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Disruptive Innovation

Hotel Chains Searching the Recipe Against Disruptive Innovation

After two decades of missing out on digital innovation, the hotel industry is starting to realize they need to drive digital transformation to counter disruptive innovation by newcomers. In this post, I want to look at different approaches to innovation and how the major hotel chains utilize them. In the second part, I share my personal experience and learning of being part of an award-winning digital transformation team in the banking sector.

“Even with the Mac, Apple attracted a lot of attention at first, but they have remained a niche manufacturer. That will be their role in mobile phones as well.”
Anssi Vanjoki, Former Chief Strategy Officer of Nokia

Although coming from a different industry the example of Nokia tells us the tale of a dominant player underestimating a new player/business model. But even more, it shows how a company that had innovation in his DNA, a company that in 2010 spend € 5 billion on Research & Development (which constituted 30% of its industries R&D total) can fail to innovate and become a victim of disruptive innovation.

Interestingly enough the hotel industry has a new player which most incumbents consider as a “niche” player as well. However, unlike with the Nokia example, it is hard to argue that the hotel industry has digital led innovation at its core (actually I argue the opposite in my blog). In the past months, the big hotel chains announced their commitment to innovation and presented different approaches to driving digital transformation. In the following paragraph, I present a grouped list of approaches which I observed in the hotel industry. The list is not meant to be exhaustive.

Different Approaches to Counter Disruptive Innovation

Incubators/Innovation Factories

There are many forms and labels for this tool of innovation. The idea behind it is to create a platform, a greenhouse for external teams, startups and ideas to meet, combine and grow. An incubator generally provides office space, mentoring and connections to investors. In turn, incubators usually take a share of the company they incubate. Established companies often sponsor incubators with the aim to identify ideas and/or talent early or to stay up to date on potential disruptive innovation and ideas.

disruptive innovation

Accor’s Joe&Joe concept for Millenials

Examples of hotels collaborating with incubators can be seen in Accor collaborating with the innovation factory in Paris. In this example, we see how Accor was able to integrate fresh insight and relevant feedback into their new Joe & Joe concept. This is a good example of a cooperation with an incubator. One because the participants of the incubator actually were integrated into the project. Secondly, the team in charge of creating the Joe & Joe concept was “led by over the 50s” which probably would have produced a different product altogether. The cooperation therefore probably helped them to come up with a concept more suited to their target audience, Millennials.

Author’s take: Examples of hotel chains cooperating with incubators are still very dismal in numbers. In other industries (e.g. finance) it is much more common that companies support incubators or start their own.  However, often times it is hard for those companies to leverage the value of incubators for their operation. Reasons for this are numerous and range from lack of strategy, talent, budget to implement an idea or innovation generated in an incubator into the corporate structure.

Challenge Weekends/Hackathons

disruptive innovation

Picture of a Hackathon

This version can be seen as an accelerated form of an incubator. Usually, this is an event taking place over the course of a few days, e.g. a weekend. Teams are formed to work come up with new ideas and tools in specified areas. Using the tools of the Lean Startup Method the events generally end in a pitch of a Minimum Viable Product (MVP).

One example of this come from a traditional hotel chain in Spain, HOTUSA. HOTUSA partners with Sonar Ventures to carry out the HOTUSA Challenge. The goal is to identify potential ideas which can either be turned into a startup or integrated into the hotel. Hackathons specifically for the travel industry seem to be less abundant as in other industries but more and more keep popping up, e.g. the THack from Tnooz.com this December in Berlin.

Author’s take: As with the incubators it is crucial to have the strategy, internal talents and budget in place to take ideas generated in the challenges/hackathons and execute them internally. In addition, this tool can be a helpful way to identify talent and observe how they perform in a team and stressful environment. This will beat any impression one can get from an interview process.

Internal Labs/Teams/Intrapreneurship

On the topic on how to drive innovation from within or how to foster entrepreneurship Amazon probably offers more than a handful books and Harvard offers more articles than one can read. The idea is simple: Create a team, a unit often separate from the daily operations to generate and validate new ideas. These ideas, in theory, will then be implemented in the company.

Examples of this are the Starwood test lab, which among other thing tested a robot delivering amenities or the much-covered feature of opening up your room with your smartphone. It is unclear how much of this innovative drive can be transplanted into Mariott after the merging of the corporations has been concluded. Marriott themselves has introduced M-Beta. A hotel in Charlotte, NC which Marriott intends to use to test out new concepts. Guests can give feedback via a button. This is approach should allow validating ideas much faster. Hopefully, Marriott manages to keep the talent behind the Starwood lab and successfully integrates them into their innovation unit. The biggest commitment to digital transformation, however, comes from Accor, which has earmarked € 225 million to drive digital transformation over the next 5 years. It is, however, unclear who is leading the efforts after the departure of Vivek Badrinath, former deputy CEO and lead for digital transformation efforts at Accor

Author’s take: As the example of Nokia and so many other companies have shown continuous innovation is hard. However, if a company accomplishes to provide the right conditions for intrapreneurs it is possible to be innovative. However doing only this will most likely not protect against all disruptive innovation. Therefore it is crucial to find the right combination of intrapreneurs and getting external feedback, e.g. through M&A or cooperations.

Investments/M&A/Co-operations

Through investments or acquisitions of companies often startups hotel chains may acquire technology, talent or insight into new business models (e.g. sharing economy). There is no shortage of new companies and ideas in the travel realm as the map of the travel ecosystem of Skift shows. When investing or buying does not seem to be the optimal decision cooperation with startups which act complementary to the hotel’s value chain can be a viable option.

Investments and M&A of the digital travel companies are much more common than the previous tools. Probably because these activities are much more embedded in the DNA of the big hotel chains that have been buying and merging over decades. Among the big chains once again Accor stands out. With their acquisition of mobile developer Wipolo, private home rental Onefinestay ($168 million), the direct booking expert FastBooking and their investment to acquire 30% of Oasis Collection ($ 12.5 million). An example of cooperation would be Hyatt integrating Uber hailing capabilities into their App.

Author’s take: Buying or investing in companies that are already up and running and generating revenue seems like a powerful way to leverage external innovation transferring it into the company’s operation. However, besides the obvious financial impact, it bears the risk of losing key talent after the acquisition and not being able to integrate the startup into the corporate culture. If done right the insights, learnings and also financial results generated can be tremendous (e.g. Pricline.com acquisition of booking.com). A cheaper alternative (but with less direct control) is the cooperation with startups.

The First Kilometer of a Marathon

The hotel industry is in a fortunate position. In the list of industries transformed by disruptive innovation, it has experienced an early taste with the introduction of OTAs and the Sharing Economy. However, these disruptions have not had a sustained negative impact. Despite the complaints about OTA fees, business has been good. Many other industries have been affected much more, e.g. smartphone or music industry.

The hotel industry has the advantage of learning from the mistakes of others. Judging from the previous examples, most hotel chains have understood this and each one has chosen their approach. However getting digital transformation right is not only a matter of budget or doing an incubator. Digital transformation means transforming the company and adapting innovation into its DNA. This means adapting strategy, committing budget, hiring talent and driving change. Skift’s newest digital transformation research shows however that only 24% of the hotels feel they are ahead of the curve (which I  doubt with all the legacy system in the back-end). Adding to this the respondents are concerned they don’t have sufficient budget (47%) or talent (41%). Digital transformation is a marathon and not a sprint and the hotel chains have just started running. At the moment only a few of them look like they have prepared properly.

Stay tuned for Part 2: What is the right recipe to digital transformation? As always the answer is “it depends”. In Part 2, I will share my experience of being part of a successful digital transformation unit within banking.

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