Internal Situational Audit


2.0 Internal Situational Audit

Internal situational audit is a thing to discern attractive opportunities in the environment and another to have the necessary competencies to succeed with these opportunities (Kotler et al., 2006). The purpose of the internal situational audit is to evaluate what are the factors that affect an organization's performance from within its boundaries (Lussier, 2006). It consists of an in-depth examination and assessment of the organization's performance and competitive position in each of the key functional areas (Reich, 1997).

2.1 Operations

2.1.1 Location

PPKLIA is the only five-star award winning airport hotel that conveniently located adjacent to the Kuala Lumpur International Airport (KLIA) in Sepang with 50 minutes of car driving time to Kuala Lumpur city. The hotel is linked to KLIA via a sky bridge with just a 5-minute walk. Inspired by the KLIA's "airport in the forest, forest in an airport" theme, PPKLIA become epitomize of an oasis of greenery in fusion with luxury themed hotel (Please refer to Appendix A for hotel location map).

2.1.2 Strategic Business Unit (SBU) / Portfolio Analysis

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Strategic business unit is a single business or collection of related businesses that can be planned separately from the rest of the organization (Kotler et al., 2006). PPKLIA consists of five main SBU in its premise that is rooms, business centre, food and beverage outlets, banquet or catering and spa. Rooms

PPKLIA embodies 403 luxury guestrooms and 38 exclusive suites. All rooms boast of state-of-the-art technological features that complement the spaciousness of the accommodation. There are nine floors in this hotel building where the rooms are located starting from the third floor onward. On the fifth to eighth floor, it is where the three hundred and forty three deluxe guest rooms allocated; while fifty-five Pacific Club rooms located on the highest floor in the hotel to satisfy guest who demands a higher standard of luxury and personalized service. Besides, for guests who stay in as a family, there are five exceptional spacious Family Room in the hotel where it can fit in two adults and two children comfortably with one king sized bed and two single sized bed. On the other hand, for those who desire a little more than the usual, guest may choose from a range of suites including twenty-four Junior Suites, six Executive Suites, two Deluxe Suites and a Presidential Suite. All rooms are sound proofed and come with en suite bathroom, long bath, shower and amenities such as iron and ironing board, coffee making facility, mini bar, and room safe. Broadband internet access and satellite TV channels come as standard features. Business Centre

Business Centre in PPKLIA located at the second floor, lobby level with an operation hour of 7 am till 8 pm. It is tagged as "your office within a hotel". This had fully explained that the Business Centre is equipped with a variety of business equipment and facilities, including fast and reliable guest services provided by the friendly and competent associates. Guests may also connect to the high speed internet with secure, fast and easy access from anywhere within the hotel premises for better and convenience surfing. Food & Beverage Outlets

PPKLIA offers three sumptuous food and beverage outlets serving an extensive variety of exotic Asian and Western cuisine. Degrees 24-Hour Restaurant, located on the second floor in the hotel is an open-kitchen concept that offers over hundred and fifty types of Asian, international and fusion cuisines. Travellers Bar & Grill also located at the second floor that serves mostly food which is grill such as wood-fired pizzas, tasty tapas, juicy steaks and burgers. The Palmz Lounge is the casual dining area located in the lobby across the front desk that serve wide variety or pastries, sandwiches and hot snacks throughout the day. This includes a selection of coffees, teas and smoothies. Banquet / Catering

In PPKLIA, the main businesses for banquet and catering department consist of meeting, special events, and wedding. When there is on-premise catering conducted in the hotel, the conference venues offered are come in useful to conduct these events where it has enormous flexibility services, from a 1700-person reception in a magnificent ballroom to a press conference in a state-of-the-art auditoriums. It can fulfill different guest request by either having a grand ballroom for a banquet, or a smaller meeting room for an intimate gathering. Other features include a 184-fixed-seat auditorium, eight separate breakout rooms, two Business Centre meeting rooms and two exclusive Pacific floor meeting rooms. On the off-premise catering, PPKLIA usually provide catering service for special events such as Formula 1 and MotoGP that held at the nearby Sepang International Circuit. Besides, wedding is also an event that often carried out in the hotel with a range of wedding and banquet packages for different guests' needs and religion. Spa

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Spa is one of the facilities provided in the recreation centre that situated on the first floor of the hotel. The Spa service provided in PPKLIA is limited in packages and choices. There are only two type of packages provided in different length of time. A fifty minutes massage service that consists of two types of package to choose from, the full body traditional massage with oil and full body aromatherapy massage. Each costs RM 188 and RM 288. For the eighty minutes massage service, it consists choice for either a full body traditional massage or full body aromatherapy massage that costs respectively RM 255 and RM 298. There are also a few choices of pre blended essential oil, the Serenity for relaxation, Vitality for rejuvenating and Recovery for healing to suit different guests' needs.

2.1.3 Boston Consulting Group (BCG) Matrix

BCG matrix is an analytical model based on SBU's relative market share and the industry's market growth. The rate of market growth indicates the attractiveness of a market - higher-growth markets are usually more attractive than low-growth markets. Relative market share indicates the degree of dominance a SBU holds in its marketplace and is the share of the company in comparison to the market leader (Bowie and Buttle, 2007).

The rooms department of PPKLIA hotel has the highest profit percentage because there is less cost of sales compare to the food and beverage outlets. The rooms are re-rented every night, not consumed (like food and beverage items); therefore, there is no cost of sales for the rooms. However, the expenses incurred in this department are high due to the purchasing of large amount of guestroom supplies including linens and guestroom amenities. Also, expenses incurred in the purchasing and maintenance of equipments used to keep the hotel clean and the laundry section in PPKLIA also cost an amount of expenses. On the contrary, the room rates of the rooms department generally are much higher than the average checks in restaurants where the lowest rack rate cost RM 800 per night. In 2008, PPKLIA occupancy percentage reached 66.6 per cent with an average daily rate of RM 355.34, these results in RM 236.66 of revenue per available room. This explains why the rooms department's profit is so much higher than other profit departments. As a result, it can be categorized as Cash Cow due to its large share of a market that is growing only slightly. This SBU provide the organization with large amount of cash, but since their market is not growing significantly because there are fixed products (only have 441 guest rooms), the cash is generally used to meet the financial demand of the hotel in other areas, such as the food and beverage outlets.

Business Centre is an important segment especially for PPKLIA since one of its major target markets comes from business traveler who most likely would visit business centre to use the facilities such as computer, printing service, photocopying service, secretarial service, E-service, meeting rooms, translation and much more. The market growth of Business Centre is low since the product-service offered is limited and wouldn't have any further new product-service may offer to the guests. However, due to the large target market of business traveler, it has high market share although the secretarial service provided is in high-priced. For example, typing (word processing) plus printing service on an A4 sized paper will cost RM 15.00 while photocopying service on an A4 sized paper cost RM 0.50 per piece. The prices is much more higher than the same services provided out of the hotel, however, business travelers would rather pay for it due to the convenience and quality ensure. Hence, it produces substantial profits and cash flow to be used for business unit in other categories. This summarize that business centre falls under the category of Cash Cow.

Business Centre is an important segment especially for PPKLIA since one of its major target markets comes from business traveler who most likely would visit business centre to use the facilities such as computer, printing service, photocopying service, secretarial service, E-service, meeting rooms, translation and much more. The market growth of Business Centre is low since the product-service offered is limited and wouldn't have any further new product-service may offer to the guests. However, due to the large target market of business traveler, it has high market share although the secretarial service provided is in high-priced. For example, typing (word processing) plus printing service on an A4 sized paper will cost RM 15.00 while photocopying service on an A4 sized paper cost RM 0.50 per piece. The prices is much more higher than the same services provided out of the hotel, however, business travelers would rather pay for it due to the convenience and quality ensure. Hence, it produces substantial profits and cash flow to be used for business unit in other categories. This summarize that business centre falls under the category of Cash Cow.

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Food and beverage outlets of PPKLIA hotel can be categorize as Stars since it generates large amount of cash for the organization. There are evidences from the Degree 24-Hour Restaurant, Travellers Bar and Grill and Palmz Lobby Lounge with monthly revenue of RM 600,000, RM 80,000 and RM 10,700 respectively; however, they have the lowest profit percentage at the same time because of costs incurred in the F&B outlets. Both labor cost and food and beverage cost which run between 35 percent and 36 percent contribute a high cost in the restaurants. Besides, others expenses such as cleaning supplies, linen, uniforms, utilities usage costs, equipment maintenance costs and others will range between 10 percent to 15 percent; and the overall expenditure would reach 81 percent. This shows that it has a high share of a high-growth market and typically need large amounts of cash to support their rapid and significant growth.

The banquet or catering department is more profitable than the food and beverage outlets because its food functions can be planned with specific prices and customer counts, resulting in more efficient operations and higher profitability. PPKLIA usually provides catering service to motorsport events that are held nearby Sepang International Circuit such as Formula 1 and Motorcycle Grand Prix. Since it generates large amount of cash for the organization, it can be the segment in which management can make additional investments in order to earn attractive returns. This may conclude that this SBU falls under the category of Stars too because of its high share of a high-growth market and the need of large amounts of cash to support the rapid and significant growth.

Since the Spa service in the hotel opened not long ago and the market presence is weak. This result in less cash generated compared to other SBUs. Moreover, it doesn't offer many packages to choose from. The current situation of the Spa business have low market growth where the cash generated merely reached the breakeven point for it's operation without generating much profit for the hotel. This indicates that the Spa service in PPKLIA falls under the Dog category. In the worst-case scenario, the Spa service might become a liability for the hotel since there are more choices with variety of packages to choose from other Spa service provided by other establishment (Please refer to Appendix B for the Boston Consulting Group (BCG) Matrix).

2.1.4 Layout

The hotel building consists of nine floors. On the first floor, it is a place where all the function rooms, ballrooms, recreation centre and group check-in located. One of the main things that PPKLIA should concern about is the lighting system at this floor where its environment is dim although during day time, this might cause inconvenience and dangerous to the guests. Therefore, PPKLIA should switch to a better lightening system to create a well-lit environment. When walking straight down toward the main ballroom entrance, there is where group check-in located on the left. It would be better if the group check in counter would build at the lobby level for easy access to the rooms. Moreover, the recreation centre is located too far from the guest room too.

The hotel lobby is considered small as for a 5-star hotel compared to its competitors. The concierge and front desk is located on the left from the view of the main door entrance. The concierge counter is quite small and there is lack of space to park the trolleys as well. In addition, the space between the front desk and cushioned bench is quite narrow, if there is a lot of guest approaching the front desk counter, it might cause inconvenience. Also, the staircase located at the lobby level that leads to the first floor is being blocked and it barely can be noticed from far. PPKLIA should therefore put up some signage to notify the guests in order to provide a reasonably safe premise to the guests (Please refer to Appendix C for the hotel's layout of level one and two).

2.2 Finance

In PPKLIA hotel, organization's sales and profit can be measured at several levels in a business. This requires the attention of all hotel managers in every department to be effective in managing and controlling expense accounts if hotel profits are to be maximized.

In the year of 2008, the rooms department's average occupancy percentage shows 66.6 per cent with an average room rate of RM 355.34, these results in RM 236.66 of average revenue per available room. With the 160,965 total number of guest rooms sold for the whole year, it contributed RM 38,093,514 of total room revenue and become the main income generator for the hotel. On the food and beverage outlets, Degree 24-Hour Restaurant, Travellers Bar and Grill and Palmz Lobby Lounge respectively generated RM 600,000, RM 80,000 and RM 10,700 of monthly average revenue with a 35 percent to 36 percent of food and beverage cost. The average spending per customer in Degrees Restaurant is RM 280, meanwhile Travellers Bar and Grill has RM 260 and Palmz Lobby Lounge is RM 60.

According to the Annual Report 2008 from Malaysia Airports Holdings Berhad (MAHB), the actual revenue of the hotel reached RM 61,709,000 compare to RM 54,078,000 in the year 2007. The hotel registered an increase in revenue of RM7.6 million or 14.1% as a result of higher room occupancy rates in year 2008 and new engagement of airport catering business. After deducting the expenses incurred, PPKLIA recorded a Profit Before Tax (PBT) of RM2.9 million in FY2008 as compared to loss of RM940 thousand in FY2007. Meanwhile, the net profit was RM 2,934,000, an increased of 212.14 percent as compared to the previously recorded net profit of RM 940,000.

The major expenditure of PPKLIA including the cost of sales, wage cost, benefit cost and direct operating expenses. The amount achieved for total expenditure in 2008 is RM 7,270,000 with the depreciation of RM 13,790,000 for the asset owned. It has a variance of expenditure of RM 3,698,000 compared to the amount of expenditure achieved of RM 3,572,000 in the year 2007. The amount of expenditure increased is doubled due to the 10th anniversary celebration of the hotel.

PPKLIA's rate earned on stockholders' equity for year 2008 is 2.33 per cent (net profit / average stockholders' equity); it is greater than the rate of 2.21 per cent on total assets. The leverage (gearing) of PPKLIA is 0.12 per cent (2.33% - 2.21%) for 2008 compared to 0.2% (0.87% - 0.67%) leverage for 2007 (Please refer to appendix E for leverage calculation).

Based on all of this figures, the state of financial of PPKLIA can be consider healthy as there is a generally better performance in 2008 in term of hotel occupancy, hotel revenue and operating profit. Hotel occupancy rate grew marginally in 2008 to 66.6% against 65.5% achieved previously. Total hotel revenue rose by 14.1%, while gross operating profit improved by 4.2%. For the year 2008, PPKLIA achieved an average room rate of RM355.34, an increase of 3.7% from the previously recorded rate of RM342.53 (Please refer to appendix D for the PPKLIA financial information).

2.3 Human Resources

2.3.1 Organization's Structure

The organization pyramid of PPKLIA is made up of six levels of employees, from top level to the bottom level respectively: the general manager, steering committee member, heads of departments, managers, supervisors and staffs.

PPKLIA's organization chart is organized along functional lines, with departments grouped according to the particular work activities in which they are engaged. The strength of hotel's functional organizational design is the resulting of efficiency within individual departments or subunits. Performances of common tasks allow for work specialization, which increase the overall productivity because workers rapidly develop specialized skills by performing similar task (Rutherford and O'Fallon, 2007).

Figure 2.3.1 (a) in Appendix F showed the organizational pyramid of PPKLIA where the relationship among the line functions (associated directly involved in producing goods and services) and staff functions (the advisers). It also indicates the authority and responsibility handed down from the top level of management to the bottom.

However, PPKLIA should have a reverse organizational chart (Please refer to Appendix F: Figure 2.3.1 (b)) which will increase it's performance in serving the guest better. The reverse organizational chart will treat the guests as the priority where it located on top of the chart. As a result, every hotel's mission is to ensure that every guest leaves with satisfaction thus, ensuring customer loyalty. The level under the guests will be the employees where they are the most important person in the hotel because he or she is the personnel that confront with the guest directly. While the supervisors and managers located under the employees where their main task is to support, lead, and help the front liner to do their jobs better. Finally, GM located at the bottom of the pyramid shows that the leader actually works for the people who work with the leader (Rutherford and O'Fallon, 2007).

2.3.2 Formal and Informal Communication System

In PPKLIA, formal communication between the general manager and the employees is considered as a priority where meetings are conducted in different specific periods of time for different level of employees. There is a monthly departmental meeting where head of departments will meet with the general manager. Besides that, there will be also another monthly meeting between employees and the general manager which called as general assembly. In every three months, managers and staff's representative will have the chance to meet with the general manager too. While others like cafeteria committee and employee from sports club will have the chance of meeting the general manager occasionally. On the other hand, employee may also write in messages, comments, complaints and so on to the general manager through a system called 'Box to GM' as an informal communication. The purpose of having this system is to let the GM to know about employees' current situation of working in the hotel in order to understand their needs or helps them to solve the problems faced. By doing this, it will helps to ensure the employees' productivity will not be affected by their personal problems and to create employee's loyalty to the hotel.

Furthermore, any potential risks that will caused for service breakdown in the hotel will be discussed during the meetings stated above in order to find a way to solve the problem that everybody agree with. In PPKLIA, issues usually being brought up are concern about the business performance in the aspect of guests and employees. According to Scott and Mitchell (1976), communication between two or more people can provide information that helps executives in decision making, motivate by fostering a commitment to organizational objectives, control by resolving ambiguities in the role, responsibilities and duties of executives and to afford individuals the opportunity to express their feelings and emotions. This is also the reasons why PPKLIA conducts meetings in order to enhance the degree of communication between the GM and employees.

2.3.3 Training and Development

Many organizations seem to view employee's training and development as more optional than essential since it can be costly to both short-term profits and long-term progress. Due to this, it is viewed more as an expense than an investment (Sarvadi, 2005). However, in PPKLIA, the management team thinks differently as they know that in order to stand out among its competitors, they need to nurture their most valuable asset - the employees in order to achieve the desire results effectively and efficiently.

Every employee in the hotel has their own job profile. In order to know their job performance, an evaluation will be conducted every six months through test. If the results of job performance is lower than 60 percent, the employee will need to undergo a training and development program called performance improvement program in order to enhance the performance up to 60 percent and above through evaluation. This is to ensure every employee's performance will always maintain at a satisfactory level in order to serve the guests better.

2.3.4 Pay and Incentives

Employment instability and high rate of turnover is the characteristic of employment in hospitality industry and the turnover rate is the highest amongst the operational level and lowest grades of staff (Lucas, 1995). However, hospitality organization that practice good human resource management would successfully manage turnover and lead to increase of productivity (Abbasi and Hollman, 2000). This can be clearly see from PPKLIA who constantly carry out training and development program to the employees and manage to have only one percent of turnover rate. On the contrary, there is a 75 per cent of satisfactory level among the employees which considered as a good result from the employee satisfaction evaluation which conducted twice a year in this hotel.

There are several reasons that tell why the employee from PPKLIA has high satisfactory level. One of the main reasons is the pay offered was in a satisfactory level for employees. Meanwhile, there is an incentive system being practiced in the hotel in an effort to motivate the employee for better performance. The incentive system comes in a non monetary form, where the management team will give away awards to those having good performance in carrying out their job task.

2.3.5 Staff Attitude to Management

According to Mr. Alex Chin, the director of sales of PPKLIA hotel year 2009, the employee satisfaction level reached 75 percent and it does tell a lot about the staff attitude to management is always at the state of high job satisfaction where most of the employees are gratify with their pay and working environment.

2.3.6 Management attitude to staff

In PPKLIA, the management knows treating the staff with dignity, kindness, and respect would bring a positive impact to the business. So, the attitude of management is always demonstrating concern to the staff by giving support and helping them to solve their problems quickly and fairly. However, Mr. Alex Chin stated that empowerment is not implemented because empowerment requires responsibility from oneself which is something need long term instillation. As a result, employees without empowerment cannot take ownership if the customer has a problem and need speedy solutions, especially when complaining, and resent having to repeat complaint to several different employees.

2.4 Marketing

2.4.1 Current Target Market

The PPKLIA hotel comprising 441 of luxury guest rooms and specializing in serving business or corporate clients, airline crew, and transit air travelers; while 80 percent of the guests are made up of foreigner from Australia, British, and the United Kingdom. The remaining 20 percent made up of local business clients from the government. Due to the location factor, most of the guests especially transit passenger have their stay in to the hotel because they are having a few long hours in-between flights. Transit air travelers with early morning departures or late night arrivals will find the PPKLIA perfectly suited to their unique needs. However, according to Mr. Alex Chin, the length of their stay is very short which is approximately 1.1 nights per guest. They will usually check-out on the next morning or later at night to catch their next flight.

Since the guests stay in the hotel for a short time, they might not have the chance to explore and use the services or facilities in the hotel. They will just rest in their room in order to restore their energy due to long hours of plane travelling and leave by the next few hours to catch up their next flight. As a result, PPKLIA might have difficulties in retain guests and create guest loyalty.

2.4.2 Distribution Channel

A good distribution channel helps in overcoming the major time, place and possession gaps that separate goods and services from customers. By having website, all the information about PPKLIA is provided and online rooms booking service can be made. Besides this, PPKLIA also has a marketing channel where key words have are bought in order to let users to search for information about PPKLIA in a faster and easier way through toggle search suggestion in most of the popular search engine website such as Yahoo! and Google. The search results are display on the first two pages to capture user's attention.

2.4.3 Loyalty Scheme

Pan Pacific Privileges for Bookers, a loyalty scheme that creates for secretary who usually makes corporate bookings on behalf of an organization. Each booking made can helps on earning Privileges Points, which can exchange for a range of rewards. This program is divided into 3 tiers: Classic, Silver and Gold. Various tiers entitle members to special benefits on top of the irresistible rewards offered. PPKLIA is one of the participating hotels that offer this loyalty scheme.

2.4.4 Marketing Communication

In PPKLIA, the main promotion tool is specific in advertising and the form of advertising is in collaboration with Malaysia Airline System (MAS). There are advertisements published in the in-flight magazine called as 'Going Places'. Besides that, the food and beverage in PPKLIA were being published in the local newspaper such as The Star and New Strait Times too. Also, public relations department of PPKLIA also formed a good relationship with local journalists by inviting them to stay in the hotel, try for food tasting and so on in order to have them to write reviews on the hotel. The public relation coverage of PPKLIA is as much as 1.5 million where promotion tool that worth 1.5 million will be distribute in this range throughout the year.