Has the growth of alternatives – in this case, “non-hotel” Airbnb – boarding brought more people into travelling? Has it raised the premium of the hospitality industry as a whole?
The digitally-enabled transition into the shared economy has pushed the traditional hospitality industry to innovate, at all its various forms and functions. Any hotel business which sits on its laurels without adapting to the new economy will suffer.
So what is a traditional hotel chain to do?
In 2013 AccorHotels found itself trying to answer that very same question. Challenged by digital disruption and the rise of fierce competition from the sharing economy, and at the same time, facing stagnation and an inflexible internal corporate culture, a bold transformation was desperately needed.
This story is fascinating because in many ways, it represents the epitome of challenge of a medium-sized company – or let’s say, a company large enough to be stagnated by the weight of its own culture, a common challenge for many businesses across industries. And it is really fascinating because, if we can crack that nut: how to adopt to a rapidly changing landscape, and at the same time, actually change the organization from within to benefit from the changing landscape, then we have answered a very long list of challenges that many businesses face over and over again.
This article is about exactly that challenge.
The Looming Storm: Challenges Facing AccorHotels
For founders, owners, and CEOs in the hospitality sector, this dramatic turnaround story offers a compelling blueprint for navigating industry disruption and achieving sustainable growth.
As CEO from 2013, Bazin orchestrated a radical shift, divesting real estate to become asset-light and investing heavily in a “augmented hospitality” vision.
Prior to its strategic pivot, AccorHotels faced a confluence of significant challenges that threatened its long-term viability:
- The first challenge was Digital Disruption: The emergence of online travel agencies (OTAs) and, more significantly, the disruptive force of the sharing economy led by Airbnb, directly challenged Accor’s traditional business model. These startups offered new value to customers and threatened direct bookings.
- A second key challenge was with the Asset-Heavy Models of traditional hotels: Accor owned a significant portion of its properties. While this ownership enabled control, it also tied up capital, and exposed the company to real estate market fluctuations. This “asset-heavy” approach, while not without some advantages, was a liability to a company which is first a hotel business and second a property owner.
- Finally, Accor had a Hierarchical and Inflexible Culture: Accor suffered from some of the same internal and cultural challenges that many large and longstanding businesses face – a bureaucratic culture, slow decision-making, little innovation, and mere knee-jerk responsiveness to market shifts.
To be sure, these weren’t the only challenges, but for the focus for this article is on Accor’s transition, and these are the challenges which were the highest obstacles to the company’s long run success.
The Architect of Change: Sébastien Bazin’s Vision
While these were the challenges, the key would be for the company to achieve a grand objective, one that wasn’t just about hotels. The objective was about creating an entire ecosystem of services.
Sébastien Bazin was appointed as Chairman and CEO in 2013. His background was not hospitality, but rather, in private equity, and from that, he brought an outsider’s perspective to the organization. He recognized there was an urgent need for change and was ready to confront that need head-on. To compete with the digital startups, Accor needed to get rid of its legacy constraints and become more… ready for this… customer-centric and, at the same time, be more technology-driven.
Strategies for a Strategic Renaissance
Bazin’s turnaround strategy was multi-faceted and executed with speed:
- The first objective was divestment – to become an Asset-Light organization: Accor began divesting its real estate portfolio, spinning off its property arm, AccorInvest. This move had the distinct benefit of freeing up capital, and due to the fluctuations of the property market, reduced the financial risk of what is, at its core, a hospitality business. What, then, is the core of a hospitality business? For Accor, that meant focusing on brand management, franchising, and hotel operations.
- The second key pillar of the playbook was in Digital Transformation: Accor began a five-year, €225 million digital transformation plan. Key elements included:
- Creating a unified Mobile App and developing a Seamless customer Journey:
- The second was to enable Data-Driven Personalization: Accor leveraged loyalty program data and guest profiles to understand preferences and to then customize customer experiences, from room temperature settings to preferred TV shows.
- Finally, the digital transition included Technology Acquisitions and Partnerships: Accor strategically acquired tech companies and partnered with startups to enhance the guest journey and operational efficiency. Examples of these include concierge services and co-working spaces.
- The third main pillar of their playbook was its “Augmented Hospitality” Vision: This term refers to a broader ecosystem of services and experiences. This included acquiring complementary businesses like concierge services (John Paul), private home rentals (onefinestay), and co-working spaces (Wojo). The goal was to cater to the evolving needs of travelers and locals alike, extending the brand’s reach beyond traditional hotel stays.
- Another key aspect of this transition was in challenging the cultural norms within the company. Bazin championed a cultural transformation, pushing for a more agile, innovative, and risk-tolerant mindset. He did that by decentralizing decision-making, encouraging experimentation, and empowering employees.
Tangible Results of the Turnaround
The results of Accor’s strategic overhaul have been significant:
- There was Enhanced Financial Performance, and Accor has consistently reported strong revenue growth and improved margins.
- An Increase in Direct Bookings and Customer Loyalty: enabled by a strong digital presence and an enhanced loyalty program, with a reduced reliance on OTAs.
- Expanded Ecosystem through the “augmented hospitality” strategy broadened Accor’s revenue streams and deepened customer engagement.
Accor has solidified its position as a global leader in hospitality, with a more diverse and resilient business model, while demonstrating to the market its ability to innovate with agility.
In this way, the AccorHotels turnaround offers invaluable lessons for founders, owners, and CEOs across the hospitality industry:
- First off, to Embrace Disruption, not to Resist It: Accor confronted the threat of digital disrupters head-on by becoming a digital leader itself.
- Second, hospitality – and all businesses – must be Prepared for Radical Transformation: Incremental changes often aren’t enough in times of significant disruption. Accor’s willingness and readiness to fundamentally alter its business model was crucial.
- A strong, visionary leader who can articulate a clear path is absolutely essential. Bazin’s leadership in this case, and his ability to communicate his vision, were critical.
- Finally, throughout the transformation, Accor retained its focus on Customer-Centricity and Experience: At its core, hospitality is about the guest experience. Accor’s focus on seamless digital journeys, personalized offerings, and a broader range of services reflects a deep understanding of evolving customer expectations.
In a world of constant change, AccorHotels’ journey from a struggling giant to an “augmented hospitality” powerhouse serves as a great reminder that with strong leadership, a clear strategic vision, and commitment to transformation, even the most entrenched businesses can reinvent themselves and achieve unprecedented levels of success.
For those at the helm of hospitality businesses today, the question isn’t if disruption will come, but how quickly and effectively you will adapt when it does.
Questions for Business
With that in mind, there are 3 key questions that hotel CEOs must ask themselves to remain competitive amid a rapidly-changing marketplace.
- Most fundamentally, are we ready to truly change the way our business is done? Accor shed its traditional assets and embraced the “asset-light” model, which was a fundamental reshaping the balance sheet and operational control. Not all business transformations require this level of change, but the real question here is, what about the business is sacred, and cannot change? Should there be anything that is off limits to change? I think the answer is “No”.
- A second key question for longstanding businesses is regarding the organizational culture: Is it ready to adopt new technologies and to innovate? This is absolutely fundamental to long-run sustainability of a business. If the answer here is “no”, then this situation must be #1 priority for the CEO, to offer a new vision based on knowledge of not only where the industry is going, but where it COULD go with the right leadership and direction. Here is where the new possibilities truly open up. This question then brings us to the next key question:
- Does the organization have the vision, communication skills, and willingness to make unpopular, radical decisions necessary to drive organizational change? What needs to be changed, and how will that happen?
And that is where the real hard work begins.