hilton hotel change management

AGENDA

OPPORTUNITY PORTERS 5 ALTERNATIVES IMPLEMENTATION CONTINGENCY SUMMARY Q&ASWOT FIN. ANALYSIS

• Key Issues/Opportunity Areas

• Industry Analysis

• Financial Analysis

• Possible Alternatives

• Implementation of selected alternatives

• Contingency Plan

• Summary

• Q&A

KEY ISSUE/OPPORTUNITY

OPPORTUNITY PORTERS 5 ALTERNATIVES IMPLEMENTATION CONTINGENCY SUMMARY Q&A

• Brand differentiation

• Monitoring Performance

• Customer Personalization

• Alignment and Execution

SWOT FIN. ANALYSIS

IMPORTANCEURGENCY

LOW HIGHLOW

Brand Differentiation Monitoring Performance

Customer Personalization Alignment & Execution

IMPORTANCEURGENCY

LOW HIGHLOW

IMPORTANCEURGENCY

LOW HIGHLOW

IMPORTANCEURGENCY

LOW HIGHLOW

STRENGTHS WEAKNESS

• Strong global brand recognition

• Diversified Portfolio• Owner Appreciation• Proprietary IT System

• Principal-Agent • Pre-assignment• Multiple ERP systems

OPPORTUNITY THREATS

• Brand Consistency• Customer Relation

Management• Increasing World Travel & Tourism

• Intense Competition• Exposure to cyclical downturns• Rising cost of air fare

STRENGTHS WEAKNESS

OPPORTUNITY THREATS

STRENGTHS WEAKNESS

OPPORTUNITY THREATS

STRENGTHS WEAKNESS

OPPORTUNITY THREATS

PORTERS 5 FORCES

COMPETETIVE RIVALRY WITHIN INDUSTRYModerate

High barriers to exitUtilizing capacity

Buyer power is highModerate level of product diff

THREAT OF NEW ENTRYLow

Capital Intensive marketIndustry dominated

by 2 playersStrong brand presence

BUYER POWERHigh

Access to informationBuyers are price sensitive

Low switching costs

THREAT OF SUBSTITUTIONModerate

Varied optionsEasy substitute

SUPPLIER POWERLow

Large global brandCommodity based product

Cost of switching is low

PORTERS 5 FORCES

Capital intensive marketIndustry dominated

BUYER POWERHigh

Low switching costs

SUPPLIER POWERLow

PORTERS 5 FORCES

BUYER POWERHigh

Low switching costs

SUPPLIER POWERLow

PORTERS 5 FORCES

BUYER POWERHigh

Low switching costs

SUPPLIER POWERLow

PORTERS 5 FORCES

BUYER POWERHigh

Low switching costs

SUPPLIER POWERLow

DEBT-EQUITY STRUCTURE

Hilton Corp. Capital Structure(as of 2007 year-end)

Avg. Cost Debt = 6.8%

DEBTEQUITY

2004 2005 2006 2007

Hilton Corp. 2.21 2.11 3.42 6.29

Marriott Int. 1.12 1.62 2.28 5.25

2007 Hilton Corp.Capital Structure

Total Debt $32,670 86.27%

Total Equity $5,198 13.73%

Total Cap. $37,868 100%

Brand 2001 2006

Annual Revenue (in Millions)

Waldorf Astoria $258.56 $351.12

Conrad International $5.60 $34

Hilton Hotels $2,565.87 $3,334.15

Embassy Suites $1,144.36 $1,581.90

Doubletree $1,023.60 $1,256

Hilton Garden Inn $368.69 $1,045

Homewood Suites $284.50 $566

Hampton Brand $1,787 $3,208.90

BRAND ANALYSIS

orf Asto

Conrad In

ternati

Hilton H

Doubletre

Hilton G

ood Suite

Hampto

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00

20012006

2001 2006 % Growth

Avg. RevPar $88.25 $113.63 4.3%

Avg. REVPAR Index 106.23 109.51 3.28%

Revenue Matrix Across all Brands

CALL CENTRE PERFORMANCE

2001 2002 2003 2004 2005 2006 2007$40.00$50.00$60.00$70.00$80.00$90.00

$100.00$110.00

Hilton Corp. Call Centre Performance

Net Revenue / Call

Conversion Ratio 2007

Hilton Corp. 41.4%

Hospitality Industry 28.4%

Year Net Revenue/Call

2001 $73.09

2002 $77.64

2003 $84.39

2004 $85.57

2005 $90.30

2006 $99.29

2007 $102.55

OFF THE SHELF

PROS CONS

• Lower maintenance costs• Outside IT support and

consulting• Cost saving on staff

• Lose competitive advantage• Lose customizability• Timelines• Training costs • Reduces front desk

personalization

• Opt for an off the shelf ERP software like SAP or Oracle• Customize it to the company’s needs• Cost Estimate: $125Million/5 years

OFF THE SHELF

PROS CONS

• Lower maintenance costs• Outside it support and

consulting• Cost saving on Staff

• Lose competitive advantage• Lose customizability• Time lines• Training costs • Reduces front desk

personalization

• Opt for an off the shelf ERP software like SAP or Oracle• Customize it to the company’s needs• Cost Estimate: $125Million/5 years

CONSOLIDATION

PROS CONS

• Lower maintenance costs• Cost saving on Staff • Brand alignment• Front desk personalization

• High front-end cost• Potential data loss• Managing two systems

• Integrating existing System• Add Customer Personalization and Feedback Component• Coach Front desk Staff • Monthly Performance Reports• Cost Estimate: $392.5Million/5 years

CONSOLIDATION

• Integrating existing System• Add Customer Personalization and Feedback Component• Coach Front desk Staff • Monthly Performance Reports• Cost Estimate: $392.5Million/5 years

PROS CONS

• Lower maintenance costs• Cost saving on Staff • Brand alignment• Front desk personalization

• High front-end cost• Potential data loss• Managing two systems

CUSTOMER RELATIONSHIP MARKETING

PROS CONS

• Quick implementation• Low cost• Sustainable over long-term• Profitable to gain new

customers• Marketing builds loyalty

• No increased personalization• Does not address front-desk

staff issues• Tailor marketing campaign for

diverse client base

• Using the guest data to target market segments• Launch a Marketing Campaign• Utilize existing system• Cost Estimate: $100M/5 Years

CUSTOMER RELATIONSHIP MARKETING

PROS CONS

• Quick implementation• Low cost• Sustainable over long-term• Profitable to gain new

customers• Marketing builds loyalty

• No increased personalization• Does not address front-desk

staff issues• Tailor marketing campaign for

diverse client base

• Using the guest data to target market segments• Launch a Marketing Campaign• Utilize existing system• Cost Estimate: $100M/5 Years

DECISION MATRIX

Criteria Weight System Integration/Consolidation

Standardization of IT

CRM Marketing Campaign

Cost 0.05 1 2.5 4Implementation Time 0.05 1 1 4Brand Differentiation 0.2 3.5 0 3.5Performance Metrics 0.1 2.5 2 2Brand Alignment &

Execution 0.35 4.5 2.5 1

Personalization 0.25 4 2 4

Total 1 3.6 1.75 2.65

33%System Integration/Consolida-tion

Standardization of IT

CRM Marketing Campaign

CURRENT OnQ SYSTEM

NEW OnQ SYSTEM

IMPLEMENTATION PLAN

Design

• Usability• End-user friendly

• Consolidate/Streamline system• Combine OnQ Reservations, OnQ Property Management System and

OnQ CRM• Front-desk access to data

• Purchasing, Coding & Documentation• Ensure no loss of data• Estimated Time: 6 Months

Testing /Revisions & Finalization

• Estimated time: 2 Months

STAGE ONE:

STAGE TWO:

Implementation

• Planning & Phased conversion • Estimated Time: 2 Years

Training

• Ensure Front desk properly executes CRM• Implemented by IT specialists (QA)• 1 week per hotel and 30 hotels per week• Estimated Time: Ongoing

Expansion Yr 1 Yr 2 Yr 3 Yr 4 Yr 5Hotels 100 100 200 300 300

PERFORMANCE METRICS

• Add QR code on room key for customer feedback• New SALT (Satisfaction and Loyalty Tracking) questions: overall booking

experience with new system, Rating on ability to meet required preferences

RevPAR PROJECTIONS:

2006 2007 2008 2009 2010 2011 2012$100.00

$110.00

$120.00

$130.00

$140.00

$150.00

Hilton Corp. Projected RevPAR

CAGR of 3.67%

Basis: Historical 2006 2007 2008 2009 2010 2011 2012CAGR 4.3% $113.63 $118.52 $123.61 $128.93 $134.47 $140.25 $146.28 Conversion Ratio GOAL: MAINTAIN 42%

CONTINGENCY PLAN

• Encourage customer interaction

• Example: Ford Mustang Club

• Build Loyalty base

• Utilize existing system

CONTINGENCY PLAN

• Using the guest data to target market segments

• Launch a Customer Relationship Marketing Campaign

• Social Media Marketing

• TV & Print ads

• Focus of campaign will be core customers, using OnQ data and SALT surveys to

collect information about and communicate with customers

• Cost Estimate: $100M/5 Years

• Time Estimate: 5 Years

SUMMARY

Implementation & Training(2 Years)

Design & Testing

(8 Months)

CRM(5 Years)

Remodel all units

(Ongoing)

Opportunity/Key Issues:

• Brand differentiation

• Monitoring Performance

• Customer Personalization

• Alignment and Execution

Proposed Alternative:

• Integrating existing System

• Add Customer Personalization and

Feedback Component

• Coach Front desk Staff

• Monthly Performance Reports

COSTING

Yr 155 + (130,000 * 50) + ($50,000 * 50) + $8M + 65M = 137 000 000

Yr2(130,000 * 50) + ($50,000 * 50) + $8M + 65M = 82 000 000 Yr3(130,000 * 50) + 50M + 1 = 57 500 000 Yr4(130,000 * 50) + 50M + 1.5 = 58 000 000 Yr5(130,000 * 50) + 50M + 1.5 = 58 000 000

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 TotalCost $137,000,000 $82,000,000 $57,500,000 $58,000,000 $58,000,000 $392,500,000Annual IT Budget $240,000,000 $240,000,000 $240,000,000 $240,000,000 $240,000,000% of Annual Budget 57.10% 34% 24% 24.16% 24.16%

COSTING

Budget = $90.8MHardware costs of new system = $55,000,000Employee cost for design = ($130,000 * 50)(.66) = $4,333,333(50 * $130,000) + (50 * $50,000) = $9MNew IT guys (used for conversion as well) = $50,000 * 50 = $2,500,000Risk (33% of total cost) = $29.96M Implementation and Employee Training Costs for the first 5 years locally = $5000 * 4000 hotels = $20,000,000

Year 1 to 2 = $16,000,000 or $8M per year (1,500 hotels currently plus 100 expansion * $5,000 per hotel training)

Year 3 = 200 hotels * $5,000 = $1MYear 4 = 300 hotels * $5,000 = $1.5MYear 5 = 300 hotels * $5,000 = $1.5M 55 + (130,000 * 50) + ($50,000 * 50) + $8M = 72M + 60M for Maintaining the current system.

COSTING

Financials- Basis for Calculations

RevPAR Index (Hotel RevPAR/ competitive set RevPAR) *100 = RevPAR Index

CAGR (End Value/Beg Value) 1/n - 1 2001-2006

(113.63/88.25) 1/6 -1

2007-2012

146.28/113.63) 1/7 - 1

Average Cost of DebtTaken from 2006 Hilton Annual Report

hilton hotel change management

cost of air fare

threat of new entryporters

low buyer power

cyclical downturnsmanagement

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