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Time to Rethink Hospitality: Building Long-term Value
By Giovanni Angelini - Exclusive for 4Hoteliers.com
Tuesday, 14th May 2024
 

Giovanni Angelini, is a senior and well respected professional within the Hospitality industry world-wide and with a wealth of experiences of over 50 years acquired in 3 Continents, Asia in particular. A former executive and the CEO of the Shangri-La Hotels and ResortsExclusive Feature - From shareholder to stakeholder focus: the long-term value model vs short-term gains model.

Economic systems/capitalism:

  • Shareholder Capitalism (Shareholders): This model prioritises maximising profits for shareholders. All strategies and priorities revolve around this goal.
  • State Capitalism (Government): In some countries, the government stirs the economy and intervenes where necessary. Subsidiaries are sometimes offered in the interests of the state.
  • Stakeholder Capitalism (All Stakeholders): This model considers the needs of all stakeholders (investors, employees, customers, suppliers, community, environment) to create long-term value and sustainability.

Charting the opportunities and challenges ahead.

"Stakeholder Capitalism" is becoming the new buzzword in business, but what is it? and what are the opportunities and the challenges?

Stakeholder Capitalism is more than just a trendy business term. It's a fundamental shift in how companies operate. Instead of solely focusing on maximising short-term profits for shareholders, it emphasises creating long-term value for a broader range of stakeholders. This includes investors, employees, customers, suppliers, communities, the environment, and regulators. These stakeholders become central to the company's mission and strategies.

It’s clear that present Shareholder Capitalism models, driven by annual financial targets designed to maximise returns to shareholders – and where ROI and dividends dominate over all others – are more short-sighted than a well-thought-out and implemented Stakeholder Capitalism model, which focuses on creating long-term value for everyone.

After all, while a short-term focus on profits may seem appealing, it often creates numerous challenges for businesses. Shifting to a stakeholder culture flips the script. By prioritising the long-term well-being of employees (happier, more motivated workforce), customers (increased satisfaction and loyalty), and suppliers (collaboration and innovation), companies can develop competitive products, improve their environmental and social impact (pleased regulators/strong ESG), and, ultimately, achieve sustainable growth and expand market share. As such, the organisation is in a much better place to prosper and grow faster.

While both Shareholder and Stakeholder Capitalism aim for profitability and growth, companies with long-term strategies that prioritise environmental, social, and governance (ESG) factors are proven to see demonstrably better results. This translates to higher top-line growth, lower costs, fewer regulatory hurdles, and increased productivity and profitability. Taking care of all stakeholders isn't just ethically sound; it's a wise business decision that leads to a competitive advantage.

However, over the past several decades, most companies have practised Shareholder Capitalism. This has generated wealth and progress, but this has come at a price.

Inequality in some cases has widened as companies prioritised short-term profits over people's well-being. The quality of products and services sometimes have suffered, while the environment and communities have faced neglect. The worst examples involved purely profit-driven investments with quick exits and no care at all for others. Similarly, some organisations facing the smallest drop in business have resorted immediately to retrenching people, prioritising cost-cutting over fostering a resilient workforce and developing long-term revenue opportunities.

The key question is, is the current model of Shareholder Capitalism, with its focus on maximising short-term profits, sustainable in the long run? The model's reliance on ever-increasing, institutionalised corporate profits seems fragile – especially when you remember the old Chinese proverb – “Fu bu guo san dai”(wealth does not pass three generations).

Stakeholder Capitalism provides a new way forward for businesses, but it demands a shift in mindset. Companies must integrate forward-thinking, sustainable goals into the core of their operations – vision, mission, values, policies, and everyday practices. Think less short-term tactics and more long-term strategies and value-based goals designed to enhance both the product and the brand's image. This requires "scenario planning" based on how the business is expected to evolve and how the process must be navigated.

Short-term gains are always welcome, of course, but long-term profitability is crucial. This is the foundation for sustainable growth, value creation, and a strong brand image – all essential for an organisation's longevity.

Is Stakeholder Capitalism viable, and will it work in hospitality? What will it take?

One major hurdle for the Stakeholder Capitalism model is securing buy-in from shareholders and boards. After all, they traditionally prioritise short-term gains. Many investors are attracted to the quick returns of Shareholder Capitalism, even if it comes at a cost to the environment, employees, or the quality of products (an unfortunate reality that can no longer be ignored).

For Stakeholder Capitalism to work, the personal goals, attitudes, ambition, and past behaviours of leaders must change, and they must embrace the culture of "serving the needs of all stakeholders." Short-term is not the way forward, and here is where a company's culture and wise leadership must come into play.

Effective stakeholder management in the hospitality and tourism business (labour intensive) is a multifaceted process that requires understanding, collaboration, and continuous effort to meet diverse needs and expectations. Each Stakeholder function has unique interests and demands that have to be properly handled and managed.

Some of the required key strategies and actions revolve around being purpose-driven and leading with clear core values and actions. This requires building strong relationships with all stakeholders by developing a sincere and reciprocal culture of trust, commitment/ engagement, sincerity/care, integrity, loyalty, transparency, open communication, and inclusive decision-making.

It is well known that close collaboration with all stakeholders will lead to mutually beneficial outcomes in both the short and long term.

Under a stakeholder-focused culture, it is paramount for organisations to create a strong and lasting image of quality and consistency. This includes focusing on the continuous enhancement of the physical products and services, generating new and better customer experiences, championing innovation, striving for market leadership, and being the best in all interactions. Genuine care for the community and the environment is essential. (And do remember that competitors indirectly influence strategy, pricing and differentiation).

Effective measuring and evaluation of strategies, actions, profitability, transparency, and governance is vital to implementing a successful stakeholder-focused culture. A clear and easy-to-understand metric system that measures qualitative and quantitative data is also a must. (An interesting measurement would be to assess the percentage of investors and workforce in particular, that are actively engaged and aligned).

In a stakeholder-focused culture, driving sustainable business growth requires a multifaceted approach. Strategies must be continuously monitored and, if necessary, adapted to suit changing stakeholder dynamics and contribute positively to the overall business ecosystem.

While the core concept of hospitality – providing excellent service and experiences – remains timeless, the industry must adapt. And a shift towards "Customer Capitalism" might be the key.

By prioritising the well-being of both internal and external customers, hospitality businesses can cultivate a more engaged workforce. This, in turn, fuels the delivery of exceptional experiences, fostering a loyal and satisfied customer base – the lifeblood of any successful hospitality business.

Conclusion;

The time has come for the hospitality industry to switch from the greediness of the Shareholder Economy (short-sighted) to a better balanced Stakeholder Economy (people-value-brand-longevity).

Giovanni Angelini
A 50 year veteran of the Hotel-Hospitality-travel industry with a wealth of experience acquired in 4 Continents, Asia in particular. A long term resident of Hong Kong and Retired Chief Executive Officer of Shangri-La International.

A board member of several large corporations and member of many industry related and quality management organisations. Founder of Angelini Hospitality, providing consultancy and advisory work to developers and hotels-travel-tourism organisations.

Recipient of two Honoris Causa (Doctorate) in Business Administration and in Global Business Leadership, four Lifetime Achievement Awards, the 2006 Corporate Hotelier of the World, Maestro del Lavoro (2014) and of several other recognitions and awards.

www.angelinihospitality.com

This is strictly a 4Hoteliers.com exclusive feature. Reproduction in any shape or form without explicit permissions is prohibited.

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