PGDM Executive 2018-2019

Term VI

LEADING AND MANAGING CHANGE PROJECT

CHANGE MANAGEMENT IN IHCL

Submitted To: Submitted By:

Dr. Punam Sahgal Prabhat Trivedi (180301008)

TRIGGERS FOR CHANGE

With Cyrus Mistry taking over the helm of Tata Sons, he brought with himself a strategy to
turn all of the unprofitable businesses into profitable ones during his tenure. He had a clear
vision of turning around the fortunes of Tata Group of Companies, which included
revolutionary changes to selling off the ailing business.

The first ones to see the change management effect was Tata Sons owned Indian Hotels
Company Limited (IHCL), which runs the brands of hotels known as Taj Hotels, Resorts and
Palaces.
IHCL performance, whether it be financially or with respect to its Brand Value had been on
constant decline since past many years. With the rate with which it was performing, it became
inevitable that it would be eaten up by the competitors, especially foreign ones, which had
started setting foot in India, like Marriott, Starwood etc. Even if we talk only on the financial
terms, the company incurred a net loss of 276.61 Cr INR in the year 2012, from a profit of 145
Cr in 2011 and in first 9 months of 2014, a total loss of 202 Cr.

Another major reason was the Complacency that had set into the functioning of the
organization, with many top-level executives not performing. The result of this was the
bureaucracy, which brought the organizational growths to a halt. One of the major examples
that can be quoted to justify this kind of culture was the process to acquire marquee American
brand Orient Express (Restaurants), even after engaging in negotiations for well over 5 years.
This process was then abandoned, when Cyrus Mistry took over in December of 2012.

The customers’ expectation from the iconic Taj brand were not being met, with a lot of prime
customers moving on to the competitors. To quote a few customer testimonials, “Taj has lost
its charm and the feeling of warmth that we got from the luxury brand is on the decline.” “Taj
has always been known for its heritage hospitality, but I feel that it is losing the essence of it.
Many more customers had similar experiences and testimonials about the iconic brand.

During this period, a lot of strategic decision were taken, which amounted to the blunder. The
biggest one being the expansion plan put in place, which included the acquiring of many major
properties across the world. If we put it in Cyrus Misty’s words “some strategic decisions of
Indian Hotels Company, like the acquisitions of Sea Rock Hotel, The Pierre in New York and
Taj Boston, had destroyed the economic value of the company”. Mistry’s office said: “When
one has a consistent pattern of value-destroying strategic decisions, all being defended blindly
with vague assertions, it is indeed time for shareholders to question.”

2
To turn around the fortunes of the company, Cyrus Mistry, had to take some extremely tough
decisions about the structure and management of IHCL. The first and biggest one was changing
the CEO of the company. The company was being run by Raymond Bickson, who was MD &
CEO of the company for well over 11 years. He was replaced by industry veteran, Rakesh
Sarna, who was brought in to change the fortunes of the company.

NATURE OF CHANGE AND PROCESS OF CHANGE

Rakesh Sarna, a veteran of 35 years at the international chain Hyatt Hotels, after taking charge
of the company in 2014, decided to understand what was happening in the organization and
how it was all effecting the performance. First thing he did, was to meet with the key position
holders across the groups assets and understand what their position on the performance was
and functioning of their respective business units. A 7-day conference of all the General
Managers and SBU heads was organized at Taj Mahal Mumbai, where the discussions on their
current status and future plans ensued.

Based on his understanding of the current functioning of the organization, he devised a strategy
to effect a change, which started with axing of the top executives who were not performing.
Deepa Misra (SVP, Global Sales) and Abhijeet Mukherjee (Executive Director, operations)
were let go and Jyoti Narang (COO, Luxury division) was moved to another assignment within
Tata. A lot of other senior executives retired, including RK Krishnakumar, who was running
the company along with Raymond Bickson for many years.

The expectations of a revival in two years were revealed by the company’s new managing
director Rakesh Sarna. Sarna said IHCL would strengthen its balance sheet, build hotels and
resolve legal issues over the period. “We are at least two years away from being profitable
because we need to make sure that we have taken account of all our liabilities, defined and
undefined.”

The restructuring exercise was then started by Rakesh Sarna, to bring about the accountability
of the business on the individual property leads. He gave the responsibility of running the
individual properties to their General Managers, while empowering them with various powers,
which included deciding their own pricing and promotion strategies, having their own sales
team, being responsible for their own P&L.

Earlier the strategy for the sales and promotion was defined by IHCL corporate office and it
was followed by the various properties. There was a global sales team which was responsible
for the sales of the complete organization and the sales teams sitting in each hotel, were
reporting to them. In the new structure, although the global sales team remained, but the
individual sales teams now reported to the General Manager of the properties. The now had
freedom to decide on their own pricing strategies to close the sale.

3
While the restructuring of the organization was one of the major decisions taken by Rakesh
Sarna, another major decision was to improve upon the employee motivation in the entire
group. For this, Rakesh Sarna, travelled to almost all the properties under him and understood
in depth from the low-level employee of what was their take on the situation of the whole
group, what helped them derive motivation at work and what do they expect from the company.
I have personally been given the chance to interact with him about it.

A series of decisions followed, mostly containing the soft part of the change management. The
first one was to regulate the working hours of the employees. Earlier, almost each one of the
employees were working on an average of 12 hours per day, which would as high as 18-20
hours. This resulted in poor work life balance and hence decrease in productivity. He
immediately cut this down to 9 hours and to ensure that this was implemented, he made the
General Managers responsible to explain the overtime of the employees, who in turn made the
department heads responsible. This resulted in a successful implementation of this plan and
increase in employee motivation and productivity.

Another key decision was to revamp the employee facilities, like the cafeteria / mess were
revamped completely, with more food options included, including healthier snacks, the locker
room facilities were again revamped, creche facility was started to help the working mothers,
the Executive Holiday plan, which provided 10 days of paid holiday to any Taj property in the
world to the Executives, was extended to all the employees on the Taj Payroll, New attendance
management system, leave application system etc were rolled out. And to be honest, all these
measures really delighted the employees and made them feel that the company takes care of
them.

The hardware part of the change management was also strategically taken. A number of old
properties were revamped / upgraded to meet with the customer expectations. The wrong
acquisitions under earlier management were sold off. New expansion plan was rolled out,
which included expanding major tourist destinations around the world with main focus on
India.

The decision to adopt new technology was also taken. The most important one was the Property
Management System. They moved from MS DOS based “Fidelio” property management
system, which worked on intranet and could be accessed from desktop with specific access, to
Java based, “Opera” Property Management System, which was much easier to operate, with
accessibility from anywhere as it worked from internet and various new functionalities like
integration with Room Management System, Inventory Management System and CRM.

Another major technological shift was from the old room management system to smart room
management system which included room automation to inbuild services like entertainment.

4
NEW LEADERSHIP

While, Rakesh Sarna’s idea of bringing about the change in the ailing iconic company was
revolutionary, but his tenure in the company was short-lived. He resigned from the company
in September 2017, following a series of allegations against him, which included a sexual
harassment case. While at the same time Cyrus Mistry was also ousted from the helm of Tata
Sons. While Cyrus Mistry was replaced by the Top Boss of TCS, N Chandrasekaran, Rakesh
Sarna’s position was taken over by Puneet Chhatwal, who was the Chief Executive Officer and
Member of the Executive Board of Steigenberger Hotels AG – Deutsche Hospitality and was
also the Chief Development Officer of The Rezidor Hotel Group – Carlson Hotels Worldwide.

Puneet Chhatwal, had a completely different vision for the company. His main focus was on
building the lost Brand Value of the iconic brand. With this in mind, he embarked on a journey
of bringing back the glorious status that Taj Brand held in the minds of its stakeholders, the
crown jewel of Tata group portfolio.

He ushered in a host of changes that include a new brand architecture, aggressively focussing
on development (22 hotels signed in 2018-19) and an infusion of funds for expansion.

He crafted an India focus strategy, which focused on marking their presence in India, with 200
properties by 2022. He started with ambitious expansion plan, by opening one property every
month to reach that goal. “Growth outside India will be selective. We have enough of work to
do in the domestic market,” Chhatwal said in an interview with Economic Times.

He junked the mono-brand approach of his predecessor and restored some earlier segmentation
and killed the brand Gateway.
Under the previous leadership, the Taj Group of Hotels had four brands of hotels under it’s
kitty, Taj, Vivanta, Gateway and Ginger.

5
 The new segmentation strategy brought by Mr Chhatwal, included killing of the Gateway
brand and bringing in new brand called SeleQtions.

He devised a five-year growth strategy plan known as, Aspiration 2022, which included India-
focused expansion plan, Revamping the Brand Architecture and Culture expression known as
Tajness.

6
This was defined and rolled out as Restructuring, Re-engineering and Re-imagining exercise
to various stakeholders

As a part of their five-year plan, they reimagined their brandscape to suit various segments of
customer needs. Taj remained in Luxury space, Vivanta is a chain of Upscale hotels catering
to travelers seeking unique expriences, SeleQtions, is chain which offers travelers with unique
and distinctive experience, with 12 hotels under the brand currently and Ginger was
repositioned to lean-luxury segment.

While another important new segment is Expressions, which includes service retail brands like
Chambers and F&B outlets like Golden Dragon, Wasabi etc. and lifestyle brands like Jiva Spa.

They also entered homestay market with Ama Trails and Stays.

“Our greatest opportunities reside at the very heart of our brand - our people, authentic guest
experiences and unmatched value. Our strategy is three pronged: Restructure, Reengineer
and Reimagine our portfolio to achieve 8% point EBIDTA margin improvement. This will be
driven by a deep commitment to service excellence as well as implementation of revenue and
profit-driving initiatives. Integral to our strategy of reinforcing the multi-product, multi-
segment brandscape is our customer. We shall aim to have a value proposition for each of our
customers at different points in their lifecycle. Our service ethos, epitomized in what we call
‘Taj-ness’ will continue to be the soul of our company.” Puneet Chhatwal said.

7
A new poster was unveiled to define the new values of IHCL

8
ROLE OF LEADER IN MANAGING CHANGE

When the company was in a dire state during the period of 2010-2014, it was considered as a
failure on part of leadership to effectively guide and manage the company. Under the leadership
of Raymond Bick, a lot of key strategic decisions were taken and many of them backfired.
Other top executives of the company also helped in building a culture of Complacency in the
company, which eventually pushed for a turn around and a revolutionary change.

When Mr Rakesh Sarna took over, with a vision of turning around the fortunes of the company,
it was his leadership abilities, which helped in achieving that vision. Before deciding to go
through any kind of change in either strategy or otherwise, he decided to understand the
situation firsthand, and met with almost all the stakeholders of the company. Post which he
embarked on the journey of changing the companies process and make its people feel more
valued.
He devised very clear strategical guidelines to ensure that the change management is done in
an effective manner and reaches to successful conclusion and can then be sustained for a very
long period of time. He involved himself completely in the implementation of this process, by
constant monitoring and guidance from the top office. What made this a unique exercise was
that every single stakeholder (read employees) were made accountable for implementing this
change process and ensuring its sustainability and for this he had opened a direct
communication channel to his office. Yes, you read that right, any of the employees in the
whole organization could reach to him, either through email, telephone or letters and he ensure
that all of them heard and replied to.

Rakesh Sarna played a key role in implementation of the process and ensuring its effectiveness,
and this not only resulted in strengthening of financial position for the company but also
making its people feel more valued and significant increase in their productivity.

When we talk about Mr Puneet Chhatwal, he himself has over the period of time been a
revolutionary leader. Understanding what is required for the organization, to setting clear goals,
he excelled in each front. He ensured that the vision he wanted for the company was percolated
down to the lowest levels and implemented effectively. While he has just been into two years
of his Aspirations 2022 vision, how successful this strategy is, is yet to be seen.

9
RECOMMENDATIONS

The company has been able to turn around its fortunes since the time Rakesh Sarna took over
as the top boss. They have managed to stay profitable at the same time have been able to restore
the brand value of Taj. And Puneet Chhatwal with his vision has ensured that the company
follows the path of growth started by his predecessor.

A few recommendations for the company to stay profitable can be:

1. While focusing on the expansion and growth, the company needs to ensure that their
long-standing debts are taken care of. Mounting debts because of bad strategic
decisions was one of key failure points for the company. Hence, ensuring that this
situation does not occur again would keep the company financially strong.

2. While focusing on the company growth with Aspirations 2022, the company should not
forget about the growth of its people, because being in service industry, people are its
main assets. The plan of working hours, which has been put on the back burner, needs
to brought back and ensured is followed properly. Other such employee initiative taken
should be properly executed and new ones should also keep coming up.

3. Give more focus to adopting technology. Technology these days have made the
processes much simpler and cost effective. Technologies like RPA and automation have
not only resulted in cost saving but also in creating unique experiences for the guest.
Taj is lacking in adopting these technologies and that is where they need to step up their
game.

4. Scale up the marketing initiatives. While they are present on the digital platforms and
are fairly successful there, but almost zero presence in traditional media like
newspapers and OOH might give them a little push in the downward direction. Hence,
they need to widen their focus from purely digital to other forms of advertising.

10