Hilton Hotels Corporation

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INTRODUCTION
The Tourism and Hospitality Sector is one of the largest industries in the world, although it is difficult to put an exact value on the hotel sector due to its sheer size. However, Thomas (2007) states that the UK Tourism and Hospitality industry alone is worth over 100 billion. It is also one of the fastest growing industries with a constantly changing dynamic. Therefore firms strive to differentiate to deliver a clearly defined experience that differs from competitors (Bowie, 2004). This is one of the major issues facing the market leaders in the hospitality sector and one which will need to be addressed to maintain future competitiveness. The focus of this report is to synthesis and critically analysis the case of Los Angeles based Hilton Hotels Corporation. Firstly, a sector overview will be carried out to determine the state of the industry. Then there will be environmental scanning using theories such as PEST analysis, which will aim to indicate the concerns that the companies in this sector face. Next, Michael Porters Five Forces model will be examined, which will emphasize the key factor of competition. Following on from that, there will be a section on business format and internationalization concepts and credentials where attention will be given to certain companies strategies and analysis of their performance. Then the report will carry out a portfolio analysis making use of the Boston Consulting Group Matrix in order to highlight the positions of companies within the industry. Finally, there will be a quantitative analysis of the financial performance of the sector, rounding off with an overall conclusion.

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Sector Overview
Global Hospitality Sector Overview Hospitality provides food, water and shelter the essential physiological means by which to live, according to Maslow (1943) (see appendix A), thus indicating the overall importance of the hospitality sector and its core purpose. With growing demands for travel and leisure over the past century, the industry has rapidly expanded with the prominence of globalization. Clarke (2007) argues that the sector has been split into many identifiable sectors each with its own needs. This report will concentrate on the hotel sector. Hotel Sector Overview The hotel sector consists of a small number of large multinational companies (Brotherton, 2003). These large MNEs often have several brands with are marketed at different consumers. These MNEs have often grown horizontally through takeovers and acquisitions of existing hotel chains. The hotel sector comprises of luxury hotels, budget hotels, business accommodation and leisure accommodation, and many more aspects. Evolution of Global Hotel Industry Leaders, 1995-2005
Group 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. InterContinental Cendant Marriot Accor Choice Hilton Corp. Best Western Starwood Carlson Global Hyatt Hotels 2005 3,532 6,396 2,564 3,973 4,987 2,226 4,097 733 890 355 Rooms 2005 532,701 520,860 469,218 463,427 403,427 354,312 308,131 230,667 147,093 111,651 Hotels 1995 1,925 4,208 874 2,265 3,358 226 3,409 425 349 167 Rooms 1995 356,800 413,891 184,995 256,607 293,706 92,452 280,144 132,477 79,382 77,512

Hilton Hotels Corporation The most recognized name in the industry, Hilton Hotels Corporation stands as the stylish, forward thinking global leader of hospitality. With over 92 years of experience, Hilton continues to be synonymous with hotel because of the innovative approach to products, amenities and service. It

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helps make traveling easier with our smart design, innovative restaurant concepts, authentic hospitality and commitment to the global community. Hilton Hotels are upscale, full service properties catering to business travel and leisure guests, that typically include swimming pools, gift shops and retail facilities, meeting and banquet facilities, restaurants and lounges, room service, parking facilities and other services. The Hilton brand also includes Hilton Suites hotels, which are upscale, all-suite hotels. They have a chain of over 2000 hotels under the Hilton name, all over the world from Rome to Omaha. Hilton Hotels are enjoying a phenomenal growth in online sales. Hilton hotels are the place for you if you want a distinctive hotel. Hilton Hotel Corporation was created by Conrad Hilton who purchased his first hotel in Cisco, Texas in 1919. The first hotel which carried Hiltons name was opened in Dallas in 1925. In 1943 Hilton hotels became the first coast-to-coast chain of hotel in America, which was placed on the emphasis on the service of business customers. Then Hilton became the richest man in the world. In 1949 he opened his first hotel outside of the USA in Puerto Rico. Conrad Hilton died in 1979 and his son Barron Hilton followed and by the year 2000 Hilton Hotel Corporation had nearly 500 hotels around the world. Hilton Hotels Corporation is engaged in the ownership, management and development of hotels, timeshare properties and the franchising of lodging properties. As of 2006, there were 498 Hilton hotels, representing 172,605 rooms, located in 38 states, the District of Columbia and an additional 71 countries and territories throughout the world and by the year of 2006, 36 Hilton hotels were under construction, of which 20 are expected to be managed hotels and 16 are expected to be franchise hotels. Hilton hotels are known for featuring world class accommodations in the countrys hottest destinations. The hotels are adding MP3-friendly alarm clocks, allowing guests to awaken to their own music. They are internationally known for their Hilton Meetings Business Centers. Hilton Hotels are known for a high level of comfort and prestige. The Port of San Diego and Hilton are planning to develop a 1200-room hotel on the waterfront adjacent to the San Diego Convention
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Center. The prestigious Hilton Malta promises the best in accommodation and a high standard of service for which Hilton hotels are renowned. For business or pleasure the Homewood suites by Hilton hotels are designed with all the comforts of home in mind. The Hotels are the "Official Hotel Group of UK Athletics and the Great Britain and Northern Ireland Athletics Team." Hilton Hotels are now building computer files on customer preferences using a system called OnQ, pronounced "on cue". The Hotels are known across the globe and offer a choice of 2700 quality hotels in the UK, Europe, Asia, America, Africa and Australia. Room 902 in the Amsterdam Hilton became famous when in 1969 Yoko Ono and John Lennon staged their first Bed-In for Peace. Hilton created a business value as,

HOSPITALITY- Were passionate about delivering exceptional guest experiences. INTEGRITY- We do the right thing, all the time. LEADERSHIP- Were leaders in our industry and in our communities. TEAMWORK- Were team players in everything we do. OWNERSHIP- Were the owners of our actions and decisions. NOW- We operate with a sense of urgency and discipline.
Market Position and Services Hilton Hotels is one of the market leaders in the hotel and gaming industry in the United States. Hilton is a well-known and distinguished name in fine hotels across the United States and worldwide. In 1999, Hilton expanded aggressively by acquiring the Promus Hotel Corporation, Hampton Inn and Suites, Doubletree Hotels, Embassy Suites Hotels, and Homewood Suites. Hilton Hotels Corporation has grown to become the worlds most recognized and most successful hotel company (Hilton Innovation, 2007). With the 2006 acquisition of Hilton International, Hilton Hotels Corporation became a global force with more than 2,800 hotels in more than 80 countries throughout the world (2007).
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Problems of Hilton Hotels Corporation

Retaking the Market During Economy Although Hilton Hotel Corporation is moderately well known company but they do not retain their market during the economic crisis. Rather than are launching several new concepts in order new concept of Hilton Hotel segment the market. As a result the other companies those who retain their market customer. In this case the Hilton Hotel Corporation should enrich their old concept to achieve higher reputation than other competition. The ability to manage costs could be adversely impacted by significant increases in operating expenses, such as wages and other labor costs, healthcare, insurance, property taxes and energy, as well as increases in construction costs, resulting in lower operating margins. In addition, some of the economic factors may remain beyond control in the USA and internationally may create challenges for the lodging industry and us. Lacking Of High Efficiency Lacking of high efficiency is a major drawback of Hilton Hotels Corporation. As a result they are losing their competitiveness regarding differentiation of items. On the other hand, company like Accor & Four reasons had achieved high efficiency due to increase of average room price. So in this case Hilton Hotels Corporation should change their average room price higher than company is in able to maintain a height level of occupancy. On the other hand, company like Mandarin oriental owned by a large conglomerate, had been able to achieve a high level of efficiency in the highly competitive American market while having a relatively low level of world combined revenue per average room. But most important thing is that Hilton hotel corporation on delivering outstanding customer service. Smaller Revenue than Other Competitors Despite of good dynamics in the year of 2006, Hilton Hotel Corporation achieved smaller revenue key competitors. This is happening because the companys operational efficiency does not always
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effectively manage their open atonal expenses. In the year of 2006 Hilton Hotel Corporation reached a level of 26.02 percent in 2006.In the same time the companys RevPAR was $90, ADR $125 and occupation rate 72.5 percent. Although these rates were bigger than last year, but still the companys revenue was smaller than the competitors. So in the upcoming year Hilton Hotels Corporation should focus on managing the costs, increasing occupancy, adding new units of brands, leveraging technology & delivering outstanding customer service. If company gives focus on these objective combine with their financial strength, strong brands, strategically located properties, then they will be able to grow their brands internationally to remain competitive in the market.

Environmental Scanning
What is Environmental Scanning? A hotel is not just a building; it is an entity which can be affected by a million different actions at any one time. These can be categorized to an extent by change, complexity, constraints and conflicts

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(Go, 1992). Using theoretical frameworks allows these vast happenings to be analyzed and acted upon by company management to gain and maximize competitive advantage.

External Environmental Scanning

PEST Analysis of the Hilton Hotels Corporation PEST analysis is a key tool for evaluating issues at macroeconomic level. Keegan (1974) recognized long ago that executives rely heavily on external sources of information about their business environment. Here are some of the key issues facing the Hilton Hotel Corporation.

POLITICAL The current political system supports Hilton and its industry. There exists numerous requirements with respect to hotel, Environmental protection laws, Tax laws, Special incentives, Laws on hiring and promotion, Outsourcing, etc. which influences the Hilton Hotels business. Gambling and entertaining industries yet Hilton confirms to all the requirements.

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ECONOMIC The current USA and global economy is supportive of the hotel industry but there are some forces, like Hospitality, Energy-cost, Unemployment levels, Global financial system, Wage/price controls, these forces indirectly influences the hotel business. Yet one needs to cover additional markets in order to protect one from the economic declines in highly correlated European markets. SOCIAL The social system supports hotel/entertainment industry as the business and leisure travel is the norm. Social forces include Income, Career expectations, Pension plans, Health care, Level of education, Consumer activism that affects hotel business sector indirectly. TECHNOLOGICAL Productivity improvements, New innovations, Technology-focus, Successful projects, Unsuccessful projects, Internet availability are the technological forces that Hilton can utilize to increase the standards of business in the hotel industry. Hilton utilizes the help from the outside construction companies to create a new facility. The company utilizes sophisticated software to keep track of customers and technology. Hilton can even book rooms in a real time mode and even receive payment via credit cards while online.

Industry Analysis
Leading hotel chains of the world
Chain
Deluxe

Average Score 4.61 4.30 4.16 4.03

1. 2. 3. 4.

Four Seasons Ritz-Carlton Mandarin Oriental St. Regis/Luxury Collection

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5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18 19. 20. 21. 22.

Fairmont Hotels & Resorts

Upper Upscale

3.92 4.09 3.72 3.72 3.71 3.62 3.57 4.32 3.95 3.89 3.83 3.80 3.79 3.79 3.64 3.59 3.42 3.28

Lows Hotels JW Marriott Hotels W Hotels Westin Hotels Omni Hotels Intercontinental Hotels
Upscale

Walt Disney World Resort Hilton International Marriott Hotels & Resorts Hyatt Hotels Embassy Suites Hotels Hilton Hotels Wyndham Hotels Crown Plaza Hotels Millennium Hotels Renaissance Hotels Sheraton Hotels

Evolution of Industries Top Ten Hotels Leaders in terms of Hotel property

In this graph, we can see the increase of hotels between the year of 1995 and 2005. The number of hotels owning comparing to others, Cendant has the highest number of hotels and they are the top of all other competitors in terms of total hotels count with 6396 hotels in 2005. Followed by Choice with 4987 hotels, Best Western with 4097 hotels, Accor with 3973 hotels. Hilton Corporation was not the market leader at all but they increases their hotels from 226 hotels to 2226 hotels by the year 2005.

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Potential Industry Earnings

This graph shows RevPAR ($) of different competitors of hotel corporation within world markets. Porters Five Forces Analysis Porters (1998) competitive analysis was developed to build upon SWOT analysis that Porter believed to be unrigorous and ad hoc (Porter, 2002). It provides an insight into the relationships and dynamics of an industry (Van Assen, 2008). So we can use Porters framework and apply analyze the hospitality industries. 1. The Threat of the Entry Of New Competitors Due to the size of the major companies in the industry, any small independent firm will face huge barriers to entry. Without significant levels of capital it would be almost impossible to survive when trying to compete with a company such as Starwood or Hilton. These chains carry large economies of scale in marketing and branding as well as within the supply chain, enabling the big companies to minimize costs. Therefore the threat to these companies from new entrants is very low. 2. The Threat of Substitutes Hotels do have a degree of price inelasticity especially for the business consumer. However,
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according to Mintel, 65% of people regard price as the main influence upon their choice (Mintel, 2010). Location is second on the list with 43% indicating that price and location of accommodation are more important than the room itself. The goal of any hotel firm should be to retain custom through loyalty and membership schemes. 3. The Bargaining Power Of Customers As there is no large single buyer, the power of the consumer is relatively low (Olsen, 1998). This concurs with the fact that the majority of hotel customers are individuals for either business or leisure purposes. It may be argued that with the increase in technology, consumers have access to more information and are able to compare hotels on the basis of price and location much more easily than in the past. 4. The Bargaining Power Of Suppliers Large hotel companies has enormous power when negotiating for supplies. The cost for the hotel chain of changing supplier is relatively low; supplying companies have to compete heavily to win contracts for major chains. This leaves almost no scope for bargaining and heavily favors the hotel chains. This is a further example of the economies of scale experienced by the larger companies. 5. Competitive Rivalry Within The Industry Sharpe (1990) noted that in the coming years the global environment would open and new markets would emerge. At the time, he cited Russia and China, and he was correct. Hotel chains aim to compete on location and these emerging markets can be highly lucrative. For example, Hilton especially aims to develop in new exotic locations, but are beginning to face competition from local businesses, especially in the Middle East. Hotel giants aim to compete on price and even more so on non-price levels; quality of restaurants, membership benefits, luxury and locations are marketed above price.

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Strategic Groups Map

Four seaso ns, Ritz Carlto n Hilto n Hote ls

Service quality

Lows Hotels , W Hotels

Price

Competitive Profile Matrix

Critical Success Factors Financial Strength Market Share Price Competitiveness Service Quality Environmental Strength Branding Franchising Hilton Hotels Corporation Rating 0.17 0.13 2 3 Score 0.34 0.39 Starwood Hotels & Resorts Rating 3 3 Score 0.51 0.39 Marriott Hotels & Resorts Rating 3 2 Score 0.51 0.26

Weight

0.12

0.36

0.24

0.24

0.20 0.10 0.08 0.07

3 3 3 4

0.60 0.30 0.24 0.24

3 3 3 2

0.60 0.30 0.24 0.14

4 3 2 2

0.80 0.30 0.16 0.14

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Operational Performance Customer Loyalty

0.07

0.07

0.21

0.21

0.06 1.00

0.12 2.66

0.18 2.81

0.12 2.74

In competitive profile matrix, we have compared three hotel industry named Hilton Hotel Corporation, Starwood Hotels & Resorts, Marriott Hotels & Resorts. By analyzing the critical success factors we have scored the three hotels as follows Starwood Hotels & Resorts at 2.81, Hilton Hotels Corporation at 2.66 and Marriott Hotels & Resorts at 2.74. By this scoring we found that Hilton is at the third position, but in the rating we can see that Hilton has the average rating compared to other two hotels.

Internal Environmental Analysis

Value Chain Analysis:

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Activities Review Hotel Logistics Process Hilton Supply Management tracks all projects using a proprietary comprehensive project supply management software program that tracks each project's process, including budgets, prices, expediting, delivery, reporting, and analysis, from inception through completion.

Personalized attention and complete oversight of Furniture, Fixtures, & Equipment

(FF&E) and Operating Supplies & Equipment (OS&E) Purchases

Project status, budget & recap reports at intervals determined by you Managers with wide-ranging experience from focused-service hotels to luxury and large

resort projects

Model room build-out experience Assistance with designer contacts Pre-screened contacts for installation & warehousing management Pre-approval of any changes prior to purchasing Expediting and logistics management Freight consolidation Product Improvement Plan (PIP) assistance Claims assistance Post project assistance with warranties, replacements & suppliers

Field Operations Experienced leadership combined with a regional presence in the field ensures were maximizing every opportunity to drive demand to increase long-term revenue and profit. Hilton Supply Managements field operations teams, in the Americas and internationally, offer hotels valuable services and benefits, including:

Reduction in the Total Cost of Ownership for products and services through our

Commodity Distribution Program and Super Regional Supplier Distribution Program.

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Property purchasing audits to maximize savings and supplier audits to ensure contract

compliance.

Supplier consolidation means fewer deliveries, fewer invoices, and fewer checks. Improved productivity and forecasting. Technical support and general consultation.

Expert and Trusted Marketing and Sales Force

Hiltons global sales team is consistently recognized as a top selling and customer service focused organization throughout the industry. They conduct business in 42 languages serving 25,000 customers in 91 countries from 34 offices located around the globe. This allows Hilton to truly understand the unique needs and opportunities of regions around the world, right down to the local level. Hiltons partnerships are the key to their success. Hilton Worldwide Sales covers the top procurement accounts with an average share of more than 20 percent across all major accounts. Hilton also has a growing and leading share in the 3rd Party Distribution arena. Hilton prefers relationships with venue finders, agencies, and distribution partners mean that the more than 4,000 Meetings, Incentives, Conferences and Exhibitions (MICE) accounts and they manage deliver significant revenue to our hotels. Within Hilton Worldwide Sales is our global Strategic Account Management team a dedicated resource focused on creating mutual growth. By applying a unique approach to account management they negotiate truly customized deals that drive profit and revenue, leading to stronger, more committed relationships. Because every country is different, our Regional Marketing teams execute orchestrated, regionally relevant, go-to-market strategies across key segments that drive business to our properties. Regional Marketing integrates the local voice into all marketing plans and strategies, while ensuring propertylevel marketing aligns with brand standards.

Services Hilton participates in various activities and events to expand business opportunities and relationships within the minority-owned or women-owned Business Enterprise (MWBE) community by:

Attending trade shows and business events sponsored by various groups representing

MWBE interests.

Organizing in-house meetings for suppliers to meet with buyers.

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Soliciting input from the MWBE community regarding outreach activities and

communication mechanisms.

Performing supplier inspections, as appropriate, to ensure the ability to meet contract

obligations. eProcurement By using a consistent platform, our eProcurement system simplifies the purchase process, enabling us to fully deploy the Business-to-Business application across our portfolio of brand and ordering disciplines. It also provides properties with a significant increase in system functionality coupled with a solution that is scalable to each brands specific requirements. Hilton Supply Managements online catalogs contain products in many spend classifications, including:

Food Services Furniture, Fixtures, & Equipment (FF&E) Printing Uniforms Maintenance Repair & Operating Supplies Operating Supplies & Equipment

Technology Development: Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments. Human Resource Management (HRM): Hilton Management Services uses best-in-class Human Resources systems including PeopleSoft and Success Factors to recruit and retain the industry's finest staff and most talented graduates. Hilton maintains strong relationships with some of the top hotel schools in the world and are
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industry leaders in electronic applicant tracking and Internet recruiting. Through updated databases, we track turnover statistics, drug testing costs, and background research. To ensure all training activities are completely aligned with each of our brands, Regional Training Managers work directly with our managed properties. Human Resources & Training delivers:

Employment Relations Collective Bargaining Agreements Recruiting and Training Employment Law

Preventative Maintenance National Account Pricing Property Reviews Expert Evaluations Energy Audits

Firm Infrastructure: Hilton supports the design and delivery of truly exceptional properties that delight our guests, reward our partners, and reflect the unique cultures of their geographical locations. With design and construction professionals across 16 locations, Hilton has the advantages of a global presence as well as the benefits of local resources, skills, and expertise. Their team provides the programs and resources to help ensure that properties conform to our uniformly high standards and are current with relevant product selections. The Architecture & Construction professionals are ready to advise people every aspect of our property throughout the hotel development process, including procurement, architectural and interior design, service installation design and cost. Their team focuses on designing and managing the newbuilds, re-branding, and refurbishment of hotels for all the brands in the Hilton Worldwide portfolio. During the entire development process, you get a Project Director as your principal point of contact, who is focused on ensuring a smooth and trouble-free delivery of the highest-quality property. Their Project Directors are committed to increasing efficiencies, improving communications, and assembling reliable information for our owners, industry partners, and Hilton Worldwide.
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Global Design Services delivers exceptionally designed properties, which includes optimizing the spatial requirements and operational relationships in both front and back-of-house areas of the hotel. Our team helps ensure our Design & Construction Standards are in place so that your property can operate economically and efficiently. Their efforts help create memorable and unique design solutions that reflect our brand philosophy and exceed our guests' expectations.

Situational Analysis
External Factor Analysis Summary (EFAS)
Key Factors Weight 0.00-1.0 Rating 1-4 Weighted Score

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Opportunities Product and services expansion Takeovers Innovation Growing demand for budget accommodation Emerging market hold great potential for growth Threats Competition Cheaper technology Economic slowdown External changes (government, politics, taxes, etc) Exchange rate fluctuations 0.15 0.10 0.15 0.05 2 2 3 3 0.30 0.20 0.45 0.15 0.10 0.05 0.10 0.10 0.15 3 2 3 3 2 0.30 0.10 0.30 0.30 0.30

0.05

0.10

Total

1.0

2.50

External factor analysis summary (EFAS) indicates all the external factors that are influencing our industry. We have selected total of 10 factors among which 5 are opportunity and 5 are threats for our industry. For our company we want to take the opportunity so that we can work more efficiently and effectively and would like to avoid the adverse effect of threat. We have also weighted the factors from 0.00 (not important) to 1.00 (very important). Then we rate it down and calculated the total weighted score for the company. For our company weighted score is 2.50 indicates that our company is averaged in the opportunities and threats of the industry. Internal Factor Analysis Summary (IFAS)

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Key Factors Strength Brand Location Reputation Professional Standards

Weight 0.00-1.0

Rating 1-4

Weighted Score

0.15 0.05 0.10 0.05

3 3 3 3

0.45 0.15 0.30 0.15

Weakness Low market share Poor supply chain Weak management team Weak real estate Certain events that may occur or any downturn in the global economy and other world-wide catastrophes that could restrict global travel such as the bird-flu and a significant terrorist strike. 0.16 0.13 0.10 0.12 0.14 3 2 3 2 3 0.38 0.26 0.30 0.24 0.42

Total

1.00

2.65

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Here we have selected a total of 9 internal factors that are affecting the company. Amongst them 4 are strength and 5 are weakness for our company. Then we weighted this ranked it and calculated the weighted score. By analyzing this we can figure out the internal situation of our company. Here we can see that the weighted score is 2.65 which represents our company is doing not good nor bad. It represents above average.

Recommendation
1. Hilton Hotel Corporation should enrich their competency skill and increase their

competitiveness in order to retain their market. 2. Company should give concentration on client-focused strategy rather than emerging new concept in order to sustain the customer loyalty.

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3. Moreover in order to retain the customer loyalty, the corporation should give the opportunity

to the visitors & business traveler to submit their preferences online before arrival at the hotel. 4. Besides the corporation should give more focus on using ownership or leasehold contracts.
5. The corporation should charge higher room rates by continuing strong hotel demand among

business, group & leisure travelers combine with limited full-service hotel supply growth.
6. In order to increase revenue per average room, the corporation (Hilton Hotel) should improve

their operational efficiency.

Conclusion
In analyzing the hospitality industry, it has become apparent that the major companies within the sector play a huge role in developing the environment. The large multinational firms dominate the market due to the size and reputation of the brands they possess. Companies have gained their success through aggressive expansion strategies; the theme is common throughout the industry that acquisitions and mergers then introduce new brands in the hope of capturing new markets as the demands of consumers change. For companies to stay competitive within the sector they need to embrace changes such as the desire for high-quality budget accommodation and strive to conquer new geographical and demographic markets. The recent trend to restructure operations, which has enabled companies within the sector to release capital and reduce burden, is positive and will continue into the future. In conclusion, the future of the hotel sector will be bright. Regardless of economic conditions, the successful firms will continue to adapt and push the political, technological, economic and social boundaries.

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