Hilton Hotels’ Management Strengths and Leadership

Hilton Hotels’ Management Strengths and Leadership Style

The ability of any services-based business to attract and retain loyal costumers over time is more of a measure of its internal processes and management strengths than any other. Adding in the inherent uncertainty of the economic recession which has been occurring since 2007, and the ability of any services-based business to continue growing, attracting and retaining a profitable customer base is exceptional. Exemplifying one of the core strengths of the company is its broad range of brands that address the needs of business and leisure travels from several different income segments. At the center of these branding strategies is the core chain of hotels and resorts bearing the founder’s name, in addition to the Conrad Hotels & Resorts, Doubletree Hotels, Doubletree Guest Suites, Doubletree Club Hotel, Embassy Suites, Hampton Inn and Hampton Inn & Suites, Hilton Garden Inn, Homewood Suites, and Waldorf-Astoria Collection. As of 2007 Hilton Hotels was taken private by Blackstone Group which acquired the company for $26B in July, 2007. As of July, 2009 the company is operating approximately in 74 nations, with 3,000 hotels and over 500,000 rooms across all brands. Hilton has specifically developed a branding strategy that capitalizes on the company’s intensive commitments to measuring customer satisfaction over time and then re-aligning internal service processes to capitalize on unmet needs (Balmer, Thomson, 2009). The intent of this analysis is to evaluate the strengths of Hilton Hotels from their ability to quickly analyze existing and potential market segments, and how they are relying on unique leadership strengths and management styles to capitalize on these opportunities.

Hilton’s Core Strength in Analytics

At the center of Hilton’s ability to respond quickly to unmet market needs is their ability to gather, analyze and then put into context customer satisfaction, competitive pricing, price and revenue management, and local market data into differentiated service strategies. The high levels of customer loyalty even in the midst of one of the most severe economic recessions globally in decades makes this strength of the company all the more visible (Barsky, 2008). Hilton’s strategy for battling back against the global economic recession is to not put their pricing into freefall, but to overcompensate with exceptional service across all brands of hotels and extended stay locations they operate globally. During the summer of 2009 when many of the properties who during other times of the year get the majority of guests from business travel are seeing an influx of guests who are traveling on leisure. This segment requires an entirely different mindset in terms of service, as their SERVQUAL surveys (Parasuraman, Zeithaml, Berry, 1988) have shown. The leisure traveler who chooses a Hilton hotel has higher expectations than the traditional business traveler as they are traveling with their families. To respond to this influx of leisure travel guests, Hilton has created a program for guests to send in notes when they receive exceptional service from staff. This program has been very effective in transforming the mindset of service staffs in hotels that during other months of the year get business travelers to be more attuned to the unique needs of families traveling together. This entire strategy was based on insights gained by analyzing SERVQUAL data comparing business vs. leisure travelers, financial implications of family-based loyalty, and the need to re-orient service staffs from concentrating on efficiency and speed which is much valued by the business traveler to empathy and relationships, which are more valued by the leisure traveler, the majority of which staying at Hiltons are from families.

The example provided is just one of many strategies of concentrating banding on unmet needs as measured through periodic measures of customer satisfaction through the use of SERVQUAL-based surveys (Parasuraman, Zeithaml, Berry, 1988) has provided Hilton Hotels with a significant amount of customer-based data on which to define strategies on. Hilton’s differentiating use of customer satisfaction data as the basis of building more profitable brands that include higher levels of customer loyalty is considered to be among the strongest in the hospitality industry (Nordling, Wheeler, 1992). This ability to quickly combine insights gained from customer surveys and measures of customer satisfaction through the standardized SERVQUAL methodology (Parasuraman, Zeithaml, Berry, 1988) in conjunction with the ability to create financial planning frameworks that take into account branding (Denton, White, 2000) is the core of Hilton’s strength. The company’s ability to make decisions quickly that create significant new markets corresponds with the findings in Blue Ocean Strategy (Kim, Mauborgne, 2004) which further support the role of incumbent companies being the primary sources of market innovation over time. Drs. Kim and Mauborgne have found that it is not necessarily the spending on Research & Development (R&D) that drives innovation in companies, yet it is the ability to quickly interpret market conditions and make decisions that capitalize on unmet and previously undiscovered needs. This is allegorical to uncontested markets or “blue oceans” that the authors have done thorough research on (Kim, Mauborgne, 2004). In contrast to uncontested markets being blue oceans, red oceans are those that have exceptionally high level of price cutting and commoditization (Kim, Mauborgne, 2004). Hilton Hotels’ analytics core strengths are aligned with the concepts defined in Blue Ocean Strategy, and as a result, the company has been successful in creating entirely new markets. The ability to use analytics to continually create new markets and retain the loyalty of customers is illustrated by the company’s market share in the U.S. And globally.

Figure 1, U.S. Market Share, 2008 and Figure 2, Global Market Share, 2008 illustrate the extent to which Hilton Hotels have been able to successfully carve out a uniquely differentiated market segment, which in turn has given them leadership of the U.S. market and the fourth leading position globally.

Figure 1: 2008 U.S. Market Shares of Hotel Chains

Company

Market Share

Hilton Hotels Corporation

7.2%

Marriott International

5.6%

Wyndham Worldwide Corporation

3.4%

Starwood Hotels & Resorts Worldwide, Inc.

3.4%

Accor

1.7%

Intercontinental Hotels Group PLC

0.8%

Other

77.9%

Total 100.0%

Source: (Blackstone Group Investor Relations, 2009)

Figure 2: 2008 Global Market Shares of Hotel Chains

Company

Market Share

Marriott International, Inc.

2.4%

Accor

2.0%

Starwood Hotels & Resorts Worldwide, Inc.

1.1%

Hilton Hotels Corporation

1.0%

Wyndham Worldwide Corporation

0.8%

Intercontinental Hotels Group Plc

0.3%

Other

92.4%

Totals: 100.0%

Source: (Blackstone Group Investor Relations, 2009)

Hilton Leadership Strategies and Becoming a Trusted Advisor

One of the most critical factors in Hiltons’ brand execution is the ability to consistently deliver experiences for both business and leisure guests that meet or exceed their expectations. The continual process improvements driven by engraining SEVQUAL data throughout all guest-facing processes, procedures and programs continues to provide Hilton with insights into just what the greatest unmet needs their customer have, in addition to those factors that cause the greatest satisfaction. As these two sets of factors are changing over time, Hilton management continues to concentrate on an agile and lean management structure both within their headquarters but also at the hotel level. As a result of this heavy reliance on SEQVQUAL and the use of analytics to better align their management strategies to create the highest levels of customer loyalty over time, each property is evaluating on five specific metrics of performance, often show graphically in a balanced scorecard (Hosford, 2006).

Management within Hilton Hotels regularly posts these balanced scorecards and has monthly meetings to discuss their implications, thereby creating a higher level of shared ownership in the results as well. Hilton has learned that using more transformational leadership techniques of giving employees accountability and ownership of the performance of their specific service areas of a hotel over time leads to greater levels of performance (Maxwell, Watson, Quail, 2004). From a managerial standpoint this is one of the primary motivations at a strategic level for Hilton being so committed to analytics. They are attempting to continually keep the internal culture of the company including its internal expectations of performance based more on actual face time with guests and less on attempting to inflate internal measures of performance (Munck, 2001). An example of this would be if a manager of a hotel was more concerned about continually monitoring accounts of guests and ensuring every charge was taken vs. having their teams work on the problems guests were having with their rooms and any number of internal systems in a property, from heating, ventilation and air conditioning (HVAC), to plumbing, electrical to entertainment systems. Clearly the focus of Hilton management through the use of SERVQUAL-based balanced scorecards is on ensuring a very high level of customer responsiveness over time.

Hilton management realizes that in order for their global workforce to continually be aware of and attempt to surpass expectations, the cultural value of performance must be engrained in the company. The use of best practices or those approaches to managing performance over time is critically important to Hilton as they have created an entire analytics framework by which they evaluate their efforts to attract new guest and retain existing ones (Enz, Siguaw, 2000). These best practices or optimized approaches to first measuring guest expectations and then responding to them through a series of concerted strategies is the foundation of the strategic framework Hilton uses to manage its many brands (Dube, Renagham,1999).

Managing Expectations and Exceeding Them: The Mission of Hilton Management

Strategically then, the managing and exceeding of expectations are the most critical strategic set of processes that Hilton management continually refines and accentuates throughout their organizational culture (Balmer, Thomson, 2009). This effort to continually strengthen the practice of exceeding expectations is quantified through the use of SERVQUAL and balanced scorecards (Hosford, 2006) and has even permeated the management team’s approach to creating and executing on learning programs and initiatives for employees (Baldwin-Evans, 2006).

Hilton management, across all of its brands, has also seen that guests form very solid levels of brand loyalty when their expectations are met the majority of the time, during the majority of interactions they have. This has been supported by empirical research into the foundations of how expectations are formed and reinforced over time (Hawes, Mast, Swan, 1989). Hilton management also has found that in the continual increasing of expectations, there must be a continual balance of commitments kept and trust strengthened over time. Without this aspect of expectation management, trust is lost. This is the factor that drives Hilton management to engrain the use of balanced scorecards into their daily management of all properties and also continually accentuate customer contact and face time (Munck, 2001) to all employees. They are striving to create a high level of ownership for customer expectations being met or exceeded, because in accomplishing that, trust will be retained. Once trust is retained and grown, loyalty to a brand is achieved (Young, Wilkinson, 1989).

For Hilton management, the frameworks used to measure and manage expectations are critically important to managing their brands. The fact that business travelers, the most profitable customer segment for Hilton, rely not on price but on loyalty to determine where they will stay on each business trip (Yesawich, 2006) underscores how critically important these dynamics are to the hotel chains’ profitability as well. Consistent with the building of market segmentation models that are optimized not just for top-line revenue growth but for profits as well (Nordling, Wheeler, 1992), Hilton’s approach to creating a culture that is based on continually teaching employees new technologies, procedures and approaches for better serving guests while at the same time exceeding their expectations has been shown to be directly linked to the company’s profitability as well (Baldwin-Evans, 2006). While the company was taken private by Blackstone Group in 2007, using the filings with the Securities and Exchange Commission a table of the historical performance of Hilton Hotels has been created and is shown in Table 1, Historical Financial Performance Analysis shown in the Appendix of this document. Clearly Hilton from the results shown up until the point they were taken private, was seeing an increase in demand for their hotels across all brands. The final year of the analysis is 2006, when Hilton Hotels was able to attain an 84% increase in revenues and a 24% increase in revenues.

The leadership traits and management styles that serve as the catalyst of Hilton’s competitive advantage emanate from their ability to infuse a very high level of ownership into the daily setting and exceeding of guest expectations. The Hilton culture strongly values measuring performance of expectations and looks to SERVQUAL as a means to continually monitor and evaluate performance against plans as well. This commitment to continually scanning expectations of customers to exceed them has also given them the flexibility of finding entirely new markets while gaining trust and loyalty in existing ones.

Recommendations

While Hilton Hotels excels at the basic processes critically important to business guests and has developed specific programs for leisure travelers, the company still has yet to move into the area of leisure travel, the company has yet to create a unique brand with younger, more upwardly mobile travelers who travel globally vs. just in the U.S. The global leisure and business traveler who wants to find good deals in Asia, Europe, throughout the rest of the world is not being captured as a result. Nowhere is this more apparent than in the company’s strategies in Asia and throughout the Pacific Rim nations. This area could be the greatest potential area of growth for Hilton, including China, Hong Kong, Japan, Korea and India. These areas show the greatest potential growth for the long-term.

Appendices

Table 1: Historical Financial Performance Analysis

Year

Million Dollars

Revenue

Percent Growth

Million Dollars

Net Income

Percent Growth

Units

Employees

Percent Growth

Source: (Blackstone Group Investor Relations, 2009)

References

Kay Baldwin-Evans. (2006). Hilton highlights link between staff loyalty and e-learning. Human Resource Management International Digest, 14(1), 36-38.

Balmer, J., & Thomson, I.. (2009). The shared management and ownership of corporate brands: the case of Hilton. Journal of General Management, 34(4), 15

Barsky, J.. (2008, December). Hotel loyalty programs motivate guests in a recession. Hotel and Motel Management, 223(21), 16.

Blackstone Group, Investor Relations (2009). Blackstone Group Investor Relations. Retrieved July 6, 2009, from Blackstone Group Investor Relations Web site: http://ir.blackstone.com/sec.cfm

Gregory A Denton & Bruce White. (2000). Implementing a balanced-scorecard approach to managing hotel operations. Cornell Hotel and Restaurant Administration Quarterly, 41(1), 94-107.

Dube, L & Renagham, L (1999). Strategic approaches to lodging excellence. Cornell Hotel and Restaurant Administration Quarterly, 40(6), 16-26.

Enz, C & Siguaw, J (2000). Best practices in service quality. Cornell Hotel and Restaurant Administration Quarterly, 41(5), 20-29.

Hawes, Jon M., Mast, Kenneth, & Swan, John. (1989). Trust earning perceptions of sellers and buyers. Journal of Personal Selling & Sales Management, 9 (Spring), 1-8.

Christopher Hosford. (2006, December). Hilton’s dashboards graphically depict five ‘value drivers’ at hotel properties. B to B, 91(17), 18.

(Kim, Mauborgne, 2004)

W Chan Kim, & Renee Mauborgne. (2004, October). BLUE OCEAN STRATEGY. Harvard Business Review, 82(10), 76-84.

Gill Maxwell, Sandra Watson, & Samantha Quail. (2004). Quality service in the international hotel sector: A catalyst for strategic human resource development? Journal of European Industrial Training, 28(2-4), 159-182.

Munck, Bill (2001). Changing a culture of face time. Harvard Business Review, 79(10), 125-131.

Nordling, Christopher W., & Wheeler, Sharon K.. (1992). Building a Market-Segment Accounting Model to Improve Profits. Cornell Hotel and Restaurant Administration Quarterly, 33(3), 29.

Parasuraman, A., Zeithaml, V.A. And Berry, L.L. (1988), “SERVQUAL: a multiple-item scale for measuring consumer perceptions of service quality,” Journal of Retailing, Vol. 64, Spring, pp. 12-37.

Yesawich, P (2006, August). Business travelers prefer branded, full-service lodging. Hotel and Motel Management, 221(14), 10.

Young, Louise & Wilkinson, Ian. (1989). The role of trust and cooperation in marketing channels: a preliminary study. European Journal of Marketing, 23 (2), 109-122.

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