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  2. 2. Joel Ross and Michael Kami
  3. 3. The Great Eastern hotel, a privately owned, independent, five- star deluxe hotel located in Hong Kong’s commercial district, is faced with a turbulent external environment owing to the current financial crisis. Since its inception six years ago, the hotel has grown in prominence during the bustling economy from 2003 to 2007, and it has been one of the top performers in the upscale and luxury market segments over the four years preceding the economic crises. The hotel’s main target market segment is the business traveler (75 percent of room bookings) who has no problem with paying USD 350 per night for a room. During the past six months, however, the hotel has been a victim of the severe economic upheaval, which has led to a significant reduction in room bookings from the business travel segment. This has reduced profits significantly to the extent that the hotel is no longer able to cover fixed costs. The owner, Jerry Kong, has called an executive committee meeting to discuss the future direction the company should take in the immediate term and in the long term to sustain its competitive advantage. TMT 4002 Strategic Management Project for Tourism
  4. 4.  1. What issues should Jerry and the executive committee address? Why? (Hint: Make assumptions where necessary, including mission and vision statements, as well as goals, strategies, and objectives.)  2. Given the preceding information, what are Jerry’s options? How should they be evaluated? Make assumptions where necessary.  3. What should the hotel do in the short term and in the long term? Make assumptions where necessary to arrive at your decisions.  4. Why is it difficult to answer the preceding questions? Do we have clear answers for issues and challenges in real life?  5. Do managers and executives in hospitality and tourism organizations always have sufficient and reliable information to make decisions? TMT 4002 Strategic Management Project for Tourism
  5. 5.  Why do some firms succeed while others fail?  A central objective of strategic management is to learn why this happens.  What is strategy?  An action a company takes to attain superior performance.  What is the strategic management process?  The process by which managers choose a set of strategies for the enterprise to pursue its vision. TMT 4002 Strategic Management Project for Tourism
  6. 6. 1. Where are we now? 2. Where do we want to go? • Business(es) to be in and market positions to try and achieve? • Buyer needs and groups to serve? • Outcomes to achieve? 3. How do we get there?
  7. 7.  A strategy is a long term plan of action designed to achieve a particular goal.  Strategy is concerned with deciding what business an organization should be in, where it wants to be, and how it is going to get there. TMT 4002 Strategic Management Project for Tourism
  8. 8.  Strategic Management:  relates to the future of the enterprise  Is about taking action now to secure the future  The future is uncertain  Decision about the future are made on incomplete and wrong information  Prepares an organization for future success
  9. 9.  Strategy:  is knowing the business you propose to carry out (Xenophon)  defines what a business is in or is to be and the kind of company it is or is to be (Andrews)  is a rule for making decisions (Ansoff)  The way in which a corporation endeavours to differentiate itself positively from its competition (Ohmae)  Ideas and actions to conceive and secure the future (Macmillan & Tampoe)
  10. 10.  Companies lacking clear strategies may achieve some success in the short run, but as soon as competitive conditions stiffen or an unanticipated threat arises, they usually “hit the wall” and fold.  In today’s global competitive environment, any business, large or small, that is not thinking and acting strategically is extremely vulnerable.  Every business is exposed to the forces of a rapidly changing competitive environment, and in the future small business executives can expect even greater change and uncertainty. TMT 4002 Strategic Management Project for Tourism
  11. 11.  Analysis (External and Internal Environments)  Decisions (Formulating Strategy)  Actions (Implementing Strategy An organization undertakes in order to create and sustain competitive advantages and satisfy its multiple stakeholders.
  12. 12. Strategic Management is about how an organization adds value and competes in its environment.
  13. 13. 1. What good or service do we really sell? 2. How will we produce our goods or deliver our services? 3. Who will buy our goods or services? 4. How will we finance the operation? 5. How much risk are we willing to take? 6. How will we implement our strategy?
  14. 14.  Strategic management can be defined in various ways. According to Wheelen and Hunger (2006, 3), strategic management is a set of managerial decisions and actions that determines the long-term performance of a corporation. It involves environmental scanning (both external and internal), strategy formulation (strategic or long range planning), strategy implementation, and evaluation and control. They emphasize the analyzing and evaluating of external opportunities and threats in terms of an organization’s strengths and weaknesses. (Wheelen & Hunger 2006, 3.)  From the perspectives of Dess and Miller (1993), strategic management is a process that combines three major interrelated activities: strategic analysis, strategy formulation and strategy implementation. TMT 4002 Strategic Management Project for Tourism
  15. 15. Strategic Management Defined Set of managerial decisions and actions that determines the long-run performance of a firm. It includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control.
  16. 16.  Lamb (1984) states that strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment, or a new social, financial, or political environment.” (Lamb 1984.) TMT 4002 Strategic Management Project for Tourism
  17. 17. TMT 4002 Strategic Management Project for Tourism
  18. 18. Strategic management is a field of study that involves the process through which firms define their missions, visions, goals, and objectives, as well as craft and execute strategies at various levels of the firms’ hierarchies to create and sustain a competitive advantage. TMT 4002 Strategic Management Project for Tourism
  19. 19.  Historic origins of strategic management have been linked to the military.  The word strategy comes from the Greek strategos, which means “general.” In literal terms, it means “leader of the army.”  Military strategy deals with planning and execution in a war setting, while taking into consideration the strategy and tactics required to implement the plan.  Outmaneuvering the enemy in a “chess-like” situation requires a wellthought-out plan with emphasis on the plan’s execution. TMT 4002 Strategic Management Project for Tourism
  20. 20.  In the 1950s and 1960s, strategic management was viewed from a general management perspective, with emphasis on the role of the leader. (the focus on leadership, interpersonal relationships, and the systems, processes, and structures in an organization, the top-down approach, the top management at the core of the decision-making process)  During the late 1960s, the 1970s, and the early 1980s, firms adopted the strategic planning approach with an emphasis on analysis and formalized planning, with special teams assigned to develop plans. TMT 4002 Strategic Management Project for Tourism
  21. 21.  In the 1980s, scholars emphasized more on strategy implementation as a process.  There was a shift in emphasis from the leader to the development of organizational culture and its role in defining and implementing strategies.  Some scholars focused on firms’ competencies to explain strategy, which led to the emergence of the resource-based view of the firm.  In the hospitality and tourism domains, strategic management emerged as a field of study in the mid-to late 1980s.  Most of these efforts aimed at confirming theories related to the contingency, strategic planning, and competitive strategies. TMT 4002 Strategic Management Project for Tourism
  22. 22.  In the 1990s, globalization led to the emergence of network strategies, and strategic alliances became the focal point around which researchers developed the literature.  More efforts from a resource-based perspective led to the conceptualization of characteristics related to the firm’s internal competencies that enabled them to sustain competitive advantage.  The shift toward internal competencies also saw a shift in perspective toward the knowledge- based view and learning at the core of strategic competitive advantage in the late 1990s.  Progress continues using the knowledge perspective from the 2000s, with increased emphasis on corporate social responsibility. TMT 4002 Strategic Management Project for Tourism
  23. 23.  From a historical perspective, many schools of thought have emerged in the strategic management domain.  Mintzberg and colleagues (1998) described the domain as consisting of ten schools/perspectives (Table 1.1) that pertain to design, planning, positioning, entrepreneurial, cognitive, learning, power, cultural, environmental, and configuration.  As Mintzberg and his colleagues explain, the first three schools are more prescriptive, with an emphasis on strategy formulation that developed from the 1960s to the 1980s.  The next six schools are less prescriptive, while emphasizing how strategies are developed.  The tenth school conceptually combines and captures the other nine schools into an integrative whole. TMT 4002 Strategic Management Project for Tourism
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  25. 25. TMT 4002 Strategic Management Project for Tourism
  26. 26. TMT 4002 Strategic Management Project for Tourism A firm is in business to create value for its stakeholders. Since value is created if firms have a competitive edge over their market rivals, it is imperative that a definitive and formalized approach that falls within the realm of strategic management is at the core of the process. Creating a competitive advantage, and subsequently sustaining it over a period of time, requires a formal approach in terms of strategy formation and implementation. The firm should engage in constant evaluation of its market position, including benchmarking, that enables it to develop a strategic perspective to the value creation process. Since factors in the firm’s external and internal environments are constantly changing, the complexity and variability associated with creating and sustaining competitive advantage are high.
  27. 27.  At the corporate level, strategy is about asking questions about what business the firm is in or would like to be in, the firm’s potential to create value by being in the business or expanding into a new line of business, and the resources and capabilities the firm already has or needs to get to sustain/create competitive advantage in its business or businesses. TMT 4002 Strategic Management Project for Tourism
  28. 28.  At the business level, firms need to ask themselves the following questions: How can we create competitive advantage in our product- market domains in each strategic business unit (SBU)? How can we continue to be an overall cost leader or a broad differentiator, or, for that matter, have a cost focus or be a focused differentiator in our market domain?  Note that SBU is defined as a unit within a given corporate identity that is distinctly different from other units within the corporation in terms of products and services, as well as the markets it serves with a distinct profit-making capability of its own. TMT 4002 Strategic Management Project for Tourism
  29. 29.  At the functional level, the firm’s objective is to sustain its advantage by focusing on efficiencies related to production, operations, administration, marketing, and other support functions.  It also engages in constant innovation to ensure new product/service development rollout, while ensuring that the service and product qualities, as well as the customer satisfaction related to them, are at the highest level. TMT 4002 Strategic Management Project for Tourism
  30. 30.  The framework includes mission and vision statements, goals, and objectives that are linked to the mission and vision, as well as strategies and tactics to achieve the goals and objectives.  Strategic analysis provides the firm with a clear picture of its situation, which includes internal and external analysis.  Internal analysis pertains to strengths and weaknesses analysis, whereas external analysis pertains to opportunities and threats analysis, which is also referred to as SWOT analysis.  The analysis enables a firm to engage in strategic decision making. Strategic decisions pertain to choosing an alternative among a set of alternatives that leads to strategy-related success.  These decisions have an effect on the firm’s long-term orientation and direction. TMT 4002 Strategic Management Project for Tourism
  31. 31.  Strategy formulation is typically not a regular, continuous process but is often initiated by generating events, such as a new CEO or a performance gap. TMT 4002 Strategic Management Project for Tourism
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  33. 33. TMT 4002 Strategic Management Project for Tourism
  34. 34. TMT 4002 Strategic Management Project for Tourism
  35. 35. TMT 4002 Strategic Management Project for Tourism
  36. 36. TMT 4002 Strategic Management Project for Tourism
  37. 37. TMT 4002 Strategic Management Project for Tourism
  38. 38. Basic Concepts of Strategic Management 4 Phases of Strategic Management • Firms evolve through the following faces of strategic management: 1. Basic financial planning 2. Forecast-based planning 3. Externally-oriented planning 4. Strategic management
  39. 39. Basic Concepts of Strategic Management 1. Basic financial planning: initiate some planning when they requested to set up their budgets; considers activities for one year. 2. Forecast-based planning: consider projects for more than a year. The time horizon is usually 3-5 years. 3. Externally-oriented planning: conduct strategic planning by top management and they leave implementation to low level. 4. Strategic management: planning by forming a team from all levels in the company.
  40. 40. TMT 4002 Strategic Management Project for Tourism
  41. 41. Basic Concepts of Strategic Management Highly Rated Benefits • Clearer sense of strategic vision • Sharper focus on strategic importance • Improved understanding of changing environment
  42. 42. Basic Concepts of Strategic Management Not Always a Formal Process • Where is the organization now? (not where do we hope it is) • If no changes are made, where will the organization be in 1,2,5 or 10 years? • What specific actions should management undertake? • What are the risks and payoffs?
  43. 43. Basic Concepts of Strategic Management Basic Elements of the Strategic Management Process
  44. 44. Environmental Scanning Defined Monitoring, evaluation, and disseminating information from external and internal environments – to key people in the firm
  45. 45. Basic Concepts of Strategic Management Environmental Variables
  46. 46. Environmental Scanning SWOT Analysis • Strengths – Weaknesses • Opportunities - Threats
  47. 47. TMT 4002 Strategic Management Project for Tourism
  48. 48.  Strategic management includes two distinct phases: the strategy formation phase and the strategy implementation phase.  Strategic formation is the process of defining the direction of the firm’s futuristic course of action, which would enable the firm to allocate resources in order to achieve the set goals and objectives.  An internal and external environment analysis is part of the assessment before strategy is formulated at the corporate, business, and functional levels. TMT 4002 Strategic Management Project for Tourism
  49. 49.  On the other hand, strategy implementation is the process of putting strategy into action, which includes designing the organizational structure and related systems.  This process leads to effective resource allocation processes, including programs and activities such as setting budgets, developing support systems, recruiting, hiring, and training, as well as designing performance evaluation and rewards systems that lead to the attainment of set goals and objectives. TMT 4002 Strategic Management Project for Tourism
  50. 50.  Vision  Mission  Objectives  Financial  Strategic
  51. 51.  An inspiring, long-term “dream” about what the organization will achieve in the future  Represents a destination driven by and invoking passion
  52. 52. Empower people through great software anytime, anyplace, and on any device
  53. 53.  Provides more specifics for the vision  Includes such considerations:  Identification of products offered and customers served (What business are we in?)  How the company will compete (low price, innovation, service)  Ethical values of organization  Relations with employees and other stakeholders
  54. 54.  Proceed always with ambition and youthfulness.  Respect sound theory, develop fresh ideas, and make the most effective use of time.  Enjoy your work and always brighten your working atmosphere.  Strive constantly for a harmonious flow of work.  Be ever mindful of the value of research and endeavor.
  55. 55.  Provides more specific direction on what the organization must do to achieve its vision and mission—interim steps toward achieving the vision and mission.  As interim steps, objectives are  Long-term  Short-term
  56. 56.  Strategic  Outcomes focused on improving long- term competitive position of the organization  Financial  Outcomes focused on improving financial performance
  57. 57.  Increase firm’s market share  Boost firm’s reputation with customers  Strengthen presence in international markets  Become leader in new product innovation  Attain lower overall costs than rivals  Surpass competitors in quality or product performance
  58. 58.  Increase sales growth 6 to 8% per year  Cut costs by 5% per year every year  Increase annual dividends to shareholders by 5% per year  Achieve highest Return on Investment (ROI) in industry
  59. 59. Specific: precisely what needs to be achieved Measurable: at least one indicator that measures progress toward fulfilling objective Appropriate: consistent with vision and mission statements Realistic: must be achievable Time-based: must have a deadline for achieving the objective
  60. 60.  Concluding points  Set a philosophy and direction for strategy development and organizational action  Should represent permanent principles for the organization, but adaptable to changing circumstances—beware changes that reduce ambitions.
  61. 61. Strategy Formulation Development of long-range plans for effective management of opportunities and threats in light of corporate strengths and weaknesses
  62. 62. Strategy Formulation Mission Statement • Purpose/reason for organization • Promotes shared expectations • Communicates public image • Who we are; what we do; what we aspire to
  63. 63.  The organization must first define its mission, goals, and objectives.  The mission is a brief description of the very purpose of creating the organization.  The mission statement includes a clear purpose and states why the organization is in existence. TMT 4002 Strategic Management Project for Tourism
  64. 64.  A sound mission statement needs not to be lengthy to be effective.  What are the basic beliefs and values of the organization? What do we stand for?  Who are the company’s target customers?  What are our basic products and services? What customer needs and wants they satisfy?  Why should customers do business with us rather than the competitor down the street (or across town, on the other coast, on the other side of the globe)?  What constitutes value to our customers? How can we offer them better value?  What is our competitive advantage? What is its source?  In which markets (or market segments) will we choose to compete?  Who are the key stakeholders in our company and what effect do they have on it? TMT 4002 Strategic Management Project for Tourism
  65. 65. Four Seasons is dedicated to perfecting the travel experience through continual innovation and the highest standards of hospitality. From elegant surroundings of the finest quality, to caring, highly personalized 24-hour service, Four Seasons embodies a true home away from home for those who know and appreciate the best. The deeply instilled Four Seasons culture is personified by its employees – people who share a single focus and are inspired to offer great service. TMT 4002 Strategic Management Project for Tourism
  66. 66.  The vision, however, describes where the organization wants to go from where it is at present.  For instance, Hilton Hotels Corporation defines its vision as “Our vision is to be the first choice of the world’s travelers.”  The purpose of any vision is the same: to focus everyone’s attention on the same target and to inspire them to reach it.  The vision touches everyone associated with the company – employees, investors, lenders, customers, and the community. TMT 4002 Strategic Management Project for Tourism
  67. 67.  Vision provides direction. Managers who spell out the vision for their company focus everyone’s attention on the future and determine the path the business will take to get there.  Vision determines decisions. The vision influences the decisions, no matter how big or how small, that owners, managers, and employees make every day in business. This influence can be negative or positive, depending on how well defined the business is.  Vision motivates people. A clear vision excites and ignites people to action. People want to work for a company that set its sights high. TMT 4002 Strategic Management Project for Tourism
  68. 68.  A mission statement focuses on current business activities -- “who we are and what we do”  Current product and service offerings  Customer needs being served  Technological and business capabilities  A strategic vision concerns a firm’s future business path -- “where we are going”  Markets to be pursued  Future technology- product-customer focus  Kind of company that management is trying to create
  69. 69.  Goals are more specific in terms of what the organization aims to achieve in a definite period of time so it would be able to accomplish its mission and vision.  Goals are planned over the short and long terms. Short-term goals are set for a period not exceeding one year, whereas long-term goals are set for a period of time exceeding three to five years. This very much depends on the characteristics of the business.  Goals need to be linked to objectives.  Note that goals are more abstract than objectives. TMT 4002 Strategic Management Project for Tourism
  70. 70.  Goals are the broad, long-range attributes that a business seeks to accomplish; they tend to be general and sometimes even abstract.  Goals are not intended to be specific enough for a manger to act on but simply state the general level of accomplishment sought.  It is determined that one of the factors that set apart successful from unsuccessful ones is the formulation of very ambitious, clear, and inspiring long-term goals. TMT 4002 Strategic Management Project for Tourism
  71. 71.  Objectives need to be definite and quantifiable, strategies clearly identify how the objectives will be met in terms of the plan, and tactics are the actions that operationalize the strategy—those that lead to the attainment of goals and objectives.  For instance, in a game of chess, a tactic may be employed to corner the opponent’s rook by making a series of moves. Another set of tactics could be geared toward weakening the queen. These tactics in combination may be part of the strategy to gain an advantage, which ultimately would lead to winning the game.  Note that tactical decisions, which can be immediate or very short term in terms of scope, impact the implementation process at the functional/operating level. TMT 4002 Strategic Management Project for Tourism
  72. 72.  Objectives are more specific targets of performance than goals.  Common objectives concern profitability, productivity, growth, efficiency, markets, financial resources, physical facilities, organizational structure, employee welfare, and social responsibility. TMT 4002 Strategic Management Project for Tourism
  73. 73. The King Hotel is in business with a mission to create value for its stockholders. To accomplish the mission, the firm has set goals for the current year of increasing the business segment productivity. The objectives that are linked to the goals include increasing the business segment revenues by 10 percent and increasing repeat clientele for this segment by 15 percent. The strategies include marketing and operations-related plans and tactics, including increasing sales calls in the business district of the city, increasing promotional campaigns for the international and domestic business markets, and creating an amenities package for business travelers that includes free airport transfers, a free welcome drink on arrival, free Internet access in the room, and free use of business centre secretarial services for three hours a day. Note that the goals are linked to the mission, the objectives are linked to the goals, the strategies are linked to the objectives, and the tactics are linked to the strategies. TMT 4002 Strategic Management Project for Tourism
  74. 74. 1/24/2023 1-75 Population ecology: established organizations are unable to adapt to change Institution theory: organizations adapt by imitating successful organizations Prentice Hall, 2012
  75. 75. 1/24/2023 1-76 Strategic choice perspective: organizations adapt to change and have the ability to reshape their environment Organizational learning theory: organizations adapt defensively and use knowledge to improve their relationship with the environment Prentice Hall, 2012
  76. 76. Organizational Adaptation Strategic flexibility • Demands long-term commitment to development of critical resources • Demands firm become a learning organization
  77. 77. Learning Organizations An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights
  78. 78. Basic Concepts of Strategic Management Hierarchy of Strategy
  79. 79.  A large corporation tends to have three levels of strategy (corporate, business, and functional) which form a hierarchy of strategy. TMT 4002 Strategic Management Project for Tourism
  80. 80. Basic Concepts of Strategic Management Hierarchy of Strategy –Corporate strategy –Business strategy –Functional strategy
  81. 81. Basic Concepts of Strategic Management Corporate Strategy –Stability –Growth –Retrenchment
  82. 82.  The first hierarchy is corporate strategy. It describes a company’s overall direction in  light of its general attitude toward growth and the management of its various businesses  and product lines base on Dess and Miller‘s(1993) statement.  Three main categories can be used for corporate strategy which is stability strategy,  growth strategy and retrenchment strategy respectively (Dess & Miller 1993). TMT 4002 Strategic Management Project for Tourism
  83. 83. Basic Concepts of Strategic Management Business Strategy –Competitive strategies –Cooperative strategies
  84. 84.  The second hierarchy is business strategy. Business strategy usually happens at the business unit or product level and it emphasizes improvement of the competitiveness, positions of a corporate products or services in the specific field or market segment served by that business unit. (Dess & Miller 1993.)  There are two main categories in business strategy: competitive and co-operative strategies (Dess & Miller 1993). TMT 4002 Strategic Management Project for Tourism
  85. 85. Basic Concepts of Strategic Management Functional Strategy –Technological leadership –Technological followership
  86. 86.  The third hierarchy is functional strategy. It is the approach taken by a functional area in order to achieve corporate and business unit objectives and strategies by means of optimizing resource productivity. (Dess & Miller 1993.)  In a word, there is metaphor to describe the relationship between corporate strategy and business strategy. If corporate strategy is like a big family, then the business strategy is like many children of it. TMT 4002 Strategic Management Project for Tourism
  87. 87. Basic Concepts of Strategic Management Strategic Decision-Making Process TMT 4002 Strategic Management Project for Tourism