Strategic Management: A case study on Airbnb
Introduction
There has been a steep competition in the global market and companies are adopting various strategies to stay in the competition. Strategy can be defined as a comprehensive plan for the effective implementation of techniques so that the mission and objectives of the company can be fulfilled (Kerzner and Kerzner 2017). Strategic management involves aspirations, action combination, circumstances and opportunities. It helps an organization to evaluate its position. There needs to be uniqueness in a strategy that others cannot imitate. Airbnb is a popular American company that was founded in 2008 (Airbnb 2018). It came into the accommodation business through offering its services to the customers globally for booking, listing and learning about the unique facilities being provided to them through internet. Airbnb is one of the companies that has been successful and revolutionized in the way that people think about travelling. The report discusses about the strategic management of Airbnb taking into consideration the internal as well as external environment analysis of the company.
External Environment Analysis
The analysis of the external environment helps in understanding the external factors that have considerable impacts on the business (Schaltegger and Wagner 2017). It can be subdivided into two segments namely micro environment and macro environment. The micro environment includes the factors that have direct effects on the operational activities of an organization. On the other hand, the macro environment considers the aspects that a business organization has negligible control. The tools used in the analysis of the external environment analysis are PESTLE and Porter’s Five Forces Model.
Porter’s Five Forces Model
It is another significant model that helps in understanding several factors that are affecting the company in several ways.
Intensity of Rivalry
The intensity of rivalry is medium as the company is the first to establish the business models in the industry of internet-based home accommodation. Some companies in this industry has imitated the business model of Airbnb and started developing some markets like the one in China. There are some existing companies who are competing with Airbnb in specific areas such as Expedia, Booking.com and TripAdvisor. Airbnb has the options of controlling these risks by developing the new markets continuously and penetrating the existing market. It can enter into partnerships with other organizations that can provide complementary services such as tours and transportation.
Threat of New Entrants
The threat of new entrants in this industry is very high as it is very easy to enter in the market. Any new company can enter in the market to compete with Airbnb and take away some of its shares. The initial cost of starting an online business is also very low and this is compelling the companies to start new businesses in this sector. In China, many small companies created good markets when Airbnb did not start its business. Airbnb has very negligible control over it.
Threat of Substitutes
The threat of substitutes in this industry is medium. The reason is that a guest has the option of substituting the experience of a hotel or choosing not to travel. The company can reduce this threat by increasing the customer engagement, attracting the hosts to ensure various market offerings such as experience, price, and location and so on.
Bargaining Power of Buyers
The bargaining power of buyers is very high in this industry. The buyers are very sensitive to the issues of safety and security, instability situations and rumours in the country. Bargaining Power of Suppliers The bargaining power of suppliers is medium in this industry since there are abundant suppliers who rent their own houses. Some of the countries have started new regulations in New York and San Francisco. These are not enough to encourage hosts. Airbnb has very less control over this issue. The company can encourage more customers by creating more customers.
PESTLE Analysis
Pestle is a valuable tool that helps in understanding of the external factors that can affect a country.
Political
Airbnb is belonging in a unique business. People provide rent their apartments, rooms and homes to unknown people. The company has been engaged in many legal matters. Some of the locations do not follow the rules and regulations of housing. The company has been fined and there was a court proceeding in Barcelona, New Orleans and New York. The company did not follow local laws of tourism.
Economic
Airbnb is a company which is a leader in an industry of shared economy. The trend of sharing resources among the individuals or between an individual and an organization is developing with time. Uber can be a good example of utilizing shared economy. Airbnb is growing very rapidly and has become a major competitor for many companies in the hotel industry. There has been an exponential growth of Airbnb who has offered jobs to people offering homes to the guests. Many states have been benefited through the generation of millions of full-time jobs.
Social
Airbnb provides new experiences to the society. Hosts have the chance to share their experiences and Airbnb has been benefited through word of mouth.
Technological
The company is heavily dependent on technology. Visitors do the bookings through the company’s websites. It uses automation systems. Airbnb automatically responds to the queries of the hosts and texts them when they do not respond to the guests.
Legal
Airbnb has faced legal problems as it was unable to comply with the housing regulations. It has agreed to follow the taxation and the regulations of tourism and housing.
Environmental
Airbnb has reduced the consumption of water and increased environmental awareness.
Internal Environmental Analysis
The internal environment of a company considers the several types of resources such as human resources, technology, physical resources, monetary resources and many others that constitute an organization.
Value Chain Analysis
The primary activities include the proper coordination of the company with the suppliers of beverages and food and providing value to the customers. The Service Activity Group performs in increasing the bed value being rented by the guests. The inbound logistics of Airbnb include finding a proper place or building a new one to rent a place. The building is very significant for the business of Airbnb. The marketing and sales segment of Airbnb includes the improvement of their recurring business as well as gathering of data in the Platform Stack (Kale 2017). It includes the advertising of the operations and the facilities being provided by the company through the various promotional tools. It also includes reserving the rooms for the guests and scheduling their arrival.
The activities of the operations segment include keeping the rooms clean, preparation of commodity, securing a proper place, providing the relevant information to the guests who will be booking the rooms and abide by the rules of tourism and reception of the hosts as well. The after sales services include Host Protection Insurance of Airbnb that acts as a primary insurance coverage (Airbnb 2018). The company is working in on-demand economy. Airbnb also provides complementary offers to the customers such as discounts in the booking cost and increasing the stay for one or two days for free. The technology used by Airbnb includes the online booking system by the customers and at the same time reducing friction and enhancing the perceived value. In case of HR activities, the employees are connected to free agents rather than the online platform. Ratings acts as a key part of the platform stack. The infrastructure of Airbnb includes planning, government affairs, accounting, general management and quality management (Baille 2016). The company facilitates these through the online platform.
Strategic Analysis
Some of the tools of strategic analysis are SPACE Matrix and Grand Strategy Matrix.
Grand Strategy Matrix
The grand strategy matrix is a valuable tool for formulating alternative strategies (Sarma 2016). It is based on four critical factors such as rapid market growth, strong competitive position, weak competitive position and slow market growth. These four elements are the four quadrants of the matrix. The company has a strong competitive position in a rapid-growth industry and it must continue with the help of the strong competitive position for the enhancement of the growth rate. The position of Airbnb is in the first quadrant of the Grand Strategy Selection Matrix that defines that the company has rapid market growth and medium competitive position.
SPACE Matrix
One of the theories of organizational ethics is the Stakeholder Theory. The Stakeholder Theory states that the stakeholders of a company take into consideration any individual being affected by the organization and its operational activities (Cordeiro and Tewari 2015). The stakeholders are those without the support of whom, the organization cannot exist. These can be employees, customers, political action groups, suppliers, the media, local communities, financial institutions. Airbnb had been under intense scrutiny because of being unethical. The company has been in a legal dispute with the attorney general of New York whereas Germany has passed new laws regarding housing to stop the ways the company works in some of its cities (Bemusedbackpacker 2017). Airbnb was also fined €30,000 because of breaching of tourism laws (Coldwell 2014). Participative leadership is popularly known as democratic leadership. Brian Chesky is one of the greatest leaders in the world who is having a participative form of leadership. Airbnb had a huge profit under the leadership of Brian Chesky (Gallagher 2017). He was one of the founders who was not having any prior experience but helps the company in scaling through the generation of safety incidents and managing the company during crisis.
Conclusion
The report helps in gaining an insight into how the companies take the help of certain tools for analysing the internal as well as external environment. The corresponding report discusses about the micro and macro environment analysis of Airbnb, an American company. The company profile of Airbnb has been considered. Some of the tools such as Porter’s Five Forces Model and Value Chain analysis have been considered for Airbnb to gain an understanding of the strategic position of the company. Strategic tools such as SPACE Matrix and Grand Strategy Matrix have also been mentioned in the report.
References
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- Coldwell. W. 2014. Airbnb’s legal troubles: what are the issues? [online] Retrieved from: https://www.theguardian.com/travel/2014/jul/08/airbnb-legal-troubles-what-are-the-issues [Accessed 7 March]
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