InterContinental Hotels Group isn’t afraid to change how the traditional hotel chain is organized and structured. Its latest move is making sub-regional heads directly accountable for development — even if that risks having owners think it prioritizes its own pipeline over their hotels’ performance. Some in Asia already do.
InterContinental Hotels Group (IHG) two years ago carved out a mega operating region. Instead of the usual Asia/Middle East/Africa (AMEA), the global hotel industry saw the astonishing birth of a Europe/Middle East/Asia/Africa (EMEAA) area. A new CEO to oversee the ginormous region, Kenneth Macpherson, was appointed, based in London.
Asian owners were livid, reading the move as a downsizing of the chain’s Asia regional in Singapore. They also rued that the solid relationship built over the years with the Asian team led by CEO Jan Smits, who quit, would be diluted.
The only consolation for owners was a familiar face in Clarence Tan, who succeeded Smits in Singapore, albeit in a smaller role as managing director of Southeast Asia and Korea. Tan has served the Asian office for 16 years.
But now tongues are wagging again among some Asian owners, which received a letter from the chain informing them that Tan is being replaced by a development person. What’s more, there’s a structure change that will soon place the responsibility for development on the managing directors of the four business units across Europe/Middle East/Asia/Africa.
“This is a natural next step that gives our MDs (managing directors) end-to-end accountability for their business unit and will also give our vice presidents of development greater accountability for growth,” said Macpherson in a letter to owners that was obtained by Skift.
Traditionally vice presidents of development would report to a global development chief and not the CEO or managing director of the region. Usually, the CEO or managing director does not have development responsibility, except to assist in the relationship process. Their functions include operations, brands, sales and marketing, loyalty, communications, legal, revenue management, finance, human resources and information technology for the region they oversee.
Some Asian owners could not help but wonder: Is InterContinental Hotels Group putting pipeline growth over the performance growth of their properties?
The latest change made by the chain also points to the possibility of other global chains re-strategizing their regional operations as a result of current or expected slower business activity and growth relative to their share value/returns, according to hospitality consultants contacted by Skift.
Risks of the Untraditional
Effective February 1, 2020, InterContinental Hotels Group is removing the role of the chief development officer for Europe/Middle East/Asia/Africa, held by Rajit Sukumaran, who will replace Tan as managing director of Southeast Asia and Korea. The vice presidents of development who currently report to him will report to the respective MDs of the business units.
There’s no change in the other three MDs for Europe, Middle East and Africa. “The risk of having these MDs being accountable for development is that they may not be fully switched on to how development works,” said a hotel consultant who does not wish to be identified. “On the other hand, Rajit does know how development works. The question is whether he’s fully switched on to how operations work.”
InterContinental Hotels Group surely recognizes this, as it has created a new position, vice president operations for Southeast Asia and Korea reporting to Sukumaran, which will be held by Vivek Bhalla, currently head of South West Asia based in India. Bhalla’s replacement will be announced in due course.
But Michael Evanoff, chairman, Marlborough Hospitality Services, a Singapore-based company that provides legal services to the hospitality industry, sees a huge advantage in the new reporting line.
“Prospective investors can be impatient, and they certainly don’t want to wait months to get answers. Also, investors are not happy when their senior negotiators are told by the regional development person that he or she cannot commit even to minor concessions ‘without head office approval.’
“I should also say that if a chain’s development process proves to be overly bureaucratic, prospective owners will be afraid that operational issues will be dealt with in the same way,” he said.
Nevertheless, he admits there are risks. “Persons responsible for development are often rewarded on the basis of properties or rooms added, and thus there could be a tendency to compromise on terms and conditions such as fee levels, contract duration, termination rights, performance guarantees, and the like. Accordingly, to the extent that more latitude is given to regional offices, I am sure that there will be very strict guidelines, and that any deviation from the guidelines would require head office approval.”
The Joy of the Model
InterContinental Hotels Group’s Macpherson told Skift that the latest change is a further “evolution” of the restructuring made two years ago and that it’s always been the intention to have the managing directors being “fully accountable for not only the performance of the hotels, but also the growth agenda.”
Asked if the concerns of some owners that the chain was prioritizing its own growth over theirs, he said: “I don’t see it that way. We’ve always been very clear that our business units are responsible for growing the business…and for the performance of the business. They are also responsible for the reputation of the business, which is very important for us.
“Growth has to be quality growth. The joy of the model is that the managing director needs to deliver the performance, the owner relationships, the guest experience of the hotels that get signed and grouped into the system — the managing director has to sleep in the bed that they make.”
Macpherson said as a result of the restructuring in 2017 “we’ve been able to, across the region [Europe/Middle East/Asia/Africa], accelerate our growth, strengthen our brands and drive stronger performance for our owners.”
Shareholders, business partners, and stakeholders in the company would expect the chain to be continuously evolving, he said. With an expanded portfolio of brands that include Avid, AtWell Suites, Voco, Regent, and Six Senses Hotels Resorts Spas, “I do think a responsible company will continue to look at the strategy it’s laid out, find ways to continue to empower teams, and find where to make improvements. The world is not standing still around us.”
But asked why the current managing director, Tan, is being replaced, considering his solid development, finance and operations background, and 16 years with the chain compared with two for Sukumaran, who joined InterContinental Hotels Group in 2017 from then Starwood Hotels & Resorts, Macpherson said, “Clarence has a tremendous track record with the business and I’m hugely grateful for that. But the situation is, there is a structure change
“We have to make difficult decisions and one of those is the Southeast Asia/Korea role is being taken up by Rajit,” he added. “There isn’t another role at the level that Clarence has got or would be appropriate for him, so that’s really what is.”
An owner representative said: “Clarence is very popular, and people both inside and outside the company are sad that he is leaving.”
Tan, contacted by Skift, said, “I’ve had a fantastic 16 years with IHG. I’ve grown personally and professionally, and made many friends. I hope to transfer the skills that I’ve learnt elsewhere as I look for new opportunities.”
Meanwhile, the announcement of Tan’s departure followed the departure of Six Senses managing director of 28 years, Bernhard Bohnenberger at the end of July, months after saying he was “excited” about the global chain’s acquisition of Six Senses in February.
But Macpherson said the two were unrelated events. He said the chain had said Six Senses would operate as a distinct team and it would do a degree of integration around back office functions such as human resource or finance support.
“That has gone well since the acquisition,” said Macpherson.
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Photo credit: The InterContinental Kuala Lumpur. InterContinental Hotels Group