BME 1 – HOSPITALITY STRATEGIC Other fields influenced early S.

M:
MANAGEMENT
 Marketing
 Finance
 Psychology
CHAPTER 1 – INTRODUCTION TO
STRATEGIC MANAGEMENT  Management

Hospitality Business - is The strategic Management process:

fiercely competitive
McDonald’s - began its rapid expansion in
the middle of 20th century & shaped that
fast-food market
Strategic planning processes -
counterparts
Strategic management tools - high levels
of satisfaction
81% - percentage of companies worldwide
that does strategic planning
89% - percentage of companies in north
America that does SP.
Hospitality Firms - also benefit from Principle of Enactment - can create their
strategic planning own environments

 Strategic alliance with stakeholders

 Investments in leading technologies
Origin of Strategic Planning
 Advertising
Several trends:  Political Lobbying

 Increasing competition in most Smaller organizations - limited in ability to

industries
 Modern and cheaper transportation
& communication
 Technological development
Three Perspectives on Strategic
Management
1. The traditional perspective
2. The resource-based view
3. Stakeholder view
1. Traditional Perspective
Field of Strategic Management - important to organizations
emerged in the latter part of 20th century
Topics associated with the competitiveness
of industries:
 Industry concentration - degree of
domination
 Diversification - new products.
 Product differentiation
-product/service standout.
 Market power - ability of a company
to manipulate or influence prices.
Economic Researches - focused on
industries
influence
Key to enactment - adopt completely but
Deliberate strategy - managers
Emergent strategy - trial & error
Effective Strategic Planning - deliberate
and emergent
 Both adoption and enactment are
 Should adopt to environmental
forces one cost of enacting exceeds
the benefit
 Proactive in creating opportunities
 Organization should engage in
deliberate strategy but must be
willing to make mistakes and learn
from it.
2. The Resource-based view - has roots
Effective Leadership- important to
organizational performance, but difficult to
specify
The organization as a bundle of
resources:
 1. Financial resources - monetary
resources
o Internal & external sources of
financing
o Financial strength
2. Physical resources
o Land & buildings
o Equipment
o Organizational locations
o Access to raw materials
3. Human resources
o Skills, background, and
training of managers and
employees
o Organizational structure
4. Organizational knowledge &
learning – encompasses all
resources
5. General organizational resources
o firm’s reputation
o brand names & patents
o contracts & licenses
o Stakeholder relationships
3. The Organization as a Network of
Stakeholders (Stakeholder Approach)
Stakeholder view - alliance and contracts
Negotiating & Contracting - have always
been important to business.
Trend in business is toward more on:
 strategic alliances
 joint ventures
 subcontracting arrangements with
stakeholders
Stakeholder map:
Strategic Management Process:
1. Situation Analysis - external &
internal environment
2. Strategic Direction - mission &
goals
3. Strategy Formulation - strengths &
opportunities or overcome
weaknesses & threats
4. Strategy Implementation-
development and execution of plans
SWOT Analysis - a tool strategist use to
evaluate strengths, weaknesses,
opportunities, & threats.
 Strengths - company resources &
capabilities
 Weaknesses - resources &
capabilities that company
 Opportunity - conditions in the
broad environment that allow firm to
take
 Threats- conditions in the broad
environment that may impede
Strategic Direction- the longer-term goals
and objectives of the organization
- defines the purpose for why a company
exists & operates
- often coined in mission & vision
statements
Mission statement - current purpose &
scope of operation
Vision statement - wants to be in the future
well-established strategic direction-
provide guidance to stakeholders inside the
organization who carry outs decisions.
well-defined direction - greater
understanding
Strategy Formulation- process of planning
strategies
- results in a plan of action for the company
and its various levels
3 levels:
1. Corporate-level strategy-
company’s domain of activity
2. Business-level strategy - pertain to
domain direction & navigation
3. Functional-level strategy-
functional resource areas, business-
level
4. Strategy formulation in a Multi-
business organization:
1. Corporate-level decisions- made
at the highest levels of the
organization (CEO & BOD)
 2. Business-level decisions- have CH 2 – THE ENVIRONMENT AND
diversified into multiple areas, EXTERNAL STAKEHOLDERS
3. Functional-level decisions-
represent organizational areas The Broad Environm ent

Sociocultural Influences Technological Influences

The Operating Environm ent
Com petitors
Activist Local
Strategy Implementation - groups comm unities
The Organization
pattern of decisions and actions S uppliers Ow ners/Board of Directors Custom ers
Managers
Organizational control - Unions Employees
The m edia

processes that lead to adjustments Financial

Government agencies
intermediaries
and administrators

Strategic-control system - may tell Economic Influences Political Influences

managers that the mission and strategies

Two Divisions of External Environment:

Characteristics/Elements of Strategic 1. Operating Environment-

Thinking:
1. Intent Focused - managerial vision
2. Comprehensive - “systems” perspective.
Envisions the firm as a part of a larger
system of value
3. Opportunistic- seizes unanticipated
opportunities
4. Long-Term Oriented- Goes beyond the
here & now
5. Built on Past and Presen- Does not
ignore the past or present
6. Hypothesis Driven- sequential process
- willing to take risk
Strategic Management in the Hospitality
Industry:
Hotels & Restaurants- most competitive
businesses in the world
Hospitality industry- consist of businesses
that provide accommodation and/or F&B
Hospitality Businesses- provide services,
which differ from tangible products
Segmentation- strategy that distinguishes
properties.
Smith Travel Research and Bear Stearns-
widely used
Five segments of lodging:
1. luxury (upper upscale)
2. upscale
3. midscale with food and beverage
services
4. midscale without food and beverage
services
5. economy
Ownership Structures- A hotel may be
owned by one company, franchised by
another, and operated by a third,
similarities may exists
2. Broad Environment - not
firm/industry specific
The Broad Environment:
 Sociocultural Influences
 Economic influences
 Political influences
 Technological influences
The Operating Environments:
 Competitors
 Customers
 Supplies
 The media
 Unions
 Local Communities
 Activist groups
 Financial intermediaries
 Government agencies &
administrators
The Organization:
 Owners/BODs
 Managers
 Employees
Assessment of the Broad Envt.-
describes many of the most important
forces in the broad environment and how
organizations respond to them.
- scanning, forecasting, and adapting to
broad envt. Influences
Broad Environment - forms the context
Key elements of Broad Environment:
1. Sociocultural influences
2. Global Economic Influences
3. Political Influences
4. Technological Influences

A. The Sociocultural context- geographic
regions
Society- composed of individuals
Analysis of Societal Trends- value of
watching social trends
Green hotels & Restaurant menus with
Organic Food- example how broader social
trends can shape the industry
Hospitality firms that pay attention to
social trends can:
 Recognize Opportunities
 Enhance corporate reputation
 Avoid unwanted legislation
Opportunity Creation- Broader societal
influences
Broader societal influences - can create
opportunities for organizations.
Demographics/Population
Characteristics – often used in marketing
research
Demographic trends - can help in the
development of strategy
 Average age of a populations
 Income levels
 Ethnic mix
Generational and Cultural Awareness
Culture- set of shared beliefs, values, and
attitudes
Generation- may shape its identity or
distinctive beliefs and views
Corporate Reputation- positive
organizational reputation
Awareness & Compliance -“bad
corporate citizen”
Distrust of Corporations- goes hand in
hand
Social media web sites & blogs- important
tool for prospective hotel guests
Online Buzz- bad & good info
Social Responsibility -
Correct assessment
Legislative Activity- public outcry against
the actions of firms.
Socially Responsible firm - refrains from
acting unethically, voluntarily seeks to
improve society.
B. The Economic Context - profound
influence on organizational
Economic Forces- have a profound
influence on organizational behavin
Economic forces to monitor & predict:
1. Economic Growth - consumer
demand, cost of factors of
production, production
2. Interest Rates- cost of capital for
new projects, cost of refinancing
existing debt
3. Inflation- interest rates, optimism or
pessimism of stakeholders
4. Exchange Rates- ability to
profitability remove profits from
foreign ventures.
5. Trade deficits - Government
policies, incentives, trade barriers
C. The Political Context- Political forces,
both at home and abroad,
Government - provide and enforce the
rules by which organizations operate
Rules includes:
 Laws
 Regulations
 Policies
Alliances among governments -
provide additional level of complexity for
businesses with
D. Technological Context -
Technological change creates new
products, processes, and
Technological Change -
creates new products, processes, and
services,
Computers & telecommunications
technologies-global marketplace.
Internet- new communications and
marketing tool
Technology - human knowledge about
products and services
Dealing with Technological Change
Technological forecasting efforts:
1. Monitor Trends- by surfing the web,
studying journals,
2. Solicit the opinion of experts outside - bargaining power of customers
the organization- more formal method of
Bargaining power- a form of economic
tech forecasting
power. Ability to influence a firm’s behaviour
3. Develop scenarios of alternative
technological futures- capture different
Vertical Integration - firm moves forward
rates of innovation and conduct “what-if”
to become its own customer or moves
analysis.
backward to become
Gathering Information on International its own supplier
Environments- these kinds of broad
Bargaining power of customers -
environmental insights necessary for good
degree of customers exercise active
strategic decision making
influence over pricing
World Trade Organization - provides
Powerful customers - must be given high
statistics and market reports for a wide
priority in strategic management activities.
variety of countries and regions
Smith Travel Research & The Bench-
provide comprehensive database of hotel B. Economic Power of Suppliers-
performance Powerful suppliers
Hospitality Valuation Services- wide C. Competition, Concentration, &
array of articles about all aspects of Monopoly Power
hospitality
Competitive Moves - incite retaliation or
countermoves
Analysis of External Stakeholders and
the Operating Environment
Examples of Competitive moves:
Operating Environment- consists of
stakeholders with whom organizations  Advertising programs
interact  Sales force expansions
 Capacity expansion
Stakeholders - who the organization
 New-service introductions
interact with.
 Long-term contracts with customers
3 Stakeholder groups with economic
Major forces that lead to high levels of
power:
competition:
1. Customers
1. There are many competitors in the
2. Suppliers
industry, and none of them possess a
3. Competitors
dominant position
Porter’s 5 force model of industry
 Pure competition- organizations
competition:
must work hard to maintain their
positions, because customers have
many options
2. The industry is growing slowly
3. Products in the industry are not easily
differentiated

 Lack of Product differentiation-

price-cutting strategies
4. High fixed costs exist- associated with
large hotel properties, airlines, or cruise
lines

 High fixed cost- firms are under

pressure to increase sales to cover
their costs

A. Economic power of customers- 5. High Exist barriers exist - firms may

Customers provide demand for products lose all or most of their investments
and services Entry Barriers & Substitutes
Entry Barriers - Forces that keep new
competitors out
New Entrants - increase competition which
may drive down prices and profits,
Examples of Entry Barriers:
 Economies of Scale a service at
higher volume
 Capital requirements start-
up costs,
 Product differentiation - enjoy a
loyal customer base.
 High switching costs- can also
serve as an entry barrier
 Inimitable resources- Resources
possessed by industry participants
 Government policy - Sometimes
governments
External Stakeholders, Formal Power,
and Political Influence
Formal power- means legal or contractual
right to make decisions
Economic power- ability to withhold
Political power- lawmakers,
Typical Roles of Various Stakeholder
Managing the Operating Environment
Economic Actions - Firms may
take a variety of ____ to offset forces in the
operating
environment
Competitive Tactics - Industry
rivals apply a variety of ___ in order to win
market share,
increase revenues, and increase profits at
the expense of rivals.
 Advertising
 New-product launches
 New service methods
Competitive Benchmarking - popular
technique for keeping up with competitors. A
tool for
assessing the best practices of
direct competitors and firms
Political strategies - all
organizational activities that have as one of
their objectives the
creation of a friendlier political
climate for the organization
 Lobbyist - organizations
hire them to represent views to
political leader
Partnering with External Stakeholders:
Types of Organizational cooperation:
1. Joint ventures 2 or more
firms pool
2. Networks- hub-and-wheel
3. Consortia- specialized joint
ventures encompassing many
different arrangements
4. Trade associations -
Organizations (non-profit)
5. Alliances - arrangement
between 2 or more firms that
establishes an exchange
relationship but no joint ownership
involved
6. Interlocking directorate- second firm.
STRATEGIC DIRECTION – CH 3
Strategic Direction - established and
communicated through tools such as
visions, missions, and values
Strategic Direction - provides a
framework d
Organizational Identity- high-performing
companies
Top managers- responsible for providing
long-term
Three perspectives of “What is our
Business”:
1. Who is being satisfied
2. What is being satisfied
3. How are customer needs satisfied
Scope of an organization - breadth s
markets.
Key Influences on Direction
Internal & External stakeholders- both
influences strategic direction.
Amount of influence stakeholders have is 2. Inspire higher levels of performance
proportional to: and pride in association – mission
1. Economic power 3. Communicate organizational purpose
2. Political power & values- resolve dilemmas
3. Formal power
4. Enhance organizational reputation –
mission statements should be carefully
Strategic Direction- forms the foundation articulated so that they enhance reputation
Feedback- organization’s history Organizational Vision/Vision- ideal and
unique image
History- can potentially assist strategic
planning processes Well-understood vision- can help
managers and employees believe that their
Past successes- strong structural inertia
actions have meaning
Structural Inertia- status quo
Organizational Values- company’s culture
Inertia - is stronger when an organization & ethics.
has been successful in the past, managers
Values Statements - common throughout
believe that past success will translate into
the hospitality industry.
future success
- potential threat to the survival and
prosperity of an organization Social Responsibility - Embedded
within the concept
Four Major components of Social
Forces at work that maintain Status quo:
Responsibility:
1. Systems
1. Economic responsibilities-
2. Structures
productive and profitable
3. Processes
2. Legal responsibilities- confines of
4. Culture
written law.
5. Sunk Costs
3. Moral obligations- unwritten
6. Internal Politics
codes,.
7. Barriers to entry & exit
4. Discretionary responsibilities- are
Predictability - Most humans desire volitional or philanthropic in nature.

Influences on Strategic Direction:

Mission Statement - brief statement
Multiple Uses of Mission Statements:
1. Direct Decision & Resource Allocation-
use terms that are understandable
Green Initiatives- Hotel companies are
beginning to recognize that the choices they
make affect the impact their guests have on
the environment.
Environmental responsibility- is emerging
as the hospitality industry
Enterprise Strategy - joining of ethical and
strategic thinking
- a natural extension
“What do we stand for”- critical link
Ethical decision making- a way of doing
business
Ethical Frames of Reference- The pattern
of decisions
Ethical dimensions - types of decisions
Ethical Dilemma- exists when the values of
different stakeholders
Five Theoretical models:
1. Economic Theory maximize profits
 Profit maximization- greatest benefit
 2. Legal Theory - Laws are a reflection 2. Predelivery support
of what society 3. Delivery
3. Religion- Everyone should act in 4. Post-delivery support - involve
accordance with religious teachings. ongoing customer relationship
management by several
4. Utilitarian theory - Focused on the
tourism providers.
outcome of a decision
Delivery of Tourism Product:
5. Universalist Theory- intent of the
decision. 1. Inbound transportation
2. Accommodation
Code of Ethics- further effort
3. Entertainment operations
Ethics System- to ensure employees abide 4. Outbound transportation
by the corporate code of ethics.
Ethics in Global Environments -
Tangible resources - can be seen,
Dealing with the ethics of employees,
touched, and/or quantified.
customers, and other
stakeholders Intangible resources- most important
resources and capabilities Brand
ORGNIZATIONAL RESOURCES &
COMPETITIVE ADVANTAGE – CH 4  Knowledge
 Employee trust
Resources & Capabilities - the bread
and butter  Reputation of firm

Internal Analysis & Competitive Causal Ambiguity - difficult to determine

Advantage Firm Resources and Capabilities:
Sustainable Competitive Advantages 1. Financial resources
when a firm has a long-lasting o Excellent cash flow
o Strong balance sheet
o Superior past performance
Value-Adding Activities- To visualize the 2. Human-based resources
activities and processes o Superior CEO characteristics
Value Chain- a useful tool o Experienced managers
o Well trained, motived, loyal
- It divides organizational processes employees
Michael Porter - 3. General Organizational resources
developed the value chain framework o Patents
o Exclusive contracts
o Excellent reputation or brand
Value Chain for the Wine Industry: name
4. Physical resources
o Superior location or raw
materials
Wine o Outstanding products and/or
G rowing Distribution Marketing Retailing
Making services
o State-of-the-are plant or
machinery
Inbound O perations O utbound Marketing Service 5. Knowledge and
Logistics Logistics
Learning/Knowledge-based
resources
o Superior technology
development
o Outstanding learning
processes
Value-Chain Activities- The operations of a
hotel or a restaurant
Tourism Value Chain - Solid Investment Strategy - should focus
Recent on human-resource development and
superior
Value Chain process:
physical assets and processes
1. Winning the order
A. Financial resources-unique or difficult to skills and a unique perspective of
imitate how the
organization should respond
Financial Ratios:
to demands
 Profitability ratios - overall Five Important Responsibilities of
financial success Strategic leadership:
 Liquidity ratios - help
an organization determine its ability 1. Creating organizational vision
to pay short-term 2. Establishing core values for the
obligations. Financiers are organization
interested in this ratio 3. Developing strategies and a
 Leverage - a common management structure
measure of financial risk, which 4. Fostering an environment that is
often takes the form of conducive to organizational learning
a loan or other borrowing and development
(debt) 5. Serving as a steward for the
organization

B. Physical Resources - Developing Strategies & Structure

resources people see when they observe
the organization. Strategic leaders - directly
responsible for overseeing the development
- Superior of strategies the
physical resources such as prime locations organization should follow
and
outstanding facilities are sources of Entrepreneur - serves as the
competitive advantage sole strategist for small organizations.

Architectural & Sustainable Design- Fostering Organizational Learning-

practice done by boutique hotels. organizational scholars believe that the true
role of a leader is to
 Boutique Hotels - differentiate harness the creative energy of the
themselves from larger chain or individual
branded hotels by
their intense focus on the  Leaders -
physical space. should create an environment for
 Europe & Asia - lead organizational learning by serving
the way in producing architecturally as a coach, teacher,
interesting hotels. & facilitator.
 Sustainable design - One  Learning environment - is
emerging area for future competitive created by helping organizational
positioning is the members question their
movement toward this design assumptions about
the business and its environment.
Serving as a Steward -
C. Human-Based Resources - The leaders care about the company and the
humans that make up an organization are society in which it
its lifeblood—its operates, both voluntary and
unique and most valuable asset involuntary stakeholders.
Strategic Leadership -
highest-ranking officer in a large
organization can be called by many Leadership Approaches and
titles, but the most common Organizational Fit:
is chief executive officer 1. Commander - CEO
 Chief Exec. Officer - has primary formulates strategy and then directs
responsibility for setting the strategic top managers to
direction of the implement it
firm 2. Change - CEO
 Top management team - formulates strategy, then plans the
heterogeneous group of three to ten changes in structure,
top executives assembled by personnel, information
CEO. Bring unique set of systems, and administration
 3. Collaborative - CEO initiates levels of experience and
a planning session with executive training
and division  Turnover - at least
managers. After each partially an indication of how
participant presents ideas, the group employees feel about their
discusses and jobs
agrees to a strategy.
4. Cultural - CEO
and other top-level managers mold Structure & Culture - Leaders,
the organization’s culture managers, directors, and employees can all
so that all organizational be sources of
members make decisions that are competitive advantage.
consistent with
the vision.  Organizational Structure- structure
5. Crescive - Lower-level has a lot to do with how successful a
managers are encouraged to firm will be
formulate and implement  Organization culture- closely
their own strategic plans. related to structure & reflects the
CEO encourages innovation & filter values and leadership
inappropriate styles of executives and
programs. managers
Four very common organization
orientations:
Ownership and Management
1. Craftspeople - employees
Sole proprietorships - owner and are passionate about quality. Quality
top manager is the same individual is the primary
- no owner– driver of the corporate culture
manager conflicts of interest exist and pride.
2. Builders - Growth is the
Top Managers - primary goal. Managers are
become the agents for the owners of the rewarded for taking risks
firm and is duty to act in that result in growth.
the owners’ best interest. 3. Pioneers - build their
businesses through leadership
positions in new product
Executive Compensation - Agency and service development.
problems often arise because of the way 4. Salespeople - excellent
executives are marketers who create successful
compensated. brand names and
distribution channels, and
Board of Directors - Perhaps the
pursue aggressive advertising
greatest agency problems occur when top
managers serve
on the board of directors.
Several contributing factors can drive a
 CEO Duality - the CEO in successful organization to an unsuccessful
the position of chairperson of the extreme:
board.
1. Overconfidence -
Leadership may get overconfident
Employees - Labor is the from its past successes
single greatest cost item in most hospitality 2. Dominant managers & subunits-
businesses, which One manager or unit may become
is why employees and the way they are overly dominant,
managed can be attracting the best
important sources of competitive managerial talent and exercising
advantage. unbalanced
influence
 Labor - single 3. Complacency - successful
greatest cost item strategies of the past may have
 Labor productivity - a good become embedded in
indication of how well managed the routine policies.
employees are and their
 1. Patents -
protect an invention
D. Knowledge-based Resources
2. Copyrights - protect
Knowledge economy - “original works of authorship.”
knowledge is used to produce economic 3. Trademarks - protect
value. words, names, and symbols used to
distinguish a good
- is driven by 4. Servicemarks - protect
the importance of intangible people skills words, names, and symbols used to
and distinguish a service
intellectual asset
Knowledge - an intangible
asset Brands & Organizational Reputation

 can be used by several parties Brand - viewed as a

simultaneously. key value-creating resource, because they
 knowledge does not wear out, its are firm
value depreciates rapidly as new specific and difficult to imitate
knowledge is created. - identity of a
 difficult to measure the amount of good or service
knowledge transferred or its value.
Superior Relationships with
Stakeholders
Internal Knowledge Creation and Relationships with stakeholders- can also
Organizational Learning: be described as an organizational resource
Facilitating knowledge - one
of the most important managerial tasks
Four Knowledge facilitation tasks:
1. Knowledge creation - requires
systems that encourage innovative
thinking throughout
the firm
2. Knowledge retention - A lot
of knowledge exists in an
organization. Only part of that
knowledge is
shared, but very little of that sharing
gets recorded
3. Knowledge Sharing - Sharing of
knowledge is as important as
creating it.
4. Knowledge Utilization - an
organization has to clear the way for
knowledge to be translated
into new processes and
programs
Relational Ability - ability to
interact with other companies, can increase
a firm’s
ability to obtain and transfer
knowledge

E. General Organizational Resources- a

varied collection of organizational
possessions that can have
a tremendous impact on financial
success and survival.