Strutc Examples

Topics: Costs, Fixed cost, Variable cost Pages: 5 (1134 words) Published: December 24, 2012
Major influence on the steepness of SRATC curve at output level below point Q* is determined by the fixed component of total cost. Then bigger/smaller fixed cost is then SRATC curve will be more/less steeper (“F/S” shapes). High fixed costs causes that business is much more vulnerable to any kind of external shock on the market. Variable labour cost also has influence on the steepness of the SRATC curve especially when a business benefits from IRL. IRL reduces variable cost as output increases and this makes the SRATC curve steeper where IRL has strong influence means at low levels of output.

Vulnerability is not the same. We can observe interesting “opposite” effect it means that considering the impact of a fall in the level of output from Q> Q* moving point Q closer to Q* area what it means in a consequence decreasing Average Total Cost, so positive effect on business.

Accor Hotels
Accor is a French multinational hotel corporation established in 1972. After 45 years Accor is present in more then 90 countries, with more then 4,200 hotels and 500,000 rooms. [Table 1]



Major business outcome of Accor is number of rooms sold. In 2010 average occupancy rate was approx 65%. Accor has high fixed cost so the curve is steep at the beginning. Average cost is lower then higher umber of available rooms is sold. Optimal Q* point is at the full number of currently available rooms. [pic]

Accor Hotels is vulnerability type 1 business
Fixed cost is coming from owned hotel and from high labour cost. HR department of Accor has strategy People First. Taken form [2] “a Strategic Priority for Accor is to offer its employees humanity, warmth & a unique place to gain greater professional experience and fulfillment” It means that that skilled labour cost is quasi-fixed cost.

In years 2008, 2009 there is visible declining revenue growth comparing to result from year 2007. This was effect of slow down of global economy. [Table2]

Strategy to limit vulnerability type 1 :
Variabilization strategy - switching from being hotel owner to hotel services operator using lease, franchise. Accor uses Back-End variabilization [1] means reduces number of owned hotels by selling them to 3rd party inistituton and then leased them back for the charge correlated with percentage of revenue /variable lease/. Current and planed split of portfolio is presented below.

-acquisitions: Accor Hotel is eliminating competitor’s brands that after acquisition become new Accor’s brand - reducing costs of booking and sales operation by 23% sales made on the Internet - reducing internal costs implementing centralized world wide purchasing department - introducing ECO strategy – paper recycle, water energy savings - strong focus on human resource management Accor wants to keep strategic high-skill personnel. Low-skills personnel is contracted outside on temporary contracts basis - World wide expansion reduces risk of any potential shock related to given geography -wide offer from economy motels luxury VIP hotel in all segments allows fast response on market needs and changes


Accor Hotel is low vulnerability type 2
Cost of “buy in” of energy and media (power, gas, water, and telecom) is on the level not more then 10%.

Strategy to limit vulnerability type 2
- ECO strategy reducing consumption /energy, gas, water/
- Long term contracts with suppliers
- Centralized very efficient purchasing process
- Variabilization

AC Milan
AC Milan is a professional Italian football club one of the most famous in the history of world football. Milan has won many officially recognized by UEFA and FIFA organizations world titles, AC Milan plays at San Siro which is shared with Inter and is the largest in Italian football stadium, with a total capacity of 80,074. [pic]

Business output is play football game and revenue income form broadcasting rights contracts, ticket sales, merchandising, transfers, bonuses from...
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