Strategic Management In Hotel Business
No business starts out of luck and in a rare occasion it does, it cannot continue without a proper planning and execution. You need to strategize your business, so you know which path you’re going with your business. The core of the strategic planning is authenticating strategies that will be based on the unique competences of the hotels and will create comparative advantages that will be better than the competitors (Simonceska, 2010). A strategic plan is a guide for food service business; it characterises the goals for each critical territory of business development, including organization, management, marketing, sales, target clients, products, services and finances. This empowers an organization to successfully draw a path and progress towards the set objectives. The benefits of strategic planning can be summarised as: enhancing co-ordination, controlling by reviewing performance and progress towards objectives, identifying and exploiting future marketing opportunities, enhancing internal communication between personal, encouraging personal in a favourable attitude to change and improving the corporate performance of companies (Aldehayyat, Al Khattab & Anchor, 2011)
InterContinental Hotels Group is one of the world’s leading hotel companies, committed to provide True Hospitality for everyone. This is a simple yet a powerful purpose, centred on creating great guest experience and recognising. Their portfolio is filled with very diverse brands and they focus on strengthening their established brands and addressing gaps I their portfolio. They predominantly franchise their brands to and manage hotels on behalf of the third-party owner, that’s why their focus is to build preferred brands and strong revenue delivery systems. As in 2017, they have around 5348 total hotels out of which 82.8% is franchised, 17% managed and 0.2% comes under owned and leased with 1655 hotels in pipeline (IHG Annual report, 2017). They have quite a high growth rate with a lot of future projects lined up.
The company have a lot of portfolio under their group and all of them have a different purpose in the group. Most of them are acquired hotels groups like Holiday Inn, Intercontinental, Candlewood, Kimpton, Regent while they launched a few of the brands like Staybridge by Holiday Inn, Hotel Indigo, Hualuxe Hotels, Even Hotels, Avid Hotels, Voco.
With such a diverse portfolio, especially with acquired hotels, it’s very difficult to keep the originality and uniqueness of the hotels intact. It’s important that the company which mainly works in the franchised and managed department knows how to run a hotel successfully without completely changing its essence.
According to (Phillips and Moutinho, 1999), a few authors, have proposed strategies to assess the strategic planning system. There are two principle way to deal with the effectiveness of a strategic planning system – process oriented and end oriented. The process approach thinks about the entire system and provides clients with a method of identifying weaknesses, while end oriented focuses on the outputs of the system. While there are people who sticks with the first approach, there are authors who have shown that perhaps both the approaches would be a better combination to measure effectiveness.
As per Athiyaman and Robertson (1995), there are quite a few planning systems utilised by businesses in order to manage change in the internal and external environment and these systems have advanced in order to cope with the persistently changing the business environment. Moreover, in an increasingly philosophical yet interesting methodology, Albrecht (2003) argues that with regards to strategic planning and by concentrating on performance, it’s essential to comprehend what the company is capable of doing well. Subsequently, he proposes that regardless of what the planning systems are, revisiting the mission and vision of the company can end up being very useful as it defines the business.
Phillips and Moutinho (1999), asserts that in hotel industry, the use of strategic planning and techniques leads to increase in company’s effectiveness. Strategic planning and techniques used in tourism and hospitality industry is as sophisticated as those used in manufacturing industry. Armstrong (1982), Planning formality is referred to one of the most significant characteristics of the planning process. In formal strategic planning, formality has been assessed by items such as the degree of the planning manual usage, the amount of emphasis on developing written plans and the length of the planning horizon (Ramanujam and Venkatraman (1987); Bantel (1993).
Another dimension that captures the level of strategic planning is the internal and external orientation of the company which are considered to be an essential part of the strategic planning process. Oreja-Rogriguez and Yanes-Estevez (2007), reasoned that the analysis of the environment is considered to be an important step in the strategic planning process within the tourism sector and that its benefits are well recognized.
The hotel industry, includes branded hotel chains and independent hotels, where branded hotel chains provide around 53% of room supply globally. Branded hotel companies have increased their share in the market by a lot in the past decade. If we have to talk about the business model of this industry, there are two principal business models in the industry, which is fee-based and owner-operated, which have subparts where fee-based is either franchised and/or managed and owner-operated is either owned or leased. With asset-heavy model, the companies have a tighter control over the operations but with the asset-light model, the companies get quicker growth. InterContinental Hotel Group is one of the asset-light model follower with a true sense of future trends.
With the relaunch of Holiday Inn which was announced in 2007 and started in 2008, the hotel chain which was the first to accept technology in the hotel industry in the form of first booking systems in the computers and first online reservation system, the hotel chain with one of the fastest expansion in the United States and was fondly called the national inn keeper, had many of its motels removed from the chain, with only a few exception. When the relaunched occurred, the motels were either demolished or closed off. One of the reasons why the relaunch happened after so many years of acquisition could be that the company had a different business while they acquired Holiday Inn in 1990 (they had a brewery business and had quite a dominance in the UK pub business), but in 2006, when IHG become solely a hospitality company, they had the focus and resources to go through a $1 billion relaunch of Holiday Inn. This relaunched completed by the end of 2010, which only tells us the amount of strategic planning have gone in it.
During 1978, holiday inn held a 10.7% share of the U.S. hotel market which slipped to 8.3% in 1990 after the acquisition. This was because of some radical strategic changes made by the company to maintain higher standards. By the end of 1999, around 300 hotels were dropped. That’s not it they also planned to add 400 properties to already 800 properties of Holiday Inn Express. What they did is that they kept the name of the company save by changing it in balance, i.e. by renovating some of the best rated hotels. This company was the first to provide a product to the public where travellers knew what they were getting at every hotel across the country, which is important to re-establish (Evans, 1999). They were mainly focusing on the consumers’ experience in the guest rooms. IHG from the beginning have taken consumers’ experience and suggestions very seriously.
At a time where trust in an institute and leaders is declining, a brand or a business with a distinct and relevant heritage can represent a source of confidence and credibility for consumers. Whether decades old or newly formed, this is a valuable asset that business are realizing. Brands with guest connection gives a company competitive advantage, which can lead to customer loyalty and ultimately increased revenue growth. According to IHG, there provenance is their heritage in hospitality, even though have been relatively new in pure hotel business, they have been in the hospitality industry from 18th century with the foundation of Bass Brewery. Today, they define their provenance as their company purpose of “Providing true hospitality for everyone”. IHG is doing great job in catering to every market segment, by launching new brands and/or acquiring them.
IHG this year is going to invest a lot of its time and money in the greater China section. In China, since roughly 90% of the pipeline hotels and 75% of the open hotels are located in tier-2 to teir-4 locations in the region, the company is positioning itself to reap the rewards as China’s middle class continues to come into its own (Mest, 2018).
A solid, ground breaking provenance is an advantage against competitive actions. Provenance is a signal of authenticity for every one of those who are connected with, and invested in, product and service brands. Brands provide a typical, credible, authoritative connection across all stakeholder relationships. Provenance provides a foundation for persisting brand success.
PESTEL Analysis & SWOT
- Political – To run a hotel business around the world, companies have to look after a lot of political factors like political stability and importance of tourism sector in the country, risk of military invasion, level of corruption, bureaucracy and interference of the government in travel and leisure sector, government policies regarding land and property acquisition, trading regulations, taxation changes, mandatory employee benefits etc. Political factors like Brexit influenced the hotel company as finding service workforce that is entirely UK based.
- Economic – Macro environment factors like inflation rate, saving rate, interest rate, foreign exchange rate and economic cycle determines the aggregated demand and aggregated investment in an economy. Factors like efficiency of financial market, infrastructure quality of the country, infrastructure potential of a country, workforce skill level, comparative advantage of the host country and consumer service sector in the particular country, education level of the economy, economic growth rate of the company, unemployment rate can all help a company to completely optimise different economies. IHG is doing a great job in optimising different economy, in 2019, their main focus is to utilize the growing Chinese market. In economical, influences in oil prices can have a significant impact on hotels, as it was one of the main reasons why Holiday Inn took a hit in 1980s.
- Social – the society that we live in influences the culture of the organization by their shared beliefs and attitude. Factors like demographic and skill level of the population, class structure, hierarchy and power structure of the society, culture (gender roles, social convections), entrepreneurial spirit of the society, leisure interest and attitudes (health, environment, consciousness etc) can explain if the culture of the country even suits the culture of your company. In the social parameter, influence of cultural differences can have a big influence on the hotel sector, understanding it is very important, one of the glowing example of this is the Hualuxe hotels, which was launched especially for the Chinese market highlighting the Chinese hospitality culture. New trends due to change in demographics and lifestyle, with the younger generation becoming one of the prominent travellers, IHG have launched new brands (Avid hotels and Voco hotels) for them.
- Technological – technology is fast disrupting various industries across the board. In the technological factor, a frim should not only do technical analysis of the industry but also the speed at which technology disrupt that industry. Slow speed will give more time while fat speed of technology disruption may give a firm little time to cope and be profitable. Factors like technology’s impact on the product offering, rate of technological diffusion. IHG is quite ahead in their technology game. They already are using an enterprise hybrid-cloud storage solution and achieved great results with it. They have mobile app with check in and check out service, mobile folio, mobile room key technology, customer feedback which gives guests the flexibility to manage their stay via their mobile device.
- Environment – different marketers have different norms or environment standards which can Impact the profitability of an organisation. Before entering new market, the firm should carefully evaluate the environmental standards that’s are required to operate in those market. factors like weather, climate change, laws regulating environment pollution, recycling, waste management, endangered species and attitude towards and support for renewable energy should be considered not only for the smooth running of business but also, it’s important to give back in the environment we work in. IHG have started a green engage system in a group-wide, online sustainability programme. It helps the hotels to manage and report their use of energy, carbon, water and waste and minimise their overall utility costs and environmental impact.
- Legal – the legal framework and institutions are not robust enough to protect the intellectual property rights of an organisation in many countries. Factors like anti-trust law in travel & leisure industry and overall in the country, copyright and patents laws, property laws, employment law, health and safety law should be all consider before investing in that environment. IHG have been accused of breaking competition law by preventing online travel agents from discounting the price of room-only hotel accommodation. In 2014, IHG agreed to end the practice of pricing fixing. Also, in 2017, the mayor of London accused the hotel chain of reneging on a commitment to pay the living wage.
The company’s solid working execution, faithful clientele base, strong brand portfolio, and proprietary reservation system are considered to be their significant qualities, even as limited liquidity position remains an area of concern. Going ahead, foreign currency fluctuations, dangers identified with competitive brand jacking and risks with unforeseen circumstances may affect the company’s performance. Be that as it may, positive standpoint for the global travel and tourism industry, developing youth and student travel market and strategic initiative are likely to present new growth opportunities to the company (World Market Intelligence, 2014).
Changes in business environment are leading to new and greater demands on strategic planning system. Moreover, given that strategic planning’s sole purpose is to improve strategic performance, improving, assessing and monitoring the effectiveness of strategic planning process (Phillips & Moutinho, 1999). Every industry needs strategic planning, with quick advancement in the hospitality industry which has prompted the importance of strategic planning required in order the organisations can have a stable rise in the industry. It matches market opportunities with business strengths and provides guidance to accomplish set goals.
In this paper, we talk about the need for strategic planning and tools and techniques that companies can use in for strategic planning. With the huge growth in hospitality industry, companies need to focus on every aspect of service and guest satisfaction and plan out the long-term plans to work in a very competitive environment. Strategic planning is well-suited for tourism industry, as the infrastructure requires high capital investment, long time frame and a wide scope of interdependencies. This requires the construction of strategy to shape opportunities for competitive advantage and provide a direction for stakeholders to follow. Strategic planning can assist through its participatory approach (Phillips & Moutinho, 2014).
InterContinental Hotel Group is one of the most prominent hotel groups around the world. They are well known for their diverse brand portfolio and solid initiatives that have make them this successful. With a very strong top management team, this group of hotels have introduced initiatives and strategies which always have a long-term benefit attached to it. Any acquisition, any launch goes through a long process of planning and then taken place with customer feedbacks and suggestions.
Though most of its properties are franchised or managed, they have managed to make all of their brands very successful, even if it means to that the brand might loses a little of its essences. But still they make sure the brands which are acquired still have there a level of their originality intact and creating this balance is one of the most important thing for a company because it takes a lot of planning and effort to turn a struggling business into a successful one without losing its essences. This company does a lot of things to ensure that they tap every possible market segment and have their presence in almost every part of the country. With the on-going initiatives and strategies and recent acquisition, IHG is growing at a very fast pace.
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