TABLE OF CONTENTS
Page
A.
Executive Summary
4
B.
Introduction
4
C.
Strategic Position
- Market Segmentation & Life Cycle of Ocean Park
5-6
- Strategic Capabilities & Resources
6-7
- Expectation & Purpose
7-8
D.
Strategic Choices
8
- Corporate Level
9-10
- Business Level
10-12
E.
Strategy In Action
- Structure
13
- Process
14
- Relationship
15-16
F.
Conclusion
17
Appendices 1 – 7
18-28
References
29-30
A. EXECUTIVE SUMMARY
This paper attempts to analyze the business environment that Ocean Park (OP) operates and employs the FIT approach to discover the environmental forces that drive changes in this theme park. It has to build on the existing resources through the design lenses to formulate strategies at both the corporate and business levels. It already possesses the strategic capabilities of having a convenient location, high service standard and good quality staff. The main change is to adopt the strategy of product diversification, i.e. to develop the spa and resort facilities. We also recommend it to penetrate the current market by strengthening its supremacy in leading wildlife and marine education tour to complement the service rendered to its the family clientele. It is important for the park to focus in PLOY, by maneuvering the existing resources to maximize the business results. We also review the configuration employed by OP which adopts the multidivisional structure to align the process and relationship together. All in all, the Park should then position itself as the complementary experience to that of the soon-to-be opened Disneyland rather than engaging in a direct competition.
B. INTRODUCTION
OP, the first theme park in Hong Kong, was established in 1977 as a non-profitable public organization, 100 percent wholly owned by the Hong Kong SAR government. With its long history and unique image, it becomes one of the icons in Hong Kong. It is also the possession of Hong Kong people and part of the community heritage. Its mission is to firstly provide local and overseas visitors with experiences that combine entertainment and education, secondly, to assist in the understanding and practice of wild life conservation.
Given the dynamic of global business environment, fierce competition and many other influences, OP has encountered a few years of deficit. To improve its financial performance, OP continuously expands and improves the entertainment facilities and service standards, seeks and introduces new educational programs and opportunities to promote lifelong learning, strives to deliver the highest standard of quality service and customer care. With the opening of Hong Kong Disneyland this year and to sustain its competitive advantage, OP must re-develop its strategy to cope with the challenges in the external and internal environment.
C. STRATEGIC POSITION
To understand the business environment that OP is operating, we will examine it by means of the PESTEL Framework, Porter’s Five Forces and the SWOT analysis (Appendix 1).
Market Segmentation and Life Cycle of OP
In view of the current market segmentation of OP (Appendix 2), the main market segment is overseas visitors of which Mainland visitors are the main target. Looking into the life cycle of OP, it is estimated the local visitors has reached the declining stage while the Mainland visitors is at the growth stage. The performance of each strategic business unit would be analyzed by the BCG matrix(Appendix 3). The theme-event, like the Halloween Blash is in the “STAR” box which was proven to increase the admission rate. The rides, collection of marine and animals are in the “CASH COW” that maintains their business in OP.
Looking into business of theme-events and rides, the potential for growth is in doubt. To reinforce the park’s role in the Hong Kong community and outperform their competitors, OP has to re-position itself, look for new local market, such as, the young married with and without children and develop new products, like resort and spa and wedding facilities.
Strategic Capabilities and Resources
Management and Human Resources
OP has a strong management team with 27 years of experience in managing theme park. The board is rejuvenated under the leadership of the new Chief Executive whose strength, diversity and commitment have been invaluable to OP. They had made a remarkable turnaround in 2003-2004 with the support of the experienced and well-trained human resources. Their standards of service and product knowledge are credits to the Hong Kong’s image. They had received the Hong Kong Award of Services in 2000 by Hong Kong Tourist Association. OP employees work stoically through the difficult SARS months, and shared significantly in the restructuring costs. They not only manage the difficult period, but also play an invaluable and creative role in ensuring the success of the recovery plan, such as, theme-events.
Marine Collection and Animal Care
In the theme park industry, OP matches the world’s best in terms of the range of marine collection, quality and breadth of animal care that arises out of their commitment to education and conservation of the natural world and marine environment.
Location
The location of OP is supreme which has a stimulating setting, visual containment and interesting outlook. Also, it is easy to access and well served by road.
Good Value Chain
OP has developed a strong good relationship with the Chinese Travel Agency and Hong Kong Tourist Association. In 2003-2004, OP sales staff plays 15 separate sales visits to more than 240 Chinese travel agents in 30 Mainland cities, while the executive team met Mainland media in Guangzhou, Shenzhen, Beijing and Shanghai. All these contribute to good reputation and appeal of OP across the Mainland (2004).
Improving Financial Performance
OP has an improving financial performance with visitors up by 25 percent at 3.7 millions, revenues up 25% at HK6 million and a surplus of HK million for the year, reversing the deficit of HK million in 2002-2003 and marking OP’s second most profitable year on record. The reasons are due to not only the emergence of visitors from Mainland, account over half of all the park’s visitors, but also, the carefully-focused development of special events and intensive and carefully-targeted promotional activity. These have brought visitors to the Park more often and encouraged them to stay longer every time they come (Annual Report 2004).
Expectation and Purpose
Corporate Governance
OP has strong local roots and a wide range of home grown strengths nurtured over the 27 years of operation. Their core commitment to education and conservation remains solid. They also have a strong Corporate Social Responsibility. 100,000 senior citizens visited the park free of charge in 2003-04. They provide fee of charge of kindergarten tours and heavily subsidize on-site educational tour programs.
In summary, the strengths and weaknesses of OP are as follows:
The strengths of OP are its unique image and reputation to Hong Kong community and the tourists. It is situated in a supreme location with high accessibility. Besides, OP benefits most from its intellectual capital, excellent value chain and organization knowledge. The drive of management and the sponsorship of government lead to great potential for further development.
However, OP also has a number of weaknesses. The operating cost is high and the growth of local market is still declining. It takes a long period of time to develop new ride or other facilities. The product feature is not innovative enough to enhance the attractiveness as a major tourist destination to the local market.
Strategic Lenses As Design
In order to formulate a clear strategic direction, the top management uses the Design Lenses to view the strategy development. They look at the forces and constraints imposed on OP through a rational, analytical, structured and directive process so as to optimize the limitations or constraints ( 2005).
To sum up the above analysis, the inbound tourism in Hong Kong is booming. With government support on tourism, economy upturn, change of life style, demand of spa and beauty facilities, flexible wedding arrangement, as well as strong capabilities, there are great opportunities for OP to develop. As a result, it has to accelerate its innovation, and reposition itself, capture the new markets and develop the new products to sustain its competitive advantage.
D. STRATEGIC CHOICES
After numerous analysis made on OP’s external and internal factors, it is clear that OP needs an innovative plan to reposition itself on the market to maintain its attractiveness and differentiate itself among competitors. To begin with our strategic formulation, we will adopt the staircase model (2005) to assist us in linking our different levels of strategies: Corporate and Business, in a systematic way.
Corporate Level
To map the blue print of our total strategy, we need to set and identify new vision and mission for OP. Being a “must-see” destination is the new vision for OP. How to translate and implement this vision is through its new mission: create an image for OP where people can celebrate and share the important moments of their life.
In order to realize this vision and mission, we need to draw out an action plan. Under the current circumstances, we believe a FIT strategy approach is more appropriate since it is the most effective in a known and stable environment where success is built on existing competences.
As the study shows, OP has gone through several phases of changes with similar result. Base on Porter’s theory, OP can design its strategy by using a differentiation (2003) method to substantiate its new features in the market.
OP is unique of its own (1) having a spectacular view and close to the nature, (2) prestige location in the south side of the HK Island, (3) isolated from major city activities yet easy accessible, (4) famous in its expertise on nurturing animal, marine and wildlife, (5) a place where entertainment and education are coherent and (6) ”ranked among the top 25 theme parks with regard to attendance in the world” (People’s Daily Online).
To align with our FIT strategy approach, we will maximize its existing capabilities to diversify its product/service focus (Appendix 4) to a new frontier. We believe our new strategy will add value to our customer “over the long run by consistently meeting their needs better than the competitor does” (5/19/05).
Based on our findings, we recommend OP to develop a new business unit of Spa & Resort concept hotel to make full use of its resources with the nature and to capture the latest living trend of HK. Since OP is lack of expertise in the hospitality industry, we suggest them to bring in strategic alliance (2005) where the name can speak for itself. “Banyan Tree” is our first choice to select as a strategic partner since it has extensive experience in managing various Spa & Resort hotel worldwide. To name a few, they have existence in various Asian countries such as Singapore, Malaysia, Indonesia, Thailand and China (Banyan Tree). With this reference, we believe this partnership can bring benefits to both parties where expertise and resources is shared to nurture the best outcome.
In the meantime, we are counting on this new business unit to bring in revenue and new opportunities to OP’s current product mix. With the potential of this Spa & Resort unit, we categorize it as a STAR in a BCG matrix (Appendix 5), we expect this business unit will stay and enjoy its growth for a long period of time. Our confidence comes from the study of the 3 critical success factors, being (1) acceptability, (2) suitability and (3) feasibility of this concept project. (Appendix 6)
Business Level
At this level, strategies are formulated in a more operational manner. To maintain its competitive edge, we need to constantly ask ourselves the questions: Who are our target segment? Where do we want to go? How to achieve the expected result?
We will use the ‘PLOY’ features in strategic formulation to lead us towards our goal (Appendix 7).
To answer the question of “Who are our target segment”, we tend to expand our clientele to those segments that have high disposable income, educated and treasure the quality of life as well as to get close and preserve the nature.
“Where do we want to go” is relatively easy to understand by making OP as the must- see attraction for people to share their important moments together. As for the question of “How to achieve the expected result”, we will organize and conduct various programs to cater for different customer segments. Categorization of the customers is as below:
Family
Provide a relaxed environment for adult while a safe environment to children. Parents can encourage their children to join various educational tours that offered by OP on wildlife and marine animals. This frees parents to have their private moment.
Children
Cater for family segment, educational tours to the marine and wildlife sections of the park can divert their attention from their parents to other areas. In turn, it provides a more delicate type of babysitting service. With years of experience, OP has earned the trust from general public to be a safe and educational place for children where they can find an ongoing excitement.
Young Couple
Since the Government has relaxed on the rules and regulations in organizing wedding ceremony, this Spa & Resort Hotel can offer special arrangement for wedding, such as wedding banquet and special theme wedding ceremony for the newly weds. Under the management of Banyan Tree where it is famous for its “blend of romance, rejuvenation & exotic sensuality”, the hotel can offer special honeymoon package to encourage the newly weds to spend their sweet moments in the resort.
Corporate
Nowadays, many corporations are in favor of organizing off-site conferences and seminars. We can offer similar facilities and package to cater for the needs of this target segment at an affordable rate. These corporate customers are expected to generate new income on a more regular and stable fashion.
Furthermore, we can introduce the idea of club membership or loyalty programs to those repeat customers. Special package to the management of the corporate clients is a very power and useful tool to establish a client base.
Outdoor Sports Activities
This new business unit is situated in a beautiful water front where it is near to the nature, the Spa & Resort Hotel can organize a variety of outdoor activities for in-house customers, such as water sports, sports, beach activities, hiking, cycling etc… to promote and portrait a healthy environment to build a positive image.
E. STRATEGY IN ACTION
The New Configuration of OP
Employees who are the most important resource of an organization play the key roles in the implementation of the strategy. The interactions and relationships among people can lead to the success or failure of the strategy. After the right strategy is formulated, the next step is to configure OP so that the structures, processes and relationships are aligned and coherent to the new strategy.
a. Structure
With the implementation of the new strategy, the structure of OP should be changed to multidivisional structure, which consists of separate divisions on the basis of products and services (2005). Each division responds to the specifications of its product or market strategy with its own functional department. For instance, the strategic alliance with Banyan Tree will require a new division set up to focus mainly on the market of resort and the new services provided. This allows each division to develop a specific competence on a particular customer group. The divisional structure is also flexible for OP to add, dissolve or combine divisions in response to the changes in circumstances. The head office of OP is able to control its divisions by setting performance standards and targets. The divisional managers are accountable for their own divisional strategies. As divisions are so specialized and self-sufficient, it is crucial to establish cross-communication and co-operations among divisions to enhance collaboration and knowledge sharing within OP. For instance, the Resort Division can work closely with the OP Academy division to explore new education tours or events for the kids of the resort customer. The central service such as finance, human resources, and legal should be well trained to understand the specific needs of each division so as to provide the necessary support.
One way to make change more effective is through fair, open and honest communication ( 1987). Before setting up the new structure in OP, it is recommended to ensure the managers and the employees are clear about the purpose of the new structure. Training should be offered to each level in OP so that managers and employees have the competence to meet with the new requirements of the new structure (2000). Clear roles and responsibility can shape the behaviour of employees and can achieve the expected outcomes. Flexibility among division should be encouraged to allow divisional managers to explore and follow new opportunities as market needs change (Whittington 2005). New and complex collaborations among divisions may need particular skills so proper trainings are required to ensure successful collaborations (1999).
b. Process
The formal and informal organizational processes are the key drivers that make the organizational structure works. The processes are the controls: inputs or outputs, direct and indirect on the organization’s operations and can help and hinder the translation of strategy into action. For OP, it is suggested to adopt the combination of processes in planning and performance targeting. The former is the archetypal administrative control focusing on the organization’s input, which can monitor the implementation of strategy. The latter is the performance processes, which focus on the outputs of an organization such as service standards, revenues and products. By adopting these two processes, it is intended to strike the balance between the control mechanism over output and input.
i. Planning Processes
Such is focused on the standardization of work processes, which are essential for OP who is committed to provide world-class service to its visitors. By introducing the e-commerce operations, OP can enhance its global presence. Visitors from overseas can reserve the resort room and admission tickets through the Internet. This allows OP to plan ahead for the peak seasons and to design promotion packages during low seasons to maximize the allocation of its resources. Also, the bottom-up planning from business units is a vital process (2005). Divisions could have their own planning within the corporate guideline. As they are the most directly involved in the operation, they have better understanding of what resources and budgets are required for the coming fiscal year. Through careful planning, the Head Office of OP can have a much clearer picture about the operations of the divisions and can adopt proper control as circumstances change.
ii. Performance targeting processes
These are introduced to ensure alignment of the performance targets. Head Office of OP sets performance target to control the divisions while allowing divisions sufficient autonomy to manage their divisions ( 1979). The performance targets can help OP to evaluate its outputs of it service quality and profits facilitated by a clear set of role and responsibilities.
c. Relationship
i. Internal relationship
According to , the multidivisional structure focuses on the structural relationship between the headquarters and the divisions, between the strategic apex and the top of the middle line (Mintzberg 1979). In order to make the structure, process and relationships coherent to each other, strategic control, which concerns with shaping the behaviour in business units and with shaping the context within the divisions will be the main strategy style of OP under the new structure (2005). Under this style, divisions will have their business plans formulated within the corporate guidelines, which are set by the Head Office. The divisional managers have to understand the corporate logic and should have the competence to think strategically.
ii. External Relationship
As strategic alliance with Banyan Tree will be constructed, the success of the strategy is relied on the cohesiveness and compatibility of this “marriage”. It is important for OP to balance between the best sources of specialist knowledge and the competence to integrate the specialist knowledge to create a best-value service to customers (2005). Such connection offers OP and Banyan Tree an option of opening new doors and unforeseen opportunities by collaboration rather than mere exchange (2002). Commitment and trust are the two key ingredients of forming the alliance, which is similar to the marriage of man and woman. The expectations of two parties must be aligned to achieve the different interests of two parties.
With the diversified business of OP, the one-stop shops, one of the network relationships will be the other focus of OP. The one-stop shop network offers customers to have a coherent and joined-up service, which is the ultimate goal of OP’s new strategy. Under this network, OP offers a complete package of services: resort, spa, riders and educational experiences- exciting, relaxation, wild adventure to its visitors.
F. CONCLUSION
OP has reacted to the diversified environment by capitalizing on its strength while exploring product / services that would appeal to the new market segment, e,g. spa & resort visitors and promotion of wedding reception and honeymoon packages. By adopting these changes in the business and corporate level and supported by the right configuration as outlined above, we are confident that it will continue to be one of the top theme parks in the world and be able to do well in face of the opening of the Disneyland.
Appendix 1
Macro-Environmental Forces – PESTEL Framework
Political
In the past few years, both Hong Kong and China are living in a politically stable environment. With the launch and progressive extension of the Individual Visit Scheme, there was 4.3 million Mainland visitor arrivals to Hong Kong under this scheme in 2004, accounting for over one-third of overall visitor arrivals which renders an important invigorating force to Hong Kong inbound tourism. In addition, Hong Kong government will continue to expand tourism in the Southern District and link Aberdeen with OP. In 2005, the government has launched a new policy on marriage registration. Marriage ceremony is no longer limited to take place in the Marriage Registry. The marrying couple can choose different locations for marriage ceremony with advance application for officiating minister. All these give opportunities for OP the opportunities of other business development.
Economic
In 2004, Hong Kong economy entered into a full-fledged upturn which was broad-based, marked by thriving exports and offshore trade, vibrant inbound tourism, strong pick-up in consumer spending and visible bounce-back in investment. The gross domestic product (GDP) grew by a remarkable 8.1% in real terms, distinctly faster than 3.2% growth in 2003. In 2005, the GDP is expected to attain growth of 4.5%-5.5% in real terms. The adjusted unemployment rate fell from a high of 8.6% in the second quarter of 2003 to a near three-year low of 6.5% in the fourth quarter 2004. Hong Kong consumer spending maintained notable growth throughout the year since they are optimistic of the economic outlook and improving labour market conditions. The growth of Private Consumer Expenditure as a whole is 6.7% in 2004. The prospect for the Hong Kong economy is bright which reinforce its existing strengths and identify a new era for development.
Sociocultural
In 2004, the birth rate was quite low in Hong Kong. There were 47,900 newborn babies compared to 51300 in 1999. It is because Hong Kong people prefer to have late marriage and fewer children. Also, the population is aging and there are more female than male. The ratio is 51.8% to 48.2%. More working women in the business world create a potential market for business opportunities. Nowadays, Hong Kong people are better educated. Their life-style is changing. They seek for a balance of work and life and willing to spend more resources and time on recreation, entertainment and the development of their children
Environmental
With increasing awareness and concerns on environmental protection, the Hong Kong Government continues to streamline their effort in controlling the pollution and protecting the natural resources by public education and organizing different activities and programs, such as, Rechargeable Batteries Recycling program. Besides, they make an effort to improve the street landscape by putting more green plants in order to give a pleasant pedestrian environment. This coupled with the growing trend of eco-tourism provide opportunities for tourist industry.
Competition in the Theme Park Industry – Five Forces Framework (Michael Porter)
The Threat of Entry
The barrier to entry in the theme park industry is very high due to high capital cost. The total fixed asset is around HK6 million for initial capital requirement. For instance, Abyss Turbo Drop costs around HKM. Besides, potential site for development of theme park is very limited due to scarce supply of land.
The Threat of Substitute
In 2005, the main threat of substitution will be Hong Kong Disneyland, a new international theme park that expected to become another major tourist destination in Asia. Apart from this, there are other forms of substitution. From the education side, Hong Kong people can switch to go to Cultural Centre, Mai Po Wetland, Hong Kong Zoological and Botanical Garden. For entertainment purpose, they can visit the Karaoke, Cinema, Game Centre, or have a day trip to China.
The Power of Buyers
The buying power of consumer is high since they have many choices as mentioned above. The switching cost is relatively low. Also, Hong Kong people like new experience and their loyalty to the product is generally low.
Competitive Rivalry
The global competition is great in the industry. There are 342 parks with 500,000 visitors or more per year all over the world in 2002. OP ranked at the top 25 in the world. With the opening of HK Disneyland in 2005 as well as other existing small-scale parks in Hong Kong, such as, Lai Chi Kok Park, Snoopy’s world, Teddy Bear Kingdom, Winter Carnival at Hunghom/Hong Kong, Spring/Summer Carnival at Tamar Site, these competitive rivals possess the challenges to OP.
Opportunities and Threats
The above environmental and competition influences provide OP the following opportunities and threat:
Opportunities for New Product and New Market
With more and more working women as well as the need of better quality of life, the demand for Spa and Beauty is increasing. There is a market for resort developments. Whilst a spa would be a main element within the resort, it would have to have other attractions to be viable, such as child caring service and eco education tour for children.
Owing to the fact of increasing importance of Chinese Medicine, the Spa offering traditional Chinese Medicine, and medical/clinical based spas (comparable to Swiss’s health and beauty treatments) are likely to be attractive to tourists not only in local market, but also overseas market through the year.
Spa resorts have continued to develop through South East Asia, such as, Thailand, Indonesia and Malaysia. The market is increasingly competitive. However the brand name of OP would attract visitors and bring certainty to the products offered.
Due to the flexibility of holding marriage ceremony, OP can develop new business, like, wedding and honeymoon facilities and arrangement to make use of its unique image and supreme location.
Threat
The opening of Disneyland poses a strong threat to OP in addition to the other substitutes. Also the war for talent and aging workforce can bring negative impact on its operation. To survive in a more favourable environment and sustain its role in Hong Kong community, there is strong need to rejuvenate its reputation by capturing the new market and develop new products which can strengthen the strategic position of OP and cope with the challenges externally.
Appendix 2
Market Segmentation of OP
Appendix 3
BCG Matrix
STAR
QUESTION MARK
High
Theme Event
Market Growth Rate
Rides
Low
Animal & Ocean
CASH COW
DOG
High
Low
Relative Market Share
Appendix 4
Ansoff’s Product/Market Expansion Grid
Current Product New Product
Current Market
New Market
Viewing the current products and services of OP, there is not much room for OP to increase its market share with its existing facilities. Therefore, an alternative for growth is to enter into a new market with a new product/service to differentiate itself from competitors. As a result, the new plan falls under the diversification strategy of Ansoff’s Corporate Strategy where the major characteristic of this strategy is to expand its market share by stimulate the market with new product (1) with existing capabilities, (2) new capabilities and (3) beyond current expectations (2005).
By inviting Banyan Tree, the famous brand name for Spa & Resort, OP is entering into a whole new hospitality industry to fully utilize its resources related to nature.
Appendix 5
BCG Matrix for the new Spa and Resort Hotel
Relative Market share
Market Growth
Rate
This Spa & Resort business unit of OP is expecting to capture new market share from the new market segment. Since the life style of the local people is changing, people are more aware and conscious of the quality of life. Accompanied with the increase of consumption power and limited spa and resort hotel available locally, we expect this concept will draw much attention among the local and overseas visitors. In addition, alliance with Banyan Tree and the attractive and convenient location of the resort will give an alternative to those who are seeking for a “one-stop-shop” of holiday retreat for family. Furthermore, expansion in corporate client for conference will add additional value for this business unit.
Appendix 6 Acceptability
The life style and mentality of the local people is changing. As observed, (1) spa & resort services are in substantial demand, (2) people are more health conscious with enhanced awareness on relaxation and quality of life, (3) limit competition on local level, (4) convenient location, (5) increase in consumption power and (6) the awareness of environmental friendliness. Banyan Tree can offer the solutions to all the identified issues ().
Suitability
The infrastructure of the hardware and software (people and other contingency issues) of OP can assist this new business unit to capture new potential local market while collaborating and aligning with the concept of the theme park.
Feasibility
By conducting the feasibility study, we identify that OP has the resources to carry out the proposed strategy. In light of (1) strong and sound stakeholders, (2) reputable strategic alliance to guarantee on high service and quality of product and management, (3) limit competition in local market (one head on rivalry – The Gold Cost Hotel in Tuen Mun), (4) the noticeable demand on the service.
Appendix 7
Concept of Strategy Formulation
Consistency meaning
Winning focusing
Because changing in environment, the new economy industries, the configuration of strategy contents, has changed significantly from traditional industries. Instead of emphasizing on plan and position, it now changes to focus more on ploy and perspective (2005).
In the case of OP, in order to stay competitive and increase its sustainability, it decides to adopt a FIT strategy approach when formulating its strategy plan. By understanding the environment, it can then maximize its resources to design different programs to ultimately win against its competitors.
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