Hospitality Industry- InterContinental Hotels Group (IHG)

 

The hospitality industry is one of the largest industries in the world, having employed millions of workers. This paper focuses on evaluating the environment, both micro and macro, in which companies from this industry operate. The study will cover a brief introduction and history of the hospitality industry. Additionally, this study will focus on the introduction and a brief history of InterContinental Hotels Group (IHG), which is my choice company in the hospitality industry. In order to get more insight into the industry, and particularly on how InterContinental Hotel Groups works, the paper will analyze its macro-environment through Pestel analysis and SWOT and SOAR analysis for the InterContinental’s Hotels Group microenvironment. In addition, this study will also focus on business operations ethics practiced by this particular company, including the company’s Corporate Social responsibility (CSR). Under ethical considerations, this paper will recommend, if any, practices that can improve the ethical practices of the InterContinental Hotels Group both internally and externally.

Hospitality Industry

The hospitality industry, or the hotel industry, just like any other sector, has experienced a lot of changes to become what it is now. The hotel industry is as old as civilization. However, an elaborate history can be traced back to the 1700s where, this industry was commercialized, and inns were the only lodging facility available for travelers (O’Gorman, 2010). However, the lodging at this period entailed bedding and resting facilities. With time, more services such as meals were incorporated. As a result, the hotels emerged where people could have both food and resting facilities provided. With time, hotels started to incorporate the aspect of luxury in terms of better resting rooms, improved dining facilities, etc. In 1829, Isaiah Rogers, an America Architect, designed the very first luxuries hotel- Tremont Hotel. It focused on providing luxuries services for tourists on vacations and holidays (Puigjaner Barberà, 2010). With time the hotel industry has developed due to various factors, which include the development of good transport facilities, which has increased the number of travelers hence the need for hospitality facilities. Secondly, the lifestyle of people has changed with time. Many people consider traveling as a part of their lives, especially during holidays and vacations, which has led to an increase in demand for the hospitality industry.

In the late 20^th and 21^st century, the hotel industry has experienced tremendous changes whereby more investment has focused on developing it. Among the hotel industry changes within this period is the construction of the most technologically advanced and sophisticated hotels such as Hotel Fairmont Makkah and Burj al Arab, among others. This industry has also been influenced by trends such as Airbnb services, which is a platform that connects customers with hospitality offering people who are willing to rent out their properties to travelers. Due to its popularity, Airbnb has changed the face of the hospitality industry.

The hotel industry currently has contributed to the growth of the world’s economy. In 1960, the hospitality industry was estimated to be 3 billion USD in value, and at 25 billion USD in 1990. The industry has experienced sharp growth in the last two decades, whereby the industry is estimated to be worth over 500 billion USD, employing over 5 million people globally.

InterContinental Hotels Group (IHG)

Among the major influences in the hospitality or hotel industry’s history is InterContinental Hotels Group (IHG). IHG was established in 1777 by William bass as a brewery in Burton-on-Trent in the UK. Bass was registered as the first trademark in the world under Red Triangle by the UK’s Trade Marks Registration Act of 1975. In 1946, Pan American Airways founder Juan Trippe established the InterContinental brand intending to provide luxurious flights. By 1956, IHG had a total of over 300,000 rooms globally under the Holiday Inn brand. In 2003, the six continents PLC split into two, forming hotels and soft drinks company. The two companies were called Intercontinental Hotels Group and Mitchells & Butlers public limited company. This was when IHG became a standalone company. Currently, InterContinental Hotels Group PLC has a headquarter in Denham, England. The hotel has a total of over 889,582 guest rooms and over 5,900 hotels in almost 100 countries across the world. IHGs has several brands, which include the InterContinental, Six Senses Hotels, Holiday Inn, Candlewood Suites, EVEN Hotels, Staybridge Suites, Crowne Plaza, Voco Hotels, among others (IHG Hotels and Resorts 2021).

Analytic Frameworks

InterContinental Hotels Group has been in the hospitality industry for over 200 years, which is an indicator of business success. This section will focus on investigating some of the micro and macro factors that affect the industry. It will also focus on the implications that these factors have to the operations of the IHG.

PESTEL Analysis

PESTEL analysis is an acronym of Political, Economic, Social, Technology, Environmental, and Legal factors. It is an analytical tool used by business corporates to evaluate the effects of the business’s external environment by breaking down the opportunities and risk factors into political, economic, social, environmental, and legal factors (Gregoric, 2014). Through PESTEL analysis, businesses can identify the available risks and strategize on how these risks can be avoided or their effects minimized. PESTEL analysis also focuses on the available opportunities, and therefore, a business can strategize on ways to capitalize on these opportunities.

PESTEL Analysis Application in IHG

Like any organization, the PESTEL framework can help the IHG identify and isolate external factors affecting its business operations, affecting its competitiveness, therefore helping in the decision-making process.

1. Political Factors

Political factors as a business environment influence business profitability and sustainability (Shatskaya et al., 2016). Due to the fact that IHG is an international company, political factors that become very sensitive are to consider. This is because different countries have different political policies and different levels of political stability. Therefore, for the IHG, the political environment is a multifaceted factor that should be well considered.  Among the factors to be considered under political environment include;

1. Political Stability

Political stability entails the calm and friendly environment created by the political policies and activities with a nation. Political stability is important for a business for it provides predictable trends of market growth. During political instability, such as chaos, investors and stakeholders tend to withhold their money, therefore, affecting the country. When making a decision, IHG needs to consider each country as a unit due to the diversity. In addition, there is growth in tension and instabilities in world politics. The factors have limitations on the growth opportunities available for considerations for IHG.

1. Frequent policy change

The political environment is characterized by changes in policies, especially during a transition between one government administration to another. As a result, there is a high level of political environment uncertainties. For the IGH to survive changes in political policies, the IGH needs to study the trends in a political platform and prepare for any adjustments that may take place in the future.

1. Taxation and Trade Restrictions

Taxation has a direct impact on the profitability of IGH. Intercontinental Hotels groups capitalize on entering into countries with friendly terms of the trade, such as a reasonable tax rate and limited trade restrictions. In such an environment, the company is able to make significant profit margins from its operations. Before entering into the market, the organizations also take time studying how the governments of different countries operate and their interests before investing in them.

2. Economic Factors

Economic factors that the Intercontinental Hotels Group should consider in the economic environment include the rate of inflation, the exchange rates, and the labor market status, among others. By considering the environmental factors, the IHG is able to model the market trajectory of the organization. Below are some of the factors of the IHG that has been key in decision making and strategy planning.

1. Business cycle stage

The rate of economic development in a country has a direct effect on the growth of a company. Before the IHG enters the market, it takes into consideration the economic growth rate and the business cycle stage. For instance, IHG prefers to enter the market in the growth stage. This s because there are better chances of development in this stage than entering the market at the saturation stage. At the saturation stage, the industry is saturated with companies offering hospitality services, and therefore, the market penetration is a challenge.

1. Employment/inflation and interest or exchange rates

One of the strategies used by the IHG is entering a market with a relatively low employment rate. In this case, the IHG is guaranteed surplus labor at a relatively low cost. This reduces the cost of operations and, therefore, increasing profitability. On the other hand, the exchange rate has the potential to influence the profitability of the IHG. Countries with a stable currency are good for IHG operations, as compared to countries whose currency undergoes constant fluctuations.

3. Social Environment

Any organization needs to understand the market’s demographic characteristics, such as power structures, buying patterns and behavior, and general beliefs, social norms, and values.

1. Trends in demographic characteristics

Since IGH is an international business organization, any change in demographic characteristics significantly impacts its operations. Factors such as the aging population, high rate of migration can affect the profitability and the competitive advantage of the Intercontinental Hotel group. For instance, in a country the majority of the population is made up of aging people, the IHG is not likely to invest in those countries or areas.

1. consumer’s buying patterns

The consumers’ buying patterns and behavior are determined by their purchasing power, which relates to their income. High income means higher purchasing power, and vice versa. IHG conducts a study on the purchasing pattern before entering a market. In a market where people have high purchasing power, they are willing and able to spend on the goods and services offered by the IHG, as compared to people with low purchasing power.

4. Technological Environment

Technology has become an important aspect of business operations. IHG has acknowledged the importance of technology and incorporated it into its business operations. Among the technological factors that have influenced the performance of the IHG include;

1. Technological innovations

The IHG has embraced technological innovations to make it competitive in the technological world in different ways. For instance, IHG was the first international hospitality company to start online booking in 2010.

5. Environmental Factors

There have been growing concerns about the business’s environmental impact, which has contributed to climate change. Therefore, every business must ensure that its business operations do not negatively affect the environment. Environmental factors that IHG has been keen to observe under PESTEL includes;

1. Waste Management

InterContinental Hotels Group has been compelled to adopt ways of waste management so as to limit pollution. One of the ways in which it has been managing waste is through recycling. Recycling ensures that very little waste is released into the market.

1. Environmental Regulations

Business needs to adhere to environmental regulations to reduce over-exploitation of resources. IHG is aware that excessive exploitation can draw negative attention and concerns that can have negative effects on the company’s reputation.

6. Legal Factors

Before the IHG enters a new market, it must study all the legal factors that govern a particular market. These legal factors include;

1. Employee protection laws

The IHG must ensure that it follows all the legal factors that entail employee protections. These laws include labor law, health, and safety, among others. The IHG ensures it provides a healthy working environment for its employees, which improves the employee’s job satisfaction., which gives the company a competitive advantage over its rivals.

1. Consumer Protection laws

Consumer protection laws ensure that business organizations promote the consumer’s data or information’s privacy and confidentiality. IHG has been undertaking studies in different markets on consumer data protection so as to improve data security.

InterContinental SWOT analysis

SWOT analysis is a tool used by organizations to assess a company’s position before a major decision or strategy is undertaken. It is an acronym for Strength, Weaknesses, Opportunities, Threats, and Trends (Gürel, & Tat., 2017). It is used as a tool to evaluate an organization’s internal strengths, weaknesses, opportunities available, possible threats to the organization, and the current trends in the industry of operations.

Strengths

Strengths distinguish an organization from its competitors, and they give an organization a competitive advantage over the other organizations.

1. Wide Geographical presence: The IHG has established branches in 100 countries across the world. It also has over 760,000 rooms globally. This makes it have a competitive advantage over its rivals since it has a larger market share.
2. Strong Brand Portfolio: There are several hotels and other hospitality industry facilities under the IHG brand. This makes it more preferable in the market.

• Customer Relations: The IHG has invested in customer focus and relations. All their services are customer-centered. As a result, the company has been able to acquire a pool of loyal customers.

1. Employee engagement: The IHG invests in its employees through motivation and training. They also provide good working conditions, which improves the employees’ productivity, translating to improved general productivity of the company.

 

 

Weaknesses.

Weaknesses in SWOTT analysis are the internal elements or areas in the business operations that the company does not do very well or needs to be improved. IHG weaknesses include;

1. Absence of economic brand: due to the large number of other facilities offering hospitality services under the IHG, there is no specific economic brand that consumers can relate with.
2. Compromised Information security: IHG has experienced a breach in its information security systems. The bleach led to the loss of confidential information, which had a negative impact on its reputation to the public.

Opportunities

Opportunities are business openings or changes that arise, which the company should claim. Among the opportunities that IHG have to include;

1. Increased international tourism: Over recent years, there has been an increase in international travel and tourism. This is an opportunity that the IHG should consider taking through the establishment of new hotels in the most visited tourist destinations.
2. Technology and innovation: The IHG was the first company to enroll in a successful online booking. The company should use that as an opportunity to target new markets.

Threats

Threats in SWOT analysis include any unforeseen external factor that has the potential of negatively affecting the company. These factors might include;

1. Over-dependencies on intermediaries: Due to the growth of the IHG, the company has opted for the use of intermediaries in some of its services. This can be a threat in case the intermediaries fail to achieve the agreed target. Over-independence on intermediaries It also removes the face of the company from the customers.
2. Unforeseen Events: Hotel Industry is one of the most vulnerable industries. It faces threats from unforeseen events that disrupt its operations. IHG has suffered from unforeseen events such as the Covid-19 Pandemic.

Ethical Considerations in IHG

Ethics are values or principles that give guidance while doing business operations. They show what should be done and what shouldn’t be done. The IHG ethics helps the staff in making decisions based on a set of principles. The IHG takes ethical issues seriously (IHG Hotels and Resorts, 2021). The leadership of the IHG promotes ethical behavior through constant communication of the organizational culture and leading by example. That is, they set good examples in adhering to and observing the IHG Codes of Conduct. Failure to adhere to these standards leads to serious disciplinary actions. The IHG codes of conduct include;

1. Bribery and Financial Crime: The IHG company is committed to ensuring all its operations are conducted at the highest level of integrity. Bribery, evading taxes, inappropriate payment, money laundering are considered crimes and are prohibited in IHG.
2. Trade restrictions: Since the IHG operates in many countries, it is committed to follow and adhere to all forms of restrictions, such as export restrictions. This ensures that the business is on the right side with the law.

• Accurate Reporting: The IHG is committed to ensuring that all the financial statements and reports are accurate and complete. The company does not tolerate falsifying or using misleading information. Intentional falsification of information may be considered fraud.

1. Authority Delegation: delegation of duties defines the extent to which the colleagues in IHG can approve expenditures or initiate projects.
2. Assets protection: The IHG is committed to protect its assets and avoid misusing them. These assets include stock, equipment, or cash. Violation of this code can be considered fraud.

 

 

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) can be defined as self-regulating business activities that ensure the company is accountable socially to all its stakeholders and the public. The IHG is committed to being a socially responsible business through; environmental conservation and promoting education within the community (IHG Hotels and Resorts, 2021).

1. Environmental Conservation

One of the CSR goals of IHG is to promote environmental conservation practices. Among these practices is creating a green environment within our hotels and premises. All the hotels under IHG use the Green Engage system that helps the company to measure its impacts on the environment. Through this system, the hotel can implement ways, among the 200 green solutions designed to reduce energy consumption, water wastage, and waste management. The IHG is also committed to reducing its emission of GHGs by 15% by the end of 2030. These will be achieved through diversification of the types of energy used. The IHG also has a waste management system that ensures most of its waste is recycled, thereby reducing the waste released to the environment.

1. Promoting Education

The IHG promotes education among the communities in which it operates through the IHG Academy. The IHG Academy provides a platform whereby the IHG facilitates local people to meet education and skills providers from different parts of the world. This opportunity helps the local community benefit from skills development, basic education, and employment prospects in the International Hospitality company.

Conclusion and Recommendations

The Hotel or Hospitality industry is one of the largest industries in the world currently. This project aims to study both external and internal factors that affect the business operations in the Hospitality industry. The industry is thought to have started in the 1700s as ‘Inns.’ The growth in this industry has been witnessed in the last three decades where massive projects involving hospitality have been undertaken. These include the construction of Hotel Fairmont Makkah and Burj al Arab. The growth of this industry can be attributed to the growth in transport systems, where many people are traveling across the world, increasing the demands of these facilities. Additionally, people have changed their lifestyle and turned to travel and tourism as major leisure activities. As a result, more people are in need of these facilities. Other trends in this industry include Airbnb, among others.

InterContinental Hotels Group (IHG) is among the leading hospitality companies in the world. It was started in 1777 in the UK and has been under tremendous change over time. Currently, the IHG has branches in over 100 countries, with over 5900 Hotels and 889,582 guest rooms.

In this study, PESTEL and SWOT tools were used to analyze the effects of micro and macro factors on IHG company. From the study, under the use of PESTEL, it was observed that the political environment is the biggest external threat that IHG faces. Under the political environment, factors such as political instability and frequent changes in policies affect the IHG business operations. The study also showed the strengths of the IHG in adhering to all legal factors so as to promote its reputation and avoid issues such as lawsuits. The study also revealed that IHG enjoys a competitive advantage due to its strengths such as large market base, market penetration, and appropriate employee engagement. However, IHG has weaknesses in areas such as absences of the economic brand and compromised information system. Increased international tourism and advancement in technology are some of the opportunities that IHG has and need to exploit.

The IHG promotes ethical working conditions. Staffs of the IHG are on the frontline in promoting ethics through constant reminders and showing good leadership skills by following all the ethics guidelines. Among the ethics promoted include bribery and financial crimes, adherence to trade restrictions, and accurate reporting. In addition to promoting an ethical working environment, the IHG engages in corporate social responsibility through environmental conservations and promotes education among the community members.

References

Gregoric, M. (2014). PESTEL analysis of tourism destinations in the perspective of business tourism (MICE). In Faculty of Tourism and Hospitality Management in Opatija. Biennial International Congress. Tourism & Hospitality Industry (p. 551). The University of Rijeka, Faculty of Tourism & Hospitality Management.

Gürel, E., & Tat, M. (2017). SWOT analysis: a theoretical review. Journal of International Social Research, 10(51).

IHG Hotels and Resorts (2021). Our History. Retrieved: https://www.ihgplc.com/en/about-us/our-history. [Accessed Feb 27th, 2021]

IHG Hotels and Resorts. (2021). Policies. https://www.ihgplc.com/en/responsible-business/policies. [Accessed Feb 27th, 2021]O’Gorman, K. D. (2010). Introduction to the origins of hospitality and tourism.

Puigjaner Barberà, A. (2012). From the American apartment hotel to nowadays. In 6th Conference of the International Forum on Urbanism (IFoU): TOURBANISM, Barcelona, 25-27 gener (pp. 1-6). International Forum on Urbanism.

Shatskaya, E., Samarina, M., & Nekhorosheva, K. (2016). PESTEL analysis is a tool of strategic analysis in international markets. SCOPE ACADEMIC HOUSE B&M PUBLISHING, 47.