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STQM- Midterm- Reviewer

BS in International Tourism Management (Our Lady of Fatima University)

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STQM MIDTERM REVIEWER the partnerships might result in a poor fit, leading to include not only quicker coverage of a geographical
adverse monetary and strategic effects area but also the possibility of penetrating a wider area
Network-Level Strategies than would be feasible using existing company
FRANCHISING resources to support wholly owned and managed
INTRODUCTION properties.
• Originating in the United States, franchising emerged
• In the preceding chapter, we discuss the extent to as a powerful way of facilitating the growth of hospitality • The franchisee benefits from being able to display an
which organizations should seek to develop organizations. established trademark and brand name. Because a
cooperative arrangements when developing strategies franchised product has been used, tested, and proven
• Franchising gives hospitality and tourism industries in a defined market, it saves the franchisee time and
• This chapter covers various motivations for entering and organizations an opportunity to form an alliance cost and minimizes the risk of a new start-up.
a cooperative venture and introduces the advantages with partners in different country markets (Lashley and
and disadvantages of strategic alliances Morrison, 2000). Pros and Cons of Franchising
• The chapter also highlights the advantages and • From a business perspective, it involves less risk than Franchisor (Pros)
disadvantages of different forms of the most popular some other means of expansion, notably direct
strategic alliances—namely, franchising, management investment. • Easier Market Penetration
contracting, and joint ventures in the hospitality and • Access to Market exposure and growth
tourism industry Grant (1985) defined business format franchising as • Access to Local knowledge
follows: ‘’The granting of a license for a predetermined • Saving time in setting up new units
STRATEGIC ALLIANCES financial return by a franchising company (franchisor) • Manpower resource allocation by franchisee
to its franchisees, entitling them to make use of a
• The term strategic alliance is often defined as an • Sharing legal responsibility with the franchisee
complete business package, including training,
agreement between two or more partners to share • Low capital expenditure
support, and the corporate name, thus enabling them
resources and knowledge that could be beneficial to all to operate their own businesses to exactly the same • Personal commitment and motivation
parties involved (Chathoth, and Olsen, 2003). standards and format as the other units in the • Reduced daily involvement
franchised chain.’’ • Designed and tested blueprint operational
• These strategic alliances can be as simple as two guidelines
companies sharing their technology or marketing • Franchising is a partnership between different
resources in order to develop products jointly and parties that involves assigning rights by the brand and Franchisor (Cons)
market and promote collaboratively business system owner (the franchisor) to the
franchisee to use the name of the brand and format via • Challenges of controlling standardized policies
• Strategic alliances can allow an exchange of tangible a contract. • Differing views between franchisor and franchisee
assets or intangible capabilities of the firms such as about long- and short-term goals.
knowledge, skills, financial capital, technical • This contract is usually for a fixed period of time with • Inability to ensure policy of sales maximization
capabilities, managerial capabilities, and other a geographical scope requiring a franchisee to pay an • Losing ownership
intangible assets such as firm reputation. initial up -front fee and thereafter a royalty based on a • Dependence on franchisee
percentage of actual revenues generated (Taylor,
• The strength of using strategic alliances as a vehicle 2000). Franchisee (Pros)
of growth is that this approach can rapidly take
advantage of the brand recognition of several • Franchising offers mutual benefits to both the • A proven track record
multinational organizations. franchisor and the franchisee. Franchisors prefer • Initial help and advice in setting up the unit
franchise partnerships because this business format is • An established name
• Despite having numerous benefits, strategic alliances seen as a “risk -averse” mode, as it allows fast growth • Access to marketing and sales
also have various drawbacks. Alliances provide with minimum financial capital input. On the other • Reduced working capital
opportunities to learn new skills and core
competencies, but at the same time, alliances create
hand, franchisees benefit from being part of a well - • Support and guidance from franchisor.
proven and widely recognized brand name and
the potential danger of transforming a partner into a business format associated with managerial Franchisee (Cons)
competitor. In addition, the dissolution of alliance assistance and marketing support
partnership due to the inappropriate selection of • Inflexibility in purchasing decisions
strategic alliance partnership and/or conflicts during • Franchising offers the franchisor relatively trouble-
free and inexpensive market penetration. This could

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• Dependence on franchisor on market presence Number of factors have encouraged H&T case of expanding into Indian and Chinese markets, if
and economies of scale. organizations to become internationalized by adopting you do not have market knowledge, joint venture
• Payments a franchise system: partnership with a local partner can be a viable option
• Inflexible rules and regulations in order to make presence in these markets. However,
• Mutual dependence • Expanded Market one needs to pay attention to the cultural differences,
• Changes by the francisor in policies and • Demographic Trends including the educational backgrounds and cultural
guidelines • Increased Travel and Tourism values and how these can be managed between the
• Quality of Products and Services partners.
• Too many franchise units in the same region..
• Technological Advancement
Offerings of Franchisor and Franchisee (Housden, WHOLLY OWNED SUBSIDIARIES
1984, Maitland 2000) MANAGEMENT CONTRACTS
• A wholly owned subsidiary involves the ownership
Ongoing Business Relationship – Mutual Benefits • Management contracts can be defined as the and management of physical facilities for producing
management of one company by another, and goods and services. • Hospitality organizations might
Franchisor Package often, but not always, the two are in different choose to set up their businesses either from scratch
countries. A firm with an established reputation for or by acquiring another organization where an
• Trademarks/names being an excellent manager will grow by organization develops its resources and competences
• Copyright contracting to manage properties for an owner in by taking over another organization.
• Design return for a fee.
• Patents • Management contract arrangements are favored For example, in 2001, InterContinental Hotels set itself
in many international settings by international the objective of becoming an important force in
• Trade Secrets
hotel chains such as Hilton and Intercontinental markets such as the United Kingdom, Germany, Italy,
• Business know-how France, and Spain, and these are the markets that
Hotels that have internationally recognized
brands and a successful track record of hotel have economic potential for growth. They are among
Franchisee Package
management expertise. the world’s top 12 tourism destinations in terms of the
• Initial fee up front • A management contract allows hotel chains to number of visitors.
• Continuing franchisee fees establish a presence in different country markets
Continuation • The United Kingdom is well known for
• Capital expenditure-plant and equipment without the investment of ownership. The
providing the highest operating margins and
• Recruitment of owner-managers for operations management contract allows for a separation of
ownership and operations. occupancy rates. • France is the world’s largest tourism
destination.
U.S.-based international hotel chains have
expanded into other countries through one or more JOINT VENTURES
• Spain is the world’s number two destination and
of the following methods: generates the strongest REVPAR growth in Europe.
• A joint venture can be defined as the participation of
1. Master License: A company grants a license to two or more companies in an enterprise in which each
party contributes assets, owns the entity to some • Germany is Europe’s number two hotel market and
an individual or firm in the target territory, so the the world’s largest generator of international travel.
licensee operates all outlets under its ownership. degree, and shares the risks (Kivela and Leung, 2005;
2. Direct License: A franchisor company grants a Magnini, 2008).
• Italy is the largest hotel market with the lowest brand
license to an operating franchisee and provides penetration.
• The alliance may be one of equal partners or one
direct backup and support.
where one party is stronger than the other because of
3. Branch or Subsidiary Operation: A firm STRATEGIC ALLIANCE FORMATION IN THE
the resources or expertise it possesses. Companies
establishes a direct presence in an area by setting INTERNATIONAL CONTEXT
enter into joint venture partnerships because they
up a branch or subsidiary and then expands into
reduce the risk of failure by sharing the burden with a • A strategic alliance partnership is often referred to as
the area by granting franchises and providing
partner, gain rapid market access, and internationally a “marriage.” Improper partner selection may not only
direct services to its franchisees.
they can have an increase in company and product prove to be a bad fit, but it would also result in
4. Joint Venture: A company establishes a joint
acceptance by having a local firm serving as the direct increased management conflicts, slow decision -
company with another one in the target territory
interface with the customer making processes, and a lack of communication.
and grants the on-site partner license to operate
its own outlets, sub franchises, or both. In selecting partners, companies pay attention to the
cultural compatibility of the partner. For example, in the

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• Moreover, it may also give rise to issues pertaining to practice with limited time and resources procedures. According to this view, strategic
reduced sales volume and profit and would hamper (Alexander, 1991). planning consists of four separate elements:
overall implementation of operative strategy • Although strategy formulation and implementation • Analysis
are defined separately and perceived as separate • Strategy formulation
• In order to avoid these issues internationally, it is areas, in recent years, strategy formulation and • Strategy implementation
essential to consider critical factors such as selective implementation have now been seen as a whole • Control/Monitoring
matching of partners, information sharing, role process rather than separate activities.
specification, ground rules, and exit provisions • The term strategy formation is referred to both This approach gives more emphasis to the formal
between partners. strategy formulation and implementation as a analysis of the issues in both the external and internal
single unit. environments.
Successful strategic alliances - Key stages of the
process SCHOOLS OF THOUGHT IN THE STRATEGIC It is assumed that with precise calculations,
MANAGEMENT FIELD techniques, and analysis, planning can make the
1. Formulate the firm’s strategy external environment more predictable so companies
2. Develop a partnership benchmark • In the early days, the main emphasis was on the can develop and implement successful strategies to
3. Eliminate undesirable business sectors importance of planning, and the terminology used respond to changes in the external environment
4. Select promising business sectors for this approach was the planning school.
5. Choose from potential candidates • From the mid-1970s, the importance of learning • Analysis is considered the primary responsibilities
has been recognized, and this approach has been of corporate offices, senior executives, or
STRATEGY FORMATION — STRATEGY specialized departments such as the strategic
called the learning, incremental, or emergent
FORMULATION AND IMPLEMENTATION planning department or the corporate strategic
approach. After observing the limitations of
previous approaches, it was decided that there planning office. Because they are experts in this
• The evolution of strategic management has been
was really no “one best way” to develop and area, they can see the whole picture and are
influenced by many disciplines, such as biology,
implement strategies. better able to analyze the situation than those at
history, physics, mathematics, psychology,
anthropology, economics, urban planning, • The most appropriate way to develop and lower levels.
implement strategies would depend on the • The role of middle managers and supervisors is
political science, and military history (Mintzberg,
situation. - Contingency school to implement the developed strategies. This
Ahlstrand, and Lampel, 1998)
• As the strategic management field has evolved, • Scholars such as Mintzberg and colleagues approach further advocates well-specified plans
(1998) and Richardson (1994) combined these with clear objectives, timetables, budgets and
different views on strategic management have
three schools of thought under one single resource allocations, clear lines of responsibility,
emerged on its nature and characteristics. Since
dimension called the configurational, or limited participation in strategy development, and
the 1980s, scholars have reviewed strategic
comprehensive, school of thought. However, minimum discretion for all levels of implementers.
management literature and recognized groups of
Mintzberg and Quinn (1996) and Stacey (1996) Finally, profit maximization, cost cutting, high
authors who share similar views about strategy
claimed that even this view has limitations, and market share, and other tangible outcomes are
and strategic management and how strategic
they proposed that one should look beyond the ultimate aims of the strategy formation
decisions should be formulated and implemented.
configurations and evaluate the complexities and process.
• A number of terms have been used for each trend
or development, such as pattern, method, view, dynamics of the strategy process.
THE LEARNING OR EMERGENT APPROACH
approach, or schools of thought. THE IMPLICATIONS OF EACH SCHOOL ON THE
PROCESS OF STRATEGY FORMATION ARE • The learning approach does not see strategy
STRATEGY FORMATION—STRATEGY formation as a neat, sequential, and rational
REVIEWED AND EVALUATED IN THE FOLLOWING
FORMULATION AND IMPLEMENTATION process. This school of thought suggests that
SECTIONS:
strategies often emerge from the pragmatic
• Strategy formulation involves understanding the
THE PLANNING APPROACH processes of trial and error and that they are often
underlying bases that guide future strategy, developed and executed in an incremental, trial-
generating strategic options for evaluation and • The planning approach is the oldest and most and-error way, mainly by middle managers, and
selecting the best options among them (Johnson, influential approach in the strategic management that the strategy formulation and implementation
Scholes, and Whittington, 2008). field. stages often overlap
• Strategy implementation addresses the issue of
• This approach views strategy formation as the • When we analyze how Southwest Airlines has
how to put a formulated strategy into action or outcome of sequential, planned, and deliberate started and become one of the most successful
airlines in the United States, it is evident that the

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company did not achieve this success through strategy formation in tourism and hospitality
strategic planning but instead by responding to organizations
emerging issues in an incremental way and
learning from their experiences. THE COMPLEXITY APPROACH
• This approach values the significance of power
distribution, politics, and organizational culture in • This view suggest that organizations are adaptive
the strategy formation process. Having rational, systems that take the form of nonlinear negative
mainly financial, objectives may not always be and positive feedback loops that connect the
practical, as companies often need to consider individuals, groups, functions, and processes in
intangible aspects of the process such as internal an organization to one another, and connect an
politics and culture. organization to other systems in the environment
• Due to these nonlinear feedback loops, any small
THE CONTINGENCY APPROACH change or development, both within and outside
the organization, can have significant and
• The contingency school of thought suggests that unexpected implications for the firm; this is often
successful strategies are not developed and entitled the “butterfly effect”
implemented by a simple or single set of factors. • In terms of strategy formation, this means that
• Successes depend on many factors in the internal managers need to identify and evaluate the
and external environments of the company. emerging patterns continuously within and
• This approach was developed as a reaction to the outside the company and then develop and
idea of “one best way management. implement strategies rapidly.
• According to Child (1984), the contingency view
relates to the design of an effective organization EVALUATING THE FIVE APPROACHES
that must cope with the contingencies of certain
factors, such as environment, technology, Propositions Of the Five Schools of Thoughts in
resources, people, and other elements in a Relation to Strategy Formation
situation in which the firm operates.

The effectiveness of the strategy formation process

depends on how multiple factors interact in a situation,
and there may be different ways to approach the same STRATEGY FORMATION IN THE INTERNATIONAL
issue, depending on the situation. CONTEXT
THE CONFIGURATIONAL APPROACH
• The strategic management literature does not
clearly explain how far strategy formation differs
• Attempts were made to combine all of the
in international firms than strategy formation does
previous strategic management schools of
in domestic firms. Some authors do not view the
thought into one single perspective, which is
strategy development and implementation
called the configurational view.
process in an international context any differently
• The main difference between the contingency
from that in general strategic management.
approach and the configurational approach is that
• For example, Lynch (1997) argues that
the contingency view suggests “it all depends on
“international aspects of strategy implementation
the situation in the strategy formation,” whereas
follow the same principles but are complicated by
the configurational view is concerned with
culture, geographical diversity, and other factors”
“combining all previous approaches together.”
• Two main dimensions of international strategy:
• The configurational approach views the strategy
the diversity and size of the company
formation process as an episodic process. The
central idea of the configurational approach is that • Diverse cultures and locations in managing
focusing on only one or two factors is not enough, international firms can affect the formulation of
and therefore a holistic view should be taken into strategy
consideration when understanding and evaluating

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• However, the international management 6. Planning for strategy implementation is usually • Determine the necessary indicators for measuring
literature does emphasize the complex nature of ignored due to that excitement after choosing our performance (participatory styles of
managing international firms. Therefore, one can strategy. leadership/mgt)
perhaps argue that the complexity view can also • Build an information system to provide the
provide further insights for international firms in CONSIDERATION IN STRATEGIC required accurate, adequate, and timely feedback
developing and implementing strategies. IMPLEMENTATION • Establish a recognition and reward system for
motivating your staff
WEEK 9 – STRATEGY IMPLEMENTATION AND Tactics and the generic steps for effective strategy
CHANGE implementing BLUEPRINT APPLICATION: TOURISM AND
HOSPITALITY INDUSTRY APPLICATION,
Strategy Implementation • What activities are to be done? IMPLEMENTATION STRATEGY
• When they will be done? (Timing)
A good strategy without proper implementation is like a • Who will do them? (Persons responsible) IMPLEMENTING SAMPLE STRATEGY
poor strategy or no strategy at all however, having a • What resources will be required?
good strategic plan is half the battle won, and the other • What will be the performance indicators? • Key performance indicator (KPI) is a measurable
half is won through effective strategy implementation • Objectively verifiable indicators (OVIS) value that demonstrates how effectively a company is
• Key Result Areas (quantitative and qualitative achieving key business objectives. Organizations use
• A rigorous process of transforming the plan / strategy indicators) KPIs to evaluate their progress and success at
into action (from mere strategic planning to strategic reaching targets. In simple terms, a KPI is a goal that
management) NOTES you work towards achieving. 5 Key Performance
Indicators
• This transformation involves planning further (for our • Coherent and integrated Work Plans can then be
chosen strategy to be applied) through effectively developed from this Implementation Plan's 1. Revenue growth
communicating to implementers (internal buy-ins), schedule of tactics/activities/actionable steps 2. Revenue per client
organizing resources, leading, and controlling • A good strategic choice with wrong tactics/work 3. Profit margin
plans is likely to fail, and vice-versa 4. Client retention rate
• Putting our grand plan/blueprint into action to ensure • Delegate authority with responsibility, and 5. Customer satisfaction
that we competitively get where we want to be establish a linking/coordination mechanism
(strategic direction) • Budget and allocate resources to the
implementing divisions/departments/sections
• Executing the chosen strategy (s) through putting its • Formulate and state policies, work plans,
tactics (actionable steps/competitive activities) into procedures, and the models/manuals to guide the
action coherent set of tactics (activities) to be used
COMMON FEATURES / CHARACTERISTICS OF Implementation Process
THE IMPLEMENTATION STAGE
• Communication / clarification of the goals,
1. Every strategy to be implemented has its unique objectives and strategies (at different levels of
strategic window hierarchy)
2. Its own requirements/changes • Determine the key managerial & operational tasks
3. Successful implementation is usually to be performed
spearheaded by top management applying • Assign tasks to the various departments and their
teamwork/participatory styles of leadership mgrs./leaders (departmentation)
4. Strategies are implemented by people, so you • Develop your staff and inculcate/reinforce your
need their commitment/goal contract more firm's corporate values
features/observations • Establish an appropriate control mechanism
5. Some implementation is actually outsourced from • Evaluate performance, ascertain gaps, provide
those with better value adding core competences feedback and take corrective action where
in some of our tactics/activities that make up your necessary
chosen strategy • Operationalize those tactics in your strategy

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BLUEPRINT APPLICATION IN TOURISM AND TECHNOLOGICAL FACTORS Advantages and disadvantages of a PESTLE
HOSPITALITY INDUSTRY PESTEL ANALYSIS analysis
• Technology incentives
PESTEL ANALYSIS framework or tool used to • Automation Advantages:
analyse and monitor the macro-environmental factors • R&D activity
that may have a profound impact on an organization's • Technological change • Simple framework.
performance • Access to new technology • Facilitates an understanding of the wider
• Level of innovation business environment.
• Technological awareness • Encourages the development of external
• Internet infrastructure and strategic thinking.
• Communication infrastructure • Enable an organization to anticipate future
• Life cycle of technology business threats and take action to avoid or
minimize their impact.
ENVIRONMENTAL FACTORS • Enable an organization to spot business
opportunities and exploit them fully
1. Weather
2. Climate Disadvantages
3. Environmental policies
4. Climate change • Oversimplify the amount of data used for
5. Pressures from NGO’s decisions.
6. Natural disasters • Too much data may lead to paralysis by
POLITICAL FACTORS 7. Air and water pollution analysis.
8. Recycling standards • The data used may be based on
• Political factors Political decisions affect the 9. Attitudes towards green products assumptions.
economic environment. 10. Support for renewable energy • The pace of change makes it increasingly
• Political decisions influence the country’s socio- difficult to anticipate developments that may
cultural environment. • Politicians can influence LEGAL FACTORS affect an organization in the future.
the rate of emergence of new technologies.
• Discrimination laws • To be effective, needs to be repeated
• Politicians can influence acceptance of new regularly
technologies. • Antitrust laws
• Examples: Bureaucracy; Corruption level; • Employment laws
Freedom of the press; Tariffs; Trade control; • Consumer protection laws
Competition regulation; Regulation and • Copyright and patent laws
deregulation; Government stability and related • Health and safety laws
changes; etc • Education laws
• Data protection
ECONOMIC FACTORS
What is a PESTLE analysis used for?
• Interest rates
• Exchange rates • STRATEGIC BUSINESS PLANNING
• Recession • WORKFORCE PLANNING
• Inflation Taxes • MARKETING PLANNING
• Demand / Supply • PRODUCT DEVELOPMENT
• ORGANIZATIONAL CHANGE
SOCIAL FACTORS • PEOPLE STRATEGIES, REPORTS AND
PROJECTS
• Demographics
• Ethics
• Lifestyles
• Behavior
• Social structures

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