Good Busi 4317 Case Study Example
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Introduction: Strategic Profile and Case Analysis Purpose
In the introduction, briefly outline what the company does, how it developed historically, what problems it is experiencing, and how you are going to approach the issues in the case write-up.
MGM is one of the leading firms in the hospitality industry that has at least 15 wholly owned resorts in Michigan, Mississippi, and Nevada. The company boasts of around 45,000 full-time employees and portfolio of around $18.09 billion. Although it was hit hard by the recession in the past, most analysts still believe that it is a good company worthy to be invested in the future. The company was started around 60 years ago under the leadership of Kirk Kerkorian, who was a pilot. Some of the problems that the company has faced in the past include carrying the heaviest debt burden and operating losses for which went on to the tune of around $1 Billion.
Briefly summarize and present critical facts from the case that affected the company’s history (strategic direction and performance).
Some of the factors that have affected the company’s history include debts, making losses and recession.
.Explain how these critical facts lead to a particular focus for your analysis?
For any company to perform well, it is very important that it get rid of its debts, avoid making losses and overcome recession because without which it cannot be able to succeed.
The most important assumption about the case facts is that if the company gets rid of debt it will start making profits. This can be done by eliminating any factor that might raise the debt of the company. Some of these factors may include the costs of doing business such as increases workers salaries, costs of raw materials among others.
20 points: Situation Analysis
10 points: General environmental analysis
.Evaluate trends in each segment of the general environment.
The trends that we identified that are impacting MGM Resorts performance are primarily the financial, economic crisis and the astronomical amount of debt they have incurred. Because of the recession, consumers have less money to spend; therefore, they are cutting back on vacations and are less likely to gamble their hard earned cash at casinos. Even worse, MGM resort agreed to sell a minimum number of condominiums when entering into an agreement to restructure their debt. Currently, the median value of houses in Nevada is below $200,000 and is declining as people are defaulting on sub-prime mortgages (Scoy, 2000, p.78).
Predict the segments that you expect to have the most significant influence on the company over the next several (5 to 10) years.
The segments that are likely to have the most important influence in the company include Las Vegas Strip, Silver Legacy resort Casino, Macus holdings China.
10 points: Industry Analysis
Porter’s five forces model—Examine the five forces affecting the firm’s profitability potential.
According to Warner (2010, p.40), there is a lot of rivalry in the hotel and casino industry. Between 2000 and 2004, the number of rooms in the hotel almost doubled. With this growth in the industry, companies are fighting for control of the market.
In this industry, buyers always have power. With so many venues within short distances, buyers can shop for prices. Customers are usually very much sensitive the price. Hotels must provide a competitive price to attract more customers.
Barriers to Entry
The barriers to entry are many for this industry. New entrants must overcome new issues such as rules set by the government. These are significant for gambling companies and highly regulated. Gaming and hotel laws limit quantity and location all over the world.
Threat of Substitutes
The threat of substitutes is great for all hotel industries. Especially with the struggling economy, people can always seek for alternatives. Now with the rising technology, people can also go to the internet to gamble. There is now online poker, blackjack, and many other games that consumers can play right from their home without spending extra money to travel to a casino. This has affected MGM Resorts.
In the hotel and casino industry, the supplier power is moderate. Most of the equipments are highly specialized. Suppliers can use this to inflate prices without much bargaining power from buyers. With increasing revenues in the gambling sector and the hotel industry, there are more companies entering the gaming manufacturing industry. Supplier power will continue to go down.
Determine the attractiveness of the industry (or segment of the industry) in which the company is competing.
Since there is likely hood that many firms might enter the industry, it is possible that the industry will remain attractive for a very long time. The collective strength of the industry forces is very weak hence the industry is very much attractive. Since the industry is also at the growth stage, it was also found to be very attractive as many new firms would like to enter and start grow with it.
Strategic groups—create a strategic group map to identify the firm’s competitors.
Some of the top competitors of MGM include Las Vegas Sands, Sands China, Galaxy Entertainment group, and Wynn Resorts.
Analyze each competitor in terms of market commonality and resource similarity.
Las Vegas Sands- Its total assets 44,800 million and it resource similarity is also the same as MGM Resort
Sands China- its total assets equals $34,800, but its resource similarity differs little with MGM resort(Brunnermeier,2009,p.102)
Galaxy Entertainment group- Its total assets is $19700 its resort similarity is almost the same
Wynn Resorts- Its total asset is $13,000, and it has the same resources.
Evaluate capabilities in terms of the four criteria of sustainable competitive advantage
Virtually all large scale casino/resorts are the same. They contain the same games, similar room make ups, and a focus on customer service. These are qualities that all successful resorts must have in order to begin adding value. MGM has some characteristics that are unique to it alone.
Financial management is key for hotels that have constant flows of cash going through their buildings. In all areas except return on equity MGM is comparable to the industry, MGM’s financial management is rare and superior. This is an indication of excellent casino management and shows that MGM executives know what they are doing that has led to them making profits.
Costly to Imitate
MGM’s latest development, City Center, is going to be very expensive to imitate. The venture cost about $11 billion, and that's not the only costly part about it, the valuable space directly on the Las Vegas strip is being used and in this dense population area space is not cheap.
MGM has a well connected executive force. MGM’s ability to get the biggest names in the entertainment business gives it a comparative advantage over their competitors. In any industry, simply the ability to have celebrities around helps, but it is not alone a comparative advantage (Grant, 1991, p. 178)
Perform a value chain analysis.
Creating an environment that is appealing is done by the architectural design of resort casinos. Many choose a theme, like the Luxor with its Egyptian flair, or the Venetian with its Italian gondolas. Of course, the architecture and design is only a small element of operations used to attract customers it is a major boost when it comes to operations.
The marketing and sales activities for resort casinos include offering customers promotions such as special hotel rates and packages. After a customer spends so much money at any of the resort casino chains, they can qualify to be compensated. For instance, small rewards like these are given to the average customers but large rewards like an upgrade are given to customers who spend a lot.
Another important aspect of the Marketing/Sales element for resort casinos that is found in the service category of the value chain is consumer experience and satisfaction. If the customer has a positive experience and is satisfied with the service that a resort or hotel-casino provides, then they are more likely to return to the business.
.10 points: SWOT Analysis
Analyze strengths, weaknesses, opportunities and threats identified in the situation analysis sections for configurations that may benefit the company’s efforts to perform well.
It has a significant brand power
Diversification of business segments
MGM also has a good debt to equity ratio
Its responses to gaming is not as per with other players in the industry
Its revolving loan limits its future debt repayments
It has a heavy taxation
Domestic markets that it is yet to explore
It can still improve its liquidity
Taking the gaming partnership
Weakening US economy
Strict laws and regulations
Making low profits in the recent years
55 points Solutions and Recommendations: Strategy Formulation and Implementation
10 points: Customer analysis--identify who the target customer is currently& what needs the firm is currently satisfying
The current market of the firm is the corporate industry. The company also targets revenues that can be brought about by non gaming.
10 points: Current business strategy--identify the company’s corporate-level strategy
The company current business strategy is to increase its market share by focusing on a group of customers than single customers who come to book the hotel.
15 points: Strategic alternatives (develop alternatives)
The company is currently considering a strategic alternative in Detroit because of the several business meetings that take place there. The company can also decide to book more rooms for business than for personal customers. Moreover, the company has started offering some of its services at discounted rates to attract more customers.
15 points: Alternative evaluation (which alternative has the most potential, why)
The alternative that has the most potential is offering more of its shares on the market so that it can secure a huge financial base. Moreover, the company should also review the prices of its services for it to offer the best services to the market at the most competitive prices. This will in the end attract more customers. This will attract more customers while at the same time making giving the company a huge capital base (Walshe, 2000, p.56).
5 points: Alternative choice (your recommendation and supporting
First, MGM resort could sell some of their assets to eliminate debt. There have been rumors of MGM Resort selling its Detroit casinos and Steve Wynn has expressed interested in buying back Bellagio and Mirage properties at the right price. Although this was a better idea, it has been eliminated since some of the threes properties are still being used by the company to leverage on income.Second, MGM resort could try and sell City Center. City Center is an $8.5 billion project. It is the largest project in the United States. The problem with this strategy is that it is very hard to get a customer. The final strategy is for MGM Mirage to keep City Center and restructure its debt and management. MGM Mirage's core competencies are that they have the most properties on the Las Vegas strip, and they manage their casinos better than any of their competitors.
Strategic Alternative Implementation
MGM Mirage needs to meet with their lenders to restructure their debt. They should do this faster because if they cannot figure out a way to reach a compromise with their lenders it would mean giving up some key assets as collateral. If assets are lost MGM loses the opportunity to make much-needed revenue. Additionally, the market likes to see companies like MGM get an extension on debts hence this is also a good avenue to explore.
Brunnermeier, Markus K. "MGM and its Competitors." Journal of Economic Perspectives34.1 (2009): 102-120. Print.
Grant, Robert M. Contemporary Strategy Analysis: Concepts, Techniques, Applications. Cambridge: Blackwell, 1991. Print.
Scoy, Frances L. "Vision and Design." Harvard Business Reviews 40.11 (2000): 56-70. Print.
Walshe,S. "An Overall Valuation of MGM Mirage." Journal of Hospitality 2.13 (2000): 56-89. Print.
Warner, Alfred G. Strategic Analysis and Choice: A Structured Approach. New York: Business Expert Press, 2010. Print.
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