LESSON 2: STRATEGIC MANAGEMENT IN HOSPITALITY AND

TOURISM
LEARNING OBJECTIVES:

At the end of the lesson, students must be able to:

• Define the hospitality and tourism (H&T) context.

• Evaluate characteristics and types of H&T organizations.
• Discuss how characteristics of H&T organizations may influence the
application of strategic management practices in H&T organizations.

INTRODUCTION:

In this MODULE, to get a broader view and include all of the different types and
sizes of organizations in the field, we use the terms hospitality and tourism
interchangeably. Thus, these terms encompass travel, accommodations, food
services, clubs, gaming, theme parks, attractions, entertainment, recreation,
conventions, and nonprofit tourism organizations such as national tourism
offices, destination management, and marketing offices.

Hospitality and Tourism is an important sector in services particularly in the

developed countries. Under the services sector, the H&T industry is often named
as the number one industry worldwide in terms of generation of income and
employment.
Over the last three decades, the H&T industry has grown rapidly, and now it has
become one of the most prominent sectors of the service industry.

It produces over 11 percent of the world’s gross domestic product and employs
over 10 percent of the global workforce (UNWTO, 2003).

Although it is one of the largest industries worldwide, providing a concise

definition for the H&T industry has been a major challenge for professionals and
academics. As often acknowledged, there continues to be a lack of agreement as
to exactly what hospitality and tourism encompasses and the relationship
between them.

According to Nykiel (2005), definitions of the H&T industry are often limited by
the unique viewpoints of sectors within the industry.

For example:

• A hotel operator may see the industry as accommodations with food and
beverages.
• A food and beverage operator may view the industry as a dining experience
with the focus on menu offerings and food service.
• A travel agency manager might believe that providing travel related
services to people for business and leisure defines the industry best.
• An executive of a theme park may see hospitality as providing a unique
entertainment and educational experience.

In order to overcome this confusion, Nykiel (2005) placed all of these viewpoints
under a wider perspective called “hospitality” and further stated that the
hospitality industry encompasses travel, accommodations, food service, clubs,
gaming, attractions, entertainment, and recreation.

Kandampully (2007) notes that hospitality organizations operate within a

network of service organizations. To a large extent, they are interrelated and
interdependent, and include the following:

❖ Tour operators, travel agents, and tourism organizations

❖ Travel and transport operators

❖ Leisure, recreation, and entertainment venue

❖ Restaurants, bars, clubs, and cafes

 ❖ Hotels, resorts, motels, camping grounds, bed & breakfast (B&B)
establishments, and hostels

It is clear that the H&T industry is a composite of a number of distinct industries

that are closely interrelated and interdependent. These industries operate within
a global network. The following section will provide more explanation and
discussions about different types of H&T organizations.

TYPES OF HOSPITALITY AND TOURISM ORGANIZATIONS

Organizations that operate in the H&T industry can be grouped under different
categories depending on their primary activities, size, profit motives, and
geographical coverage.

In terms of their primary services, organizations can be categorized as follows:

1. Travel and transport

2. Accommodations (lodging)

3. Food and beverages

4. Entertainment and recreation

5. Tourism offices or destination management organizations

6. Nongovernmental tourism organizations

Each of these is often identified as a subsector under the Hospitality and Tourism
industry. In addition, each can be further broken into several sub groupings.

For example, under accommodations, there are hotels, motels, guest houses,
hostels, villas, and time-shares. Some of these can further grouped, depending
on their service level, such as luxury hotels, boutique hotels, mid-market hotels,
and budget hotels or according to their star ratings, such as five-star (diamond),
four-star, and three-star hotels.

Hospitality and tourism organizations could further be classified as small,

medium and large scale. Independent and flexible small and medium sized
enterprises (SMEs) dominate the tourism market worldwide.

An SME is defined in employment terms as a company with workforce of fewer

than 250 employees (European Commission, 2002; Wanhill, (2000).

CHARACTERISTICS OF HOSPITALITY AND TOURISM ORGANIZATIONS

The following are some closely related, unique characteristics of Hospitality and
tourism organizations as depicted in the service sector organizations.

1. Inseparability-customer participation in the service process

2. Simultaneity
3. Perishability
4. Intangibility ( the tangible-intangible continuum)
5. Heterogeneity
6. Cost structure
7. Labor intensive
1. Inseparability
• In H&T organizations, customers need to be
present and participate in the service
delivery process.
• This is certainly not common in
manufacturing industries.
• This means that the separation of the
production and marketing functions, which
are important characteristics of the traditional manufacturing industry, is
not possible in the service delivery process that is found in H&T
organizations.
• Therefore, H&T organizations must communicate with and motivate their
customers to actively participate in the service delivery process.
2. Simultaneity
• A typical manufactured good, such as a refrigerator or a television, can be
inspected before it is delivered to retail outlets, where they are then sold
to customers.
• However, services in H&T organizations are created and consumed
simultaneously, which can prevent employing active quality control
mechanisms.
• In addition, as just noted, customers and employees need to participate
and coordinate in the service delivery process. It is almost impossible to
have one manager for every employee to monitor the service delivery
process and make sure that frontline employees are doing their jobs well,
in addition to guiding the customers’ participation in the process.
3. Perishability
• As production and consumption in H&T
organizations are simultaneous, services become
perishable if they are not sold. Subsequently,
their value is lost forever.
• For example, an airline seat or a hotel room will
perish if a customer does not purchase it at the
time of production.
• Therefore, the full utilization of service capacity
is a strategic task for many H&T organizations.
• It is particularly important to emphasize that demand for an H&T
organization’s services often fluctuates considerably, depending on the
external developments and changes, such as seasonality and crises.
• For instance, terrorist attacks (such as September 11, 2001 in New York),
disease outbreaks (such as SARS in the Far East), and natural weather
phenomena (such as tornadoes or hurricanes) all had a negative impact
on the demand for services offered by the H&T industry worldwide.
• Because H&T organizations cannot sell their services when such
circumstances arise, they lose a considerable amount of nonrecoverable
income.
• When the demand is low or there are sudden fluctuations in demand, it is
neither easy nor recommended for H&T organizations to lower their rates
greatly, since it may influence their image, change their customer segment,
and upset their regular customers.

4. Tangibility
• Hospitality and tourism organizations offer a combination of tangible and
intangible products.
• For example, a hotel room or a meal in a restaurant has both tangible and
intangible qualities. Again, there may be major differences between a
budget hotel and a luxury hotel or between a fast-food restaurant and an
upscale restaurant in terms of tangible and intangible qualities offered.
• However, services are often ideas, concepts, interactions, relationships,
and experiences that are not often patentable.

5. Heterogeneity
• Services provided by H&T organizations may also vary considerably. One
hotel unit in a chain hotel, one unit in a restaurant chain, or one holiday
experience of a traveler to the same destination is unlikely to be identical
to another.
• Many factors, particularly the human element, result in variations of the
service delivery process. In other words, services will be heterogeneous,
and variations in service delivery from customer to customer and from time
to time will always occur.
• It is often difficult to standardize every employee– customer interaction in
the H&T business.
• In addition, in many H&T organizations, customers interact not only with
employees but with other customers. This customer-to-customer
interaction in certain service organizations, such as pubs, discos,
nightclubs, and cruises, can be an important aspect of the total service
delivery process.
• H&T organizations are also highly susceptible to external changes. One
example of an external factor is the weather. Visiting an outdoor theme
park can be very pleasant and entertaining on a nice day, but it can be a
miserable experience if it is raining and cold.

6. Cost Structure
• The cost structure of H&T firms influences their managerial and resource
allocation decisions.
• For example, luxury H&T organizations are capital, labor, and energy
intensive.
• Typically, they have high property costs and also employ large numbers of
full-time employees.
• It can be difficult for them to reduce such cost items even if the demand is
low.
• In addition, they may need to renovate their facilities every five to ten years
to stay competitive in their field.
• Another issue is that given the vast amount of investment made in these
organizations, investors and owners often look at very carefully at their
return on investment.
• Therefore, these companies need to maintain a steady flow of customers
to maintain the profitability of their businesses. This often leads to creative
marketing and product development strategies as well as pricing
strategies.

7. Labor Intensive
• Installing machines and computers on a car factory’s assembly line or in
an ice cream factory can reduce the number of employees. However,
compared to many organizations in other industries, H&T organizations
require a great many employees.
• To put it simply, H&T organizations are labor intensive. This is because
personal interactions and experiences are important parts of services, and
employees play a key role in this process.
• Despite using many machines, computers, and technological
developments, H&T organizations still rely primarily on their employees to
deliver a memorable and positive experience. Being served and treated
nicely by employees is a major factor in getting repeat customers.
Strategic management in hospitality and tourism organizations

Owing to its size and growing importance, the hospitality and tourism industry
faces major challenges and problems worldwide. Hospitality and tourism
businesses operate in a dynamic and complex environment.

External trends such as changes in legislation, regional and global economic and
political crises, sociocultural trends, sophistication of customers, stiff
competition, terrorism, security, global warming, multiculturalism,
globalization, mergers and acquisitions, labor shortages, and advance
technological developments all pose important challenges to the management
strategies of hospitality and tourism organizations.

According to Nykiel (2005), product design, market segmentation, franchising,

real estate investment trusts, and new product concepts are some of the strategic
driving forces that cause the industry to be very dynamic. These trends and
developments require the organizations in the hospitality and tourism industry
to keep redefining their strategic management practices through a continuous
process.

The Impact of these Unique Characteristics on Managing H&T

Organizations

Previously, we examined several unique characteristics of H&T organizations. It

should be noted that given the differences among organizations in this industry
in terms of their size, service type, profit motive, and customer segment, the level
and importance of these unique characteristics may be different. For example,
the tangible aspect of service in a fast-food restaurant may be more apparent
compared to eating in an expensive restaurant. The cost structure of a small-
budget hotel is certainly different from the cost structure of a five-star luxury
hotel.

APPLYING STRATEGIC MANAGEMENT IN THE H&T CONTEXT

One emerging question is how we can use and apply generic strategic
management theories and models in specific H&T industry context.

In this section, we will examine how such theories and models can be applied in
the particular context of hospitality and tourism. Most of the strategic
management tools, models, techniques, and theories have traditionally been
developed mainly for the manufacturing sector in the United States and have
subsequently been applied to other industrial sectors (Okumus and Wong,
2005). However, H&T organizations that are concerned with a service-based
output reflect the typical characteristics found across the service sector. These
include customer participation in the service delivery process, simultaneity,
perishability, intangibility, heterogeneity, and high fixed costs of the services
provided. As explained previously, there are different types of firms with unique
features in the H&T industry.

STRATEGY RESEARCH IN THE HOSPITALITY AND

TOURISM FIELD

When we look at the strategy literature in the H&T

field, we see that strategy research dates back to the
early 1980s, and the focus of these studies was mainly
conceptual in nature and concerned with strategic
planning rather than strategic management (e.g.,
Olsen and DeNoble, 1981; Reichel, 1982). Toward the
end of the 1980s, empirical work was more evident, with the focus being mainly
on environmental scanning and strategy and structure alignments (e.g.,
Schaffer, 1987; Tse and Olsen, 1998).

REFERENCES:

Bastakis, C., Buhalis., and Butler, R, (2004). “ The perception of small

and medium sized tourism accommodation providers on the impacts of the tour
operators’ power in Eastern Mediterranean’, Tourism Management , 25(2), 151-
160.

Butler, R. and Jones, P. (2001). Conclusions-Problems, Challenges and

Solusions. In A. lockwood and S. Medlik (Eds.), Tourism and Hospitality in the
21 Century. Oxford: Bettreworth and Heimann.

European Commission (2002). SMEs in Europe, Including a first glance at

Candidate Countries. Observatory of European SMEs. Number 2. Fitzimmons,
J. and Fitzimmons, M. (2004). Service Management, Operations, Strategy and

Information Technology. New York:MacGraw-Hill/Irwin Gronoos, C (2007).

Service Management and Marketing: Customer Management in Service
Competition, New Jersey: John Wiley.

Kandampully, J. (2007). Service Management: The New Paradigm in Hospitality,

New Jersey Pearson.
Nykiel, R. (2005). Hospitality Management Strategies. New Jersey:Pearson
Education.

Pine, J. and Gilmore, J. (1998).Welcome to the Experience Economy,Havard

Business Review, July- August, 97-105.Wanhill, S. (2000). Small and Medium
Tourism Enterprises, annals of Tourism research, 27 (1) 132-140.