The Hospitality and

Tourism Industry Context

CHAPTER 3
 Learning objectives
• After reading this chapter, you should be able to:
1. Define and explain the role of the external environment in the
context of the hospitality and tourism businesses.
2. Explain strategy formulation from a contingency perspective.
3. Classify the environment into specific categories.
4. Define and analyze the firm’s task environment.
5. Assess industry-related competitive factors and structures.
6. Discuss challenges in analyzing the general macro and the task
environments.
 CONTENTS
• Characterizing the External Environment
• Understanding the Macro Environment
• The Task Environment and Influence of Industry
Structure
• The Dynamics of Competition and Strategic Groups
• Environmental Scanning and the Hospitality/ Tourism
Firm
• The External Environment in the International
Perspective
 We characterize the environment through a
classification scheme and define its categories
and their impact on the firm from macro and
micro perspectives.
 CHARACTERISING THE EXTERNAL ENVIRONMENT

Every day, firms deal with both external and

internal environments. The external
environment lies outside the firm and
includes individuals, firms, systems, and institutions
that have an impact on it.
 CHARACTERISING THE EXTERNAL ENVIRONMENT

Influences from the external environment come in

the form of changes that occur due to the
forces that emanate from it. These forces arise from
the trends in the macro and micro environments
and could present opportunities or pose threats,
depending on how they impact the firm
 CHARACTERISING THE EXTERNAL ENVIRONMENT

Duncan (1972) defines the internal environment as

the context (e.g., firm) within which social
and physical factors are taken into
consideration by individuals for decision making.
The interpersonal interactions among the members
in the internal environment of the firm are what
distinguish it from the external environment.
 CHARACTERISING THE EXTERNAL ENVIRONMENT

According to Duncan, the internal environment

contains three components: human resource,
organizational functional, and organizational level.
The functional component refers to operations, sales and marketing, human resources,
materials management, and administration, while the organizational level refers to products
and services, goals and objectives, and the process that integrates personnel with the
organization
 CHARACTERISING THE EXTERNAL ENVIRONMENT

Scanning the environment itself is not sufficient;

organizations must be able to cope with the forces by
ensuring that the internal resources and capabilities are
aligned with the opportunities so they can tap them as they
appear in the firm’s external environment. Likewise,
organizations must be able to counter the threats posed by
the changes in the environment. This entire process of
identifying strengths, weaknesses, opportunities, and

threats is referred to as the SWOT analysis.

 Strategic Fit and Strategic Intent

The SWOT analysis provides the firm with an

overview of how it is positioned in a given market to tap
opportunities and counter threats. This analysis was
initially developed by Albert Humphrey from Stanford
University from the perspective of providing firms with a
framework to assess their resources and capabilities so
opportunities could be tapped.
 Strategic Fit and Strategic Intent

The alignment between the firm’s internal resources and

capabilities and external opportunities is called the
“strategic fit.” The “fit” ensures that firms can
align themselves with emerging opportunities
 Strategic Fit and Strategic Intent

“Strategic intent” was put forth by Hamel and

Prahalad (1989) based on the premise that firms
would not be able to create a sustainable competitive
advantage unless strategic resources and capabilities
are used to tap opportunities. This approach captured
a firm’s posture toward its environment in terms of
identifying the opportunities and threats and
positioning it to address them by acquiring resources
and capabilities ahead of time
 Strategic Fit and Strategic Intent

The opportunities and threats that

emanate in the environment, are a result
of the forces that emerge from the macro
and micro external environments.
 Environment Dimensions

Two environmental dimensions emerge from the

literature: the simple complex dimension and
the static-dynamic dimension.
 Environment Dimensions

Thesimple-complex dimension
refers to the number of factors or variables that
influence the environment. The fewer the factors,
the more stable the environment; contrarily, the
greater the number of factors, the more complex
the environment. For instance, if a market has many
suppliers and many buyer groups, then the business
environment in such a market is considered to be
relatively complex.
 Environment Dimensions

The static-dynamic dimension

refers to the degree of change over time
related to the factors or variables pertaining to
the internal and external environments. The
lesser the change, the more static the
environment and vice versa.
 Environment Types

General environment is macro in terms of its

effect on the firm, the task environment, which
is more immediate, is the business environment
within which the firm operates.
UNDERSTANDING THE MACRO ENVIRONMENT
 The Political/Legal Environment
• The political and regulatory factors have been
instrumental in defining how firms can maneuver,
succeed, and expand in local and international markets.
 The Economic Environment
The economic environment relates to the forces that
emanate from the economy, which includes variables such
as the GDP growth rate, interest rates, mortgage rates,
stock market performance, foreign direct investment,
consumer confidence, and inflation rates. T
 The Sociocultural Environment
The sociocultural environment pertains to the geographic,
demographic, and psychographic description of markets and the
emerging trends in them.
 The Technological Environment
Technology has played a major role in the way products and
services are consumed, how they are produced, and even how
they are marketed and distributed.
 The Ecological Environment
The ecological environment has had a major impact on businesses in
recent years, with more and more firms becoming socially responsible in
how they deal with increasing threats related to the environment. These
threats have emanated because of degradation of the environment and
depleting natural resources, including global warming. K
THE TASK ENVIRONMENT AND INFLUENCE OF INDUSTRY STRUCTURE

Firms are influenced by the more immediate business or

task environment, which, according to Dill (1958), consists
of customers, competitors, suppliers, and regulators.
These four components of the task environment influence
the firms in the industries. Here, industry is defined as
consisting of firms that offer similar products and services
that could be considered close substitutes.
 The Five Forces Model
Based on the competitive forces that emanate within
the industry environment, Porter (1979; 1980)
developed the five forces which can be summarized as
follows: .
1. Potential competitors
2. Competitiveness among industry incumbents
3. Buyer’s influence
4. Supplier’s influence
5. Substitute products
THE DYNAMICS OF COMPETITION AND STRATEGIC GROUPS

Competing firms engage in rivalrous actions

in markets where customers have higher
bargaining power. As firms compete among
themselves for market share, they develop
similarities and differences in terms of
strategic posture and market orientation
ENVIRONMENTAL SCANNING AND THE HOSPITALITY/ TOURISM FIRM

Firm’s managers constantly scan the environment

to keep abreast of developments in the external
environment. The process of constantly keeping
track of changes in the firm’s external environment
to assess the trends that create opportunities or
pose threats to the firm is called
environmental scanning.
ENVIRONMENTAL SCANNING AND THE HOSPITALITY/ TOURISM FIRM

The scanning process includes tracking down

trends that have both positive and negative
impacts on the firm.
THE EXTERNAL ENVIRONMENT IN THE INTERNATIONAL PERSPECTIVE

The environment in international markets has

become more liberal with the emergence of the
global market economy. This liberalization is
particularly seen in emerging economies as they
have deregulated banking, telecommunication, and
other sectors, while opening up their economy to
firms from developed countries to set up operations
in their markets.
THE EXTERNAL ENVIRONMENT IN THE INTERNATIONAL PERSPECTIVE

The global hospitality and tourism industry

includes firms that have operations in various
national contexts. These firms range from hotels,
restaurants, and airlines to casinos, cruises, and
travel-related businesses. Given the cyclical nature
of the business in the international context, firms
are able to effectively balance the upturns and
downturns by pursuing an international strategy.
 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

• The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is

an important matching tool that helps managers develop four types of
strategies:
SO (strengths-opportunities) Strategies,
WO (weaknesses-opportunities) Strategies,
ST (strengths-threats) Strategies, and
WT (weaknesses-threats) Strategies.
 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

SO (strengths-opportunities) Strategies - use a firm’s internal strengths

to take advantage of external opportunities.
WO (weaknesses-opportunities) Strategies, - aim at improving internal
weaknesses by taking advantage of external opportunities.
ST (strengths-threats) Strategies - use a firm’s strengths to avoid or
reduce the impact of external threats.
WT (weaknesses-threats) Strategies - are defensive tactics directed at
reducing internal weakness and avoiding external threats.
 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

There are eight steps involved in constructing a SWOT Matrix:

1. List the firm’s key external opportunities.
2. List the firm’s key external threats.
3. List the firm’s key internal strengths.
4. List the firm’s key internal weaknesses.
5. Match internal strengths with external opportunities, and record the resultant SO
Strategies in the appropriate cell.
6. Match internal weaknesses with external opportunities, and record the resultant WO
Strategies.
7. Match internal strengths with external threats, and record the resultant ST Strategies.
8. Match internal weaknesses with external threats, and record the resultant WT
Strategies.
 END…
Assignment
1. Why do we need to analyze the external environment?
2. How can we classify the external environment?
3. What is the task environment, and how does it influence the
firm?
4. How can Porter’s five forces model be used to analyze the task
environment?
5. What are the potential challenges in analyzing the external
environment?
6. What is strategic myopia, and how it can be overcome?
 ACTIVITY 1 AND 2
SMALL CASE STUDY

A hotel group recruits a successful senior executive from a manufacturing

company to turnaround the hotel group.
1.Discuss what type of challenges this new executive may face in this position.
2.Discuss the types of skills that this executive may need in this new position.

EXPAND YOUR
ANSWERS
 DEVELOPING OF SWOT MATRIX

Purpose
• The most widely used strategy-formulation technique
is the SWOT Matrix. This exercise requires the
development of a SWOT Matrix for YOUR University.
Matching key external and internal factors in a
SWOT Matrix requires good intuitive and conceptual
skills. You will improve with practice in developing a
SWOT Matrix.
 DEVELOPING OF SWOT MATRIX

• Instructions
•  Step 1 Using the strengths, weaknesses,
opportunities and threats of CvSU), develop the
SWOT Matrix. You can use it, make an additional, or
reconstruct it.
 DEVELOPING OF SWOT MATRIX

Step 2 Match the SO, WO, ST and WT and formulate strategies.

• SO (strengths-opportunities) Strategies

• WO (weaknesses-opportunities) Strategies

• ST (strengths-threats) Strategies

• WT (weaknesses-threats) Strategies

Step 3 Explain each strategy you make.

Step 4 What 3 strategies do you think your university prioritize to capitalize with? Explain

•1.
•2.
•3.