Global Organizations for Global Companies
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Global Operations for InterContinental Hotels Group – A Global Lodging Company TABLE OF CONTENTS TABLE OF CONTENTS .................................................................................................... 1 CASE SUMMARY ............................................................................................................. 1 COMPANY BACKGROUNG ........................................................................................... 2 A NEW OPERATING STRATEGY .................................................................................. 2 SHARED MINDSET ABOUT WHAT IS IMPORTANT ................................................. 3 CLARIFY STRATEGY...................................................................................................... 3 ALIGN INVESTMENT TO STRATEGY ......................................................................... 4 LOCATE WORK TO ASSURE VALUE .......................................................................... 5 Location of Shared Services Centers .............................................................................. 6 OUTSOURCING CONCERNS ......................................................................................... 6 CAPABILITY-DRIVEN LOCATION OF WORK............................................................ 7 Final Choices .................................................................................................................. 7 RESULTS ........................................................................................................................... 8 SUMMARY OF IDEAS ..................................................................................................... 8 Andrew Simpson ............................................................................................................. 8 James Dowling ................................................................................................................ 9 CASE SUMMARY Copyright © Best Practice Institute, Inc. Do not share or distribute without prior written or verbal consent of Best Practice Institute, Inc. When Six Continents Hotels (6C) drew up its business plan in preparation for de-merger from The Bass Holding Company, it knew that it had to cut costs dramatically and that it also needed a growth strategy to assure and retain its investor base. Building capability for the future and reducing operating costs at the same time, resulted from a strategic approach to sourcing work. Between the fall of 2002 and fall of 2003, senior leadership restructured its operations by creating a stronger focus on essential capabilities, shedding non value-adding work and relocating services across its global reach and to external partners. With the valuable hotel and franchise assets, industry-best reservations and customer loyalty reward programs, and execution of a large scale organization design program, a leaner, high-performing Intercontinental Hotels Group emerged. COMPANY BACKGROUNG 6C was the owner/franchiser/operator of more than 3,500 hotels in more than 100 countries and territories. 6C was the owner of the hotel brands: Holiday Inn, Holiday Inn Express, Crown Plaza, Staybridge Suites, and InterContental Hotels was one of a number of companies within The Bass Holding Company in the United Kingdom. Other businesses in the Bass family included soft drink beverage production and distribution and local pubs in the UK. In October of 2002, Bass announced the separation of its Hotels and Retail divisions to improve the overall value of its portfolio of companies. After dividing assets and debt, 6C was left with independence, cash, and an overbearing cost structure. After separation, 6C was re-branded as InterContinental Hotels Group. As 6C was setting financial papers and covenants in place for its de-merger its leaders and shareholders saw an uncertain future ahead. The company was challenged by: a ten-year low for hotel occupancy across the globe and the highest cost structure in the industry. Simultaneously, CEO, Richard North, saw an organization with tremendously loyal customers, great talent and global reach. He recognized potential in a leaner corporate structure, less complexity, and even better service to customers. He also questioned the ability of his team to realize that potential. British entrepreneur Hugh Osmond had different designs for 6C’s assets. His hostile takeover bid that emerged as de-merger preparations were underway promised cash to shareholders from a sell-off of properties and radical change to the business model. A NEW OPERATING STRATEGY Separation from The Bass Holding Company required a new strategy for the future InterContinental Hotels Group. As Treasurer, Richard Winter put it “We’ve been running a global hotel business like a regional pub business.” A team had drawn up a strategy for the new business. Peter Gowers, EVP of Strategy at the time and now EVP of Global Brand Services described their strategic focus this way: 1. Building strongly differentiated brands that ensure we capture a high share of those people who say that brands influence their choice of hotel. 2. Developing our network of hotels worldwide with depth in key markets for our mid-scale brands and widespread distribution for our international upscale hotels. 3. Taking advantage of our systems and scale to deliver premium revenues and profits e.g. Priority Club Rewards, reservation channels such as HOLIDEX, and global sales. 4. Optimising returns on our asset base both by improving use of individual hotel assets through our on-going refurbishment programme and by redeploying capital where appropriate. Copyright © Best Practice Institute, Inc. Do not share or distribute without prior written or verbal consent of Best Practice Institute, Inc. 5. Developing our people, as our success depends on all of us. While seemingly straightforward, the execution stalled as the company sought to de-merge and operate as a focused globally branded hotel company. According to Gowers, “At a superficial level, the executive team all agree with the major strategic priorities (but) when push comes to shove on key issues, we do not agree at all.” SHARED MINDSET ABOUT WHAT IS IMPORTANT A consulting was engaged to scope a project to re-design all company operations outside hotel properties. They were challenged to interview the executive team, characterize the organization and present results and recommendation at an executive session. Over a two-day period each executive was interviewed to identify opportunities for improved organization design including structure, work process, enabling systems and focus of investments. Almost every interview indicated that a principle contributor to poor financial performance was that IHG was experiencing “Multiple Strategy Execution Syndrome” (see Sidebar 1: Strategy Alignment of Projects). Instead of acting in concert to execute elements of a single strategy, there were three dominant and two lower-level strategies being executed simultaneously and none of them effectively. There was not enough money or human resources to do justice to any of the separate paths so all were “burning cash” and none was delivering results. Description of this malady was no surprise to the executives. They were familiar with the symptoms and they were searching for a pragmatic course of treatment: 1. Clarify brands a. How many, b. Differentiation, c. Customer value proposition, d. What drives shareholder value; 2. Clarify strategy and come to consensus on essential structural elements a. One company or many, b. Common or individual support systems; 3. Identify capabilities that are essential to execute strategy; 4. Distribute work across companies and shared services; 5. Design optimized work systems and identify required skills; 6. Design structure and governance; 7. Design leadership and HR systems; 8. Design supporting information systems. This case describes steps two three and four above. CLARIFY STRATEGY Ambiguity and the existence of multiple strategies had eroded focus at IHG and it had built up layers of cost and redundancy that were noticeable, disliked, and accepted as the only way to get the work done. A team of senior executives took up the challenge to increase focus with the question: “If we are going to be the best global lodging company, we need to be world class at what?” Everything? In their attempt to maximize individual contribution from each of three geographic regions (Asia- Pacific, Americas, and Europe-Middle East-Africa) its leadership had not only duplicated costly resources in each region but it also created many of the same resources in its corporate division to Copyright © Best Practice Institute, Inc. Do not share or distribute without prior written or verbal consent of Best Practice Institute, Inc. provide oversight, guidance and support. Among targets for simplification were: multiple ERP systems; shadow Information Technology Departments; low-yield and eroding properties; multiple property management systems; and projects underway to add more complexity through additional variations of information technology systems. To clarify its strategy, improve understanding of strategic intent, prioritize investment programs, and guide the future structure of the organization, a top team of executives identified four key design principles: 1. Loyal customers and hotel brands where those customers want to stay