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Strategic plan harvard business review casestudy airbnb company

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This document provides the Strategic Plan for Airbnb for 2017-2021. The plan provides an analysis and evaluation of Airbnb by reviewing the company’s strategic management, profitability and market competitiveness. Methods of analysis include Strategic Position & Action Evaluation (SPACE) Matrix, and Grand Strategy Selection Matrix as well as Situational Analysis.

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Strategic plan harvard business review casestudy airbnb company

  1. 1. Page 0 of 16 2017-2021 Airbnb, Inc. Strategic Plan 2017-2021 Submitted to Dr. Ossama Mossallam Challengers Group Team Members:  Mohie Ismail (Team Leader)  Lina Hamdy (Team Reporter)  Ashraf Yusif  Wael Goda  Mohamed Fadl
  2. 2. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 1 of 16 Table of Contents Abstract.......................................................................................................................................2 History.........................................................................................................................................2 Strategic Issues ........................................................................................................................3 Situational Analysis ..................................................................................................................3 A. Porter’s Five Forces Analysis:..............................................................................3 B. SWOT Analysis: ......................................................................................................5 Strategic Analysis and Choice ...............................................................................................8 1. Strategic Position & Action Evaluation (SPACE) Matrix:...................................8 2. Grand Strategy Matrix:...........................................................................................10 Recommended Strategy........................................................................................................12 Vision:....................................................................................................................................12 Mission: .................................................................................................................................12 Goals:.....................................................................................................................................12 Strategy:...............................................................................................................................14 Objectives: ...........................................................................................................................14 Appendix...................................................................................................................................15 Endnotes...................................................................................................................................16
  3. 3. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 2 of 16 Abstract This document provides the Strategic Plan for Airbnb for 2017-2021. The plan provides an analysis and evaluation of Airbnb by reviewing the company’s strategic management, profitability and market competitiveness. Methods of analysis include Strategic Position & Action Evaluation (SPACE) Matrix, and Grand Strategy Selection Matrix as well as Situational Analysis. History Airbnb is a two-sided marketplace that sought to match people that owned real estate properties with people interested in renting short-term lodging. The company was founded in August 2008 and based in San Francisco. Joe Gebbia, Brian Chesky and Nathan Blecharzyk are the founders of Airbnb. Our story started with a problem that those struggling financially know well. In October of 2007, Gebbia and his roommate Chesky were living in a San Francisco apartment, and they couldn’t afford rent. That weekend, an international design conference was coming to town, and all of the hotels were sold out. So they had an idea: why not turn their place into a bed and breakfast for the conference? They inflated air beds and called it the AirBed & Breakfast. From that first airbed, Airbnb grew person to person, block by block, city by city. Today, our community is in 34,000 cities in 192 countries. This idea is about much more than just making ends meet. At Airbnb, we are creating a door to an open world—where everyone’s at home and can belong, anywherei . Airbnb enables transactions between hosts and travelers (guest) by charging a service fee without directly owning any rooms by itself. This makes Airbnb have a variety of market offerings in terms of prices, locations, and experiences, where our guest can choose from. We created a channel of income for our hosts. In the same time, we believe that it is fair to pay taxes on the income the hosts receive from renting their houses in compliance with the tax laws. At Airbnb, we succeeded to engage both our host and our guest, where best hosts are awarded by Airbnb, also, guest can write reviews about their host which is used in ranking and evaluating the hosts as well as the Heart icon (which was developed by Airbnb instead of the generic star icon) to rate the host. On the other side, Airbnb developed Facebook Connect which enables its users (host & guest) to explore each other social media. Actually, our users start to use us as a social ne twork to share their experiences, photos, mutual friends, locations, wishes, etc. We are an open community. At Airbnb we are always trying to develop our security and safety systems. This is derived from our desire to make everyone belong to everywhere. For this we are awarded for promoting responsible travel. We have more than 20 offices around the world with qualified people that are responsible for running our operations. At Airbnb we want to create a world that inspires human connection. That is why we invest in our people to be able to deliver our standard of quality service to all our users.
  4. 4. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 3 of 16 Strategic Issues This section identifies the critical and strategic problems facing Airbnb. Strategic issues are fundamental policy questions or critical challenges that affect: An organization's objectives; deliverables; consumer clientele; costs, financing and organization or management. In order to determine these issues, we conducted situational analysis for Airbnb. Careful analysis revealed that Airbnb has three strategic problems/issues which must be effectively addressed and resolved: 1. Security and Safety: while we have greatly developed and upgraded our security and safety system to guarantee safe and secured experience for both our guest and our host and prevent crimes. This issue still constitutes a matter of risk to us as it can negatively impact our reputation and subsequently our business. 2. Regulatory Risk: we are a global company and each country has different regulations and legislations that control home accommodation industry in general and specially the interned- based ones like Airbnb. 3. Cultural Adaptation: Since we are a global company, we have to adapt ourselves to the culture of every country and even city. Some conservative cultures have concerns about sharing accommodations, for this in order to develop these markets; we need to continuously develop our product to match with their cultures. Situational Analysis The situational analysis for Airbnb includes Porter’s Five Forces and SWOT analysis as follows: A. Porter’s Five Forces Analysis: Porter’s Five Forces analysis is a framework to analyze level of competition within an industry and business strategy development.
  5. 5. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 4 of 16 1- Intensity of rivalry: Medium Intensity of competition is medium as Airbnb was almost the first to establish such business model in the internet-based home accommodation industry. However, some companies already imitated Airbnb business model and started to develop some markets like the case in China.ii Also some existing companies are competing with Airbnb in some areas like Booking.com, TripAdvisor, and Expedia. Control: Airbnb can control this risk by:  Continue developing new markets  Continue penetrating the existing ones  Build deals/partnership/alliances with other companies that provide complimentary services, i.e. transportation, tours, etc. 2- Risk of entry by potential competitors: High It is very easy for any startup to enter the market and compete with Airbnb and take from its share, since the initial costs are not high. This case happened in China where many imitator companies (Chinese companies) developed the Chinese market before Airbnb enter it. Control: Airbnb does not have control over this risk 3- Risk of substitutes: Medium The risk of substitutes is medium as the guest can substitute it by a hotel experience or by choosing not to travel at all Control: Airbnb can slightly decrease the impact of this risk by:  Increasing its customers engagement  Attracting different hosts to ensure variety of its market offerings: price, location, experience, etc.  Developing security and safety program to ensure the safety and security of both its guest and host 4- The bargaining power of Buyers: High Despite there is high demand because of the variety of offerings in terms of price, location and experience, buyers are very sensitive to security and safety issues, rumors, instability situations in the countries, etc. Control: Airbnb has to continue varying its offerings in terms of price, locations, and experiences and include different and trending experiences to match with the different wishes of its guest: i.e. create programs/wish list for Environment lovers, Cultural Exchange programs for young people, etc. Also, it has to enhance the assertiveness of its security and safety system. 5- The bargaining power of suppliers: Medium There is abundance of suppliers (host) who are renting their own homes. However, recently, some counties are raising new assertive regulations like in San Francisco and New York. These regulations sometimes do not encourage hosts.
  6. 6. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 5 of 16 Control: Airbnb does not have control over the bargaining power of suppliers. However, it can encourage more hosts by creating incentive programs or awards. According to Porter’s Five Forces analysis, we can conclude that the internet-based home accommodation industry is attractive. Airbnb has good control over its competition as its horizontal competition is medium; as well as its vertical competition which gives Airbnb a very good chance to continue its aggressive growth. B. SWOT Analysis: SWOT analysis is one of the situational analysis tools. It examines both the internal (strengths & weaknesses) and external (opportunities & threats) environments of the organization. Below is the SWOT Analysis for Airbnb: SWOT Analysis – Internal # Strengths 1 Industry Leadership:Airbnbisa leaderinthe internet-basedhome accommodation industry 2 Price Competitiveness:Airbnbhasvarietyof marketofferingswhichmakesitable to provide competitiveprices 3 CustomerEngagement: Airbnbhasstrongcustomerengagementmodel:Facebook Connect,WishListand Heart icons 4 Operatingcost: Airbnbhasa relativelylow operatingcostsince itisaninternet- basedcompany 5 Expansion: a. Airbnbhas highsupplysupportedwithhighdemandwhichgivesitthe chance to expandanddevelopnew markets. *Airbnbhasmore than 150 millionguestusingitsservices. *Airbnbincurrentlyavailablein65,000 citiesin191 countries *Airbnbsucceededtoincrease inhostlistingsfrom1.8millionin2015 to 3 millionin2017iii b. Anotherchance that supportsAirbnbexpansionisthe low operatingcost 6 Varietyof market offerings: Airbnbhasa varietyof itsmarketofferingsintermsof price,locations,styles&experiencesetc.Airbnbencouragesthe authenticlocal experience sodevelopedaddedthe optionof home-made foodandlocal tour. Also,Airbnbcreatedthe WishListto encourage itsguesttoselecttheirwishes 7 UserFriendlySystem:Airbnbwebsite andapplicationare verysimple,easy&quick to be usedby boththe guestand the host 8 BusinessModel:Airbnbbuiltitsmodel inawaythat is generatingrevenue from bothits supplier(host)andbuyer(guest)
  7. 7. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 6 of 16 # Weaknesses 1 Security: Airbnbstill hasagap in the securitysystemforboththe hostand the guest 2 PublicRelations:Airbnbstill needtoworkonits PublicRelationstobe more effective 3 CustomerServices/Relations: Despite the goodcustomerengagementthat Airbnbsucceededtodevelop,itisstill needtodevelopitscustomer services/relationsspeciallyduringandafterguest/hostexperience 4 Lack of control of accommodations: Airbnbhasno control overthe real conditionsof the accommodationslistedthisaffectsthe level of experienceas well asthe guesttrust inAirbnb
  8. 8. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 7 of 16 SWOT – External Criteria Opportunities Threats Mega Political Political instabilityhasanegative impacton the businessof Airbnbasit decreasesthe demandbydiscouraging the desire totravel to the destinations withinstable political issuesoritcan negativelyaffectthe trustbetweenthe guestand the host Economic In loweconomicstatus,Airbnbstillhasa chance to continue growingasit became an opportunityforboththe hostand the guest as follows: a. Host: Airbnbbecame a source of income for itshosts: *79% of hostsshare the home inwhich theylive *52% are moderate tolow income *48% of host income isusedtopay for regularhouseholdexpenseslikerentand groceries b. Guest:Airbnbprovidesvarietyof offerings so itcan be an opportunityforAirbnbtoget share from the loweconomicstatusasit will be theirchoice ratherthan the hotels Economic crisis/recession:canlead decreasingthe demand Social Culture Exchange: Airbnbstill hasan opportunitytocontinue itsgrowthwhile encouragingculture exchangeand promotingit. *86% of travelerswantto'live like alocal' *79% of travelerswanttoexplore an authenticneighborhood Culture Conflict:Airbnbmightface difficultyindevelopingsome markets due to the culture conflictsand conservatives Technological Technological Updates:since Airbnbisan internet-basedfirm,soithasa good opportunitytomake useful use of anynew technologiesformore guestandhost engagementandsatisfaction Environment Airbnbcan utilize the environmental trend and create a wishlistforthose whoare environmentfriends
  9. 9. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 8 of 16 Legal Country Regulations: a. Many countriesstartedtodeal in assertivenesswiththe explosionof vacationrentalslike inSanFrancesco and New York.Andstill some countries are studyingtoput internal-based home accommodationindustryintoa more controlledlegal regulatory framework b. Increasedtaxesononline accommodation-sharingservices Task Guest Large marketscale Riskof havingguestusingAirbnb servicesfordoingillegal issueslike theft,etc. Host Large marketscale withvariable offerings Riskof havinghostsusingAirbnb servicesfordoingillegal issueslike theft,etc. Competitors a. New Entrants: easyto enterthe market b. Existingcompetitorslike Booking.com,ExpediaandTripAdvisor are takingshare fromAirbnb Based on the Situational Analysis, we can conclude that internet-based home accommodation industry is promising and still growing. Airbnb has good opportunities to continue its aggressive growth by developing new markets, developing new products and penetrating the existing markets. Strategic Analysis and Choice In this section, we will utilize the strategic management tools and resources of the Strategic Position & Action Evaluation (SPACE) Matrix and Grand Strategy Matrix to determine what type of strategies Airbnb should pursue based on its current situation. 1. Strategic Position & Action Evaluation (SPACE) Matrix: SPACE Matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization. SPACE Matrix can be used as the basis for other analyses such as SWOT analysis or industry analysis. SPACE Matrix works on two dimensions: Internal Dimension includes: Financial Position (FP) and Competitive Position (CP). While the External Dimension includes: Environmental/Stability Position (SP) and Industry Position (IP). It is broken down into four quadrants where each quadrant suggests a different type or nature of strategy: Aggressive, Conservative, Defensive and Competitive. Based on the results of SPACE Matrix analysis, Airbnb is in an Aggressive Position:
  10. 10. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 9 of 16 Note:  In Financial Position (FP) and Industry Position (IP) the rating scale is from 1 (the worst) to 6 (the best)  In Competitive Position (CP) and Environmental/Stability Position (SP) the rating scale is from -6 (the worst) to -1 (the best)
  11. 11. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 10 of 16 From the analysis, we can conclude that Airbnb is in an aggressive position. The Aggressive Quadrant in the SPACE Matrix suggests the following strategies: Strategy Definition Forward Integration Gaining ownership or increased control over distributors or retailers Backward Integration Seeking ownership or increased control of a firm’s suppliers Horizontal Integration Seeking ownership or increased control over competitors Market Penetration Seeking increased market share for present products or services in present markets through greater marketing efforts Market Development Introducing present products or services into new geographic area Product Development Seeking increased sales by improving present products or services or developing new ones Related Diversification Adding new but related products or services Unrelated Diversification Adding new, unrelated products or services 2. Grand Strategy Matrix: The Grand Strategy Selection Matrix has become an effective tool in devising alternative strategies. The matrix is based on the following four important elements:  Rapid market growth  Slow market growth  Strong competitive position  Weak competitive position The above four elements form a four quadrant matrix wherein every organization can be. With the result, the matrix can be adapted to choose the best strategy based on the current growth and competitive state. Each quadrant suggests possible strategy for an organization based on its position as follows:
  12. 12. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 11 of 16 The following chart shows Airbnb position in the Grand Strategy Matrix: Airbnb position in Quadrant I of the Grand Strategy Selection Matrix indicates that the following strategies would be appropriate: Strategy Definition Forward Integration Gaining ownership or increased control over distributors or retailers Backward Integration Seeking ownership or increased control of a firm’s suppliers Horizontal Integration Seeking ownership or increased control over competitors Market Penetration Seeking increased market share for present products or services in present markets through greater marketing efforts Market Development Introducing present products or services into new geographic area Product Development Seeking increased sales by improving present products or services or developing new ones Related Diversification Adding new but related products or services Based on the position of Airbnb in the Grand Strategy Matrix, we can conclude that Airbnb has a strong competitive position in a rapid-growth industry and Airbnb should continue using this strong competitive position to increase its growth rate.
  13. 13. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 12 of 16 Recommended Strategy Vision: Our vision statement is “To be the world leader of internet-based accommodation industry” Mission: Our mission statement is “We believe in making the whole world a big community that we all belong to. We connect our guest with unique authentic local accommodation experiences provided by our host at competitive prices anywhere and everywhere, utilizing the power of technology.” Values: These are the values we believe in and we use in our daily interaction with ourselves, our guest and our host. Goals: This section provides goals for Airbnb based on its vision, mission, strategic issues and situational analysis as well as the industry analysis. They are well defined, planned, measurable and time bound goals that Airbnb has to achieve by the end of 2021 to make its vision true. 1. To achieve overall 80% market share from the existing markets: USA, West Europe, North America, South America and China 2. To diversify in related business to be able to develop new markets and penetrate the existing ones: a. Acquire small low cost 3 hotels in the following destinations in order to expand in Middle East and Africa while adapting to culture difference: i. A hotel in Morocco with estimated cost 30 million USD
  14. 14. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 13 of 16 ii. 2 resorts in Egypt, especially in Hurghada as a low cost destination with estimated cost 40 million USD b. Make partnership agreement with Tui International and FTI (tour operators), that will help to control demand in our new hotels also support our end goal to be top leaders of the industry. These tour operators can help us in arranging the flights, transportation, and local tours and excursions for the guest c. Make partnership agreement with Uber that will help in arranging the internal transportation and local tours for the guest. 3. To have 10% market share from Middle East and Africa 4. To develop our services and products that match with target markets needs: a. Add an option “from home to home” utilizing our partnership with Uber, and tour operators, where the guest can choose a full package including flights, internal transfer and local tours and excursions. b. Develop the following programs: i. Culture Exchange program for young people ii. Environmental awareness program for environment friends
  15. 15. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 14 of 16 Strategy: According to the situational analysis and industry analysis which we conducted for Airbnb, aggressive strategies were recommended according to Airbnb strong position. So we recommend a 5 year aggressive strategy that combines Related Diversification, Product Development, Market Penetration and Market Development together. Objectives: This section presents one year objectives for Airbnb to achieve its goals based on the above recommended strategies. These objectives are to be achieved by the end of 2017: 1. Develop a plan for acquiring a new type of hotels in middle east to be in the same style of local homes and low cost to maintain our competitive advantage regarding price competitiveness and authentic local experience 2. Finalize a partnership agreement with Uber to be able to mage internal transfers 3. Implement the approved market communication plan in order to increase market growth in existing markets by 30% and achieve 4% market share in the developed markets by the end of 2017 4. Increase repeater guest to average 50% of total guests using Airbnb services 5. Develop an environmental awareness program for environment friends 6. Develop a culture exchange program for young people Strategy Recommended Ways to Execute the Strategy Related Diversification 1. It is recommended that Airbnb acquire small low cost 3 hotels in the following destinations in order to expand in Africa while adapting to culture difference: A. A hotel in Morocco with estimated cost 30 million USD B. 2 resorts in Egypt, especially in Hurghada as a low cost destination with estimated cost 40 million USD 2. Make partnership agreement with Tui International and FTI ( tour operators), that will help to control demand in our new hotels also support our end goal to be top leaders of the industry. These tour operators can help us in arranging the flights, transportation, and local tours and excursions for the guest 3. Make partnership agreement with Uber that will help in arranging the internal transportation and local tours for the guest. Product Development 1. Adding an option “from Home to Home” utilizing its partnership with Uber, and Tour Operators. Where the guest can choose a full package including flights, internal transportation and local tours and excursions 2. Develop the following programs: A. Culture Exchange program for young people B. Environmental Awareness Program for environment friends Market Penetration Increase the market shares from the existing markets through greater marketing efforts, utilizing all social media engagement tools, marketing in heart program and investing in Google display advertising with banner ad campaigns including images from actual housing being offered on Airbnb website Market Development The recommended ways to execute the above 3 strategies will help Airbnb to develop Middle East and Africa and take a good share from it.
  16. 16. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 15 of 16 7. Enhance and upgrade Airbnb Customer Management Program for both host and guest to increase their satisfaction to 90% as measured by Airbnb satisfaction survey 8. Enhance and upgrade Airbnb safety and security program to reduce compensations by 5% 9. Development and implement policies and guidelines for the minimum standards of service quality and accommodation quality to guarantee its users experience Appendix 1. Project Finance Appraisal – Egypt 2. Project Finance Appraisal - Morocco
  17. 17. Airbnb, Inc. Strategic Plan 2017 – 2021 Page 16 of 16 Endnotes i http://blog.airbnb.com/who-we-are/ ii Three Challenges FacingAirbnb in China http://www.businessinsider.com/three-challenges-facing-airbnb-in-china-2015-8 iii https://www.airbnb.com

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