EvolvingtheModel: FourSeasonsHotelsandResorts

Integrativesolutionsarentperfectandtheadvantagetheyconferdoesntlastforever.Likeany competitiveadvantage,theadvantagesthatspringfromanintegrativesolutioncanfadeovertime,as competitionemulatesthebestaspectsoftheanswerandnewcompetition,withnewsourcesof competitiveadvantage,enterthegame. Thisistrueforallmannerofcompanies,fromDellComputerstoProcter&GambletoFour SeasonsHotelsandResorts.Thedifferencebetweenacompanythatstrugglesafteritsintegrative breakthroughandonethatachievesongoingsuccessishowthecompanyanditsleadersapproachthe changinglandscape.Someclingstubbornlytotheoriginalintegrativesolutionoftenbecausethe visionaryintegrativethinkerhasretiredfromthefirmandthereisnoonetoleadthecharge.Butsome arecommittedtoconstantlyreimaginingtheirstrategy,torevising,refreshing,evenabandoningthe initialintegrativesolutioninfavourofanewandbetterone. FourSeasonsfitssquarelyintothesecondcategory.Itsfounder,IsadoreSharp,cametothe integrativesolutionthatlaidthegroundworkforfuturesuccessintheearly1970s.Buthedidntstop there.Hecontinuedtohoneandrefinethatmodelandstayedeveronthelookoutfornewmodelsthat couldreshapehisanswer.Whatsmore,hestrovetoexplainhisthinkingtohisteamasclearlyand consistentlyaspossible,sothattheycouldcontinuetotakethesameapproachaswewithdrewfrom formalleadershipofthecompany. TheBackground Sharpsoriginalintegrativesolutionemergedovertime.Whenhestartedoutasahotelierinthe 1960s,hewasfacedwithaworldinwhichtherewereonlytwokindsofhotelsthatworked: JenniferRiel,AssociateDirector,DesautelsCentreforIntegrativeThinking,RotmanSchoolof Management,UniversityofToronto,preparedthiscaseincollaborationwithRogerMartin,Dean, RotmanSchoolofManagement.DarrenKarn,alsooftheDesautelsCentre,providedresearchsupport.

1. Smallmotorinnsforfamiliesandvacationers Thesewereoftenfamilyowned,oneofffacilities,thoughbythelate1960s,somechainslike Motel6(foundedin1962)andLaQuinta(1968)wereemerging.Bythe1970s,HolidayInn (foundedin1952)wasthedominantplayer,operatingstandardized,cleanpropertiesthatwere familyfriendlyandeasilyaccessible. 2. Largehighendhotelsforbusinesstravelers Whilethiscategoryhadoncebeendominatedbylegendaryindependenthotelsandsmallchains (likethePlazahotelinNewYorkortheCanadianPacifichotelsinCanada),thehigherend marketwascomingtobedominatedbychainslikeHyattandHilton. Thesmallmotorinnswereinexpensive,convenientandfriendly.Thelargeluxuryand conventionhotelsweregrandandopulent.Thedivisionbetweenlargeandsmallhotelswasdrivenby thecommonunderstandingoftheeconomicsofthebusiness:thenotionwasthathotelshadtobeofa certainsizegreaterthan750roomsinordertocoverthecostsofalloftheamenitiesthatbusiness travellersrequired(likemeetingrooms,multiplerestaurants,anindoorpool,luxuriousdcor,etc.). Motels,ontheotherhand,seemedtobemosteffectiveinthe100250roomsizerange. SharpsIntegrativeSolution Whenfirststartingout,Sharptriedbothoftheexistingmodels.HefirstbuilttheFourSeasons MotorInninToronto,whichwassmall,friendlyandintimate.Itwasahotelhelovedrunning.Thoughit becameapopularlocalspot,itwasntahugemoneymakerforhimandscalabilityseemedlikea problem.Itdidnthavealotofamenities,whichlimitedthetypeofguestshecouldattractandthe amounthecouldchargethem. TheoriginalFourSeasonsMotorInn,415JarvisStreet,Toronto

SharpthenpartneredtobuildtheFourSeasonsSheraton,alarge1600roomconventionhotel (alsoinTorontoacrossfromOldCityHallonQueenStreet).Itwaslargeandopulent,withevery

amenityabusinesstravelercouldneed,includingmultiplemeetingroomsofallsizesandan undergroundshoppingmall.ButSharpalsofoundittobecold,unfriendlyandreasonablyjoyless.It madealotofmoneyandwasquitescalable.However,Sharpfoundrunningittobedeeplyfrustrating. TheSheratonCityCentreToronto,originallytheFourSeasonsSheraton, 123QueenStreetWest,Toronto

Sharphadexperimentedwiththetwodominantapproachesinthehotelindustryandhe remaineddissatisfied.ThesewerentbadmodelsSharpsawthatthereweresuccessestobehadin bothapproachesbuttheydidntdeliverthekindofanswerSharpwanted.Hehad,hesaysaconcept ofcombiningwhatIthoughtwasthebestofamotelandahotel.Itwassomethingathoughtprocess thatIthoughtmightwork.1SharphadnoticedthatcustomersattheFourSeasonsSheratondidnt seemallthathappytobethere,despitebeingsurroundedbyopulentdcor.So,hesays,westudied, surveyedandlistenedtoourcustomers.Mostwerebusinessexecutives,oftenpressuredbytimeand theneedtobeproductive.Thelastthing,herealized,thattheywantedwasyetanothernightinyet anotherhotel.Theymissedtheeaseandcomfortofhomeandtheconvenienceoftheoffice.So,Sharp decidedhecouldbuildanewkindofluxuryhoteloneinwhichtheluxurywasdefinednotbydcorbut byanewkindofserviceasupportsystemthatwouldfillinfortheoneleftathomeortheoffice. Ultimately,thatswhatSharpcreated:Themediumsizedluxuryhotelwithhighlypersonalized serviceandfullrangeofamenitiesfundedbyamassivepricepremium.Hisvisionwastodevelopand operateonlymediumsizedluxuryhotelsofexceptionalquality.Todoso,heneededtocreatethe supportsysteminwayshiscustomerswouldfindmeaningful:Weknewwehadtosetourselves apart,hesays.Wehadalreadyupgradedfivestarstandardsaesthetics,convenience,comfort,every aspectofeveryroomfromthesoftesttowelstothequietestplumbing.[Now]weexpandedtouseof theroomforbusiness,usingtwolinetelephoneandawelllitdeskbigenoughtoworkon.Webecame theleaderininnovationthefirsttooffershampoo,then24hourroomservice,bathrobes,makeup

mirrors,hairdryers,overnightlaundry,pressingandshoeshining,allpopularideasbutveryquicklyand widelycopied. Thoughtheelementsofthesupportsystem(shampooandrobes,hairdryersandlaundry,justlike home,plusaworkingdeskandsecretarialsupport,liketheoffice)becameindustrystandards,Sharp createdacompletesystemofactivitiestosupporthisinsight.Thelinchpin,hesaw,wasthefrontline employee.Membersofthefrontlinestaffbellmen,chambermaids,dishwashersweretraditionally ourlowestpaidandleastmotivatedpeople,buttheoneswhocouldmakeorbreakafivestar reputation.Ibecameanevangelist,Sharprecalls,preachingthegospelofserviceeveryday,onevery trip,toeveryhotel,continuouslyrestatingit,clarifyingit,developingit,reinforcingit,byrewardingand celebratingoutstandingperformance.Focusemployeesateverylevelononlyonepriority:giving customersaddedvaluethroughservice. Sharpinstitutedasingle,powerfulruletocreatethekindofservicehewantedheranthe companyonthebasisofthegoldenrule:Inessence,todealwithotherspartners,customers, coworkers,everyoneaswewouldwantthemtodealwithus.Employees,eventhen,believedonly whattheysaw.Ifwewereseenshowinggreaterconcernforprofit,prestige,quotas,ratherthanfor customersandemployees,theredbenobeliefinourvalues,nowholeheartedcommitment,andwed becommunicatingacrossatrustgap.HecontinuesthatFourSeasonswonemployeestrust,by upholdingtheGoldenRulethroughoutthecompany,makingitasapplicabletogeneralmanagersasto dishwashers.Itsauniversalethic,enablingusanywhereintheworldtoturnagroupofordinarypeople intoaworldclassworkforce.Theemployees,inturn,createdthelegendaryFourSeasonsservice culture. Inessence,Sharptooktwomodelstheintimate,friendlysmallmotelandtheexpensive, luxuriouslargehotelandlookedforathirdway:ahighlypersonalizedservicemodelthatwouldallow himtheintimacyofthesmallmotelswiththescaleandpricepointofalargehotel. FourSeasonsToday Sharpsapproachwashighlysuccessful.By2000,FourSeasonshadrevenuesof$2.82billion dollarsand$103millioninprofitsoverits50plushotels.2Themodelhadchangedandgrownovertime. Originally,Sharpbuiltallthehotelsandownedtherealestateonwhichthehoteloperated.Gradually, thecompanyshiftedtoamodelinwhichitranthehotels,whilepartnersandoutsideinvestorsowned theactualbuildings.FourSeasonsexpandedintotheUnitedStatesandaroundtheworld,closingsome underperforminglocalesasitwent. Thecompanywentpublicin1986.In2007,itreturnedtoprivatehands,whenBillGatesand PrinceAlWaleedbinTalalofSaudiArabiapurchased95%ofthecompanyfor$3.8billion.3Atthetime, Sharpexplainedthatthecompanysbusinessstrategyhadevolvedfromdevelopingitsownrealestate tomanagingits74propertiesaroundtheworld.Thatmeantitnolongerneededtoraisemoneyinthe stockmarketstopayforitsexpansion,thus,itcouldceasetobeapubliclytradedcompany.4

In2010,SharpsteppeddownasCEOandKatieTaylorsteppedintotherole.UnderTaylor,the companycontinuestoexpand,withmorethan80currentlocationsandsome50moreinvariousstages ofdevelopment.5 Thehotelsandresortsthemselvesareamixedlot,combiningcitycentrehotelswithtrue vacationresorts.Some,likethelaudedGeorgeVinParis(regularlynamedthebesthotelintheworld), hewveryclosetoSharpsoriginalvisionofmidsizeluxuryhotels.Others,liketheFourSeasonsGolden TriangleinThailand,areutterlyuniqueatentedoasiswithinanelephantpreserve. TheGeorgeVinParis

TheFourSeasonsGoldenTriangle,Thailand

 ThisapproachtodifferentlocationshasbeentraditionallysuccessfulfortheFourSeasons,butit comeswithchallengesaswell.Thecompanydoesntgetthefullbenefitofeconomiesofscaleitcouldif thedesignofeachhotelwasmorestandardizedanapproachRitzCarltonhastraditionallytakento goodeffect.6Therecessionthatbeganin2008hasputseriouspressureonFourSeasonsandallluxury brandstomanagecostsmoreeffectively.Soapushtostandardizationhassomestronggrounding.Yet, intheyearsleadinguptotherecession,quiteadifferentpressurewasbuilding.Increasingly,themost intensecompetitionforFourSeasonswascomingfromsmallboutiquehotelsoneoffhotelsormini chainsthatcapturedsomethingessentialandspecificaboutacityorevenasmallpartofacity. TheoriginalGansevoortHotelinNewYork,forinstance,capturedtheurbanpostindustrialchic ofthemeatpackingdistrict.Thebrandofthehoteliswellconveyedbyitswebsite;itdescribesthe GansevoortasNewYorksfirstluxuryurbanresortthattransformedthemeatpackingdistrictfrom grittytochic.[It]offersdowntownchicinfusedwithuptownluxury.Sophisticatedandminimalist, guestroomsfeatureacolorpaletteofneutralsandgrayswithashotofblackberry.Alavishuseof leatherandfabricintheheadboard,armoireandwallcoveringoffersarich,contemporaryfeel. Dramaticsheetsofbacklittranslucentglassinmutedcolorstaketheplaceofconventionaldoors. Bathroomsofferstrikingdesigncontrastswithsheathed,richlytexturedwalls,ceramicinteriors,custom designedstainlesssteelGansevoortsinks,andCarraramarble.7 TheDrakeHotelinTorontocapturesthespecificartyethosoftheQueenWestwest neighbourhoodandinfacthelpedtocreateit.Fromtheirwebsite:Fromlivemusictogreatfood,our artexhibitsandnineteenuniquehotelrooms;theresalwayssomethinghappeningatDrake.Itsno wonderthatpeoplewhoknowusbestcallDrakeahotbedforculture.8 TheDrakeHotel,1150QueenStreetWest,Toronto

Theseboutiquehotelstendtoofferauniqueexperiencebasedonacleartheme,distinctive fromthesamenessthatcandefinelargerchains.Fortravellersinsearchofsurpriseandpersonality ratherthanconsistencyandconvenience,boutiquehotelscanholdastrongallure.Typicallyverysmall (10100rooms),theboutiquesoftenofferadifferentsetofamenitiesthanastandardluxuryhotel(e.g. hipnightclubsandrestaurants,ratherthanconferencefacilities).Thesesmaller,verylocalandsuper

customhotelsofferaverydifferentvisionofthefuture.Eachisuniquefromthedesignoftherooms,to thestyletoservicetofeaturesoftherooms. KatieTaylor,asFourSeasonsnewCEO,mustweighthecompetingtensionsofcustomization andstandardizationassheadaptsSharpsvisiontohercurrentcontext.Thequestionis,whenitcomes tocustomizationandstandardization,isthereabetteranswerthansimplychoosing?WhatcouldKatie dotogetthebestofbothworlds?

AllquotesfromIsadoreSharparetakenfromhistalkattheRotmanSchoolofManagement,April11,2002. http://www.1.fourseasons.com/pdfs/press/annual_reports/FS00.pdf 3 FourSeasonssoldtoBillGates,PrinceAlwaleedBinTalal.FinancialPost. (http://www.financialpost.com/story.html?id=f2b5a69ccf0845e8a4029e01f26af301&k=714) 4 Ibid. 5 http://www.fourseasons.com/about_four_seasons/kathleentaylor/ 6 Segal,David.PillowFightsattheFourSeasons.NewYorkTimes,June27,2009.
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http://www.hotelgansevoort.com/ http://www.thedrakehotel.ca/