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Ask Not for Whom the
Wedding Bell Tolls
This article is from the Spring 2007 issue of Hospitality Upgrade magazine.To view more articles covering technology for the hospitality industry please visit the Hospitality Upgrade Web site or to request a free publication please call (678) 802-5307 or e-mail.
By Michael Schubach

Wedding bells are in the air, and we�re nowhere even near the deadline for the June issue.  But during this particular season of unification, the story is not about groom taking bride, but rather company acquiring company.  Hotel chain flags are being hoisted up and down, service providers are consolidating and software vendors envision themselves the next Wal-DataMart.  It�s all so wildly bull-marketish, so fervently capitalistic, so reaffirming of the magic of the American economy, that one would have to be downright cynical to see this as anything but completely positive. 

Well, gentle reader, here I sit.  I have been forced through this ritual more times than I care to remember � occasionally as a member of the bride�s party but more frequently as one of the groomsmen.  Like every wedding, it�s a lovely ceremony marred by at least one person in the room sobbing uncontrollably.  It�s followed by a dinner where someone else selects your entrée for you and then makes you wait to eat it while sharing hopes, dreams and aspirations for new lives together in a stream of never-ending toasts.  If all of that weren�t bad enough, you go back to work the next day to face the rest of your unified life.

Acquisitions require all the effort of a marriage, and are every bit as likely to be put asunder.  They tend to defy logic, gravity and human will.  An interesting study of the mechanics and economics of mergers is Mark L. Sirower�s "The Synergy Trap: How Companies Lose the Acquisition Game" (1997, THE FREE PRESS, a division of Simon & Schuster, Inc.).  In his detailed and scholarly view of the process (bring your calculator), Mr. Sirower builds to the conclusion that most acquisitions result in the destruction rather than the creation of value, and most acquiring companies are punished rather than rewarded by the market.  The trap he explores is a basic one: the common belief that through the magic of synergy, two plus two might just equal five.  In pursuit of that alchemist�s dream, acquiring companies pay high premiums for their second two, having convinced themselves that under their guidance the newly acquired two will transform itself into a three. 

Most companies overestimate the value of synergy and underestimate the effort (read cost).  I�ve heard companies speak of acquisition targets as being �just like us only smaller.�  If that statement were true (and one would be justified in some healthy skepticism), the size difference alone is more of an obstacle than many owners and managers realize.  We tend to picture companies as production pipelines, where products and services flow in relation to the width of the pipe.  Taking over a larger-than-you company has a multitude of challenges but big companies typically come with a big-company infrastructure (which is now yours to shrink).  Acquiring a smaller company seems comparatively easy�there�s no reason why a million-dollar product supply can�t flow through a billion-dollar pipe.  Having been party to that logic in the past, I can personally testify that getting that million dollar stream to produce results in that billion dollar pipe can take years of process reengineering. 

Nonetheless, �great synergy� acquisitions take place regularly, and the synergistic transformation process typically begins right after the honeymoon and press releases.  The acquirer smiles gently at his new bride, holds her hand and reassures her that he wouldn�t have bought her if he didn�t love her just the way she is.  Once the bride nods herself into sedation, the groom begins to share a number of logical ideas that will help them build a better, more economical life together.  First, the groom explores his need to dispose of all that extra furniture he picked up when he bought his bride.  �Look, honey,� he says, �you and I have our own legal teams, accounting departments and corporate cultures, and we certainly don�t need two of everything.  Besides that, there are managers and executives everywhere I look.  What say we get rid of all of yours?�  The bride starts to mumble something about those being ideas and people that have been with her since infancy, but she is quickly reminded just who bought whom.  And so their synergy together begins. 

Elimination of duplication and redundancy aren�t bad things, but they aren�t usually enough to repay the dowry, wedding and honeymoon expenses.  No one buys a company just to expect it to do what it would have done if they hadn�t bought it in the first place.  Not only is there an expectation of growth, but of growth that exceeds the normal pace plus recoups the purchase premium.  (That�s how you prove that you were smart to have gotten married in the first place.)  Needless to say, most brides (approximately 66 percent according to Mr. Sirower�s estimates) don�t perform to this new standard despite their best efforts. Once the predictable results are in, the synergy beatings begin in earnest. 

Acquisition brides begin to receive an even greater degree of spousal assistance.  �Honey,� the groom tries patiently to explain, �You�ve just got to do better�like I do. Maybe this is my fault for not realizing how many hidden extra pounds you�re carrying.  I think that if we put you onto a strict new diet and up your pricing, you�ll start pumping out the profits like I do.�  Of course, the bride isn�t usually too enthusiastic about this kind of help; she starts crying and telling her husband that he never did understand her product line, and she suggests alternatives to budget cuts since more from less just isn�t possible.  These outbursts tend to fall on deaf ears; the acquired wife has forgotten that by virtue of ownership, her husband�s judgment is vastly superior to hers in all situations.  Not every merger is doomed to this sad fate � only the majority of them.  Even if a miserable union is doomed to a lifetime of eroding profitability, the unhappy couple may agree to stick it out for the sake of the interfaces. 

How does all this influence us, the helpless bystanders of the hospitality industry?  Most obviously, it limits our choices.  I have spoken to IT professionals who are shopping back-end credit card processing alternatives, only to find that there aren�t many (any?) thanks to mergers and acquisitions.  I talked to others who are looking at in-room entertainment content providers, to find that field has shrunken to a precious few � again, because of mergers and acquisitions.  In perfect theory, this means we should only be selecting from the best services at the most competitive rates.  Oddly, end-consumer price breaks don�t seem to figure heavily into the acquisition game-book; the standard end-game strategy is that prices escalate as competitors are eliminated.  In this sort of environment, if you find yourself frustrated with your current vendor�s product, service or pricing, you may find that your most productive course of action is to up the dosage of your antidepressants. 

And now that I�ve done that, I realize the situation isn�t all bad.  Mergers and acquisitions are the way of the financial world, and none of us can talk a pair of crazy kids out of tying the knot.  Despite my pessimistic outlook, I begrudgingly acknowledge that combining companies can sometimes produce a superior technical environment and give birth to a generation of more advanced products. Further, there is nothing inherently bad about a big company or inherently good about a small one � each has its own set of advantages and drawbacks that evolve over time.  And, even in the worst of alliances someone ends up with a really nice toaster.

It�s OK � I�m back on board with you now, Mega-Merger Giants.  Just tell me which of your two remaining products I prefer and why I love the new super premium pricing and I�m ready to buy. 

Boy, these antidepressants really do a great job, don�t they?



Michael Schubach is vice president, resort technology for ClubCorp. He is based at Pinehurst Resort, located in Pinehurst, N.C.  It is possible to disrupt his latest mood swing by e-mailing him at [email protected].

.© Hospitality Upgrade, 2007. No reproduction or transmission without written permission.

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Geneva Rinehart 
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Hospitality Upgrade magazine 
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Also See: Hello, Front Desk? I Think I've Been Robbed! / Nick Price / February 2007
The Personal Data Privacy & Security Act� Is Your Hotel Ready? / Rick Warner / October 2006
Hospitality Loyalty Programs; Strategies for Points-based, Recognition-based Programs / Mark Haley / October 2006
How Fast Do You Want to Go? Understanding the risks and costs with technology implementation and getting there too fast/ Ed Klein / October 2006
What's New in the Hotel Guestroom? Digital, HD or IP Televisions / Ashok Kumar / June 2006
A Future Vision for Hotel Revenue Management / Caryl Helsel and Kathleen Cullen / June 2006
Marketing to the Next Generation of Buyers; Scoring Your Hotel Reservations System / Debra Kristopson / June 2006
Consortia-Corporate-Group Best Available Rate (BAR): Good or Bad for Hotels? / Caryl Helsel / October 2005
Check In Kiosks: Coming to a Hotel Lobby Near You? / Jerry W. Sheldon / October 2005
Moving into Compliance Mode; Realizing the Benefits, Cutting the Costs / Dorian Cougias / March 2005
What Hoteliers Need to Know About Flat Panel and HDTVs / Jake Buckstead / March 2005
10 Trends Affecting Hospitality IT in 2005 / Bradford Iverson / March 2005
Searching for Bookings? Optimize / Dr. Matthew Dunn / August 2004
Instant Messaging: Age Is Everything - Expectations of Immediacy, Productivy and the Rise of IM / Elizabeth L. Ivey / August 2004
Baby It's Cold Outside the Firewall / Michael Schubach / April 2004
High Wired: The Hotel Room of the Future / Kelly Stanford / April 2004
We're Not In Kansas Anymore; Differentiating your hotel through technology / Mark Haley / January 2004
Understanding the Power of Customer Relationship Management / Neil Holm / Hospitality Upgrade Magazine / November 2003
The Case for Self Service in Hospitality / Marvin Erdly and Amitava Chatterjee / Hospitality Upgrade Magazine / October 2003
Five Questions to Ask Online Distributors / Michelle Peluso / Hospitality Upgrade Magazine / October 2003
Surf's Up - Internet Marketing for Destination Properties / Marvin Erdly and Amitava Chatterjee / Debra Kristopson / Hospitality Upgrade Magazine / October 2003
Wireless Changes Everything; So, do ya want a latte with that or what? / Jocelyn Valley / Hospitality Upgrade Magazine / June 2003
Customer Awareness or Customer Beware? Data Security in a CRM-Obsessed Industry / Elizabeth Ivey / Hospitality Upgrade Magazine / June 2003
Your Magnificent Selling Machine Would you Prefer Your Hotel to Get: the Web Hit or the Phone Call? / Robert Camastro / Hospitality Upgrade Magazine / June 2003
Tradeshows & Economic Soldiers / Dan Phillips / Hospitality Upgrade Magazine / April 2003
Hotel Telecommunications in the 21st Century / Geoff Griswold / Hospitality Upgrade Magazine / March 2003
The ABCs of CRM  / Mark Haley & Bill Watson / Hospitality Upgrade Magazine / March 2003
Getting the Most out of Your IT Investment / By: Clay B. Dickinson / Hospitality Upgrade Magazine / Fall 2002
The Role of Paper in a Digital World / By: Bill Fitzpatrick / Hospitality Upgrade Magazine / Fall 2002
The Rotten Pineapple (international symbol of hospitality) / By: Steve D'Erasmo / Hospitality Upgrade Magazine / Fall  2002
Focusing on Labor Can Improve More Than Just Cost / Hospitality Upgrade Magazine / Summer 2002
Attention Hotels - An Ounce of Prevention is Worth a Pound of Cure / Elizabeth Lauer Ivey / Hospitality Upgrade Magazine / May 2002 
HOSTEC - EURHOTEC 2002 - Room for Improvement / Christel Dietzsch / Hospitality Upgrade Magazine / Feb 2002 
Technology and the Human Touch / Dan Phillips / Hospitality Upgrade Magazine / Spring 2002
Wireless Technology:  Where We Have Been, Where Are we Going? / Geneva Rinehart / Hospitality Upgrade Magazine / Spring 2002
Effective Customer Relationship Management (CRM) Implementations / John Schweisberger and Amitava Chatterjee, CHTP / Hospitality Upgrade Magazine / Fall 2001 
What's Up With Call Accounting Systems (CAS) / Dan Phillips / Hospitality Upgrade Magazine / Fall 2001
Technology Dilemmas: What have IT investments done for you lately? / Elizabeth Lauer / Hospitality Upgrade Magazine / Summer 2001
Full Circle from Centralized to ASP - The Resurrection of Old Themes and a Payment Solution / Gary Eng / Hospitality Upgrade Magazine / Summer 2001 
A High Roller in the Game of System Integration / Elizabeth Lauer / Hospitality Upgrade Magazine / Spring 2001 
CAVEAT EMPTOR! Simple Steps to Selecting an E-procurement Solution / Mark Haley / Hospitality Upgrade Magazine / Spring 2001 
Your Bartender is Jessie James and He Needs to Pay for College / Beverly McCay / Hospitality Upgrade Magazine / Fall 2000 
Choosing a Reservation Representation Company / John Burns / Hospitality Upgrade Magazine / Spring 2001 
Understanding and Maximizing a Hotel�s Electronic Distribution Options / by John Burns / Hospitality Upgrade Magazine / Fall 2000 
The Future of Electronic Payments - From Paper to Plastic and Beyond / J. David Oder /  Hospitality Upgrade Magazine / Summer 2000
Timeshare Technology Steps Up / by Elizabeth Lauer / Hospitality Upgrade Magazine / July 2000 
Biometric Payment: The New Age of Currency / by Geneva Rinehart / Hospitality Upgrade Magazine / Mar 2000 


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