Bnayan Tree Case Analysis

Banyan Tree Case study

Risk Analysis

Risk Seeker

After analyzing the case study it is evident that the company has a good risk appetite and is a Risk Seeker. The company’s vision to create a diversified group of niche resorts and hotels in strategic locations throughout the world amplifies that it wants to create a distinct image for itself. Banyan Tree identifies strategic locations where a typical resort would play safe and charge moderate prices whereas Banyan tree would price exuberant rates and be price maker than a price taker. It ability to create a niche where others are conservative clearly shows it is ready to take higher risks for higher benefits making it a Risk Seeking organization. Its strong strategy is to enjoy higher prices for the concepts like tropical garden spa and pool villa which is a signature feature of Banyan Tree and complement it with residence and property sales and gallery operations.

Banyan Tree has grown and established its presence in Asia - Pacific against the backdrop of many disasters like Terrorists attacks in 2001, breakout of SARS in 2003 and Tsunami in 2004. Some facts like the profits of Banyan Tree grew by 41.9% from 2003 to 2004 when breakout of SARS severely hit countries like China, Hong Kong, Singapore and Vietnam where Banyan Tree had its major operations proves its adaptability and strength. In 2004 when Tsunami hit even though the profits from resorts receded profits from property sales helped Banyan Tree to not run into losses. Thus multiple revenue streams supports Banyan Tree to grow and sustain. The pedestal on which Banyan Tree is based is the strong value system like emphasis on CSR, proprietary advantage, low cost operations by taking advantage of local market for growth and development and ultimate customer satisfaction by providing enthralling experience.

Strategy of Banyan Tree and its Risk.

Banyan Tree strategy is to create a diversified group of niche resorts and hotels in strategic locations throughout the world that would be complemented by residence and property sales and spa and gallery operations. Banyan Tree wants to diversify its revenue stream further by venturing into Non-Asian markets from Greece to Mexico. The impact of the different crises situation like SARS, Terrorists attacks, Asian Financial crises, Tsunami made it imperative that diversification of risk to different geographical locations is very important. However with new markets there were various other risks that are posed.

The risks are

• Stiff competition from other market players.

• Risk from cheap substitutes.

• Innovation without brand dilution.

• Higher costs of operations.

• Paucity of skilled employee base.

• Natural and man-made disasters.

• Political scenario in different countries.

• Financial crises

• Identification of strategic locations.

• Less impactful CSR in Non-Asian countries.

The Impact of these risks and the probability of their occurrence can be plotted on impact probability worksheet.

High Probability High Impact: Both the probability of these risk occurring and its impact om Banyan Tree are high.

Low Probability High Impact: The probability of the risk is low however the impact arising from risks like natural calamities, terrorist attacks, political unrest and financial crises are high.

High Probability Low Impact: Risks to CSR and lower cost advantage are in High probability and lower Impact quadrant since impact of CSR will be as it is already a norm in developing and developed countries. Similarly the impact of high costs in new markets can be shared and absorbed from the revenue from alternate streams and existing markets. Response Strategy and contingency planning for risks)

There are various risks posed and hence devising a response strategy and contingent plan is essential. There are different types of response strategies for positive and negative risks.

Negative Risks Response Strategy:

Acceptance (the organization accepts that the risk would occur).

Transfer (the responsibility for dealing with the risk and the possible effects is moved to other party).

Avoidance (measures to ensure that the risk does not occur).

Mitigation (steps taken to reduce the probability of the risk occurring or its negative consequences).

Positive Risk Response Strategy:

Share (sharing the risk and working with the third party for increasing the occurrence that positive outcome will happen resulting into higher benefits)

Enhance (organization taking steps to increase the probability and consequent positive benefits)

Exploit (organization works to ensure that the event occurs)

Every risk may have one or multiple response strategies which need to be exhibited at different times. Risks such as Brand dilution can be avoided by not compromising on the level of service provided and the resources utilized. However component of Brand Dilution which may occur due to competition and cheap substitutes has to be accepted and the impact can be reduced by mitigation. Organization has to develop strategy by finding the middle way and developing strategy which is not over cautious (not venturing into the markets at all) nor too ambitious (venturing into locations which pose serious threats)

Response Strategies:

Stiff competition from other market players – Acceptance and Mitigation.

- Competitors will follow or they would be existing in the new locations. This risk has to be accepted and mitigated through innovation, devising new products to suit the new markets as well as by keeping close track of the competitors. Studying competition and implementing the good practices adopted by competitors. Not compromising on the quality of resources and service provided which is the key of any service industry need to be abided.

Risk