TOUR 151:

CHAPTER 2

Strategic
 Learning Outcomes:
After the completion of this module, students will be
able to:

1. define the hospitality and tourism context;

2.evaluate characteristics and types of
Hospitality and Tourism (H&T) organizations.
3. develop and manage business strategies;
and
4.discuss how characteristics of Hospitality and
Tourism organizations may influence the
application of strategic management practices in
THE

CONTEXT
 Services are becoming increasingly an important
part of the global economy. It is estimated that
on average 70 percent of the gross domestic
product (GDP) of the Organization for
Economic Co-Operation and Development
(OECD) (2007) countries come from service
industries.

 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).
In 2006, international tourism
arrivals worldwide achieved an all-
time record of 842 million tourists.
In the same year, tourism
receipts, including international
passenger transport, were
estimated about $883 billion, which
means that international tourism
generated over $2.4 billion a day
in 2006 (UNWTO, 2007).
 As an export category, the tourism
industry ranks fourth after fuels,
chemicals, and automotive products
(UNWTO, 2007).
 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.
 In order to overcome this confusion, Nykiel (2005)
placed all of these viewpoints under a wider
perspective called “hospitality”
the hospitality industry and further stated
encompasses that
travel,
accommodations, food service, clubs, gaming,
attractions, entertainment, and recreation.
 Kandampull (2007 notes that
y ) hospitality
operat To
service organizations.
organizatio within
a largea extent,
networktheyof
are
ns e
interrelated and interdependent, and
include the following:

a.Tour operators, travel agents, and

tourism organizations
b.Travel and transport operators
c. Leisure, recreation, and entertainment
venue
d.Restaurants, bars, clubs, and cafes
e.Hotels, resorts,motels,camping
 Butler and Jones (2001) use tourism as an
all- encompassing term that covers all
aspects of people being away from their
home and hospitality as a specific part
of providing accommodations and meals for
tourists. They note that the one difficulty in
their definitions is that the hospitality
industry also serves many people who are
not tourists, such as local residents.
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
Travel and Transport

Accommodation (Lodging)

Food and Beverages

 Tourism Offices or Destination
Management Organizations
Recreation and
Entertainment

Non governmental
Tourism Organizations
 A further grouping of the H&T
organizations can be made based on
their size such as small, medium, and
large. Independent and flexible small
and medium-sized enterprises (SMEs)
dominate the tourism market
worldwide.
 H&T organizations can be made
according to profit motive. A high
majority of H&T organizations aim
to make a profit and achieve some
financial
objectives in order to satisfy
their owners and
shareholders.
Nongovernmental tourism organizations,
associations, tourism destination
management, and
marketing organizations can be placed under
nonprofit tourism organizations. Their primary
aim is often not to make profit but to achieve
other nonfinancial objectives, such as serving
society, protecting the environment, and
achieving sustainable tourism development in
their regions over the long term. The United
Nations World Tourism Organization (WTO)
and Visitor and Convention
Bureaus (VCBs) are
examples
of nonprofit tourism
 H&T organizations can be further grouped
based on their geographical coverage.
These include local, regional, and global
firms.

a.Local organizations operate in only

one city or country such as Europe, the Middle
East, or North America.
b.The Hong Kong–based Shangri La
Hotel chain is a good example of a regional
hospitality firm that is found only in the
Pacific-Asia rim.
c.Global hospitality and tourism firms
such as Intercontinental Hotels, Marriott
Hotels, Hilton, McDonald’s, and KFC are
examples of those that operate in many
countries and almost all continents
worldwide.
Characteristics of
Hospitality And
Tourism
Organizations
Inseparability
In H&T organizations, customers need
to be present and participate in the
service delivery process. This means that the
separation of the production and marketing
functions, which are important
characteristics
manufacturing of theindustry,
traditional is
not
service deliverypossible
processinthat
theis found
in
organization H&T
s.
Simultaneity
Services in H&T organizations are
created and consumed simultaneously,
which can prevent employing active
quality control mechanisms. 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.
Perishability
A further issue in terms of perishability
is that consumer demand for H&T services
exhibits very cyclic behavior over a short period
of time. This puts much responsibility on the
management of these firms in planning for
the future and allocating their resources
timely and adequately to the right purposes. In
short, expected and unexpected fluctuations in
demand have implications on cost structure,
pricing, staffing, and resource allocation
decisions.
Tangibility
Hospitality and tourism organizations
offer a combination of tangible and
intangible products (Kandampully, 2007). It
is essential to note that the intangible
aspects of services offered by H&T
organizations are critical in customer
satisfaction. In order to overcome
potential problems and dissatisfaction,
some H&T companies publicize their
service promises and offer a 100 percent
satisfaction guarantee.
Heterogeneity
Services provided by H&T organizations may also
vary One hotel unit in a chain hotel, or one holiday
experience of a traveler to the same destination is unlikely
to be identical to another. 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.
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.
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.
Labor Intensive
H&T organizations are labor intensive.
This is because personal interactions and
experiences are important parts of services, and
employees
key role inplay
thisa Despite using
machines,
process. many and
developments,
computers, H&T organizations still rely
technological
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.
•
The Case for Strategic Management in
Hospitality and Tourism Organizations
Despite its size and growing importance, the H&T
industry faces major challenges and problems worldwide.
Businesses in the H&T industry operate in a dynamic and
complex environment. 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. This requires H&T industry keep redefining
their strategic management practices through a continuous
process.

H&T organizations operate in a unique external and internal

context, which makes it especially important to
understand and follow contemporary strategic management
practices and theories. For example, the H&T industry has
been experiencing dramatic changes in customer
expectations and needs. They not only need to develop new
The Case for Strategic Management in
Hospitality and Tourism Organizations cont’d
When an H&T organization successfully prepares for its
future and responds to changes and developments in its
external and internal environment proactively, it can
secure its survival and develop sustainable competitive
advantages. It is also essential to emphasize that even
successful organizations face problems and may end up
making irrational investments. When they make such
investments or managerial errors, they may face some
dramatic consequences and perhaps even risk their own
survival.
Applying strategic management principles and
theories can certainly be helpful not only in
overcoming failures in decision making and resource
allocations but also in turning the organization around
and making it successful.
Number of important areas in which strategic
management can help H&T organizations:
 Providing a holistic view for  Identifying key resources
the investing in core
and
entire H&T organization  Formulating
competencies decisions and
 Providing a sharper focus on making
 Providing
what a link them happen
external environment
is strategically
between important the 
 Coordinating
Managing change
internal
and the activities and allocating
organizational
environment
Analyzing a complex and  Understanding
resources the
rapidly decision
complexitiesmaking
of and
changing
Analyzingexternalanenvironment structuring of an
the
strategic
organization’s  Understanding
organization role
 Giving a clear sense of
resources importanceof
the the and
strategic structure and culture on
organizational
vision and direction strategy
the
 Defining organizational  Reducing
process managin
purposes uncertainty inside theg
and
 Developing measurable goals  Measurin
organization intended and
and unintend
g outcomes of
objectives strategy
ed the
process
Thank you for listening!