Strategic Analysis of the Hilton Hotel Corporation - Case Study Example

Strategic analysis of the Hilton Hotel Corporation Long-term objectives & Strategic Scenarios. Hilton International represents the hotel part of The Hilton Group plc business. (Maxwell et al, 2004: p. 168). The Hilton International also operates betting, gaming and Living Well fitness centres. (Maxwell, 2004: p. 168). The group is made up of approximately 500 hotels across the globe with about 60,000 employees in 50 countries. (Maxwell et al, 2004: p. 168). It should be noted that none of the hotels is operated as a franchise implying that all the hotels are either owned or managed by Hilton. (Maxwell et al, 2004: p. 168). The group purchased Sakis plc in 1999 for a consideration of 1.4 billion. (Maxwell et al, 2004: p. 168). Hilton International is spread over four global regions including: UK and Ireland; Africa and the Middle East, Europe, Asia Pacific; and the Americas. According to Maxwell and Lyle (2002: p. 251), the strategic objectives central to the business plan include: Definition of the Hilton brand; How central people and organisation are to do the business; Having a balanced score card; and Driving the business forward. The above objectives are drilled down to tactical actions on delivery, which in turn demand good people practices in recruitment and assessment, reward and remuneration, career tracking, and discipline and competencies in the Human Resource function. (Maxwell and Lyle, 2002: p. 251). Hilton International worldwide has a very clear, proactive business strategy expressed in three and five year plans. (Maxwell and Lyle, 2002: p. 251). The main objective for the existence of any business like the Hilton Group is to generate superior shareholder value. It was at first believed that the business should do everything possible to satisfy the shareholders and no body else since shareholders are the ones who take maximum business and financial risk by contributing capital to the business. While we agree with this central idea, it must also be noted that the success of every business is dependent on how the business satisfies its customers. The satisfaction of the customer and the shareholder appears to be in conflict but it turns out that shareholder value can only be created if customers are satisfied. Satisfying customers means providing them with the right goods and services at the right prices at the right time and at the right place. Therefore to satisfy the shareholders, the business must begin by satisfying customers. Put in other words, shareholder value can only be created through the creation of customer value. Stemming from a decreasing number of customers, and considering the current competitive marketplace, hotel companies now find it necessary to win the loyalty of the limited number of customers. (Gilbert et al, 1999: p. 25). Following from this we would try to examine how Hilton Hotel International attempts to increase its market share in the existing market given that the customers are limited in number and that their demands are continually changing. The Hilton Hotel has its major focus on the customer. The major assumptions that one can make for the current five years are as follows: that the business wishes to maintain constant growth by 5% annually as measured by Return on equity, Return on Assets, Return on Capital employed, growth in dividends and other important financial ratios. The business also wishes to attract and retain more customers as measured by its market share in the in hotel industry. It also wishes to maintain the most profitable customers providing them with the highest possible value for their money. Another important assumption is that the business wants to maintain a very good relationship with shareholders and other lenders so as to ensure that its cost of borrowing funds (cost of capital) remains at the lowest possible level. This will enable it reduce its business and financial risk as measured by the debt-to-equity ratio, the current ratio and quick ratios as well as the creditor's payment period and retain earnings. Based on environmental, industry and trend event expectations, the Hilton Hotel might fail to attract and retain the most needed customers. This can be as a result of the fact that its competitors such as Holiday Inn Hotel may be offering better services. As earlier mentioned, the Hotel Industry is becoming very competitive and the customer base is reducing. Thus, any hotel company that does not provide customers with the best product offerings is bound to lose even more of the customers to its competitors. It is also likely that customers may even demand more services for the price that they pay. The Hotel might be unable to provide customers with the additional services if costs are not reduced. Under such circumstances if suppliers do not agree to reduce prices then the company is bound to be in a shamble given that it will be providing high cost services at low prices, which will be cutting back on earnings as well as the overall shareholder value. According to a study by Roberts and Chan (2000), they found that Hotels might be required to provide customers with additional safety measures against the outbreak of fire disasters. Their study was against a back drop of fire accidents in hotels in Pattaya, Thailand in 1997, which led to the death of 74 people as well as burning of the Romatica in the Mediterranean in October 1997. (Roberts and Chan, 2000). Roberts and Chan (2000), considered this events as an indication that even in today's sophisticated hospitality environments, the satisfaction of the most basic need, personal safety, cannot be assumed. Customers might therefore require that hotels provide fire safety measures in all properties rather than purely in those where responsible management attitudes prevail. (Roberts and Chan, 2000). The best scenarios that might encounter the Hotel can be a government regulations reducing taxes to provide the Hotels with incentives to invest in certain areas. The hotels can also benefit from reduced inflation rates as well as bank lending rates which will help to reduce both the costs of its inputs and the cost of its capital. This will in turn lead to an increase in earnings. 2. Make a Strategic Choice The strategic choice that the Hilton hotel has made is the decision to implement a balance scorecard, which according to Blocher et al (2005) represents a performance report based on four broad performance measures. The balance scorecard takes into consideration both financial and non-financial measures of performance in evaluating the overall performance of the business. The balance scorecard will help the company to carry out the rest of its strategic objectives which includes defining its brand, the relationship between the business and its employees and forward looking indicators. According to Blocher et al (2005), the balance scorecard includes the firm's critical success factors in four areas including: Financial Performance; Customer Satisfaction; Internal Business Processes; Learning and Innovation; and Other Factors Blocher et al (2005, p. 38) also suggests the following as measures of the critical success factors: Critical Success Factor How to measure the Critical Success Factor Financial Factors Profitability Liquidity Sales Market value Earnings from operations, earnings trend, Cash Flow, interest coverage, asset turnover, and receivables turnover. Level of sales in critical product groups, sales trend, percent of sales from new products, sales forecast accuracy. Share price Customer factors Customer satisfaction Dealer and distributor Marketing and selling Timeliness of delivery Quality Customer returns and complaints, customer survey Coverage and strength of dealer and distributor channel relationship; e.g.; number of dealers per state or region Trends in sales performance, training, market research activities; measured in hours or dollars On-time delivery performance, time from order to customer receipt. Customer complaints, warranty expenses Internal Business Processes Quality Productivity Flexibility Equipment readiness Safety Number of defects, number of returns, customer survey, amount of scrap, amount of rework, field service reports, warranty claims, vendor quality defects Cycle time (from raw materials to finished product); labour efficiency; machine efficiency; amount of waste, rework and scrap Setup time, cycle time Downtime, operator experience, machine capacity, maintenance activities Number of accidents, effects of accidents Learning and Innovation Product innovation Timeliness of new product Skill development Employee morale Competence Number of design changes, number of new patents or copyrights, skills of research and development staff Number of days over or under the announced ship date Number of training hours, amount of skill performance improvement Employee turnover, number of complaints, employee survey Rate of turnover, training, experience, adaptability, financial and operating performance measures Other Factor Governmental relations Number of violations, community service activities From the table above, one can observe that the balance scorecard focuses attention on almost every aspect of the business. Focusing attention only on financial measures is important but it might make the company to lose sight of the non-financial aspects, which are necessary to generate profit. By focusing too only on non-financial aspects makes it difficult for the company to understand whether the non-financial measures have been translated into the overall objectives of the company. The balance scorecard can be very advantageous to the Hilton Hotel in that it will enable it to carefully understand its customers and make employees to work towards satisfying them. It will also help employees understand the objectives of the business and thus enable them to work towards achieving them. The major disadvantage that Hilton Hotel may face in designing the balance scorecard is that it might be difficult for a start and might cost a lot of money. The balance scorecard presented above is particularly designed for a manufacturing industry. Hilton Hotel being a service provider might find some of the items in the scorecard useless. It will therefore have to carefully select the elements that particularly pertain to its company and eliminate those that are irrelevant. Other major problems will be to set targets for the measures of the critical success factors and working towards meeting the targets. Setting reasonable targets might be difficult for a start. Designing the balanced scorecard requires contributions, actions and ideas from everyone in the organisation. (Kaplan and Norton, 2001). It might be difficult for Hilton Hotel to get all its employees to bring positive contributions, ideas, and actions that would lead to the designing of a successful balanced scorecard as there might be conflicting ideas, and actions. Some of the employees might be more concerned with their personal interests than with the success of the business as a whole. Furthermore every employee needs to properly understand the strategy of Hilton Hotel and carry on his/her activities in compliance with the strategy. (Kaplan and Norton, 2001). By communicating its strategies to all employees, Hilton Hotel runs the risk of suffering from information leakages as some of the employees may not be able to maintain the confidentiality of such information, thus, this will lead to a failure in the designing of the Balance Scorecard. Also, the employees need to be educated concerning surprisingly complex business concepts such as customer segmentation, variable contribution margin and data base marketing. (Kaplan and Norton, 2001). Employees at Hilton Hotel might not be able to understand some of these concepts let alone put them into practice. Therefore, this shortcoming can make it difficult for Hilton Hotel to design a successful Balanced Scorecard. Despite the difficulties, the balanced scorecard can be very successful if carefully planned and well implemented. 3. Key Institutionalisation Processes The McKinsey 7-S framework is a value based management (VBM) model that describes how one can holistically and effectively organise a company, which constitutes the following (http://www.valuebasedmanagement.net/methods_7S.html): Shared value: this represents the interconnecting centre of the framework. Shared value describes what the organisation stands for and what it believes in. Strategy: This describes the organisation's plans for the allocation of scare resources over time to reach the identified goals, environment, competition and customers. Structure: This represents the way the organisation's units must relate to each other. Is the organisation decentralised or centralised In the case of Hilton Hotel, it has a descentralised structure. System: the system describes the processes and procedures as well as the routines that characterise how important work is to be done: financial system, hiring, promotion and performance appraisal systems, and information systems. Staff: Number and types of personnel within the organisation. The Hilton Hotel has over 60,000 employees across 50 different countries around the world. Style: this describes the cultural style of the organisation and how key managers behave in achieving the organisation's goals. Skill: this represents the distinctive capabilities of personnel or of the organisation as a whole as well as the core competencies of the organisation. Core competencies refer to specialist skills that are specific to the organisation, alone which can be considered as an advantage over competitors. 4. Prescribe Strategic Controls Ropeter and Kleiner (1997: p. 132) identify eight basic principles as excellent practices for companies in the hotel industry, I will like to recommend for the Hilton Hotel. These principles include: bias for action; staying close to the customer; autonomy and entrepreneurship; productivity through people; hands-on; value driven; sticking to the knitting; simple form; lean staff; and simultaneous loose-tight properties. Under bias for action, even bad action is better that no action. Ropeter and Kleiner (1997: p. 133). There is the tendency for companies to move in a fast pace rather than keep on analysisng and studying the situation. According the study by Ropeter and Kleiner (1997: p. 133) which analysed three hotels including Hilton Hotel, managers at each of the Hotels reported that a detailed outline must be presented before a new plan or changes to a current plan could be implemented. Staying close to the customer is the most important principle for any hotel if it is to remain competitive. It is the primary factor, which keeps the hotel in business. (Ropeter and Kleiner, 1997: p. 133). Considering the number of hotel chains from which customers can make alternative choices, customer satisfaction should be the most important focus of the company. (Ropeter and Kleiner, 1997: p. 133) As concerns the principle of autonomy and entrepreneurship, having small independent "franchises" should be the goal of the company. (Ropeter and Kleiner, 1997: p. 133). According to (Ropeter and Kleiner (1997: p. 133), Hilton Hotel each individual hotel already has its own management structure. It has a personnel department that enables it to hire, fire and take care of personnel matters (and training) at the site. (Ropeter and Kleiner, 1997: p. 133). Productivity requires that each employee clearly understand what is to be done in the Hotel as a whole rather than just do what his/her superior asks him/her to do. There should be a written training manual for the various positions in the Hotel. By clearly defining the different functional roles of the employees to each and every one of them enables the employees to work towards satisfying customers since employees would understand that they are part and parcel of the business and thus work not as agents but as owners of the business. This will help to increase customer satisfaction and reduce inefficiency in the hotel. (Ropeter and Kleiner, 1997: p. 133). The hands-on, value driven idea represents the ideal strength of the company. (Ropeter and Kleiner, 1997: p. 133). Hilton hotel already has this in place where its executives keep in touch with the company. For example, the leader of Hilton hotel has taken great interest in the company with the president Conrad Hilton even going as far to write a book Be Our Guest. (Ropeter and Kleiner, 1997: p. 133). Stick to the Knitting requires the company to do what it can do best. (Ropeter and Kleiner, 1997: p. 133). So the Hilton group should focus on what it can do best and therefore work towards improving its competitive position in the industry. Simple form requires that the structure of the company should be simple in such a way that allows for the easy flow of information. Simultaneous loose-tight properties, requires an individual within the company to know what the company to know what the company's goals and objectives are but allows him or her to operate in such a fashion that he or she can accomplish what is necessary for the best interest of the company. (Ropeter and Kleiner, 1997: p. 134). BIBLIOGRAPHY Blocher E., Chen Kung., Gary Cokins., Lin T. (2005). Cost Management A Strategic Emphasis 3rd Edition Mc Graw-Hill. Gilbert D. C., Powell-Perry J., Widijoso S. (1999). Approaches by Hotels to the use of the Internet as a relationship marketing tool. Journal of Marketing Practice: Applied Marketing Science. Vol. 5, No. 1, pp 21-38. Kaplan R. S., Norton D. P. (2001).Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part II. Accounting Horizons. Vol. 15(2) pp 147. Maxwell G., Lyle G. (2002). Strategic HRM and business performance in the Hilton Group. International Journal of Contemporary Hospitality Management. Pp. 251-252. @ Emerald Group Publishing Limited, ISSN MCB UP Limited. ISSN 0956-6119 DOI 10.1108/09596110210433781 Maxwell G., Watson S., Quail S. (2004). Quality service in the international hotel sector. A catalyst for strategic human resource development Journal of European Industrial Training Vol. 28 No. 2/3/4, 2004 pp. 159-182 @ Emerald Group Publishing Limited, ISSN 0309-0590 DOI 10.1108/03090590410527591 Roberts D., Chan D. H. (2000). Fires in hotel rooms and scenario predictions. International Journal of Contemporary Hospitality Management. Vol. 12, No. 1, pp 37-44. Ropeter R. C., Kleiner B. H. (1997). Practices of Excellent Companies in the hotel industry. Managing Service Quality. Vol. 7 No. 3, pp. 132-135. @ Emerald Group Publishing Limited.MCB University Press. ISSN 0960-4529. http://www.valuebasedmanagement.net/methods_7S.html Read More