Most companies don’t lose their quality position in a pitched battle – they surrender it willingly.
Many brands have had their moment in the sun as the “best.” In most industries, it’s tough to stay at the top of the heap, quality-wise. But in the history of the hotel business, it has proven nearly impossible. Let’s stipulate that hotels have a proud and ancient history – the current world’s oldest is probably Japan’s Koshu Nishiyama Keiunkan, dating to A.D. 705. But let’s focus on the best modern hotels and hotel chains since the mid-19th century.
Consider the following abbreviated list of hotels that were thought to be the best, most luxurious, most innovative hotels of their time:
1856: Claridge’s London. The first phase of the future art deco palace, home to Mayfair’s elite and British royalty
1865: The Langham, London. Boasting the first hydraulic lifts, air conditioning, and hot and cold running water in each room
1875: The Palace, San Francisco. Covering 2.5 acres, “the most luxurious and costly hotel in the world,” featuring a butler call button in every room
1887: Raffles, Singapore. The most modern building in Singapore, and at the time beside the sea, although it is now 500 meters away
1898: The Ritz, Paris. Founded by Cesar Ritz with Auguste Escoffier as a partner, and famous for opulence, giving rise to the term, “ritzy.”
1903: Taj Mahal Palace Mumbai. Residence to maharajas and playground of princes, only a few steps away from India Gate
1928: The Peninsula Hong Kong. “Finest hotel east of the Suez,” at the crossroads where ocean liners docked and the Trans-Siberian railway terminated
1931: Waldorf=Astoria, New York. First hotel to offer room service; first hotel to permit unescorted women in the evening; had its own railway platform
1999: Burj al Arab, Dubai. Self-promoted as “The world’s only 7-star hotel.” The smallest accommodation is 169 square meters.
It is argued whether today’s hotel chains were a creature of Cesar Ritz or Conrad Hilton. Ritz opened hotels in Rome (1893), Paris (1898), London (1905), and Madrid (1910). Hilton, with humble beginnings in Texas, eventually bought and assembled a collection of hotels that included The Plaza in 1943 and the Waldorf in 1949. He also built famous early ground-up projects like the Hilton Istanbul in 1955. Also worthy of mention is InterContinental Hotels, the brainchild of Juan Trippe, who opened luxury hotels throughout Latin America to complement his main business, Pan-Am Airlines.
The point is that any of the above hotels and chains could have been argued to be “the best” at some time in their history. In many other industries, businesses regarded as best-in-class often maintain that status for decades. Think of the world’s best banks, watchmakers, fashion houses, or automobile companies. Those at the top often remain at the top. And it isn’t merely a matter of being “too big.” Consider Hermes which remains at the top while doing nearly US$7 billion in annual revenue. Or Goldman Sachs, thought by most to be the best investment bank in the world with US$35 billion in revenues. By the way, both companies are more than 100 years old.
Then why is the top hotel group or brand status so difficult to maintain over time?
The common argument is that new competitors, with better buildings and deeper pockets unseat the current “best.” An alternative argument is that the established companies fail to change swiftly enough to keep up with consumer tastes and trends – they become old-fashioned. But all industries cope with these challenges. There are simply some industries where it is ridiculously easy for newcomers to unseat established incumbents.
The truth is that many organizations – hotels, retailers, dry cleaners and sports teams simply surrender their leading positions. It becomes less important to them as they perceive a conflict between the best customer experience and other objectives such as profit or growth. It doesn’t happen all at once, as senior leadership could never admit to such a change in philosophy. Instead, it is death of a thousand cuts – each small decision favoring expediency over excellence.
A few years ago, some hoteliers took pride in great bar service. This included touches such as cloth coasters and cloth napkins embroidered with the hotel logo. Complimentary bar snacks often consisted of passed fresh canapés. Barmen were obsessed with things like having solid-core ice cubes at least two-inch square, or carved into small globes (still done today in Tokyo’s best bars). But today, many of these same bars serve ordinary spirits and airline-quality peanuts served with tiny paper napkins like one finds at church-basement socials. Then they wonder why their image sank.
One loyal guest of a famous brand’s Maui resort regularly booked the presidential suite for two weeks every summer for himself and his family. This annual vacation resulted in hotel bills topping US$50,000 (which was a lot in 1995). Then one year, the guest felt slighted and switched to a competitor. How did the resort lose this client? In previous years, an unlimited supply of complimentary bottled water was delivered to the suite every day; now they received only two bottles and were charged for the others. The guest was accustomed to receiving the Wall Street Journal every day; now was told it was only possible with a special runner and surcharge. The guest, who was fair-skinned, had always requested and received a particular shady cabana near the pool; now was told that he must queue up to reserve it each morning and an “applicable fee” would be charged. The hotel’s actual cost of these amenities was probably about ten bucks a day. Soon thereafter, this resort that only a few years ago was listed amongst the world’s best and most expensive began advertising “third night free!,” inclusive meal packages and discount coupons on spa treatments. It no longer appears on anyone’s “best” list.
Independent hotels that buck the trend and stay near the top decade after decade are exceptions. And for that reason, we treasure them so highly. Unfortunately, the formula has proven very elusive for hotel collections and brands. This led me to the following five Rules of Inverse Excellence. (And let’s define excellence for a brand or collection as this: ALL or nearly all the properties could be considered amongst the best in the world, and certainly the leader in its local market.)
Rules of Inverse Excellence
The more a collection chain, collection or brand has of these elements, the less excellence it can achieve:
1. Number of properties under management
At some point, leadership becomes spread too thinly to consistently drive excellence through personal charisma of its leaders or founders. It isn’t possible to have a team of VP’s with the same vision, understanding, charisma and instincts. And even the best “systems” can only provide a floor that ensures fewer laggards, but not more superstars. What is the magic number? In viewing the global hotel scene, I would suggest that the limits become severely tested at about a dozen hotels under management.
2. KPI focus
KPI’s are important. But there is no example of a glittering, best-in-class paragon of excellence that achieved its success because the KPI’s were pretty. The problem is not with KPIs themselves, but rather the obsession and near-exclusive focus on them by corporate management. In a way, it’s understandable because they are easy for a faraway administrator to grasp. And, it’s easy to set goals. But things that define “best-in-class” can be stubbornly difficult to measure, and therefore often slip below the corporate radar. So, they become de-funded or minimized until they eventually wither away. Some very important things can’t be KPI’d.
3. Distribution of voting shares and shareholder vision
This has been the downfall of many of the famous 20th century brands. Ultimately, they were condemned by their own success. They became so attractive, so compelling, that shareholders could not resist the urge to expand. In the quest to do so, deals were made that diluted the brand’s standards, or projects accepted that could never hope to rise to the level of the group’s “flagships.” Virtually every such brand today has two or even three tiers within it – what I call citadels and catfish.
4. Degree of corporate oversight
The more corporate oversight, the less excellence will be achieved across a collection. This might seem counterintuitive, since we agreed that excellence depends upon a strong leadership vision. But the key has always been a “loose-tight” style. This means that the broad vision and values must be crystal clear, but the means to achieve them must be decentralized to the unit or even department levels. The more corporate mandates, standards, inspections and policies, the less adaptive each customer experience can be. And today, it is all about situational adaptability. It’s the difference between unique and memorable excellence, or just being really good.
5. Owner/developer wealth and motivation
It is somewhat unique to the hotel industry that the brand or operator does not own the physical asset. Hermes, Goldman Sachs, Mercedes Benz, and the New England Patriots do not have this problem. It is inevitable that conflicts arise. The owner requires cash flow while the management company requires brand integrity. Or maybe the owner simply has different ideas about excellence. It is a rare situation when all of this is in perfect consonance. The rise in power and agglomeration of third-party asset owners has created much opportunity, but little distinctive excellence.
Contributed by David Richey, Richey International, San Francisco