Managing Radical Strategic Change - Case Study Example

TUI Case Study: Managing radical strategic decisions BY YOU YOUR ACADEMIC ORGANISATION HERE HERE TUI Case Study: Managing radical strategic change Introduction Preussag decided to change its business model from being a multinational conglomerate of many different business practices into a company focused on travel and tourism. From a strategic level, these types of changes involved creating a solid TUI brand to create a positive consumer perception of the company, streamlining or divesting multiple business functions, changing organisational culture and the recognition of competitive activities. Preussag maintained a previously-strong focus on metal trading, ship manufacture, plant construction and mining as part of the business model (Dittman, Maug and Schneider, 2006). Transforming the business from this area to a radically-different model, tourism, requires significant changes at the strategic level. This project describes the transformation from Preussag to TUI and suggests different styles available to manage this large-scale business model change. The new TUI Employees who worked under Preussag were likely used to functioning in a business environment which was product-focused rather than customer- or marketing-focused primarily. Industrial business segments, such as mining and plant construction, require workers and managers to deal with issues of process improvements and working with foreign legislators to conduct international business. The tourism industry, on the other hand, is a very customer-focused organisation requiring a business to take a strong customer service and marketing focus in order to differentiate service variety from that of competition. Taking a culture built on efficiency and product-focus and expecting excellence in customer service (where little previously existed on the consumer level) requires a readjustment of internal corporate culture. At the senior executive level, the key to changing values in the business is constructing a new mission statement for the newly-transformed business which clearly and explicitly states the new customer focus expectations. The mission statement provides a sense of purpose among the entire organisational staff and, through senior-level expression and modeling of these behaviours, a business can begin the strategic transformation from product- to customer-oriented business activities. TUI accomplished this with a mission of “Putting a smile on people’s faces” (Interbrand, 2006). Though the mission statement, to its credit, can establish the foundation of what drives the business forward and its long-term goals for customer satisfaction, it does little in terms of enforcing compliance and ensuring that all organisational staff members are excited and willing to adopt the new change policies. In this situation, issues of compliance become senior-level administrative priority. Assessing the performance of the internal environment can best be accomplished utilising the SWOT Analysis performance template to recognize areas of strengths and weaknesses in terms of systems and human labour necessary to provide a quality customer service experience. Training and development, additionally, are strategic foci for ensuring organisational commitment to the change from Preussag to TUI. The new TUI organisation is also a new brand name for the transformed company, requiring a consistent marketing message to be adopted which positions the firm as superior to other tourism competition both internally and externally. TUI realised the necessity to create a single umbrella brand which would encompass a bundle of various products and tourism services for operations in 16 different countries (Interbrand). This represents the necessity to understand the foreign operating environment and both the domestic and foreign consumer to create a TUI brand name and logo which can be customised to fit the lifestyle and tourism preferences of a multi-cultural customer profile. Having a strong marketing focus and utilising modern marketing theory as a means to build a new reputation for TUI represents a positive step forward from being product-focused to customer-focused. However, even though costs are saved by selling unnecessary business divisions or restructuring a variety of existing divisions, creating a new marketing focus requires a significant financial investment in terms of public relations exposure, print and on-air advertisements, and labour requirements necessary for marketing professionals to steer the business toward a new customer-oriented model. The con of this new marketing necessity for the business is that TUI will require additional staff expertise to be committed to the consumer where their talents were previously utilized for different business activities in the industrial sector. Costs, in relation to labour necessary to fulfill the marketing objectives, will be superior to TUI. Long-term results, which are the essence of competent leadership strategy, will benefit the company by creating a lifestyle and needs connection with the tourist-minded consumer and ensure profitability into the future. Porter’s Five Forces model, which describes potential competitive threats to the business, is an appropriate model for understanding how to position the company from an industry focus to that of customer service and leisure. This model identifies the various bargaining power of suppliers, the bargaining power of buyers, threat of new entrants in the tourism market, rivalry among competing firms and the threat of substitute services (Purdue University, 2007). TUI will be dealing with an entirely different supply chain structure outside of industry thus there will likely be new expectations regarding how to maintain supplier relationships and to determine whether suppliers maintain the ability to interrupt quality business activities by raising prices or being unable to meet delivery expectations. Additionally, the Five Forces model will indicate to the strategic leader whether new market entrants (competition) have a more viable method of reaching tourism consumers or whether the new entrant actually has a superior service. In essence, the Five Forces model allows the strategic manager to assess all aspects of supply chain as well as competitive strengths and weakness to determine the best course of action to minimise both costs and short- and long-term risks to the business. The weakness of the Five Forces model approach lies in implementation. Even though the model works as a method to make the strategic manager recognize patterns in the external business environment, it does not provide the necessary, quality solutions for improvements in performance and the overall business model toward tourism. Implementation and control over how solutions are implemented rests at the senior level, requiring a competent leader who is willing to make the organisation more flexible in terms of staff, service delivery, marketing focus and generic customer service. The model serves as a template for monitoring competitive behaviours however it grants no control over whether compliance toward new strategic initiatives is occurring at all levels of the organisation. There is a modern trend in consumer behavior patterns in the tourism market which demand combination options (room plus hotel, as one example), individuality and late booking (TUI AG, 2006). TUI’s new focus on the customer is apparent as well as the company’s flexibility toward reaching the new goal of excellence in tourism with the firm’s provision of a new Internet-based booking system which spotlights several thousand destinations for travelers and to meet a consumer need in the process. The addition of this new website, driven by understanding consumer demand, is another element of the importance of having strategic marketing philosophy to provide potential customers with the options and access they are looking for when booking travel arrangements. The strengths of meeting consumer needs in this fashion are obvious, however booking aspects do not guarantee the same excellence of service delivery once the tourist customer has reached their chosen destination. This is why strategic managers must develop individualised service provision expectations for each tourism destination and provide the training necessary to fulfill these strategic goals. This reinforces the necessity of understanding what drives organisational staff motivation to provide excellence in service performance and provide foreign tourism staff with the tools necessary to satisfy the customer. This can be accomplished by maintaining constant communications with middle-level managers in the TUI hierarchy and demanding compliance through policy generation and maintaining an authoritative posture as the business leader. One business expert offers that tourism is the absolute largest economic sector across the globe, contributing 10.3 percent of global gross domestic product (Tepelus, 2007). This sector, being the largest, even outperforms industrial activities, making this a viable strategic option for diversifying the business. TUI likely understands these statistics which was the driving force behind the change in business model from industrial and product-focused to service-oriented in the pursuit of long-term profitability. However, this transformation requires taking on added risk, requiring the strategic manager to utilize an appropriate risk-assessment strategy or model to bring financial value to the new TUI. During the transformation process, TUI experienced a 14 percent drop in stock value even though the tourism industry maintained a growth rate of 12 percent (Dittmann et al). This statistic strongly reinforces that each time a business takes on new direction or strategic focus, there runs the risk of changes to investor confidence regarding the company’s long-term survival. Risk assessment, including all competitive and consumer-related behaviours or practices must be considered at the strategic level in order to develop an appropriate contingency to combat future risks. Contingency planning, as an aspect of risk management, maintains a weakness as well as it will require the devotion of staff and leadership expertise to create the back-up plan in the event that new risks have been identified. This could include a complex contingency such as a new marketing positioning strategy (in the event that the business is losing customers) or a complicated service-provision system overhaul. When human resources availability is being depleted in one area of the business in the pursuit of a what-if, contingency plan which might never be used, this can represent a waste of human resources in the short-term and put additional costs toward managing this contingency project. However, maintaining the business with no thought toward contingency planning or risk assessment will likely allow competition to outperform TUI and seize a greater market share in the tourism industry. Conclusion The transformation from Preussag to TUI likely involved many more strategic challenges, however the company appears to have a strong business model toward meeting tourist-minded consumer needs. There are strengths and weaknesses to different strategic marketing approaches, cultural and organisational changes, risk identification and analysis, and assessing both the internal and external operating environment. It would seem that only a competent strategic manager could manage to take a product-focused organisation and, relatively quickly, transform this firm into a leading provider of tourism services. Much of TUI’s focus, today, is on satisfying the customer and finding profitability through a new method of doing business. All of the company’s successes can be attributed to quality strategic thinking. Bibliography Dittman, I., Maug, E. and Schneider, C. (2006). ‘How Preussag became TUI: A Clinical Study of Institutional Blockholders and Restructuring in Europe”, Financial Management Association International. Accessed 5 Dec 2008 http://www.fma.org/FinMgmt/Dittmann.pdf Interbrand. (2006). “A smile conquers the world: Brand Presence TUI”. Accessed 5 Dec 2008 http://www.interbrand.ch/e/pdf/IBZL_TUI_e.pdf. Purdue University. (2007). “Industry Analysis: The Five Forces”, Agricultural Innovation and Commercialization Center. Accessed 6 Dec 2008 http://www.ces.purdue.edu/extmedia/EC/EC-722.pdf Tepelus, Camelia M. (2007). “Change management for a new business ethic: Corporate social responsibility in tourism and the UN Millennium development goals”, The International Journal of Knowledge, Culture and Change Management, 8(5): pp.79-88. TUI AG. (2006). “Milestone of TUI AG”, TUI Aktiengeselfschaft. Accessed 5 Dec 2008 http://www.tui-group.com/en/konzern/tui_profile/milestones/ ‘TUI: Achieving and maintaining leadership in the European Tourism industry” In G. Johnson, K. Scholes and R. Whittington, Exploring Corporate Strategy, Prentice Hall. Read More