ReportHODLauraPONSPON14081781

Laura PONS PON14081781 MAIHM
CitizenM Hotel: How to develop operational capability that is
aligned with market needs ?
By
Laura PONS
Master in International Hospitality Management
May 2015
University College Birmingham
1

Table of Contents
Abstract 3
Introduction 4
Main Body:
● CitizenM: Concept and Market Position 4
● What are the needs of the market ? 5
● How does citizenM respond to market requirements ? 5
● Are strategic operation decisions appropriate ? 8
Discussion: How do they achieve such an accurate alignment ?
● Servicescape 9
● Supply Network 10
● Technology 11
● Employees and Continuous Improvement 12
Conclusion 14
References 14
2

Abstract
Purpose - The objective of this report is to identify the resources and processes developed by
an organisation in order to create core capabilities that can answer market needs.
Design/methodology/approach - Data were collected and applied to examine the
performance of an organisation in comparison with theories and journal articles.
Findings - This report presents different data in accordance with the information available on
the organisation and thanks to an interview with a member of citizenM staff.
Practical Implications - The ongoing challenges of being competitive in the overcrowded
hospitality market. This research provides several theories that can be applied to hospitality
companies in order to understand how to develop winning capabilities.
Keywords - Millennial generation, operational capabilities, continuous improvement,
customisation.
3

Introduction:
Today’s business environment is changing with globalization, the acceleration of
communication, thanks to new technology and the Internet, and the development of new
means of transportation, which are getting faster (Slack et al., 2010). All of these factors are
impacting on consumer behaviours, needs and expectations, which are changing just as fast
as the environment. In other words, if the needs of the market change, the operations
managed to meet these needs also have to change and to adapt. This fast evolution of the
market reinforces the competition between organisations and the urgency to avoid stagnation.
To succeed in remaining competitive in business, it now has to be understood by what means
an organisation can assemble resources and processes to create order winning capabilities,
aligned with market needs. This is the aim of this report, to understand how to develop
operational capabilities in order to bring them in line with demand.
This evaluation will use the hospitality operation citizenM. Firstly, this report will consider
the needs of the market targeted by citizenM. It will then go on to consider what CitizenM is
developing to meet these needs. Finally, the discussion will focus on defining how citizenM
can improve to reduce the gap between what it provides and what the customer wants. This
evaluation will rely on hospitality operations management models and concepts as well as on
journal articles related to the subject.
CitizenM: Concept and market position
Firstly, CitizenM is a new Dutch hotel concept: a boutique budget hotel. CitizenM has
currently 7 properties in 6 major dynamic cities in the world: New York, Amsterdam,
Rotterdam, London, Paris and Glasgow. Its ambition is to expand and fight the fierce
competition in the hospitality market through differentiating with its unique concept of
affordable luxury.
Concerning the market position, the group is identified as belonging to the upscale category,
according to the STR global chain scale (2014). However, citizenM does not want to be
classified according to stars. Its main preoccupation is customer reviews on social media. It
considers the guests comments as an auto-selecting process, attracting at the end only the
customers truly interested in the concept. The aim is not to please everyone but to focus on a
4

certain segment. Thus, it is targeting a niche market. From the start, instead of gathering
customers according to their age or nationality, citizenM cultivated a special segment, based
on lifestyle aspirations: the frequent travellers. This new generation of travellers is divided
into four groups: explorers, shoppers, culture seekers and professionals. They represent the
niche market targeted by CitizenM.
What are the needs of the market?
This new generation of travellers has needs that the organisation has to identify in order to
meet them properly. This can be done thanks to the five performance objectives (Slack et al.,
2010). The main important areas for this niche market are quality, speed and flexibility. The
quality expected concerns the comfort of the facilities (room, ambience), the cleanliness, the
interpersonal relationships and the connectivity (wifi). Speed is also an important factor for
this segment. It involves little or no waiting time during check-in/out , when eating and when
connecting. Basic things (food, drink, wifi) must be available easily and when required. The
customers do not wish to wait for superfluous facilities that they will not even use and are not
willing to pay for, they simply want to feel at home. Flexibility is also expected. Frequent
travellers are searching for a unique, personalised product and facilities included in the price.
All of this is expected at a reasonable price, adding value for the customer.
How does citizenM respond to market requirements?
Now that the needs of the niche market have been pointed out, the way that CitizenM is
responding to the demand can be determined, what it does to be competitive and to make
itself different. For easier understanding, the resources and processes deployed by citizenM
will be classified into four decision areas of the operation strategy matrix: capacity, supply
network, process technology and development and organisation (Slack et al., 2010).
First, concerning capacity, each citizenM hotel is situated in top destinations such as New
York, and Paris. Each time, the property is located in the city centre or near to major
communication hubs (highways, train stations, airports). Location is a way to be competitive.
CitizenM is not the only hotel in each city to be ideally located but it is meeting the needs of
5

the new generation of travellers because they are able to access the hotel and go across the
city without using a car. It is consequently an order qualifying. More importantly, citizenM
differentiates itself by using pre-built structures assembled directly on-site. This reduces
construction costs by 40%. The idea is to use less space for rooms and more for public areas:
the bar, the lounge and the restaurant. This contrasts with the traditional building method of
competitors, which is more expensive and takes longer. Ultimately, it enables citizenM to sell
rooms a cheaper price which is valuable (Barney 1991). This is rare among hotels, difficult to
imitate and has no equivalent substitute (Ambrosini 2007). Accordingly, capacity is an
order-winning capability for citizenM. This is completely aligned with the expectations of the
niche market: a room with basic amenities (bed, shower, internet) in which they will not
spend much time as they want to go out and explore; and open spaces where they can feel at
home.
Regarding supply network, CitizenM is trying to simplify its management by focusing only
on activities involving customer relations. This is why housekeeping, laundry and
maintenance activities are outsourced, it is not its core business . This enables citizenM to
switch costs from fixed to variable and pay for services only when needed, according to the
occupancy rate of the hotel. In addition, store rooms are considerably reduced, allowing the
saving of space which is expensive in big cities. Food and beverage services are not
outsourced as it is a part of the service delivered and requires interaction with customers.
However, most of the products are delivered ready to eat and displayed on self-service
shelves. The only fresh products prepared on-site are for the breakfast and the salad bar. This
enables them to do savings on staff spending and using the space saved from a smaller
kitchen to make larger and more convivial eating areas. Supply network is only order
qualifying for CitizenM because it is not trying to specialize or differentiate in relation to
competitors. However, it is still meeting the needs of the market because, when customers
choose citizenM, they do not want high quality food in a fine dining restaurant. They want to
help themselves and eat fast, as they have other preoccupations.
The process technology decision area is of importance for citizenM because it enables it to
differentiate itself from competitors. Technologies are incorporated in processes. For
example, for checking-in/out, kiosks are replacing traditional reception desks, allowing
6

guests to register themselves and to have their own keys. Rooms are smart, connected and
can be entirely controlled from a tablet (light, TV, curtain, temperature) thanks to
partnerships with Philips, Apple and Samsung. In both cases, the introduction of technology
into processes involves the customer and encourages him/her to co-create the product/service.
It is a factor of value creation for the customer as he/she is able to personalise his/her own
stay. It is aligned with the speed and flexibility requirements of the niche market. Hence,
process technology is valuable, it is also rare as it is uncommon in hospitality. Once again, it
is difficult to imitate and there is no equivalent substitute. This is an order-winning capability
for citizenM (Barney, 1991).
Finally, regarding development and organisation, citizenM is also doing things in a fairly
unusual way. First, the structure of the organisation is flat and teamwork is preferred. The
hiring and training methods concern the notion of equality and collaboration. For example,
employees (called Ambassadors), are not recruited from their CV or past experience but
according to their motivation, interpersonal skills and their flexibility. This enables citizenM
to simplify its staff management and reduce labour costs thanks to small flexible teams with 5
employees per shift required in the open spaces (reception, bar, canteenM). The employees
feel more motivated as they are empowered and allowed to be who they are. This contributes
to the fluidity of the service process as each employee is able to assist guests in any situation.
The culture of citizenM is based on this egalitarian structure and on the fact that the
contribution of each personality is valuable. The culture is also based on the environment and
symbols, enhancing the well-being of both employees and customers through partnerships
with designers (vitra) and libraries (mendo). This underlines the uniqueness of the service
delivered by citizenM. This is why guests will choose citizenM rather than an ordinary hotel,
because it is an unusually comfortable place to stay. Secondly, the performance measurement
and improvements are orchestrated through the use of a centralised software: ReviewPro.
This software centralises all the customer reviews on social media (facebook) and travel
websites (tripadvisor). This precious tool allows citizenM to save time when they are
searching for precise comments to use for improvements. Consequently, citizenM saves
money as it does not need many people to work on information. Moreover, guest satisfaction
is the only aspect management has to work on as everything else is centralised (HR,
accounts). To conclude, the development and organisation decision area is also a way for
7

citizenM to differentiate their offer because human, organisational and physical resources are
combined to create a competitive advantage capability which is valuable, rare, and cannot be
copied or substituted, as discussed above. Consequently, this is an order-winning capability
for the hotel chain.
Are strategic operation decisions appropriate ?
Now that the order-qualifying and order-winning capabilities of citizenM have been defined,
what it is doing well according to the needs of the customers can be identified, comparing its
performance with that of competitors, and what/where it needs to improve to better match the
needs of the clients and to better differentiate. This is important in order to understand the
current position of citizenM. This can be achieved using the importance-performance matrix
(Slack and Lewis, 2002).
Source: The Importance Performance Matrix. (Slack and Lewis, 2010)
The importance performance matrix applied to citizenM shows that the process technology,
development and organisation, and the capacity decision areas are situated in the appropriate
zone of the matrix. This position can be justified by the fact that its offer includes products
and services highly valued by customers, and that it develops competitive advantages by
doing things better and in a different way than competitors. The supply-network decision area
8

is situated on the boundary between the appropriate and improve zone because it includes
products and services that are less to do with customer consideration. Therefore, citizenM is
not making efforts to be better than competitors in this factor.
To conclude, the operation strategy of citizenM is based on an identification of the market
requirements and then the deployment and management of resources and processes to match
them (Slack and Lewis, 2010). The alignment outlined by the importance performance matrix
seems accurate. CitizenM does not have any major improvements to make or urgent actions
to take.
Discussion: How do they achieve such an accurate alignment ?
It has been shown what citizenM needs to align itself with market needs. The
importance-performance matrix shows that they are already doing this. This discussion seeks
to understand how citizenM is succeeding, based on the application of operation development
theories. The following discussion will continue to take the four decision areas into
consideration.
Servicescape
According to Fitzsimmons et al., (2014) the servicescape or physical environment should be
congruent with the service concept. The concept of citizenM is based on the needs of the
frequent traveller niche market : a room to rest in and open spaces to relax in, exchange and
be connected. The layout of citizenM is aligned with this concept in several ways (Hill, and
Hill, 2012). The available space is organised between two different areas: open spaces on the
ground floor (the reception, living rooms, the business centre with computers, printers free of
use, the canteenM including the bar, the kitchen and self-service fridge) and the rooms. The
open spaces facilitate the delivery of the service (Fitzsimmons et al., 2014) because they
provide variability (Hill, and Hill, 2012) and reduce waiting time (Pullman et al., 2009) with,
for example, six kiosks at the reception (equivalent for 6 receptionists) or the self-service area
in canteenM. In addition, this special layout encourages social interaction. Verbal and visual
communication are facilitated between customers and employees (Fitzsimmons et al., 2014).
9

Finally, the aesthetic factors and ambient conditions focus on both the employee and
customer behaviour. An unusual atmosphere is provided by the design of the furniture, the
lights, and music. They are designed to make each people interact with the environment and
feel relaxed, as if they were home. At citizenM, the brand and the concept is more
experiential than visual (Clatworthy, 2012).
Supply Network
The service quality is an important operational capability, especially in hospitality and in the
service sector in general (Enz, 2008). An organisation can succeed in delivering a quality
service only if it focuses exclusively on what it does best, on its core business (Levy, 2015)
This is a part of the philosophy of citizenM. Since the creators launched the concept, they
have been able to determine what citizenM is able to do or not do and, according to this, start
to build networks and partnerships (Brown et al., 2012). Because of the expensive location of
citizenM properties, citizenM has to find ways to alter capacity without losing quality and
still meet the customer needs. The principal solution is outsourcing (Kandampully, 2006). By
out-partnering (Peter, 1994), the organisation can focus on its core capabilities, enhance them
and make it hard for competitors to imitate it (Brown, 2012). It provides flexibility, expands
what is on the offer (food facilities) and enhances the firm’s image, as outsourced activities
are executed by specialists, meaning better quality and efficiency (Kandampully, 2006;
Hamel, 2002). This collaborative style of management provides a unique service package to
the guest and is again a way to do things differently.
Technology
As seen above, understanding the customer is a key to success in today’s volatile business
environment (Brown, 2012). The new generation of customers is searching for a service
oriented offer (Kandampully, 2006). Indeed :
10

“The changes in social habits produced by economic growth, higher disposable incomes and
technological advances have meant that hospitality services are now an important component
of customers’ needs” (Kandampully, 2006, p.174)
This implies that competitive advantage is now more based on supporting services. For
citizenM, supporting services would be 24/7 food and beverage, accessibility, design and use
of technology.
One of the major capabilities of citizenM is its ability to use technology in a creative way, in
order to enhance internal efficiency and effectiveness with the final goal of customer
satisfaction (Kandampully, 2006). The generation Y (niche market) is more self-focused than
previous generations. They need attention and want to be included in what they consume.
This expectation is possible due to innovative solutions proposed by citizenM (Andersson
and Norrman, 2002). Innovations such as kiosks at the reception or connected rooms are
important because they maximise the personalisation and customisation of citizenM’s offer
(Quinn 1996). When the concept was created, citizenM followed the project process of
transformation (Brown, 2012) with a fixed type of layout and an awareness that the
expectations of each clients are unique, hence the importance of customisation. The kind of
customisation citizenM is using is the adaptive one (Gilmore and Pine 1997), meaning that
standard products (room) are changed by customers (personalising them through lighting and
music). In other words, the advantage of using technology as tool for the customisation of the
product is that it involves directly the customer in the service provision (Breffni et al., 2010).
This enables citizenM to save money. Mass customisation is a challenge for organisations
(Zipkin 2001) because of the difficulty involved in capturing customer input and tracing
orders. Here, the customer is independent and feels free to individualise his/her stay.
The customer is a co-creator of the service (Walter and Edvardsson, 2012). This implies that,
when participating in the elaboration of a service, the customer is creating value by turning
the resources he/she is in contact with into drivers. These drivers, or factors, coming from
sensory elements or interactions, direct the customer service experience in a favourable or
unfavourable way (Walter and Edvardsson, 2012). In this case, the value facilitation model
can be applied with the consumer as a value creator and the service organisation as value
facilitator (Grönroos, 2008). Grönroos adds that:
11

“value has always an attitudinal component, such as trust, affection, comfort and easiness of
use” (p.303)
These are the attitudes that citizenM is trying to trigger as a value facilitator for their entire
concept described above. Consequently, the level of value desired by the customer is likely to
be obtained because the guests are serving themselves, resulting in satisfaction and in
loyalty.
Employees and Continuous Improvement
However, as described by Walter and Edvardsson (2012), the customer service experience
includes the core service, the physical environment and social interaction with other
customers and, most importantly, employees. This means that even if technology is used to
enhance the customer experience, interaction with employees cannot be eliminated as it is
crucial, especially in the service field (Brown et al., 2012). Members of staff, in addition to
the use of technology, bring flexibility to the offer and help build a strong customer
relationship management capability (CRM). This is a process followed by citizenM based on
establishing, maintaining and enhancing long-term relationships with attractive customers
(Payne and Frow, 2005; Parvatiyar and Sheth, 2001). This process is based on three resources
of the organisation: customer orientation, a customer-centric organizational system and CRM
technology (Wang and Feng, 2012). In other words, customer orientation must be a part of
the organisation‘s culture, reflecting the values and behavioural norms which put the
customer’s interest first (Day and Van den Bulte, 2002). This is the case for citizenM as
everything has been designed to please the customers. The customer-centric system and CRM
technology are often coupled in order to initiate customer information sharing for example.
This is what is developed by citizenM with the use of their centralised software Review-Pro.
These resources allow citizenM to build CRM capability based on three components: the
customer interaction management capability, the customer upgrading capability and the
customer win-back capability. Customer interaction capability is the ability to identify,
acquire and retain profitable customers. CitizenM are able to do that through a unique and
personalized offer. The customer upgrading capability is quite limited for citizenM as most of
the supporting service are at no extra charge. Finally, the customer win-back capability is
applied by citizenM. A guest that stays once gets a 15% discount on the next stay. This helps
12

to re-establish lost or inactive relationships. As a result, thanks to CRM capability, citizenM
has been able to build a sustainable competitive advantage.
This is one of the reasons for the successful alignment of citizenM operations concerning
market needs. In fact, it does more than apply an appropriate, competitive strategy; in the
same time it monitors it continuously (Stanley et al., 1997). CitizenM has developed the
continuous improvement (CI) or Kaizen, which has proven to be an inimitable competitive
advantage (Savolainen, 1999). To be efficient, CI should be based on organisational abilities,
constituent behaviours and enablers (Slack, 2004). CitizenM has organisational ability
because CI is rooted in its culture and concerns every department. It is highly important for
the organisation because it has chosen to be qualified only by customer reviews rather than
stars or other forms of rating. It is obliged to follow this process if it wants to keep attracting
customers. Constituent behaviours are developed through the empowerment of employees
(Ponsignon et al., 2012) and the involvement of everyone. Finally, the enablers or procedures
and techniques used to sustain CI are the lean/six sigma applied to customers with the
improvement of value-adding steps in the customer experience, as described above, and the
removal of non-adding steps such as the traditional time-consuming checking-in process
(Lancaster, 2011; Evans and Lindsay 2005). Lean thinking is also applied to the staff in the
form of teamwork, training and empowerment. This is very important for citizenM in order to
maintain motivated and flexible employees, resulting in better quality and productivity and
impacting positively on customer experience (Brown et al., 2012).
Conclusion
To conclude, citizenM is achieving an accurate alignment with the needs of the market
because, from its creation in 2008, the group has been able to develop key core capabilities
with a unique and effective servicescape configuration, multiple partnerships, creative use of
technology, customized offers, empowered staff and a continuous improvement strategy,
13

resulting in a value-adding experience for customers. Its capabilities are closely connected,
resulting citizenM being difficult to imitate (Coltmana and Devinney 2013). CitizenM is a
good example of an organisation which is succeeding in developing operational capabilities
that are aligned with market needs. If it continues to follow this strategy, competitive
advantage should be maintained.
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