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Strategic Management is planning, applying and evaluating efficient decisions that will allow an organization to reach its long-term objectives. It is the path of identifying the organization's mission, vision and objectives, developing strategies and plans, often projects and programs are designed to achieve these objectives, and assigning resources to implement the strategies and plans, projects and programs.
Porter's five forces model is an outline for the industry analysis and business strategy development, It includes five forces that decide the competitive power and attractiveness of a market.
Porter referred those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally, requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve profit above the industry average.
Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers or buyers.
SELECTING AN ORGANIZATION
When selecting an organization I have looked for places where I can study and apply Porter's Five Forces model, and by carrying out a market research I have chosen Amaya lake hotel (Under Amaya Resorts & Spa),
Amaya brings guests authentic Sri Lankan experiences. Architecture, arts, music, dance, cuisine - Amaya incorporates each aspect of local culture into its retreats. Amaya Resorts & Spas is a subsidiary of Connaissance Holdings. Under Amaya Resorts & Spa they have three hotels. Amaya Lake, Amya Hills and Amaya Reef Hotel locate at three deferent locations. In this assignment I have chosen Amaya Lake hotel at Dambulla to study and apply Porter's five forces model.
APPLY PORTER'S FIVE FORCES MODEL.
Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. Bellow are the studies and apply of Porter's five forces for Amaya Lake Hotel,
1 Threat of New Entrants
Demand for Restaurants, Guest Houses and motels are still under the spot light. Yet majority of large chain hotels have built their power due to operating efficiency, and major marketing-mix expenditure. This powerful force had a great impact on the small traditional Restaurants, bakers, Guest Houses and motels etc. Hence, nowadays it possesses a strong barrier for new companies who desire to enter the hospitality industry. For instance, it becomes rather difficult for new entrants to raise sufficient capital because of large fixed costs and highly developed service. This is also evident in huge investments done by large chains like Amaya Resorts & Spa, in advanced technology for check-ins, checkouts and stock control systems that impact new entrants and the existing ones. Other barriers include economies of scale and differentiation (in the provision of products or services with a higher perceived value than the competition) achieved by Amya Lake with their aggressive operational tactics in product development, promotional activity and better service.
2 Bargaining Power of Suppliers
This force represents the power of suppliers that can be influenced by major hotel chains and create fear of losing their business to other suppliers. Suppliers can be the holy owners of the decision making in terms of price. Yet this can be managed by having number of suppliers as an options, also it can negotiate better promotional prices from suppliers that small individual chains are unable to match. in that case power to controlling suppliers are owned by the service receiver. In return, suppliers are also threatened by the growing ability of large hotels to source their products from abroad at cheaper deals. The relationship with sellers can have similar effects in constraining the strategic freedom of the company and in influencing its margins. The forces of competitive rivalry have reduced the profit margins of suppliers. At Amaya Lake they have well controlled the supplier power choosing many number of suppliers.
3 Bargaining Power of Customers
Porter theorized that the more products that become standardized customers find many options to chose, hence more power is given to buyers. If a hotel does not identify customers need and brake the informality of the service, retaining customers will become bit of a hard task. At this point Amya Lakes famous loyalty card remains the most successful customer retention strategy that significantly increases the profitability of there business, also by providing customer needs, customizing service, ensure low prices, better choices, value additions, constant promotions enables to control and retain their customer base. Ecologically kind and ethically sound food and beverage products makes customers more glued to Amya Lake than the competitors in the market.
4 Threats of Substitutes
General substitution is able to reduce demand, as there is a threat of consumers switching to the alternatives .In the hospitality industry this can be seen in the form of service-for-service or the substitute of need and is further weakened by new trends, such as the way small hotels, restaurants, bars, clubs ectâ€¦ how this happens in a way of convenience, tailor maidens, easy access and proper customer care ectâ€¦. Amya Lake has overcome this by adding few value additions such as Bar, Restaurants, Gym, and Spots complex, DJ club for residents and non residence for affordable price with better service.
5 Bargaining Power of Competitors
If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.
Hospitality trade has seen a very significant growth in the size and market dominance of the larger players and small players, with greater size it may attract reasonable number of guest who are utilizing range of value additions, which are now prominent characteristics of the sector. Yet some guest prefers small or mid size hotels with more privacy, affordable and more religious, as it was mentioned above, the power of choosing the place where a guest might want to go depends on competition among the industry. at Amaya Lake both customers will find there choices, since they have different room categories at different locations. Operating in a mature, flat market where growth is difficult can be caused by the competition. This highly competitive market has accelerated level of development, resulting in a situation in which hospitality sector may have to be innovative to maintain and build market share. Such innovation can be seen in the development of a range of trading formats, in response to changes in consumer behavior. The dominant market leaders have responded by refocusing on price and value, whilst reinforcing the added value elements of their service. Amaya Lake is one of the chain hotels having its own customers in the market with other competitors like Sorrowwa Resorts & Spa, Gimanhala Hotel, Chaya Village, Heritance Kandalama Hotel, Thilanka Hotel by providing better service and value additions to its customers.
ADDITIONAL THEORIES WHICH DEVELOP PORTER'S IDEA
Porter's Diamond of National Advantage Theory,
Classical theories of international trade propose that comparative advantage resides in the factor endowments that a country may be fortunate enough to inherit. Factor donations include land, natural resources, labor, and the size of the local population.
Michael E. Porter argued that a nation can create new advanced factor donations such as skilled labor, a strong technology and knowledge base, government support, and culture. Porter used a diamond shaped diagram as the basis of a framework to demonstrate the determinants of national advantage. This diamond represents the national playing field that countries establish for their industries.
Porter's Diamond of National Advantage Frame work
The individual points on the diamond and the diamond as a whole affect four ingredients that lead to a national comparative advantage. These ingredients are:
the availability of resources and skills,
information that firms use to decide which opportunities to pursue with those resources and skills,
the goals of individuals in companies,
the pressure on companies to innovate and invest.
The points of the diamond are described as follows.
I. Factor Conditions
A country creates its own important factors such as skilled resources and technological base.
The stock of factors at a given time is less important than the extent that they are upgraded and deployed.
Local disadvantages in factors of production force innovation. Adverse conditions such as labor shortages or scarce raw materials force firms to develop new methods, and this innovation often leads to a national comparative advantage.
II. Demand Conditions
When the market for a particular product is larger locally than in foreign markets, the local firms devote more attention to that product than do foreign firms, leading to a competitive advantage when the local firms begin exporting the product.
A more demanding local market leads to national advantage.
A strong, trend-setting local market helps local firms anticipate global trends.
III. Related and Supporting Industries
When local supporting industries are competitive, firms enjoy more cost effective and innovative inputs.
This effect is strengthened when the suppliers themselves are strong global competitors.
IV. Firm Strategy, Structure, and Rivalry
Local conditions affect firm strategy. For example, some companies tend to be hierarchical. Some companies tend to be smaller and are run more like extended families. Such strategy and structure helps to determine in which types of industries a nation's firms will excel.
In Porter's Five Forces model, low rivalry made an industry attractive. While at a single point in time a firm prefers less rivalry, over the long run more local rivalry is better since it puts pressure on firms to innovate and improve. In fact, high local rivalry results in less global rivalry.
Local rivalry forces firms to move beyond basic advantages that the home country may enjoy, such as low factor costs.
V. The Diamond as a System
The effect of one point depends on the others. For example, factor disadvantages will not lead firms to innovate unless there is sufficient rivalry.
The diamond also is a self-reinforcing system. For example, a high level of rivalry often leads to the formation of unique specialized factors.
VI. Government's Role
The role of government in the model is to:
Encourage companies to raise their performance, for example by enforcing strict product standards.
Stimulate early demand for advanced products.
Focus on specialized factor creation.
Stimulate local rivalry by limiting direct cooperation and enforcing antitrust regulations.
Hunt Strategic group Analysis Theory,
A strategic group is a concept used in strategic management those companies within an industry that have similar business models. For example, Room categories in a hotel can be divided in to standard, deluxe or suits, based on the value added facilities. A restaurant in a hotel can be divided into several strategic groups including fast-food, cultural food, western food and fine-dining based on variables such as preparation time, pricing, and presentation. The number of groups within an industry and their work depends on the size used to define the groups. Strategy is the direction and scope of an organization over the long term which achieves advantages for the organization while business model refers to how the firm will generate revenues or make money.
Hunt (1972) invented the term strategic group while conducting an analysis of the appliance industry after he discovered a higher degree of competitive rivalry than suggested by industry concentration ratios. He attributed this to the existence of subgroups within the industry that competed along different dimensions making tacit collusion more difficult. These asymmetrical strategic groups caused the industry to have more rapid innovation, lower prices, higher quality and lower profitability than traditional economic models would predict.
The success of the Amaya Lake shows how far competitive power and attractiveness of a market can leads towards its productivity. It has proven their identity by making their servicing concept into a virus and spending it out into the culture via a variety of channels such as cultural aspects, geographical, and nature friendly experience.
In a rapidly changing business environment with high competitors' Amaya Lake have to adopt new expansion strategies and diversified the existing in order to sustain its leading market position in an already established hotel sector. The company has constantly adapt to the fast changing circumstances. Strategy formulation has been regarded as a process of continuous learning, which includes learning about the goals, the effect of possible actions towards these goals and how to implement and carry out these actions. The quality of a formulated strategy and the speed of its implementation will therefore directly depend on the quality of Amaya Lakes behavioral learning processes.
In large organizations as Amaya Lake, strategy should be analyzed and implemented at various levels within the hierarchy. These different levels of strategy should be related and mutually supporting. Amaya Lake's strategy at corporate level defines the businesses in which Amya Lake will compete, in a way that focuses resources to convert distinctive competence into competitive advantage.