Strategic Management in Hospitality and tourism

Chapter 2: Strategic Management in Hospitality and Tourism

DEFINING THE HOSPITALITY AND TOURISM CONTEXT

• Services are becoming increasingly an important part of the global economy.

• it is predicted that the importance of services will continue to increase worldwide not only in
the developed parts of the world but also in developing countries.

• Certainly H&T is an important sector in services particularly in the developed countries.

• Under the services sector, the H&T industry is often named as the number one industry
worldwide in terms of generation of income and employment.

According to Nykiel (2005)

• definitions of the H&T industry are often limited by the unique viewpoints of sectors within the
industry

• Nykiel (2005) placed all of these viewpoints under a wider perspective called “hospitality” and
further stated that the hospitality industry encompasses travel, accommodations, food service,
clubs, gaming, attractions, entertainment, and recreation.

Kandampully (2007) notes that hospitality organizations operate within a network of service
organizations. To a large extent, they are interrelated and interdependent, and include the following:

Tour operators, travel agents, and tourism organizations

❖ Travel and transport operators

❖ Leisure, recreation, and entertainment venue

❖ Restaurants, bars, clubs, and cafes

❖ Hotels, resorts, motels, camping grounds, bed & breakfast (B&B) establishments, and hostels

Butler and Jones (2001)

• use tourism as an all-encompassing term that covers all aspects of people being away from their
home and hospitality as a specific part of providing accommodations and meals for tourists.

• They note that the one difficulty in their definitions is that the hospitality industry also serves
many people who are not tourists, such as local residents.

• They state that tourism is often interpreted as the flow of visitors from one country to another
for more than 24 hours of time and less than one year.

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TYPES OF HOSPITALITY AND TOURISM ORGANIZATIONS

Organizations that operate in the H&T industry can be grouped under different categories depending on
their primary activities, size, profit motives, and geographical coverage. In terms of their primary
services, organizations can be categorized as follows:

● Travel and Transport

● Accommodations
● Food and Beverages
● Entertainment & Recreation

Organization Classifications

Size

● Organizations are classified as small, medium, or large.

● Independent and flexible small and medium-sized enterprises (SMEs) dominate the tourism
market worldwide. An SME is defined in employment terms as a company with a workforce of
fewer than 250 employees

Profit Motives

● Profit-oriented vs. nonprofit organizations.

● A high majority of H&T organizations aim to make a profit and achieve some financial objectives
in order to satisfy their owners and shareholders. On the other hand, nongovernmental tourism
organizations, associations, tourism destination management, and marketing organizations can
be placed under nonprofit tourism organizations. Their primary aim is often not to make profit
but to achieve other nonfinancial objectives, such as serving society, protecting the
environment, and achieving sustainable tourism development in their regions over the long
term. The United Nations World Tourism Organization (WTO) and Visitor and Convention
Bureaus (CVBs) are examples of nonprofit tourism organizations.

Geographical Coverage

● Local, regional, or global operational scope.

● Local organizations operate in only one city or country, whereas regional organizations operate
in only a geographical region such as Europe, the Middle East, or North America, Global
hospitality and tourism firms such as Intercontinental Hotels, Marriott Hotels, Hilton,
McDonald’s, and KFC are examples of those that operate in many countries and almost all
continents worldwide

CHARACTERISTICS OF HOSPITALITY AND TOURISM ORGANIZATIONS

The following are some closely related, unique characteristics of H&T organizations (Fitzsimmons and
Fitzsimmons, 2004; Gronoos, 2007; Kandampully, 2007):

1. Inseparability—customer participation in the service process

• In H&T organizations, customers need to be present and participate in the service delivery
process. Therefore, H&T organizations must communicate with and motivate their customers to
actively participate in the service delivery process.

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2.

Simultaneity

• A typical manufactured good, such as a refrigerator or a television, can be inspected before it is

delivered to retail outlets, where they are then sold to customers. However, services in H&T
organizations are created and consumed simultaneously, which can prevent employing active
quality control mechanisms. In addition, as just noted, customers and employees need to
participate and coordinate in the service delivery process.

3. Perishability

As production and consumption in H&T organizations are simultaneous, services become perishable if
they are not sold. Subsequently, their value is lost forever. For example, an airline seat or a hotel room
will perish if a customer does not purchase it at the time of production

4. Intangibility (the tangible–intangible continuum)

• Hospitality and tourism organizations offer a combination of tangible and intangible products
(Kandampully, 2007). For example, a hotel room or a meal in a restaurant has both tangible and
intangible qualities. Again, there may be major differences between a budget hotel and a luxury
hotel or between a fast-food restaurant and an upscale restaurant in terms of tangible and
intangible qualities offered.

5. Heterogeneity

• Services provided by H&T organizations may also vary considerably. One hotel unit in a chain
hotel, one unit in a restaurant chain, or one holiday experience of a traveler to the same
destination is unlikely to be identical to another. Many factors, particularly the human element,
result in variations of the service delivery process. In other words, services will be
heterogeneous, and variations in service delivery from customer to customer and from time to
time will always occur.

6. Cost structure

• The cost structure of H&T firms influences their managerial and resource allocation decisions.
For example, luxury H&T organizations are capital, labor, and energy intensive. Typically, they
have high property costs and also employ large numbers of full-time employees. It can be
difficult for them to reduce such cost items even if the demand is low. In addition, they may
need to renovate their facilities every five to ten years to stay competitive in their field.

7. Labor intensive

• Installing machines and computers on a car factory’s assembly line or in an ice cream factory can
reduce the number of employees. However, compared to many organizations in other
industries, H&T organizations require a great many employees. To put it simply, H&T
organizations are labor intensive. This is because personal interactions and experiences are
important parts of services, and employees play a key role in this process.

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THE
CASE FOR STRATEGIC MANAGEMENT IN H&T ORGANIZATIONS

• According to Nykiel (2005), product design, market segmentation, franchising, real estate
investment trusts, and new product concepts are some of the strategic driving forces that cause
the industry to be very dynamic.

• For example, the H&T industry has been experiencing dramatic changes in customer
expectations and needs. They not only need to develop new products and service concepts as
an ongoing basis, but they also need to control their costs and manage their human resources
wisely.

• According to Pine and Gilmore (1998), services in the H&T industry are undergoing a shift from
service to experience. Today, most H&T organizations such as Disney World, Hilton, Marriott,
and Starbucks refer to their respective services as “an experience.”

• For example, Delta Airlines and the once famous and successful Six Flags theme parks have both
been facing serious problems in recent years due to bad investments and managerial decisions.
It is known that the ratio of business failure among small and medium-sized H&T organizations is
high.

• McGahan and Porter (1997) and Porter (1980) claimed that the industry context does matter
because it can have a direct or an indirect impact on the strategy-making process and on the
productivity and profitability of organizations.

• McGahan and Porter (1997), we believe that the industry structure and the unique
characteristics of the H&T sector do matter and that they can have a clear impact on the
strategy-making process and on the productivity and profitability of H&T organizations

Prepared by:

Michael Allan G. Ayson, LPT

Faculty In-charge