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Chapter 9: Strategic evaluation and selection in tourism and hospitality…
Chapter 9: Strategic evaluation and selection in tourism and hospitality businesses
Strategic alternatives
The nature of
strategic options
Strategic-level options: offer solution to "big question"
Strategic decisions: taken at the highest level of organization
Operational-level decisions: how internal parts of the organization should be configured & managed => achieve strategic objectives.
Decisions in
strategic selections
3 major areas
Competitive strategy
Importance
Define organization's competitive position
Determine the way that the internal value chain activities are configured
Direction of development
Decisions on product and market
Importance
Levels of profitability
Survival of organization
3 strategic options
Growth
direction of growth
Involve new/existing markets
Stability
Defense of market shares through pricing, promotional offers/increased levels of effciency.
retrenchment
Which product/market should be reduced/sold off/withdrawn.
Further product & market decisions
Market categories
Product features
Product/market portfolios
Life cycle considerations
Methods of development
Choices between
Internal (organic) development
Mergers and acquisitions
Joint development (alliances and franchising).
Important for
Required resources
Degree of control over future strategic decisions
Speed of change in the position of SBU
Reconfigure the internal value chain
Strategic evaluation framework: SFA
S (Suitability)
Definition
Assessment of the strategy's capability to enable the organization to achieve its strategic objectives
Objectives
SWOT
Example
Events management organization
Strategic objectives
"To spread its portfolio by gaining
a presence in selected markets
Option
Increasing the company's
investment in its domestic market
Clearly ubsuitable
Suitable options
Exploit opportunities in the environment & avoid/address the threats
Capitalize on an organization’s strengths & avoid/address the weaknesses
Address the expectations of stakeholder groups.
Screening
Decisions made about whether to continue or disregard options
F (Feasibility)
Assessing the strategy's capability of working in practice.
Extent of feasibility
Based on 2 areas
The culture, competencies & resources
Internally controlled by organization
Problems
Deficit of any of these (physical resources, financial, human & intellectual
Unavailable capital, human skills, land/equipment
Consideration of
competitive reactions & other considerations
External to organization
Acceptance of customers & suppliers
Competitive reactions
Necessary approvals from government/regulatory bodies
A (Acceptability)
Assessing the expected performance outcomes of a strategy to determine whether they are likely to be acceptable to stakeholders.
3 Rs
Reactions of stakeholders
2 variations of influence
Power
Interest
Highest combination of both => most effective influence
Returns
Financial returns
Measured by financial performance.
Non-financial returns
Cst-benefit analysis is used to assess returns relative to costs.
Risks
Importance
The future is unpredictable, and every strategic decision carries risk.
Organizations must prepare for the possibility that assumptions may be incorrect.
Types
General risks
Financial fluctuations, economic downturns, regulatory changes.
Business-specific risks
Industry-related uncertainties, operational risks, competitive threats.
Risk management framework
Identify risks
Major risks that could impact the organization.
Analyze risks
Understand their nature and how they may change
Plan & manage risks
Develop strategies to manage and deal with risks
Assessment tools
Financial
Non-financial
Financial tools for strategic evaluation
Cash flow forecasting
Definition
Predicts revenues and costs
Identifies potential liquidity issues
Helps in financial planning and risk mitigation
Key concerns
Seasonality, borrowing limits, payment cycles
Strategies to manage cash flow
Postpone capital expenditures
Accelerate inflows & delay outflows
Sell non-core assets, lease equipment
Control costs and prioritize critical spending
Investment Appraisal Methods
Payback method
Measures time to recover investment
Quick and simple screening tool
Ignores time value of money and cash inflows after payback
Breakeven analysis
Identifies the sales level required for profitability
Assumptions: fixed & variable costs are distinguishable
Useful but needs careful cost allocation
Definition
finding the point at which the total revenue from a project is equal
to the total costs incurred.
Accounting rate of return (ARR)
Measures average annual return on investment
Simple to calculate but ignores time value of money
Discounted cash flow (DCF) methods
Net present value (NPV)
Discounts future cash flows to present value
Compares investment returns with acceptable rate
If NPV > 0, the investment is viable
Easier to calculate
Internal rate of return (IRR)
Determines the discount rate where NPV = 0
If IRR > required return, the investment is viable
IRR is intuitive but has limitations in comparing project sizes
Limitations
IRR ignores the relative size of the investments being considered.
IRR rates are non-additive, i.e. the rates from two or more projects cannot be added together
In some circumstances there may be more than one IRR.
Limitations
Future unpredictability (inflation, economic changes)
Inflation impact (anticipated vs. unanticipated)
Risk premium may be required for uncertainty
Cannot fully replace managerial judgment
Other assessment tools
Cost–benefit analysis
Definition
Evaluates costs & benefits of a strategic option, including tangible and intangible returns.
Key aspects
Forces explicit discussion of factors influencing strategic choice.
Considers financial investments, opportunity costs, social & environmental costs.
Benefits include financial returns, social value, reputation, and service improvement.
Limitations
Subjective judgments in measurement.
No standardized methodology.
Unclear scope—where to stop analysis (e.g., global warming impact from air travel).
Impact analysis
Definition
Assesses the broader consequences of a strategic decision.
Key aspects
Evaluates effects on social, economic, and environmental factors
Context-specific approach depending on project type.
Common considerations
Local employment opportunities.
Direct and indirect economic impact.
Effect on existing businesses.
Strain on local infrastructure and services.
Environmental consequences (flora, fauna, pollution).
Aesthetic and community impact.
Limitations
Similar challenges to cost–benefit analysis.
Difficulty in quantifying some impacts.