The Understanding Starwood Groups International Business - Research Paper Example

Report on Starwood Group’s International Business 1. Introduction This report aims at dealing with a single company and analysing and understanding its international business. The main aim here is to analyse and highlight some essential aspects of the business like the global strategy followed by the business, the international technology used within the hotels, the human resources management and many more. The aim of this report is to find an international company and analyse the international business of the company in detail. To do so, it is firstly important to deal with the background of the company to gain a better understanding of the company being dealt with herewith. 2. Background of Company Starwood Group of hotels was incorporated in 1980, and two of their largest brands Sheraton hotels and resort and Westin Hotel and resorts have been serving the market for over 60 years (Starwood, 2008). Starwood group of hotels and resorts stand 8th as per the worldwide hotel ranking 2007 on the basis of rooms. The operations of the group are divided into two main segments being: hotel and vacation ownership and residential operations. However the main business is from the hotels. Worldwide Hotel Ranking 2007- Top 10 Groups (in rooms) Rank 07 Rank 06 Group Country Hotels Rooms Change 2007 2006 2007 2006 Rooms % 1 1 Intercontinental HG GB 3,741 3,606 556,246 537,533 18,713 3.50% 2 2 Wyndham Worldwide USA 6,473 6,348 543,237 532,669 10,568 2.00% 3 3 Marriott INT. USA 2,775 2,672 502,089 485,979 16,110 3.30% 4 5 Hilton Corp. USA 2,901 2,744 497,738 472,510 25,228 5.30% 5 4 Accor FRA 4,121 4,065 486,512 475,433 11,079 2.30% 6 6 Choice USA 5,316 5,145 429,401 418,488 10,913 2.60% 7 7 Best Western USA 4,164 4,195 315,401 315,875 -474 -0.20% 8 8 Starwood Hot. &Res. USA 871 845 265,598 257,889 7,709 3.00% 9 9 Carlson Hospitality USA 945 932 145,933 146,785 -852 -0.60% 10 10 Global Hyatt USA 733 738 141,011 144,671 -3,660 -2.50% Table 1: Worldwide Hotel Ranking – 2007 Top 10 Groups (in rooms) (Hotel-Online, 2007) Starwood has a large number of hotels worldwide naming a few: St. Regis, The Luxury Collection, Westin, Sheraton, Le Meridien, Aloft, Four Points, W and Element. As of 31st December 2007, Starwood group’s portfolio included a total of 897 Hotels with 275,000 rooms across 100 countries that primarily cater to the upscale markets of the lodging industry. The company employs about 145,000 people and has its head quarters in White Plains, New York (Starwood, 2008). 3. Global Strategy Starwood’s mission as it reads, “A Global Branded Life Style Hospitality company that delivers branded consumer products and services in a way that are different, better and special” (Starwood, 2008). Also the company has kept up to it values and still works by them. The main assets of a hotel are the properties owned by it. Starwood has ensured to get very distinct properties and has built the hotels in locations that are very sophisticated and well placed for the most sophisticated travelers. They provide impeccable service with high style and high quality (Starwood, 2008). Starwood has shown great returns on investments over the years and has been over market average in 2006 (Datamonitor, 2007). Good returns reflect assets being utilized in profitable avenues (Gillespie et al, 1997). When compared to other groups, one major step that Starwood has taken is to venture into residential projects as well. The diversification is very beneficial not only monetarily but also for the brand name. Starwood has also ensured to keep in pace with time and has developed a fully functional website which is very informative as well. Starwood has always tried to keep its long term debts to the minimum. They reduced the debt $3297 million in 2004 to $1827 million in 2006. It has managed to keep its debt to equity ratio lower than the market as well (Datamonitor, 2007). This allows the company to start off organic initiatives. The lower the gearing ratios, the easier it is to raise further capital for through debts (Pendleberry and Grooves, 2004). Hence Starwood has the ability to raise its capital in a short period whenever required. The group has large opportunities to get into franchising with third party to spread the brand. The company has been noted for taking advantage of every opportunity available to improve the standing of the business. A very good example of this is the recovery and improvement of the Element Hotels in the US which was facing a downturn due to the business travel. Starwood and Element Hotels have used all possible opportunities and available sources to ensure that the current economic conditions in the markets they operate in are used to their benefit at every given point in time. Figure: Boston Consulting Matrix (Quick MBA, 2007) Considering Starwood in the BCG Matrix, Starwood is currently in the Star stage in the current time. The group has started and moved through the early stages of the grid and has been through the question mark phase. Over the past years the company has had a lot of investments that it has made. By 2007, the company has grown to have as many as 896 properties around the world (inclusive of the franchised hotels). The company makes huge revenues of almost $5,977. This has been used by the company to be reinvested into the business to keep in sync with the current trends of the markets. Being in the luxurious hotel category, there is a high level of pressure on the group to create an experience for the customers that the customers do not forget. Hence the amounts of investments that go in to managing this are also quite high. With the various brands that the group has within its portfolio, there is a strong need for the company to ensure that every brand is correctly marketed and the presence is felt for every brand. This highlights the growth that the company has shown and how the company has moved from the problem child / question marks grid to the stars grid (Brown, et. al, 2008). The company’s strategy to excel in all that they take up is one of the major reasons for the company to be able to move through the grid. Starwood groups in a state where the company is going to remain in a growth mode for a very long time, until it moves into the cash cow grid. Figure: Starwood’s Lifecycle Position Also the competition for hotels and resorts is based more on the number of rooms, size of properties, restaurants, operations, marketing and other facilities provided.Starwood faces a lot of competition from various hotels both nationally as well as internationally. Few of the main competitors are Hilton Group, Marriott, Accor etc. The table (Table 2) below indicates a few figures for the above-mentioned companies. The table allows us to compare the revenue, employee, net incomes, profit margins of these companies. Basis of Comparison Starwood Hilton 2003 2005 2007 2003 2005 2007 Revenues 4,630.0 5,977.0 6,153.0 3,819.0 4,437.0 8,090.0 Net Income 309.0 422.0 542.0 164.0 460.0 121.0 Profit Margins 6.70% 7.10% 8.80% 4.30% 10.40% 1.50% Total Assets 11,894.0 12,494.0 9,622.0 8,183.0 8,743.0 37,868.0 Total Liabilities 7,509.0 7,258.0 7,520.0 5,944.0 5,932.0 32,670.0 Employees 110,000 145,000 155,000 70,000 61,000 121,474 Basis of Comparison Accor Mariott 2003 2005 2007 2003 2005 2007 Revenues 9,746.6 9,764.4 11,112.2 9,014.0 11,550.0 12,990.0 Net Income 416.0 498.1 1,247.9 502.0 669.0 696.0 Profit Margins 4.30% 5.10% 11.20% 5.60% 5.80% 5.40% Total Assets 14,991.4 18,031.8 14,824.4 8,177.0 8,530.0 942.0 Total Liabilities 9,951.8 12,146.6 9,774.0 4,339.0 5,278.0 513.0 Employees - - - 128,000 143,000 151,000 Table: Comparison of a few top hotels (Global Hotels, 2008) 4. International Marketing Starwood has created a brand name for itself worldwide and has been able to gain a high number of loyal customers. The group has provided good service to customers and has received a number of positive feedbacks from the customers. The popularity of the group is seen clearly by its ranking in the Worldwide Top 10 hotels. Creating a brand image and name for a company ensures that customers are able to differentiate the products and recognize the product that satisfies their needs the most and thus improving the customer loyalty. In simple word branding is the process of creating a different image from that of the competitors (Jobber, 2004). It is important to firstly understand the importance of branding to Starwood. The company value will increase with better branding and will make the company more famous among the customers of the various hotels, by ensuring the consumer perception is that of a strong brand image for Starwood (Fuchs, 2005). This would help the company create a barrier to competition and thus lead the company towards higher revenues and profits. Also branding can be used as a base to expand brand into different fields say like travel and tourism. A company that has a strong brand image is certified automatically for its quality, since brand image cannot be increased without good quality. Lat but not the least the brand will help the group gain the trust of the customers and will hence increase customer loyalty (Hammond, 2008). Starwood has paid extreme attention to the overall marketing over the various countries and this is clear from the performance of the company world wide. The main focus of the marketing strategy has been to create and sustain a strong brand image. Companies benefit from the strong brand name as customers would increase the customer perception towards the brand and act as a barrier to competition. The customers on the other hand gain from the branding since it acts as a form of quality certification which helps ensure trust. 5. Human Resources Management The organisational structure of the company is very clearly one which is hierarchical and functional. In a hierarchical structure the employees are ranked at different levels within the organisation and each of levels are above the others. Here one of the employees will have a number of workers working directly under them and this is mainly in their span of control. The hierarchical structure of Starwood groups is one which is relatively a flatter structure and thus has only a few levels. The authority is normally organised and moves in the pyramid shape of that of the structure. In a traditional hierarchical structure there is a clear definition of the employee’s role and also the relationship with other employees within the organisation. Looking at the current organisational structure of the company, it is clear that the company has been very well organised and this is one of the major reasons for the success of the company. This has a wide base, which mainly allows the main decisions to be made by the senior managers and thereby allows for all employees to work in a direction which is relatively more useful for the entire group. The organisational structure of the company also highlights the functional structuring of the company (See Appendix 1). In a company with a functional structuring, the groups for every function are categorised together under one person. This allows for the head to keep a close eye on every element of the process and ensure that employees work in accordance with the company’s objectives. Closely looking at the structure of the company, the Jr. President of the company manages the Presidents of different operations in Asia, Latin America, Europe, Africa and Middle East. This categorisation affects the working and success of the strategies of the company to a very great extent. With the Jr. President handling the various Presidents of the countries, there is a clear flow of information and the Jr. President becomes the one point of contact both for Presidents of the various countries as well as for the CEO of the company. This leaves all major decision making in the hand of the CEO of the company. This allows for easier communication among the teams as well as a clear direction of the instructions and a more organisation oriented strategic plan as the current ones adopted by the company (Sloman & Sutcliffe, 2004). The company had seen a number of changes with the recruitment of the CEO, who brought about a lot of changes and a number of improvements to the company and group as a whole. This strategic planning has been possible mainly because of the organisational structure. Also the current business strategy of the company is to reduce its investments in the owned real estate. Also an increase in the focus of the business on management and franchisee business is aimed at. This allows for the business to save the investments levels as well as does not risk a lot of their own investments. The main business objective of the company that has been to maximise the earning and the cash flows of the company. This can be done by increasing the number of hotel management contracts and franchise agreements (Johnson, et.al., 2006). 6. International Technology Management Technological developments have been immense over the years in all sectors. The hospitality sector has also been affected by this. Technology is shaping our world. It has become a part of everyone’s lives and it rules almost every action of ours. The hospitality industry being such a massive industry also needs to be aware of the latest technological developments. Starwood has also been one of the few groups to incorporate technology in all of the hotels and resorts across the world and remain on top of the line in terms of the technology used and the latest that is in the markets. The developments have been many, from changing of a regular door key to a key card, to implementation of Customer Relationship Management (CRM) systems to ensure complete comfort for the customer (Schweisberger & Chatterjee, 2001). It is very clear that technology has in all the different ways acted as a catalyst of change for all businesses. However, it sometimes becomes very difficult to differentiate the benefits of technology and the challenges of technology. Over the last couple of years hotel have improved the technologies used in many ways. The systems that are used are very advanced and can capture every minute detail. These systems are user friendly and flexible. The software help the management produce reports and also act as backup for the information of the hotel. The systems generally used have to be chosen very carefully. It is essential that the management keeps in mind the kind of resources they have before choosing any system since having the most sophisticated systems with the best features but not having employees who are trained and who understand the systems would make it the systems worthless. It is essential that a hotel has the culture and well trained employees to have a sophisticated system else the positives of the system would be the cause for the downfall of the hotel. In the recent years a few of the hotels have brought in the Customer Relationship Management tool into their business. The CRM systems help hotels get every single detail of the customer, like the customer room preferences, travel history, travel itinerary, transaction data, even the most minute detail like what kind of drink they normally order. This system can be very beneficial for the hotel and can open up a lot of opportunities for the hotel, if the information is used to its complete extent and the employees are well trained to deliver services in accordance to the information (Watkins, 2007). Starwood has taken all these factors in mind and has been able to develop all its hotels including the ones even in developing countries. Starwood group of hotels and resorts, were also one of the first few to start their own website for reservations etc., believe it to be very useful and a much cheaper mode for reservations. The online process has made it much simpler for both the customers as well as the hotel for smoother functioning of business and better service. The only drawback to this is the fact that even if the website is well developed and everything is perfectly planned out and all the processes are automated it would not be effective enough if the website was not well marketed, i.e. it requires to come up onto the top list on all search engines. Hence the main factor behind this technological development is that it requires to be well developed, with excellent content, needs to be interactive, user friendly and most importantly search engine optimized. It is a clear fact that owing a website which provides customers with the benefit of making reservations and getting in touch with the hotels directly has proved to be more effective than having a third party’s involvement. As stated by Hanson of PricewaterhouseCoopers, “As consumers become more comfortable with the internet, they become more demanding. To keep their rooms filled, hotels will have to continue improving their websites.”(Luxenberg, 2007) 7. Conclusion From the above discussion there has been a clear understanding of the working of Starwood. The company has been very successful and has been faced with a lot of competition. The group has seen continuous growth and along with the high stability that it has already achieved the company shows a strong ability of becoming more advanced and successful in the coming future. In conclusion, it is safe to say that the world is moving in track with time and the technological developments are on the rise each day. Hence it is very beneficial for Starwood to have also adopted newer technologies and develop their business along with times to ensure complete customer satisfaction and excellent overall service. Also Starwood Hotels has always and will continue to improve the technology and work within the entire industry (CRM Today, 2008). Starwood Hotels have seen a growth rate much higher than they could have had without the introduction of technological improvements. Most of the hoteliers believe that it is more beneficial for them to get in touch with the customers directly rather than having a third party getting the reservations done for them (Luxenberg, 2007). Overall considering the business as a complete unit, it is seen that Starwood Hotels have been able to very strategically spread its operations across the globe. Also considering the organisational structure that has been discussed, it is clear that the company involves a great deal of analysis and planning. The overall Internal business of this group is well recognised with strong brand equity across the globe. Weather it is Element in US or Le Meridian in India, the company has been able to leave a strong image in the minds of all across the globe. References Brown, C., Flores, L., McClellan, C., Davensport, A., Dobbs, E., & Collins, L., (2009), ‘Competitve Analysis – Starwood Hotels’, Accessed on 21 July 2009, Retrieved from kimboal.ba.ttu.edu/MGT4380%20Fall%2008/0.95/Competitive_Analysis_Presentation_2003_Version.ppt CRM Today, (2008), ‘Starwood Hotels & Resorts Selects HP for $100 Million Services and Technology Contract’, Accessed on 21 July 2009, Retrieved from http://www.crm2day.com/content/t6_librarynews_1.php?news_id=EpAllyZkkZydXmUAUM Datamonitor, (2007), ‘SWOT on Starwood’, 15 June 2007, Accessed on 22 July 2009, Retrieved from http://www.datamonitor.com Fuchs, C., (2005), ‘The importance of branding: Can it really Make a difference?’, 04 August 2005, Accessed on 21 July 2009, Retrieved from http://ezinearticles.com/?The-Importance-of-Branding---Can-It-Really-Make-a-Difference?&id=56697 Gillespie, I., Lewis, R. and Hamilton, K., (1997), Principles of Financial Accounting, 1st edn, Prentice Hall, Europe Hammond, J., (2008), ‘Branding your business: Promoting your business, Attracting customers and standing out in the market place’, 28 May 2008, Kogan Page, London Hotel-Online, (2007), ‘Hotel Ranking’, June 2007, Accessed on 21 July 2009, Retrieved from http://www.hotel-online.com/News/PR2007_2nd/Jun07_HotelRanking.html Jobber, D., (2004), ‘Principles and Practice of Marketing’, 4th edn, McGraw-Hill International, Berkshire Johnson, G., Scholes, K. and Whittington, R., (2006), ‘Exploring Corporate Strategy’, 7th edn, Prentice Hall, Essex Luxemberg, S., (2007), ‘Wooing Hotel Customers Online’, National Real Estate Investor; Feb2007, Vol. 49 Issue 2, p86-89, 4p Pendlebury, M. and Groves, R., (2004), Company Accounts – Analysis, Interpretation and Understanding, 6th edn, Thomson Learning, London Quick MBA, (2007), ‘BCG Growth – Share Matrix’, Accessed on 22 July 2009, Retrieved from http://www.quickmba.com/strategy/matrix/bcg/ Schweisberger, J. & Chatterjee, A., (2001), ‘Effective Customer Relationship Management (CRM) Implementations’, 1 November 2001, Accessed on 22 July 2009, Retrieved from http://www.hotel-online.com/News/PR2001_4th/Nov01_EffectiveCRM.html Starwood, (2008), ‘Company Info’, Accessed on 23 July 2009, Retrieved from http://www.starwoodhotels.com/corporate/company_info.html Walsh, A.M., (2007), ‘Starwood Hotels and Resorts Worldwide, Inc – 2007’, La Salle University, Case 28, p.283 – 292 Watkins, E., (2007), ‘The Technology Conundrum’, Lodging Hospitality; 1 April 2007, Vol. 63 Issue 5, p2-2, 1p Appendix Appendix 1: Starwood’s Organisational Structure: (Walsh, 2007) 1 – CEO, Chairman 2 –Jr. President 3 – President 4 – Executive Vice President, Chief Financial Officer 5 – Chief Administrative Officer and General Counsel 6 – Chief Information Officer 7 – President (North American Division) 8 – Senior Vice President (Westin Hotels and Resorts) 9 – Senior Vice President (Sheraton Hotels and Resorts) 10 – President (Starwood luxury Brands Group and Aloft Hotels) 11 – President (Asia – Pacific) 12 - President (Latin - America) 13 – President (Europe, Africa and Middle – East) 14 – Senior Vice President (Le Meridian Hotels and Resorts) Appendix 2: Starwood SWOT Analysis STRENGTHS Brand Name Large Operational Scale Distinct Properties Diversified Business Large number of properties Competitive Edge over local ass well as International groups Strong Returns Reduced long term debt WEAKNESS Relatively higher prices when compared to competition Low Customer Service Holiday Package options No full focus on target market Low employee productivity High dependence on the US market OPPURTUNITIES World travel and tourism Recovery in business travel Growth in other Asian countries Opening up of restaurants Franchising brands Improved market presence Ownership resort operations Renovation/ re branding of infamous brands Provide direct stock purchase for investors THREATS Improvement of competitors like Hilton (5.30% Increase in rooms) Reducing market awareness Increased Packages Economic slowdown of US Increased online reservation channels Appendix 3: Market Share of various competitors Read More