6 reasons why you're struggling to execute your strategy
“Here we go again with the slogans,” I thought as I was reading hospitality e-news about yet another CEO claiming “I (it’s always ‘I’) am going to open another 1,234 hotels globally.”Of course no hotel company accomplishes such a feat – rather, 1,234 individual hotel owners will open these new hospitality assets with their resources. The hotel companies do not invest, as most are or aspire to be asset-light these days, and therefore provide branding and a certain level of know-how only.
The do-how comes from the hotel owners, and this often remains unmentioned.
The hotel business used to be about the number of properties in a company’s portfolio. Presently, it is all about the number of rooms in the development pipeline, as creating buzz about growth has a positive impact on share price. One alarming observation: When a regional brand president says on CNBC’s “Squawk Box”: “I am going sign 123 new hotels!”, few people seem to remember that statement 12 months later and publicly ask: “How did he do in reality?” If they would, share price may suffer if that statement did not materialize.
Regarding the kind of above statements: As an hotelier, I immediately think: “How are you going to convince 123 individual owners to sign up with you?” As a project management professional, my second thought is: “How are you going to deliver on your contractual obligations once those agreements have been executed?” We will describe the keys to successful strategy implementation below.
It would take 2½ to 3 years to build a scalable structure that would allow a hospitality company to effectively and efficiently manage large-scale new hotel opening projects in a consistent and predictable manner. I know of very few hospitality companies that have demonstrated this level of foresight on strategy execution. The current way of operationalizing new hospitality assets is not conducive to achieving corporate growth objectives. And here is why:
Dysfunctional lines of authority: Current lines of authority undermine effective integration of corporate strategy. Development of new hospitality assets needs project teams to plan and execute activities in each phase and integrate efforts between all phases. This requires clear lines of authority that jointly work towards simultaneous technical, operational and commercial readiness of the new hospitality asset.
Conflicting incentives: Current incentive structures undermine effective integration of corporate strategy across operator’s departments because overall success is measured and rewarded differently for each of them.
Disregarded mutual interdependence: Design, construction and pre-opening are mutually interdependent. However, the pre-opening is often treated as a “prelude” to operations and not as part of the overall hospitality asset development project. This leads to non-integration of critical interdependencies.
Non-alignment of strategic objectives: The strategic objectives of owners and operators are not aligned. Owners focus on operationalization of the business case to generate positive cash flows from operations and realize investment objectives. Operators focus on increasing hotel company value and share price through system growth. Realization of owner investment objectives is generally less important to operators, as they have no “skin in the game.”
Owner on-boarding: Owners are often depicted by operators as “the bad guys” who don’t listen and can’t be influenced. In reality, hotel company development may not have clearly articulated what owners are getting themselves into by keeping the gist of the agreements vague and full of small-font clauses and requirements, spread across the 150 pages of a typical agreement. Ineffective owner on-boarding from the onset will negatively impact the owner/operator relationship throughout the asset life cycle.
The curse of success: Signing deals creates buzz, and the stock markets react favorably to announcements of growth. The curse of success happens when the development pipeline of a hotel company gets eventually overloaded with mediocre, riskier projects, because the growth rate is not sustainable with the capacity of the hotel company’s resources and infrastructure to effectively deliver the new hotel projects to operations. The current perception seems to be: “We can do it in current scale, so scaling up is easy!”
The principal consequence of a lack of strategy execution is opening delays that impact operator’s cash flows and owner’s ROI.
The way forward
In the context of the pipeline and competitive pressures, the keys to successful strategy implementation are:
Happy hotel openings!
Gert Noordzy, founder and managing director, Northside Consulting, Macau S.A.R.
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