Host Hotels, a small chain of business hotels in the Mid- Atlantic region, is
interested in gaining access to the boutique lodging market by acquiring a
hotel group in that sector. Host Hotels intends to operate the newly acquired
hotels independently from the rest of its chain, while pursuing other boutique
market opportunities in other cities.
One of the prospects is Bennington Properties, a group of 10 historic hotels
in Philadelphia, Baltimore, and Washington. All hotels in the group include
the name "Bennington," as in Mainline Bennington, Georgetown Bennington, etc.
Buying for all 20 hotels is done by the company's central office. Hotel
managers must follow strict guidelines for all aspects of hotel management in
an attempt to maintain consistency across locations. Hotel managers are
evaluated on the basis of achieving profit goals developed by the central
office.
The other prospect is Eastern Innkeepers, a group of 25 spa retreats, bed and
breakfasts, and countrin inns in rural Virginia and North Carolina. Each
property in the group was previously an independently owned company. Many of
the previous owners are now employed as individual property managers. These
manag. ers are given significant flexibility in decision making, allowing them
to negotiate purchases with suppliers and develop property marketing plans.
Managers are rewarded for exceeding self-developed return-on investment
goalswith company stock options. Some managers have become significant
shareholders in the company, and some managers have even recommended decisions
to acquire additional real estate. However, the increased autonomy has led to
compettition and price cutting among Eastern Innkeepers properties wittin the
same geographic market, resulting in lower margins.
1\. Would you describe Bennington Properties as having a centralized or a
decentralized structure? Explain.
2\. Would you describe Eastern Innkeepers as having a centralized or a
decentralized structure? Discuss some of the benefits and costs of that type
of structure.
3\. Would hotels in each chain be considered cost centers, revenue centers,
profit centers, or investment centers? How does that tie into the evaluation
of property managers?
4\. Assume that Host Hotels chooses to acquire Eastern Innkeepers. What steps
can the management of Host Hotels take to improve goal congruence between
property managers and the larger company?
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