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Among hotel leaders today there exist two fundamental assumptions.
One assumption is that market boundaries and hotel industry conditions are given, and you have to build your strategies based on them.
And the other assumption is that within these market constraints, hotels must make a strategic choice between differentiation and low cost.
As a result of these assumptions, hotels tend to focus on cost reductions.
Cost reduction focus on raw dollar savings with the primary objective of cutting necessary expenses by changing the scope of operational services without negatively impacting the result.
A cost reduction focus will automatically create FUD (fear, uncertainty, doubt) within the hotel organization.
Hotels that believe new technology will help with cost reductions will fail. This type of belief often results in a high degree of resistance within the hotel organization.
Instead, hotels have to start focusing on cost savings.
Cost savings is a holistic strategy that looks at more than just the raw dollar savings. This is an approach that implements a framework of alternatives to compress costs while still fulfilling new experiences for employees and customers.
Hotels have to start to create strategies that break the value-cost tradeoff in pursuit of differentiation and low cost.
DIGITAL TRANSFORMATION AND THE IMPORTANCE OF FOUR-ACTIONS FRAMEWORKS
One of the principles I use in my digital transformation frameworks for hotels is to focus on breaking the value-cost tradeoff in pursuit of differentiation and low cost.
Hotels that focus on cost reductions typically compete in existing markets. And they end up making a value-cost tradeoff where the hotel either stands out in value (differentiation) or low cost. But they can’t stand out in both. The primary focus becomes to compete and win in existing markets.
I look at alternative dynamics that are in pursuit of both differentiation and low cost. This is about opening new value-cost alternatives that create leaps in value and make competition irrelevant.
I look at cost-saving in context with inspiring people’s confidence and bringing them along from the beginning so that they can understand it, take ownership, and feel invested in the digital transformation shift.
Through value innovation, I will help hotels with cost savings that are focused on eliminating and reducing factors the hotel industry competes on. I will also lift employee and customer value by raising and creating elements that hotels never offered before.
To break the value-cost tradeoff we will create a new value curve with a four-action framework.
Which factors that your hotel takes for granted should be eliminated?
This question forces you to consider eliminating factors your hotel has long competed on. Your hotel identified these factors to be irrelevant today with the customer utility map.
These factors have a huge impact on the hotel’s cost structure. In most cases, they have little to no gain. And substantial cost savings can be made by eliminating them.
Some examples – are front desk service, bellmen, room service
Which factors should be reduced well below your hotel’s standards?
Here you want to identify if your hotel’s product and services have been overdesigned to race to match and beat the competition.
This often results in over-serve customers and increases the cost structure for no gain.
By reducing these factors your hotels’ costs can be lowered further.
Some examples – are guestroom types, amenities
Which factors should be raised well above your hotel’s standards?
This question will help you uncover and eliminate compromises customers are forced to make.
These compromises are usually caused by a failure to see that customers want more of some factors than the current hotel standards offer.
Some examples – Free instant high-speed internet, free movies on demand
Which factors that your hotel has never offered should be created?
This will drive hotels to offer entirely new kinds of value for customers and create new demand by converting once noncustomers into customers.
Some examples are – Kiosk for self-check-in, mobile check-in, hiring multitasking hotel advocates with a can-do attitude
The first two questions of eliminating and reducing give your hotel insight into how to reduce cost vis-à-vis competitors. By contrast, the second two questions of raise and create will drive your hotel to create leaps in customer value.
Eliminating and creating are particularly important as they push your hotel’s team to go beyond traditional service offers. This will aim your hotel teams towards delivering greater value by reducing and raising the level of the existing service offers.
Note that if reducing and raising is all your hotel focuses on, you may produce a higher degree of customer value and might even build an advantage over your competition. But you will NOT make the rules of competition irrelevant, because you don’t change the key factors on which everyone else is competing.
The magic of differentiation and low cost happens when your hotel opens a new value-cost process and leaves the competition behind. A new kind of customer value needs to be offered through the elimination of existing factors and the creation of new ones.
DIGITAL TRANSFORMATION SUCCESS
Digital transformation success happens when people and technology work in harmony.
I recommend reading this LinkedIn article in context with Digital Transformation and Value Innovation.
Value innovation and the four-action framework are two of the core principles behind a successful digital transformation for hotels.
Over to you
The hotel industry is always changing, especially during a time of crisis. Make sure to future-proof your business and continue attracting new guests by investing in these solutions.
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About Are Morch
Are Morch assist hotels ? in increasing their direct bookings through innovative digital transformation solutions, while avoiding competition with online travel agencies.