Chapter 6 Case Study
Cultural Heritage and Corporate Strategy
Kemmons Wilson developed the idea for Holiday Inn as the result of what he called “the most miserable vacation trip of my life” (Lee, 1985). Wilson, while vacationing in the early 1950s, identified a “niche” in the market. He discovered that existing motels were small, expensive, and of unpredictable quality; therefore, he decided to meet an unmet customer need, a gap in the market for quality accommodation through developing Holiday Inns.
The rationale behind the activities of Wilson was the faith in the American Dream; according to him, America played the central role in the world. The “American business system” is the right system that gives people opportunities to build business, and by hard work and self-improvement people can achieve great success (Nickson, 1997). Wilson was considered to be more of a promoter, builder, and salesman than an innkeeper, more an entrepreneur than a professional hotelman (Lundberg, 1969). From the start, he differentiated his company’s product from the competitors’ and gained a competitive advantage. A Wilson invention, motel franchising made rapid expansion possible, and the company brought the concept of mass accommodation to America (Lee, 1985). The Holiday Inn concept was to get entrepreneurs involved in financing and development so that the company could expand rapidly. Therefore, Holiday Inn became a major exponent of branding and began selling franchises (Lundberg, 1969).
Holiday Inn Chronology
Year Events
1952 • First Holiday Inn was built in Memphis, Tennessee
1955 • Sells franchises
1957 • Becomes a public company to raise money to continue rapid expansion
Mission: Food and Lodging Company
1954–1974 • Company becomes vertically integrated with products group distributing supplies, equipment, etc., to lodging, housing, health-care, and food-service markets.
1968 • Diversifies to maintain growth—acquires Continental Trailways and Delta Steamships
1969 • Holiday Inn stock hits historically high level; founder of Holiday Inn seeks to buy back franchised Holiday Inns.
Mission: Redefined from food and lodging company to travel and transportation-related company
Early 1970s • Growth slows
1971–1979 • Trailways profits decline
1973 • Holiday Inn reports first decrease in earnings and stock price falls
1978 • Expansion overseas
1978 • Strategic decision is made to enter gaming
Mission: Emphasis changes from hotel ownership to management and franchising
1979 • Enters into gaming industry
1979 • Sells Continental Trailways
1982 • U.S. market is saturated; expands overseas (215 Holiday Inns operate in 60 countries)
1982 • Forms two new chains: Hampton Inns and Embassy Suites
1983 • Opens first Holiday Inn Crowne Plaza Hotel
1984 • Opens first Embassy Suite and Hampton Inn
1984 • Continues transformation from a hotel owner to hotel manager
1985 • Changes name from Holiday Inns, Inc., to Holiday Corporation to project multiple nature of corporation
1987 • Announces sale of 14 domestic and 140 International Holiday Inn hotels to Bass PLC (Holiday Inns and Crowne Plaza); enters joint venture with Bass to develop Holiday Inns outside North America
1989 • Announces second restructuring: sells Holiday Inn brand to Bass PLC for $1.98 billion.
Adapted from: Clark, J. J. (1993) “Holiday Inn: new rooms in the inn”, Cornell Hotel and Restaurant Administration Quarterly, vol. 34, no. 5, October, pp. 59–67.
Holiday Inns improved on the franchise idea by applying stricter operating standards than had previously been common among franchise companies. Ritzer (1996) sees this as an obvious manifestation of a “McDonaldized” company. There was a tight central control, and this could be viewed in terms of the high level of standardization, uniformity, and consistency on which Holiday Inn made its reputation (Nickson, 1997). In order to maintain the quality of the brand, Holiday Inn placed special emphasis on the training of both franchisees and the employees. The book written by Wilson (1968), The Holiday Inn Story, describes the practices of Holiday Inn to develop “system-wide rules of operation” which allowed franchisees to feel part of a team. For instance, franchise holders were organized into a National Association of Holiday Inns. Additionally, the franchisees were trained at the Holiday Inn University. Holiday Inn’s expansion strategy has also been supported by a strong infrastructure. The company benefited from its early use of marketing and reservation networks through the Holidex reservation system, which helped book new inns even before they were constructed. Reservation systems were used as a selling tool to further expand the scope and size of the chain, particularly in franchising (Lee, 1985).
With the saturation of the U.S. market, the company decided to expand overseas. However, the company’s adopted strategies were shaped by its home-country culture and the company assumed the existence of a mass market, and tended to ignore the fundamental cultural, social, perceptual, and economic differences in a foreign country (Crawford-Welch and Tse, 1990). Holiday Inn set the standards for the rest of the world and its founder’s application of franchising sought expansion overseas. It was Nickson (1997) who claimed that this expansion approach stemmed from Holiday Inn’s envisioning of cultural homogeneity and a belief that “The world was coming to resemble the United States.” Luxenberg (1985) summarized the Holiday Inn’s way of operating as “The formula that proved successful in Pittsburgh would surely win followers in Paris” (p. 213). The latter also stated that this failure to make any concessions to local tastes or ways of operating meant Holiday Inn lost $28 million between 1971 and 1975.
Discussion Questions
1. How was Holiday Inn Brand born?
2. What were the fundamental principles behind the growth of Holiday Inn?
3. Were these principles global and therefore could they be applied to different country markets?
4. How can hospitality companies strike a balance between a heritage-driven corporate strategy and the changing dynamic environment?
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