Hilton's Value-Creation Strategies Garner Real-World Results

Written and edited by Cherie Hensdill, Senior Editor

HOTELS MAGAZINE

BEVERLY HILLS, CALIFORNIA Ideally, one would think the goal for most hotel companies is to be the first choice of the world's travelers and to create value for all of its constituents--customers, employees, owners/shareholders, strategic partners and the community. Few hotel companies have found a way to practice what they preach. However, Hilton Hotels Corp., based here, has devised a program to focus its management efforts on achieving just that goal. And the results of the program have been significant, if not impressive. According to Smith Travel Research, between 1995 (the year prior to program launch) and year-end 1998, Hilton's owned and managed hotels in the United States improved their RevPAR index--already at over 100 or "fair share"--even more with regard to competitors, by as much as six points. In addition, properties in Hilton's franchise system, which implemented the value-creation strategy one-year later, have already shown tremendous improvement. Operating at less than fair market share before introduction of the balanced scorecard, today these hotels capture more than their fair share of RevPAR. And Hilton has achieved these results by doing nothing more than devising a practical, strategic program around the same operational mission espoused by almost every hotel company out there: delivering value for money. How It Works By building a new corollary of what gets valued gets delivered, Hilton has created the axiom, what gets measured gets managed, as the cornerstone of its mission. The Hilton Value Chain (see diagram) was designed to connect the company's vision and strategic plan with "value drivers" that direct strategy and tactical processes. And these value drivers integrate into what the company refers to as the "Balanced Scorecard." The Scorecard is the critical link in Hilton's Value Chain, as it translates corporate strategic direction into property-level goals, thus linking long-term strategic objectives to short-term tactics. It serves as a performance-reporting tool that combines financial and non-financial indicators to capture various factors that create value. To measure performance, the Hilton Balanced Scorecard drills down through management to the front-line team members at individual properties. Everyone, from hotel managers and department heads to corporate staff, has an individualized balanced scorecard identifying a variety of performance measures that support the company's overall objectives. These measurements are linked to incentive bonuses, performance reviews, merit salary increases, and stock option grants. And the result is alignment; people at every level of the organization know what is expected of them and how they are performing. The Value Chain is designed to positively impact Hilton's constituents through every action the company takes. And to date, a significant, positive impact has been both achieved and measured in not only RevPAR, but in customer satisfaction and brand equity. Outcomes Thus Far Hilton's balanced scorecard has become the primary tool for translating the company vision into daily operations. And in addition to share-of-market growth, non-financial measures show improvement, as well. Among company-owned and -managed hotels, current customer-satisfaction studies reveal strong increases in customers' opinions on overall satisfaction, their likelihood of recommending Hilton hotels, and their likelihood to return to a given property. The three factors comprise a measure of loyalty Hilton tracks closely--and that score recently reached its highest level ever.

Further, at a strategic level, use of the balanced scorecard has increased brand equity by reinforcing quality control of the standard Hilton experience. This consistency has enabled the Hilton Garden Inn, a new franchise product representing more than US$1 billion in new hotel construction actually underway, to command a rate premium over competitors. In short, interviews by Mercer Management Consulting with managers throughout Hilton hotels indicate that the balanced scorecard:

Encourages managers to focus on both short- and long-term drivers of success; Cultivates and rewards teamwork, since the hotel property is assessed as a whole; Makes performance reviews more objective; And encourages sharing of best practices across other hotels.

Hilton's value chain aligns the efforts of team members across hundreds of properties to improve operations and deliver a unique value proposition. And it supports Hilton's decentralized operations by encouraging an entrepreneurial spirit focused on its constituents, by keeping those closest to the customer accountable for fulfilling customer priorities. The company has framed rewards in a way that reinforces a teamwork attitude. A US$1-million pool of Hilton stock shared with all top-performing team members was recently awarded for the first time at the Pointe Hilton Tapatio Cliffs for achieving eight green zones, or eight areas in which the hotel was meeting or exceeding company goals.

Hostmark Takes Third-Party Management To Middle East

SCHAUMBURG, ILLINOIS In a major stroke of serendipity, Hostmark Hospitality Group, a burgeoning but by no means fledgling hotel management company based here, has gained the inside track on acquiring third-party hotel management contracts in Egypt. And the group hopes Egypt will open doors to other international markets, both in the Middle East and Europe. Hostmark currently has one regional office in Cairo and seven hotels under contract or under construction in the region: one in Hurghada, two in Sharm El Sheikh, two in Taba, one in Cairo and one in Ain Sokhna. The Queen's Palace in Hurghada, which debuted last month, was the first Hostmark property to open. Two more will open by year's end with the remaining three scheduled for 2000. In addition, the company has 10 more hotels either under contract or in negotiations with openings planned by 2002, bringing Hostmark's total hotel occupation in Egypt to 17 properties in just six years. "Every time we go over," says President and COO Robert Cataldo, "we end up meeting with more development groups." The only other hotel Hostmark manages outside of its 32 in the United States is the Harrison Hot Springs in British Columbia. Thus, the company's move into Egypt could be seen as not only a major move but a daring feat for this all-American group. Family Connections Hostmark was launched 30 years ago by Chairman and CEO C.A. "Bud" Cataldo. He operates the privately held company very much as a family business with brother Robert as president and COO, and son Jerome as executive vice president of development. But it was an Egyptian national employed at the company who introduced Hostmark to Egypt.

This employee, who has since passed away, was a good friend of Sheik Fahd A. Al-Sulaiman of the Sulaiman family, which was involved in the development of the Hotel Inter-Continentals in both Egypt and Saudi Arabia. Sheik Fahd was eager to develop more properties in the region and so agreed to meet with the Cataldos. Thus, in late 1996, the two families created a joint venture by forming Hostmark Middle East Limited. The rest, as they say, is history, or history in the making. Hostmark is the master franchisor in the Middle East and Egypt for both Howard Johnson and Ramada International. "We see the Middle East as an entry way into Europe," Robert Cataldo says. The family is particularly interested n Spain and Italy, and expects to have a Hostmark presence in those countries within five years. And their future plans for the Middle East include Jordan, Lebanon and Saudi Arabia. Hospitality At Home Back in the States, Hostmark is showing no signs of slowing down. "We believe that within the next 12 to 18 months, there will be a sell-off of assets from many of the REITs," Robert says. "So we are putting ourselves in the position to bring in some equity partners to purchase some of these properties." Just this summer, Hostmark added three hotels on the East Coast to its portfolio, and another nine are in the works. They're even launching a new brand of independent living facilities, called Hostcare, with the first two debuting in Las Vegas in April. And there might even be some urban timeshares projects in Hostmark's future. The big question is where does Hostmark get the financing to expand so rapidly. So far, it's all been through equity partnerships. Hostmark owns no hotels out right, although about 25% of the portfolio is owned by company partners. And as for going public, Robert Cataldo says, "Sometimes the best things that happen are the ones that don't."