Innovations form a significant backbone to an organization’s ability to secure a competitive advantage. While historically we attribute much of that innovation potential to product, process or service innovations, a study conducted by KPMG in 2015 revealed that three out of four executives believe their company’s future competitive advantage would be challenged by a competitor’s business model innovations (BMIs).
When we talk about BMIs, we are referring to the basic logic in the way a firm does business: how the company is able to create value for customers, either by defining a new value proposition for the customer or redefining how existing value is delivered.
But where does the hospitality industry stand in this regard?
From time to time we see the emergence of new hotel concepts, new market penetrations, and even process innovations that modify the way the industry operates. Consider for instance digital room keys, in-room technological services, or the robot hotel in Japan. These innovations have changed hotel procedures, operations, job descriptions, but also the customer experience.
However, to what extent does this represent the pool of radical innovations happening in the industry?
During the recent International Advisory Board meeting at EHL, we led roundtable discussions on radical innovations in the hospitality industry. Industry experts as well as EHL students put forward their views, and while it wasn’t easy to find consensus on what innovation really means for the industry, we all agreed in that the industry has experienced – and will continue facing – changes that alter the way hotels operate. But as the discussions suggested, the most radical and innovative changes currently in hospitality are not necessarily related to technology but to a firm’s ability to leverage an innovative business model. In line with the KPMG study, hospitality experts highlighted the need for hotels and operators to provide distinct business models in order to create competitive advantage in the future.
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When it comes to innovative business models, we consider hospitality to be one of the most exciting sectors to look at. For instance, with the transition from asset-heavy to asset-light strategies and the likes of InterContinental Hotels Group (IHG), Marriot, and Wyndham among the pioneers, hotel chains have moved from owning assets to operating and managing properties. This has allowed them to penetrate new markets and grow rapidly in existing ones. In so doing, this strategy has helped hotels focus on their expertise as operators and managers, leaving ownership to real estate experts instead. It has also led to a proliferation of new business models such as independent and branded management contracts, franchising, and leasing.
Pop-up experiences are also novel in hospitality, although they are already well-established in the food & beverage sector. These are temporary outlets that providing an exclusive and intriguing experience, somewhere guests will never have never been to before and will never have a chance to go to again. In a decade where luxury is becoming less defined by owning material goods and increasingly by experiences, pop-up venues have created a fitting answer – also for hospitality. Companies like Black Tomato, The Pop-Up Hotel or even established hospitality incumbents like Marriott now provide exclusive, tailor-made hospitality experiences. While Marriott and The Pop-Up Hotel have initiated their offerings at Coachella and The Glastonbury Festival, the award-winning travel provider Black Tomato offers unique, temporary accommodation to the exact needs and wishes of customers through what they call Blink.
So what do business model innovations mean for the hospitality industry?
We believe it has proven more innovative and resourceful than it is often given credit, particularly when it comes to novel ways of doing business. The transition to asset-light business models from direct ownership and the industry’s flexibility and ability to recreate unique pop-up experiences are only a few examples of the ways in which hoteliers can continue to inspire innovation in the industry. In summary, this means that both established, as well as new market players, will increasingly shift away from competing in saturated markets or ‘red oceans’. Instead, they should look to change the rules of the game in the hospitality industry, thereby creating new market segments and allowing them to tap into unlocked market potential.
Authors: Dr Margarita Cruz and Dr Nicole Rosenkranz, assistant professors of entrepreneurship and strategic management at Ecole hôteliere de Lausanne.
This article first appeared in Hotel Online.