As I pondered upon my next blog post,
I realized that I had not dealt with a fundamental question: whether to build,
or not to build. The first two posts dealt with the issue of image: the first
warns about improper motives to build, and the second on creating an image that
suits your business. But, do you really need to build at all? That is the
question.
As has become customary, two cases
are presented; one good, and one bad. Both preceed the turn of the century: a
very trying time in Jamaica. In his book Jamaica Meltdown: Indigeneous
Financial Sector Crash 1996, Wilbern Persaud stated that “Jamaica’s
indigeneous financial sector crash was, to date, … estimated by the World Bank
review of forty-two banking crises to be third”. Our first blog post, “Consider
Image Carefully – Strategic Facility Planning for Small and Medium-Sized
Businesses”, described one failed financial entity as an example of poor
strategic facility planning. In this post, we examine one of its subsidiaries,
a banking group, as a good example in deciding not to build.
But we shall start with a case from
Persaud’s book, another banking group, as the poor example which decided to
build. As Persaud states: “… at the height of the euphoric credit and real
estate boom” this group “embarked on construction of a set of luxury apartments“
in an upscale community billed as “Kingston’s soon-to-be most prestigious
address”. The venture generated much interest, but the boom and accompanying
inflation led to ever escalating costs. To salvage the project, it was
redesigned to become a hotel: thus taking advantage of the government’s tax
incentive to the tourism sector, at the time. As a business-type hotel, the
venture was doomed to failure: it was too far from Kingston’s business district,
too far from other facilities associated with the tourist trade, and in a local
plagued with traffic congestion. So after a relatively short period, the hotel
did fail and was subsequently converted to apartments, under different
owners.
By comparison, our other banking
group owned a multistory building that was originally designed and constructed
as apartments but later converted to government offices: though little
refurbishing works seem to have been done. This group also considered
converting their building to a hotel. But, it had all the advantages the former
lacked. It was in the heart of Kingston’s business district, between three
successful hotels. It was anticipated that at the very least the hotel could
take referrals from the adjacent hotels. So, a feasibility study was
commissioned.
The consultants of the parent company
were commissioned to undertake this feasibility study. It was fortuitous that
the same consultants had also been responsible for the construction of the
building they were to examine. After careful study of the cost for the
conversion, against demolition and rebuilding the building, the banking group
wisely decided to sell it. It was sold to another established hotel also
located in the area, though some distance from the site. They were the ones to
refurbish the building. They sold their original premises and relocated to this
new location and continue to operate from the location today.
The building was not in the core
competence of the banking group. It was in the core competence of its new
owners. It is not certain whether the new owners did any studies of their own,
but the bank would have pitched it to them as being appropriate for a hotel.
Whenever a building project is contemplated, this should always be considered as
any other investment: the options need to be considered, evaluated, and compared
to determine the likely outcomes. If this banking group can be criticized on
any aspect of the sale, it would be that they failed to consider what could have
happened when the hotel relocated. The original hotel was located opposite one
of the bank’s major branches. When they relocated, a major competitor bought
the land, demolished the hotel, and constructed a new facility on the site.
This competitor was previously engaged in putting up a new branch in the resort
city of Montego Bay, but when the opportunity presented itself, they suspended
the design of that building and seemed to have concentrated their effort on this
new venture. Who could have envisioned such a scenario?
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