Topic 1.
Strategy
Grado en Turismo
Strategic Management
Prof.: Maria Razumova
Contents
1. Concepts and definitions
2. Components of a strategy
3. Levels of strategic decisions
4. Strategic management process: definition and phases
5. Specifics of strategic management in tourism firms
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Contents
1. Concepts and definitions
2. Components of a strategy
3. Levels of strategic decisions
4. Strategic management process: definition and phases
5. Specifics of strategic management in tourism firms
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Concepts and definitions
What is strategy?
Historical (military) roots:
the art of war
strategic skills to out-manoeuvre the enemy
Nowadays, it is used in many ways:
a strategy for a business
a strategy for finding a job
a strategy for a football match
a strategy for preparing for the exams
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Concepts and definitions
Mintzbergs five Ps framework
The word strategy can be used as:
1.
2.
3.
4.
5.
A plan
A ploy (tctica)
A pattern of behavior
A position in respect to others
A perspective
Should be seen as a framework, not mutually exclusive
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Concepts and definitions
Strategy as a plan
Long-term strategy
Something that is put in train and its progress is monitored
Internal documents (actions plans for a given period of time)
- directions for work, schedules for product launches, etc.
Example: a big tour operator may plan to expand its share in the UK
market by offering lower prices and by opening subsidiaries in the
main UK cities
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Concepts and definitions
Strategy as a ploy (tctica)
A short term strategy
Detailed actions
A maneuver to outfit the competitors
A threat (amenaza, amago)
- to decrease the prices to destabilize competitors, price wars)
Example: our tour operator may discount even more its prices for the
last minute deals to destabilize competitors and sell excess
capacity
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Concepts and definitions
Pattern strategies
Consistent form of behavior
Pattern is not planned, it is just happens as a result of the
consistent behavior
May be unconscious
Example: a tour operator offers small villas in Greece. If there is a new
villa in Greece on favorable terms the tour operator will contract it,
but it wont feature a villa in Majorca
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Concepts and definitions
Position strategies
A company has a certain position with respect to its competitors
Reputation, prices, research, profitability
Companys objective: to maintain or defend this position
Example: An airline has a good reputation for reliability and quality.
Its position strategy will consist in ensuring that reputation is
maintained and strengthened. It may use marketing messages to
point out its strength comparing to the competitors.
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Concepts and definitions
Perspective strategies
Changing the culture of a certain group of people (employees)
Think and act courteously, professionally or helpfully
So many definitions can we sum them up?
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Concepts and definitions
STRATEGY (Chandlers* definition) is:
the determination of the basic long-term goals
and objectives of an enterprise,
the adoption of courses of actions
and the allocation of resources necessary for
carrying out these goals
* Professor of Harvard Business School, 1962
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Contents
1. Concepts and definitions
2. Components of a strategy
3. Levels of strategic decisions
4. Strategic management process: definition and phases
5. Specifics of strategic management in tourism firms
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Components of strategy
Determination of the basic long-term goals
Where do we go?
Have to be coherent and attainable
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Components of strategy
Adoption of courses of actions
Actions to reach the objectives
Different actions can be undertaken to reach the same
objectives (ej. a trip from Majorca to Madrid)
The existing options have to be evaluated
Detailed decisions
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Components of strategy
Allocation of resources
Do we have resources to support the proposed action plan?
Availability, quality, cost
Resource inputs:
Financial resources
Human resources
Physical (tangible) resources
Intellectual (intangible) resources
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Contents
1. Concepts and definitions
2. Components of a strategy
3. Levels of strategic decisions
4. Strategic management process: definition and phases
5. Specifics of strategic management in tourism firms
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Contents
Strategy is not
only one decision
only decisions taken on the top level
There is a hierarchy of subordinated
(strategic) decisions
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Levels of strategic decisions
subordination
Decisions in an Organization
Strategic decisions on
each level of a firm differ
from each other in:
Strategic level
Tactical level
Operational level
Focus: (what?)
Organizational level: (who?)
Scope (alcance)
Time horizon
Degree of
certainty/uncertainty
Complexity
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Levels of strategic decisions
Strategic level
Focus:
Sustainable competitive advantage
- Setting of long-term objectives
- Formulation, evaluation, selection and monitoring of strategies
Organizational level:
Scope:
Time horizon:
Certainty/uncertainty:
Complexity:
Top management /board of directors
whole organization
long-term (years)
high uncertainty
complex
Examples: launch new product, enter new market, investment
EasyJet strategic decision to become low cost, no frills* airline
* service or product for which the non-essential features have been removed to keep the price low
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Levels of strategic decisions
Tactical level
Focus:
Implementation of strategy
How the strategic objectives are to be met
Strategic objectives fine-tuning and adjustments
Dependent upon strategy
Organizational level:
Scope:
Time horizon:
Certainty/uncertainty:
Complexity:
Head of business units, department or functional
areas
business units or departments (e.g. Finance,
Marketing)
medium-term (months to years)
involve some uncertainty
semi-complex
Example: decision to change the price
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Levels of strategic decisions
Operational level
Focus:
Short-term objectives
Day-to-day management
Dependent upon strategy and tactics
Organizational level:
Scope:
Time horizon:
Certainty/uncertainty:
Complexity:
Junior managers, supervisors
parts of the organization
short-term (days, weeks, months)
high certainty
simple
Example: decisions to purchase inputs, hire new employees..
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Contents
1. Concepts and definitions
2. Components of a strategy
3. Levels of strategic decisions
4. Strategic management process
5. Specifics of strategic management in tourism firms
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Strategic management process
Mission and vision
Objectives
External analysis
Strategic analysis
Internal analysis
Internal strengths
and weaknesses
External opportunities
and threats
Evaluation of options
and selection of
strategy
Implementation and
control
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Strategic management process
Mission and vision
Objectives
External analysis
Strategic analysis
Internal analysis
Internal strengths
and weaknesses
External opportunities
and threats
Evaluation of options
and selection of
strategy
Implementation and
control
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Mission and Vision
Mission: Where we are now? What we are now?
The reason for a firms existence The main objective
Vision: Where we want to be in the future?
Mission and vision:
Promote hierarchical congruence
Not easy to articulate, can be controversial
Mission and vision statement a formal statement (may have different
styles, lengths, etc)
Effective mission statements: clear, relevant, current, positive,
individuality, enduring, adapted to different audiences
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Mission and Vision: examples
Mission: Four Seasons Hotels and Resorts
Four Seasons is dedicated to perfecting the travel experience
through continual innovation and the highest standards in
hospitality. From elegant surroundings of the finest quality, to
caring, highly personalized 24-hours service, Four Seasons
embodies a true home away for those who know and
appreciate the best. The deeply instilled Four Seasons culture
is personified by its employees people who share a single
focus and are inspired to offer great service.
Vision: Hilton Hotels Corporation: Our vision is to be the first
choice of the worlds travelers.
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Strategic management process
Mission and vision
Goals and
Objectives
External analysis
Strategic analysis
Internal analysis
Internal strengths
and weaknesses
External opportunities
and threats
Evaluation of options
and selection of
strategy
Implementation and
control
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Goals and objectives
Why it is important to set goals and objectives?
Provide a sense of direction
Provide a standard of measurement and means of controlling
performance
Mission and vision
Goals
Objectives
Abstract
Somewhat abstract
Specific
Measurable
Communicable
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Objectives
Mission and vision
Corporate objectives
Economic
Financial nature:
Return
Return on assets
Return on sales
For non-profit:
Value for money
(marketing office:
tourists per euro spent)
Growth
Competitive
advantage
- Main objectives for
publicly funded
organizations
Economy of scale
Pricing power
Companies position
in respect to
competitors
- CRS in profit
organization
Size and market
share
Reputation
Research
Human resources
Social
Support local
community
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Strategic management process
Mission and vision
Objectives
External analysis
Strategic analysis
Internal analysis
Evaluation of options
and selection of
strategy
Implementation and
control
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Strategic analysis
Socio-demographic
Internal analysis
Political
Industry
(Strengths / weaknesses)
External analysis
Economic
Firm
(Opportunities & Threats)
Microenvironment
Macroenvironment
SWOT & key issues
What to address? what
to exploit?
Competitive
environment
Environmental
Technological
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Strategic management process
Mission and vision
Objectives
External analysis
Strategic analysis
Internal analysis
Internal strengths
and weaknesses
External opportunities
and threats
Evaluation of options
and selection of
strategy
Implementation and
control
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Strategic choice
How we will compete?
What are our strategic directions?
Which methods we use?
Strategic
option 1
Strategic
analysis
Key
issues
Strategic
option 2
Strategic
option 3
Evaluation
criteria
Strategic
option
selected
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Strategic choice
Strategies:
Specific strategies:
Cost? Differentiation? Segmentation?
Growth strategies:
New products? / New markets? / Both?
Evaluation criteria:
Cost-benefit
Risks
Scenario analysis
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Example: King Hotels
Mission: Create value for stakeholders
Goals: Increase the business segment profitability
Objectives: Increase revenues by 10%, repeat clients 15%
Strategies: marketing plan
Tactics: Sales call in the business district; promotional
campaigns; attractive package for business travelers (free
airport fees, free internet, welcome drink, free use of business
center, etc)
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Strategic management process
Mission and vision
Objectives
External analysis
Strategic analysis
External opportunities
and threats
Evaluation of options
and selection of
strategy
Internal analysis
Internal strengths
and weaknesses
Implementation and
control
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Strategy implementation & control
Resource allocation
Readiness for changes
Culture and structure (flexibility creativity)
Feedback
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Contents
1. Concepts and definitions
2. Components of a strategy
3. Levels of strategic decisions
4. Strategic management process: definition and phases
5. Specifics of strategic management in
tourism firms
5.1. Tourism as a service product
5.2. Travel and tourism specifics as a service
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Tourism as a service product
Products
Goods
We own them
Services
We use them
Services are:
Intangible
Inseparable
Perishable
Heterogenic
Ownership
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Tourism as a service product
Intangibility
Cannot be seen, touched, tried before the purchase
Not a single service but an amalgam of invisible services:
Transportation, accommodation, entertainment
Implication: Services are harder to buy,
but easier to distribute
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Tourism as a service product
Intangibility
Travel brochures (paper and online) less uncertainty
Nowadays: the technologies make the travel less and less
intangible
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Tourism as a service product
Intangibility
Package a pre-arranged combination, sold or offered for sale at
an inclusive price, of not less than two of the following elements:
Package
Transport
Major cause of growth of the
market
Lowest price
Language barrier
Travel organization skills
Accommodation
Other
services
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Tourism as a service product
Inseparability
Production and consumption same time, same place
Services do not come packaged
Customers have direct experience in the production and
delivery of a service
Main implication:
Staff (the level of customer service) is of crucial importance
A car we dont care how it was produced
A hotels stay we do care how customer service are produced:
is reception, restaurant, room service, etc staff efficient, helpful, polite?
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Tourism as a service product
Perishability
Services are perishable they cannot be stored
Empty seat, empty room lost opportunities,
losses related to fixed costs
Implication: difficult to find the balance between demand and supply
Moreover, in tourism:
FLUCTUATING DEMAND
Seasonal fluctuations
Climatic conditions
Economic activity
Force major terrorism,
wars
VS
FIXED SUPPLY
Hotel beds
Flights obligations
Contractual
obligations of TO
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Tourism as a service product
Heterogeneity
Services are never identical
Human behavior is highly variable
Staff: not all people have good customer relation skills
Customers: easy-going and trouble-makers
Provide as much information to customer as possible
Staff trainings, suitable personalities to work with public
Heterogeneity can also be an attraction
Difficult to manage the heterogeneity and provide
consistent quality
Example Radisson Hotels
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Tourism as a service product
Heterogeneity
More than 400 hotels (mostly franchised), 100 000 rooms, 73
countries
Deluxe hotels, resorts, all-included hotels..
Cultural and linguistic backgrounds of staff
Locations vary (level of service, prices, )
Company does not own buildings
Alliances with local quality hotels
Training, standardized procedures
Careful agreements
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Tourism as a service product
Ownership
The ownership rights are not transferred
The duration of relationship with customer is usually
short (a stay, a trip, )
Difficult to built a long term relationship
Brand loyalty
Less probability to repeat purchase
Differently in the case of goods the relationship is continued and
even can be improved in the course of post-purchase services
(e.g. maintenance)
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Contenidos
1. Concepts and definitions
2. Components of a strategy
3. Levels of strategic decisions
4. Strategic management process: definition and phases
5. Specifics of strategic management in
tourism firms
5.1. Tourism as a service product
5.2. Travel and tourism specifics as a service
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Travel and tourism specifics as a service
High cost
Seasonality
Ease of entry/exit
Interdependence
Impact on society
External shocks
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Travel and tourism specifics as a service
High cost
Not a essential service
May represent a largest single item of expenditure
during a year
Implies comparison of alternatives
Rarely done on impulse
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Travel and tourism specifics as a service
Seasonality
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Travel and tourism specifics as a service
Seasonality
UK a very seasonal market: June, July, August
Cash flow fluctuations: cash shortage in late
autumn early winter
Unutilized aircraft capacity during off-season
Managerial responses counter seasonal
businesses
Purchase of Canadian tour Operator (strong demand
to the Caribbean in winter)
Long haul routes - strong demand in Europe in winter
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Travel and tourism specifics as a service
Ease of entry/exit
Low set up costs
Tour operators: main costs - brochures producing
and marketing
Travel agents: do not purchase from Tour operators
until the customer pays
Implication:
If someone is successful , it is not difficult for
a competitor to offer a similar product
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Travel and tourism specifics as a service
Interdependence
Accommodation
Attractions
Transport
Travel organizers
Destination organizers
If one sector fails others suffer
Managerial response:
vertical integration
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Travel and tourism specifics as a service
Impact on society
On tourist generating destinations (e.g.
changes in perceptions towards food)
On host destinations:
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Travel and tourism specifics as a service
Impact on host destinations (destino receptor)
Economic
Social
Environmental
Visitor
spending
Understanding
different cultures
Regeneration of
urban areas
Jobs creation
Conservation of
traditions (tourist
attractors)
Protection of natural
resources for visitors
Loss of authenticity
(McDonalds)
Air and sea pollution,
fresh water
consumption, waste
Investment in
infrastructure
Leakages of
income (tax
heavens, no
reinvestment in
local economy )
Disturbance to the
traditional ways of life Damage to
landscape and historic
buildings
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Travel and tourism specifics as a service
The effect of external shocks
Wars (North Africa)
Terrorism attacks (Sept 2011)
Pollution (Prestige)
Accidents
These shocks are out of the control of the tourism
industry managers. Managerial responses:
Risk assessment
Emergency action plans
Spreading the risks between different markets, businesses, etc
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Review questions
Define the strategy using Mintzbergs 5 PS framework
Explain the difference between strategic, tactical and
operational decisions
Define the mission and its purpose
Define the strategy using Chandlers framework and its
components
Define the types of objectives
Define the stages of strategic management process
Explain the key feature of services and how they relate to
travel and tourism
Explain the role of the package in the growth of the tourism
sector
Describe the six factors that specifically apply to travel and
tourism
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Basic reading
Evans, Campbell and Stonehouse (2006).
Strategic Management for Travel and
Tourism.
Chapter 1 and 2.
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Exercise 1
Great Eastern Hotel case read and
answer the questions (download from the
Aula Virtual)
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Exercise 2
Considering the characteristics of tourism
and travel products discussed in 5.1 and
5.2 explain, what are the similarities and
differences in managing a restaurant to
managing an ice-cream factory?
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