Innovation in Hospitality
Understanding what is readily available today and exploring the adjacent possible leads to disruptive innovation.
In his book Where Good Ideas Come From, Steven Johnson analyzes the systems that spark innovation. Innovation does not happen in an eureka moment or by spontaneous inspiration. Rather, it is more akin to evolution, facilitated by pre-existing conditions and elements that are mixed and matched in new ways within the bounds of the adjacent possible (a concept first introduced by Stuart Kauffman in 2002).
The adjacent possible is a kind of shadow future, hovering on the edges of the present state of things, a map of all the ways in which the present can reinvent itself…Think of it as a house that magically expands with each door you open. You begin in a room with four doors, each leading to a new room that you haven’t visited yet. Those four rooms are the adjacent possible. But once you open one of those doors and stroll into that room, three new doors appear, each leading to a brand-new room that you couldn’t have reached from your original starting point. Keep opening new doors and eventually you’ll have built a palace.― Steven Johnson, Where Good Ideas Come From: The Natural History of Innovation.
A few years ago I heard Chip Conley speak about innovation in the hospitality industry, and how it applied to Airbnb. Conley was 38 months into his role as Head of Global Hospitality & Strategy at Airbnb and special advisor to the founders. He came from the hospitality industry, having been founder and CEO of Joie de Vivre hotels from 1987 to 2010.
Conley gave some examples of how innovations in the hospitality industry fit in his three rules of innovation:
Rule 1: An innovation does not typically arrive without some foreshadowing
Rule 2: Innovations usually address an underlying human need not being met. Most companies are very good at addressing the basic needs of customers but they are less at exploring what has not been done yet, which is why many times innovations come from people outside the industry.
Rule 3. Over time, the establishment embraces the innovations that represent a long term trend.
We talk a lot about the sharing economy as a new concept, but it is hardly new. Tens of thousands of years ago, all living was communal. In the Middle Ages, homes were essentially “gathering places for small groups of revolving residents” (The Atlantic). Boarding houses were the default hospitality option until after World War II. Between one third and one half of nineteenth-century US urban residents either took in boarders or were boarders themselves, according to history professor Wendy Gamber. This is a foreshadow of some of the dynamics that Airbnb used to build a multibillion dollar business (Conley rule #1)
Motor lodges addressing the unmet needs of travelers were a major force behind the start of the hotel industry (Conley rule #2).
Conley explained how when soldiers came back after WWII, they had babies and started taking long family road trips on the newly created Interstate Highway System. The lack of roadside accommodations during a family road trip from Memphis to Washington DC inspired Kemmons Wilson, a resident of Memphis, Tennessee, to build and open the first Holiday Inn in 1952. After his first motel, Wilson had the idea of franchising the chain growing to 50 Holiday Inns by 1958, 100 by 1959, 500 by 1964, reaching the 1000th in 1968. Road travelers loved “that there was a standardized, clean and friendly hotel chain that started to cover the whole of the US” (Flashbak).
Some of today’s major hotel brands began as motor lodges. Marriott opened the the world’s first motor hotel in 1927 in Arlington, Virginia. Hyatt was founded by Jay Pritzker in 1957 when he purchased the Hyatt House motel adjacent to the Los Angeles International Airport. In 1961, Four Seasons Hotels and Resorts opened its first property, a motor hotel in downtown Toronto, Canada, designed to serve “a new generation of international business travelers” (Four Seasons).
Conley’s rules of innovation and Johnson’s adjacent possible help us see how the motor lodge innovation comes as a natural evolution of pre-existing conditions:
- Development of a network of 41.000 miles of highways connecting all the states in the US.
- The suburban population grew dramatically as a result of post-World War II economic expansion.
- The Interstate Highway System and suburban expansion made car ownership more necessary and shaped a new car culture in the US.
- Baby boom between 1946 and 1964
- Lack of adequate roadside accommodations for traveling families and individuals
The boutique hotel innovation started in the early 80’s, mainly driven by people from outside the industry, as Conley’s rule #2 suggests.
Bill Kimpton was an investment banker who enjoyed his stays in European independent hotels and thought that there could be a market for them in the US as well. He opened his first hotel in San Francisco in 1981 with the idea of offering a “place one could stay that felt more like a beautiful, livable and stylish home than a big, impersonal hotel” (IHG) and ended up building the largest boutique hotel company in the US (the second largest was Conley’s Joie de Vivre Hotels).
Ian Schrager gained fame as the owner and founder of the legendary NY nightclubs Studio 54 and Palladium. He later turned his attention to hotels, which he saw as being boring and too traditional. He saw an opportunity to provide “something that gave people an elevated experience and elicited an emotional, visceral reaction” (The Ian Schrager Company) and in 1984 he opened Morgans Hotel.
Conley points out that the establishment’s first reaction to the growing boutique hotel movement was to ridicule it. But the establishment jumped in the bandwagon (Conley’s 3rd rule) as it became clear that consumers were interested in more personalized experiences and were willing to accept the non-predictability associated to boutique hotels. Barry Sternlicht (another hotel outsider), founder of Starwood, launched the trendsetting W Hotels and introduced the Westin Heavenly Bed in 1998. Marriott International partnered with Ian Schrager to create Edition Hotels in 2013, a new brand of hotels “that don’t act like hotels”. In 2014, Intercontinental acquired Kimpton Hotels.
Airbnb has revolutionized the hospitality industry and is its classic example of disruptive innovation. Airbnb is also a good example of adjacent possible innovation that expands the boundaries as a result of the first-order combination of what’s already available.
Here is how Airbnb fits within Conley’s 3 rules of innovation framework.
Rule 1: An innovation does not typically arrive without some foreshadowing
- Boutique hotels. Customers striving for a different type of experience. People wanting to have less predictability of service, but gaining in experience and authenticity, and wanting to have a greater connection with locals and the location.
- Sharing economy. Boarding houses. VRBO and Craig’s list showed that hosts were wanting and willing to rent their houses (or an extra space of it) to strangers. VRBO was bought by HomeAway in 1996, who in turn was acquired by Expedia in 2015 (Rule 3).
- Trust. Home swapping started in 1953, same year as Holiday Inn. The idea that people could trust someone else to stay in their own house already existed.
Rule 2: Innovations usually address an underlying human need not being met. (Often driven by people outside the industry).
- More people staying longer periods of time when they travel.
- New generation of travelers that values experiences over standardization.
- Greater appetite for destinations that don’t necessarily have a hotel infrastructure.
- Growing number of digital nomads. They want to stay somewhere anytime between a week and 3 months and there are not too many options that fit those needs.
- The three Airbnb founders came from outside the travel industry.
Rule 3. Establishment steps into home sharing and vacation rentals
- Accor Hotels acquired OneFineStay and Squarebreak in 2016 and Travel Keys in 2017
- Hyatt investment in Oasis in 2017
- Marriott launched a 200 home rental pilot in 2018, and it has now expanded it to 100 destinations and announced its official entrance into the homesharing business with the launch of Homes & Villas by Marriott.
- The world’s largest OTA groups such as Expedia Groups and Booking Holdings heavily invest in growing their non-hotel inventory.
Thinking about innovation in terms exploring and discovering what’s readily available makes the innovation process seem to be more within reach. It is also interesting to see the impact that individuals from outside the travel industry have had in opening new doors and expand the boundaries. Current trends such as digital nomads, experience-seeking travelers, and silver haired adventurers will no doubt feed many more interesting innovations and startups in the coming years.
The strange and beautiful truth about the adjacent possible is that its boundaries grow as you explore them. Each new combination opens up the possibility of other new combinations. — Steven Johnson