Coping with digital disruptors

From his vantage point as the CEO of Starwood Hotels & Resorts, a company with 1,200 hotels in over 100 countries, Frits Van Paasschen had a ringside view of the changes sweeping the world as he jetted from his headquarters in Stamford, Connecticut to countries across Asia, Europe and the Americas. From Ho Chi Minh city to Almaty to Mumbai to Shanghai where he meets oligarchs to ordinary citizens, investors to hotel owners, corporate customers to employees, he gets tangible proof of what he terms the “Great Acceleration”.

This he defines as a time of continual change, growth and development, people moving up the class ladder, new cities taking shape and so on. The prime mover of the change according to van Paasschen, and a major trendline in the book, is digital technology, which has wrought disruption in every industry. Although Starwood’s story of digital transformation figures prominently, it is by no means a book about the hotel industry. Instead, it is a general exposition on how companies and individuals can deal with the unexpected. In The Disruptors’ Feast, van Paasschen not only brings in the aerial view of a global executive who has worked with consultancies such as BCG and McKinsey, and run Nike’s business in Europe, Middle East and Africa, but also the worm’s eye view of a marathoner who jogs through the lanes and bylanes of every city he visits.

At Starwood, where he served as CEO from 2007 to 2015, he tried to digitally transform the company, re-invigorate its vast portfolio of brands (Sheraton, St Regis, Le Meridien, etc.) and refocus strategic thinking through some bold steps such as moving headquarters to China, Dubai and India for a period of one month each. And yet, eventually, the board forced him out in an exit that made headlines, a year before the company merged with Marriott. Excerpts from an e-interview with van Paasschen:

Isn’t the book’s tag line ‘How to avoid getting devoured...’ ironical as Starwood did everything possible to digitally transform and yet couldn’t prevent itself from being acquired?

At Starwood, we worked hard to avoid being devoured by digital disruptors. And with good reason: disruptors were eating away at our business model from all directions. There were the online travel agencies — Booking, Expedia, CTrip, and the like — as well as peer-to-peer lodging companies, most conspicuously Airbnb. Online reviews, such as TripAdvisor, were eroding the signaling value of brands.

At the same time, there were so many digital startups promising to solve travellers’ and hotel owners’ problems. Put simply, we needed hotel owners to continue to see the value in paying us for our brands, our hotel management, and our unique ability to bring well-heeled guests to their properties. In order to protect our business, we focused on strengthening our digital platform, expanding our loyalty program, and growing our global footprint of high-end hotels.

We led the industry in digital innovation, with initiatives like keyless entry. Our loyalty program drove over half of our room-nights, up from a third just a few years earlier, and we outgrew our competitors in fast-growing markets around the world. Despite these efforts, however, we were hampered by an anaemic Sheraton brand in North America and a sub-scale brand presence in mid-market segments.

Starwood’s board would have liked me to overcome these weaknesses, but there were no easy solutions. Sheraton’s tired hotels required billions in reinvestment. To catch our competitors in the mid-market would take decades. Also, as the fourth largest hotel company, we were at a scale disadvantage compared to our competitors. For that reason, I felt consolidation was necessary to secure our future.

Ultimately, activist investors agreed with my conclusion, but by that time I had already left the company. Less than a year after I left, Starwood’s board announced that the company was to be sold to Marriott.

It may seem a subtle distinction, but combining with Marriott is not the same as being made obsolete by a digital disruptor. As part of the world’s largest hotel company, Starwood’s brands are well-positioned to compete in the digital marketplace. My only regret is that we could have played our hand in consolidation earlier, when our relative position was far better. Our strengths became headwinds in 2015, when US dollar had strengthened, and the emerging markets slowed.

Your descriptions of personality brands is fascinating. But why are several hotels now launching soft brands (Hyatt’s Unbound Collection, Hilton’s Tapestry Collection etc) that don’t seem to have much of a personality?

In the brand world, the era of personality reached its zenith back in the 1980s. Personality brands targeted groupings of people that shared similar attitudes and aspirations, and they were a refreshing change to the soulless reliability brands that came before them. Nike is a textbook example of a personality brand. It connected youthful irreverence, innovation and the promise of athletic performance to an industry that had previously been functional and undifferentiated.

The hotel landscape brightened with brands such as Westin and W whose architecture, design, staff, and communications all contributed to a signature hotel experience.

The era of personality has given way to the era of personalisation. Social media and mobile connectivity have made it possible for brands and consumers to engage in a dialogue. As people travel more, no one wants to fly ten hours and stay in a hotel that feels like the one next door. A hotel brand with personality is no longer enough. Travellers are looking for indigenous, authentic experiences, which is part of the appeal of peer-to-peer accommodations. Before online reviews, hotel brands were a way of assuring travellers of the kind of experience they could expect.

Now brands have to work hard to find relevance. Some, like W, will succeed by interpreting each market through the lens of its brand personality. For brands that are more generic, their only choice may be to compete on price.

The India-China comparisons in your book vis-a -vis hotel development are a dampener. Do you think India will remain a challenge for hotel chains?

India is much more difficult than China for hotel developers. This is not to say that there aren’t lovely hotels in India. Of course there are! They just take more money and time to build. In addition to the red tape and construction delays, the nation’s infrastructure makes it hard to get around.

As a result, India runs a trade deficit in travel: there are many more outbound trips from India than inbound visitors from overseas. Will the challenges persist? I think, yes, in the coming years, but I am hopeful that the forces of reform will prevail over time. In general, people complain about the slow pace of democracy, but authoritarianism comes at a cost as well. In my opinion, many democracies are not democratic enough.

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