Coral Divers Case - Group 3 PDF

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Coral divers case question answers with porter's five and PESTI analysis...

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Coral Divers Group Questions 1.

Analyze the external business environment of Coral Divers a.

What industry does Coral Divers currently operate in? Define the industry. Be clear on what it is and explain why you have defined it in this fashion. As part of your answer, for this industry list one example of each of the following: a buyer, a supplier, a substitute.

First, we are defining the industry that Coral Divers belongs to. Coral Divers Resort is established as a safe and knowledgeable scuba diving resort that offers diving as well as a comfortable beachfront stay. Many of the resorts in this industry offer the same activities related to diving. The main activity that allows for Coral Divers Resort, and this industry to be profitable is diving. It is the main reason tourists choose these types of resorts. For this reason we are defining the scuba diving tourism industry as vacation spots for individuals with the intention of getting involved in some type of diving or diving-related activities. There are many different options to choose from within this industry which include forms of tourism such as scuba diving cruises, scuba diving resorts, and scuba diving adventure programs. These forms of tourism compete with each other as the main purpose for tourists to purchase from these such places is for scuba diving. Although, presumably, the main industry that Coral Divers Resort belongs to is the scuba diving industry, it must be noted that under a broader umbrella, they also fit in the general tourism and vacation industry. Examples of buyers, suppliers, and substitutes: Buyers: Buyers for the scuba diving industry are primarily tourists and divers of all levels. Supplier: Suppliers for the scuba diving industry are scuba-diving equipment manufacturers and scuba diving instructors with PADI and NAUI certifications as well as scuba diving instructors without certifications. Also included as suppliers would be boat mechanics and boat Substitute: An example of a substitute for scuba diving would be sailing. As this fills a similar need for tourists because it is an activity that tourists would travel and participate in while on vacation.

b. Use Porter’s Five Forces to analyze this industry. Be clear on the strength of each force and your rationale. State whether you think this industry is likely to be attractive or not. Porter’s Five Forces. ●

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Competitor Rivalry: Competitor rivalry is extremely high; According to the case, the Bahamas is one of the top three diving tourist destinations.To attract more revenue, competitors have invested in their resorts and have increased diving related activities with excursions such as; diving with the sharks. This investment has allowed firms within the industry to provide more value to their customers and encourages competition. The industry has become so competitive that many diving resorts in the industry have started offering discounted packages in order to attract tourists to their resort. Buyer Power: According to the data provided in the case, two-thirds of all divers travelled overseas once every three years and 60 percent travelled domestically each year. Scuba diving tourists earn above national average household income and have spent $2,816 on average on diving trips annually. According to this data, divers were willing to spend money to enjoy the experience of scuba diving. But, as the trend of family scuba vacations were increasing, divers are now looking for quality accommodation as well, which pressurized resorts in the industry to establish promotional programs that were economical and provided good accommodating services. Therefore, buyer power for the scuba diving industry is High. There are many diving resorts all throughout the Bahamas and the world and so tourists looking to purchase diving vacations have a large variety of options to choose from. Supplier Power: Supplier power is low. As per the case, the Bahamas is a popular destination for scuba diving and tourism; there are many organizations that provide training and certification for scuba diving. If need be, scuba diving resorts hire non certified divers as well. A proper set of equipment is required for diving such as face masks, tanks of compressed gases, swimming flippers, a buoyancy compensator device, and much more. This equipment is considered essential for diving but is considered a one time investment. Threat of new entrants: Threat of new entrants are low as the barriers of entry are high. There is a lot of competition in the industry and competitors are becoming more advantageous with the types of leisure and diving activities that they provide potential customers. Since the scuba diving industry is already saturated and survival of existing competitors has been challenging, it will be difficult for a new entrant to be successful without investing a vast amount of their capital. Threat of Substitutes: Threat of substitutes is medium in the diving industry as there are many options that could be experienced instead of diving such as snorkeling, swimming, bubble-watching, or just relaxing at the beach. The case highlights the dangers of diving (especially shark diving) that is already offered at some resorts. This can increase the fears related to diving and the substitutes become more attractive to potential

customers. c. Address the three most important trends from the general environment. Be clear on what you are observing and why you think that they are the most important.

2.

Demographic

45% of the divers mostly travel with their families. This is an important trend because Greywell is thinking of providing services for family vacation. The statistics would help Coral Divers to forecast its revenues and growth of the trend would provide opportunities for Coral Divers.

Professional

70% of all divers are PADI certified divers. The certificate issued by PADI is also recognized world wide and so there is a strong trend for the desire to be affiliated with PADI and provide PADI certificate courses and programs. As this opens up many doors for the industry as well as the tourists who want to explore the world of scuba diving.

Social

U.S dive industries such as PADI, DEMA, and the Florida Fish and Wildlife Conservation Commission banned shark feeding in 2001. This trend is important because if Coral Divers decides to operate shark diving, it would need to be aware that some international groups would be against shark diving. It would affect many businesses in the diving industry because it could discourage tourists from diving and therefore choose substitute activities.

Provide an internal analysis of BB a.

Using the VRIO framework completes an analysis of the resources and/or capabilities of the Coral Divers. Limit your discussion to the three most important resources and/or capabilities (three in total). Provide an explanation for why you think they are key for the company. In support of your answer, complete a VRIO chart as outlined below.

Resource or Capability

Valuable?

Scuba Diving Instructors

Yes

Resort

Diving Equipments

Rare?

Inimitable?

Organized to exploit?

Competitive Implications?

No

No

Yes

Competitive Parity

Yes

Yes

Yes

No

Durable Competitive Advantage

Yes

No

No

Yes

Competitive Parity

Scuba Diving Instructors We have identified the scuba diving instructors as somewhat valuable but imitable. Coral Divers offers diving services. Thus, scuba diving instructors are valued because of their responsibility to ensure that customers are safe while diving. Coral Divers is known for being a safe and knowledgeable diving resort. Without the current instructors accompanying the divers, the resort's reputation may not have been what it is. One of the instructors is a former U.S navy seal. The second instructor is a local that Greywell has known for many years. The third instructor is from Canada. These instructors have diverse backgrounds and experience which makes them unique. However, it was not mentioned in the case whether or not these instructors had certifications or not. Furthermore, the case describes the abundance of instructors to be found in the Bahamas. These instructors could all be easily replaced with certified or uncertified instructors making them easily replaceable and therefore imitable. As for the company’s organized to exploit, there are no employee rewards mentioned in the case. However, the staff are paid for their contribution in the operation. Greywell's wife manages the administrative activities such as accounting and payroll. Therefore, the resource is a competitive parity.

Resort The resort is identified as valuable, rare, but imitable. In addition to it’s diving services, the resort also offers accommodation services that are a part of its operations. Therefore, it is valuable to Coral Divers. The resort is rare because it is located on a deep-water channel on the southwest coast of the New Province island. Coral Divers Resort customers prefer the resort because it's a quiet and relaxed location compared to many of the busy and crowded resorts. It is also near Reef shark, a highly appreciated diving spot close to New Providence. This will allow Greywell easy access into shark diving. It is affiliated with PADI and NAUI, so it is valuable but can be replicated because many other resorts and diving programs have an affiliation with the two associations. Greywell has six cottages and facilities to do air dispensing, equipment repair, rentals, and storage. However, the resort was not organized to exploit. There are facilities

for a kitchen and a dining room, but they are not in use. We have identified that the resource has a durable competitive advantage. Diving Equipment We have identified that the diving equipment in Coral Divers is valuable because the equipment is required to run the diving operations. Equipment such as air tanks and compressors are needed for a safe dive. We think that the diving equipment is not rare and inimitable because it can be replicated and obtained easily. The equipment is organized to exploit because Greywell has facilities to repair and store the equipment. Thus, this resource has a competitive parity.

b.

What are the top two or three things you learned from reviewing the Financial Statements?

From the financial Statements, we have learned that the revenues have been declining on average $25,725 in the past three years. In 2005, the total revenue was $554,357. In 2006, the total revenue was $529,015 and in 2007, the total revenue was $502,908. By the end of the most current year, the revenue loss resulted in a decrease in the Retained Earnings. In 2007, retained earnings had a deficit of $5,174. If any profit is to be realized in the next few years, It is necessary that Coral Divers increase their cash flows and acquire a positive ending balance of retained earnings. 1.When comparing the year to year expenses, something that stood out was the increase in Salaries, wages, and benefits. Considering that the sales were decreasing in diving, it is interesting that the wages, salaries, and benefits increased instead of remaining the same, it's worth looking into since the amount of dives has decreased. Overall these costs seem very high and take up a lot of revenue. 2.Furthermore, lodging has increased compared to the previous year and so this indicates that in the last year more people have been lodging with Coral Divers Resort. This could help us understand the feasibility of renovating the cabins and facilities for an extra kitchen and dining room. This could lead to increased profits from lodging in addition to dives. 3.Utilities have also increased since the previous year and so this could indicate whether there are some costs that can be minimized with the intention of being a more cost effective operation. Finding cost efficiencies within these types of expenses will allow for more income to invest in expansion or remodeling.

3. Construct and place Coral Divers on the Strategic Positioning Grid. (see case analysis slides). Explain your answer. Strategic Position Grid

Coral Divers Competitive Position Weak

Strong

High

Low

In d u st ry A tt ra

Coral Divers Resort

The industry of scuba diving is highly attractive but Coral Divers Resort is not expected to perform well as compared to its rivals because they are lacking in many aspects of their business. Coral Divers Resort’s sales have been declining constantly because there is nothing that makes them stand out in the competitive market of scuba diving; they do not have proper facilities for family diving vacation which is a growing trend currently, they do not have an adventure diving program either which is a great attraction to thrill seeking divers. Other than the location of Coral Divers Resort, they do not have many other features that make them stand out against their competition. While their competitors are offering promotional packages to attract more customers, Coral Divers does not have enough resources to do so. If a new strategy is not implemented soon, Coral Divers would not be able to survive in the scuba diving industry.

4. What strategy would you recommend to Greywell? Be clear on what you are recommending and why. Option 1 - Increasing family vacation with Rascals in Paradise Physical property changes: Upgrades of two cottages (each $15,000 - $25,000) $15 x 2 = $30,000 minimum Children’s play structure (N/A) Duties of taxes (up to 35%) $30,000 x 0.35 = $10,500 Salaries; Rascals in Paradise members ( fee plus advertising) Babysitters ($5 - $10 per hour)

*According to Rascals' special family week packages, a babysitter is included for each family. The price of the package is based on a family of four individuals with two adults and two children aged two to 11. $5/hour x 8 hours/day x 365 days/year = ($14,600 x the number of families) Minimum investment= $40,000 90% Capacity bookings 6 Months = 4.35 week/month x 6 months = 26.1 week 6 cottages x minimum price of $1,355/week = $8,130 $8,130 x 26.1 week = $212,193 revenues 50% Capacity bookings 3 cottages x $1,335/week x 26.1 week = $104,531 Revenues = $316,724 *According to Exhibit 7, Coral Divers Resort Pricing Guide for Family Dive Vacation, the price is between $1,355 and $1455 standard accommodation (rates per week) in the Bahamas. December through May is the highest booking capacity. During the low season between June and November, the booking capacity is 50%. ROI = $316,724/$40,000 = 7.92 The ROI index shows that the return would be about 8 times the investment; however, the construction of the children play structure and the salaries of babysitters and Rascals in Paradise members are not included in the calculation. Option 2 - Adding adventure diving (shark diving) Shark food ($10 per dive): ($10 x 2 dive trips x 2 day/week) = $40/week $40/week x 4 week/month = $160/month $160/month x 12 months = $1920 annually *Shark feeding is only open on Wednesday and Saturday Purchasing of special chain mail suit: $15,000 Recruiting: Divemaster (N/A) Replacing staffs (N/A) Salaries: Divemaster (N/A) Minimum investment = $16,920 Revenues: Diving premium fees = $115 Shark Diving Operations: 2 day/week x 4weeks/month x 12 = 96 times per year

Divers: Minimum required = 4 divers Ideal = 10 to 12 divers Revenues= 4 divers x $115 fees for two dives x 96 times per year = $44,160 Revenues (12 divers) = 12 x 115 x 96 = $132,480 *In this case, we would measure option 2 in ROI. We also obtained the revenues and the approximate investment cost from the case. ROI (4 divers) = Net revenues/ investment cost = ($44,160/$16,920) = 2.61 ROI (12 divers) = (132,480/16,920) = 7.83 According to the ROI, option 2 is profitable because the ROI index is over 1. Moreover, the return of investment is more than a couple times if there are an ideal number of divers in each operation. However, this option did not include the cost of replacing staff and recruiting a divemaster who is specialized in shark diving. In addition, there are risks associated with shark diving. The case indicates that recently, there is a change in the feeding behavior of sharks. They are not afraid of humans. Although shark feeding was banned by the Florida Fish and Wildlife Conservation Commissioned, it remains legal in the Carribeans. If Greywell decides to implement this option, he would need to obtain insurance for shark diving.

Option 3 - Improving current operations Coral Divers Resort’s total expense in 2007 = $537,467 Staff Reduction of 5%: 5% x $537,467 = ($26,873) Staff Reduction of 10%: 10% x $537,467 = ($53,747) According to the balance sheet, there was a loss of revenue of $25,342 from 2005 to 2006. From 2006 to 2007, the revenue dropped $25,107. On average, the revenue loss is $25,725. If revenue continues to drop, the revenue in 2008 is predicted to be $477,183. In the case, revenues had declined over the past three years. The bookings were flat for the first two quarters of 2008. If current operations improved by 5% to 10%, it would help improve the net income. However, Coral Divers Resort would still have a deficit in its retained earnings. From the three options, we recommend increasing family vacation with Rascals Paradise. Three options are effective; however, we have decided that expanding family vacation would benefit Coral Divers in the long run. In the second option, the ROI shows that the minimum return is two times the investment if Coral Divers add shark diving to its operations. However, the cost of replacing staff and hiring a divemaster for shark diving is not included. Coral Divers would need to be aware that the American dive industries like PADI, DEMA, and the Florida Fish and Wildlife Conservation Commission banned shark feeding in 2001. Although shark diving remains legal in the Caribbeans, tourists would be discouraged from participating in shark diving from dive organizations who are against shark diving. Coral Divers’ business could be affected. If Greywell

decides to proceed with this option, he needs to include insurance to protect Coral Divers in case an accident occurs. The third option allows Coral Divers to eliminate up to $53,747 in its expenses. However, the retained earnings in the end would remain deficit in 2008. This would benefit the company in the long run, but it does not improve its revenues. Coral Divers have lost on average $25,000 to 26,000 in the last three years. If its revenues continue to drop, it would be an issue for Coral Divers. Therefore, we think the first option would be ideal for Coral Divers because 45% of the divers travel with their families. 40% of the divers travel with their friends or informal group. From the statistics, there is a larger group of divers that travel with their families. We think this is an opportunity for Coral Divers because it can expand family vacation with Rascals. Moreover, Greywell can partner up with Rascals in Paradise and receive help from the organization. Rascals also guarantee a 90% booking capacity, which makes this option reliable....