To what extent does the example of Six Continents and the global hotel industry (below) illustrate the models of strategy-making?
Global hotel chains
The hotel industry is embracing globalization. International chains are encircling the world, swallowing local operations on an almost daily basis.
Tom Oliver, chief executive of the UK group, Six Continents Ltd (formerly Bass Hotels and Resorts), says: ‘Brands are everything – as travel becomes increasingly trans-border, hotels which aren’t carrying international brands simply don’t deliver the same rate of revenue per room’. The company was unwittingly pushed into the hotel trade by [the then] UK Trade Secretary Margaret Beckett, who thwarted the group’s ambitions to become a global brewer by blocking the purchase of Carlsberg-Tetley.
The market is changing. In the US, 75% of hotels have a well-known brand, compared with just 35% in Europe. Lesley Ashplant, a hotels expert at PricewaterhouseCoopers, says: ‘Europe is the single largest tourist destination in the world. It has 6m hotel rooms under fragmented ownership. There are clear opportunities in scale, in taking advantage of branding and advanced technology.’
Scale
Size is becoming important as expectations rise – international business travelers want internet connections, widescreen televisions, faxes delivered and push-button blinds in every room. All of this required investment. Servicing the demands of business customers requires employing more staff than most independent operators can afford.
Technology
Hi-tech reservation systems are also emerging as a crucial factor. In an industry where 75% of costs are staff wages, any savings elsewhere are precious. Between a third and half of hotels’ revenue comes from food and drink, but these only contribute 20% to 30% of profit. Attempts to make hotel restaurants more attractive have generally failed.
Much more profitable are the rooms themselves. The main thrust, therefore, for most operators, is on improving occupancy. Loyalty card schemes are becoming increasingly elaborate.
Branding
There will be limits to the creeping internationalization of European hotels. One CEO says: ‘The US is a wide-open country – if you want a hotel, you can just build it. In Europe, there’s much less opportunity for new-builds so you get a lot of conversions, They’re harder to fit into the specific model of the US chain’. It is difficult to turn a 17th century Provençal château into a Holiday Inn, so some independent operators still prosper. This is bad news for the ideal guest of a multinational chain, who likes to wake up anywhere in the world in the knowledge that the bathroom is on the left, the blinds are blue and the phone is on the wall, six and a half inches above the bedside table.
Sample Answer in short form:
Emergent strategy – Unwittingly pushed into hotel trade by blocking off purchase of rival
Unrealistic strategy – Failed purchase of Carlsberg-Tetley
– Making hotel restaurants attractive
Deliberate strategy – Upgrading of rooms
– Improved cooking systems
– Exclusion of independent operator by enhancing service levels and harnessing of brand and economies of scale
