ENTRY BARRIERS AND SUBSTITUTES PDF

ENTRY BARRIERS AND SUBSTITUTES Several forces determine how easy it is to enter an industry, and therefore how many new entrants can be expected. New entrants increase competition in a sector, which may drive down prices and profits. ENTRY BARRIERS AND SUBSTITUTES Economies of scale. Economies o...

ENTRY BARRIERS AND SUBSTITUTES Several forces determine how easy it is to enter an industry, and therefore how many new entrants can be expected. New entrants increase competition in a sector, which may drive down prices and profits. ENTRY BARRIERS AND SUBSTITUTES Economies of scale. Economies of scale occur when it is more efficient to provide a service at higher volume. For example, the larger hotels enjoy economies of scale because standard features Capital requirements. Also known as start - up costs, high capital requirements can prevent a small competitor from entering an industry. Product differentiation. Established firms enjoy a loyal customer base, which comes from many years of past advertising, customer service, loyalty programs Access to distribution channels. In industries where supply networks are strong and competition is intense, existing hotels or restaurants in a market can put pressure on suppliers not to extend the same services or prices to newcomers Strategic management tools and techniques ENTRY BARRIERS AND SUBSTITUTES Inimitable resources. Resources that are possessed by industry participants but are difficult or impossible to duplicate completely may include favorable locations or access to scarce raw materials such as land. BARRIERS to an effective execution of the strategy can be summarized as follows: time limitation or more time needed than originally planned lack of or poor communication lack of resources - lack of coordination lack of support from other management levels resistance from lower levels & employees poor planning activities - sudden changes lack of skills and knowledge commitment to previous practices organizational culture trade unions - government regulations cost of change - financial difficulties - technical difficulties implementation is a process that takes longer than formulation, and execution involves more people than strategy formulation 1 Strategic management tools and techniques Customer relationship management Strategic alliances Total quality management Scenario analysis SWOT analysis Benchmarking analysis Supply chain management Outsourcing Balanced Scorecard Strategic management tools and techniques Customer relationship management (CRM) CRM makes a significant contribution in terms of allowing the organizations to know their customers better and to build sustainable relationships with them. It can be seen as the perfect way to achieve profitability and develop businesses through enhancing customer satisfaction, retention and loyalty The concept of CRM revolves around customer orientation: delivering consistent and highly personalized service in order to personalize the customer experience CRM is defined as a set of methods compile information from many information technology channels (CRM databases are one of the IT capabilities) in order to serve the customers' needs and to leverage shifts concerning the activities of sales and marketing Thus, enables the organization to enhance competitiveness and performance, strategically managing relationship with customers, increasing customer value and creating guest loyalty Strategic management tools and techniques Strategic alliance can be perceived as the strategic choice of the organization's management in terms of its relationships with other organizations "strategic alliance is an agreement under which two or more firms cooperate in order to achieve certain commercial objectives. Firms combine their resources and capabilities to create competitive advantage. Alliances help to enter new markets, access new technologies and achieve economies of scale faster and cheaper” strategic alliances achieve competitive advantages and strengthen the competitiveness They help organizations to survive and sustain their operations in the competitive environment. This is because an organization cannot be able to acquire all the resources need for its operation at the same time Types of strategic alliances include (joint venture, product licensing, franchising, and management contracts , etc…) 2 Strategic management tools and techniques Total quality management (TQM) has become a key management tool in all sectors and emerged out as an important paradigm which allows the organizations to concentrate on quality level, continuous improvements the concept of TQM is to benefit from the resources and capabilities of the organization in order to achieve the defined goals. In the same vein, TQM plays an important role in developing competitive advantages the principles of TQM into ten basic principles (leadership, commitment, total involvement by employees’ empowerment and management, continuous improvement, total customer satisfaction, training and education, ownership, reward and recognition, prevention of error and cooperation and teamwork Strategic management tools and techniques Scenario analysis The approach of scenario analysis is to describe the prospective events in the future in the light of the current realities ; it qualitatively assumes the future environment of the business organizations. It provides strategic decision makers with assistance in order to overcome uncertainty in that the future holds It could be useful for hotels' work in high uncertainty environment and the use of scenario analysis enable the hotels to gain flexibility in planning and developing several alternative views of the future Strategic management tools and techniques SWOT analysis strengths, weaknesses, opportunities and threats analysis indicates a framework for helping the researchers or planners to identify and prioritize the business goals, and to further identify the strategies of achieving them. It provides holistic overview of how it is positioned in a given market is a management tool that systematically analyzes the current strengths and weaknesses of an organization on one hand and all the future opportunities and threats perceived in the environment on the other Strategic management tools and techniques Benchmarking analysis benchmarking is the search of best practices that will lead to superior performance in some business activity. It is about learning from the best experiences of other organizations in order to create a continuous improvement of performance levels of the 3 organization hotels with inherently similar inputs and outputs are classified into the same cluster, and the hotel with the highest score in a given cluster is considered to be the primary benchmark for efficiency improvement for the other hotels in the cluster Strategic management tools and techniques Supply Chain Management In essence, supply chain management is a concept to do business successfully based up on goods and supplies management in order to deliver the product or service to the final customer successfully at domestic and international levels the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole, by controlling the total flow from the supply of raw materials to the end customer hotel managers have to place greater emphasis on emergent issues such as changing customer demands and should be able to identify the costs benefits that can be derived from utilizing logistics and supply chain management costs saving strategies. supply chain management plays a pivotal role in the hotel and catering industry. Strategic management tools and techniques Outsourcing outsourcing can be defined as the act of delegating the work responsibilities (non-core activities)to an external source - the outsourced agents applying outsourcing principles can be helpful in emphasizing more on service quality and proficiency of the suppliers, increase in service quality, focusing more on core competencies, and reducing costs (reduction of labor costs, stock-holding costs or storage costs) hotel managers have to incorporate specific operational measures into their decision making processes, hotels that outsource activities should give the priority to the perception of service quality before the issue of decreasing the costs. Fourth LECTURE Strategic Planning What is the strategic planning process? In simplest words, the term "strategic planning" is the strategy that businesses employ to create plans to reach their long-term, general objectives. It is also known as strategic mapping which can help you define your vision, mission, and objectives. The process of strategic planning is more comprehensive, it assists you in creating an outline of the goals you need to work towards and which ones will be not as beneficial 4 for the company. The steps involved in strategic planning are described below. Decide on your strategy The preparation phase establishes the foundation for the tasks to come. It is essential to be aware of where you are in order to decide where you're supposed to get to and how you'll arrive there. Engage the appropriate stakeholders right from the beginning, focusing on both external and internal sources. Find the most important strategic issues through discussions with senior executives at your organization, collecting customer feedback, and gathering information about your industry and markets to have a clear understanding of your place on the market as well as within mind of clients. For starting, make use of information from the market and industry such as customer insights and future/current needs, to pinpoint the problems that must be addressed To help you structure your initial analysis, you can use to create a SWOT diagram. Strategic Planning 2) Prioritize your objectives After you've determined your current position on the market, it's time to set goals to help you reach your objectives. Your goals must be aligned with the mission of your business and vision. Prioritize your goals by asking crucial questions like: ✔ Which of these ideas have the most impact in realizing our vision and mission for the company as well as improving our standing in the marketplace? ✔ What kind of impact is the most significant (e.g.the acquisition of customers in 5 comparison to. revenues)? ✔ How will the competition respond? The goals should be clear and quantifiable to assist you in achieving attain the long- term goals and objectives that you have outlined in step one. (Possible goals include changing the content on your website) Prioritize your objectives The goals should be SMART Make a plan It's now time to develop an action plan that will help you achieve your goals. This requires selecting the strategies needed for achieving your goals and establishing a timetable and clear communication of the responsibilities. Strategy mapping is an efficient tool for visualizing your entire strategy. The top- down strategy maps help you look at business processes and pinpoint the areas that need improvements. Strategy maps are a powerful tool for any organization to better understand and communicate its strategy. They provide an at- a-glance, one page view of how the different parts of an organization work together to achieve the desired results. Manage and implement the plan Once you've got the plan, you're now ready to begin implementing it. The first step is 6 to communicate your plan to your organization by sharing the relevant documents. Then the actual work can begin. Schedule regular reviews for each contributor and their supervisors, and establish the check-in times to ensure that you're in the right direction. Revise and update the plan The last step of the process -- reviewing and revising -- gives you the chance to reconsider your goals and make adjustments in light of the past's successes and failings. On every quarter, identify what KPIs your team achieved and what you can do to maintain them and adapt your strategy according to the need. Every year it is important to review your goals and your strategic plan to ensure you're on the right track to be successful in the long term. KPIs : Key Performance Indicators 5) Revise and update the plan Sixth LECTURE Porter ’ s Five Forces Porter ’ s Five Forces Industries are often difficult to define, but in general they refer to a group of organizations that compete directly with one another to win customers or sales in the 7 marketplace. Consequently, before an analysis is conducted, managers need to define precisely who they consider to be a part of the relevant industry group. Levels are also important. For example, a regional hotel chain may consider all hotels in a specific part of the world. However, a single private resort may only consider other hotels in the same location when conducting an analysis of competitors. Porter ’ s Five Forces Michael Porter, one of the most significant scholars in strategic management, developed a model that helps managers evaluate industry competition. According to Porter, the five forces largely determine the type and level of competition in an industry and, ultimately, the industry ’ s profit potential. These five areas of competitive analysis, referred to as the five forces of competition , are presented in following Figure 8 Porter ’ s Five Forces An analysis of the five forces is useful from several perspectives: First, by understanding how the five forces influence competition and profitability in an industry, a firm can better understand how to position itself relative to the forces, determine any sources of competitive advantage now and in the future, and estimate the profits that can be expected. For small and start - up businesses, a five forces analysis can reveal opportunities for market entry that will not attract the attention of the larger competitors. An organization can also conduct a five forces analysis of an industry before entry to determine the sector ’ s attractiveness. If the firm is already involved in the industry, a five forces analysis can serve as a basis for deciding to leave it. According to Porter, customers tend to exhibit greater bargaining power (the degree to which customers exercise active influence over pricing and the direction of product - development efforts) under the following conditions: They are few in number. They make high - volume (regular) purchases The products they are buying are undifferentiated (also known as standard or generic) and plentiful. They can easily integrate backward and thus become their own suppliers They are not concerned about the quality of what they are buying They have an information advantage when compared to the firms from which they buy products and services They are well organized Powerful suppliers can raise their prices and therefore reduce profitability levels in the buying industry. They can also exert influence and increase environmental uncertainty by threatening to raise prices, reducing the quality of goods or services provided, or not delivering supplies Suppliers are few in number, or, in the extreme case, there is only one supplier for a good or service They sell products and services that cannot be substituted with other products and services They do not sell a large percentage of their products or services to the buying 9 industry They have differentiated their products or in other ways made it costly to switch suppliers. They can easily integrate forward and thus compete directly with their former buyers They have an information advantage relative to the firms they are supplying They are well organized COMPETITION AND MONOPOLY POWER In most segments of the hospitality industry, competition is so intense that profitability may suffer. Some of the major forces that lead to high levels of competition include the following: -There are many competitors in the industry, and none of them possess a dominant position Economists sometimes call this pure competition. In a situation of pure competition, organizations must work hard to maintain their positions, because customers have so many options. Consider how many lodging options a tourist has - The industry is growing slowly Slow industry growth leads to high levels of competition, because the only way to grow is through taking sales or market share from competitors. Products in the industry are not easily differentiated (i.e., they are standard or generic). Lack of product differentiation puts a lot of pressure on prices and often leads to price - cutting strategies High fixed costs exist , such as those associated with large hotel properties, airlines, cruise lines, or theme parks. High fixed costs mean that firms are under pressure to increase sales to cover their costs and eventually earn profits. High exit barriers exist. When exit barriers are high, firms may lose all or most of their investments in the industry when they withdraw from it. Therefore, they are more likely to remain in the sector even if profits are low or nonexistent. Monopoly Duopoly Oligopoly.. the existence of a few very large firms (theme parks) 10 11