business strategy project
TRANSCRIPT
Strategic Analysis of Shangri-La Hotels MG 4740 A1 L6 CAPSTONE BUSINESS STRATEGY Kaskavelis George-116606
Dr. Nicolaos Siscoglou
November 19, 2012
Table of Contents
INTRODUCTION ............................................................................................. 1
COMPANY PROFILE ...................................................................................... 1
COMPANY DIRECTION .................................................................................. 3
SHANGRI-LA’S VISION AND MISSION ................................................................. 3 SHANGRI-LA’S VALUES .................................................................................... 3 SHANGRI-LA’S MAJOR GOALS .......................................................................... 4
EXTERNAL ANALYSIS .................................................................................. 5
MACRO ENVIRONMENT-PEST ANALYSIS ........................................................... 5 Political-Legal Environment ....................................................................... 5 Economic Environment ............................................................................. 5 Socio-Cultural Environment ....................................................................... 6 Technological Environment ....................................................................... 6 Other factors.............................................................................................. 7
Environmental factors ............................................................................ 7 Demographic factors .............................................................................. 7
INDUSTRY ENVIRONMENT ................................................................................. 7 Porter’s Five Forces Analysis .................................................................... 7
Threat of Industry’s Rivals ...................................................................... 8 Threat of New Entrants .......................................................................... 9 Threat of Substitute Products ................................................................. 9 Power of Buyer ...................................................................................... 9 Power of Supplier ................................................................................. 10
Driving Forces ......................................................................................... 10 Key Success Factors ............................................................................... 10 Strategic Group Map ............................................................................... 11 Competitor’s Next Moves ........................................................................ 12
INTERNAL ANALYSIS .................................................................................. 12
COMPANY STRATEGY .................................................................................... 12 CORE AND DISTINCTIVE COMPETENCE ............................................................ 13 COMPETITIVE STRENGTH ASSESSMENT .......................................................... 14 VALUE CHAIN ................................................................................................ 15 FINANCIAL ANALYSIS ..................................................................................... 16
SWOT ANALYSIS ......................................................................................... 17
STRENGTHS.................................................................................................. 18 WEAKNESSES ............................................................................................... 18 OPPORTUNITIES ............................................................................................ 18 THREATS ...................................................................................................... 18
FRONT-BURNER ISSUES AND CORRECTIVE ACTIONS .......................... 19
FRONT-BURNER ISSUES ................................................................................ 19 ALTERNATIVE COURSES OF ACTION ................................................................ 20
DECISION CRITERIA .................................................................................... 23
RECOMMENDATIONS ................................................................................. 25
IMPLEMENTATION PLANS.......................................................................... 26
CONCLUSION ............................................................................................... 26
REFERENCES .............................................................................................. 27
APPENDIX I................................................................................................... 30
ANALYTICAL ANNUAL INCOME STATEMENTS 2002-2006................................... 30 BALANCE SHEET 2002-2006 ......................................................................... 31
APPENDIX II.................................................................................................. 32
HOTEL INDUSTRY LIFE CYCLE ........................................................................ 32
APPENDIX III................................................................................................. 34
OCCUPANCY AND RATES STATISTICS .............................................................. 34 ................................................................................................................... 35
APPENDIX IV ................................................................................................ 36
THE SHANGRI-LA CARE ................................................................................. 36
1
INTRODUCTION
Strategy is a vital part for the success of a business. A company uses
strategy in order to achieve higher financial results, to enhance it’s
competitive position and to secure it’s competitive advantage against industry
rivals. This paper will aim to analyze the strategy of Shangri-La Hotels, an
international deluxe hotel group, which has rapidly expanded during the last
decade with the use of a standard service model depended on the
accustomed Asian hospitality.
COMPANY PROFILE
Shangri-La Hotels and Resorts was established in 1971 in Singapore
and it’s founder was the Malaysian-Chinese Robert Kuok. The ownership
remained in the hands of Kuok until 1995, which is when the company went
public in the Hong Kong and Singapore Stock Exchange market. Nowadays, a
small part of Shangri-La resides in the Kuok’s business empire. Shangri-La
group has it’s headquarters in Hong-Kong and from there, 72 hotels are
located throughout Middle East, and Asia Pacific, with the size of room
inventory exceeding 30,000. In order to be able to manage the business,
Shangri-La has divided it’s organizational design into five levels. (Thompson,
pg. C-288)
2
Each level has different tasks to perform, as well as a dollar amount to
spend. (Thompson, pg. C-296) The key executives that are responsible for
the whole operation are depicted in the table below and can also be found in
the main site of the company.
First Level Divisional ManagersSecond Level Departmental ManagersThird Level Sectional ManagersFourth Level Front-Line SupervisorsFifth Level Front-Line Employees
SHANGRI-LA ORGANIZATIONAL STRUCTURE
Mr. Rao, Madhu Vice ChairmanMr. Dogan, Greg President and Chief Executive
OfficerMr. Cottan, Michael Executive Vice PresidentMr. DeCocinis, Mark Executive Vice PresidentMr. Sekercioglu, Cetin Executive Vice PresidentMr. Paw, Chuen Kee Executive Vice PresidentMr. Rao, Anand Chief Information OfficerMr. Zhu, Kent Group Director of Sales and
MarketingMr. McFadden,Lawrence
Group Director of Food andBeverage
Ms. Cheah, Caroline Group Director of RoomsMr. Lee, Harold Group Director of EngineeringMs. Perkins, Shelley Group Director of Human Resources
Mr. Chu, Nelson Group Director of Planning & Design
SHANGRI-LA KEY EXECUTIVES
3
COMPANY DIRECTION
Shangri-La’s Vision and Mission
The vision of Shangri-La is to be ‘’the first choice for customers,
employees, shareholders and business partners’’. (Thompson, pg. C-296) In
order to achieve this vision, Shangri-La aims to make every customer have a
remarkable experience by providing the highest standard value services.
The mission of Shangri-La is to have ‘’delighting customers each and
every time’’. (Thompson, pg. C-296) With a distinct and prudent vision and
mission, the company is one of the most reputable companies in Asia.
Shangri-La’s Values
The values of Shangri-La are the following:
Ensure leadership drives for results Make guest loyalty a key driver of our business Enable decision-making at the guest contact point Be committed to the financial success of our own unit and of our company Create an environment where our colleagues may achieve their personal
and career goals Demonstrate honesty, care and integrity in all our relationships Ensure our policies and processes are guest and colleague-friendly Remain deeply committed to our social responsibility by making a positive
contribution to our communities, environment, colleagues, guests and business partners(Thompson, pg. C-296)
4
Shangri-La’s Major Goals
From the establishment of Shangri-La Hotels, the organization has
achieved a plethora of major goals. Some of them are:
1970s
In 1979, in order to handle three properties (Shangri-La's Rasa Sayang
Resort and Spa, Penang- the Golden Sands Resort, Penang,
Malaysia- and The Fijian Yanuca Island, Fiji), Kuok Hotels is formed.
1980s
In 1982, Shangri-La International Hotel Management Ltd. is
established.
In 1989 the First Traders hotel starts in Beijing.
1990s
In 1991 Shangri-La International Hotel Management Ltd. acquires
administration of all ownerships.
In 1993 Shangri-La Asia Limited becomes a publicly traded and owned
group.
In 1997 Shangri-La Asia Limited purchases Shangri-La International
Hotel Management Ltd.
2000s
In 2004 near Beijing, Shangri-La Academy commences.
In 2005 the First CHI called “The Spa”, opens in Bangkok.
5
EXTERNAL ANALYSIS
Macro environment-PEST Analysis
In order to maintain the competitive advantage, a company must
constantly examine it’s macro environment and adjust to it. PEST analysis
can provide the necessary information for a company to adjust it’s operations
and achieve sustainability of competitive advantage. Subsequently there is a
small PEST analysis of Shangri-La Hotels for China along with an evaluation
of other factors of macro environment.
Political-Legal Environment
Each government applies different political policies and procedures as
well as different regulations and laws, in order to manage their state (labor
laws, tax policy, a strong court system etc.). Whether they belong in the
hospitality industry or in the food industry, companies have the responsibility
either to comply with or adapt to these policies and regulations in order to
have healthy and stable operations in the country. For example, in Europe,
according to company law of European Commission, the companies of
Member States should provide equal rights and protection to all of their
shareholders. (European Commission-Company law, 2012)
Economic Environment
General economic factors affect industries and companies at a local,
national or international level. Some of the important factors are:
unemployment rates, economic growth, exchange rates, inflation rates and
compensation. There is an impending economic crisis estimated to start at
6
2008, which will influence all industries. In hotel industry, the average hotel
room price is calculated to drop at 14%. According to studies, room cost will
be 13% less in Europe, 14% less in the U.S., 16% less in Asia and 21% less
in Latin America. (Qfinance, 2009)
Socio-Cultural Environment
Socio-cultural factors include social values, attitudes and lifestyles that
vary from country to country, change over time and have an impact in
industries. For example in hospitality industry, hotels must respect their
employees’ different religions (Christianity, Islam, Judaism etc.).
Technological Environment
Since industrial revolution, technology is playing an important role to all
industries. Technological innovations are introduced almost e. This fact puts a
lot of pressure in companies, especially those of hotel industry, since they
want to have state-of-the-art facilities in order to satisfy their clients’ desires.
Some major technological changes in hotels, over the last years, are free
14%
13%
14%
16%
21%
Projected Room Prices for 2008
Average Global Price
Europe
U.S.
Asia
Latin America
7
wireless internet access, electronic room locks, online booking and advanced
security systems. (Hospitality Risk Solutions, 2012)
Other factors
Environmental factors
Environmental and ecological factors can affect industries directly or
indirectly. In hospitality industry (especially for hotels), there are several
environmental issues that must be attended when a company decides to build
new facilities or change the existing structures. Some of the major matters
are: water shortages, following the LEED (Leadership in Environment and
Energy Design) standards and other environmental protection laws, as well as
paying attention in climate change and energy costs.
Demographic factors
Demographic factors (size, growth rate and age distribution of
population) can create large implications to industries. In hotel industry, the
size of the population plays a major part in strategic decisions. It’s not a
coincidence that Hilton Hotels declared an expansion of 100 hotels in China
by 2014, since China is the world’s most populous country (19.11% of world
population). (Bloomberg, 2011)
Industry Environment
Porter’s Five Forces Analysis
One of the leading and extensively used tools for diagnosing the
competitive conditions in a company’s industry is the five-forces model by
Michael E. Porter. (Thompson, pg.102) Shangri-La can include Porter’s
8
five-forces model in their strategy in order to keep their competitive advantage
in hotel industry. A general diagram of the model is presented below:
Source: Note desk, http://notesdesk.com/notes/strategy/porters-five-forces-model-porters-model/
(accessed November 2, 2012)
Threat of Industry’s Rivals
Companies that belong in hospitality industry operate and compete in a
worldwide range. Thus, the existing rivals can be domestic or international.
Three main competitors of Shangri-La Hotels and Resorts can be considered
to be the InterContinental Hotel Group (IHG), Marriott Chain and Hilton Hotels
& Resorts. On one hand, we have IHG, which is the most aspiring player in
the Chinese market and Marriott chain with strong brands like Ritz-Carlton,
Renaissance Hotels and other. On the other hand, we have Hilton Hotels &
Resorts, which has one of the most recognized standings in hotel industry and
offers high quality services.
9
Product diversity is considered low in hotel industry, since everyone is
capable of offering the same quality. To sum up, the threat of existing rivals is
considered high in hotel industry.
Threat of New Entrants
In 2006, China had become the fourth largest economy in the world, as
well as one of the most attractive destinations. As a consequence, major
opportunities for hotel development were introduced and with Beijing as
Olympics’ host for 2008, first-class hotels started to arise all over Shanghai,
Beijing and other Chinese cities. Even though the threat of new entrants is
high, it is nothing Shangri-La can’t manage, as we will see later.
Threat of Substitute Products
Substitute products have the power to affect an industry’s
attractiveness. Since hotel industry is one of the most expanding industries in
the world, customers have a variety of alternative choices when it comes to
resorts. Whether the hotel brands are national or international, customers can
choose based on their needs and demands.
Power of Buyer
Customer is an important factor for every industry. In hotel industry, the
buyer plays a predominant role, since he makes the decision of where to go.
The usual demand in the industry is more quality of service at minor cost.
Companies can either adjust their strategies to fulfill customer’s expectations
or try to influence their decisions. All in all, buyer power is obviously high for
companies in hotel industry.
10
Power of Supplier
Supplier power is considered to be low in hotel industry, since
companies have plenty of alternatives when it comes to stock their provisions.
The most desirable approach, for a company that wants to make profit, is to
seek supply at a low price and convert it to high-value service. Even though
the power of supplier is considered low in hotel industry, it still remains an
important factor to which companies should pay attention.
Driving Forces
Shangri-La’s changes within the industry are impacted by:
Growth opportunities into new markets (globalization)
Essential information to satisfy the demanding customer
Technological incorporation to enhance operational efficiency
Key Success Factors
According to Catherine Capozzi, some key success factors for succeeding
in hotel industry are considered to be:
Provision of high customer service with a knowledgeable and capable
staff, as well as high quality service in order to achieve customer
loyalty
Successful advertising of offerings and packages in order to target
specific groups of customers
Having an effective cost-control system so as to manage the price
rates according to high and low seasons
11
Trying to achieve product differentiation by offering customers a unique
experience than any other hotel company
Strategic Group Map
High
Price-Quality
Low
Few localities Geographic Coverage Many localities
(Note: The size of the circles represents more or less the companies’ amount of revenues compared to each other.)
By observing the above strategic group map, Hilton is currently offering
the most expensive services than the other three competitors in a wide
geographic range. In addition, it is obvious that Hilton is ahead of Shangri-La,
though not by much. As depicted Shangri-La falls short only on the matter of
localities but in the Chinese market, where it mainly focuses is in the lead
considering geographic domain. Finally, IHG and Marriott Chain offer lower
Hilton Hotels & Resorts
Shangri-La Asia Ltd.
IHG
Marriott Chain
12
quality services but also lower prices (hence more attractive to some specific
customer groups) than the other two competitors and by uniting several well-
known brands there is healthy competition considering geographic coverage.
Competitor’s Next Moves
With the Olympics’ 2008 hosted in Beijing right around the corner, it’s
no wonder what the competitors’ next movements will be. Both domestic and
overseas rivals may have already created plans of a number of hotels, all over
China. Since local hotels don’t have strong brand names, they won’t be able
to compete against hotels like Hilton, Marriott or IHG. Thus, another
movement may very well be the formation of alliances between local hotels
with the international brands.
INTERNAL ANALYSIS
Company Strategy
From the five generic competitive strategies, Shangri-La is operating
the focused differentiation strategy. This approach allows a firm to
concentrate “on a narrow buyer segment and outcompeting rivals with a
product offering that meets the specific tastes and requirements of niche
members better than the product offerings of rivals.” (Thompson, pg.184) By
interpreting the above theory at Shangri-La’s operations, we observe that the
company focuses only on well-off customers and tries to promote Asian
culture at a higher quality level, than the local competitors. The successful
execution of focused differentiation strategy depends on having a buyer
segment that is searching for exceptional product elements as well as the
13
company’s capability to distinguish from rivals. By focusing on China, where
the market is on the rise (especially in shipping) and strengthening it’s brand
name over the years, Shangri-La has effectively implemented focused
differentiation strategy. Furthermore, the company’s competitive attack is to
pursue continuous product improvement in order to attract sales and market
share from less innovative rivals. By exploiting it’s strong capital, Shangri-La
is continuously upgrading the facilities with the latest technological
developments so that it can maintain customer’s interest. To sum up, if the
company succeeds in maintaining these accomplishments, it may very well
achieve sustainable competitive advantage at least for a few years.
Core and Distinctive Competence
Successful strategies require differentiation from competitors rather
than following them. The final goal of creating and executing strategies for a
company is to reach sustainable competitive advantage. A distinctive
competitive advantage is when the products or services differentiate the firm
from it’s competitors. (Thompson, pg.81) The company has to shape its
assets and capabilities based on their significance and compare them with
those of the competitors. This procedure will qualify the firm to detect its
advantages and disadvantages, which if manipulated wisely they could gain
sustainable competitive advantage.
Based on the theoretical part, Shangri-La has fostered several crucial
and exceptional resources, as well as core and important competencies.
Shangri-La’s distinctive competitive advantage can be considered the
development of favorable reputation in the market (higher than it’s
14
competitors) and the formation of a system that focuses on boosting the
company’s human resources. In order to sustain competitiveness the
company depends on cohesive operations among it’s different operating
sections and on higher self-confidence between the employees, accomplished
with training in the firm’s academy which results in an increased job
satisfaction of the employees. The core competency can be the enlargement
of service value to the customer and the employment of a target based
approach to attain the goals.
Competitive Strength Assessment
A company’s competitive strength results identify it’s strengths and
weaknesses compared to rivals and shows directly what kind of
offensive/defensive action should be implemented. As the above table
illustrates, Shangri-La is pretty much close to two main and well-known
competitors. There is no company that can be perfect in everything. In some
areas Shangri-La excels over it’s rivals and in other is inferior compared to
them.
Key Success Factors Importance Weight Strength Rating Weigthed Score Strength Rating Weigthed Score Strength Rating Weigthed ScoreHigh quality service 0,20 9 1,80 8 1,60 10 2,00Capable staff 0,30 10 3,00 9 2,70 9 2,70Successful advertising 0,05 5 0,25 6 0,30 10 0,50Effective cost-control system 0,35 8 2,80 7 2,45 9 3,15Product differentiation 0,10 8 0,80 3 0,30 5 0,50Sum of importance weigths 1,00
Overall weighted competitive strength rating
8,65 7,35 8,85
Shangri-La Hotels and Resorts IHG Hilton Hotels & Resorts
COMPETITIVE STRENGTH ASSESSMENT(Rating scale: 1 = very weak; 10 = very strong)
15
Value Chain
Shangri-La’s primary activities in the value chain depend on human resource
management and firm infrastructure. More analytically:
The company hires and trains qualified employees in order to cultivate
local capable people into world-class personnel. With its cultural
training programs (see Appendix) Shangri-La confirms that each
employee in the world is skilled to deliver services “the Shangri-La
Way” (Thompson, pg. C-298)
The reservation system of Shangri-La is always up-to-date in every
hotel. In addition the general managers are proficient in solving
possible problems at different parts of the operations. (Administrative,
accounting, legal, etc.)
At Shangri-La the employees seek to be “natural hosts”, “making guests feel
valued and special by being graceful, dependable, enchanting and warm.”
(Shangri-La.com, 2012)
16
Financial Analysis
(Source of data: Thompson pg. C-292 accessed November 18, 2012)
The above table represents Shangri-La’s total revenues, expenses and
net income from 2002 until 2006, as well as the changes in percentage. The
Asian economic crisis in 1997-98 didn’t affect significantly the operations of
Shangri-La. The reason was that the company mainly focused on the Chinese
market, where the crisis left it relatively intact. Though the company
experienced a decrease of 0.1% in revenues, it had an increase of 14.6% in
it’s net income mainly because there was a greater decline in the company’s
overall expenses to the point of 18.7%. After that small recession the
company recorded impressive growth with revenues increased by 67%
among 2002-2006, while the net income increased by 56% on 2004 before
stabilizing at 33% in 2005 and 2006. (For the analytical tables of income
statements and balance sheet of 2002-2006 see Appendix I)
Year 2002 2003 2004 2005 2006Revenues 600,50$ 540,40$ 725,50$ 842,00$ 1.002,90$ % change -0,10 34,25 16,06 19,11
Selling/general/administrative expenses
80,10$ 77,40$ 90,50$ 114,30$ 121,30$
% change -3,37 16,93 26,30 6,12Operating expenses 477,80$ 404,40$ 582,80$ 653,60$ 729,60$
% change -15,36 44,11 12,15 11,63Net income 63,40$ 72,70$ 113,50$ 151,00$ 202,20$
% change 14,67 56,12 33,04 33,91
Summary of Annual Income Statements, 2002-2006 (in USD millions)
17
SWOT Analysis
Strengths Weaknesses
Well-known established brand
image and company
reputation.
Well defined and executed
business strategy.
High revenue growth over past
few years + a strong capital.
High service standards.
Up-to-date luxurious facilities.
Ignoring medium and low level
customers.
Losing market share to rivals
(out of Asia).
Higher unit costs compared to
rivals.
Losing well-trained staff.
Opportunities Threats
Entering European and North
America’s market.
Exploiting the Olympics’ 2008
by increasing presence in
China.
Enhance image and become a
world-famous hotel brand.
Fierce competition in the
industry (especially now with
the Olympics’).
Lots of substitutes for
customers to choose.
Increase in the cost of labor.
Travelling restrictions.
18
Strengths
Shangri-La has a well-established brand image and a respectable
reputation in the market. In addition, the company’s business strategy
increased sales and profits beyond expectations, though the firm had already
a strong capital. Moreover, Shangri-La offers high service standards with
advanced state-of-the-art accommodations.
Weaknesses
By offering services at high prices, Shangri-La loses a great number of
customers, who cannot afford the services. Additionally, Shangri-La has a
much higher unit cost than other hotel companies in Asia. Furthermore, the
company isn’t so renowned outside Asia, hence losing it’s market share from
the overseas rivals. Finally, the firm can lose skillful employees that may very
well go to the competitors, thus creating even more complications.
Opportunities
Since Shangri-La has focuses mainly on Asia, an opportunity can be
the expansion to European and North America’s market. Adding to that the
company may very well increase it’s presence in Asia and China, and take
advantage of the upcoming Olympics’ in Beijing. To conclude with, the
company can boost it’s worldwide reputation and become a recognized hotel
all around the world.
Threats
The fierce competition in hotel industry is augmented in Asia with
Olympics’ 2008 hosted in Beijing, which can be proved a disastrous threat for
19
Shangri-La Hotels. In addition there are already plenty of substitutions of
hotels and resorts globally. Furthermore, the expansion to other continents
will bring an increase in the labor costs of the company, hence introducing the
need for more profits. Finally, possible restrictions in travelling may be a threat
since some states (where Shangri-La operates) may choose to close their
borders.
Front-Burner Issues and Corrective Actions
Front-Burner Issues
Although Shangri-La is one of the most successful companies in hotel
industry, it still has some front-burner issues that need immediate attention for
the key executives correct them or better yet transform them into strengths.
More specifically, the three main issues that need to be steered clear of by the
executives, are the following:
The expansion in high wage economies like North America and
Europe.
The expansion in China, where front-line employees aren’t so
capable in decision-making.
New entrants in the Chinese market are snatching Shangri-La’s
employees and are offering high wages in a low-wage market.
The above front-burner issues are the most important because if
Shangri-La pays attention to them, it can eliminate some of the weaknesses
20
and neutralize or lessen the impact of threats. More analytically, since
Shangri-La wants to satisfy the increased demand of luxury hotels, it develops
in other countries where the operation and human resource expenses will be
higher compared to what the company is used to. Considering the expansion
in China, general managers of Shangri-La have discovered a lack of taking
the right decision at the right time in the front-line staff. The decision-making
skill is of great importance and if it’s not improved, it will create complications
in the long run. Finally, Shangri-La has invested a lot in employee
development. Since this tactic has paid-off for Shangri-La, newcomers are
trying to hire the company’s skillful employees, so that they can have quick
and successful results.
Alternative Courses of Action
In order for Shangri-La Hotels to resolve the above matters, numerous
courses of action should be presented and separately examined for each
front-burner issue individually.
Alternative courses of action for the problem of expanding in high wage
economies could be:
To expand in markets that lack luxury hotels.
To develop in wealthy markets, where people can afford higher prices.
To begin with, expanding in a new market is difficult if there hasn’t been
conducted any research. Nowadays, with the help of the Internet it’s much
easier to get informed about other markets and take advantage of possible
opportunities. One important factor for growing companies is the wages of the
21
country that they intend to establish. Wages of a few countries are presented
in the table below.
One alternative action that the company can follow is to expand in
markets, where deluxe hotels are absent. This tactic will give Shangri-La the
advantage of the first mover. There are plenty geographic areas, which the
company can explore and possibly gain from.
Another alternative action can be the development in affluent markets.
There are several countries, where high wages doesn’t matter simply because
the country is at a prosperous period.
Moving further, alternative courses of action for decision-making issues
are:
The use of well-established training programs.
The enhancement of employee self-assurance.
Because the employees in China aren’t accustomed to make quick and
accurate choices, Shangri-La is facing a major problem since it is increasing
22
it’s presence in China and is in need of front-line employees. This may result
in losing the opportunity to gain and promote the company’s brand name early
enough for the Olympic Games.
A course of action that can correct this issue is to use effective training
programs that will present short-term solutions considering the company’s
staff, as well as improving the skills of new employees in the long run.
A second corrective action will be to increase employees’ self-confidence.
Giving them recognition for an accomplishment or putting the general
managers to guide and assist the front-line employees with a major issue, are
some ways to minimize stress. Moreover, they will feel confident and relieved
knowing that they can depend on someone if needed.
The final front-burner issue that needs corrective actions is the loss of
well-trained employees from new competitors. Alternative courses of action
for this matter could be:
Making the employee feel more familiar with the company.
Presenting opportunities with new career paths.
First of all, retention is a big problem for every company. Nowadays, it
becomes harder and harder to find loyal employees. Even more, some
competitors are willing to do anything in order to find out the secrets of other
firms. This includes offering contracts to employees from other companies just
to learn their system (though this is a violation of company’s rights if there is
evidence). Moreover, employees tend to leave because they feel that they
don’t have a future in the company.
23
Shangri-La can avoid the above complications simply by making it’s
employees feel more comfortable with the company. By accomplishing this,
employees will find it difficult to resign from the company and as an addition
they will take pleasure working for the firm.
Another alternative course of action is to present new career paths by
exploiting the first front burner issue, the expansion in new markets. With this
development employees will feel that they have the opportunity to promote
themselves in the company and as a result they will try even harder in their
everyday duties.
DECISION CRITERIA
In order to choose which corrective action to follow there are some
decision criteria that must be identified. Decision criteria are very important to
understand because it will determine what course of action is best to
implement. More analytically, the decision criteria for choosing the action to
face the issue of developing in high wage economies depend on:
Becoming first mover and enhancing company’s position: By
being the first company to develop deluxe hotels in a foreign
country, Shangri-La is guaranteed to succeed and gain
revenues but more importantly to enhance it’s brand name and
position in the hotel industry.
Changing mentality and operations: The development in wealthy
markets can show Shangri-La a different way to operate it’s
24
company as well as a new mentality, which may affect the
company’s vision and mission.
Moving further, the decision criteria for dealing with the decision-making
problem depend on:
Easy implementation: The creation of successful training programs
takes little time and a minor portion of money, since Shangri-La has
it’s own training academy, where employees can learn how to develop
their decision-making ability.
Boost employee morale and minimization of stress: By giving
recognition and guidance in difficult times to the front line staff, general
managers can achieve the improvement of the employees’ self-
confidence and the diminishment of stress.
Finally, the decision criteria for facing the issue of employee retention
depend on:
Familiarization of employees: By making the employees feel
more familiar with the company; their self-confidence is
increasing, hence making them more skillful and loyal to the
workplace.
Improve profitability: The creation of new jobs by expanding in
other countries may not increase employee adaptation that
much but it will bring more profit to Shangri-La compared to the
previous mentioned action.
25
RECOMMENDATIONS
Based on the recognition of the front-burner issues and the evaluation
of the corrective actions, as well as the discussion of the decision criteria for
each action, my opinion is that Shangri-La Hotels need to follow the tactics
mentioned below in order to diminish the front-burner issues with the
minimum possible cost. Concerning the issue of expanding in high wages
countries, Shangri-La has to follow the first action plan that is to develop in a
country that is lacking luxury hotels. The exploration of these markets may
lead to great prospects for Shangri-La. This may result in a great advantage
for the company since it will be the first luxury hotel to establish in that market,
hence furthering it’s brand name. On the issue of decision-making, it is
preferable for Shangri-La to implement the plan of creating training programs
in the academy. It needs only a portion of the capital to make them and it will
be easy to adjust in the academy’s schedule. Lastly, considering the matter of
employee retention, Shangri-La has to follow the first action plan that is to
make it’s staff more familiar with the company. The augmentation of
employees’ adjustment to the company will enhance their quality service and
make them feel more comfortable and satisfied with their job. As a result,
since the staff-to-guest ratio is high at Shangri-La customers will experience a
combination of first-class hospitality with superior quality services.
26
IMPLEMENTATION PLANS
In order to implement the recommended plans, Shangri-La must make
careful strategic moves so that it may succeed. For the first action plan,
Shangri-La has to make an appropriate global research, which will present the
geographic regions that haven’t been exploited. After that the company should
search for the country’s wage rates, as well as the travel rates and if they are
satisfactory, Shangri-La should start considering the expansion in that
country. For the second action plan, the only thing that general managers
have to do is to present their training programs for decision-making to the
academy and discuss the time that they will take place. To conclude, for the
third corrective action, since Shangri-La operates different training programs
in the Academy, it can separate the newcomers into small groups. Through
these groups the trainees will collaborate with and trust each other on their
everyday training, hence creating a familiar environment. After they graduate
from Shangri-La Academy, the top managers can assign the employees of the
same group into the same workplace, thus enhancing even more their loyalty
towards the company.
CONCLUSION
All in all, Shangri-La Hotels is one of the leading and upward luxury
companies in the Asia-Pacific region. With it’s sufficient capital, state-of-the-
art facilities and an advanced management system it won’t be long before it
becomes one of the most successful hotel companies in the world.
Word Length: 4567
27
REFERENCES
1. Thompson, A. A. (2012). Crafting and executing strategy: concepts and
readings (18th ed.). New York: McGraw-Hill/Irwin.
2. Shangri-La Asia Limited company : Shareholders, managers and
business summary | Stock Exchange of Hong Kong: | 4-Traders. (n.d.).
Stock Market Quotes and News : Equities, Indexes, Commodities,
Forex on 4-traders.com. Retrieved November 18, 2012, from
http://www.4-traders.com/SHANGRI-LA-ASIA-LIMITED-
1412698/company/
3. Luxury Hotels and Resorts | Official Site Shangri-La Hotels and Resorts
. (n.d.). Luxury Hotels and Resorts | Official Site Shangri-La Hotels and
Resorts . Retrieved November 18, 2012, from http://www.shangri-
la.com/corporate/careers/working-with-us/our-people/
4. Luxury Hotels and Resorts | Official Site Shangri-La Hotels and Resorts
. (n.d.). Luxury Hotels and Resorts | Official Site Shangri-La Hotels and
Resorts . Retrieved November 2, 2012, from http://www.shangri-
la.com/
5. Tourism and Hotels Industry | Market Analysis and Trends -
QFINANCE. (n.d.). Financial resources, articles, concepts and opinions
from QFINANCE - QFINANCE. Retrieved November 14, 2012, from
http://www.qfinance.com/sector-profiles/tourism-and-hotels
6. Three significant trends driving the hotel industry. (n.d.). Online Hotel
Marketing News and Know-How. Retrieved November 14, 2012, from
http://www.hotelmarketing.com/index.php/content/article/three_significa
nt_trends_driving_the_hotel_industry
28
7. Hotel Industry Trends: Technological Advances Will Be “Among The
Most Important Forces Driving Hotel Industry” | HOSPITALITY RISK
SOLUTIONS. (n.d.). HOSPITALITY RISK SOLUTIONS | The Art Of
Insuring Hospitality. Retrieved November 18, 2012, from
http://hospitalityrisksolutions.com/2011/01/03/hotel-industry-trends-
technological-advances-will-be-among-the-most-important-forces-
driving-hotel-industry/
8. Flack, A. (n.d.). Hilton China Hotels to Rise Fourfold by 2014 -
Bloomberg. Bloomberg - Business, Financial & Economic News, Stock
Quotes. Retrieved November 18, 2012, from
http://www.bloomberg.com/news/2011-09-08/hilton-china-hotels-to-
rise-fourfold-by-2014.html
9. InterContinental Hotels Group PLC : Investors - Industry and market
trends. (n.d.). InterContinental Hotels Group PLC. Retrieved November
15, 2012, from http://www.ihgplc.com/index.asp?pageid=51
10. Raghavan, L. (n.d.). Hotels need to differentiate by Lulu Raghavan -
WPP. Advertising, Branding, Consumer Insight, Digital, Marketing,
Public Relations, Design, Media - WPP. Retrieved November 18, 2012,
from http://www.wpp.com/wpp/marketing/branding/hotels-need-to-
differentiate.htm
11. The EU Single Market. (n.d.). European Commission. Retrieved
November 15, 2012, from
http://ec.europa.eu/internal_market/company/index_en.htm
12. Capozzi, C. (n.d.). Key Success Factors in the Hotel Industry |
eHow.com. eHow | How to Videos, Articles & More - Discover the
29
expert in you. | eHow.com. Retrieved November 14, 2012, from
http://www.ehow.com/info_8288206_key-success-factors-hotel-
industry.html
13. Younes, E., & Kett, R. (2006). Hotel investment risk: What are the
chances?. Journal of Retail & Leisure Property, 6. Retrieved November
17, 2012, from
http://www.palgrave-journals.com/rlp/journal/v6/n1/full/5100049a.html
30
APPENDIX I
Analytical Annual Income Statements 2002-2006
31
Balance Sheet 2002-2006
32
APPENDIX II
Hotel Industry Life Cycle
Source: Journal of Retail and Leisure Property, http://www.palgrave-journals.com/rlp/journal/v6/n1/full/5100049a.html, accessed November 17, 2012
As depicted in the above table, it takes roughly 1 to 3 years in order to
develop a hotel asset and a typical investor would keep it for about 25 years.
The development risk refers to the economic danger that an entrepreneurship
is exposed upon entering the market. Full service and luxury hotels are, by
nature, complicated hotels to develop, when compared to other hotel assets.
Such properties require more time to develop, involve complicated space
planning and design, are high capital demanding and face high market
expectations in terms of the physical product offering.
As far as the operating risk is concerned, it’s the ability of the asset
(and its management) to produce satisfactory levels of cash flow in order to
33
generate a certain level of financial returns so that the investment is
justifiable. Owners are considerably exposed to the operating risk in hotel
industry. Any fluctuation in the operating performance of a hotel asset will
have a substantial impact over the net operating income available to its
owner. A severe economic recession, for example, could potentially force the
business into bankruptcy and result in a lender’s intervening, hence pulling
the owner out of business. Noticeably, the uplift is equally positively
rewarding.
In conclusion, the obsolescence/exit risk impacts the ability of the hotel
owner to exit the investment. Also, it is difficult to measure the future value of
the hotel asset. Obsolescence is generally classified into internal and external
obsolescence. Internal obsolescence occurs when a hotel doesn’t operate the
way it did when it was initially launched. On the other hand, external
obsolescence is the cost in income and value resulting from external factors.
Various economic, demographic, environmental, political and socio-cultural
factors may impact the economic practicability of a hotel which may not be
repairable.
34
APPENDIX III
Occupancy and Rates Statistics
35
36
APPENDIX IV
The Shangri-La Care
Shangri-La Care is a culture training program that was launched in
1996 to certify that every employee delivers service “the Shangri-La Way”. As
we can see from the above table, Shangri-La has launched four culture
programs. Care module 1 focused on the company’s five core values: respect,
humility, courtesy, helpfulness and sincerity. Care module 2 focused on
retention and guest loyalty. Care module 3 explains the importance of
recovery when a mistake was made and it’s five steps: listen, apologize, fix
the problem, go the extra mile and follow up. Finally, care module 4 which
addresses the need of employees to take responsibility for customer
satisfaction.