Introductions
External Environmental Analysis of InterContinenal (IHG) Hotels and Resorts will be analysed in this report. This business report has included a wide range of topics related to strategic management. A British company has been selected for the application and strategic directions to the company. IHG Hotels and Resorts is a British multinational hospitality company that provides services in different countries of the world, including the UK. The report has analyzed the strategic directions, company’s vision and mission statement in the first part. Environment scanning of IHG Hotels and Resorts has also been conducted where PESTEL analysis, SWOT analysis, VRIN model, and Porter’s Five Forces Models have been analyzed and applied. The report has also explored the strategic options for business expansion, based on the critical evaluation, the most suitable expansion strategies and other recommendations have also been suggested.
You may feel interested to read similar blogs:
Macro Analysis of MC Donald’s
External Environment Analysis of Marriott International
External and Internal Environment Analysis of Ford
External Environmental Analysis of InterContinenal (IHG) Hotels and Resorts
Vision of IHG Hotels and Resorts:
The vision of the company is to be the best hotel and resort service provider in the UK and the 100 countries it operates a business by delivering the best services through its 6,000 hotels (Business Strategy Hub, 2022). The company is built on the core values of honesty and integrity.
The mission of IHG Hotels and Resorts:
The company believes that its values are the core of its ongoing success and expansion. IHG Hotels and Resorts work in a collaborative approach to achieve the target result. This togetherness has helped the company to focus on the priorities that need to be done to achieve the vision. Secondly, the company communicates honestly, it means it makes transparent communication with the employees, customers and all other stakeholders. Such transparency has enabled IHG Holiday to be committed to the company. Thirdly, the company believes that learning is a continuous process and it should not be stopped. Fourthly, IHG Hotels and Resorts will be continuously working for innovation and change, bringing new value additions to the industry, and creating positive change.
Above are the areas in which IHG Hotels and Resorts is working, and these are the mission which will help the company to achieve the vision of becoming the best holiday service provider in the UK.
PESTLE analysis of InterContinenal (IHG) Hotels And Resorts
PESTLE stands for Political, Economic, Social, Legal & Ethical environment, this is an environmental auditing tool that critically analyzes the external environment of the organization and provides feedback to the company on the course of directions.
Political Environment: Political element of the PESTLE model provides IHG with insights into the political environment of the UK and the whole world (if needed) and guides the company about what is accepted and what is not accepted politically (Goodman and Dingli, 2017). Political factors deal with political conditions, democracy and its impact, and geo-political rules (such as Brexit and its effect). The UK is a politically stable country proposing an excellent environment for tourism companies (Altinay, Paraskevas and Jang, 2015). However, the tourism companies and the tourism industry of the UK are likely to receive fewer customers in the coming days once the BREXIT is fully implemented because the new rules will create some obstacles to the free movement of EU tourists to the UK (Mensah and Mensah, 2013).
Economic Environment: Economic factor of the model illustrates the economic environment and its likely impact on companies (Grant, 2016). Economic factors such as GDP, Per capita income, inflation rate, interest rate, employment rate, real economic growth, economic Index, and relative dominance on the world economy have a certain impact on the tourism business of the UK (Law, Buhalis and Cobanoglu, 2014). GDP per capita in the UK is $9,230 which is one of the highest per capita incomes in the world (Country Economy, 2019). Such good financial position of the people has boomed the tourism industry of the UK.
Social Environment: Social factors of the model analyze the impact of the social environment on a business, and it also guides a company to take proper caution to avoid the negative impact (Johnson, Whittington and Scholes, 2012). Attitudes to people’s shared beliefs, religious beliefs, and cultural environment have a huge impact on the tourism industry. Shared beliefs and relationships with people encourage people to travel throughout the country. However, global pandemics such as the Coronavirus create unprecedented fear among people from the fear of being affected, such a situation tremendously reduced the number of tourists in the whole industry.
Technological Environment: This factor indicates the importance and impact of technological improvement and the use of information technologies for a certain industry (Tsang and Hsu, 2011). The UK is technologically very advanced the people of the country are used to using high-tech apps and devices. IHG Hotels and Resorts has also equipped with technologies for communications, reaching people, facilitating easy payment etc. The company has an active presence on social media, it has a mobile app for Android and iOS; as a result, a large number of customers can reach the company easily. It also has an online based selection process and payment system enabling the customers to reduce hassles. Overall, IHG has taken effective steps to adapt to changing technological needs of the industry.
Legal Environment: Legal factors inform a company of the laws and regulations of a country, and it plays a significant impact on the operation of any company (Morden, 2016). IHG have to maintain all the laws and regulations of the UK. Protecting the privacy of customers has become the most pivotal issue in recent times, given that tourism companies know a lot about the private information of the customers (Chang and Hsu, 2010). IHG Hotels and Resortsdeclares a privacy policy once a visitor visits the website of company, furthermore, it keeps the private information of the customers secret.
Ethical Environment: Ethical factor of the model informs a company about ethical business practices and the importance of the same (Barney and Hesterly, 2010). Tourism companies have a lot of duties and responsibly, such as the protection of personal information and data, the well-being of the community, local prosperity and economic contribution, equal employment opportunity and ethical behaviour with the employees, environmental safety and protection, ensuring value for money for the customers (King, 2010). IHG emphasizes all perspectives of ethical issues. For example, the company encourages tourists not to pollute the environment by throwing plastics.
Porter’s Five Forces Analysis of InterContinenal (IHG) Hotels And Resorts
Porter’s Five Forces Model is another external environment scanning model, this analyzes the competitive environment of the external business environment.
The threat of New Entrants: High: This refers to the relative chances of new business entities starting operations in the industry (Ansoff et al., 2018). In the case of hotel and resort services where IHG Hotels and Resorts is operating, the threat is moderate. Firstly because it requires a great amount of investment, including networking and some technological infrastructure (Lynch, 2008). Secondly, the industry is lucrative because the number of tourists and property are increasing at the same time, so new entrants are likely to be motivated to start themselves. However, competing with IHG is certainly tough because it has a long-standing experience of 19 years with a proven track of quality services.
The threat of Substitutes: Low: It refers to the alternative products and services that a customer can fulfil the need (Wheelen et al., 2010). There is no potential substitute for the wish to travel to a tourist destination, only physically visiting the place will work. In this consideration, IHG Hotels and Resorts offered services do not have potential substitutes. However, the company has to continuously need to invest in designing better service models, introducing value-added services, and making the customers satisfied to ensure continuous growth. Such initiatives will broaden the competitive strength of IHG and will enable the company to retain existing customers and attract new ones.
Bargaining power of Buyers: High: It indicates the negotiation power of buyers who bargains with the company to reduce price, complain about services and quality, and not purchase products from a certain company because there are other businesses offering the same product (Freeman, 2010). The bargaining power of customers is high in holiday rental services because there are a number of companies providing the same services (Leung et al., 2013). There are hundreds of similar companies doing business in the UK and other 100 countries where IHG operates. Customers have options not to purchase products or services from IHG and to check with another company. Therefore, the power of buyers is high.
Bargaining power of Suppliers: Low: It refers to the relative negotiation power and dominance of suppliers (Rothaermel, 2016). In the mentioned industry, the bargaining power of suppliers is really low firstly because IHG is a multinational company, and there are many suppliers who want to be their partners. Therefore, IHG has options to negotiate with property suppliers. Secondly, the utility of the property is not unique, rather it is generic. Other supplies, such as logistics supporters, and utility service providers, are also available in the industry. Considering the above issues, it can be said that the bargaining power of suppliers is really low.
Industry Rivalry: High: It refers to relative rivalry and competition among the companies in the same scenario (Schilling, 2010). A large number of companies offering the same services mean that industry rivalry is high. This is Money (2017) has reported that the booming hotel and resort industry has lured a large number of companies to initiate business in the industry. As a result, a large number of companies are doing business in the sector. In such a situation, the suitable strategy should be to bring some new services, value-added products and excellent quality with a good attitude to create a good impression among the customers.
Internal Environment Analysis of InterContinenal (IHG) Hotels And Resorts
SWOT analysis of InterContinenal (IHG) Hotels And Resorts
SWOT stands for strength, weakness, opportunities and threats. This is a strategic external environment scanning tool which investigates the internal strength and weaknesses relative to external opportunities and threats of a company (Schilling, 2010). By SWOT model analysis, IHG will be able to understand the internal capabilities and vulnerabilities.
| Strength | Weakness |
| 1. IHG has 6000 hotels and resorts and it provides tourism services in 100 countries of the world. 2. It offers hotels and resorts in varieties of areas, such as coastal areas, countryside areas, landscape areas etc. (IHG Hotels and Resorts, 2020). Such variations have attracted a large number of tourists. 3. IHG has an active online presence in social media, app stores, its website, 24h call centre, and online payment system: making the services more accessible to a wide range of customers. 4. It has a basement of over 1 million customers, among which a lot of customers are satisfied. Many customers have posted positive reviews on the site, and this increased word-of-mouth. 5. The company has a huge engagement of people in all the posts on Facebook (Facebook, 2020). | 1. IHG has many franchises, and it reduces IHG’s control over the services provided by the franchises. It may harm the reputation of the company. 2. The web presentation of IHG is not up to the mark, rather the information is provided in an unmanaged approach. The website could have been made much smarter making the acceptance of the customers better. 3. The company doesn’t expose any noticeable intention to attract tourists from urban areas. It should make an effort to reach the tourists to expand the business by increasing revenue. |
| Opportunities | Threats |
| 1. IHG can expand the reach of its cottages to even more countries at more variations. This will significantly add value to the products and services. 2. IHG can utilize the loyalty of the already-served customers to create positive vibes and more word-of-mouth to retain existing customers and attract new ones. 3. IHG can make the web presentation more interactive, manageable and convenient to notice. This will create more online engagement among customers. 4. The company has the opportunity to reach potential tourists outside its coverage, this will broaden the business perspectives of the company. | 1. New entrants can enter the industry and can bite at the market share of IHG by making fewer profits. 2. Franchises can provide fewer quality services, which can dissatisfy IHG customers and will harm the brand value. 3. Unknown threats, such as new laws because of Brexit, and diseases such as Coronavirus, may hamper regular business activities for a long time. |
VRIN Analysis of InterContinenal (IHG) Hotels And Resorts::
Resource-based view is the basis of a firm’s competitive advantage, and the VRIN model is a tool to assess the resources’ value, rarity, imitability and substitutability (David and David, 2016). If a company has full VRIN features, it means that the resources have the capability to create a strong and unbeatable competitive position in the industry. VRIN application on IHG Hotels and Resorts will help to understand the capabilities and sustainability of the resources.
Value: This refers to the relative ability of the resources and strategies of a company to generate value for the customers and for the company, and such value-generating abilities can be a great source of competitiveness (Wheelen and Hunger, 2011). IHG have a number of strategies, networking, brand value, relationship and loyalty with the customers and long experiences of working in the industry and, most importantly, contact with property owners; all these resources and strategies have immense capabilities to create value both for IHG and for the customers (Mintzberg, Ahlstrand and Lampel, 2005). However, to stay more competitive, expand its customer base and expand the business globally, IHG has to continuously work to introduce new value added products and services, and work on existing resources.
Rareness: It refers to the situation in which the resources and strategies cannot be found among the competitors (Eden and Ackermann, 2013). Some of the resources and strategies that IHG have are available only to a few competitors, such as Verdant Leisure (another similar type of company) but most of the strategies and resources are not available to new companies having a business for less than five years. However, the situation is vulnerable because competitors can copy the capabilities and strategies of IHG.
Imitability: It refers to a situation where the resources and strategies cannot be copied by other firms and only be used in one company only. Unfortunately, IHG doesn’t have any such resources that are 100% inimitable because IHG has no secret formula (such as Pepsi has) or secret algorithm (such as Google has) to make the company inimitable. Therefore, the strategies can be followed and copied by any company, networking with property owners can be followed by any company, and the resources IHG has can be adopted by any other company (Morden, 2016). Therefore, the competitive position of IHG is in a vulnerable position, in terms of imitability.
Non-Substitutable: It means that the resources and strategies cannot be substituted by any other means by other companies. Such is not the case in the mentioned tourism sector. Here, the resources and strategies can be traced and followed.
Considering all the above discussion and practical situation, it is very much clear that IHG doesn’t have a strong position in terms of VRIN features; the resources and strategies can be copied and followed, making the stance of IHG vulnerable.
Stakeholder analysis of InterContinenal (IHG) Hotels And Resorts
Stakeholders are the groups, entities, people or parties who are affected by the activities, and decisions of a company and who have certain stakes (interest) in the company (Lasserre, 2017). Business organizations have certain responsibilities for the stakeholders because the existence of the business is for the people (Thompson, 2001). Accordingly, IHG Hotels and Resorts also have certain groups of stakeholders such as tourists, local and international tourist authorities (such as UNWTO), local people and organizations, government, utility service providers, property owners etc. IHG must act to achieve the interest of the above groups. However, the level of importance for the above stakeholders is not some, some should get higher importance than others.
| Stakeholders of IHG Hotels and Resorts | Internal/External |
| Local tourism authority | External |
| Internal tourism authority (UNWTO) | External |
| Employees | Internal |
| Tourists | External |
| Local community | External |
| Investors | Internal |
| Creditors, financial service providers | External |
| Government Bodies | External |
| Competitors | External |
| Utility service providers | External |
| Society as a whole | External |
The above table has demonstrated the list of potential stakeholders mentioning their sources.
The above mapping illustrates the relative power of different stakeholders and it also shows how IHG should deal with them. Detailed analysis and explanations are given below:
Put most importance: IHG must put the highest level of importance on the tourists and then on investors because they have high power and the company has a high interest on them. If tourists are not satisfied and happy, IHG will not get customers.
Keep Informed: Government bodies and local and international tourism bodies have high power but a low level of interest in the company. However, IHG has a high interest in these governing bodies. Therefore, the company should keep these entities well informed.
Keep happy: Employees, suppliers, creditors and the local community have a high level of interest in IHG, but the company have less interest in these stakeholders. These entities should be kept happy because their performance and engagement with the company affect the services to the customers.
Minor Efforts: Competitors and society as a whole have less power and less interest in the company. Therefore, IHG should put less interest and attention of this group of stakeholders.
Porter’s Generic Strategies of InterContinenal (IHG) Hotels And Resorts:
This is a strategic model that evaluates the possible ways of being competitive and offering the best value to the customers with the available resources.
Cost Leadership: Cost leadership is the process of gaining a competitive advantage in which companies become the lower-cost product seller in the market (Nandakumar, Ghobadian, and O’Regan, 2011). Customers are attracted by providing the best products at a lower price and it is one of the most effective strategies for increasing demand. Customers prefer the service of the companies who provide the best products and services at a lower price instead of keeping premium prices. Therefore, companies may apply a cost leadership strategy to make their competitive advantage stronger. IHG Hotels and Resorts can apply a cost leadership approach to make their competitive advantage stronger. It will help the company to operate their business at lower costs by minimizing the costs. When the costs reduce, the hotels and resorts will be capable of delivering services to customers at a lower price than other competitors of them. It will assist them in attracting a lot of customers toward them and budget-friendly customers who used to skip IHG Hotels and Resorts will come to them. They will be able to make travel plans at a lower cost because of IHG Hotels and Resorts; therefore, customers of their hotels and resorts will increase enormously. By increasing sales with a huge number of customers, the company will be able to compete strongly with its competitors.
Differentiation: Differentiation is the process where companies provide unique services or products in the market that competitors do not provide therefore, customers get attracted toward the company for their unique products or services (Moon et al., 2014). It seems that IHG Hotels and Resorts can start providing unique services that other companies do not provide. A differentiation strategy will help the company deliver a better customer experience by providing unique services. Customers will agree to pay premium prices for the unique services of the hotel and resorts and companies will be able to utilize this psychology of customers to make them different from their competitors. But there are fewer customers who can afford the premium services therefore the company will lose a huge customer base who have lower income and limited budget.
Cost Focus: It refers to the strategy in which companies focus on a narrow market by delivering products and services at lower costs (Tanwar, 2013). In this strategy, companies set low prices for their services than their competitors in the targeted market. Targeted markets are targeted on the basis of demographics, sales channels etcetera. For example, IHG Hotels and Resorts can apply this strategy by targeting young boys with lower-cost holiday packages for the boys’ groups. It will help the company to get more customers in the targeted market by delivering lower-cost services.
Differentiation Focus: Differentiation focus strategy refers to the process in which companies offer unique features of services to meet the demand of a narrow market (Tansey, Spillane, and Meng, 2014). Companies concentrate on their capabilities in specific sales channels. IHG Hotels and Resorts can apply a differentiation focus strategy in which they will emphasize on making sales through a specific channel. For example, the company can take steps to provide a calm environment for couples who want to enjoy their time with themselves. The company have to ensure that disruptive children will not be allowed in the hotels and resorts to satisfy the need of couples. Therefore, the couples will come to the company regularly, and it increases their sales.
Ansoff’s Growth Matrix of InterContinenal (IHG) Hotels And Resorts
This model critically evaluates the possible options for business expansion.
Market Development: In market development, companies take steps to expand business in new markets with the present services and products to capture new customers of the new market furthermore increase sales (Hussain et al., 2013). IHG Hotels and Resorts operates its business in different places in the UK, and to ensure its expansion, the company can apply market development. By targeting new markets the company will be capable of attracting more customers of the new market and their sales will increase. IHG Holiday Parks can open more hotels, travel agencies etcetera in new areas of the UK that they have not entered yet. Therefore, it will create new customers for the hotels and resorts and the profit of IHG will increase.
Market Penetration: Market penetration refers to the process of business expansion where companies promote their business to attract more customers in the existing market through existing services and products (Taylor, 2012). IHG Hotels and Resorts can apply market penetration to get more customers and increase sales. The company can promote their hotels and resorts more in order to attract customers and encourage them to visit their cottages. The hotels and resorts can provide discount offers on different occasions to attract customers on their weekends. IHG Hotels and Resorts can be more active on social media to stay connected with customers and encourage them to make holiday plans. As a result, sales will increase in their existing market, and it will increase profit level.
Product Development: Product development refers to the business expansion strategy in that companies develop their products and services or bring new products and services to existing markets (Hussain et al., 2014). It is one of the most effective expansion strategies that will help IHG Hotels and Resorts to increase its sales. For example, the company can open an amusement park with a different types of rides, games and other events that entertain people. It will attract customers greatly because people will be able to spend quality time with their children in the parks. As a result, people will visit the park, and the company will earn from the sales of entry tickets, rides and games tickets.
Diversification: In diversification strategy, companies expand business in new markets with new products and services to generate higher revenue by taking a higher risk and investing huge capital in the expansion plan (Gurcaylilar-Yenidogan, and Aksoy, 2018). Companies have to invest a huge amount in this type of expansion, and it is the riskiest process because IHG Hotels and Resorts is not aware of the customers’ demand for new markets. If the hotels and resorts apply this strategy, they can open an amusement park in the area of the UK. Therefore, people in the new area will visit the amusement part of IHG Hotels and Resorts.
Recommendations on future directions for InterContinenal (IHG) Hotels And Resorts:
Recommendations to develop the business of IHG Hotels and Resorts have been evaluated below:
The company have to prevent its weakness: IHG Hotels and Resorts have to ensure a strong web presence and present significant information in managed approach to make them easily accessible to customers. The web presence of the company is weak, and information is provided in a scattered approach, therefore, the company should be careful about this factor in order to attract more customers through strong web presence. The company should be active on social media to attract more non-UK customers which will make the company more profitable.
Should maintain a good relationship with stakeholders: Tourists and investors are the most important stakeholder of IHG Hotels and Resorts. Therefore, the company have to ensure maximizing return on investors’ investment and provide the best services to maintain customers’ gratification. It will keep informed the government bodies and local and international tourism bodies about the operations of the company. When the company keeps government parties informed about its operations, government parties will be satisfied, and they will interfere less in the business, which will help the company to execute without less legal difficulties. IHG Hotels and Resorts should maintain good relations with their employees, suppliers, creditors and local community for their own betterment.
Have to select an appropriate strategies from Porter’s generic strategies to make the competitive position stronger: Among cost leadership, differentiation, cost focus and differentiation focus, IHG Hotels and Resorts can select a cost leadership approach. By adopting this approach, the company will be able to minimize its costs and provide services at lower costs which will attract a huge amount of customers for them. On the other hand, differentiation, cost focus and differentiation focus are not appropriate for the company because these strategies will need more investment to implement in their business.
Have to select a suitable business expansion strategy from Ansoff’s growth matrix: IHG Hotels and Resorts should select a market penetration strategy from Ansoff’s growth matrix. With this strategy, the company will be able to attract more customers to their hotels and resorts. Implementation of this strategy will cost less also therefore, it is the most effective strategy for expanding their business. Whilst market development, product development and differentiation will need high investment with high risks.
Conclusion
The external environment of IHG Hotels and Resorts has an enormous influence on the company, therefore, they have to find out the exact way to face these influences and operate a business without legal complications. The company must focus more on promoting itself in front of the UK and non-UK customers through digital marketing. It will help them to get more customers from outside of the UK and inside of the UK. The company have to maintain good relationships with its stakeholders to ensure better execution. By adopting cost leadership, it will be capable of competing strongly in the industry. And market penetration will be the best growth strategy for the company to increase their profitability.
References
Ansoff, H.I., Kipley, D., Lewis, A.O., Helm-Stevens, R. and Ansoff, R., 2018. Implanting strategic management. Springer.
Altinay, L., Paraskevas, A. and Jang, S.S., 2015. Planning research in hospitality and tourism. Routledge.
Barney, J.B. and Hesterly, W.S., 2010. Strategic management and competitive advantage: Concepts and cases (pp. 4-25). Upper Saddle River, NJ: Prentice Hall.
David, F. and David, F.R., 2016. Strategic management: A competitive advantage approach, concepts and cases. Pearson–Prentice Hall.
Business Strategy Hub, (2022). Top 15 Marriott Competitors and Alternatives. [Online] Retrieved from: https://bstrategyhub.com/marriott-competitors-and-alternatives/ [Assessed on: 10 October, 2020]