Chapter 4: A Retrospective Examination on the Development of a Teaching Hotel: From strategic to operational success

Lianping Ren, Macao Institute for Tourism Studies

Bob McKercher, University of Queensland

C. Louis Shih, Old Stone Hotels Company Limited

Abstract

The Hong Kong Polytechnic University has opted for a new model of teaching hotel – a full size, upscale, independent, commercial teaching and research hotel. It is run as a “twin brother” of the hotel and tourism school, instead of affiliating under the School. This model has so far been a great success that can be attributed to a few critical factors including entrepreneurial efforts in the early stage, leadership, innovative operation, and dedication to education, apart from its strategic positioning. The success is also attributed to the fact that the hotel is developed in accordance with key principles of hotel development, instead of following the stereotypical thinking of what a teaching hotel should be. In addition, a number of contextual factors also added to the success. This chapter traces the development of The Hong Kong Polytechnic’s Hotel ICON and summarises the various training and research opportunities available.

Key words: hotel development, strategic positioning, innovation, teaching hotel, Hotel ICON

Introduction

Teaching hotels are conventionally small in size, not for profit, built on campus, student-run, and offering limited service. The main purpose is usually for the students to practice their hospitality skills learned in their classrooms. Services in teaching hotels usually charge lower fees due to the practicing nature and it often comes with mistakes and flaws. So, usually the success of a teaching hotel is not reliant on its financial performance, since profit is rarely the main objective. Most existing practices of teaching hotels are either independently run by the hotel school, or affiliated to a well-established hotel brand. However, a recent case of teaching hotel – the Hotel ICON (the Hotel) of The Hong Kong Polytechnic University, broke the stereotypical model of teaching hotels by creating its own brand and running as a full-service, upscale, and commercial hotel with financial achievement as one of its key objectives, along its educational missions. The 262-room hotel, established in 2011, shares the same building as the School of Hotel and Tourism Management (the School), but operates as a wholly owned subsidiary company of the University, rather than being owned and operated by the School. The Hotel has proven to be both a commercial and critical success. It is ranked consistently by Tripadvisor among the top five hotels in Hong Kong (Tripadvisor, 2019), with 91% of the reviews posted in Expedia.com recommending staying there, with an overall guest rating of 4.8 out of 5.0 (Expedia, 2019). The Hotel has also won a number of international awards for innovation, service standards, facilities and food and beverage experiences, including the United Nation’s World Tourism Organization (UNWTO) Award for Excellence and Innovation in Tourism.

At the same time, the Hotel has greatly contributed to the success of the School as it has been identified by both the Dean of the School (Chon, 2012; Cheng, 2017) and General Manager of the Hotel (Hatter, 2012) as one of the key reasons why the School is ranked as a leading hotel and tourism programme. Achieving the above success as a commercial hotel with education as its core mission leads to a series of intriguing questions:

• How was Hotel ICON developed? And what was the rationale behind the ICON model?
• What contributes to the success of Hotel ICON?
• How does it operate? i.e. under what structure?

Literature Review

Development and operation of teaching hotels

Hotels by nature are different from other real estate properties, since the former is a combination of a form of real estate and a service oriented business (Venter and Cloete, 2007). Venter and Cloete (2007) state there are principles that hotel projects need to adhere to, in order to achieve success. First, the project should be market driven. Second, the development of the project should also be based on principles agreed to by key stakeholders including investors and owners. Third, there should be a good match between the basic attributes such as location and funds available, and the positioning of the hotel. Apart from these criteria, Lawson (1995) adds a market gap must exist, along with favourable economic conditions, appropriate location, and careful planning and design. When it comes to operation, a list of factors has been identified that contributes to the success of hotel businesses. For example, Brotherton (2004) identified 36 success factors, including aspects such as quality, operating systems, location and accessibility, service, guest relations, standards, branding, and even the availability of different room types.

Hospitality educators have long recognized that training/teaching hotels provide an ideal opportunity for students to gain practical experience. Typically, one of the following two models is adopted. The first model involves the operation of an in-house hotel usually formally associated with a hotel school as a sub-department. In this manner, the hotel school acts as the ‘parent’, while the training hotel assumes the role of a ‘child’. These places are typically small, offer limited services and staffed mostly by students, augmented by a small cohort of full time staff (Titz and Wollin, 2002). The goal is to provide a relatively benign setting where students can develop their skills, interact with real guests and apply theories and concepts in a practical, yet controlled environment (Hinton and Hubbard, 2002, Titz and Wollin, 2002). The alternate model involves the operation of a larger branded hotel on or off campus where students can gain exposure to operations. Here, the two function as co-habiting partners, although not necessarily married. Perhaps one of the better known examples is the Conrad N. Hilton College of Hotel and Restaurant Management at the University of Houston which operates the Hilton University of Houston featuring 86 guest rooms and 25,000 square feet of flexible banquet space (Houston, 2017).

Both models serve hospitality education program needs reasonably well, but each also has its weaknesses. Institution owned and operated hotels enable students to be trained according to the desires of the institution, free from imposition of practices of established hotel properties. However, their small size, management style and the fact that many do not or cannot operate at international standards may contrast with the reality students will face when they enter the commercial world (Alexander, 2007). Additionally, discussions with academics involved in such institutions suggest many run at loss, placing considerable financial strain on providers and raising questions among university administrators about the benefits of operating such places.

The opposite is the case when institutions allow branded operations to be established. Here, commercial concerns and quality standards are usually a non-issue, as students work in a true commercial setting. The main disadvantage, though, is that students may only be exposed to one management style and may have difficulties adjusting to other management styles upon graduation. The risk is that recruiters from other hotel brands may be reluctant to recruit students who are trained in a fixed brand’s setting because of the belief that they will have to unlearn some practices when they enter a different environment (So, 2011). Importantly, as well, education and training objectives may be compromised by existing operational protocols and profit demands of the brand operator, resulting in more emphasis placed on vocational training and filling low grade operational positions rather than developing future managers (Alexander, 2007; Baum, 2002).

Many deans and heads commented privately to the authors that neither model integrates academic research well. Research is often seen as an afterthought to the primary goal of providing practical training and may also impose a range of inconvenient pressures for management and staff. Small, institution-owned properties often have few visitors, limiting direct research opportunities with guests, while their business models preclude conducting practical operational research. Alternately, operators of some franchised hotels do not support research, for it is felt to interfere with the hotel’s day to day operations. As well, few are willing to reveal commercially sensitive information to academics, including various human resources and operationally-based academic studies. Interestingly as well, there is often a lack of coordination of research activities for no one person is responsible for liaising between the hotel and the school.

Method

Information was collected through a series of in-depth interviews conducted with key stakeholders involved in different stages of the process, including: the former President of the University; the Dean and selected faculty members from the School; the founding General Manager and other key hotel staff; as well as individuals who undertook the architectural and interior design for the Hotel. The above interviewees were purposefully selected, as they represent voices and opinions from four different but important parties – the University who authorizes the initiative, the School who has been pursuing the ideology of a teaching hotel like this for a long time, the designers who have incorporated ideas from the committee (Steering Committee that is composed of management of the University and the School, members from the Hotel Association, etc.) and interpreting the key stakeholders’ input in their design mix, and the Hotel which is the end product of the efforts of all parties but is operated as an independent entity. Each interview was conducted in English and recorded, except for one which was conducted via back-and-forth email communication. They lasted from one to two hours on average. Transcripts were prepared after the interviews and the textual data of the verbatim transcripts were instantly filed for further analysis.

Their stories are supplemented by secondary sources, including the contemporary news stories, minutes of University Council meetings, minutes of the Hong Kong Town Planning Board meetings, information gleaned from the University’s annual reports and other sources. In addition, site visits were conducted to serve as a third data source, aiming at triangulating data obtained from interviews and documents. Data analysis was done along the recurring themes derived from interview transcripts, as well as published or unpublished documents on the Hotel. These recurring themes along with discussions on the themes are provided in the subsequent section.

Findings

The conceiving of the idea – vision and positioning

The idea to develop a teaching hotel at The Hong Kong Polytechnic University was borne shortly after the former Polytechnic College was granted full university status in 1994. Senior management, led by the founding President Poon Chung Kwong, realized the new university needed to identify fields of study where it could compete on a global level. He identified hotel and tourism management, design, textiles and fashion, rehabilitation sciences and nursing as core programmes, with the decision to proceed with the hotel first. However, it took a long time turning this vision into an actionable project.

The former staff quarters were identified as the preferred location for the new hotel. However, the redevelopment of the land into a mixed use development required the approval of the Town Planning Board and also the payment of a land transfer tax. The approval process took many years, for the initial proposal was rejected as concerns were raised about adverse visual and air quality impacts. According to minutes of the meeting, members of the Board further questioned the need for the development of such a bulky building purely for educational purposes. Some even wondered aloud if the redevelopment of existing staff quarters into a 300 room teaching hotel was justified (TPB, 2006). Similar objections were also raised by the two organizations that represented hotel owners and managers once it became clear that the proposal called for a much larger development than the standard limited service 30 to 50 room training hotel common elsewhere.

A revised plan was resubmitted to the Town Planning Board in early 2007, which was ultimately successful. Again, according to the minutes, similar objections were raised, but the University President and his team countered with arguments for the need and special merits of the proposed development (TPB, 2007). They highlighted that the proposed development would give the newly formed independent School of Hotel and Tourism Management the visibility it needed to become a world-class institution in line with the practice of top hotel and tourism schools. Moreover, Professor Poon argued that the hotel would be in the best interest of the industry, because it was going to produce the future hotel executives. The development would further facilitate partnership with industry and educational institutions in mainland China, and, in doing so, increase Hong Kong’s competitiveness.

Two key points swayed the argument. First, only about 50% of the total floor space would be used for the hotel, with the remaining 50% dedicated to the University’s use, including relocation of the School, the provision of offices, teaching and learning laboratories and the provision of housing for some staff. Second, since the Hotel would be owned by the University, any profits generated would be ploughed back into the University for its future developments.

Once approved, the sensitive issue of how much land transfer tax to charge had to be resolved. The initial figure of HK$900 million dollars (US$110 million) was proposed. Payment of such a fee would have rendered any proposed development non-viable. Prof Poon then began to lobby government and industry officials for a reduction in the fee. Industry opposed any reduction for it felt it would give the hotel an unfair competitive advantage (Anon, 2010). The President counter argued that in the bigger scheme of things, a 300 room hotel would have negligible impact on the viability of a hotel sector that boasted more than 40,000 rooms at the time, with tens of thousands more coming on stream. Eventually, he managed to call in many of the political favours and negotiated the land transfer tax down to a token sum. In fact, he would not have been successful if he did not have such deep political ties and further suggested that anyone without such strong ties would have likely not succeeded.

Development issues

Neither of the traditional models discussed was deemed to be ideal for this project. The solution was to consider a third option of developing and operating an independent hotel as a wholly owned subsidiary of the University. It would be associated with the School, but not be under its direct control. Instead, the hotel would be operated as a for-profit business, overseen by its own board of directors and accountable to the University’s senior management. The former President described this model as the brother model, where each would be equal but different and both accountable to the father, the university senior management. This ‘brother’ model ensured each could pursue its stated mandate without interference from the other. The key to success was collaboration, with the Dean appointed to the Hotel’s board of directors, while the hotel General Manager and some senior hotel would serve as adjunct academic staff and sit on various school committees.

Building it on campus was not seen as ideal option for on-campus training hotels were typically perceived by the traveling public as being lower quality, small and limited-service properties. Moreover, an on-campus location would always lead to a perception that it was a university property, inhibiting its ability to establish a unique brand identity in a highly competitive marketplace. A fortuitous change in government policy occurred in 1998, which led to the closure on the University’s two staff housing quarters. One of the quarters was located adjacent to the main campus in the heart of one of Kowloon’s major tourism, shopping and hotel nodes. This block was identified as a redevelopment site that could house the Hotel, the School, and provide some staff quarters.

Vision is easy. Operationalisation of that vision is much harder. In fact, it took more than 15 years from when the seed was planted until the soft opening of the Hotel in 2011. During that time, two other major issues had to be resolved. First a decision had to be made about the quality standard and subsequent market segments to target. Consultants who were hired to advise the University suggested a mid-price range, three-star level hotel, targeted primarily at mainland Chinese tour groups. The rationale at the time was that student-run hotels elsewhere were operated at a similar standard, and that, moreover, the burgeoning price-sensitive China package tour market wanted a price point that was equivalent to a three-star standard. This idea was endorsed by the Hotel Owners Association (Anon, 2010) which felt such a place would not pose any real competitive threat to their existing member properties nearby. It was also endorsed by many people in the University who opposed initially to the idea, for they saw this as the safest and lowest cost alternative. A construction budget of around HK $500 million (US$64.5 million) was mooted (PolyU, 2010).

This idea was rejected by the President, Dean of the School, and members of the steering committee who argued instead for an upscale hotel. One interviewee stated “if you train your students in the budget hotel environment, your students will not be able to work in the upscale environment; but if you train your students in the upscale environment, your students will also be able to work in the budget environment.” The local media at the time reported more succinctly that “only a five-star hotel can develop five-star talents” (Kei, 2010a). One veteran hotelier added, “you are sitting on a premium location, surrounded by upscale hotels like the Shangri-La, Inter-continental, Royal Garden, and Nikko. It is only right that you position yourself upscale…”. The President endorsed this idea as well, for he hoped the hotel would become the financial “goose that can lay golden eggs” for the University.

It took an additional two years to convince the rest of the University community about the merits of an upscale hotel. In 2010, a new budget of about HK $1 billion (US$129 million) was approved, representing a doubling of the initial estimate (PolyU, 2010). The recommendation was ratified along with a revised development plan to reposition the teaching hotel from its original 3-star rating to a Tariff A level hotel, equivalent to a 5-star property elsewhere (PolyU, 2010). The budget was further revised to HK$1.3 billion in 2008 (PolyU, 2010).

Second, cost overruns threatened to derail the project almost from the start. The average cost per room eventually rose to HK$2.8 million (US$360,000), which was substantially higher than the industry norm for five star hotels of about HK$2.3 million (US$300,000) (Anon, 2010). Plus, the University encountered a serious cash flow problem as a result of the 2008 global financial crisis. Instead of paying for the construction costs from its cash reserves, the University had to secure a HK$700 million (US$90 million) loan (PolyU, 2010). The Chinese language Hong Kong Economic Journal ran separate stories in 2010 (Kei, 2010a, 2010b) citing how the cost overruns placed the entire University on the verge of bankruptcy. The stories alleged costs had tripled in three years, while the University’s ability to pay for the project had been severely compromised by investment losses. In addition, it was alleged that the best case financial performance projection for the hotel was for an accumulated revenue of only HK$879 million (US$ 113 million) by 2025, representing an ongoing financial burden for the University. Thus, rather than being the goose that laid the golden egg it would be the millstone than sank the University. The University, in turn, responded almost immediately by issuing a press release that pointed out serious factual errors in the stories (PolyU, 2010).

Design and operational issues

No one had ever tried to design a building that incorporated an academic department, a commercial hotel and staff quarters before. Operationally, each had to been seen to be a discrete entity, even though they shared the same physical space. One of the designers interviewed commented that the best part of the structural design of the project had been the “three-in-one” concept, with each part integrated but with different entrances and identities. The north entrance bears the name of the School and the University’s logo, while the south entrance is branded with the Hotel name, and opens onto the main foyer and check-in area. Staff quarters are accessible through a separate entrance.

Operationally, the decision to opt for an independent hotel, coupled with a mandate that focuses on training means the GOP (gross operating profit) for the property is four to seven percentage points lower than for comparable properties, one of the hotel executives shared, and the payroll consumes close to 40% of revenues, much higher compared to industry averages of less than 30%. An independent hotel does not have the scale advantages of multi-national chains, meaning many duties that might be carried out by head office, such as marketing and reservations, have to be undertaken in-house, at the cost of additional staff. The inclusion of a spa has come at the cost of fewer rooms. In addition, three experimental guest rooms, have been developed where staff and hotel experts can try out new ideas and concepts. According to the one of the hotel executives, these rooms, labelled “Tomorrow’s Guestrooms”, are not as popular as others and are often sold at a lower rate. Devotion to training and development of both staff and students represents the key cost consideration that affects the bottom line. Students must complete one of a number of work integrated experience placements at the hotel during their studies. Staff members, therefore, have to devote more time to training them, meaning their productivity is lower than if they did not have a training mandate. Finally, the training mandate also extends to existing staff, where the hotel management sees its duty to develop management staff for other properties. As such, they have a formal policy of encouraging staff to develop their skills and then transfer their acquired knowledge to other hotels.

Success of Hotel ICON as a training, teaching, and research hotel

Work-Integrated Education (WIE)

One of the Hotel executives interviewed explained that the ideal education model adopted a three-stage approach. Stage One involved classroom learning, while Stage Two involved laboratory learning and simulations in training restaurants, food labs and the like. Stage Three involved comprehensive experience of working in a real-world environment. He felt that many programs proved deficient at Stage Three. As noted elsewhere, working in small in-house hotels may not provide students with readily transferable skills when they enter industry, working in a franchised hotel may expose students to only one dogmatic management style, while being placed in commercial hotels often condemns students to performing a series of tedious operational jobs as that is where staff shortages are most acute.

The University, through the Hotel, has tried to rectify this situation through the provision of three focused, credit bearing traineeship programs. Called the Work Integrated Education (WIE) programme, the traineeship has clearly identified pedagogical outcomes, learning plans, obligations and assessment rubrics. The standard program is targeted at undergraduate students and involves a structured program whereby students work either full time for six months or complete a 960-hour part-time work program in at least three different departments of their choice. Here they can put theory to practice, develop a range of generic skills that will assist them in their future career and trial working in different departments to see which one best suits their developmental interests. This programme is similar to traineeships offered by most institutions, with two major exceptions. First, hotel staff who take on students also have to follow the same criteria set out in the students’ subject and also need to write assessments to ensure outcomes are met. Second, the programme is designed specifically for the individual needs of students, with students having the option to rotate through different departments throughout their internship.

A small number of students can also apply to join the ‘Elite Management Program’. As the name implies, this program is offered to the brightest students to give them exposure to the duties and responsibilities of the management levels in the hotel and to enrich them with insight of one or two hotel divisions. It is an 11-month full-time program divided into two phases. The first phase is similar to the existing WIE program. In the second phase, students are allocated to a division/department head to learn from and mirror her or his management duties. There, they will be given a series of special projects, including opportunities to give management decision, supervising staff and mentoring first-time interns.

The Management Practice Programs, is a third option available only to Master Degree students. Initially this option was not considered when devising the Master’s programme. But a number of international post graduate students in particular, felt they could gain much by working in the Hotel. This 480-hour program was then developed to give them a chance to gain needed industry experience and to apply theoretical learning in a more practical setting and develop their professional competence. It must be noted as well, though, that all students entering the Master Degree programs must have at least one year of work experience, and so this program represents an opportunity to learn in a different business environment.

Supporting research

Perhaps research opportunities of all types reflect the greatest pure academic advantage of the model. More than 50 projects have been funded producing dozens of refereed journal papers. The types of projects vary from pure conceptual research to empirical research to solve real world problems and cover such topics as consumer behaviour, guest satisfaction, analysis of operations and procedures at the hotel, food and beverage research and product innovation tests. Project ideas can be initiated by academic staff or by hotel employees themselves

Enhancing teaching and learning opportunities

Giving the students as many real world learning experiences is one of the benefits of this system. The School and the Hotel have established a joint SHTM / Hotel ICON Common Information Database intranet portal in which the Hotel has uploaded a series of operational manuals, performance reports, sample PMS (property management system) reports, actual hotel daily operational items, and a variety of other information so that students can work with real information in their classrooms and tutorials. The School has also revamped many of its subjects which span diverse topics as hotel operations, financial management, service quality and the like that require practical training.

Hotel staff also teach some subjects, especially relating to accounting and finance. The General Manager is an adjunct staff member and appears regularly in front of students. At least 10 other management staff regularly attend classes as professors-for-a-day to ensure students appreciate the real day-to-day workings of a hotel. A series of hotel tours, site inspections and briefing sessions are organized throughout the semester. Students in the capstone events management subject have to organize a major international conference held annually in the Hotel, which requires performing all functions of a professional conference organizer.

Discussion and conclusion

This study examined the process involved in developing a teaching and research hotel, by using The Hong Kong Polytechnic University’s Hotel ICON model as a case study. The paper had two main goals. First, it examined the journey involved from vision to reality by examining issues such as positioning, developing, design and operating issues. Second it discussed how the Hotel had enabled the School in particular, to leverage the opportunities presented by the Hotel to innovate its learning, teaching and research opportunities. In achieving the above main aims, three issues are worthy of more discussion, including principles of hotel development and autonomy in operation, and the leveraging effect of the ICON model.

First, the term “teaching hotel” does not limit the Hotel from being developed into a hotel that complies with design and development principles. This is different from many other teaching hotels which are often purposefully built to deliver a limited number of educational functions. In other words, the Hotel is first of all a “hotel” which should bear the most primary functions of a hotel – to provide accommodation and to feed, and it should have the business model that a regular hotel should have, and go through the development and design process that a regular commercial hotel should have.

Second, autonomizing the operation of the Hotel, i.e., running it as an independent hotel, instead of taking a brand in the format of franchising or management contract, and not affiliating the hotel under the hotel school, has also greatly contributed to the success of the Hotel. As it is recognized, innovation is less easy in a chained/ branded condition. Taking a brand has many benefits including consistency and a guaranteed level of standard, but loses the opportunity to be as creative and innovative as it can be. The School is a place where many expert resides and many research results are generated, shared, and applied, which are precious resource for hotel innovation. And the Hotel bears the mission of “leading the industry” and to be “unlike any others”. Had the Hotel taken an established brand from the market, some of the precious ideas would have lost chance to be applied. Not taking an established brand, but recreating its own, also allows tailor-made teaching and learning programs as well as research projects possible and easier.

Ultimately, this administrative structure is deemed to have turned the seemingly conflicting goals of education and commercial business of the School and the Hotel into a mutually supplementing situation. Pedagogically, many people feel achieving commercial success and meeting educational goals is inherently in conflict (Tse, 2012). Yet, the model adopted has allowed this to occur. The establishment of the Hotel as a stand-alone subsidiary of the University and not as a sub-department within the School ensures that each has a clear mandate. Being independent, enables the Hotel to focus on what it does best – develop and deliver a reputation as a commercial, upscale, innovative hotel. Being the “brother” of the School provides it with some competitive advantages that other hotels do not enjoy. For example, the Hotel attracts many high quality staff who see a position here as a way to fast track their careers. It also has the freedom to try a series of innovative products and services and can borrow expertise from university staff as needed. Interestingly, as well, the Hotel has found that its affiliation with the University has proven to be a marketing asset.

Likewise, the School also gains much from the Hotel in terms of teaching, learning and research. Even more importantly, though, the Hotel also features prominently in the School’s positioning as a leading provider of tourism and hospitality education. Not only can it leverage on the fact that it has a hotel, it can also leverage from the fact that the Hotel is recognized as one of the trendiest, most popular and most highly rated places in Hong Kong. And, being a “brother’ of the Hotel enables the School to do many things that would be otherwise difficult to do, such as demonstrating excellence by concrete examples (one of the SHTM graduate loved Hotel ICON so much, that he decided to build a similar one), making real trial and error experiments, “pushing the boundaries of research and supplying innovative ideas to our industry” (Chon, 2014: 19-20), being a place to inspire, and even to set a new standard (Chon, 2014). As a result, the School has been uplifted on to a much higher level and has become a true leader of hotel education.

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