In his first major leadership move since becoming CEO of InterContinental Hotels Group (IHG) last July, Keith Barr is creating a new operating region for IHG that combines Europe and AMEA.
Analysts and owners say the new region, EMEAA (Europe, Middle East, Asia, Africa), is too “mega” and “pretty unprecedented” among the big global hotel chains.
To be led by Kenneth Macpherson, currently IHG’s CEO of Greater China, EMEAA will be based in the UK. IHG’s AMEA CEO, Jan Smits, who looks after the existing AMEA regional office in Singapore, has decided to pursue other opportunities outside the company and will leave by year-end. Greater China will remain a regional office, with Jolyon Bulley, currently COO of Americas, replacing Macpherson as its CEO. All this is effective January.
“Just running Middle East and Asia is a challenge,” pointed out Robert Williams, partner and head of hotels & hospitality Asia-Pacific, Withers Worldwide, based in Singapore. “So this is bold. And, trying to manage Asia from Europe – not many have succeeded there. Strong senior and empowered management on the ground in Asia and a clear mandate for them to execute strategy will be key.”
Robert Hecker, managing director, Pacific Asia Horwath HTL, said, “The risks? Supervisor burn out. Reaction time/support for owners further from the center, or at least perception of diminished attention. The Singapore regional office will continue, albeit likely seeing some downsizing.”
Analysts believe the move is driven by cost savings, and perhaps a greater leaning towards Europe and Greater China. IHG’s interim results to June 30 are lackluster, with first-half RevPAR growth at 2.1%, led by an occupancy increase of 0.9%. RevPAR in the U.S., IHG’s biggest operating region, grew 0.7%; in comparison, while Europe surged ahead, up 6.2%, with Greater China up 4.1% and AMEA up 1.4%.
But, in a phone interview from London, Barr said he is not de-prioritizing AMEA and taking resources out of the region to save costs. In fact, he wants to bring resources closer to the markets. “I use markets rather than regions as that’s how we’ve been thinking about the business as it matures,” he said.
Barr continued by saying, “When I look at AMEA, it’s a big region. You’ve got Africa, Middle East, southern Asia, Korea, Japan, Australia/New Zealand – these are very diverse markets at different maturity (levels) of business requiring different go-to-market strategies.
“Then in Europe, we’ve got a big UK/Ireland business, big Germany business and we’re growing other markets, as well.
“When you look at the entirety of that patch [EMEAA], you ask, is there a better way for us to organize this?”
The intention, said Barr, is not to have a big office in Europe running the business but “to have more resources going into the markets close to the hotels and owners [and] to enable the markets have more autonomy and be a bit more entrepreneurial to drive performance. So we’re moving resources around while maintaining centers of excellence on development, luxury, F&B, operations, in Asia.”
Barr recounted that was how he ran Australia/New Zealand/South Pacific years ago. “I was a fairly independent business; I wasn’t dependent on Singapore,” he said. “I had development, sales and marketing, revenue management – I ran my own business and I had the ability to make decisions on how we partner, how we negotiate a deal, and that’s what I want to see. I want to empower southern Asia, India and so forth. Sure there are some things we can’t do from a back office perspective such as finance or HR, which are more process-related.”
Barr is looking at how best to structure EMEAA on a market basis. Macpherson will have accountability for the overall strategy of EMEAA, and there will be leadership in each of the markets who will be accountable for operating the hotels, opening hotels, growing the business. “We’ll work through who should be in those roles going forward. We have a number of people in place and we have to look at which other leaders we want to have in place going forward,” Barr said.
So how will the Singapore office look in a few months? “We have to look through, we’re having conversations with Jan,” Barr added. “We may be moving some things into Singapore from other parts of Asia, some out of Singapore into Japan, Australia… We’ll have a big presence there, what it looks like [is to be decided].”
Barr reiterated, “There’s going to be resources in Singapore; it’s a huge important part of the world for us. There will be resources in other important markets for us and we’ll be more focused on putting resources in markets that have the highest potential, based on pipeline, relationships we have with owners and our competitive positions, too.”
Asked why this model is relevant for IHG today, Barr said, “The business has got scale now. Where we didn’t have scale in many of those markets in the years past, it did make sense to do everything out of Singapore. But now that we have scale in those markets, the best way to drive performance for owners is to grow more resources in those markets.”
Each market, he reminded, is fundamentally different. EMEAA will be the second profit center for IHG after the U.S. Compared to a large franchise business in the U.S., EMEAA has a huge managed business and will be the biggest operation for InterContinental hotels. It has a growing resort business, a huge restaurant and bar business, a number of key strategic markets IHG wants to grow.
Australia/New Zealand has a lot of institutional funds compared with southern Asia, which has lots of high net worth individuals, managed luxury and upscale business, Barr pointed out. “So no one size fits all,” he added. “I want to make sure we’ve got the right go-to-market strategy.”
Regions are just constructs that companies make, Barr said. What’s important is “how to ensure we have the right operating model in the markets and not be constrained [by traditional ways], how we look at using technology, new ways of working and leveraging our scale.”
Barr’s new plan, however, may be up against competitors in Asia Pacific that say they are maintaining or increasing resources in the region (see sidebar below).
On this being driven by cost savings, Barr added, “Actually, we don’t have a cost problem. We have a resource allocation challenge.
“We’re taking costs out of the business, without question, to re-invest it back to where can have the highest value for owners and for IHG. We’re not in a situation like a number of companies where there’s significant pressure to cut costs. In fact, if you follow the latest annual report, IHG is one of the best-performing companies in terms of growing revenue and profitability. For the last decade, no one’s commenting we’re not a profitable company, that we need to take costs out. Everyone’s only saying, how do you grow faster? So everything I’m doing for the company is to accelerate our growth.”
Asked what risks he considered before deciding on EMEAA, Barr said, “Companies change all the time with evolving market needs; three years down the road, it will look a bit different. Asia is the fastest growing, we’re well-positioned there with a great legacy and history with amazing hotels opened today and in the pipeline. I don’t see that changing… And if I get something wrong, you know what – I’ll fix it.”
How some big global chains cover Asia Pacific
IHG (CURRENT STRUCTURE)
Regional HQ: Singapore
Area of coverage: AMEA (excluding Greater China, which is another regional office)
Other offices: Dubai and New Delhi covering India, Middle East and Africa; Sydney and Tokyo covering Australasia and Japan; Bangkok and Singapore covering Southeast Asia and Korea
Organization structure: Jan Smits leads AMEA as CEO and the regional executive committee comprises Smits, Clarence Tan, SVP new hotels AMEA; Alan Watts, COO AMEA; Pascal Gauvin, COO, India/Middle East/Africa; Jeanette Chan, CFO, AMEA; Karin Sheppard, COO Australasia and Japan; Rajit Sukumaran, chief development officer AMEA; Deborah Woollard, VP human resources AMEA; Victor Chua, VP global technology AMEA; Lara Hernandez, chief commercial officer AMEA; Janice Gan, VP legal AMEA; Leanne Harwood, VP operations Southeast Asia and Korea; Amadeo Zarzosa, VP resorts, luxury and lifestyle AMEA; and Eric Doebel, VP strategy and insights AMEA. There are close to 500 staff in the AMEA corporate offices and more than 48,570 hotel staff across AMEA
Size of whole regional structure: 284 hotels across AMEA, more than 150 hotels in the pipeline
MARRIOTT INTERNATIONAL
Regional HQ: Hong Kong
Area of coverage: All of Asia Pacific, including South Asia, Australia, Southeast Asia, China, East Asia, etc.
Other offices: A large office in Singapore, which is a regional office for APEC (Asia Pacific excluding China). A similar office in Shanghai for China. The next largest office is in Mumbai (with a sub-office in Delhi) covering South Asian operations, development, legal, etc. There are smaller offices in Bangkok, Jakarta, Sydney, Beijing, Guangzhou, Tokyo, etc.
Organization structure: Craig Smith leads all of Asia Pacific as president and managing director. Under him are a CEO for Greater China, then a string of “chiefs” – CFO, chief sales and marketing officer, chief development officer, general counsel (head of legal), chief HR officer, chief lodging services officer, and two COOs (they cover the hotel operations side — one for APEC and one for Greater China). This is Smith’s executive committee.
The CEO of Greater China also has an ‘executive committee’ set up by function. Then each COO has their executive committee set up by function. Below the COOs are area VPs who each have 25-50 general managers and hotels reporting to them. They have an area team, which is based on functional discipline.
There are many other specialized positions in the organization.
“We are an Asia-focused organization and localizing and decentralizing more and more each day,” Smith said.
Size of whole regional structure: Roughly 600 hotels, 135,000 associates, over 20 countries and 20 brands
ACCORHOTELS
Regional HQ: Singapore
Area of coverage: Asia Pacific
Other offices: Major offices in Sydney (oversees the Pacific with over 200 hotels in Australia); Bangkok (oversees after Thailand, Cambodia, Japan, Laos, Myanmar, Philippines, South Korea and Vietnam); Shanghai and Beijing (both covering China where Accor has over 200 hotels); Auckland (covering NZ, Fiji, French Polynesia); Jakarta (covering Indonesia, Malaysia and Singapore); and New Delhi (covering India where Accor has almost 50 hotels).
Organization structure: Michael Issenberg leads all of Asia Pacific as chairman and CEO, with around 130 staff under him in Singapore alone.
Size of whole regional structure: 800 hotels, a pipeline of over 350 committed hotels over the next five years, almost 100,000 staff across Asia Pacific.
“AccorHotels has always believed strongly in having local teams on the ground in each area in Asia Pacific because the region is so vast and so culturally diverse,” said Gaynor Reid, AccorHotels’ vice president communications and CSR for Asia Pacific. “We moved our corporate Asia Pacific offices from Sydney to Singapore in 2008 when we realized that the majority of our growth was going to be in Asia, and we needed to ramp up our presence here. We are fully committed to retaining corporate offices in Asia Pacific where a growing percentage of our global growth is being driven. Asia Pacific now represents 44% of our global pipeline and this region is especially driving growth in our luxury and upscale sector.”