Analysis of Hospitality Business Strategy: Case Study of Hilton Zurich

AbstractHilton Zurich Airport Hotel is a subsidiary of Hilton Hotels and Resorts, a global chain of five-star hotels. The hotel is strategically situated a few kilometers from the largest international airport in Zurich. Macro-environment analysis of the industry shows that although the risk of political instability in Switzerland is broad, economic recession and environmental degradation are major issues of concern for the hotel. The legal environment is favorable for the long-term growth of the hospitality industry, but companies have to contend with adverse fluctuations in the value of the Swiss franc. Competitive rivalry and the barging power of buyers are the major forces affecting the industry. Results of SWOT analysis reveal that the company’s strong brand name, high-quality services and financial resources are the chief strengths of the enterprise. Its main weakness is the high pricing of services. Competition remains the greatest threat facing the company. Opportunities exist for the hotel to expand the range of services and capacity to attract more customers. VRIO analysis shows that the hotel’s resources are rare and valuable but not difficult to imitate.

Table of Contents
TOC o “1-3” h z u Abstract PAGEREF _Toc470730588 h 21.Introduction PAGEREF _Toc470730589 h 42.Organization Background – Hilton Zurich Airport Hotel PAGEREF _Toc470730590 h 53.Macro-Environment Analysis of Hilton Zurich Airport Hotel PAGEREF _Toc470730591 h 53.1Political and Legal Factors PAGEREF _Toc470730592 h 63.

2Economic Factors PAGEREF _Toc470730593 h 73.3Socio-Cultural Factors PAGEREF _Toc470730594 h 83.4Technological Factors PAGEREF _Toc470730595 h 83.5Environmental Factors PAGEREF _Toc470730596 h 94.Porters Five Forces Analysis of the Hospitality Industry in Switzerland PAGEREF _Toc470730597 h 94.1Threat of New Entrants – Weak PAGEREF _Toc470730598 h 104.2Threat of Substitute Products – Weak PAGEREF _Toc470730599 h 104.3Bargaining Power of Suppliers – Moderate PAGEREF _Toc470730600 h 114.4Threat of Competitive Rivalry – Very Strong PAGEREF _Toc470730601 h 114.5Bargaining Power of Buyers – Strong PAGEREF _Toc470730602 h 125.SWOT Analysis of Hilton Zurich Airport Hotel PAGEREF _Toc470730603 h 135.1Strengths PAGEREF _Toc470730604 h 135.2Weakness PAGEREF _Toc470730605 h 135.3Opportunities PAGEREF _Toc470730606 h 145.4Threats PAGEREF _Toc470730607 h 146.VRIO Analysis of Hilton Zurich Airport Hotel PAGEREF _Toc470730608 h 157.Evaluation of the effectiveness of the company’s current strategies and conclusion PAGEREF _Toc470730609 h 16References PAGEREF _Toc470730610 h 16

IntroductionStrategic analysis refers to the process of examining an organization’s business environment. Typically, it involves a review of the strengths and weaknesses of the internal environment organization, the effectiveness, and efficiency of business strategies and factors in the external environment that could impede or facilitate the realization of business objectives (Adebayo and Annukka, 2009, 502-503). Many organizations use strategic analysis to gather information that is used for operational planning purposes. The success of strategic analysis depends on the appropriateness of the tools and frameworks used to perform the analysis (Jim, 2011, 88). This paper used the structures of SWOT analysis, Porters Five Forces analysis, VRIO analysis and macro-environment analysis to examine the internal and external business environments of Hilton Zurich Airport Hotel. The hotel is a leading hospitality company in Switzerland.
Switzerland is a federal republic lying at the confluence of Central and Western Europe. The country is completely landlocked and shares borders with Germany, France, Italy, Liechtenstein and Austria (Church, 2004, 12-15). Geographically, Switzerland is divided into the Alps, Jura, and the Swiss plateau. The leading industries in Switzerland include tourism, pharmaceuticals, defense and military, apparels and wines. Germany and French are the main languages spoken in Switzerland. Other languages include Italian and Romansh. Zurich is Switzerland’s largest city. Although not the capital city, Zurich is a major global city and an economic hub in Europe. It is home to leading multinational companies and industries. Zurich municipality’s population is less than half a million people. However, the metropolitan area has a population of 2 million inhabitants. Zurich’s status as a global city has led to the rapid growth of the hospitality industry.
Organization Background – Hilton Zurich Airport HotelHilton Zurich Airport is a five-star hotel located in Zurich. The facility is situated in a strategic location; five minutes drive from the Zurich Airport and a short distance from the city center. Hilton Zurich Airport is a subsidiary of Hilton Hotels and Resorts and is positioned as a stylish hotel with over 300 well equipped modern guest rooms. The hotel offers a large assortment of international cuisines and drinks, conferencing facilities, entertainment services and health and fitness centers. The hotel’s wide range of services, proximity to the largest trade show venue and direct access to a major highway make it one of the most notable players in the hospitality industry in Switzerland. To offer the seamless experience to its customers, Hilton Zurich Airport has partnered with other companies in the hospitality industry such as airlines, travel and tourism agencies and suppliers. These strategic partnerships have also enabled the hotel seeks to strengthen its position as a leading provider of hospitality services not only in Switzerland but also in the larger European market.
Macro-Environment Analysis of Hilton Zurich Airport HotelMacro-environment analysis examines factors that exist within the external environment of an organization (Jing, Rémy, Emmanuel and Mickaël, 2010, 573). The most efficient and widely used framework for analyzing an organization’s macro-environment is PESTLE analysis. The acronym stands for Political, Economic, Socio-Cultural, Technological, Legal and Environmental Factors (Chung-An, 2008, 259). The section that follows uses PESTLE analysis to identify major macro-environmental issue relevant to Hilton Zurich Airport hotel. The scope of the macro-environment analysis is the city of Zurich and the surrounding metropolitan area.

Political and Legal Factors
The risk of political instability is very low in Switzerland. Since 1815, the country has maintained the principle of neutrality and is one of the few countries in Western Europe that have not joined the European Union. Switzerland’s inactive status and a stable democracy have contributed to the prevailing favorable political environment and economic prosperity (Henri, Marthinsen, and Gantenbein, 2012, 52). The country has expedited legal reforms to protect the rights of individuals and businesses. Accordingly, the robustness of its judicial processes is ranked highly in the world. Currently, the government’s policy is focused on promoting an enabling business environment, improving spending in the healthcare sector and facilitating the development of social-security systems. The government’s bilateral agreements with the European Union are expected to remain in place in the long-term.
A major political and legal issue of concern to Hilton Zurich Airport is that the country lacks strong laws to protect the interests of minority groups, especially Muslims. They are frequently discriminated in Switzerland for wearing religious attires such as veils. This makes it difficult for hotels to attract customers from Islamic countries. Another issue is that the country maintains strong bank secrecy laws making it a conduit for tax evasion and money laundering. In fact, Switzerland is a leading global tax haven. This has caused strained relations with other countries, especially in the fight against global financial crimes. Although the government has taken appropriate measures to enhance the safety of businesses, the hospitality industry is at risk of terrorist attacks.

Economic factorsThe economic environment in Zürich remains favorable to hospitality investors. Switzerland has maintained a steady economic growth in various sectors and enjoys a high GDP per capita compared to many countries. Despite pressures due to the frequent contractions of the global economy, Switzerland’s economic indicators are projected to be stable in the short-term. Zurich is the largest city and the financial capital of Switzerland (Henri, Marthinsen, and Gantenbein, 2012, 24). As such, the city receives thousands of foreign visitors annually. These visitors are the primary drivers of profitability and growth in the hospitality industry. However, domestic tourists also contribute significantly to the sector’s growth. Local tourism is projected to grow steadily as the middle-class population expands. Unlike most European countries, Switzerland maintains low corporate tax rates and offers subsidies for investment in many sectors including the hospitality industry. This has made the industry a bulwark of the country’s national economy.
A major economic imperative for the Hilton Zürich Airport hotel is the depreciating value of the Swiss franc. The currency has depreciated drastically in recent years, causing adverse effects on the exchange rate against major currencies such as the US dollar, Euro and British pound. This discourages tourists and business professionals from traveling to Switzerland. Another important economic factor that could affect Hilton Zürich Airport Hotel is falling fuel prices. In the long-term, this could lead to reduced travel costs and hence the continued demand for hotel rooms.

Socio-Cultural Factors
Social and cultural factors appear favorable to the hospitality industry. The city’s large population of middle-class families means that more people have enough disposable incomes to spend on luxuries. Apart from the rampant discrimination of Muslims, the city remains welcoming of foreigners. A major cultural issue that affects the growth of the hospitality industry is language differences. The Germany language is predominantly spoken in Switzerland (Henri, Marthinsen, and Gantenbein, 2012, 34). These discourage visitors from the United States and other countries. Another important cultural issue is that travelers from warmer countries may feel uncomfortable traveling to Zürich due to the city’s severe winters. Moreover, the country’s rapidly aging population is indicative of the diminishing capacity locals to drive the hospitality industry.
Technological FactorsAcross the world, Switzerland is recognized as one of the few countries with the highest technological and innovation capacity. The city of Zurich has a global reputation as a leading technological hub due to the large concentration of major research and development firms. Each year, the Swiss government makes substantial budgetary allocations to small and medium enterprises, as well as private companies to promote innovation. These have led to major progress in the major industries (Henri, Marthinsen, and Gantenbein, 2012, 55). For example, Switzerland has one of the most advanced telecoms markets in the world. Also, the country leads the world in some high-tech industries such as pharmacy and aviation sector. Due to the country’s strong emphasis on specialization, Switzerland has high growth prospects in the production of knowledge-intensive goods.

Environmental factorsEnvironmental conservation is a major political and economic issue in Switzerland. Due to the country’s large number of manufacturing industries, the environment suffers from immense degradation. For this reason, the government has passed various laws to protect the environment. In general, businesses are required to take appropriate measures to protect the environment. These measures include the use of renewable energy and adoption of sustainable business practices (Henri, Marthinsen, and Gantenbein, 2012, 69). Also, companies are expected to embrace corporate social responsibility as a way of limiting any adverse effects on the society and the environment. An important environmental impact for Hilton Zurich Airport Hotel is the increasing costs of electricity. These costs could be fuelled by the hotel’s efforts to curb greenhouse gasses.
Porters Five Forces Analysis of the Hospitality Industry in SwitzerlandThe Five Forces Analysis is a strategic framework used to assess the attractiveness of an industry and the positioning of organizations. This model states that there are five major forces, which influence the attractiveness of an industry and hence the strategies that companies implement. The five forces are the power of suppliers; the power of buyers; the intensity of competitive rivalry; the threat of substitutes and threat of new entrants (Fahey, 2012, 5-10). Understanding the five forces helps organizations to determine the effectiveness of an organization’s strategic positioning within the industry. The following are the five forces affecting the hospitality industry in Switzerland.

Threat of New Entrants – WeakThe threat of new entrants in Switzerland’s hospitality industry is little because of the substantial barriers to entry. High-cost structures, intensive capital requirements, established brand images, customer loyalty, product differentiation, and high switching costs are some of the factors that have contributed to the weak threat of new entrants (Laura, 2012, 24). Investments in the hospitality industry are characterized by large capital outlay. Also, the high costs must be managed prudently to achieve the most efficient use of resources. Currently, establishing a five-star hotel in Zurich requires a lot of resources, which discourages many potential market entrants. Also, further growth of hotel establishments in the main cities such as Zürich is hampered by the lack of space in strategic locations. It is for this reason that no new five-star hotels have been established in the city in recent years.
Threat of Substitute Products – Weak
The hospitality industry in Switzerland is not threatened by substitute products and services except that during periods of low economic growth, international travel might be replaced by domestic trips (Laura, 2012, 22). Being part of a global chain of hotels, Hilton Airport has a very powerful brand and thus, cannot be substituted by small and less luxurious hotels. However, most five star hotels in Zürich charge premium prices, which discourage low-end customers. These clients can replace five-star hotels with motels, hostels, and cheaper restaurants. This low-end market is very low cost and caters mainly for price-conscious consumers. In the upper strategic segment of the markets, most hotels cater to business travelers and high-end clientele and thus there are little opportunities for substitute products.

Bargaining Power of Suppliers – Moderate
Suppliers’ input is crucial to the long-term growth and stability of the hospitality industry in Switzerland. Across the country, there is an increasing demand for enhanced information gathering and booking capabilities (Laura, 2012, 15). Thus, the providers of these services are in high demand and can assert significant bargaining power over hotels. Other suppliers who might exercise power include those that provide personnel management services. About foodstuffs and drinks, Swiss hotels are not subject to immense pressure from vendors. For example, due to the scale and size of its operations, Hilton Zürich Airport hotels purchases in bulk is thus able to exercise significant influence over suppliers. Also, the hotel has diversified the supply chain for foodstuffs to minimize risks of adverse changes in prices of raw materials. This strategy neutralizes the bargaining power of suppliers.
Threat of Competitive Rivalry – Very Strong
There is a large number of direct and indirect competitors in the hospitality industry in Switzerland. This rivalry becomes more intense when switching costs, and product differentiation are low (Laura, 2012, 22). Although Hilton Airport Zurich hotel retains a significant share of the industry, rival hotels such as Zurich Marriott Hotel, Kempinski Grand Hotel des Bains continue to increase their market shares. Moreover, there are hundreds of small and medium-sized hotels that have established successful market niches. These, together with the fact that the industry is very mature makes the threat of competitive rivalry is very high.

Bargaining Power of Buyers – Strong
Intense competition and lack of differentiation in the hospitality industry have led to the strengthening of the bargaining power of buyers. In the city of Zurich, there are hundreds of establishments offering similar products and targeting same customer groups. As such, customers have a great variety from where to choose, a common trend in the global hospitality industry is that certain buyer groups may have stronger bargaining power as a result of bulk purchases or exclusive demands. These groups include conference organizers, tour operators, and international airlines. This factor is an important consideration for hotels and may lead to lowering of prices to attract more customers. As such, differentiation is a major strategy for countering the bargaining power of clients.

SWOT Analysis of Hilton Zurich Airport HotelSWOT analysis is a strategic tool for assessing the internal strengths and weaknesses of an organization, as well as the threats and opportunities existing within the external environment (Luan and Sudhir, 2010, 448). The following section presents a SWOT analysis of Hilton Zurich Airport Hotel about its largest competitors. The three hotels are Zurich Marriott Hotel, Kempinski Grand Hotel des Bains, and Baur Au Lac. The three are five-star hotels in the city and compete aggressively for customers, resources, location, suppliers, and employees.
Strengths
The greatest strength of Hilton Zurich Airport Hotel is the globally recognized brand name. The hotel is affiliated to the Hilton Hotels and Resorts, which is a leading hotel chain in the world. Unlike some of its competitors, the hotel chain has a strong position in the Swiss market. Secondly, the hotel provides a broad range of high-quality services to its customers. These have led to high customer loyalty (Hilton Zurich Airport, 2016). Its affiliation with other Hilton hotels means that it can get referred customers from sister hotels in other countries. Third, Hilton Zurich Airport Hotel benefits from the parent group’s extensive global supply chain. The group operates an independent supply chain system and sources raw materials from different parts of the world. Lastly, the hotel has a highly-motivated and trained staff.
WeaknessHilton Zurich Airport Hotel’s greatest weakness is the high prices of services. The hotel markets its services based on the premium perception associated with five-star hotels. These makes the hotel less accessible to price-conscious customers (Hilton Zurich Airport, 2016). Another major weakness is that the hotel’s services are highly standardized and aligned to appeal to the European and American cultures. These makes the hotel less attractive to visitors from African and Asian cultures. Lastly, the hotel’s services are easy to be imitated by competitors.
OpportunitiesThe growing tourism sector in Zurich provides for Hilton Zurich Airport Hotel to expand the range of services and accommodation capacity to cater for more guests (Hilton Zurich Airport, 2016). There are also opportunities for the hotel to form strategic vertical and horizontal relationships with other industry players such as airlines and tour companies to increase economies of scale.
ThreatsCompetition is the greatest threat facing Hilton Zurich Airport Hotel. Besides rival five star hotels, Hilton Zurich Airport competes with small and medium sized hotels, especially for domestic tourists. Some of these competitors offer low-priced services and are very popular among middle and low-end consumers. Another significant threat is the frequent fluctuation in the exchange rate (Hilton Zurich Airport, 2016).

VRIO Analysis of Hilton Zurich Airport HotelVRIO is an analytic technique for analyzing an organization’s resources and hence the competitive advantages. The acronym stands for Value, Rareness, Imitability and Organization (Chinho, Hua-Ling, Ya-Jung and Melody, 2012, 1396). The table below shows VRIO analysis of Hilton Zurich Airport Hotel’s resources.
Valuable? Rare? Difficulty to Imitate? Is company organized around resources?
Financial resources Yes No No Yes
Human resources Yes Yes No Yes
Material resources Yes Yes No Yes
Non-material resources (Knowledge, intellectual property, information, etc.) Yes No No Yes
Table SEQ Table * ARABIC 1: VRIO Analysis
Results of VRIO analysis show that although the hotel’s resources are rare, the hotel’s processes and activities are organized around resources. An important issue arising from the report is that most of the company’s resources are easy to imitate, making it difficult for the company to protect its competitive advantages.

Evaluation of the effectiveness of the company’s current strategies and conclusionBy using the various tools of strategic analysis, it is evident that although Hilton Zurich Airport is well positioned in the industry, there are doubts as to whether the current capabilities will enable the company to maintain its competitive advantages into the future. Major competitors such as Zurich Marriott Hotel and Kempinski Grand Hotel des Bains are investing more resources to enhance their competitiveness in the industry. Although the threat of new entrants is fragile, Hilton Zurich Airport faces stiff competition from smaller hotels and other industry players. Besides, the hotel has an apparent weakness regarding pricing of services. Furthermore, the high-end luxury segment of the market that Hilton Zurich Airport hotel targets are quite small compared to the capability of the entire hospitality industry in Zürich.
Despite the significant threats the company is facing, there are opportunities for the company to form strategic partnerships with other industry players to enhance its strategic positioning. By overcoming competition, the company should continue differentiating its services through improved quality and innovation. It is also recommended that the hotel focuses on the mass market by offering mid to low-priced services. These will enable the hotel to capture a significant share of the consumers who cannot afford premium services. Also, the company should take extra measures to protect its intellectual properties to make its business less imitable. In conclusion, Hilton Zurich Airport’s current strategies are effective, but the company will have to implement strategies to overcome competitive pressures.

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