Chapter 2 Meeting guest expectations through planning.
Give the people everything you can give them. Keep the place as clean as you can keep it. Keep it friendly, you know. Make it a real fun place to be.
After reading this chapter, you should understand:
* The three generic strategies for positioning products and services.
* The organizational planning cycle and how its different elements result in the establishment of the hospitality organization's overall strategic plan and service strategy.
* The basics of how organizations plan and design the guest experience.
* The key external and internal factors that must be examined for successful planning.
* The quantitative and qualitative tools used to assess the hospitality environment-external and internal.
* The process to determine core competencies.
* The importance of including the key drivers of guest satisfaction in the planning process.
* The importance and value of product and service branding.
* A planning model, showing how components are tied together and action plans developed.
KEY TERMS AND CONCEPTS
action plans brand image, brand name core competency design day differentiate, differentiation environmental assessment internal audit key driver low-price provider market niche mission statement qualitative forecasting tools: brainstorming Delphi technique focus group scenario building quantitative forecasting tools: econometric models regression analysis time series and trend analyses strategic premises strategic plan vision statement yield management
When guests show up at a restaurant, hotel, or any other hospitality service provider, they expect certain things to happen and other things not to happen. To give guests what they expect takes detailed planning, forecasting, and sound intuitive judgment. Managers of excellent hospitality organizations try to mix all three together into a strategy that allows them to give guests exactly what they expect and even a bit more. Guests will return only if their experiences meet, if not exceed, their expectations. The service strategy is the organization's plan for providing the experience that guests expect.
Planning and strategy making are simple to talk about and difficult to do. In theory, all one has to do is to assess the environment within which the organization operates, assess the organization's capabilities, decide where the organization wants to go within that environment and in light of those capabilities, and then make a plan to get there. Unfortunately, the expectations of real customers change quickly, competitors eventually duplicate the firm's strategic advantage of the moment, governments pass new laws, and advances in technology require the firm to scrap its old delivery system and create a new one. In other words, people change, their needs and expectations change, the competition changes, and so does the hospitality organization itself. Finding ways to deliver what customers expect in light of the uncertainties created by such changes is a major challenge.
THREE GENERIC STRATEGIES
A saying in business is, "Price, quality, speed--pick any two." The implication is that no organization can do it all, so no customer should expect it all; the organization must determine the basis on which it hopes to compete. McDonald's gives you speed and price; the Four Seasons Restaurant gives you quality. In addition to price, quality, and speed, the organization could compete on variety, convenience, friendliness, no-frills, uniqueness, helpfulness, or some other basis.
According to Michael Porter, an organization usually employs one or more of three different generic strategies. (1) First, it can aim to be the low-cost producer and low-price provider in its industry, area, or market segment. Second, it can differentiate its product or service from those of its competitors. Third, it can fill a particular market niche or need. Successful hospitality organizations establish a strategy that may include one or more of these generic strategies and stick with it.
A Lower Price
"We will not be undersold!" The low-price provider tries to design and provide pretty much the same service that the competition sells, but at a lower price. Management tries to maximize operational or production efficiencies to minimize the organization's costs. Southwest Airlines focused on reducing the costs of running the airline (turnaround times, loading and unloading, food service, and so forth) to achieve the lowest production cost per mile in the industry. Wal-Mart focused on controlling inventory and cutting merchandise costs by mass buying. The low-price producer tries to offer the service at a price so low that competitors cannot offer the same service and value at a lower price without losing money. Red Roof Inns and Motel 6 are competing with Budgetel and Sleep Inn, not with Ritz-Carlton and Hilton. Of course, all hospitality organizations are cost conscious, but some focus on offering bargain prices to a wide market rather than focusing on differentiating their service to a wide market or meeting the special needs of a narrow market.
Companies employing this strategy must recognize that if they reduce prices to customers by reducing their own costs, the resulting deterioration in the guest experience may decrease the value of the experience to guests and drive them to competitors.
A Different Product
All hospitality organizations practice product differentiation to an extent; all want to be perceived as offering a service product--the guest experience itself--that is different in favorable ways. Many try to attract guests by emphasizing these differences rather than by offering low prices.
Differentiating one's product in the marketplace results from creating in the customer's mind desirable differences, either real or driven by marketing and advertising, between that product and others available at about the same price. In an era of movies filled with sex and violence, everybody is familiar with the "difference" in Disney movies: They provide good, wholesome, family entertainment. Hotel companies try to differentiate themselves in the marketplace by advertising special amenities ("Free continental breakfast!" "Kids sleep free!"). They hope that the consumer looking for a place to spend the night will remember and want the amenities and drive into a Holiday Inn instead of a Ramada Inn, or vice versa, for what is essentially the same service: a clean room in which to sleep.
As an example, the Holiday Inn Family Suites Resort at Lake Buena Vista, Florida, differentiates itself from most other hotels by offering suites only. In addition, it has Kidsuites with rooms themed for children, Sweet Heart Suites for romantics, Cinemasuites with separate theater rooms featuring large-screen televisions with excellent stereo systems and dual recliners, and Fitness Suites by Nautilus with separate workout rooms. (2)
The Brand Image
A major way to differentiate one's service from those of competitors is through the creation of a strong brand image. Once a strong brand preference is established, it can provide some protection against cost cutting by competitors. The strong brand name can also extend the company's reach into new markets. Because services are intangible--with no dress, guitar, or minivan to touch and try out before buying--brands are particularly important in both adding value to the guest experience and differentiating it from competing services. Even producers of more tangible products, like hamburgers, know the value of a brand and work hard to protect its integrity and image.
A McDonald's restaurant is a McDonald's restaurant, no matter where in the world it is located, and customers know McDonald's will consistently provide meals and service of the same quality regardless of location. The Golden Arches is a brand worth a great deal as a symbol of quality and value, and it provides McDonald's with a tremendous competitive advantage. It favorably differentiates McDonald's, in an instant, from other hamburger operations. McDonald's works hard to protect this valuable symbol and to maintain the reputation for which it stands.
Disney also has a valuable brand image that it carefully protects. Walt Disney said, "Anything that has a Disney name to it is something we feel responsible for." (3) Because the Disney name has come to differentiate Disney products and services as high-quality and family-oriented, Disney can extend its brand reach into a variety of related products and services. Parents know that the Disney Store in the local shopping mall, the Disney theater on Times Square, the new Disney movie at the local theater, and the Disney doll in Wal-Mart will all have the same wholesome, high-quality characteristics they want for their children. Because the Disney name instantly communicates wholesome value to the customer on whatever it appears, the organization carefully watches over how that name is used. A high-quality brand image enables a company like Disney, McDonald's, or Marriott to gain acceptance for anything new it brings to the marketplace. Customers will usually be willing to give the new product or service a try on the basis of the brand's reputation. Thousands of people, many of them families that had never before felt comfortable going on a cruise, booked trips on the Disney Magic even before the ship was launched. They knew that Disney would not risk hurting its brand by putting it on something inconsistent with the customer's expectation of what Disney stands for.
Having a strong brand can also be a disadvantage. Fear of hurting the brand image may unnecessarily inhibit a company from exploring new market opportunities or putting its name on a potentially profitable product or service just because it may seem inconsistent with the brand image. Compared to the advantages of instant and favorable product differentiation, this disadvantage is small, and most companies with strong brands are happy to pay this price.
A Special Niche
Finally, the organization can try to find and fill a particular market niche or gap. It can focus on a specific part of the total market by offering a special appeal--like quality, value, location, or exceptional service--to attract customers in that market segment.
CEO Barbara Cassani of Go Airline literally wanted to fill a "Gap." She says, "I've always thought, where's the airline brand equivalent of Swatch, Ikea, or Gap? You either fly on a top-end world-class airline or on some terrible airline thinking, 'I don't really want to be here!' There's no Gap airline. Why not?" Owned by British Airways, the first low-cost Go flight took off on May 22, 1998. (4) Southwest Airlines, "the United States' only major shorthaul, low-fare, high-frequency, point-to-point carrier," (5) believes itself to be alone in its niche. While some cruise lines have made great efforts to capture the family cruise market, Renaissance Cruises in 1999 committed itself to adult-only cruises; passengers must be at least 18 years old at the time of sailing. Surveys by Carnival Lines showed that 75 percent of their passengers did not smoke; so the new Carnival Paradise became the industry's first no-smoking ship. Passengers cannot board until they sign a statement agreeing "to refrain from smoking altogether while on board." (6)
To communicate more effectively with a deaf customer, waitress Marjorie Landale took a class in signing. As a result, the Regent Square Tavern in Pittsburgh became a gathering place for the many people with hearing impairments in the neighborhood. Says Paulette Thomas, "Ms. Landale is proof of the difference one energetic employee can make. Her attention to a single customer brought in ever-widening circles of his family members, his signing classmates, their teachers, other deaf people and their hearing and non-hearing friends." (7) After carving a niche for themselves by specializing in Sichuan hot-pot soup, some restaurants in Shanghai, China, have tried to establish a niche within a niche by adding dried seeds from the opium poppy to their soup. A police raid on 45 hot-pot restaurants found a quarter of them doping the soup. (8) More and more company cafeterias--at Hallmark Cards, John Hancock, Procter & Gamble, and Exxon among others--are competing with restaurants and grocery stores by providing take-home dinners for employees. At Foremost Insurance Company employees can e-mail in their orders by 2 P.M. for 4 P.M. pickup. (9)
As some further examples of niche marketing, in the fast-food market and budget-hotel market, the competitive strategy of a McDonald's or Day's Inn is to be the low-cost producer in the budget segment of the market. Casual dining restaurants like Olive Garden and Chili's have tried to position themselves in the dining-out market by offering price and food values at a point above fast food and below fine dining restaurants. By focusing on one particular part of the total market, they hope to distinguish themselves from other types of eating places. Other market niches that have been identified and used as a focus for organizational strategies are the healthy-eating niche in restaurants, convention hotels in lodging, and water parks in parks and attractions. In these instances, the market niche is carefully defined demographically, psychographically, or geographically, and the organization focuses on that segment. It seeks to build a top-of-mind awareness within customers in its targeted market as to how unique the experience provided by that organization is and how it uniquely meets the particular needs of the customers in that market segment. The distinction between differentiation and finding a niche is not clear cut. One way to think of it is that the organization determines the market at which it wants to aim, the niche it hopes to fill, and then uses strategies to differentiate itself from other organizations in that same market or niche. The most common strategy is to try to differentiate its product or service from similar products or services.
The organization that concentrates on filling niches is often a market innovator seeking to meet an unfulfilled customer need (perhaps a need that customers don't recognize until they see the product that will fulfill it) by creating a new product or service: a high-priced luxury airline for rich people, a square bagel, or any other of the thousands of innovative products and services brought to the marketplace each year. This need might be identified by careful market research, serious study of population and demographic trends, a lucky guess, or some intuitive combination of all these approaches. Some researchers argue that this combination is the most likely way for managers to develop strategic plans, especially those plans that make a real difference in an organization's success. (10)
The differences between these three competitive strategies--lower cost, product differentiation, and finding a niche--are illustrated in these three restaurant examples. The fastfood, limited-menu restaurants like McDonald's compete on price, Red Lobster differentiates itself from other full-service restaurants by specializing in seafood, and Planet Hollywood fits into a niche, the "eatertainment" restaurant. However, the differences between the differentiation and niche strategies are not always clear. Consider the Totenko Restaurant, for example. Does its all-you-can-eat-by-the-minute gimmick differentiate it from restaurants that charge by the item, or has it found a niche in people who want to eat and run? At the Just Around the Corner Restaurant, where you pay whatever you think the meal is worth, has the restaurant differentiated itself from restaurants that tell guests what they must pay? Or has it found a niche in people who want to have the entire guest experience before deciding what it is worth and who will not abuse the privilege because they appreciate the trust placed in them?
These strategies are not mutually exclusive. An organization can seek to differentiate its product from all others in the market (Strategy 2) by positioning the product in people's minds as the best value for the lowest cost (Strategy 1). This strategy combination requires the organization to use both effective marketing techniques that reach this best-value, lowest-cost market segment and operating efficiencies that allow it to make money at the low price. Successful theme parks seek to apply this combination by advertising a park visit as a high-value, low-cost, family-entertainment experience while keeping their costs, especially labor costs, low. At those times of the year when the tourism volume is low, Florida parks offer Florida residents special prices as a means of attracting local residents. Some parks are more effective than others at making money during these low-price times because of their operating efficiencies.
Reinventing the Industry
Picking and following a strategy is an important decision for any hospitality manager trying to cope with present and emerging uncertainties. The strategy might be to get smaller, better, and faster. If drastic change is forecast, the organization might even have to reinvent itself and learn new core competencies. These are all reactive strategies, of the kinds that most organizations must employ as circumstances change. Organizational strategists Gary Hamel and C. K. Prahalad note in their book Competing for the Future that the organization might even need to be capable of reinventing its industry. (11)
Most companies listen to their customers and then respond to their articulated needs. But some rare, highly creative organizations can actually create the future for themselves and their industries; they can "lead customers where they want to go but don't know it yet." (12) They "do more than satisfy customers, they constantly amaze them." (13)
The creation of Disneyland Park is a great example of a visionary leader reinventing an industry by leading customers to a place they didn't know they wanted to go. Disneyland was an attempt to create within park visitors the feel of being actual participants in a motion picture. The traditional concept of an amusement park, with rides and attractions, was embellished in creative ways with new technology and the introduction of theming to become a service--the theme park--that didn't exist until Disney and his creative team imagined it and built it.
Providing Superior Service Quality and Value
The three generic strategies--competing on price, finding a niche, and differentiating--may each work for a while, but they may also have potential shortcomings. If you compete on price, somebody is eventually going to undercut your price. Also, establishing a close and lasting relationship with guests is difficult if you stress your low price. If you find a niche and succeed there, an imitator eventually will join you in the niche, and soon it will be just another market segment. If you differentiate successfully, somebody will copy your differentiation feature. Many successful service organizations have found that the best way to succeed long term is to differentiate on the basis of superlative service quality and value. Provide better service and value than the competition does, and they can't beat you. David Lipton, president of Sensors Quality Management Inc., puts it this way regarding competition in the hotel business: "Most hotels have decent locations, are reasonably clean, have nice beds with good mattresses, offer satisfactory meals, and have prices grouped in the same range. The big difference is in the service. Anyone wanting to differentiate a property has to do it here. It's the last frontier." (14) As Tom Peters, author of The Circle of Innovation, says, "You can knock off everything ... except awesome service." (15)
THE HOSPITALITY PLANNING CYCLE
Leading guests to where they want to go but don't know it yet is how the truly outstanding hospitality organizations become outstanding. The focus of this chapter is finding a way to give guests what they want, when they want it, even if they don't know yet exactly what they want. The organization tries to imagine what kinds of experiences guests of the future will find satisfying, then plans ways to deliver them. As one example, Walt Disney planned out a theme park that he knew would wow park visitors long before they knew what a theme park was. Disney said, "You don't build it for yourself. You know what the people want and you build it for them." (16) As a more recent example, bank customers didn't know they needed debit cards (on which expenditures are deducted directly from the customer's checking account) until banks began to offer them. Similarly, phone customers didn't recognize their need for a single telephone number that can be used anywhere and includes e-mail and paging capabilities until phone companies made them aware of how convenient such a service could be. In the late nineteenth century, travelers did not realize how much they had previously been inconvenienced by the unavailability of ready cash, or by having to carry too much cash, until American Express created the traveler's check. Hospitality organizations did not know they needed an 800 phone number until the idea was introduced.
The way to achieve this end is through the strategic planning process. The process has two basic steps: assessment (external and internal) and figuring out what to do on the basis of that assessment. The external assessment of environmental opportunities and threats leads to the generation of strategic premises about the future environment. The internal assessment of organizational strengths and weaknesses leads to a redefinition or reaffirmation of organizational core competencies.
As can be seen in Figure 2-1, hospitality planning follows an ongoing cycle that begins at the big-picture level and ends at specific action plans, departmental or project budgets, and individual yearly objectives. Typically, such planning is done annually and begins with management's simultaneous consideration of three elements: the external environment with its opportunities and threats, the internal organization with its strengths and weaknesses, and the relationship of these elements to the statements of organizational vision and mission. We shall talk first about the external and internal assessments, then about the vision and mission statements.
The environmental assessment, or the long look around for opportunities and threats, in turn defines the strategic premises. These premises are the beliefs of the managers assessing all long-term aspects of the external environment and trying to use them to discover what customers will want in that future environment, what the key drivers of guest satisfaction will be in the intermediate-term and longer-term future. Although guests will not always know what the key drivers of their future satisfaction will be, the guestologist will still try to find out what kinds of experiences guests think will be satisfying in the future.
[FIGURE 2-1 OMITTED]
Loew's hotels asked 36,000 guests in such categories as families with children and business travelers what items they either often forgot to pack or would like to have available in their rooms. Loew's predicted that making such items available would be a driver of guest satisfaction. In each hotel, Loew's put a "Did You Forget Closet" including the items most requested by guests: fax modems and portable computers, rain gear, handheld audio devices to use while working out, first aid kits, baby bath tubs, cat litter, and so on. (17)
The internal assessment, or the searching look within for strengths and weaknesses, defines the organization's core competencies and considers the organizational strong and weak points in terms of the organization's ability to compete in the future.
Vision and Mission Statements
The vision statement articulates what the organization hopes to look like and be like in the future. Rather than presenting specific principles, goals, and objectives, it presents hopes and dreams; it creates a picture of that toward which the organization aspires; it provides inspiration for the journey ahead. It depicts what the organization hopes to become, not what the organization needs to do to get there. The vision statement is used to unite and inspire employees to achieve the common ideal and to define for external stakeholders what the organization is all about.
The mission statement articulates the organization's purpose, the reason for which it was founded and for which it continues to exist. The mission statement defines the path to the vision, given the strategic premises and the organization's core competencies. The mission statement is a guide to determining the organization's overall service strategy that in turn drives the design of the service product, service environment, and service delivery system. These decisions lead to action plans and to the other steps and decisions that put resources in place to fulfill those plans. Some sample vision and mission statements will be presented later in the chapter.
Once the hospitality planning process is complete, the cycle should begin again in some predefined time frame. The planning process should never stop because the world in which any organization operates never stops changing.
The Necessity for Planning
The process described in Figure 2-1 is an attempt to apply rationality to an irrational world and to predict an unpredictable future. It will therefore be accompanied by errors, wasted time, and frustration. Nevertheless, the planning process is worthwhile. Every hospitality organization needs a road map to unite and focus the efforts of the organization's members and get them prepared for the future that the organizational planners predict. Everyone makes decisions today that they must live with in the future, and most managers want to make those decisions as rationally as possible. Even though no one, including planners, knows what the future will bring, only by creating and implementing plans can we communicate to those both inside and outside the organization where we want to go, what criteria we should use to allocate our scarce resources, and which activities we should pursue or avoid.
Some time ago, an investor group was strongly convinced that over the indefinite future people would continue to be interested in going to Las Vegas and gambling. Based on that vision, they planned and built the $460 million New York-New York Hotel. The early results, reporting that over a million visitors had come to see this replica of New York City with slot machines, seemed to justify the future these investors forecasted. No organization can instantly create such a magnificent project. It must make decisions that anticipate the future as best it can. Creating and following a careful strategic plan is the best known way to do so.
ASSESSING THE ENVIRONMENT
Figure 2-1 and the hospitality planning process start with a long look around the environment. Here the organization carefully studies the opportunities and threats the future holds for both it and its industry. Table 2-1 presents the three categories of factors that should be included in an environmental assessment: those in the overall environment, the industry environment, and the company's operating environment.
The many forecasting techniques range from the heavily quantitative or objective to the highly qualitative or subjective. The quantitative techniques include the powerful tools of statistical forecasting. The qualitative include scenario planning, the Delphi technique, and pure creative guesswork.
Most forecasting techniques are based on the idea that the future is somehow related to the past, that what has already happened has some predictable relationship to what will happen. If a restaurant's customer growth rate has been about 10 percent per year for thirty years, then forecasting that this growth rate will continue next year seems reasonable. If records show that by 10 A.M. on an average day 20 percent of all visitors who will come into a zoo for that day are already on the grounds, then the day's total attendance can probably be reliably forecasted by 10:15 A.M. On a grander scale, if the growth rate of tourists coming to a Caribbean island paradise has been 10 percent per year for the past decade, then predicting that this growth rate will continue for at least a few more years seems reasonable.
The problem with assuming that the past can be used to predict the future is that all too frequently the assumption does not hold true. In the early days of the telephone, the ratio of phones to operators was very small. If only population trends and that ratio had been used to predict the number of telephone operators to be needed in the distant future, the prediction might well have been that half the people in the United States would now be working as telephone operators. Major improvements in technology and work productivity have greatly increased the ratio of telephones to operators. Any forecast based only on the past can be thrown off by unexpected technological, economic, societal, or political changes.
When the automobile began to be commonly available, some astute human beings predicted that increasing numbers of motorists would want roadside hotels. Human beings predicted that deregulation of the airline industry would lead to new airlines, increased competition, lower fares, and more travelers. Only a Walt Disney, not a forecasting model, could have foreseen the impact of sound on movies, television on entertainment, and the interstate highway system on the theme park industry.
Forecasting techniques are useful to capture the impact of current trends on future business. However, they are only one source of input into the creative process by which thoughtful hospitality managers develop strategic plans.
Table 2-2 presents and briefly describes some popular quantitative and qualitative forecasting techniques and indicates their cost/complexity. We shall discuss some of the more important techniques.
Quantitative Forecasting Tools
Statistical techniques used for forecasting are of several major types: econometric, regression, time series, and trend analysis. Each is based on the idea that definable and reliable relationships exist between what the organization wishes to forecast and some other variable.
Econometric models are elaborate mathematical descriptions of multiple and complex relationships that are statistically assembled as systems of multiple regression equations. Thus, if a chain of movie theaters in New England wishes to predict the relationship between theater attendance and the level of economic activity in New England, the chain would use a complex econometric model built to describe how New England's level of economic activity and the amount of personal discretionary income allocated to entertainment purchases relate to movie theater admissions.
In regression analysis, the relationship between variables is studied so that they can be statistically associated. If statistical studies of park visitors show that in July and August visitors consumed an average of 1.5 Cokes per visit, then determining how many Cokes, cups, servers, and how much ice will be needed on a particular day is a straightforward calculation. Using regression analysis, we can further predict sales on the basis of other known numbers (probable park visitors) and the known relationships between these numbers and the variable of interest (in this case, Coke sales). If we know that a convention is bringing 15,000 visitors to a city in a certain month, we can predict through regression analysis the number of rooms a hotel is likely to sell, the number of meals that will be consumed at a restaurant, and the number of taxi rides that will be taken in that time period.
The Design Day
A basic problem for many hospitality organizations is that demand is uncertain and capacity is fixed. An important concept in capacity planning for hospitality organizations is the design day. Whenever a new restaurant, hotel, theme park, or other service facility is created, management must determine how big to build it. How many people should the new physical facility be able to handle at one time? It should not be designed to accommodate demand on the slowest day of the year, because for the other 364 days its capacity will not be able to meet demand. But if the facility is designed to meet demand on the busiest day, capacity will exceed demand for the rest of the year. The idea of a design day is to decide which day of the year to assume when determining the design capacity of an attraction or facility.
As an example, a theme park could use past and predicted attendance figures to set the design day at the 50th percentile, so that overall park demand (and demand for particular rides and attractions) would exceed capacity on about half the days, and about half the time capacity would exceed demand. But a successful park does not want guests to experience excessive wait times for half the days of the year. The park designers must decide what percentile level they want to establish for their design day. The higher the percentile level chosen, the lower the number of days they will exceed their design-day wait-time standards. For example, if they choose a 75 percentile day, the park will exceed wait-time standards on 90 days of the year; if they choose a 90 percentile design day, they will exceed their wait-time standards on only 36 days per year.
The design-day percentile is a critical management decision. A higher percentile day means increasing capital investment to increase park capacity. A lower percentile day will
cost less initially, but guest dissatisfaction will probably be higher; once the design-day capacity is exceeded, the quality of their experience will be diluted for some guests. This dissatisfaction will have a negative impact on repeat visitation, long-term attendance growth, and revenue. Management must balance carefully the trade-off between investment costs and guest service.
Every hospitality organization uses a method to plan its capacity. The design-day concept is one way to find the best balance between carrying the costs of excess park capacity and ensuring the quality and value of each guest's experience. Costs are associated with buildings, grounds, people, and stocking perishable products. But customers expect the service to be available to them when they want it; otherwise they are dissatisfied with the quality and value of their experience. Finding the best balance between economic realities and guest satisfaction is what guestologists do.
Consider a theme park with numerous rides and other attractions. Once the design-day decision has been made, the park management can calculate how many demand units (people per time period per attraction) will be in the park to consume or enjoy the capacity available. Thus, if the park attendance on a design day is 18,000 people and a new ride or attraction that takes 30 minutes is expected to capture 3 percent of this capacity per hour, then the capacity of the ride has to equal 270. With this capacity and assuming a continuous flow of people coming to enjoy an attraction, no one will have to wait longer than 30 minutes. As the ride or attraction begins, the first of the next 270 people wanting to enjoy it will start forming a new waiting line. As soon as the ride gets back to its starting point or the show ends, the 270 people who have been waiting for varying lengths of time will enter the ride or show, and a new waiting line will start to form. If the design-day decision includes a wait of a fixed amount of time (for example, an average of 15 minutes across all park attractions), then the actual capacity of the new attraction can be less than 270 because the capacity will assume a certain acceptable number of people waiting in line. The point is that this important capital-allocation decision--how big to build a new ride or other attraction--can be based on straightforward calculations that are themselves based on design-day decisions made long ago, which are in turn based on the organization's estimates of what quality and value customers expect.
For any hospitality organization, the original design-day decision is based on forecasts, information derived from organizational past experience, and perhaps from knowledge of similar facilities. Then, as Walt Disney said, you "say a little prayer and open it and hope it will go." Once real information can be gathered through real experience with real people, the design-day decision can be refined. Because most hospitality organizations would rather add capacity than tear down existing capacity or let it stand idle, the original design-day decision for a new facility should probably use conservative estimates.
A capacity-management concept that has gained substantial favor in the airline, cruise line, convention center, and lodging industries is yield management (YM)--managing the sale of units of capacity to maximize the profitability of that capacity. Successful yield management involves selling the right capacity to the right customer at the most advantageous price, to maximize both capacity use and revenue. This concept is based on the idea that guest demand patterns can be predicted to some extent and those predictions can be used to allow the hospitality organization to charge different rates to different people (or groups) based on
(1) when reservations are made and (2) the capacity projected to be available at any given time. Early reservations with restrictions (e.g., airline passengers staying over Saturday or paying a high financial penalty for schedule changes) might receive the lowest prices. Guests who wait until later to make reservations, with fewer restrictions and more flexibility, can expect and are usually willing to pay more. Balancing capacity, demand, and price is the job of the computerized yield-management system.
For example, a sophisticated YM system will predict the demand pattern for reservations on a specific flight from Los Angeles to New York four months from now, then price each seat in a way that exactly meets the forecasted demand for travel on that flight. That is, the airline will know how many seats it should set aside on that flight for full-fare guests (who will book their reservations late and will expect to pay more) and how many it must sell at lower prices. Using historical data, the YM program may estimate that 20 percent of the flight's capacity should be reserved for full-fare guests who book late. It may also forecast or calculate a pick-up rate indicating how additional passengers will book reservations from now until the plane flies four months from now. This rate, also based on historical experience, can be a smooth curve or any other distribution that describes how guests make reservations.
The airline's goal is to sell as many seats as possible at the highest rate possible. It will start by setting aside the expected full-fare capacity and then calculate the capacities to be set aside at each successively lower rate. As every traveler knows, the farther out from the flight date the reservation is made, generally the lower the ticket price. The closer to the actual date of the flight, generally the higher the ticket price. The yield-management process is designed to set aside seats at each price level in such a way as to sell each seat at the highest possible price. The airline might set aside the 20 percent mentioned earlier at full fare, 30 percent at a 10-percent discount, 40 percent at a 20-percent discount and 10 percent at half price. If the airline's predictions are accurate, the bargain hunters will make their reservations early and fill up the half-price seats, followed by the later bargain hunters who were not willing or able to commit to the flight soon enough to fly at half price. They will be disappointed that they can't get the 50 percent off fares but are happy with a 20 percent percent discount anyway. The guests who commit even later can't get the 20 percent discount but are still relieved not to pay full price. People paying full price are those who have no choice but to travel on that particular day or business travelers who must book their flights close to the actual departure date.
The reservation process is dynamic, and an effective yield-management system will continuously compare the actual reservation rate to the forecasted rate. The number of seats set aside in each price category or the price of seats in each category can be modified based on the actual, evolving relationships between the supply of that flight's seats and the demand for those seats. If the pick-up rate prediction is incorrect, the airline can always advertise the empty remaining seats on its Web page at a substantial discount that still covers its direct costs and contributes to the flight's total revenue, or it can sell the seats to a consolidator.
A good yield-management model can maximize the revenue on every flight by filling up every seat at a price that perfectly balances seat supply and passenger demand. Yield management is an important capacity-planning device for airlines but also for other organizations that have both capacity limitations and a perishable commodity, like a room for the night or a cruise date. Because the organization's salespeople must have accurate and timely information about guest demand and available capacity, true yield management in the modern sense can hardly be accomplished without the computer.
Time-Series and Trend Analyses
Time-series and trend analyses are simply extrapolations of the past into the future. If we know how much our market has grown every year for the last ten years, a time-series forecast will project that rate of growth into the future to tell us what our park attendance, hotel occupancy rate, or covers (the number of meals served at a restaurant) will be in a given future year. These numbers can be adjusted for fluctuations in the economy, changing assumptions about tourism and population growth rates, or what the competition is doing.
The opening of its fourth park near Orlando, Disney's Animal Kingdom, has changed the area's historical trend in a major way, so the historical time-series and trend-analysis statistical formulae have also had to change. If Orlando visitors spend five days as Disney guests (or even more if they also use the Disney Cruise Lines), then the number of Orlando visitors who go to Universal Studios, Sea World, or Gatorland will drop significantly, unless the overall tourist rate or average length of stay rises. It has become critical for the other attractions to create new strategies to market themselves and all of Orlando as a destination separate from Walt Disney World Resort. If successful, they can attract a new market of visitors who were not planning to visit Walt Disney World Resort or who have been there and done that and are looking for something new to do. The creation of the Universal Studios/Sea World/Busch Gardens/Wet'n Wild Combination Ticket and the opening of Universal Escape's second theme park, Islands of Adventure, appear to be a strategic response to the important change in the statistical relationships caused by Disney's Animal Kingdom opening that allows these other theme parks to define and attract a new market segment.
An Example: Trends Affecting Food-Service Organizations
An interesting illustration of trend analysis is seen in the 1982 book Megatrends by John Naisbitt. He sought to identify major social trends, or megatrends, by content analysis of newspapers and popular magazines. Hospitality strategist Michael Olsen used a similar method to identify three major trends affecting the food-service industry: safety and security, managing chaos, and resource scarcities. (18)
Safety and Security. People are increasingly apprehensive about their personal safety and security. Their fears have implications for food-service organizations. Potential customers worry about whether or not a particular restaurant is a safe location for them to visit, and potential employees worry about workplace safety. People wonder increasingly if the food served to them away from home is safe to eat. Potential guests of most hospitality organizations have similar concerns about safety and security.
Managing Chaos. How can we manage the chaos of modern-day living? More and more, people seem to want someone to help them make sense out of the chaos, confusion, and information overload in their lives. A food-service organization understanding this trend will focus management attention on easy-to-understand menus, simple and clear interior layouts, and an atmosphere of order.
Resource Constraints. A third trend is resource constraints. Qualified employees, investment capital for expansion, and natural resources such as clean water are limited as to availability for food-service and most other hospitality firms. Organizations need to stay aware of major social trends and take them into account as they plan strategy.
While the Olsen study was directed at food-service organizations, these same trends have relevance to any service organization, especially those in the hospitality field.
Qualitative Forecasting Tools
Other forecasting tools are used to make more qualitative or subjective projections. Among them are brainstorming, the Delphi technique, focus groups, and scenario building or war gaming.
Walt Disney said, "We get in there and toss ideas around. And we throw them in and put all the minds together and come up with something...." (19) The old strategy of asking a group of people to ponder the future and what it may mean, based on what they already know, is called brainstorming. Brainstorming can be formal and structured, requiring participation from everyone, or very informal and unstructured. As a forecasting tool, it assumes that everyone has some degree of creativity, that people will voluntarily contribute their best ideas in an open group discussion, that the sharing of those ideas will spark the generation of good new ideas, and that the sum total of those ideas will be a more accurate forecast than the forecast of any one person. Unfortunately, these premises do not always hold up, and participants encouraged or forced to brainstorm often view the time spent as wasted. On the other hand, Disney's successful use of "imagineering" in its creative planning department shows that placing creative people in discussion sessions like brainstorming can provoke new ideas or ways of looking at things.
The Delphi Technique
The Delphi technique is a more formal way than brainstorming of tapping the forecasting skills of experts. If a cruise line wants to know what percent of overall ship capacity will be filled at this time next year, the Delphi technique would be a good tool to use. A group of industry experts would make individual estimates for next year, and the estimates would be combined or averaged. If that average estimate is not sufficient for organizational purposes, the average might be shared with the experts, along with the individual estimates and the thinking that went into them. The experts would then be asked to consider this new information and make a second round of estimates.
Even though this process cannot guarantee a precise forecast of such future unknowables as how many Kiwanis Club members will attend a national convention or how many meals will be eaten away from home next year, combining expert estimates can yield the best composite estimate available.
Focus groups are asked to concentrate on an issue and discuss their thoughts about it with a trained group-discussion leader. Focus groups, which will be discussed in more detail in a later chapter, are perhaps most frequently used in assessing the quality of service already rendered. They can also be helpful in forecasting what people are apt to like and not like about a service experience. If an organization has an innovation in mind, it can form a focus group that is demographically and psychographically representative of its target market and see how the group reacts to the innovation. For example, groups of young teens living in trend-setting areas are frequently used to predict clothing fashion trends that retailers use to order clothing inventories.
Scenario building, or war gaming, has become a fairly popular subjective forecasting technique. We assume a certain future situation or scenario, then try to assess its implications for our organization. If a hospitality organization has a major investment in Florida and California theme parks, a future scenario of concern might be the rapid developments that are occurring in virtual-reality technology. If this scenario occurs, making quick and easy access to virtual theme parks possible for millions of people, what will its impact be on the willingness of people to travel to distant, fixed-site locations for theme park experiences?
Organizations must be careful not to be ruminating at the scenario stage while the competition is actually building facilities. The virtual-reality scenario above is no longer merely hypothetical. Sega and Lockheed have formed a joint venture to build simulated theme-park rides in areas across the world that are too sparsely populated or out of the way to justify a full-scale theme park. Disney opened the $30 million DisneyQuest in Orlando, to test the VR concept. You can ride over waterfalls and rapids, and paddle through jungles on the Virtual Jungle Cruise; you can design and ride your own roller coaster and float over an ancient city on Aladdin's Magic Carpet. At other, non-Disney VR centers, customers can take virtual rides on roller coasters that go to the center or top of the earth, through space to other worlds, undersea, into beehives or through swarms of bees, through computers or the human body, down an Alpine avalanche, or on a runaway train down mountain tracks. Many of these motion theaters and simulators are capable of creating new rides by simply putting different programs into the equipment. Some simulators offer as many as 100 different rides.
A real amusement park must expend large sums on real estate and construction just to provide one more ride. A likely scenario session for a theme park might focus on the impact of virtual theme parks on future attendance at large, fixed-site destinations. Another scenario session should probably be devoted to what the next major development beyond virtual-reality technology will be.
Similarly, convention centers might try to forecast their future by creating scenarios that embody technological advances in teleconferencing. If people can sit in their own offices and experience the "feel" of being in a crowded meeting at a distant location, will market opportunities for convention centers and planners continue to exist on the present scale?
Scenario builders often need to act quickly. Aggressive changes are taking place in information technology and simulation. The scenario builder is in danger of looking up from the scenario or simulation being created to find that the scenario is already here.
WHAT THE FUTURE MAY HOLD
The organization must try to assess the uncertain future in terms of potential changes in demographics, technology, social expectations, economic forces, competitors, other relevant groups (suppliers of resources, capital, and labor), and surprise factors.
Assessing future demographic trends and their effects may require both qualitative and quantitative forecasts. Hospitality organizations already know a lot about their future guests since so many of them are already here. In 1998, 62 million consumers were over age fifty, and that number is expected to double over the next thirty years. The fifty-plus group had a combined annual income of more than $900 billion and accounted for 80 percent of the nation's savings. Americans over fifty outnumbered teenagers in 1998, and they will be active twenty to thirty years longer than seniors a generation or two ago. The aging baby boomers retiring early with substantial discretionary income will continue to be a prime market target of the hospitality industry. These people have the time, money, and physical ability to travel and participate in many guest experiences unimaginable to their parents at comparable times in their lives.
Generations X and Y
Many future market opportunities can be identified by reviewing information already known about baby boomers and the Generation X and Generation Y segments of the population. "Generation X is the 46 million Americans aged 18-29." (20) According to Business Week in 1992, Members of Generation Y, now in grade school, will be the "youthquake" in the early twenty-first century. The group includes the approximately 4 million children born each year between 1989 and 1993. The roughly 57 million American children under the age of fifteen represent a significant demographic category. Although smaller than the group produced by the postwar baby boom, which lasted nearly 20 years and resulted in a generation of some 78 million children, Generation Y will obviously become a force of its own as it matures. By 2006, the teenage population will reach 30 million, the highest number in this age grouping since 1975. (21)
This generation will be different because the world it has to deal with is quite different from the one its parents faced. Of these children under the age of six, nearly 60 percent have mothers working outside the home compared with 18 percent in 1960. Around 61 percent of U.S. children aged three to five are attending preschool compared to 38 percent in 1970; nearly 60 percent of households with children aged seven or younger have personal computers; and more than one-third of elementary school students are black or Hispanic compared to 22 percent in 1974. Fifteen percent of U.S. births are to foreign-born mothers whose backgrounds are so diverse that the school systems of New York, Los Angeles, Chicago, and other large city systems report more than 100 languages spoken. One-quarter of children under six live in poverty. As the twentieth-century ended, one in three births was to an unwed mother, and one in three marriages ended in divorce. These final statistics mean more children are being brought up in single-parent homes where the parent is working. They also mean that the children are socialized at younger ages, learn to read earlier, spend longer days at school or day care, and must rely on someone other than a parent for much of their early childhood care. (22)
These statistics have several implications for all organizations serving the public; some of them will have special impact on the labor-intensive hospitality industry. With dollars for education under pressure as aging baby boomers press for allocation of more government dollars to their growing health-care and retirement needs, agile hospitality companies can define themselves as white knights to schools and their students by finding innovative ways to promote their products and services while helping schools achieve their educational mission. The production of support lesson plans, videos, "edutainment," and electronic media will represent prime opportunities for companies to do good things for school systems while doing well for themselves. Those organizations that have a fundamental appeal to children, like theme parks or makers of children's products, can seize these opportunities in education as a cost-efficient and focused marketing strategy for reaching this estimated $100 billion-per-year market.
Generation Y in the Workforce
The characteristics of Generation Y also have important implications for managing the workforce of hospitality organizations. The divergence between the haves and the have-nots in this Information Age is already wide among today's school children, who will be the workers of tomorrow. It can be seen even at the elementary-school level where those children who have access to computers are educationally outstripping those who don't. (23) Today's children will be the eighteen- to twenty-one-year-old workers of 2008 and 2010. Those who enter the workforce without the requisite basic skills will represent a major training and development challenge for the many hospitality organizations that depend upon young, eager, capable employees to provide and ensure guest satisfaction. The challenge will be to keep this new group of employees, especially the have-nots, competitive with the rapidly emerging, highly educated workforce of the Asian rim countries who are now investing heavily in education and training. The workforce is rapidly becoming global, and workers from many nations are competing for the same jobs. Advances in technology and communication make where a person is located less important than what the person can do.
These new workers will be different in other ways as well. As the first generation to have easy access to worldwide communication through the Internet, Generation Y will define their friends and their interests globally instead of in the neighborhood. This trend will be both good and bad as the power of neighborhood and community over individual beliefs, values, and behavior will decline while at the same time these people will be more inclined to have a global perspective and the diversity of thinking that such a perspective creates.
This is the video generation. First graders now average twenty-three hours of TV per week. Parents remember how they used to play outside with neighborhood friends, but today 60 percent of children live in households with two working parents concerned about drugs, AIDS, and random crime in the streets. They can buy safe, supervised activities for their children, but free play time, during which earlier generations had to use imagination and creativity to find something to do, has decreased considerably. (24) Today children have soccer teams, tennis lessons, and judo. They go to Discovery Zone for structured play in the little time left to them after their working parents pick them up from after-school day care. Their opportunities to work things out for themselves or to be creative on their own are increasingly limited. When one has a Game Boy or computer with fantastic games and graphics, the motivation to stretch and grow one's own imagination and creativity is limited. The impact of such trends on both the future customer and on employee creativity and ability to develop new ideas may be profound.
Several developments, other than the population trends that are changing the workforce and customer base, will affect the strategies of hospitality organizations. Dramatic changes in technology will continue to have a major influence on both individual organizations and entire industries. Many demographic trends shift slowly. Because changes in technology, especially information technology, occur so rapidly, they and their impact are difficult to forecast.
The communications and computing power now found in a laptop computer were unthinkable only ten years ago. Today anyone with a laptop computer and Internet access can search for the lowest airfare to a destination, make a plane reservation, book a hotel room, and reserve a rental car. Yesterday's comic-strip fantasy was Dick Tracy's two-way wrist radio. Seiko has already produced a wristwatch personal computer that can download text and pictures from other computers. A wristband personal communicator with a built-in, artificial-intelligence-based personal management system is already being test marketed. The unit enables a person to communicate anywhere at any time with anyone similarly equipped. The day is soon coming when this wrist-mounted technology will be linked to a personal computer system with individualized decision-making capability. On that day, a guest will speak into a personal communicator and ask a computerized personal decision maker to find and book a hotel room, in a distant location, that the computer knows will suit the guest's needs and expectations. The implications of such a capability for travel agents, hotels controlling their room inventory, and other existing (and yet to be created) parts of the travel, tourism, and other hospitality markets are enormous.
Other aspects of technological change will be equally important to managing the hospitality organization. The need to blend innovative high-tech solutions into high-touch service situations will be increasingly recognized as a competitive strategy and, if done successfully, rewarded by the marketplace. Hotels, restaurants, and other guest service organizations will find new ways to substitute technology for people, to reduce their dependence on this expensive and increasingly scarce resource. At the same time, these same organizations will need to find ways to maintain the high level of personal contact that defines a positive guest experience. The challenge is to substitute technology for labor in ways that the guest perceives as either a positive increase in service quality and value or does not perceive at all.
Phone mail in hotels is an example of technology with which guests feel increasingly comfortable. While most luxury hotels still take messages for guests wanting this personal service, they also offer the technology for those who prefer the convenience of receiving a voice message. Voice mail is more convenient for everyone, takes less time, and is considerably cheaper for the hotel than staffing up to take messages manually. In this instance, the substitution of technology for people increases the guest's perception of service quality and value. In contrast, most people are annoyed when they call an organization wanting to talk to a person and are not allowed to do so until after punching several phone keys, if then. In those instances, technology has decreased the customer's perception of service quality and value rendered by the organization.
Changing Social Expectations
Another factor in the long look around is society's changing expectations for all its institutions, including those in the hospitality industry. Some expectations wind up in the political process and result in new laws, rules, or regulations. Others are expressed through trade associations that monitor industry behavior and activist groups that identify and oversee industry practices.
Because they deal directly with the public, hospitality organizations must confront and respond to an array of government rules. When government regulators began requiring that food handlers stop using their bare hands and start using gloves or tongs to handle ready-to-eat food, the impact on many food-service organizations was considerable. They not only incurred the costs of gloves they didn't have to buy before, but they had to train food handlers in this new procedure. With the high levels of employee turnover in many areas of the food-service industry, accommodating the numerous extra costs created by this rule was a challenge to their strategy, product-market focus, delivery system, and service environment.
As another instance of government's impact, the Internal Revenue Service has been cracking down on the unreported tip income of servers. The IRS program requiring restaurants to keep track of employee tips has caused numerous restaurants to institute a "service charge" in place of tips. Many customers and most servers don't like that system, and the best servers won't work at restaurants using it, which leads to staffing problems.
Another major change in social expectations can be seen in certain emerging social trends and institutional changes. Casual dining did not exist as a food-service category until recently. Changing demographic trends led to this new category as more dual-income families sought an experience in between fast food and fine dining. A recent concept is the takeout family meal, pioneered by Boston Market, enabling the busy parent to stop in on the way home from work and get a full meal "like mom used to make" to feed the family. An even newer idea is the "grocerant," which combines a grocery store and a restaurant.
Changes in the social expectations of interest groups, and in the steps they are willing to take to exert influence, have affected hospitality organizations. One example is the increasing use of political action by religious groups. If a hospitality organization starts offering health and other benefits to same-sex partners of its employees, certain religious groups opposing same-sex relationships may well ask their members to boycott the organization. Because they are so dependent on maintaining a good relationship with the public, hospitality organizations are especially vulnerable to attacks by interest groups that disagree with management policies or business decisions. If a hospitality organization has any thoughts of building a major facility in a historically significant area, it can expect that groups wanting to preserve the area in its present state will generate negative publicity. Even if constructing the facility is a good business decision, public opposition may make it a bad customer-relations decision. Any hospitality organization dependent on a broad customer base has a real challenge when every action it takes is so visible to its guests.
At a minimum, planners should try to stay aware of shifting social expectations. Including input from social groups can sometimes enhance the strategic planning process greatly. When planning began for Disney's Animal Kingdom theme park, the organization invited representatives of environmental and animal-rights groups to help in the development process. By working with them, Disney was able to develop a park consonant with their ideals.
Changing Economic Forces
Many environmental factors already covered have an economic aspect. Economics is such an important issue, however, that it deserves special discussion. The organization must consider the effects of governmental economic policies on its suppliers of capital, the ability of its customers to buy the service, and competitors' ability to compete. It must also consider in its strategic planning process numerous other economic factors as well.
One important consideration is the future direction of the local, regional, national, and even international economies and how these directions will influence the demand for hospitality services. Consider foreign currency exchange rates as an example. If Spain's growth rate is lower than that of the United States and therefore its currency is less valuable in foreign exchange than this country's, foreign tourists will consider going to Spain rather than coming to the United States. In the labor-intensive service sector, the influence of inflation on competitiveness is especially important. If inflation rates move up or down, then the organization's cost of capital--its ability to expand the business, buy new equipment, and keep up with rising wage expectations--will be affected. Other economic factors would include productivity growth, income distribution, and stage in the business cycle. Most hospitality organizations are more sensitive to variations in general economic health than organizations making and selling necessities. When the economy is in a downward cycle, so too is the travel and tourism industry. People must buy groceries and clothing; they don't have to take vacations.
An organization has existing competitors, potential competitors, and indirect competitors that offer customers a substitute or alternative service. These competitors can be local, national, or even international.
Existing competitors have an established position in your market niche. If you are a small corner restaurant, your competitors are all those other restaurants in the same market area. Since most people go to restaurants within a short drive of their home, these competitors are easy to identify. Potential competitors are those who are likely to enter your market area. The sign may be up, the building begun, and the "buy one, get one free" coupons already printed to mark the existence of a potential competitor to your restaurant. The alternative or substitute providers include anyone who sells food. They can range from Weight Watchers, which provides its own branded food products to dieters, to the local grocery store, to a food-delivery service. Anyone who can fill the same basic need with an alternative product is a competitor.
In the theme park industry, a competitor is anyone who can encourage customers to spend money at their attraction rather than in your theme park. Because Orlando visitors can spend money in a wide variety of alternative ways, Orlando theme parks are especially sensitive to this competitive market reality. And of course people can choose not to come to Orlando at all; they can go to competitive attractions at other destinations like Las Vegas, Spain, or Branson, Missouri. The in-market competition includes other theme parks, dinner theaters, civic museums, art galleries, and factory-outlet stores. It even includes noncustomers who stay away from parks entirely and watch videos at home or in a motel room. One response of a theme park organization to such an array of competition is to use all the principles of guestology to provide park visitors with an ultimate, irresistible guest experience. The guestologist would also try to find out how guests want to spend their time and money, other than on the basic guest experience that the theme park offers, and if possible provide those options rather than letting customers go to competitors.
Changes in Other Relevant Groups
In addition to the various factors and groups we have already discussed, several other groups in the organization's external environment must be included in any environmental forecast: the suppliers of resources, capital, and labor.
One important group is the resource suppliers of raw material, capital, and labor. When Red Lobster adds a new seafood item to its menu, it must first check to be sure its demand doesn't exhaust the world's supply of that item. Because Red Lobster has so many restaurants, adding or removing a menu item can have a major impact on the supply of that product. If a certain type of shrimp now retails for $7.99 per pound, how much will the price change if Red Lobster buys up half of the world's supply next year? Obviously, the planning process needs to take such supply-related issues into consideration.
A second major interested group is the suppliers of capital. As the capital market becomes more global and the availability of electronic transfers makes movement of capital easier and quicker, the organization may need to spend more time forecasting the availability of capital for its business and industry. If capital availability is driven by the next quarter's financial report, the impact on the organization's decision-making and planning horizon will be considerable. If Wall Street demands a certain short-run return on investment, finding the extra resources to develop a new service or to take a chance on a new concept or location may be difficult. Once the tax advantages of building hotels were eliminated by the Tax Reform Act of 1986, the number of new hotels under construction dropped dramatically. The previous tax laws had made the financial returns attractive enough to justify new hotel construction. Without these tax advantages, however, the returns on investment were sharply reduced, and the availability of new money for hotel construction dried up. The restaurant industry undergoes a periodic devaluation of its stock prices as the capital market expresses its opinion about the industry's overcapacity problems and how much it will hurt to fix them. No matter how good a strategy an organization has, if it can't convince the capital market, the strategy may be worthless.
The Labor Supply
A third supplier of a crucial resource is the labor market. It is so important that we devote Chapter 5 on Staffing to it.
The final external issue to address in this long look around at the environment is the potential for surprise. While one cannot often predict stock market crashes, wars, or natural disasters, thoughtful planners consider these possibilities. If most customers have to drive long distances to get to your service setting, your planners should keep in mind the problems that intensifying instability in the chief oil-producing nations might create. If your airline serves or your hotel chain is located in an area that seems subject to terrorist attacks, you need to have a contingency plan. If you are Marineland located in a small northeast Florida county full of pine trees, and you are already on the financial ropes because highway tourists get on the interstate and go directly to newer, bigger Central Florida attractions, you need to consider what will happen to your organization if uncontrollable forest fires cause the entire county to be evacuated, as occurred in 1998. That is an actual example: Marineland closed its doors after the fires. While hoping and planning for the best, strategic planners must realize that any number of unpredictable future events can have a severe impact on how many customers want or need the service the organization offers.
The Impact of Change on Strategic Premises
All these changes will have varying effects on the organization. But not all factors are equal in either their impact on the organization or in terms of our ability to forecast them fully. Some are predictable and simple, such as the estimate of teenagers available for work in ten years. Since they have all been born already, predicting the number available in ten years is a straightforward calculation. Some other factors are simple but unpredictable. Using demographics again, estimating the number of skilled and trained employees who will be available in Orlando, Florida, in twenty years is a simple number to calculate, but the calculations rest on unpredictable information such as unknown changes in family formation, net migration into the Central Florida area, and other factors.
As was true of simple future elements, complex future elements are either predictable or unpredictable. Once a certain number of people are in a destination market, a relatively predictable percentage will come to any given tourist attraction on any given day. Calculating the number of people who will be in the market, however, is a complex process; it depends on airline routes and fares, propensity to travel by people all over the world, the price of gasoline, the level of economic activity, consumer confidence, and a variety of other factors.
The complex and unpredictable outcomes are, of course, the hardest to forecast. An example would be changes in technology. If technology develops to the point that the experience of going to a major attraction can be duplicated through virtual reality, then people won't have to go to the trouble and expense of coming to the site of the attraction to rent cars, stay in hotels, and buy admissions. If this happens, the entire area surrounding the attraction will suffer a severe economic decline. Predicting whether it will happen and, if it does, how severe the decline will be is a major challenge for both hospitality and civic forecasters.
Some forecasts are easy, because the elements comprising them (which are themselves forecasts) are predictable and the calculations simple, and others are difficult. Guestologists must try to make the forecasts relevant to their futures, regardless of ease or difficulty, and include them in their strategic planning processes. Since things that can be counted are often more comfortable to deal with than those that can't, managers are sometimes tempted to emphasize those factors that are numerical while ignoring those that cannot be easily measured. Unfortunately for those managers, in real life the crucial factors are usually those to which we can't apply numbers.
The hospitality organization draws conclusions about the future of its industry and market from its environmental assessment, then uses them to make the assumptions, called strategic premises, on which the service plan is based. Premises are educated guesses. The organization may guess wrong; even if it guesses right, it may devise the wrong strategy. But not to guess at all means reacting day to day to whatever seems to be going on, without a plan or a focus for organizational activities.
Dave Thomas, founder of Wendy's, tells how his environmental assessment led to certain premises on which his corporate strategy was based. In 1969, he identified five trends he thought offered him a market opportunity that he had the competence to meet:
1. People wanted choices. They were tired of living in a prepackaged world; they wanted some influence over the products they were buying in the marketplace, and they wanted something new.
2. People were fed up with poor quality. He saw a big interest in things that were fresh and natural.
3. People were trying to adjust to a newer, more complicated way of life. Older people were looking for relief from the many social and political changes occurring during the 1960s, and young people were looking for changes that they could handle. Thomas notes, "In a funny way, the old fashioned decor and the Tiffany lamps provided a novelty for the young adults and nostalgia for the older generation at the same time." (25)
4. People were on the move. Any business had to accommodate this restless mobility.
5. People were ready for an upscale hamburger place. He felt that many people had grown up loving hamburgers but were not satisfied with the product generally available at fastfood outlets.
Thomas writes, "Knowing these five trends allowed Wendy's to focus on the right market. My bet is that if you looked at any successful business, you would find factors very much like these behind that business's success. If you're going to bet your bankroll on a business concept, you had better be able to understand those forces. If you can't describe them, you had better feel them so clearly in your gut that you know you're right." (26)
Strategic Premises: Theme Parks At the Park, a major theme park industry journal, offers several interesting forecasts. Any theme park organization believing them to be accurate could use them as premises on which to base strategic plans. 1. There will be more parks, but they will be smaller. These will be niche parks appealing to specific market segments, close to population centers, and they may well include sophisticated, high-technology entertainment attractions. Economic trends will create niches for expensive, exclusive, upscale parks that will appeal to a large and growing number of affluent customers. 2. Immigration trends will create more demand for ethnic-themed parks. Foreign-born Americans represented 8 percent of population in 1990 but will constitute 14 percent by 2045. One out of three new Americans is of Asian or Hispanic descent. Parks will be themed so as to appeal to these important new markets. 3. More competition and more investment opportunities will be outside the United States. Tourists from all over the world visit our theme parks. The theme park idea has global potential; its appeal has hardly been met anywhere except in the United States. Theme parks and water parks have been started in Tokyo, Paris, the Netherlands, the Philippines, Korea, and China, and these are only the beginning. 4. The customer base will get progressively older. The median age of Americans in 1996 was 33. In 2005 it will be 36.3, and in 2010 it will be 44.3. Theme parks like Sea World and Epcot are great destinations for older tourists because they provide rides of the mind rather than the body. Future theme parks must take into account the shifting expectations and abilities that accompany advancing age. These customers will have older bodies with less stamina and more physiological limitations such as less acute eyesight and hearing, weaker bones, and a less reliable sense of balance. They won't want to be jarred in physically demanding rides or attractions or risk heart attacks in roller coasters or loop-the-loops. This customer group will have more disposable income and time. They will often be accompanied by the young children of their own working children and will look for attractions that appeal both to themselves and these children. Both they and the children accompanying them will have shorter attention spans than the average present-day customer. They will value time and nutrition, will be healthier and more worldly than their parents were, and will demand service experiences that are novel, interesting, and reaffirming of their values. 5. Cultural attractions such as museums, historical sites, aquariums, and symphony orchestras will either learn how to enter the entertainment business to compete or lose their public support and funding. Like the Boston Pops, these attractions will have to provide a "show" along with high-quality substance. As people focus on government costs and demand more for their tax dollar, the need to attract more customers will drive publicly owned organizations into stronger competition with commercial theme parks and attractions. 6. The growth and availability of virtual-reality technology will change the experiences that customers seek and expect from attractions. As people get used to the availability of virtual experiences that make them feel as if they are actually there,the appeal and value of amusement parks will be more directly tied to the shared experience of being with other people and the energy of being part of a real crowd of people. 7. More emphasis will be placed on personal safety and security, because customers will expect and demand it. 8. The role of theme parks in affirming and teaching our cultural heritage, beliefs, and values will continue to expand. Theme parks define a view of culture and to some extent teach guests what the culture is all about. In the future, theme parks will continue to serve as places where cultural values are reaffirmed; they will espouse positive, conservative, universally shared human values. In America, theme parks will continue to tell stories and display themes that have universal appeal; they will try to represent the best of the culture's values, beliefs, ideals, and themes. Sea World, for example, promotes the themes of environmental and animal respect, and Disney's Animal Kingdom does the same. The themes of successful parks reflect what is good about our culture; they teach, reinforce, and reaffirm those cultural values we all share. 9. Technology will continue to change the way in which the theme park experience is enjoyed, but the fundamental premise of a theme park or any service organization will not change. As At the Park puts it, "You still need to make them laugh, charm them, dazzle them, take them somewhere new and different, give them a chance to be part of a crowd, to see and be seen, feed them well, take great care of them and make them feel better about themselves and the world." Source: At the Park, 1996, Issue 36:55-56.
ASSESSING THE ORGANIZATION ITSELF: THE INTERNAL AUDIT
On the right side of our planning model in Figure 2-1, opposite the long look around, is the internal audit, or the searching look within. The hospitality organization cannot plan with any confidence until it admits its weaknesses and identifies its central strengths, frequently termed its core competencies.
The definition given by Hamel and Prahalad is helpful: an organization's core competence is the bundle of skills and technologies (often called, confusingly enough, competencies) that gives the organization an important difference in providing customer benefits and perceived value. (27) Chrysler's core competence is the ability to make cars. The core competence of the Walt Disney Company is the ability to manage family entertainment facilities. The core competence of most Disney properties is the ability to entertain people. Knowing its areas of competence will enable an organization to make a key strategic decision: What shall we not do?
If a company has proven it has the ability and technology to combine the merchandising of consumer goods, entertainment, and an eating experience in a striking setting, then it can do what Rainforest Cafe and most other theme restaurants have done: seek to expand the variety of consumer goods it sells alongside its restaurant operations. In contrast, after Disney bought ABC/Capital Cities, it decided to retain parts of the new business that fit its core competence and eliminate those that did not. It sold off some businesses, acquired as part of the ABC package, such as magazine publishing and other nonentertainment business units. The point is that every successful organization has developed a core competence, an ability to do something very well. As long as it sticks to activities appropriate to that core competence, it will probably continue to succeed. When it strays from its core competence, it may find itself pitting its weaknesses against the strengths of other organizations.
Successful managers must have two skills or qualities: management ability and expertise in a specific industry or functional area. They know, just as successful organizations know, that they should focus on developing their management ability and industry expertise, which as a bundle comprise their core competence. A factory manager and a hotel manager may have many of the same managerial skills. But the successful factory manager may fail as a hotel manager. The core competence leading to success, for managers and for organizations, will be different in the two industries.
The internal audit tells the hospitality organization where it stands now, what new strengths it must develop, and what weaknesses it must eliminate to build the core competence it will need to succeed in the future industry it foresees. If an organization accurately perceives itself to be the dominant force in entertainment and foresees the future of entertainment in electronic media, then that company should probably set its sights on dominating any electronic medium that develops and delivers entertainment. Such reasoning is, of course, what made Wall Street applaud Disney when it bought ABC and criticize Westinghouse when it bought CBS at about the same time. For Disney, the fit with its core competence and industry vision was perfect. Wall Street perceived the Westinghouse purchase as a venture into a new and unknown area, outside its proven core competence, and so did Westinghouse! As a result of an internal audit and long look around, the company decided its core competencies could no longer make money, so it abandoned them, got rid of its old lines of business, changed its name, rewrote its mission statement, and adopted instead the core competencies of CBS. Rarely do the internal and external audits lead to such dramatic decisions.
An internal audit includes an assessment of all the organization's internal assets. Each organization has a reputation, a pool of human capital (its employees), managerial capabilities, resources in place, and competitive advantages based on its technology, patents, brand names, copyrights, and customer loyalty that help define its core competencies.
Disney, for example, is generally considered to be one of the world's most able hospitality organizations. It knows what it should do to sustain its core competence of providing service excellence in the family entertainment field. It has a unique, well-established, loyal customer base, a committed pool of employees, well-trained management, a strong brand image, and a well-maintained capital base. In an assessment of its own internal strengths and weaknesses, Disney builds upon its core abilities--not only by acknowledging them as an organizational strength but also by incorporating them into its business plan as a marketable product, to be shared with others through seminars offered at the Disney Institute on how to manage service organizations.
Marriott Hotels understands that one role of planning based on a knowledge of core competencies is to keep the organization out of businesses it should not be in. If a company achieves great success and finds itself with a lot of cash on its hands, as Marriott did around 1980, it might be tempted to try new lines of business just because it can afford to. What Marriott did as the decade moved on was to sell two businesses--airline catering and restaurants--that it had operated successfully for sixty years. Marriott forecasts in those areas were not promising, so Marriott left those businesses. At about the same time, the organization realized that the market for its core competence--running large, full-service Marriott hotels--was limited. The company decided to capitalize on its name and core abilities by moving into other segments of the lodging market: Marriott Suites, small-sized, medium-priced Courtyard by Marriott, economy-priced Fairfield Inn by Marriott, and extended-stay Marriott Residence Inn. It also acquired the Renaissance, Ramada, and new World chains. (28)
An unsatisfactory bottom line will motivate a company to take a searching look within. For years McDonald's sold precooked hamburgers kept warm under heat lamps. Falling sales and the public's obvious desire for made-to-order hot food prepared "their way" convinced the company that it had to change the way it executed its core competence: making and selling hamburgers quickly. Its new slogan? "Made For You ... At the Speed of McDonald's." The company totally revamped its production and delivery system to provide customers with hotter, fresher food served
faster. In 1998 and 1999, the new cooking technology was installed in 12,000 McDonald's stores. The service standard of the new food-preparation technology? To serve hot, made-to-order meals, juicy meat on hot buns, to customers no more than 3.5 minutes after they walk in, no matter how many customers are already waiting in line. (29)
Marriott also serves as an example of how a careful internal audit found a deficiency in what Marriott had thought was a competency: having a sufficient number of dedicated, able employees. In 1996 an internal assessment revealed that the company needed to address certain characteristics of the lower-paid end of its workforce if it wished to use this employee group effectively. According to Business Week, identified problems included "lack of education, poor work habits, inability to speak English, culture clashes, financial woes, inadequate child care, and domestic violence, for starters. People don't show up when they should; they leave without explanation." (30) Marriott recognized that although these employees were available for relatively low pay, they were costly in other ways and required an excessive commitment of management time. The company established a program to train these employees in dealing with the many life and work challenges they faced.
Vision and Mission Statements
In the middle of the model in Figure 2-1 are the organization's vision and mission statements. Most organizations spend a great deal of time trying to articulate these concepts, and the reason is clear: If you don't know what you want to do, how can you decide how to do it? Most companies wind up writing mission and vision statements--and other statements such as credos, beliefs, and values--but not all need to; some know what they are doing and where they are heading without writing it down. Vision and mission statements vary from the simple to the complex, and the simpler the better.
The Vision Statement
The vision statement describes what the organization should look like in the future and what significant contributions it expects to make. Former Chili's CEO Norman Brinker said, "When it comes right down to it, I do one thing: I have a vision, then I create an atmosphere that involves the people in that vision." (31) Though mission and vision are to an extent overlapping terms, the corporate vision is the really big picture of hopes for the future. Hamel and Prahalad call this vision definition the "quest for industry foresight" as the organization defines what its future could be and works backward to what it must do today to make that future happen. The real creative imagination of management and the entire organization needs to be focused on articulating the vision and how to achieve it. Hamel and Prahalad describe the difficulties involved in getting from here to there, from today to tomorrow:
Although potentially useful, technology forecasting, market research, scenario planning, and competitor analysis won't necessarily yield industry foresight. None of these tools compels senior management to preconceive the corporation and the industries in which it competes. Only by changing the lens through which the corporation is viewed (looking at core competencies versus focusing on only strategic business units), only by changing the lens through which markets are viewed (functionalities versus products), only by broadening the angle of the lens (becoming more inquisitive), only by cleaning off the accumulated grime on the lens (seeing with a child's eyes), and only by occasionally disbelieving what one sees (challenging price-performance conventions, thinking like a contrarian) can the future be anticipated. The quest for industry foresight is the quest to visceralize what doesn't yet exist. ... Having imagined the future, a company must find a path that leads from today to tomorrow. (32)
Sometimes an organization is created to fulfill a personal vision. Walt Disney wanted to build his theme park, Disneyland, so badly that he was willing to borrow against his insurance policy to begin it. He had a vision to fulfill. Selling others on the same vision was a difficult challenge. After all, who else could imagine a theme park built on 182 acres of citrus grove in the middle of then-undeveloped Anaheim, California? The park would wind up costing $17 million to build, far exceeding the original estimates. While Disneyland was a visionary project, it pales in comparison with the vision required to conceive Walt Disney World Resort and bring the park into being. Disney bought nearly 28,000 acres, mostly citrus groves, near the quiet town of Orlando, Florida, on which to build his dream. It included not only an expanded version of his Disneyland theme park but also hotels, restaurants, and even Epcot, the city of the future. Epcot was originally envisioned as a complete, self-contained city with its own schools, apartments, and shopping facilities. The development in 1996 of the Celebration community has brought to fruition this final part of Walt Disney's grand vision. (33)
Here are the vision, mission, and values of the Walt Disney World Dolphin at Walt Disney World Resort:
Our Vision: The Walt Disney World Dolphin provides an experience as unique as its setting and, through cast commitment to "WOW" service, will be the most unique hotel in the world!
Our Mission: The Cast of the Walt Disney World Dolphin will achieve our vision by attracting and serving guests in the group and leisure market segments through the implementation of total Customer Satisfaction and attracting, retaining, and motivating the best Cast Members Possible.
Our Values: Integrity, Creativity, Open Communication, Passion for Excellence, Commitment to Continuous Improvement, Perseverance, Vision, Commitment to Empowerment, Commitment to do the Right Thing, Enthusiasm for our Business, Compassion, Commitment to Teamwork, Commitment to Being the Hotel Leader.
[FIGURE 2-2 OMITTED]
Other statements of company mission, creed, or values appear in Figures 2-2 and 2-3: a page from the Nordstrom employee handbook and a card carried by Extended Stay America Efficiency Studios managers.
The Nordstrom statement includes the company's one-sentence "policy manual": "Use your good judgment in all situations." The reverse side of the Extended Stay America card reminds managers of the "2-Minute Rule": Spend two minutes a day with each employee, taking an interest in that person's life.
[FIGURE 2-3 OMITTED]
The Mission Statement
The organization's mission statement expresses the reason for which the organization was created and exists. It guides managers as they allocate resources, focuses organizational marketing efforts, and defines for all employees how they should deal with guests and customers. An example would be the simple but elegant motto statement of The Ritz-Carlton Hotel Company, L.L.C., winner of a Malcolm Baldrige Quality Award: "We are Ladies and Gentlemen serving Ladies and Gentlemen." The motto is printed on a pocket-sized laminated card, presented as Figure 2-4, carried by every employee. Also printed on that card are the company's credo, its three steps of service, and its twenty basic service standards--all of these being known collectively as the company's Gold Standards. Of the card, President and Chief Operating Officer Horst Schulze says, "Every employee has the business plan of The Ritz-Carlton in his or her pocket, constantly reinforcing that guest satisfaction is our highest mission." (34)
Red Lobster, part of Darden Restaurants, couches its vision and mission in terms of its passion, dream, and goals: "Our passion is hospitality, over-the-top performance, and creating a legacy of greatness that endures and prospers for generations to come. Our dream is to be a world-class company of restaurants that our stakeholders--customers and guests, crew, suppliers, communities, and Darden Restaurants--are proud of. Our goals are to earn a sterling reputation for measured excellence in everything that we do and to retain the loyalty of our stakeholders for life." (35) These somewhat general statements are made specific in the eight principles tied to them under these headings: Hospitality, Fairness, Caring, Respect, Fun, Quality, Zip, and Balance.
Figure 2-4 Ritz Carlton Credo Card. (Used with permission of The Ritz Carlton Hotel Company, L.L.C.) [ILLUSTRATION OMITTED] The Ritz-Carlton[R] Basics 1 The Credo will be known, owned and energized by all employees. 2 Our motto is: "We are Ladies and Gentlemen serving Ladies and Gentlemen-" Practice teamwork and "lateral" service" to create a positive work environment 3 The three steps of service shall be practiced by all employees. 4 All employees will successfully complete Training Certification to ensure they understand how to perform to The Ritz-Carlton standards in their position. 5 Each employee will understand their work area and Hotel goals as established in each strategic plan. 6 All employees will know the needs of their internal and external customers (guests and employees) so that we may deliver the products and services they expect. Use guest preference pads to record specific needs. 7 Each employee will continuously identify defects (Mr. BIV) throughout the Hotel 8 Any employee who receives a customer complaint "owns" the complaint. 9 React quickly to correct the problem immediately Follow up with a telephone call within twenty minutes to verify the problem has been resolved to the customer's satisfaction. Do everything you possibly can to never lose a guest. 10 Guest incident action forms are used to record and communicate every incident of guest dissatisfaction. Every employee is empowered to resolve the problem and to prevent a repeat occurrence. 11 Uncompromising levels of cleanliness are the responsibility of every employee. 12 "Smile--We are on stage." Always maintain positive eye contact. Use the proper vocabulary with our guests. (Use words like--"Goad Morning," "Certainly," "I'll be happy to," and "My pleasure"). 13 Bean ambassador of your Hotel in and outside of the work place. Always talk positively. No negative comments. 14 Escort guests rather than pointing out directions to another area of the Hotel. 15 Be knowledgeable of Hotel information (hours of operation, etc.) to answer guest inquiries. Always recommend the Hotel's retail and food and beverage outlets prior to outside facilities. 16 Use proper telephone etiquette. Answer within three rings and with a "smile." When necessary, ask the caller, "May t place you on hold?" Do not screen calls. Eliminate call transfers when possible. 17 Uniforms are to be immaculate. Wear proper and safe footware (clean and polished), and your correct name tag. 'lake pride and care in your personal appearance (adhering to all grooming standards). 18 Ensure all employees know their roles during emergency situations and are aware of f ire and life safely response processes. 19 Notify your supervisor immediately of hazards, injuries, equipment or assistance that you need. Practice energy conservation and proper maintenance and repair of Hotel property and equipment. 20 Protecting the assets of a Ritz-Carlton Hotel is the responsibility of every employee.
The Olive Garden Restaurants (another Darden organization) have a seven-point vision statement and also a simple four-point statement that provides guidance for employees:
1. Hot food hot
2. Cold food cold
3. Know your product
4. Clean rest rooms
5. Money in our bank
These points provide focused and clear guides to employee decisions.
The organization's statement of mission often includes its core values. Wal-Mart founder Sam Walton combined mission and values when he said, "We put the customer ahead of everything else.... If you're not serving the customer, or supporting the folks who do, we don't need you." (36) All of these organizations recognize the importance of providing straightforward guidance to all employees as to how the organization expects them to act in their jobs.
Southwest Airlines started out in 1971 with this mission: "Get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it." (37) Here is the Southwest mission statement of today:
Southwest Airline is dedicated to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.
DEVELOPING THE SERVICE STRATEGY
Once the external and internal assessment factors have been examined in light of the corporate vision and mission, the hospitality organization is ready to define its service strategy. This strategy is critical to any service organization's success because it provides guidance in how to make every organizational decision, from capital budgeting to handling a customer complaint. Defining and creating the service strategy are as much art as science. The organization must now define its market, craft its service product to meet that market's needs, create the appropriate service environment, and design the service systems to reach the target market. In Chapter 1 we discussed these key components of the hospitality organization, and this is the place where the strategy must be translated into specific actions. If the company mission is to deliver a service product to an upscale, educated, retired socioeconomic group, then the service delivery system should be high touch, and the service environment should be elegant and congruent with what an upscale market wants. Knowing what any market wants takes us back to an important point from the first chapter: Ask the customer.
Asking Customers What They Want
The best way to know what your customers want or expect is to ask them. The organization should not only look inside to evaluate its core competencies but must also ask its customers to find out what the key drivers of customer satisfaction are. Only customers can tell the organization what they really value, and these values should drive the decision process on resource allocations. The customers will tell the organization if its core competencies are important to providing customer value and satisfaction, and excellent hospitality organizations measure these key drivers carefully and frequently.
As a true believer in identifying key drivers, Disney surveys its guests constantly. On one such survey, Walt Disney World Resort guests were asked a variety of questions about their experiences and how those experiences related to both their intention to return to the parks and their overall satisfaction with Walt Disney World Resort. Fast food in the parks and the park transportation system received relatively low ratings. However, analysis of the data revealed only a weak statistical relationship between these low ratings and both intention to return and overall satisfaction with Walt Disney World Resort. The quality of the fast food and the transportation system did not seem to matter all that much. On the other hand, ratings of hours of operation and fireworks were strongly related to both the return intention and the satisfaction measure.
Guided by the survey results, Disney decided to invest available funds in extending park hours and expanding the fireworks displays. Although the organization felt competent to improve fast food and the transportation system, it allocated scarce resources to improving areas of key importance to guests. The strategic planning process did not just involve managers introspectively looking at organizational core competencies. It incorporated the wishes and expectations of guests into these decisions. Most other guest-focused organizations do the same. They find out what key factors drive the experiences of organizational guests, and they work hard to ensure that the organization has or develops the core competencies to provide and enhance those key drivers.
The Excellent Service Strategy
Service expert Len Berry suggests that an excellent service strategy has four characteristics. (38)
Quality and Value
First, the excellent strategy emphasizes quality. Without a commitment to quality, nothing else matters. Any hospitality organization can write a mission statement, but those truly committed to excellence start by committing the organization to providing the customer with a guest experience of high quality. Second, an excellent service strategy emphasizes value. It commits the organization to providing customers with more benefits from the guest experience than their costs.
Recall that value and cost cannot be defined solely in monetary terms. If "time is money," organizations can provide value by saving time for customers. Organizations doing so fill a significant market niche. The many people who pay extra for personal shoppers in retail stores believe they receive good value in time saved for the money they spend on having someone shop for them. Home-delivered pizza is even a better value; you save time, and you pay no more than if you had gone to the restaurant. Organizations must budget funds for measuring the perceived value of their services to customers. No matter what the service costs, customers must believe that they are getting significant value for their money.
Service and Achievement
The third characteristic of an excellent service strategy is that it focuses the entire organizational effort on service. This strategy commits the organization to hiring people who believe in service, employee training programs emphasize the commitment to service quality, resources are allocated to serving the customer, the performance and reward systems carefully reinforce the entire workforce's commitment to service, and all action plans support the service mission. The service strategy should ensure that everyone in the organization walks the service-quality walk by constantly reflecting total commitment to service excellence.
Finally, the service strategy should foster among employees a sense of genuine achievement. It should stretch and push every employee to grow and develop so that the employee group stretches and develops the entire organization to do things no one thought were possible. Taco Bell found a way to stretch its employees so it could operate 90 percent of its company-owned restaurants without a full-time manager. According to Berry, "These locations are team managed by their mostly younger person crews who order inventory, schedule work hours, and recruit and train, among other functions." (39)
Supporting Strategies: Service Product, Environment, and Delivery System
Once the service strategy has been defined, it provides the basis for determining what the organization's service product should be, what the service environment in which the service product is provided or delivered should look and feel like, and how the service delivery system makes the service product available to the guest.
If the organizational mission, for example, is to create and sustain a low-cost airline to serve the budget market in the Western United States, then the service product must be designed to meet that market's expectations, the environment must be designed to fit the product and match or exceed the guest's expectation of how this type of airline experience should look and feel, and the service delivery system must be designed to ensure that the service product is provided to the guest in a way that is congruent with how the guest expects to experience that service. The joint consideration of these three guest-experience components leads to the short-run action plans that can support and implement the components and thereby achieve the organization's mission.
Once this point in the hospitality planning process is reached, action plans can be developed because the organization now has a clear idea of what and where it is, where it wants to go, and how it intends to get there. The action plans represent the leadership's decisions on how to best implement the service strategy in specific terms that will motivate and guide the rest of the organization's members toward accomplishing the overall service strategy and organizational mission. These plans lay out the specifics of how the organization will operate and what everyone needs to do in the next time period, usually a year.
Key Action-Plan Areas
The bottom tier of Figure 2-1 indicates the five key areas in which action plans should be established: Management, Staffing, Capacity Utilization, Finance, and Marketing. Benchmark organizations not only develop plans in each of these areas but also make sure each area has an appropriate means for measuring the degree to which those plans were achieved. Not only must employees understand the direction in which everyone is supposed to go; everyone must also know what getting there looks like. The measures ensure that the right things are done, the right goals are achieved, and the employees can see how well they're doing as they work toward achieving the action plan goals. Good plans are accompanied by good measures of achievement so everyone knows how the plan is working.
All action plans need to be considered as a whole and individually. No marketing plan or capacity utilization plan, for example, should be set without also taking into account the financial/budgeting plan. Similarly no managerial performance plan can be set without carefully planning for the necessary resources that will allow managers to reach their targeted goals. Just as it makes no sense to put a lot of resources into a marketing plan that will draw many customers without considering the capacity decisions, it also makes little sense to develop performance targets for managers without also considering what physical, financial, marketing, and human resources they will need to reach their targets.
This process defines hospitality service planning. The plan lays out the necessary steps and identifies the mileposts along the path which the organization must follow to fulfill its mission, to achieve its vision. If the organization foresees the wrong future, misdiagnoses its core competencies, poorly defines its mission, or chooses the wrong service strategy, then it will soon lose its competitive stature.
THE UNCERTAIN FUTURE
Of course, unforeseen developments may disrupt or overturn even the best laid plans. Good plans attempt to bring rationality and stability to the organization's operations and efforts, but organizations seldom operate in purely rational or stable situations. Indeed, the very plans that made a firm competitive under one set of circumstances may make it uncompetitive if managers get so wedded to the plans that they ignore or don't see changes in the marketplace.
The strategic planning model in Figure 2-1 is neat and orderly. But the world is not a neat and orderly place. The cycle of planning may be deftly tied to a yearly calendar and duly placed on everyone's time management screen. But the plans laid out in August may be totally turned upside down in September by such external events as competitors' innovations or technological developments or an organizational disaster such as the illness or death of a CEO, a prolonged strike, or an unfavorable judgment in a lawsuit. If such events occur, the organization cannot wait until next August to revise its plan.
Plans are designed to be flexible guides along the path between today and tomorrow, not the final word on everything. Effective hospitality organizations stay nimble in responding to the many uncertainties that can affect their operations and the services they provide. Many create contingency plans which offer alternative strategies to meet changed circumstances. But since no one can anticipate everything that may happen to an organization, contingency planning can go only so far.
INVOLVING EMPLOYEES IN PLANNING
In late 1997 US Airways called together two dozen employees--mechanics, luggage carriers, aircraft cleaners, ramp supervisors, flight attendants, dispatchers, and reservation agents--and asked them not to fill out employee comment cards or organize a company picnic but to plan a new low-fare airline. The planning team spent four months putting together recommendations on every aspect of the new "airline-within-an-airline": how fast to fly, whether to have first-class cabins (they decided on all-coach), whether to keep blankets in the cabin, how to board passengers, and who should take tickets. A steering group of US Air senior executives and union leaders accepted almost every recommendation. The first planes of the new Metro Jet Airline, planned by employees, took off in mid-1998. (40)
The need to plan for the probable, and to be nimble enough to react quickly and appropriately if the improbable occurs, brings up another important point. Increasingly, hospitality organizations are including their employees in the planning processes. They have learned that good things come from widespread employee participation. First, the frontline employees know more about guests than anyone else does. They understand what makes guests happy and what doesn't. They also have ideas about what products or services the organization could add, redesign, or delete to add value to the guest's experience or to reduce costs. Second, to implement any strategic plan means that everyone must understand it and accept its logic. What better way to gain understanding and obtain employee buy-in than to have the employees help to develop the plan? After all, if they understand the need to plan and how the plan will help the organization solve problems and reach the future, why wouldn't they support it and try to implement it? Most managers have learned the hard way that the best plan in the world is worthless unless those who have to make it work want to make it work.
A Wal-Mart store in Louisiana had a shoplifting problem so the manager stationed an elderly man at the door to "greet" customers as they entered and left. Potential shoplifters learned that someone would be observing them directly as they left, but even more significantly, honest customers were impressed by this friendly touch. The idea spread to other stores, and Wal-Mart has become known for its friendly greeters.
Was this company success the product of strategic planning, or any planning? A Wal-Mart executive of that time said, "We live by the motto, 'Do it. Fix it. Try it.' If you try something and it works, you keep it. If it doesn't work, you fix it or try something else." (41) The Louisiana manager tried it, and it worked far better than the manager thought it would, so the whole company kept it.
That's one way to run an organization, and Sam Walton built a hugely successful company. Hospitality organizations can learn from Wal-Mart's use of employee ideas. When everyone is responsible for thinking strategically about how to fulfill the organization's mission, the power of individual creativity can be unleashed in very positive ways. A planning process should include the people who must make the plans become reality or the effort will be at least partly wasted. The best plan in the world is worthless without implementation, and the benchmark organizations have learned the power of employee participation in planning to achieve implementation more smoothly and efficiently.
1. Strategy starts with the guest. Know what key factors drive the guest's determination of quality and value.
2. Try to understand the future environment and what it might do to you and your future guests.
3. Use appropriate, powerful forecasting tools, but don't let them replace managerial judgment.
4. Know your core competencies, why they are your core, and why you are competent in them.
5. Know which core competencies you need to build for the future.
6. Use your vision to define your mission.
7. Prepare for the unexpected.
8. Involve employees in planning.
9. Compete on value, not on price.
1. You are about to start your own restaurant. Think of five key decisions you need to make, and tell how you will make them.
2. List a few necessary core competencies for successfully operating a fast-food restaurant versus a fine dining restaurant versus a casual dining restaurant.
A. Why are these competencies core?
B. Why do they differ from one type of restaurant to another?
3. How does the design-day concept help a manager meet guest expectations in a guest experience?
4. Think about kids in junior high school today; they will be part of tomorrow's workforce and customer base. What management and guest-service changes will hospitality organizations have to make if they want to succeed with these future employees and customers?
5. Think of a hospitality organization that you are familiar with.
A. What seem to be the key drivers of the guests in its target market?
B. How do these key drivers influence how the organization operates?
C. How should they influence how that organization operates?
6. Think of a product, service, or brand to which you are loyal. Why are you loyal to that product, service, or brand? What did the organization do to acquire your loyalty, and what has it done to maintain it? Based on the reasons for your loyalty, what one piece of advice would you give to future hospitality managers?
7. What is service anyway? What are the components of good and bad service? Which components of bad service are something that you expect or want but don't get? Get but don't expect or want?
8. If an organization like an airline uses yield-management techniques, guests end up paying different prices for what is essentially the same service. What are the implications of that difference, if any, for guest expectations, service quality, value, and guest satisfaction?
9. Consider the expression "Price, quality, speed--pick any two." Do you think a company strategic planner said it, or a customer? Is the expression fair and accurate in today's business world?
1. Four qualitative techniques that can be used for forecasting are brainstorming, the Delphi technique, focus groups, and scenario building. Divide up into groups and, as your instructor directs, come up with a forecasting problem that a local hospitality organization might face and try to arrive at a conclusion about it by using one or more of the techniques. Different groups might use different techniques for the same problem to see if they come up with the same conclusion or problem solution.
2. Find a hospitality organization that uses forecasting techniques. How does the organization use them: to predict its staffing and product supply needs, or for other purposes? How does the organization gather data? Does it use prediction models and statistical techniques, or is forecasting done mainly by the seat of someone's pants?
3. This chapter suggests that an organization should focus on its core competencies, not spread itself into areas in which it may not be competent. Some competency pairings are generally accepted, like "bar and grill." Others might reflect an organizational intention to operate in unrelated areas, like "college and fish camp" or "blacksmith and nail care." Look for unusual competency pairings in business names you come across and report them back to the class.
Case Studies Profit? Growth? Survival? Service? Customers? Environment? Six hospitality administration students were having a discussion at the Student Center about the primary goal of hospitality organizations. Jim said emphatically, "Large hospitality corporations are in business to make as much money as they can. No matter if it's food, lodging, or gaming, profit maximization is their primary goal, and everything else is secondary. Businesses exist to make a profit." Will agreed, up to a point: "If the hospitality organization is a public corporation, profits are a necessity, but the primary goal of any business is to grow. No business wants to stay small and unimportant. Company officials and stockholders want growth, for the feeling of progress and accomplishment it brings and for the profits that will eventually accompany growth." Jane said, "There's something to what you both say. Any company needs profits, and any company would like to grow. But survival is the primary goal, because without it you can't have profit or growth." Sally said, "Any hospitality organization's goal had better be to give good guest service. If the organization achieves that goal, all if the rest will fall into place. If they don't, they have no chance anyway." Spiro said, "My dad owns a restaurant, and he agrees with my professor who said that the main goal of any business is to get and keep customers. No customers, no nothing. I agree with my dad." Betty said, "No matter what you learned in class, you are all kidding yourselves. Primary goals are just for looks anyway. No matter how specific an organization's goals, no matter how carefully it plans, no matter how hard it works to meet those goals, the environment within which the organization markets its product or service will determine the organization's destiny. Organizations react to environmental forces, regardless of goals. To succeed, a business organization doesn't need to establish goals; it needs to be lucky enough to be in the right place at the right time and take advantage of the opportunities presented to it." 1. With whose position would the company's stockholders most likely agree? 2. The CEO? The employees? The guests? 3. Where do you stand on the issue? Economy Airlines Minor Hamblin had a humanistic dream: to found a company in which every employee would be an owner/manager, a company in which people really would work together. Hamblin started the revolutionary low-fare, no-frills Economy Airlines. Within a few years, Economy was the fifth-largest U.S. passenger carrier. The company had no unions. New employees had to buy and hold 100 shares of Economy common stock, offered at a 70 percent discount. Profit sharing regularly added substantial amounts to their paychecks. Hamblin believed that participatory management was the style that best suited contemporary employees. One university professor wrote that Economy Airlines was "the most comprehensive and self-conscious effort to fit a business to the capabilities and attitudes of today's workforce. Economy Airlines is doing everything right." Economy had a flat structure with only three management levels. In terms of the organization chart, pilots and flight attendants were on the same level and had the same clout. The company had no secretaries; managers did their own typing and answered their own phones. The company rapidly expanded its routes and schedules. Unfortunately, traffic growth failed to keep up with expansion. Other airlines adopted the low-fare, no-frills approach and even attacked Economy directly in their advertising campaigns. Economy's stock plunged from over 100 to 8. One employee observed, "When stock prices were high, profit sharing and stock ownership were great. Now they aren't so great." The Air Line Pilots Association began a drive to unionize Economy's pilots. New government regulations made Minor Hamblin wonder if he could even keep Economy's flying certificate. Hamblin had a renewed realization that a company can't always control its own destiny. "That professor said I was doing everything right. Now I'm in danger of going belly-up." He wondered if he should convert Economy over to a more traditional structure, with more management layers, a clearly defined chain of command, and specialized employee tasks. Or perhaps he should sell out. 1. What caused Economy's problems? 2. Do you see any way that Economy could have avoided those problems? 3. What steps should Economy Airlines take now? The Diamondback Plaza Hotel Dwight Robinson owns The Diamondback Plaza, a large hotel in a popular vacation area. Robinson tries to maintain a reputation of casual elegance for his hotel and is known among local hoteliers for his dignified advertising and for sticking to the "rack rate." He feels that to do otherwise is not fair to guests paying full price. Robinson is happy about all aspects of his hotel operation except his average nightly occupancy rate of 68 percent. The average for his geographic area is 78 percent. In an attempt to improve his results, Robinson has hired a consultant who, after studying the situation, has presented the following recommendation: Mr. Robinson, your rooms are not yielding the income that they might because you establish one price for your rooms and then sit back hoping people will stay with you. In today's market that strategy won't work; you have to manage your situation to improve your yield per room. You need to use all available means to lure travelers into your hotel. When you see at a certain time in the evening that your hotel is not going to be full, you have to cut prices until you sell out. You may not be able to sell every room every night, but don't be satisfied until your occupancy rate is over 95 percent. Follow this principle: Don't go to sleep yourself until you get people to sleep in all your rooms. Your debt relative to your property value is low; you don't have high interest charges to cover. So you can offer lower room prices than your competitors and still make a profit. Put a big flashing sign outside your hotel. If people aren't checking in and you foresee vacancies, start that sign flashing at $39.95. If you can't fill up at that figure, drop it to $29.95 or even $19.95. Anything is better than nothing. First thing every morning, check the previous night's records. If the Diamondback wasn't sold out, ask your night manager why! She'll soon get the message. Sure, your average daily room rate will drop, but so what? That's just a prestige number to brag about when you get together with other local hotel owners. By managing the yield on each unit, you'll maximize your profits, and isn't that why you're in business? Should Dwight Robinson take the consultant's advice?
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(2.) Tim Barket. 1999. Holiday Inn Has a Suite Idea. Orlando Sentinel, January 8:B-1.
(3.) Walt Disney: Famous Quotes. 1994. Printed for Walt Disney Theme Parks and Resorts, 83.
(4.) Princeton Alumni Weekly, January 27, 1999:55.
(5.) http://www.iflyswa.com/info/airborne.html (May 1999).
(6.) Thomas Goetz. 1998. On Board the Carnival Paradise, Don't Sing "Smoke on the Water." Wall Street Journal, December 28:B-1.
(7.) Paulette Thomas. 1999. A Tavern's Fame Spreads Hand to Hand. Wall Street Journal, March 2:B-1.
(8.) Craig S. Smith. 1999. In China, a Bowl of Hot-Pot Soup May Keep You Wanting More. Wall Street Journal, March 2:B-1.
(9.) Richard Gibson. 1999. Company Cafeterias Create Dinners to Go. Wall Street Journal, January 13:B-1.
(10.) Henry Mintzberg. 1994. The Rise and Fall of Strategic Planning (New York: The Free Press):324-331.
(11.) Gary Hamel and C. K. Prahalad. 1994. Competing for the Future (Boston: Harvard Business School Press, p. 16.
(12.) Ibid., 109.
(14.) Lou Cook. 1998. Mystery Shoppers: Can They Help Hotels Head Off Major Quality Problems? Lodging 23(8):76.
(15.) Tom Peters. 1997. The Circle of Innovation (New York: Alfred A. Knopf), p. 457.
(16.) Walt Disney: Famous Quotes, 81.
(17.) Florida Hotel & Motel Journal, July 1998:11.
(18.) Presentation to the Hospitality Management faculty at the University of Central Florida, March 1997.
(19.) Walt Disney: Famous Quotes, 63.
(20.) Business Week, December 14, 1992.
(21.) Wall Street Journal, February 5, 1997:B-1.
(22.) Wall Street Journal, February 3, 1997:B-1.
(23.) Wall Street Journal, February 5, 1997:B-1.
(24.) Wall Street Journal, February 4, 1997:B-2.
(25.) Dave Thomas. 1992. Dave's Way (New York: Berkeley Books), p. 94.
(27.) Hamel and Prahalad, 221-222.
(28.) J. W. Marriott, Jr., and Kathy Ann Brown. 1997. The Spirit to Serve: Marriott's Way (New York: Harper Business), pp. 88-95.
(29.) Bruce Horovitz. 1998. Re-inventing McDonald's. USA Today, February 20:1-2B.
(30.) Business Week, November 11, 1996:109.
(31.) Norman Brinker and Donald T. Phillips. 1996. On the Brink: The Life and Leadership of Norman Brinker (Arlington, TX: The Summit Publishing Group), p. 191.
(32.) Hamel and Prahalad, 114-115.
(33.) Ron Grover. 1991. The Disney Touch: How a Daring Management Team Revived an Entertainment Empire (Homewood, IL: Richard D. Irwin), pp. 8-9.
(34.) http://www.ritzcarlton.com/corporate/commitment.htm (May 1999).
(35.) Our Compass, company publication, n.d.
(36.) James C. Collins and Jerry I. Porras. 1994. Built to Last: Successful Habits of Visionary Companies. (New York: Harper-Collins), p. 74.
(37.) http://www.iflyswa.com/info/airborne.html (May 1999).
(38.) Berry, 65-68.
(39.) Ibid., 67.
(40.) Susan Carey. 1998. US Air 'Peon' Team Pilots Start-Up of Low-Fare Airline. Wall Street Journal, March 24:B-1, B-6.
(41.) Quoted in Collins and Porras, 98.
Table 2-1 Environmental Assessment Factors The Overall Environment The Economy. Where is it going? Growth, inflation, interest rates, capital and credit availability, consumer purchasing power. Changes in currency valuations in a global market. Society and Demographics. How will shifts in attitudes/values regarding childbearing, marriage, lifestyle, racial equality, retirement, pollution, etc., affect the organization? Population shifts, pressure groups. Ecology. Natural or pollution-caused disasters ahead? Environmental legislation? Politics. Government policy changes regarding antitrust activities, foreign trade, taxation, depreciation, environmental protection, and foreign trade barriers? Political or legal constraints or supports in international business? Technology. Where is it going? New products, services? Technological breakthroughs? The Industry Environment New Entrants. Competitors? Who will they be? Will technological advances enable them to offset our present advantages (economies of scale, brand-name differentiation, availability of capital)? Bargaining Power of Suppliers. How stable, reliable? Any who may become potential competitors? Substitute suppliers available? Can we supply ourselves? Substitute Products or Services. Likely? Can we fight with price, advertising? Rivalry Among Existing Firms. Growth slowing, competition fiercer? Excess capacity in the industry? Can our competitors withstand intensified price competition? The Operating Environment Competitive Position. What moves are competitors expected to make, inside and outside of the United States? Is the behavior of our competitors predictable? Customer Profiles and Market Changes. Which customer needs are not being met by existing products? Are R&D efforts underway to fill these needs? What marketing and distribution channels should we use? How will demographic and population changes affect our markets? Any new market segments? What impact will the Internet have on marketing strategy? Supplier Relationships. Cost increases coming because of dwindling supplies? Will sources of supply, especially of energy, be reliable? Major changes coming in cost or availability of needed suppliers? Which suppliers can we count on in a pinch? Creditors. Will we have enough credit to finance growth? Will we stay worthy of credit? Do we have enough cash if we need it? Labor Market. Will we have enough employees, with the right skills, when and where we need them? Source: Adapted from John A. Pearce II and Richard B. Robinson, Jr. 1997. Formulation, Implementation, and Control of Competitive Strategy (Chicago: Irwin), pp. 142-143. With permission of The McGraw-Hill Companies. Table 2-2 Popular Approaches to Forecasting Technique Short Description Cost/Complexity Quantitative-Causal Models Econometric models Simultaneous systems of High multiple regression equations Single and multiple Variations in dependent High/medium regression variables are explained by variations in one or more independent variables Time series models Linear, exponential, Medium S-curve, or other types of projections Trend extrapolation Forecasts obtained by Medium linear or exponential smoothing or averaging of past actual values Qualitative or Judgmental Models Sales force estimate A bottom-up approach Low aggregating forecasts of salespersons Juries of executive Forecasts jointly prepared Low opinion by marketing, production, finance, and purchasing executives Customer surveys, Learning about intentions Medium market research of potential customers or plans of businesses Scenario development Impacts of anticipated conditions imagined by Low forecasters Delphi method Experts guided toward Low/medium consensus Brainstorming Idea generation in a Low/medium noncritical group situation Source: Adapted from John A. Pearce II and Richard B. Robinson, Jr. 1997. Formulation, Implementation, and Control of Competitive Strategy (Chicago: Irwin), p.145. With permission of The McGraw-Hill Companies.
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|Title Annotation:||Section 1 The Hospitality Service Strategy|
|Publication:||Managing the Guest Experience in Hospitality|
|Date:||Jan 1, 2000|
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