Environment Is a Resource and There Must Differences in Performance Among Groups with Different

DO HOTELS LEAN ON ENVIRONMENTAL FACTORS TO COMPETE?

The case for the Balearic Islands

ABSTRACT

This paper presents the analysis of how the hotels use the competitive advantages that can be derived from the environmental issues to compete. The hotels were classified into strategic groups basing on three dimensions relevant to the benefits that the economic theory and empirical studies attribute to the environment. Differently from the previous worksthe dimensions include both environmental resources and environmentally related actions of the hotels to take into account both active and passive aspect of the hotels environmental strategy.The results indicate that ingeneral the hotels are not proactive in dealing with the environmental factors and not use all the opportunities to create the environmental competitive advantage. The comparison of the performance levels between the groups shows that some strategies allow for higher performance, namely,location in the underdeveloped areas, environmentally proactive behaviour and internal resources allow the hotels to reach higher capacity to obtain extra revenues, stronger bargaining position and smaller dependence on the tour operators and higher repeat visit rates. The analysis is done for the accommodation facilities of the Balearic Islands, a mass tourism destination characterized by a highly competitive environment and declining environmental quality.

1. INTRODUCTION

Highly competitive environmentattributable to sun and beach mass tourism destinations makes the hotels to be strategically active and search and exploit all possible opportunities to develop a competitive advantage. According to the resource-based theory which recently received a major attention from the researchers and somewhat pushed aside the environmental paradigm of firm competitiveness, such competitive advantage can be generated by some specific resources and capabilities which a firm may possess. One of such resources satisfying the characteristics to become a source of competitive advantage is the environmental resources. Indeed, most of them are heterogeneously distributed, immobile, valuable, rare, non-substitutable and hardly imitable and, hence, hold the potential to generate a competitive advantage according to the resource-based paradigm of competitiveness (Barney 1986, 1991, 2001, Grant 1991, Peteraf 1993).

The extant literature on the relationship between environment andcompetitiveness in tourism sector attribute a number of benefits that can be derived from the focus on the environmental issues. On one hand, environmental resources are the key motivators for the visitation to a tourism destination, which is especially the case for nature-based destinations (Huybers and Bennett 2003). Such environmental resources as sea, beaches, natural parks are not only the reasons why the visitors choose one destination or another (Crouchand Ritchie 1999), more than that these attractors provide a source of product differentiating market power and allow for the price mark-ups for the firms (Taylor and Smith, 2000, Espinet et al. 2003, Aguiló et al. 2003, Ruta and Pedroso 2005, Thrane 2005, Hamilton 2006, Rigall-I-Torrent and Fluvià 2007). On the other hand, the growing environmental concerns of tourists make the firms to develop environmental management. The implementation of the environmental protection activities embedded in firms operations not only decrease the impact on the strategically important environmental resources but, if properly planned and implemented, may eventually result in cost saving and differentiation, first mover advantage and access to new markets, enhance employees motivation and satisfaction, and improve the access and conditions for the financial aid (Porter and van der Linde 1995). In tourism literature there is evidence that proactive environmental management in tourism entities lead to increased tourism demand (Huybers and Bennett 2003), cost saving (Gonzalez and Leon 2001),product differentiation (Manaktola and Jauhari 2007), higher occupancy rates (Claver-Cortés et al. 2007) and better financial indicators (Álvares Gil et al. 2001, Carmona-Morena et al. 2004).

Thus, as the importance of the environment for the competitiveness in the tourism sector has been highlighted, the main aim of this study is to carry out an analysis of how hotels develop and exploit the competitive advantages that can be derived from the environmental issues.One of the approaches to this type of questions is strategic group analysis. This tool helps to characterize the structure of the industry in terms of threats and opportunities and enable to understand the competitive strategies and advantages developed by firms and their competitors (Cool and Dierickx 1993, Barney 1997).

In the tourism sector the strategic group analysis used to describe how the hotels compete is not new.These studies classified the hotels according to such characteristics as number of rooms and sales strategies (Edgar et al. 1994), information technologies and attitude towards their strategic importance (Camisón 2000),or whether chain affiliated assume the name of their chain or not (Ingram 1996).However, only few studies use the environmental variables as a dimension for the classification of hotels (García Rodríguez et al. 2002, Claver-Cortés et al. 2006, 2007). The number of works classifying the hotels only by the environmental variables is even smaller and the dimensions used in these studiesreflect different aspects of the environmental management,which only allow classifying the hotels in a continuum from the most advanced in environmental management to the least committed (Aragón-Correa 1998, Álvares Gil et al. 2001, Carmona-Morena et al. 2004).

Differentlyto the previous works we propose to classify hotels taking into account not only the environmental management, but also the environmental resources attributed to the hotels.These considerations lead us to identify three dimensional structure of the environmental factor (strategy) of a hotel depicted in Figure 1. The environmental strategy of a hotelmay have a passive and an active component. That is, a hotel may passively rely on unique environmental resources and attractors that it has due to the strategic decisions taken,when choosing a location for the hotel. At the same time a hotel may take an active approach to the environmental issues and apply environmental management to obtain the benefits outlinedabove. The active component of the strategy also includes the dimension of the environmental marketing to reflect how active is the hotel in promoting its environmentally friendly behaviour to the target group of the environmentally concerned tourists, which is crucial to allow the company to differentiate on the environmental factors and bid for a premium prices. The methodological contribution of the work lies in the fact that it proposes a new classification of hotels according to their attitude to the competitive advantages that can be derived from the environmental issues. Additionally, we check whether some strategies allow the hotels to achieve a higher performance levels than the others.

The study is structured as follows. In the Chapter 2 we explainthe choice of the environmentally related variables of the hotels, variables of the hotels performance and the methodology applied. Chapter 3 exposes the results of the classification of the hotels according to the environmental strategies and the analysis of the differences in performance between and within the groups. The discussion of the results is presented in Chapter 4 and Chapter 5 concludes.

2.EMPIRICAL ANALYSIS

2.1 SAMPLE

The data source for this work is arepresentative sample of 101 accommodation facilities situated in the Balearic Islands. Accommodation facilities are represented by all categories of hotels. The database provides the information on the characteristics of the hotels and the area where the hotel is situated and measures of hotel performance. The data analysis was realized using STATA software version 9.0.

2.2 MEASUREMENT

Hotel’s environmental variables

Basing on the dimensions outlined in Figure 1 the following variables are used for the hotel classification.

1) Environmental resources for shared use with other hotels’ clients (outside the hotel)

In this category we include the environmental resources and tourist attractors which can be attributed to the hotel and can generate a competitive advantage for it. The variables includewhether the hotel is situated in the first line, percentage of the rooms with picturesque views, distance to the nearest beach, presence of natural and/or non-natural attractions nearby, level of congestion and edification and environmental quality of the area where the hotel is situated.

2) Environmental resources for the exclusive use of hotel’s clients (inside the hotel)

There are several hotel attributes that can be seen as environmental resources within hotel’s territory. For example, swimming pools and green zones can be seen as environmental resources if interpreted broadly as all the facilities making an environmenta healthy and comfortable place to stay in. Apparently, these two resources can serve as a substitute for the sea and parks, but can also have their own value for the hotel visitorsdue to two functions. Both of them improve the visual amenities of the hotel, and additionally swimming pool may have its own value due to the fresh water, safety for kids and controllable temperature.

3) Environmental management

We use two types of environmental management held by the hotels. One reflects the commitment of the hotels to minimize its environmental impact and is measured by the number of the environmental certificates obtained by the hotel. There are three environmental certificates considered: EMAS (Eco-Management and Audit Schemes), Q Verde (Environmental certificate for tourism entities in Spain) and ISO 14000 Environmental management standards. Although all three certificates are similar in terms of the requirements, we use the total number of certificates to reflect the hotels commitment to comply with both international standards required by ISO 14000 as well as with more specific ones set by the European Union in EMAS and by Spainin Q Verde.Second type of the environmental management considered in the study reflects the hotel’s commitment to manage the quality ofthe area where it is situated. The hoteliers were asked whether in the last three years they made any expenditure to improve the quality of the area, including the environmental quality.

4) Environmental marketing

To measure the proactiveness of the hotels in attracting the environmentally concerned visitors we asked the hotels to grade the importance of the environmental marketing tools in the promotion strategyfrom “not important” to “very important” on a 1 to 7 scale.

Table 1 provides the description of the variables selected for the analysis.

Organizational performance

It is widely assumed in the literature that the organizational performance is a complex construct which is based not only on financial results but also on operational indicators (Venkatraman and Ramanujam 1986). Our construct of hotel organizational performance is derived from the four dimensional scale proposed by Espino-Rodriquez et al. (2005). The authors specify one financial dimension (Financial performance) and three non-financial (Organizational quality, Employee welfare and Hotel activity index). In attempt to improve this measurement the new dimension “Relationship with tour operators” was added.

1) Financial performance. Financial performance is represented by the measures of gross operational profit and performance in crisis years. The first measure is widely used indicator of hotel performance and has also been used in the empirical studies on the relationship between environmental management and economic performance.

The performance in the crisis years has not been used before. We include this variable to reflect hotels capacity to attract tourists and out perform the rivals during the decreases in the tourism demand.

2) Hotel activity. This dimension contains two measures. First, average occupancy rate during the year, is widely used as performance indicator among hotels.

The capacity to generate extra revenues refers to all the revenues apart from the room rate, this was used in works (ref).

3) Organizational quality. The organizational quality dimension is represented by the client’s satisfaction and the repeatvisits. While the client satisfaction is a quite common measure of hotels organizational quality, the repeat visits has not been used before. We include this variable to reflect the uniqueness of experience obtained by the tourist in a client. While a tourist may be satisfied with the service received in the hotel, the fact that she repeats the visit next year may indicate the uniqueness of the experience she had.

4) Employees welfare dimension is represented by the manager’s perception of the degree of employees satisfaction with the job.

5) Relationship with tour operators. Some authors propose to use the existing control over prices as the measures of hotel competitiveness level (Yagüe Guillén et al. 1999, Iglesias Arguelles 1999, Parra López et al. 2004). According to this approach the hotel is more competitive, if it has the control over pricing when bargaining with the tour operator. To measure this variable we propose to use the following available measures which may give insight on the degree of hotel’s control over pricing. Prices paid by tour operators in May and in August are the actual prices paid by the biggest tour operator in low and high seasons. Controlling for the hotel category the higher prices may indicate stronger bargaining position of the hotel (Taylor and Smith 2000). We also calculate the percentage difference between these two prices to get some insight into the seasonal fluctuations suffered by the hotel. We assume that the big difference is a sign of poor performance. To get the better insight into the degree of the hotel’s independence we include a measure reflecting the importance of the tour operators as a channel of distribution. Occupancy due to tour operators shows the actual share of hotel’s rooms realized through this distribution channel. Apart from the fact that the tour operators represent a middleman which reallocates some of the hotel’s profit, this industry is now experiencing decreasing profit margins, making hotels to lower their price as well(Buhalis 1999, Vich-i-Martorell 2004). Although this channel is a good way to guarantee the occupancy of a hotel, the high dependence on this channel is a sign of possible decreasing performance in the long run.

The way the performance indicators were measured and the reference to the works where they have been used before are listed in Table 2.

[ Table 2 here ]

Control variables. It is obvious that there are many idiosyncratic characteristics of the hotels that affect their performance. As explained before we introduce the hotel category which we expect would explain a significant part of the variation in the following performance variable. First, we control for the category when comparing the tour operators prices, as the category explains the important part of the variation in the price variables. Secondly, the category of the hotel is taken into account when comparing the hotel capacity to generate the extra revenues, as the tourists in high category hotels seek luxury and comfort which may imply a higher level of resource consumption and thus higher extra revenues per room.

2.3 DATA ANALYSIS

Once the environmental variables characteristics potentially capable to create competitive advantage are identified we use the factor analysis to reveal the competitive strategies of the use of the environment.The factor analysis is widely applied in management studies, where the derived factors or dimensions are interpreted as “competitive strategies” used by the firms (Carmona-Moreno 2004, Claver-Cortéz 2006, 2007. Factor analysis enables to create numerical scores for each factor (each environmental strategy) in each hotel, which is used then for the classification of the hotels into the groups according to the degree of implementation of each environmental strategy. The hotels are grouped by the means of the 2-stage cluster analysis.

To identify what strategy allows the hotels to achieve higher performance levelswe analyse the differences in the performance measures between the groups of the hotels with similar sets of environmental strategies. The statistical significance of the differences is tested by ANOVA, ANCOVA (to control for the category of the hotel, when needed), Kruskal-Wallis and Pearson’s chi-square tests depending on the type of the analyzed variable.Finally, to explain the predictive validity of the groups we use the confidence interval test proposed by Lawless et al. (1989).

3. RESULTS

3.1 ENVIRONMENTAL STRATEGIES OF HOTELS

This section describes the strategiesimplemented by the hotels to create environmental competitive advantage. The factor analysis was applied to 12 environmental variables defined in 2.2. and Table 1, and the results reveal the existence of six principal factors, or six environmental strategies, explaining 77% of the variation among them. The cut-off criteria for addition of factors were explained variance, eigenvalues higher than 1 and the communalities higher than 0.5. The results obtained are shown in Table 3.

First factor receives the name of “Underdeveloped area strategy” since it underlines the low congestion, low edification of the area and high per guest room ratio of green zones in the hotel grounds.

Second factor corresponds to the “Sun and beach location strategy” because it has high loads on the variables measuring the distance to the nearest beach and whether the hotel is situated in the first line or not. These two variables have expected opposite signs, showing that they are negatively related.