CHAPTER THREE
ENVIRONMENTAL ASSESSMENT
By Maris Chen for Dr. DeMicco
OBJECTIVES
1. Describe the importance of the environment in making strategic decisions that are
future oriented.
2. Define the major concepts underpinning the environmental assessment process.
3. Explain the dynamic and complex nature of the business environment.
4. Identify the challenges and uncertainties associated with the business
environment.
Vision Future
1) Describe the importance of the environment in making strategic decisions that are
future oriented.

Visioning the future is the ability to understand how the business environment provides opportunities
and threats. This ability begins by asking, and answering, the questions outlined below.
 How will the guests be traveling in the future?
 How will be guests be communicating in the future?
 How will be the firm’s products and services be distributed to the guests in the future?
 What new customer benefits will be needed to meet future demand?
 What competencies will be needed to serve the guest in the future?
 What standards will be accepted in the future?
 What will be successful hospitality firm look like in the future?
 What new competitive methods will demand the majority of your resources in the
future?
Please read article 1-4 and 10 to gain knowledge of the trends in the hospitality industry.


Parable of Boiling Frog
What does the parable of the boiling frog tell us?
The need for anticipating the future and monitoring change and developing a forward- thinking
philosophy.
Ex1: Disappearance of small roadside due to ignorance the signs of a warming competitive environment.
Ex 2:Failure of Hotel Corporation of America and Victoria Station Restaurant because the owners failed
to recognize changing consumer patterns and shifts in capital market requirements.
Please read page 63 and 64 in the textbook for the details of these examples.
These examples demonstrate that to be at the cutting edge, managers must develop the ability to identify the
forces driving change, understand the variables making up these forces, and assess how they will impact the
organization.



Rearview Mirror
The metaphor of Rearview Mirror: we try to interpret the future by looking at the past.
Ex1: Managers count on boomers driving their unlimited growth plan.
Ex 2: Managers have usually relied on basic forecasting models to project future cash flow.
Please read page 64 in the textbook for the details of these examples.
What the metaphors of boiling frog and rearview mirror suggest is that to be effective in tomorrow’s
competitive and complex environment, managers must develop a forward-thinking philosophy.
Major Concepts
2) Define the major concepts underpinning the environmental assessment process.

Managers today must enhance their conceptual toolbox to understand the complex and dynamic nat
ure of the business environment.

The more tools and frameworks that managers possess, the greater likelihood that they will come up
with better solutions.
The following slide contains a list of these key concepts essential to understanding how to
manage changes in an increasingly complex environment. Please pay attention to their definitions.
Concepts of the Environment
Environmental Volatility
Perception is Reality
•Objective measures
•Subjective measures
Environmental Dimensions
•Uncertainty/dynamism
•Simple/complex
•Illiberality/munificence
The Power and Rules
Dimension
Environmental Domain
•Remote
•Task
•Industry Segment
•Firm
•Functional
Environment
Major Issues in
Environmental Analysis
•Lack of clarity, reliability
and validity of information
•Uncertainty of causal
relationships between
organizations and their
environments – impact upon
the firm
•Time span of feedback about
attempts to manage within
the environment is often too
long
Perception

Perception
 Perception is the mental image we develop regarding our world. This image is based on past
experiences accumulated throughout life.
 Many opportunities or threats are missed because we are viewing the world from a small
perceptual window.
 Perception is also a function of emotion. Often, it is emotion rather than objectivity that
controls how the environment is viewed and subsequent decisions made.
 The strength of the cognitive skills of each individual involved in scanning the business
environment can improve the perceptual abilities.
 Perception is also a function of emotion. Often, it is emotion rather than objectivity that
controls how the environment is viewed and subsequent decisions made.
The following slide illustrates the relationships among uncertainty, information ,
perception, and cognitive process.
The Relationships among Uncertainty, Information,
Perception, and Cognitive Processes
Amount and
Quality of
Information
Range of Uncertainty
To enhance the perceptual
window through:
utilizing a wide range of
Information of high quality;
expanding cognitive skills;
building on a wide range
of previous experiences.
Ex: To contemplate an investment
in a new marketing database.
 Please read page 68 in the
textbook for the details of
this examples.
Individual
Perceptual and
Cognitive
Processes
Previous Experience
Uncertainty

Uncertainty
 Uncertainty is defined as the degree of change occurring in the environment and the rate of
that change. The old phrase “Nothing is more certain today than change” clearly states it all.
 Changes is generally function of value drivers.
 Uncertainty results from a wide range of activities emanating from the actions of competitors,
suppliers, customers, and regulators.
 In these contemporary times, few business have the luxury of a stable environment. It
continues to grow more uncertain as the world moves toward greater globalization.
The variables that contribute to uncertainty and related examples are identified in the
following slide.
Complexity

Complexity
 The larger the number of variables, the more complex is the environment.
 The number of potential variables for complexity can be compounded for hospitality firms that
operate in several market areas and/or internationally. Each market area has its own set of va
riables.
The exhibit on the next slide shows that many potential variables can be an active part of a
business environment.
Munificence

Munificence
 Munificence refers to the amount of potential capacity for growth that exists in an industry
environment.
 In today’s mature hospitality environment, few would suggest there is much excess capacity.
Ex: The restaurant industry in the United States, with an approximate ratio of one restaurant f
or every 330 people.
 The less munificence in the environment, the more unforgiving it becomes. Illiberality is often
used to describe this intolerance.
Uncertainty & Complexity
3) Explain the dynamic and complex nature of the business environment.
Uncertain or Very Volatile
The wide array of
different symbols,
shapes, and sized
indicates much diversity
and variability and
many variables——
Complex and uncertain
environment
Simple
Complex
Few symbols of the
same shape and
similar size indicate
few variables——
Simple and stable
environment
Certain or Very Stable
Uncertainty & Complexity
This exhibit is developed based on the one in the previous slide.
uncertainty
Ex:High
Customers’
taste
High uncertainty
Less complex
High uncertainty
High complex
Simple
Ex: •
Hotels in New
York have high
occupancy
due to a lot
of travelers
Ex1:
Changing
menu weekly
in Seaon52
Restaurant:
Ex 2:
Hotels in
Atlanta during
this tornado
Complex
Low uncertainty
Less complex
Low
uncertainty
Low uncertainty
High complex
Ex:
The process
of producing
deluxe food
Complexity Dimensions
Complexity Dimensions
Ex: Disney parks outside US
such as European and Japa
nese confront the need to ad
just their operation to local
culture.
Ex: Virtual meetings online
are beginning to replace quick
business trips by one or two
executives.
• Number and variety of suppliers
• Geographic concentration of
suppliers
• Dispersion of the labor force
• Number of brands in competition
• Number of political bodies
affecting market
• Economic variables creating risk
• Concentration of customers
• Number of potential target markets
• Degree of social/cultural diversity
• Variety and volume of businesses
in market
• Potential substitutes for products/
services
• Number of steps in the service
delivery process
• Interdependencies among firms
Ex:
Since 1996, more than 14,000
new regulations have been
enacted in the U.S.
Restaurant operators will have
to spend a growing fraction of
their time coping with
government regulations.
Article 3“Global Development
Pipeline”:
The figures in the article reveals
the volume of hotel market
worldwide.
Uncertainty Dimensions
Labor supply:
“Productivity is likely to suffer to as
Baby-Boom executives are replaced
by their Generation X and Dot-com
successors.
Restaurants depend on automation
to make up for shortages of workers.
Labor cost:
Hospitality industry has depend
more heavily than most of female
employees.
Women’s salaries grew from 61%
of men’s in 1960 to 76% in 2003”.
Article 7:Restaurant drive-throughs
face the uncertainty whether they
will be regulated because of their
environmental impact.
Article 8: The probable menu
labeling bill for restaurants.
Uncertainty Dimensions
• Prices charged by suppliers/
competitors
• Labor force supply and cost
• Demand curve for products and
services
• Cost of Capital - Capital availability
• Financing opportunities
• Competitive methods used by
competitors
• Regulatory activity in the market
area
• New product introductions
• New entrants in the market
• Taxation
• Product quality expectations
• Technology
• Cost of raw materials
• Overall economic conditions
• Real estate values
• Safety and security
• Changing profile of labor force
Article 5:Spa hotels have more
pricing advantage compared to
their competitors without spas.
Article 2:The demand of group
travel is increasing and group
travel is becoming a major growth
opportunity for the hospitality
industry .
Article 8: whether restaurateurs
negotiate lower transaction fees
successfully would affect
operating cost and benefit the
capital in restaurants.
Ex: according to customer
demand, hotels have offered
new service from free internet
access to Wi-Fi.
Uncertainty Dimensions
Uncertainty Dimensions
Article 9 says increasing wheat price
would lead to the higher price of raw
materials such as beef and dairy for
restaurateurs.
Restaurants:
Food contamination has become a
greater threat. Hiring security
experts to look for vulnerabilities
in restaurants.
Hotels:
Hotels have become soft targets
of terrorism attacks such as the
Marriott Hotel Complex in Jakarta.
Security cameras, electronic locks,
and increased identity checking.
• Prices charged by suppliers/
competitors
• Labor force supply and cost
• Demand curve for products and
services
• Cost of Capital - Capital availability
• Financing opportunities
• Competitive methods used by
competitors
• Regulatory activity in the market
area
• New product introductions
• New entrants in the market
• Taxation
• Product quality expectations
• Technology
• Cost of raw materials
• Overall economic conditions
• Real estate values
• Safety and security
• Changing profile of labor force
Ex:
Virtual meetings online are
Beginning to replace quick
business trips.
Ex, the increasing price of gasoline
and unexpected economy recess.
The work ethic is vanishing.
Finding motivated, reliable workers
is likely to be much harder. Keeping
motivated employee will require
constant attention from managers
and upper executives.
Readings
Article 1 – Hospitality 2010
Article 2 – Group Travel Is Booming Niche
Article 3 – Global Development Pipeline
Article 4– Trends (Audio)
Article 5– Luxury Hotels with Spas Have Greater Pricing Power
Article 6 – Bill introduced to check credit card fees
Article 7 – Cities Examine Environmental Impact of Restaurant Drive-throughs
Article 8– Chicago alderman resurrects menu-labeling bill
Article 9– Wheat shortage fears cause futures prices to reach record highs
Article 10 – The Hotel Asset Manager’s Guide to Information Technology Turnaround
Chapter Questions
1. What was not the reason that many motels and restaurant failed in the 1960s?
They did not realize that some chain companies were emerging.
They did not see the warning signs of a competitive environment.
They did not recognize the change of customer patterns.
They did not see the new technological development in the industry.
They did not follow the shifts in market requirements.
2. When an individual is able to maximize the information scanned, the cognitive and perceptual process
used, and previous experience, he or she is able to:
reduce the risk of an investment in a competitive method.
reduce the range of uncertainty associated with an investment.
minimize the variance of cash flows predicted for a particular investment.
all of the above.
reduce the risk of an investment in a competitive method; minimize the variance of cash flows predicted for a
particular investment.
Chapter Questions
3. When considering the role of perception in scanning the business environment, an individual:
has a limited threshold of awareness.
has a short list of cues about the environment.
has a narrow perceptual window of the environment.
has life experiences which occur in a narrow band of activity.
all of the above.
4. In understanding the relationships between complexity and uncertainty, the manager of tomorrow must
be able to:
explain the cause and effect relationships between the two and likely cash flows from investments.
made in competitive methods, which reflect these environmental dimensions.
estimate the reliability and validity of the information used in making the investment decision.
estimate the probabilities associated with events emerging from this complexity and uncertainty.
appreciate the time gap necessary to realize the results of an investment decision in competitive methods.
All of the above
Chapter Questions
5.Which of the following is not a way to improve your ability to estimate possible scenarios and their
probabilities?
Identifying the events that will impact the firm
Understanding the cause and effect relationship
Defining the domain of the firm
Limiting the domain of the firm to the industry segment
6.Improving your understanding of the body of knowledge suggests that you are able to:
estimate probabilities that an event will occur.
know the subject well enough so that you will be able to see subtle changes occurring.
identify more competitive methods in which to invest.
improve your understanding of your perceptual window.
Chapter Questions
7. The parable of the "boiling frog" describes the need for anticipating the future and monitoring
change.
True
False
8. Wise investment decisions heavily rely upon thoroughly understanding the forces driving change in
the business environment.
True
False
9. Complexity refers to the degree of change and the rate of change in the environment.
True
False
Chapter Questions
10. What does a manager need to do in order to visualize and compete for the future?
11. Use the boiling frog metaphor to explain how business fails to anticipate future changes in the business
environment.
12. What does the metaphor "rear view mirror" suggest?
13. How can a manager enhance his/her perceptual window?
14. What are the major issues in understanding the environment?
Student Learning Outcomes
On completion of this chapter, you will be able to:
1. Give an description about the importance of the environment in making strategic decisions that are
future oriented.
2. Define the major concepts underpinning the environmental assessment process such as perception,
uncertainty/dynamism, simple/complex, and illiberality/munificence.
3. Develop an appreciation for the challenges and uncertainties associated with the business environment.
4. Give examples about the dynamic and complex nature of the business environment.
Case Study
Case Study
Case Study
Case Study
Case Study
Case Study Answers
1. The first challenge in the forefront for hotels is to educate their staff and customers to understand the
environmental issues. Specifically, the training involving environmental information can help employees
develop a greater sense of environmental awareness, and encourage them to apply this knowledge to
improving service quality. On the other hand, customers can be educated to perceive the environmental
initiatives as well as the appeal of green product and service, for example, the Orchid Evergreen
Loyalty Program in this case. Another challenge is how to make such “eco-literacy” practical and easy to
access. Put in another way, hotels should integrate “green” business practices into their daily operation. A
variety of eco-friendly actions include steps to reduce, recycle and reuse raw materials and waste
materials , to minimize the impact of transportation, energy and water usage, and to donate or contribute to
environmental groups.
2. The environmentally-responsible strategy allows Orchid Hotel to be seen as a leading eco-friendly
company by the public, which definitely can increase its customer satisfaction. What’s more, a green
strategy allows Orchid Hotel to gain a competitive advantage in the field of product and service
innovation, and operation cost. Finally, by promoting a green perspective, Orchid Hotel has obtained the
strategic support of government and stakeholder groups, won certifications or rewards from the national
and international organizations, and gained an advantage over existing “dirty” technologies.
Case Study Answers
3. The greening of the hospitality will continue in the future. One reason is that “green tourists” will
demand green accommodation. In order to increase customer satisfaction, hotels have to meet this green
demand and undertake environmental programs. Second, the increasing pressure from government
regulation and agencies also facilitates the creation of environmentally responsible hotels. Another
important reason is the continued increase in energy usage and other operation cost, which forces hotels
to adopt environmental improvement and gain cost-saving or another tangible benefit.
4. First, the organization structure should make some changes. For large hospitality firms, a specific
functional department or team should be established to handle the environmental issue; for small firms,
at least one employee must monitor eco-friendly process. This environmental department or position
will be responsible for training, conducting refresher courses, solving ”green” problems, and collecting
statistics and other ideas to formulate environmental strategy. Additionally, hotels should integrate
environmental reporting in their control system and draw up detailed environmental report regularly to
ensure their green strategies on the right track.
Case Study Answers
5. At the beginning of the green wave, it is possible that guests do not perceive green factor alternatives
as more efficient and appealing than the normally used products. In this sense, to ensure customer
satisfaction, the types of environmental programs are probably limited to the actions where cost-saving
and other tangible benefits are identified. Increasingly, governmental regulations and hotel guests are
demanding green operation. At this stage, being green is an effective promotional tool and a competitive
advantage. So, hotels are likely to adopt more and more eco-friendly actions, for example, local
purchasing, energy-efficient equipment, interior decorations and green loyalty program. So, it is essential
for hotels to recognize environmental issues in real time and take a proactive and appropriate approach to
address the concerns as the timing of the decisions and the environment are changing.
6. In my opinion, the most valid and reliable sources of information are the government report, statistics
from national or international hotel association, and academic publications in hospitality industry or
in other fields, for example, economy and environment science. Additionally, hoteliers can also get
valuable information by distributing customer survey or questionnaire directly.