Elvaston Castle: Restoration for Profit

Introduction

Background

Elvaston Castle is located in Derbyshire District within Derbyshire County Council and currently operates largely as a country park. Although the castle has a potential to be a tourist and accommodation destination for many people in the United Kingdom and beyond, it is in bad shape and requires regeneration and restoration. Derbyshire County Council spends large sums of money on the castle for maintenance but the revenues have not been good. As at 2014, the castle was costing Derbyshire County Council an estimated £800,000 to maintain and it needed more than £6m in repairs (BBC, 2014). There is urgent need for the castle to be converted into a facility that is profitable so that the local authority can recover expenditure costs incurred. The management of the castle need to change their business development processes and procedures with the outlined strategic goals.

Objectives

This report will analyse and recommend different strategies that can lead to the turn-around of the facility. In this regard, the report will use business strategy models and frameworks like Ansoff’s Matrix, Porter’s Generic principles, Blue Oceans Strategy, PESTEL Analysis and SWOT Analysis. These strategy models and frameworks will guide proper decision making, track performance of the business and align it towards the set goals. Further, these strategies aid in the deeper understanding of the factors affecting a business thus informing opportunities for change and recommendations to improve it. The tourism and recreational industry is full of established competitors hence the business must adapt to the changes in the market and innovate in line with its goals for it to survive stiff competition in the market.

Analysis and Recommendations

Ansoff’s Matrix

The first step in dealing with any problem is diagnosis. Similarly, Elvaston Castle business problem requires that an inquiry be commenced into the areas that the council should focus on. As a business growth strategy it provides a tool for analysing and identifying areas that may need improvement and realignment with the business goals. According to the Ansoff Model, the four main growth strategies are Market penetration, Product development, Market development and Diversification. The four growth strategies are useful for a company that has just started or one that is facing a decline or maturity of its product or service lifecycle. The matrix is outlined in the diagram below:

Market penetration refers to the strategy of using existing products in an existing market. This is achieved by selling more existing products or services to your customers or selling existing products or services to your competitor’s customers. For this strategy to work, the management must strategically use their sales and marketing department. Investing more in sales and marketing will translate to a larger market share and the ability to sell more products or services (Johnson, 2016). In the context of Elvaston Castle, the management should invest more in promotion and advertisement to attract more customers from other competitors in the tourism and accommodation sector. Alternatively, the business can attract customers to some of their services that may be unknown to them. For example, there may be customers who only use the facility for parking but with more promotion and advertisement, they can discover that it also offers cycle hire, shops, cafes and visitor centres and other recreational services. This strategy will be effective because the castle currently has a small market share but can expand and take a chunk of other competitors’ market share. Product development involves the introduction of new products or services to existing customers. This can be achieved by availing to existing customers new services that will interests in what is called cross-selling (Yin, 2016). For the case of the castle, it would be recommended that new facilities like hotels be introduced complement the existing services. Customers who visit the castle for other activities including for recreational purposes may then be persuaded to use the hotel facilities. Further, the location provides a serene atmosphere for retreat and teambuilding activities that can attract existing customers to use hotel facilities. More attention should therefore be placed on customer relationship management to establish a rapport between customers and the business (Storey, 2016). The strategy will ensure that existing customers do not leave the facility to use the services of a competitor who can provide what is missing at the castle. However, it is important to first understand the market trends in the concerned area so that innovative solutions are applied effectively.

Market development is where a company enters a new market with existing products. In this case, the business will be expanding to new markets in terms of regions, geographies or customer segment (Yin, 2016). The castle business can expand domestically by targeting customers who live in major cities in England so that they can use the facilities during weekends and holidays. The business can also come up with different packages targeting normal and premium customers so that the services are adjusted to meet the needs of new customers. For instance Apple adjusted its products to reach new customers who could not afford the iPod but could buy the iPod shuffle, a cheaper version (Kodama, 2016). Diversification strategy is risky because it entails the development of new products for new customers. However, this strategy requires that a proper market analysis is done to determine the demand for the new product because it can easily fail. The management of the castle can adopt a relatedly diversification approach where they introduce medical tourism or wellness tourism- people visit destinations with the main aim of preserving their health. This can be implemented by investing in spas and rehabilitation centres for those recovering from diseases or disorders.

Porter’s Generic Strategies

Michael Porter outlined a management model that can be used to determine the direction of the company. He believed that businesses must choose from the generic strategies which are cost leadership, differentiation and focus (Tanwar, 2013). Under cost leadership there is low cost strategy and best value strategy, both targeting a large market. A company that is concerned about the cost of its services will most likely adopt either cost focus or cost leadership while a company that is less concerned about prices will focus on differentiation and differentiation focus. Since the castle is struggling financially, it would be appropriate to adopt the cost leadership strategy. The best value strategy can work for the castle management as they will be offering services to a large customer base at the best price available in the market. This strategy is not focused on the lowest price available but the lowest price available compared to competitors products and services with similar attributes. It is aimed at achieving sustainable competitive advantage against the business rivals. That is, the ability to outperform competitors over extended periods of time before they are able to replicate your strategies. The generic strategies are illustrated below:

When the business expands it captures the market share by charging lower prices; it can still make a decent profit to keep it afloat with reduced costs. However, the business must be careful because competitors may introduce lower prices and raid its market share (Manville, Matthias, and Campbell, 2017). Toyota is an example of a company that has applied the cost leadership strategy and succeeded. The company adopted cost reduction strategies and implemented the Kaizen idea of continuous improvement (Macpherson et al., 2015). In this regard, it would be advisable for the castle management to concentrate on reducing cost while applying the concept of continuous improvement in order to stay ahead of the competitor at all times. Investing in technology will further help in bringing the cost of production down to accommodate low prices of services. Information and Communication Technology is today applicable in almost all sectors and the castle is no exception (Tanwar, 2013). Technology can be used to complement the work done by employees and cut on the cost of salaries and allowances. Reduced cost is premised on basic areas like facilities, labour and materials. Therefore, these are the areas of focus when introducing technology to take over and complement certain tasks. Alternatively, the management can opt for focus strategy in relation to cost leadership. This will limit the business to serving a defined market niche. It requires that the business be capable of understanding their customer needs for it to succeed.

SWOT Analysis

SWOT analysis is a combination of a company’s strengths, weaknesses, opportunities and threats. This tool helps in the understanding of all the factors that should be taken into account in decision making (Goranczewski and Puciato, 2010). Since the castle needs to be revamped, it is appropriate that SWOT analysis be undertaken in consideration of new opportunities. It can further aid in the formulation of recommendations after the consideration of a company’s strengths and opportunities. An analysis of Elvaston castle reveals that it has untapped potential with many strengths and opportunities. In light of the factors highlighted below, the management of Elvaston castle can be more proactive by lobbying for investors who can put their money in the project in return for a stake in the business. This will provide more capital for the business to pursue more opportunities available while limited their weaknesses. Further, the business can adopt technology in their operations and invest in aggressive promotion and advertising to reach many prospective visitors who are currently unaware of the facility or are with the competitor. The table below shows a breakdown of SWOT Analysis for Elvaston Castle.

Blue Oceans Strategy

The tourism and accommodation industry is overcrowded and very competitive. The Blue Oceans Strategy provides a balance between low cost and differentiation. In this strategy, the company pursues low cost and differentiation simultaneously. In the market universe, red oceans represent the existing industries with defined boundaries and rules. Here, companies are in constant competition to gain the largest market share. The market is crowded and characterised by cutthroat competition otherwise referred to as bloody competition (Kim and Mauborgne, 2014). On the other hand blue oceans represent industries that do not exist today and no rules have been established in such a market. These unexplored markets have untapped potential and could be very profitable before they are invaded by competitors. An example of a successful strategy is Nintendo Wii, a product that delved into a new market not contemplated by other companies like Xbox and PlayStation (Lichtenthaler, 2017). Nintendo realised that the gaming market was full and saturated with similar products. They decided to introduce new products at low costs by developing new functionalities and features that were different from the products offered by Xbox and PlayStation. This is what is called value innovation.

In a fiercely competitive market that has been invaded by technological advancements such as Airbnb, Elvaston management must identify a blue ocean to exploit. Using the four actions framework tool, a new value curve can be created by answering four key questions. First, it is important to consider which new industry factors if created can produce new value and propel the company into a new unexploited market (Kim and Mauborgne, 2014). In this regard, Elvaston can create new value in addition to existing services and facilities by introducing something like wellness tourism, an area that is less explored in the United Kingdom. The market is relatively new with few competitors scattered around the globe. It is an opportunity to take advantage of the new trends in the industry because more people are becoming conscious about their health and effects of climate change. Second, the business can decide on the standards that can be lowered below the industry standard without affecting profitability (Kim and Mauborgne, 2014). For example some of the services like free parking can be reduced when a new value has been created that does not necessarily depend on free parking. The third framework which involves the elimination of factors that are no longer necessary. For instance, physical booking of the facilities can be done away with so that everything moves to an online platform. Fourth, consider which factors should be raised above the sector standard. Here, hygiene and health standards may need to be raised above industry standards since the new market is premised on wellness. Therefore, it may be necessary to begin employing health professionals like therapists and nutritionists to ensure that visitors who visit the facility in pursuit of wellness is satisfied. This strategy may require that the company undertaking benchmarking from an established competitor or firm to make it easier for transition into the new market and minimise risks.

PESTEL Analysis

Before undertaking new initiatives or commencing business, it is important to determine the external factors that affect the business and its decisions. In as much as it is important to focus on the internal factors for which the business is in control, external factors are equally important because they impact on the business in a way that can only be managed but not controlled. PESTEL analysis stands for Political, Economic, Social, Technological, Environmental and Legal factors which affect the performance of a business (Issa, Chang and Issa, 2010). The framework is illustrated below:

Political factors are concerned with how the government influences certain industries or the economy. This entails political stability, corruption, government policy, tax policy, foreign trade policy, labour law, trade restrictions and environmental laws (Issa, Chang and Issa, 2010). Elvaston may be affected by government policy on ancient buildings and heritage hence, any improvements on the castle may require the government’s approval. Corruption can become a hindrance to accessing certain crucial licenses for the operation of the facility. In case the business proceeds with the recommendation of setting up a wellness destination centre, it will be affected by heath regulations which must be followed. Sometimes power shifts can affect business because of the political inclination of the person elected to office. Therefore business should be able to anticipate such scenarios and apply mitigation measures where possible. More importantly, the above factors should be measured against the potential impacts including high, medium or low. This can also affect the time frames of business goals so that a distinction is made between long term and short term goals. A company’s success depends on economic factors in the business environment (Clegg et al., 2017). As the Central Bank tinkers with the exchange rate, a business like Evlaston will be impacted either positively or negatively. The rise in middle class population can be a positive factor for the business as there will be more people with disposable income which can be used for leisure and recreational activities like the ones offered by Evlaston. In contrast, high unemployment rates means that there is less disposable income in the economy hence leisure and recreational activities will be given less priority as people struggle to satisfy basic needs (O'Mahoney and Markham, 2013). Social factors such as health consciousness of the general population can affect the number of visitors in a wellness destination or facility. Demographic characteristics like increased population of elderly people means that more people are retiring and will be frequenting leisure and tourism destinations. The same goes for cultural barriers and lifestyle attitudes. Technological factors can disrupt the industry just like Airbnb has disrupted the accommodation and tourism industry. Therefore, Evlaston may not need to have research and development department when it can outsource necessary technology at a lower cost. Evlaston castle being surrounded by a park and expansive piece of land may be subject to environmental regulations which must be complied with. As the castle management seeks to expand, they must promote the green agenda by reducing their carbon footprint (Peterson, 2012). Legal factors such as specific legislations on copyright, employment and discrimination can affect the operation of the business in relation to human resource management and other operations.

Conclusion

The upshot of the foregoing is that Evlaston Castle needs change in the manner in which it operates. As discussed above, it will be necessary to have new products, venture into new markets, differentiate, create new value, innovate, and embrace technology. For this to take place, the management of the business must understand all aspects of the business including internal and external factors. These factors will help the business position itself in way that creates a sustainable competitive advantage. Ansoff’s Matrix has shown how existing and new markets can be exploited with existing and new products with the right placement and strategy. Porter’s generic strategies indicates how a business can select its preferred route to success by either taking a no-frills approach or an expensive one. Regardless of the approach taken, the most important thing is the ability to achieve a competitive advantage over rival firms. As shown, the castle can be managed in a way that places it in a position of competitive superiority. Additionally, the Blue Oceans Strategy represents a road not taken for Evlaston to create new value and enjoy exponential growth in a new market unrivalled. Undertaking SWOT analysis provided insight into the business’ competitive position while PESTEL highlighted the external factors. All in all, the above models and frameworks have provided useful strategies upon which recommendations have been built to take Evlaston to the next level in terms of market share, product diversification, innovation, competitive advantage and profitability.

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