It is one of the Four Seasons’ greatest ironies that despite its tremendous success as one of the world’s premier luxury hospitality companies, it actually owns very few hotels. One of the most important decisions Sharp made early on in the life of the Four Seasons was that he wanted to create a unique business model; he wanted his company to be principally occupied with management, instead of ownership of its hotels.
Sharp believed that shifting investment away from hotel ownership and towards management expertise was a way of “freeing up assets to be used for hiring, training and motivating employees – everyone from dishwashers to bellhops to managers to cleaning staff.” Thus, over the past forty years, the Four Seasons has evolved into what is principally a management holding company with different partners investing in different hotels.
Sharp’s strong desire to steer clear of hotel ownership is clearly reflected in one of the company’s key documents: “It is Four Seasons’ objective to maximize the percentage of its operating earnings from the management operations segment, and generally to make investment in the ownership of hotels, resorts and Residence Clubs only where required to secure additional management opportunities or to improve the management agreements for existing properties.”
Under the Four Seasons’ unique management agreements, the company generally supervises all aspects of the day-to-day operations of its hotels on behalf of the owners. Everything from sales, reservations, accounting, purchasing, budgeting, and the hiring, training, and supervising of staff thus falls under the Four Seasons’ management duties. At the corporate level, the Four Seasons also often provides strategic management services, such as recommendations of IT systems and developing long-term marketing strategies.
To be sure, the Four Seasons both manages and owns some hotels. But, if Sharp had it his way, the company would avoid the burdens of ownership completely. The fact that this is one hotel chain that would rather not own hotels has played a key role in its success. In exchange for its management services, the Four Seasons charges a range of fees, including a base fee, an incentive fee, a sales and marketing charge, and a reservation charge. The base fee is a percentage of each hotel’s gross revenues, while the incentive fee is calculated based on the operating performance of each hotel it manages. That is where the Four Seasons makes its real money, and that is exactly how Sharp wanted it.
Leaving behind the issues that come with ownership, Sharp has been able to focus the Four Seasons on what it does best – service. He assessed his competencies and realized where his competitive advantage lied – and it wasn’t in owning real estate. His assessment proved correct; over the years, management earnings have tended to rise, while ownership operations have lost.
In splitting up management and ownership, Sharp demonstrated his willingness to do something differently than his competitors and it was this creativity for which he would later be rewarded.
Lesson #5: Find Your Comparative Advantage and Step Beyond the Standard
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