Four Seasons Case
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Evolving the Model: Four Seasons Hotels and Resorts Integrative solutions aren’t perfect and the advantage they confer doesn’t last for ever. Like any competitive advantage, the advantages that spring from an integrative solution can fade over time, as competition emulates the best aspects of the answer and new competition, with new sources of competitive advantage, enter the game. This is true for all manner of companies, from Dell Computers to Procter & Gamble to Four Seasons Hotels and Resorts. The difference between a company that struggles after its integrative breakthrough and one that achieves on‐going success is how the company and its leaders approach the changing landscape. Some cling stubbornly to the original integrative solution – often because the visionary integrative thinker has retired from the firm and there is no one to lead the charge. But some are committed to constantly reimagining their strategy, to revising, refreshing, even abandoning the initial integrative solution in favour of a new and better one. Four Seasons fits squarely into the second category. Its founder, Isadore Sharp, came to the integrative solution that laid the groundwork for future success in the early 1970s. But he didn’t stop there. He continued to hone and refine that model and stayed ever on the lookout for new models that could reshape his answer. What’s more, he strove to explain his thinking to his team as clearly and consistently as possible, so that they could continue to take the same approach as we withdrew from formal leadership of the company. The Background Sharp’s original integrative solution emerged over time. When he started out as a hotelier in the 1960s, he was faced with a world in which there were only two kinds of hotels that worked: Jennifer Riel, Associate Director, Desautels Centre for Integrative Thinking, Rotman School of Management, University of Toronto, prepared this case in collaboration with Roger Martin, Dean, Rotman School of Management. Darren Karn, also of the Desautels Centre, provided research support.
1. Small motor inns for families and vacationers These were often family‐owned, one‐off facilities, though by the late 1960s, some chains like Motel 6 (founded in 1962) and La Quinta (1968) were emerging. By the 1970s, Holiday Inn (founded in 1952) was the dominant player, operating standardized, clean properties that were family friendly and easily accessible. 2. Large high‐end hotels for business travelers While this category had once been dominated by legendary independent hotels and small chains (like the Plaza hotel in New York or the Canadian Pacific hotels in Canada), the higher‐end market was coming to be dominated by chains like Hyatt and Hilton. The small motor inns were inexpensive, convenient and friendly. The large luxury and convention hotels were grand and opulent. The division between large and small hotels was driven by the common understanding of the economics of the business: the notion was that hotels had to be of a certain size – greater than 750 rooms – in order to cover the costs of all of the amenities that business travellers required (like meeting rooms, multiple restaurants, an indoor pool, luxurious décor, etc.). Motels, on the other hand, seemed to be most effective in the 100‐250 room size range. Sharp’s Integrative Solution When first starting out, Sharp tried both of the existing models. He first built the Four Seasons Motor Inn in Toronto, which was small, friendly and intimate. It was a hotel he loved running. Though it became a popular local spot, it wasn’t a huge money maker for him and scalability seemed like a problem. It didn’t have a lot of amenities, which limited the type of guests he could attract and the amount he could charge them. The original Four Seasons Motor Inn, 415 Jarvis Street, Toronto
Sharp then partnered to build the Four Seasons‐Sheraton, a large 1600‐room convention hotel (also in Toronto – across from Old City Hall on Queen Street). It was large and opulent, with every
amenity a business traveler could need, including multiple meeting rooms of all sizes and an underground shopping mall. But Sharp also found it to be cold, unfriendly and reasonably joyless. It made a lot of money and was quite scalable. However, Sharp found running it to be deeply frustrating. The Sheraton City Centre Toronto, originally the Four Seasons‐Sheraton, 123 Queen Street West, Toronto
Sharp had experimented with the two dominant approaches in the hotel industry and he remained dissatisfied. These weren’t bad models – Sharp saw that there were successes to be had in both approaches – but they didn’t deliver the kind of answer Sharp wanted. He had, he says “a concept of combining what I thought was the best of a motel and a hotel. It was something – a thought process – that I thought might work.”1 Sharp had noticed that customers at the Four Seasons‐Sheraton didn’t seem all that happy to be there, despite being surrounded by opulent décor. So, he says, “we studied, surveyed and listened to our customers. Most were business executives, often pressured by time and the need to be productive.” The last thing, he realized, that they wanted was yet another night in yet another hotel. They missed the ease and comfort of home and the convenience of the office. So, Sharp decided he could build a new kind of luxury hotel – one in which the luxury was defined not by décor but by a new kind of service – a support system that would fill in for the one left at home or the office. Ultimately, that’s what Sharp created: The medium‐sized luxury hotel with highly personalized service and full range of amenities funded by a massive price premium. His vision was “to develop and operate only medium‐sized luxury hotels of exceptional quality.” To do so, he needed to create the support system in ways his customers would find meaningful: “We knew we had to set ourselves apart,” he says. “We had already upgraded five‐star standards – aesthetics, convenience, comfort, every aspect of every room from the softest towels to the quietest plumbing. [Now] we expanded to use of the room for business, using two‐line telephone and a well‐lit desk big enough to work on. We became the leader in innovation – the first to offer shampoo, then 24‐hour room service, bathrobes, make‐up
mirrors, hairdryers, overnight laundry, pressing and shoe shining, all popular ideas but very quickly and widely copied.” Though the elements of the support system (shampoo and robes, hairdryers and laundry, just like home, plus a working desk and secretarial support, like the office) became industry standards, Sharp created a complete system of activities to support his insight. The linchpin, he saw, was the front‐line employee. Members of the frontline staff – bellmen, chambermaids, dishwashers – were “traditionally our lowest paid and least motivated people, but the ones who could make or break a five‐star reputation. I became an evangelist,” Sharp recalls, “preaching the gospel of service every day, on every trip, to every hotel, continuously restating it, clarifying it, developing it, reinforcing it, by rewarding and celebrating outstanding performance. Focus employees at every level on only one priority: giving customers added value through service.” Sharp instituted a single, powerful rule to create the kind of service he wanted – he ran the company on the basis of the golden rule: “In essence, to deal with others – partners, customers, coworkers, everyone – as we would want them to deal with us. Employees, even then, believed only what they saw. If we were seen showing greater concern for profit, prestige, quotas, rather than for customers and employees, there’d be no belief in our values, no whole‐hearted commitment, and we’d be communicating across a trust gap.” He continues that Four Seasons won “employees’ trust, by upholding the Golden Rule throughout the company, making it as applicable to general managers as to dishwashers. It’s a universal ethic, enabling us anywhere in the world to turn a group of ordinary people into a world‐class workforce.” The employees, in turn, created the legendary Four Seasons service culture. In essence, Sharp took two models – the intimate, friendly small motel and the expensive, luxurious large hotel and looked for a third way: a highly personalized service model that would allow him the intimacy of the small motels with the scale and price point of a large hotel. Four Seasons Today Sharp’s approach was highly successful. By 2000, Four Seasons had revenues of $2.82 billion dollars and $103 million in profits over its 50 plus hotels.2 The model had changed and grown over time. Originally, Sharp built all the hotels and owned the real estate on which the hotel operated. Gradually, the company shifted to a model in which it ran the hotels, while partners and outside investors owned the actual buildings. Four Seasons expanded into the United States and around the world, closing some underperforming locales as it went. The company went public in 1986. In 2007, it returned to private hands, when Bill Gates and Prince Al‐Waleed bin Talal of Saudi Arabia purchased 95% of the company for $3.8 billion.3 At the time, Sharp explained that “the company’s business strategy had evolved from developing its own real estate to managing its 74 properties around the world. That meant it no longer needed to raise money in the stock markets to pay for its expansion, thus, it could cease to be a publicly‐traded company.”4
In 2010, Sharp stepped down as CEO and Katie Taylor stepped into the role. Under Taylor, the company continues to expand, with more than 80 current locations and some 50 more in various stages of development.5 The hotels and resorts themselves are a mixed lot, combining city‐centre hotels with true vacation resorts. Some, like the lauded George V in Paris (regularly named the best hotel in the world), hew very close to Sharp’s original vision of mid‐size luxury hotels. Others, like the Four Seasons Golden Triangle in Thailand, are utterly unique – a tented oasis within an elephant preserve. The George V in Paris
The Four Seasons Golden Triangle, Thailand
This approach to different locations has been traditionally successful for the Four Seasons, but it comes with challenges as well. The company doesn’t get the full benefit of economies of scale it could if the design of each hotel was more standardized – an approach Ritz Carlton has traditionally taken to good effect.6 The recession that began in 2008 has put serious pressure on Four Seasons and all luxury brands to manage costs more effectively. So a push to standardization has some strong grounding. Yet, in the years leading up to the recession, quite a different pressure was building. Increasingly, the most intense competition for Four Seasons was coming from small boutique hotels – one‐off hotels or mini‐ chains that captured something essential and specific about a city – or even a small part of a city. The original Gansevoort Hotel in New York, for instance, captured the urban post‐industrial chic of the meatpacking district. The brand of the hotel is well conveyed by its website; it describes the Gansevoort as “New York’s first luxury urban resort that transformed the meatpacking district from gritty to chic. [It] offers downtown chic infused with uptown luxury. Sophisticated and minimalist, guestrooms feature a color palette of neutrals and grays with a shot of blackberry. A lavish use of leather and fabric in the headboard, armoire and wall covering offers a rich, contemporary feel. Dramatic sheets of backlit translucent glass in muted colors take the place of conventional doors. Bathrooms offer striking design contrasts with sheathed, richly textured walls, ceramic interiors, custom designed stainless steel “Gansevoort” sinks, and Carrara marble.”7 The Drake Hotel in Toronto captures the specific arty ethos of the Queen West west neighbourhood – and in fact helped to create it. From their website: “From live music to great food, our art exhibits and nineteen unique hotel rooms; there’s always something happening at Drake. It’s no wonder that people who know us best call Drake a hotbed for culture.”8 The Drake Hotel, 1150 Queen Street West, Toronto
These boutique hotels tend to offer a unique experience based on a clear theme, distinctive from the “sameness” that can define larger chains. For travellers in search of surprise and personality rather than consistency and convenience, boutique hotels can hold a strong allure. Typically very small (10‐100 rooms), the boutiques often offer a different set of amenities than a standard luxury hotel (e.g. hip nightclubs and restaurants, rather than conference facilities). These smaller, very local and super‐
custom hotels offer a very different vision of the future. Each is unique from the design of the rooms, to the style to service to features of the rooms. Katie Taylor, as Four Seasons’ new CEO, must weigh the competing tensions of customization and standardization as she adapts Sharp’s vision to her current context. The question is, when it comes to customization and standardization, is there a better answer than simply choosing? What could Katie do to get the best of both worlds? 1
All quotes from Isadore Sharp are taken from his talk at the Rotman School of Management, April 11, 2002. http://www.1.fourseasons.com/pdfs/press/annual_reports/FS00.pdf 3 “Four Seasons sold to Bill Gates, Prince Alwaleed Bin Talal.” Financial Post. (http://www.financialpost.com/story.html?id=f2b5a69c‐cf08‐45e8‐a402‐9e01f26af301&k=714) 4 Ibid. 5 http://www.fourseasons.com/about_four_seasons/kathleen‐taylor/ 6 Segal, David. “Pillow Fights at the Four Seasons.” New York Times, June 27, 2009. 2