Chapter 2

Analyzing service experience

in hospitality and tourism
Prepared by:

Aireen Y. Clores
What is a Strategy?
Examples of Corporate Strategy in 2009
GM files for Chapter 11 bankruptcy
Chrysler is sold to Fiat and leaving bankruptcy
Best Buy is adding patio furniture to its product assortment
A strategy is a business approach to a set of competitive moves that are designed to generate a
successful outcome
A strategy is managements game plan for
Strengthening the organizations competitive position
Satisfying customers
Achieving performance targets
Three big questions involved in a strategy
Where are we now?
Where do we want to go?
How will we get there?
How do we know if we got there?


Art & science of
formulating, implementing,
and evaluating, cross-
functional decisions that
enable an organization to
achieve its objectives.

Generic Strategies
Lower price

Differentiation

Market Niche
Generic Strategies:
Low Price
Management focus on
maximizing operational or
production efficiencies to
minimize the organizations
cost
Cebu pacific air provides
budget fare seats to
customers compared to
other airlines
Generic Strategies:
Brand image
Strong brand promise
reduces customer
uncertainty about the
hospitality experience that
the organization offers,
and, consequently, creates
a brand preference and
increases customer loyalty
Can extend the company's
reach into new markets

Generic Strategies:
Differentiation
Brand identity in terms of
product and service
Price differentiated
Quality perception on
products and services
Top ten websites: Philippines
Tasks Involved in Strategic Management
Defining business and stating a mission
Setting measurable objectives
Crafting a strategy to achieve objectives
Implementing a strategy
Evaluating performance of the strategy, reviewing new developments and
taking corrective action
Developing a Mission & Objectives
An organizations Mission
Reflects managements vision of what the organization seeks to do and become
Provides a clear view of what the organization is trying to accomplish for its
customers
Indicates intent to take a business position
An organizations Objectives
Convert the mission into performance targets
Track performance over time
Must be achievable
Two types
Financial outcomes that relate to improving financial performance
Strategic outcomes that will result in greater competitiveness & stronger long-term
market position

Vision Statement
What do we want to become?


Mission Statement
What is our business?
Key Terms
Examples of Types of Objectives
Financial
Increase earnings growth from 10 to 15% per year
Boost return on equity investment from 15 to 20% in 2009
Achieve and maintain a AAA bond rating
Strategic
Increase market share from 18 to 22% in 2009
Overtake rivals on quality or customer service by 2010
Attain lower overall costs that rivals by 2011
Become leader in new product introductions by 2010
Achieve technological superiority by 2012

What Does a Strategy Include?
How to satisfy customers
How to grow the business
Organic growth
Acquisition
How to respond to changing industry and market conditions
How to best capitalize on new opportunities
How to manage each functional piece of business
How to achieve strategic and financial objectives


What is a Strategic Plan
A strategic plan maps
Where the organization is headed
Short and long range performance targets
Actions of management to achieve desired outcomes
A strategic plan consists of
Mission statement
Strategic and financial performance objectives
Comprehensive strategy for achieving the objectives
Implementing Strategy
Implementing a strategy involves
Creating fits between the way things are done and what it takes for effective
strategy execution
Executing strategy efficiently and effectively
Producing desired results on time

The most important fit is between a strategy and
Organizational capabilities
A reward structure
Internal support systems
Organizational culture

Evaluating Performance
The tasks of strategic management are not one-time only exercises
because
Times and conditions change
Events change over time
New ways to do things surface
New managers have different ideas take over
Managers must
Constantly evaluate performance
Monitor situation and decide how well things are working
Make necessary adjustments
Alter organizations long-term direction
Raise or lower performance objectives
Modify strategy
A Situation Analysis
A situation analysis identifies strategic options and opportunities
A situation analysis involves
External factors: Macroenvironment (industry and competitive conditions)
Internal factors: Microenvironment (organizations internal situation and
competitive position)
External factors
Industrys dominant economic traits
Competitive forces
Competitive moves of rivals
Key success factors
Attractiveness of the industry
SWOT
Internal Factors
Strengths Weaknesses

E
x F Opportunities
t a
e c
r t Threats
a o
l r
s
Opportunities & Threats (External)
Key Terms
Analysis of Trends:
Economic
Social
Cultural
Demographic/Environmental
Political, Legal, Governmental
Technological
Competitors
Strengths & Weaknesses (Internal)
Key Terms
Typically located in functional areas of the firm
Management
Marketing
Finance/Accounting
Production/Operations
Research & Development
Computer Information Systems
Class Assignment:
Choose any service organization and
make a SWOT analysis

Describe the competitive advantage the
organization offers
Means by which long-term objectives are
achieved
Key Terms


Strategies

Five Forces Model
Rivalry among sellers
Substitute
Products
Buyers
Potential Entrants
Suppliers
Analysis of Competitive Forces
The analysis is designed to identify the main sources of competitive forces
and the strength of the pressure
Sources of competitive pressures are defined by
Rivalry among competitors
Substitute products
Potential entry
Bargaining power of suppliers
Bargaining power of buyers
Rate the strength of each competitive force
Explain how each competitive force works and its role in the overall
competitive picture
Environmental Scanning
A way to monitor and interpret social, political, economic, ecological and
technological events in an effort to spot trends and conditions that could
eventually impact the industry and the organization.
The purpose of environmental scanning is to raise the consciousness of
managers about potential developments that could have an important
impact on industry conditions and pose new opportunities and threats

Assessing Competitive Positions: Strategic Groups
A Strategic Group consists of those rival firms with similar competitive
approaches and positions in an industry
A Strategic Group displays different competitive positions that rival firms
occupy
Organizations in the same strategic group have one or more competitive
characteristics in common
Sell in the same price/quality range
Cover same geographic areas
Be vertically integrated to same degree
Emphasize same types of distribution channels
Offer buyers similar services
Use identical technological approaches
Competitor Analysis
An organizations strategy is affected by
Current strategies of competitors
Actions competitors are likely to take
Profile of key competitors involves studying
Current position in the industry of each competitor
Strategic objectives and recent business plans of each competitor
Basic competitive approach of each competitor
Successful strategies take into account
Understanding competitor strategies
Evaluating their vulnerability to driving forces and competitive pressures
Sizing strengths and weaknesses of each competitor
Anticipating each competitors next move

Key Industry Success Factors
Key success factors spell the difference between
Profit and loss
Competitive success or failure
A key success factor can be
A specific skill or talent
Competitive capability
Something an organization must do to satisfy customers
Being distinctively better than competitors on one or more key success
factors produces a competitive advantage
Key success factors consist of 3-5 major determinants of financial and
competitive success in an industry
Competitive Strategy
Competitive Strategy
A competitive strategy consists of moves to
Attract customers
Withstand competitive pressures
Strengthen an organizations market position
The objective of a competitive strategy is to generate a competitive
advantage, increase the loyalty of customers and beat competitors
A competitive strategy is narrower in scope than a business strategy
Five competitive strategies are
Overall low-cost leadership strategy
Best cost provider strategy
Broad differentiation strategy
Focused low-cost strategy
Focused differentiation strategy

Overall Low-Cost Leadership Strategy
Strive to be the overall low-cost provider in an industry
How to achieve overall low-cost leadership
Scrutinize each cost activity
Manage each cost lower year after year
Reengineer cost activities to reduce overall costs
Cut some cost activities out of the value chain
Competitive strengths of a overall low-cost strategy
Organization in a better position to compete offensively on price
Organization is better able to negotiate with large customers
Organization is able to use price as a defense against substitutes
Low cost is a significant barrier to entry
Organization is more insulated from the power of suppliers
Overall Low-Cost Leadership Strategy
Carrier 3Q 2008 (cents) Carrier

3Q 2008 (cents)
Northwest 15.65 Frontier 11.92
United 14.64 Delta 11.82
US Airways 14.21 Jet Blue 10.06
Continental 12.74 Southwest 9.74
American 12.69 AirTran 9.66
When Does an Overall Low-Cost Strategy Work
the Best
When price competition is a dominant competitive force
The product is a commodity
There are few ways to differentiate the product
Most customers have similar needs/requirements
Customers incur low switching costs changing sellers
Customers are large and have significant bargaining power

When Doesnt a Overall Low-Cost Strategy Work
When technological breakthroughs open cost reductions for
competitors, negating a low-cost providers efficiency advantage
Competitors find it relatively easy and inexpensive to imitate the
leaders low cost methods
Low-cost leader focuses so much on cost reduction that the
organization fails to respond to
Changes in customer requirements for quality and service
New product developments
Reduced customer sensitivity to price
Broad Differentiation Strategies
Striving to build customer loyalty by differentiating an organizations
products from competitors products
Keys to success include
Finding ways to differentiate to create value for customers that are not easily
copied
Not spending more to differentiate than the price premium that can be charged
A successful differential strategy allows an organization to
Set a premium price
Increase unit sales
Build brand loyalty
Broad Differentiation Strategies
Where to look for differentiation opportunities
Supply chain
Research and development
Production activities
Marketing, sales and service activities
Strengths of a Differentiation Strategy
Customers develop loyalty to the brand
Brand loyalty acts as an entry barrier
Organization is better able to fend off threats of substitute products because of
brand loyalty
Reduces bargaining power of large customers since other brands are less
attractive
Seller may be in a better position to resist efforts of suppliers to raise prices
Pitfalls of a Broad Differentiation Strategy
Trying to differentiate on an unimportant product feature that doesnt result
in providing more value to the customer
Over differentiating the product such that the product features exceed the
customers needs
Charging a price premium that buyers perceive as too high
Ignoring need to signal value
Not identifying what customers consider valuable
Best-Cost Provider Strategy
Striving to give customers more value for the money by combining an
emphasis on low cost with an emphasis on upscale differentiation
Combines low-cost and differentiation
The objective is to create superior value by meeting or beating customer
expectation on product attributes and beating their price expectations
Keys to success
Match close competitors on key product attributes and beat them on cost
Expertise at incorporating upscale product attributes at a lower cost than
competitors
Contain costs by providing customers a better product
Advantages of Best-Cost Provider Strategy
Competitive advantage comes from matching close competitors on key
product attributes and beating them on price
Most successful best-cost providers have skills to simultaneously manage
costs down and product quality up
Best-cost provider can often beat an overall low-cost strategy and a broad
differentiation strategy where
Customer diversity makes product differentiation the norm
Many customers are price and value sensitive
Focus Strategies
Focus strategy based on low-cost
Concentrate on a narrow customer segment beating the competition on lower
cost
Focus strategy based on differentiation
Offering niche customers a product customized to their needs
Overall objective of both focus strategies is to do a better job of serving a
niche target market than competitors
Keys to success
Choose a niche were customers have a distinctive preference, unique needs or
special requirements
Develop a unique ability to serve the needs of a niche target market
What Makes a Niche Attractive?
Large enough to be profitable
Good growth potential
Not critical to the success of major competitors
Organization has the resources to effectively serve the niche
Organization can defend itself against challengers through a superior ability
to serve the niche
No competitors are focusing on the niche

Strengths and Risks of Focus Strategies
Strengths
Competitors dont have the motivation to meet specialized needs of the niche
Organizations competitive advantage could be seen as a barrier to entry
Organizations competitive advantage provides an obstacle for substitutes
Organizations ability to meet the needs of customers in the niche can reduce the
bargaining power of large niche buyers
Risks
Broad differentiated competitors may find effective ways to enter the niche
Niche customers preferences may move toward the product attributes desired
by a larger market segment
Profitability may be limited if too many competitors enter the niche

From Single-Business to Diversification
Stage 1 - Single-business serves a local or regional market
Stage 2 Geographic expansion
Stage 3 Vertical integration
Stage 4 Growth slows so the business diversifies
The Growth Matrix
Products
Present New

M
a Present
r
k
e New
t
s
Market Product
Penetration Development


Market Diversification
Development
Market Penetration
Use when markets are not saturated with an organizations products
Use when the usage rate of present customers can be increased
Use when the market shares of the major competitors has been declining
Use when the relationship between sales and marketing expenses is high
Use when increased economies of scale provide the opportunity for
competitive advantages
Product Development
Use when the organization has successful products that are in the maturity
stage of the product life cycle. The objective is to attract satisfied
customers to try new, improved products
Use when an organization competes in an industry that is characterized by
rapid technological change
Use when competitors offer better quality products at comparable prices
Use if the organization competes in a high-growth industry
Use when the organization has strong research and development
capabilities

Market Development
Use when channels of distribution are available, reliable and inexpensive
Use when the organization is very successful in what it does
Use when the organization has excess production capacity
Use when the organization possesses the needed capital and human
resources to manage the expanded operations
Use when unsaturated markets exist

Diversification
Use when entering new industries
Acquire an existing company in the target industry
Start a new company internally
Form a joint venture
Acquiring an existing company
Quick entry into target market
Able to hurdle entry barriers
Technological inexperience
Gain access to reliable suppliers
Being of a size to match competitors in terms of efficiency and costs
Get distribution access
Start a New Company
Use when ample time exists to enter by starting from scratch
Use if existing competitors are slow to respond to changes in the industry
Use if it is more economical to start from scratch rather than acquiring an
existing company
Use if the organization already has most of the needed skills
Use if additional capacity will not adversely impact the industry
Use when the new company doesnt have to go head-to-head against
powerful competitors
Joint Ventures
Use when it is too risky to go it alone
Use when pooling competencies of partners provides a stronger competitor
Drawbacks
Which partner will do what
Who has effective control
Potential conflicts
Sourcing of components
Control over cash flows and profits
Whether operations should conform to one partner or the other

Linking the Budget to Strategy
Implementation of a strategy requires
Enough resources to support the strategy
Screening of requests for new capital projects and bigger operating budgets
Shifting resources to support new strategy priorities
- Downsizing some areas and upsizing other areas
- Eliminating activities that are no longer needed


How well budget allocations are linked to the needs of a strategy
can either promote or impede the implementation process.
Implementing Best Practices & Continuous
Improvement
Implementing a strategy involves adopting best practices
Best practices means:


Benchmarking is an integral part of a successfully implemented strategy
Continuous improvement programs


Total quality management - TQM
Instituting Best Practices & Continuous
Improvement
Quality improvement programs are linked to
Defect-free manufacture
Superior product quality
Superior customer service
Total customer satisfaction


Identifying & implementing best practices is a journey, not a
destination; its an exercise in doing things in a world-class
way.
Formal Reporting of Strategy-Critical Information
Accurate & timely information is essential to guide action
Prompt feedback on implementation initiatives are needed BEFORE actions
are fully completed
Monitoring early implementation actions serves two purposes
Quick detection of the need to adjust the strategy or its implementation
Making sure things are moving in the planned direction

Critical success variables must be track as needed
Formal Reporting of Strategy-Critical Information
Information systems should cover
Customer data
Operations data
Employee data
Financial data


Accurate information allows a strategy to be monitored and
corrective action to be taken promptly
Commitment to Chosen Strategy
Implementing rewards & incentives inducing employees to make the
strategy work
The reward structure must motivate people to do the very things it takes to mjake
the strategy work successfully
Requiring results, not intentions
Keys to implementing pay-for-performance programs
Make performance targets the basis for structuring the incentive system
Ensure performance targets are clearly defined and every person/group is
accountable for achieving them
Be fair and impartial in comparing actual performance against targets
Avoid rewarding non-performers
Explore reasons for deviations (poor individual performance or circumstances
beyond the individuals control)