Define the term de-layering.

Explain two advantages for TH of having three separate profit centres.

Explain one benefit and one negative consequence for TH of an increase in labour turnover.

Discuss the proposal to outsource all function room services to a private contractor.

De-layering is the action of removing a level in a business hierarchy in order to reduce the size of a business hierarchy, especially in terms of a reduction in management. This creates a flatter (less layered) organizational structure.

Candidates are not expected to word their definition exactly as above

Award [1] for a basic definition that conveys partial knowledge and understanding.

Award [2] for a full, clear definition that conveys knowledge and understanding similar to the answer above. Candidates need to refer to the action/decision of…not necessarily mentioning the word action but “removing”, or “moving”.

Do not credit an example.

A profit centre is run as a separate business centre within a business which generates revenue and costs that can be attributed to the activities of the centre hence profit can be calculated. For example, in this case, the function room buys meals from the hotel restaurant. The capacity of the function room may be limited in terms of revenue hence the management can concentrate on costs reduction to increase profit. It gives the function room the flexibility to make a decision and outsource their costs somewhere else which in turn, is likely to encourage the
restaurant to stay more competitive.

The real advantage is that senior management, the centre managers and employees know which segments/centres/ activity/ parts of TH are profitable and which are not. In addition, the directors are able to evaluate which centre contributes most to the business’s profits and this helps to inform decision-making.

By using profit centres it makes the managers of each profit centre more responsible and accountable for the costs they incur and the sales they make – their positions in the business may be dependent on making a profit. Changes in the profits made by each centre may be used to judge the efficiency of each part of the hotel. Also, the
efficiency of all parts of the hotel can be monitored and compared. Creative competition may increase efficiency and act as a driver to generate more revenue which may act as a motivator.

Senior management could easily realize that a decision in the past to delay and offer flexible contracts clearly reduced costs and improved profitability of the function rooms. Hence, financially an effective decision. Moreover, the impact of the recent problems of demotivation are likely to become more evident in the near future when
profitability is likely to decrease.

TH’s mission is to be the best employer and offer the highest quality of customer service. By utilizing profit centres, incentives could be created for managers striving to offer the highest levels of customer service.

Do not accept “spreading the risk”, as the risk is spread by having a larger portfolio not by operating as profit centre.

Accept any other relevant advantage and explanation.

Mark as 2+2.

Award [1] for each correct advantage identified and [1] for a relevant explanation with application to TH. Award up to a maximum of [2] per advantage explained. [2] cannot be awarded per advantage/disadvantage if the response lacks either explanation and / or application.

For example:
For an identification/description of an advantage/disadvantage with or without application [1].
For explanation of an advantage/disadvantage with no application [1].
For explanation of an advantage/disadvantage and application [2].

Positive benefits include:

• Some level of labour turnover is important to bring new ideas, skills and enthusiasm to the workforce especially when competition is increasing for the function rooms.
• Wages are kept low due to new staff starting on the lowest rates. It is expected that companies which employ a high number of students will have a high staff turnover as students are likely to move away when they graduate. Hence, high staff turnover in the service industry that relies on students can be seen as inevitable.

Accept any other relevant benefit.

Negative consequences include:

• High staff turnover might have a demotivating effect on remaining staff in addition to absenteeism and poor punctuality.
• Extra costs:
• There will be an increase in recruitment costs as vacant posts will need to be advertised and staff interviewed.
• There will be an increase in training costs as new staff will need induction training and may need additional training for their posts in the function room.
• There will be an increase in recruitment costs as vacant posts will need to be advertised and staff interviewed.

All of the extra costs mentioned above will reduce the effects of other cost-cutting measures, such as delayering and the use of flexible contracts.

• There is likely to be an impact on the quality of customer service at least in the short term whilst new staff are trained and get used to the function room’s systems. In addition to the late delivery of the meals this may result in more customer complaints and a poor image. Due to the increase in competition, TH, and especially the function room, cannot afford an increase in complaints.
• High staff turnover suggests a possible problem with and resentment towards the new flexible contract.

Accept any other relevant consequence.

Mark as 2+2.

Award [1] for a correct benefit / negative consequence identified and [1] for a relevant explanation with application to TH. Award up to a maximum of [2] per benefit / negative consequence explained.

[2] cannot be awarded per benefit /negative consequence if the response lacks either explanation and / or application.

For example:
For an identification/description of a benefit /negative consequence with or without application [1].
For explanation of a benefit /negative consequence with no application [1].
For explanation of benefit /negative consequence and application [2].

Outsourcing is when a business ceases to run a functional area of its business and instead contracts this out to a third party. This third party provides the staff to run these functional areas of the business. They are responsible for recruitment, training and disciplinary matters.

One assumes that TH management will conduct thorough market research in order to find the most suitable outsourcer /subcontractor with a good reputation. The quality of the service can be significantly improved which will outweigh the increase in the direct cost due to the relatively high price that the outsourcer/subcontractor charges. TH is in critical need to improve efficiency and quality.

The function room has been suffering from absenteeism and punctuality problems and this is likely to have reduced the standards of customer care at weddings and conferences. The outsourcer/subcontractor company will ensure it has sufficient staff to provide the correct levels of customer care and the contract between the hotel and the outsourcer would outline the staffing levels that are needed.

TH will no longer need to recruit; train or discipline function room workers and this will cut its indirect costs.

The problems with food being delivered late from the hotel restaurant may be solved as the outsourcer is likely to use its own food supplier.

However the outsourcer /subcontractor will charge more than the direct costs. Still a slight increase in costs might be worthwhile if it results in improved customer care. The outsourcer’s/subcontractor’s employees might not share the hotel’s mission statement? Will customer care improve? Will the outsourced/subcontracted staff embrace the hotel’s philosophy?

The hotel will have to draw up a contract with the outsourcer/subcontractor and it is likely that service standards will be written into this – if the outsourcer/subcontractor fails to meet the standards then the hotel will be able to terminate the contract at short notice. However this would result in even further upheaval for the business with consequences for customer care.

Furthermore, there will be another impact on restaurant sales – currently 30 % of restaurant sales are to the function room – the outsourcer/subcontractor may use its own supplier of meals and if so restaurant sales and profits will fall. Also, if the outsourcer/subcontractor does not provide a good service, it may negatively impact
on the two other profit centres.

The reduced problems with absenteeism and punctuality should improve customer care, but the doubt remains as to whether these staff will feel part of the business and be committed to the hotel’s mission statement. It may lead to an improvement in basic customer care but not to the level that the hotel’s mission statement aspires.

However, there is no guarantee that the current managers will either get jobs with the outsourcer or will want to work for them. This may lead to a period of transition and their knowledge of how the business runs will be lost. The owners might consider that other solutions might be more effective and less risky, such as operating a rewards system that improves attendance and punctuality amongst the lower paid staff.

In conclusion, outsourcing should lead to fewer problems with absenteeism and punctuality as the outsourcer/subcontractor should have sufficient staff to deploy on any given day. It will relieve the hotel of the need to recruit and train staff and this will cut the hotel’s costs. However outsourcing is more expensive than providing the function room “in-house” – whether it is cheaper depends on how much is saved in recruitment and training of function room staff.

Accept any other relevant discussion.

It is expected that candidates provide a conclusion with a substantiated judgment.

Marks should be allocated according to the paper 2 markbands for May 2016 forward.

For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].

If a candidate evaluates / addresses only one issue, award a maximum of [5].

A balanced response is one that provides at least two arguments for and two arguments against the option.

Candidates may contrast one option with another for a balance as long as at least two arguments are given for each option.

Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.

Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer