Hospitality Service Delivery Strategies
A critique of Strategies and Tactics used in running the Smile Hotel
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Introduction
In a simulation of the running of a business enterprise the Smile hotel, the group was presented with the concept of a hotel where the successful running of the same was required so as to ensure sustained profitability and to generally improve its performance business wise. According to its profile Smile hotel was established in the 1950s and had environmental beauty and natural resources as well as an ideal location as its main advantages. The group is tasked with the responsibility to ensure proper running of the hotel, its adjustment to suit modern-day clientele as well as its ability to compete with newer market entrants. Due to the change of economic situation as well as a result of increase of new hotels in the industry, Smile hotel is facing the challenge of lack of competitive edge in the industry at the commencement of the simulation. The group’s management of the hotel eventually leads it to bankruptcy at the end of the first year. This paper critiques some of the strategies and tactics employed by the group in its running of Smile hotel. It highlights how different approaches may have been used or different strategies and tactics employed to yield better results.
In its evolution of a managerial strategy the management team started on a positive note by making considerations of both the internal environment and the external environment of the organization. Factors that significantly determine the success of an organization stem from both within and without the organization (Elliott, Rundle-Thiele, Waller & Paladino, 2006). These were thought to encapsulate all other concerns and compository elements of the organization which would be relevant in its running. There was an intention in the group’s strategy formulation to balance these two elements so as to result in the balanced running of the hotel. However, the management group neglected certain aspects of internal strategy as well as some areas of the external strategy.
A critique of Internal Strategies
Pricing strategies
Although pricing strategies were adjusted relative to elasticity of demand ( Raya, 2011) as well as competitor’s pricing, the management group did not make consideration of the effect of quality on pricing as well as the age of the hotel. The age of an organization usually tends to have an impact on consumer perspectives, which may be negative or positive. These perspectives should be taken into consideration in pricing especially in a competitive environment. The quality of services and standard of the hotel in comparison to that of others should also have been put into consideration when pricing. The need to understand consumer preferences vis-a vis services offered at the hotel should have been considered as a significant determinant of process. Aspects such as duration on stay and lower rates for city residents would have served as an incentive to customers and may have increased customers. This might have led to more favorable pricing which may have led to increased revenue. A strategy to build and increase customer loyalty was neglected. Such loyalty is considered as one of the most important things an organization should establish if it aims at sustaining profitability (Reichheld & Schefter, 2000).
Human Resource Strategies
The functional flexible system was employed in dealing with employees where many employees were provided with middle-level skills training and worked on a contractual basis. This was thought to maintain just the right amount of skill needed to offer required services ( Onyango & Okech, 2008 ).The method however results in decreased staff loyalty to the Hotel.In hind sight, it would be better to have retained a smaller number of employees with very high skills training who would be able to adapt with the changes in the Hotel and would be able to cater to customers using their diversified skill sets. It would be very hard for the hotel which was already struggling financially to provide better training to a vast number of employees without risking financial crisis. The company would have benefitted from laying off some of its more dispensable staff and retaining highly skilled staff who are easily trainable and able to multi-task. It would also cost the company a lot less to pay them and would result in increased staff loyalty which reflects in service delivery and eventually is seen in customer satisfaction. Satisfied employees may also act as good marketers for the hotel(Denny & Michael, 2007).
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Advertising Strategy
The management group also instituted an advertising strategy to market the hotel. This was a positive and much needed step as the hotel had previously lost its competitive edge in light of new more modern and sophisticated entrants in to the industry. The group allocated a weekly budget of 600 dollars mainly through direct mail, poster, Sunday newspaper, local newspaper. Since the main problem of the hotel was that it was not matching up to competition, advertisement should have been considered as a key item in its recovery. A higher beget should have therefore been allocated for the same. Consideration should have also been made in choosing the channels of advertisement for the hotel. Technology has seen modern-day clientele looking for hotels and vacation destinations mainly through the internet and the television ( Banweri and Julie, 2002). Advertisement strategies should therefore have been tailored to reflect this change in consumer behavior. Internet advertising is also track-able, significantly cheaper and has been proven to provide a notable return on investment (Barrows & Powers, 2009, p. 406). Advertising also failed to capitalize and highlight those aspects of the hotel that are re-known for their high quality among gusts which include food and quality of service.
Refurbishment and maintenance strategy
Although refurbishments and maintenance was a necessary undertaking in the management strategy of Smile hotel, too large a budget was allocated to the same. The undertaking could have been done slowly and progressively. It is that refurbishment budget that eventually led to the bankruptcy of the hotel at the end of the first year. A study conducted by Dube et al (2000) revealed that the physical aspects and room design of hotel are the third and fourth determinants out of top ten attributes driving customer decisions in favor of the hotel. These findings are what informed the decision to invest too much money in refurbishing the hotel and led to its bankruptcy. It would have been more productive and business-savvy to focus more on the first three top influencers on customer choice of hotel such as pricing, quality of service and pace the refurbishment of the hotel. Refurbishment seasons should have also been aligned with peak tourism/business seasons so as to ensue that refurbishments are done with the extra money brought in from higher charges at peak seasons for the business.
Not much change was done about operations of the business. The SWOT analysis should have been used to act as a directional tool in strategy formulation as it helps in the making of decision that ultimately increases revenues (Cunhill, 2002). The weaknesses and threats should have been addressed and the strengths and opportunities taken advantage of.
A critique of strategies employed for external factors
The main external factor considered in the strategy was competition. Enough research and consideration of the competition should have been invested in. In this way the hotel would have been able to establish the main areas in which it may gain a competitive edge over others in the industry. This should have been done in all issues including human resource treatment, planning, advertising and quality of services offered. This would have provided leverage for the hotel as it seeks to re-establish itself in the market and brand itself as a leading tourist destination.
Porter’s five force analysis
According to Porter’s (2008) five force analysis for business and industry development, there are five forces that determine the intensity of competition and therefore determine the attractiveness of a particular market or industry. These are threats of new entrants in to the market, the ability and willingness of people to buy, the availability of suppliers, the treat of substitute products entering the market and the intensity of competition between existing market players.
The group, management team for Smile hotel did not exhaustively deal with the issue of competition in their strategic planning. In hindsight, pricing, advertising and human resource planning should have been done with porter’s five forces in mind, as they relate to Smile hotel. The management failed to find a focal point of competitive advantage and to capitalize on it so as to raise the profile of the hotel .Competitive advantage for Smile represents an area or an aspect of the hotel which is very favorable for its business either because of its appeal to the consumer or because it results in less spending for the business. Both result in higher revenues ( Cunhill, 2002). The quality of meals and customer services which had received many compliments as the best in the area by customers was one point of a competitive advantage.
For Smile the five force analysis had competitive rivalry between Smile and the other six hotels situated next to it. Since the tourism and hospitality industry is growing very fast there is a constant threat of new entrants into the market. However this threat is more moderate due to the enormous time and financial investment required for new entrants. The buyer power in the tourism industry is influenced by economic times and is also very seasonal. This therefore is a factor that affects Smile> Supplier power and threat of substitution are fairly moderate or smile as the industry is more service oriented. All these factors needed to have been properly considered in the formulation of strategies by the management group and should have had a bearing on their advertisement and pricing strategies.
Forward vertical integration however involves the control of distribution centers and retailers, where company product is sold (Cunill, 2006).the Hotel might have benefitted from an attempt at the same.
Team’s Decisions on Firm
The diversification of pricing packages and consumer discrimination had a positive effect on the number of customers that came to the hotel thus resulting in increased revenue. It could have however been better if pricing was done in consideration of the hotel’s five force analysis for competitive advantage.
The decisions of the group to provide high training for its employees resulted in increased loyalty and therefore increased productivity in the employees. This gradually results in increased customer satisfaction and a good reputation for the hotel. The decision to conduct major refurbishing in the first year very unpleasant consequences for the company as it got bankrupt and resulted in its being indebted. It also decreased investor confidence and led to a decline in return on equality for stock holders. In the third fourth and fifth year however, the group’s decisions had a good impact on customers and the data projected an increase in customers and therefore an increase in total and net income for the hotel.
Effectiveness of Operational, Marketing and Business Objectives
The group managed to implement most of their operational plan although they did make deviations to accommodate increased competition. These were necessary to maintain revenues in the face of increased competition. Although the operational plan led to bankruptcy in the first year of running the company, eventually the decision paid off as data indicates consistent growth in terms of revenue for the company. The group’s marketing plan although it was implemented does not seem to be very effective given new consumer trends. However in the overall business objective which is to provide revenue for the business, the decisions paid off. The business continued to record increased revenues in the fifth year and projected the san in years to come. The group’s operations however did not instill confidence in investors and this led to a decline of investment in equity. The team’s organizational structure comprised of round –table session where each managerial partner had an equal input.
Data Outcomes
Data outcomes reflect projected increases in revenues in the future. Declines in revenues correspond to increased investment in refurbishing the hotel. There is stable increase for Smile hotel in total revenue overall. However, net income was kept staying in negative it because Smile hotel had bankrupt at the end of first year due to over installed facilities and refurbishment. In addition, even though there was huge loss at year one and four, still graph shows the increasing trend in both total revenue and net income during year four and year five. It means there is opportunity remaining to making actual profit for Smile hotel.
Recommendations and Conclusions
The running of the hotel was done fairly well. Overall the results were fair and there is a projected increase of returns in the future. However, the decline in revenue could have been avoided if the refurbishments were spread out more through out the five- year period other than concentrating most of them in the first year, which bankrupted the company. Consideration should have also been made for the five force analysis factors affecting the hotel and this should have been considered when pricing, advertising and developing operational plans. It would do the hotel good to also take into consideration changing consumer trends. The effects of globalization should also be considered and there potential impacts on the hotel preempted. TH Opportunities highlighted in the swot analysis should be considered in future planning so as to take advantage of them for the benefit of the hotel. Staff satisfaction and loyalty needs to be steadily built.
Reference List
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Fig. 1 Porter’s Five Force analysis
Fig. 2
Discussion
Graph A shows there is stable increase for Smile hotel in total revenue overall. However, net income was kept staying in negative it because Smile hotel had bankrupt at the end of first year due to over installed facilities and refurbishment. In addition, even though there was huge loss at year one and four, still graph shows the increasing trend in both total revenue and net income during year four and year five. It means there is
opportunity remaining to making actual profit for Smile hotel.
Fig. 3
Discussion
ROE is short for return on equity which measures the rate of return on the ownership interest of the common stock owners as well as a firm’s efficiency to generate profit from every unit of shareholders’ equity. Basically ROE shows how well a company uses investment funds to generate earnings growth. As a graph shows, Smile hotel was not perfectly using investment because it may reason they have bankrupt at the end of first year. However, the red graph indicated ROS which means return on sales, it kept increasing after bankrupt due to smile hotel concentrate on making profit for their business.
