7 Days Inn: Operations Strategy Case Solution
A hotel chain named 7 Days Inn is integrated by 7 Days Group Holdings Limited. Nanyan, Yuezhou and several other young people established 7 Days Inn in 2005. With an innovative business model, 7 Days Inn successfully enrolled more than 30 million customers in its membership system. This made it the largest system in the Chinese economic hotel chain industry. In 2012, 7 Days Inn operated more than 1,000 hotels in 168 major cities and had become one of the top three hotel chains with the most number of hotels in China. Within four years of its founding, the entrepreneurial team of 7 Days Inn had successfully created the first Chinese hotel group listed on the New York Stock Exchange.
7 Days Inn has positioned its business as an economic class that is mainly focused on giving basic necessity to their guests whilst their stay. The basic motto of the company was to provide core facilities in their hotels that can add value into their business and eliminate those luxurious services that are the major cause of an increase in cost. From the beginning, the company has made enormous expansion that is clearly evident from one hotel to five hotels and then to 1000 hotels in all the big and small cities in China. This enormous expansion has been made in a time frame of less than seven years. From 2005 to 2012, the management at 7 Days Inn has gone through with lots of experiences and experiments out of which some of them were a success whilst some of them were a disaster. The company has implemented several business models and strategies that in turn lead to many problems in the overall business model of the company.
While this can be viewed as an impressive feat, this journey has been taut through experimenting with a lot of operations models and strategies to cope with the demands of expansion within a short time period, thus, leading to persistent management and operational inefficiencies e.g. decision making and subsequent implementation delays, inadequacy of communication channel flow throughout the company and its hotel chain, and a de-motivated workforce.
As of now, the hotels are operating in more than 168 major cities of China with having membership of more than 30 million customers. The major factor behind the company’s success was the operations strategy that the company has followed and the innovative business model. The innovative business models and strategies implemented by the company include vertical cutting approach, Matrix structure approach, franchise & management and shepherd management.
Despite all these models and strategies, the company is now facing various issues with an increase in expansion that leads the company towards operational inefficiencies and consistent management with no focus on innovation. In addition to this, the headquarter of the company is also facing issues in terms of managing rest of the hotels in various cities in terms of communication and chain management because it is becoming more and more difficult to supervise all the hotels together. Along with this, the resignation rate in the company is also increasing and reached to almost 30% that is much higher than the industry’s average.
Porter’s five forces analysis:
The porter five forces model examines the market conditions with respect to the ease of doing business. It examines the extent to which different market forces are capable of driving demand and controlling profit terms for the companies in the market. It also determines the extent to which external forces may affect the performance of companies in the respective market.
Threat of new entrants is low
In the hotel industry, the threat of new entrants is found to be low for various reasons. Firstly, the hotel industry is expensive; thus, one needs to have enough cash in terms of capital to enter in this industry. Moreover, making an entrance in the industry is not enough as the new entrants will require capital to stay, survive and compete in the market. In addition to this, there is a high requirement to have an access to distribution channels as expansion cannot be possible without it.
Other than that, there is also a high risk of failure in the industry because of lack of experience in the market. Along with the risk of failure, competing with big hotel chains is yet another challenging task for the new entrants………………….
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7 Days Inn, the leading hotel group in China, was established in 2005 and was listed on the New York Stock Exchange in 2009. It currently manages more than 1,000 hotels in 168 cities in China and the largest enrollment of more than 30 million customers in the structure of the club. Its success is largely due to its innovative business model and strategy, which includes product design services with a vertical approach, cutting, increasing customer loyalty through membership system and direct sales, network management, hotels in different governance structures and the expansion of the hotel chain with innovative franchised and managed model. In particular, in the case of the shepherd is the company’s management philosophy. However, as the company expands, it has become difficult for the headquarters for the management and control of all hotels. In addition, the retirement rate of the hotel managers increased to 30 percent in the last few years. What you need to 7 Days Inn do to cope with these problems? Does the company need to break the rules again and innovate their business model, operations, strategy or operating model – or all of them, “Hide
by Gang Chen, Liang Xu Source: Richard Ivey School of Business Foundation 15 pages. Publication Date: December 6, 2012. Prod. #: W12372-PDF-ENG
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