Incredible story of Banyan Tree group!

"Organic diversification is the best route for growth," advises the founder of the Banyan Tree, one of the world's fastest growing hotel chains, which redefined the meaning of the word luxury. Read why. . .

The Times calls him the 'Branson of the East', but the title doesn't fit.

True, there are some commonalities. Ho Kwon Ping (better known as KP Ho) is as expert a marketer as the high-flying founder of the airline-to-music Virgin group. Both the Chinese Singaporean and the Englishman can teach experts a trick or two about global branding. Both are pioneers when it comes to redefining old businesses. While Richard Branson recreated the romance of flying, KP Ho put romance back into luxury holidays.

But the similarities end there.

Everything that KP Ho (born in 1952) does stems from his roots as a development economist, a former journalist and a committed environmentalist. One example: spending $400,000 on desalination plants to turn sea water into fresh water so as to avoid damaging the fragile ecosystems near the Banyan Tree projects.

At the same time, he is a shrewd, smart manager. He joined the family business (the Wah Chang Group) in 1981, but over the past decade, converted the lacklustre construction-to-commodity trading business into one of the fastest growing luxury hotel chains in the world, using the organic diversification route.

The Banyan Tree group is a family affair for KP. The first hotel started as a "fun" project with his brother Kwon Cjan (now head architect of all Banyan Tree projects) and wife Claire Chiang (a former nominated MP and executive director of the Banyan Tree Gallery that promotes local arts and handicrafts).

The first Banyan Tree resort opened in Phuket, Thailand, in 1995 with just seven staff members. KP had to wait thirteen years to own the next one, The Banyan Tree in Bangkok. Since then there has been no looking back. Currently, the group owns eighteen hotels and resorts, 46 spas and two golf courses; and employs 4,380 staff from 32 different nationalities.

What or who is the force behind the tremendous achievements of the Banyan Tree group? Apurv Bagri, a member of The Smart Manager advisory board and a long time friend of the stylish hotel tycoon, tries to unveil the man behind the success in this open-ended interview.

You once said 'everything in my past has contributed to my today.' Can you elaborate?

I said that because when I talk to young people, I feel there is too little awareness on their part that everything that they are or will be is a slow accumulation of their everyday experiences.

Also I made that remark because of my pretty checkered career: many people ask me how journalism, my childhood and other events have contributed towards my present business and to what I am today. Upon reflection I now recognise that everything that I have done in my life built the person who is now able to do what I am doing.

For example, the Banyan Tree is not a national brand and people of many nationalities work in our organization. This comes from the fact that I never grew up in one single country: I grew up in Singapore and Thailand. And when I was younger, I had a great passion not only for back packing but for the romance of travel in a very inexpensive manner.

The Banyan Tree culture is built out of my experiences. When I think back, I realise that the total accumulation of all my experiences has had a big influence on what I am today in a non-apparent sort of way. It's probably true for everybody.

According to Michael Porter, the basis of all competition is cost or differentiation. Is that a formula you subscribe to the Banyan Tree?

Yes, we compete on the basis of differentiation because Asian companies are going to find it very difficult to compete on the basis of cost. The Banyan Tree's success has been learnt on the back of bitter lessons from our other businesses.

Our other businesses -- construction, commodities, foods and so on -- are still okay but not really that cost competitive anymore. I saw the writing on the wall when some of our businesses folded up because China and Indonesia became cheaper.

So when we started the Banyan Tree, although we were in a low-cost country, we decided that we could not build something sustainable on the basis of cost competitiveness, and that is why from day one we spent quite a bit of money to build the brand. That is working to our advantage today. Yes, I subscribe to that theory.

How did you arrive at the decision to diversify into hotels?

We got into this business mainly because our other businesses were not asset heavy. They are very much based on cash flow, and we thought we needed to do something which was property based, something sustainable.

In commodities and construction, you risk going back to zero with every single commodity purchase or sale, or every single construction project. As you get bigger and bigger, you either get more successful or get wiped out.

Strategically I wanted to get into a business where as I added more hotels, the sum of the whole would get stronger and stronger, where we could rely on a relatively consistent cash flow to offset the volatile nature of our other businesses.

I did not want to go into property development, building apartments for sale, because conceptually that is the same risk profile as a construction project. If you take one big property development project and the timing is wrong, it takes time to get back up again.

So I wanted a business where mistakes take a long time to make losses. With hotels, or anything of a rental nature like offices, you can have a bad year, yet five to six years down the line you can get back up again.

So essentially you prefer stability in terms of cash flow and returns rather than a quick market opportunity?

Yes, Exactly.

Are you revisiting that now? As the brand gets stronger, is there a temptation to roll it out more quickly by partnering with others?

Oh, we are in fact doing that more and more. The strategic considerations have mutated quite considerably. When we first got into the hotel business the other businesses were equally important, and hotels was basically seen as a quasi-passive investment in a business which had consistent cash flow and capital appreciation potential.

When we established our own brand, we realised the potential for the brand to provide us with a proprietary advantage, something we had never had in any of our other businesses.

As that evolved, the Banyan Tree became more important, the others less so. Now we have mutated into a typical hotel company where we own the majority of our assets. But in this business, in the long term, regardless of how much capital you have, it would never be enough.

Owning 100% of your hotels will always be expensive and probably very risky too. So our model for going ahead is to partner with others. We would still put in some equity because we do not want to just manage hotels.

For example we are doing a project in Morocco and looking at one in Greece where we would be partners with other parties. But in Le Chang in China we are building a Banyan Tree resort that would be 100% owned, and in Bali we are reviving a 100% owned project.

KP, as someone who has stayed with you, I am struck by your concern for the environment. It is obvious from the designs of the resort and the detailed information in the guest rooms. What are the origins of the environmental stewardship programmes?

I have a development economics background, where I learnt the essential dilemma between environmental preservation and economic development, and the fact that often there has to be a trade off.

But my concern for the environment did not arise from my being a leftist liberal green peace environmentalist. It arose because we got involved in a construction project in Phuket, where we saw in a concrete way how developers can totally destroy an environment.

At the time, we had no choice -- we were ignorant and stupid when we bought the site -- but then we tried to adopt environment friendly measures. We discovered the good that can be achieved as an environmentally responsible developer as opposed to being just a hotel operator.

In the hotel business, the greatest harm or the greatest good is done at the developmental level. So few people were working on this that we won all these international awards, and when you get accolades, they spur you to do more. Since then we have taken environment stewardship as our core cause, but it is a nuanced platform.

To us, the environment means both the physical and the human environment. Most of our environmental work is towards creating a win-win situation between protecting the environment and enhancing people's livelihoods.

I would not protect an endangered species at a seashore unless we can also help improve the lives of the people living there. Protection or promotion of the environment cannot be not at the expense of people.

This attitude is somewhat controversial in the West and even sometimes in Asia.

If Banyan Tree is to have any lasting contribution, it won't be in the field of luxury tourism, it will be in the field of development. I hope we can be an example to developers and others that one can marry two apparently opposing forces.

Another area where you have been a pioneer is in training programs for your work force. I understand the Banyan Tree employs 4,000 people from 32 nationalities. What did you try that was different and why?

We do use traditional training programmes. But one of the big issues we face (and this is one of the contradictions of luxury tourism) is the great disparity in income between the workers of tourism and the consumers of tourism. If this is not handled in a positive manner, it can end in what I call the Caribbean situation, where people working in the hospitality industry actually resent the guests.

In our training programs we conduct all the skills based training as others do, such as how to set a table, how to answer the telephone, etc.

Where we try to go beyond is to try to create an emotional nexus between the service people and the consumer, so that they realise that the customer truly adds to the livelihood of our staff.

One of the ways we do this is to ask our staff to stay in a luxury villa so that they experience and know what it is like to stay there. An overwhelming majority of employees would be minorities in a developed country, yet the setting is very US-centric.

In the international luxury hotel business, you do have a situation where whites dominate other nationalities, so we try to create a culture of internationalism.

We prepare training programs which are not just skill based but are oriented towards building up a Banyan Tree culture.

As part of that culture, as part of management process, do you use modern management tools such as Six Sigma, EVA or the Balanced Scorecard?

Our HR people use external audit format and external techniques, and we engage external consultants for anonymous property audits and so on. We have not introduced Six Sigma.

I suppose that will come one day. So far my main emphasis has been to try to create a culture unique to the company. My general perception is that it is not easy to transplant specific training programs. Even to take the same tools from a hotel in one country to another has been quite difficult.

Where do you see the group in the next five years? Will you diversify more or will it be organic growth?

My vision for Banyan Tree is to be a global company and string a necklace of jewels around the world. We may not be a spider's web, covering everything. We do not need 600 hotels but one jewel in every major area of the world.

We need to be global in this business because our competition is global and our customers are global and so are their mindsets. It's not a Pepsi strategy.

Second is organic diversification. As an entrepreneur you have to be alert to new opportunities but these new opportunities must be the natural outgrowth of what you are currently doing. When we started the spa business, it was incidental. Now it has become a standalone business in its own right.

We have tied up with the Oberoi group and signed seven spa deals from Egypt to Jordan and Japan. Many of these are not within hotels. We are also looking at other businesses.

We have just started city clubs in Taipei and Colombo. We will continue to look at hospitality related diversification.

In terms of acquisitions, yes we are making property acquisitions, digestible acquisitions. When it comes to acquiring a company with a number of hotels attached to it, the jury is out on whether that kind of strategy is workable for us.

My sense is that the global hotel industry is going through serious consolidation. At one end are mainstream hotels and at the other are the smaller boutique properties. It may make absolute sense to acquire the Meridian chain and get rid of the Meridian name but keep all the properties, but a Meridian, a Sheraton, a Westin are all identical.

If I want to keep our brand finely sharpened, I am not sure I can acquire a chain of hotels and turn them into Banyan Trees that easily. One reason why Banyan Tree has a pretty strong brand is because we have designed and built our hotels from scratch.

KP, you have been the chairman of Singapore Power, you are the chairman of the Singapore Management University, on the board of Singapore Airlines. A great Singapore success story! How do you deal with success?

By buying Rolex watches and Ferrari convertibles. Just joking! I don't know, I am not sure what you mean by dealing with success. Except to say that it makes me want to do more.

We were idealistic students, radicals wanting to change the world. Then we realised that changing the world is far more complex than demonstrating on the streets, that we can change the world only in a limited individual way. But one of the rewards of being financially independent is to have a degree of influence in the areas I am involved in, the pleasure of feeling that you can, in your own small way, bring about change for the good.

You can perhaps inspire some younger people, as others inspired us when we were young, and that gives me tremendous satisfaction. It is a gratifying realization for one who has reached middle age.

How do you allocate your time between the Banyan Tree and your other activities?

E-mail is a God sent. It was born just ten years ago! Before that we relied on faxes, and I remember the days of the telex. E-mail has been tremendously liberating. I am now far more productive than ever before. I can handle far more things than I used to be able to handle.

At one time I had 2½ secretaries, (½ meaning one worked part time). Now I have to find things for my one secretary to do. I can handle all of it wherever I go. I can travel a lot more.

Are you a very hands-on CEO?

That is a good question. My reply is that there is nothing like hands-off or hands-on. I think most CEOs would say that the real trick is to know the things you must be super hands-on about, because even though they are small they are critical and vital to the business machine; and those you should be totally hands-off because lots of other people can handle them better than you, and besides which your intervention isn't really critical to the success of business.

A lot of hotel owners love to be super hands-on in daily operations, saying let's change the color of the carpet and so on.

I recognise that I can be an obstacle, a bottleneck, so professionals deal with operational areas. But I am super hands-on in the design of the hotels and spas; and where our brand is involved such as public relations and advertising. I am always trying to identify the correct areas where I should be hands-on and hands-off.

KP, your wife Claire takes a keen interest in business. Some couples find it easy to work together, others find it difficult. How about you?

Both of us are accidental managers. When we met, she told me that the last person she wanted to marry was a businessman. I wasn't a businessman then, so I was okay.

We lived in Hong Kong: she as a poor development sociologist, me as a poor journalist. We had a great time. Not only did we enjoy the life style, intellectually we were well connected, and we had true goals in life.

As for how we manage as a working couple, there are pros and cons. The pro is that you don't run out of things to talk about, you always have someone to bounce an opinion on.

The sensitive part is drawing clear boundaries, especially since Claire is an independent, strong willed person, and my equal. I am the chairman and she runs one of the subsidiaries. I have to be careful and not always act like the chairman and the boss. She has to have her space. And we probably have worked out how she makes her decisions and I make mine in our respective areas.

The writer is the Managing Director of the Metdist Group of companies. He is also Chairman of the International Wrought Copper Council and a member of the South Asia Committee of IFSL (formerly British Invisibles).

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