Shangri-La Case Study

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Shangri-La Hotels

Shangri-La Hotels and Resorts is a deluxe Asian hotel chain and was founded in 1971 in Singapore by the Malaysian-Chinese tycoon Robert Kuok. The name Shangri-La means “eternal youth, peace and tranquility” and embodied the serenity and service for which the hotel chain was renowned throughout the world. As of 2006, Shangri-La had four main business segments: hotel ownership and operations, property development including commercial buildings and serviced apartments, hotel management services to group-owned and third-party hotels and spas. The company has three major issues at hand: (1) the company was expanding into high-wage economies in Europe and North America; (2) the company was expanding its presence in China-a country where front-line employees were not used to exercising decision-making authority; and (3) newcomers in the Chinese hotel market were poaching Shangri-La’s staff and driving up wages in historically low wage markets.

1. What are the key elements of Shangri-La Hotel’s strategies for competing internationally? Which of the five generic competitive strategies is the company employing?

“Shangri-La built its brand on service excellence with a stated mission to “delight customers each and every time.”

Asian standards of hospitality and personalized guest service: Shangri-La Hotels uses a service model of “Shangri-La Hospitality” which was built around five core principles: respect, humility, courtesy, helpfulness, and sincerity. The company was built around these principles and used them to differentiate itself from the competition by providing distinctive Asian standards of hospitality and service. Within each country they adapted to the local requirements and provided individualistic services.

Employee Training: in 2004, the company opened its first training facility in China, the Shangri-La Academy. This was done in an effort to keep the company mission and core principles relevant throughout its hotel chains worldwide. The Academy was built specifically to train employees in China but, all other hotels were also asked to allocate budget for this training and to send their high-potential employees to train at the Academy. This training was primarily focused on preparing employees to better use their decision-making authority through the use of role-play simulations of situations employees would actually encounter.

Delegation of Authority: Shangri-La used a 5-level organizational design to achieve exceptional customer service. Employees were grouped into five tiers: Level 1 (divisional managers), Level 2 (departmental managers), Level 3 (sectional managers), Level 4 (front-line supervisors), and Level 5 (front-line employees). Employees were given separate guidelines, discretion, and a dollar amount they could use without management’s approval in handling customer request that were not the operational norm. They instilled a level of confidence in their employees so that they could make these decisions.

Shangri-La employs a focused differentiation strategy: They concentrate on a narrow buyer segment, luxury hotel customers, and outcompeting rivals with a product offering that meets the specific tastes and requirements of niche members better than the product offerings of rivals. They secure their competitive advantage by offering luxury hotel rooms carefully designed to appeal to the unique preferences and meet the needs of a narrow, well-defined group of buyers by providing world-class Asian standards of hospitality and service.

2. What policies, practices, support systems, and management approaches are used by Shangri-La’s management to implement its strategy? What challenges is Shangri-La facing in the implementation of its strategies?

Policies: The guiding principles used to set direction within the company; respect, humility, courtesy, helpfulness and sincerity. They embody this through the required use of their culture-training...
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