Succession plans at Rezidor

It's not always necessary to have one's name above the door for a company to be defined by its CEO. For years, there was no discussion of Virgin without mention of Richard Branson; the growth of Apple into the world's most valuable company was inseparable from the emergence of Steve Jobs as the world's most valued business guru. Nor is it necessary to found the organisations one comes to define. More than a decade after standing down as chairman and CEO, Jack Welch remains synonymous with General Electric. Iconic leadership can drive unprecedented growth - under Welch's guidance, GE grew in value by some 3,000% - but there is also a potential downside to such cults of personality: a huge vacuum at the top when the inevitable moment comes to stand aside. Kurt Ritter's tenure as CEO and president of Rezidor has certainly had the Welch effect. Since 1989, he has expanded the group from some 30 properties to more than 430 hotels in operation and under development. Succession is never easy, but September's announcement that he would be stepping down at the end of 2012 raised eyebrows. The company is performing remarkably well - Carlson Rezidor Hotel Group was named Hotel Group of the Year at November's Worldwide Hospitality Awards - but such a seismic shift will always breed a level of uncertainty; few in the industry can even remember a pre-Ritter Rezidor.

"Kurt created this company; he is Rezidor," says Wolfgang M Neumann, the man charged with protecting and building on Ritter's legacy. "That makes this a huge task, but also a massive honour. Kurt would be the first to admit that he did not achieve all of this alone; there's a great team driving this company forward and they will also be critical to my success."

Neumann: a kindred spirit

Neumann arrived at Rezidor in May 2011 as chief operating officer, having previously served as CEO of Arabella Hospitality Group and, prior to that, spent almost 25 years in various guises with Hilton. Ritter had signed a contract extension through to 2015 the previous month and few interpreted the Austrian's appointment as a deliberate act of kingmaking. But Ritter had clearly seen something of the kindred spirit in Neumann who, like his new boss, had previously worked on the frontline as a general manager.

"I guess that's why he recruited me," says Neumann. "I'm a hotelier at heart; Kurt and I agree that you can't run a hotel business from behind a desk."

It is an increasingly rare attitude and marks Neumann out as Rezidor material. Within the company, the wheels of succession were quietly being put into motion. "It was no fait accompli, but there was discussion from the very start," says Neumann. "The thought process was to bring in somebody who, subject to performance and confirmation of abilities, could potentially take over. You still have to prove yourself and deliver, but from that perspective, I had very open, transparent discussions with the board throughout." One would expect an incoming CEO to praise the process by which he was recruited, but Neumann seems genuinely impressed by the manner in which succession has been executed by Ritter and the board.

"It was planned to the finest detail, with Kurt and I formulating strategy side by side," he explains. "That makes things so much easier for everyone - external markets, shareholders, stakeholders and partners."

Rezidor's roadmap to success

The main thrust of this collaboration is the conception and implementation of Rezidor's Route 2015 roadmap. Announced in December 2011, the strategy encompasses initiatives geared towards improving the group's EBITDA margin by 6-8% over a three to fouryear cycle. Ultimately, it also amounts to a framework by which Neumann's initial tenure will be judged.

"We have a phenomenally successful growth record, but the focus now has to be on improving profitability," he says. "There are various streams involved and, a year in, we remain on track."

These streams include revenue initiatives, cost savings, assetmanagement activities and plans to further grow Rezidor's fee-based hotel portfolio. A strategic partnership with Carlson, including a joint global target to reach more than $400 million in additional revenue and a revPAR index increase of more than 9 points by 2015, constitutes a fundamental component of driving revenue growth. With Carlson holding 51.3% of Rezidor shares - and a relationship that dates back to Ritter's 1994 signing of a first master franchise The Park Inn restaurant in Oslo is representative of Rezidor's aim of targeting a younger demographic. agreement for Radisson - collaboration comes naturally.

Leveraging the increased clout of the Carlson Rezidor Hotel Group - a portfolio of over 1,300 properties either in operation or under development - has already seen progress made in the commercial arena, in areas such as online delivery systems and loyalty schemes.

"Global scale and recognition is crucial," says Neumann. "It's about consistency, commercial relationships, a joint online platform; with a loyalty club counting some ten million members, we are so much stronger together."

The Stay Night Automated Pricing revenue management system is another example of close cooperation reaping tangible results - the platform is being billed as the most advanced in the industry by both partners.

"We were perhaps a little late developing such a system as a global operator, but the advantage of that is we can learn from others' mistakes and develop something that's best in class," Neumann says. "It has proved an enormous advantage in driving revPAR and reacting very quickly and locally to changing demand patterns."

Sensitivities to regional markets

Such local sensitivities comprise another pillar of the Rezidor strategy. Concerted efforts are being made to create a more decentralised operating model in an attempt to optimise performance and help deliver €13-15 million in cost savings. "You cannot manage 70-odd countries out of Brussels," says Neumann. "The strategic function remains here, but those running the business should be the general managers and regional VPs, the guys who are in touch with daily developments and who understand the habits, dynamics and requirements of the market."

This constitutes an ongoing process of alignment and should not be interpreted as a ceding of control by headquarters. In fact, many functions are being brought closer to Brussels as Neumann and his team seek to maximise synergies and efficiencies. "It is not a black-and-white approach across all streams," he explains. "Procurement is a good example of an area that we are now looking at increasingly as a strategic function. At the same time, you do want to keep central costs at an absolute minimum, creating value where it really impacts the business."

Africa hotels in the pipeline

Local knowledge is especially important when it comes to driving growth in emerging economies. Despite Rezidor's being less exposed in the struggling south of the continent than some of its competitors, Neumann acknowledges that revPAR assumptions for continental Europe are flat at best; growth will predominantly come from Russia/CIS and Africa.

Fortunately for his successor, these are markets that Ritter has aggressively targeted for some time: Rezidor was the first international operator to establish a fully fledged Moscow office and the group has one of the largest sub-Saharan development pipeline.

"Strategically, Kurt has proven to be absolutely right," Neumann says. "I was at the Russia & CIS Hotel Investment Conference and the region is booming. We have an office there employing 30 people, 41 hotels in operation and another 30 in the pipeline. Brand recognition and reputation is enabling strong market penetration and, with it all being generated through management companies, the investment required on our part is minimal.

"In Africa we have 22 open hotels and 27 in the pipeline. Wealth and infrastructure is developing at pace and Kurt identified the continent as a growth market extremely early. We already have amazing relationships with our owners and that is something we want to build on."

Repositioning of Radisson brands

This growth will be predominantly driven by Rezidor's core brands, Radisson Blu and Park Inn by Radisson, both of which have undergone some recent repositioning. The idea has been to bring the two closer together and achieve global alignment with Carlson, consolidating the former's position in the upperupscale sector and establishing the latter firmly at the top of the midmarket. They constitute a remarkably even balance in Rezidor's development pipeline.

"Radisson Blu is very much established as a dynamic, modern brand that's a little bit different from its competitors," says Neumann. "We're still the only upper upscale brand offering free internet as standard - it's those differentiating qualities that are hugely valued by our guests.

"For Park Inn, we've done a lot of research targeting an emerging, younger demographic that has quite different expectations and focuses more on connectivity, creativity and flexibility. We'll soon be launching a 'nextgeneration' concept that will bring something entirely new to the brand."

But Neumann acknowledges that there is a danger of overcompromising for Generation Y, chasing all that is new at the expense of existing values and principles. "You can't go overboard," he says. "That incredibly tech-savvy segment is smaller than one might think and it's more about getting the basics right, providing quick, seamless connectivity, in-room entertainment and enough flexibility for the guest to adapt the experience to his or her own personal style."

A return to the luxury market

Missoni, a lifestyle boutique operation launched in 2009, consists of just two open and five pipeline properties. "It's a supplemental niche brand," Neumann says. "By its name and definition it's more limited in scale and opportunities."

In September, Rezidor signed a strategic alliance agreement with Regent Hotels & Resorts to develop and operate new Regent hotels in Europe, the Middle East and Africa. Carlson and Rezidor sold the Regent business in 2010 in a strategic effort to focus on core brands, but Neumann insists that this move does not amount to an about-turn.

"Luxury was never off our radar and we always thought such a brand would complement our portfolio," he says. "Reaction from developers has been extremely positive, but this is not a volume game and it's about quality not quantity."

It all sounds remarkably similar to the principles that underpinned Ritter's tenure, but, considering the two men formulated much of this strategy side by side, that should not come as too much of a surprise. The emphasis has all been on smooth transition; maintaining and building momentum rather than taking any change in direction.

"I'll fine-tune and adapt certain things, as you would expect of any CEO," Neumann explains. "But the success of Rezidor lies with its being a hospitality business that focuses on its guests, hotels and staff. "It's still all about interaction between human beings: the smile, the chat, the human touch. You must be clear about and promote those core principles. That's how Kurt ran Rezidor and it's how I plan to proceed."