Asia Pacific Journal of Tourism Research

ISSN: 1094-1665 (Print) 1741-6507 (Online) Journal homepage: http://www.tandfonline.com/loi/rapt20

The value chain's use for the service industry

Keetag Choi

To cite this article: Keetag Choi (2001) The value chain's use for the service industry, Asia Pacific
Journal of Tourism Research, 6:2, 9-16, DOI: 10.1080/10941660108722094

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Published online: 18 Apr 2007.

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 Asia Pacific Journal of Tourism Research Volume 6 Issue 2

THE VALUE CHAIN'S USE FOR THE SERVICE INDUSTRY

Keetag Choi

The value chain model (Porter, 1985) has been originally developed for manufacturing. Therefore, applying it to the
service industry may cause several problems. This study examines the value chain's use for the service industry with
particular reference to the hotel rooms division. Findings from the research show that the value chain technique is also
usefulfor service organizations but its meaning in the strategic process is different from that for the manufacturing industry.

Key Words: service value chain, hotel rooms division, strategic planning process, strategic role, value activities,
hotel strategy

INTRODUCTION normally suggest clearer strategic issues for strategic

A review of the literature shows that a great number of
articles were published on the value chain (VC) model
(Porter, 1985), covering various strategic issues from many
industries. These articles analyzed the value chain technique
concerning most management problems, with particular
interest in strategic planning. However, no article has
discussed the value's chain's role in the strategic planning
process (also called the strategic management process) in
detail. This may cause serious problems when the initial
manufacturing-oriented value chain concept is applied to the
service industries like the hotel sector which is completely
different from the manufacturing industry. Therefore, there
is a need to define the value chain's notion for service in the
strategic management process to develop a service-based VC
application. Hence this paper aims at identifying a service
value chain's role in the strategic planning process by
applying the initial value chain model to hotel rooms
divisions.
The Strategic Planning Process
Theories for the strategy process may concern either the
whole strategy process or a part of it. Two schools of
thought {the planning approach and the incrementalist
approach) are distinguished for strategy process. Ansoff
(1991) defines that the strategic planning approach uses
explicit strategy while the incrementalist approach adopts a
trial-and-experience process until a strategy emerges. Many
incrementalists are inclined towards the combination
approach because their incrementalism tends to incorporate
the planning school of thought, to some extent.
Both the planning approach and the incrementalist
approach complement each other. In particular, strategy
formation models provided by planners are well structured
and can be easily understood. These planning models
Keetag Choi, Ph.D. (email: keetag@naver.com), is a
researcher in Korea Tourism Research Institute, Korea.
management than incrementalists' models. For example,
Andrews (1987), a planner, divides the strategy process into
two aspects: formulation composing four activities and
implementation consisting of three procedures. Wheelen &
Hunger (1992) suggest even clearer steps for strategic
management. In their model, there are four stages and
thirteen strategic issues.
These planners' models seem to be generally accepted
by incrementalists. Mintzberg (1990 and 1991) as the
representative of incrementalism, for instance, was in debate
with Ansoff (1991), a well-known planner, through
"Strategic Management Journal". After a series of
arguments, Mintzberg (1991) finally admitted that his
incrementalism based on learning would go with the
planners' way of strategic process; he concluded the
argument saying that "we shall get nowhere without an
emergent learning along side deliberate planning".
Therefore, this research identifies the value chain's role,
dealing with strategic issues on the planning approach. As
shown in Table 1, three categories can be suggested by the
planning method: environmental scanning, strategy
formulation, and strategy implementation. There are twelve
basic elements in total in these categorical groups.
Table 1. Strategic Issues on the Planning Approach
Categories Strategic Issues
Macro-environmental analysis
Environmental Micro-environmental analysis
scanning Internal environmental analysis (Soft factors)
Internal environmental analysis (Hard factors)
Missions
Objectives
Strategy Functional level strategy
formulation Business level strategy
Company level strategy
Multicompany level strategy
Strategy Action plans
implementation Evaluation & control

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 Asia Pacific Journal of Tourism Research Volume 6 Issue 2

The Concept of the Value Chain Model
According to Porter (1985), 'every firm is a collection
of activities that are performed to design, produce, market,
deliver, and support its product'. All these activities are
embedded in a value chain, as shown in Figure 1. Value is
defined as the amount buyers are willing to pay. Total value
in the value chain consists of value activities and margin.
That is, margin is the difference between total value and the
collective cost occurring from the value activities. Porter's
(1985) value chain analyzes a firm's activities and classifies
value activities into 9 categories.
Figure 1. The Generic Value Chain
Porter's (1985) value chain model, a strategic analysis
tool for internal factors, has been tested and used in various
industries. In many hospitality textbooks, the value chain
model has been also treated as a major environmental
analysis tool. However, the value chain model for
hospitality industry has not been much studied. This may
mislead hotel managers about the value chain's use for
strategy. Accordingly, this article explores the applicability
of a value chain model for the hotel rooms division for the
first time and define the strategic role of the rooms
division's value chain in the strategic process. The hotel
rooms division's VC is established on the basis of Porter's
principles.

FIRM INFRASTRUCTURE
j HUMAN RESOURCE MANAGEMENT
Support
activities TECHNOLOGY DEVELOPMENT
PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICES

LOGISTICS LOGISTICS & SALES

Primary activities

The value chain seeks some competitive advantages by concentrates on cost analysis of an organization's activities.
understanding linkages among the value activities. The value Soft factors such as corporate culture, political behavior,
chain concept covers a wide range of sectors: departments, organizational mission and leadership are not considered in
business units, companies, and industries. Porter suggests this model. Accordingly, the value chain model is criticized
that the ideal starting point is to build a value chain in the by many non-economists because it is only an economy-
business unit level. In this research, the hotel rooms division oriented technique (de Wit & Meyer, 1994).
is studied as a strategic business unit. That is, the value chain
of rooms division is built through the study of activities of METHODOLOGY
rooms divisions.
As shown in Table 2, there were three research
Critics of the Value Chain Model procedures in this study. This table describes the contents of
the procedures.
The value chain is a completely planning-minded theory
so it is well structured. The value chain covers all strategic Table 2. Research Procedures
levels, dealing with a broad range of strategic issues (Choi,
2000). That is, this model is a firm's internal environmental Procedures Contents
analysis tool linking issues at all the levels (functional, Literature Studying the strategic process and VC
business, multibusiness, and multicompany level) of strategy review literature
formulation, implementation and external environment. Questionnaire Establishing the hotel rooms
surveys division's VC and grading its use for
However, this technique has some limitations. Firstly, strategic issues
the value chain seems to be built on the planning school of Data analysis From the questionnaire results,
thought. Therefore, it does not suggest how a firm's identifying the service VC's role in
activities can learn about each other to improve their the strategic process
relationship (Choi, 2000). Secondly, this technique
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 Asia Pacific Journal of Tourism Research Volume 6 Issue 2
Method of the Literature Review
This research had a literature review of the value chain
and the strategic planning process. At the beginning, the
exploratory approach was introduced to discover existing
literature; this approach threw light on the suggested
research topic (Veal, 1997). To explore relevant issues to
strategy and the value chain, a reference CD ROM with
abstracts (ABI Inform) and contents/indexes of several
business management and strategy books were studied.
Reading critically and creatively was the core of reviewing
the literature for this research. This method involved a set of
critical questions related to both individual theories and the
body of literature as a whole, as recommended by Veal
(1997). Five key strategic questions were established for the
literature review: (1) Which strategic process does the theory
support?; (2) Which levels of strategy does the theory relate
to?; (3) Which strategic issues does the theory focus on?; (4)
Which schools of thought does the theory relate to?; (5)
Which variables does the theory use?.
Questionnaire Surveys
The value chain was applied theoretically and
empirically with two questionnaires. Both questionnaires
were made basically following the value chain's principles
that Porter (1985) suggested.
The first questionnaire was completed by an academic
panel consisting of four scholars involved with hotel
management to theoretically define value activities of the
rooms division. There was no value chain literature found to
explore hotel activities in detail. Accordingly, the rooms
division's value chain was a need to be established by
experts who understood the value chain model and hotel
management together. An academic panel in the hotel
industry was most suitable to accomplish this task in three
reasons: (1) hotel academics would be more neutral
concerning the whole hotel industry than hotel management
from a specific class of hotels, increasing its "validity" of the
new hotel value chain; (2) academics would be better in
solving theoretical problems—they should have transplanted
the original value chain theory into the hotel rooms division;
and (3) as there are many difficult questions, a small number
of experts who could truly deal with these was needed to
raise the task's "reliability".
The second questionnaire was conducted by five
(assistant) rooms division directors from four super deluxe
hotels and one deluxe hotel. The rooms directors or assistant
rooms directors first experienced the value chain, analyzing
their hotel according to the value chain's principles. After
this exercise, they rated the use of value chain for strategic
analysis in terms of the strategic issues suggested in Table 1.
The value chain of rooms division was finally discussed with
the results from the ratings in the survey. The rooms
division's value chain established by the academic panel was
assessed by hotel managers. The evaluation of the value
chain's use for hotel strategy by academics would decrease
its "validity", for they might have had no experience to
apply such new concept of hotel rooms division's value
chain to strategic issues of hotels. However hotel managers
would provide relatively more "reliable" opinions when
compared with the academics if they evaluated the hotel
value chain after applying it to their, current management
situation.
Data Analysis
Most questions in the questionnaires were in a Likert
scale with five ratings, as shown in Table 3.
Table 3. Ratings of the Value Chain's Use
Meaning Ratings
Not at all useful 1
Only somewhat useful 2
Average in use 3
Quite useful 4
Very useful 5
Adapted from Poorani (1996)
The obtained ratings were interval data about the extent
of importance of a variable because its importance did not
have any fixed point to measure (Howard & Sharp, 1983).
The ratings in the Likert scale are quantitative data and these
provided important facts which could directly contribute to
evaluation of the value chain's role in the strategic process.
Accordingly, the ratings gained from the questionnaires
were suitable for exploratory data analysis, as Hussey &
Hussey (1997) define that "exploratory data analysis or
descriptive statistics" is the use of descriptive statistics to
summarize, describe or display quantitative data. Each
question was basically based on one variable and the extent
of the variable's usefulness or importance was sought in a
Likert scale. The arithmetic mean seemed to be most useful
to draw a general opinion from each variable as Veal (1997,
p. 236) suggests that "means are an appropriate form of
analysis when using attitude or 'Likert' type scales". In
addition, frequency tables and charts were drawn to look at
the distribution of a variable's ratings or to easily compare
sets of data among frequencies at various rating levels or
averages of variables when necessary (Hussey & Hussey,
1997).
The review of strategic process and the VC literature
underlay the structure of the questionnaire surveys. Most
data from the literature review was textual and qualitative
while the questionnaire surveys included chiefly quantitative
data and some qualitative information was added. All
figures were recorded and analyzed in a spreadsheet called
"Excel" at the end.
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Establishing The Hotel Rooms Division's Value Chain
There were two stages in the construction of the value
chain of rooms division. Firstly, about 254 typical activities
of the hotel rooms division were collected from tens of
textbooks and journal articles. Secondly, value activities
were selected. At this stage, a panel of four academics of
hotel management were questioned to select value activities
from the suggested activities of hotel rooms division. The
panel rated each activity's importance between 1 to 5 in cost
or differentiation (five being the most important). Thirty-
eight activities with more than 4.0 point of importance either
in cost or in differentiation were finally chosen as value
activities.
The panel also categorized thirty-eight activities into the
9 functions of the value chain relating to hotel rooms
division, as shown in Table 4. No value activity was
selected for the functions of firm infrastructure, technology
development, procurement, and outbound logistics; this is
because about individual value activities, more members of
the panel classified them into one of the other categories
than into any of those excluded categories. Each value
activity was also characterized by three activity types: direct,
indirect, and quality assurance.

Table 4. The VC of Hotel Rooms Division

1. FIRM INFRASTRUCTURE: no value activities in this function

2. HUMAN RESOURCE MANAGEMENT:

Staff Value activities Activity types

Rooms director &
Motivating (designing jobs, encouraging workers through rewards, rules and Indirect or Quality
Assistant rooms
rationales/ideologies) assurance
director
Front office manager Training of staff Indirect

Front desk supervisor Motivating the front desk clerks Quality assurance

Front desk supervisor Training staffs Quality assurance

Housekeeping
Training of staff Direct or Indirect
manager
3. TECHNOLOGY DEVELOPMENT: no value activities in this function

4. PROCUREMENT: no value activities in this function

5. INBOUND LOGISTICS:

Staff Value activities Activity types

Front office manager Operating and monitoring reservation system for guest room rentals Direct
Assistant front office
Administration of advanced reservations Direct or Indirect
manager
Maintaining a data bank with the names and addresses of current guests, their
Mail & information
room numbers, the status of their accounts, and considerable additional Indirect
clerks
information
Reservations
Taking incoming requests for rooms and noting special requests for service Direct
manager
Reservationists Responding to requests for accommodations from potential guests Direct
Recording some information quickly, such as name, address, dates to be
Reservationists reserved, room type, rate, arrival time, payment method, telephone number on Direct
the paper form or in a computer terminal
Reservationists Adding new reservations to those already in the system, and allowing for easy
Direct
access to the accumulated reservations
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 Asia Pacific Journal of Tourism Research Volume 6 Issue 2

6. OPERATIONS:

Staff Value activities Activity types

Assistant front office
Reception of guests Direct
manager
Front desk clerks Greeting guests Direct
Front desk clerks Registering guests (checking in) Direct
Front desk clerks Checking out Direct
Front desk clerks Answering telephones Direct
Cashier supervisor Maintenance of accurate guest accounts Direct
Mail & information
Providing information about goods, hotel services, and local facilities Direct
clerks
Supplying guests with emergency needs for toiletries, umbrellas, disposable
Concierges Direct
razors and toothbrushes etc.
Concierges Organising special functions such as VIP cocktail parties Direct
Verifying that rooms have been properly cleaned and meet the standards
Room supervisor Quality assurance
established for the property
Reservations Providing the guest with requested information and services as well as accurate
Direct
manager confirmation of these items
Keeping exact records regarding the status of guestrooms and making sure that Direct or Quality
Reservationists
future dates are not overbooked assurance
7. OUTBOUND LOGISTICS: no value activities in this function
8. MARKETING & SALES

Staff Value activities Activity types

Maintaining business relationships with regular corporate and community leaders
Front office manager Indirect
and the reception of VIP guests
Front office manager Creation of the desired trading and selling atmosphere Indirect
Front office manager Establishing in-house sales programmes at the front desk Direct or Indirect
Planning and participating in the delivery of marketing programmes of rooms
Front office manager Indirect
and other hotels products
Assistant front office
The promotion of the hotel services Direct
manager
Informing guests about special hotel facilities, and answering questions about the
Front desk clerks Direct
property and the surrounding community
Reservations Communicating effectively with the marketing and sales department and
Indirect
manager discussing sales planning
Reservationists Supporting the front office management's efforts to attain a full house Direct or Indirect
9. SERVICES:

Staff Value activities Activity types

Assistant front office Indirect
The creation of a welcoming atmosphere for customers/guest
manager
Front desk clerks Registering complaints Direct
Direct or Quality
Front desk clerks Resolving complaints
assurance
Greeting and chatting with returning guests, and accompanying a valued guest to
Concierges Direct
the front desk
Concierges Handling/reporting guests' complaints & problems Direct
Housekeeping Direct
Dealing with guests' complaints and requests
manager
Source: Choi (2000)
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Applying the VC Model to the Hotel Rooms Division meetings for each stage. This way of written and verbal
explanation of the research process certainly encouraged the
involved hotel managers to carry on the proposed research.
To know the use of the value chain for the rooms
division, the established value chain model of hotel rooms
The research participants were carefully selected by the
division by the panel was examined in five luxury hotels in
researcher and the hotel top management through several
Korea: Hilton Hotel (Seoul), Hilton Hotel (Kyongju), Shilla
discussions before the program actually started. All the
Hotel (Seoul), Swiss Grand Hotel (Seoul), and Holiday Inn
participating managers had more than 10-year working
(Seoul). Seven stages with written guidelines were prepared
experience in the hotel industry and had a general
for the field study. However, to make sure the participating knowledge about the rooms division. The participants'
hotel managers clearly understood this research, verbal profiles are described in Table 5.
explanation was also given to the research participants in the

Table 5. The research participants

Hilton Hotel The Shilla Hotel The Swiss Grand
Hilton Hotel Seoul Holiday Inn Seoul
Kyongju (Super . Seoul (Super Hotel Seoul (Super
(Super deluxe) (Deluxe)
deluxe) deluxe) deluxe)
Participants K.Lee H-Y Jang H-S Park H-J Lee D. Wright
Deputy general Deputy general
Position in Assistant rooms Assistant rooms
Rooms director manager/Rooms manager/Rooms
the hotel director director
director director
Hotel career 16 years 14 years 11 years 16 years 16 years
Source: Choi (2000)

The researcher was only an adviser of the research
participants when they analyzed their rooms division with
the value chain model of hotel rooms division. This policy
enabled the participating managers to be more responsible
for the questionnaire's completion as well as to experience
and understand the value chain more carefully. Each
individual participant spent 16 hours on average analyzing
their rooms division, and establishing their
scopes/missions/objectives, and answering the questionnaire.
In the later part of the research, the rooms managers made
ratings of the value chain's use in terms of twelve strategic
issues with confidence. Table 6 shows how the author
organized the schedule for briefing and discussion at each
stage and how many hours the participants spent in
managing those stages. Depending on the extent of a
participating manager's ability in understanding the
procedures of the value chain, a different length of time was
applied to the participants to make sure that every manager
knew what they were doing.

Table 6. Records of the field research process

The Swiss
Hilton Hotel Hilton Hotel Holiday Inn The Shilla
Stage Time Grand Hotel
Seoul Kyongju Seoul Hotel Seoul
Seoul
Time for briefing &
Stage 1. Business 40 minutes 30 minutes 30 minutes 30 minutes 50 minutes
discussion
Success
Completing time 1 hour 1.5 hours 40 minutes 1 hour 1 hour
Time for briefing &
Stage 2. Linkages 40 minutes 40 minutes 40 minutes 40 minutes 40 minutes
discussion
of Value Activities
Completing time 6.5 hours 1.5 hours 3.5 hours 2 hours 1 hour
Stage 3. Value Time for briefing &
1 hour 1 hour 40 minutes 1 hour 40 minutes
Activities Relevant discussion
to Scopes Completing time 24 hours 2.5 hours 3.5 hours 2.5 hours 3 hours
Stage 4 to 7. Time for briefing &
40 minutes 50 minutes 40 minutes 50 minutes 40 minutes
Rating the discussion
Usefulness of the
Completing time 4 hours 2 hours 3 hours 3 hours 3 hours
Value Chain
Source: Choi (2000)

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Research Evidence

Table 7 summarizes ratings of the value chain's use against twelve strategic issues.

Table 7. The value chain's use for twelve strategic issues

HOTELS Swiss Average

Hilton Hilton Holiday Shilla
STRATEGIC Grand rankings of the
Seoul Kyongju Inn Seoul Seoul
ISSUES Seoul value chain's use
Macro-environmental analysis 2.9 3.5 3.3 3.0 1.8 2.9
Micro-environmental analysis 4.0 5.0 2.8 3.6 1.2 3.3
Internal environmental analysis 4.7 4.3 3.7 3.7 3.0 3.9
(Soft factors)
Internal environmental analysis 4.3 4.5 3.5 2.3 2.5 3.4
(Hard factors)
Missions 3.5 4.5 3.0 2.0 3.5 3.3
Objectives 3.5 4.5 4.0 2.0 3.0 3.4
Functional level strategies 4.7 4.0 2.9 2.9 2.2 3.4
Business level strategies 4.2 4.1 3.1 2.8 2.2 3.3
Company level strategies 3.9 4.4 3.1 3.3 2.2 3.4
Multicompany level strategy 3.9 - - 3.0 1.0 2.7
Action plans 3.2 4.9 3.1 2.5 - 3.4
Evaluation & control for 3.2 4.2 3.1 3.0 3.5 3.4
missions
Source: Choi (2000)

There were three findings. Firstly, the value chain was
considered to be a useful tool for establishing strategies in
the functional level (3.4), business level (3.3), and company
level (3.4). However, it was not seen to be good for
establishing multicompany level strategy (2.7). Secondly, in
the strategic process of environmental scanning, strategy
formulation, and strategic implementation, the value chain
was considered to have the most strengths for internal
environmental analysis, especially for soft factors (3.9).
Apart from strategic issues relevant to macro-environment
(2.9) and strategies in the multicompany level (2.7), the
ratings of the VC's use against the individual strategic issues
are over average being between 3.3 and 3.9. Finally, within
environmental analysis, the value chain was seen as a more
valuable tool for analysis of soft factors (3.9) such as
leadership, culture and politics than analysis of hard factors
(3.4) such as technology, production costs, business growth
and organizational structure.
The original value chain has been developed as a
strategic tool for internal analysis and has been criticized
because of its emphasis on economic variables like cost and
margin while ignoring qualitative factors like culture (De
Wit & Meyer, 1994). However, the research shows two
important things. Firstly, the value chain is also useful for
establishing strategies and implementing them. Secondly,
the value chain is more valuable for analyzing soft factors
rather than analyzing hard factors.
Problems with the value chain come in the selection of
value activities. One problem is that the value activities of
rooms division exclude some important activities for
business success. For example, cashiers' activity of
receiving payments is not selected as value activity but this
activity is considered important for business success by both
the academic panel and the rooms managers. The other
problem is that Porter's guidelines for selecting value
activities are too complex. Because there are not clear
criteria for defining linking activities among value activities,
most of the rooms managers found too many linkages. The
rooms managers had difficulties in making priorities among
the linkages of value activities.
CONCLUSIONS
When the value chain was applied to the hotel rooms
division, some of the traditional opinions about the value
chain analysis were challenged. There were some
agreements and disagreements between the original concept
of the value chain and the findings of the field research.
This research developed the value chain model by
identifying the value chain's applicability to the service
industry like hotels and by suggesting the actual guidelines
for establishing the hotel rooms division's value chain in a
strategic planning process.

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 Asia Pacific Journal of Tourism Research Volume 6 Issue 2
Traditionally, the value chain was the model for
manufacturing focusing on a firm's internal analysis and
structural change on the basis of cost and margin analysis.
However, this research showed that the value chain model
was also useful for service. From examination of the hotel
value chain in the strategic planning process, the hotel
managers saw the value chain covering more strategic issues
than the strategic theorists had thought before. In particular,
the hotel management thought the value chain was useful for
hotel strategy because the model was identified as a more
important tool for soft factors than hard factors.
In conclusion, the value chain can be applied to a
service organizational strategy because it could cover most
strategic issues, which can be raised in a strategic planning
process for service. Considering service characteristics, the
value chain is a good tool analyzing service management
because of its usefulness for analysis of soft factors.
Contributions
In the future, this service value chain study can provide
a basis which enables strategic theorists to develop the value
chain model further focusing on soft factors such as politics,
culture, leadership, ethics and attitude.
Through its application of the initial value chain concept
to the hotel industry which is service-oriented, this research
has provided the guidelines for translating the original value
chain terms into service, e.g. hotel language, and of applying
the hotel value chain model to hotel strategy. Both industrial
and academic strategists in other service industries can
borrow such guidelines for the hotel value chain when they
establish and apply the value chain technique to their own
service industry. In addition, this study shows how a new
value chain can be evaluated in the strategic process.
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