Advantages and Disadvantages of Using a Management Contract to Operate Hotels

Question:- 

Explain the advantages and disadvantages for Marriott to own and operate hotels versus using a management contract to operate hotels?

Answer:- 

There are several methods of running a business and making a profit out of it. Some organizations own and operate businesses themselves while some of them hire a third party to manage the operation and business of the organization. If Marriott owns and operates hotels, it will provide some benefits to the organization but the organization may face some limitations as well.

Advantages of owning and operating hotels

The organization will enjoy full control over the operation and business of the organization and it can take a major business decision without taking consent from the third party. It also helps in increasing the cost of the business. For example, if the organization hires a third party to accomplish a task, the third party will charge a handsome amount of money to do the task. The organization can also build the reputation of the organization by improving the services of the organization. The quality of services could be effectively controlled by the organization. But in case if the organization hires a third party, it cannot control the quality of the services (Somjai, 2017). Apart from this, if the organization hires a third party for the management of the organization, there might a conflict of interest because both parties would like to accomplish a given task in their own way. The decision-making process would also be affected effectively if there is a conflict of interest. Thus, if the organization owns and operation hotels, it can avoid conflict of interest.

Disadvantages of owning and operating hotels

There are some limitations as well if the organization owns and operates hotels. For example, an organization hires a third party when it lacks skills or expertise. Third parties are highly expert in a given field and hence if a third party is asked to do a task, it can do the task efficiently and effectively. It also saves time and resources by accomplishing the task within the given time. Using a third party also helps in saving money and reducing the overall cost of the organization (Smoliak, 2018). If the organization does not have expertise in a given field, and even though it is determined to do the task on its own, it may end with spending a lot of money, time, and resources. Thus, owning and operating hotels instead of hiring a third party may lead to these disadvantages.