Strategic Management for Hospitality and Tourism

Fevzi Okumus, Levent Altinay, Prakash Chathoth, Mehmet Ali Koseoglu

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781351188494
• Edition: 2
• Topic: Business
• Subtopic: Hospitality, Travel & Tourism Industry
• Index: Business

Strategic Management for Hospitality and Tourism is an essential text for both intermediate and advanced learners aspiring to build their knowledge related to the theories and perspectives on the topic. The book provides critical and analytical insights on contemporary theoretical models and management practices while enhancing the learning process through worked examples and cases applied to the hospitality and tourism setting. This new edition highlights the rapidly changing socio-economic and political global landscape and addresses the cultural and socio-economic complexities of hospitality and tourism organizations in the new era. It has been fully updated to include:

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• A new chapter on finance, business ethics, corporate social responsibility, and leadership as well as new content on globalisation, experience economy, crisis management, consumer power, developing service quality, innovation and implementation of principles.

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• New features to aid understanding of the application of theory, and spur critical thinking and decision making.

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• New international case studies with reflective questions throughout the book from both SME's and large-scale businesses.

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• Updated online resources including PowerPoint presentations, additional case studies and exercises, and web links to aid both teaching and learning.

Highly illustrated and in full colour design, this book is essential reading for all future hospitality and tourism managers.

PART 1

Introduction to strategy

Chapter 1 introduces the subject of this book and strategic management, and Chapter 2 introduces the subject’s application in the context of the international hospitality and tourism (H&T) industry. Chapter 3 defines and discusses business ethics and corporate social responsibility efforts in H&T businesses. The primary objectives of these three introductory chapters are to establish the importance and relevance of strategic management as an area of academic study and as a key executive practice for aspiring H&T professionals.

1 Introduction to strategic management

Learning objectives

After reading this chapter, you should be able to:

• discuss the historical origins of strategic management;
• identify the schools of thought relating to strategic management;
• assess the role of the “experience economy” in defining a firm’s strategic orientation;
• describe the strategic management framework and its objectives;
• define key terms pertaining to strategic management;
• assess various perspectives of strategic management and their significance.

Opening case
The Orient Grand Hotel

The Orient Grand is a privately owned, independent, five-star deluxe hotel located in downtown Tokyo. Since its inception a decade ago, the hotel has seen a significant growth in terms of occupancy rate and Revenue per Available Room (RevPAR). However, in recent years it has seen a negative trend in terms of profitability. The main target audience of the hotel, business travelers from the upscale and luxury market segments, pay an average room rate of $550 and represent up to 75% of the room bookings annually. This clientele has been particularly satisfied with the quality of the product, the services, and the hotel’s location. The services have been well-defined by the hotel and delivered as per the standard operating procedures.

The hotel has historically been able to sustain value owing to a preponderance of business customers. However, during the past two years, the Orient Grand has seen a significant drop in the number of room bookings from its business travelers due to the prevailing economic downturn. The number of business travelers to Tokyo has dropped, and this has significantly reduced the hotel’s profitability and its ability to sustain economic value. That being said, recent trends suggest that inbound tourism to Tokyo has grown, with a surge in the number of leisure travelers from the region and beyond who visit Tokyo for culture, shopping, entertainment, and recreation. However, given that the Orient Grand is geared more towards business travelers than leisure travelers, it is unable to tap into the opportunity in the current economic and sociocultural climate.

The owner, Sara Aoki, has called an executive committee meeting to discuss the future direction the company should take in the short and long term (including its service orientation) to sustain its competitive advantage.

1. What issues should Sara and the executive committee address? Why? (Hint: Make assumptions where necessary, including mission and vision statements, as well as goals, strategies, and objectives.)
2. Given the preceding information, what are Sara’s options? How should they be evaluated? Make assumptions where necessary.
3. What should the hotel do in the short term and in the long term? Make assumptions where necessary to arrive at your decisions.
4. How should Sara and her executives define value and how should it be assessed? How do the definition and assessment of value impact strategy formulation and implementation?
5. Why is it difficult to answer the preceding questions? Do managers and executives in hospitality and tourism (H&T) organizations always have sufficient and reliable information to make decisions?

Introduction

This chapter introduces strategic management and provides an overview of the book’s structure and contents. In doing so, strategy is presented from a historical perspective from various lenses – including schools of thought – through which strategy has been conceptualized, researched, and developed over the past several decades. It also delves into the conceptualization of value from economic and experiential perspectives. This chapter then discusses key definitions of the terms used in the strategic management literature, and various schools of thought in the field are described.

Before we proceed any further, it is essential to 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. It helps organizations to prioritize what is important for them and provides a holistic view of an organization. It entails two distinct phases that deal with formation and implementation of strategy within an organizational setting. Table 1.1 shows the strategic management framework/process, which is described in more detail later in this chapter.

The overall objective of the business is to create value for its stakeholders. Economic value is profitability related and is measured using performance metrics, whereas experiential value relates to experiences that materialize from the consumption of products and services and are captured from the memories linked to such experiences. They come about by engaging customers through co-creative modalities. Value is created for the firm’s immediate or primary stakeholders and also for its secondary stakeholders.

Fundamentals of strategic orientation

Strategy entails futuristic thinking and developing a course of actions to meet goals and objectives (more on this in Chapter 5). The strategic management framework (see Table 1.1) captures the process sequentially and definitively. It should be noted that although we present different elements of the strategic management framework separately or in a linear step-by-step process, in 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 weaknesses 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 one 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 four distinct phases: strategic analysis, strategy formulation, the strategy implementation, and the strategy control/evaluation phase. Strategic analysis is the process of defining the direction of the firm’s future course of action, which would enable the firm to allocate resources in order to achieve the set goals and objectives. Strategy formulation includes analyzing the internal and external environment of an organization at the corporate, business, and functional levels. The strategy implementation is the process of putting strategy into action, which includes designing the organizational structure and related systems. This 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. Finally, the strategy control/evaluation phase includes evaluating how far the organization has achieved the intended goals within the planned time frame, the use of resources, and learning from the process.

Table 1.1 The strategic management framework

The organization must first define its mission, vision, values, goals, and objectives. The mission is a brief description of the very purpose of creating the organization. The mission statement includes a clear purpose and states why the organization is in existence. For example, the following is the corporate mission statement for Shangri-La Hotels and Resorts (Shangri-La Hotels and Resorts, n.d.): “To delight our guests every time by creating engaging experiences straight from our heart.” Likewise, Scandic (a Nordic hotel firm) defines its mission as being “to create great hotel experiences for the many people” (Scandic, n.d.).

The vision, however, describes where the organization wants to go from where it is at present. For instance, Shangri-La’s vision is “To be the first choice for guests, colleagues, shareholders and business partners” (Shangri-La Hotels and Resorts, n.d.). As can be seen in the example of Shangri-La, the main focus is on the creation of “engaging” and “exceptional” customer experiences, and as stated earlier, this is the crux of value creation for many an H&T firm. In the past, most H&T firms focused on superior services, and this is without a doubt an integral part of customer satisfaction; however, an evolution in the mission and vision statements in the past decade toward customer experiences has brought about a shift towards superior processes of value creation.

Goals are more specific in terms of what the organization aims to achieve in a definite period of time so it will be able to accomplish its mission and vision. Goals are planned over the short and long terms. Short-term goals are set for a period not exceeding one year, whereas long-term goals are set for a period of time exceeding three to five years. This very much depends on the characteristics of the business. Goals need to be linked to objectives. Note that goals are more abstract than objectives. Objectives need to be definite and quantifiable, strategies clearly identify how the objectives will be met in terms of the plan, and tactics are the actions that operationalize the strategy – those that lead to the attainment of goals and objectives. For instance, in a game of chess, a tactic may be to corner the opponent’s rook by making a series of moves. Another set of tactics could be geared toward weakening the queen. These tactics in combination may be part of the strategy to gain an advantage, which ultimately would lead to winning the game. Note that tactical decisions, which can be immediate or very short term in terms of scope, impact the implementation process at the functional/operating level.

In some cases, strategy, tactic, program, budget, and plan are used interchangeably. Given this, some clarification is needed for these terms. Mintzberg (1987) classified strategy as plan, ploy, pattern, position, and perspective. However, this classification does not generate clear opinions in managers’ minds, or in scholars’ minds. Research has hitherto shown that to identify strategy in business, two approaches have commonly considered. One of the dominant definitions emerged from Michel Porter’s approach and deals with a company’s position in the industry, making trade-offs, and achieving and maintaining “fit” and coherence among practices (Porter, 1996). In this approach, strategy is defined as a choice about what game to play (Markides, 2001). However, this approach is not very flexible, and businesses following it may therefore not respond to sudden changes in the industry (Markides, 2001).

A second approach claims that strategy should be more dynamic and focuses on outplaying competitors (Kay, 1994). In this respect, strategy should be considered as a choice as to what game to play. To achieve the strategy, managers need to set related activities with measures. If these measures of activities relate to time or other scales, they constitute a program. If these measures of activities relate to income and expenditure for a set period of time, they constitute a budget to accomplish the strategy. A program may include budgets. Managers detail the allocation of resources for the long term with a program and a budget. This is called a plan. Consequently, managers should understand that a strategic plan is not a strategy and a strategy is not a plan to gain sustained competitive advantage.

To differentiate vision, mission, goals, objectives, strategies, and tactics, consider this case: The King Hotel is in business to create value for its stockholders. To accomplish the mission, the firm has set goals for the current year of increasing the business segment productivity. The objectives that are linked to the goals include increasing the business segment revenues by 10 percent and increasing repeat clientele for this segment by 15 percent. The strategies include marketing and operations-related plans and tactics, including increasing sales calls in the business district 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 center secretarial services for three hours a day. Note that the goals are linked to the mission, the objectives are linked to the goals, the strategies are linked to the objectives, and the tactics are linked to the strategies. At this stage, it is imperative to provide a background to the origi...