Strategic Management of Carlson Rezidor Hotel Group - Case Study Example

Strategic Management of Carlson Rezidor Hotel Group Carlson Rezidor Hotel Group is a global largest as well as the most dynamic hotel companies established in the early 2012. The organisation is a joint venture between Carlson and Rezidor Hotel Groups. The joint venture is geared towards harvesting the fruits of globalisation through the establishment of new branches in various countries across the globe. This exposes the business to different cultures, expands the client base and enhances technological development to attract a wide pool of clients. This paper is a critical analysis of the joint venture strategy applied by Carlson Rezidor Hotel Group. Rezidor Group is a hotel management company (The Rezidor Hotel Group, 2010). The head office of this hotel business is in Brussels, Belgium. The company has maintained its position at Stockholm Stock Exchange since November 2006. The company was previously owned by SAS group and Carlson hotels. The group has 1,319 hotels and underdevelopments operating under its portfolio, and covering 81 countries. The company operates Regent International Hotels, Radisson Hotels, Country Inns, Park Inns and Suites in the Middle East, Europe and Africa (Larimo, 2007). It is a signatory to Italian fashion house, Missoni, which operates several lifestyle hotels. The company’s strategy is to improve its asset base through focus on skilled and efficient management capable of attracting new business contracts and competitiveness in the hospitality and hotel industry. Carlson is a worldwide family-owned travel and hospitality business (Carlson, 2012). It is headquartered in Minneapolis, US. Carson operates in more than 150 nations with more than 1300 hotels and 900 restaurants under operation. The business owns the Carlson Wagolit Travel. The company has formulated a growth strategy for 2015 with a goal of making their brands the leading brands in their segments and make the company a leading travel and hospitality business that investors can feel secure while investing their money. Achievement of the stated ambitions has made the company establish a business venture with Rezidor Hotel Group. The ownership and legal structures of the two companies remain the same under the joint venture; Carlson is Rezidor’s majority shareholder with shares worth 50.3% (Carlson, 2012). Carlson Rezdor hotel group is determined to pursue the global alignment and improvement of it brands, improve its revenues generation schemes, widen the global purchasing schemes and jointly develop the human resource all over the world. The partnership will see the commercial activities in both hotels conducted jointly irrespective of the geographical orientation. Currently, the group has a portfolio of more than 1300 hotels with a global coverage of 80 countries in addition to a powerful set of global brands such as Radisson Blue, Park Plaza, Radisson, Park Inn, Country Inns and suites by Carlson and Missoni Hotel (Carlson Rezidor Hotel Group, 2012). The group also operates several lifestyle hotel brands that have a brand name e.g. Hotel Missoni Kuwait. The group has recently embarked on a number of revenue-generating initiatives with an aim of generating US$400m additional revenue. These activities are also geared towards improving per available room (RevPAR) to more than 9 points before 2015. Such activities include: reinforcing the global sales work force; applying measures that optimises revenue collection; partnering with other travel intermediaries and enhancing loyalty and commitment among the team. The group is determined to pursue and improve the global management for all its ventures to ensure that clients get the value for their payments (Egan, 2005:559–64). Management of the group has been enhanced through the establishment of a global steering committee that oversees value creation and development processes. The two companies have a long business history spanning 17 years. The joint venture is characterized by opportunities that span the entire service level range. The room distribution by brand include: Missoni (0%), Radisson BLU (34%), Radisson (23%), park plaza (5%), Park Inn (15%) and country Inns and Suites (23%). The company targets to expand Radisson into globally consistent first class brand. Some of the innovations proposed during 2012 Global business Conference include improved room concepts, lavish restaurant designs and improved guest experience. The investment program is poised to cost USD 1.5 billion in North America alone. The Park Plaza Brand has 42 hotels operating globally with 22 hotels under development. The focus growth of the brand is in the key urban areas in Asia and Europe. The Park Inn by Radisson has 126 hotels in operation and 52 in the pipeline. The Country Inns & Suites by Carlson operates 483 hotels globally and 43 under development. The group is targeting to open 250 more hotels in U.S., Canada, India and Mexico. The joint venture has enabled the company reinforce the global sales team as employees have been outsourced from the two distinct companies. The distinct individual brands have combined to produce a superior brand. Revenue tools from the two distinct companies have been brought together to develop unique revenue optimisation tools. The joint venture has also enabled the formation of partnership projects with travel intermediaries such as Carlson Wagonlit travel. This has diversified the company’s operations creating a firm competitive advantage. The achievement of globalisation status by Carlson Rezidor Hotel Group is stipulated in its 2015 vision that is geared towards the creation of a global brand and improving the hotel ownership by 50%. The strategy will be implemented through focus on four key principles: expansion of Radisson Blu and Radisson into global first class brands; promoting the growth of country inns and suites in potential market locations; expanding the park Inn to a winning brand in most theatres globally; and the continued investment in the emerging economies. The two companies are involved in a joint venture whereby all business activities are coordinated jointly. The enormous size of the joint venture unlocks significant business benefits related to improved global management and development of its brands and revenue generation engines, enhanced staff skills and increasing the global marketing opportunities. The joint venture leverages the strength of the two companies to improve the value of services for customers (Pizam and Pizam, 2005). The mission of the joint venture is the development of more financial returns for the owners and the shareholders. They also target to be globally perceived as one company. This partnership also provides them with an opportunity to offer consistent value propositions to guests and clients. They are also able to offer career training and opportunity enhancement among employees. The trained personnel apply their expertise in improving the quality of supply chains globally because they are trained to offer improved and convenient services to their clientele. Diversification of commercial activities and resource pull will generate attractive financial returns for the two companies (Ott, 2005). Formation of a joint venture ensures that the organisation takes advantage of economies of large scale that improves their competitiveness. The rapid growth provided by the partnership increase the need for increased autonomy and accountability. Managers from the two companies are encouraged to contribute new business idea and decisions that can steer the group forward (Olsen and Roper, 2006: 111–124). The corporate teams undertake company activities such as marketing, sales, technical services, purchasing services, human resources and accounting among others. Before entering onto a joint venture, the two companies began with a sound and well articulated business strategy. A committee composed of members from the two companies was appointed to preside over the process. Some of the initial factors that were considered before implementation of the strategy include the analysis of reasons defining the usefulness of the joint venture and target goals. The committee was also involved defining the involvement of the parent companies entering into the joint venture and the duration of the deal. The parent companies have a managerial role in the joint venture while the contract runs until 2052. Wide consultations and research was conducted by the committee members in outlining the partnership terms. The terms analysed are those that define governance, decision-making processes, accountability and conflict-resolution. The committee was tasked to ensure that the measures are favourable to everyone to ensure participation of the highest level. The adoption of the strategy also involved consideration of the outcomes i.e. the possible cause of the termination of the strategy and the exit strategy. Identification of the risks associated with the strategy paved way for development of the human resources improvement strategies. These promote the strategies and goals of the joint venture strategy. Some of the measures that resulted from focus on human resource improvement include: development of a distinct culture for the new organisation; creating awareness of the new culture to employees; and establishment of improved career paths and remunerations terms for the employees involved in the joint venture. The leadership was then selected based on fairness and credibility. Some of the factors that characterised leadership selection included the past behaviour, visible inputs and past experiences. The success of the strategy was enhanced through communication. Communicative interactions led to the creation of a common vision, establishment of a connection with the management, supporting the individual transition process and providing an explanation for the new guidelines (Kotler, Ang, Leong and Tan, 2003:50). The joint venture led to the combination of distinct talents. The key priority in talent utilization involved identification, motivation and retention of the top talent. Strong counter-measures were developed to negate defections that characterise most joint ventures in the initial stages. Research was also conducted on the employees to determine their likes and dislikes. Porter’s five forces is a crucial tool applied by the company management to understand where the business power lies (Porter, 2008). The focus on the five fives enables them capitalise on strengths and improve their weaknesses. One of the forces that affect Carlson Rezidor Hotel Group is the bargaining ability of the suppliers. The key categories of suppliers for the company are labour and real estate i.e. property owners, real estate companies, developers, architects, training and management service providers, marketing companies and consultants. The number of suppliers in the hotel industry is generally huge and most of them are smaller compared to the organisation. Carlson Rezidor is a powerful player in the hotel industry making it indispensable to the suppliers (Carlson Rezidor Hotel Group, 2012). The industry possesses a high number of substitutes for property, designers and employees. This makes substitutability inexpensive and feasible. Switching between suppliers is not going to cause significant negative impact on the company. However, most of the branches such as those being established in Africa and Middle East possess few reliable real estate companies as well as consultants. These regions are also characterised by a shortage of efficient quality training providers leading to a reduced number of skilled workforces. The bargaining power of buyers determines the level at which customers can impose pressure on the volumes and margins. Buyers in the hotel industry include leisure and business travellers and customers looking for space when organising events such as conferences. Individual customers for a company like Carlson Rezidor are relatively insignificant implying that loss of one customer has limited negative impact to the business. This makes the bargaining power of the buyers be considerable. However, the company has an obligation of ensuring buyer/customer loyalty because gradual loss of buyers drives the business to oblivion. Although the company is establishing new branches in locations rival competitors, barriers to entry are not a threat to the organisation. This is because the company has an established international brand and a wide pool of resources for exploring new markets. Its stability in the economies of large scale as brought about by the partnership between two companies is relatively high. This implies that the new entrants have low competitive advantage compared to established players. The hotel industry is variably affected by the threat of substitutes. Substitutes offer services at lower prices for the same quality. Such substitutes include camping vehicles for tourists, corporate guesthouses for travellers and accommodation being offered freely by family members and relatives. The organisation is not affected by the competitive power of the rivals. This is because the existing brand and expansive resources maintains its competitiveness. The partnership is a strategic move geared towards frustrating the power of rivals and acquiring enough for resource base for expansion. Carlson Rezidor Hotel Group is also affected by political, economic, social and technological factors i.e. PEST. The political environment refers to the government policies in relation to their degree of intervention to the global economy. The hotels cannot become competitive without the support of the host governments. Most governments have a tendency of taxing huge amounts of tax to most luxury hotels without relating the imposed tax on the profit index. Political instability in some African and Middle East nations has forced Carlson Rezidor Hotel Group to avoid investing in such regions. Environmental impacts of tourism-related activities such aviation has encouraged many governments propose increment for tax on aviation fuel as well as air tickets. The company operates under management contracts with minimum financial exposure in the emerging markets to frustrate political risks. Favourable economic conditions lead to increase in the occupancy rate of many hotels. Economic factors affect individual purchasing power of potential customers as well as company offerings. Low job confidence reduces the level of spending among the population. A high inflation rate and slow Gross Domestic Product growth among many developing nations negatively affects customer spending. Most tourist and clients shy away from regions with poor infrastructural facilities such as dilapidated airports. This implies that the company has to research identify economically stable countries to guarantee competitiveness (Kogut, 2006: 319–332; Okumus, 2002: 105-110). The hotel business is normally marketed by the cultural behaviours of the host country such as festivals. The company must be familiar with the culture of the host population to avoid dealing in products and services that will not benefit the locals. Most customers in developing countries are culturally price sensitive. The employee turnover in the hotel business is normally high. Technological component affects both the basic product and supplementary services. The improved modern equipments contribute to service delivery. Partnerships are relatively easy to establish. This is because the ability to raise operation as well as expansion funds is relatively easy as it is based on resources combination (Mahoney and Rajendran, 2006: 363–380). The companies are better positioned to acquire more funds especially through borrowing. The strategy has enabled the companies enter new geographic markets such as African markets (Kotler and Keller, 2006). Joint venture will provide the company with improved access to capital and risk-sharing and rewards among partners. Additionally, they have access to a wider pool of resources such as qualified staff and improvement in business relationships. Partnering has enabled the organisation overcome the risk of the current trend in the lender behaviours who are not interested in investing money in the hotel business. The partnership offers alternative source of funding for the company (Reue and Koza, 2000: 81–88). The joint ventures enabled the parent companies acquire assets that they could not afford on their own. The joint venture has enabled individual companies build their credibility. Each company is popularised in those locations that the partner company has established market and brand. The partnership has enabled the company become more flexible leading to the establishment of the extra business ventures such as Hotel Missoni Kuwait. However, the strategy is risky to the organisation because the some objectives of the two partners may be varied or not well communicated to all partners satisfactorily. The employees may be having varied skill at the same level of management leading to conflict of ideas and decisions (Luck and Lancaster, 2003: 213). Implementation of the joint venture required channelling of resources into employee training and development. Employee reshuffling can also compromise the effectiveness of the workforce. The varied cultures and management styles led to initial poor integration and co-operation although the situation is gradually improving. The company also channelled monumental resources in research and analysis of the distinct objectives of the two companies. Recommendations The joint venture is faced with various operational risks that require urgent attention as well as application of ardent preventive measures. The management should ensure that the risks and benefits for the new investments and liabilities relate to the finance policy of the organisation. The management should reduce the business cycle through focus on measures such as brand diversity and geographic diversification. Evaluation should be undertaken before investing in high-risk regions to ensure that they match with the expected returns. The brand should be protected through operational policies and strategic control. The insurance programs for the employees should be reviewed and assessed on a continuous basis. Entering into a joint venture alone is not enough. The organisation should devise ways of offering competitive prices suitable for budget travellers. They should also offer promotional packages such as discounted room rates to loyal clients. This motivates the customers to continue using the services as well as attracting new clients. The company should also venture into e-business (Honigman, 2008:12; Kotler, Bowen and Makens, 2006: 683-707). This will enable them serve e-consumers through improving the quality of online offers. E-business will also expand the quality of services and develop more competitive distribution channels through the internet. Conclusion The Carlson Rezidor Hotel Group is an alignment between Carlson Hospitality Group Inc. and the Rezidor Hotel Group AB. Their main objective is to leverage the companies’ combined development and enhance their market strength at a global platform. Managers from the two companies are encouraged to contribute new business idea and decisions that can steer the group forward. The corporate teams undertake company activities such as marketing, sales, technical services, purchasing services, human resources and accounting among others. The joint venture is geared towards harvesting the fruits of globalisation through the establishment of new branches in various countries across the globe. This exposes the business to different cultures, expands the client base and enhances technological development to attract a wide pool of clients. References Carlson (2012) Worldwide, world-class hospitality and travel, viewed 29 Oct 2012 . Carlson Rezidor Hotel Group, (2012) Worldwide world-class hospitality, viewed 29 Oct 2012 . Egan, D. (2005) ‘Constructing globalisation: Capital, state, and social movements’, New Political Science, vol. 23, pp. 559–64. Haugen, D. M. & Mach, R. (2010) Globalisation, Detroit, Green haven Press. Honigman, D. (2008) “Hotels At Home: In-room catalogue and e-commerce service leverages guest experience while increasing brand awareness” Marketing News, vol. 42, no. 5, p. 12. Kogut, B. (2006) Joint ventures: Theoretical and empirical perspectives, Strategic Management Journal, vol. 9, no. 4, pp. 319–332. Kotler, P. & Keller, K.L. (2006) Marketing management, Upper Saddle River, New Jersey. Kotler, P., Ang, S.H., Leong, S.M. & Tan, C.T. (2003) Adapting marketing to the new economy, Singapore, Prentice Hall, p. 50. Kotler, P., Bowen, P. & Makens, J. (2006) Electronic marketing: internet marketing, database marketing, and direct marketing, In Marketing for hospitality and tourism, New Jersey, Prentice Hall, pp. 683-707. Larimo, J. (2007) Contemporary Euro marketing: entry and operational decision making, Binghamton, N.Y., International Business Press. Luck, D. & Lancaster, M. (2003) Managerial auditing, Bradford. Mahoney, J.T. & Rajendran, J. (2006) The resource-based view within the conversation of strategic management, Strategic Management Journal, vol. 13, no. 5, pp. 363–380. Okumus, F. (2002) Can hospitality researchers contribute to the strategic management literature? International Journal of Hospitality Management, vol. 21, no. 2, pp. 105-110. Olsen, M.D. & Roper, A. (2006) Research in strategic management in the hospitality industry, International Journal of Hospitality Management, vol. 17, no. 2, pp. 111–124. Ott, U.F. (2005) International joint ventures: an interplay of cooperative and non-cooperative games under incomplete information, Houndmills, Basingstoke, Hampshire, New York, Palgrave Macmillan Pizam, A. (2005) International encyclopaedia of hospitality management, Amsterdam, Elsevier Butterworth Heinemann. Porter, M. (2001) Strategy and the Internet, Harvard Business Review, vol. 79, no. 3, pp. 62-78. Porter, M.E. (2008) "The Five Competitive Forces that Shape Strategy", Harvard Business Review, pp. 86-104. Reue, J. & Koza, M. (2000) Asymmetric information and joint venture performance: theory and evidence for domestic and international joint ventures, Strategic Management Journal, vol. 21, no. 1, pp. 81–88. The Rezidor Hotel Group (2010) “Fact Sheet", viewed 29 Oct 2012 . Read More