Strategic Options for a Tourism Organisation
Tourism is the temporary short-term movement of people to destinations outside the places where they normally live and work (Holloway, 1987: 2–3). Hospitality is the receptive and proactive participation of entities that facilitate such movement.
According to the World Travel and Tourism Council’s report, there are 277 million jobs in the tourism and hospitality sector. Tourism facilitates a global trade of $7.6 trillion and accounts for ten per cent of the world’s GDP (WTTC, 2015). The report further states that in 2015, five per cent of the world’s capital investment will be allocated to the global tourism and hospitality industry (WTTC, 2015). Ongoing growth has proved to be relentless with the number of tourists surpassing the one billion mark in 2012.
In this paper, I focus on the Marriot International group. Founded in 1927 in Washington DC, today Marriot is a formidable leader in the tourism industry. The company has 3,000 properties in 68 countries, oversees 16 hotel brands and considers itself to be a travel company with divergent interests (Marriot, 2008). I have selected this organisation to evaluate its strategic options due to its robust business model, assertive product presentation and best management practice aspirations.
Options to Identify and Evaluate Business Strategy
Options available to Marriot’s to identify and evaluate business strategy are numerous. Factors determining Marriot’s policy include the need to retain sustainability and growth, maximise returns, develop social responsibility and advocate a strong branding policy sensitive to the environmental issues of the day (CEA, 2013). To evaluate a strategy it is important to first identify the function the organisation is to perform. Thus we ‘determine its utility, truth or efficacy’ (Rumelt, 1979, p. 2). The prime function of Marriot is to better accommodate its visitors and increase generic value.
The Ansoff Matrix, developed by Russian American mathematician, Igor Ansoff, is considered to be the pioneering quadrant of strategic management. This evaluation of an organisation’s options syndicates marketing strategies according to four factors:
- Market penetration
- Product development
- Market development, and
Using this analysis, Marriot can better comprehend its ability to increase value.
Figure 1 : Ansoff’s matrix (source: ansoffmatrix.com)
This matrix identifies a standard set of objectives which Marriot utilises in its strategy. Further analysis tells us that constraints to strategy are guided by fixed objectives, ‘whereas operating objectives serve to express a strategy’ (Rumlet, 1979, p.197). In Marriot’s annual report, it is stated that its intention is to create a vibrant corporate culture promoting strength in the community and maintaining a strong business model.
Strategic Options for Business Development
Marriot’s strategies for market penetration have included increasing the allocation of its existing brands and replicating what it does well: selling hotel stay and experience’ (Marriot, 2014, p.1). It seeks to gain an ‘increased share in an existing market with existing products’ (Aziri, 2013, p.9). Product expansion involves introducing a new product within existing markets. Marriot aims to ‘embrace innovation and technology’ (Marriot, 2014, p.2) and increase value for its franchisees and partners.
Market development implies introducing existing products to new markets. In Marriot’s annual report on its intended strategy, it was stated that in the near future most of its developments would be in new and emerging markets such as Brazil, China, India and sub-Saharan Africa (Marriot, 2014). Diversification is the most complex strategy to apply as it involves bringing different products (existing and new) to parallel markets simultaneously (Aziri, 2013).
Marriot’s approach is rigorous: its intentions are to ‘boost local tourism’ by ‘supporting local communities and creating employment and sustainability’ (Marriot, 201, p.2). Further diversification includes ‘introducing new brands tailored to new markets’ and investing in ‘innovative conservation initiatives’ (Marriot, 2014, p.2). With this equilibrium, Marriot demonstrates its commitment to social responsibility and proactive environmental policies. Its corporate image radiates growth and an adherence to modern management practice that promotes sound ethics. Its employee empowerment programmes exist within a dynamic sustainable business model. Aziri (2013, p.9) argues that ‘a difference between concentric and conglomerate diversification should be made’. Related markets are concentric whereas unrelated markets are conglomerate. Marriot’s proactive diversification policy places it in the strata of both alignments. Through its expansion within existing markets, it executes a concentric diversification strategy. As it strikes out into sub-Saharan Africa, Brazil, China and India, it is demonstrating the breadth of its vision. This is conglomerate diversification.
Virtual and Horizontal Integration
Virtual and Horizontal integration are strategies that take different approaches to achieving the same goal: increase return on investment. Vertical integration permits backward, forward and balanced integration. The development of self-sufficiency is integral to this philosophy. In its quest to invest in conservation, Marriot exercises backward integration within the vertical integration quadrant.
Horizontal integration is a simpler strategy and refers to increasing market share through mergers and acquisitions. Here, Marriot has shown staggering advances by creating the largest market presence in Africa by means of horizontal integration. Its acquisition of the South African Protea group has given it over 3,000 rooms and more than 20 hotels throughout the continent (Marriot, 2014). In this way Marriot has circumvented the project risks of building more than 20 hotels and at the same time can develop its market brand for the existing clientele it inherited. A recent communiqué from the group confirms its intention to buy the Starwood Group which will make it the world’s largest tourism organisation (Forbes, 2015). Virtual integration can create value, but is not without risks such as projections of operational costs – other supplies can be cheaper – and technology infrastructure established quickly regresses in functionality because of rapid advances in the technology industry (Aziri, 2013).
Porter’s Generic Strategy
Porter’s theory also presents strategic options available to the Marriot group in its quest for sustained tourism development. The structure of its business development theory falls into three segments which identifies as cost leadership, differentiation and focus.
Figure 2: Porter’s Theory (source: myway.com)
The cost leadership strategy refers to the ability to lower production costs in respect of competitors, thus allowing for pricing flexibility. Marriot expresses in its motto, if not its intention, as being the world’s favourite travel company (Marriot, 2014). Its investment in conservation and the community is an indication of its long term strategic intentions where concessions can be negotiated because of its effective social responsibility. Access to raw material, technology usage and human resources can be compounded to minimise costs without an adverse effect on products and services.
Cost focus refers to the concentration on niche markets. Marriot’s focus on emerging economies is an example of this option. That Marriot has opened hotels in Ethiopia, Rwanda and Nigeria demonstrates its ability to adapt to economic indicators by entering seven of the fastest growing economies in Africa (Marriot, 2015).
The Role of Ethics
In the development of its business strategy, ethics play an important role. The collapse of the housing market in America brought into question the role of ethics within the business community. It became such an issue of moral responsibility that business schools were castigated for failing to address this with their students (O’Conner, 2013). Ethics has to do with an: ‘individual’s moral judgements about right or wrong’ (Cadbury, 2002, p.1). Marriot’s stance on its corporate responsibility promotes its acceptance as the world’s most liked tourism company. Consistent cultural values within an organisation which reflect responsibility to regulated authorities, employees, local and national communities as well as clientele, mirrors a mature organisation poised for competitive engagement. Values are central to Marriot’s corporate decision making and form essential criteria in gaining the commitment of staff, regulatory bodies and, ultimately, clients (Barret, 2010). Strong, consistent values are good business.
Conflict in Business Strategy
When implementing strategy, risk management must be effective. Building projects for the tourism industry carry significant risk due to heavy capital outlay and constraints of scope, schedule and budget (Zou, 2013). A sustained approach that communicates regularly with major stakeholders diminishes the potential for conflict and misunderstanding. Transparency of purpose establishes a suitable foundation on which to deliver strategy policy. ‘Risk appetite’ is an organisations ability to ‘assess and eventually pursue, retain, take or turn away from risk’ (Tourism Australia, 2014, p.4). When implementing its strategy, Marriot must evaluate project and operational risk, fraud assessment, business continuity and insurance risk analysis. Financial models are used to assess risk and project investor scenarios in new markets. They ‘integrate elements of accounting, finance, economics and business psychology’ (McMorran, 2015, p.8). Also useful are simulation approaches which are used for new markets where data is not available or perceived target groups are yet to be formulated (Taylor, 2010). Marriot will use these approaches in appraising new markets in South America and China where populations and target groups have never been assessed. The advantages of Marriot’s global presence and its information technology capabilities give the group a competitive advantage. Information management and access to its resources means that swift reactionary measures can be taken in response to operational yield.
Balanced Scorecard, Globalisation and Risk Management
The Balanced Score Card (BSC) allows decision makers to identify and use ICT applications to register, gauge and promote business performance (Qin, 2013). Its value in the information age, where choice of product presents its own challenges when considering sensitive corporate information, is astounding. BSC techniques increase revenue and add immeasurable dimensions to ICT revenue generation possibilities.
Marriot’s policy includes empowering communities and fostering alliances which augers well for a group that relies on a local workforce. Added access to training resources and capital allows investment and long term geographic strategy. Wysocki (2012) advises that project management principles are needed to effect best practice. Goldman (1999) notes that relationship management with self-management and social and self-awareness are essential emotional intelligence criteria needed to lead organisations.
Despite the ambiguity of guaranteed solutions in developing business strategy, Marriot should adhere to Rumlet’s (1993) five principles:
- Consistency – goals and objectives must be streamlined
- Consonance – strategy must be adaptive and within the context of the emergent environment
- Advantage – strategy must accentuate competitive advantage
- Feasibility – options must be viable
Marriot’s potential in the global marketplace as the world’s leading tourist organisation is assured when considering the performance of its main rivals: TripAdvisor, the travel platform, reports 300 million visitors monthly (O’Neil, 2015). This is 60 million fewer visitors than shown on the Marriot website. Marriot’s assertive market penetration and fearless diversification strategies are worthy of emulation. With sound cost leadership strategies and continued aspirations to excellent corporate culture, Marriot’s status is of an innovative and efficient global tourist conglomerate.
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