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NAME: Roxas, Angela Mae C. and Quimio, Harvey COURSE & SECTION: BSIE-4A Case Analysis #18 - Shangri-La Hotels Overview Shangri-La Hotel is a facility of services which provide places to stay for customers around the world. It is known as a hotel or a resort for consumers to relax or even have a vacation at the hotel. Shangri-La Hotel is a much known hotel in Singapore because it was founded there itself. Shangri-La Hotel has provided a hotel for business traveler. Therefore, it has made another target of business in its management. With these targets, the company has proven to be the world’s best finest hotel in management, and services. This hotel has also been situated in Malaysia itself, which have also become a finest hotel for business travelers and also travelers around the world and locally. Therefore, with these achievements, we have decided to make a research about the company itself and prove of its facility that satisfies us as a customer. Company Highlights  In 1971, Shangri-La Hotel, Singapore opens  In 1981, Kowloon Shangri – La opens  In 1983, Shangri-La International Hotel Management Limited (management takeover of Shangri-La Hotel, Singapore)  In 1984 November, Shangri-La Hotel, Hangzhou (management takeover of Hangzhou Hotel)  In April 1985, Shangri-La Hotel, Kuala Lumpur opens  In March 1986, Shangri-La Hotel Bangkok opens  April, Shangri-La Hotel Penang opens  October, Shangri-La Hotel Beijing opens  In December 1988, Shangri-La’s Tanjung Aru Resort, Kota Kinabalu (management takeover)  December 1989, Traders hotel, Beijing opens  July 1990, China World, Beijing opens  In March 1991, Island Shangri-La Hong Kong opens

 April Kowloon Shangri-La, Hong Kong (Shangri-La assumes management)  In March 1994, Shangri-La Hotel, Jakarta opens and Shangri-La Hotel, Surabaya opens  In 1995, Shangri-La had a total of 35 hotels and resorts in Asia  In 1997, Shangri-La Hotel, Qingdao opens  In April 1999, Shangri-La Hotel, Wuhan opens and Shangri-La Hotel, Harbin opens  In 2003, Putrajaya Shangri-La Hotel opens  July 2003, ANA harbor Grand Hotel rebrands as Shangri-La Hotel, Sydney, Australia.  July 2003, Shangri-La Hotel, Dubai opens  August 2004 Shangri-La Hotel, The Marina, Cairms re-branding  February 2006, Shangri-La Barr Al JIssah Resort and Spa, Muscat opens  In 2007, Shangri-La Hotel, Guangzhou opens  Best Business Hotel Chain in Asia Pacific by Business Travelers (U.K. and Germany)  Best Hotel Chain by Chinese Hurum report (China) Company Mission, Vision, Core Values and Philosophy Mission - “Delighting customers each and every time” Vision - “The first choice for customers, employees, shareholder and business partners” Philosophy - “Shangri-La hospitality from caring people” Guiding Principles (Core Values) 

We will ensure leadership drives for results.

We will make customer loyalty a key driver of our business.

We will enable decision making at customer contact point.

We will be committed to the financial success of our own unit and of our company.

We will create an environment where our colleagues may achieve their personal and career goals.

We will demonstrate honesty, care and integrity in all our relationships

We will ensure our policies and processes are customer and employee friendly.

We will be environmentally conscientious and provide safety and security for our customers and our colleagues.

The core of the Shangri-La brand was steeped in offering customer an unforgettable experience by blending local culture, exotic art and lively ambience. THE 7 P’S OF SHANGRI-LA HOTEL  People  Place  Process  Product (Services)  Price  Promotion

Shangri-La Care Shangri-La Philosophy was to develop local talent to world class expectation. The company launched its culture training program.  Care Module 1: Shangri-La Hospitality from caring people .  Care Module 2: Delighting Customer  Care Module 3: Recover to Gain Loyalty  Care Module 4: Take Ownership . Service Model of Shangri-La Shangri-La’s service model of “Shangri-La Hospitality” was built in five core principles: 






Shangri-La’s Organization Structure Shangri-La used Five-level organization design: 

Level 1 – Divisional Manager

Level 2 – Departmental Managers

Level 3 – Sectional Managers

Level 4 – Front-line Supervisor

Level 5 – Front-line Employees

Training and the Shangri-La Academy The Shangri-La’s commitment to highly personalized guest service, performance still varied considerably from hotel to hotel. The training facility had six training rooms: 1. Library 2. Computer Lab 3. Training and demonstration kitchen 4. Training restaurant 5. Training lounge 6. Housekeeping practice suit The goal was to develop a new breed of hospitality professional with enhanced skills and a strong service orientation equipped to adopt innovative approaches in tackling challenges at work. The training program focused on heavily on preparing employees to more effectively utilize decision making authority through the use of progressive and interactive instructional methodologies, such as a role playing to create the circumstance employees would face. Internal / External Analysis Strength -

World’s Best Management Hotel


Shangri-La represent the Asian Culture


Luxury facilities which make the customer comfortable


Shangri-La owns strong capital and service that help it earn good reputation


Customer loyalty


Good relation with the staff


Giving the employees training program in every culture (i.e. Western and Asian Culture)

Weaknesses -

Shangri-La is not famous in the other continent. So it hard to attract those customer.

Opportunities -

Expansions on other countries especially in western countries.


Tourism develops faster and faster.


Hotel facilities will attract them, the hotel consumption of the people will continue to increase.

Threats -

The competitors are strong


There are lots kinds of hotel, so Shangri-La does not have tremendous competitiveness.

Strategic Implication To retain its workforce, the company focused on creating on creating transparent, well defined career paths. The company also tried alternative methods, including non-pay recognition to motivate employees. China was not Shangri-La’s only focus. The company was about to launch multiple hotels in Europe, Australia and North America. During the expansion the main concern is to maintain worldwide service quality standard and deliver excellent service to customers.

Recommendation 

Shangri-La is to ensure that signature quality and service standard are translated to a new hotel’s in new market.

They need to maintain control and translate Asian Model into tighter labor markets in the western world.

Maintained a high staff-to-guest relation.

Shangri-La offers a more competitive compensation package to help retain its trained employees. That package might include a higher salary or greater incentive-based pay to better align the goals and efforts of employees with that of the company. An important component is to offer a compensation package that is sufficient to retain employees but not so high as to eliminate operating profits.

Shangri-La pursue creative methods to mobilize its workforce around the globe for the short and long terms

Opportunities were provided to move up within properties and to move across to other properties.

Reference Thompson, A.A. (2009). Crafting & Executing Strategy (7th ed.) New York: McGraw-Hill/Irwin.

QUESTIONS/ANSWERS: 1. What are the key elements of Shangri-La Hotel’s strategy? Which of the five generic competitive strategies described in Chapter 5 is the company employing? What is Shangri-La’s strategy for competing internationally?

Operating in four main business segments including:  Hotel ownership and operations,  Property development including commercial buildings and serviced apartments,  Hotel management services to group-owned and third-party hotels, and 2. What policies, practices, support systems, and management approaches underlie Shangri-La’s efforts to execute its strategy?

The policies, practices, support systems, and management approaches underlie Shangri-La’s efforts to execute its strategy are: Training .

Culture Training The managers of Shangri-La believed that superior service was a key to their differentiation strategy and they worked to build a strong, service-based culture to ensure that each employee delivered service the “Shangri-La Way.” This culture encouraged employees to go the extra mile and emphasized the importance of acknowledging and fixing mistakes when made. The culture also encouraged employees to take responsibility for customers’ satisfaction. Compensation System The three-tier compensation structure was designed to support organizational goals at various levels. At the first level, which included hotel general managers and division heads, compensation included a salary and a bonus. The bonus was tied to financial results (i.e., gross operating profit and gross operating revenue attainment) to help hotels reach goals. Compensation for the second tier, which included level two and three employees, was linked to financial results and, more specifically, to customer satisfaction and customer loyalty scores, which were key indicators of how well Shangri-La executed its strategy. In the third tier, which included level four and five employees, there was a common bonus pool that linked compensation not to individual performance, but to overall property performance. Career Path The company’s career path was designed to retain Shangri-La’s well-trained workforce by offering well defined career paths. These career paths offered upward mobility driven by rapid international expansion as well as lateral mobility by moving from hotel to hotel. The company’s policy of promoting from within helped enhance the value of the career paths. Organizational Structure Shangri-La’s five-level organizational structure was also supportive of its strategy execution as it empowered them, within limits, to directly address guests concerns. At each level in the organization employees had a specific dollar amount that could be used to address customer requests that might fall outside of normal operations. 3. How important are the company’s training and Shangri-La Care program to its success? What is your assessment of Shangri-La’s compensation policies and career growth effort? What pluses and minuses do you see?

A well-designed reward structure based upon monetary and nonmonetary rewards is the most powerful tool to build commitment and to sustain employees’ commitment to organizational

goals. Shangri-La’s training and Care program were critical to its success as the successful execution of its strategy to offer a unique Asian luxury hotel experience depended on maintaining a capable workforce. More specifically, Shangri-La developed a competitive advantage based upon personalized guest service that required a capable workforce. Its training program ensured that employees had the confidence to make decisions to improve each customer’s experience. The training program also sought to overcome cultural challenges that might inhibit employees taking initiative, as was the case in China. The company’s structure and culture was based on empowering employees through the delegation of authority. To help instill employees’ confidence to take this initiative, the training program highlighted common mistakes to avoid while emphasizing best practices to pursue, thereby encouraging standard delivery of worldwide excellence. Equally important, Shangri-La’s Care program sought to develop local talent to world-class expectations. Subsequent modules of the Care program were launched to improve retention and guest loyalty and to emphasize the importance of recovery when a mistake was made. Students should recognize that these programs were the cornerstones of Shangri-La’s successful strategy implementation. 4. What are the key features of the culture at Shangri-La Hotels? How important is the culture in the company’s success? Explain. What impact do the company’s mission statement and the Shangri-La Care program have on the company’s culture?

This culture is shaped by its core values, beliefs, business principles, traditions, ingrained behaviors, work practices and styles of operating. As such, corporate culture affects how organizations conduct business. In this case the corporate culture is critical to the company’s success, especially since the company differentiates itself based on service. If the employees do not share the corporate culture it would be difficult, if not impossible, for the company to live up to its Shangri-La Care standards. Key elements of this strong culture include the company’s guiding philosophy and its mission statement, as shown in case Exhibit 6 and the five core values of the Shangri-La brand of hospitality (respect, humility, courtesy, helpfulness and sincerity. 5. What core/distinctive competencies has management at Shangri-La tried to build and nurture? What challenges does the company face as it attempts to transfer its core and distinctive competencies to other cultures? How has the company attempted to resolve these challenges? Has it been successful in doing so?

They wanted to create a distinctively unique hotel experience based upon Asian standards of hospitability and service. Shangri-La’s brand of hospitality was built around five core principals – respect, humility, courtesy, helpfulness and sincerity. A high standard of service excellence stemmed from its mission to “delight customers each and every time.” Both its hospitality and service relied on Shangri-La’s ability to blend local cultures, exotic art and lively ambience. The cornerstone to offering an experience with which few other hotels could compete depended largely on Shangri-La’s competitive advantage of offering personalized guest service. This competitive advantage relied on a well-trained and well-compensated workforce that could consistently deliver high levels of service across a variety of cultural norms and preferences. Each hotel was expected to serve its clients in the way their society deemed acceptable. Hence, employees were expected to adapt to the local requirements and expectations of each country and were given personal decision-making authority to accommodate guest requests. To accomplish these goals Shangri-La developed core and distinctive competencies in human resources management, especially in employee training.

6. What does the company’s financial and operational performance reveal about how successful its strategy and strategy implementation efforts have been? Should shareholders be pleased with the company’s financial performance? Why or why not? What financial and operating performance pluses and minuses do you see? Shangri-La’s strategy in terms of planning and implementation appears to have yielded solid performance. Shangri-La has recorded impressive growth, with total revenues increasing by 67% between 2002 and 2006. Students should recognize that the company’s total expenses grew at a slower rate of 53% during the same 4-year timeframe. Students should also notice that operating income grew by 123% and net income grew by219% between 2002 and 2006. 7. What challenges does Shangri-La face in expanding into Eastern China? Do you believe the company’s current policies and operating procedures will be sufficient in addressing these challenges? If so, why? If not, what else may need to be done?

Shangri-La faces several challenges in its efforts to expand to Eastern China including competition from international hotel chains, competition from local hotels, and wage pressures. By 2006, China had become the world’s fourth largest economy and a very attractive destination for tourists. Hence, resource-rich international hotel chains such as the U.K-based InterContinental Hotel Group (IHG), the U.S.-based Marriott chain, and French-based Accor targeted China for new growth. 8. How do the challenges associated with Shangri-La’s expansion into Europe, Australia, and North America compare with the company’s expansion in China? Do you believe the company’s current policies and operating procedures will be sufficient in addressing these challenges? If so, why? If not, what else may need to be done?

The challenges that Shangri-La faces in its effort to expand to Europe, Australia and North America are different than those encountered in China. Students should note that the most critical challenge confronting Shangri-La in expanding into these areas has to do with maintaining an adequate ratio of staffto-guests in light of relatively more expensive labor markets where trained hotel staff was in short supply. In low wage and developing markets such as China, Shangri-La could maintain a ratio of staff-to-customer ratio of 2.5 to 3.0 staff per guest. 9. How big a threat does the expansion of other hotel chains into China pose for ShangriLa Hotels? What specific challenges are likely to arise as a result of this expansion? How should Shangri-La address these challenges?

This type of expansion is likely to lead to increasing rivalry for both customers and suppliers. Although the Chinese market represents a lucrative and growing market, a hypercompetitive market is likely to result in the erosion of profits as hotels utilize competitive weapons to out compete their rivals and build market share. Profits are likely to be further eroded as demand for trained employees drives up wages. Additionally, the quality of training that Shangri-La offers to its employees makes it attractive for poaching, which can be minimized by increasing fringe benefits, nonmonetary recognition, or salaries. As Shangri-La enters hypercompetitive markets, it must focus

on not only training its workforce to implement a strategy that emphasizes a unique experience, but they must work hard to retain that workforce through both financial and non-financial forms of compensation. The company should design the compensation structure in a manner that is sensitive to the diverse cultures in which they operate

10. What recommendations would you make to Symon Bridle to improve Shangri-La’s prospects for continued success?

- Shangri-La offers a more competitive compensation package to help retain its trained employees. That package might include a higher salary or greater incentive-based pay to better align the goals and efforts of employees with that of the company. An important component is to offer a compensation package that is sufficient to retain employees but not so high as to eliminate operating profits. - Attentive students will tend to pick this up and make recommendations focusing on this issue. While we have no reason to believe that the company is not making hires that are supportive if its culture, it would be worthwhile for them to explore developing a selection process that focuses on identifying key characteristics in their applicants. - Shangri-La will have to engage in more aggressive training to ensure that their way of doing things is perpetuated as they expand internationally. Expansion of operations without retention of the organization’s culture is likely to produce inconsistent service across countries. ShangriLa should expand their operational training and cultural training efforts to maintain a high quality of service and decision-making.

First Asia Institute of Technology and Humanities School of Technology Industrial Engineering

Case Analysis # 18 Shangri-La Hotels

Submitted by: Angela Mae C. Roxas Harvey Quimio

Submitted to: Engr. Darwin R. Gevaña February 21, 2011

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