Brand is the critical tool for achieving differentiation and success in today's competitive hotel market.

Hospitality 2010, Deloitte's research into the future of the industry, has pinpointed brand as a key driver of change for three reasons- 

1. Loyalty schemes, traditionally the preferred tool for winning and retaining hotel customers, have a declining impact. Many hotel guests now own loyalty cards for all of the major chains, therefore such schemes are no longer a dominant factor in their choice of where to stay.

Whilst for some ‘point chasers' loyalty schemes do change perception, brand will increasingly be the ‘X factor' which influences the decision-making process for travellers. 

2. Many hotel groups are divesting their real estate interests and pursuing an ‘asset-lite' strategy in order to free up capital for expansion. Ownership of bricks and mortar is giving way to ownership of the brand itself, in both its physical and intangible aspects: a major cultural shift in the industry.

 3. Hotel expansion is intensifying competition, most gateway cities are reaching market saturation with leading brands sited close to one another, and travellers frequently spoilt for choice.

In the future, brand will increasingly be as important as location in determining customer choice. There are now clear signs that hotel groups are beginning to recognise the importance of brand management within their organisational structure.

However, this remains very much a work in progress. Deloitte has identified some key obstacles and challenges which go to the very heart of the hospitality business model, and which will need to be addressed if companies are to deliver their brand promises more effectively.

Regional hurdles

Most global hotel groups have evolved on the basis of a geographical operating model. Organisations are structured around large regions: typically the Americas, Asia-Pacific and EMEA, further sub-divided into smaller geographical blocs such as Australasia, Europe or the UK.

 The regional vice-president has traditionally been responsible for all of the brands falling within that region, leveraging the power of the local infrastructure in finance, IT, call centres and logistics across all brands.

Whilst this regional model has day-to-day operational advantages it can lead to a diluted form of brand execution, with considerable geographical variance and inconsistency.

However, there are often practical reasons why regional brand management is not appropriate. For example, if there are only a few hotels of a particular luxury brand in the Asia-Pacific region, it doesn't make good commercial sense to manage these separately.

New dynamic

The emergence of brand management as a growing strategic priority is injecting a powerful new dynamic into the traditional operating model. Many companies are beginning to centralise and create management teams around specific brands.

These brand teams may still be organised on a regional basis, but increasingly many are run as global entities. This is particularly the case in the luxury sector where brands such as Marriott's Ritz Carlton are managed by the same team regardless of whether the hotels are located in Boston, Bahrain or Beijing.

Friction

In many parts of the industry this structural change has led to greater complexity and sometimes friction between centralised brand managers and the regional operation teams who are, of course, ultimately responsible for delivering day-to-day performance.

 But friction between the centre and the regions is only part of the story. Brand managers are a relatively new and evolving animal in the hotel industry, with many having been imported from outside the sector.

The rise of the proactive and participative brand manager within the organisational hierarchy poses a further challenge for the established management culture.

Brand sceptics

Senior executives in the industry have traditionally won their spurs at the sharp end of hospitality, starting at the bottom, acquiring in-depth operational knowledge and credibility on their way up the career ladder.

This has created a management culture which today remains fundamentally ‘operations-led,' and which is still often sceptical about the importance of brand. Brand is an intangible concept compared to the nuts and bolts, ‘real business' of running hotels.

Critics in the industry dismiss it as cosmetic icing on the hospitality cake, composed of mere marketing gimmicks, adverts, jingles and logos.

Regional operations teams still hold the balance of power in the industry and can view their brand colleagues as lacking credibility, especially if they have little or no experience of working on the frontline in an actual hotel.

Development decisions

But operations teams are not the only organisational obstacle to delivering the brand promise. Hotel development teams also have an agenda which can sometimes be at odds with the group's overall brand strategy.

Charged with selecting the properties, locations and specifications for each brand in the group's portfolio, the hotel development team plays a critical role and is vital for future growth.

Hotel operators are desperately seeking new properties to meet the current high demand for rooms. Development teams often have a capacity-driven approach, driven by growth targets and the size of deals rather than encouraged to follow specific brand criteria.

While the brand team often has a role in the decision making process, ultimate authority tends to rest on the development side, and all too often the interaction between the two teams is weak.

The danger is that the pipeline of future hotel development may not match the strategic goals of the group. In some cases hotel properties have been opened in locations inappropriate for that brand, leading to inconsistency and a further dilution of the brand promise.

Seamless integration and orientation

Close collaboration and tight structural interaction between the development and brand teams is crucial. Marriott is an example of how this can be achieved via a centralised development function which requires agreement from both operations and brand managers before a development decision can be approved.

Operations, development and brand teams, across both regional and central levels, must be integrated seamlessly if a hospitality organisation is to successfully deliver its brand promises.

However, Deloitte has also pinpointed a further group of stakeholders who are the leading actors in the brand story – particularly outside of the budget sector – and whose alignment behind the brand is crucial: hotel employees.

Soft challenge

Budget chains such as Hotel Formule 1 and Travelodge focus on selling ‘hard' products and a basic set of guaranteed standards – cleanliness, convenience and price – which are relatively easy to control and replicate on a large scale, even within a global franchise model.

But the ‘softer' hotel brand values become, the more service-oriented and experiential for example, the harder it is to consistently meet customer expectations, especially on a large scale across geographical boundaries.

Mid-scale hotels – a hybrid of product and service – have to work harder than the budget brands to fulfil their promises. Upscale brands such as Ritz Carlton and Four Seasons Hotels & Resorts have to work harder still to deliver the highly personalised, intangible experiences their guests demand.

Work experience

Delivering the brand promise in experience led hotels vitally depends on the quality of staff/guest interactions, something far more unpredictable and more difficult to replicate than harder, product-driven brands.

Mid and upscale brands are discovering that in order to deliver a great customer experience they must first invest in creating a great employee experience. The ‘colleague engagement' programme adopted by

InterContinental Hotels & Resorts, the luxury brand of InterContinental Hotels Group, epitomises this approach.

Creative tension

Hotel groups have made significant progress towards the integration of brand management within their organisational structure. However, much remains to be done. The industry is still in the process of evolving a business model fully geared to the challenges of the future.

Many hotel groups are organised around a matrix reporting structure, with highly complex relationships between regional vice-presidents and operations teams on the one hand and increasingly centralised functions in finance, IT, HR and marketing/brand on the other.

At its best this complexity can result in a creative tension between the interlocking parts which ensures that the best decisions are made for the group as a whole. At its worst it can lead to division, inefficiency or an unsatisfactory compromise in the best interests of no-one.

The future is likely to see further changes in organisational structure. How radical will these changes be? Today operations teams still rule the roost, albeit within a shifting framework. But tomorrow? Could the hotel industry of the 21st century become truly brand-led?

For Further Information:
Robert Bryant Partner, Deloitte UK Tel: +44 20 7007 2981 Email: rmbryant@deloitte.co.uk
Mike Tansey Director, Deloitte UK Tel: +44 115 936 3970 Email: mtansey@deloitte.co.uk