HCM441 Strategic Management in Hospitality and Tourism Course Guide PDF

COURSE GUIDE HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM Course Team Mr. E. C. Majebi (Course Developer/Writer) NOUN Dr. M. Samaila (Course Editor) - NOUN Dr. I. D. Idirisu (Programme Leader) - NOUN Miss. F. E. Nnanna (Course Co-ordinator) - NOUN NATIONAL OPEN UNIVERSITY OF NIGERIA HCM441 COURSE GUIDE National Open University of Nigeria Headquarters University Village Plot 91, Cadastral Zone, Nnamdi Azikiwe Express way Jabi, Abuja Lagos Office 14/16 Ahmadu Bello Way Victoria Island, Lagos e-mail: [email protected] website: www.nouedu.net Published by National Open University of Nigeria Printed 2013 ISBN: 978-058-699-9 All Rights Reserved ii HCM441 COURSE GUIDE CONTENTS PAGE Introduction……………………… … … ………………… ….. iv Course Contents........................................................................ iv Course Aims…… …… …………… …… ………………… …. iv Course Objectives …………………………………………… iv Modules/Study Units …………… …… ………………… …... iv Course Materials…… ………………………………………... ix Tutor-Marked Assignment.……………………… …… ……... x Summary………… ……………………………… …… ……... x iii HCM441 COURSE GUIDE INTRODUCTION HCM441-Strategic Management in Hospitality and Tourism is a 400- level course. It is a two (2) credit unit course available to learners of the B.Sc Tourism Studies programme in the School of Management Sciences (SMS). The course consists of 15 units of various topics on Strategic Management in Hospitality and Tourism (HCM441), divided into five units of each modules, with a total of three modules. COURSE CONTENT The course content consist of topics including: Introduction to Strategic Management, Strategic Management in Hospitality and Tourism, Corporate Strategy for Hospitality and Tourism, The Hospitality and Tourism Industry Context, Macro Environment & Hospitality and Tourism, The Task Environment and its influence on hospitality and tourism firms, The Organization Context, Business Level Strategies, Corporate Level Strategies, Network Level Strategies, Strategy Formation-Formulation Approaches, Strategy Implementation and change, Strategic Management problems, Strategy and ICT Application, and Strategy Case study on Novotel-an accommodation provider. COURSE AIM The course material is aimed at equipping learners-the future leaders and the managers of hospitality and tourism- with an advanced and contemporary knowledge of strategic management. Specifically, it helps learners to develop the analytical and practical managerial skills they will need to do their jobs professionally and efficiently. The holistic approaches to strategic management which emphasize synergies between the external and internal environments are highlighted. The course material is structured in a model approach, to both help the learners understand the basics of strategic management and develop their own independent approaches to the complexities and uncertainties of business environment. COURSE OBJECTIVES (LEARNING OUTCOMES) The objectives of Strategic Management in hospitality and tourism include; iv HCM441 COURSE GUIDE Analyzing the historical origins of strategic management. Identifying the schools of thought on strategic management. Identifying strategic management framework and its objectives. Defining key terms pertaining to strategic management and their significance. Defining and analyzing the hospitality and tourism context. Evaluating the characteristics and types of Hospitality and Tourism Organizations. Explaining how the characteristics of Hospitality and Tourism organizations may influence the application of strategic management practices Evaluating current level of strategy research in the Hospitality and Tourism field. Highlighting the importance of both mission and stakeholders in tourism management. Identifying the techniques of strategic analysis and choice. Enumerating the process of strategic management implementation. Explaining the role of the external environment in the context of the hospitality and tourism businesses. Explaining strategy formulation from a contingency perspective. Explaining environment dimensions as it relates to hospitality and tourism. Defining the macro environment. Analyzing the types of environment. Explaining how the different types of environment impact the hospitality and tourism industry. Analyzing the immediate or task environment. Relating the Five Forces Model to the hospitality and tourism industry. Explaining the dynamic of competition and strategic groups. Explaining environmental scanning and its application to the hospitality and tourism industry. Identifying different stakeholders. Analyzing organizational functions. Explaining what influences organizational structure. Analyzing the complexity of Hospitality and Tourism Organizations’ internal environment. Defining competitive strategy. Explaining positioning and generic business strategies and their role in a firm’s value-creation process. Assessing business-level strategy in hospitality and tourism firms. v HCM441 COURSE GUIDE Understanding corporate strategy and identifying its competences. Evaluating and identify different approaches to corporate strategy development. Identifying and discussing different motivations for forming strategic alliances. Analyzing the advantages and disadvantages of strategic alliances. Explaining the concepts of management contracting, Franchising and Joint ventures as it relates to hospitality and tourism firms. Defining strategy formation: strategy formulation and implementation. Evaluating the different approaches to strategy formation. Explaining why we need strategy implementation framework. Evaluating strategy formulation and implementation from a holistic perspective. Highlighting potential barriers and challenges in developing and implementing strategies. Explaining the challenges of strategic management in the context of hospitality and tourism. Analyzing the terms Dynamics, Content, Context, Process and Outcome in the context of hospitality and tourism firms. Explaining how hospitality and tourism organizations can sustain competiveness. Analyzing the growth of ICT in the tourism and hospitality industry. Highlighting the benefits ICT in the strategic management of airlines. Explaining how the operations of an airline are facilitated by the use of ICT. Explaining the essence of strategic management with a detailed case study on Novotel-an accommodation provider. Discussing the relationship betweens the customer service strategy and the marketing strategy of Novotel. STUDY UNITS/MODULES Below are the Units in this course designed to be studied in sequence. The units are in three modules, consisting of five units each. vi HCM441 COURSE GUIDE Module 1 Unit 1 Introduction to Strategic Management Unit 2 Strategic Management in Hospitality and Tourism Unit 3 Corporate Strategy for Hospitality and Tourism Unit 4 The Hospitality and Tourism Industry Context Unit 5 Macro Environment & Hospitality and Tourism Module 2 Unit 1 The Task Environment and its influence Unit 2 The Organization Context Unit 3 Business Level Strategies Unit 4 Corporate Level Strategies Unit 5 Network Level Strategies Module 3 Unit 1 Strategy Formation-Formulation Approaches Unit 2 Strategy Implementation and change Unit 3 Strategic Management problems Unit 4 Strategy and ICT Application Unit 5 Strategy Case study on Novotel Introduction to the Units in Module (1) Unit 1 introduces you to strategic management and provides an overview of the modules on Strategic management for Hospitality and Tourism. Strategy is presented from a historical perspective from various lenses- including schools of thought- through which strategy has been conceptualized, researched and developed over several decades. The section then discusses key definitions of the terms used in strategic management literature, and various schools of thought in the field described, and a case study of a scenario that necessitates the application of strategic management in hospitality and tourism. This unit is particularly important to learners in providing foundation for discussions and debates in subsequent units. In Unit 2, we define the Hospitality and Tourism context and evaluate the characteristics and types of Hospitality and Tourism organizations. The question on how these characteristics may impact strategic management practices in Hospitality and Tourism organization were highlighted. Discussions on how generic strategic management models and theories can best be applied in the Hospitality and Tourism context vii HCM441 COURSE GUIDE were also highlighted. Brief review of strategic management literature in the Hospitality and Tourism field was discussed. Unit 3 provides an overview of tourism corporate strategy. Without strategy, organizations are vulnerable to strategic drift. This unit provided us with the knowledge that the absence of strategy will translate to a consequence of failure in monitoring and responding to changing external environment. The unit also highlights that organizations that do not use strategic planning tend to make ad hoc decisions. These decisions tend to be reactive rather than proactive to events. Unit 4 provides you with the perspective of the role of the environment and its impact on the hospitality and tourism firms. The internal and external environment was defined and a description of the role of the external environment and its impact on the business were elaborated on from a strategic formulation perspective. Unit 5 provides discussions on the macro environment, consisting of the environment types and how these environment types impact the hospitality and tourism industry. Introduction to the Units in Module (2) Unit 1 provides you with an understanding of how firms are influenced by the more immediate or task environment, explanation on how to analyze the external environment of the hospitality and tourism organizations, especially as it relates to task environment. Unit 2 gives you an understanding of the influence of an organization’s internal environment on strategy formation and implementation. In particular, the importance of different stakeholders organizations were highlighted, and the organizational structure, including its resources, core competencies and distinctive competencies were discussed. Unit 3 provides in-depth account of business-level strategies that are critical for a firm’s success in its product-service market domains. This unit provides detailed account of what constitutes good strategy and describes positioning and generic strategies and their roles in creating sustainable competitive advantage. Unit 4 introduces corporate strategy and its main elements in the Hospitality and Tourism organizations. It discusses how different corporate strategies could add value to organizations. It reflects on viii HCM441 COURSE GUIDE different approaches to corporate strategies-namely, portfolio and competence approach. Unit 5 covers various motivations for entering into a corporative venture (Network-level strategies) and introduces the advantages and disadvantages of strategic alliances. It highlights different forms of the most popular alliances-namely, franchising, management contracting, and joint ventures in the hospitality and tourism industry. Introduction to the Units in Module (3) Unit 1 discusses how strategy formulation and implementation is viewed by different schools of thought or approaches in the strategic management field. Each view offers suggestions for developing and implementing strategies. Unit 2 proposes a framework by identifying key factors and categorizing them into different groups depending on their role and importance. The role and importance of each factor, as well as its relationship with other factors, are explained. The pace of strategic change and some discussions on potential barriers and resistance to strategy development and implementation and how they can be overcome is also discussed in this unit. Unit 3 introduces you to the challenges of strategic management in the tourism and hospitality industry, including its dynamic of content, context, process, outcome, and how tourism and hospitality organizations sustains competitiveness. It also gives you an overview of the previous nits. Unit 4 exposes you to the extent to which Information and Communication Technologies have facilitated the strategic repositioning of the tourism industry, especially the airlines. Unit 5 gives you a detailed case study on Novotel- an accommodation provider. The unit examines the operational, marketing and customer service strategy with which the hospitality firm uses in maintaining competitive edge among its competitors. ix HCM441 COURSE GUIDE COURSE MATERIALS Major components of the course are: Course Guide Study Units Self Study Assessments Exercises References and Further Readings SELF STUDY EXERCISE/TUTOR-MARKED ASSIGNMENTS At the end of each unit, a couple of self study questions are developed in order to access the learners understanding of the subject matter. It is important that learners attempt this study questions as this form the bases upon which the Tutor Marked Questions are developed and administered to students as continuous assessment and final examinations. SUMMARY A distinctive characteristic of this course material on strategic management in hospitality and tourism (HCM441) is its straightforward approach in establishing the key dimensions of the external and internal contexts in which strategy content and the strategy process are embedded in the hospitality and tourism industry. It emphasizes an appreciation for the competitive nature of the business environment and the need to develop matching strategies in order to maintain a competitive edge among rivals in the industry. x MAIN CONTENT CONTENTS PAGE Module 1 ………………………… …………… … … 1 Unit 1 Introduction to Strategic Management………………… … ………… 1 Unit 2 Strategic Management in Hospitality and Tourism……………………………… 12 Unit 3 Corporate Strategy for Hospitality and Tourism……… … … … … … … … … …. The 22 Unit 4 Hospitality and Tourism Industry Context……………………………………. 29 Unit 5 Macro Environment & Hospitality and Tourism…………………………… …. 35 Module 2 …………………………………………….. 41 Unit 1 The Task Environment and its influence… 41 Unit 2 The Organization Context………………… 48 Unit 3 Business Level Strategies…………………. 54 Unit 4 Corporate Level Strategies … … ……… ….. 60 Unit 5 Network Level Strategies …………………. 66 Module 3 …………………………………………….. 71 Unit 1 Strategy Formation-Formulation Approaches………………… … … … … ….. 71 Unit 2 Strategy Implementation and change…….. 77 Unit 3 Strategic Management problems…………. 82 Unit 4 Strategy and ICT Application…………….. 86 Unit 5 Strategy Case study on Novotel………….. 96 HCM441 MODULE 1 MODULE 1 Unit 1 Introduction to Strategic Management Unit 2 Strategic Management in Hospitality and Tourism Unit 3 Corporate Strategy for Hospitality and Tourism The Unit 4 Hospitality and Tourism Industry Context Macro Unit 5 Environment & Hospitality and Tourism UNIT 1 INTRODUCTION TO STRATEGIC MANAGEMENT CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Historical Origins of Strategy and Strategic Management 3.2 School of Thoughts on Strategic Management 3.3 Aims of Strategic Management: Competitive Advantage 3.4 Defining Key terms on Strategic management 3.5 Small case study 4.0 Conclusion 5.0 Summary 6.0 Self-Assessment Exercise 7.0 References/Further Reading 1.0 INRODUCTION This unit introduces strategic management and provides an overview of the modules on Strategic management for Hospitality and Tourism. Strategy is presented from a historical perspective from various lenses- including schools of thought- through which strategy has been conceptualized, researched and developed over several decades. The section then discusses key definitions of the terms used in strategic management literature, and various schools of thoughts in the field described, and a case study of a scenario that necessitates the application of strategic management in hospitality and tourism. 1 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM 2.0 OBJECTIVES At the end of this unit, you should be able to: discuss the historical origins of strategic management. identify the schools of thoughts on strategic management. discuss the strategic management framework and its objectives. define key terms pertaining to strategic management and their significance. 3.0 MAIN CONTENT 3.1 Historical Origins of Strategy and Strategic Management In order to appreciate the historical origins of strategy and strategic tourism management, it becomes essential to firstly, define strategic management. Strategic management is a field of study that involves the process through which firms define their missions, visions, goals, and objectives, as well as craft and execute strategies at various levels of the firms’ hierarchies to create and sustain a competitive advantage (Okumus, Altinay, and chathoth, 2010). In other words, strategic management assist organization in prioritizing what is of most importance to them and provides a holistic view of the organization. Strategic management consists of two distinct phases that deals with formation and implementation of strategy within an organizational setting (Okumus, Altinay, and chathoth, 2010). Figure 1: shows the strategic management framework/process. Missions, Visions, Goals and objectives Internal Analysis (strength External Analysis Strategic Analysis & Weaknesses) (Opportunities & Threats) Strategic Formation Corporate Level, Business Level, and Functional Level Strategies Strategy Implementation Strategy Control 2 HCM441 MODULE 1 The origins of strategic management have been linked to the military. The term strategy emanated from the word strategos, which translate to “general.” Literally, it means “leader of the army.” Military strategy often deals with planning and execution in a war setting, while taking into account the strategy and tactics required to implement the plan. Defeating the enemy in a “chess-like” play situation entails critically thought-out plan with emphasis on the plan’s execution. Strategic management can be linked to the works of Sun Tzu that dates back to 400 B.C. and to Carl von Clausewitz in the eighteenth century. Sun Tzu’s reference to space, quantities, and other factors related is similar to the characteristics of the positioning schools (Mintzberg, Ahlstrand, and Lampel, 1998). According to Sun Tzu, calculations underlie victorious situations in war. Carl von Clausewitz’s considered strategy “a variation of themes” in war situation (Mintzberg et al., 1998). Clausewitz notes that strategy was “open-ended and creative” in a situation of chaos and disorganization (Mintzberg et al., 1998). This provides avenue for a more systematic and organized approach, which is why planning became part of the process. Strategy formation takes into consideration the various maneuvers and the scenarios and calculations pertaining to them. Being flexible while being proactive and deliberative, however, is essential. Literature since the twentieth century used these works to describe strategy in the corporate arena. Strategic management as a field of study has evolved in over the past fifty years (Okumus, Altinay, and Chathoth, 2010). In the 1950s and 1960s, strategic management was viewed from general management perspective, emphasizing the role of the leader. Hence, the focus was on leadership, interpersonal relationships, and the systems, processes, and structures in an organization. Firms used the top-down approach, with the top management at the core of the decision making process. However, the strategic management process was not formalized and explicit during this phase; instead, it was more implicit and informal. In the 1960s, 1970s, and the early 1980s, firms adopted the strategic planning approach with an emphasis on analysis and formalized planning, with special teams assigned to develop plans. The typologies and concepts related to business and corporate strategies, with strategy formulation at the core of such conceptualizations, led to the evolution of the domain during this period. Strategy implementation as a process was however the emphasis of scholars during the 1980s period. There was a shift in emphasis from the leader to the development of organizational culture and its role in defining and implementing strategies. In the same vein, globalization 3 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM began to capture the imagination of firms’ executives, researchers provided more insights into the underlying concepts of globalization, including systems, processes, and structures that enabled firms to grow into multidivisional corporation. Some scholars however focused on firms’ competencies to explain strategy, which led to the emergence of resource-based view of firms. In the hospitality and tourism field, strategic management emerged as a field of study in the mid- to late 1980s that aimed at applying the works of scholars in the strategic management domain to the hospitality organizations. These efforts are aimed at confirming theories related to the contingency, strategic planning, and competitive strategies. In the 1990s, globalization led to the emergence of network strategies, and strategic alliances became the focal point around which researchers developed the literature. More efforts from a resource-based perspective led to the conceptualization of characteristics related to firm’s internal competencies that enabled them to sustain competitive advantage. The shift towards internal competencies also saw a shift in perspective towards knowledge-based view and learning at the core of strategic competitive advantage in the late 1990s. Progress continues using the knowledge perspective from the 2000s, with increased emphasis on corporate social responsibility. In the hospitality and tourism domain, Olsen, West, and Tse (2006) conceptually developed the coalignment concept, which has been used as a theoretical framework in other studies in the field. Efforts by Harrigton (2001), Okumus (2004), and Jogaratnam and Law (2006) in the 2000s focused on environmental scanning in the hospitality industry context, whearas Harrington and Kendall (2006), Okums and Roper 1999, and Okumus (2002), as well as others, have made attempts to develop the strategy implementation framework for hospitality and tourism firms during this period. More recent efforts in the field have moved toward a knowledge-based view and corporate social responsibility. 3.2 Schools of thoughts on strategic management Many schools of thought have emerged in the strategic management domain. Mintzberg and colleagues (1998) described the domain as consisting of ten schools/perspectives that pertain to design, planning, positioning, entrepreneurial, cognitive, learning, power, cultural, environmental, and configuration. Mintzberg and his colleagues notes that the first three school are more prescriptive, with an emphasis on strategy formulation that developed from 1960s to 1980s. The next six schools are less prescriptive, while emphasizing how strategies are developed. The tenth school conceptually combines and captures the 4 HCM441 MODULE 1 other nine schools of thought into an integrative whole. Brief description of each schools is given in this section. The design school emphasis a fit between an organization’s internal capabilities and external opportunities. This school emphasizes the importance of a firm’s position within the context in which it operates. The environment is used as a reference while weighing the firm’s strategies and the emphasis is on how it develops its structure in order to support the strategy. The second school, planning, which was developed in 1970s, conceptualized strategy to include a structured, step-by-step approach. Mission and vision statement were set, and goals were clearly spelled out while detailing the objectives that would lead to the accomplishment of those goals. The third school is positioning, which was developed in 1980s. Although not very different from planning and design school, it views strategy formation as consisting of a few strategy types. This school emerged from the work of Porter (1980), with an emphasis on strategy typologies. Strategy was still conceptualized as a formal and controlled process, but the focus here was on competitive strategies and industry structure. The fourth school of thought is the entrepreneurial school, which pertain to decision making and the process of strategy formation. Here the central role of strategy formation lies with the leader, whose “intuition, judgment, wisdom, experience and insight” are at the heart of decision making. Sources: Mintzberg, H.,Ahlstrand, B., Lampel, J. (1998;p. 124). The leader’s vision and his or her leadership style influence the organization’s strategic posture. The cognitive school is the fifth school, and it emphasizes strategy formation from the perspective that the decision maker’s cognition and mind drive strategy making. The cognitive skills of managers influence their perspectives on the environment. These perspectives in turn influence the strategy formation process. According to Mintzberg and his colleagues, they include 2concepts, maps, schemas, frames.” The sixth school is learning, which supports the notion that strategy making is based on the foundation of learning. The strategy maker is constantly learning about process of strategy formation and its various elements in complex environment.As a matter of fact, the firm is learning constantly as a whole, which is incremental and continuous in a complex business environment. The knowledge perspective is part of the 5 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM learning school, and the focus here is on the on the system as a whole rather than only a few managers at the helm of decision making. The seventh school view strategy formation from a power perspective, with negotiation at the crux of the process. Power and politics drive this school of thought, with organizations vying for position in the markets and transactions. Strategy formation is more emergent as firms engage in power plays, ploys, and tactics to maneuver in various contexts. The eighth school is the cultural school, where, again, the emphasis is on the organization as a collective whole and strategy formation as comprising social interaction. Strategy is deliberate in that the members are engaged in the process that involves collective action. Resources and capabilities are the sources of competitive advantage, as firms are able to create a culture that brings forth unique decision making with a resistance toward organizational change. The ninth school pertains to environment while describing strategy formation as a reactive. The firm’s external environment influences the strategy formulation and implementation process, and firms are viewed as being part of an environment that is simple or complex, stable or dynamic. The decision maker’s role is one of a boundary spanner in being able to scan the environment while identifying the macro and micro level forces that impact the firm’s position within a business domain. The tenth school is the configuration school, which views strategy as transformational. Configuration refers to the structure that a firm adopts in a given environmental context, and transformation refers to a change in configuration based on a change in context. The life cycle of organization is essentially a pattern that emerges from the various configurations and transformation that occur over the various periods of change that organizations go through. The essence of strategy formation is to ensure that firms are able to recognize the need to change its configuration while transforming from one state to the other during its productive life. 3.3 Aims of Strategic management: Creating a competitive advantage A firm is in business to create value for its stakeholders. Since value is created if firms have competitive edge over their market rivals, it is imperative that a definitive and formalized approach that falls within the realm of strategic management is at the core of the process. Creating a competitive advantage, and subsequently sustaining it over a period of time requires a formal approach in terms of strategy formation and 6 HCM441 MODULE 1 implementation. Constant evaluation of an organizations market position, including benchmarking, becomes inevitable in maintaining a competitive edge. Hilton Hotels and McDonalds are typical examples of firms that have been through ups and downs during the course of their organizational histories in terms of sustaining competitive advantage in their respective market domains. Strategic management process can be administered at three major levels including; corporate, business and functional levels. 1. At the corporate level, strategy entails asking questions about what business the firm is in or would like to engage in, the firm’s potential to create value by being in the business or expanding into a new line of business, and the recourses and capabilities the firm already has or needs to get to sustain/create competitive advantage in its business or businesses. 2. At the business level, firms need to ask themselves the following questions: How can we create competitive advantage in our product-domain in each strategic business unit (SBU)? How can we continue to be an overall cost leader or broad differentiator, or, have a cost focus or be a focused differentiator in our market domain? Note that SBU is defined as a unit within a given corporate identity that is distinctly different from other units within the corporation in terms of products and services, as well as the markets it serves with a distinct profit-making capability of its own. 3. At the functional level, the firm’s objective is to sustain its advantage by focusing on efficiencies related to production, operations, administration, marketing, and other support functions. It also engages in constant innovation to ensure new product/service development rollout, while ensuring that the service and product qualities, as well as the customer satisfaction related to them are at the highest level. The linkage among the three levels of strategy leads to the creation of sustainable competitive advantage. 3.4 Defining key terms on strategic management Strategy entails futuristic thinking and developing a course of action to meet goals and objectives. The strategic management framework (Figure 1.1) captures the process sequentially and definitively. It should be noted that although different element of the strategic management framework is presented separately or in linear step-by-step process, in 7 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM fact they overlap and go hand in hand. The framework includes mission and vision statements, goals, and objectives that are linked to the mission and vision, as well as strategies and tactics to achieve the goals and objectives. Strategic analysis provides the firm with a clear picture of its situation, which includes internal and external analysis. Internal analysis pertains to strengths and weakness analysis, whereas external analysis pertains to opportunities and threats analysis, which is also referred to as SWOT analysis. The analysis enables a firm to engage in strategic decision making. Strategic decisions pertain to choosing an alternative among a set of alternatives that leads to strategy-related success. These decisions have an effect on the firm’s long-term orientation and direction. Strategic management includes two distinct phases: the strategy formation phase and the strategy implementation phase. Strategy formation is the process of defining the direction of the firm’s futuristic course of action, which would enable the firm to allocate resources in order to achieve the set goals and objectives. An internal and external environment analysis is part of the assessment before strategy is formulated at the corporate, business, and functional levels. On the other hand, strategy implementation is the process of putting strategy into action, which includes designing the organizational structure and related systems. These process leads to effective resource allocation processes, including programs and activities such as setting budgets, developing support systems, recruiting, hiring, and training, as well as designing performance evaluation and rewards systems that lead to the attainment of set goals and objectives. The organization must first define its mission, goals, and objectives. The mission is a brief description of the very purpose of creating the organization. This mission statement includes a clear purpose and states why the organization is in existence. To differentiate missions, goals, objectives, strategies, and tactics, let’s consider this case: Jeflum Hotel is in the business with a mission to create value for its stakeholders. To accomplish the mission, the firm has set goals for the current year of increasing the business segment productivity. The objectives that linked the goals include increasing the business segment revenues by 10 percent and increasing repeat clientele for this business segment by 15 percent. The strategies include marketing and operations- related plans and tactics, including increasing sales calls in the business districts of the city, increasing promotional campaigns for the international and domestic business markets, and creating an amenities package for business travelers that includes free airport transfers, a free welcome drink on arrival, free internet access in the room, and free use of business centre secretarial services for three 8 HCM441 MODULE 1 hours a day. Note that the goals are linked to the mission, the objectives are linked to the goals, strategies are linked to the objectives, and the tactics are linked to the strategies. 3.5 Case study The Magnificent Northern Hotel, a privately owned, independent, four star chalet hotel located in Abuja, Wuse Commercial District, is confronted with a turbulence external environment as a result of the global financial crisis. Since its inception 8years ago, the hotel has been one of the top performers in the upscale and luxury market segments, preceding the current economic crises. The hotels main target market is the business traveler (80 per cent of room bookings) who has no problem with paying 12,000 naira per night for a room. During the past 12 months, however, the hotel has been a victim of several economic turbulence, which resulted in a significant reduction in rooms bookings from the business travel segment. This has reduced profits drastically to the extent that the hotel is no longer able to cover fixed costs. The owner, Adebisi Samuels has called an executive committee meeting to discuss the future direction the organization should take in the immediate term and in the long term to sustain its competitive advantage. 1. What issues should Adebisi and the executive committee address? Why? (Hint: Make assumption where necessary, including mission and vision statements, as well as goals, strategies and objectives.) 2. Given the preceding information, what are Adebisis’s options? How should they be evaluated? Make assumptions where necessary. 3. What should the hotel do in the short and long term? Make assumptions where necessary to arrive at your decisions. 4. Why is it difficult to answer the preceding questions? Do we have clear answers for issues and challenges in real life? 5. Do Managers and executives in hospitality and tourism organizations always have sufficient and reliable information to make decisions? 4.0 CONCLUSION Having studied this unit, you should now be familiar with the term “strategy ”, its origin, and applicability in the tourism and hospitality industry. In addition, you should be able to explain what strategic management entails, and discuss how it can be administered at various level of management in the hospitality and tourism settings. 9 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM 5.0 SUMMARY This unit introduced strategic management, while providing an overview of how the field has evolved from historical perspective. Given the complexity of managing firms, schools of thought on strategic management have briefly covered the various approaches to managing firms from a strategic perspective while highlighting their relevance and significance. Definition of key terms used in the field, such as mission, vision, strategy, goals and objectives were briefly discussed to explain how the strategic management framework can be used effectively. 6.0 SELF-ASSESSMENT EXERCISE Choose a Hospitality and Tourism organization and research this company’s vision, mission, goals, and objectives. Critically evaluate and compare them with those of other H&T companies. What are the similarities and differences? Which aspects do you like in this statements and why? Study Questions 1. Explain the origins of strategy and strategic management 2. List the main schools of thought, and explain their premises on strategic management. 3. Why are there different schools of thought on strategic management? 4. Define strategic management, vision, mission, goals, objectives, and tactics. 5. Do you think it is important for Hospitality and Tourism companies to have such statements as in number four question above? 10 HCM441 MODULE 1 7.0 REFERENCES/FURTHER READING Harrigton, R. (2000). Environmental uncertainty within the hospitality industry: Exploring the measure of dynamism and complexity between restaurant segments. Journal of Hospitality and Tourism Research, 25(4), 386-398. Harrington, R. and Kendall, K. (2006). Strategy implementation success: The moderating effects of size and environmental complexity and the mediating effects of involvement. Journal of Hospitality and Tourism Research, 30(2), 170-190. Jogaratnam, G. and and Law, R. (2006). Environmental scanning and information source utilization: Exploring the behavior of Hong kong hotel and tourism executives. Journal of Hospitality and Tourism Research, 30(2), 170-190. Mintzberg, Henry, Ahlstrand, B. W., Lampel, J. (1998). Strategy safari: A guided tour through the wilds of strategic management. New York: The Free Press. Okums, F. and Roper, A. (1999). A review of disparate approaches to strategy implementation in hospitality firms. Journal of Hospitality and Tourism Research. 23(1), 21-39. Okumus, F. (2002). Can hospitality researchers contribute to the strategic management literature? International Journal of Hospitality Management, 21, 105-110. Okumus, F. (2004). Potential challenges of employing a formal environmental scanning approach in hospitality organization. International Journal of Hospitality Management, 23, 123-143. Okumus, F., Altinay, L., and Chathoth, K. P. (2010). Strategic st Management for Hospitality and Tourism, 1 ed. Burlington: Elservier. Olsen, M.D., West, J., and Tse, E (2006). Strategic Management in r Hospitality Industry, 3 d edition. Prentice Hall, New York. Porter, M. E. (1980) Competitive Strategy. New York: The Press. 11 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM UNIT 2 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Defining the Hospitality and Tourism Context 3.2 Types of Hospitality and Tourism organizations 3.3 Characteristics of Tourism Organizations 3.4 Strategic management in hospitality and tourism organizations 3.5 Case Study 4.0 Conclusion 5.0 Summary 6.0 Self-Assessment Exercise 7.0 References/Further Reading 1.0 INTRODUCTION In Unit 1, we introduced the topic of strategic management, with discussions on the historical origin of strategy and the writings of classic authors. The dominant strategic management schools of thought were also discussed. The first unit is particularly important to readers in providing foundation for discussions and debates in subsequent units. In this unit, we define the Hospitality and Tourism context and evaluate characteristics and types of Hospitality and Tourism organizations. The question on how these characteristics may impact strategic management practices in Hospitality and Tourism organization were highlighted. Discussions on how generic strategic management models and theories can best be applied in the Hospitality and Tourism context are also highlighted. Finally, a brief review of strategic management literature in the Hospitality and Tourism field was discussed. 2.0 OBJECTIVES At the end of this unit, you should be able to; define the hospitality and tourism context evaluate characteristics and types of Hospitality and Tourism Organization discuss how characteristics of Hospitality and Tourism organizations may influence the application of strategic management practices in Hospitality and Tourism organization. evaluate the current level of strategy research in the Hospitality and Tourism field 12 HCM441 MODULE 1 3.0 MAIN CONTENT 3.1 Defining the Hospitality and Tourism Context Although, it is one of the largest industries worldwide, providing a concise definition for the hospitality and Tourism industry has been a major challenge for professionals and academics. As often noted, there continues to be a lack of agreement as to exactly what hospitality and tourism encompasses and the relationship between them. According to Nykiel (2005), definitions of Hospitality and Tourism industry are often limited by the unique viewpoints of sectors within the industry. For instance, a hotel operator may see the industry as accommodation with food and beverages. A food and beverage operator may view the industry as a dining experience with the focus on menu offerings and food service. A travel agency manager might believe that providing travel related services to people for business and leisure defines the industry best. An executive of a theme park may see hospitality as providing a unique entertainment and educational experience. In order to overcome this confusion, Nykiel (2005) placed all of these viewpoints under a wider perspective called “hospitality” and further stated that the hospitality industry encompasses travel, accommodation, food service, clubs, gaming, attractions, entertainment and recreation. Kandampully (2007) however notes that hospitality and tourism organizations operate within a network of service organizations. The author argued that they are, to a large extent, they are interrelated and interdependent, and include the following: Tour operator, travel agents, and tourism organizations Travel and transport operators Leisure, recreation, and entertainment venue Restaurants, bar, clubs, and cafes Hotels, resorts, motels, camping grounds, bed & breakfast (B&B) establishments, and hostels. Butler and Jones (2001) use tourism as an all-encompassing term that covers all aspects of people being away from their homes and hospitality as a specific part of providing accommodations and meals for tourists. They note that the one difficulty in their definitions is that the hospitality industry also serves many people who are not tourists, such as local residents. They state that tourism is often interpreted as flow of visitors from one country to another for more than 24 hours of time and less than one year. In this module, in order to have a broader knowledge and include all the different types and sizes of organizations in the field, the term 13 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM hospitality and tourism is used interchangeably. These terms encompass travel, accommodation, food services, clubs, gaming, theme parks, attractions, entertainment, recreation, conventions, and nonprofit tourism organizations such as national tourism offices, destination management, and marketing offices. The hospitality is thus a composite of a number of distinct industries that are closely interrelated and interdependent. These industries operate within a global network. The next section provides explanations and discussions about different types of Hospitality and tourism organization. 3.2 Types of Hospitality and Tourism organizations Hospitality and Tourism industry can be grouped under different categories depending on their primary activities, size, profit motives, and geographical coverage. In terms of their primary services, organizations can be categorized as follows: 1. Travel and transport 2. Accommodations (lodging) 3. Food and beverages 4. Entertainment and recreation 5. Tourism offices or destination management organizations 6. Nongovernmental tourism organizations. Figure 2: Component of travel, tourism and hospitality Visitor Hospitality, Tourism and Accommodation attractions Travel Industry Transport Ancilliary services Tour operations Tourism development Travel agents Each of these is often identified as a subsector under the Hospitality and Tourism industry. In addition, each can be further broken into several sub groupings. For example, under accommodations, there are hotels, motels, guest houses, hostels, villas, and time-shares. Some of these can further grouped, depending on their service level, such as luxury hotels, boutique hotels, mid-market hotels, and budget hotels or according to their star ratings, such as five-star (diamond), four-star, and three star hotels. 14 HCM441 MODULE 1 Hospitality and tourism organizations could further be classified as small, medium and large scale. Independent and flexible small and medium sized enterprises (SMEs) dominate the tourism market worldwide. An SME is defined in employment terms as a company with workforce of fewer than 250 employees (European Commission, 2002; Wanhill, (2000). For example it is reported that around more than 90 percent of tourism and hospitality organizations in Europe and most part of the world are SMEs (Bastakis, Buhalis, and Butler, 2004; European Commission, 2002, Wanhill, 2000) which are usually owned-managed, being run either by an individual or by small group of people. Finally, hospitality and tourism organization can be further grouped based on their geographical coverage. These include local, regional, and global firms. Local organization operate in only one city or country, whereas regional organizations operate in only a geographical region such as Europe, the Middle East, Africa, or North America. The global hospitality and tourism firms such as Hilton, Intercontinental Hotels, McDonald’s and KFC are examples of those that operate in many countries and almost all continents worldwide. Compared to national organizations, regional and global hospitality and tourism face more complex, dynamic, and challenging external and internal environments. As a result they must accommodate the impact of an international context when tackling strategic analysis, strategic choice, implementation, strategic control, and global competitive advantage. Discussion Question Based on what we have just discussed, can we make generalizations about the hospitality and tourism industry? 3.3 Characteristics of Hospitality and tourism organizations The following are some closely related, unique characteristics of Hospitality and tourism organizations as depicted in the service sector organizations. (Fitzimmons and Fitzimmons, 2004; Gronoos, 2007; Kandampully, 2007): 1. Inseparability-customer participation in the service process 2. Simultaneity 3. Perishability 4. Intangibility ( the tangible-intangible continuum) 5. Heterogeneity 6. Cost structure 7. Labor intensive 15 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM Inseparability In the hospitality and tourism organization, customers need to be present and participate in the service delivery process. In other words, the customer cannot be separated from the service delivery process in the industry. Hospitality organizations are expected to communicate with and encourage customers to actively participate in the service delivery process. Attracting and bringing customers to hospitality and tourism organizations entail careful attention to their location, brand image, and ongoing marketing and promotional activities. Also, the presence of customers and the requirement for them to play an active role in the service delivery process necessitates ongoing careful attention to behavior, the physical appearance of employees, the interior design and decoration of facilities, furnishings, layout and noise. This means that like Fitzsimmons and Fitzsimmon’s (2004) comments on managing service organizations, operations, marketing and HRM functions in hospitality and tourism, organizations need to be closely integrated. Simultaneity Services in the hospitality and tourism organizations are created and consumed simultaneously. This can prevent employing active quality control mechanism. As earlier noted, customers and employees need to participate and coordinate in the service delivery process. It is however almost impossible to have one manager for every employee to monitor the service delivery process and make sure that frontline employees are doing their jobs well, in addition to guiding the customers’ participation in the process. In order to make sure that services are produced and offered to customers at an expected quality that meets consistent standards, hospitality and tourism organizations should rely on other measures such as investing in human resources, use of technology, building desired physical facilities, and decoration to ensure the quality of service desired. Perishability As production and consumption in hospitality and tourism organization are simultaneous, services become perishable if they are not sold. As a result, their value is lost forever. For example, an airline seat or a hotel room will perish if a customer does not purchase it at the time of production. Hence, the full utilization of service capacity is a strategic task for many hospitality and tourism organizations. It is however important to emphasize that demand for hospitality and tourism organization’s services often fluctuates considerably, depending on the external developments and changes, such as seasonality and crises. For instance, terrorists attacks (Such as September 11, 2001 in New York), 16 HCM441 MODULE 1 disease outbreaks (such as SARS in the far East), and natural weather phenomena (such as tornados or hurricanes) all had a negative impact on the demand for services offered by the hospitality and tourism industry worldwide. Tangibility Hospitality and tourism organizations offer a combination of tangible and intangible products (Kandampully, 2007). For example, a hotel room or a meal in a restaurant has both tangible and intangible qualities. Yet, there may be major difference between a budget hotel and a luxury hotel or between a fast-food restaurant and an upscale restaurant in terms of tangible and intangible qualities offered. However, services are often ideas, concepts, interactions, relationships, and experiences that are not often patentable. It is essential to note that the intangible aspects of services offered by hospitality and tourism organizations are critical in customer satisfaction. This is because the main difficulty related to the intangibility of services is that customers cannot often see, feel, and test these services when they order or buy them (Gronroos, 2007; Kandampully, 2007). In order to overcome potential problems and dissatisfaction in these areas, some hospitality and tourism companies publicize their service promise and offer 100 percent satisfaction guarantee. Heterogeneity Hospitality and tourism organizations services may also vary considerably. One hotel unit in a chain hotel, one unit restaurant chain, or one holiday experience of a traveler to the same destination is likely to be identical to another. Various factors, particularly the human element, result in variations in service delivery process. In other words, services will be heterogeneous, and variations in service delivery from customer to customer and from time to time will always occur. It is however often difficult to standardize every employee-customer interaction in the hospitality and tourism business. Also, in many hospitality and tourism organizations, customers interact not only with employees but with other customers. This customer- to customer interaction in certain service organization such as pubs, disco, nightclubs, and cruises, can be an important aspect of the total service delivery process. However, hospitality and tourism organizations are highly susceptible to external changes. For example, an external factor is weather condition. Visiting and outdoor theme park can be very pleasant and entertaining one a nice day, but can be a miserable experience if it is raining and cold. In recent times however, through the intensive use of information technology and active training of employees and design of 17 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM physical facilities, attempts to improve and standardize the service delivery process have greatly increased. Cost structure The cost structure of the hospitality and tourism firms influences their managerial and resource allocation decisions. For example, luxury hospitality and tourism organizations are capital, labor, and energy intensive. Typically, they have high property cost and employ large number of employees. It could be difficult for them to reduce such cost items if the demand for their services is low. Also, they may need to renovate their facilities every five to ten years to stay competitive in the field. A major issue is that given the vast amount of investment made in these organizations, investors and owners often look very carefully at their return on investment. As a result, these companies need to maintain a steady flow of customers in order to maintain the profitability of their businesses. This often leads to creative marketing and product development strategies as well as pricing strategies, such as weekend rates, long stay guests and group lodge discounts. Labor intensive Hospitality and tourism organizations are labor intensive. This is because personal interactions and experiences are important parts of services and employees play a key role in this process. Despites using many machines, computers, and technological developments, hospitality and tourism organizations still rely primarily on their employees to deliver a memorable and positive experience. Being served and treated nicely by employees is a major factor in getting repeat customers. 3.4 Strategic management in hospitality and tourism organizations Owing to its size and growing importance, the hospitality and tourism industry faces major challenges and problems worldwide. Hospitality and tourism businesses operate in a dynamic and complex environment. External trends such as changes in legislation, regional and global economic and political crises, sociocultural trends, sophistication of customers, stiff competition, terrorism, security, global warming, multiculturalism, globalization, mergers and acquisitions, labor shortages, and advance technological developments all pose important challenges to the management strategies of hospitality and tourism organizations. According to Nykiel (2005), product design, market segmentation, franchising, real estate investment trusts, and new product concepts are some of the strategic driving forces that cause the industry to be very dynamic. These trends and developments require the 18 HCM441 MODULE 1 organizations in the hospitality and tourism industry to keep redefining their strategic management practices through a continuous process. It is however worth emphasizing that strategic management is not only important in the hospitality and tourism organizations but also to all organizations, regardless of their size and type. However, it is important to stress that hospitality and tourism organizations operate in a unique external and internal context, which makes it especially important to understand and follow contemporary strategic management practices and theories. For example, the hospitality and tourism industry have been experiencing dramatic changes in customer expectations and needs. They not only need to develop new products and service concepts as an ongoing basis, but they also need to control their costs and manage their human resources wisely. According to Pine and Gilmore (1998), services in the hospitality and tourism industry are undergoing a shift from service to experience. Today, most hospitality and tourism organizations such as Hilton, Disney World and Marriot refer to their respective services as “experience.” This requires changing the mindset of many managers and employees in their strategic thinking and daily actions. In order to achieve this shift, there is an essential need to know both the hospitality and strategic context and how this strategic change can be achieved in that context. This is because strategic management deals with the major and fundamental managerial issues that directly affect the future of hospitality and tourism organizations. Table 2: Areas where strategic management can help tourism and hospitality organizations Providing a holistic view for the entire hospitality and tourism organization Providing a sharper focus on what is strategically important Providing a link between the external environment and the internal environment Analyzing a complex and rapidly changing external environment Analyzing an organization’s strategic resources Giving a clear sense of strategic vision and direction Defining organizational purposes Developing measurable goals and objectives Identifying key resources and investing in core competencies Formulating decisions and making them happen Managing change Coordinating organizational activities and allocating resources Understanding the complexities of decision making and the structuring of organization 19 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM Understanding the role and importance of the organizational structure and culture on the strategy process. Reducing and managing uncertainty inside the organization Measuring intended and unintended outcomes of the strategy process. 3.5 Small case study A hotel group recruits a successful senior executive from a service industry to turn around the hotel group. 1. Discuss what type of challenges this new executive may encounter in this new position. 2. Discuss the types of skills that this new executive may need in this new position. 4.0 CONCLUSION Understanding the types and characteristics of hospitality and tourism organizations, and having adequate knowledge of how strategic management is being applied in these organizations will enable you confidently discuss the internal features and managerial practices when addressing the limitations in the hospitality and tourism organizations. These are all contained in the unit you have just studied. 5.0 SUMMARY This unit provides insights to the extent to which the characteristics and types of hospitality and tourism organization can impact on strategic management practices, particularly in strategic analysis, decision making, resource allocation, and creating and maintaining a competitive advantage. 6.0 SELF-ASSESSMENT EXERCISE i. How can you define the hospitality and tourism industry ii. What are the main characteristics of Hospitality and Tourism organizations iii. Can we make generalization of hospitality and tourism organizations iv. In what situations can strategic management help hospitality and tourism organizations? 20 HCM441 MODULE 1 7.0 REFERENCES/FURTHER READING Bastakis, C., Buhalis., and Butler, R, (2004). “ The perception of small and medium sized tourism accommodation providers on the impacts of the tour operators’ power in Eastern Mediterranean’, Tourism Management , 25(2), 151-160. Butler, R. and Jones, P. (2001). Conclusions-Problems, Challenges and Solusions. In A. lockwood and S. Medlik (Eds.), Tourism and st Hospitality in the 21 Century. Oxford: Bettreworth and Heimann. European Commission (2002). SMEs in Europe, Including a first glance at Candidate Countries. Observatory of European SMEs. Number 2. Fitzimmons, J. and Fitzimmons, M. (2004). Service Management, Operations, Strategy and Information Technology. New York: MacGraw-Hill/Irwin Gronoos, C (2007). Service Management and Marketing: Customer Management in Service Competition, New Jersey: John Wiley. Kandampully, J. (2007). Service Management: The New Paradigm in Hospitality, New Jersey Pearson. Nykiel, R. (2005). Hospitality Management Strategies. New Jersey: Pearson Education. Pine, J. and Gilmore, J. (1998).Welcome to the Experience Economy, Havard Business Review, July- August, 97-105. Wanhill, S. (2000). Small and Medium Tourism Enterprises, annals of Tourism research, 27 (1) 132-140. 21 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM UNIT 3 CORPORATE STRATEGY IN TOURISM AND HOSPITALITY CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Mission and Stakeholders 3.2 Strategic Analysis 3.3 Strategic Choice 3.4 Strategic Implementation 4.0 Conclusion 5.0 Summary 6.0 Self-Assessment Exercise 7.0 References/Further Reading 1.0 INTRODUCTION In the previous, we defined the Hospitality and Tourism context and evaluated the characteristics and types of Hospitality and Tourism organizations. The question on how these characteristics may impact strategic management practices in Hospitality and Tourism organization were discussed This unit provides an overview of tourism corporate strategy. Without strategy, organizations are vulnerable to strategic drift. The absence of strategy will translate to a consequence of failure in monitoring and responding to changing external environment. Organizations that do not use strategic planning tend to make ad hoc decisions. These decisions tend to be reactive rather than proactive to events. The absence of an effective strategy can result in corporate failure. 2.0 OBJECTIVES At the end of this unit, you should be able to: appreciate the importance of both mission and stakeholders in tourism management identify the techniques of strategic analysis choice enumerate the process of strategic implementation. 22 HCM441 MODULE 1 3.0 MAIN CONTENT 3.1 Mission and Stakeholders It is difficult for an organization to formulate strategy without a clear idea of its overall aim. The mission of an organization can be thought of as what the organization is trying to achieve; what its purpose or aim is and where it is trying to head in the medium to long term (David, 1989). A mission statement should be succinct, achievable, consist of visionary and statement, look to the future and describe the main aims of organizations. Tourism firms have missions that encompass different aims, including: Tourism Concern Campaigns for tourism industry which is just yielding benefits that are fairly distributed Participatory-involving local people in its development and management Sustainable-putting long-term environmental and social benefits short term gains. In this case, it is ethical consideration rather than profit that guides Tourism Concern. An organization’s mission is often accompanied by a series of objectives that spells out the goals that is needed to be achieved in order to realize its mission. Objectives may be written in closed or open form. Closed objectives describe quantifiable targets and should conform to SMART principles and thus be: Specific; Measurable; Agreed with those who must attain them; Realistic; and Time-constrained. On the other hand, open objectives are written in more of a qualitative style. The mission question (what does the organization exist for?) cannot be readily answered without the consideration of stakeholder question (who does an organization exist for?). The term ‘stakeholder’ refers to a person or group of people who have an interest in the operation of a particular organization and ‘stakeholder analysis’ (Mitroff 1983; Freeman, 1984). Stakeholder analysis is a useful way of analyzing the importance of different stakeholders to an organization. Stakeholder analysis starts with a mapping of a range of stakeholders who are often 23 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM divided into those who are external and those who are internal to an organization. A stakeholder map for British Airways would include: Shareholders (may be divided into large and small); Directors; Workers; Customers; Bankers; Key suppliers; Airlines in one world Alliance Local communities; and Environmental groups; However, it is the stakeholders’ power that will determine the influence that the different groups have in an organization’s mission. The power of internal stakeholders is influenced by factors such as position in the organization, control over resources, power of patronage, charisma and specialist knowledge. External stakeholders can wield power because of control of resources (particularly finance), their constitutional role (e.g. shareholders voting rights) and legal agreement (e.g. bank). 3.2 Strategic Analysis Strategic analysis is the next stage in the formulation of tourism corporate strategy. It involve considering the major influences affecting the organization’s ability to fulfill its mission in terms of resources and environment. Strategic analysis give reports on the most current and future Strengths, Weaknesses, Opportunities and Threats (SWOT) facing the organization. Opportunities and Threats summarize the external environmental factors that a tourism organization faces. The key elements of the external environment may be summarized as C-PEST factors, which refer to: Competitive; Political; Economic; Socio-cultural; and Technological environments. Strength and Weakness analysis summarizes the state of internal resources of an organization. Opportunities, Threats and the external environment The competitive environment of the tourism industry describes the extent of influence of tourism organizations or destinations upon one another, and that of suppliers and buyers. The competitive environment may be analyzed in two ways: Structural Analysis 24 HCM441 MODULE 1 Competitor Analysis Structural analysis examines the whole industry in which a tourism organization operates for competitive pressures. Profit-maximizing tourism organization will seek a position within an industry where competitive threats can be minimize and competitive opportunities exploited. Porter’s (1980) ‘five forces’ model can be used to analyze the competitive environment. The five forces proposed by Porter are: The threat of new entrants; The power of buyers; The threats of substitutes; and The degree of rivalry between competitors. On the other hand, Competitive analyses involve a more detailed look at a tourism organization’s existing and potential competitors. It enables an organization to formulate a strategy in the light of an assessment of its key rivals. Porters (1980), sets out a framework for competitors’ analysis by deploying a response profile of competitive organizations. The profile is divided into two sections. The first section asks questions about the motive of the competitors, and the second section asks questions about the competitors’ current and future activities. The detailed questions that need to be addressed within the response profile included: Product lines; Prices Quality; Differentiation; Advertising; Market segment; Marketing practices; and Growth and prospects. Buhalis (2001) provides a strategic analysis of the competitiveness of tourism in Greece, identifying its unique nature, culture and heritage as strengths and the lack of differentiation of the tourism product as well as competitive disadvantages in marketing and planning as weaknesses. The political environment is important to tourism organizations since it is here that changes in laws, regulations and policy occurs (Hall and Jenkins, 1995). It is therefore important to establish the location of political power, how political power may change in the future and the likely effects of this on policy. Analysis of government, opposition and election cycle yields information on the political environment, and government plans and party manifesto are also important sources of information. In addition, pressure group activities can be important in influencing policy in democracies, and the activities of such group as 25 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM Greenpeace and Tourism concern attempt to affect government policy as it relates to tourism. The economic environment affects tourism destinations and organization both in terms of demand factors and especially in the case of organizations, in terms of supply and costs as well (Tribe, 1999). The main economic variable to be analyzed includes: Consumers’ expenditure: This is the amount of money consumers actually spend. It is mainly determined by income level, but is affected by savings, taxation and government benefit payments, consumer credit and expectations about the future. There is a direct positive relationship between growth in consumers’ expenditure and growth demand for tourism. Exchange Rates: This is the value of country’s currency in terms of other currencies. A high exchange rate for the pound sterling for instance means a lower cost for tour operators buying services in foreign currency. Interest Rates: This affects the cost borrowing. High interest rates increase the costs of tourism organizations and dampen tourists ’ demand. Taxation: This includes taxes on income, spending and profits. Increase in the former can reduce tourism demand. Inflation: This is the change in the general level of prices and it can result in destinations becoming less competitive. Strength, Weakness, and an Organization’s resources Analysis of its resources and products or services enables a tourism organization to assess its strategic capability- or how well it is equipped to pursue its strategy. Resources are typically classified under four headings. Physical resources, including buildings, fixtures and fittings, machinery and transport fleets. Human resources, consisting of mainly; skilled, semi-skilled and unskilled labor. Intangibles including acquired knowledge and skills, patents and recipes, good will brands and corporate image. Performance monitoring analyses the way in which resources are being utilized and can include the following: Analysis of efficiency; 26 HCM441 MODULE 1 Financial analysis; Appraisal; and Comparative analysis. Efficiency measures the ratio of inputs to outputs. Broader measures of financial evaluation include share prices, earnings per share, and return on capital employed (ROCE). Appraisal is used for the evaluation of human resources and is a process where employees meet with their line managers to set targets for the future and review performance against previous targets. Comparative analyses can be made by reference to an organization’s historical record, to other organizations in an industry (best practices) or to benchmark. 3.3 Strategic choice Strategic Choice is concerned with the generation of strategic options, an evaluation of strategic option and the selection of strategy. In simple terms, an organization seeks to gain advantage over its competitors either by selling a cheaper product than the competitors, or a better product than the competitor, or cheaper and better product. These are the key strategic options available. During any phase of strategic review, a number of strategic options will be generated from strategic analysis. The preferred option will pass the tests of suitability, feasibility and acceptability. A price based strategy seeks competitive advantage by offering the lowest prices in the industry. A key way to achieve this is to reduce cost by offering a basic, standardized, mass-produced, no frills products with inessential aspects stripped out of the value chain. On the other hand, a differentiation strategy offers product quality and uniqueness. This is achieved through design, innovation, attention to quality and advertising. Some organizations seek to provide high-quality products at low prices- a hybrid strategy. This is difficult to achieve because adding extra consumer value adds to costs and forces up prices. It is generally feasible if an organization can achieve economies of scale so that average costs fall in line with growth in output. Each of these positions offers a strategy for gaining competitive advantage. 3.4 Strategic Implementation The agreed organizational strategy will generally be set out in a formal document and effort then needs to be directed at strategic implementation. This is concerned with putting into practice of an organization’s strategy. Initial consideration may need to be given to 27 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM logistics and operations. Complex strategies will need a project plan which takes logistics into account and provides a logical sequence of what has to be done before each stage of the plan can be realized. It therefore takes account of time scales and the interdependency of different elements of a strategy and allows a critical path to be mapped. 4.0 CONCLUSION The general strategic method outline in this unit represents a standard cycle of strategic planning and a classical approach to strategy. However, it should be noted that the success of a strategy depends on the accuracy of much of the analysis contained in the plan. Much of the analysis involves forecasting and the future is notoriously unpredictable. 5.0 SUMMARY This unit provides necessary information on the importance of both mission and stakeholders in tourism management, it gives insight into the techniques of strategic analysis and choice. It also highlights the process of strategic implementation. 6.0 SELF-ASSESSMENT EXERCISE i. How would you explain the terms Mission and Stakeholders in tourism management? ii. Explain the difference between strategic analysis and strategic choice. 7.0 REFERENCES/FURTHER READING Buhalis, D. (2001). Tourism in Greece: Strategic Analysis and Challenges. Current issues in tourism, 4(5) 440-80. David, F. (1989). How Companies Define Their Mission. Long Range Planning 22(1) 90-7. Hall C.M. and Jenkins J. (1995). I. London. Routledge Johnson, G. and Scholes, K. (2001). Exploring Corporate Strategy. Hemel Hempstead: Prentice Hall. Porter, M. (1980). Competitive Strategy: Techniques for Analysing Industries and Competitors. New York: The Free press. Tribe, J. The Economics of Leisure and Tourism, Oxford: Butterworth Heinemann. 28 HCM441 MODULE 1 UNIT 4 THE HOSPITALITY AND TOURISM CONTEXT CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Characterizing the external environment 3.2 Strategic Fit and Strategic Intent 3.3 Environment Characteristics 3.4 Environment Dimensions 4.0 Conclusion 5.0 Summary 6.0 Self-Assessment Exercise 7.0 References/Further Reading 1.0 INTRODUCTION In the previous unit we studied how corporate strategy could be applied in tourism. Without strategy, organizations are vulnerable to strategic drift. The absence of strategy will translate to a consequence of failure in monitoring and responding to changing external environment. This unit provides you with the perspective of the role of the environment and its impact on the hospitality and tourism firms. The internal and external environment will be defined and a description of the role of the external environment and its impact on the business will be elaborate on from a strategic formulation perspective. 2.0 OBJECTIVES At end of this unit, you should be able to: define and explain the role of the external environment in the context of the hospitality and tourism businesses explain strategy formulation from a contingency perspective explain environment dimensions. 3.0 MAIN CONTENT 3.1 Characterizing the external environment On a daily basis, firms deal with both external and internal environments. The external environment lies outside the firm and includes individuals, firms, systems, and institutions that have an impact on it. Influences from the external environment come in form of changes 29 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM that occur due to the forces that emanates from it. These forces arise from the trends in the macro and micro environments and could present opportunities or pose threats, depending on how they impact the firm. Organizations that scan the environment, track changes, and assess the impact of changes in terms of cause and effect have a more formalized approach to environment scanning. Duncan (1972) defines the external environment as the context (e.g., firm) within which social and physical factors are taken into consideration by individuals for decision making. The interpersonal interactions among the members in the internal environment are what distinguish it from the external environment. According to Duncan, the internal environment contains three components: human resource, organizational function, and organizational level. The functional component refers to operations, sales, and marketing, human resources, materials management, and administration, while the organizational level refers to products and services, goals and objectives, and the process that integrates personnel with the organization. Scanning the environment itself is not sufficient, organizations must be able to cope with the forces by ensuring that the internal resources and capabilities are aligned with the opportunities so they can tap them as they appear in the firm’s external environment. Likewise, organizations must be able to counter the threats posed by the changes in the environment. This entire process of identifying strengths, weaknesses, opportunities, and threats is referred to as the SWOT analysis. Strengths and weaknesses lie within the internal environment of the firm. Opportunities and threats are external to the firm and emanate from the macro and micro environment in which it is located. SWOT provides a situation analysis of the firm in terms of its current position given in market. 3.2 Strategic Fit and Strategic Intent The SWOT analysis provides the firm with an overview of how it is positioned in a given market to tap opportunities and counter threats. This analysis was initially developed by Albert Humphery from Stanford University from the perspective of providing firms with a framework to assess their resources and capabilities so opportunities could be tapped. The alignment between the firm’s internal resources and capabilities and external opportunities is called the “strategic fit.” The “fit” ensures that firms can align themselves with emerging opportunities. “Strategic intent” was put forward by Hamel and Prahalad (1989), based on the premise that firms would not be able to create a sustainable 30 HCM441 MODULE 1 competitive advantage unless strategic resources and capabilities are used to tap opportunities. This approach captured a firm’s posture toward its environment in terms of identifying the opportunities and threats and positioning it to address them by acquiring resources and capabilities ahead of time. Therefore, resources should be acquired and capabilities should be developed to tap tomorrow’s opportunities and threats. Here, we use Porter’s (1980) definition of sustainable competitive advantage, which is “the advantage that firms are able to create in the marketplace by being ahead of competition during the time horizon over which existing resources and capabilities are used to the fullest extent.” The opportunities and threats that emanate in the environment, as described earlier, are a result of the forces that emerge from the macro and micro external environments. Literature categories as distinct, using classification scheme. The scheme was developed so it becomes easier to conceptualize and understand a complex subject such as external environment. The importance of understanding the environment and its impact was emphasized by scholars in the 1950s when the contingency school emerged. The characteristics of the environment are discussed in more details in the next section. 3.3 Environment Characteristics Terms used to describe the environment include environmental uncertainty, environment, environmental volatility, and environmental munificence (Table 3.1). Environmental uncertainty relates to the difficulty of the firm’s managers to accurately predict the occurrences of an event. The higher the uncertainty, the more the difficulty managers have in assigning probable estimates of the occurrence or nonoccurrence of the event. The literature categorizes environmental uncertainty as contingency views and perceptual views ( Gerloff, Muir, and Bodensteiner, 1991). The contingency view relates to understanding the environment and fitting the firm as per the characteristics of the environment. On the other hand, perpetual views of the characteristics of the environment relates to how the firm’s manager are able to “notice, interpret, or learn about” the environment and its characteristics. The firm’s external environment is characterized as being stable or volatile, certain or uncertain, liberal or illiberal. Volatility and uncertainty relates to the rate of change of key variables in a given environmental context. An environment in which firms have plenty of opportunities to grow, including the availability of slack resources, is said to be liberal or munificent. On the contrary, illiberality is associated with an 31 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM environment where maturity has taken hold, strategic resources are difficult to acquire or obtain, and firms find it difficult to grow. The firm’s environment is also described as hostile, turbulent, and dynamic. Environmental hostility refers to unfavorable conditions in the general or macro environment. For instance, the current economic environment presents a hostile environment for tourism and hospitality firms. On the other hand, market hostility refers to unfavorable conditions at the task and industry environment levels. In the hospitality industry, demand and supply conditions and competitive forces could create a hostile market environment. Environment turbulence refers to the amount of change in the firm’s external environment categories. Note that the “complexity” refers to the numbers of factors in the environment. Finally, environmental dynamism is the degree of change in the key factors within the firm’s external environmental categories. For instance, the change in mortgage and interest rates in the U.S. context due to the economic downturn that began in mid-2008 reflects environmental dynamism. Similarly, within the hospitality and tourism industry environment, the level of dynamism is reflected in the shift in demand during a 365-days period due to a shift from high-peak to low seasons during the course of the year. Table 3.1 Environmental Characteristics Environmental Characteristics Description Environmental Uncertainty Difficulty in accurately predicting the occurrence of an event Environmental Volatility Rate of change related to factors in the external environment Environmental Munificence The availability of slack resources and the opportunities for firms to grow Illiberality The opposite of munificence; an environment in which the scope for growth is limited Environmental Dynamism Degree of change in key factors in the environment categories, especially the general and task environment. Environmental Hostility The unfavorable conditions in the firm’s general environment that have a negative impact on the firm Market Hostility Pertains to the unfavorable conditions in the firm’s task environment Environment Turbulence Amount of change in the firm’s external environments, as well as the complexity (number of factors) in those environmental categories 32 HCM441 MODULE 1 3.4 Environment Dimensions There are two environmental dimensions in literature: the simple complex dimension and the static-dynamic dimension. The simple complex dimension refers to the number of factors or variables that influence the environment. The fewer the factors, the more stable the environment. Contrarily, the greater the number of factors, the more complex the environment. For instance, if a market has many suppliers and many buyer groups, then the business environment in such market is considered to be relatively complex. The static-dimension refers to the degree of change over time related to the factors or variables pertaining to the internal and external environments. The lesser the change, the more static the environment and vice versa. Duncan (1972) refers to two subdimensions of the static- dynamic dimension: the degree of change over time (stability/instability) in the factor that firms’ manager consider during the decision making process, and the frequency with which the decision makers consider new or different factors. 4.0 CONCLUSION The characterization of the external environment in relation to its dimensions and how strategic fit and intents can be used to tap opportunities and counter threats have been discussed in this unit. The hospitality and tourism firms are often in a competitive environment, and the need to understand the environment they operate in cannot be undermine. 5.0 SUMMARY Understanding the external environment is essential so firm’s managers can formulate strategies while taking into consideration the various forces that emanate from its categories. 6.0 SELF-ASSESSMENT EXERCISE i. Why is it necessary to analyze the external environment? ii. How would you describe “Strategic Fit and Strategic Intent” What iii. are the terms used to describe environmental characteristics? 33 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM 7.0 REFERENCES/FURTHER READING Duncan, R.B. (1972). Characteristics of Organizational Environments and perceived Environmental Uncertainty, Administrative Science Quarterly, 17(3), 313-327. Gerloff, E.A., Muir, N. K., and Bodensteiner, W.D. (1991). Three components of perceived environmental uncertainty: an exploratory analysis of the effects of aggregation. Journal of Management, 17(4), 749-768. Hamel, G. and Prahalad, C.K (1989). Strategic intent. Havard Business Review, 63-74. Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: The Free press. 34 HCM441 MODULE 1 UNIT 5 UNDERSTANDING THE MACRO ENVIRONMENT CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 The Political/Legal Environment 3.2 The Economic Environment 3.2 The Sociocultural Environment 3.3 The Technological Environment 3.4 The Ecological Environment 4.0 Conclusion 5.0 Summary 6.0 Self-Assessment Exercise 7.0 References/Further Reading 1.0 INTRODUCTION The previous provides you with the perspective of the role of the environment and its impact on the hospitality and tourism firms. The internal and external environment was defined and a description of the role of the external environment and its impact on the business were be elaborated on from a strategic formulation perspective. In this unit, we shall discuss the macro environment, consisting of the environment types and how these environment types impact the hospitality and tourism industry. 2.0 OBJECTIVES At the end of this unit, you are expected to be able to: define the macro environment discuss the types of environment explain how the different types of environment impact the hospitality and tourism industry. 3.0 MAIN CONTENT It should be noted that there are no clear demarcation between environment categories, but the boundaries are imaginary for the purpose of conceptualization and comprehension. These categories form the five major subcategories of the macro environments (Figure 2). They are discussed in more details in the following sections. 35 HCM441 STRATEGIC MANAGEMENT IN HOSPITALITY AND TOURISM Figure 3: Environment types-General and Task Environments. Political/Legal Ecological Technological Environment Environment Environment Regulators Task Environment Customers Competitors Macroeconomic Sociocultural Environment Environment Suppliers 3.1 Political Environment The political and regulatory factors have been instrumental in defining how firms can maneuver, succeed, and expand in local and international markets. Transparent legal and political systems, especially in the West, have enabled firms to use franchising as a mode of development in the international context. Firms are impacted by regulations related to human resources management, ecology, technology, copyright- and patent-related issues, and market-related factors and issues, including handling customer-related problems. The regulation related to how tourism businesses are formed and how they need to be operated from human resources and ecological view-points are important to consider from local and global perspectives. From the employees relations perspective, due consideration should be given to legal issues related to human resources from different ethnic backgrounds as well as gender related issues. Changes in rules, regulations and laws in the business environment that impact the firms must be tracked. As a matter of fact, the political environment is equally very important to consider because it influences the policies and decisions that impact a

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