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Transcription of this question: 5.Martin Kimathi faced three major problems. Firstly, he had employee negotiations about thestrike. Secondly, there was the issue with Susan Chapman. Thirdly, Martin would soon have hisannual meeting with GP to discuss the strategic direction Of The Imperial and to set target profitsfor the coming year. Because GP had rejected the idea Of making a major investment in the hotel(Option 1), the discussions would focus on Option 2 (targeting The Imperial at business travellersstaying for at least one week) and Option 3 (forming a strategic alliance with KenSafar).During negotiations with the employee representatives, Martin discovered that they wanted Susanto be dismissed. Otherwise the entire staff would go on strike in December, which would putThe Imperial’s profits for the year below target. However, Susan had threatened to take legal action,if dismissed. She said she would claim that she was a victim Of discrimination.Option 2 appeared to be the best and Martin wanted to go even further. He had discovered thatoutsourcing the housekeeping staff would be even cheaper than the initial idea Of a 70% reductionin housekeeping staff (Item I). His original decision tree (Item 2), when modified to take this lowercost into account, would make Option 2 even better This could also avoid the problem with Susan:he could say in court that he was making all housekeeping staff redundant, including Susan, as partOf a total business reorganization.Laying-off all the housekeeping staff worried Martin. Unemployment is high in Kenya, and hefeared they might not find new jobs. Intuitively he favoured Option 3 which would build onThe Imperial’s history while linking it to the fastest growing areas Of Kenyan tourism.(a)(b)(c)(d)Define the term Outsourcing.(i) Using information from Item 1 , calculate the target profit that would resultfrom an 80% occupancy rate with housekeeping outsourced.(ii) Calculate the expected outcomes Of Option 2 and Option 3, using thedecision tree in Item 2.(iii) Comment on the expected outcomes calculated in part (ii).With reference to Martin Kimathi and The Imperial, compare and contrastscientific and intuitive decision-making processes.Using information contained in the case study and Items 1 to 5, evaluate the needfor The Imperial to change objectives in response to changes in the internal andexternal environment.[2 marks][3 marks][2 marks][2 marks][9 marks][12 marks]Additional InformationItem 1: Internal memo from the Finance Office to Martin KimathiFrom:Martin KimathiFinance OfflceOutsourcing the Housekeeping DepartmentAfter receiving bids from several cleaning service companies, I am pleased to report that we can reducethe costs Of housekeeping by S 150000 per year by outsourcing this department; this does not includeone-time costs related to making all housekeeping positions redundant. This would lower ourbreak-even number Of customers as shown below, which assumes single occupancy Of each apartmentand 150 apartments (all numbers in the table have been rounded to the nearest figure):With the current With housekeepingAverage sales revenue per customer per nightVariable costs ni tFixed costsBreak-even number Of customersAverage occupancy ratehousekeeping staffS157S17s460000032 857outsourced$157$17S445000031786Option IstoooooooOption 2sooooOption 3$2000000Rejected by GPProbability0.8 successful0.2 not successful0.4 successful0.6 not successfulForecasted10 year profitsSISOOOOOOssoooooS24000000SloooooooKey:ODecision pointPossible outcomesRejected optionItem 3: External Memo from GP to Martin KimathiMartin KimathiFrom:Target profits for upcoming yearDue to the global economic crisis, the directors Of GP have decided that specific properties includingThe Imperial hotel will have to reach higher target profits than initially planned. The aim is to compensatefor poor returns in Other investments.Item 4: Kenya fact-file (Statistics from World Factbook as at January 2013)CapitalPopulationLife ex tancLiteracy rateUnemployment rate (% Of labour force without a job)PO u lation below vert line(Source: adapted from uruwhabitatforhumanity_orguk, 2013]Nairobi4301334163.07 ears87.4%Item 5: Kenya GDP growth rate (World Bank)Growth rate (%)765432200920102011Year[Source: The world Bank]201220132014

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