International Journal of Innovation and Economic Development
Volume 1, Issue 5, December 2015, Pages 53–61
A Conceptualized Model of Crisis Management for Small Hotel Companies
1Dmitry V. Zhukov, 2Chiara Sardo, 3Asad Ullah
1 Wuhan University of Technology
2 Luiss Guido Carli University
Abstract: With the increased globalization and interconnectivity, no economy of the world is able to stay immune to recessions. Similarly, recessions and crises are part of normal business cycle and hospitality industry is not an exception to it. Therefore, development of a crisis management system in the field of hospitality management has become very relevant. Several models have been developed to deal with the necessity of implementing successful crisis management strategies in hotel industry. However, no specific model has been conceptualized for small hotel companies, which, because of their peculiarities, require ad hoc crisis management strategies. Indeed, the small hotel companies are less resistant to crises because of inner characteristics: fewer resources and less specialized management. After reviewing the literature and by taking into consideration the specific characteristics of small hotels, a conceptual model is proposed in this paper. The model has been conceptualized in order to provide a highly flexible and universal tool, that can be adopted by various hotels in different countries and that can address different types of crisis, in different stages by using different approaches. This four stage model has been developed especially regarding the preparation stage and the crisis warnings’ detection: Indeed, preparation is the first step to a successfully crisis management strategy. A further ability of this model is linked to the possibility of working with potential crisis and to turn them into business opportunities.
Keywords: Crisis management, Small hotel companies, Crisis warnings, Preparation, Strategy
The development of crisis management in the field of hospitality has become very relevant during the last years: indeed, there is an increasing number of threats affecting the tourism and hospitality industry. Thus several models have been developed to deal with the necessity of implementing successful crisis management strategies.
However, regarding small hotel companies, no specific model has been conceptualized, especially regarding pre-crisis management, considering that practices and academics underlie the importance of being prepared as the first step to successfully overcome a crisis. Indeed, methodologies. Hotel companies are high vulnerable to crisis, even more vulnerable than any other tourism infrastructure.
As common hotels, small hotel companies facing a crisis suffer from reducing customers. Undeniably, a crisis always decreases the number of tourists: people, for instance, are less willing to travel when facing an economic crisis since, in such case, the first spends that they reduce are travelling spends. Moreover, such impact is further amplified by the inner characteristics of the small hotel companies. Due to their dimensions, small hotel companies have less resources for crisis’s resistance and less specialized management, with the proper knowledge that a crisis management strategy. Thus, the purpose of this paper is to conceptualize a model, specifically related to the small hotel business and aiming at creating procedure precisely matched with their structural problems.
The structure of this paper is the following: in the first part, I will conduct a review of the main tourism crisis management models present both in the literature and in the practice, to understand the main problems or needs emerged. In the second part we will illustrate the crisis management model that I conceptualized for the small hotel business.
2. Crisis Management Models Review
Despite the absence of a clear and share view of the concept of crisis management and its meaning, in the literature, among the academics an agreement, which can be considered a successful attempt to describe crisis management, has emerged: such agreement regards the definition of the constitutive processes of a valid crisis management strategy (Glassier, 2006). Such strategy consists in different stages, and for each stage a specific procedure, or group of procedures, most commonly: two as Peters and Pikkemaat (Peters and Pikkemaat, 2006) state that: “crisis management in tourism deals with the recognition of crisis within the destination and the recovery and rebuilding after crisis”; or three, as according to Heath (Heath, 1998), crisis management should consists of a pre-crisis stage (planning/preparing), a crisis stage, (reducing/mitigating the impact of a crisis) post-crisis stage (assessing the result of the strategy).
However, to determine the best strategy to deal with a crisis, several models have been developed. According to Clarke and Varma (Clarke and Varma, 2004), for instance, it is the type of crisis to define the strategy that should be implemented. They identified two main different type of crisis occurring: ‘Cobra’ and ‘Python’. A Cobra crisis is a suddenly occurred disaster, such as a natural event or a terrorist attack, while a Python crisis emerges more often from the internal environment of a company, by gradually affecting the ordinary activities, such as the implementation of an unsuccessful marketing strategy. Regarding response, a Cobra crisis requires a defensive approach, whereas a Python crisis requires a bureaucratic approach and a managerial rethinking.
The most popular model conceptualized for the tourism industry Faulkner’s (Faulkner, 2001) model: he described the steps of a proper crisis management strategy in a very systematic way. Thus, the main stages of this model are:
- Pre-Event stage: the creation of contingency plan and evaluation of scenarios and probabilities to avoid or minimize the impact of the crisis.
- Prodromal stage: implementation of the contingency plan since the crisis is no longer avoidable
- Emergency stage: due to the severe impact of the crisis people and property must be kept safe
- Intermediate stage: meeting immediate needs of people (crucial role of media communication)
- Recovery stage: the long-term perspective of recovery
- Resolution stage: evaluation and feedback
The high level of systematization of this model doesn’t leave space for unpredictable crisis occurring suddenly and generating negative impact in very short period, leaving no space for the implementation of a contingency plan. However, this doesn’t compromise its validity.
A study of a possible application of Faulkner’s model to terrorist attacks has been conducted by Henderson (Henderson, 2006), referring to the 2002 events in Bali. The result of the Henderson analysis was that the crisis developed at the emergency stage, quickly evolving to the intermediate stage. Moreover, despite the impact of the crisis have been mitigated and the long-term recovery stage started, when the international daily arrivals reached a level high enough to compensate the departures, the measured adopted were insufficient in order to solve the crisis: indeed, they proved to not have been aiming at identity the real issues or at developing pre-crisis management plans. Furthermore, the perception of the necessity of planning in the future to avoid facing such a crisis again didn’t arise, even if, in Henderson’s opinion, advanced planning is the key to a successful reduction of the prodromal stage.
In this regard, further models of crisis management have been conceptualized in to underlie the importance of implementing or considering a learning stage. Indeed, “essential point of crisis management is to break the sequence of the unmanaged crisis and to redirect events. Proper preparation can prevent some crises and minimize the impact of those which cannot be avoided.” According Evans and Elphick (Evans and Elphick, 2005), “the lesson is learned” when the crisis’s experience is translated into a detailed planning strategy including contingency plans, the definition of roles and responsibilities and the retaining of a degree of flexibility in order to react swiftly and decisively at an operational level without being tempted to rush into more strategic level decision-making. Indeed, the pre-crisis period of their model is dedicated mainly to increase the knowledge of the human resources and the management about the possibility that a crisis may occur and the importance of preparedness.
A further model developed around the concept of learning is the one conceptualized by Smith (Smith, 1990). This model is inspired by the Faulkner’s model but includes a learning process for each level of the model for different actors according to the types of crises identified: a crisis of management, an operational crisis or a crisis of legitimating. Thus, this model includes a feedback loop, which provides a solution for the crisis, and a double loop learning, during which the company assesses the experience and use the knowledge acquire to improve the contingency plans by returning to the pre-crisis stage.
The importance of including a learning phase in a successful crisis management model is proved by the strategy adopted in practice. Indeed, Heath conceptualized two iterative models, developed to favor an ongoing learning phase for each stage of a crisis: the MPRR, which consists in mitigation, preparation, response and recovery and the PPRR, which consists in prevention, preparation, response and recovery (Heath, 1993). The ongoing learning phase is linked to a proper human resource development strategy that must be implemented since the pre-crisis preparation stage of the models.
3. A Conceptualized Model
To implement an effective crisis management strategy in a small hotel company, the most important element to be considered is the level of efficiency presented by the crisis management procedures, with minimum resource spent in conditions of the deficit of time and disability of the environment. Due to the way small hotel companies are organized, quickly eliminating crisis warnings is difficult, but keeping stability and the status quo of the company requires the implementation of a crisis management model.
With the aim of optimizing the procedures of crisis management in small hotel companies, a model of crisis management in small hotel companies was developed. As seen in Figure 1, the model consists of 4 stages; all stages are focused on achieving results, the achievement of each specific result being fundamental for the successful implementation of the entire model.
The four stages of the model are to be considered independent and consequential. On the one hand, each stage can be completed, reviewed and modified before, or even without, moving to the next stage, so that the strategy can be reformulated several times without requiring to go through the entire process. To, move to the next stage requires that previous one has been completed.
The advantage of this model is that it allows small hotels to take into account the different variations of situations occurring in the small business sphere of hotel services during its stabilization and recovery.
The first stage of the model “evaluating crisis-warnings”, allows small hotels to diagnose the presence of crisis-warnings and to proceed in two different ways: either by quickly eliminating them, where possible or by reorganizing the ordinary hotel activities including extraordinary procedures aiming at eradicating the early crisis-warnings. A third possible way is to analyse the positive properties of these crisis-warnings, to establish new patterns of behaviour inside the hotel that can result in the creation of an advantage and in a new development path for the company.
The first stage is articulated in four steps. The first step consists in assessing the impact of the external environment and the internal environment on the ordinary activities with the main purpose of evaluating the performance of the hotel companies to define their status and their sensitiveness to eventual shocks. The assessment of the impact of the internal and the external environment can be conducted through a variety of assessment methods as follow:
- Quantitative assessment – involves the calculation of the indicators of the performance of the small hotel company during specific periods of time, by putting emphasis first on the joint work between different companies in the market, second on the internal effectiveness of the formulation of a particular strategy over a period of time and finally by comparing the indicators with those calculated in the previous periods.
- Functional assessment – overall assessment of the work of the small hotel company by considering the way the functional leadership carries out tasks and plans, as well as the consistency of the activities with a strategic direction;
- Analytical assessment – compares the results of the work done by the target small hotel company with the work of the competitors, by evaluating specific parameters previously established. The analytical assessment of the small hotel company can be completed by the hotel manager or the marketing department, where it exists;
- Expert assessment – conducted with the assistance of a specialist, capable of adequately and impartially evaluating the work of the small hotel company regarding specific position of the company in the market, or if necessary, the performance of the staff;
- Expert-analytical assessment – combining different methods of systematizing data results from previous evaluation either of the general activities of the small hotel company, or the activities of the single departments for a specific period, also considering the influence exerted by external and internal environment over the activities. The implementation of the assessment must be supervised or reviewed by an expert.
As a result of the performance’s assessment of the small hotel company, it will be possible to identify the presence of potential crisis-warnings affecting the activities of the company at various levels. In the absence of any crisis – warnings affecting the activities of the small hotel company, it is necessary to conduct similar checks quarterly, if the company is facing a period of stability, and monthly if the company is facing periods of rapid changes in the external or the internal environment. Assessing the activities of a small hotel company all is not only useful to identify crisis – warnings that soon can disturb the company, but it also contributes to identifying negative and positive business development background. It is especially important to note that the constant improvement of the service quality, the optimization of the staff, the financial, the strategic, the operating and the service areas, gives the ability to increase the level of crisis-immunity for the small hotel companies. This means that whenever, and even if, a crisis occurs, it would not result in emerging critical issues for the company.
An analytical assessment of the impact of the crisis-warnings on the activities of the small hotel company will represent the opportunity to deeper fully understand and consequently, to consider the possible solutions to the crisis-warnings regarding:
- Elimination – provide a quick solution to manage the early crisis-warnings and to continue the ordinary activity of the company (often possible mainly with the presence of early crisis-warnings developing in the internal environment);
- Reducing the influence – reducing the influence of the impact of the crisis-warnings on the ordinary activity of the small hotel company. To achieve this goal, it is necessary to optimize the activities either of the hotel in general or of the single departments, through the minimization of the impact of the crisis-warnings
- Adaptation – adjusting the ordinary activities of the small hotel company, taking into account the impact of the early crisis-warnings (when the crisis-warnings emerge from an external environment, it is usually difficult to eliminate them. In such situation, there is the need to conduct a specific adaptation of the activities to the changing market, taking into consideration the early crisis-warnings. The main objective of the company must be to manage these crisis-warnings to prevent, if it is possible, their transition to a crisis, which could strongly and deeply affect the company.
During the evaluation of the impact of the crisis phenomena on the activities of small hotel companies, all symptoms of crisis phenomena and their prerequisites, are eventually organized into classes of problems. The organization into classes is necessary when either there is a set of crises, already affecting the work of the small hotel companies, or there is one huge crisis, which affects different sides of the company. Formation of the crisis, phenomena into the classes is not accidental. If it subsequently and positive, the problems do not accidentally block something that specifically given point work small hotel companies to destabilize the proper working of small business at this point is exactly the problem that justifies the logic block definitions as “classes” of problems. Organization of classes of problems is also possible in case of accumulation of small hotel services as a result of lack of care management for timely diagnosis of your company for the anti-crisis prevention. The organization of the crisis phenomena in the classes of problems should be assessed for each symptom, crisis phenomena or their prerequisites regarding:
- The complexity of the solution: the complexity of decisive problems or resolve for a crisis phenomenon helps prioritize the solution of this problem.
- The speed of decisions: considering that almost always for a small hotel company there is the probability to face times of crisis, is, therefore, necessary to allocate the emerging crisis warning into different classes of problems according to the priority with which they should be handled;
- The Importance of elimination: in this case, it must be clearly understood that the sight of management of small hotel companies should address in the first place-what aspects of their businesses are most important to maintaining small enterprises of hotel services for a longer period. When applied to small hotel companies, more often than not, it is service and financial issues;
- The level of influence: an indicator or prediction of the crisis influence on the activities of the small hotel companies. Organization into the classes of problems from the first to the last will prioritize the primary work on these issues;
- The speed of growth: as a rule, during the process of facing a crisis of a company the primary responsibility during the crisis of crisis management is to address the shortage of work time. For small hotel companies, when crisis impact phenomena occur, it is also very important during the organization of classes for priority issues to put priority on addressing these situations given the quickly growing crisis conditions, phenomena or situations;
- The possibility of capitalization of circumstances: rare crises caused by internal factors, can carry positive properties for small hotel companies, but unfortunately, there is a recognizable infrequent potential of the positive effect of any crisis phenomena. However, this positive effect must be taken into account by the management of small hotel companies. Some potential positive effects can be seen, and in the implementation of crisis management should crises develop, taking into account the maximum impact positive impact in favor of small hotel companies.
Practically the organization of problems into classes, taking into account the factors: the speed of decisions, the complexity of the problem, the priority of the decision, the degree and speed of impact and the capitalization of circumstances, is defined through meetings between the crisis managers, the owners of small hotel companies, and the chiefs of departments. Moreover, during this meeting, those responsible for the elaboration of the crisis management strategy are appointed, taking into account the qualification and their level of specialization and ability to work with data.
The results of the first stage of work with the symptoms of crisis allow moving into a second phase: Selection of procedures of crisis management. It is important to note that the activity of control must be implemented not only during the periods of crisis, in order to address the one that already exist and attempting to eradicate it or reversing it in a positive way, but also in periods of unstable conditions emerging in both in the external environment and the internal environment of the small hotel companies. The first step of this second stage consists in identifying the procedures to eliminate the crisis, dividing between the situational ones, the short-term ones and the long-term ones.
A situational procedure applies in two cases: first, when the problem or the crisis occurred is short-lived and is not particularly critical, thus not requiring the engagement of a large number of resources and means to address it: seconds, the small hotel company has implemented a successful planning strategy guaranteeing a safe environment and the ability to manage the crisis so as not to imply the necessity of dealing with it through a long-term planning. Thus, situational procedures can be useful both if the influence exerted by the crisis over the small hotel company is not too relevant and if there is a lack of time for implementing a more comprehensive anti-crisis management strategy. As a result, the situational procedures are assessed regarding the consistency and the completeness of their capability for a solution to the crisis. The second step consists of the prognosis of the impact of the potential crisis, both on the general activities of the small hotel company and on those carried out by each department. Finally, a decision about the strategy for addressing the crisis is taken, and recommendations are given.
In case, the crisis presents a higher degree of relevance and proper time and resources are available, short-term and long-term strategies can be implemented to deal with the crisis. The choice of implementation between a short-term strategy and a long-term strategy must be made by taking into consideration the degree of the relevance the threat imposes and the speed of action available. First of all, the group decision, after consultations, formulates the crisis prevention procedure according to its level of consistency and efficiency in dealing with the crisis. Of course, it also makes considerations about the possible alternative procedures, a case under any circumstances, the main decision results not to be as effective as expected. In this case, the most efficient alternative procedure will be the one that will allow eliminating the crisis in the shortest period, by involving the least amount of resources. Once the decision about the operative procedure is taken, and the alternative ones are defined, it is fundamental to test how many the activities, both of the company as a whole and of each department, fit with the selected strategy.
During the formulation of the procedure and its evaluation, it is also necessary to make considerations about the resources required for the implementation. In facing the crisis, using the resources already available is the most reasonable way to proceed. For instance, if you formulate a specific crisis management procedure requiring financial resources, then you should consider only those funds that are already in place, and try not to rely on additional loans, credits and financial income that the small hotel company will receive in the future (i.e. profit). In case the constraints over the resources do not enable the small hotel company to execute the procedure that has been formulated, it is necessary to proceed through an alternative procedure. Undoubtedly, the formulation of the alternative procedure must take into consideration the weaknesses and the problems emerged with the previous procedure. In this case, in shifting towards an alternative procedure the small hotel company must be sure that resources required to address the threat are available. It is also important to remember that as soon as one of the alternative procedure becomes the main procedure in addressing the crisis, a further alternative procedure or a set of alternative procedures must be formulated, that would replace the main procedure in case it would prove to be ineffective or in case the internal or environment would change.
The adoption of the procedure and the formulation of its implementation to resolve the crisis, by eliminating the warnings or optimizing the activities, is the final step of the second stage.
The third stage is the operational stage through which the procedure chosen is fully implemented. It should be noted that according to the crisis life cycle the crisis warnings evolve first, into crisis symptoms, second into crisis phenomena and finally crisis situation. Each stage of this life cycle is characterized by different critical elements and produces a different impact on the small hotel company’s ordinary activities. Moreover, given how rapidly crises can evolve, in implementing a crisis management procedure it is fundamental to consider the variable of the time-deficit.
Every step of the operational stage must be implemented under the total control of the responsible manager. Furthermore, the operational stage is the stage through which the monitor and the evaluation of the alternative procedures in term of effectiveness must be conducted. This is because it is important to be able to shift quickly towards an alternative effective solution in case problems regarding the implementation of the main procedure arise. The operational stage is also the stage through which it becomes clear if the crisis emerging can be promptly addressed and absolutely eliminated. Moreover, it is possible to adjust and adapt the procedure according to the changing circumstances. It is fundamental to remember that if the previous stages have not been fully completed, and any previous emerging problem has not been adequately faced, this third stage can result to be the most complex and time-consuming one of the entire process. Indeed, it is easier to address the emerging problems and crisis’s implications during the previous stages than during this one. The extent of the monitoring step depends on the amount of time necessary to fully implement the procedure and the resources required: the longer the time and the larger the quantity of resources will be, the leading to a longer period of monitoring. For instance, monitoring the performance of the procedure, implying the improvement of the quality of the activities of the staff takes a longer time than the monitoring of a procedure aimed at optimizing operating costs, which still require less time than monitoring a procedure implemented with the purpose of improving financial condition, will take much more time, than focusing on already well-established service.
At the final stage, anti-crisis procedures must be tested. In this regard, for each department, the responsible manager must check and keep the report about the effectiveness of the anti-crisis package of measures implemented in that specific department. The assessment of the activities of each department must be conducted in a specific period. Assessment of the losses and the eventual opportunity of management emerged during the process of dealing with the crisis. It is important to note that the implementation of the final stage can be considered successful only if the time schedule is respected and if all the potential capitalization of circumstances deriving from the risks emerging from both the external and the internal environment are identified and involved in the implementation of a new strategy at the advantage of the small hotel company.
The fourth stage “prognosis of the situation” consists in monitoring the already implemented crisis management procedures and in forecasting the prospects of their impact on the future development of the small hotel company. The first step is to monitor the activities during the crisis period. Draw conclusions based on the outcome of the integration of the crisis management procedures implemented in each department, describing the main results achieved. First, an assessment of the general activities implemented must be conducted. Second, the activities of each specific department must me mapped separately and evaluated regarding their effectiveness in addressing the event. The second step is the assessment of the prospects for the development of the small hotel company, which includes the formulation of strategies for development in the short, medium and long-term. The assessment is conducted regarding the major features and directions of the possible development path, by a comprehensive balance of internal and external development of the parties, taking into account the risks and development prospects. Practically, the final stage of the implementation of the procedure addressing the crisis consists in the necessity of choosing one of the following final solutions for the future development of the small hotel company: liquidation, business diversification, downsizing the business, the acquisition of a competitive advantage, progressive development.
Liquidation is a solution if crisis management procedures have not proved to be effective, the procedures to improve the health of the company have been carried out too late, the crisis has emerged from the external environment causing an absolute negative impact on the small hotel company so that the business has ceased to be profitable. The liquidation allows preventing unnecessary losses of time and financial resources, as well as the accumulation of debts; that anyway could not be useful in saving the company. Liquidation can be a useful solution also in case the small hotel company in not facing a crisis but is losing competitiveness: such option allows releasing resources to start more profitable businesses.
A diversification solution is a reorganization of the strategic, financial and other activities of the company with the aim to rationalize and to improve the profitability of the business. Diversification must be conducted considering either if the market is going through stabilization so that there are potential new profitable investment opportunities because of the presence of extensive developing business, or if the level of the performance of the market is lower than the one of the pre-crisis period. Moreover, diversification in times of crisis provides an opportunity to reallocate the risks and take advantages of the positive reverses of the crisis.
Downsizing business can be implemented only if there are the margins for such a strategy. The decision to implement this procedure usually is a signal that a transition to a pre-bankruptcy stage is beginning. Companies opt for a downsizing strategy most commonly in case the market is represented by small hotel companies, and the crisis management procedure was carried out in a comprehensive manner, by influencing the whole network. Moreover, during the implementation of a downsizing strategy, still it is fundamental to proceed through considerations of anti-crisis management nature, especially if the prospects of recovery are still not clear, and the crisis is affecting not only that specific industry, but the economy as a whole.
During the implementation of anti-crisis procedures and in the aftermath of the crisis, being able to gain competitive advantages is a critical challenge for the small hotel companies.
Gaining competitive advantages in practice is possible when the company on one hand successfully fully catches the positive opportunities deriving from the crisis phenomenon, and on the other promptly reduces the exposure to the negative sides of the crisis, thus effectively managing risks, by gradually reducing their impact on the small hotel company. Besides, implementing an anti-crisis procedure gives the small hotel company the ability to gain a competitive advantage; it is the most effective way for the company to face and survive the crisis and to restart a rapid path of development.
Progressive development implies the implementation of an intensive strategy of business growth aiming at increase the income, timely produce innovation, continuously improve the service, and attract new guests and conduct and active business development by penetrating new markets. Furthermore, during the implementation of progressive development strategy, a few variables must be considered: the minimization of the risks to avoid a possible future crisis, the improvement of the profitability, the progressive creation of innovations as a key element in gaining a sustainable competitive advantage.
Figure 1: Model of Crisis Management in small hotel companies
Nowadays, crisis management has become fundamental in the field of hospitality. In particular, the features of the small hotel companies require the development of specific models of crisis management. By taking into consideration these characteristics, the model illustrated in this paper has been conceptualized so to provide a high flexible and universal tool, that can be adopted by different countries and that can address different types of crisis, at different stages and using different approaches. Indeed, the four stages evaluating crisis warnings, selection of procedures of early warning crisis management, operational step and prognosis of the situation, combine different assessment methodologies aiming at defining proper procedures for dealing with a different stage of a crisis lifecycle. Moreover, since the lack of expertise and a proper managerial knowledge is the main issue affecting the real ability to face a crisis for the small hotel companies, the main aim of the model is to develop successful managerial practices especially regarding the preparation stage and the crisis warnings’ detection. Undoubtedly working at the pre-crisis stage is easier than working at the post-crisis stage, since it contributes avoiding crises, if possible, or at the list to reduce their impact. A further ability of this model is linked to the option of working with potential crisis and to turn them into business opportunities: the pre-crisis’s assessments provide the possibility to identify the presence of issues that could potentially evolve into a crisis stage and to implement an ad hoc strategy that can also result in increasing efficiency a competitive advantage for the small hotel companies.
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