Strategy for Tourism Part 3, Lecture 8 Strategic Directions and Methods Professor John Tribe

Learning Outcomes After studying this chapter and related materials you should be able to understand: Strategic directions such as consolidation, market penetration, market development, product development, diversification and withdrawal. Strategic methods of growth including internal growth, mergers and take-overs, and joint ventures and alliances. Strategic drivers of development such as innovation and entrepreneurship. and critically evaluate, explain and apply the above concepts.

Case Study 8: Merlin Entertainment Merlin Entertainment is an international attractions based organization. It operates midway attractions and theme parks Its strategy is ‘To create a high growth, high return, family entertainment company based on strong brands and a portfolio that is naturally balanced against the impact of external factors’. Its directions and methods are: 1 Growing its existing estate 2 Achieving strategic synergies 3 Resort destination positioning 4 Roll-Out of Midway Attractions 5 Roll-out of LEGOLAND Parks 6 Strategic acquisitions

Directions This section considers the strategic directions an organisation might take in pursuit of its overall strategy. The main directions are: withdrawal consolidation market penetration market development product development diversification

Directions: The Ansoff Matrix

Withdrawal* There are some cases in which an organisation may withdraw from a particular market. These might include: De-cluttering (Thomas Cook) Contracting out Raising Money Legal Compliance Competition Market decline / economic prospects Liquidation Privatisation

Consolidation Consolidation implies a period of concentrating an organisation's efforts on existing products and existing markets. It may result from a period of rapid change to enable an organisation to settle down or may result from a lack of resources to pursue a more active policy.

Market Penetration Market penetration involves increasing market share and is an important aim of generic strategies previously discussed. In the short term market penetration may be won by reducing margins and prices. Sustainable market penetration can only be achieved by price-based strategies that are coupled with cost reductions, or by differentiation or hybrid strategies. The exception to this is if a price war is successful in forcing a weaker competitor out of business.

Market Development Market development generally involves an attempt to take the existing product range into new market areas which can include new geographical areas and new market segments. It may be that some product development is required to adapt the product range to the new market areas.

Product Development Product development encompasses the development of existing products and the development of completely new products.

Diversification Diversification involves an organisation moving into completely new products and markets which are unrelated to its present portfolio. The motives for this may be to take advantage of a new growing market - particularly if an existing product has a static or declining market to allow an organisation to spread its risks. economies of scope

Methods: Growth This section examines the main methods by which a particular strategy may be developed which include: internal growth mergers and take-overs strategic partnerships

Internal Growth Internal growth means that markets and products are developed without recourse to mergers with other organisations. This route may be chosen because: owners and managers wish to retain control of an organisation organic growth is less disruptive and can be more readily accommodated finance may be limited there may be no suitable targets for mergers problems of cultural fit between merging organisations can be avoided.

Mergers and Takeovers Whilst mergers represent voluntary integration between organisations, take-overs may occur without the consent of the target company. Integration can be divided into three main types: horizontal integration vertical integration, and diversification or conglomerate integration

Problems with mergers Some of the potential problems of mergers can also be noted. First there is the potential problem of lack of fit in terms of products, or processes ( information technology system incompatibility can be a problem here), or the culture of merging organisations. Secondly diseconomies of scale may arise. Finally there is monopolies and mergers and anti-trust legislation.

Strategic Partnerships This method of strategic development represents a desire for the benefits of collaboration without complete merging of ownership and resources. It can take the following forms: franchising and licensing joint ventures alliances networks and clusters

Methods: Innovation Innovation is a key method to achieve costs reductions or differentiation. Hall & Williams (2008) identify a number of key drivers of tourism innovation that include: competition and protection knowledge and creativity innovation policies firm-led strategies entrepreneurship

Review of Key Terms 1 Strategic Directions: How an entity should develop its products and services as well as the markets Consolidation: Concentrating an organisation's efforts on existing products and existing markets. Market penetration: Increasing market share in exiting markets using existing products or services. Market development: Taking an existing product range into new market areas. Product development: The development of existing products and the development of completely new products for existing markets. Diversification: Moving into completely new products and markets which are unrelated to an entity’s present portfolio. Withdrawal: Removal of product or service or pulling out from a market.

Review of Key Terms 2 Strategic methods: How a strategy may be developed by growth, development, innovation and entrepreneurship. Internal growth: Development of markets and products without recourse to mergers with other organisations. Merger: Integration between organisations. Horizontal integration: Merger between firms operating at the same stage of production in the same industry. Vertical integration: Where two organisations at different stages of production in the same industry merge. Diversification: Taking over a firm in a different line of business. Franchise: New owners and businesses are recruited to replicate a successful business model. Joint venture: Where two or more parties agree to cooperate in business activities. Strategic Alliance: An agreement between two or more parties to co-operate on some aspects of mutual interest while remaining independent organizations. Innovation: Bringing newness or positive change to products, processes, thinking, or organizations.

Discussion Questions 1. Examine the advantages and disadvantages to producers and consumers of the strong vertical integration that is evident in the package holiday industry. 2. Locate two recent examples of horizontal integration in the tourism industry and critically evaluate the success of each. 3. Discuss the relative merits of mergers versus alliances for airlines. 4. With reference to a tourism organisation of your choice explain which of the following methods would be most appropriate for a programme of international expansion: • internal growth • mergers • franchising • joint ventures • alliances 5. How can successful innovation be encouraged on tourism destinations or business organisations?

Unit 8 Strategic Directions and Methods The End Strategy for Tourism Unit 8 Strategic Directions and Methods The End