Abstract: The industry-wide disconnect between expansion strategy ambitions and organizational capabilities to achieve these ambitions causes hotel company growth strategies to fail with corporate leadership often misses the critical connection between expansion ambitions and their ability to execute.

This article illustrates how the connection can be effectively enabled by applying the integrating Aggregate Project Planning framework to ensure a prudently balanced strategy and execution.

Introduction

The hospitality industry has suffered from the tendency to announce huge scale-up visions in 5-year plans, attracting media attention, adulation and hype, while these are seldom accompanied by resource and capability development plans. This suggests a disconnect of market domination ambitions from the organizational capabilities critical for achieving them. Senior leadership often fails to see the connection between ambitions and ability to execute, as evidenced by a number of cases. The gap is often exacerbated because the strategizers do not consider the development of the right type and level of competencies and capabilities an integral part of strategy. Ambitious market strategies are considered symbolic of leadership genius, while organizational resources and competencies are deemed to be pedestrian at best and irrelevant at its worst. Consider the recent example of Oyo Rooms, over the period of 2013 to 2019, as a vivid illustration of how ignoring resources and competencies could lead to disaster.

Founded in 2013, Oyo Rooms made early headlines about ”plenty more room to grow“¹, “remaking India’s hotel business and going global”², “aiming to disrupt the global hotel industry”,³ and “the world is not enough for Oyo”. In 2019, Oyo Rooms was ranked as the world’s third largest hotel company by number of rooms⁴, up from #8 in 2018⁵. Unfortunately, unraveling of the start-up online aggregator cum franchisor of budget hotels started several years earlier. Numerous reports reinforced the trend about “slashing footprint and headcount”⁶ and “troubles at India’s third-largest start-up continue to reach alarming proportions”⁷. It should be noted that the dynamics of the current pandemic have been explicitly excluded from our data and analysis, as these are proving to be disruptive and challenging to the hospitality industry for very different reasons. At the same time, Covid-19 has only accelerated the decline of Oyo Rooms.

Problems as symptoms

Typically, as start-ups scale up and operational plans are executed, core financial metrics improve towards profitability. In contrast, the exact opposite has happened to Oyo Rooms.⁸ The company reported financial losses of US$ 67m in 2016⁹, US$ 42m in 2017¹⁰ and US$ 52m in 2018. Losses increased to US$335m in 2019¹¹, while “internal projections showed it may not make a profit in India and China until 2022.”¹² Our extensive desktop review of online coverage of challenges and issues over the period of 2016-2019 illustrates a multitude of problems. These multi-dimensional issues include soaring valuation and lack of profits, regulatory and governance concerns, massive layoffs (contradicting the scale-up plan for global market domination), disgruntled hotel and industry partners, poor customer experiences, failure to deliver core brand promises and facing legal actions by numerous powerful stakeholders, are clearly symptomatic of deep-seated systemic causes.

The disconnect

The disconnect between expansion ambitions and organizational capabilities needed to achieve them are not unusual. A study of what causes potentially effective strategies to fail delivering desired outcomes indicated that over 60% of firms often struggled to bridge the gap between strategy formulation and implementation.¹³

In Oyo Rooms’ case, the disconnect could be traced to two mentor-investors following their own playbook of global domination of a vertical (Masayoshi Son’s US$100 billion Vision Fund and Peter Thiel’s Fellowship for monopoly drivers) behind the Oyo Rooms’ Founder and CEO - Ritesh Aggarwal. With total commitment to driving the strategy of global monopoly, and total confidence in having the secret recipe for mega success, the mentor-investors selected the late adolescent, who was very receptive of this ambitious vision and ready to execute it.

Based on the evidence we presented about the abysmal outcomes of Oyo Rooms’ execution woes, we conclude that in spite of the open checkbook from Soft Bank’s Vision Fund, the leadership of the company lacked the required deep and intuitive conviction of connecting strategic planning with capabilities and resources needed to execute it. Oyo Rooms’ CEO, with explicit support of his mentor-investors, simply failed to resource and scale up his organizational capabilities.

Why such confusion and such lack of preparedness for the challenges at hand? Why such blind devotion to extremely ambitious expansion goals and such disregard, almost disrespect, for knowledge, know-how and basic business logic? What about the simple rule that new initiatives, such as global market expansion, require resource mobilization, a war chest, and sufficient headcount of the right people at the right time in the right place? And finally, the basic intuition that financial resources do take time to translate into improved organizational capabilities and core competencies through training and integration with the organization and its stakeholders?

A brief intellectual detour: inside-out or outside-in?

Nobody disputes the need for clarity of goals and well-designed competitive strategy. Michael Porter¹⁴ and numerous strategy and competitiveness scholars have articulated the elements of effective strategy and the process of developing it. But as C.K. Prahalad and Gary Hamel¹⁵ illustrated in their research and its extensive impact on business practices, that a complex and multinational organization is not dependent on competitive strategy alone to face the world - it must have the core competencies that could enable turning their competitive strategy into reality. The dilemma of whether competitive strategy defines the required core competencies, resources and capabilities, or the organizational core competencies define the limits of competitive strategy might emerge as a “chicken-and-egg” conundrum.

Fortunately, this conundrum has been resolved with the Resource-based View (RBV)¹⁶, which prescribes that the competitiveness of a business is determined by the quality of the resources it develops, controls and masters. RVB is a practical strategic framework effective for determining the strategic resources a firm can exploit to achieve sustainable competitive advantage. RVB resolves the chicken or egg conundrum by making it moot, as strategy and capabilities are the proverbial two sides of the same coin of competitiveness, and must be addressed in an integrated fashion, simultaneously! In other words, there is a tight interdependence and a strong requirement for synchronous development of competitive strategy and the resources and capabilities supporting its execution.

What does this mean for hospitality?

While the need for synchronous development of strategy and capabilities seems obvious, the typical ambitions of many “blue chip” hospitality leaders dictate uber-scale-up, following a popular narrative of “follow your dream” and “be passionate about your goals”. This is done without much attention to designing the strategy of developing and securing resources to scale-up the overall organization, each function, and every region, as required by the expansion business case. Typically, hospitality organizations are not keen on assessing resources and capabilities, as senior executives often do not appreciate the importance of their role. Scaling-up of resources and capabilities is often done as an afterthought and the lack of ready-to-exploit resources and capabilities results in doomed to fail firefighting during execution.

We are convinced that this disconnect could be naturally resolved through Program & Project Management (PPM) methodology, more specifically, anchoring the development pipeline in the framework of Aggregate Project Planning (APP). This means developing resources and capabilities in synchronicity with the requirements of the business development pipeline.

Integrating expansion strategy and capabilities

We must respect the editorial space constraints. Consequently, this section includes the gist of the workflow that integrates the expansion strategy and the required capabilities and resources stemming from it, illustrated in Figure 1 below.

The workflow captures the essence of the required methodologies for a prudent and focused expansion strategy implementation: on the strategy side, it is driven by a well-defined business case, anchored in specific parameters of the expansion. On the execution side, the 2-step analysis imposes a rigorous reality test of strategy’s feasibility and risk, and informs the business case about the gaps and hurdles that must be addressed to give the strategy a prudent level of confidence in its success.

First, we must recognize Project Management as a general capability, a given baseline when initiating, planning and executing global strategic initiatives. We insist that a hotel company that manages complex and large scale and scope strategic initiatives must have an adequate level of Project Management Maturity (PMM). If not, this gap would compound the inherent challenges and must be addressed as becomes the first priority.

Second, we apply the APP tools to ensure that the collective set of projects in the development pipeline would accomplish the objectives of the business case and builds on organizational capabilities needed for ongoing success. Starting with the top-down flow, APP uses expansion strategy business case parameters, such as scale, scope and location, to identify pipeline capabilities and resources required down to the individual project level. Then, bottom-up, from individual properties to regional and finally to corporate level, APP provides the information from the execution side to the expansion strategy side about the gaps in capabilities and resources, as they appear in the most resource efficient implementation plan, over time. These gaps must be addressed by modifications to expansion strategy and/or development of capabilities and reallocation and rescheduling the resources. And again, money cannot compensate for compressed execution schedule, as training and learning, the “soft resources”, take time!

Figure 1: Integrating Expansion Strategy and Capabilities for Effective Execution

Conclusion and future attention

Opening new and onboarding existing properties on large scale is a massive undertaking, which requires
any hospitality company to scale-up organizational capabilities and resource to execute. Plans have to be designed, resources allocated, and a war chest to support these resources must be defined financially with relevant experts and major shareholders.

We hope this article would set in motion new insights and adaptations to rapidly and drastically changing reality. We put forward two directions that we will focus our attention on:

1. Elaborating on the application of the briefly illustrate methodology with real-life examples.
2. Adapting the illustrated methodology to the much more challenging predicament facing the hospitality industry with post-pandemic realignment. How should hoteliers rightsize and scale down to survive and thrive again?

Gert Noordzy is a hotel opening specialist and organizational project management expert. He is managing director of Northside Consulting and member of the International Society of Hospitality Consultants. Gert is the author of Project Management of Hotel Opening Processes. He can be reached at gert.noordzy@northside-consulting.com

Oscar Hauptman is principal at Northside Consulting. He is an expert in project, program and innovation management, with a PhD in Management and Technology Innovation from Massachusetts Institute of Technology. Oscar has taught as faculty member at Harvard Business School. He can be reached at oscar.hauptman@northside-consulting.com

Northside Consulting is a boutique firm specializing in the tactical and strategic aspects of hotel opening processes.

www.northside-consulting.com

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