TOURISM PETER ROBINSON MICHAEL LÜCK STEPHEN L. J. SMITH

Operations Management in Tourism 11

Learning Objectives To understand and define operations management To introduce operation management concepts and theories

‘operations management is the day-to-day management of the site. It is about marshalling the attraction’s resources, notably the staff and physical equipment such as machinery, to provide a satisfactory service for the customer and an acceptable rate of return on the use of these resources. The goal of operations management at attractions is the smooth and efficient operation of the site. … In a sense it could be said that everyone on site is involved in operations management as, in a service activity, everyone is part of the operation. Furthermore, the activities of financial, human resources and marketing managers also have an effect on how the site operates.’ (Swarbrooke, 2002) Definition

Product development Design of the venue and services Management of customers Organization and training of staff Management of buildings and equipment Management and monitoring of quality issues Matching of supply and demand Measuring customers’ satisfaction levels Crisis management Revenue and pricing management Risk management Management of operating systems, e.g. stock control and ordering Forecasting and planning (Adapted from McMahon-Beattie and Sharples, 2004, p. 29) Operations Management Activities

Choose a business of your choice in the hospitality or tourism sector You have 20 minutes in which to research a range of information that considers legislative, economic and technological considerations Activity

Using SWOT effectively Using SWOT within the framework below allows the integration of PEST factors for a better depth of analysis Table 4.5 Components of SWOT analysis (Tribe, 1997) Internal (resource) analysis Strengths & Weaknesses Resource audit Performance monitoring Evaluation of products External (environmental) analysisOpportunities & Threats Competitive environment Political environment Economic environment Socio-cultural environment Technological environment

These are the steps involved in carrying out an external analysis –Assess the nature of the environment –Audit environmental influences –Identify key competitive forces –Identify competitive position –Identify key opportunities and threats (Johnson and Scholes, 1999) External Analysis

Increased managerial awareness of environmental changes Increased understanding of the context in which industries and markets function Increased understanding of multinational settings Improves resource allocation Focuses attention on the primary influences on strategic change Provides time to anticipate opportunities and threats and devise appropriate responses (Ginter and Duncan, 1990 cited from Evans, 2003) Benefits of Macro- environmental analysis

Appraise the impact of different factors –don’t just list them! PEST factors change over time –keep analysis of the past distinct from present –and future –demonstrate impact of key developments Don’t get fixated by PEST categories –the important thing is to find the key factors –the labels do not matter at all ! (Habererg and Rieple, 2000) Carrying out a PESTLE Analysis

The service design process –‘services that are allowed to “just happen” rarely meet customer needs’ (Russell and Taylor, 2008, p. 187) Think of successful global companies –McDonald’s, Disneyworld – they are all a product of impeccable design: e.g. McDonald’s employees 49 steps to perfect fries (Job Design later) Product Service Design

Service concept –Identifies the target market and their expectations –Identifies how it differentiates from others –How it will compete in the marketplace Services are ‘successful’ if they fill a niche or differ in their operation, e.g. –Amazon online services –eBay global auctions Product Service Design

A well designed service could provide the company with a competitive advantage As the objective of any service is to satisfy customer needs, then the design of a service should be based around the customer The mixture of physical items, sensual and psychological benefits Service Package

The service package consists of –Core service –Supporting goods and services –Facilitating goods and services The value concept and relationship marketing (European Journal of Marketing, 1998) Service Package

Definitions ‘The objective of capacity management is to match the level of operations with the level of demand so as to find the best balance between costs and service levels’ (Armistead et al., 1987) Capacity Management

‘Capacity management is an essential responsibility of the operations function. The objective is to match the level of capacity to the level of demand both in terms of quantity (how much) and capability (the skill mix to meet the product/service specification)’ (Hill, 2000, p. 184) Capacity Management

Capacity aligned to concept of DEMAND –It is not easy to understand the concept of demand in the service industries or how predictable/unpredictable it is –Organizations try to make demand as ‘predictable’ as possible – this is known as dependent demand Capacity Management

Three strategies (quantitative and qualitative) to reconcile capacity and demand: 1.Level capacity 2.Chase demand 3.Demand management (Greasley, 2005) Capacity Management

Level capacity –Sets processing capacity at a uniform level throughout the planning period regardless of fluctuations (usually to meet ‘average’ demand) –Inventory used to absorb variations Capacity Management

Matches output to demand levels over time. Capacity is adjusted by manpower planning policies such as changing the number of staff, more part time, seasonal staff, overtime working, subcontracting etc. e.g. fast food outlets Chase Demand Plan

Staggered work shift schedules –Construct work shifts to match demand peaks Part time staff –Trade off through additional employment costs Subcontractors –Outside sources agencies – disadvantages? Multi-skilled floating staff –Movable capacity – additional training costs Customer self service –Service capacity arrives when demand does Chase Demand Strategies

This approach attempts to change demand to fit capacity –e.g. transfer customer demand from peak to quiet periods –Achieved through: altering the marketing mix Demand Management

Varying the price –Discounts at low demand times Advertising –Used to increase sales Alternative products during low demand –Tourist venues firework displays/carol services Appointment system –Used to smooth demand Demand Management Strategies

‘Revenue management (RM) or yield management marries the issues of supply demand and price when the organization is constrained by capacity’ ‘...finding the optimum price for the leisure experience at a specific time period is a challenge for the leisure manager’ (McMahon-Beattie, 2004, pp. 154–155) What is Revenue Management?

This pays particular attention to income generation for the organization and should be based around –Time of use –Length of use –Category of user –Availability of spare capacity –Impact on resources –Scope to develop additional income streams –Scope to increase secondary spend (Adapted from Robinson, 2009, p. 88) Revenue Management

Yield Management is ‘a revenue maximization technique which aims to increase net yield through the predicted allocation of available … capacity to predetermined market segments at optimal price’ (Donaghy et al., 1997) The ideal environment for the successful application of yield management techniques is one in which –capacity is relatively fixed but demand is variable –the market can be readily segmented –the product is perishable and can be sold in advance of consumption –the marginal cost of making the sale is low (Kimes, 2000) Yield Management

A business’s productivity can be measured and used to determine ‘organizational well- being’ Productivity provides ‘a better reflection of the robustness and quality of the underlying policies and management practices’ Productivity measures can be used as an alternative to measures of profitability in gauging the health of a business (Leask and Yeoman (eds.), 1999) Productivity

‘Productivity is low to begin with, because work has to be done in setting up the process … or because of inadequate resources. Marginal productivity rises, but eventually falls as people become tired or as machines require maintenance or because there is insufficient equipment available.’ (Cullen, 1997) ‘productivity is not an absolute. Productivity is only “good” or “high” when compared to competitors or when compared to the productivity of the organization in a preceding period.’ (Leask and Yeoman, 1999) The Measurement of Productivity: Key Principles

Definitions ‘accurate forecasts are an important factor in enabling organisations to deliver goods and services to the customer when required and thus achieve a quality service’ (Greasley, 2008, p. 256) Forecasting

What information is needed to produce ‘accurate’ forecasts? Task – 10 minutes

‘Forecasting is an essential responsibility of the operations function. The objective is to match the level of capacity to the level of demand both in terms of quantity (how much) and capability (the skill mix to meet the product/service specification)’ (Hill, 2000, p.184) Forecasting (Capacity Link )

References  Cullen, P. (1997) Economics for Hospitality Management. International Thomson Business Press, London. Donaghy, K., McMahon-Beattie, U. and McDowell, D. (1997) Yield management practices. In: Yeoman, I. and Ingold, A. (eds) Yield Management: Strategies for Service Industries. Cassell, London. Kimes, S. (2000) A Strategic Approach to Yield Management. In: Ingold, A., McMahon-Beattie, U. and Yeoman, I. (eds) Yield Management, 2nd edn. Continuum, London. Robinson, P. (2009) Operations Management in the Tourism Industry. CAB International, Wallingford, UK. Swarbrooke, J. (2002) The Development and Management of Visitor Attractions, 2nd edn. Butterworth-Heinemann, Oxford, UK.