Starwood Hotels and Resorts Worldwide - Essay Example

 Starwood Hotels and Resorts Worldwide, Inc. - 2007 Introduction: Starwood Group of hotels was incorporated in 1980, and two of their largest brands Sheraton hotels and resort and Westin Hotel and resorts have been serving the market for over 60 years (Starwood, 2008). Starwood group of hotels and resorts stand 8th as per the worldwide hotel ranking 2007 on the basis of rooms. The operations of the group are divided into two main segments being: hotel and vacation ownership and residential operations. However the main business is from the hotels. Starwood has a large number of hotels worldwide naming a few: St. Regis, The Luxury Collection, Westin, Sheraton, Le Meridien, Aloft, Four Points, W and Element. As of 31st December 2007, Starwood group’s portfolio included a total of 897 Hotels with 275,000 rooms across 100 countries that primarily cater to the upscale markets of the lodging industry. The company employs about 145,000 people and has its head quarters in White Plains, New York (Starwood, 2008). It is clear that the level of competition in the hotel and lodging sector is very high. Hence it is very essential that Starwood has to undertake immediate efforts to improve its services and market share in order to survive in this competitive environment. This consultancy report will analyze the company’s current situation and aim at improving the organization on the whole. BCG Matrix: This method is based on the product life cycle theory. This provides a means to correctly give importance to the product portfolio of a business unit. It is essential that companies have a combination of both high growth products as well as low growth products. The diagram below explains the BCG Matrix. Stars, refers to businesses use huge amounts of cash and also generate large amounts of monies as well. Here the company has a high growth as well as high market share. These generally include businesses that have a large market share in a fast growing industry. These businesses do generate cash however this is very limited as all of it is required to be used to keep in sync with the rapid growth. Businesses that are successful in this area mature to become ‘cash cows’, as the industry matures. Cash Cows, this is where the investments are low and the growth is also low, however the profits and cash generation should be high. Businesses with large market in a slow growing industry fall into this category. The investments are low for these kinds of business units however these generate cash that can be used as investments in other business units. Dogs are companies which are low in growth as well as market share. These companies are in a state of almost liquidity. Businesses in this group generally have a small market share in a mature industry. These businesses do not require a lot of money for its working, however all the capital is tied up. These kinds of businesses should be liquidated unless they prove to be very prospective of gains and a better market shares. The last group is the Question Marks, are companies with high growth but low market shares. The businesses that fall into this category normally have a small market share in high growth markets. These normally require resources to grow the market share, however it is not clear whether this would lead to a success and whether they would move to become stars is quite unknown. Figure 1: Boston Consulting Matrix (Quick MBA, 2007) Starwood is currently in the Star stage in the current time. The group has started and moved through the early stages of the grid and has been through the question mark phase. Over the past years the company has had a lot of investments that it has made. By 2007, the company has grown to have as many as 896 properties around the world (inclusive of the franchised hotels). The company makes huge revenues of almost $5,977. This has been used by the company to be reinvested into the business to keep in sync with the current trends of the markets. Being in the luxurious hotel category, there is a high level of pressure on the group to create an experience for the customers that the customers do not forget. Hence the amounts of investments that go in to managing this are also quite high. With the various brands that the group has within its portfolio, there is a strong need for the company to ensure that every brand is correctly marketed and the presence is felt for every brand. This highlights the growth that the company has shown and how the company has moved from the problem child / question marks grid to the stars grid (Brown, et. al, 2008). With the increased stability in the working of the group and having a better stand in the markets the company has moved to become one which has a high growth rate along with a high market share. The groups earn revenues which they can utilise to bring in better services for the customers. Starwood’s mission as it reads, “A Global Branded Life Style Hospitality company that delivers branded consumer products and services in a way that are different, better and special” (Starwood, 20080. Also the company has kept up to it values and still works by them. The possibility for a hotel group to move from being a problem child to becoming a star, is solely if the company recognises the needs of its customers and the groups has made all the necessary improvements. The company’s strategy to excel in all that they take up is one of the major reasons for the company to be able to move through the grid. Starwood groups in a state where the company is going to remain in a growth mode for a very long time, until it moves into the cash cow grid. Figure: Starwood’s Lifecycle Position Organisational Structure and Strategy: The organisational structure of the company is very clearly one which is hierarchical and functional. In a hierarchical structure the employees are ranked at different levels within the organisation and each of levels are above the others. Here one of the employees will have a number of workers working directly under them and this is mainly in their span of control. The hierarchical structure of Starwood groups is one which is relatively a flatter structure and thus has only a few levels. The authority is normally organised and moves in the pyramid shape of that of the structure. In a traditional hierarchical structure there is a clear definition of the employee’s role and also the relationship with other employees within the organisation. Looking at the current organisational structure of the company, it is clear that the company has been very well organised and this is one of the major reasons for the success of the company. This has a wide base, which mainly allows the main decisions to be made by the senior managers and thereby allows for all employees to work in a direction which is relatively more useful for the entire group. The organisational structure of the company also highlights the functional structuring of the company (See Appendix 1). In a company with a functional structuring, the groups for every function are categorised together under one person. This allows for the head to keep a close eye on every element of the process and ensure that employees work in accordance with the company’s objectives. Closely looking at the structure of the company, the Jr. President of the company manages the Presidents of different operations in Asia, Latin America, Europe, Africa and Middle East. This categorisation affects the working and success of the strategies of the company to a very great extent. With the Jr. President handling the various Presidents of the countries, there is a clear flow of information and the Jr. President becomes the one point of contact both for Presidents of the various countries as well as for the CEO of the company. This leaves all major decision making in the hand of the CEO of the company. This allows for easier communication among the teams as well as a clear direction of the instructions and a more organisation oriented strategic plan as the current ones adopted by the company (Sloman & Sutcliffe, 2004). The company had seen a number of changes with the recruitment of the CEO, who brought about a lot of changes and a number of improvements to the company and group as a whole. This strategic planning has been possible mainly because of the organisational structure. Also the current business strategy of the company is to reduce its investments in the owned real estate. Also an increase in the focus of the business on management and franchisee business is aimed at. This allows for the business to save the investments levels as well as does not risk a lot of their own investments. The main business objective of the company that has been to maximise the earning and the cash flows of the company. This can be done by increasing the number of hotel management contracts and franchise agreements (Johnson, et.al., 2006). Environmental Analysis of Starwood: Every company’s performance is strongly affected by the environment it operates within. One of the strongest and most useful analyses of the external environment is the PEST Analysis. This mainly refers to the Political, Economical, Social and Technological factors within which the company is required to operate (Jobber, 2004). The political factors that affect the company are mainly the regulations that have been introduced by the government. Also with the growing issues of terrorism the demand for hotels has been seen to face a decline. This leads the company to have reduced profits and also has affected the business of the hotels especially in Asia. Also the slowing down economy of the world and other economic factors has a very strong effect on the working of the company and the groups as a whole. It is to be noted that with the increased recession in almost every country, the buying power of the people is becoming much lower. This leads to the people spending lesser on luxuries. This directly affects the company’s performance and also leads to a clear decrease in the revenues of the company. As according to the Economic Cooperation and Development, there was a sure decrease in the economy of US and the Eurozone. This slowdown has had a strong influence in the working of the company, and the increased inflation has also made a strong impact on the company and its performance. The number of properties that Starwood has had over the years, was a reason for people to believe that the company would out – do its competitors. This has been outdone and the company has performed better than expected in the third quarter and the management is looking for the fourth quarter of the company. The technological factors also have a very strong impact on the company and its performance. With the increased growth and use of technology across the world, it is essential that the company uses the latest technology which will keep them in sync with their competitors. There are a number of different technological developments that have been incorporated within the industry. Concept of customer relationship management is one of the latest technologies that are being used within the hotel industry (Brown, 2000). Major Competitors: Starwood being one amongst the top 10 companies has to face a lot of competition. Competition for hotels and resorts is based more on the number of rooms, size of properties, restaurants, operations, marketing and other facilities provided. Starwood faces a lot of competition from various hotels both nationally as well as internationally. Few of the main competitors are Hilton Group, Marriott, Accor etc. The table below indicates a few figures for the above-mentioned companies. The table allows us to compare the revenue, employee, net incomes, and profit margins of these companies (Global Hotels, 2008). Basis of Comparison Starwood Hilton 2003 2005 2007 2003 2005 2007 Revenues 4,630.0 5,977.0 6,153.0 3,819.0 4,437.0 8,090.0 Net Income 309.0 422.0 542.0 164.0 460.0 121.0 Profit Margins 6.70% 7.10% 8.80% 4.30% 10.40% 1.50% Total Assets 11,894.0 12,494.0 9,622.0 8,183.0 8,743.0 37,868.0 Total Liabilities 7,509.0 7,258.0 7,520.0 5,944.0 5,932.0 32,670.0 Employees 110,000 145,000 155,000 70,000 61,000 121,474 Basis of comparision Accor Mariott 2003 2005 2007 2003 2005 2007 Revenues 9,746.6 9,764.4 11,112.2 9,014.0 11,550.0 12,990.0 Net Income 416.0 498.1 1,247.9 502.0 669.0 696.0 Profit Margins 4.30% 5.10% 11.20% 5.60% 5.80% 5.40% Total Assets 14,991.4 18,031.8 14,824.4 8,177.0 8,530.0 942.0 Total Liabilities 9,951.8 12,146.6 9,774.0 4,339.0 5,278.0 513.0 Employees - - - 128,000 143,000 151,000 Comparison of a few top hotels (Global Hotels, 2008) The current market share of the companies can be seen in the graph below. Market Share of various competitors The current competitive advantages that the company has in comparison to the above mentioned companies are mainly customer loyalty and technological know how. Starwood has gained a lot of trust and support from the customers. There is also a low switching cost among the buyers and the threat to substitute products is mainly where the other properties where the customers can stay and also the extended stay in hotels and teleconferencing. The other huge positive that the company has is the technical know how (Brown, et.al., 2008). The company has included a number of new technologies like the administered new mobile guest check in solution where there is a use of a wireless mobile computing application. Also Starwood Hotels has always and will continue to improve the technology and work within the entire industry (CRM Today, 2008). This is majorly because the company works with the value to provide their customers with excellence always. Conclusions: From the above discussion there has been a clear understanding of the working of Starwood. The company has been very successful and has been faced with a lot of competition. The group has seen continuous growth and along with the high stability that it has already achieved the company shows a strong ability of becoming more advanced and successful in the coming future. Bibliography Brown, C., Flores, L., McClellan, C., Davensport, A., Dobbs, E., & Collins, L., ‘Competitve Analysis – Starwood Hotels’, Accessed on 10 March 2009, Retrieved from kimboal.ba.ttu.edu/MGT4380%20Fall%2008/0.95/Competitive_Analysis_Presentation_2003_Version.ppt Brown, S.A., 2000, ‘Customer Relationship Management: A Strategic Imperative in the World of E-Business’, John Wiley and Sons, New York CRM Today, 2008, ‘Starwood Hotels & Resorts Selects HP for $100 Million Services and Technology Contract’, Accessed on 13th March 2009, Retrieved from http://www.crm2day.com/content/t6_librarynews_1.php?news_id=EpAllyZkkZydXmUAUM Global Hotels, 2008, ‘Global Hotels, Resorts and Cruise Lines’, April 2008, Accessed on 24 July 2008, Retrieved from http://ebscohost.com/ehost Jobber, D., 2004, ‘Principles and Practice of Marketing’, 4th edn, McGraw-Hill International, Berkshire Johnson, G., Scholes, K. and Whittington, R., 2006, ‘Exploring Corporate Strategy’, 7th edn, Prentice Hall, Essex Quick MBA, 2007, ‘BCG Growth – Share Matrix’, Accessed on 5th March 2009, Retrieved from http://www.quickmba.com/strategy/matrix/bcg/ Sloman, J. and Sutcliffe, M., 2004, ‘Economics for Business’, 3rd edn, Prentice Hall, Essex Starwood, 2008, ‘Company Info’, Accessed on 23 July 2008, Retrieved from http://www.starwoodhotels.com/corporate/company_info.html Zacks Investment research, 2008, ‘Starwood Hotels No Longer So Hot’, 27th October 2008, Accessed on 12 March 2009, Retrieved from http://www.dailymarkets.com/stocks/2008/10/26/starwood-hotels-no-longer-so-hot/ Appendix Starwood’s Organisational Structure: (Walsh, 2007) 1 – CEO, Chairman 2 –Jr. President 3 – President 4 – Executive Vice President, Chief Financial Officer 5 – Chief Administrative Officer and General Counsel 6 – Chief Information Officer 7 – President (North American Division) 8 – Senior Vice President (Westin Hotels and Resorts) 9 – Senior Vice President (Sheraton Hotels and Resorts) 10 – President (Starwood luxury Brands Group and Aloft Hotels) 11 – President (Asia – Pacific) 12 - President (Latin - America) 13 – President (Europe, Africa and Middle – East) 14 – Senior Vice President (Le Meridian Hotels and Resorts) Read More