How the business environment is considered in strategy formulation
Contexts of Business strategy
The key principles of the business strategy, as well as the context, associated with the strategic approaches in order to provide superior values, outlining the differentiation and the core competencies of any organization. The context of the strategy is aimed at explaining the business mission, goals and objectives of the organization included into the business strategy. The hierarchical particularities of the organization are also regarded as the context values of the strategy, hence, the context of a business organization should be closely linked with the strategy itself, and be the background of the strategic approach. Additionally, the potential issues of the context are closely associated with the “growth share matrix” (Bryson, 2004), as this matrix represents the most important aspects of strategic development.
The structure of the business strategy context may be outlined in accordance with the common principles of chart creation. Hence, considering the context of a Tukster Hotel, it should be emphasized that “an attractive industry” components of the context will be removed as it is not significant for the hotel industry (Lamb, 1984).
Hence, the context of the business strategy required for the successful performance of the Tukster Hotel will involve the in-depth analysis of the resources, capability, competitive advantage, and strategic formulation:
- Resources: human resources, supply management
- Capability: set of services, involving the principles of hospitality and high quality services aimed at improving the business strategy as well as the working performance of the personnel
- Competitive advantage: unique features which make Tukster different from other hotels. These may be original and tasty cooking, unique interior, multi language service etc.
These are the practical implementations of the contextual approach, however, there are some theoretic aspects that should be regarded. These aspects are closely associated with knowledge structure and the principles and types:
- Declarative knowledge (knowledge of the general information of descriptive character)
- Procedural (information associated with the detailed description of the procedure flow)
- Casual (information related to the reasons of any process or tendency involved)
- Conditional (factual information: when)
- Relational (information, explaining logic relations of the procedures and objects)
In fact, the context of the business strategy for Tukster hotel may be associated either with the business environment of the organization, or with the aims that are set for the short-term plans. Hence, the actual analysis will be performed by various managerial departments, depending on the sphere of the preferred achievements.
The significance of Stakeholders analysis
Stakeholder analysis is an approach that firms uses to identify and investigate the extend of influence a group or individual has in enabling the firm to achieve its objectives. The information from the analysis is used to address the interests of the stake holders. The analysis enables the firm to know potential risks that it faces, and to identify the negative stakeholders and the adverse effects they have on the company’s projects. The importance of the analysis is explained by the opportunity to analyze the risks and opportunities associated with the market share price fluctuations. Hence, the stakeholders will have a full image of the market processes that will influence the tendencies and processes associated with the business sphere. Any actions taken will have a particular affect. Consequently, a stakeholders need to know the basics tendencies and processes in order to forecast the consequences of any action taken.
As for the stakeholders analysis of the Tukster hotel, it should be emphasized that it is of particular importance, as hospitality industry is rather dense from the perspective of competition. Hence, the analysis will involve the study of the competitive advantages and capabilities that are closely associated with the performance of business strategy and the consequences of successes and failures of strategy implementation. Considering the practical approaches of the analysis, it should be emphasized that in accordance with Coulter (2008, p. 182), the analysis in general is based on numerous mapping and listing techniques:
These approaches trade the richness of data available under the CRM approach for a holistic view of the whole stakeholder community and largely ignore the complex network of relationships considered in CRPR and the other network theories outlined above for a simpler consideration of ‘importance’ in some form.
However, stakeholders may be either included or excluded from the decision-making process, hence, the actual importance of the analysis may be also explained by the consideration and analysis of the interests of a group that is involved into this process. As for the Tukster hotel, it should be stated that the stakeholders are excluded from decision-making, hence, the analysis is performed in order to study the marketing tendencies which influence the development of the hospitality industry. These are the development of tourism in general, the immigration processes, the costs of the building and construction materials, etc.
Environmental and organizational audit
An environmental audit is an objective process that accesses organizations activities in relation to its internal and external environment.
An environmental audit for Tukster Hotel
The environmental auditing involved a PESTEL analysis. The hotel wasn’t directly affected by the political forces as it is a middle sized hotel in its growing stage. Economic booms and recessions affect the hotel’s performance. During economic booms the hotel makes high profits as they receive many customers from all over the country. Inflation greatly affects the hotels performance because it causes an increase in the prices of food and the ingredients used in making the food and this forces the hotel to increase the prices of its food. The hotel should embrace culture provide some cultural meals such as Indian foods. The management should employ more IT specialists to keep up with the changing technology.
The degree of rivalry was average since the competitors were not many. The threat of new entrants was high as the market entry barriers were minimal, thus increasing the chances of having many business rivals in future. According to (Porter,1980; Sanderson, 1998) barriers to trade exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents’ position.
In order to counter the threat of substitutes, the management should plan on how to reduce the costs of their food and services and still make profits. The number of people buying food from the hotel was high and for the hotel to maintain high buyer power the management should ensure that the quality of the food and services is high and it fulfills the needs of the customers. According to Kippenberger (1998) buyer power is one of the two horizontal forces that shows how valuable an industry’s products are. The hotel should place buyer power among the top priorities. (David, 1989)
The hotel should invest in advertising to ensure that it is popular as this helps in increasing the buyer power. The hotel management renews their operating license and this makes the firm legal. A SWOT analysis was also carried and the results were as follows.
|Internal||Strengths ||Weaknesses |
|External||Opportunities ||Threats |
To strengthen their relationships with the top customers the hotel should always make its service commitments and incase of failure, it should always apologize and learn to improve. In order to counter re-investment costs, the hotel should always plan for all its capital expenditures, and should have an acceptable payback
The management of this hotel should improve the services it offers to there customers for instance by re painting the rooms and ma king them more comfortable than before, to beat competition. The managers should know all their customer needs and make sure they fulfill all this needs. The hotel should focus on gaining and maintaining comparative advantage and this will keep it in the market even in future.
Apply strategic positioning techniques to the analysis of a given organization
Strategic positioning of any organization may be associated either with the present representation of the business strategy or with the future plans of the organizational image. In fact, the strategic positioning techniques are various, however, the organization analysis will have to deal with the following aspects:
- The future of the organization
- The information collection and analysis of the business environment
- Analysis of the business strategy and the competitive environment
- Strategic analysis of the business performance and the practical implementation of the strategic values
- Implementation of the decision-making process results
- Define the market: tourism and hospitality. Hence, the hotel should position itself as an organization with high quality and low-cost services
- Attributes of the product ‘space’: vertical and horizontal dimensions of product development, associated with network expansion and supply chain management improvement.
- Information about customers: tourists of middle-income class
- Product location in the product space. This may be defined only basing on the information on the prices and quality of the services. If the strategy will be changed, the prices will be modified in accordance with new tendencies.
The process of strategic planning
Tukster hotel needs a strategic plan that will enable it to counter competition in future, for instance by being the top and largest luxury hotel in the area. To achieve this management should make sure that it understands all the customer needs and fulfils the needs. It should focus on gaining and maintaining competitive advantage in its operations. This can be achieved by preparing very unique meals that the competitors can’t copy.
A portfolio analysis of the hotels financial assets should be carried. This enables the management to be aware of the risk factors and returns associated with each asset. In the case of Tukster hotel, it would be advisable to invest in many smaller outlets in town and gain low profits than to risk investing in one large hotel that will generate high profits. Investing in many smaller hotels increases the market share of the hotel, and with time high profits will be generated.
Market penetration is a less risky strategy, as it uses the firms existing resources. The management should seek to increase the hotel’s market share by focusing more on increasing and maintaining buyer power. By having many customers than its competitors the hotel’s market share will be increased and this will help keep the hotel in business despite the presence of rivals. More opportunities will be created for the hotel incase the competitors reach capacity limits.
Although diversification is at times termed as ‘suicide cell’ because of the risks involved, it is achievable. The management of the hotel can achieve this by increasing the type of luxurious services offered. The hotel can built more swimming pools and games courts and this will attract more customers. Diversification can also be achieved if the hotel starts to cook cultural meals such as Indian and African meals, that is cooking foods that were not available before. This enables the hotel to attract more customers since there is variety of meals offered.
Strategic plan, associated with the strategic development of the hotel’s performance will involve the following points:
- Vision: it involves the set of aims and objectives linked with the requirements of business development. It also involves understanding of the market tendencies and realization of the aims of business strategy development.
- Goals: the goals are closely associated with improving the positive, and overcoming negative aspects stated in the SWOT analysis matrix. These are lowering of the prices, extension of the range of services and improving the competitive advantages.
- Analysis: the constant analysis of the business environment and the performance of the hotel management, as well as personnel will be the key objective of this strategic point.
- Development. Strategic development will involve the constant restructuring and adaptation of the strategic plan towards the changing environment and business objectives associated with tourism and hospitality industry.
- Evolution: evolution of the organization presupposes the constant development of the managerial structure, improvement of the control and monitoring principles as well as resource management strategies, involving HRM and financial management.
Approaches to strategy evaluation and selection
Alternative strategies – substantive growth, limited growth or retrenchment
The problem identified in the organization (Tukster hotel) is the need to counter competition, maintain a high market share, increase the hotels growth, and at the same time increase the hotels profits.
Substantive Growth Strategies
There are numerous substantive growth strategies, some of which include horizontal and vertical Integration. Horizontal integration is a substantive growth strategy which task is to cope with the same products on the merging stage. It may focus its attention on merging even of the companies with unrelated products. Ownership and control style are two main issues that may be illustrated by means of horizontal integration. This strategy enables firms to increase the market share for the product s or services they are dealing with. By Addressing to the above information, it may be mentioned that the company may gain profit from such items as scale and scope. To reduce the costs and to decrease the uncertainty connected to the products manufacturing, the company should enlarge the scope places in the company. This is a high advantage. This strategy also enables the company to have defense against substitutes by reduce competition and to be in a position of fulfilling customer requirements.
Related and Unrelated Diversification Strategy
If a business enterprise adds or expands the lines of its existing products or expands the products’ markets, it is said to be engaging in related diversification. Related diversification strategy gives the business the advantage of understandings the business more. It also enables the management to know the industry opportunities and threats. In some cases, fails to provide the prospected returns. This is situation described above is takes place in a number of reasons. Some of those are because diversification analysis does not praise high the following issues, the change of a management, unite two cultures, laying off and terminating some employees, providing promotions and recruitment (Coulter, 2008).
Unrelated Diversification Strategy
A business may involve unrelated diversification in case when new and unrelated lines of the products or markets are added to the already existing ones. For example the hotel might decide to into beauty products market, this is unrelated diversification because beauty products business doesn’t fit into food and accommodation business. Most companies engage in unrelated diversification because it is cost efficient. When planning the businessman must make sure that the expected results from diversification are met.
Limited Growth Strategies
Market penetration Strategy: The Company, markets its existing products to the existing customers. Market penetration is of advantage to the company since it increases the company’s revenue by promoting the product and repositioning the company’s product brand.
Market development Strategy: The company aims at establishing new market for its existing products. The company can develop market for its products by exporting the product or marketing it in regions it had not marketed it before.
Product development Strategy: The Company starts to produce new products, and markets them to the existing customers. It involves innovation and development of new products, thus replacing the existing ones.
Retrenchment strategy is a strategy that aims to reduce the expenses of the company by means of the reduction of the size of an organization’s operations. Most companies opt for a retrenchment strategy to become financially stable. Retrenchment strategies include:
Harvesting-This is maintaining investment in a product flow by minimizing short term profits and cash flows.
Divesture– trying to raise cash for core activities in the company by selling off some units of the enterprise.
Liquidation– holding the assets in form of liquid cash.
Turn around-restructuring the company’s operations
Future strategy for Tukster
For the case of Tukster luxury hotel, the substantive and limited growth strategies can be implemented. The hotel management can opt for horizontal integration, whereby it can merge with some of the competitors in the making the different varieties of foods and thus creating a monopoly. This will enable both hotels to counter competition and reduce the risk of substitutes.The market s hare of the hotel will also be increased and the hotel will make lots of profit due to economies of scale. The hotel can also opt for related diversification whereby it will engage in the production of products related to the hotel industry. Such products can be production of cooking fat and oil or producing some of the ingredients that are used in the cooking process. This will enable the hotel management and staff to understand the operation s in the hotel industry more. The limited growth strategies can also enable the hotel businesses men to achieve their goals.
In general, the strategy of the hotel business development for Tukster should involve functional and operational strategic approaches. Hence, it is impossible to do with the only strategy, as the features of several strategies will be required. Functional approaches presuppose the setting of the tasks and assignments for different departments. These generally involve human resources, financial management, new product line implementation etc. Operational approaches are focused on the day-to-day operations that are intended for the better control of the long-term performance. These objectives define the current problems associated with task allocation, equipment and personnel size required for accomplishing every-day assignments.
How strategy implementation is realized
Roles and responsibilities for strategy implementation in two different organizations
Business performance of the Tukster hotel will be compared with the performance by Bellagio hotel in Las Vegas.
After the planners have chosen a certain business strategy, they have to share the plan with the rest of the members in the organization (Selznick, 1957). In Tukster hotel situation the planners can call a meeting including all the staff members in the business, and communicate the plan, they have for achieving the hotel’s goals. They should inform the members the reasons why they chose a certain strategy and not the other strategies. They should explain each concept in detail and even ask for the views of the members concerning the proposed strategy. After this project teams are formed and identified. Each individual should be assigned different roles and both the individuals and teams will be given certain targets to attain.
Benchmarking of the targets at different levels in Tulster hotel organization will be done by incasing the manufacturing capacities. The planners will inform them about the business strategy, get their opinions and assign the different duties to each individual and the teams formed. Each individual will be given the targets that they are expected to achieve in the strategy implementation process. The duties and targets a re-given depending on the position each member occupies in the organization and also depending on how influential each member is.
As for the business performance in Bellagio hotel, the planning process is weaker, as the technical personnel have wider responsibilities, hence, management structures do not face the challenge of a complicated task allocation procedure. Hence, there is no necessity to arrange regular meetings with technical personnel, as the feedback practices are developed sufficiently.
Resource requirements to implement a new strategy for a given organization
The resources required to implement a new strategy for the hotel are finance, human resources, and time. The hotel needs enough finances to implement the growth strategies chosen to achieve its goals. Money is needed to open more hotel outlets and recruit, train and pay the newly employed staff in the business. Finances are also required for constructing and restructuring the hotel enterprise. The stationery that will be used for the process also needs to be bought. Registering the new hotel will also require some finances.
Human resources will also be needed. If the hotel management chooses horizontal integration, then more staff members will be needed to cook and to sell the hotels products. The two hotels will need more employees for the construction and reconstruction process and they ma y even need more supervisors to be in charge of the construction process. Incase of market and product development, more employees will be needed to carry out sales promotion and to introduce the new product to the markets, incase of personal selling.
Time will also be needed for implementing the new business strategy. The planners have to estimate how long it will take them to implement the suggested strategy. They should have a time plan of all the events that are to take place during the implementation process.
In general, the resource management strategy should be changed in accordance with the new strategic objectives of the business approach. Hence, the actual importance of the evaluation process is closely associated with the strategic evaluation of the resource management principles. In accordance with Bryson (2004, p, 51):
Such resources may include financial resources, inventory, human skills, production resources, or information technology (IT). In the realm of project management, processes, techniques and philosophies as to the best approach for allocating resources have been developed.
Nevertheless, in spite of the resource range analysis, the allocation presupposes division of the available resources into several levels in accordance with their importance for every particular task. Hence, the level one priority will involve Strategic planning, involving advertisement, financial management, and environmental analysis. Level two is the resource management strategy associated with the construction materials, equipment and other resources. Level three presupposes everyday information associated with the casual tasks performance.
Targets and timescales for achievement in a given organization to monitor a given strategy
For the hotel to achieve its goals, mission and vision several targets and time scale have to be given to the different groups in the organization. The different targets are the corporate, operational, and individual targets. The hotel management decided to use the limited growth strategies (market penetration, product development, and market development) and horizontal integration to achieve its goals. The managers should buy more kitchen stuff such as more cutleries and cookers to enhance the cooking process, more rooms should be constructed for accommodation and more chairs and tables should also be bought.
After one year, the hotel should have made a profit of over 75%, if the economy remains stable and there is no recession. The hotel managers should ensure that after four to six months, it should have opened more at least three outlets in town. This will increase the hotel’s market share and enable it to make more profits. The staff members (chefs) should maintain high quality food, to increase the buyer power. This will aid in increasing the market share of the hotel.
A review and evaluation of the benchmarked outcomes should be done after every month. This will enable the hotel management to know the progress in the implementation process. The planners will also note and report to the management incase of shortages in the resources needed to fully implement the growth strategy chosen.
- Bryson, M. J. (2004) Strategic planning for public and non-profit organizations. San Francisco: Jossey-Bass.
- Coulter, M. (2008) Strategic Management latest Edition. New-Jersey: Prentice Hall.
- David, F. (1989) Strategic management. Columbus: Merrill Publishing Company.
- Lamb, R. et al. (1984) Competitive strategic management. Englewood Cliffs, New- Jersey: Prentice-Hall.
- Selznick, P. (1957). Leadership in administration: A sociological interpretation. Boston: Row Peterson, Evanston.