Environmental uncertainty, business strategy and financial performance: a study of the lodging industry

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Virginia Polytechnic Institute and State University

The primary objective of this study was to investigate the relationship between perceived environmental uncertainty, business strategy, and financial performance in the lodging Industry. Using a contingency framework, this study investigated the match between strategy content and environmental uncertainty which, from previous research, appear to distinguish between high and low performing organizations (Miles 8 Snow, 1978; Bourgeois, 1978; Schaffer, 1986). The key question that forms the basis of this research is whether the empirical evidence supports previous theory relating to the environment, strategy, and performance relationship.

The findings of this study indicate that a "match" between the state of the environment facing an organization and its business strategy is required for high performance. Hotels employing a defender strategy In a stable environment tend to perform better than hotels that employing other strategies. Similarly, hotels employing an analyzer strategy in a volatile environment tend to perform better than hotels that employing other strategies. Furthermore, irrespective of the environment faced, smaller hotels do better than larger hotels in terms of profit, while larger properties tend to fare better in terms of revenue.

From an Industry application perspective, this study provides the strategy planner in the lodging industry with empirical information relating to:

  1. A means to assess the state of the business environment perceived by individual unit general managers,
  2. A repertoire of business strategies that emphasize different competitive postures, and
  3. A "decision rule" to apply in appropriately matching their strategy to an environmental state for maximal performance outcome reflected in revenues and earnings.

The results obtained provide an invaluable planning and analysis tool for all levels of management involved in charting a firm’s future.