Business Structure and Profile of the Barcelo Group - Research Paper Example

An Analysis of Barcelo Hotels & Resort Statement of Authorship I certify that this assignment is my own work and contains no material which has been submitted as part of an assignment in any institute, college or university. Moreover, to the best of my knowledge and belief, it contains no material previously published or written by another person, except where due reference is made in the text of the assignment. Signed .................................................. Name ................................................... Student number ................................... Table of Content Introduction..........................................................................4 History & Expansion............................................................5 Business Strategy (1931 – 2010)..........................................6 Current Business Situation …..............................................8 Business Structure................................................................10 Business System & Business Philosophy.............................11 Stakeholders..........................................................................12 Market...................................................................................13 Employment..........................................................................14 Career Path............................................................................15 Conclusion.............................................................................16 References..............................................................................18 Appendix 1.............................................................................19 Introduction Barcelo Hotels & Resorts is a global hotel chain which had very modest beginnings in Majorca, one of Spain's offshore island in the 1930s. In the first thirty years, the founders concentrated on strengthening the foundations of the company. After 1960, Barcelo began an expansion trend in which it acquired different entities within the hospitality industry. This saw Barclo acquire travel agencies and hotels in mainland Spain. In the 1980s, Barcelo expanded to Latin America and continued to grow throughout the world. Today it has hundreds of hotels around the world which are involved in the dissemination of the different activities in its strategic business units which include tourism, recreation and financial product sales. This paper undertakes a critical analysis of Barelo Hotels & Resorts. The paper answers the primary research question: “What is the Business Structure and Profile of the Barcelo Group”? In attaining this end, the following objectives will be addressed: 1. An examination of the history and significant trends in the growth of Barcelo and a diagnosis of its business strategy. 2. A detailed description of Barclo's current corporate profile and an analysis of the internal component of the company. 3. An examination of the markets within which Barcelo competes and its significant trends. 4. An assessment of the human resource systems of Barcelo. In undertaking this research, most of the information were acquired from secondary sources which include books, publications and the company's website. This forms the foundation of the facts acquired for the various analysis. Also, for some important information which were not available in secondary sources, there was an interview with a manager who provided information about the employment systems and some strategic business units. Details of questions can be found in Appendix 1. History & Expansion Barcelo started as a small hotel in 1931 on the island of Majorca off Spain (Segreto et al, 2010 p128). Aside the hotel, Barcelo ran a small transport company on the side which grew to become a travel agency in 1954. In 1961, Barcelo opened another hotel on Majorca and then opened another two on Ibiza and Minorca. This became a group of luxury hotels that supported the tourism industry in the islands off the coast of Spain. In the 1970s, Barcelo entered mainland Spain. They built a number of hotels and acquired Turavia, a tour operator in 1981. This led to an immense growth in their travel and tour industry. Although most of the clients of the tour company were encouraged to spend time in Barcelo facilities, the new tour stream sought to increase returns by providing the best for customers (Stern 2006 p31). Through the tour business, the management for Barcelo Group were able to look out for different niches for doing business in the hospitality industry (Stern et al, 2010 p128). This culminated in the establishment of a hotel in the Caribbean Islands in 1985. In the 1990s, Barcelo continued to expand into Central and Southern America. This was done through the opportunities that they discovered in the former Spanish colonies in the Americas. In 1999, Barcelo acquired its first hotel in Turkey and moved on to go global by expanding into Europe, North Africa and different parts of the world between 2000 and 2010. On the other side of the Atlantic, Barcelo entered the US market in 1992. Barcelo did this by acquiring majority shares in a US hotel group, Crestline Hotels & Resort. It then integrated a travel division known as First Choice Holidays. Business Strategy (1931 - 2010) From a critical analysis of the expansion of Barcelo from 1931, it is apparent that the grew and expanded globally through a process of vertical integration. “Vertical integration is a strategy wherein a corporation extends its scope of operations either backwards towards suppliers or forwards towards retailers and consumers” (Stotlar, 2004 p159). Barcelo was a small local entity on the island of Marjoca. Its first move was to run a transport company which was a complementary retail entity in the hospitality industry. It therefore improved its earning power and also made use of the symbiotic relationship that existed between the hotel it ran and customers. As the company decided to expand, it acquired bigger hotels in nearby islands and also moved inland. Once they got onto mainland Spain in the 1970s, they acquired a tour operator. This operator was also one of the backward integrations towards supplier. This is because the tour operator produced clients who used Barcelo's resorts and additional facilities. By 1980, Barcelo had consolidated its business culture of expanding vertically. From there, it felt ready to globalize. Barcelo therefore began by moving into the Caribbeans and Latin America. The vision was to meet local standards and compete on a global level. This led Barcelo to get a strong grip of affairs. This paved the way for them to expand into different parts of the world. The expansion into North America took a different turn. Instead of the traditional whole acquisition, Barcelo acquired the Crestline Group as a majority shareholder. Through this, they maintained a company that had experience in a market that was influenced by Anglo-American and northern European cultures. This was a clever move because it allowed Barcelo to make use of the competencies of the management and staff of Crestline Group whilst they reaped profits. Barcelo's expansion was in three phases. The first face was vertical integration and consolidation of a strong brand and culture in the Mediterranean hospitality industry. In the second phase, Barcelo undertook an international expansion drive into familiar markets in nations with Hispanic influences. In the third phase, Barcelo moved on into a phase of globalization where they expanded into unfamiliar territories around the world. The strategy was a blend of full acquisitions and partial acquisitions in unfamiliar markets. According to Segreto et al (2010), the expansion of Barcelo was affected by four main factors. 1. Market drivers: This include the different demands of consumers and the trends in the flow of global tourism 2. Cost drivers: It was cheaper to do business in some countries. Hence, Barcelo found a better opportunity to make more profits in those areas. This led them to set up businesses there. 3. Government drivers: Some countries had favorable policies that encouraged companies like Barcelo to invest in such economies. These countries, like the Caribbean Islands had incentives like lower taxes and affordable labor costs as well as flexible laws which encouraged the flow of foreign direct investments. 4. Competitive drivers: Barcelo benchmarked its operations with other industrial leaders. Hence, to maintain high standards like some of the global leaders like Holiday Inn, Shangri-La, Taj Group, Hilton and Savoy, Barcelo had to go global. This enhance its reputation and prestige in the industry. Current Business Situation Timothy & Teye (2009) identify that Barcelo's position as a global player in the industry implies that it needs to run an all-inclusive resort. Such a hospitality entity needs to have facilities that must get guests to spend as much time as possible in their premises. Hence, Barcelo has a wide range of recreational facilities and dining options as well as conference units in their hotels around the world. The rooms of Barcelo are distinguished on the basis of their unique architecture which is meant to draw parallels with either classical Mediterranean models or modern architecture to meet local competition (Stern, 2006 396). Hence, the idea is to get unique in the aesthetic scene, the company builds unique structures. Also, the company maintains spacious suites with the most modern and most sophisticated equipment that promotes the highest levels of luxury. Conference centers offer the best in conference services. Additionally, Barcelo's restaurants have the best in different cuisines and provide room service (Stern, 2006 396). In total, Barcelo has a global staff strength of 26,000 employees (Barcelo Grupo, 2012). It has a total of 160 hotels around the world. This comes up to about 43,000 rooms which are available to customers all year round. Barcelo Group is represented in a total of 17 countries. According to the 2011 Annual Report of the Barcelo Group, their annual turnover is €1.655 billion. This is amounts to a net sale of €981.1 million (turnover or sales, less cost of sales). The net earnings after deducting all expenses was €10.1 million in the year. The net assets employed in 2011 (which is assets less liabilities used to make the profits above) was €905 million in all. In the United States, Barcelo Crestline Corporation (BCC) managed and leased out a total of 90 hotels in 2008. This amounted to a total of 7,600 rooms. Samples of price ranges were checked on their website. This include prices for bookings in the some of the hotels that we sampled. The prices were for a room for two adults [excluding Presidential Suites*]: Region Location of Hotel Lowest Price Highest Price North America Washington DC, USA $177.00 $452.00 Central America Cancun, Mexico $134.00 $379.00 Europe Madrid, Spain €52.8 ($68**) €85 ($109**) Caribbeans Santa Domingo, Dominican Republic $110.00 $439.00 Rest of the World Giza, Egypt €60 ($77**) €263 ($339**) * The rates for Presidential suites ranged from $486 to $1,490 ** Exchange rate from Euro to US$ is based on the rate on Wednesday, September, 2012 of €1 = $1.2872 Business Structure Figure 1: Barcelo Group's Business Structure Barcelo group has three main divisions: 1. The Hotel Division 2. Travel & Tour Division & 3. Partner Hotels Division The Hotel Division is made up of the Barcelo Hotels & Resort Group which manages all the Barcelo hotels around the world except those in the United States. The United States hotels are under the Crestline Hotels & Resorts. The idea is to maintain profitable and valuable hotels within the chain in the 16 countries. The Travel & Tour Division sell various travel and tour packages to consumers. These packages include Barcelo Viaje which is a travel agency system that has 400 agencies around the world. Their obligation is to provide various packages at a commission to the group. Barcelo Club is an innovator project which combines holiday financing services and travel expense arrangements to consumers around the world. This provides packages and innovative ways of doing business in the hospitality industry. Annex Barcelo Viajes involves a specialized service for business travelers. This package is tailored to suit top level managers and specialized professionals who need to go to and from different destinations at various points in time. The Barcelo Holiday is a wholesale tour package. This is provided for different major tour operators who sell them to the public for a profit. Business System & Business Philosophy In this section, there was an interview conducted with a public relations manager in the Barcelo group. This involved a set of interview questions which was sent electronically to the respondent before hand [details can be found in Appendix 1 below]. The interviewee gave responses to the questions in a short telephone interview. It was discovered that the main philosophy of Barcelo is to use the highest levels of hotel management to control and optimize resources of the group in their core function as well as related activities like retail and tour operations. The company seeks to diversify its inputs in the hospitality industry and provide the highest level of stakeholder requirements. Obviously, Barcelo seeks to maximize profits. This is the core function of the hotel chain. This is done through the use of different investment centers which is a culmination of various cost units and revenue units within each hotel. Typical hotels have the following cost centers: 1. Labor 2. Stocks [including consumables used by the guests and other materials] 3. Inputs in various units 4. Utility bills like electricity and telephone 5. Administrative costs 6. Marketing. Each hotel's build up of this cost is done per unit. So restaurants have their separate build ups, hotel rooms, gyms, hotel shop and other facilities in the Barcelo Resorts have their own cost build ups. Thus based on the targets set for each unit, they compute their cost build ups and price their services to consumers. Thus, the revenues offset the costs directly and indirectly attributed to each investment center of the company. Stakeholders Although profits are essential and vital for the survival and growth of Barcelo, there are some important parties who are connected to the company. These are stakeholders. Freeman identifies that a stakeholder is a “...party that affects or is affected by the activities of an organization (2007 p2). In the interview, five main stakeholder categories were identified. They include: 1. Consumers: Barcelo's vision is to provide them with high quality services that will keep them coming back. 2. Investors: This are shareholders who expect high returns on investments. They benefit when the company make profits. 3. Suppliers: These are the people who provide various raw materials for the hotel chain. They expect payments for their goods and services. Barcelo also expects high quality services and timely deliveries. 4. Governments and their Agencies: This mainly include tax authorities and legal and compliance authorities in every nation. Their activities determine the restrictions and the reductions in earning in the form of taxation. 5. The wider community: This include people in the society who live alongside Barcelo. Some are destitute and expect Barcelo to give back to the society. This is the reason why the company runs the Barcelo Foundation which provides community development services and charitable services. Market The interview indicated that Barcelo does not only seek upmarket customers but different people from diverse background. Due to this, the marketing department undertakes market segmentation to define the different categories of people in every country they operate in. Through this system, they choose who to contact and when to contact them. This explained why prices varied between hotels. She cited that Spain has very low charges because the Barcelo Spanish hotels thrive on high numbers of clients. However, most of the clients' income are gotten from the Spanish economy so in this era where Spain is going through financial crises, the hotel has had no option but to cut down prices. On the other hands, hotels in some countries with weak economies like Caribbean states and Egypt continue to charge higher rates. This is simply because those Barcelo hotels target international customers, not local ones. Hence, they invest more in promoting tourists to move there. Employment Barcelo's human resource department focuses on three main values (Barcelo Grupo HR, 2012): 1. Professional Development: This involves assisting new workers to promote their skills and build competencies as they work in the hotel group. 2. Leadership: Since Barcelo's vision is to become a global leader in the hospitality industr, they ensure that all their employees are groomed to take up top positions in the industry. This is done through continuous training and direct practical experience to attain this end. 3. Professionalism: Barcelo maintains very high ethical standards. All employees are subjected to these standards with the view of grooming them to take up high standards of professionalism. Employees have some important benefits which help them to remain motivated and work for the improvement of the hotel chain (Pluckett, 2008 p81). First of all, Barcelo Group provides medical, dental and vision care coverage for their employees. Also, they provide life and disability insurance for their workers. Workers have various hotel discounts which they enjoy when they go on vacations. There are several routes for career development amongst these workers. This include internship programs and other part time off days. Career Path In examining the different tiers in the company's hierarchy, the interviewee identified certain distinct ranks in the company's structure. It includes: 1. Group Board of Directors: This involve the top level leadership who are charged by shareholders to govern the Hotel Group. They include some core managers but other non-active board members. Currently, the same person doubles as the CEO and President [Board Chairman]. 2. Group Strategic Business Unit Heads: This involve the heads or CEOs of the various global units. They head the day-to-day running of affairs in the hotel. 3. Regional Heads & Regional Strategic Business Unit Heads: They run the specific affairs in the major continental unit of the hotel group. 4. National Heads & National Strategic Business Unit Heads: These are under their regional superiors. They are supposed to run affairs in the various nations and units of the hotel chain. 5. Hotel Managers: They run specific hotels. 6. Sub-Managers: They translate ideas of National Strategic Business Unit Heads to the Hotel level. 7. Supervisors: This is the last line of the managerial chain. They ensure that limitations given to workers and targets set by managers are observed. 8. Operatives: These are workers who carry out actual instructions in the hotels. In terms of developing a career or entering at the various points, there are requirements on the basis of Education, Experience and Ethics. Most operatives are unskilled. Their education and experience does not matter. However, most supervisors are often people with technical and/or vocational training that puts them in charge of what they do. Sub-managers ought to be a little more educated and skilled than supervisors. They are often retained for a number of years to test their integrity levels and ethical compliance. It is preferable for persons in the rank of manager and above to hold at least an undergraduate qualification in a hospitality course. This is a standard set by the board. Managers also need years of experience and must pass high ethical checks. Other higher positions on the national and regional levels require postgraduate qualifications and higher levels of experience and ethics. Conclusion The Barcelo Group is one of the world's leading hotel and hospitality chains. However, it started with very modest beginnings. The company expanded through vertical integration. After that, it internationalized into familiar markets. From there, the company grew into different unfamiliar markets in the global level. Barcelo Group is diversified now and it continues to expand in the 21st Century. The company is focused on profits. This is done through a build up of costs and the matching of prices to ensure high profits. However, Barcelo is still sensitive to its stakeholders' needs. The main stakeholders include consumers, shareholders, suppliers, government agencies and the wider community. Barcelo segments the markets to improve offerings to consumers. The company also ensures career progression on the basis of education, experience and ethics. References Barcelo Grupo (2012) Barcelo Group in Figure [Online] Available at: http://www.barcelo.com/BarceloGroup/en_GB/informacion-corporativa/cifras-grupo-barcelo.aspx Accessed: 11th September, 2012. Barcelo Grupo HR (2012) Professional Development [Online] Available at: http://www.barcelo.com/BarceloGroup/en_GB/rrhh/grupo-barcelo-desarrollo-profesional.aspx Accessed: 11th September, 2012. Freeman, E. (2007) Stakeholder Concept London: SAGE Publication. Plunkett J. W. (2008) Plunkett Airline, Hotel & Travel Industry Almanac 2008 NJ: Plunkett Research Ltd. Segreto, L, Manera, C. & Pohl, M. (2010) Europe at the Seaside: The Economic History of Mass Tourism in the Mediterranean Oxford: Berghahn Books Stern, S. B. (2006) Stern's Guide to The Greatest Resorts of the World Boca Raton, FL: Stern's Travel Guides Ltd. Stotlar, D. K. (2004) “Vertical Integration in Sports” The Business of Sport New York: Jones & Bartlett Timothy, D. J. & Teye V. B. (2009) Tourism & The Lodging Sector London: Routledge Appendix 1 Dear Sir/Madam, As part of my studies at the Les Roches International School of Hotel Management, I am required to undertake a critical analysis of Barcelo's business structures and career path. This is in partial fulfillment of my Postgraduate Diploma from the Institution. In line with this, I will like to undertake this interview to acquire some relevant information. I will like to state that your responses will be kept confidential. The information is for educational purposes only. On no account will it be disclosed to a third party without your consent. What are the Core Values of Barcelo Hotels & Resorts? What is the primary customer base of the hotel? How do you segment your markets? Who are the main stakeholders? What are the main career units in your organizational chart? What are the requirements for career progression in each point of the chart? Read More