IB Business Management SL 3.7.3 Liquidity Position Questions

The 1950s were a turbulent time in Kenya. Following the Second World War, independence movements emerged throughout the British Empire. Fearing that the situation would turn violent, in 1959 Roger’s son and heir Jeff Williams, decided to sell all the family properties in Kenya, including The Imperial. In the decades that followed, The Imperial was bought and sold several times: between 1959 and 1989, The Imperial had five different owners. Investors were often interested in the hotel, as it was an attractive 200-room property with a private beach and easy access to Mombasa airport. However, because of recurring political unrest in neighbouring countries, the owners feared the situation in Kenya would deteriorate. They often panicked when the political situation seemed to worsen and sold the hotel.

Though the country experienced some post-election violence in 2008, it was generally safe and stable.

When appointed manager, Martin had to address a long-term problem: the fact that over the years, the competitive position of The Imperial as Mombasa’s premier seaside hotel had slowly deteriorated. New luxurious hotels were opening in the vicinity; with their spas, themed restaurants and fast WiFi Internet access, they offered better facilities and better services than The Imperial. They had a modern, high-tech feel; in comparison, the colonial charm of The Imperial looked old-fashioned. Its market share was shrinking. Because GP’s interest in The Imperial was solely for profits, Martin was only given a limited budget each year for improvements and renovation. The long-term trend for The Imperial was worrying: there was a steady decline in room bookings, at a time when ironically tourism in Kenya was doing rather well. The number of tourists travelling to Kenya was increasing annually, and other hotels were experiencing a general trend of increasing, not decreasing, occupancy rates (Appendix 1). Martin read statistics from the Kenya National Bureau of Statistics and other sources of secondary market data. He conducted a marketing audit, constructed a position map and realized that The Imperial could attract new types of traveller interested in safaris or in cultural tourism.

Besides his long-term marketing challenges, Martin had found that managing the working capital sometimes proved difficult in the short term, especially because of the seasonality of hotel operations. The Imperial occasionally had problems to follow its month-by-month budget. Now that he was manager, and not just Head of Reception, Martin had to design and implement strategies for dealing with those liquidity problems.

Martin also had a problem of human resources: how to improve his working relationship with Susan Chapman, the Head of Housekeeping. Susan’s grandfather, Craig Chapman, had travelled to Kenya from Liverpool (UK) in the early 20th century to open and operate an orphanage near Nairobi. Unlike Roger Williams, who was already wealthy before he left England and went to Kenya to make even more money, Craig Chapman had a humanitarian motivation. When Kenya became independent, Craig stayed and continued to work for other non-profit organizations.

Describe the importance of monitoring the cash flow at The Imperial.