The Strategic Decision Making of a Hospitality - Dissertation Example

The Strategic Decision Making of a Hospitality Aims and Objectives This paper’s main goal and objective is to try and stratify the decision making process in the events and hospitality industry. This will be done with the goal of helping managers and the main decision making teams in the industry learn how to make effective and better decisions in running the company’s general operations. Introduction Decision making in the hotel and events industry is crucial to the proper management and running of companies in the industry. Decision making in the high pressure and fast paced events and hospitality industry cannot be done on the fly, and most managers find this to be quite a challenge. It is a major process that often requires constant preparation and study by the person making involved in the strategic decision making process. It has often been argued that most managers in the events and hospitality industry have a tendency of basing most of their important decisions on their innate intuition as opposed to ensuring that they base their decisions on the hard factual data that they have been supplied with. By doing this, managers often find that they have made critical mistakes in their strategic decision making and hence negatively affecting the organization that they happen to work for. Schraeder and Morrison (2005) pointed out that decision making in any organization is one of the most crucial components required in effective leadership ad management. In an attempt to break down the strategic decision making process in the events and hospitality industry, several effective organizational tools can effectively be used to ensure that all the vital considerations to be made in the decision making process have been made. In order to clearly illustrate how the various decision making analytical are used in the strategic decision making in the events and tourism industry, an analysis of the Radisson Blu hotel in Dubai will be conducted. By applying the various analytical tools to its case scenario, a better understanding of these tools in the strategic decision making process will be created. Radisson BLU Hotel is arguably the oldest 5 Star Hotel and is Located in Dubai, UAE. Due to the increasing pressure from climate organizations and various lobby groups pressurizing the hotel industry, the hotel decided to invest $ 340,000 in making modifications and improvements that would put it in a better position at achieving the International Green Globe Certification (GGC). The demands made by the customers wanting the hotel to engage in sustainable and green practices is what caused the management to have this idea (Rezidor Hotels Group 2010). It is becoming ever more important for hotels and events companies to adopt greening policies. This is especially in light of the melting polar ice caps as well as the increasing greenhouse effect. In order for hotels to be able to compete successfully with other hotels, they must be perceived by the general public to be working towards reducing their carbon footprint as well as reducing their carbon emissions (Rezidor Hotels Group 2010). The hotel’s management aimed to try and stay competitive in the cut throat hotel industry by combining environmental friendliness with the latest cutting-edge technology. As stipulated by Hamziya (2010), the hotel made the investment so as to fund the replacement of the old and insufficient air conditioning system that they were using at the time with the more efficient energy saving wheel. The wheel worked by drawing warm air from outside the hotel and then proceeding to sufficiently cool it before sending it through to the systems chillers. The decision making process that was used by the hotels managers in making this decision is the main topic of analysis in this paper. This paper will take an in-depth look into various possible tools of evaluation essential for use in the strategic decision making process. The paper will also seek to establish any disadvantages that may be attributed to these tools. Pestle Analysis Pestle analysis is essentially an audit of the environmental influences that affect an organization. It is done with the intention of using the information gathered during the analysis to help in guiding the management in strategic decision making (Johnson 2008). The main assumption that is made when using a Pestle analysis is that the organization is capable of performing an honest audit of its current environment as well as effectively assess any potential changes that might be in the offing. By doing this, the organization can thus be said to be in a much better position to make required responses as compared to its current competitors. Political Environment. Political factors that were key in conducting an effective strategic decision making process in the case of the Radisson Blu hotel include: The UAE is active in the World Trade Organization and is seeking to create Free-Trade-Agreements with some European countries. The UAE government has been seen to actively encourage Foreign direct investments by other nationals, the country also happens to be a free trade country, this has been instrumental in the promotion of both productivity and competitiveness in the country (Menden 2010). The Economic Environment as Considered for the Analysis It is estimated that about 3 million people live in the city of Dubai with an average of about 69% forming the office. The UAE’s GDP increased by about 15% as the country’s economy grew by about 15.7% (Bureau of near eastern affairs 2010). These are important factors to consider when a manager in the events and hospitality industry is involved in the strategic decision making process (Menden 2010). The Social Environment. Persons residing in the UAE have been noted as having relatively very high standards of living. Their financial position has been on a steady increase for the past couple of years. As a result of this, the UAE society has become increasingly materialistic as the citizens have access to more money which is increasingly being used in the purchase of vehicles, houses and other material items (Menden 2010). There has been a mushrooming of various hotels all over the country in recent years and foreigners from all over the world go to the country to find well-paying employment opportunities (Cateora 2007). This is vital concern as it shows that the hotel has the potential to increase its sales as a result of the materialistic nature of the country’s citizens. It will be of great benefit for the hotel to purchase the new equipment as it will help in drawing more customers to visit the hotel resulting in increased sales by the hotel. The Technological Environment The majority of the UAE’s population is comprised of very young professional people who happen to be technologically – knowledgeable. Statistics show that the IT software solutions and internet industries in the entire Gulf region have actually doubled those of Europe (Cateora 2007), with internet usage in the region having increased tenfold since 1998. The UAE also happens to have the largest number of mobile phones, satellite and internet users in the entire Middle East (Menden 2010). Environmental Environment Possible environmental factors to be considered in the strategic decision making process using the Pestle analysis tool included the fact that the UAE experiences an average of 360 days of sunshine annually and recently launched an environmental authority body in 2008. The Abu Dhabi Sustainability Excellences Group (SEG) is currently being created with the intention of imposing on it the responsibility of managing and watching over the environment (Menden 2010). Its major aim will be to try and establish a sustainable balance between conservation, development and protection of the country’s biodiversity. Legal Environment The legal factors considered in this strategic planning process included the fact the country has a Health and Safety (HACCP) law that was established back in 2006. The UAE labor laws allow for companies to recruit both expatriates and nationals in their operations, with an estimated 50 to 40 percent of well-qualified Emiratis working for the company (Human Rights Watch 2004). This is despite the fact that data obtained form the National Human Development Authority, 2004 indicating that it costs approximately 50 percent more to hire an Emirati as opposed to hiring foreigners. The country also imposes strict rules against sharing of flats between females and males except in the case of married or engaged couples. Results From the Pestel analysis conducted. It is quite clear that environmental issues and concerns are highly prioritized by Dubai. The hotels external environment which is where it is located is seen to emphatically support the hotel’s strategic decision making of going green. Recommendations can however be made for the hotel to try and look into the use of solar air conditioning systems. SWOT / TOWS Analysis SWOT analysis is extremely powerful tool that can be used in helping decision makers achieve their overall objectives and goals. It is of especially great importance in the business world. The initials SWOT stand for Strength, Weakness, Opportunities and Threats. These are the four major factors in the analysis that aid business decision makers in the strategic decision making process. These aspects have been established to have a significant impact on the capacity of a business to realize its objectives as well as its goals (Menden 2010). TOWS analysis is a strategic analysis tool that is used in the analysis and study of an organization’s environment as well as its interior. The initials used in forming the acronym are similar to the ones used in SWOT except for the slight difference in their arrangement. The interchanging of the words in the acronym allows for managers to conduct research and examine possible ways via which they can take advantage of any existing opportunities while ensuring that they minimize their threats by taking steps towards exploiting their strength while all the time examining possible ways of overcoming their differences (Leeman 2010). TOWS AND SWOT analysis generally involve the same basic steps and have been shown to produce very similar results. As such it is the normal practice for the two analysis to be conducted together (Leeman 2010). Strength Some of Radisson Blu’s strengths include the fact that it already has the reputation of being the oldest five star hotel in the world. The company has a high brand loyalty as a result of more than 90% of its managers having been promoted from within the company. The hotel also has a relatively well established brand under the Rezidor group. The hotel boasts of having a high global presence in addition to having the year 2010 CEO of the year. Weaknesses A major weakness that is currently being experienced by the hotel is that it is housed in an old building and as such experiences relatively high maintenance costs. It also has relatively huge labour costs due to the large number of outlets serving both beverages and food (16). The hotel also suffers from its huge number of unskilled labor as well as its recent take over in 2006 by the intercontinental hotels which ended up causing a relatively high staff turn over. Opportunities There are several major opportunities that the hotel stands to gain from including the Free trade agreement: where it stands to gain from the cooperation with global suppliers who happen to supply products to other Hotels owned by the Rezidor group (Rezidor Hotels Group 2010). The hotel is also easily accessible via the metro station and enjoys great accessibility as a result of its cooperation with the country’s Roads and Transport Authority (RTA). Among its outlets, there is the Arabic Restaurant which enjoys a large number of Emirati work force. This helps the hotel fill up the governments quota ratio of its having to employ between 50 and 60 Emiratis as employees. Threats The hotel faces high competition from other hotels that are located within walking distance from it including the Concorde, Sheraton, Hyatt as well as the Hilton hotels. There are also other fast emerging competitors due to the change in legislation that only requires about 51% of the business to be owned by an Emirati national. This is easily done by ensuring that the premises in which the building is housed belongs to an Emirati national. Results Drawing from the conclusions drawn from this analysis, the strategic decision making process shows that the hotel stands to greatly gain from going green as it will not only remain sustainable in the face of growing competition, but also it will be playing a huge role in saving the environment. As such the main deductions that can be drawn from the SWOT / TOWS analysis is that the company is strongly recommended to buy the cooling system and go green. This will help the company obtain the International Green Global Certification. Porter’s Five Forces Analysis Porter’s Five Forces are crucial in drawing upon Industrial Organization Economics in trying to derive the five forces that are key in determining the competitive intensity and the overall attractiveness of a given market environment (Saloner, et al 2006). The decision by the hotel’s key management on whether to install the new Green air cooling system can also be analyzed using the Porter’s five forces analysis. Using this analysis tools, several factors are considered, these are (Sadler and Craig 2003). Bargaining Power of Suppliers. Most of the high class hotels seen to be competing with the Radisson Blu hotel like the Hilton and Sheraton operate in the form of a chain of hotel, this is seen to enable them to have better control of the overall hotel market. Most of the competing hotels have been seen to operate different services like offering Resorts, Heritage Hotels and Spa’s. This has been noted to give them an edge over the Radisson Blu Hotel (Sadler and Craig 2003). Bargaining Power of Customers The customer’s bargaining power influences the degree to which customers can be able to impose pressure on volumes and margins. If the competing hotels offer moderate price changes, the customers are seen to have relatively low margins and hence become rather price sensitive. The hotel industry is heavily invested in is current fixed assets and it will make all attempts to ensure it recovers the invested amount as quickly as possible (Saloner, et al 2006). Threat of New Entrants With the recent change in legislation requiring for only a 51% investment by a local investor for a company to be set up in the UAE, there has been a sharp spike in the number of new entrants in the market with various chains of hotels like the Sheraton and the Hilton chain of hotels. This has pushed up the competition and local hotels have to look for new ways of dealing with the increased competition. Some of the new entrants offer lower rates with the aim of increasing their market shares and customer loyalty (Sadler and Craig 2003). Threat of Substitutes There is the constant threat from substitute products and services offered by the other five star hotels in Dubai like the Sheraton and the Hyatt. These and other emerging competitors pose a significant risk as they can be able to attract a significant portion of the current market volume and impact the Radisson Blu’s sales volume. Some of these substitutes offered are available in other countries where they have managed to create dedicated brand loyalties and will be able to easily capture market that was using the Radisson Blu as a substitute (Sadler and Craig 2003). Competitive Rivalry between Existing Players This Porter’s force is used in describing the actual intensity of the competition that currently exists between players in a given industry. The high competitive pressure that is normally experienced in the events and hospitality industries exerts great pressure on margins and prices and hence affecting the profitability of all the companies in the industry. Most of the five star hotels competing with the Radisson Blu offer services such as spas, motels, boatels and heritage hotels. This healthy competition between the various companies in the hospitality and events industries and its competitors can arguably be seen to increase the general growth of the industry (Saloner, et al 2006). Analysis As seen from the analysis, the hotel stands to increase its competitiveness in he current market segment if it goes on to purchase and install the new air conditioning system. The hotel’s management is thus encouraged to purchase the air conditioning system and install it to aid in making the hotel to become highly competitive. The Boston Matrix The Boston Matrix decision making analytic tool was created with the aim of helping managers in the strategic decision making process of deciding to which parts of their business should they allocate the existing available funds (Reuer 2004). A key assumption made by the Boston Matrix is that if a company is seen to enjoy a high market share in comparison to its competitors, it will be deemed as making money. The managers using this tool need to take into account several factors such as (Reuer 2004): Dogs: Low Market Growth Areas / Low Market Share These are the areas in which Radisson Blu’s strategic decision making management feel that the hotel’s market share is weak. These are areas that may take a lot of work in trying to make the hotel get noticed. Examples of dog areas might include things such as Better facilities and more spacious rooms. Cash Cows: Low Market Growth versus High Market Share These are the areas in the hotel that the management deems the hotel as having adequately established itself, these might include aspects such as Room occupancy, or even food and Breakfast facilities. The is no particular need for the hotel to expend significant levels of effort in this area as the market isn’t growing and has limited opportunities (Sadler and Craig 2003). Stars: High Market Share / High Market Growth These are the areas that the hotel’s decision making team deems as being well established and have a high growth opportunity. The management team needs to try and realize the available growth opportunities (Reuer 2004). Question Mark (Problem Child): High Market Growth / Low Market Share These are the developing opportunities that most of the competing companies do not have an idea of what to do with them. They might currently not be seen to be generation a lot of revenue since the company doesn’t seem to be commanding a particularly large market share in the particular area (Tallman 2007). Question marks have the potential of eventually becoming stars and later on turning into cash cows for the hotel though there is also the danger of their making little returns in comparison to the investments made (Reuer 2004). Results It is clearly evident with the change in legislation by the UAE government to enact an environmental regulatory body and with various lobby groups supporting organizations that have made efforts towards going green that installing a new air condition system by the hotel will be beneficial to the hotel and will help its efforts at establishing potential future cash cows. Ansoff Matrix This matrix was developed by Igor Ansoff who was a Russian/American mathematician of considerable repute. Ansoff applied most of his work in the development of the business world with his most famous work being the Ansoff Matrix. The main aim of this matrix is to try and help managers obtain a better understanding of to potentially grown their businesses by using new or already existing products in the current existing markets or diversifying into new markets. This plays a great role in helping managers in their assessment of the various differing risk degrees that can be associated with their attempts at trying to move their organizations forward (Cole 1997). The Ansoff model offers four main marketing strategies these are: Market Penetration Using this strategy, the Radisson Blu’s management team will try increasing its market shares within the current existing market segments. To achieve this, the hotel can try and sell more services and products in an attempt at finding new customers (Pringle and Field 2008).. Product Development In this strategy the decision making team tries to develop new products that will out perform those offered by its competitors in the existing market. This will be achieved by ensuring that the new products are better able to address the customer’s needs in comparison to those products being offered by the competitors (Cole 1997). Diversification This involves the hotel moving new products into the market at once. This strategy is considered to be risky since a lot of uncertainty will be created by moving away from how things were previously done in the past. It can however prove to be beneficial if the existing activities are seen to be threatened as diversification will be seen to be helping in spreading the risks faced (Pringle and Field 2008). Implementation After the successful completion of the strategic decision making process, it is imperative that the decisions made be implemented so as for the business to be able to reap the benefits accrued from its implementation. Implementation of the decision made is arguably the factor that has the most effect on the organization as pertains to its time, energy and resources. In order for a strategic planning decision to be implemented, there are several requirements that must be satisfied, the Radisson Blue management team should take measures aimed at identifying the financial capital and human resources costs that it would incur in purchasing, installing and running the air conditioning system. It also needs to create set timelines within which it should have implemented the strategic planning decision (Curseu and Vermeulen 2008). During the decision making process, the hotel should ensure that it tries to involve the efforts of the personnel who will be key in the implementation of the decision made. This will help foster a smooth transition to implementation as well as promote accountability on the part of all he persons involved in the process. The involvement of the stake holders will also have the effect of increasing the acceptance of decision. According to Curseu and Vermeulen (2008), efforts should also be made to obtain the backing of the key management as it often happens that when an organization’s senior management team happens to lose interest in the issue, which in this case is the installation of a new more green air conditioning system, they tend to start having a preference of focusing on solving new problems and overlook the old issues (Curseu and Vermeulen 2008). The hotel should also make attempts geared towards trying to negotiate the various responsibilities and tasks that require to be carried out as opposed of just merely assigning the tasks to the employees. This will have the effect of causing the staff members to have a sense of feeling as if they are partners in the given project (Curseu and Vermeulen 2008). Conclusion As seen from the results conducted using the given tools of analysis, it is highly recommended for the Radisson Blu Hotel to invest in the new air conditioning system. The hotel will potentially be able to increase its sales by attracting a larger market share as well as be able to effectively compete with other hotels by gaining a larger market share in the industry. From the examples provided, it is clearly shown that analysis tools are of prime importance in the strategic decision making process in the hotel and events industry. The tools allow managers and decision in helping them make decisions that are seen to have taken into consideration all the relevant aspects and will be deemed best for the company or organization. Bibliography Bureau of near eastern affairs. 2010. Background note: United Arab Emirates. [online]available from:http://www.state.gov/r/pa/ei/bgn/5444.htmlast viewed: February 1St 2011. Cateora, P. 2007. International Marketing. Boston: McGraw Hill Irwin. Drucker, P. 1985. Innovation and Entrepreneurship, Butterworth-Heinemann, Oxford. Hamziya, F. 2010. Radisson BLU rewarded for going green. [online] available from: last viewed: October 28th 2012. Human Rights Watch. 2010. UAE: NYU’s Labor Rights Provisions Break New Ground. [online]available from: last viewed: January 30th 2011. Johnson G., Scholes K., Whittington R. 2008. Exploring Corporate Strategy. 8th ed. Harlow:Pearson Education Limited. Menden, M. 2010. Radisson BLU Dubai Deira Creek: A competitive business strategy.Submitted to Mont Blanc University Center. Reuer, J., 2004. Strategic alliances. Oxford: Oxford University. Rezidor Hotels Group. 2010. [online] available from: last viewed:February 1st 2011. Sadler, P and Craig, J. C., 2003. Strategic management. London: Kogan Page Publishers. Saloner, G., et al, 2006. Strategic management. London: John Wiley. Schraeder, M. and Morrison, R. 2005. Commander’s evaluation in the context of businessdecision-making: a multi-perspective approach. Development and Learning in Organizations19(4). Tallman, S. B., 2007. A New Generation in international Strategic Management. Cheltenham: Edward Elgar Publishing Limited. Pringle H., Field P., 2008. Institute of Practitioners in Advertising Brand immortality : how brands can live long and prosper. London ; Philadelphia : Kogan Page. Cole G. A., 1997. Strategic management : theory and practice. London : Thomson Learning. Joris Leeman. 2010. Export planning : a 10 step approach. Düsseldorf : Institute for Business Process Management, cop. 2010. (Curseu and Vermeulen 2008) Curseu L. P., Vermeulen A. M. P., 2008. Entrepreneurial strategic decision-making : a cognitive perspective. Cheltenham : Edward Elgar. Read More