Hospitality Strategic Management: Concepts and Cases

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Hospitality Strategic

Management

CONCEPTS and CASES

SECOND EDITION

CATHY A. ENZ

JOHN WILEY & SONS, INC.

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Library of Congress Cataloging-in-Publication Data

Enz, Cathy A., 1956-

Hospitality strategic management : concepts and cases / Cathy A. Enz. — 2nd ed.

p. cm.

Includes bibliographical references.

ISBN 978-0-470-08359-8 (cloth)

1. Hospitality industry—Management. 2. Strategic planning. I. Title.

TX911.3.M27E56 2009

647.94'068—dc22

2008021438

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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Dedicated to my

parents Richard and Betty Enz,

two remarkable people

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CONTENTS

Preface ........................................................ xiii

About the Author ................................................ xix

CHAPTER 1 Strategic Management ................................. 1

Introduction ...................................................... 3

The Origin of Strategic Management ................................... 5

The Traditional Perspective ........................................... 6

The Organization as a Bundle of Resources: The Resource-Based View ........... 9

The Organization as a Network of Stakeholders........................... 11

The Strategic Management Process ................................... 13

Situation Analysis ................................................ 16

Strategic Direction ................................................ 16

Strategy Formulation .............................................. 18

Strategy Implementation ............................................ 19

Global Competitiveness in the Hospitality Industry ....................... 20

Variables Affecting Strategic Management ................................ 21

Strategic Thinking ................................................. 21

Strategic Planning Can Drive out Strategic Thinking........................ 22

Characteristics of Strategic Thinking ................................... 23

Motivating Managers and Employees to Think Strategically ................... 27

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vi CONTENTS

Strategic Management in the Hospitality Industry ........................ 28

The Foodservice Industry—The Players................................. 28

The Lodging Industry—The Players ................................... 29

Key Points Summary ............................................... 33

Review Questions................................................. 34

Critical Thinking and Application Questions ............................ 34

CHAPTER 2 The Environment and External Stakeholders............ 36

Introduction ..................................................... 38

Assessment of the Broad Environment ................................. 39

The Sociocultural Context .......................................... 40

The Economic Context ............................................ 47

The Political Context ............................................. 48

The Technological Context .......................................... 50

Change and Interdependence among the Broad Environmental Forces ............ 54

Gathering Information on International Environments ....................... 56

Analysis of External Stakeholders and the Operating Environment ........... 58

Porter’s Five Forces, Economic Power, and Industry Characteristics .............. 59

External Stakeholders, Formal Power, and Political Infl uence .................. 69

Managing the Operating Environment ................................. 70

Economic Actions ................................................ 71

Political Strategies ................................................ 72

Partnering with External Stakeholders .................................. 74

Key Points Summary ............................................... 76

Review Questions................................................. 78

Critical Thinking and Application Questions ............................ 78

CHAPTER 3 Strategic Direction ................................... 80

Introduction ..................................................... 83

Creating a Strategic Direction........................................ 83

Key Infl uences on Direction ......................................... 86

Mission Statements ................................................ 89

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CONTENTS vii

Organizational Vision .............................................. 94

Organizational Values .............................................. 95

Social Responsibility .............................................. 99

Enterprise Strategy .............................................. 102

Ethical Frames of Reference ........................................ 105

Codes of Ethics................................................. 108

Ethics in Global Environments ...................................... 110

Key Points Summary .............................................. 111

Review Questions................................................ 112

Critical Thinking and Application Questions ........................... 113

CHAPTER 4 Organizational Resources and

Competitive Advantage ........................................... 114

Introduction .................................................... 116

Internal Analysis and Competitive Advantage ........................... 117

Sustainable Competitive Advantage ................................... 117

Value-Adding Activities............................................ 120

The Value Chains of Winemakers .................................... 120

Value-Chain Activities ............................................ 121

The Tourism Value Chain ......................................... 124

Tangible and Intangible Resources ................................... 125

Resources and Capabilities ......................................... 126

Financial Resources............................................... 127

Financial Ratios ................................................ 128

Physical Resources ............................................... 130

Architectural and Sustainable Design.................................. 131

Human-Based Resources .......................................... 134

Strategic Leadership .............................................. 134

Ownership and Management ....................................... 140

Employees ...................................................... 143

Structure and Culture ............................................. 144

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viii CONTENTS

Knowledge-Based Resources ................................ 148

Internal Knowledge Creation and Organizational Learning .................. 150

Knowledge Creation.............................................. 150

Knowledge Creation and Interorganizational Relationships................... 152

General Organizational Resources ................................... 155

Patents, Copyrights, Trademarks, and Servicemarks ........................ 155

Brands and Organizational Reputation ................................ 156

Superior Relationships with Stakeholders ............................... 159

Key Points Summary .............................................. 160

Review Questions................................................ 162

Critical Thinking and Application Questions ........................... 162

CHAPTER 5 Strategy Formulation at the Business-Unit Level ....... 164

Introduction .................................................... 167

Generic Business Strategies......................................... 167

Cost Leadership ................................................ 172

Differentiation.................................................. 179

Best Value .................................................... 185

Focus ........................................................ 188

Competitive Dynamics ............................................ 189

Strategies That Refl ect Competitive Dynamics ........................... 191

Resources, Industry Structure, and Firm Actions .......................... 197

Strategic Group Mapping .......................................... 199

Developing a Strategic Group Map ................................... 200

Key Points Summary .............................................. 201

Review Questions................................................ 202

Critical Thinking and Application Questions ........................... 203

CHAPTER 6 Corporate-Level Strategy and Restructuring........... 205

Introduction .................................................... 207

Concentration Strategies ........................................... 210

Advantages and Disadvantages of a Concentration Strategy .................. 211

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CONTENTS ix

Vertical Integration Strategies ....................................... 214

Advantages and Disadvantages of a Vertical Integration Strategy ............... 216

Vertical Integration and Transaction Costs .............................. 217

Substitutes for Full Vertical Integration................................. 219

Diversifi cation Strategies ........................................... 220

Related Diversifi cation ............................................ 220

The Creation of Synergy .......................................... 222

Unrelated Diversifi cation .......................................... 226

Mergers and Acquisitions .......................................... 229

Consolidation .................................................. 230

Merger Performance .............................................. 232

Successful and Unsuccessful Mergers and Acquisitions ...................... 234

Strategic Restructuring ............................................ 236

Turnaround Strategies and Downsizing ................................ 237

Refocusing Corporate Assets ........................................ 239

Chapter 11 Reorganization ........................................ 240

Leveraged Buyouts ............................................... 242

Changes to Organizational Design ................................... 243

Portfolio Management ............................................ 244

The Boston Consulting Group (BCG) Matrix........................... 245

Destination Portfolio Analysis....................................... 247

Key Points Summary .............................................. 247

Review Questions................................................ 249

Critical Thinking and Application Questions ........................... 250

CHAPTER 7 Strategy Implementation through

Interorganizational Relationships and Management

of Functional Resources .......................................... 252

Introduction .................................................... 254

Interorganizational Relationships and the Tourism Cluster................. 255

Advantages and Disadvantages of Interorganizational Relationships ............ 256

Stakeholder Management and the Selection of Partners ..................... 262

Buffering versus Partnering......................................... 267

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x CONTENTS

Effective Stakeholder Management .................................... 268

Managing Partnerships............................................ 287

Functional-Level Resource Management .............................. 289

Marketing Strategy .............................................. 291

Human Resources Strategy ......................................... 295

Operations Strategy .............................................. 295

Key Points Summary .............................................. 296

Review Questions................................................ 297

Critical Thinking and Application Questions ........................... 298

CHAPTER 8 Strategy Implementation through

Organizational Design and Control ................................ 299

Introduction .................................................... 302

Organizational Structures .......................................... 302

Simple Management Structures ...................................... 305

Business-Level versus Corporate-Level Structures ......................... 307

Types of Business-Level Structures ................................... 309

Corporate-Level Structures ......................................... 318

The Lateral Organization .......................................... 325

Simple Coordinating Mechanisms .................................... 326

Formal Integrators ............................................... 327

Organizational Control ............................................ 327

Strategic versus Financial Controls ................................... 329

Feedback-Control Systems ......................................... 331

Feedforward Control ............................................. 339

Other Types of Controls ........................................... 344

Crisis Prevention and Management ................................... 346

Key Points Summary .............................................. 351

Review Questions................................................ 353

Critical Thinking and Application Questions ........................... 354

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CONTENTS xi

CHAPTER 9 Strategies for Entrepreneurship and Innovation ........ 356

Introduction .................................................... 359

Entrepreneurial Start-ups .......................................... 359

The Entrepreneur ............................................... 360

Entrepreneurial Tasks............................................. 361

Franchising.................................................... 376

Causes of Failure ............................................... 377

Innovation and Corporate Entrepreneurship ............................ 380

Fostering Innovation in Established Firms .............................. 382

The Internet and E-commerce ....................................... 389

Key Points Summary .............................................. 393

Review Questions................................................ 395

Critical Thinking and Application Questions ........................... 396

CHAPTER10 Global Strategic Management and the Future ......... 397

Introduction .................................................... 399

Global Strategies ................................................. 402

Multidomestic, Global, and Transnational Strategies ........................ 402

Market Entry Tactics ............................................. 405

International Alliances and Business-Format Franchising .................... 408

International Market Selection ...................................... 411

Institutional Differences ........................................... 416

National Advantages ............................................. 417

Global Stakeholders .............................................. 419

Stakeholder Management in Foreign Environments ........................ 420

Strategic Management in Hospitality Firms in the Future ................. 424

Key Points Summary .............................................. 425

Review Questions................................................ 427

Critical Thinking and Application Questions ........................... 428

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xii CONTENTS

CASES .......................................................... 429

Case Study Matrix ............................................... 430

Case Note: Learning through Case Analysis ............................ 433

Case 1: The Fun Ship Experience at Carnival Cruise Lines ................ 442

Case 2: Building Capabilities at the Westward Hilton..................... 453

Case 3: InterContinental Hotel Group’s Entry into China ................. 482

Case 4: The Summer of 2006 Union Negotiations: Unite Here’s Strategy ..... 504

Case 5: Banyan Tree: Sustainability of a Brand during

Rapid Global Expansion ........................................... 514

Case 6: Starwood Hotels and Resorts Brings Aloft to India ................ 552

Case 7: The Commoditization of Starbucks ............................ 564

Case 8: The Movement of Travel Services Online: Intermediaries and

Branded Distribution ............................................. 582

Notes ......................................................... 595

Glossary ....................................................... 645

Index.......................................................... 657

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PREFACE

My goal in writing this second edition of Hospitality Strategic Management , Second Edition is to provide

students, hospitality professors, and practitioners with an up - to - date, thorough, and rigorous treatment of

strategic management in a hospitality context. In this edition, the text continues to provide a comprehensive

treatment of strategy concepts and ideas, while illustrating important ideas with numerous new and relevant

examples from the hospitality industry. Since the last edition, the business landscape in the hospitality indus￾try has changed dramatically. Consolidation, mergers, new entrants, and new brand introductions continue,

while tourism and brand expansion is growing rapidly in emerging nations. In this edition, new concepts and

business initiatives, along with shifting trends and evolving strategies, are refl ected through all - new examples

and cases.

Not only does this text cover strategic management from the perspective of hospitality professionals, but

it is also based on what strategic managers actually do, making it a practical guide. On one hand, they acquire,

develop, and manage internal resources such as people, knowledge, fi nancial capital, and physical assets. Of equal

importance, they acquire, develop, and manage relationships with external stakeholders such as guests, suppliers,

owners, franchisors, venture partners, and governmental agencies. Hospitality Strategic Management, Second

Edition provides a realistic, balanced view of the fi eld. It draws heavily from the resource - based perspective

that fi rms can develop competitive advantages through the acquisition, development, and management of

resources. It also uses stakeholder theory to help explain when fi rms should form partnerships, the form they

should take, and how to manage them.

This book also contains the most relevant theory and models from what might be called the traditional

approach to strategic management. Consequently, combining the resource - based view and the stakeholder

view with traditional theory and models provides a comprehensive and managerially useful perspective

of strategic management. The focus of this book is on the translation of strategic ideas into hospitality

contexts. Using a diverse set of examples and new cases, the book seeks to link useful strategies and stra￾tegic issues to actions and activities of hospitality fi rms. Furthermore, this text introduces theories, recent

research, and models in key areas that fi t the hospitality context better than ideas found in the general

strategy literature.

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