The Environmental Analysis of Hilton Hotels - Essay Example

?Hospitality and Tourism Strategic Planning Table of Contents Table of Contents 2 Overview of the Company 3 Environmental Analysis of Hilton Hotels &Resorts 4 External Environment 6 PESTLE Analysis 8 8 Internal Factors 10 Mission, Vision and Values of Hilton Hotels and Resorts 10 Human Resources 12 Marketing and Distribution Channels 13 SWOT 14 Theoretical Approach to Business Strategies 16 Evaluating Strategic Options 17 References 20 Bibliography 24 Overview of the Company Hilton Hotels & Resorts struck its first venture in the year 1919 with Conrad Hilton buying his very first hotel. Then onwards, the company is seen to lead the industry with various new approaches towards its services for the customers clubbing with its products and amenities. Tracing back to the history, it was in the year 1927 when Conrad Hilton launched his first hotel named Waco Hilton. The rooms of this hotel had the facility of running water, though cold, and the air condition luxury in its public rooms. It was in the year 1947 when a hotel named Roosevelt Hilton was launched at New York City. This hotel pioneered in providing its guest rooms with televisions. By the year 1948, the Hilton Hotel was identified as the first hotel company to come up with the new system of multi–hotel reservation. This gave birth to the modern reservation system that is used today (Hilton Worldwide, 2012). As years passed, the company paced up its innovations and came up with new concepts and approaches every now and then. The introduction of sewing kit and a booklet containing important and useful names and numbers for the female travellers brought the company to limelight. Improvement in its technical side is characterized by the “brand–wide direct telephone service” launched by the company in the year 1957. The introduction of airport hotel based concept was cheered by the business purpose travellers. Hilton came up with its first Airport hotel in the year 1963, the San Francisco Airport Hilton and was a pioneer in this approach. Ten years down the line from this period, i.e., by 1973 Hilton once again came up with an innovative idea of centralized reservation system making a breakthrough improvement in its customer care service (Hilton Worldwide, 2012). Again in the year 1987, Hilton was seen to introduce its first program for guest loyalty called the Hilton HHonors (Hilton Worldwide, 2012). It was later in the year 2008, when Hilton Vancouver Washington made history by being certified by both Leadership in Energy and Environmental Design (LEED) along with Green Seal (Hilton Worldwide, 2012). Its latest development was in the year 2010 with the launch of the spa facility at various locations such as the United States, China and Thailand (Hilton Worldwide, 2012). This paper intends to analyze the various strategies and the impacts of internal and external environment on Hilton Hotels & Resorts. An effort to develop a strategic plan emphasizing on the risk management factor of business strategy shall also be one of the highlighting sections of the paper. Environmental Analysis of Hilton Hotels & Resorts The purchasing of medium and small–sized hotels has been in Hilton’s practice right from 1970s. The attention towards acquiring a huge amount of real estate was the main focus of Hilton. The lodging assets of Hilton Group Plc amounted to GBP 3.3 billion in the year 2006, thus making Hilton the largest company in the field of lodging (United States Securities and Exchange Commission, 2005). There has been a recent change in trend of the company and it has shifted to expand its operations by the process of franchising instead of merely acquiring real estates. This company mainly operates in the United States but also has its presence in various other major city locations such as Sao Paulo, Toronto, London, Sydney, Paris, Shanghai, Rome, Stockholm and Beijing (HotelsGrid, 2012). It was in the year 2007 when Hilton Hotel was acquired by the Blackstone Group for money worth of US$20.1 billion (Morrison, 2007). Prior to the event of acquisition, there have been 500 million shares in existence which were authorized of common stocks and had at par value of US$ 2.50 for each share. Among these shares, 409 million of them were issued in the month of December 2006; these were inclusive of treasury shares of 22 million. After the merging event shares of 150 million count of US$ 0.01 at par value were authorized. Among these shares, 120 million of them were issued in the month of December, 2007. This was inclusive of 1 million treasury shares (Morrison, 2007). The merger resulted in affiliation of Hilton Hotel to Blackstone. As a result of this, the common stocks were removed from the New York Stock Exchange enlistment, and were thus ceased to be called as publicly–held corporation (Morrison, 2007). The environmental analysis of Hilton Hotels consists primarily of two parts the external environment analysis and the internal environment analysis. There are various factors involved in these environments. All these factors contribute to the function of the business to a great extent. The technique used to analyze the external environment is the PESTLE (Political, Economic, Social, Technological, Legal and Environmental) Analysis and in case of the internal environment SWOT analysis, human resource factors, marketing and distribution channels and financial reports among others are used. External Environment Competitors are the biggest threat to any business in the external environment. In case of Hilton Hotels the conditions of facing steep competition from the rest of the market players are prevalent. The major competitors of Hilton Hotel are Starwood Hotels and Resorts Worldwide and Marriott International. Both of the aforementioned companies, alike Hilton Hotels, follow the trend of franchising instead of merely investing on acquisition and building of hotels, thus refraining from involvement of a huge amount of capital. The other competitors to be considered could be Four Seasons Hotels and Resorts and MGM Mirage (Hoover’s, 2012). Hilton is known to be the pioneer in introducing the concept of hotel–casino in the business trend line. However, the recent scenarios show that MGM Mirage even after a sharp fall following the entire hotel industry, reportedly has an increase in its revenue for the hotel–casino operations in practice (City of Hotels, 2012). The Details of a Valuation Analysis: The figure below represents a calculation of the discount rate or the cost of capital with some models. During valuation of the levered Beta which was determined from comparables of Hilton Hotel’s for computing its rates of discount. This was found steady to the estimations that were provided by Fama and French 3–factor Model (Du & et. al., 2001). Source: (Du & et. al., 2001) PESTLE Analysis A PESTLE analysis of Hilton Hotels can be of much importance in order to make a complete environmental review of the company. Political situations play a pivotal role in effecting the decisions pertaining to the hotel business. The political risks involved in the decisions can be viewed in two different ways. Firstly, the political views in terms of interference of government, secondly, the political risks following the imposition of any type of political events on the firm. The substantial investments made by Hilton Hotels in the fixed assets make the company unusually vulnerable to the probable political risks (United States Securities and Exchange Commission, 2005). In the current market context, Hilton Hotels is facing a challenge in the macro environment front partially the reason being its financial turbulence. As a an add-on to the situation, the feeble economic condition spread worldwide and the various types of flues stretched all over, the leisure trips as well the business trips are hit with recession thus effecting the hotel business with the chain of Hilton Hotels as a part of the industry. This has led to a subsequent decrease in the revenue generation of the company (Dicus, 2003). The technological development of Hilton is considerably strong. The various technological implementations such as that of online recruitment process making it more convenient and effective to recruit, may be considered as an exemplary change in this aspect. The flexible e-learning method in Hilton available to all across the various locations of the company for every team member was a successful technological intervention (Track Learning Solutions, 2002). On the customer care aspect, the company has developed its technology to such an extent that the customer may avail the opportunity of gathering information or even booking services from every corner of the world. Hilton provides its customers with technologically sound hotel rooms with the most upgraded facilities making it a point of attraction (Track Learning Solutions, 2002). The various activities of Hilton Hotels include managing, developing, franchising of its own hotels, casinos in hotels, its resorts and the vacation- ownership resorts. To top it all, the company has a worldwide recognition for the various facilities available overseas and the gaming operations. Hilton Hotels hold various subsidiaries and its interest on the furnishing and the designing of its hotels and various other activities create a huge employment opportunity, thus making the company socially important. This in turn contributes to the economic growth of the country and helps in the overall development as a whole (United States Securities and Exchange Commission, 2005). In a recent development, Hilton Hotels Corporation made three of the vital alliances. These alliances were intended to expand the business by creation of around 15 or more hotels in and around Central America and Caribbean, in Russia the count of hotel were planned to be around 25 and a minimum of nearly 15 hotels in and around the United Kingdom in the forthcoming future. These alliances resulted in bringing about more and more complexities in legal environment of the company. Apart from the aforementioned strategic alliances of Hilton, there are various other alliances and activities such as franchising, which contribute to adding of complexities in the legal environment on one hand and yielding a positive growth in the revenue of the company on the other hand (Euromonitor International, 2009). Internal Factors Mission, Vision and Values of Hilton Hotels and Resorts The internal factors affecting the business of Hilton Hotels may be reviewed by considering its mission, vision and objectives/value, marketing strategies and the financial conditions. The mission of Hilton as thought of by them is to lead the hospitality industry (Hilton Worldwide, 2012). In support of the mission born by the company, the team members must be subsequently trained with a qualitative training program maintaining consistency. In order to achieve this, Hilton has been viewed to establish its own university named the Hilton University. This is an online portal for the purpose of enabling learning of the employees spread all over the globe (Hilton Worldwide, 2012). The mission also includes: Enhancement of guest’s experience; Employee engagement to the fullest; Improvement of the overall operational efficiency; Advancement in the designs of the hotel buildings; Strengthening of partnership; Community services; Safeguard of the global environment; Enriching the family of brands Source: (Hilton Worldwide, 2012) The other part is the vision followed by the company. The vision of Hilton Hotels is to become the choice among the travellers as a luxurious hotel designing a globe that would enjoy and rejoice the individuality at all spheres. Hilton Hotels aims at providing luxurious and unique amenities to every individual customer. The company follows a very contemporary attitude creating pride and prestigious heritage. The company’s aim at maintaining individuality gives it a different edge altogether and distinguishes it from the competitors in the market. Helping their guests feel at home is the priority with which the company carries out its business activities, as it is thought of as the trend in present days (Hilton Worldwide, 2012). Objectives followed by Hilton Hotels that contribute to its strategic activities of the business as a whole are to define the brand of Hilton, the extent of significance of the employees and organization centrally towards the business; maintaining of an effective balanced scorecard and driving of the business ahead to the future (Hilton Worldwide, 2012; Olsen & et. al., 2012). Moreover, the key values of the company include “hospitality, integrity, leadership, teamwork, ownership and now” (Hilton Worldwide, 2012). Human Resources The human resource strategies followed by a company are of great importance in the hotel industry. Likewise, the HR strategies of Hilton Hotels play a vital role in assessing its internal environment. Hilton considers the human resource strategy with great importance to balance both its present and future and maintain equilibrium within the organization. The company clearly maintains and follows a business strategy that is proactive in nature (Hilton Worldwide, 2012). The launch of the “Elevator” program for training the managers in the year 1998 proved to be a success. The company has provisions for recruitment of graduate candidates with high potentials in the post of general managers of hotels (SHL, n.d.). Another such strategy adopted by Hilton was “Espirit” which aimed at covering the principle extending to employee recognition and reward. In order to remain competitive among the other hoteliers a company must not only meet the customer satisfaction levels but also surpass the set standards to provide the customers with unique and distinguished services (AME Info FZ LLC, 2004). To maintain such standards, the quality aspect is a mandatory point of concern. Hilton Hotels in order to maintain competitiveness among the other players in the market adopted various human resource strategies that helped in extending the concern for quality among the employees. Another such lucrative strategy adopted by Hilton was “Equilibrium”. This strategy helped the company to make its service distinguishable from the market players. This new concept implemented was to ensure that all the customers of Hilton had a pleasant and invigorating time during their stay helping them to balance the leisure needs and their work. This was to ensure that the customers were treated with staff smilingly and on time with a high quality service (Emerald Group Publishing Limited, 2002). Marketing and Distribution Channels Hilton Hotels is considered as one of the leaders in terms of marketing in the hotel industry. The marketing strategy of Hilton puts efforts to connect its customers emotionally. The previous strategy of Hilton was that of tactical marketing which did not bring accomplishment in acquiring much of customers. The new strategy adopted by Hilton to campaign its brand is “take me to the Hilton” (Hotel Schools, 2010). This strategy was developed after a rigorous survey that gave an idea about the customers’ need of emotional attachment between the brand and the travellers and also solution to the various challenges faced by the travellers. Hilton’s move taken to amplify the personalized services, providing with a warm welcome, offering of latest technologies and pleasant environment comforting the customers positions the company towards reaching the solutions expected by the customer. As a part of its marketing strategy, Hilton’s own advertising agency named Foote Cone & Belding situated in California enhances the creation of an identifiable and inspirational image of the company with the tagline to establish an emotional bond with the customers. The marketing and distribution strategy of Hilton focuses on divided sections of marketing. One of the sectors aims at the travellers travelling for business purpose and the other sector aims at execution of the leisure provided in the services (Doubletree Franchise LLC, 2012). SWOT A SWOT Analysis of Hilton Hotels provides an elaborate view of the internal environment of Hilton Hotels (SlideShare, 2012). Strengths: Hilton Hotels is a well established unit and among the leaders of the hotel and hospitality industry. The product mix of Hilton Hotels ranges from high class hotels to mid-priced hotels. The company holds a strong integration with the various related business units such as the ones producing furniture for the hotel, the small companies franchised by Hilton and other (SlideShare, 2012). Weaknesses: The narrow focus of Hilton Hotels makes it vulnerable to a steep downward fall due to economic turbulence in the worldwide economic conditions and the other relevant incidents such as spread of flues and terrorist attacks which may adversely affect travelling globally (SlideShare, 2012). Opportunities: Hilton should offer its high end guests with distinctly special services. It may explore a new dimension by planning and hosting wedding which shall act as a backup plan in case the global travelling is affected by any exigency due various aforementioned factors. Plans for acquiring a cruise line would give an edge to Hilton Hotels. A cruise ship is not much different than a normal hotel. It is simply a hotel that floats in water. Adoption of such concepts would match with the current activities followed by Hilton with respect to its properties taken in lease. Hilton can make use of the advantages arising out of the evolving markets with special emphasis on the mid–priced and high end customers. The opportunity of sustainable hospitality development lies in favour of Hilton Hotels (SlideShare, 2012). Threats: Hilton Hotels also has a strong mix of entertainments and gaming facilities for its customers. However, it must be careful to avoid over–extension of such mix and also the credit extension as it might tantamount to gradual decrease of profits (SlideShare, 2012). Figure: Balance Sheet of Hilton Hotels Corporation and Subsidiaries Consolidated Balance Sheet Source: (Ernst & Young LLP, 2007) The financial position of a company shows an important aspect of the internal environment of the company. The above chart provides a clear picture comparing the assets and liabilities of Hilton Hotels. This figure depicts a comparison of the assets and liabilities for the year 2007 with the year 2006. There is a steady increase in the assets and liabilities showing a subsequent all around growth of the business unit with time. Theoretical Approach to Business Strategies A business strategy followed by any business unit can be referred as the medium that it travels through to acquire the set objectives or goals. It can be thought of as a long–term business planning according to which the business activities are directed. A business strategy is adopted for 3–5 years or even more. The major issues taken into concern in business strategies may be the issue of fund raising for the purpose of expanding the business, implementation of new technologies, change in work process or even introduction of new policies. Strategies are formed taking into account the business activities related to the produce of the business unit. There are mainly two categories of strategies that may be identified in connection to a business unit, namely; generic strategies and the competitive strategies (Business Case Studies, 2012). Under the purview of generic strategies comes, the growth, globalization and retrenchment of the business unit. A strategy pertaining to the growth of business unit includes the growth in terms of addition of new business dimensions and unit, development of products and expansion plans among others. Again a strategy pertaining to the globalization of the business unit includes spreading of the business activities over a network of locations within as well as outside the country horizons. Under the retrenchment strategy, “sticking to the knitting” as followed by Americans are covered under this strategy. According to this strategy, downsizing in order to focus on the best tracks of business development is followed by the company i.e. Hilton (Business Case Studies, 2012). Business strategy also covers the strategies yielding competitive advantages to the company. The strategy catering to provide a competitive advantage aims at enabling the company to outperform its competitors. There are various ways of competing that this strategy covers (Porter, 1985). One of the ways is to keep the cost of its products be it goods or services lower compared to the competitors. This may be helpful in case the business unit talked about is the leader in its industry and draws benefits from economies of scale. The other ways could be charging prices higher than that of the rivals, but in this case the product to be sold has to be distinctively different from the competitors (Business Case Studies, 2012). Evaluating Strategic Options Following the evaluation of the various factors related to the internal and external environments of Hilton Hotels, certain strategies that would enable the company to yield better results may be suggested. Based on the various facts recognised on the working of the company these strategies are developed. Eco–friendly Hospitality: The recent trends followed by the hospitality industry show substantial changes with respect to prioritizing its customers’ needs and wants. The demand of eco–friendly hotels is widely spreading. Thus, this may form a distinct market segment for Hilton Hotels. Also adoption of sustainable methods of hospitality shall contribute to reduction of the operational cost and facilitate in achieving benefits from economies of scale. The various environmental friendly techniques used for designing of the rooms such as preparation of furniture in the rooms may be used by Hilton Hotels (Enz, 2009). Competitive Advantage Based on Location of the Firm: The trend line of Hilton Hotels provides disparate facilities of conference, business and leisure to the various clients in major conventions airports and city centres. This approach of Hilton Hotels gets complemented by its consistency in maintaining standards of quality services on the higher horizon. The level of commitment shown by Hilton Hotels shall prove to be a point of recognition for its customers resulting in increasing rate of occupancy (Enz, 2009). Managing the Human Resource Efficiently: Hilton is traced to be keenly interested in developing the personnel skills attached to the firm and for this purpose it already provides the employees with various effective training facilities. A further developed set of such training and development programs would create an effective workforce in the company, the effect of which shall be visible in the positive difference in revenue generation (Enz, 2009). The Franchising Prospect: Hilton’s increasing reliability on the growth model based on providing franchise to the various business units is a boon to the company for earning revenue devoid of incurring added cost of acquiring and constructing hotels (Enz, 2009). The various risks involved in the implementation of the new strategies would require Hilton Hotels to be observant about the market trends and the changes brought about by its competitors. The business strategies of Hilton Hotels must be thereafter developed taking into consideration the moves of its competitors. To face and win a competition, one must put efforts and do more than what their competitors do. Likewise, Hilton Hotels must work harder in developing strategies keeping in mind its competitors who may be in search of a chance to surpass the performance of Hilton using various new techniques. A careful and keen eye over its competitors should be one of the strategies of Hilton to avoid involvement of any kind of ignorance or subsequent risk of strategic failure. Hilton Hotels must cater to develop strategies as a backup to the various unforeseen incidents such as terrorist attack and recession that might occur thus acquiring a safe platform to combat arousal of such situations. References AME Info FZ LLC, 2004. Esprit - The Spirit of Hilton Proven To Be Successful Across the Arabian Peninsula. Company News. [Online] Available at: http://www.ameinfo.com/36093.html [Accessed December 29, 2012]. Business Case Studies, 2012. Strategy Theory. Business Strategy. [Online] Available at: http://businesscasestudies.co.uk/business-theory/strategy/businessstrategy.html#axzz2GLSYqiZd [Accessed December 29, 2012]. City of Hotels, 2012. Hilton Hotels. Hotel Business. 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Educational Institute of the American Hotel and Lodging Association, pp. 91–122. Read More