CHAPTER - III

STRATEGIC MANAGEMENT FRAMEWORK

IN TOURISM

STRATEG IC M A N A G EM EN T FR A M E W ORK IN TOURISM

3.1 Conceptual Perspective o f Strategic M an agem en t:

Strategic m anagem ent has em erged as one o f the m ost active areas o f

current management practices. In the present day business environment, strategic

management is very com m only practised to systematise the most important business

decisions. Every decision at corporate, SBU (Strategic Business Units) and functional

level o f a business organisation is taken through strategic management process.

Before w e proceed further w hat is all about strategic management, le t’s

take a look at the strategy itself. The word strategy is derived from the Greek word

‘Stratego’, which means the art or science o f being a General w ho gives the actual

direction to military force. The concept o f strategy first gained currency in the area o f

military activity and it w as associated with the planning o f wars, campaigns and battles.

The concept as applied to business and management is o f relatively recent origin. It was,

only after the publication o f C handler’s book on Strategy and Structure in 1962, that it

came to be widely used in business and management. Today, the concept o f strategy has

been defined by various experts in many ways.

Chandler, A.D. (1962) defines strategy as ‘T he determination o f the basic

long-term goals and objectives o f an enterprise and the adoption o f the courses o f action

and the allocation o f resources necessary for carrying out these goals” .1

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Here, he refers to three aspects in the strategy such as (a) determining long

term objectives and goals (b) adopting the courses o f action to achieve these goals, and

(c) allocating the resources necessary for accom plishing the courses o f action.

W hereas Ansoff, I (1965), in his book Corporate Strategy, identifies

strategy as the common thread among the organisations activities and product-markets as

above that defines the essential nature o f business that the organisation was or planned to

be in future.2 Here, A nsoff g ives emphasis on the relationship between the organisational

activities and the product - m arket orientation which will bring the company from the

present position to the desired future.

Andrews, K ennth (1973) again defines strategy as “the pattern o f

objectives, purposes, goals and the major policies and plans for achieving these goals

stated in such a way so as to define what business the company is in or is to be and the

kind o f company it is or is to be”3 In this definition he refers to the understanding o f the

present and desired future conditions and the action plans required in taking the

organisation from the present situation where it wants to be in future.

According to Glueck & Jauch (1984), “ A strategy is a unified,

comprehensive and integrated plan that relates the strategic advantages o f the firm to the

challenges o f the environment and that is designed to ensure that the basic objectives o f

the enterprise are achieved through proper execution by the organisation”.4 Here, the

emphasis is given to the interdependence and inter linkages o f all parts and major aspects

of the enterprise in a compatible manner to achieve the organisational objectives.

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M ichael Porter (1996) views strategy through today’s dynamic markets

and changing technologies w hen he says, “ Strategy is the creation o f a unique and

valuable position, involving a different set o f activities. The essence o f strategy is in the

activities - choosing to perform activities differently or to perform different activities than

rivals. Otherwise, a strategy is nothing more than a marketing slogan that will not

withstand competition.” 5

Sinha and Reddy (1991) also state that “Strategy is the pattern or plan that

integrates an organisation’s major goals, policies and action sequences into a cohesive

whole” 6

Mintzberg (1987) identifies five Ps for strategy.7

1. Strategy as a Plan for action

2. Strategy as a p la y , a manoeuvre to outwit opponents

3. Strategy as a pattern o f actions - plans may go unrealised but

patterns may appear.

4. Strategy as a position in an environment it is the link between the

organisation and the environment.

5. Strategy as a perspective - the character or culture o f the

organisation; the ways o f acting and responding and what the

organisation stands for. This implies sharing and uniting

organisation members.

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It is relatively easy to change the first four Ps but to change the

perspective of an organisation is much more difficult. Many strategies have failed

because of this factor.

To sum up, a strategy is a means to achieve ends. It links all parts and

covers all the major aspects of an organisation. Strategy is a long-term plan and ensures

that all parts of the plan are compatible. It also identifies basic issues such as

• What is our business?

• What should it be?

• What are our products/services, functions, markets?

• What should we do to achieve our objectives and goods.

In a simplified manner, strategy is a pattern of purposes, goals and

objectives which determines what an organisation is and what it ought to be in future.

So, in defining strategy of a firm, it is essential to answer two basic

questions regarding the firm’s existence such as (a) What has to be done in order to

safeguard the firm’s long term survival? and (b) How has this to be achieved? In order to

give a sound and consistent answer to these questions, systematic approach to setting

strategy is needed. Thus strategic management has emerged as the answer.

3.1.1. Strategic Management Process:

In a successful business organisation, strategic management works as the

path-fmder to the various business opportunities; simultaneously it also acts as a defence

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mechanism w hich helps the enterprise avoid deleterious mistakes. The successful

functioning o f the business enterprise depends highly on the quality o f strategic planning

i.e., the vision, insight, perception, sense o f realism, clarity o f thought and ideas and the

perfection o f methods and m easures that go into the job o f strategic management. Hence,

the task o f formulating a strategic plan and the job o f implementing and executing it will

encompass the vital portion o f the job o f strategic management.

The thrust o f the theoretical developm ents in strategic management have

been the content o f effective organisational strategies and the process o f formulating and

implementing organisational strategies. For successful strategic management, decisions

have to be taken on four aspects such as “steering elements, environment, the resources

and resource allocation pattern and the corporate values, norms and ethics”8. In doing so,

a desirable future is defined and steering elements provides what the management wants

to achieve. It also concerns an analysis o f the firm ’s environment, which leads to defining

what the firm should achieve in the given environment. The third decision is on the

resources and their allocation pattern that determine what the firm can achieve.

The fourth decision is in regard to firm ’s norms, values and ethics through

which management decides w hat is allowed to be achieved by the firm and its associates.

Fig ( 3 .1 ) shows the summary o f the components o f the field o f strategy making.

A conceptual definition o f strategic management, according to William F.

d u eck and Lawrence R. Jauch is that “Strategic management is a stream o f decisions

and actions which leads to the development o f an effective strategy or strategies to help

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achieve corporate objectives. The strategic m anagem ent process is the way in which

strategists determine objectives and make strategic decisions” .9

Fie (3 .1): The Field o f Strategy M aking

A desirable future

/ WANT

N. Resource allocationManaging the f iim - y^OULD environment fit < CAN N.

\ ALLOWED // A competitive business ethics

Source : Aime Heene (1997) ,“The Nature of Strategic Management” Long Range Planning, Vol 30, No-6,' Dec,. P-934

Further, they describe that “strategic decisions are means to achieve ends.

These decisions encompass the definition o f the business, product and markets to be

served, functions to be perform ed and major policies needed for the organisation to

execute these decisions to achieve objectives.” 10

Peter Drucker (1974), defines strategic planning as “the continuous

process o f making present entrepreneurial (risk - taking) decisions systematically and

with the greatest knowledge o f their futurity; organising systematically the efforts needed

to carry out these decisions; and measuring the results o f these decisions against the

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expectations through organised, systematic feedback.” 11 Here, he covers the strategy

formulation, im plem entation and evaluation processes in the term strategic planning.

Michael Porter (1980), a renowned Consultant and Professor o f Harvard

Business School, puts forw ard that “Every firm competing in an industry has a

competitive strategy, w hether explicit or implicit. This strategy may have been developed

through planning process o r it may have evolved implicitly through the activities o f the

various functional departm ents o f the firm ".12 Further, Porter (1985) states that

"Competitive strategy is the search for a favourable competitive position in an industry,

the fundamental area in which com petition occurs"13

According to Coulter, M.K. (1998), "Strategic M anagem ent involves a

series o f steps in which organisational members analyse the current situation, decide on

strategies, put those strategies into action, and evolved/modify/change strategies as

needed. It entails all the basic managerial functions: Planning, organising, leading and

controlling".14 She further asserts that "the process o f strategic management involves

strategy formulation, strategy implementation and strategy evaluation”.15

Coulter comes out three aspects o f strategic management, which

differentiate it from other types o f management. First, strategic management is

characterised by its emphasis on the interactions o f the organisation with its external

environment i.e. it has external focus. The second, it highlights the im portant interactions

of the organisation’s various functional areas and activities, i.e. it has an internal focus.

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I bird, it concerns the choice o f future direction o f the organisation i.e. it focuses on the

future.

Thompson & Strickland (1997) view the strategic management as a

process having stages o f strategy formulation, strategy implementation and strategy

evaluation. They present a model on strategic management process comprising the above

stages in five phases such as developing a strategic vision and business mission, setting

objectives, crafting and strategy to achieve the objectives, implementing and executing

the strategy and evaluating performance, monitoring new developments and initiating

corrective adjustment.

Many authors view the strategic management as a process having stages o f

strategy formulation, strategy implementation and strategy evaluation. Various

management critics have developed different models o f strategic management. However,

Thompson & Strickland come out a comprehensive model on the strategic management

process comprising the five tasks as shown in Fig. 3.1.

Fig. 3.2. : Strategic Management Process:

Source : Adapted from Calingo, L.R. (1997), “Strategic Management in the Asian Context, ” New York, John Wiley and Sons, p.8.

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Thus, various authors have come out with different models o f strategic

management, however, a typical model o f strategic management process is shown in fig

3.2.

3.2. Crafting W inning Strategy :

Crafting a w inning strategy means making decisions and implementing

strategies that allow an organisation to develop and maintain competitive advantage. So

competitive advantage is a key concept in strategic management process for building a

winning competitive strategy o f a firm. W hen a firm has competitive advantage, it has

some thing that other com petitors don’t or it does something better than other firms or

does something that others cannot. Hence, competitive advantage is becoming an

essential element for long term success and survival o f a firm. However, the question is

what else will give competitive advantage to a firm and how long the firm can sustain it

in the fast changing environment. Thus, systematic decision making in the light o f

strategic management process becomes necessary for a firm to build its sustainable

competitive advantage so as to enable the firm to survive for long. A further look over

the competitive strategy will give an insight into the formulation o f winning strategy. Fig

3 .3 depicts a typical model o f strategy formulation process.

Fig. 3.3. ; A M odel o f Strategy Formulation Process:

Source: Adapted from Day, G.S. (1984) “Strategic Market Planning : The Pursuit o f Competitive Advantage ” New York, St. Paul, West Publishing Co. p.49

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3.2.1. Competitive Strategy :

Porter (1980) describes that the essence o f formulating competitive

strategy is relating a com pany to its environment. Although the relevant environment is

broad, encompassing social as well as econom ic forces, the key aspects o f the firm ’s

environment is the industry or industries in w hich it competes. Industry structure has a

strong influence in determ ining the competitive rules o f the game as well as the strategies

potentially available to the firm. Forces outside industry are significant primarily in a

relative sense since outside forces usually affect all firms in the industry, the key is found

in the differing abilities o f firms to deal with them. Further, he writes that the state o f

competition in an industry depends on five basic competitive forces. They are threat o f

substitute products or services, threat o f new entrants, bargaining power o f suppliers,

bargaining power o f buyers, and rivalry am ong existing firms in the industry.

Identification o f the forces w ill facilitate to determine the intensity o f industry

competition and profitability: Fig. 3.4 shows the Porter’s model o f competition. This

model is regarded as one o f the most comprehensive tools for building competitive

strategies.

Source: Michael Porter (1980) “Competitive Strategy : Techniques for Analysing Industries and competitors”. New York, The FreePress. P.4

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According to M ichael Porter (1980), there are three generic competitive

strategies that have been successful in outperform ing other firms in the industry. He has

persuasively explained the three generic strategies: overall cost leadership, differentiation

and market focus.

Cost Leadership strategy aims to make the firm an industry wide lowest

cost position relation to com petitors. Thus, the firm attempts to control cost o f

production, and cost o f sales so as to enable them to get substantial returns when the

prices are at low level. Some important variables for cost leadership strategy are as

below:

a) Cost control measures

b) M inim ise the costs o f marketing and product development

c) High capacity utilisation

d) High product quality

The strategy o f differentiation attem pts to develop distinctive abilities that

are perceived industry wide as unique. These distinctive abilities may be along various

dimensions such as product quality, distribution, after sales service etc. that are widely

valued by the customers.

The differentiation strategy is o f two types

M arket d ifferentiation and

Innova tive differentiation

M a rk e t in g D i f f e re n t ia t io n en ta ils c re a t in g a un ique im age o f the serv ice

through m ark e tin g te c h n iq u e s It w ill be s tud ied th ro u g h the p aram ete rs such as (a) ex ten t

of segm enta tion (b) P res tige p r i c in g and (c) In tens ity o f advertis ing

In n o v a t iv e D i f f e re n t ia t io n in v o lv e s c rea t in g the latest and attractive

service o ffe r in g s in te rm s o f q u a l i ty , e f f ic ien cy , d es ig n , style e tc It will be studied

through.

a) a s se ss in g se rv ic e innova tion

b) e c o n o m y o f sca le

F o cu s s tra tegy a im s at a specific m arke t segm ent or n iche charac terised by

a particular ty p e o f cu s to m er , a n a r ro w service ran g e o r a limited geograph ica l courage.

Porter (1 9 8 0 ) asse r ted that fo cu s s t ra teg y a s su m e s that the firm is ab le to serve its n a r ro w

target m arke t m o re effec tive ly o r eff ic iently th an com peti to rs who are com peting m o re

broadly. As a resu lt , the firm a c h ie v e s either d iffe ren tia tion for better m eeting the needs

of the particu lar targe t, lo w er cos ts in serving this target or both.

T h ere is no s ing le b e s t strategy that every company m ust fo llow . O v e r a

period o f tim e a firm m ay c h a n g e its generic strategy. No single s tra tegy is ap p ro p r ia te to

a company for all t im e to com e. A wise response to the changes ta k in g p lace in th e

environment is one that w o u ld he lp the firm harvest new o pportun it ie s and a lso defend it

from threats Thus, a co m p an y m u st be able to anticipate ch an g e and a d o p t s trategies as

necessary.

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Linden B row n and M alcolm M cD onald (1994) have asserted that

differentiation strategy leads to perceived benefits advantage through innovation and cost

leadership, perceived price advantage through productivity. However, in practice, there

are trade o ff that occur between the two.

The im portant aspect o f P orter’s generic competitive strategies that are

used to examine is the concept o f being ‘stuck in the m iddle’. It occurs when a firm is not

successfully pursuing either a low cost or a differentiation com petitive strategy. M ost

unsuccessful firms are in this situation as its costs are too high to compete with the low

cost leader or its products and services are not differentiated well to cope with the

competitors. In order to becom e unstuck, a firm has to do systematic aligning o f

resources, capabilities and distinctive com petencies and make consistent strategic

decisions about what com petitive advantage to pursue.

3.2.2. Other Models o f Com petitive Strategies:

Porter in his w ork on competitive strategies and competitive advantage

maintained that a firm could not simultaneously pursue a low cost and a differentiation

strategy. I f it does so there is risk being stuck in the middle and not successfully

developing or exploiting either competitive advantage.

For describing firm ’s competitive strategies Porter’s generic com petitive

strategies framework is still widely practised. However, some newer perspectives on

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competitive strategies could be discussed w hich probably can provide an expanded and

more realistic description o f w hat com petitive strategies firms are using.

In an attem pt to create a sustainable com petitive advantage, firms are

looking for ways to set them selves different from the rivals. Com petitive strategy is all

about how an organisation chooses to have a sustainable com petitive advantage over the

rivalry.

M iles and Snow ’s Adaptive Strategies also describes how an organisation

competes in an industry w here it operates. M iles and Snow’s approach is based on the

strategies that organisations use to successfully adopt to their uncertain competitive

environments. According to this approach four possible strategic postures are proposed

such as prospector, defender, analyser and reactor.16

In prospector strategy, organisation seeks innovation, demonstrates ability

to survey dynam ic environm ent frequently and continually and develops new products

and services. Competitors are uncertain about prospector’s future strategic decisions and

actions. Defender organisation searches for market stability, produces only a limited

product line for a narrow segment o f total product market. It seeks to protect its will

established business and does whatever is necessary to aggressively prevent competitors

from entering their turf. Defender can crave out and maintain niches within their

industries that competitors find difficult to penetrate.

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O rganisation adopting analyser strategy thoroughly analyses new business

ideas such as products, services, markets before deciding to jump in. It watches for and

copies the promising and successful ideas o f prospectors.

Reactors strategy simply reacts to environmental changes and lacks

coherent strategic plan. It m akes strategic adjustm ents only when finally forced to do so.

Generally, such organisation are not able to respond quickly to environmental changes

because they lack resources and capabilities and do not develop or exploit them properly.

Derek Abell suggested another approach for describing the competitive

strategies on the basis o f his business definition framework. A business according to

Abell can be defined along the three dimensions -

a) Customer groups - who we are going to serve

b) Customer needs - what customer need we are attempting to satisfy, and

c) Alternative technologies - how w e are going to meet that need.17

In this approach strong emphasis is given to understanding customers, not

in industry and its products or services. In the light o f the three dimensions, we have

competitive market scope and the level o f competitive market segment differentiation for

developing competitive strategies o f a business.

Henry M intzberg (1988) developed an alternative typology o f competitive

strategies that he believed better reflected in increasing complexity o f the competitive

environment

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Fig. 3.5 show s the possible com petitive strategies proposed by M intzberg.

He asserted that having the lowest costs doesn’t provide a competitive advantage by

itself, but the advantage can come when the organisation is allowed to charge below

average market prices. Thus, organisation following this strategy according to M intzberg

is differentiating on the basis o f price. The undifferentiated strategy is that strategy when

firm has not basis for differentiation or when it deliberately follows a copycat strategy.

Fig. 3.5:M intzberg’s Generic Competitive Strategies

Source : Mintzberg, Henry (1988), “Gcncric Strategies : Toward a comprehensive Framework"” in Advances in Strategic Management, Vol.5,

We have seen various strategy alternatives, no matter how we describe

them the major thing to remember in crafting a winning strategy o f an organisation is that

its competitive strategy should exploit the competitive advantage(s) the organisation has

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its competitive strategy should exploit the competitive advantage(s) the organisation has

developed. It will be extremely difficult for an organisation to compete successfully in

any situation without competitive advantage. Competitive advantage can be developed

from the organisation ability to use its resources optimally and create special capabilities,

which in turn are transformed into distinctive competences. These things take place

through the strategies being used in the various functional work units o f the organisation.

Thus, organisation’s functional strategy plays a pivotal role in implementing competitive

strategy.

3.3. Implementing Strategy:

The job of strategic management is far from complete if a chosen strategy

is not implemented. When a strategy is not translated into action, then it remains a mere

strategic plan or idea only. Strategy implementation is very important for any strategic

plan to be successful. However, strategy implementation is critical. Once a strategy is

implemented it must be evaluated and modified, if necessary.

For effective implementation of strategy examining an organisations

existing structure, systems, staff, skills, style and shared values and making changes

made in each of these is inevitable.18 It gives a new strategic direction to the firm.

Thus, strategy implementation entails dealing properly with ‘hard’ issues

like structures and systems and ‘soft’ issues like skills, staff, style and shared values. For

tourism service organisation, to successfully implement its service concept and achieve

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the desired positioning in the mind o f tourists it needs to pay special treatment to both

these hard and soft issues.

In service business, the successful or failure o f which is very much

developed on the quality and com mitment o f em ployees and it is the reason why top

management in successful service organisations give utmost priority in human resource

management.

Ranjan Das (1997) deals with certain key implementation issues such as

organisation structure, systems (including use o f IT); People; Culture and leadership as

applicable to a service firm .19

A strategist, to implement a strategy successfully has to bring his o r her

task a wide array o f knowledge, skills, attitudes and abilities to allocate resources, design

structures, formulate functional policies, take into account the leadership styles required

and maintain internal consistency besides handling various other issues confronting the

organisation.

3.4: Relevance of Strategic M anagement in Tourism Organisations:

With the increasing affluence o f people as a result o f growth o f

economies, there has been greater desire for a better standard o f life and to explore more

of the world. People are willing to spend more on leisure and holidays resulting in greater

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demand for recreation and entertainment facilities, adventure sports, tourist resorts and

other hospitality services.

Tourism being a service industry has some unique characteristics. Its

business has complex phenomenon. A typical tourism organisation offers a wide gamut

of services. Services cannot be touched, seen or tasted before consumption hence,

tourism service is intangible. Tourism services are highly perishable and cannot be

stored. They are to be produced and consumed simultaneously. Thus, a different set o f

strategies is required for the tourism organisations to face the competition and remain in

the business for long.

There may be more tourists to go around, but there is also more

competition between destinations as cities, countries, continents or unique places to pin

on the charms o f tourist revenue. The heat o f the contest is undoubtedly inevitable. To

develop competitive edge over others, like the consumer products tourist destinations

must persuade their customers that they have some combination o f benefits, which no

other can offer.

Tourist travel for business and leisure in both domestic and international is

showing increasing trends (Chapter-II). Moreover, as a result o f economic liberalisation,

introduction o f open sky policy and recognising tourism as an industry, competition in

this sector too becomes indispensable. In such a dynamic and competitive environment,

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References : (C h a p te r - III)

1 Chandler, A (1962), “Strategy and Structure - Chapters in the History o f the American Enterprises'' Cambridge, Massa, MIT. P-13

2 Ansoff, I.H. (1965) “Corporate Strategy” New York, McGraw Hill, p.3 Andrews, K.R.(1973) “The Concept o f Corporate strategy”, Hane wood, Illinois, Jones Irwin,

p.28.4 Glueck, W and Jauch, L (1984) “Business Policy and Strategic Management” Tokyo,

McGraw Hill Inc. p.85 Porter,M (1996) “What is Strategy” Harvard Business Review, Nov.-Dee. p.68.6 Sinha, D P & Reddy, Y.R.K (1991): ’’Business Scenario for the 90s Strategic Management

Perspectives” (Eds. Dr. D.P. Sinha and Dr. Y.R.K. Reddy). New Delhi, Vikas Publishing House (P) Ltd. P. 130

7 Mintzbeg, H (1987) “ Five Ps for Strategy”, California Management Review in the Strategy Process, Eds, H. Mintzberg and J.B. Quinn, New Jersy, Prentice Hall Inc.

8 Aime Heene (1997 ), “The Nature of Strategic Management” Long Range Planning, Vol. 30, No.6, Dec. p.934.

9 Op. Cit, Glueck W. F. & Jauch L.R.(1984), p-5.10 ibid, Glueck W. F. & Jauch L.R.(1984),11 Drucker,P (19 ) “Management Task, Responsibilities and Practices” New York, Harper &

Row12 Porter, (M (1980) “Competitive Strategy Techniques for Analysing Industries and

Compititors” New York, Free Press13 Porter, M (1985) “Competitive Advantage; Creative and Sustaining Superior Performance”

New York, Free Press, p . .14 Coulter, M.K (1998) “Strategic Management in Action” New Jersey, Prentice Hall Inc., p. 615 Ibid Coulter, Mary K(1998), p-616 ibid PP. 209.17 Darek Abell (1980), “Defining the Business (he Starting Point o f Strategic Planning” New

Jersey, Prentice Hall Inc. P.30.18 Peters, Thomas J. & Waterman Jr. Robert, H (1984) “In Search o f Excellence” New York,

Worver Books Inc.19 Das, Ranjan (1997) "Strategic Management o f Services; Framework and Cases” New Delhi,

Oxford University, Press p.82