The Contemporary Hospitality Industry - Assignment Example

An analysis of the contemporary hospitality industry TASK 1 Introduction The contemporary hospitality industry is broad and diverse, consisting of a range of hospitality organisations that maintain up to 80 different career positions to the single-person organisation. The industry consists of 12 distinct sectors, not just hotels and restaurants. The term hospitality is directly linked to tourism, leisure, recreation and travel, making it a widely varied industry maintaining an emphasis on service provision and quality controls. This report identifies the current structure of the contemporary hospitality industry, provides a review of the organisations within the industry, offers an evaluation of staffing concerns, and reviews the current image of the industry. Trends affecting the hospitality industry are also identified, including a justification for how current trends impact the future of the industry. The industry structure The following table illustrates the 12 different sectors comprising the contemporary hospitality industry: Table 1: The Sectors of the Industry Hospitality services Pubs and nightclubs Gambling Contract catering Hostels Membership clubs Self-Catering Tourist Services Travel Services Events Hotels Restaurants Source: Pearson Education. (2011). The UK Hospitality Industry. [online] Available at: http://www.pearsonschoolsandfecolleges.co.uk/FEAndVocational/HospitalityAndCatering/GCSE/WJECGCSEHospitalityandCatering/Samples/Samplepages/WJECGCSEHospitalitySamplePages.pdf (accessed 8 November 2013). As illustrated by Table 1, the industry is comprised of a widely assorted variety of sectors, each with its own business model and obligation for service delivery. The hospitality industry is very competitive, with many new market entrants entering worldwide and domestic markets regularly, which provide risks to maintaining a positive image with very diverse consumer segments. The only significant competitive advantage that a hospitality business maintains in the face of rising competition is developing a unique differentiation that can be sustainable. Competitors in this industry can often replicate existing service and product delivery models, therefore a business requires having a solid and differentiated brand in order to gain consumer loyalty and sustain competitive advantage. Marketers agree that building a differentiated brand image is of high strategic importance in this industry as it makes competing companies less vulnerable to recurring marketing competitiveness which is so dominant in this industry structure (Gounaris and Vlasis 2004). To successfully compete in an environment where switching costs for consumers, according to Michael Porter (1998) is a competitive risk, it is necessary for organisations operating in this industry to outperform rivals with innovative service delivery models and technologies. Businesses operating competitively in this industry must also be considerate of pricing structures, as some environments and sectors work regularly with price-sensitive consumers. For example, conducting strategic-level environmental analyses of other businesses in the region (such as restaurants and hotels) is necessary to establish competitive pricing structures. With the aforementioned ability of companies to replicate existing food offerings, hotel amenities and other service-related models, pricing might be one of the most competitive strategies facing businesses with high levels of competition. Price is often the most priority method by which consumers judge quality of service and is one of the most prevalent methods by which companies promote their businesses (Dawes 2004). Companies that are not offering competitive prices or fail to meet expectations for quality of service correlated with price are quickly going to be driven out of the competitive landscape when consumers judge their service models as inferior and unrealistic. Therefore, the industry is not only highly competitive with many different service delivery models competing for customer loyalty and attention, it is also driven by consumer attitudes about luxury, their perceived role in society, and the diverse personalities of travellers or other recreation seekers. According to Kim, Forsythe, Gu and Moon (2002) how consumers judge quality is strongly related to their social affiliations and social attitudes. Therefore, the industry structure demands that hospitality businesses have a well-developed operational model that focuses on service delivery and also meeting the psycho-social needs of consumers with varying economic and social backgrounds. It is a dynamic and complicated industry that requires employees, managers and executives of hospitality organisations to be constantly aware of consumer behaviour and changes in the social environment in order to remain competitive and viable. Staffing structure and HR models There are known correlations between service quality and the willingness of consumers to provide recommendations (word of mouth) that are so crucial in the contemporary hospitality industry (Boulding, et al. 1993). Therefore, businesses in this industry must be keenly aware of how to effectively train workers and managers to provide constant quality service, making the industry much more diverse in terms of human resources management. In most service sectors in this industry, engagement with staff and managers will dictate how consumers find loyalty to the business and perceive quality. According to Berman and Evans (2009) human variables are critical to competitive success. Therefore, staffing models must identify those with human characteristics (i.e. personality) that would be considered a best fit aligned with the existing service model of the business operating within the industry. For example, if the organisation is a hotel operating in the luxury sector, training must include cultural dimensions of the traveller, how to engage with consumers who value conspicuous consumption, and how to maintain professional power distance between travellers and the lower-level service employees. In the hospitality industry, conspicuous consumption is defined as how consumers engage with products or services in order to enhance their social image. In the past, hospitality businesses hired migrant workers to fulfil lower-level job roles (i.e. cleaning and serving food), however businesses are now realising the importance of hiring talented workers with ample experience working alongside of customers with high self-opinion and hedonistic needs. This is why contemporary hospitality businesses are being forced to develop career planning modules as part of their HR philosophy and modernising the training process to include multi-dimensional learning packages. Cheap labour is not always available when the objective is superior service delivery along the operational model, therefore there are often higher costs imposed in this industry for recruitment, training, retention and career progression. Employee relations are a significant factor driving the staffing function in order to properly motivate workers and ensure they remain loyal and committed to the strategic goals of superior service delivery in this industry. Human resources and building a quality-focused recruitment and retention model is highly critical to engaging consumers effectively and building a sense of personal loyalty toward a particular hospitality-based business. Employee turnover is a generic problem in this industry which requires innovative solutions to motivate workers, incentivise their involvement in the operational model, and methodologies for improving social belonging within a team dynamic. The hospitality industry requires team development in order to ensure quality along the entire service delivery model, therefore HR models in the contemporary industry now include how to develop cooperative management strategies (i.e. decentralising the business to allow for more shared decision-making). The industry requires HR professionals to provide opportunities for career advancement, promotions, and achieving greater salaries through dedicated service, therefore there is more emphasis on employee appraisals and performance management strategies. Therefore, it cannot be understated that training is a critical imperative when it comes to HR best practice in this industry in order to create an energetic and customer-responsive environment throughout the operational model. Identifying opportunities to recruit self-motivated and vibrant workers with soft skills ranging from punctuality and communications are critical to gaining consumer loyalty and revenue production. The current image of the industry The image of the industry is highly dependent on the country where the business operates and the potential risks that could be incurred by travellers and other recreation seekers. For example, in 2008, the Taj Hotel in India (a posh establishment) experienced a terrorist bombing that killed over 160 people and endured for over four days (Schiffrin 2009). In this industry, dependent upon the nation, many hospitality businesses have been unable to lobby local governments to halt the spread of terrorist activity and, upon heavy media promotion, changes the dynamic of consumer sentiment regarding risks of travel. Yet another example involves recent spreads of the deadly SARS virus in China which makes travellers leery about the potential safety risks. Public promotion of this danger causes problems with attracting tourism revenues, especially when governments do not provide the appropriate plan of action to prevent danger to travellers. Though the aforementioned examples are severe examples of risk management in the industry, it does impact consumer behaviour and sentiment about the image of the hospitality industry. The industry, however, is seeing a shift in consumer behaviour in the contemporary environment from ostentatious consumption to authenticity (Horwath HTL 2011). If businesses are able to provide this authenticity, then consumer sentiment and judgment about quality are enhanced. These businesses operating in the industry must, however, conduct regular analyses of changing consumer trends and values in order to provide relevant and accepted models of service delivery. Such models utilised in this industry are the SWOT analysis and Porter’s Five Forces model of competitive risks and opportunities in the business environment. Coupled with the use of psychographic marketing, businesses are actually able to change the operational model to enhance consumer attitudes and sentiment about the viability and success of the hospitality industry both domestically and internationally. Once important emotional connections are made with consumers, which involves the efforts of managers and employees, the general attitude regarding the hospitality image is quite good. It is only when businesses fail to meet the expectations of their target consumer segments that negative perceptions of quality, price, and variety of services becomes tainted and negative. Research did not uncover any instances that the contemporary hospitality industry is experiencing breakdowns of positive consumer attitude and beliefs about the industry. The diversity of how businesses deliver service to disparate consumer segments, the type of establishment, and the level of service amenities would seem to dictate how consumers perceive value, quality and long-term sustainability of the contemporary hospitality industry. Effective and knowledgeable hospitality management acts as the main determinant in how consumers assess various hospitality businesses, something that is consistently reinforced in managerial theory, service philosophy theory and consumer behaviour theories. Organisations in this industry The Society for Human Resources Management (SHRM) is one notable organisation dedicated to improving the human resources competencies of managers throughout the entire hospitality industry both domestic and international. For a relatively small membership fee, this organisation provides the industry with potent literature about best practices in areas of staffing and recruitment and also provides opportunities to network with experienced professionals in the art of HR management. Pocketstaff LLP is yet another organisation providing valuable technology upgrades to the industry by revolutionising people management. The company has recently developed a mobile technology that allows managerial professionals in the industry to coordinate communications between employees, create dedicated in-house web portals for knowledge exchange, and even send schedule changes and updates to employees utilising mobile technology (Lindewald and Huang 2013). This technology company is providing quality solutions along the operational model to enhance people development and labour coordination which improves competitiveness and also ensures much more beneficial retention of employees. Yet another important and valuable organisation servicing the hospitality industry includes The Hotel Managers Group, a group that works directly with hotel chain managers to build better competencies in accounting practice, risk management, renovation and construction leadership, and even quality control systems development. The Hotel Managers Group teaches managers at hotels how to perform strategic audits, operational audits, and build better development for food and beverage management. There are many other professional organisations designed to offer training and support in the hospitality industry ranging from the National Licensed Beverage Association to the Black Culinarian Alliance focusing on the provision of ethnic food products to diverse consumer segments. What these organisations provide to the hospitality industry is better understanding of contemporary consumer needs and values, how to build service and operational models around these findings, and also support for improving the competency of managers and employees to ensure the business sustains a competitive edge over other competing hospitality firms. Task 2 Variety of issues affecting the industry The cost of food procurement for hotels and restaurants has increased dramatically over the last five years. This is especially true in India, where inflation rates have been 14-18 percent along the procurement supply network (Munjal and Sharma 2012). This means that for many businesses, in order to cope with rising food costs, it becomes necessary to pass off these higher procurement prices with higher menu prices. As identified previously in the report by Dawes (2004), pricing is often the measure by which consumers judge and perceive quality, therefore inflation maintains many implications and consequences for restaurant and hotel owners, especially in the non-luxury sectors where consumers have much higher price elasticity. These rising prices are also forcing organisations in the hospitality industry to create better controls over cost management systems in order to shed higher operational costs in areas of the supply chain. This has potential implications, also, for impacting menu variety and diversity that is often what drives customers to dine out and enjoy the experience of restaurant eating. Airline companies are also offering much higher fare rates for travel, which serves as a disincentive for creating a consumer travel itinerary. Even the discount airline, Ryanair which generally services the more budget-minded consumer, has recently raised baggage carrying fees by a whopping 66 percent (Sky News 2013). In 2012, a major international carrier, Delta Airlines, raised its prices by $20 which was quickly matched by other competitors in the oligopoly. What this represents is an environment where price-sensitive buyers with a high elasticity of demand are going to start rejecting airlines as a viable tourism opportunity. Instead, they will stay domestically where travel costs are much lower and where they can get more proverbial bang for their expenditures. Not all travellers are in the luxury segment and operate on strict travel budgets that cannot afford the rising costs of airline travel services. The cost of raw materials and labour provision in this industry are also increasing, which impacts the hospitality industry, especially in the hotel sector. Data from the Associated General Contractors of America organisation showed an annual increase in raw materials of between 8 and 10 percent annually between 2004 and 2006 (Raleigh 2007). High demand for steel, additionally, due to infrastructure and commercial projects in India and China has also raised procurement costs in the construction supply chain. Companies often rely on renovations and new construction projects in order to enhance their brand images and give customers a unique and enjoyable aesthetic experience. Rising costs in this area reduce the cash flow of hotels and other hospitality-oriented businesses that must somehow recapture these costs (in the form of higher prices to consumers) or take losses which is unacceptable for virtually any business model. Finally, in Australia, recent legislation banning smoking in public facilities was passed. Immediately upon launch of this new law, gaming establishments and hotels reported a sudden drop in consumer patronage (Taylor Woodings 2008). Though this is becoming commonplace all over the world as changing consumer preferences drive new law reform and establishment, it shows that the industry must be compliant to changing domestic and international legislation that could impact customer willingness to frequent certain types of hospitality establishments. Laws are designed to protect the majority of social stakeholders, however from a business perspective it can create revenue production problems, complicate marketing efforts to gain new customer segments, and even raise costs of marketing as the company attempts to put more financial and labour capital into the promotional and advertising functions to offset poor legislation. Critical analysis of future issues Based on research findings in the report, future trends impacting the hospitality industry will likely include continued problems with supply inflation, pricing issues in a variety of industries that service or supply to the hospitality industry, and changing consumer sentiment about the holistic value of the travel experience. Though this is projective speculation based on current trends in the market, there is evidence that inflation is going to continue to plague certain developing nations as they attempt to stabilise difficult economic environments. For example, in China and India, the government had to step in and change fiscal policy in an effort to curb rising costs throughout the nation which had been impacting retail and wholesale prices in many different industries. The government was not successful in this effort. What rising prices and inflation creates is a situation in which hospitality industry-related companies need to insulate themselves from profit loss rather than relying on governmental interventions. By diversifying their investment portfolios, acquiring other firms in a different industry to provide a more balanced revenue stream, and even strategic alliances in order to pool valuable resources can be a significant source of self-insulation. Especially in a global environment in which there are many competitors in each sector and unpredictable (and sometimes even volatile) economic conditions, players in the hospitality industry need to identify methods of being proactive about financial risk reduction and examine their portfolios to locate new opportunities for shielding the business from inflation. Critically speaking, the idea that consumers are changing their travel and tourism needs and values is important, as many businesses in the hospitality industry have relied on consistent marketing research and analysis that has endured for nearly a decade. Therefore, there is going to have to be much more modern research efforts on behalf of operating hospitality companies to identify what is driving changes to attitude and consumption patterns. This requires labour, financial capital investment, and other expenditures to ensure that accurate qualitative and quantitative data is received by the research entity. Though this is an expensive undertaking, it would provide companies with recent and more updated consumer information that comes, proverbially, straight from the horses’ mouths (the consumer). This would provide a valuable knowledge resource if more businesses invested in the research design and implementation processes. Conclusion As shown by the report, the hospitality industry is dynamic and ever-changing, providing both opportunities and disadvantages to companies in this industry. If businesses in various hospitality sectors understand the dynamics of human resources theory and strategy, can insulate themselves from volatile externally-driven market conditions, and access the knowledge resources of various organisations related to hospitality and the industry, it is likely that the consumer-perceived reputation of the industry can be sustained positively. References Berman, B. and Evans, J. (2009). Retail management: a strategic approach, 11th edn. Prentice Hall. 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