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PHOENIX — David Kong, CEO of Best Western International, corresponds with Blue MauMau to explain how its unit hotel owners, not the franchisor, direct the company on how to best protect and grow the brand. The results of independent hotel owners directing the brand are astonishing. Founded in 1946, it has become the world's largest hotel chain, with 4,000 locations in over 100 countries. Its customers rank the hotels highly. Best Western's European hotel owners typically manage three- or four-star properties. In the United States, a 2011 J.D. Powers study ranked Best Western lodges one of the best in customer satisfaction in the mid-priced category.
But that wasn't always the case.
In the early to mid-2000s, customer satisfaction was spotty. "The one monolithic Best Western name with its variety of quality hotels that served different hotel categories confused customers," says New York-based hotel consultant Stanley Turkel. Hotel owner-operators under the brand recognized the problem and hired lodging veteran David Kong to head up Best Western International as president and CEO. Kong immediately set to work on enforcing operating standards and enhancing the brand by creating new, upscale hotel groups — Best Western Plus and Best Western Premier.
Poorly operating hotels were terminated. "After David Kong came, Best Western dropped many properties that did not meet the brands' operating standards," explains Turkel, author of Great American Hoteliers: Pioneers of the Hotel Industry.
What's interesting about Best Western's model is that it has redefined business value for hotel owners and franchisees by significantly shifting down costs and fees. At 2.6 percent of total rooms revenue, its royalties for hotel owners are the lowest by far of any major hotel chain in the mid-rate room range, according to hospitality researcher and consulting firm HVS in its 2011 Hotel Franchise Fee Guide. Compare that to fees of 13.2 percent for Choice Hotel's Comfort Inn, which is the most expensive on the list.
Not only did its franchisees redefine business costs for the industry, but non-profit Best Western International has been downright innovative in its mastery of technology and marketing. For example, Best Western was one of the first lodging brands to provide room booking capabilities to Internet users around the world in 1995, just weeks after the public release of Netscape Navigator 1.0, which allowed consumers for the first time to easily "surf the Web." Cyber sales have boomed to a point that in 2011 the chain of hotel owners has seen online room bookings of nearly $1.2 million in revenue per day.
"Franchisees receive robust reservation activity, but pay much less than any other franchise system," observes Turkel.
In marketing, Best Western has pioneered specialty niches, such as offering motorbike cleaning amenities, rider services and discounts to Harley-Davidson bikers in the majority of its hotels. In an effort to upgrade customer satisfaction, on May 31 it announced that a new cleaning program for its North American hotels will roll out throughout 2012. It will utilize UV wands and black lights, technologies that hospitals currently use, to clean rooms at a level that guests cannot even see.
Blue MauMau contacted Best Western's CEO David Kong at last month's Asian American Hotel Owners Association's annual conference in Atlanta. He has corresponded through email to explain his organization's franchise governance structure and why putting franchisees in control has allowed the company to be at the top.
BMM: Your company, a confederation of hotel owners, declares in your material that "each (hotel) member-owner has a voice in the operation of the company." In your organization, can an individual hotel owner direct Best Western's worldwide operations? How so?
Summary: There is a sort of constitution and body of rules within the network that establishes the democratic voting process of hotel property owners and the roles of their elected delegates in leading the chain.
Kong: Best Western is a membership organization. The bylaws, articles of incorporation, rules and regulations, and brand standards are established by the members through a formal voting process – with each member having one vote for each hotel. It is a truly democratic process. These regulatory documents are then enforced by the board of directors – comprised of seven members who are elected by members of each of seven districts.
Can you elaborate about what are governors, Best Western's boards, directors and other roles in the governance of the system? How do hotel owners interact with Best Western to affect change?
Best Western uses various governance branches — a company board of directors, governors, regional directors and advisory boards — to solicit the input and leadership of hotel owners.
Kong: A director must have Best Western experience, own a requisite equity interest in a Best Western hotel in the director's district, be the voting member for the hotel by which the director satisfies the equity ownership requirement, and must reside in the district. If elected by the members in the district, the director serves a three-year term. A director may only serve two terms, whether or not consecutive.
Governors are voting members or owners of Best Western branded hotels. Each of the seven directors appoints governors for the regions in their districts. Governors serve as an important communication link to the membership. They provide feedback and recommendations with regard to initiatives that are being considered. We generally meet with our governors three times a year to seek their feedback and thoughts. We have approximately 200 governors.
Additionally, Best Western has the following member advisory committees:
These advisory committees provide valuable insight, especially from an operations perspective. Our board of directors and the management team frequently leverage our advisory committees as "sounding boards" for major initiatives. Advisory committees generally meet twice per year in person and we also have conference calls with them as needed.
With regard to communicating with our members, Best Western holds district meetings at each of the districts and a convention every year. At the district meetings and convention, management advises the membership of proposed initiatives and "polls" (through electronic hand-held devices) the attendees with respect to proposed initiatives. Management overtly seeks member feedback. Additionally, at each of the meetings there is an "open forum." The board of directors and senior management are on stage and attendees can ask questions. And, of course, throughout the district meetings, members are encouraged to meet with any staffers in attendance with questions, feedback or comments.
Lastly, members are always encouraged to communicate with management in regard to issues involving the brand or their hotel. Our policy is to respond to any member inquiry within 24 hours.
Who gives you, Best Western's CEO, your orders?
Franchisees who are elected directors of Best Western International's board give the CEO his orders.
Kong: In accordance with Best Western's bylaws, I report to the board of directors. All other [company] staff members report to me.
Your members (hotel owners) tell you and Best Western what to do?? To some, this sounds like chaos because they think of franchisees as being micro-minded, that is to say, focused on individual store operations, apathetic to what transpires outside their hotel. The industry tends to think that the brand's responsibility is to lead and train franchisees rather than take directions from them. I mean, who's pushing you to expand in Asia?
Knowing how to tap into the collective wisdom and entrepreneurial leadership of hotel property owners has given Best Western International an edge and allowed it to pioneer many new trends in the hospitality industry.
Kong: Unilateral decision making is almost never good in the long run. At Best Western, we believe in the collective wisdom and experience of our members. Please let me illustrate how things often work in our organization. The staff is the subject matter expert. We frequently come up with ideas. These ideas are refined through our advisory committees, governors and the board [of directors for Best Western]. At the end, these ideas have been thoroughly discussed and the kinks have been worked out. When we implement them, they often work well and we avoid costly mistakes. Ideas can also "bubble up" from our members and we put them through the same process of prioritization and fine-tuning.
Our business model has worked very well for over 65 years. While it may take longer to launch some initiatives, the ideas have been fine-tuned and we don't make many mistakes. The membership recognizes the executive team as competent and accomplished leaders of the industry. We are empowered through our bylaws and the board of directors to carry out our role autonomously most of the time, e.g., expansion in Asia.
To illustrate our success, we are proud of our many trend-setting industry "firsts" (e.g., first to launch eight languages on our website, first to launch electronic gift cards, first to feature virtual tours for every hotel on bestwestern.com, first to require free high speed internet access at every hotel, first American hotel company to form a strategic alliance with TripAdvisor and Facebook, first to use UV wands and black lights to clean our rooms.) We are also the proud recipient of many industry awards (e.g., AAA/CAA Lodging Partner of The Year four years in a row, Compuware Best of the Web first-place winner for best hotel website and best mobile app.)
Side story: Is Best Western a franchisor? Yes, It is.