In this era of globalization, competition is getting more intense than usual. New competitors, new technology, and the emergence of a global market place are some of the many factors that increase the intensity of competition. To face this situation, organizations must be able to develop and execute the correct strategies that enable them to maintain their competitive advantages to sustain in the business, and moreover to improve their performance in dealing with this challenging competition. Thompson et al. (2008) stated that a strategy shows a managerial commitment to pursue a set of actions in growing the business, competing successfully, and improving the company’s financial and market performances.
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When developing the strategies, it is important to analyze the company and its current environment and how it will be in the future. Thompson et al. (2008) stated that a winning strategy must fit the enterprise’s external and internal situation, build sustainable competitive advantage, and improve company performance. The analysis has to be implemented at internal and external level to identify all of the strengths and weaknesses of the company, and all of the opportunities and threats that company will be facing in the future. By knowing its internal and external environment, company can develop the appropriate strategies to improve its performance and compete with its competitors.
This paper is about case study of Amanda Hotel. Amanda Hotel is a small-medium hotel that offers comfortable lodging and high standard service with green environment. Although the hotel has many prospects and operated since February 1982, but it still did not shows significant growth. Management issues and inappropriate strategies implementation are critical problems that restrict them from improving and becoming big. Thus, the aim of this research is to analyze the management problems of Amanda Hotel and develop the correct strategies to improve its performance. SWOT analysis will be needed to achieve these objectives. Based on SWOT analysis, recommendation on strategic planning will be given to help Amanda Hotel on enhancing its performance. The case report will benefit the managers of Amanda Hotel as well as the other managers in hospitality industry in improving hotel’s performance by implement the correct strategies that can enhance its competitive advantages.
The methodology used for this case study research is by using both of primary and secondary data. Primary data is being collected by personal observation of the hotel and its surroundings and interview with hotel’s general manager related to the issues. While secondary data can be collected from literature reviews, which includes books, journal articles, and articles from internet. Secondary data can be used to provide information that is useful and relevant with this research.
This research has six sections including Introduction. First, orientation that consists of theories and hotel profile is presented. Next, data collection and analysis are described. Then, key activities, processes, and events are provided. After that, key learning is discussed. And finally, the conclusion of this research is presented.
Company should know its internal strengths and weaknesses, and external opportunities and threats to develop strategies. SWOT Analysis helps the company to minimize their weaknesses while maximizing its strengths to catch market opportunities and dealing with the threats from the competitors. Tranter and Stuart-Hill (2009) suggested that in analyzing a hotel competitive advantage, SWOT analysis could be applied for a hotel relative to its close or direct competitor. The figure below provides an example of Hotel SWOT elements.
Figure 1 SWOT of hospitality industry
Source: adapted from Tranter et al. 2009, p.203
Porter’s five forces competition theory model
Kotler et al. (2009) stated that competition could be examined from both an industry and a marketing point of view. Using the marketing approach, they defined competitors as companies that satisfy the same customer need. In the hospitality industry, most organizations determine their list of direct competitor based upon a variety of factors, including price, location, facilities, features, amenities, and level of customer service (Tranter et al. 2009). Porter’s five forces theory is a framework to identify the balance of power in a business situation. It allows company to identify potential competition not only from rivalry in the same industry, but also threats from buyers, suppliers, substitutes, and potential of new entrants.
Figure 2 The five forces model of competition
Source: Thompson, A.A., Strickland, A.J. and Gamble J.E 2008.
Rivalry among competitive sellers
The intensity of rivalry varies among industries. To win the rivalry, companies must have competitive advantage over their rivals. Saloner et al. (2001) stated that most forms of competitive advantage mean either that a firm can produce some service or product that its customers value than those produced by competitors or that it can produce its service or product at a lower cost than its competitors. A large number of firms competing on the same market will increase the intensity of rivalry. Rivals will do whatever they can to enhance their competitive advantages to win the market share. New rivals tactics are higher level of advertising, better customer service, and stronger product innovation capabilities (Thompson et al. 2008).
Threat of substitutes
In Porter’s five forces model, competition not only come from competitors in same industries, but also come from substitute products in other industries. If substitute products are available, consumer will have more choices; therefore can affect a product’s demand. The availability of substitute product will restrict a firm to increase its product’s price. A threat of substitutes is getting stronger when substitute product is comparable or better in terms of its quality and performances.
Buyer power is strong when there are a few buyers and many suppliers, so buyer is able to set the price. Also, buyer bargaining power is strong when buyer switching costs to competing brands are low or buyer demand is weak (Thompson, et al 2008).
Table 1 Factors that determine buyer power
Buyers are powerful if:
Buyers are concentrated: there are a few buyers with significant market share
DOD purchases from defense contractors
Buyers purchase a significant proportion of output: distribution of purchases or if the product is standardized
Circuit City and Sears’ large retail market provides power over appliance manufacturers
Buyers possess a credible backward integration threat: can threaten to buy producing firm or rival
Large auto manufacturers’ purchases of tires
Buyers are weak if:
Producers threaten forward integration: producer can take over own distribution/retailing
Movie-producing companies have integrated forward to acquire theaters
Significant buyer switching costs: products not standardized and buyer cannot easily switch to another product
IBM’s 360 system strategy in the 1960’s
Buyers are fragmented (many, different): no buyer has any particular influence on product or price
Most consumer products
Producers supply critical portions of buyers’ input: distribution of purchases
Intel’s relationship with PC manufacturers
Suppliers can also become a threat to companies when there are only a few suppliers of a particular input or industry members or company will need higher cost in switching their purchases to other suppliers (Thompson et al. 2008). If supplier power is strong, they can sell raw materials with higher price that can increase company’s overall cost and reduce its profit.
Table 2 Factors that determine supplier power
Suppliers are powerful if:
Credible forward integration threat by suppliers
Baxter International, manufacturer of hospital supplies, acquired American Hospital Supply, a distributor
Drug industry’s relationship to hospitals
Significant cost to switch suppliers
Microsoft’s relationship with PC manufacturers
Boycott of grocery stores selling non-union picked grapes
Suppliers are weak if:
Many competitive suppliers – product is standardized
Tire industry relationship to automobile manufacturers
Purchase commodity products
Grocery store brand label products
Credible backward integration threat by purchasers
Timber producers relationship to paper companies
Garment industry relationship to major department stores
Travel agents’ relationship to airlines
Potential of new entrants
Threat of new entrants become stronger if there is a lot of new competitors entering the market. The potential to earn attractive profit and low barriers to entry are the main reasons why a lot of new competitors coming in. A barrier to entry is anything that prevents an entrepreneur from instantaneously creating a new firm in a market. A long run barrier to entry is a cost that must be incurred by a new entrant that incumbents do not (or have not had to) bear (Carlton and Perloff 1994, p. 110). Barriers to entry can arise from government’s regulations and policies that can restrict new company entering the market. Besides government; patents, proprietary knowledge, and difficulty in brand switching can also increase the barriers of entry. High barriers to entry can reduce the emergence of new competitors; thereby can benefit the company that is already in the industry.
There are three types of marketing in service industries: external, internal, and interactive marketing. External marketing describes the normal work of preparing, pricing, distributing, and promoting the service to customers; internal marketing describes training and motivating employees to serve customer well; and interactive marketing describes the employees’ skill in serving the client (Kotler et al. 2009). Management should focus on internal marketing because through internal marketing, employees can perform and deliver high quality service that can lead to customer satisfaction.
The concept of internal marketing was based around viewing jobs as if they were “internal products” offered to employees (Berry 1981). Internal marketing is marketing by a service firm to train and effectively motivate its customer-contact employees and all the supporting service people to work as a team to provide customer satisfaction (Armstrong and Kotler 2002). It means that internal customers, that is, the employees of the firm, had needs to be satisfied and those needs were bound up in their jobs (Ballantyne 2004). If employees are satisfied, then they will deliver better service quality that can increase customer satisfaction.
Cleaning/ maintenance services
Financial/ banking services
Restaurant/ hospitality industry
Figure 3 Three types of marketing in service industries
Source: Kotler et al. 2009, p. 401
There is concrete evidence that satisfied employees make for satisfied customers (and satisfied customers can in turn reinforce employees’ sense of satisfaction in their jobs); some have even gone so far as to suggest that unless service employees are happy in their jobs, customer satisfaction will be difficult to achieve (Zeithml and Bitner 1996, p. 76). In short, happy employees can make customers happy. This is integrated into service-profit chain, which shows below.
Figure 4 The service-profit chain
Source: Heskett et al. 1994
The ability to recruit, train, retains, and motivates dedicated service personnel had become more and more crucial (Reid and Bojanic 2010, p. 61). By hiring right employees and provide them with high quality internal service, which is positive work environment, good training and development; it can lead to employee satisfaction that can increase employee retention and productivity. Happy employees will provide high external service value that leads to customer satisfaction. And satisfied customer will remain loyal and moreover can become positive source of word of mouth, which finally can lead to revenue growth and greater profitability.
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The effective leadership
Leadership is the process of influencing others toward achieving group goals (Hughes, Ginnett & Curphy 2009). Leadership is a relationship between the leader and the followers in the particular situation that has a vision to make them in one team in the purpose to achieve the goals. Leadership is the result of a complex set of interactions among the leader, the followers, and the situation.
Figure 5 Leadership
Source: Hughes, Ginnett, and Curphy 2009, p. 1
According to Howard Gardner (2003), a leader is an individual (or, rarely, a set of individuals) who significantly affects the thoughts, feelings, and/or behaviors of a significant number of individuals. An Effective leader is a person who can inspire others to give maximum effort to achieve a worthwhile goal (Walker 2005). Effective leader do not use force to get others to do what they want. The effective leaders have to know how to communicate the vision, mission and goals because communication is the most important aspect to have an effective relationship in leadership. However, leaders who effectively communicate with their followers are clearly different than those who don’t, and that difference is subtler than whether one simply “knows” that communication is important to success. The difference lies somewhere within the leader, with his or her personal beliefs, qualities, and motivations.
According to Lamb & McKee (2004), there are two most important keys to effective leadership, which are trust and confidence and effective communication. To be an effective leader, the leader must start with a solid foundation upon which to build. According to Walker (2005), integrity and humility form the solid foundation upon which effective leadership must be built.
Table 3 Two most important keys to effective leadership
Two Most Important Keys to Effective Leadership
Trust and confidence
Trust and confidence was the single most reliable predictor of employee satisfaction in an organization.
Effective communication of leadership was the key to winning organizational trust and confidence:
Helping employees understand the company’s overall business strategy.
Helping employees understand how they contribute to achieving key business objectives.
Sharing information with employees on both how the company is doing and how an employee’s own division is doing – relative to strategic business objectives.
Table 4 Two principle of the effective leadership
Principle of the Effective Leadership
Integrity is good moral characters that involve tell the truth sincerity. Integrity is important because it can be the foundation for the followers to build their trust, honor, and respect to the leader and among the followers.
Humility is a natural, modest and humble character where a person does not think that he is better than others. Humility allows the leader and the followers share their glory and success. Sharing the happiness between the leader and the followers can build the royalty and motivation in them that can make them as the effective team.
Amanda Hotel is a small-medium hotel that offers comfortable lodging and high standard service with green environment. Amanda Hotel was established on February 1982. It has 82 rooms and employs more than 60 staffs. Amanda Hotel located up on the hill in Bandungan, small town in Central Java, Indonesia, and makes them an ideal hotel for family leisure travelers. The hotel is just a kilometer away from Gedong Songo, one of many famous tourist attractions in Indonesia. Amanda hotel is situated in beautiful landscape with swimming pool. All rooms equipped with beds, air conditioning, TV, refrigerator, mini bar and telephone. The hotel also provides transportation to many local places of interest.
Amanda Hotel’s onsite restaurant serves local delicacies in a relaxing atmosphere. The lamb, chicken and beef satay is one of guest’s favorite; however the chicken rendang was equally good eating. Guests can participate in many activities like hiking, rock climbing, and jungle adventure. Outdoor lovers will enjoy a visit to Central Java panoramas, all within a short distance from the hotel. Amanda Hotel offers meeting rooms, internet connection and fax for business purpose. The hotel also helps guests in booking and arranges city tours.
Data collection and analysis
In the attempt of achieving the research objectives, which is to analyze the management problems of Amanda Hotel and develop the correct strategies to improve its performance, primary and secondary data can be used. Primary data is being collected by personal observation of the hotel and its surroundings and interview with hotel’s general manager related to the issues. While secondary data can be collected from literature reviews, which includes books, journal articles, and articles from internet.
In order to find company strategies, it requires data and information from the company itself and it is not possible to find it only from a literature review, so the main focus of this research will be on observation and interview with hotel’s general manager. While primary data will be the main sources, secondary data can be used to provide information that is useful and relevant with this research.
Data from observation
Observation is a purposeful, systematic, and selective way of watching and listening to an interaction of phenomenon as it takes place. According to Sackmann (1991, as cited in Althay and Paraskevas 2008, p.117), compared with other data collection methods, observation provides rich, detailed, context-specific descriptions, which are close to the insider’s perspective. In this research, researcher observes on facilities, hotel cleanliness, and services; and using non participant observation, which means that researcher remains as a passive observer and does not involved in group activities (Kumar 1999). The results of Amanda Hotel’s observation are:
Old furniture and facilities need to be upgrade. Moldy sofas and old tables are still being used, and spoiled light bulbs need to be replaced immediately.
The cleanliness of main lobby and rest rooms are good. The main lobby is no-smoking area and rest rooms are not odor, so the overall cleanliness is good.
Some waitress is not friendly on serving the customers. Big smile on their faces might be good to increase their friendliness on customer perspectives.
Data from interview
Interview is extremely useful in situations where in depth information is needed or little is known about the area (Kumar 1999). Researcher has done an interview with hotel’s general manager asking about hotel development, current problems, staffs and its marketing strategies. The results that can be concluded from interview are:
To compete with others, management knew that they must increase service quality, do renovation on several areas, and do website development.
Different perspectives between managers and owner. The owner wants to position Amanda Hotel as a premium hotel in Bandungan, so the hotel should maintain its price, which is relatively higher than competitors. On the other hand, managers think that the hotel should offer competitive price to compete with competitors and gain market share.
Their main challenges come from new hotels like Green Valley Hotel and Kusuma Madya Hotel that has similar number of rooms and facilities but has lower price than Amanda Hotel.
Some problems come from unproductive employees. Most of the employees are there since hotel started its operation in 1982. Unfortunately, because of their seniority, they feel unmotivated and lead to unproductive works.
On marketing sides, Amanda Hotel does a lot of promotion through newspaper and radio; but they lack of marketing networks and channels such as travel agents. Amanda Hotel does not cooperate with travel agents, so travelers that using travel agent to find hotel do not know about Amanda Hotel.
Hotel main target market is family leisure travelers; this can be seen as 60% of the revenue comes from this sector. There are many famous tourist attractions near the hotel, such as Gedong Songo. Latest market percentage from Amanda Hotel is 60% family, 30% corporate business meetings, and 10 % others. Amanda Hotel focuses on family market by offering more attractive and varieties family packages.
According to Porter’s five forces theory of competition, Amanda Hotel biggest threats comes from rivalry among hotels and new entrants. Rivalry among hotels, such as Nugraha Wisata Hotel, Rawa Pening Hotel, Gaya Hotel, and Susan Spa is getting more intense. They try to attract new customers through promotion with lower price and attractive packages. For example, Susan Spa promotes their hotel with attractive packages and programs such as spa discount and voucher for those who stay in that hotel. And for Nugraha Wisata Hotel, they try to attract potential customer by using latest technology for business presentation and renovate their building and facilities.
The threats not only come from rivalry among the hotels, but also come from new entrants. New entrants like Green Valley Hotel and Kusuma Madya Hotel are competing to gain market share by offering price promotion. As a new hotel, they have advantages such as newer and modern building and facilities with lower price. Existing hotels try to compete with the new hotels by offering loyalty programs, do some renovation, and the addition of new services. Amanda Hotel can also use these tactics to compete with others by offering loyalty membership for families and companies that held their business meetings at the hotel, upgrading in systems, technologies, and infrastructures.
As for Amanda Hotel itself, it has good reputation and good brand name among the hotels in Bandungan. Amanda Hotel become one of the leader among hotels in Bandungan and its good brand image become Amanda Hotel’s competitive advantage for years. Although it has a good brand name, Amanda Hotel still needs to overcome threats from rivalry among hotels and new entrants by upgrading and renovating its infrastructures and facilities regularly to gain market share and meet market demand. Amanda Hotel also needs to lower its prices and offer attractive packages and programs to compete with competitors.
Key Activities, processes, and events
Amanda Hotel already operated since 1982 and become one of the leaders among hotel in Bandungan. But until 20 years of operation, the hotel still did not shows significant growth. The hotel only do minor renovation and did not becoming a bigger hotel, for example the hotel did not have many branches across Central Java or any other locations and not becoming three or four stars hotel. Based on interview with the general manager, the hotel now experiences difficult time because of economic downturn, new entrants and rivalry among hotels. Occupancy rate has been declined during this difficult time. Management problems and inappropriate strategies implementation are critical points that restrict them from improving and becoming big.
Management problems of Amanda Hotel
Based on the interview and personal observation, management problems of Amanda Hotel that can restrict the hotel from improvement are:
Unmotivated and unproductive employees
In the interview, it is mentioned that staffs are already there since hotel’s first operation. They are all loyal staffs but they are not productive as they should be. For example, one kind of job that usually can be done by one person now must be done by two persons. Good salary, good relationship between supervisor and coworkers, high job security make staffs worked productively, but in years, it will result to unproductiveness because of stagnation, and/or monotonous job or low level of recognition for the job. Unmotivated and unproductive employees can lead to inefficient performances and can increase the overall cost of an organization.
Lack of qualified staffs
Amanda Hotel is experiencing lack of qualified staffs because of staff migration into big cities. Bandungan is such a small city, so qualified employees especially the young ones prefer to work in bigger city, such as Semarang or Jakarta. This staff migration will increase employee turnover which can lead to greater cost in organization; because skillful employees are leaving the organization, therefore company must start all over again from hire, recruit and select new employees that capable for the job. Also, company must conduct orientation and training for new employees, so employees can have skill and abilities that needed in performing their job. All of this process requires a lot of money, therefore can increase overall costs in organization. High labor turnover can also reduce the efficiency and performance of the organization.
Different perspective from managers and the owner of the hotel
The owner wants to position Amanda Hotel as a premium hotel in Bandungan, so the hotel should maintain its price, which is relatively higher than competitors. On the other hand, managers think that the hotel should offer competitive price to compete with competitors and gain market share. This different perspective from the owner and managers can reduce the performance’s efficiency of the organization. Therefore, managers and owner must work together and develop the appropriate strategies that best suit with current organization’s condition and environment.
Lack of marketing channels and networks
Amanda Hotel does a lot of promotion through newspaper and radio; but they lack of marketing networks and channels such as travel agents. Amanda Hotel does not cooperate with travel agents, so travelers that using travel agent to find hotel do not know about Amanda Hotel. Lack of marketing channels can reduce market share and profitability of an organization because customers do not know about the company, so it is difficult for them to buy the company’s product, which in this case is to stay in that hotel.
Current business strategy of Amanda Hotel and evaluation
Amanda Hotel positions itself as a premium hotel in Bandungan and offer it with relatively higher price than its competitors. Amanda has a brand name and good brand image among hotels in Bandungan. Actually, Amanda Hotel is one of the pioneers of hotels in Bandungan, so it brings advantage to the hotel and customers know and trust that the hotel provides good services and accommodation for the guests. The owner wants to maintain the strategy that Amanda Hotel has been using, which is offering high price because Amanda Hotel is a premium hotel, besides to increase the profitability.
This business strategy might be working in the past; but as time goes by and with rivalry among the hotels and many of new entrants, the hotel must adapt itself with current condition and environment. New entrants and other existing hotels are offering with attractive price and packages and have similar facilities with Amanda Hotel, so Amanda Hotel should not maintain its higher price. It is proved with decreasing occupancy rate and market share of Amanda Hotel because of this intense competition. To compete with others, Amanda Hotel should also offer reasonable price and attractive programs, for example loyalty membership or free city tours to attract potential customers. Amanda Hotel also needs to upgrade and renovate itself regularly and improve its service quality to enhance its competitive advantage among the rivals.
However, as mentioned above there is a different perspective between the owner and managers. Managers know the condition of the current market, so they think that the hotel should offer competitive price and attractive packages to compete with competitors and gain market share. On the other hand, the owner which rarely involved in day to day operation and do not comprehend the situation of the current market wants to keep Amanda Hotel as a premium hotel. Thus, the effective communication must be made between the owner and managers. Managers can explain to the owner about the current condition that the hotel is facing now, while owner must be willing to open his mind and listen to the managers because managers are the one who understand the hotel condition.
SWOT analysis of Amanda Hotel
To develop appropriate and correct strategies, SWOT analysis must be made. Based on hotel condition and attributes, the researcher made the SWOT analysis as follow:
Good brand image and brand name
Location; just a kilometer away from Gedong Songo, one of the famous tourist attraction in Indonesia
Beautiful view and landscape
Provides transportation to many local places of interest and can arranges city tours
Provides meeting rooms and internet connection for business purposes
Relatively higher price than competitors
Old building and facilities
Unmotivated and lack of qualified staffs
Bandungan city become more developed and well-known, so more tourists will come to Bandungan
Many companies now using Bandungan as a place to held relaxing business meetings and gatherings
Economic downturn that can affect lower occupancy rate and sales
Increasing the intensity of rivalry with existing hotels and new entrants
Based on the above analysis, the researcher relates them with the modules that had been learnt from the MBA studies. Some issues are related to strategic management, strategic marketing, and strategic human resource management in relation to the hospitality industry.
Strategic management issues
Thompson et al. (2008, p. 126 – 127) stated that the two most important part of SWOT analysis are drawing conclusions about what is the compilation story of strengths, weaknesses, opportunities, and threats tells about the company’s overall situation; and acting on those conclusions to better match the company’s strategy. Focusing on its strengths, such as its strategic location, beautiful view, good brand image, and its services, Amanda Hotel should promote these competitive advantages while minimizing its weaknesses. The hotel should invest more in maintenance and renovation of the building and facilities and also reduce its price to co
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