Topic 1 Strategy

Topic 1.
Strategy
Grado en Turismo
Strategic Management
Prof.: Maria Razumova
Contents
1. Concepts and definitions

2. Components of a strategy
3. Levels of strategic decisions
4. Strategic management process: definition and phases
5. Specifics of strategic management in tourism firms
Escuela Universitaria de Turismo Felipe Moreno

Escuela de Turismo de Baleares www.etb-baleares.ess
Contents

Concepts and definitions

What is strategy?
Historical (military) roots:
the art of war
strategic skills to out-manoeuvre the enemy
Nowadays, it is used in many ways:
a strategy for a business
a strategy for finding a job
a strategy for a football match
a strategy for preparing for the exams

Mintzbergs five Ps framework
The word strategy can be used as:
1.
2.
3.
4.
5.
A plan
A ploy (tctica)
A pattern of behavior
A position in respect to others
A perspective
Should be seen as a framework, not mutually exclusive


Strategy as a plan
Long-term strategy
Something that is put in train and its progress is monitored
Internal documents (actions plans for a given period of time)
- directions for work, schedules for product launches, etc.
Example: a big tour operator may plan to expand its share in the UK
market by offering lower prices and by opening subsidiaries in the
main UK cities


Strategy as a ploy (tctica)
A short term strategy
Detailed actions
A maneuver to outfit the competitors
A threat (amenaza, amago)
- to decrease the prices to destabilize competitors, price wars)
Example: our tour operator may discount even more its prices for the
last minute deals to destabilize competitors and sell excess
capacity

Pattern strategies
Consistent form of behavior
Pattern is not planned, it is just happens as a result of the

consistent behavior
May be unconscious
Example: a tour operator offers small villas in Greece. If there is a new

villa in Greece on favorable terms the tour operator will contract it,
but it wont feature a villa in Majorca


Position strategies
A company has a certain position with respect to its competitors
Reputation, prices, research, profitability

Companys objective: to maintain or defend this position
Example: An airline has a good reputation for reliability and quality.

Its position strategy will consist in ensuring that reputation is
maintained and strengthened. It may use marketing messages to
point out its strength comparing to the competitors.


Perspective strategies
Changing the culture of a certain group of people (employees)
Think and act courteously, professionally or helpfully
So many definitions can we sum them up?

10

STRATEGY (Chandlers* definition) is:
the determination of the basic long-term goals

and objectives of an enterprise,
the adoption of courses of actions
and the allocation of resources necessary for
carrying out these goals
* Professor of Harvard Business School, 1962
11
Contents

12
Components of strategy
Determination of the basic long-term goals
Where do we go?
Have to be coherent and attainable

13
Adoption of courses of actions
Actions to reach the objectives
Different actions can be undertaken to reach the same
objectives (ej. a trip from Majorca to Madrid)
The existing options have to be evaluated
Detailed decisions

14
Allocation of resources
Do we have resources to support the proposed action plan?
Availability, quality, cost
Resource inputs:
Financial resources
Human resources
Physical (tangible) resources
Intellectual (intangible) resources

15
Contents


16
Contents
Strategy is not
only one decision
only decisions taken on the top level
There is a hierarchy of subordinated

(strategic) decisions

17
Levels of strategic decisions
subordination
Decisions in an Organization
Strategic decisions on
each level of a firm differ
from each other in:
Strategic level
Tactical level
Operational level
Focus: (what?)
Organizational level: (who?)
Scope (alcance)
Time horizon
Degree of
certainty/uncertainty
Complexity

18

Strategic level
Focus:
Sustainable competitive advantage

- Setting of long-term objectives
- Formulation, evaluation, selection and monitoring of strategies
Organizational level:
Scope:
Time horizon:
Certainty/uncertainty:
Complexity:
Top management /board of directors

whole organization
long-term (years)
high uncertainty
complex
Examples: launch new product, enter new market, investment

EasyJet strategic decision to become low cost, no frills* airline
* service or product for which the non-essential features have been removed to keep the price low
19

Tactical level
Focus:
Implementation of strategy
How the strategic objectives are to be met
Strategic objectives fine-tuning and adjustments
Dependent upon strategy
Scope:
Time horizon:
Complexity:
Head of business units, department or functional

areas
business units or departments (e.g. Finance,
Marketing)
medium-term (months to years)
involve some uncertainty
semi-complex
Example: decision to change the price

20

Operational level
Focus:
Short-term objectives
Day-to-day management
Dependent upon strategy and tactics
Scope:
Time horizon:
Complexity:
Junior managers, supervisors

parts of the organization
short-term (days, weeks, months)
high certainty
simple
Example: decisions to purchase inputs, hire new employees..

21
Contents
4. Strategic management process


22
Strategic management process

Mission and vision
Objectives
External analysis
Strategic analysis
Internal analysis
Internal strengths
and weaknesses
External opportunities
and threats
Evaluation of options
and selection of
strategy
Implementation and
control
23

Mission and vision
Objectives
External analysis
Strategic analysis
Internal analysis
Internal strengths
and weaknesses
and threats
and selection of
strategy
Implementation and
control
24
Mission and Vision

Mission: Where we are now? What we are now?
The reason for a firms existence The main objective
Vision: Where we want to be in the future?
Mission and vision:
Promote hierarchical congruence
Not easy to articulate, can be controversial
Mission and vision statement a formal statement (may have different
styles, lengths, etc)
Effective mission statements: clear, relevant, current, positive,
individuality, enduring, adapted to different audiences

25
Mission and Vision: examples

Mission: Four Seasons Hotels and Resorts
Four Seasons is dedicated to perfecting the travel experience
through continual innovation and the highest standards in
hospitality. From elegant surroundings of the finest quality, to
caring, highly personalized 24-hours service, Four Seasons
embodies a true home away 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.
Vision: Hilton Hotels Corporation: Our vision is to be the first
choice of the worlds travelers.

26

Mission and vision
Goals and
Objectives
External analysis
Strategic analysis
Internal analysis
Internal strengths
and weaknesses
and threats
and selection of
strategy
Implementation and
control
27
Goals and objectives

Why it is important to set goals and objectives?
Provide a sense of direction
Provide a standard of measurement and means of controlling
performance
Mission and vision
Goals
Objectives
Abstract
Somewhat abstract
Specific
Measurable
Communicable

28
Objectives
Mission and vision
Corporate objectives
Economic
Financial nature:
Return
Return on assets
Return on sales
For non-profit:
Value for money
(marketing office:
tourists per euro spent)
Growth
Competitive
advantage
- Main objectives for

publicly funded
organizations
Economy of scale
Pricing power
Companies position
in respect to
competitors
- CRS in profit
organization
Size and market

share
Reputation
Research
Human resources
Social
Support local
community

29

Mission and vision
Objectives
External analysis
Strategic analysis
Internal analysis
and selection of
strategy
Implementation and
control
30
Strategic analysis
Socio-demographic
Internal analysis
Political
Industry
(Strengths / weaknesses)
External analysis
Economic
Firm
(Opportunities & Threats)
Microenvironment
Macroenvironment
SWOT & key issues
What to address? what

to exploit?
Competitive
environment
Environmental
Technological

31

Mission and vision
Objectives
External analysis
Strategic analysis
Internal analysis
Internal strengths
and weaknesses
and threats
and selection of
strategy
Implementation and
control
32
Strategic choice
How we will compete?
What are our strategic directions?
Which methods we use?
Strategic
option 1
Strategic
analysis
Key
issues
Strategic
option 2
Strategic
option 3
Evaluation
criteria
Strategic
option
selected

33
Strategic choice
Strategies:
Specific strategies:
Cost? Differentiation? Segmentation?
Growth strategies:
New products? / New markets? / Both?
Evaluation criteria:
Cost-benefit
Risks
Scenario analysis

34
Example: King Hotels

Mission: Create value for stakeholders
Goals: Increase the business segment profitability

Objectives: Increase revenues by 10%, repeat clients 15%
Strategies: marketing plan
Tactics: Sales call in the business district; promotional
campaigns; attractive package for business travelers (free
airport fees, free internet, welcome drink, free use of business
center, etc)
35

Mission and vision
Objectives
External analysis
Strategic analysis
and threats
and selection of
strategy
Internal analysis
Internal strengths
and weaknesses
Implementation and
control
36
Strategy implementation & control

Resource allocation
Readiness for changes
Culture and structure (flexibility creativity)
Feedback

37
Contents

5. Specifics of strategic management in

tourism firms
5.1. Tourism as a service product
5.2. Travel and tourism specifics as a service

38
Tourism as a service product

Products
Goods
We own them
Services
We use them
Services are:
Intangible
Inseparable
Perishable
Heterogenic
Ownership

39

Intangibility
Cannot be seen, touched, tried before the purchase
Not a single service but an amalgam of invisible services:
Transportation, accommodation, entertainment
Implication: Services are harder to buy,

but easier to distribute

40

Intangibility
Travel brochures (paper and online) less uncertainty
Nowadays: the technologies make the travel less and less
intangible

41

Intangibility
Package a pre-arranged combination, sold or offered for sale at
an inclusive price, of not less than two of the following elements:
Package
Transport
Major cause of growth of the

market
Lowest price
Language barrier
Travel organization skills
Accommodation
Other
services
42

Inseparability
Production and consumption same time, same place
Services do not come packaged
Customers have direct experience in the production and
delivery of a service
Main implication:
Staff (the level of customer service) is of crucial importance
A car we dont care how it was produced
A hotels stay we do care how customer service are produced:
is reception, restaurant, room service, etc staff efficient, helpful, polite?
43

Perishability
Services are perishable they cannot be stored
Empty seat, empty room lost opportunities,
losses related to fixed costs
Implication: difficult to find the balance between demand and supply
Moreover, in tourism:
FLUCTUATING DEMAND
Seasonal fluctuations
Climatic conditions
Economic activity
Force major terrorism,
wars
VS
FIXED SUPPLY
Hotel beds
Flights obligations
Contractual
obligations of TO

44

Heterogeneity
Services are never identical

Human behavior is highly variable
Staff: not all people have good customer relation skills
Customers: easy-going and trouble-makers
Provide as much information to customer as possible
Staff trainings, suitable personalities to work with public
Heterogeneity can also be an attraction

Difficult to manage the heterogeneity and provide
consistent quality
Example Radisson Hotels
45

Heterogeneity
More than 400 hotels (mostly franchised), 100 000 rooms, 73

countries
Deluxe hotels, resorts, all-included hotels..
Cultural and linguistic backgrounds of staff
Locations vary (level of service, prices, )
Company does not own buildings
Alliances with local quality hotels
Training, standardized procedures
Careful agreements
46

Ownership
The ownership rights are not transferred
The duration of relationship with customer is usually
short (a stay, a trip, )
Difficult to built a long term relationship
Brand loyalty
Less probability to repeat purchase
Differently in the case of goods the relationship is continued and
even can be improved in the course of post-purchase services
(e.g. maintenance)
47
Contenidos

5. Specifics of strategic management in

tourism firms
5.1. Tourism as a service product
5.2. Travel and tourism specifics as a service

48
Travel and tourism specifics as a service

High cost
Seasonality
Ease of entry/exit
Interdependence
Impact on society
External shocks

49

High cost
Not a essential service
May represent a largest single item of expenditure

during a year
Implies comparison of alternatives
Rarely done on impulse

50

Seasonality

51

Seasonality
UK a very seasonal market: June, July, August

Cash flow fluctuations: cash shortage in late
autumn early winter
Unutilized aircraft capacity during off-season
Managerial responses counter seasonal

businesses
Purchase of Canadian tour Operator (strong demand
to the Caribbean in winter)
Long haul routes - strong demand in Europe in winter
52

Ease of entry/exit
Low set up costs
Tour operators: main costs - brochures producing
and marketing
Travel agents: do not purchase from Tour operators
until the customer pays
Implication:
If someone is successful , it is not difficult for
a competitor to offer a similar product

53

Interdependence
Accommodation
Attractions
Transport
Travel organizers
Destination organizers
If one sector fails others suffer
Managerial response:
vertical integration
54

Impact on society
On tourist generating destinations (e.g.
changes in perceptions towards food)
On host destinations:

55

Impact on host destinations (destino receptor)
Economic
Social
Environmental
Visitor
spending
Understanding
different cultures
Regeneration of
urban areas
Jobs creation
Conservation of
traditions (tourist
attractors)
Protection of natural
resources for visitors
Loss of authenticity
(McDonalds)
Air and sea pollution,

fresh water
consumption, waste
Investment in
infrastructure
Leakages of
income (tax
heavens, no
reinvestment in
local economy )
Disturbance to the
traditional ways of life Damage to
landscape and historic
buildings

56

The effect of external shocks
Wars (North Africa)

Terrorism attacks (Sept 2011)
Pollution (Prestige)
Accidents
These shocks are out of the control of the tourism

industry managers. Managerial responses:
Risk assessment
Emergency action plans
Spreading the risks between different markets, businesses, etc

57
Review questions
Define the strategy using Mintzbergs 5 PS framework
Explain the difference between strategic, tactical and
operational decisions
Define the mission and its purpose
Define the strategy using Chandlers framework and its
components
Define the types of objectives
Define the stages of strategic management process
Explain the key feature of services and how they relate to
travel and tourism
Explain the role of the package in the growth of the tourism
sector
Describe the six factors that specifically apply to travel and
tourism
58
Basic reading
Evans, Campbell and Stonehouse (2006).
Strategic Management for Travel and
Tourism.
Chapter 1 and 2.

59
Exercise 1
Great Eastern Hotel case read and
answer the questions (download from the
Aula Virtual)

60
Exercise 2
Considering the characteristics of tourism
and travel products discussed in 5.1 and
5.2 explain, what are the similarities and
differences in managing a restaurant to
managing an ice-cream factory?

61

Topic 1 Strategy

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Topic 1.

1. Concepts and definitions

Escuela Universitaria de Turismo Felipe Moreno

Escuela Universitaria de Turismo Felipe Moreno

Concepts and definitions

Concepts and definitions

Should be seen as a framework, not mutually exclusive

Concepts and definitions

Escuela Universitaria de Turismo Felipe Moreno

Concepts and definitions

Concepts and definitions

Pattern is not planned, it is just happens as a result of the

Example: a tour operator offers small villas in Greece. If there is a new

Escuela Universitaria de Turismo Felipe Moreno

Concepts and definitions

Reputation, prices, research, profitability

Example: An airline has a good reputation for reliability and quality.

Escuela Universitaria de Turismo Felipe Moreno

Concepts and definitions

So many definitions can we sum them up?

Escuela Universitaria de Turismo Felipe Moreno

Concepts and definitions

the determination of the basic long-term goals

Escuela Universitaria de Turismo Felipe Moreno

Escuela Universitaria de Turismo Felipe Moreno

Escuela Universitaria de Turismo Felipe Moreno

Escuela Universitaria de Turismo Felipe Moreno

3. Levels of strategic decisions

Escuela Universitaria de Turismo Felipe Moreno

There is a hierarchy of subordinated

Escuela Universitaria de Turismo Felipe Moreno

Levels of strategic decisions

Escuela Universitaria de Turismo Felipe Moreno

Levels of strategic decisions

Sustainable competitive advantage

Top management /board of directors

Examples: launch new product, enter new market, investment

Levels of strategic decisions

Head of business units, department or functional

Example: decision to change the price

Levels of strategic decisions

Junior managers, supervisors

Example: decisions to purchase inputs, hire new employees..

Escuela Universitaria de Turismo Felipe Moreno

4. Strategic management process

Escuela Universitaria de Turismo Felipe Moreno

Strategic management process

Strategic management process

Mission and Vision

Escuela Universitaria de Turismo Felipe Moreno

Mission and Vision: examples

Escuela Universitaria de Turismo Felipe Moreno

Strategic management process

Goals and objectives

Mission and vision

Escuela Universitaria de Turismo Felipe Moreno

- Main objectives for

Size and market

Escuela Universitaria de Turismo Felipe Moreno

Strategic management process

(Opportunities & Threats)

SWOT & key issues

What to address? what