Coral Divers Resort Case Solution
The issue that Coral Divers Resort (CDR) is facing is that it has been unable to distinguish itself from other resorts in the New Providence, Bahamas region and has been experiencing declining revenues and unprofitability for the past three years as a result. Other resorts that have been able to specialize in certain segments of the diving industry have been doing well over the past years as the industry continues to grow.
CDR must look for opportunities in the diving industry to find a unique niche and gain a competitive edge that will lead to an increase its revenues. The SWOT analysis (Exhibit 1) looks at the current state of CDR and the environment it is operating in.?? Conclusion and Recommendation: The most effective way for CDR to distinguish itself from other resorts and gain a competitive edge is to partner with Rascals in Paradise and become a specialized family diving resort.
It is recommended that CDR use the all inclusive package approach to selling its vacations and split accommodations evenly between Independent Family Packages and Special Family Packages and provide all meal, bar service, and babysitting services at a breakeven price with meal and bar responsibilities outsourced to the local restaurant and the babysitters hired by CDR from the local community.
This option is successful in turning the highest positive net income within the first full year of implementation (See year 2009 in Exhibit 4) and results in the highest growth in revenues and profits in the long term when compared to other alternatives. This is achieved because specializing and being a first-mover into the growing family diving segment of the industry generate the highest competitive advantage. Factor Analysis: The factors from which this decision was made for CDR were cost, profit, ease of implementation, and competitive advantage.
Profit and competitive advantage were the factors that were most important when looking to determine the best solution. Since CDR had been losing profitability significantly and the capital reserves of CDR are extremely small, if the profitability of the resort does not turn positive quickly it could mean bankruptcy for the resort. The criteria used to judge this factor is immediate profitability of the solution in the first full year of implementation. Second, competitive advantage was a major deciding factor because it is the underlying problem for CDRs lack of revenue growth.
Without a specific competitive advantage and a specified target market, CDR has been consistently losing revenues to other resorts with a more distinguished specialty. Choosing a solution that would strengthen CDRa€™s competitive edge would add sustainable growth to revenues in the future. The criteria used to judge this factor is the highest sustained projected revenue growth in the future. Cost and ease of implementation were used as supporting factors. Cost is an important factor because with limited funds and extremely low current profit margins, any added costs would further increase the net loss CDR experiences.
The criteria used to judge this factor was the least amount of added costs necessary for implementation. Ease of implementation was another supporting factor that was taken into consideration because of small size of CDRa€™s management and the limited time and resources they have to implement a change. Also because a major change is absolutely necessary as soon as possible, the ease of implementation would play a significant role in determining how quickly and effectively the recommendation could be put into place.
The criteria used to judge this factor was the least amount of effort required by management to implement the solution. Alternative Solutions: Aside from the recommended solution, the other alternative that was looked at in depth was the option to specialize in adventure diving (specifically shark diving) and increasing the efficiency of CDRa€™s operations by cutting down on boat maintenance and labor costs. This would be done by selling one of the boats and laying-off one of the divers (See estimates in Exhibit 3).
This alternative provides quick cost cutting to reduce CDRa€™s expenses, provides additional revenue through the new adventure diving option, and is very easy to implement into its operations. This solution manages to post a positive profit in the first year of implementation (Displayed in Exhibit 3). However, this alternative does not provide a sustainable revenue stream into the future because the lack of competitive advantage it builds and the intense competition of other shark diving focused resorts in the area (See decreasing profits from years 2010 to 2011 in Exhibit 3).
Comparison of Solutions: When it comes to judging the alternatives with the most important factors of profit maximization and competitive advantage, the recommended option to become focused on family diving vacations is much stronger than the option to specialize in shark diving. (Displayed in detail in Exhibit 2). Partnering with Rascals posts the highest first full year profits of $166,000 compared to the adventure focused and cost efficiency alternative that posts a first year profit of $112,000.
Further, the partnering with Rascals has projected revenues that are sustained further out in the future because of the competitive advantage gained when moving into the family oriented diving segment rather than the adventure oriented segment. The difference in estimated revenue between the two in 2011 is approximately $620,000 with the family specialization solution having exactly 100% higher revenues.
This clearly shows the effects of the increased competitive advantage in the family divers segment in New Providence, Bahamas and the negative effect on sales revenue of the saturated shark diving industry in the longer term (Further detail under competitive advantage in Exhibit 2). The option to focus on adventure diving and cost efficiency is the easiest to implement and does not require very much effort from the management of CDR (See Exhibit 2 under Ease of Implementation for detail).
It also controls cost very effectively and only increases net expenses minimally (See total expenses in Exhibit 3 for years 2009 to 2011). When rated on a scale out of one hundred based on the factors selected, the recommended option comes out on top with a mark of 87 while the adventure diving with cost efficiency option scores a 78 (See Exhibit 2 for breakdown of scores). Implementation Plan: In order to implement the recommended option in the easiest way possible, the process should be broken down into a set of six vital tasks performed by Jonathon, his wife Margaret, contractors, and inspectors.
The process starts on February 2, 2009 and ends on June 18, 2009, finishing one week before the Rascal program is fully implemented at CDR in the beginning of fiscal year 2009 (See Exhibit 5 for each task in greater detail). 1. The first task is the initial consultation with Rascals and is to be lead by Jonathon Greywell. The initial consultation and approval should be completed in about a month and is free of charge. 2. The second task is the $70,000 Bank loan for the project and begins in March 2009.
The majority of the accounting for this task is done by Margaret and then the pitch is developed and presented to the bankers by Jonathon. This task should take about a month and should be minimal in costs. 3. The third task is the partnering process with the local restaurant and begins in April 2009. This is done by Jonathon and should take just under a month. The cost of this task would be approximately $1000 for lawyer fees to draw up a contract. This task should take just under a month. 4.
The fourth task is renovating the two cottages. This permits, renovation plans, and quotes are found by Jonathon, while the ordering of materials and renovations are done by contractors. The cottages are inspected before renovations (to obtain permits) and after renovations by inspectors. The cost of this task is approximately $60,000. This task should take a bit less than two and a half months. 5. The fifth task is to install the playground. This task is handled by the contractors immediately after completing the renovations.
This task should cost about $10,000 and be completed within a week. 6. The final task is to hire and train babysitters and it is handled by Margaret. Ads are put up in May 2009 and interviews are conducted. Official training takes place the third last week in June 2009. This task should have minimal costs. Why Rascals is the best alternative: – No risk of ruining safety reputation This option consisted of adding two separate afternoon shark dives on Wednesday and Saturday to Shark Wall and Shark Buoy for an additional charge to each diver on board.
By introducing adventure diving the only additional variable costs that would have to be incurred would be the cost for shark feed during each dive and the extra cost for taking a boat out on each afternoon. In order to take advantage of this adventure diving opportunity, an investment of $15,000 would have to be made in a chain-mail suit to protect the shark feeder. Also because none of the current staff divers would take the job of shark diver, the Canadian diver would be replaced with a professional shark diver. This would also increase the safety of the shark dives, which are inherently dangerous.
On the cost cutting side of this solution, an additional diver would be laid-off to save approximately $20,000 per year on labor expenses and leave 3 professional divers on staff with more diving time. The second initiative that would make CDR more efficient would be to sell the aging 35 foot platform boat and sufficiently leave the two 40 foot boats in use. This would reduce the boat maintenance cost by about one third and save about $10,000 for CDR. The cash sale of the boat, which is valued at approximately $22,500, would go toward purchasing the chain-mail suit and as additional profit for 2008.
By partnering with Rascals in Paradise, CDR has the advantage of using Rascals highly established network of family diving vacation booking service and average booking occupancy rates at CDR of 90% by 2011. Satisfying the requirements for the Rascal program would require an investment of approximately $70,000 financed through a bank loan and would be very simplistic for CDR because of its great reputation for safety, its child friendly premises recent renovation of two of the six cottages on site. Renovation of the remaining two cottages would be required as well as the installation of a childrena€™s playground.
The ability for distinguishing CDR as a leader and first-mover into the family oriented diving business in the New Providence region, and the increased margins they can obtain from each family through the all inclusive family package allow for the right environment for CDRa€™s It is recommended that CDR use the all inclusive package approach to selling its vacations and split accommodations evenly between Independent Family Packages and Special Family Packages and provide all meal, bar service, and babysitting services at a breakeven price with meal and bar responsibilities outsourced to the local restaurant and the babysitters hired by CDR from the local community.