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As hospitality industry executives continue to struggle with their traditional growth and development strategies in today's unforgiving capital markets, it is worth considering the value of strategic alliance partnering as a model that can add significantly to shareholder value. Over the years, we have witnessed the ups and downs of the hospitality business cycle and the alternating currents of investor sentiment as it relates to the industry. And in the past, some industry executives have tried to time their real estate asset plays to coincide with these cycles, although they invariably get the timing wrong. In fact, for those who have tried and so frequently paid for the consequences, they hardly need to be reminded of that axiom of the modern erathat "timing is everything." In the meantime, for those dedicated to long term investing, these notions of the cyclical buying and selling of physical assets are generally disclaimed. They are focused on the values that contribute to the businesstheir employee and customer relationships, their brands, the knowledge they are accumulating and the technologies they use. Most of these values, however, never show up on the balance sheet. But we do not have look far for proof of the reality. The public markets provide us with the data. According to an Andersen survey of over 10,000 publicly quoted companies, there has in fact been a steady decline in the ratio of book to market value. In the late 1970s's, non-book values (the intangibles that do not appear on the balance sheet) represented only five percent of total market value. In the 20 years to 1998, however, they had skyrocketed to 72 percent! And while there has certainly be plenty of downward adjustment to market caps for many "New Economy" companies over the last year or two, one reality remainsthat the value of intangible assets, most particularly relationships, distinguishes the winning companies from the losers. Our research further proved that asset-intensive companies happen to produce the lowest returns over the long termone fifth the return of the least asset intensive group. What might all of this mean for our industry's hospitality businesses? It suggests that a new business model is required, particularly for those still playing the game using the old rules of engagement. As in all businesses, there appear to be five key strategies that tend to contribute to value creation:
2. leveraging one's own resources or those of others; 3. moving from physical products to intellectual ones; 4. adding new technologies and processes to connect and scale assets; and 5. expanding access to assets through partners and additional channels... To read the complete article, click here to download the printable pdf file (72 kb).
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