PREMIER INN (UK) 1 - Essay Example

& No Live Corporate Hospitality (Premier Inn, UK) 14 January Introduction The world of business is changing very fast these days due to new technologies and a fast-paced evolution in demographics and social configurations. Business organisations today have to face a new challenge in their environments which is discontinuous change. This is the new type of change that does not easily fit into a pattern and very often is quite abrupt. This is what Mr. Andy Grove, the former head of Intel, calls as the nightmare moment which is crisis point at which massive change occurs and a firm must adapt quickly or fall by the wayside. In other words, discontinuous change can catch many managers unaware or flat-footed because it is not based from prior experiences or the past history of an industry. This drastic change is usually disruptive as it alters existing industry structures. In this regard, this paper deals with how Premier Inn (UK) is dealing with the changes in the hotel service industry and related industries of leisure, restaurant and tourism. Premier Inn is part of the Whitbread Hotels and Restaurants Division which in turn is a part of the still bigger Whitbread (PLC) Group. Ironically, the Whitbread brand first earned its reputation in the market as a well-regarded brewer but exited this business in 2001 to refocus itself on other revenue-growth areas, namely the restaurant and hotel business. Although it retained its wines and spirits in conjunction with night clubs, the main attention these days is on the hospitality business such that Whitbread achieved a record of sorts when it won the three coveted awards given out by the British Travel Awards (Premier Inn, 2010, p. 1) such as the “Hotel Chain of the Year”, “Best Business Hotel Chain” and lastly, “Best Leisure Hotel Chain” late last year (November 2010). This paper looks at present strategies of the firm and evaluates these. Discussion To have won those three prestigious awards in a short time in its existence is truly one of the great achievements of Premier Inn and successfully challenged long-standing leaders of the hotel industry such as Holiday Inn, Hilton and Marriott. Premier Inn belongs to the budget hotel category but it has been creating its own “uncontested market space” which professors Chan Kim and Mauborgne term as blue oceans (Harvard Business Review, 2004, p. 77). This is in contrast to the usual corporate strategy based on known market spaces (or red oceans) in today's overcrowded industries with clearly defined boundaries and well-known competitive rules of the game in order to survive. The essence of the blue ocean strategy is based on a new concept of rendering the competition irrelevant by changing the rules of the game, specifically by achieving cost savings while at the same time boosting the value-for-money proposition. Within the context of this blue ocean strategy, Premier Inn is trying to duplicate what Singapore Airlines (SIA) achieved in the highly-competitive airlines industry. In particular, SIA has cost-effective operations that are even lower than most American or European budget airlines (Heracleous & Wirtz, 2010, p. 145). Singapore Airlines has pursued two seemingly atypical and incongruous objectives deemed by most management experts as incompatible which are differentiation and cost leadership. This two-pronged or dual strategy was thought even by Prof. Michael E. Porter as eventually unsustainable in the long term because these entail contradictory investments, processes and objectives (ibid.) but SIA has proven experts otherwise. This is the same strategy being pursued now by Premier Inn. Moreover, while the company tries to achieve these twin aims, it must also contend with its avowed new corporate responsibility of pursuing environmental sustainability in the way it uses the Earth’s resources while gunning for increased market share and profitability for its stakeholders and employees. Premier Inn wants to alter the rules of competition in its industry by being the best. Corporate Business Strategy – the current strategy being pursued by Premier Inn is the dual approach of differentiation and cost leadership which are seemingly incompatible with each other but proven by Singapore Airlines as entirely possible. This can be done if the firm will seek innovative ways to develop new areas where competition is rendered irrelevant. In particular, Premier Inn derives tremendous benefits of synergy as part of the much larger Whitbread Group that includes other related businesses such as Brewers Fayre pubs, the Table Table brand of restaurants (a re-branding of the previous Out & Out) which are mostly located within the premises of a Premier Inn branch as well as the world-famous Costa Coffee which is a stiff competitor of the American brand of Starbucks coffee chain with 700 outlets. Being part of a large group of companies allows Premier Inn to derive advantages in terms of easy brand recognition among the public as well as efficiencies in the supply chain. In terms of occupancy rates (a key measure of hotel profitability), Premier Inn enjoys a high 80% or more occupancy despite its large size (500 hotels with 35,000+ rooms available) due to its units strategically located along major roads and main towns and cities across Ireland and the United Kingdom. However, the key success factors (KSF) for the continued growth of Premier Inn are its being a budget hotel (ideal for budget-conscious travellers) and an intense dedication to high levels of service quality despite being a low-cost provider of hotel services. This means clients enjoy their stays at Premier Inn hotels and want to come back for more due to a perceived good value-for-money proposition for them known as the Whitbread Way. Premier is on top of the hospitality industry for having won three prestigious awards but this is no time to be complacent. Further, the group has adopted a newer corporate social responsibility aimed at reducing its carbon footprint to help mitigate the climate change due to carbon emissions and at the same time reduce wastage by wisely using natural resources. But the firm must also prepare for any future shocks brought about by discontinuous change. Strategic Analysis (Porter Model) – the Premier Inn division has good market position due to the strategic locations it chooses to put up a hotel, along major roads and towns of the country. It is very accessible to its target markets. The threat of new entrants is just minimal because it takes plenty of capital to put up a similar hotel chain that is low-cost for budget-conscious travellers and customers. The sheer number of Premier Inn outlets gives it a good and efficient supply chain that in turn produces an excellent value chain. The good values of Premier Inn from its low-cost operations and high service level packages (SLP) are barriers to entry (or imitation) of potential entrants because they cannot hope to compete on this basis. This enviable market leadership position was attained because superior customer value in turn produced high volumes resulting in a virtuous cycle that is hard to beat. In economics, this is termed as economies of scale which is what Premier Inn has with its 500 hotels. This is what is called alternatively as barriers to imitation (Kim & Mauborgne, 2004, p. 83) that is in contrast to what Porter terms as barriers to entry in his competition-based Five-Forces model. (Porter, 2008, p. 3). The newer blue ocean strategy is not heavily based on military strategy but more on the re-constructionist view of creating new land instead of dividing existing land. In the case of Premier Inn, the bargaining power of suppliers (food supplies, various hotel necessities like soaps, shampoo, towels, bed sheets, slippers, etc.) are greatly reduced as the leverage is tilted in favour of Premier Inn. Its sheer size will allow it to bargain for huge discounts from suppliers. Similarly, the threat of substitute products or services (as offered by larger and pricier hotel chains) is lessened because people today are looking for value for their money due to the economic recession. This is proved by its high occupancy rates as people flock to Premier Inn hotels for their tight travel spending. However, despite its tremendous bargaining advantages, Premier Inn does not exploit its clients by giving poor or horrendous services but instead gives hotel guests those very special everyday experiences. PESTLE Analysis – this section deals with various external factors that can possibly adversely affect Premier Inn in particular within the hospitality industry. Political factors like terrorist threats and the on-going default situations in countries like Greece, Ireland and even Spain or Portugal will have a dampening effect on the travel and hospitality industry. The euro has weakened considerably against the dollar which makes travel more expensive these days. The gravest threat facing the industry is probably economic as the continuing economic crisis makes people more reluctant to spend due to worries about jobs and employment. High gas prices also discourage more travel and this is the same with high plane fares. But on the other hand, social and demographic trends towards an older population may present opportunities for Premier Inn. This is to offer some wellness or spa centres or even medical centres within its hotel chains. This will blend well with the current growth in medical tourism. This is a possible breakthrough opportunity for the company as there are more old people today. Technological innovations like green buildings can offer even lower costs and has big appeal to environmentally-conscious clients. Premier Inn is a step ahead of its competition by adopting environment preservation as one of the pillars of its corporate social responsibility. It makes good business sense to be “clean and green” and contrary to popular opinion, is totally congruent with business objectives and is even a source of innovations (Nidumolu, Prahalad & Rangaswami, 2009, p. 57). There are essentially no legal impediments to the continuing growth of Premier Inn as it does not dominate the hotel industry but rather only a small sector which is the budget hotel category. There are no anti-trust moves against it as it does not try to stifle competition by making any merger or acquisitions of rival chains. As long as Premier Inn will stay environmentally conscious and not upset the places where it puts up its hotels, it will still be patronized by the people because it tries to reduce its carbon footprints to help in the fight against climate change and preserve the environment in its pristine condition. SWOTT Analysis – this portion deals with the internal and external aspects of the firm. In this regard, the viewpoint here is holistic in terms of evaluating the firm’s current practices. Part of the review at this point ideally entails the pre-planning phase which is to develop good strategic profile of the firm. This profile details various core competencies and organizational flexibility necessary for successful strategic implementation (Sherman, Rowley & Armandi, 2007, p. 162). The purpose of developing a preliminary strategic profile of the company is to produce a more accurate and relevant analysis. The profile creates a baseline for the firm and helps management planners align everything to their goals by having an inventory of skills. Strengths – a key strength of Premier Inn is its logistical support from the main group. In one year alone (2008-2009), it was able to build 4,553 rooms quickly and able to avail of new market opportunities in unserved areas (Whitbread PLC, 2009, p. 1) and redeploy its own resources to capture new markets. Another strength is a good corporate culture that has been embedded in its employees (called as team members) who are highly motivated with the sense of belonging to one big family. The firm calls this the Whitbread Way which combined really caring for customers in a confident and committed manner. Another key strength of Premier Inn is its ability to blanket almost the entire country with its brand of hotels, and people can go to a nearby hotel outlet practically anytime and anywhere they want. Weaknesses – the company is particularly vulnerable to either an economic downturn or alternately, an increase in gas prices. People who patronise its hotel chain are travellers in a tight budget and any increase in travel costs will adversely affect its sales revenues. Terrorist and other security threats can also deter more travel with people preferring to stay at home instead of risking by going out of their safety zones. Because of its relative big size consisting of about 500 hotels, Premier Inn cannot executive any corporate strategy quickly enough if and when a discontinuous change occurs that can disrupt the hospitality industry. Opportunities – one exciting new area for possible investments is to incorporate some variant of medical tourism into its hotel operations. With the greying of the population, it is now socially acceptable to visit wellness centres without any stigma and this is the trend even in other Asian countries as well like Thailand or Japan (Time, 2010, p. 47). In other words, it is a rare opportunity that can easily be missed by strategic managers at Premier Inn in what is termed as unseen “visible” opportunities (Prahalad, 2010, p. 32). It is very easy to combine all three components in this opportunity such as hotel, restaurant and wellness services without incurring any expensive or extra costs since these three areas of operations are inter-related. It is not really a new idea as it has been around for some time already. Premier Inn can capitalise on this emerging trend as a mega-opportunity to innovate in the British hotel industry. Threats – terror threats are the most obvious external factor in the hospitality industry that can derail its plans. This is not just a literal interpretation of the word but terrorism itself which can dampen people's plans for travel such as the long lines at the airport check-in. Also, the bad economy discourages people from travelling. With regards to terror threats, hotels are particularly vulnerable because terrorists tend to go for these soft targets in addition to malls, resorts, restaurants, convention centres, bars, night clubs and other places where people gather (Cetron, 2004, p. 21). This had been demonstrated in the Bali bombings as well as the railway bombings in Spain where many people died and more were injured. Trends – the second T is not a typographical error but stands for trends. Sociological, social, economic and political trends have a great bearing on any industry. For Premier Inn, it has already made some moves such as embracing environmental sustainability as one of core principles in its corporate social responsibility program. Technology can likewise have effects on a business firm such as hotels using more of renewable energy (solar or wind power) and seek improvements in its supply and value chains by combining them (Lee, 2004, p. 102). Scenario Planning – this activity serves as the link between the present and the future. But perhaps more importantly, this is the connection between the future and strategic planning as it prepares a firm to confront the various possibilities that may happen. In other words, it is a way to answer the questions of “what if” and “what can conceivably happen” and this is not the same as a forecast (a mere projection of the present) nor a vision (of any desired future). It is closely related to strategic planning by making a firm prepared for contingencies or what is more commonly termed as discontinuous change or alternative future environments that can arise due to various external factors (Lindgren & Bandhold, 2003, p. 21). For Premier Inn, it needs to plan when people are less inclined to travel outside their homes unless such travel is absolutely necessary, such as visiting relatives or attending some event or enjoying outdoors. New technologies like the Internet and social networks now connect people even in faraway places. Even business people can now hold video conferences with their clients without going to the airport and staying in a hotel at their destinations. This scenario is quite realistic and is a good way to develop the opportunities presented by medical tourism these days. People who are sick often do not want to stay in hospitals where viruses and diseases abound, the food is often terrible and there is a constant smell of alcohol and antiseptics. A hotel like Premier Inn can offer an attractive alternative where wellness is emphasized. Health-conscious people and seniors or pensioners can very well represent an attractive new market niche for Premier Inn. Like the early scenario planning that were conducted in the 1960s like the probability of a nuclear war during the Cold War era and an ensuing nuclear winter, there are other newer ways to explore reality with almost the same problems and opportunities for the hotel industry (Ringland, 2006, p. 5). A good example would be the day when oil runs out as what has been predicted many years ago when oil reserves did not rise correspondingly with the increases in exploration activities (Deffeyes, 2001, p. 1). Another would be alternative renewable energy. Conclusion Based on the strategic profile of Premier Inn, it is best to pursue its current low-cost strategy as it caters to the budget-conscious hotel guest and traveller. Additionally, it needs to enhance its differentiator image by offering an innovative hotel service package – the medical tourism initiative for pensioners as well as health-conscious people of all ages. This is a big or new mega-opportunity in the country because most of medical tourism efforts are presently in low-cost Asian or Latin American countries where healthcare services are much cheaper. The end result would be something similar to what Singapore Airlines achieved, that is “best value” offerings using a combination of low prices and excellent services that results in a good brand name that is based on differentiation. The company can utilize two marketing approaches which are as a defender (continuous improvement of its existing services) and as a prospector by innovating itself into the medical tourism sub-sector of the hospitality industry. The company had proven itself in the past by being able to transform from a brewer to a new restaurateur in such a short period of time and achieved amazing results by winning awards. This is quite similar to what Western Union did by transforming itself into a remittance firm from essentially a telegram-based business in the previous century but retained the same set of competencies. Premier Inn has all the competencies it needs for medical tourism as it already is in the hospitality business; there may only be minor changes needed to be implemented. By diverting into wellness and spa centres, its core competencies are applied in same recursive manner (Jarzabkowski, 2004, p. 530) as in the hospitality industry and just needs to make some slight adaptations to be even moderately successful. This is a rare opportunity for Premier Inn for a value-added strategy by offering new medical services but retain its identity as a low-cost provider and also as a differentiator. It is best positioned to create blue oceans by its flexible adjustments to shifting future demands (Turner & Crawford, 1994, p. 241). Reference List Cetron, M. J. (Summer 2004). “Hospitality in the Age of Terror.” HSMAI Marketing Review, 21-30. Deffeyes, K. S. (2001). Hubert's Peak: The Impending Oil Shortage. Oxfordshire, UK: Princeton University Press. Heracleous, L. & Wirtz, J. (2010, July-August). “Singapore Airlines’ Balancing Act.” Harvard Business Review, 145-149. Jarzabkowski, P. 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(2006). Scenario Planning: Managing for the Future. Hoboken, NJ, USA: John Wiley and Sons, Inc. Sherman, H., Rowley, D. J. & Armandi, B. R. (2007). “Developing a Strategic Profile: The Pre-planning Phase of Strategic Management.” Business Strategy Series, 8 (3), 162-171. Retrieved Jan. 04, 2011 from: ABI/INFORM Global. Time Magazine (2010, March 8). “Administer Orally.” Time, 175 (9), 47. Turner, D. & Crawford, M. (2004). “Managing Current and Future Competitive Performance: The Role of Competence.” Competence-based Competition, 241-263. Whitbread PLC (2009). “A Year in the Life of Whitbread: Annual Review and Summary Report 2008/09.” Retrieved from http://www.whitbreadannualreport0809.co.uk/ Read More