Intercontinental Hotel Group Essay Sample
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Intercontinental Hotel Group is a company in the hospitality industry which deals with ownership of hotels for room renting purposes and franchising. The group owns about 614,000 rooms to franchise or manage and those owned and leased were about 5600 according to the 2008 report for the Hotel Group. The company aimed to achieve future growth through the management and franchising than owning of hotels. Franchising and managing of hotels generates
Franchising and managing of hotels generates more cash than required for investment and high return on the capital employed. In addition, franchising and managing has less volatility of the fee-based income stream as compared with ownership of assets. The group has about 8% of the estimated 17.5 million rooms in the global hotel market. The global market is fragmented with top six companies including IHG controlling 42% of the branded rooms which represented 19% of total hotel rooms according to the group annual report 2008.
The company faces competition from other establishment who has also been eying the market. In addition, profits realized are subject to higher statutory tax rates in the United States market which is like in some other places higher compared to that in the U.K. case, disallowable expenses and unrelieved foreign taxes.
The company establishment around the world including the United States faces different risks which may affect business, and have to be managed. These risks include security risk especially with threats from group targets called terrorism, food safety, staff and guest safety, fire protection, leisure safety and crisis and incident. Some of these risks like fear for terrorism (and terrorism cases have increased in the recent past) may have negative impact on the business and hotel occupation. Unfortunately, the management may be limited internally to deal with fear for terrorism as it may influence the global and local demand. Other risks such as food and security (within apartments) risks can be managed and checked by the organization. The company has to incur costs to cater for intelligent-led and risk-based tactics of managing risks.
A weakness exists in that the company relies on the brand reputation and protection of property rights to sell and this could mean that it would incur great losses if the reputation was damaged. In addition, some of the factors that affect the company performance even in the U.S. market are outside the control of the company, for example commoditization where as a result of increased prevalence of third-party intermediaries, price or quality becomes more important than brand identifications. In addition, factors such as perception by customers and their preferences may be less or not at all controlled by the management. Evolution of regulations like those relating to environment may also affect business. The United States establishments face more competition because the region is largely occupied and generally carries away most global share for hotel industry market.
In the global hotel market, the group’s brands have more leadership positions than other major hotel companies in the six largest geographic markets (IHG, 2008). The company should aim increasing presence on the areas where competition is low and venturing on more advertisement to increase sales through the internet to serve customers in areas where it is not locally represented by physical apartments. The company has the resources to make sure that is achieved. On the indicators meant to measure success, IHG scoped third position in total shareholder returns for the period 2006 to 2008. The company realized a growth of 5.9% for the growth of rooms.
IHG has recognized the increased preference towards branded hotels as compared to unbranded ones. The 2008 company annual report recognizes the growth of branded market (3.6% compound annual growth rate (CAGR). Hotel owners have positioned themselves to achieve the advantages involved in the growth of branded market by working with the company (IHG) which can offer a portfolio of brands for specific real estate opportunities and effective revenue delivery through global reservation channels. Increase of separation between hotel ownership and operations has helped the company to gain from offering franchising and managing hotels as a third party.
Lower activity in real estate and construction caused room signings to decrease in 2008 as compared to the level achieved in 2007 (60,402 against 75,279). According to the group reports 2008, the Americas hotel and room count grew to 3260 and 426,490 rooms respectively. As at 31 December 2008, the hotel group had a total of 1403 hotels and 146,757 rooms. The business model in the region was fragmented with Holiday Inn Express (brand) having openings of 170 hotels and 15,547 rooms, and one room and 2412 rooms were added for The Holiday Inn Club Vacations brand.
The group as a whole has a wide coverage which gives them an advantage of scale. The representation as discussed above as made them have a better competitive position than other hotels in the industry. This includes the percentage coverage in the countries with the largest share of global market in the hotel industry. The share of the global market is largest in the United States and this may translate into more market for IHG.
In order to ensure that the group’s expectations and commitments are obtained, employee feedback surveys are conducted twice a year. The group reports its information according to the guidelines stipulated in the U.S. accounting, statutory or listing requirements. This makes it easier for the possibility of the customers getting group results that reflect the company’s correct information with little bias. The company also has a system to enhance internet booking for the hotels, reward strategy among others which could render it to be at a good position to competing with other firms. In the United States, the revenues in the hotel industry historically increase in line with Gross Domestic Product (real terms growth of about 1.5% per annum).
The company established a set of behaviors (Winning Ways) that define how it interacts with the hotel owners, guests and colleagues in 2006, and this has reportedly been embraced by the people with enthusiasm and creativity worldwide. These behaviors include; ‘do the right thing’ which may help the company put into practice what they believe is right and have the courage and conviction to do it practically; ‘show we care’ which may make the company carry out initiatives for sensitivity of others; ‘aim higher’, ‘room to grow’, among others. The company uses referrals to fill employee positions (42% vacancies) in the United States, and this involves employees referring a contact as a potential employee. The group in general has a variety of employees and encourages retention, development and attracting talent.
The IHG group has established relationship with other companies and suppliers. The relationship with a wide range of suppliers helps the company not to rely on a single supply and also because of its ownership of different brands, market segments and geographical coverage (IHG, 2008). This is advantageous because the hotel cannot be affected incase one or a few relationships are affected.
The U.S. establishment can benefit from the ‘Leaders Lounge’ which is an internet leadership development system where leaders can gain inputs from other Chief Executive and the Executive Committee on key issues and challenges. The company can also continue to benefit from this arrangement through managing leadership, carrying out training and monitoring and improving on leadership.
The internet strategy for booking represents an opportunity for growth of the regional establishment in the U.S. as consumers continue to respond to usage of technology in bookings for hotels. The hotels also stand to benefit from visitors from other countries entering the United States, if the internet coverage is efficiently used as an advertisement tool for example in the developing world. Internet strategy can also continue to benefit the establishment more if the company exploits more, the relationship with travel industry. E-commerce can also be used to link with suppliers in order to overcome operational barriers and business obstacles while coordinating with suppliers (Westerlund, 2000; qtd. in Yang, Jan & Krista, n.d.). Customers gain by accessing services at lower prices, or have more convenient operations, superior services better choices and wider selection (Vassos, 1996; qtd. in Yang, Jan & Krista, n.d.)
The company also needs to exploit more on technology to achieve diversity, in the quest to make it not too much reliant on certain technologies and systems including IT systems. Expansion of the technologies would make sure that the company does not suffer incase of interruptions of those specific technologies integrated in the business. The efficiency of the business can also largely be improved with expansion of technological systems, which would also make the company have competitive advantage.
E-commerce systems are evolving to give companies competitive advantages over other companies because of global presence and advertising among other benefits. In addition, issues of comfort, pleasure, customer perception over e-commerce systems, customer experience, consistency, speed and linkage have become important in e-commerce. Research has linked speed of websites to customer online experience and customer loyalty. IGH leveraged Akamai’s global infrastructure to improve on site’s performance and dependability. At one time it had the fastest website according to Keynote Systems, an internet assessment performance company. The group realized improvement in the total annual online revenue from its branded online sites and the group’s “look-to-book” conversion rate (Akamai Technologies Inc., 2008).
IHG was the first hotelier to offer online reservations in the hotel industry and also was the first to avail cancellation, modification or review of reservations by customers on its websites. The changes, modifications, cancellations and reviews are made regardless of how the customer originally made the reservation (Akamai Technologies Inc., 2008). Communication channels have been established which can help in ensuring employee involvement and passing of the company information. These communication channels include global management conferences, team meetings, informal briefings and in-house publications. People can take advantage of online learning programs to learn flexibly. The company information on reservation centers, corporate offices, policies, people and news can be assessed through ‘Merlin’, the group’s intranet.
Technology has also been used to harness participation of employees in training programs as well as booking for hotels by customers. Customers can book for the hotels online. Online communication strategies have also been used to achieve other objectives such as making the managers aware of best practice systems available such as the Green Engage online sustainability system and the Green Aware training program (IHG, 2008). Online strategy can also be used for researching the best techniques for hotel planning and management, advertising, data sharing over the internet and offering customer services as part of e-commerce (Hamill & Gregory, 1997; Web & Sayer, 1998 e.t.c.; qtd. in Bharadwaj et al., 2007).
The communication strategy should be aligned with the company’s objectives and operations so as to make sure that they contribute to generation of more returns on investments. Another strategy that the company has used as a group is the launching of social corporate practices that may make it become familiar among the people. Social corporate responsibility make a company to be rated high among the society members and this may come back to the company in form of other benefits such as members being loyal to the company products. Social corporate responsibility towards environment-conscious practice ensures that the industry is itself sustained because it has a direct relation to the environment (Kasim & Cezar, n.d.). Confidentiality and security of communication systems which exchange customer and other company information need be monitored and improved since there breach may adversely affect the company’s reputation which could negatively affect performance. The company can also reap benefits by ensuring that the target audience is able to share information amongst themselves. The company can also utilize its employees and staff to make it popular among other peoples just the same way it has used the employees to recruit others through the referral program aforementioned in this paper. The learning programs over the internet can also be further utilized for communication if they were extended for other companies and groups with which the company has linkage.
Akamai Technologies Inc. (2008). Case Study: InterContinental Hotels Group Improves ‘Look-to-Book’ Conversions and Increases Online Revenues. Retrieved 9 June 2009 from http://www.edge-delivery.org/dl/casestudy/Akamai_CaseStudy_IHG.pdf
Bharadwaj, Nagendra Prashanth, Soni & Ramesh G. The Scope and Effectiveness of E-commerce. Journal of Small Business Management. 1 October 2001. Available 17 February 2009 from http://www.allbusiness.com/ company-activities-management/company-structures-ownership/5508922-1.html
Hamill, J., and K. Gregory (1997). Internet Marketing in the Internationalization of UK SMEs. Journal of Marketing Management. 13(1-3), 9-28
IHG (2008). IHG Annual Report and Financial Statements 2008. Retrieved 6 June 2009 from http://www.ihgplc.com/files/reports/ar2008/files/pdf/2008_annual_report.pdf
Kasim Azilah & Cezar Scarlat. Business Environmental Responsibility in the Hospitality Industry. Retrieved 11 June 2009 from http://www.fm-kp.si/zalozba/ISSN/1854-4231/2_005-023.pdf.
Webb, B., and R. Sayer (1998). Benchmarking Small Companies on the Internet. Long Range Planning 31(6).pp. 815-827
Yang Jiaqin, Jan Flynn and Krista Anderson. E-Business Application in the hospitality industry: A case study. Communications of the International Information Management Association. Vol.3. Iss.1. Retrieved 11 June 2009 from http://www.iima.org/CIIMA/CIIMA%20V3%20N1%201%20Yang.pdf.
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