Rooms with a View ...

... of the future of customer service. Scandic Hotel's model of progressive management and green values registers big with its guests.

Roland Nilsson, 47, has built his career on change. For 20 years he worked his way across six Swedish industries, blending progressive management techniques and environmentally sound business practices to turn around a string of companies. But his biggest challenge came in 1992 when Nilsson was called in to save Scandic Hotels, one of Europe's largest hotel chains. Scandic had grown from a single roadside motel in 1963 to a chain of 110 mid-market hotels. But by the early 1990s, the chain's brand identity had eroded; with losses of $47.5 million, Scandic was in "a drastic free fall."

The CEO's assessment: too much management control, not enough customer focus. "Scandic was overly centralized and dictatorial in an industry where decisions have to be made right at the customer level," Nilsson says.

Scandic's first challenge was survival. Nilsson immediately sold off sideline restaurant businesses and hotels and streamlined day-to-day operations. But his real task was "to change the leadership philosophy as fast as I could," he says.

Nilsson announced that the new Scandic would move into the future on the basis of two core customer-focused principles: decentralized management and progressive social values. The first was critical because "customers are more and more individualistic, so our service has to be too," he says. "In the hotel business, people meet customers everywhere — walking down the hall, at the front desk, cleaning up — and everywhere, everybody must show the same perceptive interest in the customer."

The second principle translated into a major commitment to environmental responsibility. Scandic's philosophy of "attentive care" applies equally to room service and the natural environment; the company's efforts have won it recognition as one of the world's greenest hotel chains.

This seemingly soft approach has yielded some hard results. By 1995 Nilsson had turned Scandic's major losses into 30% to 40% annual earnings growth; in 1996 Scandic earned profits of $12 million against nearly $450 million in revenues. He consolidated Scandic's position as the dominant mid-market to upscale hotel chain in the region — more than twice the size of its nearest rivals — and brokered a partnership with Holiday Inn to operate 16 Scandic hotels in Europe under the more recognized brand.

All of these moves caught the attention of potential investors. When Nilsson took Scandic public on the Stockholm Stock Exchange in December 1996, the $280 million offering was oversubscribed by eight-and-a-half times. Significantly, foreign investors own 52% of Scandic shares; U.S. and U.K. institutions together own 39%.

Nilsson attributes Scandic's successful transformation to four key change initiatives. First, Nilsson transferred all management responsibility directly to the chain's 100 hotel managers under a program called Hotel Incorporated. "To motivate people you have to inject the same management ideals of a privately owned enterprise into a big company," Nilsson says. With annual revenues of $5 million to $25 million, each Scandic hotel now functions as a distinct company, and each general manager acts as a hands-on owner.

Next, to support an ongoing peer-to-peer dialogue, Nilsson built a $25 million customized management reporting and benchmarking system called Best-in-Class (BINC). The system runs on Scandic's wide area network and allows hotel managers instant access to weekly, monthly, and quarterly performance metrics mapped against those of peer hotels and external competitors. BINC measures key factors in eight areas, including traditional financial figures, brand image, the "moments of truth" when employees interact with customers, competitor status, and partnering efforts.

To kick start his third initiative for a new Scandic, Nilsson enlisted Karl-Henrik Robert, a Swedish cancer researcher who launched The Natural Step, a global organization that helps companies become more environmentally responsible. To date, Scandic has put into practice more than 1,500 distinct environmental measures. Its most visible and ambitious effort is the creation of a 97% recyclable hotel room. By installing 2,500 eco-rooms, the company has cut its use of plastics by 90 tons and metals by 15 tons. Scandic has plans to convert the rest of its 17,000 rooms at a rate of at least 1,500 per year.

Finally, a policy of continuous learning underlies all of Scandic's change efforts. Nilsson has revitalized the company's internal Scandic Business School to provide courses throughout the year. Most managers take Scandic Basic, an intense course in company culture, values, sales and marketing techniques, and accounting practices as well as courses in world culture, leadership, and strategy.

The ultimate goal, Nilsson says, is to develop managers and workers who are both ambitious and interested in their work. He sees Scandic's ability to give "young, clever people" the kind of work they want as a critical competition advantage. "If I've learned anything," says Nilsson, "it's that it's important for people to feel they're part of a successful enterprise. Then work becomes an interesting and stimulating part of life — and that's what ultimately separates you from the competition."

Ann Goodman (goodmanann@aol.com) writes on business and the environment from New York. For more information, email Scandic, info@scandic-hotels.se .

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