2. Napoleon Sanchez
HFHM 274
Dr. Ronnie Yeh
12/01/15
Hilton: Establishing an Empire
History
Conrad Hilton bought his first property in 1919, Cisco, Texas; The Mobley Hotel.
History has it, Hilton was in only Cisco to buy a local bank. He only bought the hotel after not
being able to find a room in town. However, it is more likely he bought the hotel after observing
the revenue generated by renting rooms to oilfield workers (Kirby 1996). Hilton then, shifted his
focus from banking to the hospitality industry. He later acquired the Winsor Hotel in Abilene,
Texas. Built in 1927, this was the first property to carry his name.
The company would grow over the next twenty years, and eventuality moved into the
international hospitality spectrum. But this did not come without much struggle and setbacks.
Conrad Hilton had a vision of globalization, one not shared by his board of directors. In 1947,
the world was in economic chaos. War had destroyed much of Europe and Asia, their industries
and agriculture ruined. The U.S. economy was burdened by inflation in the absence of price
controls, as a result of the war. This meant expansion would come only at great financial risks.
Yet, foreign governments and investors were open to ideas of stimulating the economy. Most
tourist being American, they figured that an American company with and established name
would help attract the American travelers (Strand 1996). In 1964, the brand established a
separately traded company, Hilton International. Trans World Corporation, the holding company
of Trans World Airlines bought the company in 1967. It then sold it to United Airlines nearly
twenty years a later. Only a year later, Hilton International was sold to a British leisure and
gambling company, Ladbroke Group. The company then, adopted the name Hilton Group plc.
Two different chains emerged under the Hilton Brand – one American, one British. The two
3. entities entered into a marketing agreement, which provided for uniform logos. They also shared
the same property managements systems. The Hilton Hotel Corporation acquired brands
including, but not limited to, Flamingo; Doubletree; and Embassy Suites. In 2005, Hilton Hotels
Corp. bought Hilton international, and the two entities became one. The Blackstone Group
bought Hilton in 2007. The Blackstone group remains the owners of Hilton Worldwide; they are
the largest hotel owners in the world.
Legal issues -
In February of 2014, a Class Action suit was brought against Hilton Worldwide. The suit
alleged Hilton had recorded calls to the customer service center without consent. According to
Rick young, the class representative, this violated California Penal Code 632.7. The district
court approved Hilton’s motion to dismiss the claim, stating that the plaintiffs had failed to
assert that the recorded communications were confidential, and therefore subject to a
reasonable expectation of privacy. In March 2014, the class appealed the decision to the Court
of Appeals. The Court found that the law applies to all forms of communication, not just
conferential ones. Thus, it reversed district court’s decision. Hilton attempted to argue that the
statue was ambiguous, but the appellate court refused to hear the argument because they had
not listed the concerns in the motion to dismiss.
California wiretapping laws require consent from all parties, well without a warrant. I
agree with Hilton, the conduct in which they engaged should not constitute a criminal act.
However, their legal teams should have been aware of that detail. Recoding service calls for
quality and training is a good strategy for improving service, and ultimately to increase brand
loyalty. In my opinion the best course of action would be to implement a standard message
making all parties ware of any recording taking place. Secondly I would limit the activity to
4. departments like central reservations and the Hilton Help desk. This is efficient for several
reasons. Customers calling directly to the property usually appreciate avoiding recorded
messages, although hold messages are commonly employed to convey current promotions.
For training purposes, managers can use the recordings for CR and the HH help desk to point
out the dos and don’ts of proper phone etiquette. As for quality, there are traditionally less
people who answer the phone at properties, relative to call centers. If there is an issue it is
much easier for managers to locate and correct it. This method would promote improved
customer service score through adequate training, while reducing the cost of time on the
guest. Also, it will alleviate any further legal issues on the subject.
Starwood Hotels and resorts Worldwide sued Hilton worldwide, alleging Hilton had
stolen confidential documents regarding Starwood’s W chain. The 2009 corporate espionage
suit stopped the development of Hilton’s Denizen brand. This was set to rival Starwood’s
luxurious W brand. The two industry giants settled out of court in 2010. The price tag for
Hilton, seventy-five million cash, seventy-five million in contracts, in addition with a two-
year injunction, barring Hilton form developing any lifestyle properties. While the state
attorney, as a result of the investigation, found no need to pursue criminal charges for the
chain. However, two court-appointed monitors were set in place to ensure Hilton adhered to
the injunction (Watkins 2009).
Hilton Slipped majorly on this one, with the Blackstone group feeling most of the
burn. After investing so much into the Denizen brand, the federal injunction killed the project
in its infancy. The obvious solution in this case is not to engage in espionage of any sorts.
When making any decision, has a business the costs must always be considered with the
benefits. A cumulative total of $150 million may be just a hiccup in that analysis; however the
5. death of the Denizen project dealt a more substantial blow. The loss of potential revenue may
have been left out of the accounting cost analysis; although, I don’t believe the loss of
valuable market share was considered has an economic cost. It safe to say they are more than
aware of it now. When feasible, Hilton should revisit the lifestyle idea, as it is still a booming
market segment.
Religious/Ethics issues –
In August 2015, two men were set to marry at a Hilton Garden inn in Richardson, Texas. One
of the men’s daughter was doing some planning at the hotel, when she overheard the head chef
saying he would not cater the wedding. According to the couple, the chef had a major issue with
same sex marriages, and their newly awarded right to do so. The chef asserted some theory of
creating the apocalypse, and compared them to Caitlyn Jenner. The couple said they reached out
to the Hilton Corporation, but received little help. They then took to social media. Only when the
post went viral, did it garner Hilton’s attention. The company issued a statement denouncing
discrimination of any kind, on behalf of their employees. Also, they say they were in able to
substantiate the allegations against the chef. However, while Hilton publically denounced
discrimination, the chain as hosted anti-gay rallies across Texas. The rallies featured an anti-gay
activist Steve Hotze, who is known for promoting violence against the LGBT community. There
is yet another anti-gay rally scheduled for Hilton in Dallas, this site as also hosted numerous
LGBT rallies as well (Wright 2015).
LGBT rights are, increasingly more of an issue in the wake of the Supreme Court ruling
federally barring discrimination against their right to marry. Hilton has a duty to adhere to the
law, and a moral obligation not to feed into such bigoted behavior. Hilton did claim to have
investigated the incident, yet found no evidence to move forward with the complaint. It would’ve
6. done Hilton great to have responded to this situation swifter than they had. Showing an initiative
for tolerance is always appropriate, in regards to public relations. Hilton does maintain an
assertion of neutrality, as they should, it’s just smart business. Sadly to say, it’s a “lose-lose”
situation. Just as Hilton does not discriminate against the LGBT community, it should no sooner
do so, to anti-gay groups. Hilton should continue to remain neutral, providing service to
whomever is willing to provide payment. Unfortunately, neutrality can’t make everyone happy;
yet, neither non-neutrality. In the short run, Hilton may lose business, but neutrality is the
appropriate approach.
In January 2015, six workers filed a complaint with the labor commissioner, alleging they
had been denied breaks ensured to them by law. To protest this, the workers began picketing
outside of the hotel. The employees subsequently, continued to strike periodically. UBS then
began making plans to sell the hotel, in hopes of avoiding the issue. The Union stepped in and
began to help the workers organize. Previously, the property was managed by Rim Hospitality,
which the union says were obstructing the process of the union meeting with employees. A vote
was then scheduled to determine whether employees of the property did, in fact want union
representation. At this point, management had begun an unethical campaign to slander the
intentions of the union, according to well, the union. Many of the workers have had issues with
unfair scheduling, and breaks, specifically in the housekeeping department. However, concerns
with the cost of company issued healthcare spread property wide. The monthly premium for a
family of three or more is in excess of $800 monthly. This is an issue the union vowed to correct,
although management did spread doubt that they would be able to do so. Rim was then acquired
by Interstate Hospitality, who currently has an agreement not to intervene with union affairs.
Instead of the vote, information cards were used to approve the union’s involvement; this a part
7. of the, preexisting agreement. The union has since one that election, labor contract negotiations
are currently underway.
Hilton corporate has little interaction with such micromanaged issues. Previously a Japanese
hotel, it was bought into the Hilton franchise after its acquisition by UBS. In my opinion, issues
should be left to the franchisee, when those issues don’t conflict with brand standards and
regulations. Labor disputes and strikes can directly affect customer satisfaction. While Hilton
should not infringe on the Franchisee’s ability to manage the issue, it should implement brand
backed service recovery tools. This can be anything from bonus points for Hilton Honors
members, to Gift certificates for complementary stays. Customer service is only one side of the
spectrum. Highly publicized labor disputes can hurt brand reputation. Of employees of a specific
property publically allege unfair labor practices, on behalf of management, customers may begin
to view Hilton in a negative light. In such cases, it would be wise for Hilton to contractually
implement incentives to settle whatever dispute may be at hand. These approaches are more
favorable, as opposed to direct intervention by corporate. Too many restrictions, may
significantly increase franchising costs. This may reduce demand for future franchise contracts.
Hilton can avoid this, by sticking to the incentive aspect, brand backed service recovery tools; m
fair-warned fines, or penalty marks leading into fines will properly incentivize franchisees to
quickly settle labor dispute, while not prohibiting their ability to do so.
Technological issues -
In 2004, Hilton rolled out its own property management system (ONQ). The technology
platform was deployed in 8 of the Hilton brands, covering 2,200 hotels. ONQ also houses
Hilton’s loyalty program. This technology allows for guest recognition and increased
efficiency. It features an e-check in option, which allows Hilton Honors members to select
8. their rooms and lock them in online. To date, front desk agents are able to view a stay history
for Hilton Honors members. This contains information on stay by property, if they
experienced any issues, and the amount of revenue they have generated for the company
(Adams 2004). The e-check in feature did have a setback – fraud compromised the integrity
of the program. No identification is asked of e-check in guests, newly enrolled members have
sued fraudulent credit cards. They then show up to the property where the keys are commonly
premade. More recently, OnQ issued a software upgrade to allow the system to read the chips
being put in new credit cards. The upgrade as caused some kinks that need to be worked out,
as well as some design flaws. The check in process can, at times be affected by complications,
though OnQ is working on an upgrade said to provide some solutions.
The e-check in is an excellent, it allows the guest to select their room. This gives the
customer more choice, thus promoting Hilton’s loyalty program. This tool is very valuable.
Yet, its integrity is being compromised by fraud. A plausible solution to this issued is to only
extend the e-check in feature to gold and diamond members. Hilton usually has plenty of data
gathered about these types of guests. In the event of any ambiguity, they can be more readily
reached, than those of the lower tiers blue and silver. This may cause some frustration
amongst these lower tiers, but it also inadvertently, gives customers something more to strive
for; thus it may actually increase Brand loyalty.
Regarding the issue of software, I feel often a “disconnect” exists between system
developers and system users. That’s not to say OnQ isn’t an efficient property management
system. The drawbacks of the most recent upgrade has slowed the system overall. In addition,
the changes to the credit card has complicated thing in two ways: previously, swiping the
credit card on a walk-in reservation would import the holder’s name; leaving only secondary
9. information, such as their home address, to be entered. This feature significantly reduced
check-in time. Secondly, the card input system can crash when the link is down between
properties and central reservations. The new upgrade should revert the former issue back to its
original functionality. As for the latter, it goes without saying. Guest can become quite
frustrated by being told the front desk agent has to call the merchant to obtain a manual
authorization. Let alone being told that a copy of their credentials has to be made. These
issues should be promptly addressed, as they will cumulatively slow the arrival process; a
question that is on the survey used to evaluate customer satisfaction. Correcting the issues will
increase customer satisfaction, as well as reduces stress on employees.
Earlier this year, Hilton began testing a pilot program that allows guest to use their
smart phone as keys. To, stay the implemented the technology at ten U.S. properties; planning
to expand it to 11 more brands, globally in 2016. Hilton says will encourage use of the mobile
app, which is believed to be a sound source of revenue for the chain; also, to persuade
travelers, who remain undecided. Hotel technology experts say, there are some issues. Robert
Cole, a tech consultant, brought up this issue of a monopoly supplier. He cautioned fitting all
of their hotels with the technology could lead to a holdout problem, as there were no other
suppliers – no competition. Each manufactures’ product is unique, and are not readily
interchangeable. Others bring up the issue of security. Manufacturers don’t willing address
security concerns, due to trade secrets. But according to Doug Rice, executive VP of Hotel
Technology Next Generation, there needs to be a line of communication opened about
security, because the current situation is hurting the process (Manley 2015).
Technological advances are definitely strong marketing tools, especially in terms of
convenience. Though, Hilton would be wise to proceed with caution, as this technology is still
10. quite new. The hold out problem will quickly take care of its self through market activity. As
the industry progresses, more firms will enter the market; eliminating the monopoly power
issue. Security, on the other hand, can bring unpredictable problems. The keys are activated
within an app on a smartphone. This raises security issues on, at least two obvious fronts: if a
guest loses their phone, is there some type of safety mechanism that will allow the hotel to
deactivate access? This is definitely an issue worth addressing. Is the system hack safe?
Identity theft is an ever-growing concerns in the business world, as such a full move toward
this system, in its current state, is a bit premature. Hilton Should go forward with
implementing the system as a pilot program, to test is efficacy; but should postpone full
adoption until the kinks are worked out. Convince is always good, but it is not wise to
sacrifice security in the pursuit of it.
In the grand scheme of things, Hilton a fared well. Conrad’s vision of globalization for
the chain has been realized ten-fold. The Hilton chain is now regarded as the largest hotel
franchisor in the world. In 2008, Hilton observed a 241% increase in guest rooms, placing in
at number 3, on the list of world’s largest Hotel chains (Chen 2011). The Blackstone Group,
owners of the company, issued an IPO of $1.25 billion in 2013. It has properties across
Europe, Asia, and South America, to name a few. All the while, the company has been able to
lead the field in terms of product development, and uniformity. This is true, even though
nearly 90% of its properties are not corporately operated. Take the Doubletree, for example.
Anywhere in the world you travel, everything will be the same; from the warm chocolatechip
cookie, to the mattress in the guest rooms. This I a prime example of what makes Hilton so
successful.
11. Works Cited
Adams, B. (2004). Tech talk. Hotel and Motel Management, 219(19), 64.
Chen, Y. , Wang, W. , & Chu, Y. (2011). A case study on the business performance
management of Hilton hotels corp. International Business Research, 4(2), 213.
Kirby, D. (1996, November 9). First Hilton Hotel, Cisco, Texas. Retrieved December 3, 2015,
from http://www.roadsideamerica.com/story/18311
Manley, B. (2009, April 9). Issues loom for keyless entry in hotels. Retrieved December 2,
2015, from http://www.hotelnewsnow.com/Article/15618/Issues-loom-for-keyless-entry-in-
hotels
Strand, C. (1996). Lessons of a lifetime: The development of Hilton international. Cornell
Hotel and Restaurant Administration Quarterly, 37(3), 83-95.
Wright, J. (2015, August 27). Hilton Hotel Chef In Dallas Allegedly Refused To Cater Gay
Couple's Wedding: VIDEO - Towleroad. Retrieved December 1, 2015, from
http://www.towleroad.com/2015/08/hilton-hotel-dallas-gay/
United, 1. (2015, June 30). Labor Dispute at DoubleTree by Hilton Hotel in Downtown Los
Angeles, Being Sold by United Bank of Switzerland (UBS), says UNITE HERE. Retrieved
December 1, 2015, from
http://www.businesswire.com/news/home/20150630006308/en/Labor-Dispute-DoubleTree-
Hilton-Hotel-Downtown-Los
United States Court of appeals For the ninth circuit. (2014).Young v. Hilton Worldwide, Inc -
U.S. Courts. Retrieved December 1, 2015.
Watkins, E. (2009). Starwood sues Hilton, executives. National Real Estate Investor (Online
Exclusive).
