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A STRATEGIC LOOK AT WEB RESERVATIONS INTERNATIONAL

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  1. 1. A strategic look at Web Reservations International November 6 2011 This report was a joint effort by the analytics office of BBA which includes Faisal Saleh, Daniel David, Danil Solovyev, Kevin Yang, and Sumeet Duhan. The team divided the work equally where various members were given different parts, and then the analytics office met various times to collaborate and create this report for individuals interested to invest in WRI. This report is done by BBA which is a third party that is not affiliated with WRI, this report is independent. A Study Done by “Best Business Analysts”
  2. 2. Web Reservation International strategic Analysis By Best Business Analysts Table of Contents 1.1 OVERVIEW ............................................................................................... 3 1.2 KEY FINDINGS........................................................................................... 3 2.1 HAMBRICK AND FREDRICKSON’S 5 ELEMENTS.......................................... 5 2.1.1ARENAS: .................................................................................................. 5 2.1.2 VEHICLES: ............................................................................................... 5 2.1.3 DIFFERENTIATORS: ................................................................................. 6 2.1.4 STAGING:................................................................................................ 6 2.1.5 ECONOMIC LOGIC: ................................................................................. 6 2.2 RESOURCE AND CAPABILITIES ANALYSIS .................................................. 7 2.2.1 RESOURCE BASED VIEW ................................................................................ 7 2.2.2 IDENTIFICATION OF STRATEGIES AND RESOURCES ................................................. 7 ACQIRED RESOURCES: .................................................................................. 7 BEING INNOVATIVE:..................................................................................... 7 BEING COMPETITIVE: ................................................................................... 8 DURABILITY:................................................................................................. 8 IMITABILITY: ................................................................................................ 8 SUBTITUTABILITY: ........................................................................................ 8 APPROPRIABILITY:........................................................................................ 8 2.2.3 VRIO FRAMEWORK ..................................................................................... 9 2.2.4 FUTURE DEVELOPMENT OF CAPABILITIES AND RESOURCES .................................. 10 2.3 STRATEGIC CAPABILITIES VS MARKET DEMAND ..................................... 11 3.1 CONCLUSION AND RECOMMENDATIONS ............................................... 13 4 APPENDIXES .............................................................................................. 14 5 REFERENCES .............................................................................................. 15 Word count: 4,457 (Excluding the title page, table of contents, appendix, and references) Total Word count: 4, 843 2
  3. 3. Web Reservation International strategic Analysis By Best Business Analysts 1.1 Overview Founded in 1999 by Rery Nolan and Tom, Web Reservations International (WRI) created a website under the domain of www.hostelworld.com. With success in over 180 countries, WRI provides online reservations to over 24,000 accommodation providers such as Hostels and budget hotels. WRI’s main target markets are Budget youths and Independent travellers. Since the early 1990’s WRI were the first to Identify this niche and they were able to successfully place their business between this niche market and the accommodation providers. Being able to generate revenue from a small reservation fee and holding on to the accommodation deposit until the date of arrival was a key factor in the success of their business. This report is designed for WRI’s external investors to help them form a decision on whether or not to invest in WRI. This report will discuss and identify the consistency and coherence of WRI’s strategy to date, identify the strategically important capabilities and resources of WRI, and finally explain if WRI achieved a match between their strategic capabilities and market demand. 1.2 Key Findings WRI was able to expand all around the world and is an ever growing business with access to over 180 countries; WRI was also able to differentiate its self from its competitors by targeting a different market, and entering the market through the right mediums. Although the profit margins of WRI are low, the volumes in which these profits are collected compensate the low return from a single reservation. Being founded on Tom Kennedy’s previous experience and Ray Nolan’s IT skills, WRI was able to successfully create an almost perfect and cheap system of reservations which is almost fully computerised and involves very little office and labour work. Although WRI currently dominates the market WRI must use their size and connections worldwide to concentrate on travellers going to Europe, East Asia and the Pacific since some reports suggest that by 2020 1.6 billion travels will be going there. In the case of WRI they have a “first mover advantage” because they were the first to tap into this market, which gave them the ability to create a large database of suppliers and customers. Their increasing network size also gives them economies of scale and scope, they are able to lower their costs due to the vast volume customers/suppliers they have. Their Huge database gives them a strategic advantage over new market entrants and prominent competitors. Their main capabilities and resources are mainly their Technological expertise and vast network of suppliers and customers. Further in this report, a brief analysis of how they can improve these capabilities to maximize their benefits from them in the future. Initially WRI had a very narrow strategy focusing on 1 specific market, that was successful but over the long run the market demand increased due to several factors such as 3
  4. 4. Web Reservation International strategic Analysis By Best Business Analysts the recession and increased use of technologies, more and more people became interested in the company and now a days they have pretty much every body using their services, not only their specific target market (BYIT), they also diversified their strategies by including iPad iPhone applications, different types of hotels, including links and the ability to book flights or go to company specific websites to book from them. 4
  5. 5. Web Reservation International strategic Analysis By Best Business Analysts 2.1 Hambrick and Fredrickson’s 5 elements Some define strategy as an integrated, overarching concept of how the business will achieve its objectives. According to Hambrick and Fredrickson, strategy has five elements which are Arenas, Vehicles, Differentiators, Staging, and Economic logic. 2.1.1ARENAS: When it comes to arenas it’s important to know where WRI is active in the markets. Before founding WRI, the founders profitably ran a hostel in an efficient way. By successfully installing the reservations management systems in their hostel, they were able to serve their customers, the travellers, needs with a better flow and less problems. After establishing WEB RESERVATIONS INTERNATIONAL the company offers confirmed online reservations for over 24,000 hostels and budget hotels in 180 countries. As mentioned above, WRI’s target markets are Budget youth and independent travellers who depend mainly on the internet and bypass the traditional channels to organise holidays and business travel. Through hostelworld.com the company’s revenue grew and it stood as the biggest global provider of confirmed online reservations for the budget accommodation sector. Apart from BYIT market there is also a demand from the new markets like FLASHPACKERS who are generally travellers in their thirties and families who are looking for some more facilities. This site not only offers accommodation but also offers other services like pick up from airports, bed and breakfast and travel insurance also. As the forecast suggests that international arrivals will reach 1.6 billion by 2020 and most prominent receiving areas being Europe, East Asia and Pacific and the Americas the company must focus on all the trends of the market and keep itself in the top. 2.1.2 VEHICLES: WRI as a business was able to maintain over 10 years of success, including the years of the financial crisis (2007-Present), understanding how they were able to maintain this success is key to help us identify if WRI should be invested in. According to the case study WRI is established in 1999 by Ray Nolan and Tom Kennedy. Before setting up WRI Tom Kennedy successfully ran a hostel in 1990’s and his evaluation of future market needs led to establishment of WRI. He introduced a software programme with the help of Nolan which allowed his hostel to manage check in and checkout process. This was not introduced before. They introduced a new trend to the markets which made them the biggest global provider of confirmed online reservations for the budgeted accommodation sector. Through hostelworld.com the company offers services for 24,000 hostels in over 180 countries. The company launched bedandbreakfastworld.com in 2010 which is the largest online bookable B&B in Europe. WRI also owns individuals domains which ensure that if anyone searching for hostel online will land on a WRI site. WRI also licensed its reservation technology for a large number of affiliate travel sites which include ryanair, busabout, lonelyplanet etc... It also developed social networking capabilities which ultimately help them to market their services. By using all this vehicles the company has successfully made their presence in the markets. 5
  6. 6. Web Reservation International strategic Analysis By Best Business Analysts 2.1.3 DIFFERENTIATORS: WRI differentiated itself from others competitors in the market carefully. It targeted the untapped, niche; markets by providing direct services to those people WRI differentiated itself from other competitors. WRI is the first company to make the travel business more efficient, they have done this by allowing the hostels to manage check in and checkout services. It targeted the BYIT market which has been looking for cheap and budgeted accommodation. Apart from others it provided other services like pick up from airport, guides, travel insurance, information about travelling destinations etc. WRI effectively adapted themselves to the changes of trends in the markets. The markets were vastly under expected by other companies where as WRI concentrated on giving the best service for the travellers looking for budget accommodation. There was no alternate competitor who tapped on the BYIT markets as WRI. 2.1.4 STAGING: It did not take long for WRI to dominate the markets they targeted. There were no certain specific strategies for WRI. They moved according to trends of the market. It first started as a company which helps in finding the hostels for budgeted amount. The company’s strategy was to provide services to as many people as possible. It gradually built relations with the hostels and through its websites offers confirms reservations to 24,000 hostels in over 180 countries. WRI also licensed its reservation technology to affiliates so that it dominated the markets. The content is available in 23 different languages and introduced new trends by creating social networking site called ‘Myworld’ for its customers. In 2010 it launched a B&B services which is also largest inventory in Europe. 2.1.5 ECONOMIC LOGIC: WRI makes it revenues by holding on to the deposits paid for the reservations. When a customer books a hostel and the reservation is confirmed they pay a 10% which the company holds. This is the money that the company make. As the business is web based all the booking charges are held by WRI. With 24,000 hostels across 180 countries there is going to be huge money. In 2005 the company’s turnover was 28.5 million euro. The company uses its revenues in expanding their business. Expansion of WRI has offered lot of travel agencies huge profits. 6
  7. 7. Web Reservation International strategic Analysis By Best Business Analysts 2.2 Resource and Capabilities Analysis 2.2.1 Resource Based View This part is going to deeply explore the strategies and resources used by WRI. We are going to use the Resource Based View 7 main elements as a tool for our analysis. The Resource Based View analysis argues that firms possess resources, a subset of which enable them to achieve competitive advantage, and a subset of those that lead to superior long-term performance. Resources that are valuable and rare can lead to the creation of competitive advantage. That advantage can be sustained over longer time periods to the extent that the firm is able to protect against resource imitation, transfer, or substitution. (York University 2005) The main factors of RBV are prior or acquired resources, “Imitability”, durability, “appropriability”, and substitutability, truly competitive and innovative capability. 2.2.2 Identification of strategies and resources WRI target BYIT (budget youths and independent travellers), students, and backpackers, by providing easy on-line booking and low-cost accommodation. WRI has various strategic capabilities which help them successfully dominate their market some resources are based on the internet which include IT and technology expertise, financial capabilities, and information from other websites. Also, their connections with a vast amount of Hotels, and Hostels which was a market that was ignored by most travel agencies in the past can be considered as a strategic capability. WRI also has connections with various tourist hotspots throughout the countries they support, their website visitors are able to view details videos and reviews about various locations to help plan their vacation using WRI’s website. Their main Resources will be explained bellow; however the most prominent resources are their architecture, cost efficiency, and technology. ACQIRED RESOURCES: In the case of Web Reservations International, its success is mostly attributed to its owners or founders. Tom Kennedy one of the founders of WRI used to run a hostel in Dublin. His efforts to offer more efficient services he along with Ray Nolan who is a computer expert developed a new software. Because of their knowledge on the industry and their intentions to offer effective services they established WRI and maintained good relations with the Hostels and hotel which offer budgeted accommodation. BEING INNOVATIVE: In 1999 when Ray and Tom established WRI it was an innovative idea. There were no other hostels which were offering these services. Managing check in and checkout online is an innovation. Through hostelworld.com, and their newly developed iPad/iPhone app which allows mobile users to book on the go, they are offering online confirmed reservations for 7
  8. 8. Web Reservation International strategic Analysis By Best Business Analysts over 24,000 hostels and budget hotels in over 180 countries. The entire concepts of going on holidays have changed after WRI is established. Other innovative services like pick up from airports, travel insurance, information about travelling destinations helped WRI to be successful in the industry. BEING COMPETITIVE: As we know that WRI is the first of its kind, there were lot of other companies which copied the format after WRI. With its good rapport with the hostels and budgeted hotels and its aim to provide cheap and budgeted accommodation WRI stood successfully in the market. There were no other companies who offered budgeted accommodation and other quality services than WRI. DURABILITY: WRI is established in 1999. In the tourism industry there is need for change in every short period. The demands of the markets are bound to change quite often. To meet the needs of the customers it is essential to be constantly updating the system. Updating the services offering meeting to the demands of the market is essential for the company in the long run. IMITABILITY: Imitability is a factor to consider. Software and the systems can be easily imitated in every industry. This is where WRI stands unique from other competitors. Offering quality services and budgeted accommodation cannot be imitated, in the sense that gathering all this information and generating vast databases of customers, hotels, and hostels is not easily replicable. WRI is known for offering accommodation at low cost without any hassles is hard to imitate for any other company. SUBTITUTABILITY: It is easy for any company to substitute a major player in the industry if they offer services more efficiently. In the case of WRI there is no other company which offers budgeted accommodation reservation, and other services for low cost. The goodwill of the company is hard to substitute. Also, although it is simple to create a website, it will be very hard for a new market entrant to successfully place itself in competition with WRI due to the huge database of customers, hotels, and hostels that WRI has. APPROPRIABILITY: WRI offers services directly to the customers. It is appropriate that both the company and the customers benefit. Since its establishment in 1999 till this date WRI has grown and its revenues have increased year by year. The company has to cleverly manage these revenues to see that the company meets the market needs effectively. In summary, WRI was able to successfully plant itself between the suppliers (hotels, hostels, etc.) and the customers (travellers) and develop their relationship through WRI’s web outlets. WRI also was able to tap into other areas where tourists are interested in and present information, videos, and reviews on various key tourist locations, which in turn helps WRI play a bigger 8
  9. 9. Web Reservation International strategic Analysis By Best Business Analysts part in their customers chosen journeys. This is one of the key success factors in WRI’s strategy; being able to infuse their website in many aspects of their customer’s trip. WRI has to, however, try and adapt various reservations in their website, similar to some of their competitors, where their website visitors are able to reserve seats in non residential locations such as theatres, festivals, or concerts. When WRİ was initially developed their website; it allowed the customer to book online, choose the location, price and quality of the hostel. This was quite different and rare back then because there was no reservation system that allowed customers to book and make sure the reservation holds up until their arrival. The WRİ has been developed on the outstanding booking technology which was implemented in their websites such as Hostel World. They have continued with innovations throughout the years of their business. Their most recent innovation has been the development of their app for iPads and iPhones. There is a greater chance that a customer will continue using your website if it is simple to use and that’s what WRİ have implemented in order to have a direct relationship with their customer. Three additional key points are identified in relation to their capabilities. 1. Due to their financial capabilities WRI can lower prices for a certain time period to prevent new market entrants or competitors from growing. 2. Perhaps the most prominent policy of WRI is owning most of the domain names which customers may use to reserve tickets, this reflects their financial capabilities and their vast network capabilities. Their ability to control such a huge number of websites and domains such as..:   www.hostetwortd.com www.hostets.com www.ryanair.com www.trav.com .. Demonstrates their IT management skills and capabilities. 3. Their recent iPad and iPhone apps demonstrate how they adapt to the market as the market grows and the market demand changes. This keen sense of innovation must continue in the future to insure the growth of WRI. For example, allow all smart phones to access the WRI APP 2.2.3 VRIO Framework When looking at the VRIO framework, we can extract 3 main strategic capabilities and from the previous analysis, and they are; IT skills and management, Financial resources and volume, and their access to a Vast networks and database of customers and suppliers. (A table clarifying the VRIO findings is available in appendix 1) According to Barney and Hesterly (2006), VRIO “stands for four questions one must ask about a resource or capability to determine its competitive potential: 1. The Question of Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? 9
  10. 10. Web Reservation International strategic Analysis By Best Business Analysts 2. The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? 3. The Question of Imitability: do firms without a resource face a cost disadvantage in obtaining or developing it? 4. The Question of Organization: Are a firm’s other policies and procedures organized to support?” When looking at WRI’s strategic resources using the VRIO framework the following conclusions arise (Please refer to appendix 1): 1. WRI has a vast network of customers and suppliers which they can use to their advantage to expand and grow their business. This “architecture” also acts as a competitive advantage in the sense that in this industry the bigger your network is, the more customers you can satisfy, and the more money you can make. 2. WRI are able to profit from the volume of customers they get every day, and because of this vast amount of people and companies using WRI’s websites, they are able to maintain their current market position and also due to their great service they are able to retain many customers as well. 3. WRI’s sophisticated reservation system is a key resource they have which contributes to their current market position. Their reservation system according to their management team is “simpler and easier to use” when comparing it to their competitors. 2.2.4 Future Development of Capabilities and Resources After a brief but deep analysis of WRI’s strategic capabilities, it is clear that WRI’s currently controlling a substantial amount of the online hotel reservation market. Investing in them, given their current resources and capabilities, would be appropriate based on their previous growth. However, in order for WRI to sustain their current position in the market they must: 1. Continue using their IT and management skills to further communicate with travellers, and also expand their market as they are doing now from Just BYIT to other markets such as businesses and tour groups. 2. Further expand their network and database to more locations and to attract more customers, remember, a study showed that in 2020 1.6 billion travellers will be interested in Europe, East Asia, and the Pacific. WRI must insure that they can exploit at least 50% of that market and they should start on that from now by communicating more in social networking websites, and by affiliating their website(s) more with tourism in major cities across the world. 3. Invest, using their financial capabilities, in more software to tap into further markets (not only the apple OS users but also other Smartphone and tablet platforms such as blackberry BBX, or Google honeycomb, or Google android.). Also WRI must invest in allowing their customers to reserve seats for other tourist attractions such as festivals, theatres, clubs, restaurants, and concerts. 10
  11. 11. Web Reservation International strategic Analysis By Best Business Analysts 2.3 Strategic Capabilities VS Market Demand It is vital to understand that every company will have to meet the demand of their customers and this includes WRI as well. In the past WRI have been successful in meeting demand of their customers by introducing the following techniques and strategies: WRI were the first one to introduce the system which would allow the customer to book into the hostel through the use of Internet. This eventually changed the whole culture of the travelling allowing the customer to see and experience the hotel before booking into it. This internet strategy have also opened horizons geographically allowing much more customers to be booking into the different hostels which allowed for much greater profit generation. The strategy has slightly changed since the past so as the consumer. Nowadays the customers of the Hostel World Website not only students and people that love travelling but also customers such as families, couples etc. The hostels nowadays offer great experience offering single rooms like you would get in the hotels, internet access, breakfast, lunch and dinner options, tourist activities etc. This has diversified the whole hostel culture. A different review on the website allows the customer to make the decision about the certain hostel. The reviews, photos of the hostel, additional features such as car rental, cheap flights booking, insurance etc. allowed the WRI and hostel World Website in particular to diversify and attract more customers to its business. The website would offer different locations around the world which allows the customer to choose from the variety of places and certainly allows the company greater revenue. The world is changing and the customer is becoming more conscious about the comfort but at the same time value for money. WRI have changed the initial culture of the hostels being for students and being seen as the cheap budget accommodation now it is for everyone. They have also diversified into different areas of the business and websites such as bed and breakfast world which was launched in 2010 offering different bed and breakfasts accommodation throughout the world. This has certainly allowed them to keep the business going through the recession. The WRI have developed internally their website such as Hostel World by offering different service features meeting the customers demand. The website also allows the customer to communicate with other customers and about their experience of tier travels. This attracts more people to the website and provides quality service as the customers can make up a decision talking with the other customers which have already some experience from the past. The world has moved recently to the mobile communication where the people are able to do all the reservations and purchases from their mobile devices such as IPhone, I pad etc. The WRI have also adopted this strategy in order to keep up with its customer and created an iPhone/iPad application which allows customer to deal with the website through 11
  12. 12. Web Reservation International strategic Analysis By Best Business Analysts this application and being able to use all the features as the website offers as well. The WRI flagship websites such as: www.hostelworld.com www.hostels.com www.trav.com www.bedandbreakfast.com They have also affiliated licences to the different companies such as Ryan air, Aerolineas and different travel websites such as Trip advisor, Visit Britain, Travel Port Leisure etc. This allows the customer to be able to access their websites from the WRI Flagship websites. This increases turnover of its own websites and gets an advertising income to the WRI Company. The IPhone application has been extremely successful since its launch in January 2010. There were 100.000 downloads in the first 6 months. Following the success and constant demand of customer the WRI decide to launch videos for the top 200 properties and it has also allowed properties to upload its own properties. This has developed huge interest from the customers and more visits to the website. Although the economic times are tough the WRI still tries to maintain its business through the use of technology. In terms of differentiation WRI has taken its own niche since 1999. They were mainly focused on the low-middle class customer and huge turnovers though their websites which are mainly based on budget accommodation. Their initial image was cheap however it has certainly changed over the years. Nowadays the booking websites of WRI are used by everyone. It has also become more sustainable since the world economic crises has hit. Nowadays people are looking for value for everything and WRI and its websites would suit their needs in all the parameters. Hotel World Website offers great prices and has generated a lot of income through making numerous bookings for the customers and holding unto its 10 % deposit from the booking price. Going back to the fact that it is a recession and there are more bookings made through the low-medium priced accommodation websites WRI have maintained and generated some income over the last few years. The customer is given opportunity to review all the stays and services offered on the website. And this gives a great opportunity for the other customers to look at it and book their own stay. By doing this WRI maintains its relationship with the customer in the long run. They want the customer to go back to their website and book again. The speed of the whole expansion has been at an amazing level. Technology and Innovation are the main key factors that have driven WRI Company to its success. The resources of the company have been obtained in very economically smart manner where they have taken booking deposits for the hostels. There are few points of attraction when 12
  13. 13. Web Reservation International strategic Analysis By Best Business Analysts the person books its stay such as destination, the actual hostel and the website experience. Those 3 are the key factors that have been sold and satisfied the customer in the past. WRI has also taken up its niche and continuously made its profits even that there are more and more competitors on the market. Overall WRI developed strong business model in the past and leading it in the future by transferring its websites to be accessed from mobile devices etc. 3.1 Conclusion and Recommendations When WRİ was initially developed their website; it allowed the customer to book online, choose the location, price and quality of the hostel. This was quite different and rare back then because there was no reservation system that allowed customers to book and make sure the reservation holds up until their arrival. The WRİ has been developed on the outstanding booking technology which was implemented in their websites such as Hostel World. They have continued with innovations throughout the years of their business. Their most recent innovation has been the development of their app for iPads and iPhones. There is a greater chance that a customer will continue using your website if it is simple to use and that’s what WRİ have implemented in order to have a direct relationship with their customer. WRI was able to tap into a part of the market that was not previously explored by web tourist agencies; WRI’s reservation application also was a key factor in their success. For the investors, WRI would be a good company to invest in because they have maintained a significant amount of growth throughout the world’s economic ups and downs. And they were able to tap into a market that never has an “off season” since people travel throughout the whole year none stop. We would recommend WRI to consider our recommendations described in section 2.2.4 as they would greatly benefit the profitability of WRI and their level of “invest-ability”. 13
  14. 14. Web Reservation International strategic Analysis By Best Business Analysts 4 Appendixes Table Summary of VRIO and Competitive Implications Strategic Capability Valuable? Rare? Technology Yes Yes Costly to Do they have any Competitive Imitate? structured Implications organization to use this resource? Yes Yes Sustained Advantage Architecture Yes No Somewhat Yes Temporary Advantage Cost Efficiency Yes No Yes Yes Temporary Advantage Technological Capabilities* Yes Yes Somewhat Yes Temporary Advantage *These are linked to the IT Skills and IT management, this mainly describes the reservation software developed by WRI in the 90's Appendix 1 14
  15. 15. Web Reservation International strategic Analysis By Best Business Analysts 5 References J.B. Barney, “Firm resources and sustained competitive advantage,” Journal of Management 17 (1991), p. 101; R.M. Grand, Contemporary Strategy Analysis (Cambridge, England: Blackwell Business, 1991), pp. 100-102; M.A. Hitt, R.D. Ireland, and R.E. Hoskisson, Strategic Management: Competitiveness and Globalization, 4th ed. (Cincinnati, OH: South-Western College Publishing, 2001); G.G. Dess, G.T. Lumpkin, M.L. Taylor, A.A. Thompson, and A.J. Strickland III, Strategic Management (Boston, McGraw Hill, 2004) pp. 141-148. York University, 2005. The Resource-Based View of the Firm. [Online] is theory yorku. Available at: http://www.istheory.yorku.ca/rbv.htm [Accessed November 6, 2011] 15

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