The Success of Hyatt Reflects the Exemplary Strategy of the Company - Case Study Example

THE HYATT ORGANIZATION CASE STUDY INTRODUCTION This case study aims to compile an in-depth examination of the Hyatt organization’s current strategic situation and to demonstrate and evaluate information on the organization’s strategic management concepts, ideas and theories. This study required a methodical research that used all available resources and information found necessary to contribute to a profound comprehension of the Hyatt organization and its internal and external environments that had resulted to a recognizable accomplishment in the hospitality industry worldwide. COMPANY BACKGROUND The Global Hyatt Corporation is well known in the hospitality industry. It is one of the pioneers that establish and operate 5-star hotels, resorts and casinos around the globe. The company name is formally launched in 2004. The Hyatt chain provides excellent services to the executive travelers and high-class visitors. The first hotel on its organization is established in 1957 that is originally owned by the Pritzker family located in Chicago. Jay Pritzker purchased the Hyatt House in 1957 that is located in Los Angeles Airport from a local entrepreneur named Hyatt R. von Dhen. Today, it has existing numerous luxury hotels and resorts that offer golf, spas, casinos and other upscale recreational and leisure interests in various countries and thus employing a diverse population of employees. The company has several brand properties namely: Hyatt Regency, Grand Hyatt. Park Hyatt, Hyatt Place, Hyatt Summerfield Suites, Hyatt Resorts and Andaz that are strategically built near airports, resorts, and major and small cities worldwide, and yet Hyatt incessantly add new properties each year. The Hyatt Strategy In May 2003 Hyatt developed a new strategy to combat the decline in the economy. The Hyatt organization took advantage of the low economic situation when the organization decided to consolidate operations and management and expanded its lodging reach both local and abroad. The development team of the Hyatt organization saw the downturn as a great opportunity to expand the portfolio of hotels. Even the board was less enthusiastic about the scenario during that time, Hyatt was well positioned to deal with the economic fluctuations as being owned the wealthy Pritzker family who has invested more than $800 million in the hotel portfolio. (Edmunds, 2001) This gave birth to the Global Hyatt Corporation where Thomas J. Pritzker is named the chairman and chief executive officer. One of the global Hyatt’s aims is to maximize company’s options wherein it focused first internally, positioned an opportunistic platform based on their history of finding the opportunity and build. The company had options to build from within, go after different segments to generate growth and other alternatives to finance it. Flexibility, choice and opportunity became the new motto of the company in order to address the globalization of the company’s customers. The company is aware that their customers travel around the world and they have to respond with brand consistency, service and technology without losing the cultures of the country. Even it is a global hotel company, it made sure that the norms, practices and culture is preserved and respected. The mere acknowledgement of change to accommodate improvisations is a vital factor to keep on track in order to fulfill its mission and serve its purpose to its primary target market. The Hyatt organization had to be flexible. This flexibility involved looking at the external and internal environments and workforce practices in order to identify new and better ways to respond to the emergent needs of the industry and the clients. The Global Hyatt Corporation decided to acquire ownership of existing hotel companies such as the Summerfield Suites and the AmeriSuites through partnership. The acquisition of the Summerfield Suites branded hotels together with six owned assets became possible through partnerships between affiliates of The Blackstone Group (a private investment group), the Gencom Group and Lehman Brothers. This became the Hyatt Summerfield Suites. (Gilligan, 2006.)While the AmeriSuites, a limited service entity with 143 properties, is purchased from the Blackstone Group. (Meeting News, 2005.) Today, the Hyatt organization owns, operates, manages and franchises its hotel brands worldwide to share its mission in giving excellent services to hotel guests. To keep up with the modern times and conquer the personal and particular needs of its upscale guests, the Hyatt organization resulted to hotel branding each with unique services to offer. Flexibility is utilized by the diversity of hotel brands as these allowed Hyatt hotels in the same part of town because it has different target markets. The Macroenvironment The external environment today is changing fast. The global Hyatt Corporation being a global hotel business, which vowed to diversity, needed to move fast in order to compete with other existing global hotels and maintain its worldwide status. It had to identify external influences in the business environment and on its clients and adapted accordingly. One of the biggest environmental factors that affected Global Hyatt Corporation is the growing need for professional and personalized services complete with state of the art equipments and technology. To help analyze the external environment, there are several factors to consider such as the political, economic, social and the technological. The following analysis outlines the PEST factors and indicates some of the changes that Global Hyatt Corporation has made and is making. Political factors focuses on tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability of a country. In this case, the Hyatt chain adapts to the specific rules and regulations of a particular country since this changes arising from government initiatives or public opinion. Economic factors include changes in purchasing patterns as people’s incomes rise. For example, as incomes go up people prefer to avail of what they perceive as superior purchases. We see this with the development of upscale hotels with high-end boutiques, casinos, golf courses, state-of-the-art equipments, spa amenities, fitness gyms, personalized services and high technology machines. As people become cash-rich due to their devotion to their time-demanding works they prefer to go on vacations and stay on hotels with world-class amenities to pamper themselves and their families to compensate their hard work and time taken away from their families. Social trends are one of the key factors affecting this global hotel business. Clients’ service purchasing patterns are determined by personal needs. Just as demand for some popular clothes are determined by fashion, demand for hotel services are determined by personal requirements which are often changing yet always expect to get the best. That is why, the Hyatt chain of hotels came up of brand hotels to cater particularly to its target market. A particular example is the Andaz brand that was introduced in April 2007 with locations in London and New York. It will have spa amenities, rooftop restaurant to serve organic foods and drinks and the design incorporate green building materials and systems to promote good health and care for the environment as people now begin to be health and environment conscious. (Weiss, 2007.) The Hyatt chain is continually being faced by new challenges from technology factors that look at elements such as automation, technology incentives and the rate of the technological change. An example of this as based on the summary of Gebhard, Rainer’s commentary summary, being the VP for Hotel Finance and Technology, is when Hyatt uses Hyperion to reduce month-end closing time from 15-2 days, and cutting the forecasting process from five months to six weeks. Hyperion also assists with improved data accuracy and compliance and implementations together with Palladium and AnswerThink. He quotes “We have achieved our goals in the area of financial consolidation and global financial planning, significantly reducing the time needed for both while greatly improving the accuracy of our data.” (Rainer, 2006) The Microenvironment In order for Global Hyatt Corporation to provide excellent services and maintain its global status, it also needs to determine its microenvironment and work on the needs required to exceed. Microenvironment is essential to the company since this has a big effect on the impact of the company’s power to serve and satisfy the clients. There are six factors of the microenvironment that is of great importance in the existence of a company. First, is the Global Hyatt Corporation’s internal environment made up of management personnel together with finance, purchasing, research and development, marketing, events, customer service and human resources departments. The Global Hyatt Corporation embraces a multicultural environment when people from different nations come together to work for its hotels and support each other to provide the excellent service and be on top in the hotel industry. To acknowledge its importance, the Hyatt organization comes together globally every year for one week to celebrate its people and as a time to understand differences of its associates and the vast cultural differences represented in their company. This once a year celebration is done by partnering and celebrating with a sister hotel in another country. One proof of the company’s acknowledgement to the needs and welfare of the associates is mentioned by Doug Geoga, president of Hyatt Corporation and Hyatt International parent company AIC Holdings Company when he was asked what draws him to Hyatt and he answered “A sense of community. We all have the luxury of working with people we respect on a business level, on a personal level, and on a moral and ethical level. That sense of community explains the intensity of feelings Hyatt people have for the company and the family and explains the remarkable longevity that characterizes people service to this company. It’s an essential element of our culture, and I know that will endure regardless of how we ultimately chose to utilize the Global Hyatt program. (Wolff, 2003) Second, is Global Hyatt’s suppliers who provide the goods and services necessary to help the hotel provide excellent service to its guests. To combat the bargaining power of suppliers, the Multicultural Foodservice and Hospitality Alliance (MFHA) is established where Hyatt is the founding member. This is the umbrella organization of food and service professionals, retailers and suppliers that is established to support and develop the representation of the minority in order to develop and advance career opportunities. This, too, is an exclusive organization that concentrates to endorse diversity that aims to educate, facilitate and serve as resource information concerning the diverse multicultural workforce. (Business Wire, 2003.) Third, is the group of marketing intermediaries composed of travel agents, travel companies, public relations firm, advertising firm who help in endorsement of the hotel and to generate sales for the company. Hyatt organization has partnered with different airlines, travel companies such as Expedia to promote in order to provide stress-free travel, check-ins and transfers. Under the Travel Partners, the traveling Hyatt guest can earn airline credit by simply presenting the membership card upon check-in and guests would pay at an eligible rate. Fourth, is the Global Hyatt competitors who also aim to lead in the global hospitality industry such as the Hilton Hotels, Marriot and Starwood Hotels and Resorts. Fifth, is the Hyatt hotel’s immediate public capable of affecting the company’s competence to achieve its goals and objectives. This public could be citizen action groups, the media or the government who may not agree with the company’s ways and means in implementing and executing projects and plans. Sixth, the last but not the least, is the customers who drive the Global Hyatt Corporation reach its maximum potential and execute continuous innovations. The traveling business executives and the upscale tourists being the Hyatt chain’s target market undoubtedly generate the company to ensure excellent service. But, this does not end here. There are still many factors to be considered to guarantee the success of this global hotel company. The model of pure competition implies that risk-adjusted rates of return should be constant across firms and the industry. However, industry studies have shown that it can sustain different levels of profitability and part of this difference is explained by the industry structure. Michael Porter provided a framework that models an industry as being influenced by the five forces namely the bargaining power of customers, bargaining power of suppliers, the threat of new entrants, the threat of substitute products and the intensity of the competitive rivalry. A diagram of Porter’s Five Forces and contributing factors are shown in Appendix A. Porter’s Five Forces originated from Porter’s 1980 handbook “Competitive Strategy: Techniques for Analyzing Industries and Competitors.” This model helps identify and analyze five competitive forces that shape every industry and helps to determine the industry’s weaknesses and strengths. The Bargaining Power of Customers is about how much pressure customers can place on the hotel industry. If a customer has great influence to affect the Hyatt’s margins and volumes, then the customers hold substantial power. In this case, there could only be small ratio of traveling business executives and upscale tourists who could really splurge on their hotel stays and afford the hotel’s services. Also, these customers are open to transfer and try other five hotels where the same services are offered yet feel that they could benefit more. Another example of the bargaining power of the customers is the mere acknowledgement of the company in terms of having a diverse target market is that the Hyatt ensures the preservation of the country’s culture. The company respects the norms and culture of the country they are established in by celebrating the norms and culture of the people and by promoting it through the hotel’s designs, food and events. They do not impose the American culture and Hyatt is confident that they are well known for that and it is one of their major selling factors. The Bargaining Power of Suppliers is about how much pressure suppliers can place on the hotel industry. If one supplier has a large enough impact to Hyatt’s margins and volumes, then the suppliers will hold a substantial power. A particular example is the supplier of towels used for baths, face, hands and feet. This supplier may have power if it is there are limited suppliers for this product, switching to another brand could cost more than the original suppliers price, the towels being supplied are of best quality and contributed to the Hyatt signature toiletries, there may be no other substitutes or the supplier can offer its supplies to the competitor hotel company. The Threat of New Entrants is considered a major threat to the Global Hyatt Corporation because it would be easier for new upscale hotel company to enter the industry to provide more competition. However, there are factors that limit the threat of new entrants, which is called the barriers to entry. The Hyatt chain is established and must have existing loyal clients, it provides incentives and privileges to club members and this hinders loyal clients from transferring because they could not avail of the same benefits they already enjoy at Hyatt hotels. Also, the government might have existing policies or legislations regarding international and big establishments to protect the interests of their country. The Threat of Substitutes is the likelihood of customers to switch to a global hotel competitor if the cost to switch is low. The main issue here is the similarity of standards, amenities, benefits and services with the Hyatt chain of hotels with lower prices then this is considered a substitute hotel and could really pose a major threat to the business. In this case, being a substitute hotel with equally same benefits and services this is considered as new entrant, which surpassed the barriers of entry. The Rivalry is the intensity of competition between existing global hotel companies. These types of highly competitive companies generally earn low returns since the cost of competition is high. This could hinder the Hyatt chain from achieving its goals and objectives since a number of global hotels are out in the market with minimal differences in terms of standards, amenities, benefits and services then it is difficult to dominate the hospitality industry. CONCLUSION Change is the one constant in the business environment. Change comes form a number of sources- political, economic, social and technological and microenvironment, which is further determined by Porter’s Five Forces analysis. This case study illustrated how these factors affected the Global Hyatt Corporation and managed to survive the hospitality industry and to stay on top. Because Global Hyatt corporation is focused global hotel company it recognizes that it has to respond to its macro- and micro- environments. The Global Hyatt Corporation’s commitment to diversity led to its new marketing strategy of flexibility, choice and opportunities. The company believed in flexing its muscles in a fresh and unpredictable way and lived the company’s history of finding first the opportunity then build yet with much more character and more adaptable to the environment and change. Today, the Global Hyatt Corporation continues to build more luxurious hotels worldwide to provide excellent service to its guests, The Hyatt continues to provide exemplary trainings to its associates in order to guarantee its guests of better relations. The Hyatt keeps its longstanding commitment to make a difference in the society by giving back to its people the privilege of serving the company they work for but to serve their community. The Global Hyatt Corporation does not only guarantee the strong foundation of each of its hotels, the grand designs of its interiors, the best locations in the world but also the welfare of their people. The Hyatt organization recognizes the importance of having the best people and they now how to take care of them. The success of Hyatt reflects the exemplary strategy of the company. REFERENCES: Edmunds, 2001, “Hyatt To Sustain Growth Throughout Industry Cycle”, 2 May. Fleisher & Bensoussan, 2002, “Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business.” “For Second Consecutive Year, Hyatt Named One of fortune Magazines Top 50 Companies for Minorities”, 2000, Business Wire, 17 July. Gilligan, 2006, “Global Hyatt Corporation Announces Plans for New Extended Stay Brand”, Commercial Property News. 24 January. “Global Hyatt Announces Official Partnership With Make-A-Wish Foundation ®”, 2006, Market Wire, May. “Hyatt Announces Partnership With America’s Promise; Commitment Encourages Hyatt Hotels To Support Variety of Children’s Causes”, 2001, Business Wire, Chicago, 12 February. “Hyatt Buys AmeriSuites”, 2005, Meeting News, 24 January. http://www.hyatt.com, accessed 18 October 2007. Porter, 1980, “Competitive Strategy: Techniques for Analyzing Industries and Competitors.” Rainer, 2006, “Global Hyatt Corporation Consolidates 200+ Business Units”, What Works. Volume 21. May “The Multicultural Foodservice & Hospitality Alliance is Proud to announce the Addition of Dennis Labossiere as Manager, Member Relations & Events”, 2003, Business Wire, Providence, 27 January. Weiss, 2007, “Hyatt To Open fourth Hotel Under Andaz Luxury Brand”, Interior Design, 9 October. Wolff, 2003, “Hyatt Hotels Goes Global”, 1 May, retrieved November 7, 2007 from http://www.lhonline.com/article/5117 APPENDIX A: Porter’s 5 Cycle Bargaining Power of Customers Bargaining Power Threat of Of Suppliers New Entrants Rivalry Threat of Substitutes This is Michael Porter’s framework created to diagnose industry structure, built around five competitive forces that erode long-term industry average profitability. These five forces help determine the competitive intensity and the attractiveness of the market. These are also referred to as the microenvironment used to contrast the wider aspect - macroenvironment in order to explain the sustainability of profits against bargaining and against direct and indirect competition. The bargaining power of customers: Buyer concentration to firm concentration ration, bargaining leverage, buyer volume, buyer switching costs, information availability, ability to backward integrate, availability of existing substitute products, buyer price sensitivity and price of total purchase. The bargaining power of suppliers: Suppliers switching costs relative to firm switching costs, degree of differentiation of inputs, presence of substitute inputs, supplier concentration to firm concentration ratio, threat of forward integration by suppliers relative to the threat of backward integration by firms and cost of inputs to relative to selling price of the product. The threat of new entrants: The existence of barriers to entry, economies of product differenced, brand equity, switching costs, capital requirements, access to distribution, absolute cost advantages, learning curve advantages, expected retaliation and government policies. The threat of substitutes: Buyer propensity to substitute, relative price performance of substitutes, buyer switching costs and perceived level of product differentiation. The rivalry: Number of competitors, rate of industry growth, intermittent industry overcapacity, exit barriers, diversity of competitors, informational complexity and asymmetry, brand equity, fixed cost allocation per value added and level of advertising expense. Read More