Hotel PESTEL and SWOT Analysis

Hotel X operates in a fragmented industry largely controlled by the guests and their preferential needs. The strategic audit involved analyzing; the macro-environment by the PESTEL model, the competitive industry environment by the Porter’s Five Forces model, the key stakeholders expectations and the internal strengths and weaknesses.

This SWOT analysis concludes the strengths (products, brand, people, VmV and accreditation/certification), the weaknesses (location, classic rooms, car parking, performance management and technology), the opportunities (BRIC, Rugby World Cup 2011, market demographics, corporate responsibility pressure, and the 90 day trial period law) and the threats (new National, Conference Centre, long-term contracts with buyers/suppliers, economy, and technology).

Hotel X should plan its strategy around differentiation by providing the highest quality products and services unique from the rest of the industry. Improving the hotels weaknesses is a realistic way to improve the growth and profitability for the organization. Recommendations are provided for the improvement of Hotel X’s weaknesses.

Contents

Introduction

‘If you don’t know where your business is going, any road will get you there.’ (TÜVRheinland Group). Business strategy is a driving force in the success of organizations; as long as the strategy for the organization is analyzed in terms of the environments. This paper is a strategic analysis of the environments for Hotel X [1] .

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Company Background

Hotel X is a leading hotel in Auckland. The services and products provided include accommodation, food and beverage, event venues, spa and health club facilities. Their aim is to grow market share and profitability by maintaining 5 star level services [2] . This is supported by Hotel X’s vision statement: Know Our Guests, Build Great Memories.

Industry Description: Definition and Drivers

Hotel X is positioned in the high-end [3] hotel [4] industry within Auckland City [5] . ‘The hotel industry is a sub-section of the Travel and Tourism industry…one of the most rapidly expanding fields’ (Go & Pine, 1995, p. 26). It is a fragmented industry as hotels are driven by the services they provide and the consumers they can attract. Factors that influence this consumer selection are; the location of the hotel, the facilities available, the price per night and the size of the facility. High-end hotels in Auckland compete for independent and corporate travelers, both domestic and international.

Macro-Environment Analysis

The PESTEL model was used for analysing opportunities and threats to Hotel X and the summary of the major factors can be found in Appendix 2.

(P)olitical Factors

• New Zealand general elections may bring changes to government and influencing legislation.
• Trade agreements have a positive correlation with tourism. Securing trade agreements with BRIC would create significant growth in business.

(E)conomic Factors

• With overseas economies in recession, the declining New Zealand dollar [6] , the increase in fuel costs and the GST increase, it is more expensive for people visiting New Zealand. There is a decrease in the reliance on overseas visitors and income.
• There will be short-term growth with the Rugby World Cup 2011.While this would only be a small injection over the months of September/October, there is potential for resulting growth in returning guests.

(S)ocial Factors

• Consumer opinions on products and services can quickly build or diminish a brand and company image. The increasing use of social media to gain access to this information can be dangerous to growth for companies who do not monitor and maintain brand standards.
• The impact of economic factors is seen in the demographics of the Auckland market. The strong short-haul markets can be a benefit as they buffer the industry during periods of significant reduction in long-haul markets (New Zealand Hotel Council).

(T)echnological Factors

• Innovation potential is held back by having to balance the needs of the guests’ verses what they are prepared to pay for. Technology does not replace personal touches, but allows for storage of information on the preferences of guests. Auckland hotels need to upgrade their services when compared to international standards in order to maintain consumer expectations (Hotel Technology Resource, 2011).

(E)nvironmental Factors

• There is increasing pressure to be environmentally responsible. The pressure has created organizations such as EarthCheck who provide certifications to organizations meeting particular requirements [7] and Qualmark with their Enviro Assured Grading System [8] . Increasingly some consumers will only engage with companies which hold particular certifications.

(L)egal Factors

• Current union negotiations will determine the requirements of the hotels towards their employees, the impact of this will be determined after the negotiations.
• The 90 day trial period in employment law allows companies to employ people best suited for positions. The best employees in the best positions increases efficiency, productivity, satisfaction and general wellbeing thus reducing costs to the company.

Competitive Industry Analysis

The Porters model [9] was used for analysing the industry competition for Hotel X and the summary of the major factors can be found in Appendix 9.

Threat of New Entrants

Hotel X has one of the largest function rooms in Auckland with capacity of 1500. This attracts some of New Zealand’s significant functions such as the upcoming Rugby World Cup Prize giving. The proposed National Convention Centre will threaten Hotel X’s long-term market share of functions.

Bargaining Power of Suppliers

Employees provide most of the service for guests. Hotel suppliers do not hold much power, there are often a large number of suppliers available. Many high-end hotels have contracts with taxi companies. The cost of switching these contracts is high.

Bargaining Power of Buyers

Hotels provide the same item to the same market so need a strong brand to differentiate from competition. There are limited times that customer’s basic needs cannot be met [10] .

There are large numbers of corporate travelers who stay in a hotel that they have long-term contracts with. Hotel X may struggle to renew its contract with Telecom due to Telecoms move to the lower CBD.

Power of Substitutes

The threat of substitutes depends on the demands of the customer. As most guests wanting to stay in high-end hotels are expecting quality over cost, it could be expected that substitutes to this industry do not pose a large threat.

Intensity of Industry Rivalry

The strong industry growth in the tourism sector (Go & Pine, 1995) should mean that there is a low rivalry amongst hotels as there are an increasing number of guests. However, the products that hotels provide are identical on a basic level (the quality may vary) and this low differentiation and ease switching leads to a strong competition.

Stakeholder Analysis

The expectations of the individuals and groups that influence the business strategy for Hotel X are summarized in Appendix 11.

The strategy for Hotel X was developed by the director and is entwined with his personal values; his dedication to the organization ensures he retains control over strategy and growth.

The guests and clients of Hotel X may see the hotel as important to them during their short term relationship however only the business clients and guests who are engaging with the organization on a regular basis hold any importance for quality service on a long-term basis.

Attitudes of the employees are orientated around providing quality service but the importance of the hotel to them is more for the opportunity of employment it provides.

Hotel X understands the importance of the media in providing marketing opportunities however the media do not have the same inverse need.

Hotel X is also not of large importance for the local government as, while the hotel provides local taxes and jobs, it does not have any impact on the growth of local government revenue. The attitudes of this stakeholder are consistent with the hotel on factors like environmental responsibility however not consistent with profit factors.

Organizational Capabilities

(S)trengths

• Hotel X’s products hold value between price paid and quality received. The products; 411 rooms, four food and beverage outlets, spa and facilities, twelve function venues, all set 5 star standards and are upgraded as ideas develop.
• There is strong marketing of the Hotel X brand in the industry as ‘luxury’ and ‘elegance’. The concept is carried through media, including social media which is heavily monitored to increase positive brand awareness.
• The multiple ethnicities of the 400 employees mean guest communication has become less problematic. Hotel X has used the Vision, mission and Values (VmV) to create a positive employee culture.
• Hotel X holds multiple accreditations including; Best Hotel from New Zealand Scenic Tours, Studiosus Award, and World Travel Awards, the Innovation/Sustainability Award from NZ Hotel Conference, EarthCheck Silver Status [11] , and Qualmark Gold Status [12] .

(W)eaknesses

• Hotel X in the upper CBD is a distance from city activities. While the hotel provides a shuttle around town, there is not the flexibility (or views) as a prime city location.
• The classic rooms have yet to be updated These rooms are of the same size as executive rooms but the décor is dated and not up to the same 5 star standard as the other products provided.
• The hotel does not provide car parks for employees or guests except for valet parking. The city location makes it is expensive to park in nearby buildings. Public transport is limited.
• The processes in place for performance management are limited. Short term management is strong with recognition programs but the link is missing to annual reviews/promotions, future goals are not quantified.
• Hotel X limits its market by not yet having wireless internet available throughout the hotel. Technology is an area that would improve guest satisfaction and productivity.

Conclusion

The summary of the SWOT analysis can be referred to in Appendix 12.

Hotel X, seeks high levels of growth and profitability. While the product, brand and people are strengths, there is an issue keeping services consistent without good performance management. Organizations now have the advantage of a 90 day trial period to maximize the job-person fit in the organization which should correlate to lower costs and higher profitability. The location of Hotel X will place a limitation on the growth of the organization.

The current products that the hotel provides are strengths. The 5 star quality of these products and services create value for guests. There are some weaknesses however with the décor of the Classic rooms, lack of car parking and limited use of technology. The hotel needs to remain on top of new innovations to ensure the products and services are continuously upgraded.

Hotel X has the opportunity of the growing BRIC market and the upcoming Rugby World Cup. It plans to service these growth opportunities while still maintaining a hold in the domestic markets as a buffer to the threat of the economy restricting international tourism.

The generic strategy that Hotel X should follow is differentiation. Already Hotel X has started to differentiate their product from the industry as supported by the strength of its accreditations and certifications. It is possible for Hotel X to differentiate not only through the strength of its products but also its people and the Vision, Mission and Values.

The strong brand and opportunity for recognition of corporate responsibility will allow Hotel X to develop a dominant position. The threat to this is the competitiveness of the industry difficulties with long-term contracts and the threat of a National Conference Centre.

Recommendations

These recommendations will focus on improving the weaknesses of Hotel X,

Performance management schemes for employees should be introduced to maintain 5 star standards, as services the hotel provides involve guest/employee interaction. Goals set to manage performance must be decided on jointly between organization and employee in order to empower colleagues. Special salary and wage reviews should be initiated as well as an incentive scheme based around achieving key performance indicators.

The classic room product needs to be redecorated to maintain product consistency to satisfy customer requirements.

Technology in particular, a hotel wide Wi-Fi system needs to be developed, to keep up with 5 star international standards.

Car parking needs to be addressed by negotiating with Wilson Parking to either take back the management of the car park or rent additional car parks. The extra car parks would have to satisfy the guest needs first.

Location is one weakness that cannot be changed so the best recommendation for this is to increase the areas the shuttle bus drives to and renegotiating the taxi contract so that fares are cheaper for guests going between the upper and lower CBD.