Strategy for Tourism

1. Strategy for Tourism Lecture 6 The Internal Environment: Capability Professor John Tribe

2. Learning Outcomes • After studying this chapter and related materials you should be able to understand: • capability: resources and competences • resource audit • performance monitoring and control • evaluation of products • SWOT analysis • and critically evaluate, explain and apply the above concepts.

4. Case Study 6: InterContinental Hotels Group (IHG) • IHG has 4800 hotels in 100 countries • Its business model, which is increasingly typical in the hotel industry, is to concentrate on the management of hotels which are owned by other parties and on franchising its hotel brands. • IHG manages 734 hotels but the largest part of its business is the 4,100 hotels that operate under franchise agreements. • Its key capability is expertise in hotel management, operating systems, branding and marketing.. • IHG measures success in four ways: • Total shareholder returns. • Rooms growth • a basket of specific key performance indicators (KPIs) • benchmarking

5. Capability • Resources • Products / services

6. Capability: Resources and Competences • Resources are the inputs that are used for the activities of tourism entities. Competences are the skills and abilities used to deploy resources to achieve a given end. Core competences are defined as those which are central to the entity’s mission and those which enable it to develop its competitive advantage. • Resources may be classified under four headings: • physical resources • human resources • financial resources, and • intangibles

7. Capability: Destination Competitiveness • Crouch and Ritchie (1999, p. 146) argued for a model where tourism destination competitiveness is determined by four major components: • Core resources and attractors* • Supporting factors and resources* • Destination management* • Qualifying determinants*

8. Capability: WEF Travel & Tourism Competitiveness • 1 Enabling Environment • 2 T&T Policy and Enabling Conditions • 3 Infrastructure • 4 Natural and Cultural Resources

9. Performance Monitoring and Control • Specific techniques are often used for analysing the performance of • human resources*, and • financial resources* • General techniques for analysis can include: • value chain analysis • balanced scorecard • An organisation's performance with regard to resource utilisation can be given a useful perspective by way of • comparative analysis • historical analysis

10. Human Resources • Monitoring of the performance of human resources is more complex than for other resources and involves qualitative as well as quantitative issues. Key issues for performance analysis include: • Appraisal • Performance management • Reward management • Succession readiness

11. Financial Resources • For profit-making organisations financial indicators include: • profit and loss • share prices • earnings per share • price / earnings ratios • return on capital employed • profit margin • revenue per available room • revenue per available seat kilometre (RASK) • efficiency • liquidity

12. Value Chain • The tendency to analyse organisations by reference to a narrow and visible aspect of its products resulted in analysts such as Porter (1985) developing the idea of the value chain. • The product of a scheduled airline for example is not just a seat on an aeroplane, rather it is a complex set of connected activities that go to make up the total passenger experience - i.e. a value chain exists. • For this part of resource analysis the purpose of examining the links in the value chain is to identify where cost savings may be made.

13. Value Chain: Costs

14. Balanced scorecard • The balanced scorecard collects performance data from a range of an organisation’s activities. • It arose from criticisms that other measures are too narrow • Four areas that are typically targeted for review are: • Financial perspective (e.g. profit margins, revenue growth, costs, cash flow, net operating income) • Customer perspective (e.g., market share, customer satisfaction) • Internal process perspective (e.g. asset utilization, supply chain management, customer management, innovation and relations with the external stakeholders), • Innovation and learning perspective (e.g. human capital, information capital and organization capital).

15. Phillips & Louvieris’s (2005) balanced scorecard for hotels

16. Comparative Analysis • Comparative analysis can be made by reference to • Longitudinal Analysis which uses an organisation's historical record to compare data on performance over time. • Best Practice which uses data from other organisations in an industry to provide information on the highest performance standards attainable.

17. Capability • Resources • Products / Services

18. Evaluation of Offer • Part of an organisation's capability review will focus on an evaluation of current offer. • There are several methods of analysis including: • Effectiveness* • value chain analysis* • portfolio analysis, and* • product life-cycle analysis*

19. Effectiveness • Effectiveness is a measure of how well a particular objective is achieved. Measures of product effectiveness may include: • demand • consumer satisfaction with product • analysis of matching between product and market need • performance of product • comparison with competing products

20. RATER • RATER (Buttle, 1996) measures satisfaction in terms of: • Reliability • Assurance • Tangibles • Empathy • Responsiveness.

21. Value chain analysis • Value chain analysis can also be used to determine whether improvements or value-added can be incorporated into a product's value chain. • Example is a health spa in a 5* Sofitel hotel

22. Portfolio analysis • Portfolio analysis considers whether an organisation's range of products are well balanced with a particular view to the future. • The Boston Consulting Group (BCG) matrix which considers products in terms of their market share and market growth may be used to assess the balance of an organisation's portfolio of products.

23. BCG Matrix

24. Product life-cycle analysis • Product life cycle (PLC) (Vernon, 1966, 1979) analysis is useful in considering the future path of sales of a product. • The next slides depicts the four main stages of • Introduction • Growth • Maturity and • Decline and the characteristics of these stages are tabulated. • Clearly products which are entering decline may need rejuvenation or replacement whereas market development may be appropriate for those in the growth phase.

25. Product life-cycle analysis

26. SWOT Analysis • SWOT analysis is an executive summary of the different elements of strategic analysis. Under SWOT, the detailed analysis of an organisation's external environmental and internal resource position is distilled and summarised into key factors. • Once the key SWOT elements have been identified, it can be productive to prepare a grid with strengths and weaknesses and opportunities and threats. • Identification of an organisation's situational position by means of a SWOT analysis is an important phase in prior to consideration of strategic options which is the subject of the next chapter. Appropriate strategies are likely to: • align opportunities and strengths • transform weaknesses, and • overcome threats

27. Summary: SWOT Analysis

28. Review of Key Terms • Resources: Physical resources, human resources, financial resources, and intangibles • Value Chain: Set of connected activities that make up the total service provision • Balanced Scorecard: Performance data from a range of an organisation’s activities. • Longitudinal Analysis: Uses an organisation's historical record to compare data on performance over time. • Best practice: Uses data from other organisations in an industry to provide information on the highest performance standards attainable • Portfolio Analysis: Evaluates an organisation's range of products in terms of their market share and market growth • Product Life Cycle: Depicts the four main stages of development as introduction, growth, maturity and decline • Tourism Area Life Cycle: Exploration, involvement, development, consolidation and stagnation • SWOT analysis: Stands for Strengths, Weaknesses, Opportunities and Threats

29. Discussion Questions • Use the RATER (Buttle, 1996) elements of: • Reliability • Assurance • Tangibles • Empathy • Responsiveness to carry out a quality audit on a named tourism service. Identify any service gaps and make recommendations. • What is value chain analysis? Conduct a value chain analysis for a hotel which focuses on ways of either • reducing costs or • improving service. • Identify the position on a Boston Box of the main products of a named tourism organisation. What conclusions can you reach about the balance of the portfolio of products and what points for future planning emerge from this exercise? • To what extent can the concept of product life cycles be used to analyse destinations (Butler, 1980)? • What is the purpose of a SWOT analysis? Conduct a SWOT analysis for a tourism entity.

30. Strategy for Tourism Lecture 6 The Internal Environment: Capability The End