Strategic Management at Riverside Hotel South Bank - Research Proposal Example

Strategic Proposal for Riverside Hotel South Bank First Name, Middle Initial (s), Last name Institutional Affiliation Table of contents 1.0. Introduction…………..…………………………………………………………..1 2.0. Methods…………………………….……………………………………………..4 3.0. Results of Environmental scan.…………………………………………...............4 4.0. Gap analysis 5.0. Discussion.....………………….…..………………………………………………9 6.0. Recommendations…………...….………………………………..………………14 Strategic Proposal for Riverside Hotel South Bank 1.0. Introduction The Riverside Hotel South Bank is situated in South bank, Brisbane, the heart of Brisbane’s entertainment, cultural and recreation scene. The hotel, a 4 star hotel targets local and international tourists, as well as individual stay for leisure and business. Its proximity to Brisbane exhibition and convention center, museum, lyric theaters, Queensland performing arts complex, arts galleries as well as a range of coffee shops, restaurants and bars adds to its ideal location for providing hotel motel accommodation. The hotel also provides other services including conferencing facilities and facilities for business functions such as product launches, training sessions, business meetings, birthday parties, and even wedding receptions. Riverside Hotel South Bank further provides facilities for cocktail parties, trade shows, exhibits, banquets, and presentations. The hotel offers discounted rates for pricing of their single, twin and double rooms. It runs an in-house restaurant that features Australia contemporary cuisine. The hotel was a recipient of the 2004 and the 2006 excellence award from hotel accommodation association. The report proposal aims to determine the gaps and opportunities that face the hotel and come up with strategies to utilize new opportunities and fill in the gaps. Effective strategy formulation requires strategic planning, which involves a clear definition of the businesses objectives and internal and external analysis of the business situation and the impact of the business situation on the choice of strategy. 2.0. Method An environmental scan including an external analysis was used to identify various attributes that had an effect on the competitiveness of the business such as the firm’s external macro environment; determined using a PEST analysis and analysis of the external microenvironment using Porter’s five forces framework to perform an industry analysis including identification of entry barriers, customers, and industry rival and substitute products. A SWOT analysis was used to generate the profile of the internal strengths and weaknesses, and external threats and opportunities crucial in formulation of viable strategies. The process of strategy formulation involved matching attributes generated by various tools used in environmental scan such as strengths to the available opportunities while addressing the gaps including external threats and internal weaknesses to attain a competitive advantage over the rivals. Finally, implementation, means of evaluation, feasibility and justification of how and why the chosen strategy will provide the hotel with sustained competitive advantage for the choice of strategy are provided and supported by theory and data analysis. 3.0. Results of environmental scan 1) External Analysis a) Used PEST analysis to identify the external macro environment facing the hotel hospitality industry. b) Used Porter five analyses to identify the external micro environment facing the hotel industry. The results of the Environmental scan identified external macro environment through an external Political, Environmental, Social, and Technological (PEST) analysis. a) PEST Analysis Political Possible changes in laws regulating businesses such as opening of new business. Legal consideration in opening business in new markets such as requirements for partial domestic ownership in foreign businesses. Economic Economic downturns in many world economies resulting to reduced tourisms Unfavorable exchange rate - High cost of the Australians currency against other major world currencies increasing the costs for foreign tourism. Low levels of available credit due to the economic downturn High interest rate for acquiring loans from financial institutions Social Changes in consumer attitudes Changes in consumers habits Changes in tastes of consumers Changes in demographics, accompanying by a large pool of aging population Technological Rise of the internet as major channel for marketing, and creation of brand loyalty. New technologies and tools such as the mobile phone High levels in use of technologies Security issues in use of technologies such as online payments. b) Porter five forces analysis The results of the environmental scan identified the external micro environment particular to the industry and contributing to the differences in industries risk-adjusted rates of return. This was determined using the Porter five forces framework. PORTER FIVE FORCES AFFECTING RIVERSIDE HOTEL SOUTH BANK DEGREE OF RIVARLY DEGREE OF RIVARLY HIGH DEGREE OF RIVARLY - High concentration of rivals - Low switching costs - Available exit barriers + High diversity of rivals + Product differences Low Brand identity The framework identified the hotel industry barriers, customer’s power, supplier power, and industry rival and substitute products in the hospitality industry. Barriers There is limited availability of land within the surrounding areas suitable for hotels as most developers are able to attract higher returns from alternative investments on the land compared to expectations from hotels. The customers can easily switch from one hotel to another at minimal cost. This creates a challenge of creating brand loyalty. Due to low levels of innovative products there is a short proprietary learning curve. Weak brand identity also increases the chances of rivals cannibalizing on the hotels business. The barriers to entry reflect an unattractive position for the riverside hotel due to the limited entry barriers Customer’s power There is an increased buyer power due to high access of information through use of various technologies such as the internet. The increased demand from mid level family, leisure and business travel has increased the numbers of price conscious customers. The increased frugality of businesses since the downturn of most economies has also contributed to a higher number of customers demanding same service levels at lower prices. The use of the internet to make comparisons means that the customers are able to get similar services at lower prices thus increasing the consumer power. Industry rivalry There is a high degree of rivalry as experienced by the low brand identity of consumers and low switching costs increasing switching of consumers to competitors based on price offers and other offers. Substitute for products Low switching costs, high inclination to substitutes and Low Price-performance trade-off of substitutes has increased the threat of substitutes that face the Riverside hotel business. c) SWOT ANALYSIS A SWOT analysis was used to generate the profile of the internal strengths and weaknesses, and external threats and opportunities crucial in formulation of viable strategies. The PEST factors together with the external microenvironment from the porter’s framework provided the threats and opportunities for the SWOT analysis. A. Internal analysis Strengths Superior quality as indicated by being the recipient of the 2004 and the 2006 excellence award from hotel accommodation association. High capitalization and profitability. Low turnover of employees Medium cost hotel Weaknesses Low brand identity Lack of clear objectives and value proposition to clients Poor marketing and usage of technology B. External analysis Opportunities Brisbane, which is the capital city of Queensland has experienced a 10% growth in Chinese tourists India and china fast growth in economy creating a large pool of middle class. A rise in the mid market travel segment New roles played by technology Increased leisure travel from emerging markets The rise of organic food industry Threats Decline in economies worldwide and slow growth in economies Decline in business travel Decline in the conferencing industry Low brand loyalty High degree of rivalry Threats of substitutes High consumer power Changes in demographic 4.0. Gap analysis After performing the SWOT analysis, the firm should also identify the gaps that exist in the organizations corporate goals and objectives and the quantitative projections that have been made within a period of at least five years. A gap analysis thus enables an organization to compare its existing performance from its potential performance. The gap analysis answers the question of what is the organizations current position and where the business intends to be. It is an important tool in the process of strategy formulation as it explores whether the organization is making the best use of its available resources, investing its resources in relevant areas such as on technology, human resource and so on. The gap analysis further identifies whether the business is able to satisfy the customers identified needs or whether a gap exists between what the consumers demand and what is offered by the organization. A strategic orientation following a gap analysis seeks to fill in the gap if the organization is to remain competitive and viable. A gap analysis for south Bank Hotel End state Current state Gaps/actions A clearer brand image and brand recognition Product positioning gap Existing product offerings do not create a specific brand image as to the intended customers. Matching of the objectives with product offering - create clear goals and objectives for the hotel identifying the target customer. -Use of advertising to create intended brand image. Offering alternative products such as organic food to emphasize the healthy offering objectives of the organization. Increased cost of switching for clients. Increased customer loyalty Lack of clients loyalty as evidenced by high levels of switching of customers Use of internet and technology to create loyalty programs. Use of internal marketing to increase retention of superior employees. Cushion against declining sales and profitability. Declining sales in conferencing Increase product differentiation to target the growing mid level leisure, business and family travel. 5.0. Discussion a) Strategy Formulation and selection 1. Corporate level strategies Corporate level strategies are geared towards choosing the businesses segments that an organization should compete. It further deals with the coordination and development of the businesses. At this level, goals that the organization intends to attain are derived. Emerging new opportunities provide avenues to pursue a growth corporate strategy as its core directional strategy. Such a strategy may pursue horizontal growth, entailing pursuing new customers, new geographic locations and new products. Following the SWOT analysis, the hotel should diversify its target markets to concentrate on offering its services to emerging and promising markets such as the Chinese and India middle level market segments. Since the hotel operates thus also provide for horizontal integration through a global geographic expansion into the new market areas. The strategy further includes increasing the hotels range of products to meet the objectives of the hotel. The use of a horizontal strategy to vertical strategy is due to the fact that the use of a vertical strategy may make it difficult for the firm to attain economies of scale, increasing costs for the firm thus eroding its competitive advantage of the chosen business strategy. Coupled with a diversification strategy to the new markets such as China and India, the hotel can manage to hedge against risk of total failure in case of challenges facing specific markets. a) Business level strategy From the PEST analysis, Porter five analyses and the subsequent SWOT analysis, it is possible to formulate the best strategy that the firm may pursue to retain its competitive advantage. Although there is an indication of medium rivalry as indicated by the high number of rivals, none has significant market share. This indicates that the market is competitive and the firm has opportunities to attain larger market share. The competitiveness of the hospitality industry in the region is an indicator that the market is attractive and the firm can operate profitably. However, in order to perform optimally and deliver superior returns Riverside hotel must be in a position to leverage its strengths. The best strategy would be able to emphasize the businesses core promise and value creation to its target clientele in a profitable and sustainable manner while at the same time at the most effective price offer. The choice strategy is a cost leadership strategy at business level coupled with a focused product differentiation at the functional level. b) Feasibility and justification of how and why the chosen strategy will provide the hotel with sustained competitive advantage Strategy 1: Cost leadership strategy as a business level strategy The cost leadership strategy is feasible for the hotel for various reasons. Firstly, the hotels profitability over the years gives it the ability to access large amounts of capital that may be required in pursuing a cost leadership strategy. A cost leadership strategy is supported by analysis using the portfolio model approach that indicates that the mid level segment is a likely cash cow that portends future growth and high profitability considering the current growth rate in this market segment. The hotel by utilizing a cost leadership strategy would be able to capture the growing Chinese mid level tourism market from the incoming Chinese tourists as well as capturing some of the clients in the expanding markets in china and India by offering value in their pricing model for the quality provided. The expected growth in these markets at higher rates compared to Japan, Europe and Britain is an indication of the expected demand for the mid level segment. A clear cost leadership strategy will also remove the confusion in the minds of consumers on both the value proposition and the market position of the hotel by communicating clearly and coherently its value proposition. This is a crucial step in creating a brand image that may be crucial in creation of brand loyalty programs. The cost strategy would be applied companywide. The establishment of new hotels in these markets will give it an added advantage in attracting mid level clientele in the home market. Implementation of the cost leadership strategy Cost leadership strategy will require the hotel to expand so that it is able to acquire advantages in gaining power over suppliers by buying in large quantities. Consequently, the strategy will also involve opening up new branches in the two countries in anticipation of the growth in the mid level business, leisure and family travel. The strategy will also require an efficient distribution channels to ensure that the hotel is booked in advance all year round. In order to achieve this, the south bank hotel must embrace various technologies such as use of internet marketing. Using the internet, the hotel can enhance its visibility while at the same time creating loyalty programs that can be run through their website. Strategy 2 Focused differentiation strategy as a functional level strategy The growth in demand in organic foods market and the expected rise in demand over the next several years is expected to result to a sizeable market for the organic foods in the hotel business. Using the product life cycle approach, organic food can still be considered to be in the introduction phase with the potential for growth over the years as evidenced by the increased awareness of the health benefits of consuming organic food over other types of food. Using a focused differentiation strategy, the hotel can offer organic food as part of its menu. The rise of the desire for most individuals to eat healthy food and the value proposition of healthy eating that is delivered by the organic food makes it a viable strategy at the functional level. The early mover advantage and association with the market will be crucial in creating brand recognition in a market where brand recognition is difficult to gain. The advantage of being among the few hotels offering organic food will also allow the hotel to create hype on its product offerings. Implementation of the strategy Implementation of the strategy will involve using a product development strategy entailing training employees on preparation, sourcing and selection of organic foods and the firm’s new products and service mix. The strategy will also entail designing programs that create awareness among employees on the new opportunities presented by the organic food industry. Although, the strategy may be costly to begin with due to the high costs associated with organic food supplies, over time the growth in market is likely to result to higher number of suppliers resulting to lower prices. This would allow the firm to price the product appropriately to increase penetration in the market while maintaining product quality that is consistent with the pricing level. Evaluation of strategy Following implementation, it is necessary to evaluate the strategies with an aim of determining the effectiveness of the strategies. The need for evaluation and control of strategies stems from the fact that strategies are subject to change since they operate in constantly changing internal and external factors. Evaluating the strategies involves performing audits on each strategy to determine whether the chosen strategy is attaining the objectives of the organization. The process of strategy evaluation and control entails review of internal and external factors that were used in coming up with the strategies, measuring performance and taking corrective actions where necessary. The strategy will identify any areas of weakness that may be found in the course of implementation of the strategy. In the process, the firm using independent auditors can perform strategic audit in a systematic manner so as to identify symptoms from problems in the strategy, periodically due to the changes that may require that new consumer needs be addressed by shifting the strategies. The audit must be comprehensive by covering both internal and external areas of concern for the organization. The audit will cover the organizations environment to identify new shifts in the environment, microenvironment such as changes in demographics, the strategy audit, functional audit and the audit of the structure and systems that may hinder or contribute to achievement of the strategies. 6.0. Recommendations The success of the above strategies are dependent on certain factors including the ability of the firm to acquire the required capital, investment in human resources, and the ability of the organization to market its services. Consequently, it is recommended that 1. The Hotel utilizes the internet as a marketing tool both for acquiring new customers and to attracting loyalty among customers. 2. The hotel should utilize internal marketing programs to retain its human resource management especially considering the over 30% annual employee turnover in the hospitality industry. This will further allow the hotel to increase the loyalty of employees. 3. Increase brand recognition through marketing efforts geared towards creating brand recognition. 4. Increase brand loyalty through use of other technologies such as the iphones, to run personalized market campaign to the target clients. References Australian Hotels Association (AHA). Retrieved from http://www.aha.org.au/AHA%20Modern%20Hospitality%20Award%20Overview.pdf Porter, Michael E., Competitive strategy Techniques for Analyzing Industries and Competitors John Middleton, The ultimate strategy library The 50 Most Influential Strategic Ideas of All Time Kalman J. Cohen; Richard M. Cyert. (2007), Strategy: Formulation, Implementation, and Monitoring. The Journal of Business, Vol. 46, No. 3pp. 349-367. Read More