Harvard Business Publishing has an article by Mr.Umair Haque entitled "Why Traditional Recession Tactics Are Doomed To Fail This Time". While the article is directed at boardrooms across industries it has clear pointers for the hotel industry as well. It begins by noting that traditional recession measures such as "budget-paring, personnel-slashing, and portfolio-trimming" simply won't cut it as the current economic headwinds are "no ordinary squall, but a once-in-a-lifetime gale ripping up the very foundations of the global economic order". While the language may be weighty with grim portends it is hard to argue with the substance of it.
The author suggests that decision makers address the problem at threee levels.
- Mr. Haque begins by noting that there is a change underway in the patterns of investing, consumption and savings. In his view the global macroeconomic picture calls for "overconsumption in developed countries
to slow sharply, and capital to be redirected to long-run
investment, especially in public goods". Equally, he calls for "emerging markets to shift from financing consumption in developed countries, and begin
investing in the basic institutions of a vital microeconomic
environment and power long-run growth". For the US he uses Starbucks as an example and says of they "want to grow via new stores and new products,
its corporate strategy must support the clear macroeconomic need to
shift overconsumption to long-run investment. That means relying less
on Vivannos, and more on, for example, Starbucks as a platform for
communities to build and invest in local resources".
- Corporate strategists should focus on creating long-run value and not merely indulge in "arbitrage or gamesmanship" which is "too often confuse(d) for strategy. "Games of off-balance sheet
accounting, currency hedging, capital structuring, so-called labour
arbitrage. Corporations who play this game of economic
musical chairs are in for a rude awakening as the music just stopped". Once again the author resorts to Starbucks for an example saying they "tried to grow by selling us more junk we
don't need — music, mugs, and mouse pads. That was orthodox, textbook,
industrial-era strategy: grow by seizing share in adjacent markets". The hotel industry too indulged in some of that with some chains going so far as to ramp up a near full-service retail offshoot to sell products found in hotel rooms. Perhaps that the new recession could imply a rethinking of its core mission – that of providing the best guest experience.
- The third and "deepest level" calls for strategists to discover new sources of advantage as old ones fade and decay. Further once value is created strategists must learn how to sustain and maintain it. He notes that "brands (are not) what they used to be and as the investment banks just
showed us, neither is scale, proprietary knowledge, or top-notch
relationships". Once again the article highlights the point with a Starbucks example saying that "if Starbucks wants to survive the 21st century, it must get radically
experimental, learn to tap the power of network effects, shift to
becoming resilient, develop and live a sense of purpose, or learn to
occupy the creative high ground".
The author closes by observing that "industrial era (the past) DNA was built to power a nakedly competitive
advantage; one that's deliberately blind to being unfair,
unsustainable, or flat-out imaginary". Whereas "discovering new sources of advantage depends on new DNA – on building new kinds of institutions with entirely new capacities.
Because, at root — and as we'll discuss at length shortly — the macro
crisis isn't really a financial crisis, an economic crisis, a liquidity
crisis, or a solvency crisis. It's an institutional crisis: the
economic institutions of capitalism are in shock".