Evualiating strategies of Inter Continental Hotel groups Essay

1. IntroductionThis report eitherow evaluate strategies of InterContinental Hotels ag stem (IHG) in mainland china and how they rose to being the biggest and most succeederful hotel operator in china. What strategies were formed and implemented to drop dead to position. Then this report proceeds to lay out scheme and apply the SWOT, accession guards diamond forces posture and door guards five forces to IHG in chinaw ar. 2.1 Company Profile InterContinental Hotels GroupInterContinental Hotels Group is wizard of the worlds sense(p) hotel companies having 679000 in e trulyw here 4,600 hotels in tight 100 add upries and territories around the world. IHG operates society mails which ar InterContinental Hotels & Resorts, Cr cause stead Hotels & Resorts, Hotel Indigo, vacation guild Hotels & Resorts, holiday Inn Express, Staybridge Suites Hotels, Candlewood Suites Hotels, EVEN Hotels and HUALUXE Hotels. This portfolio includes everything from luxurious upmarket hot els in the worlds major(ip) cities and resorts to reliable family oriented hotels offering great service and encourage. So guests travelling for furrow or leisure, honeymoon or a family holiday, IHG leaveing absorb a hotel thats right for them. 2.1.1 Goal To rise up by making their f only guys the commence choice for guests and hotel owners 2.1.2 Strategy To build the hotel fabrications punishingest operating system focused on the biggest markets and segments where scale rightfully counts. 2.1.3 operate System IHGs operating system is make up of altogether the things they do to drive need for their brands. This report willing look at this in the next section. 2.2 Driving DemandThis includesHotel distri howeverion 4,600 hotels in nearly 100 countries and territories around the world. When spate travel, they look for familiar brands they know from home, increase the pauperization for hotels that operate under their brands around the world. IHGs Advertising and selli ng campaigns Annual fund totalling $1.2bn through a central fund where their franchisees give a fee into, used on their behalf for marketing and promotions to generate demand for their hotels. Web/Mobile presence Websites operating in 13 divers(prenominal) languages and IHG have 6 una give c argon language apps for smartphones. IHG Rewards club The worlds largest hotel obedience scheme with everywhere 76million members. Reservation systems Their 11 global reservation delegacys (call centres) atomic number 18 available to take hotel bookings from guests 24 hours a day in 11 disparate languages. Sales force A global sales force of more(prenominal) than than 17,600 professionals throughout the world, talking most and selling the booking of hotels under their brands to individuals and companies. Food and beverage Over $4.6n of food and beverage revenue and everywhere 4,500 outlets widely distributed. Focusing on the biggest markets where their scale squargonly counts ens ures that IHG concentrate their re inaugurations on the opportunities that will permit the sterling(prenominal) return. 2.2 IHG trading firmament instanceIHG operates hotels in 3 different ways as a franchisor, as a manager and on an owned and hold basis. Their logical argument model focuses on managing and franchising hotels, whilst their strain enterprise decomposeners own the bricks and mortar. Below is the breakdown of IHG business FranchisingThis is the largest part of IHG business 3,955 hotels operate under franchise agreements. ManagingIHG manage 689 hotels worldwide.OwningIHG owns 9 hotels worldwide (less than 1% of their portfolio). root system IHG, 20132.3 IHGs winning waysThese are a set of behaviours based on IHGs values helping them to exit one of the very best companies in the world. These winning ways provide a strong sense of shared purpose, and are critical to hotheaded their business performance forward, as well as making them a great, enjoyable pla ce to work. These are Doing the right thingShowing helpAiming superiorerCelebrating differenceWork better togetherThese winning ways make IHG a high-performing judicature that helps deliver their societys middle purpose Great Hotels Guests passion. 3. Chineseculture and Chinese Hotel constancyIntroduction of the Open Door Policy in 1978 kick ined the door to what would construct decades of unprecedented sparingal gain in chinas history. Riding on the waves of cutting found economic liberty and the freedom to partner with unconnected investors, Chinas hotel investment community seized the probability to welcome outside investment. The hotel persistence in China quickly demonstrable from 137 properties in 1978 to 14,237 properties in 2009. One of the main catalysts of the rapid growing seen in the hotel intentness has been the expansion of multinational hotel groups into China (Guillet et. al., 2011). China is poised to become the morsel one external tourist t erminal in the future. tourism in China, twain municipal and international, has exploded in recent historic period along with the boom economy and foreign hotel companies are racing to wing their flags in key markets in China and capture a stack of the rapidly growing tourism market. Chinas hotel industry is different from that of opposite countries due to erce argument, multiform ownership and counselling systems, coupled with Chinas unique culture society (Kong and Cheung, 2009). The hospitality industry is one of the forerunners in economic give risement and privatization in China (Chan & Yeung, 2009). A strong local loyalty program is key to winning visitors as swiftness middle class Chinese are influenced by them when choosing a hotel (A.T. Kearney report, 2013). thither are four barriers to hotel chain development in China, which are economic and political systems, hotel ownership, management capability and resources, and competition mingled with local and foreign chains (Pine and Qi, 2004). Additional hurdles MHGs whitethorn encounter when evolution in China are establishing a successful loyalty program, navigating the aleatory government environment, understating the role of guanxi, relegateing skilled labour and dealing with high pollution levels (Chan & Yeung, 2009). 3.1 IHGs strategies in ChinaInterContinental Hotels Group (IHG) layed China in the mid 1980s. They were the first U.S. based MHG to focus on growth in China. IHG opened 8,084 juvenile rooms in China in 2011 alone, bringing their total room count in China count to an astonishing 55,182 rooms. The new IHG hotel openings included four of their flagship opulence InterContinental. Hotels and 11 Crowne PlazaHotels, which cater to the much sought after business travel segment. IHG account 17.4% RevPAR (revenue per available room) for the year in 2011, which was a 10.7% increase over the antecedent year (HMA Staff, 2012). China is IHGs second largest market after the unite d States and is believably to surpass the US to become their largest by reduce of rooms by 2025. IHG directly manages almost all its Chinese hotels and is on-line(prenominal)ly the largest employer among all international hotel companies in the region, with nearly 60,000 employees working at its merged office and hotels across over 70 cities in the terra firma. IHG in December 2013 announced plans to recruit more than 110,000 employees between 2013 and 2015. IHG has a highly ambitious development outline which includes deepening penetration in key cities such as Beijing and Guangzhou and seating Tier 2, 3 and 4 cities. In 2012, IHG launched HUALUXE Hotels & Resorts, a new hotel brand specifically designed for Chinese guests, the first of which is scheduled to open in 2014, with 21 hotels modernly in the pipeline. The English name Hualuxe redes as China luxury, opus the Chinese name reads Hua Yi. Hua message Chinese, and Yi stands for a metropolis or a capital. Yi is also often associated with cognac, which is a sign of luxury in China. Positioned between the companys upscale Crowne Plaza and luxury InterContinental brands, Hualuxe will focus on Chinas second- and third- tier cities and is geared to please business travellers from domestic companies, state enterprises and government. IHG has corroborate 20 Hualuxe properties in destinations including Zhangjiajie, Changsha and Lijiang. The new China brand is going to Shanghai, Beijing, and Guangzhou in time, but not until its entered tier-two and tier-three cities because thats where the future opportunity is, Keith Barr, IHG greater Chinas CEO, told CNN travel.All frameures as of 30th September 2013. Source IHG websiteAll figures as of 30th September 2013. Source IHG websiteIn China, IHG sees the greatest opportunity for growth of any single country and their strategy has been to enter the market early, to develop their relationship with key local third company owners and grow their presence rapidl y. They also formed strategicalal alliances with large property developerswith the benefit of getting multiple projects and the security of working with a well- suasion-of developers who have solid financial background (Fei, 2006). In a country with 659,000 branded hotel rooms, IHG is the largest international hotel company with over 61,000 rooms and more than 50,000 in the planning phase or under construction. This rapid pace of openings for IHG has been in anticipation of increasing demand for hotels, driven by a large, emerging middle class and growing domestic and international travel. Their approach is to find the right hotel owner as a fashion of benefitting from local knowledge. IHG accordingly manages the hotel on the owners behalf, ensuring brand standards are consistently delivered. The owners, in turn, are keen to operate under the groups well-established international cachet. IHG focuses on franchising and management of the properties. Typically, the senior managem ent of the hotel such as the general manager and the financial controller are IHG employees with the third-party owner employing all other staff. (IHG, 2013) 4. What is Strategy?Strategies are the means which enable organisations to achieve their objectives in a changing environment through the configuration of its resources and make doncies with the aim of fulfilling stakeholder expectations (Johnson & Whittington 2009). Strategy is a plan into future, a pattern that is consistency in behaviour over time for e.g. a company perpetually marketing the most big-ticket(prenominal) products in their respective industries pursue what is commonly called high end strategy similar Apple and Zara. Strategy is position namely the determination of incident products in particular markets and strategy is perspective that is vision and direction (Mintzberg, 2001). 4.1 Business level strategyA business level strategy is an unified and coordinated set of commitments and actions a firm uses to gain rivalrous profit by exploiting core competencies in specific product markets (Volberda, et. al., 2011). Every business mustiness design a strategy for achieving its goals, consisting of marketing strategy and congruous technological strategy and sourcing strategy (Kotler & Keller, 2006). To identify rivals in the international hotel industry, current practice is to use price, segment and proximity (Matthew, 2000). The main competition strategy research related to thehospitality industry has concentrated on competition interaction (Baum & Haveman, 1997) (Baum & Ingram, 1998), critical success factors, (Brotherton, 2004) (Geller, 1985), global strategy and marketing strategy (Whitla et. al., 2007). 4.2 Theoretical Framework4.2.1 SWOT analysisSwot stands for strengths, weaknesses, opportunities and threats and summarises the key issues from the business environment and the strategic capability of an organisation that are most promising to impact on strategy development (John son, et. al., 2008) At this point, the author will like to do a SWOT analysis of IHG in China. Strengths hint competitive positioning and broad geographic reach IHG is the largest hotel operator in China with 65,239 hotel rooms in 198 hotels across key Chinese cities like Beijing, Shanghai, Chongqing and Guangzhou along with entering 2nd and third tier cities like Dalian, Tianjin, Wuhan and others. divers(a) brand portfolio The company operates a diverse portfolio of brands across multiple economic segments which cater for multiple price segments from the upper upscale (5-star) segment stress on the international business traveller, to the upscale (4-star) segment catering two to the business traveller and the leisure traveller down to the midscale (3-star) channeliseing both domestic business and leisure travellers. Early creation IHGs timely entry in China has led them to establish a strong brand presence in the country and consoli fitting its competitive positioning. IHGs Holiday Inn is the second most important hotel brand in the country, with 90% of its customers being Chinese. Pipeline Development As of 30th September 2013, IHG has 179 hotels in pipeline for China. This represents an enormous competitive advantage to the company as it nevertheless consolidates its global presence and capitalises on booming travel and tourism industries in China. IHG Academy syllabus China faces massive skills deficit in the hotel industry and IHG is winning the war on endowment fund by opening its own academies to attract and groom talents for non-supervisory level positions, hightail iting to the industrys largest talent infrastructure It now has 29 programmes in operation in China alone, with approximately 5,000 participants taking part in 2011. IHG were the first hotel group tointroduce this type of training programme, Today IHG boats of a highly occupied work force. Loyalty programme In order to create value for Chinese guests, InterContinental introd uced a paid membership program called priority Privilege, which was exclusive to China. Priority Privilege will help create brand preference for IHG hotels among consumers throughout China and is offered alongside IHGs global loyalty programme which is the largest loyalty programme in the world. safe strategic partners finished key strategic alliance IHG have developed its relationship with real estate developers, government and key local third party owners and grow its presence rapidly. A new hotel brand HUALUXE specifically designed for Chinese guests focussing focus on Chinas 2nd and 3rd tier cities. WeaknessesLuxury focus IHG might have avoided mid- commence hotel sector in china for too long focussing only on luxury market and big cities which might have led to competitors taking over lions share of the mid- represent hotel sector in China OpportunitiesStrong economic fundamentals Robust GDP growth and continued urbanization will drive sustainable economic development lea ding to new cities and create new markets and better link existing ones tremendously conducive to long-term hotel growth. Domestic travellers on the rise in china IHG could target this segment which it has started to slowly address now. ThreatsPotential of over supply with the number of hotels in pipeline as some newly developed cities describe problems of occupancy local Chinese hotels already established in the mid-range hotel sector will provide competiveness along with other Multinational hotel companies entering china. contaminant in major cities like Beijing and Shanghai could affect the number of tourists coming to China Unpredictable government policies which could impact trading operations world(prenominal) economic slowdown effecting china. The booming hotel industry in 2012 did report slimly a slowdown for a brief moment before find momentum. Outbreak of diseases like SARS in 2003 and Bird flu and swine flu. homosexual resource shortage for the hotels in pipeline for 2nd, 3rd and 4th tier cities as labour is likely to be less skilled here coupled with risk of competitors seeking employees leading to shortage of skilled labour.Fluctuations in foreign currency can affect hotel operations Change in consumer taste can hurt IHG and its pipeline projects 4.2.2 Porters diamondThe conceptual framework that links structure, strategy and performance is Porters diamond which suggests that on that point are inherent reasons why some nations are more competitive than others, and why some industries within nations are more competitive than others (Johnson, et. al., 2008). In his framework, he suggests that national competitiveness will anchored along four dimensions A nations factor conditions, Demand conditions, sign strategy, structure and disputation and Related and supporting industries (Porter 1990)Source Johnson, et. al., 2008Michael Porters model illustrated above describes the factors contributing to advantage of firms in a predominant global industry and associated with a specific home country or regional environment. 4.2.2.1 Applying Porters diamond to IHG in ChinaThe first dimension in Porters diamond refers to factors of production, the inputs necessary to compete in any industry labour, land, natural resources, capital and infrastructure (Volberda et. al., 2011). cypher condition advantages at a national level can translate into general competitive advantages for national rms in international markets (Johnson, et. al., 2008). IHG entered China in brief as it opened doors to FDI and economy has been booming since having excellent infrastructure. The population in china is exploding meaning there will never be shortage of people finding work however in Multinational companies slip-ups they whitethorn need to spend on training them to their standards. China is technologically ripe(p) allowing IHG to reach customers in innovative ways The second dimension is demand conditions characterized by the size of buyers ne ed in the home market for the industrys goods or services. As seen from above section, China has been a positron e guardianship tomography travel destination over the old age and in a a couple of(prenominal) years will become the number one tourist destination in the world. in that location has been emergence of domestic Chinese travellers due to the booming economy creating a newmarket. IHG has used these to competitive advantage by opening hotels catering to different segments. Related and supporting industries is the third dimension. Local clusters of related and mutually supporting industries can be an important source of competitive advantage. These are often regionally based, making personal interaction easier. China has excellent transportation and travel links with more and more upcoming high speed train projects. Chinese food is the best-loved amongst most international travellers and IHG operates the best restaurants in its hotels Firm strategy, structure and rivalry make up the final dimension. The characteristic strategies, industry structures and rivalries in different countries can also be bases of advantage. In China, IHGs strategy has read/write headly been to partner and develop relationships with owners that want to build properties and have their branding over them and also by investing in people. Its initial strategy was to target upscale luxury hotels and as it anticipated demand for other segments it catered by having hotels across different cities catering to different segments. Part of IHG strategy is they shape which hotel brands go into which city, along with where exactly they want to be in the city to achieve maximum growth (IHG, 2013) Their structure is a mix of as a franchisor, as a manager and on an owned and leased basis. IHG faces competition from both local and foreign hotel operators in China. 4.2.3 Porters five forcesThis is a framework for assessing and evaluating the competitive strength and position of a business organisation. This theory is based on the concept that there are five forces which determine the competitive intensity and attractiveness of a market. Porters five forces helps to identify where power lies in a business situation. This is useful both in understanding the strength of an organisations current competitive position, and the strength of a position that an organisation may look to move into (Johnson et. al., 2008). These five forces can be seen in figSource Johnson et. al., 20084.2.3.1 Applying porters five forces to IHGThreat of substitute goodsIn the hotel industry there is usually another hotel just round the corner, as in the case of Chinese hotel industry. Many international chains have raced to china to start operations making it an extremely competitive industry. For IHG the challenge will be to get the guest to choose their hotel over competitors like Marriott or Hilton. few domestic Chinese hotels offer luxury at reasonable prices and whence being attractive to the domestic travellers in china. talk impairment power of buyersAs more and more customers become technology savy, it is now really simple-minded to go online and book a hotel eliminating the role of intermediaries like travel agents or corporate travel consultants. Customers are finding price comparison websites like cleartrip.com or expedia.com which will negotiate or discover bargains for them. All this means high service standards have to be maintained by IHG at all times to get customers to stay at their hotels again kinda of losing them to competitors. Competitive rivalryRivalry among competitors in the Chinese hotel industry is likely to be fierce. IHGs immediate rivals in China are JW Marriot hotels, Hilton hotels, Starwood Hotels and Hyatt hotels. There is likely to be price war amongst these hotels as competitors might crusade to gain advantage over others. Barriers to entryIt will be very difficult for new competitors to match IHGs already established operations in China. IHG was the first in china and today is the biggest international hotel company by number of rooms. Quanxi is get winded very important to do business in China, it gets developed with time as you do business in china. It will be very difficult for new entrants to immediately develop quanxi and get things done. IHG offers differentiation in the sense that it caters to different segments including a hotel exclusively targeting Chinese. It will be difficult for a new competitor to match this differentiation. China is not an easy place to do business and IHG over the years through key strategic alliances and partnerships have developed expertise which again will be difficult to match by new entrants.Bargaining power of suppliersThere is human resources challenges and shortages for the hotel industry in China. There are fewer qualified people to fill up service industry jobs. Trade unions exist in china which play a major role and sometimes might exploit the employers. IHG t ackles this war on talent by running various programmes at its IHG academys in China building a talented work force all proud to be working at IHG (IHG, 2013) 5. Strategy formulationIn many perspectives to strategy formulation, it is usual to define the purpose for the organisation and indeed develop a range of strategy options that might achieve the purpose. afterwards developing the options a selection is made between them (Lynch, 2000). Gary Hamel (1997) The dirty littler secret of the strategy industry is that it doesnt have any theory of strategy creation. The complexities associated with the make of strategy formulation are generally thought to be overwhelming, and, as a result, many people believe the process of strategy formulation cannot be structured or formalized. It is useful to consider strategy formulation as part of a strategic management process that comprises three phases diagnosis, formulation, and implementation. strategical management is an ongoing process t o develop and revise future-oriented strategies that allow an organization to achieve its objectives, considering its capabilities, constraints, and the environment in which it operates (Mitchell, 2005). 5.1 diagnosing includesPerforming a situational analysis (internal environment analysis) including identification and valuation of current mission, strategic objectives, strategies, and results, plus major strengths and weaknesses Analysing organisations external environment including major opportunities and threats. make out major critical issues that require high priority attention by management. 5.2 FormulationThe second phase in the strategic management process, produces a clear set of recommendations, with supporting justification, that revise as necessary the mission and objectives of the organization, and supply the strategies for accomplishing them. In formulation objectives and strategies are modified to make the organisation more successful. This includes trying to creat esustainable competitive advantages, although most competitive advantages are eroded steadily by the efforts of competitors. It is important to consider fits between resources plus competencies with opportunities, and also fits between risks and expectations. There are four first steps in this phase*Reviewing the current key objectives and strategies of the organization, which usually would have been identified and evaluated as part of the diagnosis*Identifying a rich range of strategic alternatives to address the three levels of strategy formulation outlined below, including but not limited to dealing with the critical issues*Doing a balanced evaluation of advantages and disadvantages of the alternatives relative to their feasibility plus expected effects on the issues and contributions to the success of the organization*Deciding on the alternatives that should be implemented or recommended.5.3 murderStrategies must be implemented to achieve intended results. Final grade of the strategic management process involves developing an implementation plan and then doing whatever it takes to make the new strategy operational and effective in achieving the organizations objectives. 5.4 Strategic decision making inditeThe strategic decision making profile is a very important profile in an organisation. It is to do with strategic leadership which is the ability to anticipate, envision, maintain tractableness and empower others to create strategic change as necessary (Volberda et. al., 2011) It starts at the top management level but includes a much wider range of potential actors, from strategic planners and consultants to middle managers. The conventional view is that strategy is the business of top management. In this view, it is absolutely vital that top management are clearly separated from operational responsibilities, so that they can focus on overall strategy. The chief executive ofcer is often seen as the chief strategist, ultimatelyresponsible for all strat egic decisions. CEOs of large companies typically spend one thirds of their time on strategy. However there are some dangers. First, centralising business on the CEO can lead to excessive personalisation. Organisations respond to setbacks simply by changing their CEO, rather than examining late the internal sources of ill. Second, successful CEOs can become overcondent, seeing themselves as corporate heroes and launching strategic initiatives of ever-increasing ambition. The overcondence of heroic leaders often leads to spectacular failures (Johnson et al 2008). The top management team, board of directors and divisional general managers are other commonly recognised strategic leaders. In truth, any individual with the responsibility for the performance of human capital is a strategic leader (Volberdo et. al., 2011). Strategic leaders have substantial decision making authorities that cannot be delegated. 6. ConclusionAs seen from the above sections, Chinese economy and hotel indus try both are booming. IHG took advantage of this and entered China at the right time indeed working its way towards the biggest hotel operator in China. Its strategy mainly has been differentiation at the start where it just focussed on 5 star luxury hotels and as the economy kept going upwards new markets were created and by bringing all of its brands to China IHG today caters to all segments in china in all major cities. It is also targeting upcoming cities by having major projects in pipeline. IHG operates in an extremely competitive environment and has made use of all opportunities by working on its strengths but must not get complacent and always be vary of threats while continue to eliminate any weaknesses it might have. The author concludes by summarising IHGs strategys key points. IHGs winning strategy bounteous portfolio of strong brands in key locationsLongest established loyalty programmeThe deepest relationships with key strategic partnersThe most focused development st rategy besides international hotel company with dedicated, standalone region reporting directly to the CEO Largest people infrastructure IHG is winning the talent war in China by 1st fast-track scheme for non-hotel talents, 1stAcademy to attract and groom talent for non-supervisory level positions. A managed model with minimal capital expenditure. Management contract focus (98% of system and pipeline) Ensures consistent delivery of guest experience, Imbeds operational capability, like by owners with limited operating experience, Potential to franchise Holiday Inn Express given the more standardised operating model. Contract terms Base fee = 2% gross revenues, Incentive fee = 6% 8% of gross operating profit, Length of contract 10 15 years, No fee discounting, No requirements for guarantees Use of capital expenditure -To date no capital expenditure requirements The most established relationships with key strategic partners 30 years of building relationships in China, (Guanxi)Str ong connections to the government (Guanxi) superior partnerships formed with leading real estate developers Almost half their hotels are with multi-unit ownersSigned more portfolio deals than any other international operator honorable mention LIST1. A.T.Kearney Report (2013) Chinas cordial reception Rooms for growth. 2. Baum, J. A., & H. A. Haveman H.A. (1997). Love the neighbour? Differentiation and agglomeration in the Manhattan hotel industry. Administrative Science Quarterly, 42(2), pp. 304-338. 3. Baum, J. A., & Ingram. P (1998). Survival-enhancing skill in the Manhattan hotel industry. 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