Strategic Management Time: 90 Min MM: 40 Attempt both sections. Closed book exam. Section ‘A’ (Read the case carefully and answer the questions that follow) OYO claimed to be the world’s fastest-growing hospitality company and ‘the world’s sixth-largest chain of operated hotels, homes, managed living and workspaces’ with about 35,000 hotels, 125,000 vacation homes, and over 1.2 Million rooms across 800 cities and 80 countries. Oyo’s verticals include holiday, casino hotel and co-working spaces to budget hotels, corporate stays and more, OYO had successfully raised over $2.5 billion in funding from investors like SoftBank, Lightspeed Venture Partners, Sequoia Capital, etc., and its valuation soared to $10 billion. Talking about OYO"s aggressive expansion, one early investor in OYO observed: “Oyo wanted to be everywhere in a very short time; India, the US, China and the Middle East; marketplace as well as inventory-led; budget hotels as well as posh properties. There wasn't a cohesive strategy, except to say, we want to be everywhere.” Founded in 2013, the company as a part of its new strategic objectives for 2020 and beyond planned to Teorganise more teams across businesses and functions. Talking about the values of the company, Ritesh said: “...We have together committed to four key values that are a natural extension of our cultural tenets. These values are building trust, being respectful, and being resilient at all times.” As regards to OYO"s Roadmap 2020 and beyond, Ritesh observed that “The focus of Oyo....will be on Sustainable growth, operational and customer excellence, profitability, and training and governance.” According to him, ‘to achieve operational and customer excellence’ and to simplify operations, drive consistency and high-quality execution, OYO planned to ‘use technology, data and culture of service insights’ In addition, by 2022, OYO as a group aimed to tu profitable (about $45.2 million) and anticipated $285.9 million in losses for 2020. In FY 2019, the operating revenues of OYO. were estimated to be around °64.57 billion and the operational expenses at °61.32 billion. However, market watchers wondered whether OYO would be able to tur profitable after stretching itself too thin for the growth, Toachieve profitability, Ritesh revealed that OYO planned to adopt ‘three-pronged strategy’ ~ ‘increase efficiency’ by “focusing on core businesses and rationalising growth avenues’, “focus on profitable locations, buildings, reduce operating costs and avoid growth that diluted margins’. He finally mentioned: “(We will) enable OYOpreneurs with the right tools to drive productivity, consistency and govemance while building a high-performing and employee-first work culture.” Talking about ensuring compliance, and other issues, he further mentioned: “We continue to be subject to regular external audits and have reached a stage as a company where we are making significant investments in compliance, training, and governance that ensure operational consistency and accountability.” Meanwhile, OYO in India was considered as the biggest revenue-generating country employing around 10,000 staff, while in China, its second-biggest market, employed 12,000 employees. Analysts noted that OYO had no viable business model yet, but managed to survive growing from a startup to a full blown company. The company had thousands of employees required to be managed differently. In 2018, OYO had recruited former IndiGo airline’s Executive, Aditya Gosh to lead, the firm’s South East Asian business, but moved him to a non-operational role within a year.‘At the same time, market watchers considered, OYO as one of the top 25 unicorns in India’s startup ecosystem. Radha Kizhanattam (Kizhanattam), Investment Director at Unitus Ventures, an early-stage investor, said: “The state of today’s startup ecosystem has a lot to do with efforts of these early unicorns, startups which bore significant market development costs. Now add to this hugely favourable macro changes, capital supply and the maturing consumer, and you have a growing unicorn tribe.” Meanwhile, in January 2020, media reported that the SoftBank-backed OYO's leadership planned to lay off 5% of its employees in China due to non-performance and 12% of its employees in India. Media reports mentioned that SoftBank had called for tighter financial discipline among its investment portfolio due to WeWork acquisition which had gone awry and poor stock performance of investments in Slack Technologies Inc. and Uber Technologies Inc. A former partner of Oyo told business journalist Raini Hamdi: “SoftBank wants it to cut losses; thus the firing has started. But that's a pretty short-term view, as firing people is only going to impact hotel operations further. If Oyo says it won't impact operations, then why did it hire these people in the first place?” He further reasoned: “The hotel business is a human touch business. But achieving operational excellence and doing training is expensive, and you need owners to cooperate. But these are small owners who have neither the hotelier mindset nor the wherewithals to improve operations and do training. Oyo’s China business is not shaping up well because Oyo competes with the likes of Home Inns in tier one to tier five cities. There are many strong, standardized brands in the sector in China, whereas Oyo picks those mom-and-pop hotels, and they don’t focus on changing the product and improving operations.” Mohammad Ansar, an Oyo partner who owned Hotel Amber Palace on Duncan Road in Mumbai, India said: “We hear from media reports that a lot of employees at the company have been asked to go, but they have not communicated anything to us. For the past two-three days, I'm trying to contact the business development people, but they are not picking up our phones. Oyo never behaves like a partner. We have put in so many investments, and they treat us like an employee rather than a partner.” However, an OYO spokesperson said: “There are multiple channels of communication that enable the asset ‘owners to reach out to us directly and vice versa, including the CO-OYO app, OYO OS (and) partner support helpline ... We also have dedicated portfolio managers who are equipped with all tools and technology to address any query or issue.” Market watchers also observed that the layoff announcement had led hotel owners in China to protest outside OYO offices and OYO faced media backlash despite being a media darling. Questions were being raised on the operating style of OYO and implications of its restructuring efforts, hotly debated. While Saurabh Mukhopadhyay, a former OYO Operations Manager in India observed: “It’s a bubble that will burst.” A venture capital investor who has been investing in Indian and US-based firms for 15 ‘years raising question regarding OYOs expansion mentioned: “Even assuming the India business has legs, and at least we can see there is a market, there is no real reason for global expansion and I don’t understand why it went to the US. In developed markets like the US, UK and even China, affordable hotels isa very old market which has been solved for by chains as well as individual hotels. So how big is your addressable market?” Moreover, OYO also was alleged to be facing complaints over unpaid dues to hoteliers, toxic work culture, besides offering rooms from unavailable hotels, especially of unlicensed hotels and guesthouses. The aggregator was also accused of offering free lodging to officials to avoid trouble and attempt to dial down an alleged rape case filed by a female guest. While some experts ‘argued that OYO's business model resembled that of WeWork’s, which had expanded far beyond its initial concept” Ques 1: Given the challenges discussed in the case, what are the critical success factors for OYO and why? (10 Marks)Ques 2: Discuss the strategy followed by OYO’s management during the past few years. How can OYO mitigate the threat ofa fallin investor and strategic partners” confidence in them? (10 Marks) Section ‘B’ Ques 3: A FMCG company manufacturing certain well-known brands of malted food, chocolates and uits for more than a decade ventured into the manufacturing of apple juice in 2010, but had to sell off the plant in 2014. During the year 2019, the company’s sales were higher by 8 p.c. over the previous ‘year despite new competition. Production of chocolates increased by 7 p.c. and of malted food by 9 p.c. The sale of biscuits was also higher although these were processed by third parties and sold under popular brand names of the company. Having reasonable financial results in 2019, the company decided to diversify into the hospitality sector. ‘According to you, what could be the possible reasons underlying the company’s decision to diversify into the hospitality sector? Comment on the challenges to be faced and the possible steps the organization can take to overcome them. (5+5 Marks) Ques 4: For more than ten years until 2017, Ultra Stores Ltd. was successfully running several retail stores selling cosmetics and skincare products. Since 2018, sales were stagnating, and now after little more than a year had started declining. The general manager of the company made enquiries from stores in charge at various location of stores. All of them reported that women, particularly the younger generation, were found to be highly discriminating about the choice of products. Demand for certain branded items widely fluctuated due to movie artists’ preferences shown in the advertisements and social media, Also, there is a marked tendency to equate quality with price. ‘The general manager decided to have environmental analysis carried out with a focus on changes in social and cultural factors among urban ladies. On that basis, he even thought of recommending to the Board of Directors a complete change in the product lines. Do you think the GM was right in his approach regarding environmental scanning? What other factors in the environment needed analysis? If there was a clear change in the tastes and preferences of buyers of certain products, is it essential for the company to switch over to a different product line? (2+3+5 Marks)