Welcome

Strategic Hospitality Management

Week Four, Lecture 3

Lecturer:
Sarah Loulou

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Learning Objectives

› To further consider sources of opportunities and threats

for Ryanair.
› To explain how environmental issues impact the
industry
› To come to a conclusion and select two appropriate
strategic options from an extensive TOWS framework.

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Layers of the business environment

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Macro-environment – PESTEL

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Political

› Identify important political factors

› Carry out a political risk analysis.
› There are 2 levels of political risk:
› Macro: Country related
› Micro: Sector related
› Examples:
› Terrorism
› Civil unrest and riots
› Foreign threat of invasion
› Large and unpredictable changes in government policy

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Economic

› Trends in the economic cycle.

› There usually is a cycle in which the economy fluctuates (rises
and falls). Identify if a cycle exists.
› Ex: downturns in economic growth are often followed by falls in
interest rates and exchange rates.
› There are many public sources of economic forecasts
that can help in predicting the movement of key
economic indicators.
› Forecasts can be prone to error because of unexpected
economic shocks, like the blockade for instance.

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Economic

› Discretionary spend industries:

› Industry where purchasers can put off their spending for a year
or more, ex: cars, vacations, housing, etc.
› After a period of curtailed spending, there is likely to be strong
upturn as pent-up demand is finally released into the market.

› High fixed cost industries:

› High fixed costs in plant, equipment, and labor can cause
industries to suffer from an economic downturn. Ex: airlines,
hotels, and steel.
› This encourages competitive price cutting to ensure maximum
capacity utilization.

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Social
› There are two elements that can be influenced by social
factors- The specific nature of supply and demand, and
the innovativeness, power, and effectiveness of
organizations.

› Aspects influencing supply and demand:

› Demographics
› Distribution
› Geography
› Culture

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Social
Organizational field: a community of organizations that interact
more frequently with one another than with those outside the
field.
- They are partly economic as they include competing organizations within
the industry, as well as customers and suppliers.
- Involves social networking and is broader than the industry or market.
Three concepts help to understand effectiveness, power, and
innovativeness:
- Network Density: the number of interconnections increases effectiveness.
- Central Hub Positions: the central hub of an organizational field has strong
power. Identifying the central hub helps identify where opportunities are.
They can also be innovative, as hubs collect information and ideas from the
network.
- Broker Position: associated with innovativeness. They connect ideas from
separate groups of organizations and link the most valuable information
gathered.
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Technology

› Identify areas of potential innovative activity:

› Research and development budgets: innovative firms, sectors, or
countries can be identified by the extend of spending on research. This
is typically reported in annual reports, and government statistics.
› Patenting activity: Firms active in patenting new technologies can be
identified on national patent registers. The most important is the
United States Patents and Trademarks office.
› Citation analysis: The potential impact of patents and scientific papers
on technology can be measured by the extent to which they are widely
cited by other organizations.
› New product announcements: Organizations typically publicize their
new product plans through press releases and similar media.
› Media coverage: Specialist technology and industry media will cover
stories of the latest or impending technologies, as will various social
media.

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Environmental (Ecological)
› Specifically about the ‘green’ Macro-environmental issues, such as
pollution, waste, and climate change.
› Environmental regulations can impose additional costs.

› 3 challenges organizations will need to meet:

› Direct pollution obligations: cleaning up after themselves
› Product stewardship: responsibility for the ecological impact of
external suppliers or final end-users.
› Sustainable development: reducing environmental damage and
whether the product or service can be produced indefinitely into the
future.

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Environmental (Ecological)

› 3 factors that add pressure onto organizations to address these

challenges:
› Ecological:
› Certainty: The more certain an ecological issue is the more important it
becomes (Global Warming)
› Visible: ex. Aircraft pollution is more important than shipping pollution
because it is more obvious to citizens than pollution done far out in the sea.
› Emotivity: threats to polar bears get more attention than threats to hyenas.
› Organizational Field: campaign groups will raise awareness and give
importance to ecological issues.
› Internal Organization: the values of an organization’s leadership will
influence the desire to respond to ecological issues

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Legal

› Legal aspects can cover a wide range of topics:

› Labour, environmental, and consumer regulation
› Taxation and reporting requirements
› Rules on ownership, competition, and corporate
governance.

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Opportunities and Threats

› Identify them based on:

› PESTEL
› Scenarios
› Porter’s 5 forces

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TOWS

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Business-level Strategy

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Business-level Strategy

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SAFe

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Suitability

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Acceptability

› Acceptability is concerned with whether the expected

performance outcomes of a proposed strategy meet the expectations
of stakeholders. These can be of three types, the ‘3 Rs’:
› Risk: concerns the extent to which strategic outcomes are
unpredictable, especially with regard to possible negative outcomes.
› Return: are a measure of the financial effectiveness of a strategy.
› Return on capital employed (ROCE)
› The payback period
› Discounted cash flow (DCF)
› Stakeholder Reactions: the likely reaction of stakeholders to a
proposed strategy.
› Owners, bankers, regulators, government agencies, employees and unions, the local
community, and customers.

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Feasibility

› Feasibility is concerned with whether a strategy could work in

practice.
› An assessment of feasibility is likely to involve two key questions:
› do the resources and capabilities currently exist to implement a strategy
effectively?
› if not, can they be obtained?
› the focus is on three areas finance, people (and their skills) and the
importance of resource integration.

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Feasibility (Finance)
› Start-up businesses: Are high-risk businesses. They are at the
beginning of their life cycle and are not yet established in their
markets; moreover, they are likely to require substantial
investment.

› Growth businesses : May remain in a volatile and highly competitive

market position. The degree of business risk may therefore remain high, as
will the cost of capital in such circumstances. However, if a business in this
phase has begun to establish itself in its markets, perhaps as a market
leader in a growing market, then the cost of capital may be lower. In either
case, since the main attractions to investors here are the product or
business concept and the prospect of future earnings, equity capital is likely
to be appropriate, perhaps by public flotation.

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Feasibility (Finance)
› Mature businesses: Are those operating in mature markets and the
likelihood is that funding requirements will decline. If such a business has
achieved a strong competitive position with a high market share, it should
be generating regular and substantial surpluses. Here the business risk is
lower and the opportunity for retained earnings is high.

› Declining businesses: are likely to find it difficult to attract equity finance.

However, borrowing may be possible if secured against residual assets in the
business. At this stage, it is likely that the emphasis in the business will be on cost
cutting, and it could well be that the cash flows from such businesses are quite strong.
Risk is medium, especially if decline looks to be gradual. However, there is the chance
of sudden shake-out with battles for survival.

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Feasibility (People)

› Three questions arise:

› Do people in the organization currently have the competences to
deliver a proposed strategy?
› Are the systems to support those people fit for the strategy?
› If not, can the competences be obtained or developed?

› Step 1: Identify the key resources and capabilities underpinning a

proposed strategy, but specifically in terms of the people and skills
required.
› Step2: Determine if these exist in the organization.

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Feasibility (Integrating Resources)

› It is possible, but not likely, that a proposed strategy builds only on existing
resources.
› It is more likely that additional resources will be required.
› The feasibility of a strategy therefore needs be considered in terms of the
ability to obtain and integrate such resources – both inside the organization
and in the wider value network.

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 End of Lecture

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