Four Seasons Hotels and Resorts, a Toronto (Canada)-based company founded in 1960, is a leading player in the luxury hotel business worldwide. It currently operates 119 hotels and 45 residential properties in 48 countries as of December 2020, with several of its hotels routinely earning almost all major hotel quality recognition awards.[ii] In 2011, 45 Four Seasons hotels were among the ‘Top 500 Hotels’ according to Travel + Leisure, one of the most influential travel and lifestyle publications in the world. In 2020, 19 Four Seasons hotels won the AAA Five Diamond Award for hotels and restaurants, North America’s symbol of excellence in the hospitality industry; 20 restaurants at 15 Four Seasons hotels hold Michelin Stars. Four Seasons was also named one of Fortune magazine’s top employers for the 23rd consecutive year in 2020. In addition, 44 hotels, ten spas and two restaurants at Four Seasons were awarded prestigious five-star ratings by Forbes Travel Guide in 2020, placing Four Seasons as the hotel brand with the most five-star ratings.[iii]
A detailed understanding of the routines required to satisfy sophisticated and demanding hotel guests drives this hotel chain’s success. This knowledge took a long time to develop. The relevant routines also appeared deployable in the chain’s international expansion, but some adaptation to local circumstances proved necessary.
Developing the four pillars – the foundation of Four Seasons’ success
Isadore Sharp, founder of the Four Seasons hotel chain, started his career by joining his father’s construction business in 1952 when he graduated with an architecture degree from Ryerson Polytechnical Institute in Toronto. In the mid-1950s, Sharp built a motel for a friend in Toronto and realized that there might be opportunities in the lodging business. However, the type of accommodation he envisaged was not a traditional motel, but rather a combination of the informality of a motel with the convenience of a conventional, downtown hotel. In 1961, Sharp opened the first Four Seasons in Toronto.
Exceptional luxury hotels as the first pillar
Sharp continued to build hotels during the 1960s, but the foundations of the hotel chain’s current philosophy surfaced only in the early 1970s. The Four Seasons London was opened in 1970. To compete against the old-fashioned grand hotels in London, Sharp established his London hotel as a luxury hotel of 230 rooms with then-modern amenities such as air conditioning. At the same time, the London hotel kept the essence of the motel and downtown hotel combination: “luxury without formality, service without a class attitude”.[iv] The instant success of the Four Seasons London, together with difficulties in maintaining good service at the 1,600-room hotel in Toronto opened after the London hotel, resulted in Sharp’s decision to only develop and operate midsized hotels of exceptional quality. It was then, in 1972, that the Four Seasons established an early version of its first pillar: “to specialize in small- to medium-sized hotels of exceptional quality, and to be the best wherever we are located”.[v]
Uncompromising service as the second pillar
With the first pillar in place as the basic formula, Four Seasons slowly expanded in Canada. During this expansion, Four Seasons continued to refine its understanding of exceptional quality, with a focus on great service. Four Seasons was the first hotel chain in North America to provide 24-hour room service, hair dryers, overnight laundry and bathrobes. As the leader in innovative service, Four Seasons continued to upgrade the content of what was commonly understood in the industry as the ‘five-star’ hotel standard.
In 1976, Four Seasons formally decided to differentiate itself from its competitors on the basis of its great service, with uncompromising service becoming the second pillar of its success.
By 1978, Four Seasons had expanded to every major Canadian city large enough for a five-star hotel, and it faced a choice: enter the US market, or expand to secondary Canadian cities. Four Seasons chose to enter the US market, continuing to specialize in great service. In fact, it redefined luxury as great service, thereby explicitly linking its first two pillars. At that time, giant hotel chains dominated the US market, with luxury viewed mainly as an issue of architecture and decoration. Four Seasons clearly had to offer something more to defeat these competitors. Four Seasons surveyed its customers – most of whom were business executives – and discovered that they particularly valued time and productivity. Therefore, Four Seasons introduced new services to help its customers use their time as effectively as possible. For example, room service breakfast was redesigned from a simple leisurely activity to an instrument that helped customers save time and prepare for a busy workday.
Four Seasons also continued to redefine the concept of luxury in its operations. For example, it found that business travelers were interested in leisure and wellness services, such as workout options. In 1986, Four Seasons introduced a full-service spa at the Four Seasons Resort and Club Dallas. This type of service has now become a component of the luxury experience at every Four Seasons hotel.
Intuitive and caring culture as the third pillar
With many new employees joining Four Seasons during its expansion in the 1970s, control emerged as a major internal problem for the chain to maintain its positioning as a set of exceptional luxury hotels with uncompromising service. Four Seasons established detailed service standards as a part of its solution. In addition, Sharp decided to make the chain’s implicit operating philosophy explicit. Its ‘golden rule’ became: “to treat others as we would wish to be treated”.[vi]
In contrast to other firms that had adopted similar credos, Four Seasons made great efforts to enforce the corporate culture down to its front-line employees. These efforts included a strong focus on hiring the right employees, establishing clear career paths within the firm, encouraging self-discipline and setting performance standards. For example, in terms of hiring process, Four Seasons hired employees for attitude rather than experience or appearance, with each applicant interviewed four or five times within a very strict hiring process. Sharp believed that it would be easier to teach the chain’s philosophy to an employee with the right attitude than to change an experienced employee displaying a wrong attitude. When Four Seasons invested in Maui, Hawaii, the large number of hotels in that location made it hard to find capable employees. Four Seasons carefully screened workers from the sugarcane and pineapple fields, hired those workers with positive attitudes, and trained them extensively. Within a year, Four Seasons Maui became the number one hotel on the island.
Specializing in hotel management as the fourth pillar
In the 1980s, when demand for luxury hotels soared in North America, Sharp agreed to build Four Seasons hotels in over a dozen cities. However, the recession in the early 1990s greatly affected real estate and luxury hotels. In 1993, plummeting stock prices and big losses at Four Seasons drove Sharp to conclude that Four Seasons was good at running hotels, but not at building and owning them. Since then, Sharp gradually sold the ownership of almost all the Four Seasons hotels and refocused on hotel management only. By 2005, Four Seasons owned only two hotels: the Pierre in New York and the Four Seasons in Vancouver.
Building upon the four pillars in international expansion
By the early 1990s, Four Seasons had around 20 Four Seasons hotels in major North American cities and popular resort areas large enough to support five-star hotels, and it again faced a choice: expand internationally, or expand to somewhat smaller North American cities. Four Seasons chose to expand internationally, and for three main reasons. First, the smaller North American cities had fewer high-paying guests, and therefore fewer potential customers for luxury hotels. Second, if Four Seasons opened lower-priced hotels in North American cities, that could threaten its image as both a luxury hotel chain and a provider of outstanding hotel service. Finally, attractive markets for luxury hotels were still available in many foreign city centres in Europe, Asia and the Middle East. Such attractive markets resulted either from a rapidly rising demand for luxury hotels or from a lack of luxury hotels comparable to Four Seasons.
However, overseas expansion also had its own problems. In order to consistently provide high-quality service in its overseas hotels, Four Seasons needed to not only replicate the four pillars, but also adapt to the local environment. Four Seasons’ experience in Paris demonstrated the difficulty of striking this balance between replicating a successful formula and adapting the formula to a foreign market.
The F. S. George V was one of the top six luxury and historic hotels in Paris, the other five being the Bristol, Crillon, Meurice, Plaza Athenee and Ritz. Although the reputation of the George V was falling in the 1980s and 1990s, it was located in one of the most fashionable districts in Paris, close to the Champs Élysées. Moreover, obtaining the necessary permits to build a new hotel was very hard in Paris, so the George V gave Four Seasons an easy way to enter the Paris market.
In November 1997, Four Seasons signed a management agreement with HRH Prince Al Waleed Bin Talal Bin Abdulaziz al Saud, who had bought the hotel in December 1996. With the fourth pillar in place (hotel management), Four Seasons had to look for ways to replicate the other three pillars while adapting to the French market.
A medium-sized Four Seasons luxury hotel with a French flavour
The George V was already a luxury hotel, with standard rooms priced between $400-$700 USD. However, to be a luxury Four Seasons hotel, both the physical appearance and service quality had to be raised to Four Seasons’ standards. At the same time, the façade had to be retained, as it was a landmark building designed in the 1920s.
Four Seasons had to conduct a two-year physical renovation. The façade was kept, with the art deco windows, wood panelling and seventeenth-century Flemish tapestries restored. The interior part was redesigned by the French designer Pierre Rochon, who married up-to-date technology with the hotel’s French heritage. Four Seasons reduced the number of rooms and suites from 300 to 245, in order to enlarge rooms.
At the same time, Four Seasons also had to upgrade some of its more tangible amenities to meet the French standards of luxury hotels. For example, French guests would expect a luxury hotel to have a world-class restaurant with floral arrangements, while Four Seasons restaurants were normally understated, providing excellent food, but in most cases not of Michelin Star quality. To meet the French standard, Four Seasons recruited Chef Philippe Legendre from Taillevent, a world-class Parisian restaurant.
Replicating Four Seasons’ service at the George V
Transferring both its consistent high-quality service and its corporate culture were the major challenges in overseas expansion at Four Seasons. Four Seasons took several steps to facilitate the international replication of its service and culture.
First, Four Seasons clearly defined 7 international service culture standards and 270 international core operating standards. The seven service culture standards included greeting guests (SMILE), making eye contact (EYE), using guests’ names (RECOGNITION), speaking in a natural and courteous manner (VOICE), being informed of the hotel and its product (INFORMED), appearing clean and well-fitted (CLEAN) and showing appropriate care for guests at any time (EVERYONE).
The operating standards included work rules and exceptions. For example: phone calls will be answered before the fourth ring; no guest will wait longer than 60 seconds at the reception desk or the cashier desk. There were 800 rules until 1998, but some rules proved to be overly complex or unnecessary in some overseas markets. Four Seasons therefore allowed exceptions to the standards. For example, Four Seasons normally requires waiters and waitresses to leave the coffee pot on the table for guests, so that they can refill their cups themselves, but this approach was viewed as poor service in France. Therefore, this rule was revoked in France.
Second, Four Seasons enforced its strict hiring policies in France for new recruiting, while retaining a large number of the George V’s former employees. According to French regulations, Four Seasons had to keep all former employees of the George V unless they wanted to leave. When the Four Seasons George V reopened, many of the best employees had already found jobs elsewhere, and at least 40 of the 300 former employees who did come back did not pass the Four Seasons’ hiring process. For the 400 jobs not filled by former employees, Four Seasons screened more than 10,000 applicants to find employees with the right attitude. The critical mass of the new employees who met the Four Seasons’ standards overcame the ‘rotten apple’[vii] of the inferior employees that Four Seasons was forced to keep.
Finally, Four Seasons chose Didier Le Calvez, the former general manager of the Pierre in New York, to be general manager. He knew the Four Seasons culture well and, because of his French origin, also knew how to combine the two cultures. Moreover, Four Seasons sent a 35-person task force to Paris to help Le Calvez establish service culture standards and norms, as Four Seasons did for every new hotel. The task force consisted of experienced Four Seasons staff/managers trained to identify and mitigate specific problems.
The Four Seasons Hotel George V Paris successfully opened on 18 December 1999, with all rooms occupied. It has continued to do very well. It appeared on Condé Nast Traveler’s 2012 Gold List for exceptional service, and was named the best hotel in France in 2011 by the same publication. Also in 2011, it received a ‘Palace’[viii] title from French tourism authorities – the equivalent of a five-star hotel rating and was one of only nine hotels to receive this distinction. Le Calvez was named World’s Best Hotel Manager in 2006 by the Hospitality Awards. In addition, one of the dining venues, Le Cinq, earned two Michelin stars. Within the hospitality industry, these are all major, widely acknowledged signs of success.
Despite Le Calvez leaving Four Seasons in 2007, the staff at the George V Paris continued to receive recognition for excellence in service. In 2011, Céline Bodo of the George V Paris, was named France’s receptionist of the year; an indication of the successful integration of Four Seasons’ high-quality service values. In the same year, the George V was also recognized for its bartending and sommelier services.
The eighth pillar
Following the global financial crisis in 2008, many luxury brands such as Tiffany & Co began offering more affordable product lines in response to increasingly cost conscious consumers. Despite the luxury class hotel sector experiencing a 21.8 per cent drop in revenue per available room between 2008 and 2009, Four Seasons did not opt to launch a low-cost line of hotels. Susan Helstab, Executive Vice President of Marketing at Four Seasons commented that the “growing accessibility of luxury brands means that wealthy buyers are now looking even harder for one-of-a-kind purchases”.[ix] Citing digital media as a means of providing personalization to their core consumer group, Helstab also noted that “luxury brands that do not commit to a holistic digital media strategy will not survive; it is no longer a nice-to-have but an essential pillar of branding”.[x]
Four Seasons devoted 50 per cent of its marketing budget to digital media platforms in 2011, with an emphasis on developing a family travel blog and a social media presence. Online sales rose by 10 per cent from 2010 to 2011, with online bookings accounting for 12 per cent of revenue. In 2012, Four Seasons redesigned its official international website and published the Luxury Trend Report, which delivers insights on the luxury goods industry.[xi]
Two VIP billionaires with new ambitions
In 2006, Four Seasons managed 70 luxury hotels and resorts, with 27 new properties under construction or development.[xii] During this year, Isadore Sharp, the 75-year-old founder, decided to take Four Seasons private by selling 90% of its shares to Bill Gates (through his investment firm Cascade Investment LLC) and Saudi Prince al-Waleed bin Talal (through Kingdom Hotels International), at $3.8bn (some reported $3.4bn or $3.7bn).[xiii] The bid was closed at the peak of the boom in early 2007, and the two billionaires paid a premium price at 47 times of Four Seasons’ earnings.
The two billionaires preferred a fast growth strategy, which was slowed down by the 2008 financial crisis and its aftermath. Mr. Sharp’s bankers convinced Kingdom Hotels International that the number of Four Seasons hotels could reach 160 in a decade,[xiv] but this expansion did not meet the owners’ ambitions. By 2013, Four Seasons had 90 hotels worldwide, and the slow expansion led to the removal of the CEO Katie Taylor, who had worked at Four Seasons since 1989 and took over the CEO position from Sharp in 2010.[xv] Her successor, Allen Smith, an outsider of the hotel industry and CEO of Prudential Real Estate Investors, managed Four Seasons from August 2013 to 2018. Then, after almost two years of searching, the board finally appointed interim CEO John Davison as the new CEO in May 2019.[xvi] During recent years, Four Seasons has grown from 109 hotels in 2018 to 119 in 2020.[xvii]
Besides the expansion in the hotel industry, a strategic priority was to grow the Four Seasons’ residential business. Four Seasons Private Residences included 38 properties in 17 countries in 2018.[xviii] In 2020, the company expected to double its residential portfolio within the following five years, with a residential component included in more than 90% of all development.
However, some industry analysts and business partners had questions about whether the Four Seasons’ high-quality standards and luxury appeal would suffer because of its rapid expansion.[xix] Four Seasons’ reputation for high-quality service relied on highly trained and motivated staff, while quick hiring and fast promotion during high growth periods may dilute the culture and reduce guest satisfaction. The allure of luxury hotels partly came from their scarcity, while the increasing number of Four Seasons’ operations could damage the appeal of the brand.
Moreover, the operations of each hotel would differ, depending on location (e.g., in a business district or a leisure location), configurations of the building (e.g., outside guests allowed for spa services, swimming pools, and other wellness facility or dining), competition, number of hotel rooms for a personalized high customer service, taxation, minimal wages, and contracting activities such as housekeeping when local employees cannot fill such positions.[xx] As a result, prioritizing resource recombination and a commitment towards developing location-specific advantages, not only in particular countries but also city districts, may be necessary.
Finally, some reports also suggested that the two billionaires have differing viewpoints on a variety of business matters. For example, Bill Gates and Cascade Investments like the focus on privacy and on exemplifying an understated wealthy lifestyle, and prefer an external CEO for Four Seasons. In contrast, Saudi Prince al-Waleed bin Talal and Kingdom Hotels International encourage high levels of publicity, openness, and the display of wealth. In addition, Kingdom Hotels prefers an internally sourced CEO for Four Seasons. The two billionaires have voiced differences on the future of Four Seasons. Kingdom Hotels hopes for an initial public offering in the near future, while Cascade Investments prefers to preserve private long-term ownership of the luxury hotel chain. Nevertheless, both agree that balancing growth with high quality is a top priority.[xxi]
QUESTIONS
- What was Four Seasons’ distinct resource base, including elements of its administrative heritage, that provided internationally transferrable FSAs?
- Which value-added activities in which foreign location(s) permitted Four Seasons to exploit and augment its distinct resource base to the fullest?
- What were the expected costs and difficulties Four Seasons faced when transferring this distinct resource base?
- What specific resource recombination (associated with each alternative foreign entry and operating mode) was required to make the proposed international value-added activities successful?
- Did Four Seasons have the required resource recombination capability in-house? Why or why not?
- What were the costs and benefits of using complementary resources of external actors to fill resource gaps?
- What were the main bounded rationality and bounded reliability problems Four Seasons faced when extending the geographic scope of the firm’s activities, given the changed boundaries of the firm, the changed linkages with outside stakeholders and the changes in its internal functioning?
- Do you think, looking at the future, that there is a trade-off between the speed with which the Four Seasons can diversify geographically and the effectiveness of the new resource combinations it will need to engage in, in each new location, in order to be successful as a multinational organization?
[i] Elena Cherney, ‘Four Seasons Hotels looks abroad for ambitious overseas expansion’, Wall Street Journal (Eastern edition) New York, N.Y. (30 October 2000), A.22; Matthew Garrahan, ‘A new spring for Four Seasons’, Financial Times (26 November 2004), 12; R. Hallowell, D. Bowen and C. I. Knoop, ‘Four Seasons goes to Paris’, Academy of Management Executive 16 (2002), 7–24; Isadore Sharp, ‘The unseen but decisive factor in entrepreneurial success’, address to The Canadian Club of Toronto (25 May 2004); Isadore Sharp, ‘Remarks at the 14th Annual Ivey Business Leaders Award Dinner’ (21 September 2006); Joseph Weber and John Rossant, ‘The whirlwind at the Four Seasons; luxury hotel chain founder Issy Sharp is on a global tear’, Business Week (13 October 1997), 82.
[ii] Four Seasons. 2020a. Four Seasons Reveals What’s New for 2021 and Beyond, https://www.newswire.ca/news-releases/four-seasons-reveals-what-s-new-for-2021-and-beyond-852647126.html, Dec 3, 2020
[iii] Four Seasons. 2020b. Four Seasons Hotels and Resorts Receives Record Number of Forbes Travel Guide Five-Star Awards for the Fifth Year Running, https://www.newswire.ca/news-releases/four-seasons-hotels-and-resorts-receives-record-number-of-forbes-travel-guide-five-star-awards-for-the-fifth-year-running-868711262.html, Feb 12, 2020
[iv] Ibid.
[v] Ibid.
[vi] Ibid.
[vii] Hallowell, Bowen and Knoop, ‘Four Seasons goes to Paris’, 15.
[viii] France Tourism Development Agency, ‘Palaces in France – Hotel Four Seasons George V in Paris joins the select few’, Maison de la France.
[ix] Marketing Week, ‘Q&A’, 34(12), 18–19.
[x] Ibid.
[xi] Four Seasons, Luxury Trend Report.
[xii] Four Seasons. 2006. Annual report.
[xiii] Andrew Clark. 2007. Bill Gates and Saudi prince offer $3.8bn for Four Seasons hotel chain, https://www.theguardian.com/business/2007/feb/13/2, February 13, 2007.
[xiv] Anupreeta Das, and Craig Karmin. 2017. Two VIP Billionaires Teamed Up to Run Luxury Hotels. It’s Been a Slog, The Wall Street Journal, https://www.wsj.com/articles/two-vip-billionaires-teamed-up-to-run-luxury-hotels-its-been-a-slog-1500226911, July 16, 2017.
[xv] Darryl James. 2013. Kathleen Taylor out as Four Seasons CEO after three years, https://www.theglobeandmail.com/globe-investor/kathleen-taylor-out-as-four-seasons-ceo-after-three-years/article8254572/, The Globe and Mail, February 5, 2013.
[xvi] CPP-Luxury. 2019. After an almost two-year unsuccessful executive search, Four Seasons Hotels announces an internal promotion to CEO, namely John Davison, https://cpp-luxury.com/after-an-almost-two-year-unsuccessful-executive-search-four-seasons-hotels-announces-an-internal-promotion-to-ceo-john-davison/, May 29, 2019.
[xvii] Four Seasons. 2018. 33 Four Seasons Properties Awarded Forbes Travel Guide’s “Five-Star” Rating, https://www.prnewswire.com/news-releases/four-seasons-hotels-and-resorts-receives-record-number-of-forbes-travel-guide-five-star-ratings-for-third-consecutive-year-300600356.html, February 20, 2018; Four Seasons. 2020a. Four Seasons Reveals What’s New for 2021 and Beyond, https://www.newswire.ca/news-releases/four-seasons-reveals-what-s-new-for-2021-and-beyond-852647126.html, Dec 3, 2020.
[xviii] Four Seasons. 2018b. Four Seasons Continues to Expand Global Portfolio of Hotels, Resorts, and Residences, https://www.newswire.ca/news-releases/four-seasons-continues-to-expand-global-portfolio-of-hotels-resorts-and-residences-670495103.html, Jan 22, 2018.
[xix] Anupreeta Das, and Craig Karmin. 2017. Two VIP Billionaires Teamed Up to Run Luxury Hotels. It’s Been a Slog, The Wall Street Journal, https://www.wsj.com/articles/two-vip-billionaires-teamed-up-to-run-luxury-hotels-its-been-a-slog-1500226911, July 16, 2017.
[xx] CPP-Luxury. 2020. Can Bill Gates save Four Seasons Hotels & Resorts?. https://cpp-luxury.com/can-bill-gates-save-four-seasons-hotels-resorts/, April 3, 2020.
[xxi] Anupreeta Das, and Craig Karmin. 2017. Two VIP Billionaires Teamed Up to Run Luxury Hotels. It’s Been a Slog, The Wall Street Journal, https://www.wsj.com/articles/two-vip-billionaires-teamed-up-to-run-luxury-hotels-its-been-a-slog-1500226911, July 16, 2017.