Undoubtedly, the hospitality industry today is facing serious difficulties – hotel occupancy is far from the indicators of previous years. A comeback will require the revitalization of old hospitality hubs – the geographic centers of corporations, industry talent, learning institutions, associations and non-profit organizations, unions and organized labor – and the creation of new ones with a greater emphasis on technology and innovation.
A hub or cluster is a special form of territorial organization of production that has been increasingly included in scientific circulation. It is a critical mass of people who achieve unusual economic success or comparative advantage in particular fields. In terms of historical examples, consider Silicon Valley for technology and venture capital, Detroit’s auto cluster, London’s finance cluster, or Los Angeles in film making and entertainment.
It’s all about the efficiency of the service and the consistency of service, because the robots are not disturbed by human moods. Sometimes, we say we are not in the mood, but the system and the robot will always be in the mood.
-Andy Wang, CEO of Alibaba Future Hotel Management
An indispensable condition for the formation of a cluster is the geographical proximity of economic entities. A critical mass of related enterprises is concentrated in a limited area, providing economies of scale and variety of production. Enterprises combine economic resources and information. Relationships are created, thanks to which the cluster achieves higher competitiveness (Porter, 1998). This is the form of economic cooperation that allows even rival entities of the same type of economic activity to find common interests and build mutually beneficial cooperation. Hospitality companies that provide identical or similar services and belong to the same link in the value chain are direct competitors; at the same time, they often form joint strategic alliances, in particular, within clusters.
The state helps the development of local cluster initiatives by creating a platform for dialogue between different cluster factors, raising the skills of the local workforce through the implementation of additional education and retraining programs, and creating a brand of the region to attract visitors. The current hospitality clusters now centered around London, New York, Dubai, Hong Kong, and Singapore are open systems that encourage competition. Clusters are not intended to fix prices or restrict competition. Mutual exchange of information, joint scientific research, or services promotion are aimed at developing the competitiveness of hotels and supporting companies without restricting competition. A synergistic effect is observed – a set of effects from the interaction of organizations belonging to the cluster (diffusion of knowledge and skills, in particular, due to personnel migration within the cluster enterprises, increased innovation activity, and structural separation of businesses), the value of which significantly exceeds the result of a simple addition of individual effects.
Wide-scale business transformation using technology is possible – and should be executed – by boutique and traditional hotel chains. Technological innovation in structure and ideology is the key to surviving COVID-19 as we – according to Laura Wolinsky – do the “slow crawl back to normalcy for traditional hotels.
The economic effect of the cluster is the redistribution of services, reduction of transaction costs, and savings from the scale of work. Thus, a cluster is a much more complex phenomenon than a simple combination of hotels’ activities for joint marketing efforts or consistent procurement policies. It presupposes deeper technological cooperation based on participation in value accumulation systems.
As the hospitality industry looks to embrace new technologies to accelerate a comeback, what will happen to its geographic clusters? Will they disappear as communities become more virtual? Let’s consider the example of New York City. A recent report by PricewaterhouseCoopers states that 58% of Manhattan’s hotel rooms were still closed as of September. In these difficult conditions, unions in New York lobbied the City Council to pass a measure in September requiring any hotel to retain employees for at least 90 days at the same or higher wage. Governments in cities such as NYC are implementing legislation that is not friendly to the recovery of the hotel industry. However, the unification of business entities into a cluster, in which small firms cooperate with large enterprises, will allow local authorities to respond more quickly to the needs of entrepreneurs, create long-term development programs, and form budgets accounting for the needs of small businesses.
At the same time, major hotel brands are increasingly franchising to 3rd party management companies. In the U.S., the brands have surrendered their role as property managers: over 2000 hotels are managed by the top 3rd party management companies, whose headquarters are spread out across the country. Capital is also migrating to cheaper and less regulated markets, such as Nashville, Tennessee, to re-open and operate. Therefore, the ultimate value of a hub or cluster – its role in creating and sharing knowledge and facilitating learning – was already diminishing prior to Covid-19.
There is a window of opportunity for industry leaders to invest in people, reinvent operating models and modernize the people side of the hospitality industry.
Ultimately, the decline of unionization in U.S. hotels will accelerate innovation. According to changing business models, HRM methods change, shifting from opposition “union-owners” to the culture and practice of participation. In addition to ‘mastering’ new markets, one can conditionally divide the main trends in the hotel industry into several key blocks: technology, loyalty, environmental friendliness/sustainable development, and the emergence of alternative formats. The design of services also changes in accordance with the trends. There is a shift in focus towards greater customization, even in low-cost segments. Digitalization is also changing the organization of sales and big data allows for personalization as specific as the color of a toothbrush. The collection of data by hotels and aggregators makes it possible to personalize the offer based on the guest’s previous experience (interests, room temperature, etc.). As a trend even before the pandemic outbreak, the digitalization of hotel services will obviously continue. Perhaps not just limited to digitalization but robotization. Think of this high-degree personalized guest experience engineered by AI—an imagination from Alexander Mirza and his team.
Virtual communities are becoming more widespread, as well as specialized hubs in smaller low-cost markets, and today, the experts discuss the contribution of virtual communities in fostering the innovation process by aggregating into an innovation-hub. Acting as the center of knowledge integration and value creation, the innovation-hub is a meta-organization playing the strategic role, supporting the innovation process, connectivity, and operational and motivational mechanisms.
In the immediate post-COVID landscape, there is a shift of consumer preferences towards extended stay properties, economy hotels, and drive-to resorts within five hours of major cities. As self-isolation measures tighten, the coronavirus pandemic has brought increasing demand to a new trend in the hospitality industry: long-term self-isolation room rentals.
The change in education models in the hotel industry should also be noted. The overwhelming majority of educational programs are carried out online. For example, NYU’s hospitality school offers students the ability to “study from anywhere in the world in the safety and comfort of your own home through online and remote instruction.”
A new e-learning platform for hospitality workers, UKH Pathway, was launched by hospitality trade body, UK Hospitality, and learning and development provider, CPL Learning. UKH Pathway is free to use while hospitality businesses remain closed due to the COVID-19 crisis, and provides access to learning, wellbeing, and personal development resources for furloughed employees. The course provides hospitality employees with unique opportunities to develop their skills across a diverse range of subjects. In the field of hospitality education, hospitality schools and new, more affordable educational platforms are consolidating and offering students a selection of courses from the best places.
New educational platforms are also emerging at the corporate level, developed in conjunction with leading IT companies. Small hotels are moving to an agile model in building in-house communications and creating virtual communities according to the hub model. In turn, hubs and clusters are uniting multi-functional players and direct competitors in the hospitality market. This unification creates a basis for the wide development of cooperation and exchange of knowledge, providing opportunities for rapid and innovative development of the hotel industry in the post-crisis period, albeit in new formats.
