Strategy Formulation & Business Decision for NH Hotels in Belgrade - Case Study Example

STRATEGY FORMULATION AND BUSINESS DECISION: NH HOTELS IN BELGRADE Executive Summary Business management and development process are complicated and essential elements for any organisation. The organisation selected for this report is NH Hotel and the study has tried to identify the problems faced by the company in the contemporary scenario. It was observed that limited focus towards customer needs and expectations has led to dissatisfied consumer base. Also the existing organisational structure of NH Hotels revealed a gap between the operations and other functional segments of the company and hence a communication network for aligning the primary departments was suggested. On the other hand, for evaluating a new growth plan for NH Hotel, market development was selected with the help of Ansoff matrix analysis. The project developed is mainly directed towards enhancing brand equity and revenue streams for the hotel in a new market with huge potential for growth. Thus, Belgrade was selected as the spot for market development. The project has includes thorough financial and revenue analysis along with the analysis of the market which helped in building work schedule of the entire operations. The research has also been directed towards understanding the capability of the organisations in the process of market development process in Belgrade, Serbia. Table of Contents Table of Contents 3 Introduction 5 Description of the current situation 5 Figure 1: Organisational Structure of NH Hotels 9 Possible Solutions 9 Proposal of a new procedure or change 11 Figure 2: Ansoff Matrix for NH Hotels 11 Description of the new situation in the company 12 Figure 3: Flow Chart for work structure of NH Hotels 13 Figure 4: Flow Chart of Service structure of New NH Hotel Expansion 16 Justification of change 16 Table 1: Cost benefit Analysis of NH Hotel New business proposal 17 Implementation Plan 18 Figure 5: Gnatt Chart of NH Hotel Project Part 1 19 Figure 6: Gnatt Chart of NH Hotel Project Part 1 19 Conclusion and Recommendation 19 Reference List 21 List of Tables and Figures: Figure 1: Organisational Structure of NH Hotels 9 Figure 2: Ansoff Matrix for NH Hotels 11 Figure 3: Flow Chart for work structure of NH Hotels 13 Figure 4: Flow Chart of Service structure of New NH Hotel Expansion 16 Table 1: Cost benefit Analysis of NH Hotel New business proposal 17 Figure 5: Gnatt Chart of NH Hotel Project Part 1 19 Figure 6: Gnatt Chart of NH Hotel Project Part 1 19 Introduction Go and Pine (2008) stated that the development of the operational structure of the business is based on its strategic objectives whereas Schoenecker and Cooper (2010) argued that the organizational culture and structure are influential in designing the functional process of the business. It can be noted that although there exists a debate regarding the influencing factors of the operational functions and work structure of a firm, the researchers agree that work structure of a business is always focused towards the strategic growth of the business. Rhyne (2009) stated that business houses are micro managing their operational structures in order to reduce the influence of the external factors on the business systems. Based on these observations, the report will evaluate the managerial factors related with the operational process of a company. NH Hotel Group is one of the largest hotel chains of the world and is operating mainly in the European, American and African market (NH Hotels, 2015a). The operational base of NH Hotels includes more than 400 hotels functioning within 28 countries all over the world and has a service base of almost 60000 rooms (NH Hotels, 2015c). The unique selling point of the company is primarily framed on excellent service quality. However, recently many problems have been reflected by the customers regarding the fall in service quality of NH Hotels (NH Hotels, 2015c). Considering these conditions the report will present a business plan for NH Hotels that will help in developing new market and also upgrade their operational performance. Description of the current situation Operational design of the NH Hotel is mainly influenced by the organizational structure of the company and helps in directing the daily functions of the employee base with the organizational objectives of the business. The organizational structure of the business is designed in a hierar- -chical manner at the top managerial level and follows the similar concept at base employee level. Figure 1: Organisational Structure of NH Hotels (Source: NH Hotels, 2015b) It can be observed that the operational process of NH Hotels is being simultaneously managed by the VP of strategic planning and corporate affairs. Hence, the operational process of the firms is directly connected with the supervision of the top management of the business. The service structure of NH Hotels is totally focused on creating a refreshing experience for their customers. Baligh (2007) noted that NH Group of Hotels are among the trend setters in the hospitality sector, they have always tried to include the best of cultural, technological and corporate facilities in their service structures. The aim of the hotels is to build a differentiation advantage in the market with a diverse set of customer offerings. However, recently the online forums of NH Hotels have experienced an array of customer complaints regarding their service structure. Most of the complaints are related to the internet services provided by company and some have complained about the behaviour of the staff. This reflects that the individual aspects of the service structure of NH Hotels are the primary barriers to their growth. Possible Solutions The organisational structure of the NH Hotels as reflected above is focused on individual segmentation of the roles and responsibilities of the workforce operating in various geographical regions. It can be noted that the operational process of the company has been set up separately from other functions such as finance and corporate affairs. According to Ireland and Sexton (2010), organisations try to establish their operational process in an individual manner for reducing the internal or external influences on the work process of the firm. Drummond, Ensor and Ashford (2012) argued that operational functions of a business must be aligned with the strategic planning and development systems so that the organisational objectives can be achieved. As observed in the previous section of the report, the primary problem faced by the NH Hotels is the increasing number of complaints from their customers regarding their operational services. In order to solve these issues, NH Hotels first needs to identify the source of these operational gaps. Williamson, Cooke and Jenkins (2012) stated that operational performances of the employees can hamper because of strategic of tactical changes such as changes in the service structure of then firm, changes in market response or consumer taste and preferences, lack of employee commitment towards the work structure, demoralising work culture, etc. Baligh (2007) however explained that gaps in the service structure arise mainly because of lack of transparency and understanding among the employees regarding the role and position in an organisation. This aspect can also be related with the flaws in the communication structure of an organisation which can mislead or hamper the quality of the services being provided by the firms. On a theoretical note, the factors that influence the work structure of a business can instigate from the workforce of the firm or from the behaviour of the consumers (MacMillan and Venkataraman, 2009).Barrow (2011) argued that the consumer management aspects such as reduced lead time or individual focus on the customers are internal factors and often are the primary reasons behind a faltering service structure. In case of NH Hotel, the gap between the operational practices and other strategic functions of the company could be one of the primary factors behind the service degrading. One of the most commonly used strategies for reducing customer complaints and enhancing the scope of relationship between the buyer and seller is to communicate with the guests and deliver the services according to their needs and expectations (MacMillan and Venkataraman, 2009). This will also help NH Hotels in regaining customer trust and loyalty and enhance their growth prospects in the existing and potential markets. However, implementing the strategy of individual service structure in the NH Hotels can divert their cost competitive advantage and result in a disadvantageous competition. Proposal of a new procedure or change The new proposal for change in the operations of NH Hotel has been developed in accordance with their organisational objectives of market expansion and customer generation strategies. NH Hotels already have an established business setup in the American and European nations however some of the emerging markets are yet to be covered. Among these, Serbian capital Belgrade has evolved as a major tourist destination courtesy numerous international events and occasions being performed in the cultural centre of the nation. Considering the nature of business of NH Hotels, the selection of the market has been made. However, in order to further fortify the selection of the strategy for NH Hotel, an Ansoff Matrix has been implemented. Figure 2: Ansoff Matrix for NH Hotels (Source: MacMillan and Venkataraman, 2009, p - 266) NH Hotels already has an extended service base and the ability to utilise their huge capital structure for developing new strategies for growth and development of the business. In this regard, they have the ability to follow any of the four strategies of business expansion as mentioned in the above model. Nevertheless, the business must be able to select an option that will result in gaining a sustainable long-term competitive advantage for the firm both in terms of revenue generation and brand development (Ireland and Sexton, 2010). The researcher has selected market development option that will help NH Hotels to explore new customer groups and also assess their behaviour towards the existing service base of the company. This will also help the organisation in understanding the positioning of their services in the international market place. Furthermore, the place selected for market development (Belgrade, Serbia) is also renowned as one of the most frequently visited tourists’ spots of Europe. The researcher has refrained from selecting a complete diversification approach for minimising the risk of the expansion and also considered the problems faced by NH Hotels in their service delivery process. Description of the new situation in the company The expansion of NH Hotels will mainly be directed towards enhancing the consumer base of the business and also strengthening their foothold in the European market. The primary focus of the strategic change will be on establishing the new set up for the hotel in a manner that reflects the traditional theme of NH Hotels and also helps in creating consumer awareness among the target customers. The entire plan of business expansion will include the planning process, budget development, service design and other related functional processes. The initiation of the new plan is expected to bring in some changes in the existing service structure of NH Hotel. Most of these changes will be related to the differences in the behaviour, needs and preferences of the target customers (Barrow, 2011). Considering these changes in the existing service structure of the business, the below given flow chart has been developed: Figure 3: Flow Chart for work structure of NH Hotels (Source: Created by Author) The above given work structure has been designed in a different manner than the existing work structure of NH Hotels. The segregation of the teams has been kept to a minimum which will make it easier for the managers to monitor the work structure of the new hotel. Moreover, there is also a risk of job clashes in the internal structure of the hotel and hence each team will have their designated managers who will respond to the top management directly. Direct communication channel will also help in clarifying the roles and responsibilities of every individual working within the organisation and also help the top authority to direct the work process of the company in accordance to the organisational objectives and also customer needs (Drummond, Ensor and Ashford, 2012). The basic service structure of the new NH Hotel set up in Belgrade will consist of the following aspects: Figure 4: Flow Chart of Service structure of New NH Hotel Expansion (Source: Created by Author) Justification of change The changes included in the service structure and the workforce management process of NH Hotels has been made in accordance with the objectives of the expansion and also in alignment with the expectations and behavioural traits of the customers. It was considered that Belgrade is a global tourism site and hence the nature of customers will vary. Thus, the service structure has been kept within a simple framework that will allow the business houses to change their Service structure and focus on the individual needs of the consumers. The changes in the service structure of the organisation will also help the company to understand and evaluate the differences in the customer responses and design a more suitable approach for customer relationship management process (Drummond, Ensor and Ashford, 2012). Considering the financial aspects for the business proposal, the initial investments of the company will be used for land acquisition, infrastructure development and facilities and fixtures. The expected area required for the new hotel has been estimated to be around 1000m2. The current price range of acquiring land in the business and cultural hubs of Belgrade is around €330/m2. This brings the total amount for €330000. The cost of construction of the structure has been estimated to be around €50000 by including the cost of raw materials and the associated labour charges. The taxes of the production process are also related to this overall construction of the capital structure which has been calculated to be €850. Thus, the total construction costs of the new hotel have been estimated to be €3350850. The cost of the furniture’s’ and fixtures of the hotel for all the rooms of the hotel has been considered to be €120000 and the cost of the assets of the hotel such as the kitchen equipments, crockery and utensils have been estimated to be €40000. Thus the total asset base of the hotel is estimated to cost around €160000. Apart from these expenses, the extra facilities such as swimming pool, parking, spa and massage, etc will cost an additional €130000 which will be later added to the constriction cost. The expenses related to the work structure of the company will include employee compensation and incentives, employee equipments such as computers, intercom, etc and the employee fringe benefits. Along with these other supporting activities such as training and development of the firms will also be included in the cost. The total cost of employee related expenses have been estimated to be €134400. The legal service will be treated separately and has been estimated to cost around €7000. Thus the overall cost of the business for the first year can be summed up to an estimation of €812250. Year Rooms Occupancy (%) ARR (€) Monthly (€) Yearly (€) VAT rate (%) VAT (€) 1 60 32 55 32736 392832 0.08 31427 2 60 36 57 38167 458006 0.08 36641 3 60 40 62 46128 553536 0.08 44283 4 60 45 65 54405 652860 0.08 52229 5 60 55 67 68541 822492 0.08 65799 6 60 60 70 78120 937440 0.08 74995 Table 1: Cost benefit Analysis of NH Hotel New business proposal (Source: Created by Author) The above given chart has been formulated as the cost benefit analysis of the new business proposal for NH Hotel. It can be observed that the business process. The cost benefit process of the hotel has been developed for the first six years in which the occupancy room of the hotel has been increased consistently on a specific rate in accordance with the probable success rate of the business. The increase in the Average Room Rate (ARR) per night has been increased considering the changes in the service structure of the business. Implementation Plan The implementation process for the new establishment of NH Hotels has been highlighted in the below given Gnatt Chart: Figure 5: Gnatt Chart of NH Hotel Project Part 1 (Source: Created by Author) Figure 6: Gnatt Chart of NH Hotel Project Part 1 (Source: Created by Author) The gnat chart for NH Hotel expansion has been developed in MS Project software and has been accumulated in the above given screenshots. The red marked activities reflects the critical tasks in the entire project process and also measures the importance of activities in accordance with the time duration and the financial aspects earlier developed for conducting the project. Conclusion and Recommendation The study focused on the existing problems faced by NH Hotels and the probable solutions that can be applied in the given scenario for improving the service structure and business growth scope for the selected business. It was observed that the service structure of the NH Hotels has been criticised by their customers on online public forums which has also hampered their brand equity. Thus, it can be recommended to establish a steady communication platform for understand the issues of the consumers. Considering the strategic needs of the organisation, a business plan has been proposed for expanding their service to a new market which is Belgrade, Serbia. The project plan has been developed by including all the necessary financial and managerial considerations of the NH Hotels. The project planning process has also been scheduled with a Gantt chart for specifying the activities and the related aspects of market development. Reference List Baligh, H. H., 2007. Organization Structures: Theory and Design, Analysis and Prescription, 5th ed. Heidelberg, New York: Springer Verlag. Barrow, C., 2011. Practical Financial Management: A Guide to Business planning and budgeting, 8th ed. London: Kogan Page Limited Drummond, G., Ensor, J. and Ashford, R., 2012. Strategic Marketing: Planning and Control, 4th ed. London: Palgrave Macmillan. Go, F.M. and Pine, R., 2008. Globalisation Strategy in the Hotel Industry. 5th ed. London: Rutledge. Ireland, R. D. and Sexton, D. L., 2010. Integrating entrepreneurship and strategic management actions to create firm wealth, Academy of Management Executive, 15, pp. 49-63. MacMillan, I. C. and Venkataraman, S., 2009 Defining and developing competence: A strategic process paradigm. Strategic Management Journal, 16, pp. 251-275. NH Hotels 2015a. History. [online]. Available at: < http://corporate.nh-hotels.com/en/about-nh/history > [Accessed 3rd April 2015]. NH Hotels 2015b. Structure. [online]. Available at: < http://corporate.nh-hotels.com/en/about-nh/structure > [Accessed 3rd April 2015]. NH Hotels 2015c. Business Development. [online]. Available at: < http://corporate.nh-hotels.com/en/about-nh/business-development > [Accessed 3rd April 2015]. Rhyne, L. C., 2009. The relationship of strategic planning to financial performance,” Strategic Management Journal, 4, pp. 319-337 Schoenecker, T. S. and Cooper, A. C., 2010. The role of firms resources and organizational attributes in determining entry timing: A cross industry study, Strategic Management Journal, 19, pp. 1127–1143. Williamson, D., Cooke, P. and Jenkins, W., 2012. Strategic Management and Business Analysis, 4th ed. Germany: Grin Verlag Read More