to re-open in 1 month, there is short period to experiment with Training design. The training can be carried at the property itself & divided in 4 stages – # Stage 1 (For 3 days) – Training about the Hotel culture In this, the relocated managers can be trainers as they know the company very well. The training can have modules like History & Information of the company, Reporting relations & Key people, Company expectations from the employees. # Stage 2 (For 4 days) – Training about Bangalore Oprations In this, the local managers can be trainers to give information about the city & local market scene, ways to retain the clients of acquired hotel chain and overall operation plan for the hotel. #Stage 3 (For 3 days) – Team building activities Team building activities like games , simulations & employee excursions can be organised so that the newly formed Team understands each other & gives full output. +Stage 4 (for 20 days) – Soft Opening In this stage, internal people like, Owners , Head office Managers & Trainers can come to hotel as Guest to see effectiveness of Training & experience progress of the development. # denotes Off job training & + denotes On the job training 12
  13. 13. Advantages 1. Acceptance of Local Managers & non-management staff will gain loyalty & sympathy of the Locals. Besides, It will cut down recruitment costs drastically. 2. Offering Bonus, to Managers will not only boost their morale but also increase productivity levels. Moreover, Existing Mumbai based managers will readily agree to relocate if a tax savvy handsome salary is being offered with preference for promotion in future when expanding. 3. Employing both local managers & existing managers for Training will reduce training costs and also act as refreshers for managers before opening. Disadvantages 1. It may be difficult for the Oberoi to offer the standards for which they are known for in budget segment as most people coming to the hotel will build high expectation after seeing the brand name. The company will need to carefully convey the message of budget hotels. 2. The existing managers who are transferred to Bangalore may find it difficult to manage as the lifestyle, culture & climate differs in new locality. 3. Clash between Local Managers & Transferred Managers may happen if the Transferred managers don’t behave diplomatically. 13
  14. 14. 8. Conclusion: To conclude, We suggest that the right mix of employees to be considered during recruitment. The pre-opening team can be trained carefully & given same responsibilities & benefits so that everybody feels equal. Focus on showing a big picture of career to existing employees to relocate. The relocating employees to be supported initially after relocation until they are settled properly. And finally, To be very careful while testing the new waters in every possible way. 14
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