Mandarin Oriental Group Case Study - Essay Example

Mandarin Oriental Group Introduction In order to conduct strategic analysis, the researcher has selected Mandarin Oriental Group as sample organization. In the strategic audit, the researcher will analyze business position of Mandarin Oriental Group in context to issues like mission / current objectives, power / interest matrix of stakeholders, existing strategies, resource auditing, macro environmental analysis, industry forces, opportunity & threat appraisal etc. Before going to the main discussion, the researcher will brief about business background the company in order to develop background for further discussion. Business Overview: Mandarin Oriental Group Mandarin Oriental Hotel Group (MOHG) is renowned operator and owner of luxurious resorts, hotels and residences in major cities across the globe. Hotels, properties and residences of the group are known for their unique value proposition, style, design and architecture (Mandarin Oriental, 2014a). Mandarin Oriental Hotel Group (MOHG) started its operation as independent property in Hong Kong in 1963. It took another 11 years to form the group as hotel Management Company. In 1974, MOHG established partnership with The Oriental which was legendary property makers and hotel owners. Such brand expansion has helped the group to expand its presence to Bangkok through The Oriental. In 1985, MOHG and The Oriental merged into a common business of Mandarin Oriental Hotel Group (Mandarin Oriental, 2014b). Since 1990’s, the group has established its presence over 25 countries and product portfolio included 45 fully operated or under construction hotels and 11,000 rooms. In Asia, the company has opened 20 hotels while in The Americas; MOHG has opened 11 hotels and in Europe, the luxury hotel group has opened another 10 hotels (Mandarin Oriental, 2014b). Mission Statement: “Our mission is to completely delight and satisfy our guests. We are committed to making a difference every day; continually getting better to keep us the best” (Mandarin Oriental, 2014c). It is evident from the mission statement that the company focuses more on providing customer value blended with premium quality service, delighting guests, exotic experience offering, luxury positioning etc rather focusing benefits of low cost services. Therefore, it is clear from the mission statement that the MOHG targets niche segment of customers who are ready to pay extra bucks to afford premium quality services. Current Objectives: Business principles and operational activities of MOHG is being driven variety of objectives and the objectives can be stated in the following manner. 1- Delighting our guests- responds to requirements of patrons in timely and responsive and delivers high quality services to patrons that can exceed their expectations. 2- Work collaboration- the group strives for working in a team and sharing responsibilities to all the employees in order to develop culture of mutual trust and relationship. 3- Enthusiastic work climate- Mandarin Oriental offers transparent performance measurements, reward program, training and mentoring to employees in order to bring the best out of an enthusiastic employee pool. 4- Being the best- the group strives for adapting new ideas, incorporate innovation in service delivery, better supplier partnership and stringent quality measurements in order to ensure leadership position in the industry. 5- Shareholder value- the company is committed to offer better investment return to shareholders and maximize the profit margin from the business operation in different hotels. Ethics- the group also focuses on following legal norms, doing fair transactions, auditing the financial results in unbiased manner and following corporate governance norms of particular country. Corporate social responsibility- Mandarin Oriental Hotel Group (MOHG) invests significant portion of revenue on corporate social responsibility (CSR) and environment sustainability practices like community building, reducing carbon emission, developing schools, preventing child labour, incorporating green supply chain concept etc (Mandarin Oriental, 2014c). Stakeholders Analysis Mandarin Oriental Hotel Group (MOHG) is a large organization and it has presence across the globe hence there is no surprise that stakes of various individuals and groups are being associated with the group. In simple words, stake holders for MOHG can be classified as internal stakeholders who can affect the business operation of the group internally and external stakeholders who can affect the group from external perspective. In such context, Mendelow’s (1981) power / interest matrix can be used to understand key stakeholders and their interest for MOHG. Table 1: Stakeholder Analysis (Power / Interest Matrix) Stakeholder Power Index Low Customers or patrons might have the interest for high quality services but individually, they have very little power to force big brand like MOHG to change its service mix. Similarly, local community groups or environmental agencies might be interested in CSR policy of the MOHG but they have very little power to force the hotel group to take decisive actions. Excellence of service quality of MOHG depends heavily on its capability to coordinate, mentor and train employees to achieve desired performance standards. Employees are important internal stakeholder for the company but there are possibilities that they can resist any changes proposed by the group due to their personal insecurity or fear of losing the job with the arrival of new technology. However, abundance of qualified labour pool and presence of collectivistic factor, power of individual employee is small. Similarly, suppliers like technology support provider, transport companies, food supplier, construction material suppliers etc can impact value chain function of MOHG but presence of other suppliers and alternate supply channel decreases power of individual supplier. High Top level managers and shareholders have the power to question group actions because they have that authority. Probability such negative power exercising is low due to factors like good market reputation of MOHG, constant good return on investment provided by the hotel group and culture of collaboration & trust. . Financial institutions & banks who lend the debt capital to MOHG to expand its business operation and government of particular country have the power to intervene business operation in MOHG. Government can take legal actions or create political restrictions or impose taxes on MOHG in different situational context while financial institutions can create pressure on the hotel group by tightening the debt capital amount or increasing interest rate. Financial volatility and laggard effect of economic crisis have conjointly increased probability for such negative power execution. Low High Probability of power exercising (Source: Mendelow, 1981) Existing Strategies Existing strategy of MOHG can be analyzed in the light of “generic strategies" mentioned by Porter (1980) and Porter (1991). Consideration of seminal research works of Porter (1991) reveals the fact that Mandarin Oriental Hotel Group (MOHG) had four strategic options such as Cost Leadership Strategy, Differentiation Strategy and focus strategy. According to mission statement published by the company (Mandarin Oriental, 2014c), key focus of the company is not to deliver low cost services and target price sensitive customers. On the other hand, MOHG is expanding its business across the globe but the company is not venturing out in other business segments apart from focus segments like luxury residences, luxury resorts, hotels and properties (Roll, 2014). Therefore, existing business strategy of MOHG cannot be explained by using Cost Leadership model and Differentiation Strategy mentioned by Porter (1980). In such context, existing strategy of MOHG has close similarity with focused differentiation strategy mentioned in “generic strategies” literature. In the last 40 years, Mandarin Oriental expanded business in 25 new countries and changed the architecture, design and food offering in accordance with local cultures and country specific macro environmental indices. For example, in UK, MOHG studies the British culture and customer preferences before incorporating such value quotient in food services, architecture and hotel design (Roll, 2014). However, the hotel group still focuses on delivering Asian cultural values and tradition to customers. With the evolution of Asian hotel groups like Shangri-La, Banyan Tree and others, competition for MOHG is increasing. Therefore, the company is banking on marketing promotional campaigns, celebrity advertisement campaigns in order to promote its high quality service as unique selling proposition (USP) to attract customers. In order to ensure high quality service, the group uses its logo of “fan” as symbol of quality and rich Asian heritage in order to boost the brand differentiation factor. From growth perspective, existing strategy of MOHG can be explained by using Ansoff (1987) matrix. The matrix can be explained in the following manner. Figure 1: Ansoff Matrix (Source: Ansoff, 1987) In juxtaposition of above model, MOHG uses the third alternative of offering existing services in different geographic location and slightly adjusting the service mix elements in accordance with local traditions, eating habits, cultural trends and economic conditions. Existing strategy of the hotel group also includes point of differentiation (POD) factors like innovating dinning infrastructure so that it can offer memorable dining experiences to patrons, offering exquisite range of food items and beverages, offering rare and premium hard drinks, spa facilities blended with spa concierge and therapeutically enriched resources, season specific cultural celebrations within hotel etc (Thistle, 2011). Internal Audit Barney (2008) used the “Resource Based View” or (RBV) model to describe how companies can use its tangible and intangible resources in order to achieve sustainable competitive advantage. On the other hand, Prahalad and Hamel (1990) used the term ‘core competency’ backed by RBV model in order to identify crucial capabilities of companies that can help them to achieve competitive advantage over competitors. Kraatz and Zajac (2001) pointed out that achieving core competency means companies can meet three criterions such as proving consumer benefits, making it difficult for competitors to imitate and can be used on diversified pool product-market portfolio. In such context, resource audit for Mandarin Oriental Hotel Group (MOHG) can be discussed by using the concepts like RBV and core competency. Resources- as part of tangible resource; low debt-equity ratio, capital, liquidity, rise in EBIDTA, hotel infrastructure and architecture can be classified as resources that can help MOHG to shape its strategic dimensions (Mandarin Oriental, 2014d). As part of intangible resource; talented employee pool, brand heritance, able top level managers, customer centric technologies etc (Thistle, 2011). As unique resources for MOHG, the study has selected customer focused technology, talented and responsive employee pool that share collaborative work culture, brand name and brand heritance for offering superior service quality and financial capital. Competences- using Grant’s (2011) RBV model, it can be said that MOHG uses its resources to develop dynamic capabilities that may help them to address uncertainties in internal and external environment. According to Grant (2011), resources need to meet VRIN (valued by other members in the industry, rare, difficult to initiate and unavailability of substitutes) criterion in order to develop core competency for companies. Revenue management capabilities, deep understanding of customer requirements and access to customer focus technology and superior architectural talent has developed core competence of MOHG provide customer benefits and resource satisfies VRIN criterion. For example, success of MOHG is characterized by hotel & properties that offer innovative dinning, architectural innovation and spas. The hotel group hired world-class designer Patricia Urquiola in order to bring more innovative idea in designing. On the other hand, the company uses fully automated CAD system; flora and fauna enriched technologies to put therapeutic benefits in spa offerings (Thistle, 2011). It is evident from these examples that MOHG has developed its core competences by using its unique resources. Managerial competences & corporate culture: Cultural Web Business objectives of MOHG direct the corporate culture of the company. For example, corporate culture of the company is being shaped by indices like nurturing the culture of team work & collaborative work approach, presence of transparent and fair performance management system that can reward effort of employees in non-partial manner, high degree of ethics and following code of conducts in daily work practices, enthusiasm among workers at every department and striving for industry best practices and best quality service delivery to customers and being responsible for delivering return on invest to shareholders (Mandarin Oriental., 2014c). On the other hand, managerial competence has been achieved due to able leadership by Edouard Ettedgui (Group CEO of the company), Stuart Dickie (Chief Financial Officer), Michael Hobson (Chief Marketing Officer) and others (Mandarin Oriental, 2014e). These top level managers have years of corporate experience and strong academic background. These managers use their cross functional knowledge and business expertise to shape global strategy of the company. Key investors also take part during important managerial decision and such collaboration further increases robustness of managerial decisions (Mandarin Oriental, 2014e). In such context, concept of cultural web can be used to understand organizational culture of MOHG. Cultural web is being developed with the help of six parameters such as stories, rituals, symbols, organizational structure, control systems and power structure. Stories- in case of Mandarin Oriental, stories regarding its Asian culture, customer satisfaction, brand building, responsive services and many others are part of the culture. Rituals and Symbols- in Mandarin Oriental, staff are trained to deliver responsive services to customers. For MOHG, helping attitude of staff and brand logo of hand “fan” works as cultural symbol of quality and rich Asian heritage. Organizational Structure and Power Structure- in case of MOHG, managerial competence has been achieved due to able leadership by Edouard Ettedgui (Group CEO of the company), Stuart Dickie (Chief Financial Officer), Michael Hobson (Chief Marketing Officer) and others (Mandarin Oriental, 2014e). These top level managers have years of corporate experience and strong academic background. These managers use their cross functional knowledge and business expertise to shape global strategy of the company. Centralized organizational structure is being used in the company. Control System- as control mechanism, balance scorecard is being used in order to measure financial and non-financial performance of the company. Balance scorecard controls all the four perspectives of business for MOHG such as financial performance, internal business process, customer perspective and organizational learning as well as growth (Mandarin Oriental, 2014e). Value chain & Drivers of Competitive Advantage Using Porter’s (1991) work, value chain of Mandarin Oriental can be briefly explained. Primary Activities- MOHG use central logistics systems to bring supply from vendors while processing of raw material and designing of service components is being outsourced by them to consultants, interior designers and technological consultant. As MOHG belongs to service industry, therefore outbound logistic is being synonymous with point of sales delivery of services. Therefore, MOHG offers service elements like luxury rooms, therapeutic spas, music rooms, fine dining places, guest facilities, loyalty bonus etc in order deliver value to customers. As part of marketing & sales and after sales service, the hotel group uses celebrity endorsements, TV campaigns, billboard advertisements, sales promotional techniques, social media interactive patron forums and customer care divisions etc (Szulanski, 2009). Secondary Activities- each of the hotel of the group is blended with modern infrastructure and designing innovations whereas set of talented hotel staff offer responsive services to incoming guests. On the other hand, low cost procurement from known suppliers and stringent quality checking of supplies help the company add more value to customer service delivery. Access to technological resources like modern infrastructure, CAD systems, therapeutic systems, enterprise automation system etc helps the company support primary activities. Competitive advantage of MOHG is being directed by factors like, 1- capability of managing revenue and channelizes the revenue in different sectors to drive further business growth, 2- competence for integrating Asian cultural tradition in every service mix elements and using it as USP, 3- using collaborative work environment and enthusiastic employees to deliver superior quality services to patrons and 4- working closely with value chain partners in order to ensure high quality service delivery to guests. Summary of strength and weakness of MOHG can be explained in the following manner. Table 2: Strength & Weakness Matrix Strength Weakness Strong brand presence across the globe and brand equity Strong financial position and revenue management capabilities Access to technological and infrastructural resources that can help the brand to incorporate innovation in hotel design. Target market is small which decreases revenue earning scope for the company. Business growth is not symmetric in all geographic locations and it increases business risks for the group. Price of the hotels is pretty high even among same category hotels and the hotel group do not have addition differentiation elements to justify high price. External Audit Remote Environment-PESTLE From strategic perspective, PESTLE is being used in country specific manner because PESTLE factors of one country differ significantly from other countries. MOHG has business more than 25 countries hence for sake of rationality and preciseness, UK will be used as sample country for understanding impact of macro environmental indices on MOHG. Political: Stable political condition of the country has increased international tourist arrivals while government offers incentives to luxury hotel sectors and foreign investors in order to boost Gross Domestic Product (GDP) growth (Speed, 2010). The political situation is ideal and supportive for MOHG expand their business. Economic: Annual rise of high net worth individual is more than 10% in the country while demand for luxury hotel remained unaffected during economic recession period. With the liberalization of economy, cross country movement high net worth individuals from BRICS countries (China, India, Brazil, Russia and South Africa) has been increased which has ultimately increased luxury room demand for hotel groups like MOHG. Social: Excessive work pressure and long working hours influence high earning professionals to relax in luxury resorts during weekends and holiday seasons. With the rise of per capita income, middle class upper middle class segment of the society has become ready to spend extra money to arrange memorable events like marriage or birthday in luxury hotels (Speed, 2010). Such social trend boosts demand for luxury hotel groups like MOHG. Technological: With the rise of modern technologies like online hotel reservation, social media, cloud computing and enterprise automation, it becomes easier for customers to book hotel rooms and hotels also get the benefits of using internet as advertising and marketing platforms. In the country, evolution of spa facilities, wellness treatment technologies have also given opportunity luxury hotels to more numbers of points of differentiation (PODs) in service mix (Speed, 2010). Environmental: Government of the country has ordered hotel groups to reduce wastes and carbon emission by 50% within next couple of years. Hotel groups like MOHG are also incorporating environmental sustainability program as part of CSR initiatives in order to reduce wastes, increase recycling of resources, decrease use of natural resources and decrease carbon footprint. Legal: Luxury hotels need to follow health and safety laws, Hotel Proprietors Act, 1956 and labour laws in order to do business in the country and not obeying these laws can cause harsh monetary and legal punishment from local governments (Speed, 2010). Operating environment – FIVE FORCES Porter Five force model can be used to identify industry forces. Table 3: Porter Five Forces Name of the force Characteristics Bargaining Power of Suppliers Luxury hotels work with limited numbers of high standard suppliers who are able to meet 6 star or 7 star criteria of hotels. Such selectivity and high switching cost for companies like MOHG make bargaining power of supplier pretty high. Cost of operation for MOHG increases due to increased bargaining power of suppliers. Bargaining Power of Buyers Individual customers cannot force big luxury hotel brands like MOHG to change service mixes while presence of switching cost further decreases buyer power. Therefore, bargaining power of buyers has been assed as low. As a result, probability of customer retention is pretty high for MOHG. Threat of New Entrant Requirement of huge capital to establish infrastructure and competitive threat from existing big player have increased entry barriers for new players. Threat of new entrant for companies like MOHG has been estimated as low. Threat of Substitute For luxury hotels, substitutes can be private label retreats, luxurious properties etc. High net worth individuals ready to explore these substitutes. Therefore, threat of substitutes has been assessed as moderate. Presence of substitutes might create challenge for MOHG to retain high net worth customers who can afford private label retreats. Competitive Rivalry Presence of big players like Shangri-La, Banyan Tree, Hiltons etc make the industry hyper competitive. Arrival of international players has also increased competition level. As a whole, threat of competitive rivalry has been assessed as high. Due to intense competition, it will be challenging for MOHG retain or increase market share in future years. (Source: Speed, 2010) . Strategic Group Mapping & Industry Life Cycle According to Szulanski (2009), Mandarin Oriental Hotel Group (MOHG) belongs to luxury industry is in the growth phase and the industry is enjoying double digit growth. The industry remained profitable during recession. Therefore, industry belongs to growth phase Industry Life Cycle due to three reasons, 1- with the rise of globalization, cross country movement of high net worth individuals has shoot up the demand for luxury hotel, 2- very small segment of the target market is being captured and luxury hotels have immense potential to use social media marketing and other traditional marketing channels to attract customers and 3- presence of undifferentiated services increases opportunity for new players to penetrate in the market. The industry is characterized with fragmentation and cyclicality. These two factors also ensure growth phase of luxury segment in Industry Life Cycle. “Strategic Group Mapping” for the industry can be done on the basis of service differentiation and pricing. Table 4: Strategic Group Mapping High Mandarin Oriental Hotel Group (MOHG) Four Seasons Ritz-Carlton Medium Shangri- La Banyan Tree Low Raffles Low Medium High Boston Matrix and Key Opportunities and Threats Stars: theme dining facilities, spas facilities are showing the growth path for the company and company should invest more on these services. Cash cows: business growth of the company has reached its saturation point in Hong Kong and luxury hotel only offerings are also showing stable demand. Question Mark: the company recently launched individual real estate luxury properties to attract customers and it will take time for the company to achieve break even. Dogs: Asian theme based hotels are showing poor sales growth in some of EU countries and the company should think of divesting to avoid further losses (Szulanski, 2009). Table 5: TOWS Matrix Strength Weakness Opportunity MOHZ can retain its loyal customer base through diversifying the service offering by adding service elements like food service variation, theme parks, value added offerings etc. The company should take help of its supply chain partners in order reduce overall cost of value chain operation. In order to address weakness regarding limited global presence, MOHG needs to establish partnership with small level luxury hotels or private label retreats in order to expand business globally. Threat In order to avoid competitive threat from big players, MOHG needs to diversify its offering and focus more on promoting Asian heritage. In order to address threat of financial volatility of economy, the company may decrease complexity or eradicate redundant value chain activities. In order to avoid financial loss, MOHG needs to shut down unprofitable business ventures. In case of unprofitable strategic business units (SBUs), the company should focus more on retaining loyal customers rather than wasting resources to attract new customers. (Source: Szulanski, 2009) Appraisal of Opportunities and Threats  Consideration of research work of Greenley (1989) reveals the fact that Mandarin Oriental Hotel Group (MOHG) should create risk buffers in order to avoid some of the threats because these threats can seriously damage business prospect for Mandarin Oriental Hotel Group (MOHG). For example, the company should think to eradicate redundant value chain steps in order to reduce cost of operation while the company should invest more on research & development activities in order to encourage innovation in terms of hotel design, food offering and service offerings. Decreasing value chain cost would help the hotel group to reduce price of offering to attract new customer base and also to enter price sensitive BRICKS market. Strategic Options Option 1: work closely with value chain partners and suppliers and incorporate forward or backward integration of value chain in order to increase average revenue per customer. Option 2: invest more on research & development activities in order to encourage innovation in terms of hotel design, food offering, service offerings, theme parks within hotels, casino, innovative dining facilities etc. Option 3- decrease cost of offering as well as price of offering in order to penetrate in price sensitive markets and attract upper-middle class segment of the society. Reference List Ansoff, H. I., 1987. Corporate strategy. 2nd ed. London: Penguin. Barney, J., 2008. Resource based theory. Oxford: Oxford University Press. Grant, R., 2011. Contemporary strategy analysis. 7th ed. Hoboken, New Jersey: Wiley. Greenley, G. E., 1989. Strategic management. New Jersey: Prentice Hall International. Kraatz, M. S. and Zajac, E. J., 2001. How organizational resources affect strategic change and performance in turbulent environments: Theory and evidence. Organization Science, 12, pp. 632-57. Mandarin Oriental., 2014a. Our Company. [online] Available at: [Accessed 15th February 2014]. Mandarin Oriental., 2014b. Our History. [online] Available at: [Accessed 15th February 2014]. Mandarin Oriental., 2014c. Mission & Guiding Principles. [online] Available at: [Accessed 15th February 2014]. Mandarin Oriental., 2014d. Financial Reports. [online] Available at: [Accessed 15th February 2014]. Mandarin Oriental., 2014e. Senior Management. [online] Available at: [Accessed 15th February 2014]. Mendelow, A., 1981. Environmental scanning: The impact of stakeholder concept. Cambridge: Proceedings of the second international conference on information systems. Porter, M. E., 1980. Competitive strategy. New York: Free Press. Porter, M. E., 1991. Towards a dynamic theory of strategy. Strategic Management Journal 12 pp. 95-118. Prahalad, C. K. and Hamel, G., 1990. The core competence of the corporation. Harvard Business Review, 68(3), pp. 79-91. Roll, M., 2014. Mandarin Oriental - a leading Asian hospitality brand. [online] Available at: [Accessed 15th February 2014]. Speed, C., 2010. Charleton House Hotel. [pdf] University of Stirling. Available at [Accessed 15th February 2014]. Szulanski, G., 2009. Mandarin Oriental Hotel Group (A). [pdf] .INSEAD. Available at [Accessed 15th February 2014]. Thistle., 2011. Mandarin Oriental Hotel Group – A Global Luxury Brand. [pdf] Jardine Matheson. Available at [Accessed 15th February 2014]. Read More