Hospitality and Tourism Strategic Planning - Essay Example

? Hospitality and Tourism Strategic Planning – Virgin Atlantic Table of contents Introduction 3 2. Virgin Atlantic in the UK travel industry 4 2.1Travel industry in Britain, characteristics and performance 4 2.2 Virgin Atlantic in the British market 5 2.2.1 Size of the organization 5 2.2.2 Corporate objectives 6 2.2.3 Business services 6 2.2.4 Target customers 6 3. Strategic options for Virgin Atlantic in the Britain travel industry 7 3.1 Strategic theories available to the organization 7 3.2 Strategic options most appropriate for Virgin Atlantic 13 3.2.1 Presentation and justification of the strategic options chosen 13 3.2.2 Risks of the chosen strategies 14 4. Conclusion 15 References Appendix 1. Introduction One of the key challenges of firms activating in the international market is to identify the strategic framework, which will be able to protect them in case of severe market turbulences. Firms that are already well established in the global market have an additional problem to solve: the continuous entrance in the market of new firms; from a first point of view, this fact would not threaten a global corporation. Still, this trend could weaken the customer base of the organization – under the terms that the firm’s customers could be attracted by new technologies or innovative products/ services available by the new competitor. The above perspective has been thoroughly examined by theorists and researchers working on the strategic management field. Their response to the above problem has been the establishment of a series of theoretical frameworks, which can, if appropriately developed and monitored, guarantee the stability, or even the growth of organizations within their industry. Current paper focuses on the examination of the strategic planning of Virgin Atlantic, one of the major competitors in the British Tourism industry. The firm’s current strategic choices have been aligned with the conditions in the British market and the firm’s aims/ resources. The aim of the firm for continuous growth has been the basis of the continuous update of the firm’s strategic plans, a practice, which cannot guarantee the stabilization in the firm’s growth in case of severe market turbulences. The firm should update its strategic processes focusing on flexibility and the availability of alternatives. The existing literature published in the specific field is presented and critically analyzed, focusing on strategic models, which are commonly used by firms internationally. Two of these models have been chosen, as most appropriate for Virgin Atlantic, and are evaluated as of their potential use for the update of the firm’s strategic framework. Moreover, a business plan is suggested aiming to increase the effectiveness of the organization towards its competitors, a need, which may not be quite clear now, but it could appear at any moment, if taking into consideration the extremely strong competition in the specific sector of the British market. 2. Virgin Atlantic in the UK travel industry 2.1 Travel industry in Britain, characteristics and performance The travel & tourism sector in Britain is quite profitable; despite the sector’s decline, under the influence of the recent recession, still its power to influence the British economy has been kept at high levels, contributing to a percentage of ‘8.6% in the country’s GDP’ (Clarke 2011). The prospects of the sector in the future seem to be significant. In accordance with a relevant report, ‘the value of the sector could reach the ?188b in the next decade – from its current value of ? 114b’ (Kuhn 2008). In March 2011, the British government released a Tourism Policy paper aiming to set the rules governing the particular sector (Higgins 2011). The specific initiative indicates the importance of the sector for the British economy, meaning the profits gathering from the specific sector could fund a series of critical governmental projects. Despite the important performance of the specific sector, its further growth seems to face a series of barriers; the first signs of the sector’s decline were identified in 2009; then, the global crisis was considered as responsible for the decrease in the sector’s profitability, a decrease which was then considered as temporary (Rajan 2009). The complexity of the processes required for getting visa has been a factor preventing travelers from China and India to visit Britain; this barrier has been considered as a major reason for the decline in the sector’s profitability (Press TV 2011). The recent increase in the VAT related to the sector’s services/ products could also harm the performance of the sector, either in the short or the long term (Mail Online 2011). The fact that in the Tourism policy submitted recently by the British government, there was no provision for the decrease of VAT or the decrease of fees related to VISA, shows that the country’s government has not actually realized the value of the tourism sector for the national economy (Ling 2011). For the moment, the profits of the sector remain high, as explained above, a fact that makes competition in the sector extremely strong. Even firms that are well established in the specific sector need to review their strategies aiming to secure their position in the local and the international market. 2.2 Virgin Atlantic in the British market 2.2.1 Size of the organization Virgin Atlantic is the second, in terms of its size, airline firm in UK and the third one - in the context of the European Union – ‘among the airline operators over the North Atlantic’ (Virgin Atlantic 2011). Richard Branson is the owner of the firm – owning a percentage of 51%, after a strategic deal with Singapore Airlines in 2000 (Virgin Atlantic 2011). The fleet of the firm includes ‘26 Boeing 747s and Airbuses’ (Virgin Atlantic 2011), as this number has been further increased up today. The capacity of the firm’s fleet is quite impressive. When the firm first entered the market, in 1984, the number of its passengers, in terms of the planes’ capacity, was estimated to 124,711; in 2003, last year in terms of data available, the firm’s passengers were estimated to ‘38,571,267’ (Virgin Atlantic 2011). 2.2.2 Corporate objectives The firm’s objectives are summarized in its mission statement which is the following one: ‘"To grow a profitable airline, that people love to fly and where people love to work’ (Virgin Atlantic 2011). 2.2.3 Business services The group, in which the firm belongs, operates in various sectors, including the music industry, the trains and the holiday sector. The firm’s board and the owner monitor the activities of each member – firm. The firm has incorporated a series of offers and packages aiming to develop its customer base. In accordance with the corporate website, benefits like a frequent flyer programme, low-prices in low seasons and other offers are available to the customers of the organization (Virgin Atlantic 2011). 2.2.4 Target customers The firm’s target customers are people in the British and the international market. There is no limitation of customers in terms of age or physical condition. Rather, the firm’s services are available to people of all ages and racial/ social background. Also, people of all financial status could use the firm’s services, under the terms that a variety of prices is available – referring to the firm’s services – ensuring that people of different financial potentials can be served. In fact, the customers of the firm could be classified as follows (in accordance with the type of services chosen): ‘the upper-class passengers, the passengers in premium economy and the economy passengers’ (Virgin Atlantic 2011). 3. Strategic options for Virgin Atlantic in the Britain travel industry 3.1 Strategic theories available to the organization The development of businesses in the global market is depending on their ability to identify strategies, which will offer them competitive advantage towards their rivals. Of course, these strategies need to be chosen using specific criteria, for instance the firm’s aims and objectives and the resources available for the realization of the relevant plans. The conditions in the internal and the external environment – communication among employees or strategic alliances with competitors – are also factors that need to be taken into consideration when having to design an organization’s key strategic plans. In the literature, a series of theoretical frameworks are available for covering the particular need of modern organization, i.e. the increase of its competitiveness in its industry. It should be noted that not all these theories could be applicable on the firm under examination. However, the most important strategic frameworks of this type should be presented; then, it would be possible to choose the theories that could be most appropriate for Virgin Atlantic. The terms under which each of these theories are applied will be also presented; after examining the framework of each of these theories their evaluation as of the particular firm would be developed easier. One of the most known theoretical frameworks for supporting the strategic restructuring of an organization is the Ansoff Matrix (see Graph 1, Appendix). In accordance with the Graph 1 (Appendix) the Ansoff matrix is based on the simultaneous existence of four strategic directions, as defined by the combination of Present and New as element of the organization’s strategic process. Through the Ansoff matrix the development of a firm’s strategic framework should be characterized by emphasis on two different groups of concepts: market penetration and product development would be preferably ‘new’, meaning their involvement in existing organizational plans would be limited as possible (Luck 2008). On the other hand, product development and product market should be new, probably aiming to support the growth of the organization towards its competitors. In accordance with Lester (2009) Ansoff Matrix can help to identify the conditions under which the existing product would become more competitive – the two strategies for the achievement of this target, as the relevant suggestions are included in the specific matrix, seem to be the following ones: a) the increase of the market share of the business or b) the entrance of the firm in a new market. On the other hand, it is possible that the development of the above two strategies is not feasible – under the influence of the internal and external organizational environment. Then, there is the following alternative for the organization: to introduce a new product, which will be promoted either in the existing or in a new market. In the first case, it is necessary that the product has unique characteristics, supporting diversity, so that to offer to the business a competitive advantage. In the second case, i.e. use of new product in a new market, the risk may be high; however, if the particular product is appropriately customized to the needs of the particular market, then its chances for success are many. On the other hand, Cheverton et al. (2005) note that the effectiveness of the Ansoff matrix can be high only if the conditions in the internal and the external organizational environment are carefully evaluated in advance – ensuring that the actual needs of the organization but also its potentials and its challenges are fully understood (Cheverton et al. 2005). However, it is noted that, when having to deal with high market risk, the Ansoff matrix should be preferred – compared to other strategic frameworks of similar characteristics, since the above strategic framework can offer a high protection to market risks in opposition with other strategic models, which do not have such potentials. Another strategy available to modern firms for the improvement of their strategic plans, is the cost leadership framework. The strategy is also known as low-cost leadership strategy and is based on the following principle: the organization can increase its market share if it will manage to reduce its costs (Daft 2009). In order for the above strategy to perform effectively it is necessary that the following term exists: the costs of the organization that introduced this strategy are lower compared to the costs of the competitors – otherwise, the specific strategy would not have any value. The price of the firm’s products, even if reduced, still they would be above the price of the similar products/ services offered by the competitors – at the level that competitors kept their costs at a lower level, compared to that of the firm, which incorporated the particular strategy. The major weakness of the particular strategy is the following one: the above strategy is more appropriate for firms that seek to stabilize their performance; in case that the increase of the firm’s market share is initiated, then the particular strategy should be avoided (Daft 2009). On the other hand, the specific strategy has an important advantage: it can be pursued through different channels, meaning that the reduction of the firm’s costs can be achieved either by ‘seeking for economies of scale or using proprietary technology and so on’ (Porter 1998, p.12). On the other hand, Stahl et al. (1997) note that the success of the cost leadership strategy is not guaranteed; in order for this strategy to help a firm to improve its position towards its competitors it is necessary that the firm’s prices to be reduced – following the reduction of its costs; if costs are lowered but the prices of the firm’s products/ services are kept at the same level, then the specific strategy would remain ineffective. A strategy similar to the low cost leadership framework is the value-based analysis; the specific strategy also focuses on the reduction of cost related to the organization’s activities (Scarlett 2001). The above strategy can ensure that plans, which are likely to result to significant losses in the long term, will be identified in advance (Scarlett 2001). However, the specific strategy has an important disadvantage: emphasis is given on the limitation of costs and not on the identification of effective investment projects; the costs of organization need to be effectively controlled but without appropriate investment plans, a firm cannot manage to survive in its market. On the other hand, Cummings et al. (2003) note that the value-based management can be used for identifying a firm’s key strategic priorities, reviewing the value of its asset the organization acquires the particular period. Another common strategic framework available to firms that aim to increase their competitiveness is the Porter’s Five Forces model of industry competition. The specific model is based on the perception that each firm operating in the global market is likely to face the pressure of the following factors (as in Graph 2, Appendix): a) suppliers, meaning the pressure of suppliers for higher prices in their products provided to the organization, b) customers, meaning the power of consumers to press the firm for lower prices under the terms that products/ services are available in the market in lower price, c) substitute products; the existence in the market of products with similar characteristics and of lower price could be another factor pressing the organization’s prices or strategies, d) new entrants, meaning the new firms that are likely to enter the particular market and which can be highly competitive due to their focus on innovation or other important advantage, e) rivals, meaning a firm’s current competitors which can always increase their power and improve their position in the market. The update of the firm’s strategic planning, aiming to increase its competitiveness, would be also enforced through the use of the Mintzberg model (see Graph 3, Appendix), also known as Mintzberg theories. In accordance with Mintzberg, the strategy of each organization cannot be prepared strictly in advance, meaning in all of its details; rather it should be open to changes, being able to be alternated in accordance with the conditions in the internal and the external organizational environment (Breuer 2010). Of course, the specific fact cannot guarantee the absence of turbulences within the organization; rather, because of its openness, a business strategy may be offered for the development of a series of oppositions; such perspective is graphically represented in the Mintzberg model, Graph 3, Appendix. In order to set limits to the potential risk of such turbulences, Mintzberg suggests the categorization of a firm’s strategies as follows: ‘intended, realized and emergent’ (Grant 2005, p.24). It is explained that in order for balance to be achieved in the firm’s internal environment it is important that intended strategies (organizational strategies as perceived by the managers) are aligned with the realized strategies (organizational strategies in their final form); moreover, emergent strategies (decisions on critical organizational issues appearing when developing the intended strategies) should be promoted only when necessary, trying to avoid delays in the realization of organizational plans (Woodside 2007[b]). The theoretical frameworks presented above, are not exclusive, meaning that they are not unique; practical schemes have been also developed for supporting firms, which need to increase their competitiveness. The development of strategic alliances is one of these tools. The term ‘strategic alliances’ is used in business management in order ‘to describe a range of collaborative arrangements between two or more organizations’ (Campbell 2002, p.220). The mode of these agreements is not standardized; however, most commonly, the firms participating in such scheme are likely to form ‘a jointly owned company’ (Campbell 2002, p.220). On the other hand, Ireland et al (2008) note that the ‘strategic alliances’ strategy is likely to be used when both parties in a business agreement want to achieve benefits; it is implied that if the relevant cooperation does not result to benefits for both parties, then the continuation of this cooperation should be reviewed. The above strategic frameworks can be used alone or in combination with other strategies - such as the contingency strategy or the market segmentation strategy – decreasing the risks for failures in the realization of organizational plans. Such approach is used in this paper; two of the above-described frameworks are used for developing a business plan on which the restructuring of Virgin Atlantic strategy would be based. Additional strategies are employed in the above plan aiming to secure the plan’s effectiveness, taking into consideration the current market conditions. 3.2 Strategic options most appropriate for Virgin Atlantic 3.2.1 Presentation and justification of the strategic options chosen The key fact on which the evaluation of the strategic frameworks presented above should be based is the following: the aim of strategic planning is to increase the efficiency of the organization, as in all its activities, both as a business unit and as a competitor in a local or the international market. All of the strategic frameworks presented above serve specific organizational needs; in order to see which of these frameworks is appropriate for Virgin Atlantic, emphasis should be given on its mission and goals; also its position in the international and the British tourism industry should be taken into consideration. After locating the key targets and priorities of Virgin Atlantic, it would be easier to identify the strategic frameworks most appropriate for their achievement. From the strategic models presented above, two of them have been chosen as being closer to the needs of the organization under examination – as these needs are analyzed further below. The corporate objectives of Virgin Atlantic have been presented previously. The specific objective should be used as the basis for the development of a strategic framework appropriate for the particular case. Among the strategies presented above, the following ones are considered as being the most important: the cost leadership strategy and the Ansoff matrix. The relevant business plan would be divided in the following phases: a. Identification of the firm’s objectives – as analyzed above b. Estimation of the costs involved in the firm’s activities – at least at an average level; the cost leadership strategy would be used afterwards in order to identify the actual level of the organization’s exposure to credit; also an integrate plan of pricing principles should be included, meaning that a balance has to exist between the funds spent on the organization’s activities and the profits gathered from the organization; by limiting its costs, the firm would be able to reduce its prices, which is currently a competitive advantage of primary importance. c. Use of the Ansoff Matrix for testing the viability of the firm’s strategic options – referring to the strategy developed by the firm’s promoters/ managers and so on; the Ansoff matrix will show whether the firm should invest on its existing services, keeping its current lists of destinations, or whether it would be expanded, adding new destinations. d. The choice of the firm’s strategies will be further checked by referring to the organization’s existing resources, meaning the employees who are capable for developing the relevant plan but also the funds required for fully establishing the particular project. e. In order to secure the performance of the above measures and reduce the risks involved, additional strategies would be added, aiming to improve the performance of the specific plan. An indicative example is the Porter’s Five Forces model, which could help the firm’s managers to identify the organization’s strengths and weaknesses. Another strategic tool, of this type, would be also used: market segmentation. The specific theory could help to identify the demographics of the target market and suggest the measures required for its improvement. 3.2.2 Risks of the chosen strategies As noted above, the strategies chosen for improving the competitiveness of Atlantic Airways are the following ones: the cost leadership analysis and the Ansoff matrix. Both of these methods can benefit the organization, at least in the long term. However, in the short term, the development of such strategies would be also related to certain risks. In the case of the cost leadership strategy, the risks involved would be the following ones: a) the exact costs of the organization’s activities are difficult to be estimated, especially if taking into consideration that the firm operates in the global market; under these terms, it would be possible that the figures referring to the organizational costs are not updated or accurate, leading to failures in the suggestions introduced, meaning the suggestions for reducing the firm’s operational costs; b) the terms under which the limitation of the firm’s costs would be reduced are not common in market internationally; different culture and ethics could lead to different organizational performance and support by the community. As for the Ansoff matrix, this could also have certain risks: a) the prospects of a new market are difficult to be retrieved in advance; this means that the development of a design without informing the recipient, is opposed to the law and should be critical evaluated. At the next level, there are cases where the continuation of an existing plan is easier compared to the establishment of a totally new unit; managers in firms that face significant financial or administrative problems would be rather remain in the Greek market. 4. Conclusion The competitiveness of firms in the global market is difficult to be secured; the introduction of a series of strategic theories and frameworks, as indicated above, can help the organizations to improve their position towards their competitors, but the effectiveness of the relevant initiatives cannot be guaranteed, mostly because of the following reasons: the potentials of each firm to respond to the needs of a strategic plan are differentiated. The update of Virgin’s strategies used the cost-leadership theory and the Ansoff matrix, as analyzed above, could lead to a series of important benefits, as explained above. However, it would be necessary that other strategies are available, a trend which could secure the limitation of major failures up to the completion of the relevant process. Additionally, the performance of these methodologies could be estimated using the relevant findings from other studies developed in this field. It would be noted that Virgin Atlantic is a firm with many prospects – taking into consideration the firm’s current performance. The improvement of the firm’s position in each market using the strategies suggested above could be successfully completed if the procedure is carefully monitored in all its phases; also, the potential use of additional initiatives, such as the strategic alliances or the Porter’s five forces would increase the chances for success of the particular initiative. References 1. 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Corporate Website. Available from < http://www.virginholidays.co.uk/> Visit Britain. 2011. Visitor Economy Facts. Available from < http://www.visitbritain.org/insightsandstatistics/visitoreconomyfacts/index.aspx Appendix Graph 1 – Ansoff Matrix (Source: http://www.ansoffmatrix.com/images/ansoff-matrix.gif) Graph 2 – Porter’s Five Forces model Source: http://www.themarketers.in/wp-content/uploads/2010/01/Porter_Five_Forces1.jpg Graph 3 – Mintzberg Model (Source: http://www.lindsay-sherwin.co.uk/guide_managing_change/images/mintzberg_3by.gif) Read More