1. 1
Is strategy formulation compromised with the closure of hotels in
Ireland?
By Sinead Fox
C07042612
DT401t/4
Submission: 19th October 2010

2. 2
Table of Contents
2.0 Literature Review 3
2.1 Introduction 3
2.2 Strategic Management 3
2.2.1 Strategic Management Process 4
2.3 Strategy Formulation in the hotel industry 5
2.3.1 Mission, Objectives and Goals 5
2.3.2 External and Internal Environment 6
2.3.3 Risks involved 8
2.4 The impact of the recession on hotels 9
2.4.1 The closure of hotels in Ireland 10
2.5 The traditional approaches to strategy formulation 10
2.5.1 The future of strategy formulation 11
2.6 Conclusion 12
References 13

3. 3
2.0 Literature Review
2.1 Introduction
In this chapter, I will be discussing strategy formulation and its connection with the impact of the
recession on hotels in Ireland and how is strategy formulation compromised with the closure of
hotels in Ireland. The purpose of this chapter is to present the literature of strategy formulation
and the closure of hotels during the economic downturn.
The main objective of this literature review is to research the literature of strategic management
and strategy formulation and the impact of the current economic downturn on hotels in Ireland
along with the closure of hotels in Ireland.
The aim of this literature is to begin the discovery of how strategy is compromised with the
closure of hotels, is there a need for a new strategy in the current economy and to discover and
identify the traditional approaches to strategy formulation, does the closure of hotels threaten the
traditional way of strategy formulation, is it out of date in this environment, and its future.
2.2 Strategic Management
Strategic management is that set of managerial decisions and actions that determines the long-
run performance of a corporation (Hunger and Wheelen, 2007). It determines an organizations
long-term goals and objectives. A strategy sets the direction for an organization; it sets out a path
for management to follow.
Strategies are put in place to foresee the future, without a strategy the company would not have
any goals or objectives to go by. ‘A strategy of a corporation is a comprehensive plan stating
how the corporation will achieve its mission and objectives’ (Hunger and Wheelen, 2003 p.7).

4. 4
Strategy decisions can be quite tough, it involves a lot of strategic thinking, crafting new ideas,
being creative and innovative. Before implementing a strategy, managers must brainstorm, and
think strategically about their ideas, transforming them into strategic plans and implementing
them. Before the formulation process can begin, strategic thinking must be embraced, coming
up with new and creative ideas that could transform into effective strategies.
2.2.1 Strategic ManagementProcess
The strategic management process involves three key factors which include: strategy
formulation, implementation and evaluation/control. To implement a successful strategy,
management must go by this process efficiently to achieve a sustainable competitive advantage.
Time management is critical to implementing a strategy, if the strategy is not implemented in
time, it might not be as effective as the external environment is continuously changing.
Strategic management is about managing the future, and effective strategy formulation is crucial,
as it directs the attention and actions of an organization towards their objective. The assessment
of strategy formulation processes becomes crucial for practitioners and researchers alike in order
to conduct and evaluate different formulation processes (Acur and Englyst, 2006).
Strategy formulation is the development of long-range plans for the effective management of
environmental opportunities and threats, in light of corporate strengths and weaknesses (SWOT).
It defines the corporate mission, specifying realistic and achievable objectives, developing
effective strategies and setting policy guidelines (Wheelen and Hunger, 2008). ‘Strategy
implementation is a process by which strategies and policies are put into action through the
development of programs, budgets and procedures’ (Wheelen and Hunger, 2008 p.16).
Management must first formulate their strategy based on their mission and objectives and
implement the strategy through long-sought out plans by management based on procedures and
the development of programmes.
‘Strategy evaluation is a process in which corporate activities and performance results are
monitored so that actual performance can be compared with desired performance’ (Wheelen and

5. 5
Hunger, 2008 p.17). Management must be aware of how the strategy is doing, is it effective and
successful or should they get rid of that strategy and formulate a new one with the changing
environment. Information technology systems can be used in evaluating the company’s
performance.
2.3 Strategyformulation in the hotel industry
Strategic formulation in the hotel industry includes the setting of the mission, goals and
objectives for the organization, the assessment of the external environment as it affects the
organization, together with its internal resources and the choice of strategic alternatives (Pollard
and Hotho, 2006). In doing this management can see where they want to be in the future and
what their aim is using the best possible low cost strategy that will increase the return on
investment. Formulating a strategy means setting the direction for the organization, ‘the game
plan’ for the company.
A strategy is crucial for management to formulate and implement as it will determine the
direction of the hotel, their position in the market place and their competitive advantage.
Hotel managers need to create an effective strategy in the current turbulent environment to be
successful, they must come up with something new, creative and innovative. Innovation is the
key to success in the downturn, management need to invent an innovative product or service to
the guest to attract new customers to the hotel.
2.3.1 Mission, objectivesand goals
The company’s mission statement is the reason they are in business, (Ackoff, 1986, cited in
Thompson and Martin 2010, pp.268-272) suggests that a good mission statement has 5
characteristics:

6. 6
It will contain a formulation of objectives, it differentiates the company from its competitors, it
defines the business that the company wants to be in, it is relevant to all stakeholders in the firm
and it is exciting, new and inspiring.
On the other hand, (Campbell 1989, cited in Thompson and Martin, 2010) argues that to be
valuable, mission statements must reflect corporate values and the strategic leader and the
organization as a whole should be visibly pursuing the mission, a more centralized approach to
strategy formulation should be incorporated in an organization.
The company must identify their objectives, growth and profitability for example also with a
philosophy and a vision for the future. Setting these goals and missions is crucial in a hotel
organization, employees and leaders must all know about these goals, so they can work hard
towards them as a team. It will motivate employees to work towards a goal or an objective.
According to (Collis and Rukstad, 2008), all organizations have the one objective which is to
maximize shareholder value, however the question to ask when formulating an effective strategic
statement is, which objective is most likely to maximize shareholder value over the next several
years, a long-term strategic statement is a necessity.
2.3.2 Externaland Internal environment
Scanning the external environment for threats and opportunities is crucial to apply when
formulating a strategy, management must scan for opportunities that lead to competitive
advantage. From identifying this, the business must confirm its domain, the boundaries to which
the business will compete (Olsen, West and Tse, 2008). Once these analysis and decisions have
been made, the firm must then identify their mission statement, goals, vision and objectives.
The environmental conditions facing many firms have changed rapidly. Today's global
competitive environment is complex, dynamic, and largely unpredictable. To deal with this

7. 7
unprecedented level of change, a lot of thinking has gone into the issue of how strategies are best
formulated. (Acur and Englyst, 2006).
An assessment of the external environment is crucial to the management team when formulating
a strategy. There are many external factors influencing a firm’s choice of direction and action
(Pearce and Robinson, 2009). Organizations should be looking for ways of being different from
their competitors, this comes from innovation, and being creative. Creating an idea that would
differentiate the business over its competitors.
To examine a business’s current position in the external environment, a SWOT analysis must be
performed. This includes an analysis of the firm’s internal strengths and weaknesses and external
threats and opportunities. Not only must managers be aware of environmental forces and
environmental change, they must manage the organization’s resources to take advantage of
opportunities and counter threats (Thompson and Martin, 2010).
Another analysis of the external environmental which can be used is PESTE analysis. Included
in this analysis is:
 Political factors: which defines the legal and regulatory parameters within which firms
must operate
 Economic factors: concern the nature and direction of the economy in which the firm
operates. Managers must consider the general availability of credit, the level of
disposable income and the propensity of people to spend. Interest rates, inflation rates
and trends in the growth of the gross national product are other economic factors they
should consider.
 Social factors: the social factors that affect a firm are cultural factors, ecological,
demographic, religious, educational and ethnic conditioning.
 The technological factors: which includes technological change and the changes in
information technology. A firm must be aware of technological changes that might
influence the industry. And finally,
 Ecological factors: which is the relationship between business and the ecology (Pearce
and Robinson, 2009)

8. 8
This analysis can help a firm examine the external environment and face their realistic
challenges. PESTE analysis is a necessity when formulating a strategy to optimize a firm’s
market opportunities. Managers should be continuously aware of the changes of the external
environment.
(Baskin 1998, cited in Mason 2008) maintains that corporations should be run like living things,
by continually learning from, and adapting to their environment. Also Mason (2008) suggests
that since accurate prediction is not possible in a turbulent and complex environment, planning
should have a short time horizon. Such planning requires free distribution of information, which
is used quickly, and should be about `how to do things' rather than `what to do'; that is, adapting
to changes rather than trying to predict and control activities.
Consumers in the economic crises are more price sensitive and are more aware of their
expenditures. Hotels need to be wise when implementing their low-cost pricing strategies, as to
not affect the brands image or quality of the product or service. Consumers are looking for ‘value
for money’ and are shopping around for the best price, to gain a competitive advantage, hoteliers
must be careful formulating their pricing policies and strategies. They need to be able to make a
good return on investment for the stakeholders of the company without damaging the brand.
Whilst pricing is an important factor at present, it is possibly not the right strategies for some
hotels to take, they must be aware of their current position and identify what makes them stand
out, what is their competitive advantage and improve on this theme or differentiated factor.
2.3.3 The risks involved
There are a lot of risks involved when formulating a strategy in this current economy. Risk is an
important component of strategy formulation, managers must identify the risks involved when
implementing a strategy.
‘ The increase in the pace of changes in the environment and the diminishing of
time to market limit the time available to companies for planning and evaluation.
This kind of business environment has caused very costly forecasting errors and

9. 9
forced managers to consider risk factors in their decision-making. In the present
turbulent environment, however, managers need a highly risk-oriented strategy to
cope with the perils of high uncertainty’ (Noy and Ellis, 2003, pp.691-707).
2.4 The impact of the recessionon hotels in Ireland
There has been a major impact of the recession on hotels in Ireland the past few years. There has
been a high decrease in demand for hotels, and hotels are finding it difficult to survive the
economic climate. A report from Failte Ireland (Hotel Review, 2009) shows that the number of
hotels registered in Ireland in 2009 was 915 which then decreased to the total number of 902
registered hotels in Ireland in 2010. The changes in capacity were not met by sufficient demand
in 2009, resulting in falling room and bed occupancy rates. Hotel profits have fallen by a massive
50 percent according to a news report on RTE (21st July, 2010).
There has been a decrease in tourism in Ireland over the past few years, meaning a decline in
demand for hotels. There is a massive over-supply of rooms with 60,217 rooms in Ireland (Failte
Ireland, 2009), this shows to a certain extent the level of competition there is between hotels.
‘When the environment is ephemeral, it is fragile, precarious and unforgiving. If
managers make the wrong decisions it can be damaged or affected seriously by the
organization’ (Thompson and Martin, 2010 p.83).
There have been quite a few hotels gone into liquidation, or gone bust. An example of a hotel
gone into liquidation is The Castletroy Park Hotel in Limerick. In a RTE news report (29th Jan,
2009), the hotel had gone into liquidation because of trading difficulties. They were having some
financial difficulties and were forced to close their doors. This is just one of the many cases that
hotels in Ireland have faced. A question to be asked is why did their strategy not work? Or did
they even have a strategy implemented? These questions must be looked at further to see why
these hotels had to take such drastic measures in the current economic crises.

10. 10
2.4.1 The closure of hotels in Ireland
Since the economic downturn, hotels in Ireland have been massively affected. Hotels that have
been unsuccessful in the economy have been forced to shut their doors and cease trading. It is a
tragic position for hotel proprietors to be in, a lot of financial resources and investment would
have been invested into these properties.
Questions need to be asked when a hotel closes their doors. What had gone wrong? Did they
have a strategy in place? What type of strategy was it? Why did it not work? What went wrong?
These questions need to be asked by hoteliers and stakeholders to see what went wrong and why
there was such huge financial difficulties.
According to the Bacon report (Bacon, 2009), 15,000 rooms needed to be closed by the peak
season, 2010 to avoid catastrophe in the hotel sector, if quality businesses are to survive. He
reports that there was a 25% drop in room rates between 2000 and 2008 and in the 1st eight
months of 2009 there was an 11% decrease in the number of overseas visits to Ireland.
Since the recession has hit Ireland, hotels in Ireland have definitely felt the pinch of the credit
crisis and NAMA (The National Asset Management Agency) has ended up being ‘banker’ for
some of Ireland’s top hotels.
NAMA controls some top five star hotels in Ireland including the Ritz Carlton, the Shelbourne,
the K-club and the Radisson and G hotel. They are in NAMA because of their high financial
depths. The IHF estimates that up to 100 hotels may ultimately end up in NAMA. the agency
will take over the loans of the hotels. Many in the hotel industry are wondering whether NAMA
will ultimately prove a boon or a liability to the crisis-hit sector (Friemann, 2010).
2.5 The traditional approachto strategyformulation
Feurer and Chaharbaghi (1995) suggests that the traditional approaches to strategy formulation
tend to analyze the environment in order to identify an ideal position. In a dynamic environment
such an approach will fail as the environment changes before a strategy is implemented. It is

11. 11
therefore necessary to regard strategy formulation as a constant reconciliation of the
organization’s goals and selection of dynamic paths for goal realization and this represents a
comprehensive learning process. A learning based process seems to be the future of strategy
formulation.
2.5.1 The future of strategyformulation
Cummins and Dallenbach (2009), identified that since the early 1990s, there has been much
debate about ‘what strategy really is’, and whether one view of what it is better than another. Is
strategy just plans made by senior executives; or can even the smallest micro-activity be strategic
- and if so how do we know which are strategic and which are not?
Strategic planning processes have changed substantially over the past two decades in response to
the challenges of strategy formulation in turbulent and unpredictable environments. Strategic
planning processes have become more decentralized, less staff driven, and more informal,
permitting greater adaptability and responsiveness to external change (Cummins and
Daellenbach, 2009). With strategy formulation becoming more decentralized, staff are less
involved in the formulation of ideas and strategic thinking, only directors, top management and
stakeholders. The decentralized approach is becoming a futuristic method, modern-day
technique. Concurrently, there has been a swing toward looking at how past context informs
present strategic decisions (Cummins and Daellenbach, 2009).
‘Learning and knowledge based strategies seem to be the future of strategy formulation’
according to (Feurer and Chaharbaghi, 1995). Learning organizations, also referred to as
knowledge-based businesses, have replaced the traditional views on how organizations can
achieve a competitive advantage.
So is there a need for new strategies in the current economic downturn. Hotels in Ireland that are
feeling the pinch of the credit crisis need to be aware of the new methods of strategy formulation
and how they can create a successful strategy. Because of the speed on the changing environment
in the 21st century, hotels must create effective strategies, new and innovative strategies must be
formulated to be successful, based a learning and knowledge business environment.

12. 12
The examples of the closure of hotels in Ireland, threatens the traditional approach to strategy
formulation and perhaps is the proof that the traditional approach of strategic management is in
the past, and that there is a need for a new approach or a new method.
2.6 Conclusion
Strategy formulation in today’s economic environment has changed from traditional approaches
dating back to the 80’s and 90’s. With new techniques and approaches to strategy formulation,
managers must continuously be aware of these types of strategies and how to formulate new and
creative strategies.
Some authors identify an effective strategy as a learning process and it is based around
knowledge, while others argue that a decentralized and informal approach to strategy
formulation is the right direction to take for the organization.
In the current turbulent environment it is a necessity to form an effective strategy, to gain a
competitive advantage and deliver a differentiated product or service to customers. Hoteliers and
managers must be aware of the changing environment and the need for a new or improved
strategy for their organization.
As previously discussed, there has been a massive impact on hotels in Ireland in the current
economic crisis, some hotels have been forced to cease trading and close their doors. Hoteliers
now need to formulate a strategy in a new context to deal with the changing environment. There
are so many hotels in Ireland today, that an effective strategy in a new context, a futuristic
context, is the path that hoteliers should take.

13. 13
References:
Acur, N. and Englyst, L. (2006) International Journal of Operations & Production Management,
assessment of strategy formulation: how to ensure quality in process and outcome, Vol.26, No. 1,
pp. 69-91.
Avinal, A.E. (2004) Journal of foodservice business research, Revenue management in hotels,
Vol. 7 Issue: 4, pp. 51-57.
Bacon, P. (2009) ‘Over-capacity in the Irish Hotel Industry and Required Elements of a
Recovery Programme’, The Bacon Report, [online], November, available at:
http://www.ihf.ie/documents/HotelStudyFinalReport101109.pdf [Accessed: 12/10/2010].
Collis, P.B and Rukstad, M.G. (2008) Can you say what your strategy is? Harvard Business
Review, April, vol.86, issue: 4, pp. 82-90.
Cummings, S. and Daellenbach U. (2009) A Guide to the Future of Strategy?: The history of
Long Range Planning, Journal of Long Range Planning, Vol. 42, Issue: 2, pp. 234-263.
Feurer, R and Chaharbaghi, K. (1995) Strategy formulation: a leaning methodology,
Benchmarking: an international journal, Vol. 2, No. 1, pp.38-55
Friemann, G. (2010) ‘Can NAMA give hotels the five-star treatment?’ The Irish Times [online],
26th February, available at:
http://www.irishtimes.com/newspaper/finance/2010/0226/1224265199966.html, [accessed
18/10/2010].
Hunger, D.J. and Wheelen, T.L. (2003) Essentials of Strategic Management, 3rd edition, New
Jersey: Prentice Hall.
Hunger, D.J. and Wheelen, T.L. (2006) Essentials of Strategic Management, (4th Edition) New
Jersey: Prentice Hall.
Hunger, D.J. and Wheelen, T.L. (2008) Strategic management and Business policy (11th edition)
Prentice Hall: New Jersey
Mason, R. (2008) Management actions, attitudes to change and perceptions of the external
environment, Journal of General Management, Vol. 34, no. 1, pp. 37-53.
Noy, E. and Ellis, S. (2003) Risk: a neglected component of strategy formulation, Journal of
Managerial Psychology, Vol. 18, Issue: 7, pp. 691-707.
Olsen, M.D., West, J.J. & Tse, E.C.Y. (2008) Strategic management in the hospitality industry
(3rd edition) New Jersey: Pearson Education ltd.

14. 14
Pearce, J.A. and Robinson. R.B. (2009) Strategic management, formulation, implementation and
control (11th edition) McGraw Hill: New York
Pollard, D. Hotho, S. (2006) Crises, scenarios and the strategic management process, Journal of
management decision, vol.44, no.6.
Thompson, J. and Martin, F. (2010) Strategic management, Awareness and Change, 6th edition,
Cengage Learning: UK.
RTE online: 21st July 2010, ‘Hotel profits fallen by 50% since 2007’, [online], available at:
http://www.rte.ie/business/2009/0129/hotel.html: [Accessed: 12/10/2010].
Failte Ireland, Hotel Review 2009, [online], Available at:
http://www.failteireland.ie/FailteCorp/media/FailteIreland/documents/Research%20and%20Stati
stics/Surveys%20and%20Reports/Hotel_Review_2009_840kb.pdf [Accessed: 11/10/2010].