Summer 1998 - The timeshare industry, or as it is now referred to, the vacation ownership industry, continues to be one of the hottest segments of the hospitality industry. Almost every day, one of the major opportunity funds, Wall Street investment houses, or major hotel companies is looking toward acquiring one of the timeshare companies. By combining the existing infrastructure with high growth opportunities emanating out of their deal pipelines, the companies hope to create a large synergistic component to their hospitality offerings. Once acquired, these companies need to be able to transition from an entrepreneurial structure to one with much stronger corporate disciplines.
Nowhere is this more important than in the financial components to the "new" company business. Unfortunately, this is precisely where most vacation ownership companies are deficient. Most developers are long on sales and marketing know-how, but have always treated the financial systems as a corporate stepchild. Most bankers and other financial players are amazed at the unsophistication and inaccuracies which occur as a result of this underdeveloped corporate component. These deficiencies are manifested in the inability to accurately report on the companies financial condition, and also are directly responsible for millions of dollars in annual expenditures resulting from inefficiencies, in both manpower and information systems.
Vacation Ownership - A Complex Business Model
Anyone who has engaged in or studied vacation ownership companies understands that they are complex business models which are very capital - intensive in their early years, yet throw off considerable cash in the later years. These companies initially start out as real estate development companies; they have all of the depth of those organizations, including feasibility, development and construction, design, etc.
Once the resorts are developed, the companies step into high gear and become sales and marketing entities. Not only is this a complex area, but it represents the single greatest corporate expenditure for the company. In order to properly evaluate programs, the systems and financial tie - ins must be in place for management to make crucial day - to - day decisions on marketing and lead generation programs. Such programs need to track hundreds of variables throughout the marketing and sales process. Once the properties are sold, these organizations then need to handle the large amount of mortgages which are generated in the sales generated process.
This complex business environment requires sophisticated management and information systems to not only keep track of the data. but to present it to management in the most efficient and useful fashion. Reengineering the company is the way to accomplish such a task.
Reengineering - The Critical Components
When refining processes, the working assumption is that the process is valuable and only requires minor evolutionary changes to achieve peak efficiency. In the case of reengineering, there is no such assumption. Reengineering involves a critical development of the following key components:
Developing a Jointly Committed Team:
Consultants are an invaluable resource throughout the reengineering process, but change won't become a permanent part of the client culture without a project sponsor, employee consensus on the need for change, and involvement from all levels of the client organization.
Process reengineering should be done with a contextual understanding of the client's strategy and critical needs. Many vacation ownership companies are cash - constrained due to timing differences among construction expenditures, commission payments, and cash collections. Reducing mortgage banking cycle time is an effective way to improve the velocity of the cash cycle.
An objective performance baseline serves several purposes: it identifies gaps between current performance and best-in-class performance, pinpoints problem areas, and helps build client consensus on the need for change. It also establishes cost, quality, and cycle time targets for the reengineered processes.
Determining Scope and Priority:
When the strategy assessment and baseline diagnosis are completed the project team selects and prioritizes the financial processes to be reengineered.
In this phase, the project team develops a future state design hypothesis based on best practices from inside and outside the industry.
Impact Assessment / Implementation Planning:
Reengineering often entails radical organizational, skill set, process, and technological change. Identifying the impact of chance on the client's organization and developing plans to address potential resistance gives the change process a greater chance of success.
During implementation, the client must assume primary responsibility, with guidance from the consultant. This institutionalizes the change process and empowers employees to seek and drive future change opportunities.
Integrated financial systems such as SAP, Oracle, PeopleSoft, or Lawson play an important role in the reengineering process. By replacing non-integrated legacy applications for General Ledger, Purchase Order, A/P, Travel & Entertainment, Human Resources, Payroll, and Inventory, companies can substantially reduce the time spent on manual journal entries, intercompany accounting, accruals, closing, consolidation, and report generation.
The vacation ownership business today is rapidly becoming far more integrated into traditional real estate, hospitality, and financial environments. New participants and industry veterans are reaching the same conclusions regarding the complexity of the business and, more importantly, the inefficiencies which abound. These inefficiencies are most apparent initially in the finance and accounting areas of the vacation ownership organization.
Through self-diagnosis and candid assessments of the current position of the business, as well as its strategic direction, management can assess whether the business is a suitable candidate for reengineering of its finance function. Reengineering can lead to large - scale improvements in the operations of a company, improving its overall cash positions, cycle times, and productivity. All of this leads to substantial increases in profits in a high-growth environment.
The Real Estate Report is published by KPMG's National Real Estate, Hospitality, and Construction Practice. © 1998 by KPMG Peat Marwick LLP All rights reserved. For additional information email KPMG.
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