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10 May, 2011

Top Ten Trends in The Global Hotel Business

David McMillan

David McMillan, former CEO of the International Hotel & Restaurant Association, debuts as the first guest columnist of Travel Impact Newswire, with this anti-mainstream listing of top-ten trends in the global hotel business. More guest columnists are very welcome. David’s blog can be found here. The views expressed are his own.


By David McMillan, Guest Columnist


The Big Boys are indecisive, the medium ones are entrepreuneurial and the small ones have the money. This is completely upside down.

It has been an interesting five years for me. In fact it has been an interesting fifty years but there is not enough space for that story here, yet. These five years have allowed me the opportunity to test the waters in three critical areas of our industry.

  • Global Participation in Issues
  • As CEO of the International Hotel & Restaurant Association, I was in a position to evaluate the interest and involvement of the worldwide hotel industry in its own global affairs and international issues. All of them had a monumental multi-million dollar financial impact on their owners’ bottom lines. With few exceptions, these issues were dealt with by Owner/Operators.

  • Lack of Corporate Agility. Under a consulting agreement that was relatively free of restraint, I had to evaluate the strengths and weaknesses of the Top Ten global hotel operators and select the best for a major North African new build, fast-track’ project. Then we watched and waited to see them attempt delivery in the little time left. What got in the way was policies, procedures, regulations and other unwritten hogwash that guaranteed that all of the major budget, design and operating decisions had been taken before they officially arrived. Royalty-free-photos-illustration-of-three-doorways-representing-a-decision-to-be-made-pixmac-61813775
  • Indecision. Under a consulting agreement, I assisted an owner to select a major 5 Star operator requiring a review of the Top Five global hotel operators and the Top Three medium or regional hotel operators. The management of this opportunity by half of them was totally juvenile with decisions made and reversed, changed, updated, confirmed and then cancelled; later reinstated and renewed.

Here therefore are the Top Ten Trends that I have observed from this ongoing but fascinating work.

  1. Disconnect with International Issues. The major international hotel chains are not interested in global issues largely because they are no longer property owners whose livelihood relies on the bottom line, they earn their money from fees. This reflects a total disregard for their prime clients, their owners. Special interest groups are working on developing standards which will cost owners millions. Big Boy operators have little or no interest at all. International issues have ramifications that far exceed their span of vision which seems to be short and medium term stock prices.
  2. FlipflopsLoss of Integrity. The major international hotel chains are unreliable, indecisive and change major decisions with extraordinary regularity and are rarely if ever embarrassed by
    these indiscriminate ‘flip-flops’. Senior executives over-ride other senior executives. Designers over-ride Vice Presidents. Directors do not understand where their responsibility begins and ends. The client is not impressed!
  3. Conference-itis vs Growth. Some Development executives seem to be more interested in attending hotel conferences than in doing new deals because they are networking for their next job. Two major brands’ executives gave up the chance at two no-risk management contracts  to attend investment conferences in nice places.
  4. Company Jello or ‘Brand standards’. These are movable feasts that are not standard in the majority of hotels with that brand and are changing as fast as new-hires can come up with new ideas for which owners must pay. Applying them to a property that is almost 50 years old takes creativity and that is where the medium size companies shine and the big boys fail.
  5. Lack of Consistency in communications. Medium size operators who hang on to their executives through thin periods deliver on their promises because their is a link between the promise and the delivery. Multiple management layers all communicating with owners is now creating huge volumes of mixed messages.
  6. Mis-communication. Think thrice, act twice but speak once. ‘Reply to All’ is a button that should probably be removed from international hotel chains’ development executives who unknowingly share their secrets with their clients. It seems that there is a need for better organisation of communications with the clients, or even a situation in which communications with the client only go through one representative. Maybe there is a need to maintain the link between the development executive and the client after the deal is done.
  7. Non- Exclusivity. Geographical protection as it used to be is now a joke within the multi-brand hotel groups. This is an unfortunate development for which there are some creative ways in which both could have their cake and eat it. Formulas exist that could be taken out of the bag and used to allow the operator the freedom to develop while providing the owner with protection………………… but this is like pulling teeth.
  8. ‘Chin-Dia’ Complex. If it’s not in China or India, we do not have time. Yes we all know that these two countries are dominating the attention of everyone whether they are selling goods & services or buying them, but this is ridiculous. Admittedly development in those two countries is like shooting fish in a barrel with each brand announcing 100 new properties of this brand or that in 5 years and then dashing off to the country club to write the contracts. But there are other countries and they are being overlooked, ignored and under-served. The days of lumping ASPAC together need to be ‘re-thunk’. China, yes. India, yes. But then we need “ROAPAC” or the Rest of Asia & the Pacific.
  9. Hook-em and Strangle-em. 25 and 30 year management contracts with 2 X 5 year options do not necessarily mesh with investment timelines which are generally much shorter. Creative ways of providing exit windows have gradually disappeared and a take it or leave it attitude has resulted in the ultimate erosion of brand integrity.
  10. Lead with your Worst Product. Back in the day, an operator would start with his best. The strategy seemed to be common to all. Now it seems with a range of brands on offer, keep the best until last. Offer the brand with the least appeal to try and boost the volume of this failing or soiled product. At the last minute, move up a notch.

Now that I have vented my frustration with the apparent problems, allow me some ‘virtual ink’ in the development of some real-life solutions.

  1. VP/Director Industry Initiatives. The top 100 companies in the world should each designate a prominent, existing senior representative to coordinate their own resources to deal with global issues and the bodies that become involved in these issues. A budget for cost recovery of say $20,000 would cover out of pockets and participation. These 100 senior reps would agree to pool their efforts and pursue the interests of their constituents which includes their owners who are their prime clients.
  2. Agility Monitor. To be able to respond to the numerous mixed messages that come out of a multi-layered, multi disciplined corporate, multi-brand giant, I believe that an Owner or Investor Rep that is given the additional prime function of increasing the company’s agility for and with its’ Owners would be a huge step forward to eliminating these frustrating blunders. Most of our large publicly owned hotel groups have Investor Relations departments to respond to their investors. How many have such an animal to take care of their real ‘clients’? The annual convention does not do it!!
  3. Brand Standards. The time has perhaps come to more scientifically differentiate what is ‘absolutely required’ from a ‘want’, a ‘preference’ or a ‘nice touch’. There are probably a number of other variations. If the brand standards apply to absolutely and utterly everyone, that is probably a small list of basics. If there are exceptions, then it is subjective and not a standard.  Thirty year contracts with a foundation in brand standards that were in place in Year One are unlikely to be current thirty years hence. Does this open the possibility for a 30 year management contract and a 10 year brand contract……….. with appropriate geographic protection? I think that I detect a certain flexibility entering the scene but this spoken flexibility is not reflected yet in the ranks.
  4. Close the Loop. The departure of the ‘Development’ executive at the point where he has inked the deal is short sited and counter-productive. A relationship has been built up through trust, through verbal and written presentations, conversations and negotiations and in most cases, the decision on the brand is made on the basis of this person’s personality and perceived character. Through this individual, all communications should be channelled. Through perhaps a quarterly or semi annual review meeting, this still brittle relationship can be strengthened. This relationship, in my opinion is one that should be cherished, polished and nurtured………..not severed or eliminated because of an org chart or job description.

For assistance in dealing with any less worldly issues, contact davidmcmillangroup@gmail.com