Strategic Alliance at Galleria

Introduction

Galleria is a property developer and hotelier in the mid level hotel industry (Brown, Watkins and Smith Consultants, 2010). It is in need of seeking new business opportunities and avenues of growth. National trust is a conservationist, UK tour provider and property developer; it is looking to expand its financial capabilities (National trust, 2009). The paper shall examine the possibility of a strategic alliance between these two organisations.

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Background, target market and service concept

Management at galleria would benefit from a concept that reflects diversification. Galleria’s location, its history, and its setting i.e. the beautiful scenery are ideal for cultural retreat services aimed at the mid-level consumer. In this case, the vision behind this new initiate is offering members of rural UK good food, comfortable rooms, and a beautiful ambiance. The tagline for this concept will be ‘to relax in rustic tranquillity’. This idea will basically be driven by the need to offer hospitality to people such that they can enjoy themselves. It will focus on providing comfort in the best manner possible. Heritage and culture will be the foundation of this service offering and the Galleria group members will be passionate about service and product delivery.

In essence, the service concept will be based on a flat structure so that versatility among the employees is encouraged. Such high levels of decision-making will contribute towards greater responsiveness to consumers as well as greater commitment from staff. This new service will be informal in nature so as to encourage interactions. Customers will be provided with a meeting point at the reception where they can use their computers or other related features.

The Target market for this new service will be consumers who value cultural and historical aspects of a holiday as well as outdoor activities. In the past, galleria has largely been focusing on the former aspects which are related to cultural value. However, there is a large consumer base out there that would appreciate the outdoor experience while still enjoying the other services.

The choice to introduce a new service to a new market can be backed by literature on growth strategies. Within the Ansoff matrix, there are a number of prerequisites that a diversification strategy must possess before embarking on such an endeavour and Galleria needs to make sure that such qualities are present, these include better-off tests, cost of entry tests, and attractiveness tests. (Adkins, 1981), (Ansoff, 1958). The better-off test for Galleria implies that either the company can offer the new unit a competitive advantage or the new unit can give a competitive advantage to the firm. (Barton, 2008). For the case of Galleria, it will definitely be a plus on its part if it created a new unit with a strategic partner as it would benefit from resource synchronisation as well as the merger of ideas. (Ferrier & Lyon, 2002). The cost of entry test implies that the new venture will not affect future profits for the company. A strategic alliance for the company actually has the potential to increase instead of compromise on the profits that the company is using. (Luxenber, 2004)

Finding the right partner and the growth they can bring

The company chosen to achieve these results is National trust the UK. This company’s major objectives are to provide public access to gardens, historic houses, and monuments that are under its ownership. It, therefore, places a lot of emphasis on property management. Similarly, Galleria has interests in the property sector especially in relation to its hotel. Besides, National trust offers hospitality services; here individuals pay to visit their properties. Galleria is also in the hospitality business and would therefore work well with the National trust. The goal of Galleria is to appeal to a new market by offering a different service. The corporation is looking towards establishing itself among conservationists as this is the main market segment that National trust focuses on. It can do this by owning properties that are centred on this very principle and National trust would be a very appropriate choice. These two firms are definitely like-minded in terms of the importance they attach to the cultural values of the UK (Galleria does this through its artistic collections while National trust demonstrates this through its historical monuments). As Galleria thinks of diversification, it can best achieve this through the use of strategic alliances. This is because the right partner can provide Galleria with an opportunity to extend its market reach, access resources, and information, strengthen the credibility of Galleria in the new market, and access markets that were previously unavailable to galleria (Livant & Amit, 1988).

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The issue of conservation is quite new to Galleria because the company has mostly been focusing on the hotel business. However, this new venture will likely appeal to the new clientele because common interests exist between these two companies. The most outstanding commonality between them is hospitality. In other words, clients who may be traveling or touring different parts of the UK come to both these firms for services. They go to the National Trust in order to visit their properties and to Galleria in order to get a place of accommodation. Another common aspect to clients from these two firms is their interest in local heritage. Nonetheless, Galleria has not been keen on conservationists yet the latter market segment represents an immense part of the population. The company could benefit from an increased customer base. It can be said that having a joint venture with National trust would make Galleria’s business strategy an example of horizontal diversification (Hoskison, 1987). The latter term mostly refers to those companies that can add a new service or product to current ones at Galleria if the services are not commercially related to Galleria’s former offerings. In this case,

The national trust would be an applicable choice for Galleria group because the latter company is operating in a very competitive environment. It needs to increase its profitability as well as its flexibility. Galleria needs to establish itself as a strong player in the hotel industry. It will be better received within capital markets if it chooses to employ such a strategy. By simply focusing on its core activities, Galleria could become vulnerable to market contraction. Therefore, teaming up with national trust is a great way of eliminating such occurrences and embracing new opportunities.

National trust can bring growth to Galleria through increment of its economic value. (Grinye & Bazzaz, 1980). This implies that the profitability of the company will go up. This form can therefore complement Galleria’s activities quite well. Galleria will probably learn how to make use of its resources more efficiently especially because it engages in property ownership much like its strategic partner. Galleria will also exploit other ways of delivering their services by examining how this is carried out at National trust. There will definitely be great ways of studying the value of diversification for these two companies. Also, because the joint venture will last for short time – maybe seven years or so – then Galleria need not worry about making a permanent commitment to the latter company. (Lamont et al., 2004)

Whether there is a strategic fit between the two companies

In order to understand whether there is a strategic fit between the two companies, it may be essential to carry out a PEST analysis so as to determine if these institutions face similar challenges. In the political environment, Galleria is currently dealing with variations in local government regulations for property establishment as different local councils have different requirements for real estate development. National trust could offer a great learning opportunity to Galleria on this. In the economic environment, both companies have been dealing with the effects of the global recession. They would therefore benefit from resource pulling as this would give them economies of scale and thus grant them the opportunity to lower their prices and increase competitiveness. National Trust is currently looking for ways of increasing the profitability of their ventures so as to minimise overreliance on external parties. It can therefore learn these strategies from a commercially based company like Galleria. Within the social arena, many guests are currently looking for quality in service offerings as standards in hospitality are being raised. Galleria and National trust could learn from one another in terms of the ways in which they can handle various guests and the challenges therein. Lastly, technology is bringing new ways of doing things. Firms can improve on their services and communication with clients, suppliers, and other partners through these technologies. Additionally, consumers are becoming more demanding because they are more informed. Galleria and National trust could gather and share information thus strengthen their abilities to meet consumer needs. (Krohmer et al, 2005).

The major advantage of National trust as a strategic partner is that the company will bring new clients to Galleria. It also has tremendous experience with the UK hospitality market and fully understands its inclinations. Additionally, it has a huge customer base with over three point six million members and fifty-five thousand volunteers. It is located in various parts of the UK and would therefore offer Galleria a wide scope of coverage. In terms of company values, there is a major advantage in the fact that both companies offer their managerial staff opportunities to make decisions albeit under the approval of top management. The major disadvantage with National trust is that it is charity-based. Consequently, business values that drive Galleria may not be applicable within National trust. To this end, care must be taken in order to ensure that the two companies do not collide. They can overcome this by clearly stating the objectives of the strategic venture beforehand. Another disadvantage lies in the differences in their customer bases. Galleria operates in a highly competitive environment and this has therefore minimised its consumer base. Conversely, National trust has spread throughout the UK and has a wide customer base. This may impede the National trust’s ability to see the benefits from such a venture as it may feel that it could be bringing more to the table than what Galleria has to offer. It may also be disadvantageous for Galleria to engage in a joint venture with a firm that has a flat structure. Galleria is more hierarchical in nature since various business units are expected to conform to the company’s overall image and this often leaves decisions in the hands of senior management. (Bennyhoff, 2009)

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After examining the advantages and disadvantages of these companies, it can be seen that there are more similarities than differences. Their locations, company values, and business needs are similar thus making them ideal for one another. Even the differences can be turned into opportunities since serving different client bases makes them complementary. (Munk, 1991)

Nature of implementation strategy

The first item in the agenda after identifying National Trust as a strategic partner is curving out the structure, objectives, and nature of investments to be made by both companies. In this case, the overall objective of these two organisations is to increase financial performance by exploring new ways of service delivery and by reaching new clientele. Financial contributions can be determined based on the ratio of assets owned by these two organisations (Harrison & John, 1999). Thereafter, the companies shall specify the services that will be offered under the new joint venture. In this case, these companies will be offering hotel services for “green” oriented consumers who visit National trust’s properties. Therefore, this part of the implementation will involve identifying which facilities from Galleria and National trust will be used to offer such services. The two companies will then estimate the price of their services and the resources needed to carry out their new strategy. Shortly after, a market analysis will be carried out by identifying unique elements in the target market (Scheid, 2008). A detailed projection of operational aspects will be determined. This will include all aspects of supplies, transportation, waste, utilities and the like. There will also be a number of transfer costs that may have to be covered within this arrangement. Staff members involved in this venture will need training and other preparations because they will be required to offer services that they were not accustomed to before. Perhaps the most critical aspect of this implementation plan is the financial aspect as it will ascertain whether the venture will be worthwhile or not. Projections need to be done accurately and soberly. Because conservation will form a critical part of this venture, therefore the environmental impact of the move will need to be carried out. However, the latter must also be coupled with other social benefits that this company can be facing in the future. (Leontiades, 1986).

The major advantage of this implementation phase is that it will work on the knowledge and resources of both partners. Additionally, it considers the assets of both firms in determining types of investments. It also minimises the risks associated with entry since each partner will contribute to the project. This implementation relies on the goodwill of both firms and therefore strengthens the likelihood of success.

Its major disadvantage lies in the fact that the diverse philosophies of the two companies may impede their ability to achieve set objectives. It may lead to imbalances in investment levels by these two organisations thus causing a serious problem in the way the companies operate. Corporate cultures between these two companies are different and this may lead to disagreements when deciding on staff-related issues (Chua & Page, 2009). The partners may also fail to agree on the enumeration of their respective partners and this may lead to serious problems as well.

Conclusion

Businesses need to be aware of the risks that come with pursuing joint ventures. In this case, National trust and Galleria are teaming up to offer hotel services for nature-oriented visitors from National trust. These two companies have a strategic fit because their business objectives of financial increments are similar. Their interest in culture and hospitality also makes them a good fit. However, they must contend with the fact that they do possess differing philosophies and an atmosphere of compromise would make the arrangement work.

References

Brown, Watkins and Smith Consultants. (2010). The Galleria hotel group. Industry report.

National trust (2009). Annual report. National trust annual report 2008-2009.

Livant, J. & Amit, R. (1988). Concepts of conglomerate diversifications. Management academy journal 28, 593.

Chua, D. & Page, S. (2009). The myth in diversification. Portfolio management journal, 3, 45.

Grinyer, P & Bazzaz, S. (1980). Strategy and financial environments. Management academy journal 24, 471.

Leontiades, M. (1986). Success strategies within conglomerates. MA: Addison Wesley.

Krohmer, H., Eorkman, J. & Homburg, C. (2005). Strategic performance and consensus. Journal of Strategic management 20, 358.

Bennyhoff, D. (2009). Horizontal based allocations. Investing journal, 3, 15.

Adkins, L. (1981). Divestitures – new business rage. Dun’s review, 111.

Luxenber, S. (2004). Diversification strategy raise doubts. Real estate investor magazine.

Scheid, J. (2008). Return gaps, correlation & benefits of diversification. Portfolio management journal, 3, 456.

Ferrier, W. & Lyon, D. (2002). Enhancing performance through market – product innovation. Managerial issues journal, 14, 452.

Ansoff, H, (1958). A diversification model. Journal of management science, 4(12), 392.

Lamont, B. Dan, M & Geiger, S. (2004). Top management fit and diversification strategy. Managerial issues journal, 17, 361.

Munk, N. (1991). How Levis trashed a great US brand. Fortune, 83.

Hoskison,. (1987). Contingency of diversification. Management academy journal 30, 625.

Barton, S. (2008). Diversification strategies and systematic risks. Management academy journal, 31, 166.

Harrison, J. & John, C. (1999). Manufacturing based synergy, coordination and relatedness. Journal of strategic management, 20, 129.

Strategic Alliance at Galleria
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