Feel you need to transform your business model? Think again. If your answer is still yes, then take these tips from tour operating chief, Hans Lerch, to heart.
Hans Lerch, former CEO of Kuoni Travel Group and currently vice chairman of Hotelplan (pictured right), Switzerland, spoke at the WIT Ideas Lab at ITB Asia last month.
1. If you feel you have to radically change your business, don’t hire consultants for things you can do yourself.
“Consultants tell you things they learn from your competitors and later they tell your competitors what they’ve learned from you. And they tell you a lot of generic stuff about costs and organizations. But they don’t know how your organization ticks and don’t understand the informal hierarchy and power structures without which you can’t transform anything.
“Worst of all, however, they don’t care what will happen to your company once they are gone, whatever they tell you, whatever they promise. So, never ask consultants to transform your business, you have to do it yourself.”
2. Think twice before you change your business model – legacy is not a dirty word if it is still helping to pay salaries.
“When a crisis hits, companies tend to fiddle around with such issues and sometimes forget that it is this very legacy model which pays the salaries and is probably still the only model that really works.
“The middle of a big crisis is not a good time to come up with big changes in the basic structure of a business because the answer to what caused the troubles in the first place is unclear. Are the problems really structural or is it the better organized competition that gives you a hard time or is it indeed “only” the crisis?”
3. Transformation must involve everyone in the organisation, especially the people who know the processes. The CEO must dig deep before he makes crucial decisions which could cost him his job, as well as others.
4. Focus on your people.
“People are the most important company asset and processes must evolve by gradual improvement rather than radical changes.
“A CEO must manage his staff for those transformation ideas to come out continuously. How? By paying them outrageous sums of money? No, but by treating them like people and by giving them latitude, room to move and the opportunity to help so they can become entrepreneurs instead of being “just staff”.”
5. Manage for cash in bad times. If you have to let people go, do it wisely and judiciously.
“Having to let go people is ugly but it is necessary sometimes. Better let go 15 % of them and thereby assure that those who stay continue to have a job. If you let the company go bust everybody will lose their job.
“Focusing on people and having to let them go when things are bad are part of good corporate governance. Because, you must manage for cash, in good times but especially in bad times. Nobody finances in a crisis and cash is the oxygen, without it you die. Ages ago, one of my finance professors used to say: “You guys keep the profits and I take the cash!””
6. Travel agents are complexity killers
“The tour operator and travel agency model of old is definitely under threat and probably obsolete. They function as straight forward brokers and their job was and still is to liaise between the customer and the asset owner and get a commission for that.
“But today every owner of an asset approaches the end consumer directly via the Internet. So, one could argue, it’s actually a miracle that tour operators and travel agencies still exist. But you know what, they will not disappear quickly and many of them will not disappear at all.
“Fact is, that about 80% of all the tourists in Central Europe get their holiday ideas online but only about a fifth of these also book online. The rest books offline, with travel agents.
“The proportion is higher for point to point city breaks because one destination is easy to book online, two and more are difficult – and for many people impossible. So one of the reasons why travel agencies are still in business is that clients use them as “complexity killers”.”
7. Tour operators and travel agencies are innovating too.
“Even digital natives like the idea of knowing where to turn to if things go wrong. It’s easier to call your travel agent when something happens instead of complaining to a call centre in Bangalore.
“A smart model I came across recently combines an intelligent IT infrastructure with part of the legacy model. This system looks up the cheapest rates and fares. Air fares, hotel rates, car rental prices – whatever – and it dynamically packages the different elements.
“There is no human intervention until the client has actually booked and, once he has, an agent calls him. Apart from confidence building there is also a lot of upselling done this way. Of course, clients can also call in if they encounter difficulties with the electronic booking process.
“Is this inefficient? Technically speaking yes, but the growth rate of this business was 70% in 2008 and 45% this year, with turnovers now being north of US$50 million – and the bigger part of the income is still commission based! Which only proves that the human factor can still add value in the perception of a client - and I’m not of the opinion that this will change soon.”
8. Transform our brains first, then our businesses
“All business is changing, clearly, and the digital world has brought about dramatic changes in many industries. Look at the music business, where iTunes and similar sites are pushing CD sales into oblivion and look at drug distribution where pharmacies have to re-think their model because more and more patients are ordering pills on the Internet.
“But by being innovative and by transforming our brains first and then our companies and by being able to see some of these big structural changes also as opportunities and not only as threats, we will stay in business – if we not only do things right but if we also do the right things.”
