Strategic Management Review of InterContinental Hotels 2016 Research Report

The report provides a critical evaluation and analysis of the 2016 research report of InterContinental Hotels (IHG) on the international hotel industry including the UK market. It presents a strategic plan justified by the findings and analysis of the research along with a mention of the timescale for strategic plan depending on the opportunities and issues understood through analysis.

Running head: MANAGEMENT
Strategic Management
Name of the Student:
Name of the University:
Author Note:

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Executive Summary:
The report aims at providing a review of the 2016 research report of InterContinental Hotels
(IHG) on the international hotel industry including the UK market. IHG represents an
internationally renowned hotel brand that manages sub brands like the Holiday Inn Express,
Holiday Inn and Crown Plaza. The report provides an update on research report from the point of
view of a strategic consultant working on contract with IHG. The report also puts forward a
critical evaluation and analysis in context of the business environment of IHG at the multiple
levels that included the perspective of the global industry, competitor and market level,
consumers and the internal dynamics of IHG. All these factors acted as stimuli for strategic
change. The report also presents a strategic plan justified by the findings and analysis of the
research along with a mention of the timescale for strategic plan depending on the opportunities
and issues understood through analysis.

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Table of Contents
Introduction:....................................................................................................................................3
Updates of Information of 2016 IHG Research Report:..................................................................4
Analysis and Critical Evaluation IHG Business Environment that Determined Stimuli for
Strategic Change............................................................................................................................10
Global Industry Perspective:..........................................................................................................10
Market Level:.................................................................................................................................13
Competitors:..................................................................................................................................15
Consumers:....................................................................................................................................18
IHG Internal Dynamics:................................................................................................................20
Strategic Plan Justified by Findings of the Analysis and Research...............................................22
References:....................................................................................................................................25
Appendices....................................................................................................................................29

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Introduction:
Intercontinental brand had been established after the Second World War by Pan Am, an
US based airline. The brand had its initial hotel opening in Brazil. During 1980s, Pan Am landed
in severe financial trouble that forced it to sell off the Intercontinental brand to Grand
Metropolitan which represented a conglomerate of the UK property. In the year 1998, Inter
Continental was acquired by Bass, an UK based brewing and the hospitality giant whose roots
could be traced to 1777. It was acquired at the time when Bass had been undertaking an
expansion in hotel industry and had already bought the chain of Holiday Inn in the later part of
the 1980s. The brewing business of Bass was sold in the year 2000 and in the year 2003, the
entire group had been divided into different entities; the retail business of Pub known as Mitchell
and Butlers plc and the hotel business came to be known as the InterContinental Hotels.
However, Denha remained the headquarters of the Inter Continental Hotel in UK while the US
headquarters in remained in Dunwoody, Georgia.
Nevertheless, the IHG possess quite a number of international brands, eight of them had
over10, 000 rooms across the world. Holiday Inn Express and Holiday Inn have been the best
known and the largest (ihg.com 2019). It also included others like Staybridge Suites, Crown
Plaza and the Candlewood Suites. The key business of IHG lies in operating under complicated
franchising model that allowed the company in maintaining its asset light strategy thereby
enabling them in effectively competing in the high growth, most attractive and the industrial
segment. Management at the IHG is further looking forward to the profitability and its further
growth as successful brand for maintaining its position as the leader in the international group of
hotels. The report provides a critical evaluation and detailed analysis of 2016 IHG report.

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Updates of Information of 2016 IHG Research Report:
According to the reports published in the year 2016, IHG possess a diverse portfolio of
the differentiated brands that are not only renowned but is loved by clients across the world. The
group remains focused towards strengthening the portfolio of the preferred brands, leveraging,
building and delivering revenue to the hotels through lower cost and direct channels. However,
the proposition to the third party hotel owners remains competitive and helps in driving superior
returns. With the focus on most attractive market industry segment and the higher growth
market, IHG is found to execute asset light strategy. Besides, IHG also undertakes disciplined
approach towards the allocation of capital thereby investing in the future growth of the brands.
This helps the hotel brand in driving towards sustainable growth thereby delivering superior
levels of the shareholder returns over long term.
The IHG has been one of the reputed hotel companies of the world with the purpose of
creating greater hotels through the delivery of promise that stood for true hospitality for
everyone. IHG franchises the individual brand with the aim of targeting different markets
(ihg.com 2019). The focus remains in building the preferred brands and generating stronger
revenue. IHG has been strongest hotel group across the world during the period 2009 to 2013
although it remained behind the Hilton Worldwide and the Marriott International. It left behind
the Starwood and the Accor Groups in the fourth and the fifth position respectively. The IHG
experienced an overall growth in North America and China measured on the basis of revenue
generated per room. However, the largest market of IHG has been North America where the
company planned to re-position the Crowne Plaza brand in business productivity segment and
prioritize quality amongst Holiday Inn brands through removal of more than 50 hotels. The

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company had a prominent presence in the global regions for ensuring that it is well positioned to
benefit from the global growth particularly the fastest developing markets.
IHG is keen on generating and sustaining competitive advantage in Chinese market in the
future years (Legrand, Chen and Sloan 2013). The company aims at building a stronger domestic
appeal through the creation of Hualuxe brand thereby trying to provide the Chinese visitors
luxuries having a Chinese touch and then targeting the outbound traveler who uses network of
the global brands when travelling abroad. IHG also consider itself to be well positioned for
taking advantage of emerging middle class in India and Russia where it had prominent hotels in
pipeline since it had been aiming at an expansion of the Holiday Inn Express and Holiday Inn
brands from a comparatively lower base.
It has been found that in UK there has been higher awareness level in regard to Holiday
Inn Express and the Holiday Inn but a lower usage rate compared to the rivals (Salvioni 2016).
There has been mixed perceptions of consumer in regard to the Holiday Inn brand especially if
the regular or the occasional customer of full service Holiday Inn checks into a budget friendly
Holiday Inn express and discovers that it lacked certain facilities as expected. Even if the
Holiday Inn is perceived as functional, accessible, friendly and reliable by the potential
customers however, the express sub brand results in perception of being very basic. Hence, it has
lower ratings as far as user experience is concerned. Nevertheless, it is relatively considered
good value compared to the higher end chains for satisfying those looking for comparatively
cheaper experience in relation to full service.

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Figure 1: Brands of IHG
Source: (Petrović et al. 2013)

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Figure 2: Map Showing the Operations of IHG
Source: (ihg.com 2019)

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Figure 3: Pie Diagram Showing the Group Revenue and Number of Rooms
Source: (Zech 2014).
Figure 4: Bar Diagram showing Operating Profit of the Group
Source: (Zech 2014).
In accordance with the viewpoints of the chief executive officer, the company continued
to aim at delivering the proven strategy of higher level of growth along with enhancing the offer
for the owners and the guest. The report showed how IHG demonstrated the ability of
delivering sustainable growth. As far as the success is concerned, IHG have track record of
being successful within changing world. As globalized business with footprint in close to 100
countries, IHG has managed through uncertainty and change. The success results from having a
focused, proven and clear strategy that delivers value with the environment (Jones, Hillier and
Comfort 2014). In fact, it is also due to the presence of portfolio of brands, stronger long term
relationship with owners and prominent global scale.

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As far as the strategic priorities are concerned, IHG makes sure that it delivers the
strategy in a manner that takes into consideration of the different geographies and the markets
thereby aligning the resources behind the greatest of opportunities (Jones and Comfort 2019).
This involves staying closer to the trends that shape the industry. The priority of the board also
remained in ensuring that the business remains focused on not only staying agile but also moving
at a pace while maintaining the strategic direction and continuing in nurturing a culture of
stronger values and maintain integrity and trust with the stakeholders.
Analysis and Critical Evaluation IHG Business Environment that Determined Stimuli for
Strategic Change
Global Industry Perspective:
As far as the global hotel industry is concerned, it comprises of close to 16.4 million
rooms with broad segmentation into the branded and the independent hotels. The growth in the
demand is driven solely by the economic growth and a rising trend for the domestic and the
global travel(Sainaghi, Phillips and Corti 2013). With time, there has been a growth in the
lodging industry that remained in line with the gross domestic product. There are various
metrics that finds wide recognition and is used for tracking the performance includinng the
revenue per room availability (RevPAR) and the supply growth of rooms(Noone, Enz and
Glassmire 2017). Thus, stronger fundamentals of the global hotel industry have led to the
continued growth in key indicators. In the past five years, the RevPar of the global industry that
averaged to about 3.9 percent growth has been unpinned by higher demand levels and increase in
the supply below average.

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In the year 2016, the RevPAR of the entire industry showed a continued growth although
at slower pace following a record of sustained growth in the demand. This trend reflected
cyclical nature of hotel industry where long term fluctuations reflected interplay between hotel
supply, demand and the generalized economic environment (Noone 2016).
The IHG operated with branded hotel market and accounted for close to 53 per cent of
the total supply of rooms on the global scale. In spite of the industry consolidation and the
fragmentation of the market into five leading player including Hilton, Marriot, Wyndham, IHG
and Accor Hotels, IHG accounted for close to 24 percent of the open rooms in totality and 61
percent of overall development in the pipeline(Sheresheva, Polyanskaya and Matveev 2016).
According to a travel research, it was found that renowned hotel companies have been
able to consistently increase the share in the globalized hotel market mostly aided by the trust of
the customers in the brand’s ability of delivering consistent experience. Larger hotel companies
are found to benefit from the economies of thee scale and where the branded hotel companies
portrayed enhanced resilience all through the economic cycle.
PESTEL Analysis:
The IHG relies on the PESTEL for managing the macro environment since it is the framework
that helps in identifying the structural changes to the business environment that seems relevant to
a particular business.
P Political Factors:
 Brexit & Tourism taxation
 Increase in the number of visitors due to the reduced value of the pound

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after the Brexit
E Economical Factors:
 A’Staycation boost towards the UK economy where millions of people
have avoided foreign holidays
 Faster growth of the UK economy post Brexit
S Social Factors:
 Growth in gluten free market
 Presence of ‘free from food’ trends in the market
T Technological Factors
 Increase in the smart phone users
 Improvisation of hi-tech hotels
E Environmental Factors
 Reduction of waste from the hotel helps in protecting the environment
 Take measures in preserving the environment
L Legal Factors
 Implementation of the health and the safety laws
 Implementation of employment laws
Porter’s Five Forces:
The five forces model introduced by Porter has been used widely by hotel industry for analyzing
the competitiveness of the present and the customer market

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Figure 5: Diagrammatic representation of Porter’s Five Forces Model
Source: (Porter, 1980)
Threat of Newer Entrants: Higher
 New project plans in the pipeline which are ready to built up between 2016-2018
 The hotels of the Accor group already finished the 2016
Threat of Substitutes: Higher
 Presence of cheaper hotels and the Airbnb across the country
 Presence of hotels that puts forward similar facilities, service and the similar products
Bargaining Power of Suppliers: Higher
 IHG represents the third largest chain in the hospitality industry
 Higher quality of customer service
Bargaining Power of Customers: Higher
 The increase in the international travelers depending on the visitor attraction in and

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around UK.
Market Level:
In UK, the year 2015 saw a return to the steady growth in inbound and domestic market
in comparison to the year 2014. It was also observed that 5.1 percent increase in tourist visit
from overseas has been offset largely by decrease in the domestic tourism by 5.7 percent. Due to
the larger share in the market, the market experiences a contraction by about 2.9 percent (Bowie
et al. 2016). With the recession of 2008 receding away, research indicated the trend of staycation
went in reverse mode with increasing number of holidaymakers of UK possessed the feeling of
confidence for going abroad for holidays instead of staying at home.
According to the Tourism Survey of Britain carried in July 2015, the domestic trips for
all kinds of accommodation rose by about 12percent which was 70.5 million in comparison to
62.9 million for same period. Forecasts showed that this trend has been consolidated in the
coming five year as market expands in accommodating growth in the incoming visits especially
from the China and United States (El Beyrouty and Tessler 2013). By the year 2015, close to
15,000 newer hotel rooms became available while the number of closures reduced. An overall
forecast showed a rise of 10.5 percent trips by the end of 2020 (McGowan and Mahon 2018).
On a global scale the total spending on the tourism and travel has been projected to have
a rise by 40 percent in the real times between the 2012 and 2020. The growth in the spending of
the leisure travel has been forecasted for outpacing the travel spending for business that
supported the move of the key hotel chains for creating the all inclusive resorts. Spending on the
domestic travel has been expected to have a faster growth compared to the incoming receipts.

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This has primarily been due to the fast growth in the travel spending of the developing countries
like Russia, Brazil, China, South Africa and India where tourism has been overwhelmingly
domestic. The overall hotels in 20 country market across the world have been increased by 20
percent between the year 2011 and 2016 (Vogel 2014). The highest growth has been projected
for the key developing countries like China, India, South Africa and the South East Asian nations
like the Vietnam and Indonesia.
Competitors:
IHG have global competitors and conglomerates that operate the brand across the
segmented market. Some of biggest competitors are Choice, Wyndham, Accor, Hilton and the
Starwood. In UK, the flagship brands of IHG, Holiday Inn Express and Holiday Inn face tough
competition from the following:
1. Premier Inn: It is one of the largest hotel brands of UK having over 50,000 rooms and
close to 700 hotels. The success of the Premier Inn is built on the higher levels of differentiation
and trust amongst the UK consumers (M Rajasgeran 2018). It is one of the popular brands of UK
that is ahead of the luxury offerings of Marriot and Hilton. The accommodation facilities of the
UK brand has the rating of excellent experience.
2. Hilton Hotels: It is one of the largest brands of the hotel across the world. There are
close to 530 branded hotels of Hilton that are franchised or managed across 78 countries in close
to six continents (Gehrels and Blanar 2013). The brand usually targets the leisure and the
business traveler and considered one of the exclusive hotel brands amongst the consumers.
Although, the brand has an association with stylishness and higher quality, it is more known for
being overpriced.

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3. Marriott International: It represented an American company that franchised 4,087
properties in close to 80 countries across the world having over 697,000 rooms and additional of
195,000 rooms in pipeline (Zhang et al. 2015). Although, Marriot remains slightly behind the
Hilton in terms of reputation, exclusivity and higher quality but has better performance as full
service competitor. The brand however has higher differentiation levels.
4. Radisson Hotels: It operates in close to 1000 locations in close to 73 countries in the
world and is known to have highest levels of awareness in United States (Konovalova and
Jatuliavičienė 2015). It is the brand name mostly used outside UK and US. As it is located only
in the south east of England so its brand awareness is lower. However, the brand has higher level
of experience rating.
5. Travelodge: It is operated by independent companies that are not connected with one
another. The brand has been acquired in the year by the Goldman Sachs and hedge fund groups
like Avenue Capital and Golden Tree Asset Management. The brand has a higher level of
awareness amongst the consumers of UK and offers good valuation.
6. Best Western: It is a US conglomerate that operates 4000 hotels across world. The
hotels are represented well throughout UK and have closer to 300 properties. However, it has the
lowest level of differentiation and trust compared to major competitors (Xie and Chen 2014).

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Figure 6: Brand Positioning of IHG
Source: (M Rajasgeran 2018)
Consumers:
The consumer preference in relation to accommodation is inclined towards brands like
Marriot, Radisson, IHG, Best Western and Premier Inn. However, recently consumer interest has
shifted towards Airbnb while searching for lodging services (Guttentag 2015). Although Airbnb
represent a small player in UK market but it acts as a threat and growing challenge to brands like
IHG.
It has been found that only 3 percent of the population has mentioned that they used such
services in past year while 67 percent of the people have mentioned that they either stayed in an
independent hotel or chain. Nevertheless, closer to 17 percent of all the consumers said that they

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would prefer staying in an accommodation style of Airbnb instead of hotel (Ert, Fleischer and
Magen 2016). This has been an encouraging figure for lodging providers. The younger groups
remain positive towards such providers as the peer reviews have improved brand awareness and
perceptions those points towards the sector growth in future. Research shows greater portion of
the higher earners uses the service. On the other hand, the self employed and the freelancers saw
Airbnb as a means of boosting the income while the hotels offered luxuries as difference.
Tussyadiah and Pesonen (2016) pointed out that younger customers book the hotels
mostly through the websites for hotel booking or check the sites for price comparison thereby
looking for cheapest options compared to the older customers who looks happiest in booking
directly within the individual hotel. Therefore, it implies that that hotel room has been
commoditized for younger demographic and would opt for anywhere that meet the requirements
since it’s cheaper.
Belk (2014) also showed how the digital revolution has brought about a change in the
ways in the consumers shops for the travel products. The internet has acted as the primary means
of research while the search engines allow the consumers to initiate research with fragment of
idea. It has been found that nine out of the ten holiday makers carried the research before
initiating a booking.
The industry plays a key role in this particular process and the consumers’ remains
influenced by one another. There exists increasingly number of touch points through which the
consumers’ remains involved in the travel business. This led to the fragmentation of the journey
of the consumers across the online and the offline channels along with the multiple devices. Here

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it can also be added that fragmentation has been accelerated through use of tablets and Smart
phones since the devices put across multiple apps besides browsing web.
Lu et al. (2016) further stated that consumers remain better equipped in comparing the
products than before that have led to the higher usage of the price comparison sites. 59 percent of
the holiday makers compare the prices through online sites. This has led to a competition
amongst the comparison sites and made it difficult for the travel business and hotels in
maintaining and earning customer loyalty.
According to Hajli (2014), the journey of the customer does not end with the product.
Consumers use the review and the social media websites for sharing opinions and influencing the
others. It has been found that close to one third of the policy makers have been found to post
online review while 16 percent have posted and discussed the holiday experience on the social
media. The changes in the path of purchase have been grouped into three different digital trends:
 Rise of the empowered and the better informed consumer
 The enhanced role of the social media and the consumer reviews in the process of
decision making
 The use of the multiple device and channels
The consumers are empowered by information availability and product choice and therefore
travel evolved from the seller’s to the buyer’s market.
IHG Internal Dynamics:
The core proposition of IHG lies in ‘Great Hotels Guests Love’. For delivering the
objectives in years ahead, a large part of the IHG growth strategy is based on the ‘Winning

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Model’. The model ensured strengthening the portfolio of the differentiated and preferred brands,
building scale in the key markets, creation of long lasting relationships with the guests and
delivery of revenue to the hotels through lower cost direct channels.
The winning model of IHG extended into the culture of the company which helped in
providing a stronger sense of shared purpose, critical in driving the business performance and
making it an enjoyable and great place for work.
The ‘Winning Ways’ behavior of the IHG is:
 Doing the accurate thing and have conviction and courage in putting it in practice
 Showing care by being sensitive to the others and noticing the things that matters
 Aiming higher so that the real wins
 Celebrating the difference while understanding that certain things should remain same
 Working together and combining the expertise in creating focused, stronger and trusted
group of the people.
IHG wanted its corporate social responsibility to become evident through commitment
towards the community and the environment (Cherapanukorn and Focken 2014). The company
developed the IHG Green Engage System that remained committed towards achievement of the
green target on a year to year basis. The brand also set itself in achieving 12 percent reductions
in the carbon footprint in each room and also in the usage of water in the ‘water stressed areas.’
Strategic Plan Justified by Findings of the Analysis and Research

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SOSTAC represented a marketing model comprising of the six fundamental assets that
includes situation analysis, objectives, strategy, tactics, action and control.
Situation Analysis
Strengths
1. It represented a winning model
2. Have wider geographical presence with the
focus on the priority markets
3. Focuses on customer relationship and
experience
4. Set brand portfolio according to occasion
5. Have stronger digital implementation and
outlook
6. Ensures successful engagement of
employees
7. Stronger financials and higher levels of
RevPAR
Weakness
1. Absence of economic brand of hotel
2. Poor level of information security systems
3. Hold third position across the world.
Opportunities
1. Have a fragmented and branded market for
hotel
2. Enhanced international travel for the tourist
3. Bookings facilitated by technology
Threats
1. Sharing economy in the hotel industry
2. Occurrence of unprecedented events
3. Enhanced dependencies on the
intermediaries.

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Objectives:
Specific Introduction of HUALUXE brand through building stronger domestic appeal into
the Chinese market
Measurable To provide higher quality of service within the industry
Attainable Increasing the bookings by at least 5 percent in the initial 6 months
Realistic Identification of the new market for its service and product
Targeted Providing the Chinese travelers with luxury but with Chinese touch
Strategy:
Strategic Planning is considered as the process of development and maintenance of the
strategy between the organizational capabilities and the changing opportunities of the market.
Using the Ansoff matrix model puts across the newer growth opportunities in the new or the
existing market. IHG have chosen to implement the strategy of market penetration through
increasing the promotion and the distribution efforts. This aids the senior managers, executive
and the marketers in devising the strategies for the future growth.

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Figure 7: Ansoff Matrix
Source: Bowie et al. 2016
Tactics:
Segmentation: This involved dividing the market into distinctive buyer groups having the
similar requirement. Psychographic, behavioral and the profile variables would be used for the
segment.
Psychographic  Lifestyle
 Personality
Behavioral  Special occasional offers

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 Purchas behavior
Profile  Geographic location
 Internal and the external customers
Action and Control
Action Task People
Responsible
Timeline
1.Employee Engagement Encouraging
employees in
having
regular and
open
conversation
while
embedding
the process of
performance
management
Human
Resource
Deparment
In next two years
2. Reputation
Management for
Reviewing Phenomena
like TripAdvisor
Engaging
with the
guests and
responding to
Human
Resource
Department
In next two years

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the needs
publicly
through
forums that
plays key
role in
driving future
bookings
3. Real Time Marketing Enables
incorporating
guest
generated
content
through
social media
thereby
adding to a
vital
component of
marketing
mix
Human
Resource
Department
In the next one year
4. Reducing Reliance on
OTAs ( Online Travel
Agents
This helps in
directing the
guest to
Human
Resource
Within the next two
years.

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website and
the telephone
of the hotel
directly
Department
5. RevPAR Growth on
Global Scale
Drive and
embed the
adoption of
the customer
relationship
management
system for
building
Management Within the next one
years.
6. Carbon Footprint in
each occupied Room
Installation
of the IHG
Green
Engage
System
across the
estate. This
helps in
reducing the
carbon
footprint
Human
Resource
Department
In the next two years

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Appendices
Appendix 1: Brands of IHG
Appendix 2: Diagram showing Different Operations of IHG

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Appendix 3: Diagram showing Revenue and Number of rooms of the group
Appendix 4: Bar Graph Showing Operating Profit of the Group
Appendix 5: PESTEL Analysis
P Political Factors:
 Brexit & Tourism taxation
 Increase in the number of visitors due to the reduced value of the pound

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after the Brexit
E Economical Factors:
 A’Staycation boost towards the UK economy where millions of people
have avoided foreign holidays
 Faster growth of the UK economy post Brexit
S Social Factors:
 Growth in gluten free market
 Presence of ‘free from food’ trends in the market
T Technological Factors
 Increase in the smart phone users
 Improvisation of hi-tech hotels
E Environmental Factors
 Reduction of waste from the hotel helps in protecting the environment
 Take measures in preserving the environment
L Legal Factors
 Implementation of the health and the safety laws
 Implementation of employment laws
Appendix 6: Brand Positioning of IHG

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Appendix 8: Ansoff Matrix