Competitive Strategy in Hospitality business Steven Lee September 10, 2007

Learning Outcomes  To understand the way in which organizational strategies are developed and implemented.  To understand why strategies succeed or fail.  To prescribe better ways of formulating and implementing new strategies in the hospitality business industry

The Five Forces Model

How industry change?  What trends, events and competitive strategies created the current industry structure?  How will current trends, events and competitive strategies alter the industry structure in the future?  What strategies can your firm undertake to make the industry more attractive?

Winner Take All  Many industries have a ‘winner take all’ dynamic that pits different (often incompatible) technologies or standards against one another  Particularly true in network markets where consumers value compatibility  Here we tend to see ‘positive feedback’, ‘bandwagon effects’, or a ‘virtuous circle’  How does one ‘win’ a standards war?

Assets in Network War Assets in Network War  Control over installed user base  Intellectual property rights  Ability to innovate  First-mover advantages  Manufacturing capabilities  Strength in complements  Brand name/reputation

Resource Based View  Looking inside for competitive advantage  The cornerstones of competitive advantage  Asset stock accumulation

Looking inside  The famous ‘VRIO’ model  How is it different from Porter?  What does it mean to be: –Valuable –Rare –Inimitable –Organized  I would add ‘N’ non-appropriable

The cornerstones of competitive advantage  The cornerstones –Heterogeneity  Ricardian rents  Monopoly rents –Ex post limits to competition  Isolating mechanism –Property rights, causal ambiguity, lags, inertia –Imperfect mobility (non-tradeable)  Quasi-rents (no incentive to leave) –Ex ante limits to competition  Strategic factor markets

Asset Stock Accumulation  Resource picking vs. capability building –What is a strategic factor market and why is it important? –What is an (in)complete or missing market?  Non-traded resources are accumulated over time (flows build stocks) –Reputation, trust, goodwill, know-how, brands –Natural barriers to imitation  Time compression diseconomies, asset mass efficiencies & interconnectedness, slow asset erosion  Asset stocks are vulnerable to substitution

Blue ocean strategy  Red vs. Blue  Value innovation  Value curve  Unique and surprise  Focus and simplicity  Compelling and smile

Brand strategy  Brand strategy is business strategy  Uncommon practice vs. best practice  DNA vs. MBA  Customer experience vs. customer service

Strategic change  Leading change  Cracking the code of change  Managing strategic change

Leading Change  Establishing a sense of urgency  Forming a powerful guiding coalition  Creating a vision  Communicating the vision  Empowering others to act on the vision  Planning for and creating short term wins  Consolidating improvements  Institutionalizing new approaches

Cracking the code of change Dimensions Theory E Theory O Combined Goals Maximimize shareholder value Develop org. capabilities Embrace the paradox between value and culture Leadership Top down Bottom up Direct from top, empower bottom Focus Structure and systems (BPR) Culture, people Seven Ss Process Plan and execute Experiment and evolve Plan for spontaneity Rewards Financial rewards Intrinsic rewards Incentives reinforce not drive Consultants Analyze and solve problems Empower employees to solve own problems Experts who empower

Quinn’s philosophy  Any change takes time –Information issues  Inherent uncertainty about correct course of action  Poor information which can improve over time  Inability to predict opportunities and threats –People issues  Individual psychological resistance or inertia –Political issues  Self-interested resistance  Political coalitions to be overcome or co-opted

Managing Strategic Change  Create awareness and commitment –Need sensing: Lead the formal information system –Amplify understanding and awareness –Changing symbols: building credibility –Legitimizing new viewpoints –Tactical shifts and partial solutions –Broadening political support –Overcoming opposition – no lose, indifference zones –Structuring flexibility –Systematic waiting and trial concepts