Digitization in hospitality

December 05, 2019 •

4 min reading

Ecosystems Strategy in the Age of Digitization

Written by

The transformation of the hospitality industry is relentlessly progressing. In the past 20 years the hospitality landscape has seen the inception of service providers like OTAs, the creation of new market segments, like online private rental platforms, and more recently a proliferation of digital services ranging from revenue management to advanced customer interfaces. The effects of an increased proliferation of digital solutions have challenged many traditional hotels in the industry, driving a new momentum where classic business models are put into question.

At the forefront, there is a realization that many companies cannot provide the experiences that customers are increasingly expecting alone. As Jacobides recently proposed: “in a growing number of sectors the firm and even the industry have ceased to be meaningful units of strategic analysis. We must focus instead on competition between digitally enabled designed ecosystems that span traditional industry boundaries and offer complex and customizable product-service bundles” (2019, HBR).

One such example was recently presented by Maud Bailly, Global Chief Technology Officer at Accor. In a conference at EHL Lausanne, Maud Bailly rigorously outlined her vision of “augmented hospitality” within which the traditional hotel ceases to exist as the sole provider of room nights. A radical proposition, but what does that mean?

While Maud Bailly acknowledges that the digital landscape has also challenged Accor, she pointed to the change in mindset that has allowed Accor to look at these demands on their business from a different angle. While reflecting on the process of transitioning into an ecosystem strategy, she pointed to three foundational aspects that were crucial in the transition towards an “augmented hospitality” player:

1. Re-defining the problem you solve

Historically, and sometimes still today, hoteliers have defined the core product of their property as “selling nights”. This has traditionally led to a hotel’s value chain and thereby their value creation being largely inward oriented.

In other words, the lion share of the value chain was controlled by the company, starting and ending with the boundaries of the property. Yet today, the conditions that companies in the hospitality industry face have fundamentally changed. Customers no longer purchase “nights” they purchase “experiences”. Today, the service provider, who promises the most attractive and authentic offer, wins the race.

This very redefinition of the service delivery also makes the boundaries blurry that previously clearly defined the beginning and the end of the service delivery. In other words, it fundamentally puts the strategies that hotels have been pursuing at large into questions. Suddenly they operate within an increasingly distributed web of multiple independent service and product providers who eventually jointly create the service experience of an end customer.

2. Creating the 365 days experience

Following through with a strategic shift from operating hotel nights to positioning oneself in the context of an experience development around one’s brand also offers new opportunities in the operational conduct.

For instance, if one stops looking at selling nights as the core of value creation then completely new partners become touchpoints in the daily life of customers, even if they are not currently traveling.

This not only allows an increased conversion rate through the omnipresence of Accor through partner services, but also allows to gain a more detailed understanding of individual customer preferences. For instance, in China one of Accor’s acclaimed growth markets, the company has moved forward by integrating their ecosystem into WeChat as well as offering new payment services like Alipay to attract but also interact with Chinese customers through their local interaction channels.

3. Driving a cultural transformation

A change fundamentally starts with a change in mindset. This was also put forth in the presentation by Maud Bailly. She highlighted that Accor relies on five axes of transformation that empower employees to be an active part of the digitalization process Accor is aspiring to achieve.

  • Become a service provider – Co-design and adoption rates are crucial. Employees only adopt new ways of operating if they can identify the value in them. Integrating corporate members in the development of new innovations intrinsically motivates them for the further execution
  • Start from usage – An innovation needs to be locally adapted, one size does not fit all. Hence, behavioral patterns, cultural differences and preferences need to be respected if a collective buy-in is to be achieved.
  • Embrace the speed – Moving towards a “lean” approach, a culture of failure needs to be developed. Fast developmental sprints, testing and learning cycles as well as pivots are essential in a digital world.
  • Embrace collaboration – You cannot go it alone! A transformation on the cultural side needs to be grounded in an understanding that knowledge silos need to be broken down, teams are assembled with the most competent not by hierarchy and adapted as projects evolve.
  • Manage with value – a new definition of value needs to be reflected in how projects are launched and tracked. New KPIs that fit the agility of the organization, following an entrepreneurial mindset.

In conclusion, the digitalization of the hospitality industry has been driving a paradigm shift as to how hospitality providers will be able to compete in the future. Rather than developing individual new brand concepts that speak to different customer segments or integrating individual digital solutions into the value chain, hospitality providers will need to collaborate and co-design new value propositions. While these ecosystem strategies will require a radical redefinition of the core business, it also promises new opportunities to be captured.

Written by

Associate Professor of Entrepreneurship and Strategic Management at EHL

Visit website