Sustainable Competitive Advantage in Hospitality Industry - Essay Example

Introduction Broadly, the strategies can be classified into three major types: Cost leadership, Differentiation and Focus. In Hospitality industry, Cost leadership strategy is not considered to a great extent because it is a luxurious sector. The main focus of the hospitality sector is to adopt the differentiation strategy and technology focus to achieve competitive advantage. A lot of innovative practices are introduced and customer service and value added service play a major role in the hospitality industry. This paper will discuss the differentiation and technology focus strategies adopted in the hospitality enterprises. Some of the strategies used by hospitality enterprises to achieve competitive advantage include Strategic Planning, Market Research. Business Planning, Retail Growth Strategy, Meal Plan Strategy, Sourcing and Procurement Strategy, Concept Development, Health and Well-Being Strategy, Information Systems Strategy, Food Facilities Planning and Design. Vital Statistics about Hospitality Industry Accommodation and food services makes up about 8.1 percent of all employment. (U.S. Bureau of Labor Statistics). Employment in the accommodation and food services industries is predicted to grow 18% between 2002 and 2012, adding more than 1.6 million new jobs. (U.S. Bureau of Labor Statistics). Of the 8,740,000 total workers employed in the accommodation and food services industry in 2003, 5,343,000 works full-time (61%), while 3,397,000 work part-time (39%). (Annual average for 2003, according to the Current Population Survey, a joint project of the U.S. Bureau of Labor Statistics and Census Bureau). The Total Industry Investment is $1,765,000 and the total leveraged resources are $5,900,000. - U.S. Bureau of Labor Statistics, 2004-05 Career Guide to Industries and Occupational Outlook Profit and average room rate at the UK’s chain hotels continued to increase in November, according to the latest HotStats survey from TRI Hospitality Consulting. Across the total UK sample of 462 hotels, income before fixed charges (IBFC) – also known as gross operating profit – rose by 5.6 per cent to £52.81 per available room. Average room rate increased by 7.4 per cent to £95.03 in November, a similar rate of growth to the 7.2 per cent achieved during the year so far. In London, profit grew by 7.9 per cent to £82.19 per available room. London’s hoteliers continued to achieve rate growth at near annual levels with an 8.9 per cent increase taking average room rate to a new high of £125.85. - Jonathan Langston, UK Chain Hotels Market Review November 2007 | TRI Hospitality, www.trihc.com Michael Porters Five Force Analysis Threat of New entrants: The Entry barriers include Capital The capital outlay needed for starting up the operation in this industry is huge ($60 – $70 million), since the leasing expenses and the taxes are high. The capital includes land and building, infrastructure etc. Labor: In this industry the retention rate is high when compared to the others because of the demand for the experienced chefs in the industry. Finding and Retaining skilled labor is a major issue for a new entrant. Tax Structure: Hoteliers have to bear huge taxes levied on them by the government for property, water, electricity etc. Beside the high entry barriers, new entrants in this industry are high in recent days. Threat of substitutes: The growth of Home business restricts travel to a certain extent. So people consider their homes as substitutes for hotels. Rivalry: There is a fierce price war going between existing players. The growing popularity of resorts can be a huge challenge to Hoteliers and other players in the hospitality industry. Bargaining Power of Suppliers The bargaining power of suppliers can be crucial. The suppliers are whole sale dealers of grocery and the like. The suppliers have undergone a drastic change over the years and with it their bargaining power also has increased. The following diagram shows the transition in the grocery market from 2000 to present. In 2000, there were a number of players in the field, subsequently, it got narrowed down and a consolidation is seen in this market. This increases the bargaining power of the suppliers. Here the customer is the hospitality enterprises. UK Grocery Market in 2000 Present UK Grocery Market Source: Primary data Bargaining Power of Customers The bargaining power of customers has grown drastically in this internet era. The customer is well informed in all aspects including price, service etc. and their decision making is very rational. A lot of online services provide a comparison of hotels and customers can bargain more considering these aspects. The customers include Corporate, Individual households etc. As suggested by Michael Porter, stronger the forces, difficult it is to enter and survive in the industry. For Hospitality industry, all forces are very strong indicating the level of competition and fierceness of the industry. To combat these challenges, the following strategies are adopted by the hospitality enterprise. Technology Focus Strategy: Hospitality Sector Internet Strategies In 2008 approximately 40% of all hotel bookings will be generated from the Internet (one-third in 2007, 29% in 2006). At least another third of all hotel bookings will be influenced by the Internet, but done offline (call center, walk-ins, group bookings, etc). By the end of 2010, over 45% of all hotel bookings will be completed online (Merrill Lynch). Now, more than 13 years after the first online hotel booking, hoteliers taking full advantage of this dramatic channel shift from offline to online. Thus technology acts as a key success factor for attaining competitive advantage. This has increased customer loyalty in this environment. Some of the internet strategies to be adopted are 1. Generating Robust Internet Marketing ROIs in 2008 from hotel’s Internet marketing efforts. The hotels should become ROI-centric. They should work with an Internet marketing vendor that provides a comprehensive Internet marketing strategy, and focuses on online marketing formats that generate the highest ROIs. 2. The hotel Internet marketing budget takes a Holistic View of the Hotel Online Environment and incorporates a comprehensive, long-term strategic approach. (e.g. eCRM, website re-designs and optimizations, organic and paid search marketing, email marketing, strategic linking, display advertising and online sponsorships, seasonal promotions and other direct-response driven campaigns supported by special landing and private web pages, etc.), to position the hotel website at all "points of contact" with potential Internet travel bookers as well as new media formats such as Web 2.0 and social media (blogs, RSS, widgets, etc.). The hotels can adopt a Multi-Channel Marketing Model and communicate a single brand message about their hotel across all channels, both online and offline. The shift from more expensive to less expensive distribution channels has become the norm in hospitality. 3. Best Industry Practices must be utilized in the hotel’s Internet marketing strategies and by the hotel Internet marketing vendors. 4. Website Re-Design and Optimization Strategy must be adopted every year. 71.9% of hoteliers believe website optimization generates the highest ROI’s, and the second highest portion of the budget should be allocated to this activity (2007 HeBS Benchmark Survey). By adopting a comprehensive Website Re-Design and Optimization Strategy, the hotel must aim to enhance its hotel website’s user-friendliness, search engine-friendliness, travel booker-friendliness, and interactive relationship-friendliness. This strategy will deal with the issues important for turning lookers into bookers (conversion rates), improving search engine rankings, and boosting ROIs. 5. The Hotel must adopt the Direct Internet Marketing and Distribution Strategy, the centerpiece of Internet strategy; because the Hotel knows it provides with long-term competitive advantages and will lessen dependence on intermediaries, discounters and traditional channels that are expensive or about to become obsolete. 6. The hotel marketing strategy should provide Unique Value Proposition to its customers through offers based on unique product attributes. 7. Electronic Customer Relationship Management (e-CRM) must be adopted as part of hotel’s strategic objectives and develop programs and action steps to address all main e-CRM aspects: knowing your customer, customer service in this interactive age, personalization, one-to-one eMarketing, and building customer loyalty. - Hotelier’s 2008 Top Ten Internet Marketing Resolutions | By Max Starkov and Jason Price Differentiation Strategy: Labor force Labor force is one of the key success factors to attain Competitive advantage. The strategy of differentiation can be attained through labor force. The skill, knowledge and the culture of the organization make it unique from the rest. This aspect is hard to copy or imitate. Hoteliers have started understanding the importance of labor in attaining competitive advantage and are spending huge amounts of money in recruiting and retaining skilled labor. This set of workforce solutions is based on the hospitality industry’s priorities that address issues such as: Image: Like other service sectors, hospitality careers are often stereotyped as low-wage and entry-level with little opportunity for advancement. Consequently, qualified workers, especially youth, are unaware the range of hospitality careers available. Recruitment: Historically the hospitality industry had drawn heavily from the youth labor pool to meet their workforce needs, but in recent the industry has been left with an insufficient pipeline of new workers to satisfy demand. Faced with a shrinking pipeline of workers, the hospitality industry is increasing its recruitment efforts towards youth and developing targeted strategies for previously untapped labor pools. Retention: High turnover is a key challenge in the hospitality industry. The restaurant, hotel and lodging sectors have difficulty retaining skilled workers because of the negative image that the industry faces. Language skills: English proficiency is a key challenge because a large percentage of the hospitality workforce does not speak English as their primary language. Employers seek language training programs that allow workers to effectively perform their job, which includes providing good customer service and understanding safety requirements. Employability/Soft Skills: Employers have difficulty finding workers who possess basic “soft skills,” which are often a prerequisite for success in a customer service-oriented field. Consistent training models and skills certifications: The hospitality industry as a whole lacks consistency and portability in their training models and skill certifications. Many employers run their own internal training programs for entry-level workers, which makes it difficult to monitor the content of training and the skills acquired. The grants are intended to provide genuine solutions, leadership, and models for partnerships that can be replicated in different parts of the country. - U.S. Department of Labor, Employment & Training Administration, www.doleta.gov Reference: Charles W.L.Hill, Gareth R.Jones, STRATEGIC MANAGEMENT THEORY, Houghton Mufflin publications. Harvey M. (2000) Innovation and competition in UK supermarkets, Supply Chain Management, Vol 5 No 1, pp15-21 (via Emerald) Flavian C, Haberberg A, Polo Y. (2002) Food Retailing Strategies in the European Union. A comparative analysis in the UK and Spain, Journal of Retailing and Consumer Services, 9, pp. 125-138 (via Science Direct) U.S. Department of Labor, Employment & Training Administration, www.doleta.gov U.S. Bureau of Labor Statistics, 2004-05 Career Guide to Industries and 2004-05 Occupational Outlook Handbook Jonathan Langston, UK Chain Hotels Market Review November 2007 | TRI Hospitality, http://www.trihc.com/ Hotelier’s 2008 Top Ten Internet Marketing Resolutions | By Max Starkov and Jason Price Read More