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Ethical Culture, GM Case Study

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INTRODUCTION

About 800, 000 of general motor's cars had engine shut down due to failure of the ignition switches. It often occurred when the vehicles were in motion hence most accidents were caused resulting into several deaths. For years, general motors never discovered that the problem was with their ignition switches. A lot of funds were compensated for the deaths caused. Despite GM discovering the cause for the accidents caused were due to faulty ignition switches, the information was disclosed for about fifteen years. Research reveals that the cause for the information disclosure was dur to ethical lapse in the corporate company. It took more than a decade for the government to discover that more than 2.6 million cars got damaged and caused accident due to faulty ignition switches. There was liaise with the federal prosecutors to announce a fine of 900 million US dollars to end the criminal investigations. Besides, they were to adhere to some terms and conditions for the coming three years. There are main events that occurred during the recall

Key instances of the recall

 In February 2002, Engineer Ray DeGiorgio who specialized in ignition switches designed an ignition switch. According to the quality assurance team the standards of the gadget did not meet GM's specifications. However, the switch was later used in Saturn Ion and later in Chevrolet Cobalt despite it being identified that it was below the standards. The switch was then used in Saturn Sky, Chevrolet HHR, PontiacG5 and Solstice. In 20005 a Chevrolet Cobalt owner, Amber Rose, got involved in an accident and died. Investigations showed that the frontal crash resulted from faulty switches which changed positions from the run to accessory hence resulting into cut off power to the airbags, steering and brakes. It led to a fatal accident. To resolve the situation, Engineer Ray signed a redesign of the ignition switch but in his redesign the part number is not changed. It led to uncertainties as to whether the changes were made or not. The alleged redesigned switch was used in cars from 2007. In 2013 the National Highway Traffic Safety Administration (NHTSA) declined to open investigations as to why Cobalt and Ion did not have proper air bags regarding several accidents that occurred during that period. NHTSA claimed that GM concealed important information hence preventing them from going further with the investigations.

A new CEO, Mary Barra, discovered in 2013 that there was an issue with the ignition switches in GM. Around February 2013, GM recalled 1.6 million cars to repair spoiled ignition switches, the number later grew to 2.6 million cars. General Motors received a fine of $35 million by US government for failing to reveal the cause of the problem early enough. GM paid then fine and admitted to give a report on the government's demands and its safety operations in good time. In June 2014, Barra released a report which were investigations conducted by prosecutor Anton. Barra stated that regarding the investigations, 15 employees were retrenched and five have undergone penalties due to their actions. The CEO agreed to compensate fund to victims who reported companies as from the first day of August. It was discovered that defective switches resulted into 275 injuries and 124 deaths and each victim's family will be compensated at least 1 million dollars. The company had 625 million dollars for the compensation process. 

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General Motor's actions towards the issue

General Motor's issue on defective ignition switches not only costed the company a lot of money but also tarnished its name to the public. Since the issues were related to ethics and culture, the company decided to review and publish its ethical codes. All employees were required to read, sign and follow the ethical codes of conduct failure to which punishments will be applied. By GM resorting to admit they had faulty switches, they chose on the engineering code of ethics other than profitability. Regarding GM's failure in culture and leadership, the code of ethics had to cover the entire stakeholders involed in the company's operations from the junior most to senior most positions. Their code of ethics addressed issues on integrity and the company's terms and values.

Among the code's listed was the significance of speaking up in case there are corruption or misconduct issues. The company majors on safety, identification and resolving the problems encountered. Among the issues listed are accountability, conflict resolution, management of resources and reporting of misbehavior such as theft, violence and fraud. The speak up policy was meant to encourage the employees to report any misconduct they observe without fear of being harmed or retrenched. The company also resorted to improving vehicle safety. The employees had to understand the codes of ethics including the repercussions of committing crimes. They resorted that their first priority as a company will be safety.

Recommendations of possible solutions to GM's problem

Studies show that ethics is controlled by culture. A large number of employees at GM decided to remain silent about the ignition switches which resulted to several deaths, this clearly shows that a company can have well laid out codes of ethics but no satisfiable integrity. It is not only enough to pass good laws regarding some policies in the company, but also important for employees to use their common sense and have a sense of humanity in them. Employees need to have good morals and the desire to do the right thing and be accountable. The leaders should be ready for any crisis and also be able to lead under the company under turbulence for the sake of positive transformation of the employees. 

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Corruption is secretive, culture change is gradual. Problem acceptance is an important way of solving ethical issues in an organization. Deploying other stakeholders to investigate the company's problems also helps identify the issues. Valukas' report regarding the switch issues in GM shows a problem of silence and concealment. After it was discovered that the switches designed by engineer ray has a lower torque spec. the engineer was under pressure to deliver a less costly ignition switch and culture encouraged this behavior. In conducting investigations, witnesses from top most executive positions also need to be spotted.

            General Motors learned a lot of lessons from the ordeal, they realized that a lot of effort and resources should be geared towards ensuring that the environment is ethically heathy and that employees have the right morals. Leaders living on assumptions that their employees will always do the right thing can result into discovery of misconducts later after a damage is made. Organizational leaders need to know their organizational culture, this can only be identified through proper communication. When communication is functional from the junior employees and up through the senior, discovering a problem would be easier. There could be information that a lot of employees are aware of but the CEO has no idea about them. Such matters can only be addressed through constant communication through meetings and emails.

Employees also need to communicate any misconduct happening in the organization. A culture of integrity and honesty need to be nurtured in organizations. The only way this can be done is when the leaders do thorough inspection in the company and interact with employees at personal level. By creating a conducive environment and being approachable, knowing what is happening in the business will be made easier. After a mistake is identified, leaders should learn and adapt to the current situations of the organization. They ought to quickly notice possibilities and solutions to the crisis. They need to only expect trustworthiness if it is more inclined to viewing the positive side of the crisis.

Conclusion

It took about fifteen years for managers to release bad news about the faulty ignition switches in general motors. For the news to be out, the managers had to go back to history and understand how it all began. Emphasis of employees doing the right thing and being honest helps eliminate the chances of nurturing bad culture into the business environment. Organizations should concentrate more on their consumers safety other than profitability. They need not to wait until several cases are reported on the consequences of their actions for them to release their reports. Managers should be well prepared for tragedy and crisis and be able to survive through such atmosphere.

A FEASIBILITY STUDY ON CREATING A LUXURY HOTEL BRAND THAT MEETS THE NEEDS OF ALL GUESTS IN NAIROBI- KENYA

A FEASIBILITY STUDY ON CREATING A LUXURY HOTEL BRAND THAT MEETS THE NEEDS OF ALL GUESTS IN NAIROBI-

KENYA

BY

A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF SHMS-LEYSIN MSc 182 IN PARTIAL FULFILLMENT FOR THE REQUIREMENT FOR THE AWARD OF DEGREE OF MASTER OF SCIENCE IN INTERNATIONAL HOSPITALITY MANAGEMENT

AUGUST 2019

DECLARATION

The information supplied is, to the best of my knowledge and belief, accurate.  I clearly understand my obligations and the rights of the participants.  I agree to act at all times in accordance with University of Derby Policy and Code of Practice on Research

Ethics: http://www.derby.ac.uk/research/uod/ethics/

Sign: …………………………...                                                             Date: .....................

RECOMMENDATION

As required for the purpose of examination, this research has been submitted under my approval as the student's supervisors at the university.

For Committee Use      Reference Number (Subject area initials/year/ID number)

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Date received    ………………               Date considered ……………

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List of Figures

Figure 1 The Porters Five Forces. 34

Figure 2 The business model canvas. 77

List of Tables

Table 1 Average Rating of Factors in Selecting a Hotel/ Convention/ Conference Facility. 61

Table 2: Projected  Annual Usage Data. 61

Table 3: Average Rating of Factors in Selecting a. 63

Table 4: Projected Annual Usage Data. 64

Table 5 : Target Population Findings at Hilton Hotel 70

Table 6: The Demographic Characteristics. 71

ABSTRACT

               In recent years, the number of tourists has grown rapidly in the Kenyan capital city, and with this increase in tourists there has been an increase in the number of hotels too. Nairobi is a province located in the central region of Kenya and is Kenya's fastest growing economy, with its main revenue generated from the tourism and hospitality industries. This growth provides an environment for the lodging business to flourish in the region. There is a needs to examine if the proposed hotel concept is suitable for the site and market, and if it will be financially profitable for investors. Additionally, there is a need to consider if a luxury hotel would be more successful than other types of Hotels, such as the Hilton.

               This piece of work contains a feasibility study for a hotel project in Nairobi Kenya. It aims to evaluate whether the implementation of a Luxury hotel Brand in Nairobi would be feasible. The proposed project shall be positioned in the upscale market of Nairobi for a moderate price. The reason for the evaluation of the planned hotel project is the exorbitant price policy of Kenya's hotel supply and the lack of quality accommodations. The study is based on secondary data, which was collected from sources, such as views from a number of hotel managers in Nairobi giving their opinions on the state of the hotel industry in the country. The feasibility study elaborates a market analysis that comprises the macroeconomic environment of Kenya and the Kenyan hotel industry, as well as the microeconomic environment where the Luxury hotel shall be implemented. A competitive  analysis  of  the  hotel  supply,  as  well  as  a  financial  forecast  shall elaborate whether the project should be established and what should be considered during the setting up and during the management phase of the hotel. Regarding the financial forecast and the evaluation of the market analysis, the construction of a luxury hotel brand in Nairobi Kenya is highly recommended.

Table of Contents

DECLARATION.. ii

RECOMMENDATION.. ii

List of Figures. iii

List of Tables. iv

ABSTRACT. v

Table of Contents. vii

INTRODUCTION.. 1

1.1 Study Aim.. 4

1.2 Problem Statement 5

1.3 Study Objectives. 5

1.4 The Significance of the Study. 6

1.5 Research Limitations. 6

1.6 Background Information. 7

1.7 The General Hospitality Industry. 10

1.8 The Hospitality Situation in Nairobi 11

1.9 Emerging Trends in Hospitality Nairobi-Kenya. 14

1.10 The Market in Nairobi and the Need for a Luxury Hotel 16

1.11 The Service Gap that needs to be closed. 17

LITERATURE REVIEW... 20

2.0 Introduction. 20

2.1 The Available Competitive Advantage. 20

2.2 The Competitive Advantage Concept 22

2.3 Threat of New Entrants in the Market 27

2.4 Threat of Substitutes. 28

2.5 Power of Suppliers. 28

2.6 Power of Customers. 28

2.7 Threat of Competition in the Market 29

2.8 Advantages and Disadvantages of these Models. 33

2.9 The value chain analysis. 40

2.9.1 Product 40

2.9.2 Price. 41

2.9.3 Placement 41

2.10 Advantages and disadvantages of value chain analysis. 43

2.11 SWOT Analysis. 43

2.11.1 Strengths. 44

2.11.2 Weaknesses. 44

2.12 Opportunities. 43

2.13 Threats. 43

2.14 Consumer buying process. 43

2.15 The Name. 44

2.16 The Logo. 44

2.17 Competition. 45

2.18 Advantages and disadvantages of SWOT analysis. 45

2.18.1 Advantages. 45

2.18.2 Disadvantages of SWOT analysis. 46

2.19 Business Model Canvas. 47

2.20 VRIO Analysis. 48

2.20.1 The Value of Resources. 48

2.20.2 The Infrequency of Resources. 48

2.20.3 The Imitability of Resources. 49

2.20.4 Merits of VRIO Analysis. 49

2.21 Business Analysis. 49

2.22 Summary. 51

METHODOLOGY.. 52

3.0 Introduction. 52

3.1 Qualitative Analysis. 52

3.2 Data Collection. 53

3.3 Data Analysis. 53

3.4 Target Population. 54

3.5 Sampling. 54

3.5.1 Selecting a Sample. 55

3.5.2 Sample. 55

3.5.3 Sampling Design. 57

3.6 Population of Study. 57

Findings and Analysis. 59

4.0 Introduction. 59

4.1 Findings from Interviews. 59

4.2 The Concept of Luxury. 65

4.3 Luxury Brands and as a Competitive Advantage. 66

4.3.1 Hotel Brands. 67

4.3.2 Consumer satisfaction. 68

4.3.3 Customer loyalty. 70

4.3.4 Perceived Quality and Consumer Preferences. 70

4.3.5 Competitive advantage. 70

4.4 The Demand for Luxury Hotel Brands in Nairobi 72

4.5 Location and Positioning. 73

4.6 Facilities. 74

4.7 Enogastronomy. 75

CONCLUSION.. 76

5.0 Introduction. 76

5.1 Summary and Discussions. 76

5.3 Suggestion for further study. 78

APPENDIX.. 68

Appendix A.. 68

Appendix B.. 71

List of References. 75

INTRODUCTION

            Kenya has recently stood out as one of the most prevalent tourist destination in Africa. This is particularly as a result of its value for money, reduced cost of living, low travelling expenses and the availability affordable hotel. The biggest number of tourists that usually visit Kenya are usually from Britain, the Unites States of America, China, and Middle East countries (Ayodo, 2015). The lodging industry in particular has an important role as far as spearheading the overall Kenyan economy. For instance, it is estimated that between 2012 and 2016 the total number hotels within Nairobi had increased with 20% (Bondarenko, Isaeva, Orekhov, & Soltakhanov, 2017). Alternatively, the average number of tourists from foreign countries in Kenya is also reported to have increased by 15% between the years 2012 to 2018 (Gikutha, 2017). At the end of the year 2017, it was established that only 19100 rooms within Nairobi recorded an increase in room booking and even a number of guests had to go to other towns for the hotel services.

This tremendous growth in the recent years is equally due to good infrastructure like expanded airports in the country and better road network that allows smooth movement of tourists in the country (Burke & Hanley, 2009). According to Career Point Kenya (2018) such favourable economy gives way for chances for upcoming developers to set up new tourism services and products to counter expanding needs. A part from the fact that there is an increase in tourism globally in the recent years, Enz and Siguaw (2000) narrates that sooner, consumer demand may be surpassed by hotel supply. Therefore, areas like the airline industry, restaurants, and hotels are known to have fixed inventory supplies which require knowledgeable management especially in a seasonal demand that is usually unpredictable. Thus, facilities such as meeting spaces, seats, and hotel rooms are in most cases perishable in that in incidences that the rooms are not fully booked, it is hard for the hotel to produce revenue that can cover for the maintenance in addition to other costs that support the daily running of the hotel (Gicobi, 2016).

The business sector in Kenya has been experiencing dynamic changes in all the critical sectors hospitality being one of them. Thus, several issues have come up to redefine the way business activities are being handled across the globe (Schwisow, 2018). In that case, business plan, proposals, and business development models accommodate the contemporary factors in order to gain a competitive advantage (Sebestova, 2013). Alternatively, technological advancement, changes in the business environment as well as changes in consumer preferences have formed the basis for different competitive advantage. In essence, most of these facts keep on changing with time making the business world to be redefined every day (Jaffe, Newell and Stavins, 2003). Additionally, competition for market share in the service industry is growing from time to time (Burke and Hanley, 2009).

That said, the hospitality industry has been among the business entities being challenged by  changes  in  business  structure  and  consumer  satisfaction  or  customer  preferences.  The business environment has also been changing from time to time demanding organization to restructure their operations to fit with the changing factors (Holjevac, Marković and Raspor, n.d.). Therefore the industry has put this consideration as an essential measure to increase the competitive advantage. Therefore, the gap realized in consumer satisfaction would formulate the basis for the development of a strategic model which seeks to increase the workability of a hotel or an accommodation facility (Dominici and Palumbo, 2013).

Deciding to invest in a luxury hotel brand in Nairobi will probably turn out to be a lifetime investment. Tourists take Kenya in great consideration when they have to choose a destination for their holydays; in particular, the demand for luxury hotels had an increase of 50% in the last 5 years. Nairobi has not been an international touristic destination in the past two decades. This is probably why it was able to maintain its integrity and its beauty (Nzioka & Njuguna, 2017). In addition, the characteristics of its countryside are quite similar to the internationally well-known countryside of Mombasa and Kisumu, this is a factor that could be positively exploited in a marketing campaign.

The visitors of the Nairobi define it as "A charming location with a park which instils alluring, mystery and seduction" and "unforgettable" (Siboe, 2017). This reviews were given even though the structure has not been operating at its full potential, as only a small area of the park is open to the public and some relevant facilities, such as a restaurant and a swimming pool, are still missing. Moreover, a large part of the basement, which includes places of great historical interest, and which encloses the old-fashioned essence of the Nairobi, is closed to the visitors (Okello & Novelli, 2014). An additional possibility is offered by the beautiful hills in the immediate surroundings, as a project for constructing a golf camp has been submitted few years ago. Permissions have been already  granted,  but  the  project  has  not  been  implemented  yet  due  to  the  lack  of  capital (Kangthe, 2014). Therefore, this could also be considered as a possible future investment.

            Positive  externalities  are defined  as  spill-over  benefits  to  third  parties  not involved in the economic transaction that produce them. The opening of the discussed business, that could attract new tourists and spread the voice of the existence and beauty of Nairobi, would be really good for the local businesses and the whole region (Pavione, Pezzetti & Dall'ava, 2016). The development of a luxury hotel brand is expected to create a variety of external benefits, some of which are briefly discussed in the following sections.

Relying on the above information, this paper seeks to assess the current gap in the hospitality industry in Nairobi-Kenya. Among the gaps that the paper will assess include the knowledge gap which entails understanding of the expectations that the customers have in comparison to the services that the hotel is offering. Secondly, the paper will assess the delivery gap which is will express the difference between the set delivery policies as compared to the actual services in the hospitality industry (Perry, 2014).  Thirdly, the consumer gap, which as the name insinuates focuses on the consumer's perception and expectations in relation to services offered. The primary focus will be on luxury hotel brands in Nairobi and its essence in the market (Siboe, 2017). The gaps in this brand will give an insight on their need in the market as a remedy to fulfil customer preferences. The study also seeks to give an insight on relevant attributes needed for the establishment of luxury hotel brand in Nairobi.

1.1 Study Aim

This study seeks to analyze the characteristics of the hospitality industry in Kenya to give insight on the establishment of a Luxury hotel brand in Nairobi-Kenya. The study also seeks to gain a better understanding of the competitive advantages that there is in the hospitality industry when it comes to the provision of services to the consumers. Through this, the paper will provide adequate  information  to  managers  and  investors  who  are  in  the  hospitality  industry  in  the country.

Luxury services, travel and tourism, hotels, food and services, recreation services and events are some of the features of the hospitality industry that we intent to undertake after establishing a hotel brand in Nairobi Kenya.