When the leaders of any hotel or hotel chain sit down to plan their future strategy, they generally aim to identify and prioritise the major milestones that will shape the future of the business. However, as often happens, the options under consideration become diluted, are discarded or simply fall by the wayside.
This happens because many hotels sometimes plan their strategy around priorities and milestones without being convinced that they are achievable, and allocate the necessary resources to them without considering which priorities truly require the greatest share of those resources. Generally, focusing on just a few winning projects is a more reliable approach.
With the resulting waste of ammunition and time, as well as a significant amount of unnecessary noise.
Hotels seeking to escape slowing business growth sabotage themselves by pursuing new markets without first assessing whether they can succeed, or without taking the time to consider the best way to do so.
To avoid this, it is advisable to examine the different strategic options through four critical and interdependent lenses:
financial performance, market opportunities, competitive advantage and the operating model.
Hotels generally tend to place too much emphasis on the first two areas—financial performance and market opportunities—because they are closest to the most valued tangible asset: money. As such, they represent critical inputs for the business. But knowing what will be required to meet or exceed financial expectations, and which markets are profitable, will be of little use if the company does not have the assets or capabilities needed to win in those markets.
By viewing strategic options through these four lenses, leaders can identify and prioritise the major moves that will take the hotel into new markets and growth opportunities, or the steps they can take to consolidate growth. Taken together, the four perspectives provide a clear, balanced and holistic view not only of the opportunities at stake, but also of what is required to achieve the objectives.
The financial perspective
Most hotels begin their strategic thinking by looking at their financial performance. The financial perspective can help them bring an external view into these discussions and establish an objective baseline for assessing the viability of long-term objectives.
A company can use standard valuation methods to estimate the levels of performance it must achieve over the long term to justify its current value. If the company meets these expectations, shareholder returns would be broadly equal to the cost of capital, compensating investors for their opportunity cost of capital.
However, this is not value creation; it is simply the lowest threshold at which leaders can say their strategy has been successful.
To create value, hotels must deliver returns above and beyond the cost of capital, or returns that exceed those of their peers. Leaders should therefore also use benchmarks to determine the performance the company needs to surpass that threshold, delivering superior five-year shareholder returns, for example. An objective look at the performance of other hotels will help companies develop a meaningful three- to five-year plan to generate excess returns. Businesses can learn a great deal from this benchmarking exercise: perhaps high returns in the past were the result of rising market returns—and therefore higher expectations—rather than genuine performance.
The market perspective
Most hotels are experiencing slow business growth and are keen to return to a path of growth and stronger margins. In some cases, a business slowdown can even place a
hotel in a critical situation.
In today’s competitive environment, many hotels start from a baseline of shrinking margins. This makes moving into new markets an urgent necessity.
The market perspective provides a means through which hotels can identify pockets of growth within existing segments and beyond, and assess them against other strategic options.
Adjacent markets should also be examined, as they may be not only attractive growth segments but also breeding grounds for potential future competitors. Often, adjacencies are obvious, although at other times they are less so.
After conducting the necessary market analysis, two key questions should be addressed:
In which market segments can we grow profitably over time? Which additional attractive markets should be considered?
The competitive advantage perspective
Most hotels face a critical strategic choice:
is it better to consolidate our traditional business, where growth is slower, or can we enter new, high-growth, high-profitability markets and win there as well?
However, given time pressures, the traditional constraints of our sector and other factors, hotels generally underestimate the assets, capabilities and investments required to compete more effectively. As a result, hotels end up pursuing unattainable growth while underinvesting relative to what would be needed to win.
The competitive advantage perspective can help leaders identify whether the hotel has what it takes to succeed in current and growing markets, or whether a major shift is required to capture value. An honest assessment of current capabilities should inform how the hotel chooses to compete in these markets, as well as the resources and additions that may be required.
The analysis and insights here are generally based more on the hotel’s own firsthand experience than on external reports or competitor data. Reviewing sales team reports and quotes for unconverted group and event business can be highly insightful, as can guest satisfaction surveys and customer reviews. There is much to be gained from this analysis.
The operating model perspective
Hotels often take the impact of their operating models for granted when defining their strategy; indeed, they assume the current one is adequate and do not consider making changes.
They maintain the status quo rather than asking whether they have the people, processes, technologies and other critical components needed to make major moves.
The operating model perspective is therefore essential to understanding whether the hotel is set up for future success. In fact,
a hotel’s approach to resource allocation, talent management, organisational design and performance management can reinforce or undermine its strategic objectives.
Ultimately:
The perspectives I have outlined here, properly interconnected, provide a roadmap for ensuring that a strategic plan is supported by the right investments and the corresponding changes to the operating model.
