The Pennsylvania State University

The Graduate School

College of Health and Human Development

CORPORATE EFFECTS AND CORE COMPETENCIES: THE INFLUENCE OF

CORPORATE STRATEGIES ON THE PERFORMANCE OF HOTELS

A Thesis in

Hotel, Restaurant and Institutional Management

by

Qu Xiao

Copyright 2007 Qu Xiao

Submitted in Partial Fulfillment

of the Requirements
for the Degree of

Doctor of Philosophy

December, 2007
The thesis of Qu Xiao was reviewed and approved* by the following:

John W. O’Neill
Associate Professor of Hospitality Management
Thesis Adviser
Chair of Committee

Anna S. Mattila
Associate Professor of Hospitality Management
Professor-in-Charge of Graduate Programs
in School of Hospitality Management

Daniel J. Mount
Associate Professor of Hospitality Management

Donald C. Hambrick
Professor of Management and Organization

*Signatures are on file in the Graduate School

 ABSTRACT

The purpose of this empirical study is to examine the corporate effects in the

lodging industry from a hotel owner’s perspective. Linking the concepts of corporate

strategy and core competence, eight corporate strategies are proposed relating to hotel

property financial performance and contributing to hotel owner’s core competence. Based

on a three-year sample provided by Smith Travel Research, four hypotheses are tested

with regard to the effects of hotel owner’s corporate strategies and core competencies.

The findings strongly support the existence of corporate effects and the influences of

corporate strategies on hotel financial performance. Based on the relative importance of

the eight strategies, a hotel owner’s expertise in implementing superior strategies

regarding segment, brand, operator, location (i.e., MSA), brand diversification, and

location (i.e., MSA) specialization are identified as the core competencies of the best-

performing owners. The results reveal that a hotel owner’s core competencies may

influence its hotels differently. This study also suggests that the collective influence of

multiple corporate strategies may have a strong impact on a hotel’s financial performance.

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 TABLE OF CONTENTS

List of Tables vi
Acknowledgements vii
Dedication viii

Chapter I: INTRODUCTION 1
Objective of the Study 2
Research Questions 3
Significance of the Study 4
Organization of the Dissertation 6
Definition of Terms 7

Chapter II: LITERATURE REVIEW 9

Corporate Effects 9
Corporate Strategy and Core Competence 12
Diversification Strategy 16
Corporate Strategy in the U.S. Lodging Industry 19
Diversification and Specialization Strategies of Hotel Owners 26
Strategy and Core Competence in the Field of Hospitality Management 30
Summary of Literature 34

Chapter III: METHODOLOGY 36

Research Questions 36
Hypotheses 37
Sample 38
Variables and Measures 40
Statistical Procedures 47
Data Analysis 49
Summary 56

Chapter IV: RESULTS 58

Sample Characteristics 58
Effects of Owner 62
Effects of Corporate Strategy 66
Determination of Top and Bottom Hotel Owners 71
Core Competencies of Hotel Owners 73
Effects of Core Competence 78

Chapter V: DISCUSSIONS AND CONCLUSION 97

Summary of Major Findings 97
Discussions 101
Conclusion 115
Theoretical Implications 116

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 Managerial Implications 118
Limitations and Recommendation for Future Research 121

References 126

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 LIST OF TABLES

Table 1. Data Analysis Procedures 57

Table 2. Descriptive Statistics of Sample 1-A and Sample 1-B 59
Table 3. Correlation Matrix for Continuous Variables 60
Table 4. Mean RevPAR and NOIPAR by Segment 61
Table 5. Brand Comparison within Segment 62
Table 6. Effects of Owner - General Linear Model 63
Table 7. Effects of Owner – Variance Components Analysis 63
Table 8. Effects of Owner (Controlling for Location, Segment, Brand, and 64
Operator) – General Linear Model
Table 9. Effects of Owner (Controlling for Location, Segment, Brand, and 66
Operator) – Variance Components Analysis
Table 10. Effects of Corporate Strategies - General Linear Model 68
Table 11. Effects of Corporate Strategy – Variance Components Analysis 70
Table 12. RevPAR and NOIPAR Ranking of Hotel Owners 72
Table 13. Core Competence of Hotel Owners –General Linear Model 74
Table 14. Core Competence of Hotel Owners – Variance Components Analysis 76
Table 15. Effects of Core Competence – Top Six Hotel Owners 79
Table 16. Effects of Core Competencies – Hotel Owner One 82
Table 17. Effects of Core Competencies – Hotel Owner Two 86
Table 18. Effects of Core Competencies – Hotel Owner Three 88
Table 19. Effects of Core Competencies – Hotel Owner Four 90
Table 20. Effects of Core Competencies – Hotel Owner Five 92
Table 21. Effects of Core Competencies – Hotel Owner Six 95
Table 22. Comparison of Best-Performing and Under-Performing Hotel Owners 107

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 ACKNOWLEDGMENTS

First of all, I would like to express my deepest gratitude to my academic advisor

and dissertation chair, Dr. John W. O’Neill, for his constant guidance, tremendous

encouragement, and extraordinary support in every step along the way of completing my

Ph.D. study at Penn State. The expertise, leadership and professionalism I have learned

from him will permeate throughout my career as well as life.

My sincere appreciation also goes to Dr. Anna S. Mattila, Dr. Daniel J. Mount,

and Dr. Donald C. Hambrick. Their support, guidance, and theoretical and practical

insights are not only essential for the completion of this dissertation, but also invaluable

throughout my doctoral education. It was the opportunities of working with them that

made me realize the joy of researching and teaching.

Very special thanks go to Mr. Mark V. Lomanno and his team at Smith Travel

Research. This study would not have been possible without their significant contributions

of data and industry insights.

Finally, I would like to thank the faculty, staff and friends at Penn State for their

help and friendship that made my four years at Happy Valley one of the most enjoyable

memories of my life.

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 DEDICATION

This dissertation is gratefully dedicated to my beloved grandma, grandpa, mom,

dad, wife, and daughter. It is their unconditional love, constant encouragement, unceasing

sacrifices and everlasting belief in me that always enable me to follow my dream.

viii
 Chapter I

INTRODUCTION

Literature regarding strategic management typically distinguishes between

business and corporate strategies. Business strategy deals with the ways in which a

single-business firm, or an individual business-unit of a large firm, competes within a

particular industry or market, while corporate strategy deals with the ways in which a

corporation manages a set of businesses together (Bowman & Helfat, 2001). The relative

importance of business-unit factors in determining performance differences of business-

units between firms has been widely documented, and the literature has revealed that

industry plays a critical role in affecting business-unit profitability. However, previous

research has produced mixed results on the influence of corporate-parent, or corporate

effects, on business-unit performance. Most studies find significant corporate effects,

while they range widely from approximately one percent to eighteen percent of the

variance of business-unit profitability that can be explained by the corporate-level factors.

Such a wide variety among recorded corporate effects suggests the influence of

corporations on business-units may vary in different industries. However, little empirical

research has been conducted to examine the magnitude and the sources of corporate

effects within specific industries.

Strategy research in hospitality management is still in its embryonic stages.

Previous studies on corporate-level strategies have primarily focused on topics of

branding, franchising, internationalization, and leadership, while little attention has been

1
given to the perspective of hotel owners. Industry practitioners have long argued that

hotel owners play critical roles in the lodging industry, and they implement different

strategies in order to improve the performance of their hotels. It is believed that hotel

owners make significant strategic decisions in choosing the location(s) and segment(s) in

which they would like to possess hotels, the brand(s) with which they would like their

hotels to affiliate, and the operator(s) by whom they prefer their hotels to be managed.

Despite a large number of articles and discussions on the importance of hotel

owners found in the trade magazines and industry conferences, little has been studied

with regard to the effects of hotel owner’s corporate-level strategies on property-level

performance. Specifically, whether or not corporate effects exist in the lodging industry,

how hotel owners’ corporate-level strategies affect property-level performance, and how

corporate strategies contribute to the core competencies of hotel owners remain unknown.

Answers to these questions are of great importance because they can improve our

understanding regarding the role of hotel owners in the lodging industry. Consequently,

hotel owners’ corporate strategies are worthy of empirical analysis.

Objectives of the Study

The objective of this research is to complement existing research in corporate

effects and hospitality strategic management by studying the corporate effects in the

lodging industry from a hotel owner’s perspective. The specific objectives of this study

are:

2
 (1) To examine the existence of corporate effects in the lodging industry,

(2) To investigate the effects of corporate strategies in determining hotel property

financial performance, and

(3) To explore the core competencies of hotel owners in terms of influencing

hotel property financial performance.

Research Questions

Specifically, this study addresses the following research questions:

(1) Do corporate effects exist in the lodging industry?

(2) Can a hotel owner’s corporate effects on property financial performance be

attributed to the owner’s strategic decisions regarding hotel location, segment,

brand, and operator, as well as corporate specialization strategies regarding

hotel location, segment, brand, and operator?

(3) What are the core competencies of the best-performing hotel owners?

(4) For a particular hotel owner, do its core competencies influence all the hotels

of this owner equally? Or, do the effects of the owner’s core competencies

influence some hotels more or less than other hotels? If the answer to the

second question is yes, then, how do the effects of the core competencies vary

among this particular owner’s hotels?

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Significance of the Study

This research makes important contributions to the literature of general strategic

management. First, it expands the literature on corporate effects by examining the

existence and magnitude of corporate effects in an interesting but unstudied industry,

namely the lodging industry. Studying corporate effects, a concept primarily drawn from

manufacturing industries, within a service industry helps to improve the validity of the

theory of corporate effects. In addition, focusing on only one single industry avoids the

risk that the corporate effects found in previous research may be caused by industry

characteristics. Second and more importantly, this study investigates the underlying

sources of corporate effects, an important topic that has been only generally discussed but

not fully tested. Specifically, the following strategies are proposed as the sources of

corporate effects: hotel owner’s strategic decisions regarding hotel location, segment,

brand, and operator (management company), as well as the degree of specializations of

these factors. The statistical results of this research reveal which of these candidates are

indeed significant sources of corporate effects. Third, this study not only identifies the

core competencies of the best-performing hotel owners, but also goes one step further to

explore the influences of the identified core competencies on the hotels of a particular

hotel owner. In the literature of strategic management, whether the effects of a firm’s

core competencies on some business-units are more or less than on some other business-

units and what type(s) of business-units benefit most from the firm’s core competencies

are rarely explored questions, and consequently, the answers can add significant value to

the concept of corporate effects.

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 This study is particularly valuable to hospitality management research. Literature

suggests a significant gap between strategic management research in general business

administration and in the hospitality industry (Tse & Olsen, 1999). As a relatively new

notion, research on strategy has suffered two major limitations in the field of hospitality

management (Tse & Olsen, 1999). First, previous studies on hospitality corporate

strategy has focused primarily on the constructs related to environmental scanning,

strategic planning, strategy formulation, and leadership, while little has been researched

regarding implemented strategies and the linkage between strategy and financial

performance. Second, survey and case studies were commonly applied methodologies,

and consequently the results were generally descriptive or only relate to strategic

perceptions rather than realized strategies. Moreover, it has been suggested that, due to

the significant differences between manufacturing industries and service industries, many

strategic theories and models, which were primarily developed from studies on

manufacturing industries, should be re-studied because they may not be valid in the field

of hospitality management (Olsen, 2004; Tse & Olsen, 1999). This dissertation seeks to

compensate for the limitations of previous research by introducing corporate effects, a

relatively new theory to hospitality research, studying the relationship between strategy

and property financial performance, and implementing a large-sample and rigorous

research design.

Furthermore, this study has significant empirical contributions to the lodging

industry. First, the findings of this research can help to qualify/disqualify the popular but

untested notions regarding hotel location, segment, brand, and operator strategies in the

5
hotel investment community. In addition, the results reveal important sources and reasons

for firm strengths and weaknesses, and consequently can assist the strategic analysis of

hotel companies in general, and hotel owners in particular. Through identifying and

improving their respective core competencies, hotel owners could become more effective

in assessing future development, acquisition and/or divestiture opportunities. Finally, for

investors of publicly owned hotel ownership companies, such as Real Estate Investment

Trusts (REITs), this study can assist their evaluation of the companies’ performance.

Although not perfectly correlated, a publicly owned hotel company’s performance in the

stock market is clearly and closely related to the value of the company’s underlying

properties (e.g., Capozza & Seguin, 1999). An investor who understands the company’s

strengths and weaknesses in terms of its influence on property performance can better

evaluate whether the company’s acquisition and/or divestiture activities are value-adding

or value-decreasing.

Organization of the Dissertation

This dissertation is organized into five chapters. Chapter I provides a brief

background regarding corporate effects and hospitality strategy research, as well as

research objectives and research questions. Significance of the study and definition of

terms are also presented. In Chapter II, relevant literature regarding corporate effects,

corporate strategy, and core competence are provided, and the corporate strategies in the

lodging industry are discussed as well. Hypotheses are presented based on the literature.

In Chapter III, a description of methodology is provided and the data analysis procedure

6
is discussed. Results and findings of the study are offered in Chapter IV. Finally, in

Chapter V, the discussions, conclusion, theoretical and managerial implications, and

limitations and recommendations for future research are provided.

Definition of Terms

To assist in interpreting this study more clearly, the following definitions are

offered:

Corporate Effects: the effects of corporate-level factors on the performance of a

business-unit. In this study, corporate effects are measured as the variance of the hotel

property-level financial performance that can be explained by the different owners of the

hotels.

Core Competence: the organizational resources that enable a firm to differentiate itself

from competitors and to achieve competitive advantage. These resources can include a

firm’s assets, capabilities, organizational processes, personnel, finance, knowledge, etc.

In this study, a firm’s capability of implementing performance-improving strategies is

regarded as a core competence of the firm. Such strategies include a firm’s decisions in

choosing hotel location, segment, brand affiliation, and operator.

Hotel Property Financial Performance: Revenue Per Available Room (RevPAR) and

Net Operating Income Per Room (NOIPAR) of a hotel property.

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Hotel Owner: an individual or institution who is a legal possessor of the realty or realties

of a hotel or a group of hotels, but is not actively involved in the daily operational

activities of the hotel(s).

Hotel Operator: a management company or individual who is responsible for daily

operations of the hotel(s) for a hotel owner and obtains a management fee from the owner.

Hotel Segment: a classification scheme of hotels. Following Smith Travel Research

(2006), in this study, there are six hotel segments: economy, midscale without food &

beverage (F&B), midscale with F&B, upscale, upper upscale, and luxury.

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 Chapter II

LITERATURE REVIEW

This chapter explores and organizes the relevant literature on several key topics

and concepts of strategic management and hospitality management, and attempts to

integrate the findings. Specifically, this chapter reviews the following six major areas:

• Corporate Effects

• Corporate Strategy and Core Competence

• Diversification Strategy

• Corporate Strategy in the U.S. Lodging Industry

• Diversification and Specialization Strategies of Hotel Owners

• Strategic Management Research in the Field of Hospitality Management

Each of these headings is discussed in detail accordingly and hypotheses are

provided following the most relevant literature. A summary of literature is provided at the

end of the chapter.

Corporate Effects

Financial performance of a firm or the business-unit of a firm has been one of key

dependent variables in strategic management research (e.g., Olsen, 1999; 2004).

Literature regarding strategic management typically distinguishes between business and

9
corporate strategies. Business strategy deals with the ways in which a single-business

firm or an individual business-unit of a large firm competes within a particular industry

or market, while corporate strategy deals with the ways in which a corporation manages a

set of businesses together (Bowman & Helfat, 2001). Strategic management researchers

have sought to assess the relative importance of business-unit, corporate, and industry

factors in determining performance differences of business-units between firms. Much

research has emphasized the relative roles that corporate, industry, and business-unit

effects play on outcomes at the business-unit-level. While industry and business-unit

effects have been widely documented as major factors explaining large portions of the

variance in business-unit profitability, previous research has produced mixed results on

the effects of the corporate-parent.

Stimulated by Schmalensee’s (1985) research, in which significant business-unit

and industry effects but zero corporate effects were found, a large number of studies

have reported the relative importance of corporate effects (e.g., McGahan & Porter, 1997;

Rumelt, 1991; Roquebert, Phillips, & Westfall, 1996). In general, previous research uses

accounting measures, such as return on assets, to measure individual business-unit

performance, and shows a wide range of estimated corporate effects. While Rumelt (1991)

reports a small corporate effect of zero to 1.6 percent using variance component analysis,

Roequbert et al. (1996) show a 17.9 percent corporate effect with the same statistical

method. Measuring business-unit performance with market share, the study of Chang and

Singh (2000) also indicates that corporate effects can change from 2.4 percent to 7.6

percent for the same sample, which is primarily comprised of manufacturing industries.

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 Among the factors suggested that lead to the inconsistency of estimated corporate

effects, researchers have found that the effects of the corporate parent differ for

companies in different industries. McGahan and Porter (1997) report that corporate

parent effects are substantially larger for non-manufacturing companies (e.g., agriculture,

transportation, services) than for manufacturing companies that were analyzed in the

studies of Rumelt (1991) and Schmalensee (1985). In addition, literature shows that the

definition of industry and business in previously studied samples, primarily based on the

3- or 4-digit SIC levels, may also contribute to inaccurate estimates of corporate

influence on profitability (Chang & Singh, 2000; Bowman & Helfat, 2001). Due to the

considerable limitations of prior studies, researchers suggest that most results of

corporate effects studies should only be interpreted strictly within the context of their

samples (Bowman & Helfat, 2001). Consequently, more research is needed to disclose

the specific corporate effects of companies in unstudied industries, such as the lodging

industry.

Literature in strategic management has suggested a number of corporate-level

factors that affect profitability, including scope of the firm, core competencies,

organizational structure, organizational climate, planning and control systems, and

corporate strategies (Bowman & Helfat, 2001). Specifically, Bowman and Helfat (2001)

suggest that, theoretically, corporate strategy is a subset of total corporate effects on

profitability, and corporate strategies that affect these corporate-level factors are believed

to influence the firm’s profitability. The concept of strategy and a specific type of

corporate strategy, namely diversification strategy, will be discussed in detail in the

11
following two sections. However, prior research, while suggesting non-negligible

corporate effects, has not provided direct evidence of the potential sources of such

corporate effects, nor has the research revealed how corporate strategies function as

underlying sources of corporate effects.

Corporate Strategy and Core Competence

As a core concept of strategic management, strategy was defined by Chandler

(1962) as the determination of long-term goals of an organization, and the allocation of

resources and the adoption of actions to achieve goals. A number of different definitions

have also been presented by other researchers since (e.g. Andrews, 1971; Ansoff, 1965;

Hofer & Schendel, 1978; Miles & Snow, 1978; Porter, 1980, 1996). Although Chandler’s

(1962) definition is not completely supported by all strategic management researchers, it

serves as the basis for the concept of strategy and for most other studies, which generally

accept that strategy can be viewed as a pattern in the organization’s important decisions

and actions, and strategy is composed of two aspects: formulation and implementation

(e.g., Miles & Snow, 1978; Taylor, 2002). Mintzberg (1978) further distinguishes

between deliberate, emergent, realized and unrealized strategies. By his definitions,

realized strategies are patterns in a stream of decisions, and deliberate strategies are the

intended strategies that become realized (Mintzberg, 1978). Most recently, Hambrick and

Fredrickson (2005) define strategy as an integrated overarching concept of how the

business will achieve its objectives.

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 Literature indicates that, to compete in the market, firms are consistently engaged

in seeking strategies that are most effective in building competitive advantage, based on

their core competencies (Olsen, Tse, & West, 1998; Pearce & Robinson, 1997).

Consequently, obtaining competitive advantage has been a focus of strategic management

research. Kay (1993) defines competitive advantage as the advantage one firm has over

its competitors, while Hofer and Schendel (1978) define competitive advantage as the

unique position a firm develops through its patterns of resource deployment. Although

there is no consensus regarding the exact definition of competitive advantage among

researchers, most studies relate competitive advantage to the firm’s strategy (e.g., Hofer

& Schendel, 1978; Kay, 1993; Porter, 1985, 1996).

Strategic management researchers agree that strategies are the results of the

strategic analysis of an organization, which systematically investigates the organization’s

external environment and its internal context (e.g., David, 2001; Harrison, 2003;

Mintzberg, 1990). Therefore, the strategic analysis, generally referred to as SWOT

(strengths, weaknesses, opportunities, and threats) analysis, is essential for an

organization to develop and execute sound strategies, which aim to achieve long-term

organizational goals through matching an organization’s internal strengths and

weaknesses with its external opportunities and threats. Two important streams in the

literature of strategic management, Porter’s (1980) Five-Forces framework and the

resource-based view (RBV) of the firm, shaped the focuses of strategic analysis and

competitive advantage.

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 First, Porter’s (1980) Five-Forces model directly examines the firm’s external

environment and provides the framework to assess the structure of an industry and to

conduct competition analysis. According to Porter (1980), competitive advantage is

related to positioning, through which the firm obtains a competitive position in its

industry and builds and defends its market share. Specifically, the collective effects of the

five forces (industry competitors, bargaining power of buyers, bargaining power of

suppliers, potential entrants, and substitutes) determine the ability of firms to position and

compete in an industry. Porter (1980) proposes that three generic strategies (overall cost

leader, differentiation, and focus) can be applied by organizations to cope with the

competitive forces.

Second, on the other hand, RBV focuses on the firm’s resources in determining

how to gain competitive advantage (Barney, 1986). RBV considers corporate strategies

from an internal perspective, and explains the differences in firm performance that can

not be attributed to differences in industry and/or competition conditions (e.g., Barney,

1991; Collis & Montgomery, 1995; Peteraf, 1993). From an RBV of strategy research,

previous studies have revealed that analysis of internal resources can enable firms to

determine their potential or realized sources of competencies and capabilities, and a firm

can achieve competitive advantage if its resources are inimitable by its competitors (e.g.,

Amit & Schoemaker, 1993; Peteraf, 1993; Nelson, 1994; Wernerfelt, 1984). According to

Barney (1991), firm resources include all assets, capabilities, organizational processes,

knowledge, etc. that are possessed by a firm and can enable a firm to develop and

implement strategies that improve performance. In addition, Hofer and Schendel (1978)

14
suggest six major categories of resources, including financial, physical, human,

technological, reputation, and organizational, and other researchers use core

competencies (e.g., Prahalad & Hamel, 1990) and capabilities (e.g., Stalk, Evans, &

Schulman, 1992) to suggest firm resources that could generate competitive advantage.

Literature has clearly revealed that RBV is closely linked with core competence, a

key concept in strategic management that addresses the question of “What a firm does

best” (Taylor, 2002). Prahalad and Hamel (1990) view a firm as a portfolio of

competencies and suggest that a firm should organize around its core competencies,

which are its critical resources. According to Leonard-Barton (1992, p.111), “capabilities

are considered core if they differentiate a company strategically.” More specfically,

Coyne, Hall, and Clifford (1997) define core competencies as complementary skills and

knowledge that result in superior performance. Moreover, Henderson and Cockburn

(1994) propose two broad classes of competence: component competence, “the local

abilities and knowledge that are fundamental to day-to-day problem-solving,” and

architectural competence, “the ability to use theses component competencies to integrate

them effectively and to develop fresh component competencies” (p.65). Regardless of

different defintions that have been introduced in the liteature, researchers generally agree

that only those resources that enable a firm to differentiate itself from competitors can be

regarded as the firm’s core competencies (e.g., Harrison, 2003; King, Fowler, & Zeithaml,

2001).

15
 Different types of resources are suggested as candidates of core competencies. For

instance, Harrison and Enz (2005) suggest that core competencies could come from

financial, human, physical, knowledge, and/or general organizational resources. Dev,

Erramilli, and Agarwal (2002) propose that core competencies develop/evolve as firms

develop resources to improve performance. Specifically, it is suggested that corporate

strategies, when developed and implemented appropriately, can be important resources of

the firm’s core competencies (Aharoni, 1993; Peteraf, 1993). Stalk et al. (1992) suggest

that, to achieve long-term success, firms identify their key business process strategies,

manage them centrally, and invest in them heavily. While there are a large number of

studies on the resources of core competencies, the effects of a firm’s core competencies

on business-unit performance has not been fully explored in the strategic management

research. Particularly, little is known about whether or not a firm’s core competencies

influence its business-units equally or differently.

Diversification Strategy

As a corporate strategy, diversification has been an important growth tool for

corporations, and consequently its effects on firm performance have been recognized as

one of the central topics in strategic management research (Ramanujam & Varadarajan,

1989). In manufacturing industries, diversification is generally defined as firm expansion

to make/sell products that have no market interaction with the firm’s other products

(Rumelt, 1982). Since Rumult (1974) first tied diversification strategy to financial

performance, the effects of diversification on the performance of firms have been

16
intensively investigated. Previous studies basically have focused on the extent/degree

(more or less), direction (relateness or unrelateness), and mode (internal or acquisition-

based) of diversification. Since Rumult (1974), the degree of diversification has become a

widely used operationalization of corporate strategy, and the measure of the degree of

diversity is based primarily on SIC codes (Ramanujam & Varadarajan, 1989). Rumult’s

(1974) classification on the degree of diversification has also been adopted in a large

number of studies, and the four major categories include single-product firm (over 95

percent of its revenue from one single product), dominant-product firm (70-94 percent of

its revenue from one single product), related-product firm (less than 70 percent of

revenues from a single-product domain and the rest of its revenues from related

businesses), and unrelated-product firm (its revenues from unrelated businesses). The

later three categories all have subcategories.

Some studies have linked diversification strategy directly to corporate effects.

Chang and Singh (2000) suggest a relationship between the size of corporate effects and

the degree of diversification. Specifically, Roequbert, Phillips, and Westfall (1996) find

that corporate effects increase as firms are less diversified. Moreover, Rumelt (1974,

1982) indicates that firm diversification is closely related to its core competencies,

because the best performances are normally enjoyed by the firms that diversify primarily

into the areas that drew on some common core competencies. Bettis (1981) suggests that

related firms and unrelated firms differ significantly by their advertising and research and

development (R&D) expenditures, and that R&D might be part of the core competencies

that Rumult (1974, 1982) implies.

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 However, more recent research reports an overall negative relationship between

diversification strategy and business value and/or performance, and suggests that it is

specialization rather than diversification that benefits the organization (e.g., Berger &

Ofek, 1995; Lang & Stulz, 1994; Montgomery, 1994). A notable study by Wernerfelt and

Montgomery (1988) examines the corporate specialization strategy by operationalizing

corporate effects as focus effects (i.e., the effects of the degree of a firm’s specialization

in one industry or a few industries). The results suggest that the effects of specialization

are positive and explain about 2.5 percent of the variance of the corporate performance,

which is measured by “Tobin’s q,” calculated as the capital market value of the firm

divided by the replacement value of the firm’s asset (Wernerfelt & Meontgomery, 1988).

Ramanujam and Varadarajan (1989), after reviewing a large number of studies on the

relationship between diversification/specialization strategy and business performance,

indicate that such a relationship may be confounded and/or moderated by many plausible

factors, such as industry and/or risk effects. Lang and Stulz (1994) suggest that, although

diversification is found to negatively associate with performance, whether or not

diversification strategy hurts performance may be still questionable. Alternatively, firms

in industries with poor growth prospects may be more inclined to diversify. Therefore, a

possibility is that diversification is not the cause of poor performance, but poor

performance in the underlying line of business may be causing diversification (Lang and

Stulz, 1994). Regardless of the large number of previous studies, they have examined

only the effects on the overall corporate performance but not on the performance of

individual business-units or individual diversification projects (Capozza & Seguin, 1999;

Ramanujam & Varadarajan, 1989).

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Corporate Strategy in the U.S. Lodging Industry

In the hotel industry, the importance of business-unit (i.e., property) strategies and

corporate strategies are well recognized. Hotels represent over ten percent of all

commercial real estate in the United States (Corgel, 2005). However, unlike other

commercial real estate such as office, apartment, and retail, which are usually rented on

annual or multi-year bases, hotels compete on a nightly occupancy basis, and thus have a

high level of uncertainty in occupancy. Due to the uncertainty of the hotel market, hotels

demand more ongoing marketing efforts and are most vulnerable to local, regional, and

national economic downturns. Consequently, hotels require the highest level of

management expertise. Therefore, at the property-level, the effectiveness of the

competing strategies formulated and implemented by the hotel’s management team, such

as marketing, pricing, human resources, and service strategies, is a critical factor to the

success of the hotel in its local market (e.g., Corgel, 2005; Hayes & Ninemeier, 2007;

Imperiale, 2002; Mueller & Anikeeff, 2001).

In addition, there are different corporate players in the lodging industry, such as

franchisors, management companies, and hotel owners (individual or institutional). In

many cases, those who invest in hotels are not the operators who manage the hotels.

While most hospitality research related to strategic management has focused on the

strategies of either properties or franchisors and management companies, such as

branding, franchising, and internationalization (e.g., Dev et al., 2002; Tse & Olsen, 1999;

Olsen, 2004), little attention was given to the corporate strategies of the hotel owners. As

19
a group owning over ten percent of all commercial real estate in the United States, hotel

owners and investors are among the most essential and active stakeholders in the lodging

industry (Corgel, 2005). After a substantial decline in hotel acquisition and development

activities due to decreased hotel value in 2001-2002, hotel owners’ buying and

developing trends have started to recover considerably since 2003. A recent report shows

that the volume of U.S. hotel transactions has increased from 12.8 billion dollars in 2004

to 21 billion dollars in 2005, and is expected to exceed 30 billion dollars in 2006 (Simon,

2006).

Similar to the owners of other types of commercial real estate, hotel owners are

suggested to concern about the performance of their hotels, because the market value of a

hotel is closely, although not perfectly, related to its operating performance (e.g.,

Capozza & Lee, 1995; Corgel, 2005). Although the role of hotel owners in influencing

the performance of their properties remains unknown, literature regarding other types of

commercial real estate suggests that corporate offices can affect property-level

performance (Capozza & Seguin, 1998). Therefore, Hypothesis 1 is proposed to study the

effects of hotel owners on their hotels and answer Research Question 1 presented in

Chapter I:

Research Question 1: Do corporate effects exist in the lodging industry?

Hypothesis H1: The financial performance of hotels owned by certain owners is

superior to the financial performance of hotels owned by other owners.

20
 As a profit-driven entity, hotel owners buy/sell/develop hotel properties to seek

acceptable return on investment. The link between a hotel property’s market value and

the hotel’s financial performance indicators, including ADR, occupancy rate, and net

operating income (NOI), has been well established (e.g., O’Neill, 2004). Therefore, it is

reasonable for non-operating hotel owners, both individual and institutional, to

implement relevant strategies to maximize the financial performance of hotel properties.

Specifically, from a hotel owner’s perspective, a non-operating hotel owner can generally

make significant, corporate-level strategic decisions regarding: (1) at which

location(s)/market(s) to possess a property/properties, (2) which type(s) of hotels to

possess, (3) whether to affiliate with hotel brand(s), that is, whether to obtain brand(s) for

their properties, and with which brand(s) to affiliate, and (4) which operator(s)

(management company/companies) will be retained to operate the property/properties.

While the effects of a superior hotel location on the profitability have been well

recognized by hotel owners for a long time (e.g., Imperiale, 2002), previous research has

also suggested the performance of different hotel types may vary in different time periods.

In the lodging industry, properties are categorized into different types based on price and

service level, such as luxury, upscale, mid-scale, and economy (Stutts, 2001); full-service,

mid-scale, economy, all-suites with food and beverage (F&B), and all-suites without

F&B (O’Neill & Lloyd-Jones, 2002); and even more detailed categories such as luxury,

upper upscale, upscale, mid-scale with F&B, mid-scale without F&B, and economy

(Smith Travel Research, 2006). It has been reported that among the lodging REIT

companies, a group of hotel owners who own approximately 19 percent of the hotel

21
rooms in the United States, the ones concentrating on luxury and upscale full-service

hotels had experienced highest return rates during the REIT booming years including

1996 and 1997, because upscale full-service hotels had higher revenue per available room

(RevPAR) and occupancy rate than the mid-scale and economy properties did (Poutasse,

1997). Brady and Conlin’s study (2004) during 1991-1998 supports Poutasse’s

conclusion by revealing that hotels owned by REITs outperformed non-REIT hotels

because most of them were mid-scale and upscale ones. Gordon and McCarthy (1998)

also suggest that REIT companies focusing on luxury and upscale hotels might have the

least risk due to the least possibility of an overbuild problem compared to other hotel

types such as midscale without F&B and limited-service segments. However, during the

economic downturn exacerbated by September 11th, luxury hotels suffered the greatest

losses in revenue and market value, while economy hotels were affected less in 2001 and

2002 (O’Neill & Lloyd-Jones, 2002).

The performance differences across hotel types have caused more and more hotel

investors and owners to formulate appropriate strategies regarding investing in their

respectively favorite hotel type(s) (e.g., Kidd, 2006; Kish, 2006). It is suggested that

limited-service hotels are less affected by unfavorable economic environment than full-

service hotels because of their relatively lower fixed costs; while in a favorable economic

environment, limited-service hotels can be affected more quickly by the new supply than

full-service properties, because the development cycle of limited-service hotels is much

shorter (Imperiale, 2002). A recent study conducted by O’Neill and Mattila (2006)

supports this argument by revealing that the most profitable hotel type in 2003 was the

22
economy segment. Based on the findings in the literature, one could argue that, some

aggressive hotel owners seeking return maximization may like to acquire luxury and

upscale hotels if they foresee promising economic growth, some owners seeking risk

minimization may tend to acquire limited-service properties if they expect economic

downturns, while other owners may diversify their hotels in different segments to seek

balanced return and risk in the long-term. However, research is lacking for the topic of

hotel owner’s strategic decisions on their favorite hotel type(s).

Moreover, Corgel (2002) reported that, in the hotel investment community, the

conventional wisdom holds that superior return on hotel investment cannot occur without

brand affiliation and superior management. Among a number of benefits of brand

affiliation is the positive influence on hotel sales and profitability (e.g., Hayes &

Ninemeier, 2007). Literature also suggests a link between brand and hotel value

indicators such as ADR, occupancy, RevPAR, NOI, and hotel sale price (e.g., O’Neill &

Mattila, 2006; O’Neill & Xiao, 2006). However, the only empirical study focusing on the

effects of brand affiliation and hotel operator does not reveal a significant relationship

between investment return and the combination of management and brand affiliation

(Hanson, 1991). Hanson’s (1991) study on 65 mid-size full-service hotels concludes that

affiliating with a chain and engaging a management company did not lead to a significant

difference in hotel investment return, measured by the ratio of operating income to

replacement cost.

23
 Furthermore, it is well agreed that the financial success of a hotel depends, in

large measure, on the quality and skill of its onsite operator (e.g., Green, 2006; Hayes &

Ninemeier, 2007; Higley, 2006). Hotel operators, or management companies, can be

classified in different ways. A common classification is first-tier and second-tier

operators, which also refers to branded managers and non-branded managers (e.g., Hayes

& Ninemeier, 2007; Sandman, 2003; Stutts, 2001). The first-tier operators, or branded

managers, are the hotel companies that operate hotels for owners using their respective

hotel brands, while the second-tier operators operate hotels but do not have a recognized

hotel brand. In the latter case, while most hotel owners choose to flag a franchisor’s

brand, a few hotel owners may elect to keep their hotels as independent (e.g., Beals &

Denton, 2004; Hayes & Ninemeier, 2007).

While hotel operators were created to satisfy the need for improving management

efficiencies by separating the ownership from operation, the interests of hotel owners and

the operators are not always consistent. A major cause of serious conflicts between the

two parties is the different financial criteria by which they assess the hotel’s performance:

While the hotel owners focus more on profitability, management companies concentrate

more on revenues, on which primary management fees are based (e.g., Eyster, 1997;

Hayes & Ninemeier, 2007). Historically, the management contracts between hotel owners

and operators heavily favored management companies. However, since the mid-1980s,

relative bargaining power began to shift to favoring the owners due to increasing

competition among operators, increasing owner sophistication and experience in the hotel

24
business, and consequently increasing transparency of operating information (e.g., Beals

& Denton, 2004; Eyster, 1996, 1997; Higley, 2006).

According to Beals and Denton (2004), and Eyster (1996, 1997), current trends on

owner’s influences on the operators can be reflected in the following two major aspects.

First, hotel owners are more actively engaging in asset management. It has been

recognized that the role of hotel asset managers is not only developing investment

strategies, but also selecting affiliated brands and operators, and monitoring ongoing

operation performance of the hotels. Although it is still the operator’s exclusive job of

running daily operations of the hotel, owners or their asset managers have gained

significant input in two major areas of operations: budgeting and personnel. Today, hotel

owners and their asset managers request regular financial reports from the operators,

evaluate and approve periodic budgeting and capital expenditure plans, have frequent

meetings with hotel general managers and other executives, constantly evaluate

properties’ marketing actions, and have the right to approve, disapprove, and even

request replacement of the hotel’s executive members. Second, the management-fee

structures in the management contracts are changing to favor hotel owners: Basic fee

percentages continue to decline, the emphasis on the incentive-fee portion has increased,

and the bases for incentive fees have shifted from being based on levels of income to

achieving a more challenging cash-flow level that reflects owner’s debt service needs and

return on equity. From the perspective of owner-operator relationship, hotel owners can

influence their hotels’ operators significantly through different asset management skills,

and many hotel owners have explicitly claimed that such capability of monitoring the

25
operators is an important core competence (e.g., Kidd, 2006; Strategic Hotel Capital,

2006).

To summarize, although hotel owners may not operate their hotels directly, they

can influence their properties indirectly through various strategies in choosing location(s),

segment(s), brand(s), and operator(s). Therefore, Hypothesis 2a is proposed to answer the

first part of Research Question 2:

Research Question 2 (partial): Can a hotel owner’s corporate effects on property

financial performance be attributed to the owner’s strategic decisions regarding

hotel location, segment, brand, and operator?

Hypothesis H2a: The financial performance of a hotel is associated with its owner’s

strategies regarding (1) location, (2) segment, (3) brand affiliation, and (4)

operator.

Specialization and Diversification Strategies of Hotel Owners

Since various alternatives regarding hotel location, type, brand, and operator are

available, hotel owners can choose to specialize in certain location(s), type(s), brand(s),

and/or operator(s), or to achieve diversification within the lodging industry. It has been

revealed that diversifying geographically and across the property types are the most

common diversification strategies in the commercial real estate market, including the

26
lodging industry (Brueggeman & Fisher, 2005; Kish, 2006). A real estate industry survey

indicates nearly 91 percent of investors who make systematic efforts to diversify their

portfolios vary the geographic locations of properties (Nelson & Nelson, 2003). Previous

studies on other types of commercial real estate have shown, however, geographic

diversification may reduce the value of publicly owned hotel owner companies. Bers and

Springer (1997) suggest that, when a real estate owner chooses to diversify, its average

costs may increase. More specifically, Capozza and Seguin (1999) find that the value

reduction is not because of diversified owners’ poor managerial performance, but due to

higher management, administrative, and interest expenses. In contrast, a geographical

focus or specialization strategy has been suggested to generate economies of scale,

because geographic concentration may allow certain real estate owners to dominate

others by achieving information efficiencies through a relatively larger market share than

the competition (Ambrose, Ehrlich, Hughes, & Wachter, 2000).

No research has been conducted specifically on the effect of lodging companies

and hotel owners’ geographic specialization/diversification strategies, in spite of the

suggestion that owning hotels in different locations may be beneficial (e.g., Berke, 2003;

Corgel & deRoos, 1997; Carl, 2006). However, Woods (2006) argues that owning hotels

in different locations may not be an effective diversification strategy. Instead,

diversifying hotel portfolio in different types of locations is the key for a successful

diversification strategy. It is suggested that the type of location can be classified based on

the population of the market, such as the top 25 markets, the second 25 markets, and the

other markets (Woods, 2006).

27
 In addition, diversifying by hotel type is found in a number of hotel owners’

portfolios (Corgel & deRoos, 1997; Gordon & McCarthy, 1998). As previously discussed,

the performance of different hotel types may vary in different time periods, and

consequently hotel owners may choose to focus on certain type(s) of hotels or to diversify

across several hotel types based on their judgments regarding economic trends and

internal needs. However, remaining unknown is whether the corporate strategy regarding

the degree of hotel-type specialization/diversification influences the individual hotel’s

financial performance. Since different types of hotels may be affected by the external

environment to different degrees, it raises the question of whether the degree of a

corporate parent’s (i.e., a hotel owner’s) hotel-type specialization/diversification affects

the individual hotel’s financial performance.

Literature also suggests that hotel owners and investors may diversify brand and

operator in hotel properties. However, the relationships between

specialization/diversification strategy and brand affiliation and operator choice have not

been rigorously studied. While some REITs and private hotel owners claim that

specializing in certain brand(s) enables the hotels to gain competitive advantage, others

prefer to have a portfolio of different brands (e.g., Artusio, 2006; Baldo, 1994; Berke,

2003; Carl, 2006; Host Hotels and Resorts, 2006; Kidd, 2006; Kish, 2006). Similarly,

hotel owners’ preferences of the choice of hotel operator are mixed. Some hotel owners

believe that the operators have different strengths and weaknesses that fit different

locations and properties; consequently they prefer to have multiple, unrelated

management teams, each of which is chosen specifically for a particular hotel. However,

28
other owners favor working with a limited number of operators managing multiple

properties to reduce the administrative complexity and overhead costs (e.g., Artusio,

2006; Beals & Arabia, 1998; Eyster, 1997; Green, 2006; Higley, 2006; Kidd, 2006).

Regardless of the mixed opinions found in a large number of trade magazines and

conference presentations, the degree of the corporate-parent’s brand affiliation and

management company specialization/diversification strategies remain unknown. Hanson

(1991) suggests that the insignificant relationship between hotel investment return and

brand affiliation and management company engagement in his study may be caused by

limited sample size (65 hotels) and single hotel type (full-service), and consequently

further research on the linkage between hotel performance and brand affiliation and

management is needed.

In summary, literature suggests that hotel owners do choose to focus or diversify

their hotel portfolios by location, segment, brand and operator. However, there is no

consensus on whether specialization or diversification benefits or hurts the hotels. Since

both specialization and diversification strategies regarding hotel location, segment, brand,

and operator are common practices in the hotel investment community, a worthy

investigation is how these specialization/diversification strategies affect the hotel

properties. Taking a stance with the majority of the industry practitioners who suggest

that diversification rather than specialization benefits the performance of the hotels,

Hypothesis 2b is developed to answer the second part of Research Question 2:

29
 Research Question 2: Can a hotel owner’s corporate effects on property financial

performance be attributed to the owner’s strategic decisions regarding hotel

location, segment, brand, and operator, as well as corporate specialization

strategies regarding hotel location, segment, brand, and operator?

Hypothesis H2b: The financial performance of a hotel is negatively related to its

owner’s degree of specialization regarding (1) location, (2) segment, (3) brand,

and (4) operator.

Strategy and Core Competence in the Field of Hospitality Management

As service industries started growing rapidly in the 1980s, studies regarding

strategies of hospitality organizations began to emerge. However, strategy and strategic

management are relatively new notions in hospitality research (Tse & Olsen, 1999).

Although several strategic issues including franchising have been partially studied in the

context of strategy, a review of major strategic management studies in the hospitality

industry indicates that most previous studies have focused on environmental scanning,

strategic planning, strategy formulation, and strategy-structure relationship, while there is

a lack of research on strategy implementation or realized strategies (Tse & Olsen, 1999).

Most importantly, little hospitality strategy research has been conducted on one of the

most important dependent variables of strategic management – financial performance

(Okumus, 2002; Tse & Olsen, 1999). Among 31 major strategy related articles in the

hospitality management field, most are descriptive or case studies; only four studies

30
adopted a survey approach, and none used financial data as a dependent variable (Tse &

Olsen, 1999).

Literature has pointed out that a significant gap exists between strategic

management research in general business administration and in the hospitality industry

(Okumus, 2002; Olsen, 2004; Tse & Olsen, 1999). It is suggested that, because service

industries are fundamentally different from manufacturing industries, many strategic

theories and models, which were primarily developed from studies on manufacturing

industries, may not hold in the field of hospitality management, and consequently may

mislead practitioners in the hospitality industry (Tse & Olsen, 1999; Olsen, 2004).

Therefore, re-studying the key strategic management concepts in the hospitality industry

and developing appropriate theories for hospitality strategic management are crucial.

In addition, core competencies have been studied by a few hospitality researchers.

Olsen, West, and Tse (1998) indicate that core competencies of a hospitality organization

are its processes, skills, and assets that enable it to achieve competitive advantage. Due to

the complex service-product mix of hotels, it is revealed that various sources may

contribute to the core competencies of hotel firms (Olsen et al., 1998). Specifically,

literature has suggested a number of hotel property-level and company-level

characteristics and capabilities as sources of hotel firm’s core competencies, such as

location, brand, facilities, employee, customer loyalty, market coverage, market share,

service quality, technology, leadership, systems and procedures, and organizational

culture (e.g., Dev et al., 2002; Olsen et al., 1998; Taylor, 2002). However, as criticized by

31
Olsen (2004) and Tse and Olsen (1999), hospitality research on the topic of core

competencies have suffered two significant limitations. First, the primary focus on core

competencies is on leadership and managerial capabilities but not on strategies, and

second, such research was drawn from either case-based or survey studies of industry

leaders. Consequently the results are primarily descriptive and survey-oriented

perceptions of industry leaders and/or the researchers, while no attempts have been made

to assess the relationships between core competencies and other strategy constructs, such

as financial performance. Therefore, there is a clear lack of rigorous and large-sample

research on strategy and its financial impact on hospitality organizations. Specifically,

Tse and Olsen (1999, p.368) propose that “it is believed that systematic, longitudinal

research on strategy and its impact on financial performance, as well as a larger sample,

may show some significant differences in hypothesis testing.”

A few recent studies have sought to compensate for some of the limitations. For

instance, based on relatively large sample sizes, several studies have revealed that hotel

firms’ and/or owners’ strategies regarding branding, franchising, and service may have

significant effects on hotel financial performance at both the corporate-level and the

property-level (O’Neill & Mattila, 2004; 2006; O’Neill, Mattila, & Xiao, 2006; O’Neill

& Xiao, 2006). However, there is no known comprehensive research that incorporates

and focuses exclusively on multiple hotel strategy and/or competence constructs.

As previously discussed, based on the RBV, corporate strategies may be

important resources of a firm’s core competencies. Therefore, this study proposes that the

32
hotel owner’s strategies related to hotel location, segment, brand affiliation and operator

can also be the candidates for the owner’s core competencies. To answer Research

Question 3 and to identify the core competencies of the owners whose hotels achieved the

best financial performance, Hypothesis 3a and 3b are developed:

Research Question 3: What are the core competencies of the best-performing hotel

owners?

Hypothesis H3a: The superior financial performance of the hotels owned by the best-

performing owners is associated with these owners’ strategies regarding (1)

location, (2) segment, (3) brand affiliation, (4) and operator.

Hypothesis H3b: The superior financial performance of the hotels owned by the best-

performing owners is negatively related to these owner’s degree of specialization

regarding (5) location, (6) segment, (7) brand, and (8) operator.

Moreover, to further investigate the effects of core competence, answers for

Research Question 4 are needed. Consequently, Hypothesis 4 is developed:

Research Question 4: For a particular hotel owner, do its core competencies

influence all the hotels of this owner equally? Or, do the effects of the owner’s

core competencies influence some hotels more or less than other hotels? If the

33
 answer to the second question is yes, then, how do the effects of the core

competencies vary among this particular owner’s hotels?

Hypothesis H4: For a particular hotel owner, if this owner’s core competence is

identified as related to its superior strategy regarding hotel location, segment,

brand, or operator, such core competence has different effects on the financial

performance of the owner’s hotels with different (a) locations, (b) segments, (c)

brands, or (d) operators.

Summary of Literature

Upon examination of the related literature in this chapter, the following

conclusions are formed:

• Although corporate effect is an important theoretical concept in strategic

management, further research is needed to assess its existence and magnitude in

different industries.

• Corporate strategy is proposed to contribute to corporate effects, while there are

no established theories regarding the underlying sources of corporate effects.

Little research has been conducted in this regard.

34
• While financial performance at both the corporate-level and the business-unit-

level is a core dependent variable in strategic management research, hospitality

strategy research has failed to study the relationship between strategy and

financial performance. Rigorous, systematic, and large-sample research regarding

the concepts of strategy and core competencies is also lacking.

• In the hotel industry, conflicting views exist regarding the effects of hotel owner’s

specialization and diversification strategies about location, segment, brand

affiliation, and operator. However, no rigorous research has been conducted in

this regard.

• Based on the literature, eight corporate-level strategies have been identified as

potential sources of corporate effects and core competencies (location strategy,

segment strategy, brand strategy, operator strategy, location specialization

strategy, segment specialization strategy, brand specialization strategy, and

operator specialization strategy). To address the four research questions outlined

in Chapter I, these eight strategies are adopted as the focal independent variables

to develop the hypotheses regarding corporate effects and core competence in the

context of the lodging industry.

35
 Chapter III

RESEARCH METHODOLOGY

This chapter first presents the research questions and hypotheses of this study.

The descriptions of the sample and the variables are then discussed. Finally, statistical

procedures and steps of data analysis are provided.

Research Questions

As discussed in Chapter I, this study seeks to address the following research

questions:

(1) Do corporate effects exist in the lodging industry?

(2) Can a hotel owner’s corporate effects on property financial performance be

attributed to the owners’ strategic decisions regarding hotel location, segment,

brand, and operator, as well as corporate specialization strategies regarding

hotel location, segment, brand, and operator?

(3) What are the core competencies of the best-performing hotel owners?

(4) For a particular hotel owner, do its core competencies influence all the hotels

of this owner equally? Or, do the effects of the owner’s core competencies

influence some hotels more or less than other hotels? If the answer to the

second question is yes, then, how do the effects of the core competencies vary

among this particular owner’s hotels?

36
Hypotheses

To address the above research questions, the following hypotheses are developed

and tested in this study:

H1: The financial performance of hotels owned by certain owners is superior to the

financial performance of hotels owned by other owners.

H2a: The financial performance of a hotel is associated with its owner’s strategies

regarding (1) location, (2) segment, (3) brand affiliation, and (4) operator.

H2b: The financial performance of a hotel is negatively related to its owner’s degree

of specialization regarding (1) location, (2) segment, (3) brand, and (4) operator.

H3a: The superior financial performance of the hotels owned by the best-performing

owners is associated with these owners’ strategies regarding (1) location, (2)

segment, (3) brand affiliation, (4) and operator.

H3b: The superior financial performance of the hotels owned by the best-performing

owners is negatively related to these owners’ degree of specialization regarding

(5) location, (6) segment, (7) brand, and (8) operator.

H4: For a particular hotel owner, if this owner’s core competence is identified as

related to its superior strategy regarding hotel location, segment, brand, or

operator, such core competence has different effects on the financial performance

37
 of the owner’s hotels with different (a) locations, (b) segments, (c) brands, or (d)

operators.

Sample

The sample of the study is provided by Smith Travel Research (STR). STR is the

only organization that tracks hotel unit-level performance throughout the country, and it

is believed that most major hotel owners, if not all, provide information regarding

property financial performance to STR. Therefore, STR data are the most comprehensive

available in the industry.

The overall time frame of the study covers a three-year period between 2003 and

2005. These years are selected because they represent the most current data available. In

addition, this period has shown a significant recovery in hotel financial performance, and

compared to single year data, conducting the study over three years is expected to control

for the time/year factor.

To effectively test the proposed hypotheses, annual data regarding the following

variables is required for each hotel between 2003 and 2005: RevPAR, NOI, hotel age,

room price level, location (region, state, MSA, market), segment, brand affiliation,

operator, and owner (all these variables are discussed in the following section). While

STR’s original data set consisted of over 25,000 hotels, most lacked information

regarding one or more of these variables. Only a total of 2,012 hotels provided data

38
regarding RevPAR, number of rooms, hotel age, room price level, location (region, state,

MSA, market), segment, brand affiliation, operator, and owner in year 2003, 2004, and

2005. These 2,012 hotels (6,036 cases) form the base sample – Sample 1-A for this study.

Among the 2,012 hotels, 684 hotels also provided NOI information. To use the largest

available sample, Sample 1-B includes these 684 hotels (2,052 cases). Sample 1-B is used

to test the models in which the dependent variable is NOI per available room (NOIPAR)

(details regarding the variables and statistical models are provided in the following

sections of this chapter). Because this study involves analyses at multiple stages, different

data sets are created based on the 2,012 hotels and are used to test the hypotheses at

different stages. Details are provided in the data analysis section.

It should be noted that, to ensure confidentiality, the information regarding owner,

brand, and operator was coded by STR by assigning a unique number to each owner,

brand, and operator, while the actual names were not disclosed. However, STR provided

the specific information regarding segment, state, and region for this study. Since the

main interest of this study is on the overall effects of owner, brand, operator, and location

rather than on any specific owners, brands, operators, or locations, such a coding scheme

is believed to satisfy the purpose of this research.

Moreover, this research only focuses on the branded hotels in the United States

and does not include independent properties. It is reported that branded hotels represent

almost 75 percent of the lodging market, while independent properties represent the

remaining 25 percent (Turkel, 2006). Independent hotels are not be included in this study

39
because STR classifies all independent hotels as one single hotel segment, namely

“independent,” and technically treats them as one single brand. Previous research

suggests that classifying independent properties as a “brand of one” or a “segment of

one” without considering those properties’ actual prices and quality levels may influence

the effects of the other segments and brands on the financial performances of hotels

(O’Neill & Xiao, 2006). Since this study can only be feasible with data from STR,

excluding independent properties from the study is believed to improve the accuracy of

the statistical results.

Variables and Measures

Hotel financial performance

In this study, hotel property financial performance is operationalized as two

separate measures: RevPAR and NOIPAR. RevPAR data is provided by STR. As a

function of two important top-line financial indicators - average daily rate (ADR) and

occupancy rate (RevPAR = ADR x occupancy rate), RevPAR is a crucial performance

measure guiding the operating and investment decisions of hotel managers, investors and

owners (e.g., Corgel, 2002; Singh & Schmidgall, 2002). Consequently, RevPAR is the

most widely used indicator in recent studies on hotel performance (e.g., Canina, Enz, &

Harrison, 2005; Chung & Kalnins, 2001; Corgel, 2002; Ismail, Dalbor, & Mills, 2002;

Kalnins, 2005; Kim, Kim, & An, 2003). However, these studies, as well as most previous

research on hotel property performance in the literature of strategic management, have

40
examined only top-line financial indicators (e.g., ADR, occupancy rate, and/or RevPAR)

but not bottom-line indicators. Therefore, this study aims to compensate for this

limitation by examining the hotels’ operating performance with not only revenue

indicator (i.e., RevPAR) but also profit measure – NOI. NOI data is provided by STR,

and NOI per available room (NOIPAR) was calculated by dividing a hotel’s NOI by its

number of rooms. Similar to that RevPAR is favored over total rooms revenue to

represent a hotel’s revenue performance, NOIPAR is chosen to measure a hotel’s profit

performance when taking into consideration the hotel size, because larger hotels tend to

have higher revenues and NOIs than smaller hotels.

Overall corporate effects and ownership

Overall corporate effects are examined based on the ownership of the hotels. STR

provides the ownership information of the hotels. While the actual names of the hotel

owners are not available due to the strict confidentiality policy of STR, each hotel owner

is assigned a unique code so that it can be differentiated from the others. In the base

sample (Sample 1-A) consisting of 2,012 hotels, there are a total of 159 hotel owners,

including 106 owners among the 684 hotels that also provided NOI information.

Hotel Location

STR provides information regarding hotel location including (1) region, (2) state,

(3) Metropolitan Statistical Area (MSA) where a hotel is located, and (4) the market type

41
(whether a hotel is located in the top-25 markets, second-25 markets, or the other

markets). The 2,012-hotel base sample (Sample 1-A) includes 256 MSAs, 50 states and

Washington, DC, and nine regions as defined by STR, including New England, Middle

Atlantic, South Atlantic, East North Central, East South Central, West North Central,

West South Central, Mountain, and Pacific. It should be noted that, for the purpose of

classification, STR identifies Washington, DC in the scale of state, and therefore there are

a total of 51 states in the data. All four location classifications are examined in this study.

Hotel Segment

Because the chain scale developed by STR is well recognized and well regarded

in the industry, and this study relies on the data from STR, hotel segment is determined

based on the STR classifications. Specifically, according to STR, all hotels are

categorized into one of the following six hotel segments that are determined by hotel

brands’ system-wide average daily rate (ADR):

• Luxury: the brands whose system-wide ADRs are more than $195

• Upper Upscale: the brands whose system-wide ADRs are between $120

and $195

• Upscale: the brands whose system-wide ADRs are between $90 and $120

• Midscale with F&B: the brands that have F&B facilities and system-wide

ADRs are less than $90

42
 • Midscale without F&B: the brands that do not have F&B facilities and

system-wide ADRs are greater than $60

• Economy: the brands that have system-wide ADRs less than $60

In the 2,012-hotel base sample (Sample 1-A), 250 are economy hotels, 664 are

midscale without F&B hotels, 282 are midscale with F&B hotels, 482 are upscale hotels,

291 are upper upscale hotels, and 43 are luxury hotels.

Brand Affiliation

Information regarding brand affiliation is provided by STR. Similar to the

ownership information, each individual hotel’s brand in the sample is represented by a

unique number but not the actual brand name. The base sample (Sample 1-A) represents

a total of 90 brands, including 52 brands of which at least one hotel also provided NOI

information.

Hotel Operator

Information regarding the operator of each hotel is also provided by STR in the

form of coded numbers but not the actual operators’ names. The base sample represents a

total of 195 operators, including 121 operators of which at least one hotel also provided

NOI information.

43
Specialization of Location, Segment, Brand, and Operator

Following Capozza and Seguin (1999), the measures of specialization adopt the

concept of Herfindahl indices and are developed based on hotel location, segment, brand,

and operator. As explained below, the higher levels of index scores indicate higher levels

of specialization or lower levels of diversification, while lower scores in the index show

lower degrees of specialization or higher degrees of diversification.

Location specialization: location is examined with four different variables (region,

state, MSA, and location type) in this study. For example, because the hotels in the base

sample are in 256 MSAs, I compute ∑l =1 S l , where S l is the proportion of an owner’s

256 2

hotel rooms in each of the identified MSAs. Higher levels of specialization by MSA lead

to higher levels of scores in the index. For instance, if an owner only has a hotel(s) in one

MSA, this variable would be one or 100 percent, which indicates perfect specialization or

no diversification; if an owner equally diversifies all hotel rooms among the 256 MSAs,

this variable would be 0.0039 or 0.39 percent (equal to one divided by 256). Similarly,

the lowest possible degree of the state specialization variable is 0.0196 or 1.96 percent

(equal to one divided by 51), and the lowest possible degree of the region specialization

variable is 0.111 or 11.1 percent (equal to one divided by nine). In addition, following

Woods’ (2006) notion of classifying hotels into three location types (top-25 markets,

second 25-markets, and the other markets), the lowest possible degree of the market type

specialization is 0.333 or 33.3 percent (equal to one divided by three).

44
 In the base sample, the region specialization degree ranges from 13.7 percent to

100 percent; the state specialization degree ranges from 5.59 percent to 100 percent; the

MSA specialization degree ranges from 2.80 percent to 100 percent, and the market type

specialization degree ranges from 34.27 percent to 100 percent.

Segment specialization: To measure hotel segment specialization, I

compute ∑s =1 S s , where S s is the proportion of an owner’s hotel rooms in each of the six
6 2

hotel segments as defined by STR. Likewise, higher levels of specialization by hotel

segment lead to higher levels in the index. The degree of the segment specialization in the

base sample ranges from 20.27 percent to 100 percent.

Brand specialization: To measure hotel brand specialization in the base sample, I

computed ∑b =1 S b , where S b is the proportion of an owner’s hotel rooms in each of the 90

90 2

brands. The degree of brand specialization in the base sample ranges from 9.23 percent to

100 percent.

Operator specialization: Similarly, to measure hotel operator specialization, I

compute ∑o =1 S o , where S o is the proportion of an owner’s hotel rooms managed by each

195 2

of the 195 operators. The degree of the operator specialization in the base sample ranges

from 21.36 percent to 100 percent.

Core Competence

45
 Core competence is not an independent variable in the statistical models that are

presented in the data analysis section. Instead, in this study, a hotel owner’s strategies

regarding location, segment, brand affiliation, operator, location specialization, segment

specialization, brand specialization, and operator specialization are proposed as

candidates for the owner’s core competencies. The actual core competencies are

identified based on the statistical results related to these eight strategies. The details

regarding the identified core competences are presented in Chapter IV.

Control Variables

In addition to the previously discussed independent variables, literature has

suggested several other factors that may affect hotel financial performance, and

consequently, they need to be controlled in this study. First, strategic management

research indicates business-unit performance may vary by year (Bowman and Helfat,

2001). In the lodging industry, also widely recognized is that the performance of hotels

may be affected by owner size (measured as the number of rooms of the owner), hotel

size (measured as number of rooms of the hotel), and hotel age. Moreover, a hotel owner

may have concern for a hotel’s relative performance compared to the other hotels in a

particular market, and may favor investment in hotels at certain room price level(s) than

the ones at other price level(s). Consequently, the owner’s corporate strategies may be

affected by such preference. According to STR, each hotel is compared to the

competitors in its respective market and then is classified into one of the five price levels

based on this hotel’s actual ADR:

46
 • Luxury: top 15 percent within the market

• Upscale: second 15 percent within the market

• Mid-Price: middle 30 percent of the market

• Economy: next 20 percent within the market

• Budget: lowest 20 percent within the market

To summarize, the effects of the following factors were controlled in this study:

year, owner size, hotel age, hotel size, and room price level.

Statistical Procedures

To answer the research questions and test the hypotheses, the following statistical

procedures are used with the SAS Package Version 8. First, literature has established that

variance components analysis (VCA) is the most appropriate statistical method to

examine corporate effects (Bowman & Helfat, 2001). As a technique used to apportion

variance in a continuous dependent variable across a number of independent variables,

VCA is commonly used in strategic management research involving comparisons of the

relative influence of various factors on firm performance (e.g., Ander & Helfat, 2003;

Chang & Hong, 2002; Chang & Singh, 2000; Crossland & Hambrick, 2007; McGahan &

Porter, 1997; Roquebert et al., 1996; Schmalensee, 1985; Rumelt, 1991). While previous

VCA studies employed either fixed-effect models (e.g., Schmalensee, 1985), or random-

effect models (e.g., Chang & Singh, 2000; Rumelt, 1991), or both (e.g., Crossland &

Hambrick, 2007; McGahan & Porter, 1997), this study employs random-effect models

47
estimated with the restricted maximum likelihood technique. This approach is suggested

to avoid potentially confounding effects caused by the order of entry of the independent

variables, which may associate with fixed-effect models and other estimation techniques

such as least squares (e.g., Chang & Hong, 2002; Crossland & Hambrick, 2007;

Roquebert et al., 1996).

Second, while random-effect VCA approach estimates the variances attributable

to the independent variables, it does not disclose whether each independent variable is

statistically significant. Therefore, several notable studies on corporate effects also

adopted fixed-effect models, in which the independent variables were alternatively

treated as fixed factors, to supplement the random-effect VCA models and to estimate the

statistical significances of the independent variables (e.g., McGahan & Porter, 1997;

Rumelt, 1991). Similarly, this study employs the procedure of fixed-effect General Linear

Model (GLM) to study the significance of the eight proposed corporate strategies. As

further explained in the following sections, the results of this statistical analysis show the

existence of corporate effects on the hotels owned by different owners.

In addition, because this research involves individual “case studies” on several

best-performing hotel owners, nonparametric Kruskal Wallis Tests are adopted to

compare the hotels of one single hotel owner, and Tukey’s Multiple Comparison Tests

are followed in the cases where statistical significances were detected among the hotels

of the hotel owner. The following section provides further explanations regarding how

48
the previously discussed statistical procedures were employed at the different stages of

the data analysis.

Data Analysis

To test the four hypotheses of the study, data was analyzed in the following five

steps:

Step One

Hypothesis H1 aims to answer the question of whether systematic corporate

effects exist among the hotels owned by different owners. Therefore, the following

Model (1) and (2) are tested with GLM and VCA procedures to show the existence and

the degree of importance of the effects of owners on the financial performance of hotels.

In these two models, R, the owner affiliation, is the focused main effect:

pr = μ + y + a + n + z + R + ε (1)

pn = μ + y + a + n + z + R + ε (2)

where p r is the hotel RevPAR,

p n is the hotel NOIPAR,

u is the constant,

y is the year effects,

a is the hotel age effects,

n is the hotel size effects,

49
 z is the room price level effects,

R is the owner affiliation, and

ε is the error term.

Sample 1-A, the base sample that consists of 6,036 cases (2,012 hotels) is used to

test Model (1), in which RevPAR is the dependent variable. Sample 1-B including 2,052

cases (684 hotels) is used to test Model (2) with NOIPAR as the dependent variable. It

should be noted that, because the control variable “owner size” is indeed a characteristic

of the owner and consequently its effects should be reflected by the overall owner effects,

owner size is not tested in this model for model simplification. However, it will be

included in the following statistical models.

Step Two

Hypotheses H2a and H2b explore whether or not the previously determined eight

strategies of the hotel owners contribute to the corporate effects of the owners. The

following Model (3) and (4) are tested with GLM and VCA procedures. The results of

this step reveal, among the eight corporate strategies, which strategies are the sources of

corporate effects of the hotel owners. That is, among the eight independent variables, the

ones showing statistical significance (from the GLM procedure) are identified as the

sources of corporate effects, and will also be proposed as potential candidates for firm

core competencies. Moreover, the strength and magnitude of each source of corporate

50
effects are precisely estimated in the results of the VCA procedure as the variance

percentage values associated with the respective independent variables.

p r = μ + y + a + n + m + z + l + s + b + o + Dl + Ds + Db + Do + ε (3)

p n = μ + y + a + n + m + z + l + s + b + o + Dl + Ds + Db + Do + ε (4)

where p r is the hotel RevPAR,

p n is the hotel NOIPAR,

u is the constant,

y is the year effects,

a is the hotel age effects,

n is the hotel size effects,

m is the owner size effects,

z is the room price level effects,

l is the location strategy effects,

s is the segment strategy effects,

b is the brand strategy effects,

o is the operator strategy effects,

Dl is the location specialization strategy effects,

Ds is the segment specialization strategy effects,

Db is the brand specialization strategy effects,

Do is the operator specialization strategy effects, and

ε is the error term.

51
 Similar to Step One, Model (3) with RevPAR as the dependent variable is tested

with Sample 1-A, and Model (4) with NOIPAR as the dependent variable is tested with

Sample 1-B.

Step Three

While the statistical results of Step Two propose the candidates for core

competencies for all hotel owners, this study aims to identify which of these candidates

are indeed the actual core competencies of the best-performing hotel owners. Therefore,

it is necessary to first identify, among all the hotel owners, which owners are the best and

which ones are the “worst” in terms of their hotels’ financial performance.

Due to the fact that hotel segments (i.e., economy, midscale without F&B,

midscale with F&B, upscale, upper upscale, and luxury) are classified based on brands’

system-wide ADRs, hotel segment is clearly related to a hotel’s ADR and consequently

RevPAR (which is shown in the descriptive statistical results presented in Chapter IV).

Moreover, literature indicates that segment is associated with NOI as well (e.g., O’Neill

& Mattila, 2006). Consequently, since most hotel owners have hotels in more than one

segment, direct RevPAR and NOI comparisons between hotels in different segments

would not be appropriate. Therefore, to make the financial performance of the hotels

owned by all hotel owners comparable, the values of RevPAR and NOIPAR are

standardized by owner, and the standardized mean value of each hotel owner indicates

the overall performance of all hotels owned by this particular owner.

52
 Based on the standardized mean scores, two rankings are established: one on

RevPAR and the other on NOIPAR. However, the two ranks are not identical: some hotel

owners have hotels only with superior RevPAR levels, while the hotels of some other

owners only achieved superior NOIPAR levels. Therefore, this study uses a combination

of both “RevPAR” and “NOIPAR” as the selection criteria for identifying the best-

performing hotel owners. That is, only the hotel owners whose hotels perform well in

both RevPAR and NOIPAR are chosen as members of the best-performing group.

Specifically, the hotel owners of the top 25 percent of each ranking list are first identified.

The two lists are then matched, and only the hotel owners that are in both lists are chosen.

Such procedure results in a total of sixteen best-performing owners, which have a total of

156 hotels (468 cases).

A similar procedure is repeated to identify the “worst” hotel owners, which are

also measured by the standardized mean values of their hotels’ RevPAR and NOIPAR.

Sixteen “under-performing” hotel owners are selected by matching the bottom 25 percent

of the RevPAR and NOIPAR ranking lists. These sixteen hotel owners have a total of 137

hotels (411 cases). .

To identify the core competencies of the best-performing hotel owners, a sub-

sample – Sample 2 is created to include the sixteen best-performing owners and the

sixteen under-performing owners identified previously. Consequently, Sample 2 consists

of a total of 32 hotel owners with 293 hotels (879 cases). All hotels in Sample 2 provided

both RevPAR and NOIPAR information.

53
Step Four

Hypotheses H3a and H3b are tested on Models (3) and (4), in which RevPAR or

NOIPAR are the dependent variables, and the proposed eight strategies are the

independent variables. Similar to Step Two, GLM and VCA procedures are employed on

Sample 2. The results of GLM reveal which of the eight independent variables are

statistically significant, and the results of VCA procedure indicate the respective

percentage of the total variance explained by these independent variables. Because all the

better-performing hotels in this sub-sample are owned by the best sixteen owners, the

independent variables that explain a significant portion of the total variance are deemed

as core competencies of these sixteen owners. The details regarding the identified core

competences are presented in Chapter IV.

Step Five

After the core competencies of the top sixteen hotel owners are identified, this

study goes one step further to investigate whether the identified core competencies of the

owners influence all hotels of a particular owner equally or differently. Particularly, when

the owners’ core competencies are identified as being related to specialization (or

diversification) strategies (i.e., location specialization/diversification strategy, segment

specialization/diversification strategy, brand specialization/diversification strategy,

and/or operator specialization/diversification strategy), the interpretations of these core

competencies would be straightforward based on the t values of these continuous

54
variables: the owners’ core competencies are their superior capabilities of specializing in

or diversifying across certain locations, segments, brands, and/or operators. However, if a

hotel owner’s core competence is its expertise in choosing specific location(s),

segment(s), brand(s), and/or operator(s) for its properties and t values are not informative

for these categorical variables, then as proposed in Research Question 4, an important

and interesting question would be whether such core competencies have equal or

different effects on all hotels owned by this particular owner.

To answer Research Question 4, Hypotheses H4 is tested to investigate whether

or not an owner’s expertise in choosing location(s), segment(s), brand(s), and/or

operator(s) benefits all hotels of this owner equally. Specifically, the top six best-

performing hotel owners (measured in both RevPAR and NOIPAR as previously

discussed) are chosen, and six sub-samples (Sample 3 – 8) are created, each of which

consists of only the hotels of one hotel owner. Then, the following procedures are

repeated on the hotels of each of the six best-performing owners (Sample 3 – 8):

First, nonparametric Kruskal Wallis Tests are conducted based on the identified

core competencies. Each core competence identified in Step Four serves as the

independent variable, and RevPAR and NOIPAR is the respective dependent variable.

The results, shown as the Chi-square scores, reveal whether this core competence (the

owner’s expertise in choosing segment, location, brand, and/or operator) has equal

influences on all hotels of this particular owner. The Kruskal Wallis Test is repeated on

each identified core competence.

55
 Second, if significant differences are detected by the Kruskal Wallis Tests,

Tukey’s Multiple Comparison Tests are followed to investigate the exact differences –

between which groups (the levels of the identified core competencies, i.e., segments,

locations, brands, and operators) are the differences. The results disclose how the

particular hotel owner’s core competencies in choosing segment(s), location(s), brand(s),

and/or operator(s) have different influences on different segment(s), location(s), brand(s),

and/or operator(s). Detailed explanations and results are fully presented in Chapter IV.

Summary

This study examines corporate effects on hotel financial performance with a

secondary data provided by STR. In this chapter, research questions and hypotheses are

presented, sample and variables are described, and data analysis techniques and

procedures are outlined. Because this study aims to answer four research questions at

different levels, four hypotheses were tested with a five-step data analysis procedure. To

avoid the potential confusion due to different techniques employed in different data

analysis steps, Table 1 summarizes the relative research questions, hypotheses, and

statistical techniques in each of the five steps.

56
Table 1. Data Analysis Procedures

Step Research Hypothesis Purpose Sample Statistical

Question Methods

1 Research H1 Examining the existence Sample 1-A GLM and

Question 1 of owner effects – and VCA
systematic corporate Sample 1-B
effects among hotel
owners

2 Research H2a and Testing which of the Sample 1-A GLM and
Question 2 H2b eight strategies are the and VCA
sources of corporate Sample 1-B
effects

3 ---- ---- Identifying the top- and Sample 1-A ----

bottom hotel owners to and
form a new sample Sample 1-B
consisting of only the
top- and bottom-ten-
percent hotel owners

4 Research H3a and Iidentifying the core Sample 2 GLM and

Question 3 H3b competencies of the VCA
sixteen best performing
owners

5 Research H4 Investigating (1) Sample 3-8 Kruskal

Question 4 whether or not the Wallis Tests
identified core and
competencies of a Tukey’s
particular owner Multiple
influence all of its hotels Comparison
equally or differently; Tests
and (2) if differently,
how do the effects of
the core competencies
vary among this
owner’s hotels

57
 Chapter IV

RESULTS

This chapter presents results and findings of the statistical analyses performed to

investigate the four research questions of the study. Following the five data analysis steps

discussed in Chapter III, this chapter is divided into six sections:

• Sample characteristics

• Effects of owner – Testing Hypothesis H1

• Effects of corporate strategies – Testing Hypothesis H2

• Determination of the top and bottom hotel owners

• Core competencies of hotel owners – Testing Hypothesis H3

• Effects of core competencies – Testing Hypothesis H4

Sample Characteristics

As discussed in Chapter III, a total of 2,012 hotels in the STR database provided

data regarding RevPAR and all independent variables and control variables (i.e., hotel

sizes, hotel age, room price level, location [region, state, MSA, market], segment, brand

affiliation, operator, and owner) in years 2003, 2004, and 2005. Therefore, they are

selected to form the base sample (Sample 1-A), which consists of 6,036 cases. In addition,

Sample 1-B, a sub-sample of Sample 1-A, is created to include only the 684 hotels (2,052

cases) that also provided NOI information. Descriptive statistics for Sample 1-A and 1-B

58
are presented in Table 2, and the correlations among the continuous independent

variables are shown in Table 3.

Table 2. Descriptive Statistics of Sample 1-A and Sample 1-B

Sample 1-A Sample 1-B

N N
Owner 159 106
Hotel 2012 684

Independent Variable
Segment 6 6
Brand 90 68
Operator 195 121
Region 9 9
State 51 49
MSA 256 186
Market type 3 3

Mean S.D. Mean S.D.

Segment Specialization 0.57 0.17 0.55 0.19
Brand Specialization 0.34 0.19 0.33 0.21
Operator Specialization 0.84 0.23 0.88 0.19
Regional Specialization 0.34 0.23 0.49 0.30
State Specialization 0.23 0.23 0.33 0.29
MSA Specialization 0.16 0.18 0.22 0.21
Market Type Specialization 0.53 0.18 0.57 0.20

Dependent variable
RevPAR 58.20 30.51 67.57 38.58
NOIPAR 10754.38 9219.84 10754.38 9219.84

59
60
 In addition, because segment information is provided by STR and hotel RevPAR

and NOIPAR vary significantly by segment, Table 4 presented the mean RevPAR and

NOIPAR values by segment. Since Sample 1-B only consists of all hotels that provided

NOI data in Sample 1-A, the NOIPAR values are identical for both samples.

Table 4. Mean RevPAR and NOIPAR by Segment

Sample 1-A Sample 1-B

Segment Hotel RevPAR NOIPAR Hotel RevPAR NOIPAR

Luxury 43 147.60 29,179.42 34 155.44 29,179.42

Upper
Upscale 291 82.35 14,955.62 173 86.48 14,955.62

Upscale 482 67.82 9,955.33 151 68.01 9,955.33

Midscale
w/ F&B 282 48.58 7,907.86 70 55.75 7,907.86
Midscale
w/o F&B 664 49.66 7,215.06 220 48.94 7,215.06

Economy 250 30.07 3,910.09 36 29.94 3,910.09

Total 2,012 58.20 10,754.38 684 67.57 10,754.38

Moreover, since hotel segment is classified by STR based on brands’ system-wide

ADRs, each hotel brand can only be included in one segment. While brand names are not

available as discussed previously, the brands within each segment do differ by RevPAR

and NOIPAR. Table 5 presents the comparisons between the brands with the highest and

lowest average RevPAR and NOIPAR values of each segment.

61
Table 5. Brand Comparison within Segment

Sample 1-A Sample 1-B

Brand RevPAR Hotel Owner NOIPAR Hotel Owner
Luxury
Brand 1 271.30 5 2 64497.97 3 2
Brand 2 91.95 1 1 4872.97 1 1
Upper Upscale
Brand 1 113.38 30 11 24212.35 24 9
Brand 2 66.97 24 13 8102.43 13 7
Upscale
Brand 1 78.08 58 33 13729.81 7 12
Brand 2 62.28 5 5 4541.14 1 1
Midscale w/ F&B
Brand 1 76.64 3 1 12470.75 3 1
Brand 2 45.53 10 7 905.45 2 2
Midscale w/o F&B
Brand 1 65.64 38 24 10185.89 8 7
Brand 2 30.18 5 5 2404.64 2 2
Economy
Brand 1 40.63 20 4 6138.08 8 3
Brand 2 21.33 3 2 1241.23 2 1
Note:
1. Brand 1 represents the brand with the highest RevPAR and NOIPAR within its
respective segment, and Brand 2 represents the brand with the lowest RevPAR
and NOIPAR within its respective segment.
2. Due to the different sizes of Sample 1-A and Sample 1-B, the brand with the
highest/lowest average RevPAR may not necessarily be the same brand with the
highest/lowest NOIPAR within the segment.

Effects of Owner

Testing Hypothesis H1: The financial performance of hotels owned by certain owners

is superior to the financial performance of hotels owned by other owners.

The purpose of Hypothesis H1 is to explore whether the hotel owner is an

important factor influencing the financial performance of their hotels. Hypothesis H1 is

62
tested on Sample 1-A (RevPAR as the dependent variable) and Sample 1-B (NOIPAR as

the dependent variable). Results of fixed-effect GLM procedure are presented in Table 6,

which clearly show that the owner is a statistically significant factor in both samples

(F=13.27, p<0.001; F=3.28, p<0.001). Moreover, the results of the random-effects VCA

procedure, presented in Table 7, reveal that the owner explains the largest portion of

variance in hotel RevPAR and NOIPAR (71.54 percent and 40.74 percent, respectively).

Therefore, Hypothesis H1 is supported.

Table 6. Effects of Owner - General Linear Model

Sample 1-A Sample 1-B

Model (1) a Model (2) b
DV = RevPAR DV = NOIPAR

Variable df F df F
Year 2 97.55*** 2 14.74***
Hotel Age 1 8.42** 1 10.25**
Hotel Size 1 4.92* 1 38.62***
Room Price Level 4 304.73*** 4 59.98***
Owner 158 13.27*** 105 3.28***
Note: * p<0.05; ** p<0.01; *** p<0.001.

Table 7. Effects of Owner – Variance Components Analysis

Sample 1-A Sample 1-B

DV = RevPAR DV = NOIPAR

Variable Variance Percentage Variance Percentage

Year 1.10% 0.93%
Age 4.83% 20.11%
Hotel Size 7.14% 23.77%
Room Price Level 5.62% 2.58%
Owner 71.54% 40.74%
Error 9.77% 11.86%
Total 100.00% 100.00%

63
 In addition, Table 8 presents the results of an additional GLM procedure, in which

the influence of the owner is re-examined after taking into consideration of the effects of

the hotel location, segment, brand and operator. It is not surprising that all these four

additional variables are statistically significant because, as discussed earlier, they are

important strategies adopted by hotel owners. Because STR classifies hotel segment

based on brands’ system-wide ADRs, each hotel brand can only be included in one

segment. Therefore, the independent variable “brand” is nested within hotel segment in

both statistical models.It should be noted that,because the variable “location” has four

different measures (region, state, MSA, and market type), the model is repeatedly tested

four times with only one location variable included in the model each time.

Table 8: Effects of Owner (Controling for Location, Segment, Brand, and Operator) -
General Linear Model

Sample 1-A Sample 1-B

Model (3) a Model (4) b
DV = RevPAR DV = NOIPAR
Variable df F df F
Segment 5 157.92*** 5 34.14***
Brand (nested within Segment) 73 11.93*** 52 9.95***
Operator 182 6.77*** 112 1.98***
Location Variable
Region 8 82.29*** 8 20.55***
State 50 33.42*** 48 9.63***
MSA 255 7.70*** 179 3.53***
Market-Type 2 26.50*** 2 5.78**
Owner 158 10.68*** 104 7.31***

Control Variable
Year 2 158.87*** 2 20.14***
Age 1 31.01*** 1 22.20***
Hotel Size 1 8.46** 1 80.01***
Room Price Level 4 133.86*** 4 28.54***
Note: * p<0.05; ** p<0.01; *** p<0.001.

64
 The results of the corresponding VCA procedure, presented in Table 9, clearly

show that, a hotel owner’s strategies regarding its hotels’ location, segment, brand, and

operator do contribute to the owner’s corporate effects because they all explain some

variance in hotel RevPAR and NOIPAR. Moreover, it is indicated that additional

strategies of the owner may also have influence on the performance of its hotels, because

these four strategies could not fully explain the variances in RevPAR and NOIPAR

attributable to the owner, although such variances are reduced from 71.54 percent and

40.74 percent (when these four strategies are not taken into consideration) to 21.39

percent and 18.68 percent (after taking into account these four strategies), respectively.

These results support the notion in the lodging industry that hotel owners do implement

multiple strategies to influence their hotels. The results presented in the next section show

how a hotel owner’s corporate strategies with regard to hotel location, segment, brand,

operator, and the degrees of specialization regarding location, segment, brand, and

operator could collectively affect its hotels’ financial performance.

65
Table 9. Effects of Owner (Controlling for Location, Segment, Brand, and Operator) –
Variance Components Analysis

Sample 1-A Sample 1-B

DV = RevPAR DV = NOIPAR
Variable Variance Percentage Variance Percentage

Segment 33.23% 19.96%

Brand (nested in Segment) 11.21% 26.52%
Operator 5.60% 3.92%

Location Variable
Region 3.66% 4.30%
State 1.19% 2.51%
MSA 2.28% 3.18%
Market Type 0.61% 0.44%
Owner 21.39% 18.68%

Control Variable
Year 0.64% 0.73%
Age 0.91% 0.92%
Hotel Size 1.28% 0.88%
Room Price Level 4.81% 5.23%
Error* 17.27% - 21.32% 18.86% - 22.72%
Total 100.00% 100%
Note: *Error varies due to different variances attributed to different location variables.

Effects of Corporate Strategies

Testing Hypotheses H2a and H2b:

H2a: The financial performance of a hotel is associated with its owner’s strategies

regarding (1) location, (2) segment, (3) brand affiliation, and (4) operator.

H2b: The financial performance of a hotel is negatively related to its owner’s degree of

specialization regarding (1) location, (2) segment, (3) brand, and (4) operator.

66
 Hypotheses H2a and H2b are formulated to investigate whether the owner effects

on property financial performance can be attributed to the hotel owners’ strategic

decisions regarding hotel location, segment, brand, and operator, as well as corporate

specialization strategies regarding hotel location, segment, brand, and operator.

Sample 1-A is tested with RevPAR as the dependent variable, and Sample 1-B is

tested with NOIPAR as the dependent variable. The results of the GLM analysis are

presented in Table 10. Seven of the eight proposed strategies are statistically significant

in both samples. The only insignificant factor in both samples is the location (state)

specialization strategy (F=0.3, p>.05; F=0.43, p>.05). This suggests that neither

diversifying across states nor focusing on certain states have effects on hotel financial

performance. In addition, specialization by region is not significantly related to hotel

NOIPAR (F=1.63, p>0.05). Therefore, H2a - (1), - (2), - (3), and - (4) are fully supported.

Regarding H2b, H2b - (3) and - (4) are also supported because the t values of brand

specialization and operator specialization indicate negative relationships between the

degree of both specializations and hotel financial performance. However, the effects of

segment specialization as well as location (MSA) and location (market-type)

specializations are not in the expected direction. Their t values suggest that they are

negatively related to hotel financial performance: As a hotel owner specializes in less

segments/MSAs/market types, the RevPAR and NOIPAR of its hotels tend toincrease.

Therefore, an owner’s strategies of segment specialization and location (i.e., MSA and

market type) specialization actually benefit its hotels’ financial performance. H2b - (1)

and - (2) are not supported.

67
Table 10: Effects of Corporate Strategies - General Linear Model

Sample 1-A Sample 1-B

Model (3) a Model (4) b
DV = RevPAR DV = NOIPAR
Variable df F t df F t
Segment 5 143.53*** 5 26.83***
Brand (nested within
Segment) 73 12.52*** 52 10.88***
Operator 182 6.82*** 112 2.18***
Segment Specialization 1 25.67*** 5.07 1 22.444*** 4.74
Brand Specialization 1 36.99*** -6.08 1 37.50*** -6.12
Operator Specialization 1 5.07* -2.25 1 4.97* -2.23

Location Variable
Region 8 83.07*** 8 19.37***
State 50 36.33*** 48 10.18***
MSA 255 7.36*** 179 3.42***
Market-Type 2 28.57*** 2 4.88**
Region Specialization 1 6.5* 2.55 1 1.63 1.28
State Specialization 1 0.3 -0.55 1 0.43 0.65
MSA Specialization 1 10.64** 3.26 1 5.99* 2.45
Market-Type
Specialization 1 74.36*** 8.62 1 19.89*** 4.46

Control Variable
Year 2 147.69*** 2 19.37***
Age 1 17.94*** 1 6.73**
Hotel Size 1 22.64*** 1 98.25***
Owner Size 1 0.44 1 0.09
Room Price Level 4 138.69*** 4 32.43***
Note: * p<0.05; ** p<0.01; *** p<0.001.

More importantly, Table 11 shows the relative importance of all these statistically

significant strategies with the results of the VCA procedure. Similarly, the model is

repeatedly tested four times with only one location variable is included in the model each

time, and their relative variance percentages are obtained accordingly when holding all

other variables consistent in the model.

68
 The results show that segment explains the largest portion of variance in hotel

RevPAR (37.63 percent), followed by brand specialization (17.32 percent) and brand

(12.59 percent). Operator, location (region and MSA), location (market-type)

specialization, and the control variable “room price level” also contribute to explaining

the variance of RevPAR, while the other factors have little effects on RevPAR.

Regarding the effects on NOIPAR, segment, brand, and brand specialization are still the

three most important factors, but the order is changed: Brand specialization is the number

one predictor (27.27 percent), followed by brand (20.47 percent) and segment (16.98

percent). Except the location (market-type) specialization strategy and control variable

“price level,” the others contribute little to the variance in NOIPAR. Based on the

significance of the strategies, all eight strategies can be deemed as candidates for core

competencies of hotel owners, while their predicting power vary considerably.

69
Table 11. Effects of Corporate Strategy – Variance Components Analysis

Sample 1-A Sample 1-B

DV = RevPAR DV = NOIPAR
Variable Variance Percentage Variance Percentage
Segment 37.63% 16.98%
Brand (nested in Segment) 12.59% 20.47%
Operator 4.74% 1.92%
Segment Specialization 1.77% 1.18%
Brand Specialization 17.32% 27.27%
Operator Specialization 0.11% 1.05%

Location Variable
Region 3.07% 2.32%
State 1.21% 2.60%
MSA 3.52% 2.96%
Market Type 0.31% 0.28%
Region Specialization 0.50% 0.00%
State Specialization 0.00% 0.00%
MSA Specialization 0.32% 2.38%
Market Type Specialization 6.68% 10.08%

Control Variable
Year 0.70% 0.61%
Age 0.00% 0.00%
Hotel Size 0.00% 0.00%
Owner Size 0.00% 0.00%
Room Price Level 5.48% 6.09%

Error* 12.68% - 18.46% 14.08% - 22.12%

Total 100.00% 100%
Note: *Error varies due to different variances attributed to different location variables.

70
Determination of Top and Bottom Hotel Owners

To investigate which of the candidates for core competencies, as indicated in the

previous section, are indeed the actual core competencies of the best-performing hotel

owners, a new sample, Sample 2, is created. The hotel owners are ranked, based on the

standardized mean scores of RevPAR and NOIPAR of their hotels, and then the two

rankings are matched. The sixteen owners that are in both lists’ top 25 percent category

are identified, and these top sixteen owners whose hotels performed well (measured in

both RevPAR and NOIPAR) are selected to form the best-performing owner group,

which includes 156 hotels. Similarly, the sixteen owners that are in both rankings’ bottom

25 percent are chosen to form the under-performing owner group, which consists of 137

hotels, because the hotels of those sixteen owners had lowest standardized RevPAR and

NOIPAR values during the study period. By combining the top and bottom hotel owners,

Sample 2 is composed of a total of 32 hotel owners with 293 hotels (879 cases), all of

which provided both RevPAR and NOIPAR data. The average mean values of RevPAR

and NOIPAR of the top sixteen hotel owners are $80.15 and $14,430, respectively, which

are significantly higher than the RevPAR and NOIPAR of the bottom sixteen owners

($37.14 and $8,172, respectively). Table 11 shows the respective ranks of the 32 hotel

owners in the RevPAR and NOIPAR lists.

71
Table 12: RevPAR and NOIPAR Ranking of Hotel Owners

Number Number of Rank of Standardized Rank of Standardized

Owner ID of Hotels Cases RevPAR NOIPAR
1 8 24 2 1
2 5 15 3 21
3 10 30 4 6
4 8 24 5 2
5 11 33 10 9
6 8 24 11 20
7 14 42 13 7
8 5 15 14 16
9 3 9 15 12
10 30 90 16 5
11 8 24 18 15
12 11 33 19 4
13 5 15 20 25
14 8 24 22 19
15 14 42 26 22
16 8 24 29 23
Sub-total 156 468

17 18 54 118 91
18 3 9 121 106
19 9 27 134 96
20 6 18 135 92
21 25 75 140 100
22 6 18 143 94
23 5 15 145 105
24 11 33 148 103
25 3 9 149 97
26 8 24 150 90
27 4 12 151 93
28 14 42 152 102
29 9 27 153 95
30 5 15 155 98
31 5 15 157 101
32 6 18 159 104
Sub-total 137 411
Total 293 879
Note: 159 hotel owners provided RevPAR data, while NOI information is only available
from 106 owners. Therefore the 159th rank is the lowest in the RevPAR list and the 106th
rank is the lowest in the NOIPAR list.

72
Core Competencies of Hotel Owners

Testing Hypotheses H3a and H3b:

H3a: The superior financial performance of the hotels owned by the best-performing

owners is associated with these owners’ strategies regarding (1) location, (2)

segment, (3) brand affiliation, and (4) operator.

H3b: The superior financial performance of the hotels owned by the best-performing

owners is negatively related to these owners’ degree of specialization regarding

(1) location, (2) segment, (3) brand, and (4) operator.

Hypotheses H3a and H3b are tested in order to identify which of the eight

strategies are actual core competencies of the sixteen best-performing hotel owners in

Sample 2. As shown in Table 13, the results of fixed-effect GLM analysis on Sample 2

are similar to the results drawn from Samples 1-A and 1-B. All strategies except the

operator specialization have shown statistical significance, and the directions of the

specialization strategies are consistent with the results of Samples 1-A and 1-B: Negative

relationship is found between brand specialization and hotel RevPAR and NOIPAR,

while positive relationships exist between segment as well as location (region, state,

MSA, and market type) specializations and hotel financial performance. Therefore,

hypotheses H3a - (1), - (2), - (3), - (4), and H3b - (3) are supported, while H3b - (1), (2),

and - (4) are not supported.

73
Table 13: Core Competence of Hotel Owners –General Linear Model

Sample 2 Sample 2
Model (3) a Model (4) b
DV = RevPAR DV = NOIPAR

Independent Variable df F t df F t
Segment 5 26.32*** 5 13.18***
Brand (nested in
Segment) 41 24.89*** 41 10.82***
Operator 49 10.86*** 49 6.00***
Segment Specialization 1 7.65*** 2.77 1 4.81** 2.19
Brand Specialization 1 12.50*** -3.54 1 11.99*** -3.46
Operator Specialization 1 0.05 0.22 1 0.37 -0.61

Location Variable
Region 8 21.60*** 8 4.61***
State 39 10.27*** 39 3.39***
MSA 89 8.90*** 89 3.72***
Market Type 2 6.97*** 2 3.35**
Region Specialization 1 4.46* 2.11 1 6.62*** 2.57
State Specialization 1 46.16*** 6.79 1 6.12*** 2.47
MSA Specialization 1 14.17*** 3.76 1 7.81*** 2.79
Market-Type
Specialization 1 32.83*** 5.73 1 9.04*** 3.01

Control Variable
Year 2 49.09*** 2 18.89***
Age 1 36.09*** 1 11.40**
Hotel Size 1 16.27*** 1 18.63***
Owner Size 1 1.17 1 0.96
Room Price Level 4 18.53*** 4 10.01***
Note: * p<0.05; ** p<0.01; *** p<0.001.

While the statistical significance of the eight strategies found in the GLM model

is expected, this study is more interested in the relative importance of these strategies.

Table 14 shows the variance percentages partitioned into each of the strategies through

the VCA procedure. Similar to the results drawn from Samples 1-A and 1-B, segment,

brand, and brand specialization are the three most important corporate strategies

74
influencing both hotel RevPAR and NOIPAR. However, two noticeable differences are

detected between the results of Sample 2 and Samples 1-A and 1-B. First, the variance in

hotel performance explained by operator has increased from 4.74 percent in Sample 1-A

to 10.76 percent in Sample 2 related to RevPAR, and increased from 1.92 percent in

Sample 1-B to 10.50 percent in Sample 2 related to NOIPAR. Second, most location-

related measures (i.e., region, state, MSA, region specialization, state specialization, and

MSA specialization) explain a much larger portion of the variance in hotel financial

performance in Sample 2 than in Samples1-A and 1-B. Most noticeably, the variances

attributable to the MSA and MSA specialization strategies have increased from 2.96

percent and 2.38 percent, respectively, in Sample 1-B to 10.14 percent and 10.46 percent

in Sample 2. These results suggest that the hotel performance differences associated with

the owners’ operator and location choices become more distinct in Sample 2.

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Table 14. Core Competence of Hotel Owners – Variance Components Analysis

Sample 2 Sample 2
DV = RevPAR DV = NOIPAR

Variable Variance Percentage Variance Percentage

Segment 32.59% 5.02%
Brand (nested in Segment) 11.57% 21.74%
Operator 10.76% 10.50%
Segment Specialization 0.00% 0.01%
Brand Specialization 22.86% 25.19%
Operator Specialization 0.00% 0.00%

Location Variable
Region 3.76% 6.70%
State 4.57% 7.55%
MSA 5.23% 10.14%
Market Type 0.33% 0.25%
Region Specialization 1.40% 8.34%
State Specialization 5.70% 9.12%
MSA Specialization 4.24% 10.46%
Market-Type Specialization 9.37% 9.30%

Control Variable
Year 0.86% 1.72%
Age 0.00% 0.01%
Hotel Size 0.00% 0.00%
Owner Size 0.00% 0.00%
Room Price Level 2.96% 6.72%

Error* 8.70% - 13.24% 9.49% - 20.52%

Total 100.00% 100%
Note: * Error varies due to different variances attributed to different location variables.

The primary task of the variance components analysis on Sample 2 is to identify

the core competencies of the best-performing hotel owners. Literature suggests that the

core competencies can be identified as the resources, including well implemented

strategies, that can differentiate a firm from the competitors (e.g., Aharoni, 1993;

Harrison, 2003; King et al., 2001). Following this notion, because Sample 2 is created in

76
a way to maximize the distinct performance difference between the best-performing and

under-performing hotel owners, such distinct differences are known and all “better”

hotels in Sample 2 are owned by the best sixteen owners. Therefore, the strategies that

explain significant portions of the total variance in performance are chosen as the core

competencies of these sixteen owners. Specifically, brand and brand specialization

strategies are definite core competencies of hotel owners because of their consistently

strong influences on both RevPAR and NOIPAR across samples. Segment is also

selected due to its significant impact on RevPAR in both samples. In addition, operator,

MSA, and MSA specialization strategies are identified as core competencies of hotel

owners because each of them explains more than ten percent of the variance in NOIPAR

in Sample 2. Consequently, a total of six corporate strategies are identified as the core

competencies of the hotel owners: segment, brand, operator, location (MSA), brand

specialization, and location (MSA) specialization strategies (bold in Table 11).

It is acknowledged that such process of core competence identification involves

subjectivity in the researcher and may be arguable. The choice of this method over the

others is due to that these six strategies collectively explain over 80 percent of variance in

both RevPAR and NOIPAR, and no other combinations of strategies can have more

explanation power without adding more factors. While an alternative and “safer” method

is to classify brand and brand specialization strategies as the only two core competencies

since their consistent importance in affecting hotel performance is most indisputable,

such an approach also has limitations because these two strategies together only account

for 34.43 percent of variance in RevPAR and 46.93 percent of variance in NOIPAR. As a

77
preliminary study on the core competencies of hotel owners pertaining to property

financial performance, inclusion of more reasonable factors is favored, not only because

of their relatively greater explanation power, but also because they may provide more

insights on the topic of core competence and consequently may contribute to building a

broader foundation for future research.

Effects of Core Competence

Testing Hypothesis H4: For a particular hotel owner, if this owner’s core competence

is identified as related to its superior strategy regarding hotel (a) location, (b) segment,

(c) brand, or (d) operator, such core competence has different effects on the financial

performance of the owner’s hotels with different (a) locations, (b) segments, (c) brands,

or (d) operators.

Hypothesis H4 further investigate how the core competencies of a particular

owner influence all the hotels of this owner: Do the owner’s core competencies influence

all hotels equally, or affect some hotels more or less than other hotels? In the previous

section, the expertise in implementing superior segment strategy, brand strategy, operator

strategy, location (MSA) strategy, brand specialization strategy, and location (MSA)

specialization strategy have been identified as the six core competencies of the best-

performing owners. For the two specialization strategies, because they are continuous

variables, their t values provide direct interpretations: an owner’s degrees of brand

specialization and location specialization are positively related to the financial

78
performance of this owner’s hotels. On the other hand, the core competencies regarding

choosing particular segment(s), brand(s), operator(s), and MSA(s) require further

investigation because they are categorical variables.

To examine the effects of the identified core competencies on the hotels of a

particular hotel owner, case studies on six hotel owners are conducted. As shown in Table

15, these six owners are chosen because all of them are ranked among the top ten percent

of both RevPAR and NOIPAR lists, and therefore, are regarded the best-performing hotel

owners among all 159 hotel owners studied in this research. Consequently, six sub-

samples (Samples 3 – 8) are created, each of which consists of only the hotels of one

hotel owner.

Table 15: Effects of Core Competence – Top Six Hotel Owners

Number of Number of RevPAR NOIPAR

Owner ID Sample ID Hotels Cases rank Rank

1 3 8 24 2 1
2 4 10 30 4 6
3 5 8 24 5 2
4 6 11 33 10 9
5 7 14 42 13 7
6 8 30 90 16 5

Nonparametric Kruskal Wallis Test is repeated on each sample, and one of the

four core competencies serves as the independent variable in each test. Specifically, since

segment, brand, and operator strategies explain a large portion of variance of hotel

RevPAR, three Kruskal Wallis Tests are conducted, in which RevPAR is the dependent

variable, and segment, brand, or operator is the independent variable. Similarly, due to

79
that brand, operator, and MSA are the most important factors in explaining variance of

NOIPAR, three Kruskal Wallis Tests are performed with NOIPAR as the dependent

variable, and brand, operator, or MSA as the independent variable. Therefore, a total of

six Kruskal Wallis Tests are conducted for each sample.

Chi-square scores of the Kruskal Wallis Tests indicate whether a core competence

(the owner’s expertise in choosing segment, brand, operator, or MSA) has equal

influence on all hotels of this particular owner. When significant differences are detected,

Tukey’s Multiple Comparison Test is followed to explore further between which groups

(segments, brands, operators, or MSAs) were the differences lie. The results of each

sample are presented below. Because segment is the only known factor, brand, operator

and MSA are coded with a unique number for each hotel owner. However, such coding

does not carry across owners, therefore the same code for different owners are not

comparable. For instance, Brand 1 in the data of Owner 1 is not the same brand as Brand

1 in the data of Owner 2.

Hotel Owner One

Kruskal Wallis Tests are first conducted on the hotels of Hotel Owner One. As

shown in Table 16, the results indicate that the RevPAR performance of the hotels of

Hotel Owner One varies by segment, brand, and operator. Therefore, Tukey’s Multiple

Comparison Tests are performed and the results reveal that: (1) The mean RevPAR of

this owner’s upper upscale hotels is significantly higher than its upscale hotels, (2) the

80
mean RevPAR of Brand 1 hotels is significantly higher than Brand 2 and 4 hotels, and (3)

the mean RevPAR of the hotels managed by Operator 2 is significantly higher than the

hotels managed by Operator 1.

While no statistically significant differences are found in the NOIPAR

performance across the five brands and three operators, results of Kruskal Wallis Tests

show that mean NOIPAR varies by MSA. The follow-up Tukey’s Multiple Comparison

Test further reveals that the mean NOIPAR of the hotels in MSA 2 is significantly higher

than the hotels in MSA 1 and 3.

81
Table 16. Effects of Core Competencies – Hotel Owner One

Kruskal Wallis Tests

Independent
Variable Level DV = RevPAR DV = NOIPAR
Segment 2 7.435** ----
Brand 5 14.988** 3.42
Operator 3 12.67** 3.41
MSA 3 ---- 7.740*

Tukey’s Multiple Comparison Tests

DV=RevPAR
Segment Hotel Case Mean S.D. Minimum Maximum
Upper
Upscale 6 18 136.66(a) 42.90 75.40 269.60
Upscale 2 6 59.96(b,c) 6.90 52.80 66.60
Total 8 24 123.57 48.04 52.80 269.60
Brand
1 3 9 160.99(a) 50.85 115.20 269.60
2 1 3 58.66(b) 6.90 52.80 66.60
3 1 3 116.04 9.67 108.00 126.80
4 1 3 70.53(b) 6.82 65.70 75.40
5 2 6 120.69 8.60 109.00 134.40
Total 8 24 123.57 48.60 52.80 269.60
Operator
1 1 3 58.66(b) 6.90 52.80 66.60
2 5 15 144.87(a) 43.83 109.00 269.60
3 2 6 97.83 26.07 65.70 126.80
Total 8 24 123.57 48.60 52.80 269.60
DV=NOIPAR
MSA Hotel Case Mean S.D. Minimum Maximum
1 3 9 32394.67(b) 3081.11 29141.03 37441.01
2 2 6 48477.31(a) 12820.67 35464.71 61097.00
3 3 9 33377.64(b) 4322.47 27062.63 41437.81
Total 8 24 36783.38 8150.15 27062.63 61097.00
Note: * p<0.05; ** p<0.01.
a. Significantly larger value.
b. Significantly smaller value.
c. Value is smaller than the segment mean in the base sample

82
 The results suggest that Hotel Owner One’s core competencies in terms of its

expertise in choosing hotel segments, brands, operators and MSAs do not have equal

effects on all of its hotels. Therefore, Hypothesis H4 is supported. The superior RevPAR

and NOIPAR performance of this owner’s hotels are not because all hotels performed

equally well. Indeed, the superior RevPAR was primarily attributable to the higher

RevPAR achieved by the hotels in the Upper Upscale segment, the hotels affiliated with

Brand 1, and the hotels managed by Operator 2. In addition, the superior NOIPAR was

primarily due to the hotels in MSA 2.

On the other hand, the mean NOIPAR of its hotels in MSA 1 and 3 is below the

average NOIPAR of Hotel Owner One. Moreover, the hotels in the upscale segment,

affiliated with Brand 2 and 4, and managed by Operator 1 have relatively lower

RevPARs than the mean value of this hotel owner. Specifically, while it is not surprising

that the mean RevPAR of the upscale hotels of Hotel Owner One is lower than the one of

upper upscale hotels, it should be noted that the mean RevPAR of the upscale hotels

($59.96) is even below the mean RevPAR of all upscale hotels studies in this research

(Sample 1-A). This suggests that the upscale hotels have a negative influence on the

overall RevPAR performance of this owner.

Hotel Owner Two

Table 17 presents the results of the Kruskal Wallis Tests and the follow-up

Tukey’s Multiple Comparison Tests. The RevPAR performance of the hotels of Hotel

83
Owner Two varies by brand, and the NOIPAR performance varies by MSA. Specifically,

the mean RevPAR values of this owner’s Brand 2, 3 and 4 hotels are significantly higher

than the one of Brand 5 hotels, and the mean NOIPAR values of the hotels in MSA 1, 2,

5, and 6 are significantly higher than the ones of hotels in MSA 3 and 4.

Because no statistically significant differences are found in the RevPAR and

NOIPAR performances across the two segments and seven operators, the conclusion

could be that no statistical evidence suggests Hotel Owner Two’s core competencies with

regard to its expertise in choosing hotel segments and operators influence its hotels

differently. However, the results suggest that this owner’s expertise in choosing hotel

brands and MSAs do not have equal effects on all of its hotels. Therefore, Hypothesis H4

is partially supported in the case of Hotel Owner Two. The superior RevPAR is primarily

due to the higher RevPAR achieved by the hotels affiliated with Brands 2, 3, and 4, while

the superior NOIPAR is primarily associated with the hotels in MSAs 1, 2, 5, and 6.

In addition, the results indicate that the mean RevPAR of Brand 5 hotels ($57.42)

is not only below the other hotels of Hotel Owner Two, but also less than the mean

RevPAR of all hotels studied in this research ($58.20). Similarly, the mean NOIPAR of

its hotels in MSA 4 is not only less than the other hotels of the owner, but also below the

average NOIPAR of the hotels of all hotel owners ($10,751). Therefore, while Hotel

Owner Two’s core competencies of implementing brand and location (MSA) strategies

have contributed to the superior financial performance of most of its hotels, such brand

84
strategy did not benefit the RevPAR for hotels affiliated with Brand 5, and the location

strategy did not contribute to the NOIPAR for hotels in MSA 4, either.

85
Table 17. Effects of Core Competencies – Hotel Owner Two

Kruskal Wallis Tests

Independent
Variable Level DV = RevPAR DV = NOIPAR

Segment 2 0.97 ----

Brand 5 10.396* 6.421
Operator 7 9.651 1.684
MSA 6 ---- 8.566*

Tukey’s Multiple Comparison Tests

DV=RevPAR Hotel Case Mean S.D. Minimum Maximum

Brand
1 1 3 103.87 2.87 100.70 106.20
2 3 9 120.14(a) 39.34 64.70 169.80
3 3 9 129.59(a) 13.09 105.10 148.80
4 2 6 130.68(a) 30.82 88.20 179.20
5 1 3 57.42(b,c) 7.05 51.00 65.00
Total 10 30 117.18 33.44 51.00 179.20

DV=NOIPAR Hotel Case Mean S.D. Minimum Maximum

MSA
1 2 6 36007.56(a) 291.71 35773.92 36334.51
2 1 3 25723.56(a) 4388.46 22620.45 28826.67
3 2 6 12039.00(b) 2685.08 10194.27 15119.47
4 1 3 10392.83(b,c) 1186.92 9230.45 11602.86
5 1 3 22601.15(a) 1645.33 20810.57 24046.43
6 3 9 20862.99(a) 5842.55 13856.96 27918.71
Total 10 30 21739.96 9238.64 9230.45 36334.51
Note: * p<0.05.
a. Significantly larger value.
b. Significantly smaller value.
c. Value is smaller than the mean value of all hotels in the base sample.

86
Hotel Owner Three

The results of the Kruskal Wallis Tests and the follow-up Tukey’s Multiple

Comparison Tests are presented in Table 18. The RevPAR and NOIPAR performance of

the hotels of Hotel Owner Three does not vary by segment, brand, or MSA. Therefore,

there is no statistical evidence suggesting Hotel Owner Three’s core competencies

regarding its expertise in choosing hotel segments, brands, and MSAs have different

influences on its hotels. On the other hand, the results suggest that this owner’s expertise

in choosing hotel operators do not have equal effects on all of its hotels. The superior

RevPAR and NOIPAR of Hotel Owner Three are both primarily due to the performance

of the hotels managed by Operator 3. Therefore, Hypothesis H4 is partially supported.

87
Table 18. Effects of Core Competencies – Hotel Owner Three

Kruskal Wallis Tests

Independent
Variable Level DV = RevPAR DV = NOIPAR

Segment 2 1.271 ----

Brand 3 3.351 5.604
Operator 3 7.938* 6.738*
MSA 3 ---- 6.483

Tukey’s Multiple Comparison Tests

DV=RevPAR Hotel Case Mean S.D. Minimum Maximum

Operator
1 2 6 72.11(b) 5.90 63.00 78.54
2 5 15 68.21(b) 10.02 49.07 85.53
3 1 3 132.49(a) 18.86 113.95 151.66
Total 8 24 77.22 23.62 49.07 151.66

DV=NOIPAR Hotel Case Mean S.D. Minimum Maximum

Operator
1 2 6 12788.44 1365.41 11362.61 15156.97
2 5 15 9920.21(b) 2468.38 5729.45 13274.32
3 1 3 19581.40(a) 11884.86 6378.57 29425.33
Total 8 24 11844.91 5181.87 5729.45 29425.33
Note: * p<0.05; ** p<0.01.
a. Significantly larger value.
b. Significantly smaller value.

88
Hotel Owner Four

As shown in Table 19, Hotel Owner Four retains only one operator to manage all

of its 11 hotels, and the mean RevPAR of the hotels does not vary by segment. However,

the results suggest that this owner’s expertise in choosing hotel brands and MSAs have

different effects on its hotels. Specifically, the hotels affiliated with Brand 1 are the

primary source of its superior RevPAR and NOIPAR; on the other hand, the hotels

affiliated with Brands 3 and 4 have lower RevPAR and NOIPAR than the other hotels of

the owner. In addition, the hotels in MSAs 4 and 5 made significant contributions to

NOIPAR, while hotels in MSAs 3 and 6 had lower NOIPAR. Hypothesis H4 is partially

supported by Hotel Owner Four.

89
Table 19. Effects of Core Competencies – Hotel Owner Four

Kruskal Wallis Tests

Independent
Variable Level DV = RevPAR DV = NOIPAR

Segment 2 2.314 ----

Brand 5 19.210** 12.508*
Operator 1 ---- ----
MSA 7 ---- 17.954**

Tukey’s Multiple Comparison Tests

DV=RevPAR Hotel Case Mean S.D. Minimum Maximum

Brand
1 2 6 87.05(a) 6.24 81.43 98.39
2 2 6 75.42 8.21 63.93 81.35
3 1 3 58.61(b) 12.61 44.68 69.26
4 5 15 69.79(b) 5.40 59.49 78.67
5 1 3 81.84(a) 8.32 72.72 89.01
Total 11 33 73.94 10.73 44.68 98.39

DV=NOIPAR Hotel Case Mean S.D. Minimum Maximum

Brand
1 2 6 13220.31(a) 2085.28 10485.44 16442.06
2 1 3 10980.15 5279.75 4885.56 14160.39
3 1 3 6297.22(b) 3463.68 2504.46 9292.82
4 5 15 9541.09(b) 1717.88 7204.51 12968.65
5 2 6 11545.97 1650.72 9709.58 12906.47
Total 11 33 10410.49 3006.73 2504.46 16442.06
MSA
1 1 3 11545.97 1650.72 9709.58 12906.47
2 3 9 10342.03 1621.03 8746.31 12823.71
3 1 3 7739.84(b) 2039.85 4885.56 9285.03
4 2 6 13135.02(a) 871.61 12134.45 14160.39
5 2 6 12074.05(a) 3166.67 8646.09 16442.06
6 1 3 6297.22(b) 3463.68 2504.46 9292.82
7 1 3 8082.59 760.45 7204.51 8523.17
Total 11 30 10296.94 3006.73 2504.46 16442.06
Note: * p<0.05; ** p<0.01.
a. Significantly larger value.
b. Significantly smaller value.

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Hotel Owner Five

Hypothesis H4 was partially supported by Hotel Owner Five. As presented in

Table 20, all 14 hotels of this owner were managed by one operator. Both the mean

RevPAR and NOIPAR vary by brand, suggesting Hotel Owner Five’s expertise in

choosing hotel brands have different effects on its hotels. Specifically, the superior

RevPAR and NOIPAR are primarily due to Brand 4 hotels, while little is contributed by

the hotels affiliated with Brands 1 and 7. In addition, the results reveal that the mean

NOIPAR of the hotels in MSA 4 is significantly higher than the one of the hotel in MSA

1. While the mean RevPAR values of the midscale with F&B ($58.19) and without F&B

($67.09) hotels are significantly less than the one of the owner’s upscale hotels ($95.99),

both numbers are above the mean value of their respective segments ($48.58 and $49.66,

respectively), suggesting an overall superior performance of Owner Five’s hotels.

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Table 20. Effects of Core Competencies – Hotel Owner Five

Kruskal Wallis Tests

Independent
Variable Level DV = RevPAR DV = NOIPAR

Segment 5 15.402** ----

Brand 7 16.325** 12.508*
Operator 1 ---- ----
MSA 3 ---- 17.954**

Tukey’s Multiple Comparison Tests

DV=RevPAR Hotel Case Mean S.D. Minimum Maximum

Segment
Upscale 2 6 95.99(a) 13.49 79.24 117.55
Midscale
w/ F&B 7 21 58.19(b) 15.90 35.08 86.50
Midscale
w/o F&B 5 15 67.09(b) 12.31 48.29 88.91
Total 14 42 66.77 18.97 35.08 117.55

Brand
1 1 3 62.31(b) 0.60 61.80 62.97
2 2 6 64.27(b) 9.41 53.37 79.60
3 1 3 88.79(a) 9.93 79.24 99.06
4 1 3 103.19(a) 14.17 89.21 117.55
5 2 6 69.83 15.20 48.29 88.91
6 1 3 67.22 14.66 52.06 81.33
7 6 18 57.5(b) 17.14 35.08 86.50
Total 14 42 66.77 18.97 35.08 117.55

(continued)

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Table 20. Effects of Core Competencies – Hotel Owner Five (continued)

Tukey’s Multiple Comparison Tests

DV=NOIPAR Hotel Case Mean S.D. Minimum Maximum

Brand
1 1 3 8639.18(b) 1067.29 7535.33 9665.71
2 2 6 12019.15 2265.22 9235.67 16080.65
3 1 3 14941.84 1262.83 13617.74 16132.87
4 1 3 21961.50(a) 2583.79 19424.33 24589.52
5 2 6 10476.61(b) 3279.79 5963.42 14107.22
6 1 3 9033.41(b) 2449.80 6385.34 11219.02
7 6 18 8173.47(b) 3688.45 2794.50 16143.76
Total 14 42 10614.88 4743.15 2794.50 24589.52

MSA
1 1 3 3454.42(b) 662.13 2794.50 4118.73
2 1 3 8639.18 1067.29 7535.33 9665.71
3 1 3 5450.90 568.92 4969.25 6078.61
4 11 33 11914.89(a) 4392.10 5963.42 24589.52
Total 14 42 10614.88 4743.15 2794.50 24589.52
Note: * p<0.05; ** p<0.01.
a. Significantly larger value.
b. Significantly smaller value.

Hotel Owner Six

Hypothesis H4 was also partially supported by Hotel Owner Six. While all 30

hotels of Hotel Owner Six are managed by one operator and consequently no “operator”

differences can be detected, the mean RevPAR varies by brand and segment, and the

mean NOIPAR varies by brand and MSA. Therefore, Hotel Owner Six’s core

competencies of choosing hotel segments, brands, and MSAs have different effects on its

hotels.

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 First, as shown in Table 21, hotels affiliated with different brands made different

contributions to RevPAR and NOIPAR. The overall superior RevPAR and NOIPAR

performance of Hotel Owner Six are primarily due to the hotels of Brands 1, 4, and 6,

while the hotels affiliated with Brands 3, 5, and 7 have significantly lower RevPARs. In

addition, the hotels in MSAs 7 and 9 have significantly larger NOIPAR than the hotels in

MSAs 2, 3, 10, 11, 13, and 14. Finally, the mean RevPAR values vary significantly

across the hotel segments. Particularly, the mean RevPAR of the owner’s three luxury

hotels are significantly greater than the ones of the hotels in all other segments. It is also

worthy to point out that, among Hotel Owner Six’s hotels in five segments, the mean

RevPAR of luxury ($215.90), upper upscale ($108.06), and economy hotels ($42.62) are

higher than the segment means of the base sample ($147.35, $82.35, and $30.07,

respectively). However, the mean RevPARs of Hotel Owner Six’s three upscale ($61.88)

hotels and one midscale with F&B hotel ($38.07) are lower than their respective segment

means ($67.82 and $48.58, respectively). This finding indicates that the upscale and

midscale with F&B hotels had negative influences on the overall RevPAR performance

of Hotel Owner Six.

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Table 21. Effects of Core Competencies – Hotel Owner Six

Kruskal Wallis Tests

Independent
Variable Level DV = RevPAR DV = NOIPAR

Segment 5 56.688*** ----

Brand 8 59.642*** 57.638***
Operator 1 ---- ----
MSA 14 ---- 44.682***

Tukey’s Multiple Comparison Tests

DV=RevPAR Hotel Case Mean S.D. Minimum Maximum

Segment
Luxury 9 27 215.90(a) 95.73 104.75 540.22
Upper
Upscale 15 45 108.06(b) 45.07 49.91 235.80
Upscale 3 9 61.88(b,c) 6.88 54.58 73.47
Midscale
w/ F&B 1 3 38.07(b,c) 12.59 23.58 46.37
Economy 2 6 42.62(b) 3.57 39.07 48.73
Total 30 90 129.10 86.26 23.58 540.22

Brand
1 1 3 423.83(a) 103.68 341.37 540.22
2 4 12 119.96 58.62 62.79 235.80
3 3 9 61.88(b) 6.88 54.58 73.47
4 2 6 224.55(a) 46.52 187.09 308.12
5 1 3 38.07(b) 12.59 23.58 46.37
6 6 18 178.37(a) 54.49 104.75 284.92
7 2 6 42.62(b) 3.57 39.07 48.73
8 11 33 103.73 39.24 49.91 162.38
Total 30 90 129.10 86.26 23.58 540.22
(continued)

95
Table 21. Effects of Core Competencies – Hotel Owner Six (continued)

Tukey’s Multiple Comparison Tests

DV=NOIPAR Hotel Case Mean S.D. Minimum Maximum

Brand
1 1 3 108420.15(a) 18056.59 90152.54 126258.04
2 4 12 25022.56 14999.68 9500.56 52744.61
3 3 9 7414.46(b) 2714.52 3297.83 11791.23
4 2 6 50557.43(a) 13926.48 27620.22 62091.37
5 1 3 -335.02(b) 797.25 -1210.68 348.82
6 6 18 33182.79(a) 13485.44 20118.93 66368.01
7 2 6 4763.21(b) 1602.49 2855.29 6649.16
8 11 33 14353.71 10557.01 -12679.17 35951.29
Total 30 90 23268.25 23093.68 -12679.17 126258.04

MSA
1 7 21 24281.03 16257.00 -12679.17 56486.15
2 1 3 5803.95(b) 1128.51 5143.92 7107.00
3 1 3 8727.25(b) 1777.27 6793.08 10288.41
4 2 6 21897.30 2020.34 20118.93 25644.83
5 1 3 33752.67 7911.06 28081.60 42790.14
6 2 6 22655.01 11353.51 9500.56 35951.29
7 4 12 51504.41(a) 40477.32 5231.50 126258.04
8 3 9 9356.12 5182.95 3297.83 16943.34
9 1 3 60027.79(a) 2166.29 57771.65 62091.37
10 1 3 5600.75(b) 1276.92 4155.61 6576.72
11 2 6 8239.35(b) 2534.88 5536.80 11791.23
12 1 3 29952.98 3460.81 26635.88 33541.51
13 3 9 13690.51(b) 13077.49 -1210.68 30690.03
14 1 3 3474.02(b) 1058.17 2855.29 4695.86
Total 30 90 23268.25 23093.68 -12679.17 126258.04
Note: * p<0.05; ** p<0.01.
a. Significantly larger value.
b. Significantly smaller value.
c. Value is smaller than the mean value of all hotels in the same segment in the
base sample.

96
 Chapter V

DISCUSSIONS AND CONCLUSION

In this chapter, findings of the study are summarized, followed by the discussions

of the results. Conclusions of the study are then provided, and theoretical and empirical

implications are presented. Finally, the limitations of the study and recommendations for

future researchers are tendered.

Summary of Major Findings

The purpose of the study is to complement existing research in corporate effects

and hospitality strategic management by exploring the corporate effects in the lodging

industry from a hotel owner’s perspective. The specific objectives of this study are:

(1) To examine the existence of corporate effects in the lodging industry,

(2) To investigate the effects of corporate strategies in determining hotel property

financial performance, and

(3) To explore the core competencies of hotel owners in terms of influencing

hotel property financial performance.

These objectives are accomplished by investigating the following four research

questions:

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 (1) Do corporate effects exist in the lodging industry?

(2) Can a hotel owner’s corporate effects on property financial performance be

attributed to the owner’s strategic decisions regarding hotel location, segment,

brand, and operator, as well as corporate specialization strategies regarding

hotel location, segment, brand, and operator?

(3) What are the core competencies of the best-performing hotel owners?

(4) For a particular hotel owner, do its core competencies influence all the hotels

of this owner equally? Or, do the effects of the owner’s core competencies

influence some hotels more or less than other hotels? If the answer to the

second question is yes, then, how do the effects of the core competencies vary

among this particular owner’s hotels?

The results of this study provide answers for these research questions. First,

corporate effects do exist in the lodging industry. The owner of a hotel is not simply a

statistically significant factor for the hotel’s financial performance (i.e., RevPAR and

NOIPAR), but rather the most important factor attributing to the hotel’s financial

performance because the owner explains the largest portion of the variance in hotel

RevPAR and NOIPAR. Specifically, based on Sample 1-A, the variance in hotel

RevPAR may be partitioned approximately by the following effects: owner (71.54

percent), hotel size (7.14 percent), room price level (5.62 percent), hotel age (4.83

percent), year (1.1 percent), and residual errors (the remaining 9.77 percent). And

similarly, Sample 1-B, the largest sample with available hotel NOI information, shows

that hotel NOIPAR may be partitioned approximately by the following effects: owner

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(40.74 percent), hotel size (23.77 percent), hotel age (20.11 percent), room price level

(2.58 percent), year (0.93 percent), and residual error (the remaining 11.86 percent).

Second, the results show that effects of hotel owner can be effectively

represented by the corporate strategies implemented by the owner. All eight proposed

corporate strategies (i.e. location, segment, brand, operator, location specialization,

segment specialization, brand specialization, and operator specialization) have significant

effects on hotel financial performance. Based on the results of Samples 1-A and 1-B,

among the eight strategies, segment strategy explains the largest portion of variance in

hotel RevPAR (37.63 percent), followed by brand specialization and brand strategies

(17.32 percent and 12.59 percent, respectively). The most important strategy related to

hotel NOIPAR is brand specialization (27.27 percent), followed by brand and segment

strategies (20.47 percent and 16.98 percent, respectively). On the other hand, although

statistically significant, a hotel owner’s strategies regarding operator, location, as well as

the specialization strategies regarding segment, location, and operator only explain little

variance in hotel financial performance. While little variance in hotel RevPAR and

NOIPAR is attributable to most measures of location and location specialization

strategies (i.e., by region, state, MSA, and market type), one exception is the market type

specialization strategy, which accounts for seven and ten percent of RevPAR and

NOIPAR, respectively.

Third, when the best-performing hotel owners are identified and compared to the

“worst” performing hotel owners, segment, brand, and brand specialization strategies are

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still the most important among all eight corporate strategies. In addition, operator, a

relatively less significant strategy in Samples 1-A and 1-B, becomes a much more

important factor in explain the variance of hotel RevPAR and NOIPAR in Sample 2

(approximately eleven percent for both financial performance measures). Moreover, the

significance of a hotel owner’s location and location strategies, when measured as MSA

and MSA specialization, also increase to account for approximately ten percent variance

of hotel RevPAR and NOIPAR. Therefore, corporate strategies regarding segment, brand,

operation, location-MSA, brand specialization and location-MSA specialization are

identified as the core competencies of the sixteen best-performing owners in Sample 2,

because they account for over eighty percent of the variance in hotel financial

performance, measured as RevPAR and NOIPAR. Specifically, the results suggest that

hotel RevPAR and NOIPAR are negatively related to the degree of a hotel owner’s brand

specialization, but positively related to its degree of MSA specialization.

Finally, case studies on the top six best-performing hotel owners indicate that a

hotel owner’s core competencies (i.e., the expertise in adopting favorable segment, brand,

operator and location-MSA strategies) may have different effects on its hotels. Although

the hotels of an owner could have collectively achieved overall superior performance,

individual hotel’s performance may vary by segment, brand, operator, and/or location-

MSA. Therefore, while a hotel owner’s capabilities in choosing superior segment(s),

brand(s), operator(s), and/or location(s) can be regarded as the owner’s core

competencies, it does not guarantee that all the segments, brands, operators, and/or

locations chosen by this owner contribute to the superior overall RevPAR and NOIPAR

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of its hotels. The results reveal that, in some cases, a hotel owner’s hotels in certain

segments, MSAs, and/or affiliated with certain brands and operators have actually lower-

than-average RevPAR and NOIPAR levels.

Discussions

Existence of Corporate Effects in the Lodging Industry

The findings confirm the existence of corporate effects in the lodging industry.

Compared to other factors that are well recognized in the literature as related to a hotel’s

financial performance such as hotel size, hotel age, price level, and time (i.e., year), the

owner is indeed the most significant factor in that it accounts for the largest variance of a

hotel’s financial performance. This study supports the previous research suggesting that

the effects of corporate parent may be substantially larger in some industries, such as the

non-manufacturing industries, than in others (McGahan & Porter, 1997). Unlike most

other studies on corporate effects that incorporated samples from various industries and

consequently report significantly larger industry effects than corporate effects, this study

focuses on the lodging industry only. The results reveal that corporate parent, or owner,

of a hotel is the dominating factor in determining the hotel’s RevPAR and NOIPAR. This

finding reveals that, in addition to franchisors and management companies that are

commonly considered as influences on a hotel’s performance, hotel owners also play a

critical role, in that they not only buy and sell hotels but also have significant influences

on their individual hotels’ financial performance.

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Role of Corporate Strategy

This study indicates that the owner’s corporate strategies are significantly related

to a hotel’s financial performance. This finding supports the previous research suggesting

that corporate strategies are part of total corporate effects (Bowman & Helfat, 2001).

Specifically, in the lodging industry, a non-operating hotel owner can choose strategies

regarding: (1) at which location(s) to possess a property/properties, (2) which type(s) of

hotels to possess, (3) what brand(s) to affiliate with, and (4) which operator(s) will

manage its property/properties. Moreover, literature in the strategic management

indicates that well developed and implemented strategies can be important sources of a

firm’s core competencies (Aharoni, 1993; Peteraf, 1993). Consequently, this research

identified eight statistically significant corporate strategies for hotel owners, namely

location strategy (i.e., by region, state, MSA and market type), segment strategy, brand

affiliation strategy, operator strategy, location specialization strategy, segment

specialization strategy, brand specialization strategy, and operator specialization strategy.

Building on the empirical results of the analysis on the best-performing hotel owners, this

study links the concepts of corporate strategy and core competence and suggests that a

hotel owner’s expertise in implementing superior strategies regarding segment, brand,

operator, location-MSA, brand specialization, and MSA specialization can be deemed as

the core competencies of the owner.

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Selection of Segment, Location, Brand, and Operator

The findings of this study support the popular notion found among industry

practitioners: a hotel’s segment, location, brand affiliation and operator do matter. More

importantly, the relative importance of these factors on hotel performance is assessed in

this research. Because hotel segment is defined by a hotel brand’s system-wide ADR and

consequently is directly linked to RevPAR, its significant prediction power on RevPAR

is not surprising. As shown in the descriptive statistics of the base sample, the mean

values of RevPAR and NOIPAR are ranked by segment from luxury to economy. In

addition, the importance of location has been long recognized for a long time in the

lodging industry. Particularly, from a hotel owner’s viewpoint, it is suggested that a hotel

investment is only as good as its local market, because the revenues of a hotel are highly

correlated to the economy of the local market (Corgel, 2002).

Compared to segment, location, and operator, brand affiliation is the most

important factor and explains the largest portion of variance in both RevPAR and

NOIPAR. Literature on branding and brand equity has suggested that a good brand is

valuable not only to the brand owner (e.g., franchisors) but also to the brand user (e.g.,

franchisees) and the ultimate customers of the product (e.g., Baldauf, Cravens, & Binder,

2003; Kim et al., 2002; Prasad & Dev, 2000). Taking a hotel owner’s perspective, brand

names are suggested to be relevant to hotels’ revenues, profits, and return on investment

(e.g., Prasad & Dev, 2000; Wolff, 2005). A study of Kim et al. (2002) on 12 upscale hotel

brands reveals that a strong brand can contribute to hotel RevPAR through increased

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brand image, brand awareness, perceived quality, and brand loyalty. Moreover, a recent

study has shown that brand affiliation contributes significantly to a hotel’s market value,

and certain brands have greater influences on hotel valuations than other brands do

(O’Neill & Xiao, 2006). While the actual brand names were not made available for this

research, results of this study support such a view of “brand power” by revealing that

some brands have achieved higher RevPAR and NOIPAR levels than the others across

the owners.

Literature in strategic alliance provides particular theoretical explanations with

regard to the critical aspect of choosing certain brands and operators over the others.

Franchises and management contracts are important types of non-equity strategic alliance

in the lodging industry. Based on RBV, previous research suggests that the key reason for

organizations to form alliances is to access the resources of the partners (Das & Teng,

1998). In the context of lodging franchises and management contracts, the critical

resources contributed from partners include financial and physical resources from the

owner/franchisee, and technological and managerial resources from the franchisor and

operator (Chathoth & Olsen, 2003). While the goal of a franchise or management

contract as a strategic partnership is to achieve competitive advantage for both partners,

based on the agency theory, it is widely recognized that the partners (i.e., franchisor and

franchisee, or operator and owner) do not always share the same views regarding goals,

values and competitive methods (e.g., Baucus, Baucus, & Human, 1996; Contractor &

Kundu, 1998; Chathoth & Olsen, 2003; Eyster, 1997; Galen & Touby, 1993). Therefore,

to achieve long term success of a franchise or management contract, the owner’s ability

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to choose franchisor(s) and operator(s) with strategic fit involving complementary

resources, trust, and appropriate governance mechanism is critical to the long term

success of a franchise or management contract (e.g., Chathoth & Olsen, 2003).

While the significant effects of segment, location, brand, and operator on hotel

performance is widely acknowledged, from hotel owners’ perspectives, how they choose

the superior segment, location, brand, and operator strategies is worth further scrutinizing.

Results of this study suggest that the best-performing hotel owners are selective in

implementing their segment, location, brand, and operator strategies. As shown in Table

19, the segments, locations, brands, and operators between the hotels of the best-

performing and the ones of the under-performing owners are compared. First, the top

sixteen best-performing hotel owners focus more on owning luxury, upper upscale, and

upscale hotels than the under-performing hotel owners, who do not own any luxury

hotels but concentrate more on midscale and economy properties. Second, the majority of

the hotels of the best-performing hotel owners are located in a small number of better

locations (i.e., regions, states, MSAs, and markets). The best-performing owners have a

large number of hotels in the Middle Atlantic and Pacific regions, in which the under-

performing owners almost do not exist. Best-performing owners also focus on the top 25

markets (62 percent), while the under-performing owners have more hotels in the third-

tier markets (53 percent). In addition, while the 156 hotels of the sixteen best-performing

hotel owners are in 27 states, nearly 59 percent of them are located in the top five states:

California, Florida, New York, Virginia, and Illinois. Comparably, the under-performing

owners have concentrated their hotels in five different states: Ohio, North Carolina,

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Arizona, Indiana, and Georgia. Moreover, 64 hotels (41 percent) of the best-performing

owners are located in only five MSAs, while 39 percent of the under-performing owners’

hotels are located in five MSAs that are completely different from the top five MSAs of

the hotels of the best-performing owners..

Furthermore, 83 hotels (53 percent) of the best-performing owners are affiliated

with only five brands regardless of a total of 30 brands in this sub-sample. Noticeably,

only one of these five brands (Brand 2) is adopted by the under-performing owners.

Finally, while 31 operators are retained by the sixteen best-performing owners, 86 hotels

(55 percent) are managed by only five operators, and none of these five operators are

retained by the under-performing owners. Although the exact MSAs and actual names of

hotel brands and operators are not available, one potential interpretation of these results is

that the best-performing owners have realized the power of certain segments, locations,

brands, and operators, and consequently they have adopted their strategies accordingly,

seeking to make their hotels associate with certain “better” segment(s), location(s),

brand(s), and operator(s).

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Table 22. Comparison of Best-Performing and Under-Performing Owners

Top 16 Owners Bottom 16 Owners

Hotel Percentage Hotel Percentage

Segment
Luxury 5 3.21% 0 0.00%
Upper Upscale 31 19.87% 12 8.76%
Upscale 38 24.36% 18 13.14%
Midscale w/ F&B 26 16.67% 37 27.01%
Midscale w/o F&B 37 23.72% 46 33.58%
Economy 19 12.18% 24 17.52%
Total 156 100.00% 137 100.00%

Region
New England 3 1.92% 1 0.73%
Middle Atlantic 34 21.79% 0 0.00%
South Atlantic 40 25.64% 32 23.36%
East North Central 16 10.26% 41 29.93%
East South Central 0 0.00% 11 8.03%
West North Central 7 4.49% 22 16.06%
West South Central 12 7.69% 10 7.30%
Mountain 6 3.85% 19 13.87%
Pacific 38 24.36% 1 0.73%
Total 156 100.00% 137 100.00%

Market Type
Top 25 Markets 97 62.18% 34 24.82%
Second 25 Markets 20 12.82% 30 21.90%
Other Markets 39 25.00% 73 53.28%
Total 156 100.00% 137 100.00%
(continued)

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Table 22. Comparison of Best-Performing and Under-Performing Owners (countiued)

Top 16 Owners Bottom 16 Owners

Hotel Percentage Hotel Percentage

Top Five States

California 32 20.51% Ohio 17 12.41%
Florida 16 10.26% North Carolina 14 10.22%
New York 21 13.46% Arizona 14 10.22%
Virginia 12 7.69% Indiana 13 9.49%
Illinois 11 7.05% Georgia 13 9.49%
Total 92 58.97% Total 71 51.82%

Top Five MSAs

MSA 1 19 12.18% MSA 6 24 17.52%
MSA 2 17 10.90% MSA 7 10 7.30%
MSA 3 11 7.05% MSA 8 8 5.84%
MSA 4 9 5.77% MSA 9 6 4.38%
MSA 5 8 5.13% MSA 10 5 3.65%
Total 64 41.03% Total 53 38.69%

Top Five Brands

Brand 1 26 16.67% Brand 6 16 11.68%
Brand 2 19 12.18% Brand 7 11 8.03%
Brand 3 19 12.18% Brand 2 10 7.30%
Brand 4 11 7.05% Brand 8 10 7.30%
Brand 5 8 5.13% Brand 9 7 5.11%
Total 83 53.21% Total 54 39.42%

Top Five Operators

Operator 1 30 19.23% Operator 6 24 17.52%
Operator 2 14 8.97% Operator 7 19 13.87%
Operator 3 11 7.05% Operator 8 13 9.49%
Operator 4 14 8.97% Operator 9 9 6.57%
Operator 5 17 10.90% Operator 10 9 6.57%
Total 86 55.13% Total 74 54.01%

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Specialization/Diversification Strategies

One of the important findings of this study is the effects of hotel owner’s

specialization (or diversification) strategies with regarding to segment, location, brand

and operator. Particularly, this study suggests strong influences of brand specialization

and location (MSA) specialization on the financial performance of the best-performing

hotel owners’ properties. However, the influences of these two strategies are in the

opposite direction: while MSA specialization is positively related to hotel financial

performance, it is brand diversification (but not brand specialization) that benefits hotel

financial performance.

First, the findings suggest that brand specialization has negative effects on hotel

financial performance. Indeed, the more brands the owner has, the higher mean RevPAR

and NOIPAR of its hotels. This is consistent with a popular view held particularly by the

relatively larger hotel owners that brand diversification benefits all hotels in the portfolio

(Kidd, 2006). Support of this notion can be found from the theories of strategic alliance

and organizational learning. Literature suggests that the formation of an alliance is the

acknowledgment that both partners have useful resources, which can be financial,

physical, technological, and managerial (Das & Deng, 1998; Inkpen, 1998).While some

resources are tangible, others are knowledge-based and can not be obtained overnight.

Therefore, previous research indicates that strategic alliance is indeed a learning process,

in which a firm can obtain certain expertise from its alliance partner and such knowledge

would be inaccessible in the absence of the alliance (e.g., Inkpen, 1998; Iyer, 2002;

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Manrakhan, 2006). Specifically, Inkpen (1998) argues that the knowledge learned from

the partner has value to the firm outside the specific terms of the alliance agreement,

because it may enable the firm to enhance its own strategy and operations. This could be

the case of brand diversification among hotel owners: Through learning and comparing

various marketing and operational skills from different franchisors, the corporate owner

can improve its overall managerial capabilities and can implement the best practices

learned from various brands to all of its hotels.

A real example is provided by a senior executive of a relatively large hotel owner.

This hotel owner has its designated revenue management personnel in its asset

management department, while, in the meantime, they closely work with several different

revenue management teams of various brands with which its hotels are affiliated. The

reason is that the owner’s revenue management personnel have different goals than those

of the branded revenue management teams. While each brand makes efforts to improve

the performance of the owner’s hotels affiliated with this particular brand, such effects do

not take into consideration the other hotels of the owner. By establishing its own revenue

management personnel, the owner can combine the valuable information provided by

different brands, and implement best practices and most appropriate tactics learned from

different brands in all of its hotels; consequently all hotels benefit from such knowledge

transfer (Kidd, 2006).

However, on the other hand, the positive relationship between owner’s brand

diversification and property financial performance should be interpreted with caution,

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because, although one can argue that the brand diversification causes the superior

performance, an alternative explanation could be that hotel owners do not diversify

across brands until they have already achieved superior performance. It is possible that

only the best-performing hotel owners have the expertise in dealing with the complexities

of working with multiple brands; therefore, an “average” hotel owner may not like to

affiliate with too many brands. While little empirical and theoretical support is found to

support this view, only a longitudinal study that considers the change of the degree of

brand diversification over a relatively long period of time can reveal the causal

relationship between owner’s brand diversification and property financial performance.

While the above discussion regarding brand diversification/specialization may be

technically applicable to justify the effects of operator diversification/specialization, such

effects remain unclear based on the findings of this study. Operator specialization has the

relatively smallest effects (although statistically significant) on the hotel financial

performance in Samples 1-A and 1-B, but such effects become not even statistically

significant in Sample 2. One possible explanation might be the lack of variance due to the

unbalanced data: A total of 58 percent hotel owners in Sample 1-A and 53 percent hotel

owners in Sample 2 did not diversify by operator. Such dominance of single-operator

strategy may have contributed to the trivial effects of operator specialization. To better

assess the relationship between owner’s operator specialization and property financial

performance, future research may take a longitudinal approach by studying the changes

of the degree of operator specialization of hotel owners over a relatively long period of

time.

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 Unlike the effects of brand specialization, the owner’s degree of location

specialization, particularly MSA, is shown to have an important positive influence on

hotel RevPAR and NOIPAR. That is, it is the strategy of location specialization rather

than location diversification that benefits the financial performance of the owner’s hotels.

When an owner implement a location (i.e., MSA) specialization strategy and have hotels

located in a smaller number of MSAs, these hotels tend to have better financial

performance. Although this finding does not support the common practice of geographic

diversification found in the real estate investment community, the power of local markets

has been revealed in the literature. In economics, market power refers to the ability of a

firm to set the market price of a product or service, and such power may be positively

influenced by market share, efficiency and specialization (e.g., Guevara & Maudos,

2007). In the lodging industry, a hotel’s performance is highly correlated to its local

market (Corgel, 2002). Consequently, compared to the owners who diversify properties

into a large number of markets (i.e., MSAs), a hotel owner specializing in certain markets

can achieve relatively larger market share in each of the respective markets of its hotels,

and can better use local market information to improve local operational efficiency.

Different Effects of Core Competence

By definition, core competence has always been linked to superior performance in

the literature of strategic management (e.g., Coyne et al., 1997). However, this study

reveals that core competence can not be taken for granted as equally influencing all

business units of a firm. While the expertise in choosing better segment(s), brand(s),

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operation(s) and MSA(s) have been identified as the core competencies of the top sixteen

hotel owners in the study, the effects of these core competencies vary for each owner.

The findings suggest that, for example, while an owner’s core competence may be its

expertise in choosing the best brands with which to affiliate, it is not necessary that all the

brands chosen by the owner have made equal contribution to the overall superior

performance of its hotels. Instead, perhaps, while all hotels of the owner outperformed

the hotels of other owners, this owner’s hotels affiliated with some brands contributed

more to the overall performance than its hotels with other brands. Therefore, the other

brands become the weak ones in the portfolio of the particular owner. Moreover, it is also

possible that, while the overall performance of the owner is superior, a small number of

the owner’s hotels affiliated with certain brands may actually have not even achieved the

average performance level of its competitors. Therefore, instead of making a positive

contribution to the hotel owner, the latter brands, indeed, negatively influenced the

overall performance of the hotel owner. Consequently, while a hotel owner can declare

branding strategy as its core competence, the owner may not be able to claim that all the

brands it chose are better ones.

Similarly, an owner specializing in working with good operators may have hotels

managed by relatively weak or even “bad” operators, and an owner whose expertise is

identifying good MSAs may have hotels in relatively weak or even “bad” MSAs. This

finding is particularly important not only to hotel owners but also to firms in general,

because it cautions that a firm should not be over-confident about their core competencies.

Particularly, when a corporate strategy is identified as a core competence, simple

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repetition of such strategy would not always guarantee superior results. The fitness

between the strategy and the current environment, as well as appropriate execution of the

strategy should be carefully assessed every time before implementing such strategy. In

addition, the results of the strategy should be evaluated properly. It is suggested that a

firm should seek to continuously develop and improve its core competencies to stay

competitive (Olsen et al., 1998). Most strategic resources, including corporate strategies

as core competences, can be improved by identifying and then eliminating the weak

components over time.

Combination of Corporate Strategies/Core Competencies

While this research primarily focuses on partitioning the relative importance of

the hotel owner’s corporate strategies and on identifying the core competencies

accordingly, when taking into consideration the identified core competencies altogether,

this study also suggests the collective influence of a number of corporate strategies that

have the strongest impact on hotel financial performance. Empirically, two or more

strategies are commonly implemented or altered by hotel owners simultaneously. For

instance, acquiring an existing hotel or building a new hotel both involve considerations

of all segment, location, brand, and operator strategies. Because a significant number of

hotel franchisors also operate hotels for the owners (i.e., branded managers, such as

Marriott, Hilton, Starwood, etc.), hotel owner’s brand and operator strategies may

influence each other, because change in one strategy may lead to change in the other.

While interaction effects of the identified core competences are not examined in this

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study, it is likely that the most sophisticated hotel owners are the ones that can make

multiple best strategic choices for their hotels: Their hotels with highest RevPAR and

NOIPAR are more likely in upscale or higher segments, located in good markets,

affiliated with strong brands, and managed by operators with superior operational

expertise.

Conclusion

The purpose of the study is to explore corporate effects in the lodging industry

from a hotel owner’s perspective. Three specific research objectives are accomplished.

The first objective is to examine the existence of corporate effects in the lodging

industry. The study concludes that corporate effects do exist in the lodging industry.

Compared to other factors such as hotel size, hotel age, price level, and time (i.e., year),

the owner is indeed the most significant factor in determining a hotel’s financial

performance. Hotel owners play a crucial role in influencing the performance of their

hotels.

The second objective of this study is to investigate the effects of corporate

strategies on hotel financial performance. Findings reveal that a hotel owner can

influence its hotels through corporate strategies. Eight corporate strategies of the hotel

owner, namely, location strategy (i.e., region, state, MSA and market type), segment

strategy, brand affiliation strategy, operator strategy, location specialization strategy,

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segment specialization strategy, brand specialization strategy, and operator specialization

strategy are significant factors in determining hotel financial performance. Specifically,

an owner’s strategic decisions regarding segment, brand, and brand specialization are the

most important factors that influence both revenue and profit of its hotels.

The third objective is to explore the core competencies of hotel owners. Linking

the concepts of corporate strategy and core competence, the findings suggest that a hotel

owner’s expertise in implementing superior strategies regarding segment, brand, operator,

location (MSA), brand diversification, and location (MSA) specialization are the core

competencies of the owners whose hotels have collectively achieved the highest financial

performance. Moreover, this research reveals that, for a particular hotel owner, its core

competence may have different effects on the financial performance of its hotels because

some hotels may benefit more from the core competence than the others. Finally, this

research suggests that the most powerful strategy may be the combined effects of several

core competencies/strategies. Most likely is that the most sophisticated hotel owners are

the ones that can make multiple best strategic choices for their hotels.

Theoretical Implications

This study provides empirical evidence of the existence of corporate effects.

Previous studies, incorporating data from multiple industries, have revealed a wide

variety regarding the magnitude of corporate effects, and have suggested that such

corporate effects may be influenced by industry characteristics (e.g., Bowman & Helfat,

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2001). By focusing on one single industry, this research indicates that corporate effects

not only exist, but also may be more important than other factors in a particular industry,

such as the lodging industry. Such a large influence of corporate effects also empirically

supports previous studies suggesting greater corporate effects in services industries than

in manufacturing industries (McGahan & Porter, 1997).

This research expands the literature on corporate effects by examining the

underlying sources of corporate effects. Study findings indicate that corporate strategies

can be effective sources of corporate effects because a firm can influence the

performance of its business units by implementing certain strategies, while the degree of

importance may vary by strategy.

In addition, building on the resource-based view of the firm, this study further

contributes to the concepts of corporate effects and core competence. Corporate core

competencies are identified as the most important corporate strategies of the best-

performing hotel owners in this research. The results suggest that the effects of a core

competence may vary: For a particular firm, a core competence may have more

influences on some of its business units than on the others.

This study is the first of its kind to examine the corporate effects in the context of

the hospitality industry, and consequently adds significant value to hospitality

management research. This study expands the strategy research in the hospitality field by

linking several key strategy constructs – corporate effects, corporate strategy, and core

117
competence together and by revealing their influences on hotel performance. Moreover,

to the best of my knowledge, this study is the first to examine the relationship between

hotel financial performance at the property-level and hotel owner’s

specialization/diversification strategies at the corporate level, and it provides empirical

evidence on the various impacts of corporate specialization/diversification strategies.

Managerial Implications

Study findings provide several important implications for practitioners in the

lodging industry. First, this research clearly shows the importance of the owner’s

relationship to the performance of its hotel properties. As an industry that is heavily

franchised and requires specific managerial expertise, hotel franchisors and management

companies have received the primary attention pertaining to hotel property’s performance,

while hotel investors and owners are more likely to be mentioned in topics regarding

hotel development and acquisition. However, a non-operating hotel owner can, indeed,

have significant impact on the performance of its hotels through implementing a number

of corporate strategies. Specifically, all strategic decisions regarding a hotel’s location,

segment, brand affiliation, and operator are made by the owner, and consequently the

owner has the largest influence on hotel property performance.

Second, the findings support the notion that location, segment, brand affiliation

and operator do matter. Hotels in certain locations and segments, affiliated with certain

brands, and managed by certain operators can achieve superior revenue and profit.

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Therefore, for hotel owners, choosing the most appropriate locations, segments, brands,

and operators are critical to the performance of their hotels. For hotel franchisors and

management companies, proving their capabilities in bringing superior performance to

the hotels will create competitive advantage.

Third, this study reveals that, although all significant, the magnitude of the above

mentioned factors are different. While little surprise exists in seeing a hotel’s revenue

affected largely by segment, brand affiliation has shown a consistently larger impact on

both revenue and profit than location and operator. Therefore, hotel owners should pay

particular attention to the brand and carefully assess the brand’s potential contribution to

the hotel before engaging in a franchise agreement.

Fourth, the findings of this study support the notion regarding the benefits of

brand diversification. Since working with one brand may enable a hotel owner to gain

specific knowledge of that particular brand and then use such knowledge in its hotels

affiliated with other brands, hotel owners may consider adopting a multi-brand strategy to

improve their hotels’ performance through sharing brand-specific knowledge. On the

other hand, this study does not support the common practice of geographic diversification.

Instead, this research reveals that the degree of market specialization is positively related

to hotel performance. Because hotels compete in their respective local markets, hotel

owners should be aware of that having multiple hotels in one market can achieve better

information efficiency and relatively larger market share than having hotels in different

markets.

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 Fifth, the findings provide a number of corporate strategies as sources for hotel

owners’ core competencies. This research specifically reveals that segment, brand,

operator, location, brand diversification, and location (MSA) specialization are the core

competencies of the best-performing hotel owners in the sample. Hotel owners can self-

evaluate the implementations and results of these strategies, and identify their own core

competencies. Moreover, core competencies are found to influence some hotels more or

less than others. Therefore, even after the core competencies are identified, a hotel owner

should not be “blinded” by its core competencies. For example, a hotel owner

specializing in choosing good brands may choose average or “bad” brand(s) at some time,

and similarly, an owner with expertise in working with good management companies

may also have hotels that are managed by average or “bad” operator(s). This finding is

valuable not only to hotel owners but also to other types of players in the lodging industry,

because it reminds industry practitioners that core competence also needs continuous

improvement and development, and it can only improve through actively assessing its

results, and identifying and eliminating the weak components of it.

Sixth, industry practitioners should realize that segment, location, brand, and

operator strategies often work together rather than separately, particularly in projects of

new hotel development and hotel acquisition. For an existing hotel, change in one factor

may cause change in another factor, such as that shown in the relationship between brand

and operator. In addition, a hotel’s decision on quality and facility upgrade or downgrade

may also involve changes in brand and/or segment. Therefore, multiple strategies are

often adopted simultaneously and a hotel’s performance depends on their collective

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effects. Therefore, hotel owners should not overly rely on one particular strategy but

ignore the potential effects of the others.

Limitations and Recommendation for Future Research

Several limitations are associated with this study. First, corporate strategy is a

focal factor examined in this research. However, corporate strategy only represents one

source of corporate effects, while literature has suggested a number of other potential

sources of corporate effects, such as organizational structure, organizational climate,

planning and control systems, etc. (Bowman & Helfat, 2001). Similarly, the resource-

based view of the firm proposes different types of core competencies including financial,

human, physical and knowledge resources (Harrison & Enz, 2005). In this study,

corporate strategy is suggested as the only type of core competence. In addition, this

research adopts a relatively subjective, and consequently arguable, approach in

determining the core competencies of the best-performing hotel owners. Future research

incorporating other sources of corporate effects and core competencies, and adopting

different measures of core competencies is needed to further our understanding on these

topics.

This research adopts the data provided by STR. Although the STR database is the

largest available in the lodging industry, a significant limitation is that it does not disclose

the actual names of the owners, brands, and operators, which in turn limits the

interpretation of the results. A particularly interesting question for future research is:

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Which owners, brands, and operators are better or worse than the others? Future studies

linking specific brand, operator and owner names will be able to further examine firm-

specific characteristics and their effects on hotel performance. In addition, because brand

names were coded by STR in the sample, this study measures brand and brand

specialization strategies with an assumption that all brands are equally different. However,

the distances between brands may be different. In the lodging industry, the practice of

brand extension has caused most franchisors to have multiple brands. Therefore, for

example, a hotel owner choosing to diversify its brands from Hilton to Doubletree may

have a different impact on its hotels than diversifying from Hilton to Marriott. Future

researchers could measure the effects of brand and brand specialization more precisely by

taking into consideration the degree of difference between brands.

Moreover, this research builds on a convenience sample only with information

from 2003 to 2005, which limits the generalizability of the results. While having more

than one year’s data can help to partially assess the “year” effects, it should be noted that

such effects are not totally controlled in this research. For example, because the revenue

and profit performance of the whole lodging industry has greatly improved from 2003 to

2005, these three years represent a recovery period with a favorable market environment.

However, the financial performance of hotels in different segments and locations may

vary in different market environments. For example, as discussed in Chapter II, compared

to the midscale and economy hotels, luxury and upscale properties may be more

profitable in a favorable economic environment, and can be affected more severely

during an economic downturn (e.g., Brady & Conlin, 2004; Imperiale, 2002; O’Neill &

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Lloyd-Jones, 2002; Poutasse, 1997). Therefore, the “best-performing” hotel owners in

this study may simply have more hotels in certain segments and locations that

outperformed the hotels in other segments and locations between 2003 and 2005; and the

performance of these hotels may be affected significantly during a less favorable

economic environment, which in turn may cause the owners of these hotels become less

competitive than the others. In addition, hotel owners may adopt different strategies in

different market environments. One possibility is that, when the economic environment

becomes unfavorable, sophisticated hotel owners may become more likely to diversify

into different markets in order to reduce the risk of having most hotels in one of the worst

markets. While the current available data prevented this study from examining any

changes in strategies over time, future research studying a full life-cycle of the lodging

industry, when such data become available, would reveal a more complete picture on the

effects of the corporate strategies.

Furthermore, as the first comprehensive research focusing exclusively on the

effects of multiple corporate strategies on hotel performance, this study examined eight

strategies that are most commonly discussed and implemented by hotel owners. Although

efforts have been made to control for the well-recognized correlations among the eight

strategies (i.e., nesting the brands in hotel segments to minimize the brand-segment

connection), this study only investigates the main effects of the eight strategies.

Interaction effects among the eight strategies were not included in the model due to

complexity. While examining all interaction effects of these strategies within one single

study is difficult, future research on the interaction effects among hotel owner’s corporate

123
strategies can be broken into a series of smaller studies in order to provide additional

insights on this topic. This is a planned pursuit for the near future.

It is also worth noting that this research focuses on the operating performance of

hotels, measured as RevPAR and NOIPAR, but does not take into consideration the value

or investment of the hotels. A hotel’s operating performance (i.e., RevPAR and NOIPAR)

is related to the owner’s investment in the particular hotel. While hotels that are in certain

locations and segments, and are associated with certain brands and operators, have been

revealed to achieve higher RevPAR and NOIPAR in this research, it is not surprising that

the market values of these hotels may be higher as well, and consequently their owners

may have invested more in these hotels to obtain the superior locations, segments, brands

and/or operators. While a hotel’s operating performance is essential to its value, one of

the ultimate goals of hotel owners is to achieve superior, or at least acceptable, return on

investment. Hypothetically, a hotel may have the highest possible RevPAR and NOIPAR,

but may be still unprofitable to its owner because of its excessive investment cost. Future

research linking hotel owners’ strategies to their desired and/or realized return on

investment will be particularly valuable to the hotel investment community.

Finally, this study focuses only on the realized strategies of hotel owners.

Literature has suggested a number of internal and external factors that may affect the

realization of corporate strategies, such as organizational structure, organizational culture,

managerial capabilities, financial capabilities, market dynamics, and industry

macroculture, etc. (e.g., Barr, Stimpert, & Huff, 1992; Chandler, 1962; D’Aveni, 1990;

124
Hambrick & Mason, 1984; Harrison & Enz, 2005; O’Neill, 2004). Strategic decision

making of organizations is one of the key concepts in strategic management and has been

intensively studied from different paradigms, including rationality and bounded

rationality, politics and power, and garbage can. For instance, Eisenhardt and Zbaracki

(1992, p.17) suggest that an organization’s strategic decision may be the outcome of a

complex process involving many factors, in that “decision makers are boundedly rational,

power wins battles of choice, and chance matters.” Specifically, in the lodging industry,

previous research indicates that, before the establishment of a long term

franchise/management contract agreement, hotel owners and franchisors/operators

evaluate each other with a number of criteria to assess the potential of reaching a

successful long term partnership (e.g., Altinay, 2006; Clarkin & Swavely, 2006;

Jambulingham & Nevin, 1999; Scatchard, 1998). Therefore, it is possible that a hotel

owner, even with the knowledge of superior location(s), segment(s), brand(s), and

operator(s), may lack necessary capabilities and/or resources to pursue the desired

strategies. Future studies regarding the factors influencing the development and

implementation of hotel owners’ corporate strategies will shed further light on the topics

of corporate effects and core competencies of lodging organizations.

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 VITA
Qu Xiao

EDUCATION
ƒ Ph.D., Hospitality Strategic Management and Real Estate. 2007. School of
Hospitality Management, Penn State University
ƒ M.H.M., Hospitality Management. 2002. Conrad N. Hilton College of Hotel and
Restaurant Management, University of Houston
ƒ B.A., Chinese Language and Literature. 1996. Department of Chinese Language
and Literature, Beijing Normal University

WORK EXPERIENCE

ƒ Instructor, School of Hospitality Management, Penn State University

ƒ Assistant General Manager, ExtendedStay America NASA Hotel, Houston, TX
ƒ Human Resources Specialist, Marriott Medical Center Hotel, Houston, TX
ƒ Guest Services Representative, Holiday Inn Astrodome Hotel, Houston, TX
ƒ Front Desk Agent, Hilton University Hotel, Houston, TX
ƒ Journalist, China Tourism News, China

PUBLICATIONS

ƒ Xiao, Q., O’Neill, J.W., & Wang, H. International Hotel Development: A Study
of Potential Franchisees in China. International Journal of Hospitality
Management. (In press).
ƒ Mount, D.J., & Xiao, Q. Economic value of the recovered guests by hotel call
centers. Journal of Hospitality Financial Management. (In press).
ƒ O’Neill, J.W., Xiao, Q, & Mattila, A.S. (2007). Suburban hotel development:
Choosing a franchise brand. Case Research Journal, 26 (2), 43-60.
ƒ O’Neill, J.W., & Xiao, Q. (2006). The role of brand affiliation on hotel market
value. Cornell Hotel and Restaurant Administration Quarterly, 47 (3), 1-14.
ƒ O’Neill, J.W., Mattila, A.S., & Xiao, Q. (2006). Hotel brand performance and
guest satisfaction: The effect of franchising strategy. Journal of Quality
Assurance in Hospitality & Tourism, 7 (3), 25-39.
ƒ O’Neill, J. W., & Xiao, Q. (2005). Towards a strategic approach to smoking bans:
The case of the Delaware gaming industry. FIU Hospitality Review, 23 (1), 39-50.

AWARDS
ƒ Best Article Award, Cornell Hotel and Restaurant Administration Quarterly (2006)
ƒ Best Paper Award, International Council on Hotel, Restaurant and Institutional
Education (CHRIE) Conference (2006)
ƒ The Annual Grace M. Henderson Award for Outstanding Graduate Student,
College of Health and Human Development, Penn State University (2006)