SHMS

Critical analysis of a business decision making process

Radisson BLU Dubai Deira Creek

Mischal MendenUoD: 1000202590MA autumn semester 2010Business Analysis and decision makingCW:1Ms. Zainab Atta04/2/2011

ABSTRACT

The purpose of this paper is to critically analyze the business decision made by the Radisson

BLU Dubai Deira Creek. This hotel implemented a new environmental cooling system, called

thermal cooling. A brief introduction about the hotel in the current business situation is

stipulated in the introduction. Further on an external analysis is constructed, by applying the

PESTEL and SWOT theoretical framework. The decision making process is being analyzed

through the application of a decision tree model. The business decision taken by this hotel is

assessed to efficient and effective, according to several authors from different fields.

Moreover the stated aim and objectives are being revisited in the conclusion, summing up

the produced knowledge and analysis.

CONTENTSAbstract.....................................................................................................................................2

Introduction..............................................................................................................................4

Aim and Objectives................................................................................................................... 5

Methodology.............................................................................................................................6

Analysis..................................................................................................................................... 7

PESTEL...................................................................................................................................7

The Political environment.................................................................................................7

The Economical environment...........................................................................................8

The Social environment.....................................................................................................8

The Technological environment........................................................................................8

The Environmental environment......................................................................................9

The Legal environment......................................................................................................9

SWOT.................................................................................................................................. 10

Decision-Tree......................................................................................................................12

Conclusion...............................................................................................................................15

References.............................................................................................................................. 16

INTRODUCTION

As Steinhouse (2010) pointed out, decision making in the classical sense begins with

assuming that perfect information is available to the decider. Furthermore Schraeder and

Morrison(2005)stressed out that `decision making is one of the most fundamental

components of effective management and leadership.´ Moreover the same authors pointed

out that with the given importance of effective business decisions, it is questionable why so

few leaders and additionally their organizations, receive formal training. Making effective

and proper decisions in such a fast paced industry like Hospitality is one of the biggest

challenges managers are facing. Not only because of the time constraint they are having, wh

The Radisson BLU Hotel in Dubai is the oldest 5 Star Hotel located directly at the Creek in

Dubai, UAE. In order to stay competitive and present at such a fast market, innovative and

entrepreneurial motivation are the key success factors for staying sustainable (Drucker,

1985, Schumpeter, 1950). In order to achieve this state the latest cutting-edge technology

combined with environmental friendliness are the main sectors important to customers

(Reference). The Radisson BLU in Dubai decided in 2010 to invest 340,000$ in order to

receive the international Green Globe Certification (GGC). As Hamziya (2010) stipulated, the

demand of the customers for “green” and “sustainable” practices created the idea, for this

hotel. Furthermore she pointed out, that the investment was mostly done in order to

replace insufficient old air-conditioning system, coupled with the energy saving wheel, which

draws warm air from the outside and cools it down before sending it through the chillers.

The decision making process, which resulted in the order of this new cooling system, is what

is going to be critically analyzed within this paper. Managers have to make decisions on day-

to-day basis, sometimes right at the spot, but sometimes as well through a critical path

analysis or other decision-making-tools. The author will apply different tools in order to

assess the decision made. A PESTEL and SWOT analysis has been created in order to point

out the necessity of this innovation. Furthermore a decision-tree will help understand why,

this particular hotel choose to invest in this particular item.

The greening of Hotels becomes more and more important nowadays, especially because of

the increasing green-house effect and the melting of the polar caps. In order to compete

successfully, as previously stated, organization need to reconsider their CO2 emission, or

carbon footprint.

Being awarded with a GGC certificate is not only good for the environment, furthermore it

can be used for advertisements, PR campaigns etc. From a confidential source the author

acquired that the hotel had an increase in its REVPAR and occupation since implementing

the new thermal cooling system.

AIM AND OBJECTIVESThe aim of this paper is, to critically assess a business decision made, by the Radisson BLU in

Dubai.

In order to achieve the above stated aim, following objectives have been created:

1. To critically analysis the external environment, in order to determine whether or not

the decision made was necessary.

2. To effectively apply analytic tools, to assess the efficiency and necessity of this

particular decision

3. To combine the gained knowledge, concluding the effectiveness and appropriateness

of the decision made.

METHODOLOGY

In order to complete this paper and achieve stated aim and objectives the author uses

secondary data. According to Saunders et al. (2007) this is data which was previously

collected with a different purpose. The resources which are available to the author are the

library of the Swiss Hotel Management School Leysin, as well as the Emerald and Ebsco

database, additionally the governmental page of the United Arab Emirates, as well as a

previous submitted report by the same author. All these different journals, articles and

papers will provide appropriate reliability and validity to the stated. The epistemological

stance, applied by the author, is constructivism. According to Collis and Hussey (2009)

constructivism, constructs new knowledge based on already existing one. This stance is the

most appropriate because, only secondary data has been used and the purpose of this paper

is to assess previously gathered data. Moreover enables this stance the author to synthesize

the existing knowledge and create new knowledge. The Limitations in this paper are the

availability of proper data, as well as the reliability and validity of secondary data.

ANALYSISIn order to obtain a clear picture of the current external situation, in which the business decision was taken, the author choose to conduct first a PESTEL and than a SWOT analysis. After analyzing these two theoretical frameworks, the author will provide a decision tree, following through the steps the decider, took or should have taken.

PESTELAccording to Johnson (2008) provides the PESTEL analysis a complete list of influences on

the possibility of a strategy to succeed or fail. The PESTEL analysis used for this paper has

been adopted from a previously generated report, by the same author, on the effectiveness

of a competitive business strategy in the Radisson BLU Dubai Deira Creek (Menden, 2010).

THE POLITICAL ENVIRONMENT

POLICY OF TRADE :

The United Arab Emirates are trade free country. This is a necessity, when the

competitiveness and productivity are to be considered (Trade Policy Review 2009).

Moreover are the United Arab Emirates an active body in the WTO (World Trade

Organization) as well as is in ongoing negotiations with other GCC and European countries in

order to establish a Free-Trade-Agreement (WTO, 2010).The government of the United Arab

Emirates encourages FDI’s (foreign direct investments).

(Menden, 2010)

GOVERNMENT :

The Federal Supreme Council has legislative and executive powers.

It ratifies federal laws and decrees, plans general policy, approves the nomination of the

Prime Minister and accepts his resignation. It also relieves him of his post on the

recommendation of the President. (Ahmed, 2007)

The most important development during 2007 was a new UAE Government Strategy which

includes 21 individual topics in the six main sectors of social development, economic

development, public sector development, justice and safety, infrastructure and rural areas

development (UAE government, 2010).

In general is the UAE government open and respectful towards other cultural prospective

and treat them fairly and in peace. Although, according to Ahmed (2007) the rules and

regulations are becoming stricter with every year. (Menden, 2010)

FOREIGN AFFAIRS :

The UAE is a member of the following international organizations: UN (ICAO, ILO, UPU,

WHO, WIPO); World Bank, International Monetary Fund (IMF), Arab League, Organization of

the Islamic Conference, Organization of Petroleum Exporting Countries, Organization of Arab

Petroleum Exporting Countries, and the Non-Aligned Movement, as well as at the

International Renewable Energy Agency (IRENA) (Bureau of near eastern affairs, 2010).

(Menden, 2010)

THE ECONOMICAL ENVIRONMENT

Currently 3 million people live in Dubai from which 60% are in the workforce, out of which

13% are UAE Nationals and 87% foreigner expatriates. The UAE GDP increased by 15% to 450

billion dirhams in 2007 and the Economy grew even faster at a pace of 16.7%. Its GDP real

growth rate is 10%: shows $99 billion in oil revenues and $121 billion in non-oil revenues.

Foreign direct investment (FDI) in the economy is very high and appreciated. The country's

currency is called dirhams and its value relative to the dollar is 3.67, and 3.98 to the euro

(Bureau of near eastern affairs, 2010). (Menden,2010)

THE SOCIAL ENVIRONMENT

UAE citizens have a very high standard of living; financial positions have continuously

increased over time; very materialistic high society: lots of money to purchase houses, cars

and other material items. The society is open and free to all types of hotels, restaurants,

tourism, recreational activities and sports. Multicultural nature of the country: many

foreigners go there to work in well-paying positions.

(Cateora, 2007,68, Menden, 2010)

THE TECHNOLOGICAL ENVIRONMENT

The largest part of the population consists out of very young professionals who are

extremely technologically-knowledgeable. Number of Internet users in the GCC region has

increased ten-fold since 1998. The Internet and IT software solutions industries in the Gulf

region have doubled the rate of Europe. GCC show about 12% growth in the quantity of

pc/mac units sold by 2003, compared to the global growth of 8%. The UAE has the most

satellite, Internet and mobile phone users in the Middle East.

(Cateora, 2007, 68-69, Menden, 2010)

THE ENVIRONMENTAL ENVIRONMENT

Few crops other than dates can be grown without irrigation.

360 days of sunshine Large solar plants (Green UAE)

Launch of an Environment authority in 2008

End of 2010 on-shore and off-shore protected districts will double: 5 national parks by 2030

Environmental sustainability project was launched in 2009: The G3 guidelines will be met by

December 2010. HSM system is being implemented in 2008 (full achievement in 2011).

Abu Dhabi Sustainability Excellences Group (SEG) is being created to watch and manage the

environment. The major aim is to find sustainable balance between development,

conservation and protection of its biodiversity.

(Environment Agency Abu Dhabi, 2010, Menden, 2010)

THE LEGAL ENVIRONMENT

Health and Safety (HACCP) law has been established in 2006

LAW OF EMPLOYMENT :

According to the UAE Labor Law (2007), companies are eligible to recruit both, nationals as

well as non-national (expats). When recruiting non-nationals, several medical tests and a

long lasting visa procedure needs to be done and paid by the hiring company. Furthermore,

every company is expected to have a ratio of 40 to 50 percent of well-qualified Emiratis

working within. On the other hand are the costs for employing an Emirati about 50 percent

higher (National Human Resource Development Authority, 2004). Included in this cost

calculation is the cut back from a `normal´ six-day-working week to a five-day-working week

(Wallin, 2005 and Goldwin, 2006).The National Human Resource Development Authority

(2004) defined Emiratisation as a program with the focus on the increase of national workers

within the UAE. No labor tax (Tax-free income)

Hotels are allowed to serve alcohol if licensed even throughout the holy month of Ramadan

Liquor shops are available for members (minimum income 3000 UAE dirham’s/month and

Non-Muslim). No share of flats between males and females (except of married or engaged

couples).

(Employment contract, 2006; UAE labor law, 2007; UAE government, 2010; Jeffreys, 2008;

Menden, 2010)

From the PESTEL analysis it is obvious that environmental concerns and issues are of high

interest to Dubai. The external environment, where this hotel is located at, supports the

decision of “going green”. It can be argued now, why the hotel choose to exchange their air-

conditioning system. Furthermore the question arises, why the hotel did not choose to use

solar energy in order to obtain the necessary power? Moreover it is questionable why the

hotels choose to first invest into a cooling system before starting to invest in sustainable and

green power. Furthermore, it can be argued that it is just a marketing campaign, because

when looking at what happened over the last decade in Dubai, environmental concerns have

never been of any interest. Man made islands have been built as well as new skyscrapers

have been opened daily. Why is it that these concerns became of interest just now? Since

the establishment of the Environmental protection department, more and more green

solutions have been implemented.

The SWOT analysis below, stipulates the internal environment of the Radisson BLU DDC.

SWOT

STRENGTH WEAKNESSES

Customer satisfaction strategies:“Yes I can!” “Stay your own way”“Express yourself”Gold points plusOldest 5 star hotel in town; loyalty towards the hotelWide range of F&B outletsWell established brand (The Rezidor group)with the CEO of the year 201090% of the managers are promoted from within the company; brand loyalty Huge Global presence

Take over from the Intercontinental Hotels group in 2006; caused high-turnoverOld building = high maintenance costsHuge Labor cost due to the amount of F&B outlets (16)Huge amount of unskilled labor

OPPORTUNITIES THREATS

Go Green Dubai: sustainability programawarded with the GGC certificate (300,000$).HACCP law due to European Management and early stages of HACCP have already been applied right from the beginning.Metro stationgreat accessibility and cooperation with the RTA (Road & Transport Authority)Arabic Restaurant (Emirati workforce)Free-Trade-Agreement:cooperation with global suppliers (known suppliers from other Hotels within the Rezidor group)New Hotel classification categories30% Tax on alcohol

High competition within walking distance: Sheraton, Hilton, Hyatt, ConcordeCurrent economical situation:Ability to boost out of the recessionGovernmental status: fast changes due to legislationNew entrants due to less amount of money needed (51% from a local partner, mostly the building)

(Adopted from Menden, 2010)

Again the same conclusion can be drawn, as from the external environment above. Looking

at the PESTEL and SWOT together, it is clear that environmental innovation are great

opportunities for the hotel in order to not only stay sustainable but also to help saving the

world we are living in.

The Radisson BLU saw this opportunity and decided to invest in “going green”. In order to

determine the efficiency and necessity of the exchange of the cooling system compared to

the usage of solar panels, will be determined by applying the decision-tree tool (Mindtools ,

2011).

DECISION-TREE

The Rudjer Boskovic Institute (2001) stressed out that, `decision trees are powerful and

popular tools for classification and prediction.´ Furthermore this institute argued that this

tool is particularly attractive because contrasting neural networks, decision-trees present

rules. The figure below indicates the process of the decision done by the Radisson BLU

Dubai. Estimations have been made for the probability of REVPAR increase. The probabilities

have been indicated with 50% or 0.5. The REVPAR has been adopted from the annual report

(Kleiven, K., 2010). Sustainable sources pointed out that if solar systems are implied, a high

initial cost is to be expected. Furthermore the building needs to be weatherized and

insulated to very high standards, which can only be found in new structures. The Radisson

BLU Dubai is over 30 years old. This points out that the probability of this structure to be

insulated and weatherized to the required standards is very low. Moreover is it highly

unlikely that buildings in the Middle East have such high standard of weatherization and

insulation.

New environmental laws

Solarcooling

Thermalcooling

GGCcertificate

Nocertificate

Replacement

No changes

0,5* (84,-*276)= 11.592,-

0,5* (74,-*276)= 10.212,-

0,5* (88,-*276)= 12.144,-

0,5* (76,-*276)= 10.488,-

0,5* (80,-*276)= 11.040,-

0,5* (78,-*276)= 10.764,-

0,5* (79,-*276)= 10.902,-

21.804-350.000=-328.196

10.902,--

22.632- 200.000=-177.368

21.804- 100.000= -78.296

-177.368+ (270.000*0,8) =38.632,-

10.902,-

300.000$*0,9= 270.000€Thermal cooling = 80% chanceSolar cooling = 75% chance(Wasantha, M, 2010)

DMS, 2010

From the figure above it is obvious, that the decision taken was made after careful

consideration of all the aspects influencing this process. The PESTEL and SWOT analysis

already pointed out that the external environment highly appreciates innovations

concerning the greening of buildings and especially hotels. On the other hand Sciencedaily

(2008) argued that solar cooling is the environmentally friendliest solution for air

conditioning system because of the application of `the technology used in this machine,

which minimizes its environmental impact by combining the use of a lithium bromide

solution, which does not damage the ozone layer or increase the greenhouse effect, with a

reduction in the use of water by the machine.´ On the contrary The Economist (2010)

stressed out that `Thermal coolers are an attractive option in places where hot water is

available on the cheap as “waste heat”,´ this statement supports the decision made by the

hotel. Since the average temperature of Dubai is 28°C the coldest day in winter is around

12°C and in summer temperatures rise to 55°C. Most of the water tanks are located at the

rooftops of the buildings; this is also fact for the Radisson BLU. Summing this up, hot water is

always available as well as the previously stipulated “waste heat”. All this together make

perfect conditions for the application of thermal cooling, which was done by this particular

hotel. Furthermore the space needed for the amount of solar plants, which are needed to

supply the power for the air-conditioning system would require even more money. The

possibility of evaporative cooling, has been ignored in this decision because of it carbon

footprint, this footprint would have eliminated the chance of being GGC certified.

(Ecocooling, 2008).

CONCLUSIONIn order to come up with an appropriate conclusion on the gained knowledge, the author revisits the earlier stated aim and objectives. Starting with the objectives;

To critically analysis the external environment, in order to determine whether or not the

decision made was necessary.

The external environment has been analyzed by applying a SWOT and PESTEL analysis. These

analyses pointed out the great importance of sustainability and environmental friendliness.

Not only because of the new departments established in this country, but also because of

the high competition and cutting-edge technologies available in this country. Summing up, it

determines that there was a necessity of making a decision towards going green, for this

particular hotel.

To effectively apply analytic tools, to assess the efficiency and necessity of this particular

decision.

A decision tree has been applied, in order to understand the decision making process the

general manager of this hotel went through. This tool points out that decision made, was

critically assessed before it was done, because all the different factors have been taken into

consideration. After constructing this analysis, it is clear that thermal cooling was the best

choice, not only because of its increase in REVPAR and occupancy, as previously stated, but

also because of it environmental friendliness.

To combine the gained knowledge, concluding the effectiveness and appropriateness of the

decision made.

Concluding the above met objectives, the author is able to point out that the decision, as

well as the process, was highly effective and appropriate. Although it can be argued, that

with evaporative cooling, the initial cost would have been less, as well as the operating cost.

On the other hand as stipulated earlier, this option would leave, even if only a small one, a

carbon footprint, which would have automatically resulted, that this hotel would not be

certified with the Global Green Certificate.

Summing up the concluded, the author is confident, that the objectives have been met to

the full extend. Furthermore resulting from this the aim of this paper; to critically assess a

business decision made, by the Radisson BLU in Dubai, has been fully achieved.

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