Andrew Sangster assesses the recent trend for hotel companies to look beyond the sector when replacing a chief executive.
The appointment this week of an executive from CadburySchweppes to run InterContinental means three of the world’s largest hotel groups have looked outside the hotel business for new leaders in the last three months.
First out of the blocks was Starwood when it installed Steve Heyer as its new chief executive officer (CEO) from the start of October. Heyer was the number two at Coca-Cola, the iconic soft drink brand.
Like InterContinental, Starwood had started its search for a new CEO with the post vacant.
Starwood’s existing CEO was arch-dealmaker Barry Sternlicht. He decided a year ago to drop his CEO role to focus on being chairman and made it plain that rather than somebody with a background in the property industry like himself, an individual from industries such as retail or entertainment was being sought.
Pointedly, the hotel business was not even mentioned.
The InterContinental process was swifter than Starwood’s, if somewhat more brutal.
Former CEO Richard North was ousted in a boardroom putsch in September, despite delivering on his promises to sell off property and overseeing an 86% rise in earnings per share in the half-year prior to his departure.
InterContinental said in a statement announcing North’s departure that its future was about growing global brands in a managed and franchised hotel system. “The execution of this strategy needs different leadership skills based on brand development and operations,” added the statement.
In between these two appointments came that of Ian Carter to head up Hilton International.
Carter is currently running the European and Asian business of power tools company Black & Decker. His CV lists other companies including conglomerate General Electric, consumer products and food group Unilever and British Steel.
Hilton, unlike both Starwood and InterContinental, considered people from within the hotel industry for the job.
David Michels, chief executive of Hilton Group, which includes the gaming business Ladbrokes as well as hotels, was quoted in the press as saying about half of the candidates were existing hoteliers.
But the Hilton approach is increasingly the exception. The hotels business is undergoing a fundamental transformation that was started more than a decade ago in 1993 when Marriott separated its hotel management from property ownership to form Marriott International and Host Marriott.
InterContinental has already declared it is to head down the same path. Rather than split itself into two, InterContinental is selling off its property.
And Starwood is dropping ever-heavier hints that it too no longer wants to own property. Although it is also selling-off some assets ($500m-worth are formally for sale) a spin-off is considered more likely.
This property-light approach requires different management skills.
When a hotel is owned and operated as an integrated business, the property element dominates. The running of the property – the asset management – is thus the core skill for a combined owner and operator of hotels.
Such companies are essentially property owners that specialise in hotels.
With a management and franchise business, the emphasis is much more on marketing and brand building.
Combined hotel owners and operators are not likely to kick themselves out as managers in favour of a sharper act. Managers or franchisers can more readily be replaced - and they live or die by the value they bring through the strength of their brands and their operational skills.
It may seem like the hotel industry has reached a dead-end and is being forced to look elsewhere for senior talent.
In reality, the import of brand expertise heralds the beginning of a new era when running hotels rather than a property company is what matters.