IHG-Traces the changes of strategy and strategic direction over the last 10 years PDF

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Task : Essay- Traces the changes of strategy and strategic direction over the last 10 years.

Table of Contents Introduction……………………………………………….………………………….…2 Major Brands……………………………………………………...……………………2 Strategic History of Intercontinental Hotel Group……………………….………….3 Business Strategies from before current time………………………………………4 IHG Current Business Strategy………………………………………………………5 Future Strategy of Intercontinental Hotel Group……………………………………7 Driving demand……………………………………………………………………...…7 Ownership / Major shareholders…………………………………………...…...……8 Competitive Analysis of Inter-Continental Hotels Group (IHG) ………...……...…8 1. Strengths …………………………………………….……………………..9 2. Weaknesses………………………………………………………………..…10 3. Opportunities……………………………………………………………….…11 4. Threats…………………………………………………………………...……12 The PESTLE/ PESTEL/ STEEPL analysis for (IHG) ………………………….…12 1. Political……………………………………………………………....…..……13 2. Economical……………………………………………………………………13 3. Social………………………………….…………………………………….…14 4. Technological…………………………………….....………..………………15 5. Legal…………………………………..………………………………….……15 6. Environmental………………………………………..…………….…………15 The Porter Five (5) Forces Analysis for (IHG) ………………………………....…16 1. Threat of New Entrants………………………………………………………16 2. Bargaining Power of Suppliers……………………………………………...16 3. Bargaining Power of Buyers……………………………………….……..…17 4. Threat from Substitute Products………………………………...….………17 5. Rivalry among the existing players. ……………………………………..…18 Implications of Porter Five Forces on InterContinental Hotels Group PLC…….18 Financial Statements………………………………….. ……………………………18 Major Competitors……………………………………………………………………19 Marketing and Advertising………………………………………………..…………19 Sales force………………………………………………………………………….…19 Conclusion…………………………….……………………...………………….……20 References……………………………………………………….……………………2

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Introduction This essay is about analysing changes in strategy and strategic direction of an organisation for last 10 years. The changes will relate to organisational structure, organisational culture, environment, and market forces. All the business functions will also be discussed with business strategies adopted by the organisation over the years. Intercontinental Hotel Group (IHG) is selected for this essay as a case study. The Intercontinental Hotel Group has evolved from a SME to a huge group of hotel organisations consisting of different properties of hotels under its umbrella of Intercontinental group. The hotel chains are multinational in 100 countries with 4,400 hotels and 650,000 rooms[ CITATION McC18 \l 1033 ]. The hotel and hospitality industry are influenced by customers’ needs, wants, and demands, their experiences, and develop strategies to improve customer experience, and loyalty. The main purpose of Intercontinental Hotel Group is to develop good relationship with their customers, employees, and staff members. The hotel s operated in three different ways including manager, franchiser, and leased basis. It hotels under this group are Holiday Inn, Intercontinental, Hotel Indigo, Crowne Plaza, Candlewood Suites, Stay Bridge Suites, and Holiday Inn Express. The organisation has been running loyalty programme of hotels in the industry that has 48 million members from all around the world and it is known as (Priority Club Rewards) and it is one of biggest in the world[ CITATION Est16 \l 1033 \m The08].

Major Brands:  Intercontinental hotels and Resorts  Kimpton  Hotel INDIGO  Even Hotels  Hualuxe  Crowne Plaza  Voco  Holiday Inn Express  Holiday Inn Club Vacations  Holiday Inn Resort  Holiday Inn  Avid

   

Staybridge Suites Candlewood Suites Regent IHG Rewards Club

Strategic History of Intercontinental Hotel Group The development and formation of Intercontinental Hotel Group has been through various stages and gradually from a brewery store, the business entered in hotel industry by acquisition strategy with Mitchell’s and Butlers breweries in 1960s that grew fast and the cash flow of the business grew faster that made the owners of the company to form a hotel business that started with merger and acquisition strategy with the hotel group of Holiday Inn in 1988 and launched another hotel named Hotel Inn express[ CITATION IHG18 \l 1033 ]. The pub business was growing side by side when the company launched a new hotel to gain more growth in the industry known as Crown Plaza hotels and resorts in 1994. The hotel group wanted to gain larger market share and globally dominating in the hospitality industry [ CITATION Est16 \l 1033 \m Bre]. In year 1997, a new brand of hotels was launched by Bass that was named as Staybridge Suites and it targeted the upscale market of hotel. The Staybridge suites became the leading brand of upscale market. In year 1998, intercontinental hotel company was acquired by bass and a new brand was added to the portfolio of hotel. The acquisition strategy allowed the owners to increase synergy of hotel running by Bass. In year 1999, again acquisition strategy was used by taking over 550 high potential UK sites and 3500 estates of strong pub. In year 2000, South Pacific Corporation in Australia was acquired by BASS that ensured the position of Bass in the Asia Pacific as the leading hotel Company. In the same year, the Bass Breweries was sold for 2.3 billion pounds[ CITATION Den05 \l 1033 ]. This was the big step by Bass Company that they focused on being an international business within hospitality industry from being a local Brewer. The process did not complete overnight, and it took almost 10 years to settle in the market. Bass name was sold off and the company was then started to call Six Continents PLC[ CITATION Bre \l 1033 \m IHG18]. This name reflected the business well and showed the global expansion of the group. In year 2001, the smaller unbranded pubs were sold to 625 pounds. It funded the purchase of European Posthouse Hotel Chains for 810 million pounds. The purchase of this company could be converted to Holiday Inn brand in Europe and UK. In the same year, the company went on to acquire Hong Kong’s Intercontinental hotel for 241m pounds. It 3

strengthened the position of the business in Asia Pacific and Chinese market[ CITATION Est16 \l 1033 \m Bre]. In 2002, the hotel group of the six continents Plc announced their farewell from the hotel and drinks business from Retail Company (Mitchells and Butlers Plc) for which 700 million pounds from the proceeding returned the capital to all the business shareholders. The process of separation was completed in 2003[ CITATION Kin08 \l 1033 ]. From then, the company of Intercontinental Hotel Group is on its own and it is now a discrete organisation, which is listed in the stock markets of UK and USA. Again in 2003, Intercontinental Hotel Group sold Stay Bridge Suites and entered in a 20-year agreement of management. A midscale brand was later added in their portfolio which named Candlewood Suites. In year 2004, Intercontinental Hotel Group announced a new brand name Hotel Indigo that emphasized on providing accommodation to reasonable boutique[ CITATION McC18 \l 1033 \m IHG18]. The Intercontinental Hotel Group then adopted standards for sell8ing hotel rooms for the customers stay through online travel business. The success of Staybridge suites allowed the organisation to launch an extension of it in 2005. In year 2006, Intercontinental Hotel Group signed a joint venture partnership with All Nippon Airways that resulted in various projects and later the Hotel group was made the largest international hotel in the world. in year 2007, the Intercontinental Hotel Group announced the relaunch of Holiday Inn, Holiday Express, and Express by Holiday Inn. A refreshed and contemporary brand image was produced. The hotels’ relaunch took place in 2008 and all the relaunches took 2 years to complete in year 2010. In year 2009, 1500th hotel of Intercontinental Hotel Group was launched in the world[ CITATION Est16 \l 1033 \m McC18].

Business Strategies from before current time The strategy behind the development and growth of Intercontinental Hotel Group was of Bass that played important role in the growth of the company. A huge group has been grown through trial and error basis through which it was experimented with different concepts of buying and selling or franchising and managing properties[ CITATION Bar10 \l 1033 ]. The strategy of the business expansion used was linear model of growth through various joint ventures and through mergers and acquisitions. Intercontinental Hotel Group was developed by the parting of Six Continents PLC in 2003 yet in few years of sustainability and consistent pace, the Intercontinental Hotel Group has been world’s one of the top hotel businesses[ CITATION Eva12 \l 1033 \m IHG18]. From 4

the last few years, the Intercontinental Hotel Group has become strategically maintained with respect to its departmental functions, operations, productivity, and profitability, which have been increased by the increase in efficiency and effectiveness[ CITATION Den05 \l 1033 ]. The company has made the most of it using global status and name of it. The strategy of Intercontinental Hotel Group made their profits and income stream quite predictable with strong generation of cash that allowed it to continue the development and growth because all the new launches of hotels were funded by the investment of a third party[ CITATION Bla11 \l 1033 \m Bar10 \m McC18]. Despite of the economic uncertainties and circumstances of the industry, Intercontinental Hotel Group went ahead and relaunched Holiday Inn in year 2007 by rebranding it with a program of $1 billion because the strategic planners believed that this was the right time to take actions and implement the strategy of relaunching. The relaunch of the hotels went on to build back the perception of people for Holiday Inn[ CITATION Kin08 \l 1033 ]. The guests of the hotel group wanted to try the hotels under Intercontinental Hotel Group name because it is a big brand and value the hotel is giving to the customers is accepted and liked by the customers. The Satisfaction of guests was going higher and the owners of the hotels were able to see the Revenue per rooms overtake. It was quoted by the CEO of Intercontinental Hotel Group, “These economic circumstances might seem like a great reason to shy away from making such big changes, but time will show that it is both a very opportune and very effective initiative for this, our biggest brand[ CITATION McC18 \l 1033 ].”

IHG Current Business Strategy The Intercontinental Hotel Group has been playing important role as a service provider within the hospitality industry and the company’s operational strength is increasing day by day. The hotel group has 130 guests from across the world having 4400 hotels who visit the hotels under the umbrella of Intercontinental Hotel Group[ CITATION Eva12 \l 1033 \m Den05]. The Organisation is well-known and well-reputed in the industry and it is covering all the segments of the market. The organisation has been dealing with the customers in 29 languages through 10 call centres worldwide and it has strived in the industry to become the market leader. Currently, the Intercontinental Hotel Group has been able to maintain their operations to position themselves through growth and development strategy and doing retailing as well in the hotel section[ CITATION Box03 \l 1033 \m Cam14 \m Est16]. The 5

organisation is able to position itself among world’s top 6 hotels, which is unachievable by most of the oldest and successful hotel brands. Intercontinental Hotel Group has made its website number 1 for the customers and investors in 13 languages. The sales team consists of 8000 sales employees who are in charge of arranging bookings of the hotel rooms across 100 countries in which they are present currently. Intercontinental Hotel Group also has a loyalty program that offers the rewards of priority to the club members that is the largest loyalty program in the industry of more than 48 million members worldwide[ CITATION Box03 \l 1033 \m IHG18]. It has been mentioned in a website of Intercontinental Hotel Group that, “We have moved from investing heavily in hotel properties to return to our roots as a hotel franchise and management company with only a few owned assets. This change of focus has led to an industry-leading asset sale programme. Since 2003 we have sold £2.9 billion worth of property. Many of these hotels have remained under our brands with management or franchise contracts, thereby creating a future income stream for IHG[ CITATION IHG18 \l 1033 ].” Recently, Intercontinental Hotel Group has continued its expansion plan in new rooms that assisted to increase the profit of the company more than expected. Driving into the hotel revenue has been the priority and it is the system that is key to deliver this. The system of the organisation consists of world class centres of reservations, global sales team, websites, and the rewards of priority club of the hotel and it delivered around 68% of revenue from the rooms to the hotel in year 2009[ CITATION McC18 \l 1033 ]. It reduced the overall base cost of Intercontinental Hotel Group. It was important to manage through the downturn of the company. Intercontinental Hotel Group was trying to reduce their cost in order to run their operations worldwide more effectively but with the unavoidable downturn in economy, the organisational planners adopted the changing pace that was being managed gradually[ CITATION Bre \l 1033 \m Dav12]. While they all were managing cost by managing way of operations and business processes as well as their expansion worldwide, the reductions in the number of employees was forced to them by downsizing strategy. It created pressure on Human Resource Management of the organisation because it directly impacted the staff and employees of Intercontinental Hotel Group in several hotels of the company[ CITATION App15 \l 1033 \m IHG18]. These actions were taken in year 2009 to reduce cost because it was a difficult period for many of the businesses and the economic downturn affected the people and the businesses both to a greater extent. The strict Human Resources Strategies of 6

Intercontinental Hotel Group allowed the organisation to save lots of cash and continue the investments in the things that retain and gain more customers and guests to visit and stay in the hotels in order to generate the revenues to the business[ CITATION Box03 \l 1033 \m Noe06]. The future growth of the departments of the Intercontinental Hotel Group will be achieved by managing and franchising as compared to owning hotels that in turn will increase the profits and drive down cost by the fact that all the hotel investments will be done by third parties. It was estimated that 641,000 rooms in the hotels of Intercontinental Hotel Group were managed and franchised and rest 5,800 rooms were leased and owned[ CITATION IHG18 \l 1033 ]. The advantage of it further is reduction of volatility of the income of fee-based stream as compared to the asset ownership. The main characteristic of the managed and franchised business is that it creates cash more as compared to the investment required with huge rate of return on the employed capital[ CITATION Den05 \l 1033 ]. Presently, 87% of the total continuing revenues before overheads, interests, exceptional items, and tax is derived from the operations of managed and franchised hotel rooms. It was further mentioned in the website of Intercontinental Hotel Group, “IHG’s prime focus should be on growing faster by making its brands the first choice for both guests and hotel owners. We will do this by building the hotel industry’s strongest operating system, focused on the biggest markets and segments where scale really counts[ CITATION IHG18 \l 1033 ].” During the difficult time of economic downturn, Intercontinental Hotel Group took a decision and action to improve the operational efficiency to keep the pace with their growth strategy. The Intercontinental Hotel Group should continue to staff, brands, and systems while moving closer in maintaining good relationships with the partners and owners[ CITATION Kie16 \l 1033 ].

Future Strategy of Intercontinental Hotel Group The current strategy of the business observed is growth and development despite of the challenging economic situation of the world. In year 2009, Intercontinental Hotel Group took a deeper look at the capabilities and operations of the business to focus on that is mattered the most to deliver the customers and guests with good experience, love, and comfort. The major effort to achieve this was done through aligning the employees and staff and measuring the important drivers of the business, which result in a target-based programme in the hotel

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business to guide the behaviour and motivate the teams[ CITATION Est16 \l 1033 ].

Driving demand The operations system of Intercontinental Hotel Group is made up of the things that are done to drive the demand of customers and guests for the hotel brands. It includes various marketing and advertising campaigns by 10 globally present call centres, websites in 13 local languages, 8000 sales members, and priority Club Rewards with 48 million members from all parts of the world. These business systems of people and process within Intercontinental Hotel Group benefit the hotels scale to increase brand awareness and loyalty of the current and potential customers of the group[ CITATION McC18 \l 1033 ].

Ownership / Major shareholders: As of august 2018, the ownership distribution for the top 5 shareholders of IHG are as follows: 1) Capital International Investors (39.16%) 2) FMR LLC (36.12%) 3) Renaissance Technologies LLC (2.76%) 4) Parametric Portfolio Associates LLC (2.21%) 5) Arrow street Capital, Limited Partnership (1.58%)

Competitive Analysis of Inter-Continental Hotels Group (IHG) The SWOT/ TOWS analysis for Inter-Continental Hotels Group (IHG) is presented below: Strengths

Weaknesses 1. No economic hotel brand 2. Poor information security systems 3. Slipped to 3rd position worldwide

1. Asset light business model 2. Wide geographical presence with focus on priority markets 3. Customer experience & relationship focus 4. Occasion wise brand portfolio 5. Strong digital outlook & implementation 6. Successful employee engagement 7. Strong financials and high RevPAR

Opportunities

Threats

1. Fragmented branded hotel market 2. Increased international tourist travel

1. Sharing Economy in Hotel Industry 2. Unprecedented Events 8

3. Technology facilitated bookings

3. Increased dependencies on intermediaries

Detailed SWOT Analysis of Inter-Continental Hotels Group (IHG): (1) Strength 1. Asset Light Business Model: The Company is implementing this by adopting predominantly franchise model in US, managed model in AMEA and reducing owned hotels to 8 globally. In this way it is becoming asset free, cash generative and is returning the surplus cash to shareholders post strategic investments. It has returned £5.9 billion of funds to shareholders since 2004 till date. 2. Wide Geographical Presence with Focus on Priority Markets: The group has presence in 100 countries with 766,837 rooms. It has 87% of total open rooms and 89% of pipeline rooms in priority markets of US, Middle East, Germany, UK, Canada, Greater China, India, Russia and CIS, Mexico and Indonesia. It has an established and strong presence in the emerging economies where spend on travel and hotel is increasing. The lifestyle brands. Kimpton Hotels & Restaurants has been made global and strategically positioned as an upper middle-class lifestyle brand. 3. Customer Experience & Relationship Focus: IHG trends report reveals that the consumer preferences are shifting towards personalisation and uniqueness of services unlike traditional preference on availability and cost. IHG is equipped to handle the change with the Guest Reservation System which provides cloud-based booking platform that other guests a more personalised experience. “Your Rate by IHG Rewards Club” provides access to exclusiv...