Description
With specific Reference to the Hospitality Sector - Small and Medium sized Hotels in Mumbai.
INNOVATIVE ENTREPRENEURSHIP –
THE KEY DNA FOR A SUCCESSFUL TURNAROUND
IN THE HOSPITALITY BUSINESS
With specific Reference to the Hospitality Sector - Small and Medium sized Hotels in
Mumbai.
By
Dr. R. Gopal
B 4 Akshaya,
Chedda Nagar,
Chembur,
Mumbai 400089.
Director,
D.Y.PATIL Institute of Management Studies,
C.B.D. Belapur,
Navi Mumbai.
Tel. No. ® 022 –2528 6428, © 9322517368
E Mail: [email protected]; [email protected]
And
Mr. Krishna Shetty
B – 206,Dosti Astor
Dosti Acres
Antop Hill,
Wadala East
Mumbai 400 037
Faculty,
D.Y.PATIL Institute of Management Studies,
Belapur,
Navi Mumbai.
Tel. No. ® 022 32510957, © 9819333633
E Mail: [email protected]; [email protected]
INNOVATIVE ENTREPRENEURSHIP -- THE KEY
DNA FOR A SUCCESSFUL TURNAROUND IN THE
HOSPITALITY BUSINESS
With specific Reference to the Hospitality Sector—Small and Medium sized Hotels in
Mumbai.
ABSTRACT:
As the business environment is becoming increasingly more complex, accompanied by
intensified competition, rapid advances in technology and most critically, rising churn,
be it customer or employees, there is an unprecedented rise in corporate failures today.
And, just as amazing as the increasing number of failures, is the fact that most of the
companies that attempt a recovery, also fail.
Against this backdrop, it makes sense for companies to understand the reasons for their
decline, in their performances, and find ways to avoid a potential bankruptcy situation.
However, sickness is not restricted to corporates only. The same factors that cause
sickness in corporates are also reasons for sickness in small and medium sized
businesses. However, the gravity of the factors may vary and it would be pertinent to say
that the study of failure and turnaround for small and medium businesses should be
separately undertaken as the rules of the game for the large corporate houses need not
necessarily be the same for the small and medium sized entrepreneurs. The Hotel
Business or the Restaurant business is one category, which deserves special interest.
These category of hotels and restaurants are typically called as UDIPI HOTELS which
primarily serve SOUTH INDIAN DISHES like Dosas, Idlis etc. Many have diversified
into serving the NORTH INDIAN DISHES like Parathas etc.
Surprisingly several such UDIPI hotels are not able to match the onslaught of the
changing demands of the Indian Customers especially in terms of new dishes, Chinese
and other oriental dishes etc. The net effect has been that some of them have fallen by
the wayside – a sick company. The problem for these small and business enterprises gets
compounded when one realizes that the SICA and BIFR (Sick Industries Act and
Bureau of Financial Reconstruction) are not in a position to help these organizations.
The restaurant business category contributes substantially to the GDP of the country.
The issue is what are the reasons for sickness in this category and what is the role that
the entrepreneur plays in the successful turnaround of ailing restaurants. Can
Innovation play an important role in nurturing these units back to their original glory?
This paper aims to study the various strategies that have been used by the hotel sector in
order to turn themselves from a sick organization to one of the topmost organization in
their field.
The study was limited to the hotel industry in Mumbai due to cost and time constraints.
INNOVATIVE ENTREPRENEURSHIP -- THE KEY
DNA FOR A SUCCESSFUL TURNAROUND IN THE
HOSPITALITY BUSINESS
With specific Reference to the Hospitality Sector—Small and Medium sized Hotels in
Mumbai.
INTRODUCTION:
The Indian restaurant services sector is estimated to be worth Rs. 57,000 crore, out of
which only Rs. 3,940 crore or 6.9 percent is accounted for by the organized sector. The
vast unorganized segment mainly comprises street-side stalls/kiosks constituting the
majority of consumer food-service units and is characterized by intense fragmentation
and a virtual absence of standardization of operations. This segment was Rs. 35,000
crore in 2004, which grew by about 18 per cent to Rs. 41,400 crore in 2005 and in 2006
the segment recorded a growth of nearly 19% over previous year and stood at Rs.
49,200 Crore. (basis: constant prices – 2003-04 price base). Fig. 1 gives the details of the
growth of the Indian Restaurant.
Figure: 1.
Size of Indian Restaurant & Catering (F&B) Services
(value in Rs. Crore at 2003-04 prices)
*Source: India Retail Report- 2007, India Retail Forum 2007.
The following table shows growth of restaurants in the organized sector.
Figure: 1.1
Growth of Restaurants in Organized Sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
Restaurant
Presence
No of outlets Restaurant
space
2005
2006
*Source: India Retail Report – 2007, India Retail Forum 2007.
Major domestic and international players in the arena have on an average extended
their retail reach by 45 percent in 2006 as compared to 2005. Tier II cities are currently
the biggest growth drivers. Additionally investments in supply chain management are
another important issue that must also be kept in mind.
The total number of outlets increased dramatically in 2006 registering a year on year
growth of around 70% as compared to a y-o-y growth rate of 29% in 2005.
The evolved Indian consumers are invariably seeking variety and are willing to
experiment with new cuisines. KSA Technopak’s studies have shown that while in the
US seven basic meals cover 80 percent of all ‘dinner at home’ occasions, in India 15 meal
types cover only 60 percent of ‘dinner at home’ occasions. The trend towards home
delivery is also fast gaining popularity, with value sales shooting the roof over the last
couple of year. India is one of the few countries where McDonald’s has introduced its
home delivery service.
In an environment that seems to be transforming itself with every new technology,
marketing tactic or investment strategy, businesses rush to embrace change by trading
in their competencies altogether – all in the name of innovation. But generating new
ideas does not automatically result in innovations and success. It is only the beginning of
the journey. The real challenge for an organization is to convert these ideas into
acceptable products or services for customers. This can happen only when organizations
design and implement a structured approach to managing innovations.
Innovations are very important in the services sector, especially in the hospitality sector
and albeit in the small and medium sized hotel business. The restaurant business
requires entrepreneurs to continuously come up with new dishes; new ways to present
or serve existing dishes, new services or schemes to satisfy customers, new ways of
enhancing their ambience and new processes to economize operations. Without
innovation, restaurants face the threat of becoming ‘obsolete’- leading to sickness – and
ultimately driving them out of business or forcing them to hand the business over to a
more efficient and innovative entrepreneurs.
The study was conducted essentially in the restaurant and catering sector. The study
was limited to the “small sector” typically what is called in Mumbai parlance as a
“Udipi Hotel”. A “Udipi Hotel” can be defined as a typically South Indian dish serving
type hotel. But others serving North Indian dishes like Parathas or Snacks or even those
serving lunch and have a Bar is also being termed as “Udipi”.
LITERATURE REVIEW:
Not many studies have been conducted in the area of successful turning around of small
and business units especially with respect to the hotels – Udipi Hotels. Most of the
studies are general in nature and are aimed at the large corporate hotels.
Sonia Bharwani, “Successful Hospitality Innovations–Case study of Oberoi Resorts.”
Institute for International Management and Technology, The 2nd International
Conference on Services Management, 1st June 2007 1 evaluates the success of the
Oberoi Group’s innovation of luxury resorts, by measuring across a number of
dimensions like improved image, customer loyalty, revenues etc. Michael Ottenbacher
and Juergen Gnoth, “How to develop successful Hospitality innovations.” Cornell Hotel
& Restaurant Administration Quarterly, May 2005
1
identifies nine factors that drive
successful innovations in the hospitality service industry. Viz. 1) Market selection. 2)
Strategic human resources management. 3) Training of employees. 4) Market
responsiveness. 5) Empowerment. 6) Behavior-based evaluation. 7) Marketing synergy.
8) Employee commitment. 9) Tangible Quality.
Cathy Enz, Judy Siguaw, “Innovations in hotel practice.”, Cornell Hotel & Restaurant
Administration Quarterly, October, 2003.
2
talks about the importance of innovative
ideas and practice in the hotel industry.
Dr. Ramamirtham Gopal, research paper on “Innovation – The key strategic weapon to
Increase Competitiveness – A model to measure the impact of Innovation on the value of
Business”, Allied Publishers Pvt. Ltd., 10th International Annual Convention on
Strategic Management, 10 May, 2007.
3
talks about the
various
types of innovations that
takes place in the industry and the impact of the innovations on the value of the
business. The paper brings out the difference between product innovation and process
innovation. It also talks about Competitor centered and Customer centered innovation.
The paper effectively brings out the importance of innovation for maintaining the
Sustainable Competitive Advantage and how it ultimately results in an increase in
margin or an increase in volume. The paper ends with some useful observations from a
selected few sectors such as the hospitality and hotel sector offering insight as to the
importance of innovations and how to measure the impact of these on the profitability of
the firm.
RESEARCH OBJECTIVES DEFINED:
The specific objectives of the study were:
1. To determine the causes of sickness, especially in small businesses with special
reference to the hospitality sector – small and medium hotels
2. To understand the strategies adopted by entrepreneurs in bringing about
successful turnaround.
3. To recommend action plan for a successful turnaround in the hospitality sector.
RESEARCH METHODOLOGY:
The first step in the research processes was to determine the issues that need to be
addressed for the purpose of the study. Initial talks and discussion were held with people
from the service sector as well as the restaurants industry in consultation with the guide.
Review of various data and literature available regarding all issues connected with the
research was extensively undertaken. Books from various libraries were perused and the
relevant ones were studied in detailed. Various journals magazines and research papers
were referred too.
Several web sites were browsed and relevant data was accumulated The descriptive
survey helped in preparing the ground work for the next step i.e. the field survey.
Historical Survey: The geographic area chosen for the survey was Mumbai city for the
purpose of convenience. There is no official published data available giving the details of
“Failed Restaurants”. Nor has there been any official or unofficial study known to have
been conducted in this area of the small and medium sized hotels especially the UDIPI
HOTELS.
Research Instrument used in the study: In order to achieve maximum information from
these Industrialists (who are typically from Mangalore and are not generally known to
be open to discussions about their business), exploratory research was predominantly
used. Additionally certain quantitative information was also obtained by using the
Likert scale of measurement. A 5 point scale was used were ever necessary.
The sampling design: The Sampling design used for the study was a combination of
convenience and judgment sampling. A detailed search was conducted to identify small /
medium restaurant who had failed and have turnaround and also those who have not
been successful in turning around. As mentioned earlier there are no official records
available of the total number of such restaurants (small/medium) in the city of Mumbai.
The “Word of Mouth” search reveled that in Mumbai there would not be more than 100
to 150 small/medium restaurants / hotels who have failed and than succeeded. A
comprehensive list of these restaurants was not readily available. Of these estimated 150
small and medium restaurants / hotels who have failed, a judgmental and convenience
sample of around 20 was selected. Data could be obtained only from around 10 hotels
while the rest were not willing to speak about their successes or failures
Sr
No.
Location Number of Hotels
in sample
Number of Hotel
from whom data
could be obtained
1 Borivali to Andheri 1 -
2 Andheri to Bandra 2 1
3 Bandra to Dadar-Wadala 8 5
4 Dadar to V.T. 7 3
5 V. T. to Colaba 2 1
Total 20 10
Table: 1. Sample Design
Data collection: Both primary and secondary data were collected for the research. The
interview was conducted in a mix of all the three languages viz. English, Hindi and Tulu
-=- the language of the owners of these Udipi hotels.
Data Analysis Stage: Data collected through primary and secondary sources was
tabulated and summarized so as to draw logical conclusions.
Limitations of the study: The study was confined to Maharashtra and therein Mumbai
due to cost and time constraints. Only the Entrepreneurs view was used for the purpose
of study. The views of the customers of these restaurants were not considered.
FINDINGS OF THE SURVEY:
An attempt was made to link the innovative strategy used with the profitability of the
business. However these attempts were not successful since almost all the restaurants
used the CASH SYSTEM for collection and disbursal of revenues / expenditures.
Reliably it was learnt that the balance sheet prepared may not necessarily reflect the
true picture of the business.
Most of the organizations attributed their success to the impact of INNOVATION—
innovation in the type and nature of cuisine offered to their customers. Additionally the
ambience created especially exclusivity as well as openness was another cause for their
success.
Table 2 gives the details of the innovative strategy – the new cuisines that were
introduced, for turning around their business. It was observed that introduction of the
Chinese type of food and blending the same with the Indian dish were the main drivers
for the change.
Name of the
Restaurant
Main Innovative Strategy Adopted
DP’s Fast Food Innovative offerings – Fruit beer, Introducers of Schezwan
Dosa & Idli Chilli, Innovative schemes for customers
Jai Hind Lunch Home Exclusive seafood items – stuffed bombil, leaf wrapped fry
fish,
Process innovations.
Fric n Floc Fast Food Innovative stand-out Décor and Ambience,
Innovative Dishes
Canara Lunch Home Category segregation, Plush ambience at affordable
Rates, with different sections in hotel.
Harish Refreshment Innovative Dishes – Chicken Idlis, Fish Dosa,
Candle light dinners on certain days of the week.
Sizzling China Innovative dishes’
Chicken wrapped prawns, Momos, Exotic Sauces.
Mahesh Family
Restaurant
Incentives to customers,
Gifts, Discounts, On the house treats.
Laxmi Vilas Hotel Speciality Konkani GSB Food &
Speciality Amul Fry Misal, Milk pudding,
Free trials of new dishes.
Ram Vijay Lunch
Home
Day and Night Chinese Food, Innovative dishes
Swagat Refreshments Speciality Variety Jain Food, Free gifts to children &
customers
Table 2 — Type of Innovations.
NEED FOR INNOVATIONS
Almost 100 % of the respondents indicated that innovative ideas were a must for an
entrepreneurial venture like a hotel business. 50% of the respondents agreed while 50%
of the respondents strongly agreed.
Need for innovative ideas
Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
NEED FOR FAMILY SUPPORT.
70% of the respondents indicated that there was a need for family support. The
unofficial discussions indicated that family included also the EXTENDED FAMILY –
friends were also included as family members.
Further probe into the definition of support included not only monetary help but also
help in getting some clearances from the various statutory authorities like the municipal
offices or from the shops and establishment departments etc.
A very small margin about 10% indicated that there was no family support at all in
turning around the business.
Need for Family Support
30%
40%
20%
10% 0% Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
NEED FOR PARTNERSHIP DURING THE TURNAROUND PERIOD
Almost all the respondents indicated that Partnership was not at all necessary and was
not desirable during the turnaround period. While many felt that family including
extended family and friend support was a MUST, however many felt that including
them in the ownership and hence a share in the profits was a clear NO NO.
Is Partnership Necessary ?
Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
NEED FOR A MENTOR DURING TURNAROUND.
All the respondents felt that a MENTOR or a FATHER figure was a MUST during the
turnaround period.
Need for Mentor during Turnaround
Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
REASONS FOR SICKNESS IN RESTAURANT BUSINESS.
On querying as to on what were the causes for the businesses to go sick. It was found
that Mismanagement and losing sight of business (i.e. not concentrating on the several
business issues) were the main causes for the sickness. Surprisingly luck did not play any
role.
Table 3 gives the details of the causes.
Name of the owner Mismanagement
Insensitivity
to
external
Factors
Bad
Luck
Unable to
update
Business
Losing Sight
of basics
JK + + + + + + + + + + + + + + +
VS + + + + + + + + + + + + + + +
GS + + + + + + + + + + + + + + +
HK + + + + + + + + + + + + + + +
MJ + + + + + + + + + + + + + + +
GIS + + + + + + + + + + + + + + +
RS + + + + + + + + + + + + + +
SS + + + + + + + + + + + + + + +
MS + + + + + + + + + + + + + + +
CK + + + + + + + + + + + + + +
Please note the name of the owner has been disguised.
+ = Not so important +++++ = Very Very Critical / Important
Table 3 Main cause for the business falling sick
IMPACT OF INNOVATIVE SOLUTION (MAINLY INNOVATIVE ON
CUISINE AND AMBIENCE) ON THE PROFIT MARGIN.
All the respondents indicated a substantial increase in profit margins. It must be noted
that these figures could not be corroborated with their accounts books. Table 4 gives the
details.
Profit Margins Before and After Turnaround.
Restaurants Before After
DP’s 12% 28%
Jai Hind 15% 30%
Fric n Floc 15% 27%
Canara 20% 33%
Harish 18% 30%
Mahesh Restaurant 15% 32%
Shree Ram Vijay 12% 25%
Swagat Refreshments 15% 28%
Table 4 – Impact of innovative solutions on the profit margins.
EFFECT OF INNOVATIVE ENTREPRENEURSHIP ON ANNUAL TURNOVER
BEFORE AND AFTER TURNAROUND AND ALSO POST EXPANSION.
The average annual sales also showed a phenomenal increase due to the impact of the
turnaround cause by the innovative strategies employed by the entrepreneurs. However
these figures could not be corroborated with the account books.
Table 5 - Impact of the Innovative Solutions on the Revenue of the business
MISCELLANEOUS ISSUES:
The discussions also revealed that the hotel business posed many issues and challenges.
Some of these issues and challenges are given below:
It is a complex business. The combination of purchasing, manufacturing, sales
and service are only the beginning. The raw material is costly and perishable.
The closing inventory of finished goods is always invariably equal to zero.
Excess food is mostly given to the bovine animals.
The nature of the customer varies from that in other businesses by their
expectation; they do not only buy food, they expect to buy it appetizingly
prepared and pleasantly served. They expect good value, comfort provided by
compatible décor, good comfortable seating, lighting, heating, cooling,
cleanliness, courtesy, and with the absence of noise, odors and long waits.
The equipment is expensive, out of proportion to its fragility. Crockery,
exhaust fans, ovens, refrigerators, slicers, toasters, food processors, fryers, and
broilers are delicate and sometimes dangerous. The loss of linen and
silverware, the breakage of china and glassware, and the pilferage of foodstuffs
and beverages can be financially fatal.
Well-trained help is hard to find because wages are often less than in other
industries, the stress is high, and the work is hard. There is high attrition rate
and by the time you have put in great effort and trained a person it is often
found that he switches over to another job and one has to start all over again.
The working hours are invariably long almost 12 to 15 hours. The employees
are less educationally qualified and yet are expected to be good at mathematics
and memory power.
The restaurant owner is subject to licensing, inspections, and scrutiny by
nearly 20 regulatory authorities and must insure against several risks.
Average Annual Sales in Rupees
Hotels Before After
% age growth in
revenue
DPs
1000000 10220000 1022%
Fric n Floc
950000 6500000 684%
Jai Hind
1300000 10200000 785%
Canara
5400000 14500000 438%
Harish 5500000 9500000 433%
Mahesh Restaurant
400000 10300000
2575%
Shree Ram Vijay
1100000 4500000 500%
Swagat Refreshments
1080000 54000000 5050%
Business volume is limited by seating capacity. The responsibility for the safety
and security of customers and workers is awesome. The profit margin is low
and the hazards / risks are high. The restaurants survive mainly on account of
VOLUME.
Experience is the most important factor for success. Management skills,
courtesy and good manners, entrepreneurial ambition, willingness to work
hard and under pressure, attention to detail and effective controls are vital.
CONCLUSION:
The restaurant business is one or the few industries which presents an opportunity
where you can start as a dishwasher and dream of owning your own restaurant – and
actually realize that dream. But it takes dedication and a willingness to work long and
hard to accomplish your dream. One needs to keep thinking of new ideas and innovate if
one needs to survive.
The reasons for sickness in the restaurant business can be attributed to (in order of
importance):
Mismanagement
Insensitivity to external factors
Inability to update the business
Losing sight of the basics
The steps that can be adopted for successful turnaround can be listed as follows:
Do a proper introspection and strategic analysis.
Make a detailed survey of the prevailing business environment.
Analyze the repercussions of the changes at the macro level on the
business.
Write down the lacunae, business sales marketing and operations plans.
Meet key personnel and employees.
Revise plans.
Have discussions with vendors and customers.
Contact the bank, tax authorities, and accountant.
Keep only essential employees. Revamp.
Cut unnecessary cost.
Renovate and Innovate.
Implement plans.
Revise and reassess.
Ongoing Innovation.
Innovative Entrepreneurship is by far the most important tool in the hands of an
entrepreneur to bring about successful turnaround in the hospitality business.
Innovative ideas and ongoing innovation is what will facilitate entrepreneurs to bring
about successful turnaround in ailing businesses. Hence referred to as the Key DNA for
successful turnaround in the hospitality sector.
REFERENCES:
1. Sonia Bharwani, “Successful Hospitality Innovations–Case study of Oberoi
Resorts.”, Institute for International Management and Technology, The 2
nd
International Conference on Services Management, 1
st
June, 2007.
2. Cathy Enz, Judy Siguaw, “Innovations in hotel practice.”, Cornell Hotel &
Restaurant Administration Quarterly, October, 2003.
3. Dr. Ramamirtham Gopal, “Research paper on Innovation – The key strategic
weapon to Increase Competitiveness – A model to measure the impact of
Innovation on the value of Business”, Allied Publishers Pvt. Ltd., 10
th
International Annual Convention on Strategic Management, 10 May, 2007.
4. Mike Southon Tony Davila, Marc J. Epstein, Robert Shelton, “Making
Innovation Work.”, Wharton School Publishing, 2006.
5. Rocco M. Angelo, Andrew N. Vladmir, “Hospitality Today – An Introduction.”
Educational, Chris West., “The Beermat Entrepreneur.”, Pearson
Education.,Year 2004.
6. Jeff DeGraff, Shawn E.Quinn, “Leading Innovation.”, Tata McGraw Hill, 2007.
7. Rajender Singh Rathore., “Case Studies on Corporate Turnarounds – Vol-I.”,
ICFAI University, 2006.
8. Douglas Rushkoff., “Get back in the box – Innovation from inside out.”, Harper
Collins Publishers, 2005.
9. Roger von Oech, “A whack on the side of the head – How you can be more
creative.” Warner Books., 2004.
10. Micheal Hammer, James Champy., “Reeingineering the Corporation.”, Harper
Business Essentials, 2003.
11. Clayton M. Christensen, “The Innovators Dilemma.”, Collins Business
Essentials., C.S.V.Ratna, “Corporatate Turnaround – Concepts and Cases.”,
ICFAI University Press, 2006.
12. Anshul Kaushesh, “Innovations 2005.
13. Micheal L. Tushman, “Strategic Innovation”, OPOE ABE Books., 2004.
14. Amit Singh Sisodiya, in Marketing.”, ICFAI University Press, 2004.
15. S. D. Aphale, “Turnaround Management”, Vipul Prakashan, 2005.
16. C. B. Gupta, N. P. Srinivasan, “Entrepreneurship Development in India”,Sultan
Chand & Sons, 2000.
17. Andrew Vladmir, Rocco Angelo, “ Hospitality Today – An Introduction”,
Educational Institute, 2001.
18. Journal of Services Research, Journal of IIMT, March 2007.
19. India Retail Review, Indian Retail Forum, 2007.
20. Richard Swedberg., “Entrepreneurship – The social science view.”, Oxford India
Paperbacks, 2004.
21. Joseph A. Schumpeter., “Entrepreneurship as Innovation.”, Harvard University
Press., 1934.
22. Kenneth J. Arrow., “Innovation in Small and Large Firms.”, Lexinton Books.,
1983.
23. Micheal Ottenbacher and Juergen Gnoth, “How to develop successful hospitality
innovations.”, Cornell Hotel & Restaurant Administration Quarterly, May, 2005.
24. V.B.Angadi, “Entrepreneur as an Innovator.”, St. Francis Institute of
Management Studies and Research, Pathh, Research Seminar, March 2006.
25. www.fhrai.com
26. www.indiarestaurant.com
27. www.aboutmumbai.com
28. www.timeout.com
29. www.turnaround.org
30. www.businesstown.com
31. www.gdrc.com
32. www.jsr-iimt.in
33. www.hotelschool.cornell.edu
34. www.iinovate.blogspot.com
35. www.ncert.nic.in
doc_700448277.pdf
With specific Reference to the Hospitality Sector - Small and Medium sized Hotels in Mumbai.
INNOVATIVE ENTREPRENEURSHIP –
THE KEY DNA FOR A SUCCESSFUL TURNAROUND
IN THE HOSPITALITY BUSINESS
With specific Reference to the Hospitality Sector - Small and Medium sized Hotels in
Mumbai.
By
Dr. R. Gopal
B 4 Akshaya,
Chedda Nagar,
Chembur,
Mumbai 400089.
Director,
D.Y.PATIL Institute of Management Studies,
C.B.D. Belapur,
Navi Mumbai.
Tel. No. ® 022 –2528 6428, © 9322517368
E Mail: [email protected]; [email protected]
And
Mr. Krishna Shetty
B – 206,Dosti Astor
Dosti Acres
Antop Hill,
Wadala East
Mumbai 400 037
Faculty,
D.Y.PATIL Institute of Management Studies,
Belapur,
Navi Mumbai.
Tel. No. ® 022 32510957, © 9819333633
E Mail: [email protected]; [email protected]
INNOVATIVE ENTREPRENEURSHIP -- THE KEY
DNA FOR A SUCCESSFUL TURNAROUND IN THE
HOSPITALITY BUSINESS
With specific Reference to the Hospitality Sector—Small and Medium sized Hotels in
Mumbai.
ABSTRACT:
As the business environment is becoming increasingly more complex, accompanied by
intensified competition, rapid advances in technology and most critically, rising churn,
be it customer or employees, there is an unprecedented rise in corporate failures today.
And, just as amazing as the increasing number of failures, is the fact that most of the
companies that attempt a recovery, also fail.
Against this backdrop, it makes sense for companies to understand the reasons for their
decline, in their performances, and find ways to avoid a potential bankruptcy situation.
However, sickness is not restricted to corporates only. The same factors that cause
sickness in corporates are also reasons for sickness in small and medium sized
businesses. However, the gravity of the factors may vary and it would be pertinent to say
that the study of failure and turnaround for small and medium businesses should be
separately undertaken as the rules of the game for the large corporate houses need not
necessarily be the same for the small and medium sized entrepreneurs. The Hotel
Business or the Restaurant business is one category, which deserves special interest.
These category of hotels and restaurants are typically called as UDIPI HOTELS which
primarily serve SOUTH INDIAN DISHES like Dosas, Idlis etc. Many have diversified
into serving the NORTH INDIAN DISHES like Parathas etc.
Surprisingly several such UDIPI hotels are not able to match the onslaught of the
changing demands of the Indian Customers especially in terms of new dishes, Chinese
and other oriental dishes etc. The net effect has been that some of them have fallen by
the wayside – a sick company. The problem for these small and business enterprises gets
compounded when one realizes that the SICA and BIFR (Sick Industries Act and
Bureau of Financial Reconstruction) are not in a position to help these organizations.
The restaurant business category contributes substantially to the GDP of the country.
The issue is what are the reasons for sickness in this category and what is the role that
the entrepreneur plays in the successful turnaround of ailing restaurants. Can
Innovation play an important role in nurturing these units back to their original glory?
This paper aims to study the various strategies that have been used by the hotel sector in
order to turn themselves from a sick organization to one of the topmost organization in
their field.
The study was limited to the hotel industry in Mumbai due to cost and time constraints.
INNOVATIVE ENTREPRENEURSHIP -- THE KEY
DNA FOR A SUCCESSFUL TURNAROUND IN THE
HOSPITALITY BUSINESS
With specific Reference to the Hospitality Sector—Small and Medium sized Hotels in
Mumbai.
INTRODUCTION:
The Indian restaurant services sector is estimated to be worth Rs. 57,000 crore, out of
which only Rs. 3,940 crore or 6.9 percent is accounted for by the organized sector. The
vast unorganized segment mainly comprises street-side stalls/kiosks constituting the
majority of consumer food-service units and is characterized by intense fragmentation
and a virtual absence of standardization of operations. This segment was Rs. 35,000
crore in 2004, which grew by about 18 per cent to Rs. 41,400 crore in 2005 and in 2006
the segment recorded a growth of nearly 19% over previous year and stood at Rs.
49,200 Crore. (basis: constant prices – 2003-04 price base). Fig. 1 gives the details of the
growth of the Indian Restaurant.
Figure: 1.
Size of Indian Restaurant & Catering (F&B) Services
(value in Rs. Crore at 2003-04 prices)
*Source: India Retail Report- 2007, India Retail Forum 2007.
The following table shows growth of restaurants in the organized sector.
Figure: 1.1
Growth of Restaurants in Organized Sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
Restaurant
Presence
No of outlets Restaurant
space
2005
2006
*Source: India Retail Report – 2007, India Retail Forum 2007.
Major domestic and international players in the arena have on an average extended
their retail reach by 45 percent in 2006 as compared to 2005. Tier II cities are currently
the biggest growth drivers. Additionally investments in supply chain management are
another important issue that must also be kept in mind.
The total number of outlets increased dramatically in 2006 registering a year on year
growth of around 70% as compared to a y-o-y growth rate of 29% in 2005.
The evolved Indian consumers are invariably seeking variety and are willing to
experiment with new cuisines. KSA Technopak’s studies have shown that while in the
US seven basic meals cover 80 percent of all ‘dinner at home’ occasions, in India 15 meal
types cover only 60 percent of ‘dinner at home’ occasions. The trend towards home
delivery is also fast gaining popularity, with value sales shooting the roof over the last
couple of year. India is one of the few countries where McDonald’s has introduced its
home delivery service.
In an environment that seems to be transforming itself with every new technology,
marketing tactic or investment strategy, businesses rush to embrace change by trading
in their competencies altogether – all in the name of innovation. But generating new
ideas does not automatically result in innovations and success. It is only the beginning of
the journey. The real challenge for an organization is to convert these ideas into
acceptable products or services for customers. This can happen only when organizations
design and implement a structured approach to managing innovations.
Innovations are very important in the services sector, especially in the hospitality sector
and albeit in the small and medium sized hotel business. The restaurant business
requires entrepreneurs to continuously come up with new dishes; new ways to present
or serve existing dishes, new services or schemes to satisfy customers, new ways of
enhancing their ambience and new processes to economize operations. Without
innovation, restaurants face the threat of becoming ‘obsolete’- leading to sickness – and
ultimately driving them out of business or forcing them to hand the business over to a
more efficient and innovative entrepreneurs.
The study was conducted essentially in the restaurant and catering sector. The study
was limited to the “small sector” typically what is called in Mumbai parlance as a
“Udipi Hotel”. A “Udipi Hotel” can be defined as a typically South Indian dish serving
type hotel. But others serving North Indian dishes like Parathas or Snacks or even those
serving lunch and have a Bar is also being termed as “Udipi”.
LITERATURE REVIEW:
Not many studies have been conducted in the area of successful turning around of small
and business units especially with respect to the hotels – Udipi Hotels. Most of the
studies are general in nature and are aimed at the large corporate hotels.
Sonia Bharwani, “Successful Hospitality Innovations–Case study of Oberoi Resorts.”
Institute for International Management and Technology, The 2nd International
Conference on Services Management, 1st June 2007 1 evaluates the success of the
Oberoi Group’s innovation of luxury resorts, by measuring across a number of
dimensions like improved image, customer loyalty, revenues etc. Michael Ottenbacher
and Juergen Gnoth, “How to develop successful Hospitality innovations.” Cornell Hotel
& Restaurant Administration Quarterly, May 2005
1
identifies nine factors that drive
successful innovations in the hospitality service industry. Viz. 1) Market selection. 2)
Strategic human resources management. 3) Training of employees. 4) Market
responsiveness. 5) Empowerment. 6) Behavior-based evaluation. 7) Marketing synergy.
8) Employee commitment. 9) Tangible Quality.
Cathy Enz, Judy Siguaw, “Innovations in hotel practice.”, Cornell Hotel & Restaurant
Administration Quarterly, October, 2003.
2
talks about the importance of innovative
ideas and practice in the hotel industry.
Dr. Ramamirtham Gopal, research paper on “Innovation – The key strategic weapon to
Increase Competitiveness – A model to measure the impact of Innovation on the value of
Business”, Allied Publishers Pvt. Ltd., 10th International Annual Convention on
Strategic Management, 10 May, 2007.
3
talks about the
various
types of innovations that
takes place in the industry and the impact of the innovations on the value of the
business. The paper brings out the difference between product innovation and process
innovation. It also talks about Competitor centered and Customer centered innovation.
The paper effectively brings out the importance of innovation for maintaining the
Sustainable Competitive Advantage and how it ultimately results in an increase in
margin or an increase in volume. The paper ends with some useful observations from a
selected few sectors such as the hospitality and hotel sector offering insight as to the
importance of innovations and how to measure the impact of these on the profitability of
the firm.
RESEARCH OBJECTIVES DEFINED:
The specific objectives of the study were:
1. To determine the causes of sickness, especially in small businesses with special
reference to the hospitality sector – small and medium hotels
2. To understand the strategies adopted by entrepreneurs in bringing about
successful turnaround.
3. To recommend action plan for a successful turnaround in the hospitality sector.
RESEARCH METHODOLOGY:
The first step in the research processes was to determine the issues that need to be
addressed for the purpose of the study. Initial talks and discussion were held with people
from the service sector as well as the restaurants industry in consultation with the guide.
Review of various data and literature available regarding all issues connected with the
research was extensively undertaken. Books from various libraries were perused and the
relevant ones were studied in detailed. Various journals magazines and research papers
were referred too.
Several web sites were browsed and relevant data was accumulated The descriptive
survey helped in preparing the ground work for the next step i.e. the field survey.
Historical Survey: The geographic area chosen for the survey was Mumbai city for the
purpose of convenience. There is no official published data available giving the details of
“Failed Restaurants”. Nor has there been any official or unofficial study known to have
been conducted in this area of the small and medium sized hotels especially the UDIPI
HOTELS.
Research Instrument used in the study: In order to achieve maximum information from
these Industrialists (who are typically from Mangalore and are not generally known to
be open to discussions about their business), exploratory research was predominantly
used. Additionally certain quantitative information was also obtained by using the
Likert scale of measurement. A 5 point scale was used were ever necessary.
The sampling design: The Sampling design used for the study was a combination of
convenience and judgment sampling. A detailed search was conducted to identify small /
medium restaurant who had failed and have turnaround and also those who have not
been successful in turning around. As mentioned earlier there are no official records
available of the total number of such restaurants (small/medium) in the city of Mumbai.
The “Word of Mouth” search reveled that in Mumbai there would not be more than 100
to 150 small/medium restaurants / hotels who have failed and than succeeded. A
comprehensive list of these restaurants was not readily available. Of these estimated 150
small and medium restaurants / hotels who have failed, a judgmental and convenience
sample of around 20 was selected. Data could be obtained only from around 10 hotels
while the rest were not willing to speak about their successes or failures
Sr
No.
Location Number of Hotels
in sample
Number of Hotel
from whom data
could be obtained
1 Borivali to Andheri 1 -
2 Andheri to Bandra 2 1
3 Bandra to Dadar-Wadala 8 5
4 Dadar to V.T. 7 3
5 V. T. to Colaba 2 1
Total 20 10
Table: 1. Sample Design
Data collection: Both primary and secondary data were collected for the research. The
interview was conducted in a mix of all the three languages viz. English, Hindi and Tulu
-=- the language of the owners of these Udipi hotels.
Data Analysis Stage: Data collected through primary and secondary sources was
tabulated and summarized so as to draw logical conclusions.
Limitations of the study: The study was confined to Maharashtra and therein Mumbai
due to cost and time constraints. Only the Entrepreneurs view was used for the purpose
of study. The views of the customers of these restaurants were not considered.
FINDINGS OF THE SURVEY:
An attempt was made to link the innovative strategy used with the profitability of the
business. However these attempts were not successful since almost all the restaurants
used the CASH SYSTEM for collection and disbursal of revenues / expenditures.
Reliably it was learnt that the balance sheet prepared may not necessarily reflect the
true picture of the business.
Most of the organizations attributed their success to the impact of INNOVATION—
innovation in the type and nature of cuisine offered to their customers. Additionally the
ambience created especially exclusivity as well as openness was another cause for their
success.
Table 2 gives the details of the innovative strategy – the new cuisines that were
introduced, for turning around their business. It was observed that introduction of the
Chinese type of food and blending the same with the Indian dish were the main drivers
for the change.
Name of the
Restaurant
Main Innovative Strategy Adopted
DP’s Fast Food Innovative offerings – Fruit beer, Introducers of Schezwan
Dosa & Idli Chilli, Innovative schemes for customers
Jai Hind Lunch Home Exclusive seafood items – stuffed bombil, leaf wrapped fry
fish,
Process innovations.
Fric n Floc Fast Food Innovative stand-out Décor and Ambience,
Innovative Dishes
Canara Lunch Home Category segregation, Plush ambience at affordable
Rates, with different sections in hotel.
Harish Refreshment Innovative Dishes – Chicken Idlis, Fish Dosa,
Candle light dinners on certain days of the week.
Sizzling China Innovative dishes’
Chicken wrapped prawns, Momos, Exotic Sauces.
Mahesh Family
Restaurant
Incentives to customers,
Gifts, Discounts, On the house treats.
Laxmi Vilas Hotel Speciality Konkani GSB Food &
Speciality Amul Fry Misal, Milk pudding,
Free trials of new dishes.
Ram Vijay Lunch
Home
Day and Night Chinese Food, Innovative dishes
Swagat Refreshments Speciality Variety Jain Food, Free gifts to children &
customers
Table 2 — Type of Innovations.
NEED FOR INNOVATIONS
Almost 100 % of the respondents indicated that innovative ideas were a must for an
entrepreneurial venture like a hotel business. 50% of the respondents agreed while 50%
of the respondents strongly agreed.
Need for innovative ideas
Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
NEED FOR FAMILY SUPPORT.
70% of the respondents indicated that there was a need for family support. The
unofficial discussions indicated that family included also the EXTENDED FAMILY –
friends were also included as family members.
Further probe into the definition of support included not only monetary help but also
help in getting some clearances from the various statutory authorities like the municipal
offices or from the shops and establishment departments etc.
A very small margin about 10% indicated that there was no family support at all in
turning around the business.
Need for Family Support
30%
40%
20%
10% 0% Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
NEED FOR PARTNERSHIP DURING THE TURNAROUND PERIOD
Almost all the respondents indicated that Partnership was not at all necessary and was
not desirable during the turnaround period. While many felt that family including
extended family and friend support was a MUST, however many felt that including
them in the ownership and hence a share in the profits was a clear NO NO.
Is Partnership Necessary ?
Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
NEED FOR A MENTOR DURING TURNAROUND.
All the respondents felt that a MENTOR or a FATHER figure was a MUST during the
turnaround period.
Need for Mentor during Turnaround
Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
REASONS FOR SICKNESS IN RESTAURANT BUSINESS.
On querying as to on what were the causes for the businesses to go sick. It was found
that Mismanagement and losing sight of business (i.e. not concentrating on the several
business issues) were the main causes for the sickness. Surprisingly luck did not play any
role.
Table 3 gives the details of the causes.
Name of the owner Mismanagement
Insensitivity
to
external
Factors
Bad
Luck
Unable to
update
Business
Losing Sight
of basics
JK + + + + + + + + + + + + + + +
VS + + + + + + + + + + + + + + +
GS + + + + + + + + + + + + + + +
HK + + + + + + + + + + + + + + +
MJ + + + + + + + + + + + + + + +
GIS + + + + + + + + + + + + + + +
RS + + + + + + + + + + + + + +
SS + + + + + + + + + + + + + + +
MS + + + + + + + + + + + + + + +
CK + + + + + + + + + + + + + +
Please note the name of the owner has been disguised.
+ = Not so important +++++ = Very Very Critical / Important
Table 3 Main cause for the business falling sick
IMPACT OF INNOVATIVE SOLUTION (MAINLY INNOVATIVE ON
CUISINE AND AMBIENCE) ON THE PROFIT MARGIN.
All the respondents indicated a substantial increase in profit margins. It must be noted
that these figures could not be corroborated with their accounts books. Table 4 gives the
details.
Profit Margins Before and After Turnaround.
Restaurants Before After
DP’s 12% 28%
Jai Hind 15% 30%
Fric n Floc 15% 27%
Canara 20% 33%
Harish 18% 30%
Mahesh Restaurant 15% 32%
Shree Ram Vijay 12% 25%
Swagat Refreshments 15% 28%
Table 4 – Impact of innovative solutions on the profit margins.
EFFECT OF INNOVATIVE ENTREPRENEURSHIP ON ANNUAL TURNOVER
BEFORE AND AFTER TURNAROUND AND ALSO POST EXPANSION.
The average annual sales also showed a phenomenal increase due to the impact of the
turnaround cause by the innovative strategies employed by the entrepreneurs. However
these figures could not be corroborated with the account books.
Table 5 - Impact of the Innovative Solutions on the Revenue of the business
MISCELLANEOUS ISSUES:
The discussions also revealed that the hotel business posed many issues and challenges.
Some of these issues and challenges are given below:
It is a complex business. The combination of purchasing, manufacturing, sales
and service are only the beginning. The raw material is costly and perishable.
The closing inventory of finished goods is always invariably equal to zero.
Excess food is mostly given to the bovine animals.
The nature of the customer varies from that in other businesses by their
expectation; they do not only buy food, they expect to buy it appetizingly
prepared and pleasantly served. They expect good value, comfort provided by
compatible décor, good comfortable seating, lighting, heating, cooling,
cleanliness, courtesy, and with the absence of noise, odors and long waits.
The equipment is expensive, out of proportion to its fragility. Crockery,
exhaust fans, ovens, refrigerators, slicers, toasters, food processors, fryers, and
broilers are delicate and sometimes dangerous. The loss of linen and
silverware, the breakage of china and glassware, and the pilferage of foodstuffs
and beverages can be financially fatal.
Well-trained help is hard to find because wages are often less than in other
industries, the stress is high, and the work is hard. There is high attrition rate
and by the time you have put in great effort and trained a person it is often
found that he switches over to another job and one has to start all over again.
The working hours are invariably long almost 12 to 15 hours. The employees
are less educationally qualified and yet are expected to be good at mathematics
and memory power.
The restaurant owner is subject to licensing, inspections, and scrutiny by
nearly 20 regulatory authorities and must insure against several risks.
Average Annual Sales in Rupees
Hotels Before After
% age growth in
revenue
DPs
1000000 10220000 1022%
Fric n Floc
950000 6500000 684%
Jai Hind
1300000 10200000 785%
Canara
5400000 14500000 438%
Harish 5500000 9500000 433%
Mahesh Restaurant
400000 10300000
2575%
Shree Ram Vijay
1100000 4500000 500%
Swagat Refreshments
1080000 54000000 5050%
Business volume is limited by seating capacity. The responsibility for the safety
and security of customers and workers is awesome. The profit margin is low
and the hazards / risks are high. The restaurants survive mainly on account of
VOLUME.
Experience is the most important factor for success. Management skills,
courtesy and good manners, entrepreneurial ambition, willingness to work
hard and under pressure, attention to detail and effective controls are vital.
CONCLUSION:
The restaurant business is one or the few industries which presents an opportunity
where you can start as a dishwasher and dream of owning your own restaurant – and
actually realize that dream. But it takes dedication and a willingness to work long and
hard to accomplish your dream. One needs to keep thinking of new ideas and innovate if
one needs to survive.
The reasons for sickness in the restaurant business can be attributed to (in order of
importance):
Mismanagement
Insensitivity to external factors
Inability to update the business
Losing sight of the basics
The steps that can be adopted for successful turnaround can be listed as follows:
Do a proper introspection and strategic analysis.
Make a detailed survey of the prevailing business environment.
Analyze the repercussions of the changes at the macro level on the
business.
Write down the lacunae, business sales marketing and operations plans.
Meet key personnel and employees.
Revise plans.
Have discussions with vendors and customers.
Contact the bank, tax authorities, and accountant.
Keep only essential employees. Revamp.
Cut unnecessary cost.
Renovate and Innovate.
Implement plans.
Revise and reassess.
Ongoing Innovation.
Innovative Entrepreneurship is by far the most important tool in the hands of an
entrepreneur to bring about successful turnaround in the hospitality business.
Innovative ideas and ongoing innovation is what will facilitate entrepreneurs to bring
about successful turnaround in ailing businesses. Hence referred to as the Key DNA for
successful turnaround in the hospitality sector.
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1. Sonia Bharwani, “Successful Hospitality Innovations–Case study of Oberoi
Resorts.”, Institute for International Management and Technology, The 2
nd
International Conference on Services Management, 1
st
June, 2007.
2. Cathy Enz, Judy Siguaw, “Innovations in hotel practice.”, Cornell Hotel &
Restaurant Administration Quarterly, October, 2003.
3. Dr. Ramamirtham Gopal, “Research paper on Innovation – The key strategic
weapon to Increase Competitiveness – A model to measure the impact of
Innovation on the value of Business”, Allied Publishers Pvt. Ltd., 10
th
International Annual Convention on Strategic Management, 10 May, 2007.
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doc_700448277.pdf