Crisis Management in the Tourism Industry

Beating the Odds?

Peter Hosie, Christof Pforr, Peter Hosie, Christof Pforr

• Editorial: Routledge
• Año: 2016
• ISBN:
  9781351947381
• Edición: 1
• Categoría: Physical Sciences
• Categoría: Geography

An important challenge facing tourism is the anticipation of the threat of crises precipitated by natural and people-made catastrophes, and being adequately prepared for them. Despite an increase in research on this issue there is still a considerable lack of clarity on the impacts of crises on the tourism industry. Illustrated by a range of international case studies, this book provides a systematic and conceptual approach to questions such as how tourism businesses prepare for and react to crisis, which measures are taken and what impact they have, and which strategies can be employed to overcome them. By discussing, analyzing and synthesizing the literature on crisis management, the authors question how business can become more proactive in preparing and dealing with crises in the tourism industry.

PART 1

Chapter 2

Crisis Management and Security:
Strategise versus Improvise in a Turbulent Environment

Bella Butler

Introduction

Security of people, investments and facilities has always been an important concern of corporate governance. Particularly since the terrorist attacks on 11 September 2001, the coalition invasion of Afghanistan in October 2001, the Bali bombings in October 2002, the outbreak of the Severe Acute Respiratory Syndrome (SARS), the war in Iraq in 2003, the Madrid (2004) and London (2005) bombings, security has become a key issue for corporate strategy and governance. This is highly relevant for the tourism industry which is impacted by global terrorism events as well as by targeted attacks on foreign tourists (e.g., in Morocco, Tunisia, Kenya and Indonesia) and natural disasters such as the 2004 Indian Ocean Tsunami. These shocks have increased concerns of risk and security of people who travel, switched their choice of travel destinations and, consequently, emphasised the importance of the ability of tourist firms, particularly in affected countries and their regions, to recover from crises. As any other industry, international tourism operates in external environments which are characterised by rapid global change, growing complexity and increased uncertainty. In such an environment, organisations deal with unplanned situations which cannot be predicted in advance. As Tsoukas (1996, 22) describes the situation ‘firms are faced with radical uncertainty: they do not know, they cannot know, what they need to know’. Hence, organisations are engaged in discovering the unknowable and their strategy has to assist them in this process in order to enable their firms to manage crises.

Two planning approaches continue to capture the imagination of strategy scholars. On the one hand, the rational design or ‘strategise’, and on the other learning, organisational emergence or ‘improvise’. The planning approach (Porter 1980; Prahalad and Hamel 1990) emphasises the importance of strategic analysis and forecasting tools. Those who support this view link successful performance of organisations to their ability to plan the future based on the past (Menon et al. 1999). There is strong research evidence that planning is a crucial aspect of high risk decision making (Sinha 1990). In contrast, the ‘learning school’ (Ansoff 1991, 1994; Fredrickson 1984; Minzberg 1990, 1991, 1994) argues that formal planning is ineffective in dynamic or high velocity environments. As Cunha (2004, 272) puts it, ‘the best performing organisations are those that act out of their future’ and, in fact, ‘relying on the past is a threat to the future’. In spite of these arguments, there is research evidence to suggest that planning can improve firm performance in either dynamic or stable environments (Eisenhardt 1989).

The purpose of this chapter is to describe the characteristics of the ‘rational design’ and ‘emergent process’ approaches of strategy formation which are targeted at increased security of business and corporate responsiveness and adaptation to environmental turbulence. The main contribution of this chapter is that it integrates a number of ideas and concepts which have previously been independently investigated. The study initially investigates the role of strategic planning in assisting firms to deal with external complexity and uncertainty. It continues by exploring the role of the learning approach and, in particular, the ability of firms to improvise in making effective responses to environmental changes. In doing so, the study contributes to research on organisational improvisation and ‘bricolage’. Finally, this chapter concludes by providing evidence from the literature on how a combination of strategic planning and improvisation enables firms to plan and implement effective programs of crisis management.

Another contribution is in developing better ability to deal with crises situations in tourism firms by reconsidering the process of strategy formulation and implementation. The tourist firm and their managers and staff are involved in ongoing practices of developing alternative actions to their existing plans due to the vulnerability of the tourism industry to external shocks such as international terrorist attacks, crime, ethnic conflicts, politically motivated attacks on foreign tourists and expatriates, and natural disasters. Research reported here concludes that in dealing with external uncertainty and crises, planning and improvisation can be used complementary rather than confronting. In this approach, managers have the flexibility to shift from a formally planned certain path and to make real time adjustments to strategies according to the changes in the firm’s external and internal environments keeping their firm within a chosen strategic direction.

The Role of Strategic Planning (Rational Strategy)

The value of formal planning has for a long time been of great interest in both the academic and practitioner oriented literature on strategic management (Hamel and Prahalad 1994; Hammer 1990; Porter 1980; Prahalad and Hamel 1990). The two main areas of such research include investigation of the impact of strategic planning on firm performance and the role of strategic planning in strategic decision making (Grant 2003). From a performance perspective, formal planning procedures offer a tool that forces managers to periodically take a careful look ahead. This entails rigorous communications about goals, strategic issues, and resource allocations and stimulates long term analyses that would otherwise not be made. Furthermore, such an exercise generates a basis for evaluating and integrating short term plans, lengthens time horizons and protects long term investments. In a decision making context, which stresses the importance of the organisational process of strategy formulation referred to as design, strategic plans fine tune annual commitments, formalise cost reduction programs and help implement strategic changes (Quinn 1978). Both of these areas of research, the impact of strategic planning on firm performance and the role of strategic planning in strategic decision making, have been limited by lack of empirical investigation (Grant 2003).

The most recent survey (2007) of nearly 800 executives conducted by McKinsey Quarterly (Dye and Sibony 2007) provides strong evidence of the importance of strategic planning processes for improving overall satisfaction with strategic development. According to this study, 79 per cent of managers who acknowledged that the formal planning process played a significant role in developing strategies for their firms were satisfied with the approach of their companies, compared with only 21 per cent of managers who claimed that the process did not play a significant role. Moreover, 51 per cent of the respondents of this study who reported that their firms had no formal planning process were dissatisfied with the existing approach to the development of strategy, compared to only 20 per cent of those at firms with a formal process. This indicates a link between managerial satisfaction of the strategic development of their firms and the formal planning process.

Despite the perceived importance of a formal strategic planning process, only 45 per cent of the respondents of McKinsey Quarterly survey (2007) reported that they were satisfied with this process at their companies. Furthermore, just 23 per cent revealed that major decisions were made within boundaries of the strategic planning process. The results of this survey are consistent with an earlier argument made by Hamel (1996, 71) who remarked that ‘in the vast majority of companies, strategic planning is a calendar driven ritual, not an exploration of the potential for revolution. The strategy making process tends to be reductionist, based on simple rules and heuristics. It works from today forward, not from the future back, implicitly assuming, whatever the evidence to the contrary, that the future will be more or less like the present’. Hamel’s argument is consistent with certain misperceptions which some executives have about strategic planning: ‘[m]ost corporate ‘strategic plans’ have little to do with strategy. They are simply three year or five year rolling resource budgets and some sort of market share projection. Calling it ‘strategic planning’ creates false expectations that the exercise will somehow produce a coherent strategy’ (Rumelt 2007 cited in Dye and Sibony 2007, 48). These points further support research which claims that strategic planning produces too much rigidity and inflexibility, particularly in an environment which is impossible to closely forecast (Fredrickson 1984; Minzberg 1990).

The new competitive landscape of the twenty first century with its macroeconomic instability and high velocity of change in the business environment creates high expectations for strategic planning and redefines its role within companies. Several scholars point out that an unpredictable environment makes agility a vital element of strategic planning (Dickson 1992; Johnson et al. 2003). For instance, an experimental strategy involving improvisation can be an important source of agility (Eisenhardt and Tabrizi 1995). Such improvisation can be valuable to firms, particularly when the environmental changes are faster than the firm’s planning cycle (Moorman and Miner 1998; Slotegraaf and Dickson 2004). In addition, improvisation is important when planning has not provided all details or the tactics of implementation (Moorman and Miner 1998; Quinn 1986; Sutton 1990). The role of improvisation in the context of uncertain environments is discussed later in this chapter.

In the past (prior to the 1990s), the strategic planning process was employed for strategy formulation with the most important tasks being planning growth and allocating resources. However, as Grant (2003) found, by the late 1990s strategy formulation was occurring mostly outside the firm’s planning systems. Moreover, strategic decisions were made in response to the external opportunities and threats and incorporated into strategic plans. According to Grant (2003, 512), by the late 1990s strategic planning systems of the major oil companies, for instance, had ‘little in common with the highly bureaucratised, top down processes caricatured by Henry Minzberg’. Rather, strategic planning systems were mechanisms for improving the quality of strategic decisions, for coordinating strategic decision making, and for driving performance improvement. These strategic planning systems can be described as processes of ‘planned emergence’ (Grant 2003) which are aimed to assist firms to adapt to the challenges and opportunities of a rapidly changing environment. Specifically, firms with a strong focus on strategic planning are more likely to use rationally based budgeting approaches. These firms may recognise that rationally based budgets afford more resources for the planned actions (Piercy 1987; Slotegraaf and Dickson 2004). Such careful planning makes firms better prepared to respond to emergencies.

Undoubtedly, turbulent environmental changes and crises call for more careful planning (Cunha 2004). Furthermore, crises demand planning of actions for prevention of, preparation to, response to and recovery from crises (Hosie 2006). An organisation without a plan of actions in case of emergency is putting at risk its very existence. This can be illustrated by an example from the Merlin Beach Hotel in Phuket, Thailand. This hotel was destroyed by the 2004 Indian Ocean Tsunami. Unlike many other hotels who were waiting for governmental support or insurance compensations, this hotel was one of the first in the region to begin reconstruction works. As the general manager of the hotel explained in the private talk with the author of this chapter, it was very important for them to act quickly; to be first to make a better deal with construction companies, to show the hotel personnel that business will be conducted as usual and, the most important, not to follow the ‘sad trend’. Only three months after the Tsunami the Merlin Beach Hotel was reopen for guests and applauded for the speed of its recovery. Interestingly, during the three months of reconstruction, the management saved more than a half of the jobs of their original staff members. In fact, nobody was fired. The Merlin Beach employees were offered to remain at the hotel and participate in the reconstruction. Such prompt actions and their implementation were based on the hotel’s plan to achieve a superior performance and keep their clients satisfied. Looking back a year after the Tsunami, the general manager admitted that the unpredictable situation enabled the hotel management to create a new recovery system in case of emergency. This example sends a clear message that in crisis situations, organisations respond to unpredictable events following their vision and a current plan. Indeed, planning becomes a more challenging and, at the same time, an imperative exercise. As Cunha and Cunha (2006, 842) noted, ‘when the destructive process is especially fast, the chance to recover from failure may never be offered to an organisation’. This is aligned with a conclusion made by Prahalad and Hamel (1990) that making quick responses to the unknown and adjustment of existing plans to the external opportunities and threats requires a dominant positive frame of reference. In these circumstances, a strategic plan as a point of reference can assist firms to avoid strategic drift. From the above, the following propositions are derived:

• Fast changing environments and crises call for strategic planning which can assist firms to adapt to the challenges and opportunities of the environment.

• Fast changing environments and crises call for strategic planning which is used as a fundamental reference of the course of the firms in the process of continuous adjustment of existing plans to the demand of the environment.

The Role of Learning (Emergent Strategy)

The traditional planning approach to strategy assumes that strategy planning happens first and strategy implementation follows later. However, increased volatility of the business environment requires a different approach to strategic planning (Grant 2003). Firms should move away from highly bureaucratised, top-down planning systems and adopt more flexible team oriented strategic planning systems. These flexible systems are important because firms are involved in an evolving process of learning and discovery caused by ongoing entrepreneurs’ search for business opportunities in response to the realities of the market (Schumpeter 1942 cited in Cunha and Cunha 2006, 273).

Indeed, in organisations facing turbulence, ‘nobody knows in advance what the knowledge is or needs to be’ (Tsoukas 1996, 22). Further, organisations can drop formal plans because in a rapidly changing environment they seldom have the ability to follow the environmental changes (Minzberg 1994). Rather, as Johanson and Johanson (2006, 183) put it, ‘expectations frame what one imagines to be achievable in the future, and thereby what is worth searching for’. These commentators stress that discovery occurs in a process characterised by unpredictable and unexpected events.

Kirzner (1992) links discovery with a firm’s alertness, that is firms may be more or less able to make discoveries. Some years earlier, Barney (1986) found that discoveries can only be identified as luck, while Hayek (1980) views discovery as a consequence of accidents. Johanson and Johanson (2006), on the other hand, stress that discovery does not always take place completely at random. They claim that discovery can be viewed as the intended outcome of improvisation, because firms improvising in turbulent conditions do not know in advance what they will discover. Thus, speedy environmental changes dictate the need and create incentives for discovering of unknowns by firms. This leads to the next proposition:

• Fast changing environments and crises make high demands on discovering the unknown and ongoing learning through improvisation.

The requirements to strategise in a competitive landscape with high speed environmental ...