FAIRFIELD INN (A) CASE
Question 1- Does Fairfield Inn have a competitive advantage? If so, what is it?
Yes, we have found two main competitive advantages: employee satisfaction, which translates into 50% lower than industry turnover, and industry know how derived from the Mariott's Lodging Group.
Fairfield Inn Human Resources strategy is based upon having highly motivated staff. Therefore they have various activities to ensure that they hire the best people, train them and reward them in order to keep them. The most noticeable icon is its “Scorecard System”, by which employees bonus are based on the customer’s perception of each employee’s individual and team performance. This initiative, combined with more than competitive industry salaries, the Bonus Pay Program and the extra holidays based on perfect attendance, leads to a very low annual turnover: 91% versus for hourly employees (half the industry average) and 4% for managers (compared to 15% in a normal Mariott’s full-service chain).
The highly motivated staff and rewards based on service, leads to a higher quality of services to customers from the cleanliness on the room till the front desk amiability.
Question 2- What are the Pros and Cons of each of the development scenarios outlined in the case? Which one would you propose and why?
1- Company manage scenario:
+ High capital expenditures
- Fairfield Inn could grow to 300 units (compared to 500 with Franchising)
2- Franchising:
+ Fairfield Inn could grow to 500 units (compared to 300 with company-managed scenario)
+Ideal concept candidate for franchising
+ Less capital expenditures
+ Fairfield ancillary services would create value for franchisees providing benefits unavailable to an independent operator
+ Access to good undeveloped locations
- Fairfield Inn would lost control over prices
a. The Standard Plan
+ Overall number of projects would be increased because of sites brought by the franchise.
+ Control Quality is controlled by Marriot.
- Franchisee would need to arrange its own financing - Downside to grow rapidly?
b. The McDonald’s Plan
+ Target: experienced hotels operators with demonstrated ability to meet Mariott operating standards
+Marriot will remain the title of the land - Real State appreciation opportunity.
- Mariott should have to invest a great amount in upfront costs to buy the land and build the motels
3. Syndication
+ Minimizes internal capital needs
+ Fairfield Inn’s internal growth would provide great opportunities for employees to grow inside the company
- High Transation Costs (5% of the value of the properties to be syndicated).
- Training and set of Standards for each property is difficult to maintain
In conclusion, based on less number of cons, we believe that Franchising with the Standard Plan is the best developement scenario for Fairfield Inn’s expansion.