Harvard Case - citizenM: Radical innovation in the hotel industry
"citizenM: Radical innovation in the hotel industry" Harvard business case study is written by Freek Vermeulen. It deals with the challenges in the field of Strategy. The case study is 13 page(s) long and it was first published on : Jul 28, 2015
At Fern Fort University, we recommend that citizenM continue its disruptive innovation strategy, focusing on digital transformation and global expansion while maintaining its core values of affordability, technology, and design. This will require a strategic approach that leverages its core competencies in technology and analytics, operations strategy, and brand management to achieve sustainable growth and maintain its competitive advantage.
2. Background
This case study examines citizenM, a Dutch hotel chain founded in 2008, that has disrupted the traditional hotel industry with its unique business model focused on affordability, technology, and design. CitizenM has achieved significant success by leveraging technology and analytics to streamline operations, enhance guest experience, and reduce costs.
The main protagonists are Rattan Chadha, the founder and CEO of citizenM, and his team, who have successfully navigated the challenges of disruptive innovation and international business expansion.
3. Analysis of the Case Study
Industry Analysis: The hotel industry is characterized by intense competition, driven by factors outlined in Porter's Five Forces:
- Threat of New Entrants: High due to low barriers to entry, particularly with the rise of online booking platforms and alternative accommodation options.
- Bargaining Power of Suppliers: Moderate, as hotels rely on suppliers for amenities and services, but there are multiple suppliers available.
- Bargaining Power of Buyers: High, as consumers have numerous choices and access to online reviews and price comparisons.
- Threat of Substitute Products: High, with the emergence of Airbnb and other alternative accommodation options.
- Rivalry Among Existing Competitors: High, with established players like Marriott and Hilton competing aggressively for market share.
Competitive Strategy: CitizenM has adopted a blue ocean strategy by creating a new market space, targeting a segment of travelers seeking affordable, tech-enabled, and design-focused accommodations. This value proposition differentiates citizenM from traditional hotel chains and has enabled it to capture a significant market share.
Growth Strategy: CitizenM's growth strategy can be analyzed using the Ansoff Matrix:
- Market Penetration: Expanding within existing markets through increased advertising, loyalty programs, and partnerships.
- Market Development: Entering new geographic markets with existing products and services.
- Product Development: Introducing new products and services, such as expanded food and beverage options or enhanced technology offerings.
- Diversification: Entering new markets with new products and services, such as developing a luxury brand or offering co-working spaces.
Financial Analysis: CitizenM's financial performance can be assessed through key performance indicators (KPIs) like revenue per available room (RevPAR), occupancy rate, and operating margin. The case study highlights citizenM's strong financial performance, driven by its efficient operations strategy and effective pricing strategy.
Organizational Analysis: CitizenM's success can be attributed to its strong organizational culture, characterized by innovation, collaboration, and customer focus. Its organizational structure and design are flat and agile, empowering employees to make decisions and respond quickly to customer needs.
4. Recommendations
1. Continue Disruptive Innovation: CitizenM should continue to invest in technology and analytics to enhance guest experience, improve operational efficiency, and personalize services. This includes leveraging AI and machine learning for tasks like room allocation, guest preferences, and predictive maintenance.
2. Global Expansion: CitizenM should prioritize global expansion into emerging markets with high growth potential, such as Asia and Latin America. This can be achieved through strategic alliances, mergers and acquisitions, or greenfield investments.
3. Brand Management: CitizenM should focus on strengthening its brand image by leveraging social media and digital marketing to reach a wider audience. This includes creating engaging content, building online communities, and partnering with influencers.
4. Environmental Sustainability: CitizenM should incorporate environmental sustainability into its operations, reducing its carbon footprint and implementing eco-friendly practices. This can enhance its brand image and attract environmentally conscious travelers.
5. Leadership Development: CitizenM should invest in leadership development programs to cultivate a pipeline of future leaders who can drive innovation and growth. This includes providing training on strategic thinking, decision making, and change management.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Leverage citizenM's strengths in technology and analytics, operations strategy, and brand management to drive growth and maintain its competitive advantage.
- External Customers: Cater to the evolving needs of travelers seeking affordable, tech-enabled, and design-focused accommodations.
- Internal Clients: Empower employees to contribute to innovation and customer satisfaction through a strong organizational culture.
- Competitors: Maintain a competitive advantage by continuously innovating and expanding into new markets.
- Attractiveness: Utilize quantitative measures like ROI, NPV, and break-even analysis to assess the financial viability of expansion initiatives.
6. Conclusion
CitizenM's success demonstrates the power of disruptive innovation and the importance of adapting to the evolving needs of the market. By continuing to invest in technology and analytics, expanding globally, and maintaining its commitment to affordability, design, and technology, citizenM can solidify its position as a leading player in the hotel industry.
7. Discussion
Alternative strategies include focusing solely on market penetration in existing markets or pursuing vertical integration by acquiring suppliers. However, these strategies may limit growth potential and expose citizenM to increased competition.
Key risks include:
- Technological disruption: Rapid advancements in technology could render citizenM's current offerings obsolete.
- Economic downturn: A global recession could negatively impact travel demand and reduce revenue.
- Competition: New entrants and established players could intensify competition, eroding market share.
8. Next Steps
- Develop a comprehensive global expansion strategy: Identify target markets, assess market potential, and develop entry strategies.
- Invest in technology and analytics: Implement new technologies to enhance guest experience, streamline operations, and personalize services.
- Strengthen brand image: Develop a robust digital marketing strategy and build online communities.
- Implement environmental sustainability initiatives: Reduce carbon footprint and adopt eco-friendly practices.
- Develop leadership development programs: Foster a pipeline of future leaders who can drive innovation and growth.
By implementing these recommendations, citizenM can continue its journey of disruptive innovation and achieve sustainable growth in the global hotel industry.
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Case Description
In 2008, a group of five entrepreneurs and executives teamed up to launch an innovative hotel chain into what seemed like a highly competitive industry. Rattan Chadha, the founder of fashion company MEXX and Michael Levie, a hotel industry veteran, teamed up with Hans Meyer, a hotel development specialist, Campagne corporate strategist Klaas van Lookeren, and architect and interior designer Rob Wagemans to launch the new concept. They took a different approach to innovation in the hospitality sector. Instead of trying to invent few features - products and services - with which to attract a broad range of customers, they innovated by removing what they believed to be features that were not attractive to a core consumer target: tech-savvy, mobile travellers. The citizenM case details the differences between this new hotel concept and the typical features offered by luxury and high-to mid-range hotels. Each aspect of the customer-facing experience and behind-the-scenes operating model is discussed and defined. It describes the tight fit between all aspects of citizenM's innovative business model, ranging from the location of their hotels, their construction, the facilities (and absence there-off), staffing, operations, and marketing. The case ends by outlining citizenM's prospects as the leadership team looks to grow their new concept.
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