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Root Causes of New Hotel Opening Delays in Greater China


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Root Causes of New Hotel Opening Delays in Greater China

  1. 1. Root Causes of New Hotel Opening Delays in Greater China a Hospitality Industry Perspectives By Gert Noordzy, MBA, CAPM & Richard Whitfield, PhD First Published by The Center for Hospitality Research Cornell University – School of Hotel Administration 1
  2. 2. Introduction * • Educational and professional background. – “Nothing at hotel school had prepared me for the rigours of opening a new hotel.” • Previous and current jobs. • How did I get into project management? – “I used to be an accidental project manager.” 2
  3. 3. My Current Job 3
  4. 4. New Hotel Openings * • This presentation will talk about an industry which does not apply and has not embraced project management. Yet. • New hotel openings in China are almost always delayed. Are you surprised? 4
  5. 5. Global travel & tourism industry * 2012 Contribution GDP US$ 6.6 trillion or 9.3% of total world GDP. Employment 216 million jobs or 8.7% of total world employment. Capital investment Attracted US$765 billion or 4.7% of total global investment. Hotel pipeline 5
  6. 6. China travel & tourism industry 2012 Contribution GDP ¥4.7 trillion (US$ 717 billion) or 9.3%. GDP growth Average of 8.7% over next 10 years. Employment 64 million direct, indirect, induced jobs or 8.3% of national employment. Employment growth 10 million direct over the next 10 years. Capital investment ¥655 billion investment. (US$98 billion) or 2.8% of total Capital investment 9.2% per annum over the next 10 years to ¥1.68 growth forecast trillion (US$252 billion) by 2023. 6
  7. 7. China travel & tourism industry 2012 Contribution Domestic trips 3 billion travelers. Inbound trips 133 million visitors. Tourism revenues US$ 412 billion. Global ranking Second. By 2023 China will overtake US as largest country in terms of tourism & travel contribution to GDP and size of outbound market. 7
  8. 8. China travel & tourism industry Infrastructure Express Way System 3 million KM length by 2020. High-speed Rail System 30,000 KM connecting 250 Chinese cities by 2020. Airports Currently 195, with plans to build 97 more before 2020. 8
  9. 9. China Hotel Development Hotel room inventory Current * 2.3 million. By 2025 6.1 million. By 2039 9.1 million. • Implication: 3 new 150+ room hotels will open in China every day for the next 25 years! 9
  10. 10. China Hotel Development 10
  11. 11. China Hotel Development • Differences with US: – US growth was less steep and took place over a longer period of time. – Several major hotel management companies achieved current size through acquisition. – The bulk of the openings in China will be achieved through new built projects. – Branding: North America 66% of inventory is branded vs 22% in Asia. 11
  12. 12. China Hotel Development Pipeline 2012 Asia Pacific pipeline * • Total: – 2’401 projects – 557’505 rooms. • China: – 1’622 project – 407’721 rooms. 12
  13. 13. China Plans of Major Industry Players Synopsis IHG “Eightfold increase in rooms in Greater China in the next 20 years.” Hilton “Quadruple the number of hotels in China before 2014.” Marriott “Invest US$ 2B over the next three years to open new hotels globally, 14% in China .” Wyndham * “Our long-term vision is to have a footprint in China that rivals our presence in the US.” Accor “Open 100 hotels in China in the next 2-3 years, network of 400 hotels by 2014.” Starwood “Open 20 new hotels in 2013.” Home Inns “Plans to add 330 to 360 hotels annually in the coming three years.” 13
  14. 14. China Pipelines of Top 10 Hotel Groups 14
  15. 15. Key questions * 1. How do international hotel companies talk individual owners into signing up with them? 2. How can international hotel management companies execute their aggressive growth plans? 3. How can hotel operators open new properties on this scale effectively and efficiently, and in a consistent and predictable manner? 15
  16. 16. How to open a hotel - Comparison APM Bok V6 Project Lifecycle 1. Project Brief 2. Capturing project requirements 3. Preparing a business case 4. Securing corp. agreement & funding 5. Developing and implementing a management plan for the project 6. Leading motivating project delivery team 7. Managing the risks 8. Monitoring progress against plan 9. Managing the project budget 10.Maintaining communications with stakeholders and the project organisation 11.Provider management 12.Closing the project Typical Hotel Opening in China 1. 2. 3. 4. 5.  Limited to hotel system standards.  N.A. Limited to hotel critical path only.. 6. Limited to hotel team only. 7.  8. Limited to hotel opening efforts only. 9. Limited to hotel expenses only. 10. Limited extend. 11. Limited extend and HOES only. 12. 
  17. 17. Hotel openings – status quo • Project Management methodology and standards are not applied in hotel industry! • Use of isolated elements perceived as PM, such as Critical Path, software and a vague, undocumented notion of a Project Life Cycle. • The Project Management Process Groups of Initiating, Planning, Executing, Monitoring & Controlling and Closing are not applied. • APMBOK Delivery is not applied. • These areas for improvement are huge and would produce measureable positive results. Ex: Project Risk Management would improve accuracy of forecasting. 17
  18. 18. Hotel openings – status quo • Hotel brand / management companies do not physically own the real estate, therefore have no control over construction, budgets, etc. * • The relationship with the asset owner is based on a TSA, HMA / FA and TLA. ** • Hotel opening efforts are driven by corporate operations, supported by: – Hotel General Manager. – Property based task force. – Corporate preopening support functions. 18
  19. 19. Hotel openings – status quo • Approach does not work on large scale and has severe limitations: – Not enough people in the existing hotels to assist. – Projects run simultaneously, not concurrent. – Hotel owner approval and incremental workload. • Generally, the Hotel General Manager is “parachuted” in, frequently “hits the ground running” and ends up doing PM related tasks! • Skill-set to open a hotel is very different from managing ongoing hotel operations. * 19
  20. 20. New hotel openings often delayed • Delays in technical, operational and commercial readiness are commonplace in China (average 1-12 months). * • Consequences: ** – – – – – Incremental pre-opening expenses. Revenue disruptions. Opportunity costs. Tie up corporate resources. Damage to reputation and credibility. 20
  21. 21. A survey to understand hotel opening delays • Interviews with over 80 hospitality professionals: – To better understand how international hotel companies operating in Greater China approach new hotel openings. – To better understand the nature and causes of these delays. • Respondents worked for one of 15 international and regional hotel companies. 21
  22. 22. A survey to understand hotel opening delays Two questions: 1. “How does your company approach new hotel opening processes?” 2. “In your view, which issues cause new hotel openings to be delayed?” 22
  23. 23. Observations on the respondents • None were expert in the field of project management and its methodology. • None had received any formal project management training. * • None (property based) had experienced a new hotel project which opened by the target opening date. ** 23
  24. 24. Observations on the respondents * • None held certification. any type of project management • Only 1 respondent (with an engineering background) had held PMI® certification in the past. • About 95% (77) had never heard of the Project Management Institute. 24
  25. 25. Observations on the hotel management companies • Only 2 out of 15 hotel management companies had a dedicated hotel opening support function. • None of the hotel management companies employed certified project managers. • None of the hotel management companies had a project management department. 25
  26. 26. Perceived causes of new hotel opening delays • 81 Respondents raised 825 points, sorted into 51 subcategories and grouped into 10 categories, ranked by using Pareto analysis: 1. 38%: Hotel design & construction. 2. 24%: Hotel owner. 3. 10%: Hotel operator. 4. 8%: Pre-opening activities & operational readiness. 5. 4%: Procurement. 26
  27. 27. Root Cause Analysis RCA to determine the basic underlying reasons that cause the problems: Step 1: Review of sub-categories and categories to determine direct * and intermediate causes. ** Step 2: Apply the 5 Whys technique to examine why these causes would occur. *** Step 3: Deduce the underlying reasons and formulate the root causes. Step 4: Map out the sequence of events and vectors, as well as the relationships between direct, intermediate and root causes. 27
  28. 28. Root Cause Analysis & Causal Chain 28
  29. 29. Root Cause Analysis & Causal Chain Conclusions: • Four sets of perceived causes are actually direct causes: – – – – Delays in concept, design, construction, hand-over. Delays in preopening activities & poor execution. Delays in procurement process. Non-compliance with brand standards. • Remaining six sets of perceived causes are actually intermediate causes. 29
  30. 30. Root Cause Analysis & Causal Chain Conclusions: • Actual root causes are: – Project investment motivation. – No project management culture. – Management company modus operandi. • Delays can occur because of a single cause or multiple causes. • None of the identified root causes were mentioned by the respondents. 30
  31. 31. Root Cause Analysis & Causal Chain Main Vector 31
  32. 32. In Summary Essential point to recognize: • What the hotel industry perceives to be the causes of new hotel opening delays are only symptoms of more deep seated systemic problems . 32
  33. 33. “So what if hotel openings are delayed…” • Global hotel development pipeline of the Top 10 international hotel management companies: US$ 86 billion worth of fix asset projects. * • In China this represents US$ 26 billion. 33
  34. 34. Recommendations A hotel opening is in fact a project!!!  • Standard PM methodology is well suited to hotel opening projects on large scale: – Processes involved in each hotel opening are virtually identical, – which allows for plans & schedules to be standardized. * • To open new hotels on large scale effectively, the hotel industry needs to significantly upgrade its understanding of project management, methodology and techniques. 34
  35. 35. Hotel Industry Challenges 1. Limited understanding of Project Management as a strategic competence. * 2. Few project management champions and no hotel companies employ certified project managers. ** 3. Hotel management companies are traditionally conservative. *** 4. Most hotel management companies are set up as functional rather than matrix organization. 5. General misunderstanding in the industry as to what causes new hotel opening delays. 35
  36. 36. The Way Forward • The hotel industry seems not to link project delays to the absence of project management culture and the lack of an all-encompassing project management methodology. • Five Building Blocks to improve project performance. 36
  37. 37. The Way Forward Five Building Blocks * ** 37
  38. 38. Recap • Hotel openings in China are always delayed and causes are mainly self inflicted. • Hoteliers do not link delays with a lack of project management culture. • There are hospitality industry challenges to embrace project management. • The solution is not “rocket science” and has been applied in many other industries... 38
  39. 39. My Mission • Project management is now used in more than 85 occupations across a wide swathe of functions and industries. • Personal objective: help the hotel industry transform itself and embrace Project Management as a Strategic Competence. • “The dawning of a profession dedicated to a vision of a world in which all projects succeed.” 39
  40. 40. My Mission • One approach: enlist the help of APM: “To provide leadership to the movement of committed organisations and individuals who share our passion for improving project outcomes” 40
  41. 41. The Last Slide Q&A Questions later? 41