Innovation, Creativity, and Entrepreneurship

Quiz (2 hours)

1. What is good strategy? Explain the concept, the components that constitute a good
strategy, and give an example of a company that was historically or is still presently
successful in financial terms, to illustrate your view of a good strategy.

2. Read the case below and answer the following questions

In 2008, Michael Levie, Rattan Chadha, and Robin Chadha set out to create a new
kind of hotel chain. Convinced that innovation in the hotel industry had stagnated, they
believed that there was an opportunity to create more value for customers that were frequent
travelers, or “Mobile Citizens of the World.” They named their new hotel chain “citizenM,”
and they set out to rethink what dimensions customers really cared about, and which they
didn’t really value.

First, the founders concluded that frequent travellers wanted to be in stylish and
modern hotels that reflected their own identities, but they did not really care about front
desks and porters—after all, who wants to wait in line after a long flight, and why would
they need a porter to get the luggage to the room if they had already managed to get it from
the airport? Instead, the chain could greatly reduce both costs and waiting lines by having
self-service check-in machines that dispensed keys (similar to the self-service machines
that dispense boarding passes at airports) and eliminating porters.

Second, in cosmopolitan cities such as London or New York, Levie and the Chadhas
did not believe that it made sense to try to compete with the local bars and restaurants by
offering premium service inside the hotel. Instead they created a stylish and comfortable
space with an open-plan round-the-clock kitchen, where customers can help themselves to a
quick meal whenever they wanted by simply using their credit card.

Third, the founders reasoned that most travelers do not want to hang out in their
hotel rooms. They thus made the bedrooms small and pod-like—similar to those offered in
cruise ships. A typical citizenM room is 172 square feet, significantly smaller than the
average 280 square feet of a London hotel room or the average 250 square feet of a
Manhattan hotel room. However, they outfitted the rooms with king-sized beds and the kind

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of high quality bedding, upscale fixtures, big fluffy towels, and free Internet service that
frequent travellers would be likely to have at home. The rooms also had “mood pads”—
electronic tablets that guests could use to control the television, lighting, and temperature.
The idea was to create “affordable luxury.”

By eliminating many of the costly features of a typical hotel, citizenM’s construction

and staffing costs averaged 40 percent less than other four-star hotels. This resulted in
nightly prices that were roughly $50 less than those of other four-star hotels in its major
markets. The combination of the comfortable and stylish ambiance with affordable prices
resulted in occupancy rates that were consistently higher than industry averages—over 95
percent compared to 85 percent. As noted by Robin Chadha, “We’ve started from scratch,
looked at the behavior of this new generation of travelers and built our company
accordingly....We’re an online company with no reservations team—everything on the
Internet—and we use technology to offset staff costs. All the savings, we pass on to our
guests.” Within a year after opening, citizenM was ranked by the Sunday Times, CNBC,
and Fortune as the best business hotel. It went on to win the “Trendiest Hotel in the World”
from TripAdvisor (2010 & 2011), Fodor’s 100 Hotel awards (2011), and “Best New Hotel
Concept” from Entrepreneur (2013). By 2015, the chain had hotels in Amsterdam,
Glasgow, London, New York, Paris, and Rotterdam.
(Source: Schilling, M. 2017. Strategic Management of Technological Innovation (5th edition).
New York: McGraw-Hill Higher Education.)

a. What are some of the challenges and opportunities of competing in the hotel
industry? How do you think the hotel industry (or travel industry more
generally) has changed over time? You may use tools, such as Porter’s 5-force
analysis, PESTLE, and/or stakeholder approach, to provide your answer for this
question.

b. What is citizenM’s strategy? Who is citizenM’s target customer group. What are
the advantages and disadvantages of targeting a narrower niche of customers
rather than trying to appeal to a wide range of hotel customers?

c. Can you propose an alternative strategy? Can you think of other ways to
dramatically re-envision how a hotel might operate and attract guests? What are
the advantages and disadvantages of your approach?

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3. Read the JetBlue case, and answer the following questions.

Entrepreneur David Neeleman, at the age of 25, co-founded Morris Air, a charter air
service that in 1993 was purchased by Southwest Airlines (SWA). Morris Air was a low-fare
airline that pioneered many cost-saving practices that later became standard in the industry,
such as e-ticketing. After working as an airline executive for SWA, Neeleman founded
another airline, JetBlue Airways, in 1998. When Neeleman established JetBlue, his strategy
was to provide air travel at even lower costs than SWA. At the same time, he wanted to offer
better service and more amenities.

JetBlue copied and improved upon many of SWA’s cost-reducing activities. For
example, it started out by using just one type of airplane (the Airbus A320) to lower the
costs of aircraft maintenance and pilot training. It also chose to fly point to point, directly
connecting highly trafficked city pairs. In contrast, legacy airlines such as Delta, United, or
American use a hub-and-spoke system; such systems connect many different locations via
layovers at airport hubs. The point-to-point business model focuses on directly connecting
fewer but more highly trafficked city pairs. The point-to-point system lowers costs by not
offering baggage transfers and schedule coordination with other airlines. In addition,
JetBlue flew longer distances and transported more passengers per flight than SWA, further
driving down its costs. Initially, JetBlue enjoyed the lowest cost per available seat-mile (an
important performance metric in the airline industry) in the United States.

At the same time, JetBlue also attempted to enhance its differential appeal by driving
up its perceived value. Its intent was to combine high-touch (to enhance the customer
experience) and high-tech (to drive down costs). Some of JetBlue’s value-enhancing
features included high-end 100-seat Embraer regional jets with leather seats, individual TV
screens with popular movie and television programming, 100 channels of XM Satellite
Radio, and free in-flight Wi-Fi capabilities, along with friendly and attentive on-board
service and other amenities. Also, because one-third of customers prefer speaking to a live
reservation agent, despite a highly functional website for reservations and other travel-
related services, JetBlue decided to employ stay-at-home parents in the United States
instead of following industry best practice by outsourcing its reservation system to India.
The company suggests this “home sourcing” is more productive than outsourcing; it also
says that customers’ appreciation of the reservation experience more than makes up for the
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wage differential between the U.S. and India. To sum it up, JetBlue’s “Customer Bill of
Rights” declared its dedication to “bringing humanity back to air travel.”

In early 2007, however, JetBlue’s reputation for outstanding customer service took a
major hit: Several flights were delayed due to a snowstorm in which the airline kept
passengers on board the aircraft; some sat on the tarmac for up to nine hours. Many
wondered whether JetBlue was losing its magic touch. In May 2007, David Neeleman left
JetBlue. Ever the entrepreneur, he went on to found Azul, a Brazilian airline, in 2008.
Another reputation-damaging incident for JetBlue occurred in 2010 when a flight attendant,
upset because a passenger refused to apologize after striking him with luggage when
disembarking the plane, allegedly used the airplane’s PA system to hurl obscenities at
passengers. Then he grabbed a couple of cold beers from the gallery, deployed and slid
down the emergency escape chute, before disappearing in a terminal at New York’s JFK
airport and proceeding to drive home (where he was arrested). For JetBlue, trying to
combine a cost-leadership position with a differentiation strategy has meant that despite
enjoying some early years of competitive advantage, it is now struggling to maintain that
advantage. JetBlue’s chief marketing officer, Marty St. George, was asked by The Wall
Street Journal, “What is the biggest marketing challenge JetBlue faces?” His response: We
are flying in a space where our competitors are moving toward commoditization. We have
taken a position that air travel is not a commodity but a service business. We want to stand
out, but it’s hard to break through to customers with that message.” JetBlue has experienced
a sustained competitive disadvantage since 2007.
(Source: Rothaermel, F. T. 2017. Strategic Management (3rd edition). New York: McGraw-Hill
Higher Education.)

a. What is the problem? Use the notions and framework of strategic management
discussed in the class to analyze the problem of the JetBlue,

b. From the strategic management perspective, what are your suggestions or

possible solutions for JetBlue?

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