1. No category

OBJECTIVES
Upon completion of this chapter, you will be able to:
• Understand how to scan the remote environment.
• Identify value drivers.
• List the roles of value drivers as determinants of causal
relationships between the firm and its environment.
• Estimate the timing of value driver movements and how they
impact the firm and its future cash flow streams associated
with key competitive methods.
• Learn the role of probability theory with respect to creating
managerial theories about the firm.
• Apply the concepts of this chapter to the Case Study.
How Opportunities and Threats Recognized by Managers
It is important to note that the remote environment is
best thought of as the point of origination for most
forces driving change that will essentially affect all
activities relative to organizations and people.
Read Pages 127 and 128 in the text
Strategic Management Model
Environmental Events
Remote
Task
Industry
Firm
Functional
Scanning the Remote Environment
Scanning the remote environment requires a different
approach to thinking than the convention method of
thinking.
Inductive Thinking
Conclusions are drawn after looking at circumstances,
information, experiences and other instances.
Read pages 129-130 and 147-152 in the text and
Article 1
Comparison of Inductive and Deductive
Approaches to Environmental Scanning
Inductive
Deductive
A theory is formulated about
how this pattern will affect the firm
The scanner observes activities
in the environment
The scanner suggests a hypothesis
about these patterns
The activities form a pattern of events
that will probably shape a trend
The scanner observes activities
in the environment
The scanner suggests a hypothesis
about these patterns
The scanner confirms
the observations with research
A theory is formulated about
how this pattern will affect the firm
Value Drivers
A value driver is an independent variable (e.g. the
cost of technology) that has a causal impact on a
dependent variable (e.g. firm profit).
They are both tangible or intangible variables that
may be internal and external to an organization.
Read pages 130-133 of the text and Article 2
Tracking Value Drivers
In order to successfully track value drivers, managers
must:
• Develop an understanding of key value drivers relate
•
•
d to each category of the environment scanned
Establish a base of valid and reliable information
Provide a brief outlook on what they expect to
happen to those value drivers
Read page 134 of the text and Article 4
Tracking Value Drivers
Subcategories
Key
measures of
economic
well being
Identify the
primary
sources of
information
How often do
you review
this
information?
World Bank
OECD
Domestic
Statistic
Offices – US
Department
of Census
Monthly
Based upon your information sources used, list and briefly describe
the key value drivers you believe are important to monitor in
understanding the cause and effect relationship with your firm.
KEY value drivers:
GDP (Gross Domestic Product)
Private consumption
Brief outlook on the key value drivers
Real GDP growth is projected to decline from 3.4% in 2000 to a range from
2.2 to 2.8% in 2001, and to remain in a range from 2.1 to 3.1% in 2002.
Domestic demand is expected to decelerate and the contribution of external
trade to growth is projected to weaken significantly in 2001 and to be
broadly neutral in both 2001 and 2002.
Private consumption growth is expected to decline from 2.7% in 2000 to 2.22.6% in 2001, and to be 2.0-2.3% in 2002. This reflects continued strong
growth of real disposable income, mainly due to the implementation of tax
reductions in a number of countries.
After a year of particularly strong performance, economic growth in the
OECD area has been weakening since the autumn of 2000. The 2001
growth rate is projected to be half that of 2000, at around 2% and the longrunning reduction in unemployment is projected to come to a halt. However,
the forces dampening economic growth are projected to dissipate in the
second half of 2001, leading to a growth rate of 2.5% to 3% over the
following twelve months. Inflation is expected to remain low.
Cause and Effect Relationships of Value Drivers
From the Remote Environment to the Impact upon the Firm
Causal Relationships
Once the most important value driver has been
identified and managers are familiar with their
behavior over time, the next step is to identify the
primary causal relationships with the internal drivers
of the firm.
In many cases, quite a few possible relationships exist
between the internal and external value drivers.
Read Pages 137 and 138 of the text and Article 3
The Relationship of Value Drivers and Possible
Outcomes in the Remote and Task Environments of the
Hospitality Enterprise
Estimating Future Impacts of Value Drivers
Managers make guesses about the future all the time
based on some belief or passion, rational analysis or,
some combination of both. Tracking value drivers
associated with specific events makes it much easier
to estimate future probabilities.
Managers can improve their theories (as outlined in
the following graphic) by improving their ability to
estimate probabilities for each possible scenario.
Read Pages 139 and 140 in the text and Article 2
and 4
Likelihood of Wage Increase due to Settlement
with the Union
Event
(A)
Possible wage
increase
percentage (B)
Probability of
wage increase
(C)
Expected value
(D) = (B) x (C)
Low increase
2%
30%
.6 %
Medium increase
2.5%
60%
1.5 %
High increase
3.5%
10%
.35%
Total expected percentage increase in wages due to
settlement with union
2.45%
Estimating Timing of Value Drivers
Managers must try to understand the timing of
external value drivers and how they move with the
general business environment.
They following graphics illustrate how this may be
done.
Read Pages 140-144 in the text
Hotel Industry Cycle Curve
High
1967
1972
1976
1980
1984
1989
Low
1969
1974
1977
1981
1986
1991
Mean
Standard Deviation
Hotel Industry Cycle Duration (years)
High to High
Low to Low
Expansion
5
4
4
4
5
4.4
0.5
5
3
4
5
5
4.4
0.9
3
2
3
3
3
2.8
0.4
Contraction
2
2
1
1
2
2
1.7
0.5
Leading and Lagging Indicators for the Hotel
industry
Tracking Less Quantifiable Data
Tracking less quantifiable data while difficult is not
impossible. This type of tracking is referred to as an
event study and extensive research is often needed.
The following graphic illustrated how this is done.
Read Pages 144-146 of the text
Competitive Methods of Multinational Hotel Companies
Over the Ten Year Period of Analysis
Number of
Competitive Methods
•Frequent Stay
Programs
•Strategic
Alliances
•Computer
Reservation
Systems
•1985
•Brand
Proliferation
•Amenity
Programs
•Use of
Technology
1986
•Service Concept
•Yield Mgt.
•Cost
Containment
•Price
Discounting
•Niche Marketing
•Purpose of visit
marketing and
advertising
1987
•Limited
Service
•Resort
Brands
•Going Global
•Meetings
Market
1988
•Courting
Travel
•Agents
•Management
Contract
1989
•Human
Resource
Programs
•Revenue Max.
Programs
•Frequent Stay
Perks
1990
Decade of Analysis
•Data Base
Systems
•Business
Services
•Environment /
Conservation
1991
•Return to
Core Business
1992
•Direct to
Consumer
Marketing
1993
1994
True or False?
1. An opportunity discovered based on a manager's "gut feeling may create
risks for the stakeholders.
True
False
2. To enhance the foresight of opportunities, a manager should develop the
ability to interpret and synthesize information about emerging patterns of ev
ents in his/her business environment.
True
False
3. A force driving change is brought about by the combination of movement
among value drivers.
True
False
4. Often, it is a combination of movements among value drivers that bring
about strong forces driving change.
True
False
Multiple Choice Questions
1. Which statement is NOT true?
A. When scanning the remote environment, the manager must engage in
inductive thinking.
B. When scanning the remote environment, the manager must engage in
deductive thinking.
C. Managers haven't looked at the remote environment because it is so
abstract.
D. Managers look more closely at issues surrounding them, such as the task
environment.
2. Which is an intangible value driver?
A. Disposable income
B. Consumer's sense of well being
C. Interest rate
D. GDP
Multiple Choice Continued
3. Which value drivers can be measured easily?
A. Traveler's attitude
B. Individual's perceptions
C. Revenue and expenses
D. Employee morale
4. Which is NOT a key category in the remote environment?
A. Political
B. Economic
C. Competitor
D. Socio-cultural
Case Study
Impact of Remote Environmental Factors on the
Hospitality and Tourism Industry
Case Study can be found in the text Pages 152-159.
Case Study
Impact of Remote Environmental Factors on the
Hospitality and Tourism Industry
1. The hospitality and tourism industry is considered as the industry that is
2.
3.
4.
5.
6.
7.
competing for consumers’ discretionary income and time. Discuss the environment
al factors that affect this industry in both positive and negative ways.
What lessons can we learn as an industry from these factors, and what can we do to
tackle these threats and crises?
What would you recommend relative to establishing a scanning process to monitor
the outbreak of infectious diseases?
Explain how you would go about establishing a causal link between the impact of a
disease like SARS and the firm’s ability to maintain cash flow.
What key value drivers would be important to identify the determine a causal link
to the firm?
Based on the overview in this case, provide your own theory of how you would
respond as a manager to this information.
Provide an understanding of how you would estimate the timing associated with
this event.
Possible Case Study Solution
as proposed by Krystal Peters
QUESTION ONE
Technological advancement in the environmental changes our lifestyle and the way
that business responds to these changes by:
◦
◦
◦
◦
Providing personalized service
Shorter (or no) wait time
Improved customer service
Businesses create better, faster, stronger, products to contend with their competitors
QUESTION TWO
InterContinental commits to technology as one of its competitive methods to gain
industry advantage by:
◦
◦
◦
◦
Offering guests some of the most advanced technology available
Featuring technology as a point of difference from existing hotels in their market
Making the technology seamless: wireless keyboards, cyber concierge, and high-speed internet access
(this allows technology functionality to be a platform at InterContinental Hotel Brands
Aim to exceed technological expectations
Possible Case Study Solution
as proposed by Krystal Peters
QUESTION THREE
Challenges associated with using technology in hospitality organizations as competit
ive methods to differentiate among competitors and gain market share are:
◦
◦
◦
◦
Technology and the hospitality industry is constantly evolving, therefore modifications/improvements
may be needed quite often
Using technology as a differentiator may cause pressure to constantly have the best technological
advances available
Training staff on how to operate the technology may be a costly and ongoing process
Compatibility with other products and online services may be an issue
QUESTION FOUR
The key determinants behind technology advancement are:
◦
◦
◦
◦
◦
General Need (sometimes determined by gap in the current market)
Purpose
Availability
Ease of Use
Cost
Possible Case Study Solution
as proposed by Krystal Peters
QUESTION FIVE
IHG timing its investments in technology at a time when others in the industry were
not concerned with such things. It chose a four prong multi-dimensional approach
(consumers, customers, franchisees, owners) and, successfully integrated it with key
marketing, reservations and operating systems into a strong technology based
system. The technology associated with this central reservation system became the
largest transaction processing engine in the industry. This system was able to build
IHG as a unique industry leader. IHG had a considerable advantage of at least ten
years.
QUESTION SIX
There aren’t really domain differences between the corporation and the two hotels
cited at the end of the case but, rather an increase in the focus within a particular
domain of the last two hotels.
Possible Case Study Solution
as proposed by Krystal Peters
QUESTION SEVEN
Information that would be helpful in determining the overall demand for
the technology investments IHG has made over the years are:
◦
◦
◦
Environment
Current Trends
Competitors
QUESTION EIGHT
Information sources that would be useful in tracking developments in tech
nology for the travel industry are:
◦
◦
◦
◦
◦
◦
Online booking agents
Travel subsidiaries
Hotels
Media
Competitors
Customers
Supplemental Readings
• Article 1: Food Companies Tweak the recipe
• Article 2:Jobs Data Suggest U.S. is in Recession
• Article 3: The impact of the SARS outbreak on Taiwanese hotel stock
performance: An event-study approach
• Article 4: Delta Plots Cuts in Jobs, Domestic Routes
• Article 5:Harrah’s (available on text’s website as a Case Study)
http://wps.prenhall.com/chet_olsen_strategic_3/78/20064/5136447.cw/index.html
• Article 6: McDonald’s (available on text’s website as a Case Study)
http://wps.prenhall.com/chet_olsen_strategic_3/78/20064/5136447.cw/index.html
• Article 7: Starbucks (available on text’s website as a Case Study
http://wps.prenhall.com/chet_olsen_strategic_3/78/20064/5136447.cw/index.html
• Article 8: Wendy’s (available on text’s website as a Case Study)
http://wps.prenhall.com/chet_olsen_strategic_3/78/20064/5136447.cw/index.html
Student Objectives
Upon completion of this chapter, you should be able to:
• Successfully scan the remote environment.
• Identify value drivers
• List their roles as determinants of causal relationships between
•
•
•
•
the firm and its environment.
Estimate the timing of value driver movements and their impact
the firm and its future cash flow streams associated with key
competitive methods.
Describe role of probability theory with respect to creating
managerial theories about the firm.
Apply the concepts of this chapter to the Case Study.
Create managerial theories about the firm.