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STRATEGY, ALIGNMENT AND ADDING VALUE
By Kutay Kalkan for Dr. DeMicco
1. Understand the concept of strategic management as applied to the service
and hospitality industry.
2. Be able to describe the coalignment model and its application to the hospitality
3. Appreciate that strategic management is a way of thinking, not a process to be
performed annually and then forgotten for a year.
4. Understand the supply-and-demand and technology relationships that exist in
the service industry and how they affect strategy.
5. Understand the unique elements, especially quality and value, of the service
industry and how they affect strategy making.
6. Develop an appreciation of forces driving change in the hospitality industry and what
impact they will have on the manager of the future.
7. Understand the importance of leadership to the strategic management process.
1) Understand the concept of strategic management as applied to the service
and hospitality industry.
Concept of strategic management and the manner in which it has evolved in modern times.
Ex: General Motors, Atlantic Telephone
2) Be able to describe the coalignment model and its application to the hospitality
Coalignment Model – Environment Events
Major forces driving change in the
remote and immediate environments of the
organization. These forces, often referred to as
trends, create opportunities and pose threats to
the firm. They shape and force change in both
predictable and unpredictable patterns.
Coalignment Model – Strategy Choice
The choice of competitive methods used
by the firm to take advantage of the threats
and opportunities in the business
environment. These methods should
provide the firm with sustainable
competitive Core Competencies.
Coalignment Model – Firm Structure
The effective and efficient allocation
of the firm’s resources to the successful
execution of the firm’s competitive
Coalignment Model – Firm Performance
• Cash Flow per share of equity
• Aggregate value of competitive methods
• Customer service
3) Appreciate that strategic management is a way of thinking, not a process to be
performed annually and then forgotten for a year.
Strategic management must be imbedded in every decision, every activity and every service
encounter with the customer.
Because strategic management is not temporary.
4) Understand the supply-and-demand and technology relationships that exist in the
service industry and how they affect strategy.
In the 1990s, the supermarket and
fast–food sectors grew rapidly in Argentina.
Both were dominated by multinational firms,
and their growth drove profound change in
food market systems and farming. This
article analyses the impact of this
development on fruit and vegetables supply
chains, in particular the way the advent of
McDonald’s affected the supply chain for
frozen French fried potatoes. It shows that
there is a tendency for such changes to
favor medium and large producers, with evidence of the exclusion of small farmers.
5) Understand the unique elements, especially quality and value, of the service industry and how they affect
Forces Driving Chance
Marketing, Distribution and Capacity Management.
understand the growing strategic importance of technology and its contribution to
marketing, distribution and capacity management in the hospitality industry.
Safety and Security
Assets and Capital
understand how an organization adds value and how value can be measured. You are going to realize that IT has the leading role in growing
Ex : Lickable samples of products are being attached to magazines as a new type of advertisement. New Management
Ex : understand the importance of leadership and managerial skills for a company.
Ex : Includes green projects such as Clean Up the World, True Green, Global Tree Planting and Green
Ex : All of the hotels in the US and Canada will become %100 smoke free. Please read article 1 for more
7) Understand the importance of leadership to the strategic management process.
Tomorrow’s Hospitality Manager
• A strategist – less craft skills, more business skills
• A multifunctional manager
• A change agent – boundary spanner
• A Knowledge worker – information manager
• Marketing on the information highway
• How to buy and sell your way into the informati
• Evaluating and maintaining the best strategic alli
• Recognize, interact with, and utilize the resource
s of those who will own the information systems
• Capable of receiving, analyzing, synthesizing incr
edible amounts of information regarding: guest,
internal operations, external data from capacity
• Utilize information to adjust to the speed of cha
• Monitor changes in an increasingly diverse/compl
ex demand curve
• Provide information to guest to satisfy their need
s for safety and security
• New leadership skills to motivate a more diverse
workforce consisting of more knowledge workers
Porter’s Competitive Forces Model
• Porter’s 5 forces analysis is a framework for the industry analysis and business strategy
development developed by Michael E. Porter of Harvard Business School in 1979.
• It uses concepts developed in Industrial Organization (IO) economics to derive 5
that determine the competitive intensity and therefore attractiveness of a market.
• Strategy consultants use Porter’s five forces framework when making a qualitative
evaluation of a firm’s strategic position.
• Porter’s Five Forces include three forces from ‘horizontal’ competition: threat of substitute
products, the threat of established rivals, and the threat of new entrants; and two forces from
competition: the bargaining power of suppliers, bargaining power of customers.
Each of them will be discussed in the following slides.
Porter Competitive Forces Model
Strategic Business Unit
A Buyer Has Power If :
It has large, concentrated buying power that enables it to gain volume
discounts and/or special terms or services.
What it is buying is standard or undifferentiated and there are multiple
It earns low profit margins so it has great incentive to lower its
It has a strong potential to backward integrate.
A Supplier Has Power If :
Its product is unique or at least differentiated.
It has built up switching costs.
It provides benefits through geographic proximity to its customers.
It poses a definite threat to forward integrate into its customers’
A long time working relationship provides unique capabilities.
Possible Barriers to Entry
Economies of scale.
Strong, established cost advantages.
Strong, established brands.
Proprietary product differences.
Major switching costs.
Limited or restrained access to distribution.
Large capital expenditure requirements.
Definite strong competitor retaliation.
Buyer propensity to substitute.
Relative price/performance of substitutes.
1. The Co-alignment Model describes and explains how successful hospitality
managers respond to the environment and make strategic choices to attain
sustainable competitive advantage. The environment here refers to:
o both external and internal.
o none of the above.
2. Which statement is false? Competitive methods are:
o made up of portfolios of products and services to achieve advantage in the market
o used in order to add value to the organization.
o having an expected long life in the context of a changing environment.
o chosen based on a consistent environment analysis.
o all of the above.
3. Effective leaders are defined by:
4. Which is not a force driving change?
o Marketing, distribution, and capacity management
o Safety and security
o Assets and capital
o New management
o Sustainable development
o Social issues
5. The logical sequence of components of the co-alignment principle is
environment, strategic choice, firm structure, and firm performance.
6. Popularity is not leadership; results are what define effective leaders.
7. Service products are produced and consumed simultaneously, so they are
8. According to Peter Drucker, what are the four important truths
effective leaders should understand?
9. What are the secrets of the effective leader?
10. What are the seven major forces driving change?
11. What are the important points for strategic leaders to be successful?
12. What are the seven major forces driving change?
Student Learning Objectives
On completion of this chapter, you will be able to;
Identify the 4 steps of co-alignment model and apply each to the hospitality industry.
Develop an appreciation of the difference that strategic management is a way of thinking,
rather than a process to be performed and then forgotten for a long period of time.
Describe the supply-and-demand and technology relationships that exist in the service
industry and understand what role they play during strategy management and how they
Identify the unique elements of the service industry such as quality and value and explain
their effects on strategy making.
Identify and define the 7 steps of forces driving change and give at least 1 hospitality
related example for each of them.
Identify the characteristics of a successful hospitality manager.
Achieve a more practical understanding of strategy and decision making in hospitality.
Comprehend the challenges of Porter’s Competitive Forces Model.
Case Study Answers
1) According to Olsen, in order for McDonald’s to properly align itself with the forces driving
change in the environment it competes in, in the detailed case study of McDonald’s, Olsen started
as by identifying the opportunities that exist for McDonalds by scanning its remote environment.
Olsen identified three major value drivers within the remote environment that will impact
McDonalds’ future strategy.
They are described as: Aging Population, Biotechnology and Public Opinion.
McDonald’s scanned the environment, and aligned new strategies for recovery. They have used the
coalignment model efficiently to assist the firm in responding to changes in the external
environment and adapting its internal operations.
McCafé is a good example for that. The trend of high quality cafe shops was rising, and
McDonald’s saw the opportunity in the market. To accommodate the current trend for high quality
coffee and the popularity of coffee shops in general, McDonald’s introduced McCafés. The McCafé
concept is a café-style accompaniment to McDonald’s restaurants. McCafé is a concept of
McDonald’s Australia, starting with Melbourne in 1993. Today, most McDonald’s in Australia have
McCafés located within the existing McDonald’s restaurant. In Tasmania there are McCafés in
every store, with the rest of the states quickly following suite. After upgrading to the new McCafe
look and feel, some Australian stores have noticed up to a 60% increase in sales. As of the end of
2003 there were over 600 McCafés worldwide.
Case Study Answers
2) In the recovery phase of a company, leaders are very important. The McDonald’s case
supported this thesis. McDonald’s hit bottom in 2003, posted its first-ever quarterly loss. In a
management shake-up, the fast-food chain brought veteran executive Jim Cantalupo out of
retirement to turn around the world’s largest restaurant company (Leung, 2004). As CEO,
Mr. Cantalupo faced some big problems: a tired brand, a saturated fast-food market and widening
worries about waistlines. Then, earlier 2004, he came face to face with the first case of mad-cow
disease found in the U.S., a food-safety issue that had previously hurt McDonald’s profits abroad.
Still, Mr. Cantalupo pressed on with his turnaround plan, spending the year tinkering with recipes
of old favorites and launching a new global tagline, “I’m lovin’ it,” with MTV-style commercials.
Noting changing tastes, Mr. Cantalupo decided to make McDonald’s appetizing to healthconscious consumers by introducing fancy salads, apple slices and a low-carb menu in some
He got results, most impressively in the saturated U.S. market, where sales had slumped for years.
By the help of faster service and menu changes, McDonald’s posted a fourth-quarter profit in
Case Study Answers
3) The key decisions that have resulted in that turnaround are as follows :
Using technology by means of remodeling stores with automated machines in the kitchen to
decrease labor cost and service time.
Searching the environment and according to the developments in the environment, they have
upgraded the service.
New training methods. The complete training program includes seminars, conferences, and
one-on-one sessions with corporate personnel. McDonald’s pays the cost of the training materials;
however, McDonald’s does not pay for the time or reimburse expenses associated with training.
During the course of the training, both franchisee and McDonald’s have the right to change your
minds about franchisee’s participation for any reason. You will be considered for a franchise only
when McDonald’s determines your training is successfully completed. Also they have improved
an employee training program. McDonald’s spent 96 millions on training in 2004 vs. 115 millions
2003. Both years, it accounted for 5% of McDonald’s expenditures.
• Remodeling and streamlining the menu.
• Overhauling cooking procedures.
• Enhancing the taste and consistency of the food.
Case Study Answers
4) McDonald’s changed their menu. They have added dollar menu. And after the documentary
–Super Size Me–, they have taken healthier foods more seriously because people were
demanding. Menu items such as salads were added to the menu. The enormous success of the
where all items cost $1, has helped stimulate 36 consecutive months of sales growth at stores open
in 2005. In three years, revenue has increased by 33 percent and its shares have rocketed 170
percent, a remarkable turnaround for a company that only four years ago seemed to be going
McDonald’s has attracted considerable attention in the last few years for introducing to its menu
healthy food items like salads and fruit. Yet its turnaround has come not from greater sales of
healthy foods but from selling more fast-food basics, like double cheeseburgers and fried chicken
sandwiches, from the Dollar Menu.
They have taken the advantage of technology. Using handheld devices for communication and
monitoring in order to reduce response time.
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