Effective Business Process Management in Hospitality SME'S - Literature review Example

 Effective Business Process Management in Hospitality SME'S Introduction Hospitality SMEs are considered to be flexible and adaptable to market changes. This responsiveness is generally viewed as a positive characteristic and suggests that there is some correlation of hospitality SMEs to the market culture model. However, the root cause of this attribute is that hospitality SMEs often have only a limited overview of the markets in which they operate, leading to a lack of control over their competitive position. They are unable to drive the market, but instead, must react and adapt to market changes over which they have no influence. According to Tangen (2004) , this suggests poor organisational configuration, which is detrimental to sustained competitive advantage. Configuration is defined as “making choices about what a company will do and how it will do it, and…ensuring that the things a company does reinforce each other”. They argue that the lack of a focused competitive strategy is one of the key causes of poor organisational configuration. However, the problem of organisational configuration is not just restricted to understanding markets, with poor configuration being found in a number of key areas, including hospitality SMEs’ relationships with their customers, which are fraught with uncertainty. There is an acknowledged advantage in that small firms are closer to the customer, enabling more personal relationships to develop (Crook , 2003). However, this is tempered by the danger that having a limited customer base (Gray, 2005) facilitates the development of deferential supplier–customer relationships. Research by Harrison (2003) concludes that, apart from those firms which operate only in very low profit or niche markets, hospitality SMEs are consistently found to be subservient to their larger counterparts. This view is supported by Wong (2005) who suggest that hospitality SMEs have a lack of control over their futures because of demands made by stronger customers throughout the supply chain. An additional burden is a lack of power to leverage payment of debts from these customers, as noted by (Okumus, 2003), who point out that many smaller firms are “afraid to press customers too hard for payment for fear of loss of future business”. It is this scenario which most severely affects hospitality SMEs as their limited resources cannot cope with the fluctuations in cash flow that late payment inevitably brings. The overall effect of the fiercely competitive environment in which hospitality SMEs operate is that, very often, strategic planning becomes a seemingly pointless exercise, again lowering competitive advantage through poor organisational configuration. Tangen (2004) points out that unless the internal structures and the external competitive environment of the hospitality SME are effectively aligned with its strategy, it is unlikely that it will ever be implemented successfully. The difficulties associated with aligning strategy to the external competitive environment led ( Harrison, 2003) to conclude that the majority of hospitality SMEs in the automotive sector are not concerned about future strategic developments, as survival in the supply chain requires them only to maintain a reactive strategy. In addition, McAdam (2004) found that it is not unusual for firms to retain the original strategy developed by the founder, thereby leading to a “strategic hangover”, which, if the competitive environment or the company structure has changed, may actually be detrimental to future business success. Furthermore, there is evidence to suggest that many established hospitality SMEs rely solely on internal or financial planning as their main approach to preparing for the future (Crook, 2003). This might be due to the fact that accountancy information has been shown to be the most important factor in determining survival or failure in hospitality SMEs (O’Regan, 2004). However, financial information alone is limited as it fails to give a true overview of the competitive environment in which the hospitality SME operates, whilst the fact that it is often generated by external accountants can hamper its overall utility to managers (Dant , 2003). In addition, there is evidence to show that companies which make strategic rather than just financial business plans perform significantly better financially than those which do not (O’Regan and Ghobadian, 2004). Management practices The effectiveness of the organisational environment in which many hospitality SMEs operate can be affected profoundly by the way that they are managed. As Chathoth (2003) notes, “Specific practices…influence performance and effectiveness. Certain ways of resolving conflict, planning a strategy or making decisions will result in better performance”. A key factor for hospitality SMEs is the personalised management styles which are a feature of firms where control rests primarily with one person, usually either the owner-manager or a managing director. According to (Wong, 2005) there are four types of owner-managers, ranging from those with low strategic awareness and low planning capabilities to those with good strategic awareness and who are also effective planners. Their study suggests that each type is likely to have a distinct effect on the business, with success correlated with higher levels of strategic awareness and better planning. Although this study focuses only on owner-managers, it seems likely that in any firm where the centre of control rests primarily with one person, this framework would be appropriate. The idea that the driving force in a company significantly affects a company's strategic success is echoed by Tangen (2004). Her study of high-tech firms concluded that “strategic awareness will determine the nature of planning used within the firm”. In addition, O’Regan (2004) suggest that planning in hospitality SMEs is typically less political, less controlled, less rational and more intuitive than in large companies. Dant (2003) take the link between managerial capabilities and business success one stage further. Their study investigates the link between the personal strategies of the managing director and the success or failure of the business strategy. They identify five personal strategic approaches: • “Complete Planning”—where a comprehensive set of plans are produced which actively structure given situations; • “Critical Point Planning”—which concentrates on one goal at a time, aiming to solve the most difficult problem first, thereby making strategy an iterative process; • “Opportunistic Strategy”—where strategy is largely dictated by the new opportunities which arise and basic planning is easily sacrificed to them; • “Reactive Strategy”—where no forward planning is undertaken, but the person simply reacts to current demands; • “Routine/habit”—this is not actually a strategy at all, but simply a standard approach to problems, which has been used before and is therefore both familiar and undemanding. A key feature of many hospitality SMEs is that they have fewer senior managers, meaning that the capabilities of just one person can have a profound effect. Perhaps it is due to a lack of management expertise (Harrison , 2003) that strategic business planning in hospitality SMEs appears to be generally limited and short term in focus, with a fire-fighting “react and adapt” philosophy prevalent (Okumus, 2003). This is summed up by Wong (2005) who state “[In hospitality SMEs]…strategic management becomes primarily an adaptive process concerned with manipulating a limited amount of resources, usually, in order to gain the maximum immediate and short term advantage”. Strategically Aligned PM in Hospitality SMEs The characteristics of hospitality SMEs illustrate that their culture and structure is typically defined by their size, competitive position and individualised management practices. As a result, structurally and culturally hospitality SMEs differ substantially from the traditional large company model. In order to identify what impact this has on the development of strategically aligned PM in such environments, a number of studies have been undertaken that investigate the application of some of the more popular PM processes in hospitality SMEs. Two of these (Gray 2005; O’Regan, 2004) have concentrated on the Balanced Scorecard (Chathoth , 2003), which was developed to improve measurement by focusing on four performance perspectives: customers, finance, internal business processes and learning and future growth. The studies suggest that there are significant difficulties implementing such a resource intensive system in an environment where resources are typically scarce and that the long-term focus of the Balanced Scorecard makes it inappropriate for use in an environment where strategic flexibility is considered a key asset. Another process, developed by Wong (2005) in large firms and later tested in a number of hospitality SMEs, has offered some well-documented insights into the difficulties of implementing strategically aligned PM in such an environment (Dant, 2003). Subsequent research by Bourne (2002) proposed a typology of the characteristics of a comprehensive process for the development of strategically aligned PM, which was used to evaluate 10 approaches, including the Balanced Scorecard and the McAdam (2004) process. The evaluation showed that the Neely et al. process was considered comprehensive, yet still it rarely reached completion in a hospitality SME environment. The suggested reason for this was that the characteristics of hospitality SMEs present substantial barriers to successful development of strategically aligned PM, which cannot be overcome simply by ensuring that the development process is comprehensive. There are potential advantages to strategically aligned PM development in hospitality SMEs due to their adhocratic nature, which is enhanced in firms that adopt a critical point/opportunistic strategy development process. In this case, both management and process visibility is likely to be high, due to having fewer employees and generally flat structures within the company. These characteristics should facilitate organisational configuration by simplifying the communication process, helping to ensure that every employee is aware of what is happening and why. Furthermore, planning should be a flexible, pragmatic and ongoing process, with decisions being made quickly and with minimal bureaucracy. Despite these benefits, there are also many disadvantages. If the development of strategically aligned PM is compared against other examples of change in hospitality SMEs from the literature, there appears to be a common set of issues which are important in this process. As Harrison (2003) note “…every change in a hospitality SME is difficult because of the obstacles to be overcome […]. These obstacles are […] difficulties encountered in any change a hospitality SME has to go through”. The characteristics that are likely to inhibit the introduction of strategically aligned PM into hospitality SMEs are those which demonstrate poor internal configuration, exacerbated by a lack of resources (for example management time, appropriate skills and money). One of the main findings from a case-based study of TQM implementation in hospitality SMEs described in Wong (2005) is that resource paucity—particularly that of management time—means that the implementation process is markedly more taxing for hospitality SMEs than larger companies, a view that is supported by other studies (Dant , 2003). Findings from Tangen (2004) suggest that there is a direct link between the rate of change and the amount of effort and enthusiasm people are willing to put in to the change. Chathoth (2003) and Okumus (2003) highlight the importance of first improving tangibles, rather than intangibles, in change projects to counteract this resource deficit. This view is echoed by O’Regan (2004), who comments that it is difficult to convince hospitality SME managers about the long-term benefits of change, when they live in constantly changing environments. His proposed solution to this problem is to ensure that improvement projects have adequate short-term benefits as well as long-term potential, and that they are capable of adapting to the rapidly changing environments which are a feature of hospitality SMEs. It is suggested that to overcome the particular structural and cultural difficulties experienced by hospitality SMEs in their attempts to introduce strategically aligned PM, a process which can work within a culture of adhocracy and that facilitates organisational configuration is required. Specifically, the development process must offer: • very resource efficient development, to ensure viability; • short-term as well as long-term benefits, to help maintain the enthusiasm of the development team over time; • the ability to surface informal strategies, to overcome limited strategic capabilities; • dynamic and flexible development, to accommodate strategic changes and ensure continued strategic relevance over time. Conclusion In conclusion we found that strategic improvement process it facilitated the identification of a number of improvements, many of which were quickly implemented, along with the development of a number of new, strategically aligned and improvement-oriented performance measures. Due to its apparent ability to stimulate continuous improvements in the case company, through the incremental development of strategically aligned performance measures, the approach was named the Continuous Strategic Improvement (CSI) Process. A possible reason for the success of the Process that the Process was resource efficient, facilitated internal organisational configuration and was able to work within an adhocracy culture, whilst aligning closely with the critical point/opportunistic strategy development approach. References Bourne, M. Neely, A. Platts, K. and Mills, J. (2002) “The success and failure of performance measurement initiatives”, International Journal of Operations and Production Management 22 (11), pp. 1288–1310. Chathoth, P.K. and Olsen, M.D. (2003) “Organizational leadership and strategy in the hospitality industry”, Journal of Services Research 2 (1), pp. 5–30. Crook, T.R. Ketchen, D.J. and Snow, C.C. (2003) “Competitive edge a strategic management model”, Cornell Hotel and Restaurant Administration Quarterly 44 (2003) (2), pp. 44–53. Dant, R.P. and Kaufmann, P.J. (2003) “Structural and strategic dynamics in franchising”, Journal of Retailing 79 (2), pp. 63–75. Gray, C. and Mabey, C. (2005) “Management development”, International Small Business Journal 23 (5), pp. 467–485. Harrison, J.S. (2003) “Strategic analysis for the hospitality industry”, Cornell Hotel and Restaurant Administration Quarterly 44 (2), pp. 139–152. McAdam, R. McConvery, T. and Armstrong, G. 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