Macro & Micro Environmental Analysis - Essay Example

Running Header: Macro & Micro Environmental Analysis Analysis of Macro and Micro Environment of Hospitality Industry Hilton Hotel Corporation Collage Name: Analysis of Macro and Micro Environment of Hospitality Industry Hilton Hotel Corporation As an organisation interacts with and operates within its business environment, the impact of its macro and micro environments needs to be considered and incorporated into the decision making process. Decisions and strategies should fit in with the environmental conditions and some factors should be modified to suit the organisational needs. Companies operating within today’s globalised economy are affected by a wider and more turbulent globalised macro environment and therefore pose greater managerial challenges. The business environment can be seen in the perspectives of macro-environment and micro-environment and the dynamic nature of the environmental factors require the organisations to continuously adjust and adapt to the changing conditions. The micro-environment comprises of factors, which are in direct relationship with the company and the company can exercise a certain degree of influence in modifying these factors. Key micro-environmental factors include company, competitors, suppliers, customers, marketing intermediaries and publics of the company. The macro-environment contains forces, which are indirectly related to the organisation but impacts on its operations, and is beyond the control of the organisation. These involve factors such as social, cultural, political, economic, technological, legal, environmental and economic factors (Armstrong & Kotler 2000). This essay aims to analyse the macro and micro environments of the hospitality industry in relation to US based, Hilton Hotels Corporation, which owns, manages and franchises approximately 2,300 hotels and resorts across the American and Canadian region. In addition to these hotels, the strategic alliance between Hilton Hotels Corporation and UK based Hilton Group Plc. has created a global network of over 2,700 Hilton hotels located in over 70 countries. The company’s hotel brands include world-renowned Hilton Hotels, Conrad, Doubletree, Embassy Suites Hotels and Hampton Inn (The Hilton Family 2005). Strategic Situational Analysis In order to respond effectively to the external environment of an organisation, it is important that the strategic situation of the company is assessed and placed in perspective. An organisation’s situational analysis will reveal the internal environment conditions, which are reflected in its strengths and weaknesses as well as the opportunities, and threats, which the company should pursue or manage through the utilisation of its resources and strengths. A company’s internal environment consists of its human resource, capital, technology, equipment, markets and materials. These are commonly referred to as the “Five M’s” – Men, Money, Machinery, Material and Markets. An internal environment audit will indicate where the company needs to improve upon and what strengths can be utilised to optimise the available opportunities and which threats have to be countered or avoided. SWOT Analysis Hilton Hotels strategic situational analysis can be assessed through a SWOT analysis, which can facilitate decisions on, how the company can best align its resource base to take advantage of the business opportunities while safeguarding against the threats. SWOT analysis finding should be used in developing those weakness areas by strengthening the internal deficiencies and building required core competencies (Duncan, Ginter & Swayne 1998). Strengths of the company lie in the highly reputed brand name of the Hilton Hotel Group and its affiliated hotel brands as Conrad. The Financial stability of the company which is reflected in the above average profit generations is also a key strength. The 9 months performance in 2005 reported net income of $355 million, compared to $173 million in the 2004 period. Availability of funds for aggressive expansion plans facilitates growth. Year 2006 capital investments commitment is approximately US$ 500 million. Expansion plans are to add further 175-200 hotels and 23,000-27,000 rooms to the network of hotels during year 2006. Among the company’s key strengths, the established business processes which have been streamlined for efficiency and cost effectiveness is also of importance. Highly developed Customer Retention Management programs (CRM) as Hilton Honors and frequent guest programs can also be seen as a strength. Over 4 million customer profiles and 14 million customer data records are available for focused promotions under the CRM programs. Strategic Alliance with the UK Based Hilton Group Plc., which allows wider geographical presence over 70 countries and joint promotion of the brand, is another strength. Lastly, the vast capacity of the Hilton chain, which consist of 2,357 properties and 370,111 rooms in the US and Canadian sector and another 2700 hotels across the globe managed through the Hilton Group Plc. is a key strength which facilitates industry dominance (Hilton Hotel News). Weaknesses of the organisation can be identified in the high cost of maintaining the image and the brand values, which affect the profitability of the venture, especially in economic depression period. The weak supply chain management compared to other rivals as holiday Inn which has a host of group companies operating to serve the hotel chain’s internal requirements as well as catering to other hotels in the industry, is another area lacking in strength. With the massive scale of Hilton Hotel operations, this would have generated additional revenue streams if properly developed. Opportunities lie in the prospects for growth, predicted by the industry outlook where analysts are forecasting high growth prospects for year 2006. The Hilton chain is set to take advantage of these growth opportunities with its new expansion plans of over 560 hotels and 75,000 rooms in its development pipeline stage. With the globalization and increased free trade, the business travel sector is booming. Increased income levels across the globe is leading to increased spend on leisure and holidays services. The aging population of the world is increasing and this segment possess a greater levels of disposable income and increase the prospective customer bases for high end brand as Hilton. Threats include the turbulent conditions experienced by the hospitality industry resulting from the SARS virus scare, which is still recurring in some parts of the world. The widely prevalent terror attacks are dampening business as well as leisure travel. Increased use of teleconferencing and Tele commuting may reduce the need for business travel. The increased ageing population in the world may lead to lower income generations in years to come when the aging population becomes retired citizens. This will have a marked impact on the disposable income levels in the society and upscale brands as Hilton may suffer. Macro Environmental Analysis In order to decide upon the strategic choices and crafting of long-term business strategies, a clear understanding of the organisational environment is required. Influencing factors in the macro environment needs to be analysed and understood so that the strategies being developed will fit well with the environmental conditions. (Thomson & Strickland 2003). Over the years, the environmental factors, which are being taken in to consideration, are expanding. Initially only the Political, Economic, Social and Technological factors were considered though the PEST analysis. Further expansion of the analysis was facilitated by the PESTLE analysis, which assessed the Environmental and Legal influences as well. With the globalised environment, impact of cultural dimensions also pose significant impact on organisations and thus added to the macro environmental analysis. Below SEPTCLE Analysis evaluates all these macro environmental factors applicable to the hospitality industry. Social factors in the macro environment consist of changing demographics, patterns of employment, lifestyles and attitudes. Organisations need to react to these changes and adjust their strategies accordingly. With the shifts in demographics, more and more people consider marriage at later stages of life or remain single. The family units are becoming smaller and these carry implications in planning hotel industry capacities and rooming options. Changing employment patterns such as contract employments, part time and freelance arrangements where job security is no longer a standard offer in employment provides less financial stability. This may reduce the peoples’ propensity to spend on luxuries as holidays (Armstrong & Kotler 2000). Environmental factors are also becoming ever critical and companies are becoming increasingly responsive to the changing trends in the Natural Environmental conditions. The shortage of raw materials and scare resources such as energy sources implicate critical crisis situations in the future. Energy conservation drives and Green friendly environmental preservation programs adopted by companies are examples of how companies respond to these conditions. The government intervention in environmental preservation is also increasing and site approvals for large-scale resorts and hotels are scrutinized closely by environmental and government authorities. Environmental Disasters also impinge on the industry and the massive scale destruction to the industry by the Asian Tsunami in 2004, a series of deadly hurricanes which battered the US coasts as well as the Asian quakes in 2005 are examples of how environment can affect the industry adversely (Managing Change). Political factors bear critical impact upon the industry in terms of its current turbulent situation. Some of the positive developments in the political environment involve the liberalization of most of the closed economies and greater level of foreign trade and foreign direct investments. Opening of a Hilton Spa in Bangalore- India is an example of how the company is benefiting from liberalization of previously closed economies (Hilton Announces First Spa Resort In India, 2001). These are allowing global companies as Hilton group to expand in to new markets. Harmonized political unions such as the case of European union offers greater flexibility for travel and mobility within a larger region and hotel trade stands to benefit. Negative developments include the recent eruption of terror attacks, which affected Western world in an unprecedented manner. Terror attacks such as the 9/11 World Trade Center bombing, Bali resort attacks, the bombings in Middle East and the recent sub way bombings in London are all affecting the peoples’ inclination to travel in a negative manner. Technological Developments in the world are dynamic and rapid. With the advent of the Internet and developments in the telecommunication industries, the global markets have shrunk and the world has become a smaller place. Tele conferencing and telecommuting may reduce the need for travel. Customer expectations in terms of technological facilities have increased rapidly and implications for the hotel industry includes, revamping its customer interfaces, combining technology in to the operational process and providing enhanced technology facilities to the customers. Self-Check-in Kiosks in operation at Hilton Hotels, the Online Web reservations, Hilton CRM data base management, Provision of internet access and other communicational facilities as standard room amenities are examples of how Hilton Hotels respond to these technological factors in the macro environment. Cultural values across the globe are changing and these changes carry implications for all organisations in one way or the other. Some of the cultural trends in the current times includes “Cocooning, 99 Lives, Cashing out, Clanning, Anchoring, Being Alive, Down Aging, Small Indulgences, Fantasy Adventures The vigilant consumers and the SOS” (Popcorn & Merigold 1997). Cocooning trend is where people are having the impulse to stay within their homes as outside world gets dangerous and unsafe. Such trends may hold adverse implications for the hotel industry. At the same time, cultural trends as indulgences may mean people think positively of spending on vacations and indulging themselves (Popcorn & Merigold 1997). Legislature can also impact upon the industry. Heightened security measures may require hotels to keep records of guests for a longer period of time. Legal restrictions such as restricted zones in the beachfronts may affect prospective site developments for future hotels. Lack of legal framework to govern the Internet transactions may impinge upon the development of web-based business. Currently, web based reservations and payments through credit cards are possible but the security aspects are poor. Legislature has so far failed in developing systems to monitor Internet transaction frauds. Economic trends in the Macro environment carries significant implications for organisations and should be considered in forming pricing decisions as well as overall product offers. The globalization and increased free trade across the world is putting pressure on price offers as well as creating intense competitions. The supply chain can utilise sources across the world thus allowing operations to drive down costs by sourcing from cheapest possible suppliers. With increased focus on differentiation and mass customisation, mass marketing is no longer a viable option. Economic impact of this impinges upon cost structures. Economic impact of the ageing population should also be considered. The world in near future will be supporting over 50% of the aged population through less than 35% of productive workforce. The implications on economy in terms of lower levels of income generation will be drastic. Overall, the assessment of the macro environment through a SEPTCLE analysis provided an insight in to the changing trends that will impact upon the company and these information should be incorporated in to the decision making process. Positive impacts should be capitalised upon while reacting to accommodate or counter the adverse effects of the macro environment. While taking a proactive stance to the changes in the environmental conditions is advisable, it should be born in mind that there is little that the companies can do to affect or change most of the macro environmental conditions (Armstrong & Kotler 2002). Micro Environmental Analysis A company’s microenvironment needs to be closely monitored, evaluated and changed where possible and applicable. Organisations are directly and closed linked with its microenvironment and therefore able to change the conditions in the microenvironment unlike in the case of macro environment. In assessing the microenvironment, stakeholder analysis and Porters Five Force model can be applied to gauge the factors and their level of impact. The Industry Life Cycle analysis will also prove useful in deciding upon the strategies which the company needs to deploy at each stage of business as it progress in the industry life cycle. Stakeholders analysis Organisations interact with and utilise the services of many stakeholder groups in its microenvironment in the process of delivering its products or services to the ultimate consumer. An organisation’s microenvironment is made up of the company, suppliers, competitors, marketing intermediaries and the Publics. All these stakeholder groups impact upon the organisation and its performance and therefore needs to be continually monitored, and managed (Armstrong & Kotler 2000). The company comprises of its internal departments as well as the top management. The changes in top management sometimes affect the company’s strategies and decisions. The Hilton Hotel Corporation’s association with Hilton Group Plc means there are two groups of top management, which needs to be managed. Suppliers are a critical aspect of the microenvironment and Hilton hotels depends upon its supplier base for timely and cost effective supply solutions. The company’s reputation for quality depends upon the reliability and quality of the suppliers. Supply chain management techniques utilised by the company will affect the manner in which the company deals with this stakeholder group. Marketing Intermediaries are those agents who are utilised in the process of marketing the company’s products and in the case of Hilton hotels, these include holiday and tour operators as well as the UK based Hilton Group Plc. Customers comprise of corporate, individual and government and institutional customers. The changing needs of this ever-important stakeholder group should be closely monitored and fulfilled by the organisation. Differentiated offers needs to be made to suit the varying needs of each customer segment. Competitors make up a critical component of a company’s microenvironment. Their strategies should be assessed and the company offers should be modified where necessary to counter the offers of the competitors. The Hilton Hotels product differentiation platform and the customer retention programs are all part of achieving an edge over its competitors. Publics also represent an important group of stakeholders in the microenvironment and includes financial public, the media public, government, local public and citizen action publics. Hilton Hotel manages all these publics by way of responding to their needs. For example, the media center operated by the hotel caters to the media public while adaptation of environmentally friendly housekeeping programs aim at responding to the demands of citizen action publics. Dealings with auditors, bankers and other financial institutions as the stock exchange represent its activities with the financial public. Industry lifecycle Analysis The phase of the Life Cycle in which the industry is placed also bears upon the organisation and different strategies needs to be deployed to address the market conditions at different stages of the Industry life cycle. The Introduction, growth, maturity and decline make up the Industry Life Cycle and the hotel industry can be placed in its maturity stage of the life cycle (Anderson & Zeithaml 1984). The growth of the industry can be identified during the period from 1950 to the new century and the industry now has reached maturity. Although companies as Hilton Hotels Corporation are adding new hotels and rooms to their network, the industry growth rate has slowed down over the years. The maturity stage of industries require promotional strategies to keep customer loyalty and relies on marketing communications to maintain brand recall levels. Profitability is high in this phase of the life cycle and the phase continues until the industry is replaced by substitute product. As there is no clear and direct substitute, which is likely to replace hotel industry, it is likely that this phase will continue for many years to the future. Porters Five Force Analysis. Organisational profitability in the long run, depends upon two essential factors. First is the industry attractiveness and the second is the company’s capability to capitalise from the opportunities (Porter 1996). For organisations such as Hilton, which operates on a global environment, the industry conditions become diverse from market to market. A brief industry attractiveness analysis of the global Hotel industry is provided below with the application of Porter’s Five Force Model. Threat of substitutes is low as hotels fulfill the accommodation needs of traveling customers on leisure and business trips, which has few alternative accommodation substitutes. The substitute offers such as renting apartments, live in guest arrangements and other means of temporary accommodations during travel are no longer appealing. Options such as staying with friends and relatives while on holiday are not socially accepted in the modern society, where trends of individualistic attitudes are developing. An indirect mode of substitute may occur in the form of short distance traveling instead of long distance holidays, taking away the need for hotel accommodation. In the same manner, business travel and accompanying accommodation needs may be substituted by the use of telecommunication means. Other forms of entertainment can substitute resort holidays. However the overall threat from substitutes to the hotel industry is very low. Bargaining Power of Customers – Customers in service industries tend to be more demanding and they exert a greater degree of bargaining power. However as customers are fragmented and mostly individuals, there is no collective bargaining or bargaining from a stronghold position. Thus, the hotel industry is not affected to a significant degree by the bargaining power of its customer. In certain industries, customers are few and very large scale, providing them with a very high degree of bargaining power which they use in forcing down prices, demanding better payment terms and shorter lead time etc. Large retail chains such as Tesco or Wal-Mart fall in to such customers with high bargaining power. However, in the hotel industry, there are no significantly large-scale customers upon which the business is dependent. Bargaining Power of Suppliers – When industries are supplied by few suppliers with specialized requirements or with scare resources, then the bargaining power of the suppliers is high. This can lead to increased costs of supplied materials, price increases, supply quotas etc. Bargaining power of oil suppliers in a good example where the scarceness of the resources and the restricted access to the material increases the bargaining power of the suppliers. In the case of hotel industry, there are many suppliers and most requirements are sourced from different localities and freely available across the globe. Thus the supplier bargaining power is low. Threat of new entrants – When an industry has high entry barriers, the existing firms in the industry enjoy from the entry protection, as the business is not spread thin over a larger number of players. The entry barriers can be in the form of legislature requiring licensing or in the form of natural monopolies or oligopolies. The entry to industries can be also in the form of heavy capital intensity naturally restricting new entrants. The threat of new entrants in the hotel industry is moderate. The global hotel industry is already heavily competed and the cost of setting up a hotel even of small scale is very high. However there is no legislature, which restrict entry in to the industry, and thus new entrants who have sufficient financial strength are joining the industry, attracted by its profit potential. Rivalry among competitors – When rivalry among the competition is high in industries, the pressure on pricing increases and the profitability in the long run erodes. Cost of promotions and differentiation strategies adds on to the operational costs, further affecting the profitability. In the case of hotel industry, the competition is very high. The intensely competitive nature of the industry affects the profitability and industry attractiveness. Considering the analysis of the above five industry forces, the hotel industry holds moderate to high level of attractiveness as three out of the five forces are in beneficial state and the threat of new entrants is also not high but moderate. Only adversely positioned industry force is the high rivulet levels within the industry and companies who specialize in their marketing and differentiating strategies and build strong brands will be able to counter this force as well. Thus, organisations with high internal capabilities will be able to enjoy strong profits within this industry. In conclusion, it can be noted that the organisations and its performances are affected by a myriad of factors in its macro and micro- environments. While the factors within the micro environment is within the reach of organisational influence, the macro factors tend to affect the organisation but remain beyond the control of the company. Organisations can assess the conditions of its macro environment through application of SPECTLE analysis while the microenvironment can be assessed through stakeholder analysis or Porters five force concepts. 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