Unit 6 The Internal

Environment: Capability

Strategy for Tourism

Reading

Book Ch

Tribe, J, (2010) Strategy for Tourism, Goodfellow Publishers, Oxford.

6

Capon, C. (2008) Understanding Strategic Management, Prentice Hall: Hemel Hempstead.

3

Tribe, J. (2005) The Economics of Recreation, Leisure and Tourism, Butterworth Heinemann, Oxford.

-

Johnson, G., Scholes, K., and Whittington, R. (2008) Exploring Corporate Strategy, Prentice Hall: Hemel Hempstead.

3

Learning Outcomes

After studying this chapter and related materials you should be able to understand:resources and competencesresource auditperformance monitoring and controlevaluation of productsSWOT analysis

and critically evaluate, explain and apply the above concepts.

Case Study 6: InterContinental Hotels Group (IHG) IHG only owned 17 of its hotels in 2010. Its business model, which is increasingly typical in the

hotel industry, is to concentrate on the management of hotels which are owned by other parties and on franchising its hotel brands.

IHG manages 614 hotels but the largest part of its business is the 3,700 hotels that operate under franchise agreements.

Its key capability is expertise in hotel management, operating systems, and marketing..

IHG measures success in three ways: Total shareholder returns. Rooms growth a basket of specific key performance indicators (KPIs)

InterContinental Hotels Goa

Resources and Competences Resources are the inputs that are used for the

activities of tourism entities. Competences are the skills and abilities used to deploy resources to achieve a given end. Core competences are defined as those which are central to the entity’s mission and those which enable it to develop its competitive advantage.

Resources may be classified under four headings:physical resourceshuman resourcesfinancial resources, andintangibles

Performance Monitoring and ControlSpecific techniques are often used for

analysing the performance of human resources, and financial resources

General techniques for analysis can include:value chain analysisbalanced scorecard

An organisation's performance with regard to resource utilisation can be given a useful perspective by way ofcomparative analysis

Human Resources

Monitoring of the performance of human resources is more complex than for other resources and involves qualitative as well as quantitative issues. Key issues for performance analysis include:Succession readinessPerformance managementReward management

Financial Resources

For profit-making organisations financial indicators include:profit and lossshare pricesearnings per shareprice / earnings ratiosreturn on capital employed profit marginrevenue per available roomrevenue per available seat kilometre (RASK)efficiencyliquidity

Case Study: easyJet

Image:

© easyJet airline company limited.

easyJet

The following site includes some data on easyJet’s capabilityhttp://www.easyjet.com/common/img/easyj

et_results_YE_2007.pdf

(The following link is for lecturers)easyjet_results_YE_2007.pdf

Evaluate the performance of easyJetWhat other data might be useful?

Value Chain

The tendency to analyse organisations by reference to a narrow and visible aspect of its products resulted in analysts such as Porter (1985) developing the idea of the value chain.

The product of a scheduled airline for example is not just a seat on an aeroplane, rather it is a complex set of connected activities that go to make up the total passenger experience - i.e. a value chain exists.

For this part of resource analysis the purpose of examining the links in the value chain is to identify where cost savings may be made.

Value Chain: CostsElement Activity Cost questions

Preparation *Routes *Airports*Advertising*Information*Reservations*Sales

*Are any routes unprofitable?*Can we use cheap, secondary airports?*Is advertising efficient?*Can reservation costs be cut?*Can IT reduce costs?*Charges for use of credit cards*Are commissions too high?

Pre-Flight *Check-in*Baggage *Departure Lounge*Boarding

*Can on-line check in be encouraged?*Can we charge for checked baggage?*Use cheap option if available*Stairs cheaper than walkways

In Flight *Seat Choice*Seating*Flight Attendants*Meal*Entertainment*Other provision

*Add as optional cost*Maximise seat numbers*Wages and commission schemes*Optional extra*Optional extra*Investigate other in flight revenues

Post-flight *Baggage reclaim*Airport transfer

*Reduce costs by charging for baggage

Follow up *Customer requests*Customer complaints

*Are passenger refund rules too generous?*Can we charge customers for telephone complaint lines using premium numbers?

Hotel Premiere Classe

Small rooms Out of town locations Compact bathrooms All help to cut costs

in value chain

Lufthansa

Automatic check in cuts costs from the value chain

Ryanair

No Frills:Passengers pay extra for on-board catering on Ryanair

Also note the advertising on the seat backs

Balanced scorecard

The balanced scorecard collects performance data from a range of an organisation’s activities.

It arose from criticisms that other measures are too narrow

Four areas that are typically targeted for review are:Financial perspective (e.g. profit margins, revenue

growth, costs, cash flow, net operating income)Customer perspective (e.g., market share, customer

satisfaction)Internal process perspective (e.g. asset utilization,

supply chain management, customer management, innovation and relations with the external stakeholders),

Innovation and learning perspective (e.g. human capital, information capital and organization capital).

Comparative Analysis

Comparative analysis can be made by reference toLongitudinal Analysis which uses an

organisation's historical record to compare data on performance over time.

Best Practice which uses data from other organisations in an industry to provide information on the highest performance standards attainable.

Evaluation of ProductsPart of an organisation's capability

review will focus on an evaluation of current products.

There are several methods of analysis including:effectivenessvalue chain analysisportfolio analysis, andproduct life-cycle analysis.

Effectiveness

Effectiveness is a measure of how well a particular objective is achieved. Measures of product effectiveness may include:consumer satisfaction with product analysis of matching between product and

market needperformance of productcomparison with competing products

RATER

RATER (Buttle, 1996) measures satisfaction in terms of:Reliability Assurance Tangibles EmpathyResponsiveness.

Value chain analysis

Value chain analysis can also be used to determine whether improvements or value-added can be incorporated into a product's value chain.

Example is a health spa in a 5* Sofitel hotel

Portfolio analysis

Portfolio analysis considers whether an organisation's range of products are well balanced with a particular view to the future.

The Boston Consulting Group (BCG) matrix which considers products in terms of their market share and market growth may be used to assess the balance of an organisation's portfolio of products.

BCG Matrix

Product life-cycle analysis

Product life cycle (PLC) (Vernon, 1966, 1979) analysis is useful in considering the future path of sales of a product.

The next slides depicts the four main stages ofIntroductionGrowthMaturity and Decline

and the characteristics of these stages are tabulated.

Clearly products which are entering decline may need rejuvenation or replacement whereas market development may be appropriate for those in the growth phase.

Product life-cycle analysis

Product Life CycleIntroduction Growth Maturity Decline

Customers Ignorance of productScepticism of product

More awareness of productGrowing demand

Mass market Seeking new productsRepeat customers

Competition None or little Growing Consumer choice Market saturated

Products Changing standards and designQuality unproven

Quality improves High reliabilityStandardisation

Overtaken by new products

Production High costs Mass production and economies of scale

Low production costs

Over capacity

Marketing High advertisingHigh prices

Marketing economiesReduce price

SegmentationCompetitive strategy vitalReduce price

Seek to re-launch

Butler’s TDLC Model

Butler (1980) applied the PLC model to destinations, substituting number of visitors for sales on the vertical axis.

The stages identified in the destination life cycle were first exploration, characterised by a few initial visitors, followed by involvement where some facilities are developed. Development involves perhaps more external investment and more sophisticated and comprehensive facilities. A consolidation and stagnation phase represent a destinations journey into maturity where tourism has become a major local industry. Butler suggests that this may be followed by decline, reduced growth, stabilisation or rejuvenation, according to the policy chosen.

Butler’s TDLC Model

Criticisms of TDLC analysis are summarised by Witt, Brooke and Buckley (1995) and include the lack of empirical validation for its shape, and the determinism implied by the cycle (i.e. that maturity and decline are unavoidable).

When applied to destination it is asked whether this is an appropriate level of aggregation since different geographical zones and market segments within a destination may reflect different stages of development.

There is also evidence that the length of the PLC is shortening.

SWOT Analysis

SWOT analysis is an executive summary of the different elements of strategic analysis. Under SWOT, the detailed analysis of an organisation's external environmental and internal resource position is distilled and summarised into key factors.

Once the key SWOT elements have been identified, it can be productive to prepare a grid with strengths and weaknesses and opportunities and threats.

Identification of an organisation's situational position by means of a SWOT analysis is an important phase in prior to consideration of strategic options which is the subject of the next chapter. Appropriate strategies are likely to:align opportunities and strengthstransform weaknesses, andovercome threats

SWOT Analysis

Internal (Capability) Analysis Strengths Weaknesses•Resources

•Products

External (Environment) Analysis Opportunities Threats

•Competition

•Political

•Economic

•Socio-cultural

•Technological

Review of Key Terms

Resources: Physical resources, human resources, financial resources, and intangibles

Value Chain: Set of connected activities that make up the total service provision

Balanced Scorecard: Performance data from a range of an organisation’s activities.

Longitudinal Analysis: Uses an organisation's historical record to compare data on performance over time.

Best practice: Uses data from other organisations in an industry to provide information on the highest performance standards attainable

Portfolio Analysis: Evaluates an organisation's range of products in terms of their market share and market growth

Product Life Cycle: Depicts the four main stages of development as introduction, growth, maturity and decline

Tourism Area Life Cycle: Exploration, involvement, development, consolidation and stagnation

SWOT analysis: Stands for Strengths, Weaknesses, Opportunities and Threats

Discussion Questions

1. Use the RATER (Buttle, 1996) elements of: Reliability Assurance Tangibles Empathy Responsiveness

to carry out a quality audit on a named tourism service. Identify any service gaps and make recommendations.

2. What is value chain analysis? Conduct a value chain analysis for a hotel which focuses on ways of either reducing costs or improving service.

3. Identify the position on a Boston Box of the main products of a named tourism organisation. What conclusions can you reach about the balance of the portfolio of products and what points for future planning emerge from this exercise?

4. To what extent can the concept of product life cycles be used to analyse destinations (Butler, 1980)?

5. What is the purpose of a SWOT analysis? Conduct a SWOT analysis for a tourism entity.

United Airlines

Link to United Airlines Investor’s Day Presentation

Case Study: DCMS

The Capability Review of the Department for Culture, Media and Sport can be found athttp://www.civilservice.gov.uk/documents/capability/

pdf/Capability_Review_DCMS.pdf

What is the link between tourism and the DCMS?

What does capability mean? What is the purpose of such a report? How capable is the DCMS? Could the method of this report be used for

other tourism organisations? See esp p15

Unit 6 The Internal

Environment: Capability

The End

Strategy for TourismStrategy for Tourism