Strategic Hospitality Management

Management report City Lodge hotel group

Module period 1 - 2016- 2017

Dize Sleiderink - 436941

Jelmar van der Gugten - 448877
Leanne van der Veen - 440868
Esmeralda Lachevre - 408999
Rosalie Koopman - 380660
Anne-Marie Vlas - 391131
CBL group SHM-K

November 1st, 2016

Stenden – International Hotel Management

Leeuwarden
The Netherlands

Submitted in Partial Fulfilment of the Requirements of the degree Program Bachelor of Business
Administration (Hotel Management)

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Declaration own work
Declaration

1. I composed this work myself.

2. This work has not been accepted in any previous application for a degree or diploma, by myself or
anyone else.

3. The work of which this is a record has been done wholly by myself.

4. All verbatim extracts have been distinguished by quotation marks and the sources of information
have been specifically acknowledged.

1. Leanne van der Veen

2. Rosalie Koopman
3. Esmeralda Lachevre
Name 4. Dize Sleiderink
5. Anne-Marie Vlas
6. Jelmar van der Gugten

1. 440868
2. 380660
Relation number 3. 408999
4. 436941
5. 391131
6. 448877

Signature

Date November, 1st 2016

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 Abstract

This management report is done by six students for the ‘Hospitality management’ study. The purpose of
writing this management report about City Lodge hotel group was to get knowledge about strategy and to
prepare ourselves for the fourth year. The report is about City Lodge Hotel group (CHLG). This is a hotel
chain which exists of four brands and provide 55 hotels throughout South Africa. For this report, research
was done and especially the annual report of CLHG and the book of Johnson, Whittingson, Scholes,
Angwin, & Regner (2014) were used as main sources.

Firstly, the internal analysis is described which consists of the vision, mission, long-term goal, strategy
and business model of the CLHG. This will provide a clear picture of what type of organization CLHG is,
where it stands for and what it wants to reach. Secondly, a comprehensive analysis is showed with the
companies investment policies. This will give an overview of the financial performance of the company.
Furthermore, the part of strategic capabilities will work out what the resources and competences of CHLG
are. In addition, a conclusion is written about how to create competitive advantage in the market.
Moreover, an external analysis is worked out whereby the macro environment is evaluated with a
PESTEL analysis. In addition, several concepts are worked out in order to evaluate the market where the
hotel is placed in (Johnson et all, 2014). After evaluating the opportunities and treats in the external
environment a TOWS matrix was designed. With this tool, two strategic options came up. The first
strategic option is ‘Use professionals to develop an internal educational program for underprivileged
Africans’ and the second strategic option is ‘Open a new 5 star brand in South Africa’. Those two options
are worked out with the use of the SAFe criteria. With this criteria, it can be determined if the strategic
options are suitable, acceptable and feasible to implement in the company. Lastly, the impact that the
strategic option have is discussed on several factors. This is done to prepare CLHG for the adjustment
that have to be made or the change that it will create in the vision, mission, goal and business model.

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Table of content
Declaration own work.................................................................................................................................2
Abstract.......................................................................................................................................................3
Table of content..........................................................................................................................................4
1. Key Outcomes Internal Analysis..............................................................................................................6
1.1.Vision, Mission, Long-term Goals, Objectives, Strategies and Business Model.................................6
Mission................................................................................................................................................6
Vision...................................................................................................................................................6
Long-term goals...................................................................................................................................6
Objectives............................................................................................................................................6
Strategy...............................................................................................................................................7
1.2. Comprehensive Financial Analysis....................................................................................................7
1.3. Strategic Capabilities........................................................................................................................9
2. Key Outcomes External Analysis............................................................................................................11
2.1. Analysis of the Macro Environment: PESTEL Analysis.....................................................................11
2.2. Five Competitive Forces and Life Cycle...........................................................................................12
2.3. Analysis of the Markets & Competitors..........................................................................................15
2.4. Evaluation of Opportunities and Threats External Environment....................................................17
Opportunities....................................................................................................................................17
Threats...............................................................................................................................................17
3. TOWS Matrix.........................................................................................................................................18
4. SAFe.......................................................................................................................................................19
Strategic option 1: Education program..................................................................................................19
Suitability...........................................................................................................................................19
Acceptability......................................................................................................................................21
Feasibility...........................................................................................................................................24
Strategic option 2..................................................................................................................................26
Suitability...........................................................................................................................................26
Acceptability......................................................................................................................................28
Feasibility...........................................................................................................................................30
5. Impact Strategic Option.........................................................................................................................32
Conclusion.................................................................................................................................................35

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Appendix...................................................................................................................................................36
Appendix 1. Business Canvas Model......................................................................................................36
Appendix 2: Competitors matrix............................................................................................................38
Reference list.............................................................................................................................................39

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1. Key Outcomes Internal Analysis
1.1.Vision, Mission, Long-term Goals, Objectives, Strategies and Business
Model
City Lodge hotel group focus on the future and is committed to fulfil the vision and mission of the
company. City Lodge Hotel Group is a multi-brand chain offering a variety of locations, features and
budget choices to business and leisure guests.

Mission
The mission of a company is ‘the overall purpose of the organisation’ which is in alignment with the
expectation and values of the stakeholders (Johnson et all, 2014). First of all, CLHG constantly enhance
the guest experience by using passionate people, on-going innovation and leading edge technology. The
company place emphasis on providing quality accommodation, friendly service and a homely ambience.
Second of all, the hotel group strives to provide an exceptional return to its stakeholders. Hereby, a
sustainable growth is ensured by using their values, integrity, and on-going investment in their people and
hotels. Then, through hospitable actions, the hotel group aims to make a positive change to the
employees, customers, the local community and the environment. Finally, through teamwork, courtesy,
and devoted leadership, City Lodge is engaged to deliver qualitative service with care and style.

Vision
The vision of a company is ‘the desired future state of the organisation’ (Johnson et all, 2014). The
company is working on becoming the most recognised and the preferred sub-Saharan African hotel
group.

Long-term goals
The strategy of the company is to expand in South Africa in order to become the most recognized and
preferred sub-Saharan African hotel group. City Lodge hotel group also plans to expand to Africa in the
future. The hotel plans to expand in countries like Angola, Ethiopia, Ghana, Ivory Coast and Nigeria.

Objectives
Firstly, the main objective of the hotel group is to optimise the reduction of the total waste of energy and
water consumption of the hotel by 50%. In order to make this as efficient as possible, managing their
carbon footprint is essential. Therefore, the maintenance of the energy consumption per room sold is
important for City Lodge hotel. Through the water-saving initiatives adopted like the reuse of water and in
the renewable technology like sun panels, the water consumption should reduce within 2 years. Secondly,
implementing an innovative technology platform is another objective of the hotel group by implementing a
high-speed Internet package. Hereby, the customers visiting the hotel will have access of qualitative Wi-Fi
and a renewed telephony platform. Lastly, investing in people in another objective of the company. This is

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done by maintaining and improving the B-BBEE rating as well as in caring about the health of the
employees. Moreover, the work environment is constantly improved and maintained.

Strategy
The first strategy of the hotel is to fortify the position of the hotel within the South African hospitality
industry. This is consolidated by their investment policy. The second strategy is to broaden the carbon
footprint beyond South Africa’s frontier. The third strategy is to change the hotel group’s culture in
alignment with the code of good Conduct according to the B-BBEE certificate to a higher level. The fourth
strategy is to be the leader in environment sustainability within the hospitality industry. The fifth strategy is
to implement a technology platform, which gives access to every customer to high speed Internet. The
last strategy is to maintain embedding the rejuvenate brand and increase the benefits of its marketing
(City Lodge Hotel Group, 2015).

1.2. Comprehensive Financial Analysis

After analysing the financial status of CLH, it can be concluded that they are financial healthy. The days of
sales outstanding are for CLH really high compared to their competitors. This can be a small risk
because, more days to collect money compared to the competitors are needed. In 2015, CLH is not able
to effectively manage its fixed assets. In 2014, there was an absolute growth for CLH in RevPar,
compared to the competitors, which did not increase its RevPar. The reason for this growth is that CLH is
expanding hotels over Africa compared to its competitors. The competitors are not as effective in
expanding as CLH. The hotel group has a profitable status compared to its competitors. The profit margin
of City Lodge is far above the ones from Sun International and Gooderson, which are the competitors
used in this report. Furthermore, City Lodge Hotel Group has a competitive advantage on its asset
turnover, because of the same ratio outcome. This means that shareholders are willing to invest in City
Lodge Hotel more or less in the same amount as their competitors. Moreover, City Lodge hotel has a
much higher return on assets percentage of than its competitors, this means that City Lodge Hotel Group
is more effectively investing. This is creating a strong competitive advantage for City Lodge Hotel Group.

The net income of City Lodge Hotel Group increased with 125% from 2011 to 2015. The EBITDA
increased with 20% from 2014 to 2015. The reason of this growth is because of the investments done in
other companies and received interest from those companies in return. CLH is able to pay back their
interest almost 10 times.

The liquidity ratios show the ability of a company to pay off its short-term debts (Investopedia, 2016).
According to this calculation, CLH has a rather high current ratio. This means that CLH can cover its
short-term obligations better than its competitors. High liquidity ratios are better than lower ones because
the company faces low risks and are able to pay off its short-term debts. In 2015, the current ratio of CLH
has increased with 0.21 compared with the years before, which means that there is no risk for investing.

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The hotel group is able to pay off its current liabilities with the current assets. This indicates that CLH is
financial healthy and can invest further.

City Lodge started with a debt to equity ratio of 2.2 in 2013. Every year, CLH invests in new hotels to
expand their footprint within Africa. Hereby, the number of interest significantly decreases. Since 2013,
CLH is investing every year in several hotels or upgrading its existing hotels. Hereby, CLH has the
possibility to pay off its debts because of the leverage which is getting smaller.

CLH moves its money from net income to retained earnings so that they can use their earnings for
investments. This is also the reason why the number of times interest is earned and has an absolute
growth. Creditors prefer generally a lower percentage since this will indicate a reduced exposure to risk,
while owners prefer a high percentage because of their desire to earn higher returns using leverage
(Chibili, 2010). CLH started in 2013 with a percentage of 13% and in 2015 there was an absolute growth
of 31%. Compared to its competitors is CLH more stable to pay back their long-term debts.

We can conclude that the hotel’s position within the African hospitality market is stable, because of the
grow every year. CLH can invest every year in new hotels to expand their footprint within Africa and to
become the leader of the African hospitality industry.

The interest rate in Africa is a considerable financial risk. In 2015, the interest rate was 7%
(Tradingeconomics). The South-African reserve Bank decided the interest rate in Africa. The bank
decided on basis of the week domestic fixed investments and the low level of businesses. The interest
rate was decided for that specific year. Furthermore, there are several factors influencing the financial
health of CLH. The solvency ratio of CLH is stable over the past three years, so they face low risks. Also
the current ratio is stable in 2015 which is 1.80. For the shareholders is this percentage positively
perceived, because it is preferred to have a generally low current ratio, because then the current ratio is
less productive. However, the suppliers of CLH might increase its prices, then it is possible that CLH can’t
pay for those products anymore. In Africa, it is hard to find another suppliers, which can deliver the right
products, which are needed for the operations. CLH is operating in the same currency area so the
currency risks are in 2015 low. When the hotel group is going to expand to other countries with other
currencies, it can be risky to face high currency ratios. The management of CLH need to think carefully
about their expanding.

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1.3. Strategic Capabilities
The Strategic capabilities are internal strengths and help to differentiate themselves from other
companies. The resources are what the company already has and the competences are what the
company does well. The different categories of the competences and the strategic resources are human,
financial, physical, technological and informational. According to (Johnson et all, 2014), this model is used
in order to analyse the strategic capabilities (see figure 1).

Figure 1: Strategic capability

Human
To begin, one of the strategic priorities of City Lodge hotel is the human part. Ethics are important within
the company, since the group process is transformed in line with codes of good practices; the B-BBEE
certificate. Then, delivering high service and the expected quality to guests is also an important factor.
Therefore, the company provides a place where employees can develop their skills. Therefore, City
Lodge hotel is performing well with regard the up skilling of employees. The current employee turnover is
at 8.71%, which is below the industry’s average (25.9%) (Compensationforce, 2016). The hotel group
created 1,866 jobs in 2015. Additionally, certain of the group’s employees belong to the Discovery Health
Medical Scheme. There is a post-retirement contribution possible for the employees, however it is not
obligated. Regarding the employees working in the City Lodge hotels in Kenya, they benefit of gratuity
medical aid in collaboration with Kenyan Collective Bargaining Agreement. The aim is helping the
Kenyans being healthy.

Financial
Looking at the revenue from CLH in the annual report from 2015, the profit increased from 274,771
dollars from 2014 to 2015. Over the past few years, City Lodge hotel increases its revenue from
approximately 10%. In 2015 a considerable increase from 23%. This is mainly due to their investment in
other hotels and the hotel group owns every building in which the operations are taking place. Therefore,
there is an EBITDA increase of 20% (Morningstar, 2016). Every detail can be found on Morningstar and
the annual report.

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Physical
City Lodge Hotel has 55 hotels mainly located in South Africa, and few in Kenya and in Botswana. The
hotel group has two upscale brands: Fairview and Courtyard, on midscale brand: City Lodge and two
economy brands: Town Lodge and Road Lodge. City Lodge uses different brands to attract different
market segments. The hotel owes almost every building they have with a total of 7,072 rooms and rank
itself the amongst the 200 largest hospitality chain in the world.

Technological
The hotel chain is implementing an in house system PMS system. Therefore, external software specialists
are engaged to design and execute an up-to-date system, which have to be implemented in every City
Lodge hotel. This will result in many benefits for the hotel; the cash flow will be easy to control. Because
the hotel is expanding through sub-Saharan African, the hotel established an IT infrastructure in order to
support the hotel’s daily operations. There is continuous maintenance and upgrade towards this platform.
Moreover, guests of the hotel will have access to high-speed Internet depending on the package chosen.
One of them permits the access for 24 hours Internet and the other one is Internet not included in the
booking price.

Informational
Information is provided through City Lodge hotel’s website. Additionally, the hotel chain provides
information to its internal and external stakeholders through an annual report. In there, all the information
about the hotel is detailed. Moreover, for financial information more detailed than in the annual report, on
Morningstar more information can be found.

Conclusion
First of all, the physical resources are the buildings and the equipment of the hotel. The competences’
regarding this is that the 55 City lodge hotels use different brands in order to attract different segments.
Moreover, the hotel group owns its hotels. This is in the favour of the hotel because it is more profitable to
owe a building rather than to rent it. In 2014 and 2015, the interest rate in South Africa was approximately
at 5% (Trading Economis, 2016). Trading Economics. Second of all, the financial resources are
elaborated in the ‘Financial’ part of this part assignment. The hotel group was able to raise its funds and
increase its revenue by investing. All in all, it can be concluded that City Lodge performed well regarding
its financial performance over the past years. The last competitive advantage is the human part of the
company. The hotel group is people-oriented because for example there is a high focus on employees of
the hotel regarding health and well-being. The B-BBEE certificate in an example of a certificate used
within the company. Moreover, there is possibility for the employees to grow within the company. All in all,

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all these strategic capabilities permit to City Lodge hotel group to create a considerable competitive
advantage and creating trust with customers.

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2. Key Outcomes External Analysis
2.1. Analysis of the Macro Environment: PESTEL Analysis

In order to look for the key drivers, a PESTLE analysis for the city lodge hotel group is made. According to
(Johnson, et all, 2014) the concept of PESTLE is used as a tool by companies to do research on the
environment they would like to operate in. It is most useful for a company to use this analysis, not only to
know what a company should do, but it also takes the organizations goals in consideration and strategies
attached to them.

Political
Looking at the political factors, there are high risks regarding to the corruption and crime, which can have
an impact on the environment of City Lodge. According to the Daily Maverick of South Africa the amount
of murders have been increased with a percentage of 4,9%, compared to the last few years
(dailymaverick, 2016). Another political factor is the uncertain political situation, which is created by the
leader of South Africa named Jacob Zuma. He is accused of corruption, which has in general a negative
impact for the country. The terrorist attacks are also a high risk factor for the African hospitality industry. It
is possible that this could be the reason for the lower occupancy rate, because customers are afraid to
travel to tourism attractions.

Economical
For the economic factors that influences City Lodge whom might be positive or negative. The economy of
South Africa is growing and because of that emerging economy, it is now part of the BRICS countries
(brics, 2016). However, the low level of education and the high level of unemployment is negatively
influencing the country, and so City Lodge.

Social
There are a lot of social influences for City Lodge. There are eleven different languages in South Africa
(Southafrica, 2016). This can lead to language barriers, because not everyone can understand each
other. Unfortunately nowadays are there several diseases in South Africa, which can have an impact on
the hospitality industry in general. Some local people can’t afford the medicines because they are too
expensive. This is a risk for CLH because the employees can affect each other and this can lead to high
staff turnover.

Technological
One of the big trends in the hospitality industry is nowadays the use of technological innovations. The use
of the Internet within South Africa is growing every year. This is an opportunity for the hospitality industry

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regarding to online advertising, online marketing and the use of distribution channels. The country aims to
expand in an environmentally- friendly economic growth, this will be done by implementing new
technologies for solar, wind and biofuels (Azocleantech, 2016).

Legal
The law in South Africa is a ‘mixed law’, which means that they work with a combination of two law
systems. These laws are integrated from the regular Dutch and British law system. Visa restrictions are
the biggest issue when people would like to visit South Africa. The country came on 1 June 2015 with
new requirements for visiting South Africa, particularly for children. All children under the age of 18 years
who travel to South Africa need the consent of both their parents, and to produce an unabridged birth
certificate to get a visa or at a port of entry (lawsofsouthafrica, 2016).

Environmental
Environmental issues like natural disasters, air pollution and acid rain have a big influence on the
hospitality industry. However the country has such a beautiful landscape, it doesn’t stop people from
travelling to South Africa and to see the big five.

2.2. Five Competitive Forces and Life Cycle

Threats of entry
Potential entrants mean how hard it is for other companies to enter the hospitality industry. The scale and
experience are important factors to keep in mind. South Africa does have many hospitality industries with
low classifications and high classifications. In the 3 star and lower hotels is more competition rather than
in the 4 and 5 star hotels; through this it is more difficult to enter the market in the lower class. In the
upper class is less competition, since there are less companies, hence the investment costs would be
higher in this segment. Beside this knowledge and experience is a crucial factor to serve guests and keep
the companies running. The retaliation in the hospitality industry of existing companies is unlikely. In the
hospitality industry the core products are quite similar, however every company can differentiate in an
own distinctive way. In conclusion, the 3 stars and lower have higher barriers for new entrants than 4 and
5 star hotels.

The threats of substitutes

Substitutes describes if there is a similar product that is good enough. There are many substitutes for
hotels, for example bungalows, camping’s, Airbnb etc. The price/ performance ratio is a critical aspect. A
substitute should have the right proportion between the price and the performance. When the substitute is
more expensive, there should also be a performance advantage to keep the proportion equal. Some
guests are willing to pay more if the quality increases. Figure 2 shows the influence of substitutes in the

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South African hospitality industry. Looking to that figure, there is a high threat of other substitutes, since it
is not very difficult to offer a similar service/ product in the hospitality industry.
The bargaining power of buyers
The bargaining power of buyers is all about how much influence do buyers/ guests have over your
company. In the hospitality industry there a several opportunities to buy products in different price
categories. Concentrated buyers, as travel agencies are responsible for the majority of the sales, so the
bargaining power is high. Buyers can also switch easily from product or service to those of someone else,
since there are several companies with the same product or service (Johnson et all, 2014). To conclude,
buyers/ guests does have low bargaining power, since there are a few 4-5 star hotels in South- Africa, so
less choice for the guest.

The bargaining power of suppliers

The bargaining power of suppliers is all about how much influence do suppliers have over your company.
There are less concentrated suppliers, since many producers influence the supply, and so suppliers do
have low bargaining power. The bargaining power of suppliers is driven by the number of suppliers, the
uniqueness of the products and services, the strength and control over you (Johnson et all, 2014).
Generally, the switching costs are low when a company aims to switch from one supplier to another.
Hotels can also have a contract with suppliers, and then it will cost a company a lot of money to buy out.

Competitive rivalry
The competitive rivalry is placed in the centre of the five forces analysis. The tourism industry in South
Africa is growing according the annual tourism performance 2015 of South Africa. The hospitality and
tourism sector is the fastest growing sector in South Africa, despite the weakened economy overall
(Nguema, 2014). Due to that, the rivalry in this segment is also increasing. Beside this fact there is a
rivalry difference between 2- and 5 star classifications in South Africa. The website sa-venues gives an
overview of different hotel classifications in South Africa. Remarkable is, the fact that a considerable
amount of the hotels operate in the lower star classifications. That results in a higher rivalry in the lower
star classification and lower rivalry in the 4-5 star classifications.

The hospitality deals with high fixed costs, since it is very expensive to invest in buildings. The outcome is
a higher competition; every hotel aims to have an absolute occupancy rate to cover these fixed costs.
This can result in price wars, since this is an effective method for hotel industries to tackle competition.
The exit barriers in the hospitality industry are high, since it is not easy to trade property for a reasonable
price. Through that it could be difficult to quit in this sector. The core product in the hotel industry is; offer
stays, which is not very difficult to differentiate. This gives guests the power to switch easily between the
competitors.

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To conclude, figure 2 shows the difference between the 4 star classifications and the 3 star and lower
classifications. This figure gives an overview about the difference between these two classifications. Both
classifications do have different threats; the 3 stars and lower classification have more rivalry rather than
the 4 star classifications. The threats of entry are also different; the 4 star classification will experience a
higher threat of entrants than the 3 star classification.

Threat of entry

40
Competitive rivalry Threats of substitutes
3 stars and lower
20
0 classification
4 star classification

The bargaining power of suppliers The bargaining power of buyers

Figure 2: Forces driving competition in the hospitality industry in South Africa

The industry life cycle

According to figure 3 the hospitality industry of South Africa is in the shake- out stage. The rivalry is
increasing and the South African market becomes more attractable. The South African hotel industry has
been growing fast from 2011 till 2015 (10,8%), however from now till 2020 there will be a growth (5,9%),
but with a lower speed (Marketline, 2015). Due to this fact the overall South African hospitality industry
will go from the shake- out to the maturity stage.

Considering Porter’s five forces, City Lodge hotel group’s brands can be divided in two stages. The 3 star
and lower brands are in the maturity stage, since there is less growth and high entry barriers. Due to the
high rivalry the entry barriers are high. The current companies do also have a lot of experience, so it will
be difficult to reach that level of service for new entrants. The 4 star brands are in the growth stage, there
is less rivalry and the barriers to enter are low. In figure 2 is also visible that buyers do have low
bargaining power, this is also mentioned in the typical five forces in the growth part.

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 Figure 3: the industry life cycle (Source: Johnson et all, 2014)

2.3. Analysis of the Markets & Competitors

(Johnson et all,, 2014) describes that market segment is a group of customers, who are sharing the same
characteristics and have the same needs and wishes. City Lodge has five different brands, so the focus
can be divided into several market segments. The brands vary from 2 till 4 star brands, so the market
segment is the middle class leisure and business guests. The CLHG is only located in South Africa and
aspire to expand within Africa.. With this, CLHG aims to be recognized as the preferable African hotel
company. The focus is on leisure guests, travelers and business guests.

Big competitors of City lodge are; African Sun Hotels, Sun international and Gooderson. These
companies are also active within Africa and offer several brands to serve every guest. These
organisations together make up a ‘strategic group’.

According to (Johnson et all, 2014) strategic groups are organizations within an industry or sector with
similar strategic characteristics, following similar strategies or competing on a similar base.

In order to identify the particular strengths and weaknesses in relation to CLHG, a competitive profile
matrix is established. The critical success factors of the companies will be examined in this matrix. The
ratings will refer to strong or weakness, whereby 1= major weakness and 4 = major strength (David, F. R,
1995).

Gooderso
CLHG   Sun International   n  

Critical success factors Weight Rating Score Rating Score Rating Score

Product Variety 0,1 2 0,20 4 0,40 3 0,30

Brand variety 0,1 4 0,40 1 0,10 1 0,10
Financial position 0,2 2 0,40 4 0,80 1 0,20
Occupancy 0,2 3 0,60 2 0,40 1 0,20
Global expansion 0,2 2 0,40 3 0,60 1 0,20
Market share 0,1 3 0,30 3 0,30 1 0,10
RevPar 0,1 3 0,30 2 0,20 1 0,10

Total 1   2,60   2,80   1,20

Table 4: Competitive profile matrix

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The ratings values are as follows: 1= major weakness, 2 = minor weakness, 3 = minor strength, 4 = major
strength

Comment on the Matrix

The matrix in table 4 noticed that Sun International is the company, which has the highest rating of critical
success factors. Appendix 2 will visualize the outcome of table 5. With this, it can be stated that Sun
International is the best performing company when comparing with CHLG and Gooderson. There main
performance comes from the Casino, because Sun international have only 6 hotels so in that area will
CLHG be a better performer. In addition, the occupancy percentage of the hotels is 60,3%, which is quite
high compared with the occupancy of Gooderson, which is 36%. According to Gooderson, the reason of
the low occupancy percentage is that the Visa regulations have impacted the company strongly. When
having a look into the financial position of the strategic group. It can be stated that Sun International is
performing favorable with an increase of 5,8% in revenue. This leads to revenues of 5290 million in the
year 2015. It is noticeable that the operations in the casino create most of the revenue; this is the reason
why Sun International has the highest percentage of the income. CLHG and Gooderson don’t have
casinos enclosed to their hotels but provide more hotels and other consolidated income. Nevertheless,
CLHG does have acceptable revenues of 1301 million compared with Gooderson, which made 150
million. However, Goodersons revenue is not that much as the other competitors but it did increase by
17% this year. Furthermore, CLHG is expanding in long and short term to 10 countries in Africa, whereas
Gooderson stays in South Africa and Sun International already expanded to Africa and is situated in Latin
America. In 2015, the RevPar of CLHG was 782,6, compared with Sun International it is an excellent
performance because their RevPar was 472,26.

Where is CHLG placed in the market?

Important to know is how the company is placed in the market. Do they dominate the market, or are they
a less dominant company within the market. For the hospitality market, a growth of 12.4% in foreign
visitors was expected between 2016 and 2020 (Pwc, 2016). Therewith, it is mentioned that the overall
number of available rooms in South Africa will increase in 2017 with 0,7%. The reason for this is that in
2017 seven new hotels will be opened. These include; Radisson Blu Hotel & Residences in Cape Town ,
Sun International Menlyn, Marriott Executive Apartments in Johannesburg, Tsogo Sun’s two-hotel
complex in Cape Town, Stayeasy and Sunsquare Hotel, Radisson Red V&A Waterfront in Cape Town,
ibis Communicate in Cape Town. This is unfavorable for CLHG as there will be more competition. On the
other hand, CLHG is planning to expand to African countries where economic growth and increase in
tourism is taking place. In the three till four star market where CLHG is paced in, Oligopoly is the form of

17
situation. This mean that there is not one dominant competitor within the market. Instead, all companies
are somewhat equal to each other in the market but there are a few with a bit higher market share.

Figure 5 presents the market position of City Lodge hotel group. Figure 5 consists of eight chains from the
South African hospitality industry. With this it can be stated that City Lodge is taking the lead in the
market, together with Protea by Marriot and Southern sun hotels.

Market share in South Africa

City Lodge Hotel Group

Protea by Marriot
9%
3% 21% Southern sun Hotels
2%
2%
3% Gooderson

Accor

African Anthology
26%
34% Sun International

African Elite properties

Figure 5: Market share in South Africa. Source: (South African hotels, 2016)

2.4. Evaluation of Opportunities and Threats External Environment

Opportunities
One of the opportunities from City Lodge Hotel Group is the growing tourism industry of South Africa.
Comparing with another African country, South Africa does have a higher grow rate than for example
Egypt; namely 8,3% and 10,8% between 2011 and 2015 (Marketline, 2016). This can mean that people
are willing to spend more money on travelling, which affect the South African hospitality industry
positively. Another opportunity is the development of social media. Nowadays, travellers make more use
of mobile technology and online capabilities to shop online. Especially the target group millennia’s make
use of these technologies and appreciate good Internet access. These millennia’s all know how to use a
smartphone and are not afraid to use the Internet to leave reviews etc. One very special opportunity is the
unique culture and nature of South Africa. There is no other country, which has this specific landscape
and is a big attraction for tourists. E.g. the big five can only be spotted in South Africa.

Threats
South Africa has a relative high interest rate (7%) compared to other countries in the world. This will lead
to a low level of business and consumer confidence (Trading Economis, 2016). Also the actual interest

18
 rate seems to be sustained in the next quarter. Beside that, there is also a threat from Marriot
international. Marriot is known as the leading hotel company in the world and does have plans to expand
to South Africa with three new brands (Marriot international, 2016). This could be a potential threat for
CLHG, since both organisations aims for a market leading position. Another threat is the threat of
diseases. South Africa deals with many diseases and many of them are deadly. The most known and
dangerous diseases are Ebola, AIDS, HIV and Zika virus. These factors could withhold people from
traveling to South Africa, since the medications are expensive and the risks are high. Due to these facts
people will easier choose a safer destination.

3. TOWS Matrix
The TOWS matrix (table 6) will help to identify he best suitable strategic option for City Lodge hotel group.
The TOWS matrix is established by using the SWOT analysis and PESTEL analysis. Both internal and
external aspects were analysed and some strategic options are composed. To form solid strategies the
external and internal factors should fit with each other. The numbers and the letters in the table make it
straightforward to read it. E.g. opportunity 1 and strength 1 are forming a growth strategy. The
abbreviation is mentioned between brackets (S1, O1), so it is a quick guide to read the table. With the use
of this table the 2 bold options were chosen. CLHG does not have a 5 star brand and there is not a
unique trainings program in the South African hospitality industry, so the SAFe criteria will analyse if it is
suitable, acceptable and feasible.

Tows Matrix Internal strengths (S) Internal weaknesses (W)

1. Expanding to Africa 1. Occupancy rate in the weekends
2. B-BEEE certificates is below the industry averages.
3. Different brands 2. Lack in the use of distribution
4. I’m kind service excellent program channels.

External opportunities (O) Growth SO strategy Defend ST strategy

1. Growth in the African tourism
industry.
2. Partnerships with charities and
hotel school of South Africa.
3. Unique nature/ culture of South
Africa. (Big 5)
4. Invest in local citizens
5. Increasing internet access
 Expand to Africa, due to the  Offer special discounts to
growing hospitality market. (S1, increase the occupancy rate.
O1) (W1, O3)
 Open a new 5 star brand in  Put more effort in finding
Africa. (S3, O1) distribution channels to
 Acquire with hotels in South Africa. increase the scope. (W2, O5)
 Establish a partnership with the
hotel school of South Africa. (S4,
O2)
 Conduct an internal training
programme for unprivileged
Africans. (S2, O4)

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External threats (T)
1. Visa regulation
2. High criminality
3. Diseases (Ebola, HIV, aids, Zika
virus.)
4. High interest rate 6-7%
5. Expansion of Marriot in South
Africa.
6. Currency risks
7. Competitors generate high profit
with casinos.
Table 6:TOWS matrix
Improve WO strategy
 Invest in talent programs to
consolidate the position of City
Lodge hotel group. (S4, T5)
 Expand to a country with a positive
inflation effect. (S1, T6)
20
Retreat/ change WT strategy
 Arrange partnerships with
casinos. (W1, T7)
 Expand to North Africa,
because the Visa restrictions
are more flexible over there.
(W1, T1)
4. SAFe
The SAFe criteria are measured by companies to find out if there is a benefit for the company to
implement a financial or a non-financial strategic option. It focuses on 3 criteria. According to Johnson
(2014), the first one is suitability. This one is focusing on the opportunities of the environment where the
threats are avoided. The second is acceptability. These criteria measure the risks, returns and the
reaction of stakeholders of the strategic option implemented. The last one is feasibility. The company is
asking itself if the strategic option is realistic. That means that the company is capable to implement a
strategic option. The following strategies were chosen:

1. Use professionals to develop an internal education program for underprivileged Africans.

2. Open a new 5 star brand in South Africa.

Strategic option 1: Education program

Suitability
According to the World Factbook (2016), 18% of the South-Africans is between the 15 and 24 years old.
The hotel group will focus more on the 15 till 24-age category. According to the PESTEL analysis, the
social part is explained. The population in the category 15- 24 is 4.8 million,. The hotel believes that
0.01% (which result in 500 Africans) of this age will participate the internal educational program. The
potential students are not wealthy enough to pay an education like this, therefore a costs plan was built.
The program is not for free, so students will have a loan and sign a contract. The education program will
last 30 weeks and after these weeks the students will work in the hotel for 12 months and pay off their
loan.

To begin, there are 11 languages spoken in South Africa; the program will make sure that English will be
the most spoken language within the program. In addition, the students will live intern in one student
building, provided by the Red Cross near by a hotel of CLHG. Also the classes will be given in this
building. There will be a high focus on hygiene and healthy life-style. Hereby, the goal is to prevent
diseases and to teach about etiquettes. Moreover, the gap between poor and rich will not be fully solved.
However, the poor people will have to opportunity to learn the skills in order to be able to work in the
hospitality. Due to this program, there is an opportunity for them to earn money and to take care of their
families in order to have a better future. Finally, this will help the youth from the street and limit criminal
activities and diseases.

In order to prove to the strategic option is suitable to the internal and external stakeholders, the students
used the Porters five forces. The threats of substitutes are high so the barriers to entry are low. With an
internal education program, City Lodge Hotel group advances its competitors. The hotel will be the first

21
chain that implements such a program, which gives them a competitive advantage. As a conclusion, the
threats of substitutes will decrease because this strategic option is unique at the moment.

According to Johnson (2014), the strategic direction is ‘Market development’ since CLH exploit a new
product/service in an existing market. The method used is an organic diversification. This means there is
not any partner suitable since the hotel can perform this by itself. However, as mentioned before the red
Cross will only provide the building, which result in being a partner from CLHG. The hotel builds on its
own capabilities and creates its own learning and development program. This unique program will help
City Lodge hotel to become the leader in the hospitality with high focus on underprivileged Africans.
Attached the opportunities to avoid the threats are described.

The opportunity for the hotel is helping the locals by educating and employing them. Additionally, the
service in the hotel will increase as the employees are internally educated for a few months. Besides that,
the hotel creates a large competitive advantage regarding the competitors because City Lodge will be
capable of delivering a ‘real’ South-African experience to its guests. The criminal activities will be
decreased, as the lifestyle of the Africans working in the hotel will be improved. Moreover, City Lodge is
currently working with the B-BBEE certificate. However, every company can work with the certificate.
Therefore, CLHG will use this program to optimize the B-BBEE criteria and strengthen their position

maximum.

Figure 7: VRIO Source: (Johnson et all, 2014)

Considering Johnson et all. (2014) VRIO is an applicable method to investigate if the strategic option
creates a competitive advantage (figure 7). An internal education program is suitable, according to
screening for bases of competitive advantage. The strategy provides value, since the brand will gain a
better image and staff will be retained on the long term. The idea is rare, since City Lodge hotel group will
be the first company that implement this strategy. The idea is imitable, since it is not a complex strategy.
However, it will take a lot of time to investigate such program and a company is not unique with this idea
anymore. This strategic option is supported by the organisation, since City Lodge hotel group aims to be
the market leader. Nonetheless, on the long term this idea is not unique and therefore it will be a
temporary competitive advantage. To conclude, it is suitable for City Lodge hotel group to set up an
internal education program since the non-financial benefits are high.

22
 Figure 8: Stages of industry life cycle. Source: (Johnson et all, 2014).

Additionally, the industry life-cycle presumes if the strategic option is appropriate depending on the stage
of the industry life cycle of City Lodge (See figure 8). The hotel’s group economy classes hotels are in the
shake-out phase because of the severe competition in South-Africa regarding the 3 star hotels. Referring
to the portfolio matrix, according to Johnson (2014), as there is a strong competition, the hotel is situated
in the shake-out phase. Accruing to the portfolio matrix, the hotel group needs to pre-empt its weaker
competitors by innovating its product. Due to this strategic option, CLG is innovating its brand image by
giving an opportunity to the disadvantaged young Africans. Therefore, it is creating a competitive
advantage because of this new product and guests will prefer CLH as the others as the company is highly
involved with people of the country.

Acceptability
Risks
The risk involved is low, since there is a low investment and the return on this investment is on a short-
medium-term basis. However, the progress to optimize the brand image will be a long- term project. The
students used the sensitivity analysis for assessing the success of the preferred strategy.

What is shown in figure 10 is the different amount of money invested per number of student participating
every 30 weeks to the program. The total line, shows the investment per intake (every 30 weeks). It is
obvious that the more participants there are, the more money it will cost to the company. Because of the
food and beverage and the uniform costs. The number of teachers is the same per number of students
participating to the program.

23
 Return
Figure 9 show, with how many students the return on the investment is and what the costs per trainee
are. The trainees will have work without remuneration for CLH for one year after the program is finished.
The return on investment is calculated with examples of 100, 200 and 500 students. The average income
of an operational function is 400 dollar per month. To calculate the return on investment 50% of the
income will pay of the loan. So, $200 times the number of students (100, 200 and 500) times 12 is the
return on investment yearly. This number can be found on the horizontal axe of figure 9.

500000
Return on investment 400000 Costs per trainee
300000
200000
100 students $240,000
100000
200 students $480,000 0
rs s l
od ta
he rm Fo To
500 students $1,200,000 a c if o
te U n
0
of1
s
st
Co
Costs 500 students Costs 200 students
Costs 100 students
Return on investment

Figure 9: Return on investment Figure 10: Costs per trainee

Costs 500 students Costs 200 students Costs 100 students

Costs of 10 teachers
(Payscale, 2016) $ 68,750.00 $ 68,750.00 $ 68,750.00
Uniforms $ 75,000.00 $ 30,000.00 $ 15,000.00
Food $ 300,000.00 $ 120,000.00 $ 60,000.00
Total $ 443,750.00 $ 218,750.00 $ 143,750.00
Table 11: Details of the costs

If the company teaches 500 students, the cost is $443,750 (table 11) and the return after one year will be
$1,200,000 (Figure 9). The return will almost be 3 times higher as the investment. The same scenario for
200 students, the cost is $218,750 (table 11) and the return is $480,000 (figure 9), this is more than twice
as high. However, the risk is becoming bigger when less students apply to this training. This is also
because the number of teachers will not be diminished regarding the amount of students enrolled, every
department of the hotel need 3 teachers. When looking at the example with 100 participants, the
investment is $143,759 (table 11) and the return is $240,000 (figure 9). The return is still more than the
investment. Next to the financial return, there is also a non-financial return as brand image and

24
awareness. The most important return of this strategic option is that the company is teaching staff itself.
This will increase the productivity of the company, since the standards are well known by the staff.
Moreover, due to the internal program, there is a significant increase in the overall education level per
habitant. The teachers will teach basic information like hygiene and English to the students. This will also
improve the overall lifestyle of the Africans. These Africans will become future hospitality professionals
with a fixed salary and there will be a possibility for them to nourish their family. Additionally, the program
creates a unique brand image. Guests will perceive the hotel as an environmentally involved company,
which is focusing on young underprivileged Africans.

Stakeholders reaction
Employees
Employees are affected by the strategic option. The current employees are more or less affected by the
internal educational program. Patience and understanding for the new employees is expected from the
employees. There will be teachers hired in order to educate the students however, once in the ‘real’ work
field, the employees will have to correct the new employees and correct the mistakes. This program is an
opportunity for the employees as well because it is an opportunity to be part of this program by helping
the underprivileged Africans to a better lifestyle.

Bankers
The company’s current equity permits to the hotel group to invest money without a loan. As the return on
equity of the company is 49.2% in 2015 is the company’s returns to the shareholders equity. This means
that shareholders are willing to invest in the company. The teachers hired will cost money to the company
however there is an acceptable return of this training. Moreover, organisations like the Red Cross will help
the company with the building where the students will stay during the program. The bankers can after 1
year already be able to observe the benefits of this program on the annual report.

Regulators
The licenses needed for this program will not be difficult to obtain. However, insurances are needed to
cover the students. However, on one hand the City Lodge hotel group might be seen as a competitor for
the South-African hotel schools like Stenden. These hotel schools are private and cost a lot of money.
Potential students of these hotel schools might choose for the internal program from City Lodge hotel. On
the other hand, there will be a selection; only the underprivileged Africans are allowed to participate to this
program. Moreover, these Africans do not possess the resources to pay private schools. All in all, the
hotel group will not be a direct competitor of the hotel schools. Finally, the students will receive a
certificate, which will be recognised within the City Lodge hotels.

Owners

25
It might be the case that owner will be hesitant to invest because of the investment. However, the benefit
is on short-term which will convince them to accept the investment. Moreover, there is a considerable
non-financial benefit for the company. The brand will create an unique brand image that will result in a
competitive advantage.

Local community
Due to this program, the hotel brand and the South-Africans will be united and will help to a better
environment. The chance to find a job is increased for the local disadvantaged Africans. Therefore, the
lifestyle of these students will increase. Moreover, the local community will be part of bettering the South-
African tourism economy by creating guest trust.

Customers
The students will learn how to deliver good service to the guests and being professional. Therefore, the
guests will be very satisfied because of this program which aims to improve the service offered.
Moreover, there will be South-Africans working in the hotel. The tourists going to South-Africa will
experience service done by locals from townships for example. This will also give the guests a fair image
of South-Africa and these employees might tell to guest their success story. However, the fact that the
employees are still in development, the service might not always be perfect. Nevertheless, the
supervising is high and the guests might understand the problems the hotel is facing due to their
employees.

Feasibility
The financial strategy in the maturity phase of the business life- cycle (figure 12). To begin, the funding
requirement is low since only teachers are involved. Moreover, an new educational program has to be
established. Regarding the cost of capital, the market leader position is not acquired yet by City Lodge
Hotel. However, at this moment the hotel branch aims to strengthen their position. As a conclusion, the
cost of capital is low. If the hotel is positioning itself stronger in the market, then the cost of capital will
decrease. Furthermore, the business risk is low since it is a short-term project and the outcome is
predictable. Finally, the funding requirement will come from retained earnings and equity. City Lodge hotel
group has a lot of retained earnings, which could be reinvested in the company. The equity should be
sufficient enough to be capable to finance this project. Regarding the investors, the hotel will convince
new investors to invest in a hotel that is helping the South-Africans to a better life. Moreover, if this project
will succeed, the dividends are high.

26
 Figure 12: Life cycle phase. Source: (Johnson et all, 2014).

People and skills

Regarding Johnson et al (2014) it is important to achieve a sustainable competitive advantage using
people and skills. Therefore it is important to know if the organisation does have skilled people and
systems to deliver a certain strategy.

The work organisation will not change, since the education program is separated from the hotel in the
beginning. Later on, the work organisation will work with the educated people within the company.
Teachers will learn this program, since City Lodge hotel group does not have the appropriate people
internally. With this program the trainees will be obtained, since the students signed a contract. So, the
hotel chain will have a cultural advantage and the ultimate guest experience. 

Integrating resources
The building of a student complex will be in collaboration with the Red Cross. Red cross provide an old
building, which are not used anymore. It is important for this charity to build together on a better living
environment. The building could also be used to accommodate volunteers of the Red Cross, since the
safety for the volunteers is crucial.

27
Strategic option 2
Suitability
The second strategic option that is proposed after working out the TOWS is ‘open a 5 star hotel within
the City Lodge Hotel Group. After analysing porters 5 forces, it was noticed that this market has less
competition than 3 and 4 star markets. Next to this, PESTEL shows that the tourism industry is growing in
South Africa and the demand is increasing. These were the two main reasons that this strategic option is
created.

In this suitability part, the strategic option will be analysed in order to investigate if it fits in the
organisation. Therefore, concepts and tables will be used to make clear whether the strategy addresses
the circumstances in which CLHG is operating (Johnson et all, 2014). For this second strategic option,
the concept organisational capabilities are worked out and the SWOT, porters 5 forces and PESTEL
concepts will be used to give arguments. Environment, capability and expectations the direction of this
strategic option will be between ‘product development’ and ‘market development’. According (Johnson et
all, 2014), product development is where organizations deliver modified or new products or services to
existing markets. With this strategic option, CHLG will deliver modified and new products. The hotel group
aims to upgrade the services and products into a five star quality brand. With this idea, the hotel can still
use the concept of the four star hotels, but with five star quality. Furthermore, CHLG will enter a new
market, since this will be the first five star brand that reaches different targets. This development will lead
to market development, since the hotel involves offering existing products to new markets (Johnson et all,
2014). With this market development, new opportunities will be created for geographical spread, entering
new segments and to attract different target groups. Furthermore, it is obvious that new risks will occur,
since the lack of market knowledge. Also brand loyalty is not directly available when entering a new
market. With this strategy the actual thing is called related diversification. This means diversifying
products and services with relationship to the existing business. The method used to follow the direction
for this strategic option will be organic development. According to (Johnson et all, 2014), this means that
the partners or acquisitions are not available. It could also be that the method is not suitable and that
CLHG will build on own capabilities and will learn from competence development. The new build 5 star
hotel will provide 120 rooms.

Organizational capabilities:
In order to identity the suitability of the strategy, the concept strategic capabilities is used and explained.
According to (Johnson et all, 2014), the abilities of an enterprise to operate its day-to-day business as
well as to grow, adapt, and seek competitive advantage in the market place. This eliminates the
weaknesses and it exploits the strengths.

28
Building blocks of organizational capabilities:
The mission: Open the 5 star hotel within the brand, this will deliver a higher brand identity, it will reach a
new target group, and it will reach a new market where less competition is.

Insights: In the TOWS is shown that this strategy came up by looking at the opportunities and strengths.
It will improve the diversity of the different brands. With this strategy CHLG will make use of the
opportunity ‘growth’ in the African tourism industry.

Technology: The technology needs to be on the level of 5 stars, so Wi-Fi needs to be flawless, the latest
trends need to be used and the best systems.

Process: For this strategy, the process will be as followed: The location for this hotel needs to be
investigated; CHLG has to choose between building a new hotel or buy and renovate an existing hotel.
Next to this, the hotel needs to have a stable team/ board of directors (E.g. hotel school graduates).
Moreover, the culture of the company will change, so CHLG needs to investigate which culture a 5 star
brand will have and adapt to this. Furthermore, the style, architecture of the hotel needs to be perfect
created.

Integration: For the integration, the hired employees need to know what to do, so that the daily routine
flows perfectly. This can be obtained by using the following aspect ‘talent’ very well.

Talent: The talent in the 5 star hotel must be high. This can be obtained by hiring newly graduated
students from the hotel school in SA. The management team needs to be a strong team that forms a
good base.

Evaluation
Overall, with a look into the PESTEL, SWOT and with the use of the organizational capabilities, it can be
stated that the strategic option does develop the opportunities and avoid the threats. In the acceptability
part, the finances will be analysed in order to see if it is achievable. Moreover, it can be stated that with
this strategic option, market share will grow; entering this new 5 star market has less competition, which is
positive. The tourism industry in South Africa is growing, which create a growing market demand.

29
Acceptability
Return
In order to see whether the strategic option is positive, an investment of €22.2 million has to be made.
This will eventually result that the stakeholders will receive their benefits. To see if the investment is
acceptable, the break-even analysis will be made. The payback period is calculated by finding the time at
which the cumulative net cash flow becomes zero. The breakeven time is the amount of time needed for
the discounted cash flows of an investment to equal the initial cost of the investment. The longer the
break-even time the riskier an investment is, since it will take a longer period of time for the investor to
recoup the investment's cost (InvestorWords, 2016).

According to Hawkins Research, Inc., most hotel projects should use materials and techniques that fall
under the "Best" classifications to keep wear and tear or replacement costs low. Such a building would
run at an average of $22.2 million to complete. The hotel will get 120 rooms in total, and when looking at
table 12 the hotel expects a daily profit of €14,704 which means €5,366,960 per year.

Table 12: Hotel statistics regarding hotel revenue Table 13: Break even calculation

Table 13 presents when the hotel has the investment breakeven. According to the calculations made by
the students, the hotel breaks even at 4,14 years because €732.160 divided by €5.366.960 is 0,14 so
year 4 plus 0,14 is 4,14 years.

30
Risks
Risk concerns the probability and consequences of the failure of a strategy (Johnson, et. al, 2014). For
this strategy, the risk is relatively high because of the high investment and the high sensitivity of price
fluctuation. When using the sensitivity analysis, the risk of guests not wanting to stay in a 5 star hotel is
assumed high when the prices increase with small percentages like 3% is at average (Figure 14).
However, when the prices increase with percentages above 5%, the occupancy percentage of hotels
decrease. This is because travelling is a luxury people tend to give up earlier when there is a price
inflation. As can been seen in figure 14, when the price increases with 30%, the occupancy is crossing at
38%.

Figure 14: correspondence between hotel occupancy and price fluctuation

Another risk is the fact that one of the biggest competitors of City Lodge, Marriott is expanding with also
five stars. This means their competitive advantage is decreasing and guests will have to choose whether
to go to Marriott or City Lodge. This means it is risky for City Lodge to

Stakeholders reaction
Employees
The employees for this strategic option are very important. This is because the employees of a 5 star
hotel need a certain knowledge and expertise. This hotel needs a top manager who is on premises and
not sequestered in an office or focused on conference business. The boss must be present, available,
and in evidence. The employees need to have emotional intelligence. This means intuitive people sense,
empathy, and genuineness. A great, five-star hotel employee also thinks things through. He or she has a
sense of priority, attention to detail, practicality, follow-through and efficiency (Harrison, 2016).

31
Bankers
The bank will have less influence in this investment because the hotel can be build with their current
equity. However, to start up to hotel for the first year may cost more money than observed which means
the bank has a small influence on the long term.

Owners
The owner of City Lodge has a big decision to make whether to start a new 5 star brand or not. This
decision will be based on the profit, brand image and willingness to take risks. The owners have to hire a
new management team for this special hotel, but needs to be careful in choosing the right people.

Local community
The local community will not be influenced a lot by this strategy. However, the fact that more tourists will
go to Cape Town is positive for the retailers and restaurants. Guests will go see the city, the nature and
the other special unique selling points of Africa. The local community can sell their products to the tourists
and make more profit than before.

Customers
The customers will receive an unique experience which will be worthy of 5 stars. However, the customers
have to give feedback to continue improving the business of the City Lodge. This way, the hotel can stay
up to date thanks to the customers.

Feasibility
In order to research whether the investment of the strategic option is feasible, the resources and
competences of the strategy shall be researched when looking at the people, skills, life-cycle phase and
integrated resources.

People and skills

Especially in a 5 star hotel, guests go seek for a full experience which means that there are a lot of
employees necessary with the needed knowledge and competences. The costs to hire these employees
are estimated around the €18.9 million per year (see table 15). This is a big investment but will be positive
for the revenue. The board of directors will be the same as all other City Lodge hotels, but this hotel will
have their own three managers, and other employees with the needed education and work experience.
Also the opportunity for less educated employees is given because City Lodge has the talent programme,
which means every employee could work at this hotel after training for the 5 star talent programme.

32
Table 15: Table of employee costs for a 5 star hotel

Life Cycle Phase

When starting the 5 star brand, the strategy is in the start-up phase of the life cycle. When looking at the
first topic, funding requirement, it is high because there needs to be a lot of money to start building a new
hotel, employees with a lot of experience cost a lot of money and the marketing will also cost a lot of
money. The second topic, cost of capital, is also high. This is because, as explained before, the City
Lodge hotels are not the market leaders, but are recently busy with strengthening their position. The
business risk is also high. This is because if the strategic plan is worked out, it takes a few years to see
whether the plan was successful or not and if the hotel can make enough profit to stay. The most likely
funding sources are equity and investors. The hotel can be built from the hotels equity but also needs
funding from the investors. They can buy shares from the hotel, which might get a big value if it works out.
The dividends are nominal because the stakeholders can buy a share. The hotel already has a high level
of retained earnings which is useful for the future.

Integrated resources
The hotel will be located near Cape Town, because this attracts a lot of visitors because when tourists go
to South Africa, they definitely want to see Cape Town. Here the hotel can build their own building, and
make use of their connections for hotel furniture. Food and beverage can be obtained by their local
suppliers.

33
5. Impact Strategic Option

In this part the impact of the strategic option ‘Use professionals to develop an internal training program for
underprivileged Africans’ will be discussed. This will be done by analysing the impact on the vision,
mission, Long- term goals, objectives and business model. With this analyse, it can be seen if
adjustments in these aspects need to be made and if there is harmony between the aspects and the
strategic option.

Vision
The vision of CHLG is becoming the most recognized and preferred sub-Saharan African hotel group.
With this strategic option, the hotel will strengthen the brand image, since the hotel will be well known by
the residents of Africa due to the offered program. Marketing tools as posters will let Africa know about
the program. The residents of Africa will talk about this special program and become aware of the fact
that CLHG is doing their best to help the African community. In addition, this program will enhance the
brand image and will offer guests the ultimate African experience. So, CLHG will be the most preferred
destination for guest in South Africa. In conclusion, the strategic option will make the vision stronger.

Mission
The next aspect is the mission. It entail that CLHG prefer to enhance the guest experience by using
passionate people, friendly service, ongoing innovation, and leading edge technology. Furthermore, the
hotel group aims to make a positive change to the employees, customers, local community and the
environment. It can be noticed that the strategic option is in harmony with a few aspects from the mission.
These aspects include; passionate people, friendly service, ongoing innovation, and making a change for
the local community. Overall, most important is to enhance the guest experience. This is done by
implementing more African employees after this training program. This leads to a African atmosphere and
culture in the hotel.

Long-term goals and objectives

The long-term goals of CHLG are expanding with six hotels to Africa. With the implementation of the
strategic option, an addition in the long-term goals can be made. Namely, expanding the project of the
training to the other African hotels after expansion. Next to this, investing in people is one of the main
objectives of CHLG. With this strategic option this objectives will be strengthened as the strategy is mainly
focused on helping the local residents of South Africa. This will help to increase the positive brand image
of CHLG in order to work along the vision which is to become the most preferable hotel chain within
South Africa.

34
Canvas business model
Lastly, the strategic option will have impact on the Canvas business model (see appendix 1). To start with
the customer segments. There will be a small adjustment in this aspect. The segment will consist more
out of leisure rather than business guest as the leisure guests will seek for a real African experience. The
next aspect that will be discussed is the value proposition. An addition to this aspect is the training
program that the hotel will offer. This will make the hotel unique and the value proposition will get
stronger. Next to this, the customer relationships aspect will be impacted by the strategic option as the
training will highly influence this. It planned to have an increase in the customer relationship because the
new employees from the training program are guided by the management in the way the managers
prefer the employees to be. Furthermore, the aspect channels stays the same as the strategic option has
no influence on it. Importantly, in the cost structure, an unfavorable change will occur. The reason for this
is that the investment is high and the marketing cost will increase. However, it is expected that the
revenue streams will change in a favorable matter. There will be an expected increase in occupancy
which leads to an increase in revenue. The next aspect is key resources, in this aspect, there will be a
change in human capital and intellectual capital. Starting with human capital, there will be an increase of
local employees. Next to this, with intellectual capital, the managers can steer the knowledge of the
employees into the needs of the company. Furthermore, in the aspect key activities an addition will take
place. Namely, education/ training in the hospitality for the local community. Lastly, ‘The red cross’
organization will be added in the aspect ‘key partners’.

Implementation
According to Johnson et all, (2014) there are four generic types of strategic change (Figure 16). Adaption
means that there is not a need to change a lot, also called step-by-step change. Evolution is a big change
and approached step by step. The excising strategic capabilities need to be applied and new ones should
be created. Reconstruction focuses on cost reduction and fast implementation. It does not need any
changes in culture or business model. The last one is revolution, which requires major and rapid strategic
and cultural changes (in top management). Looking at figure 16 the strategic option can be placed under
adaption. The change is gradual and the organizational culture is in line with the previous business model
and the current one. CLHG main strategy is to transform the group in line with B-BBEE Codes of good
practice. This strategic plan only launches a new education program, which is incremental.

Figure 16: Types of change

35
36
Conclusion
As can be concluded, this report is based on four parts. First, the internal analysis which helped to
research the company’s internal aspects was made. In this part, the company’s vision, mission, long-term
goals, objectives, strategies and the canvas business model was made. This gave a clearer overview of
the company when researching the rest of the assignment. Secondly, the external analysis was made,
where the PESLTE, and the main key drivers of city lodge are researched. This helped to make an
extensive TOWS-matrix. Also the market position and an evaluation of opportunities and threats were
made to make the companies market view more clear.

For the third part of the assignment, two strategic options where chosen which were extended from the
TOWS-matrix. The first strategic option is ‘conduct an internal training program for underprivileged
Africans’ and the second strategic option is ‘opening a new five star brand within the chain in Africa’. Both
the options are chosen to grow the strengths and opportunities of the company. In order to find out
whether the strategic option is a benefit for the company to implement a financial or a non-financial
strategic option, the SAFe criteria was made for both the strategic options. Eventually, the most suitable
option for CLHG was ‘conducting an internal training program for underprivileged locals’. This was
because the option was suitable, acceptable and even feasible. It would be a big investment but the
company can get a back for this option, and it has a lower financial risk than the other option.

The fourth part of this assignment was whether the company would have to change their vision, mission,
long- term goals, objectives and canvas business model. With this analyses, could be seen if adjustments
in these aspects needed to be made and if there was harmony between the aspects and the strategic
option.

As an overall conclusion for this assignment, the first strategic option would strengthen the company’s
image, and their companies vision and mission.

37
 Appendix
Appendix 1. Business Canvas Model
Key Partners Key Activities Value Propositions Customer Customer Segments

Relationships

- Avis - Marketing - 5 different brands - Loyalty programs - Leisure:

- Sunshine Tours - Product development with room types and - Special leisure and backpackers, holiday,
- Facebook - Sustainability price rates business packages regular, explorers
- MAD Leadership - Innovation - 4 certificates (B- - Loyal customer base - Business:
foundation - Expansion BBEE) - Availability of free Conferences, short
- Whistle Blowers - Main focus on South ClubCard stay guests
Africa - Specials for guests
- Corporate Club (with room booking
- Lodger Club discount for ticket of
parties)

Key Resources Channels

- Financial capital - Website

- Natural capital - Facebook
- Manufactured capital - Tripadvisor
- Intellectual capital - Expedia
- Human capital - Agoda
- Social and
relationship capital

Cost Structure Revenue Streams

- Variable costs - Primary sales

- Fixed costs - Secondary sales
- Marketing costs - Conference
- Investment

38
Appendix 2: Competitors matrix

3
2.8
2.6
2.5

1.5
1.2
1
0.8
0.6 0.6
0.5
0.4 0.4 0.4 0.4 0.4
0.3 0.3 0.3
0.2 0.2 0.2 0.2 0.2
0.1 0.1 0.1
0
ty ty cy ar l
on si o
n re ta
rie rie iti an n ha vP To
tv
a va os cu
p a t s Re
d p xp ke
duc an ia
l Oc l e ar
Pr
o Br a nc ba M
in G lo
F

Sun international City Lodge hotel group Gooderson

39
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