Dear Bheem,
I have been planning to write about Oyo to you because of a thought I had while thinking about hotel businesses. This triggered with my experience during a recent visit to one of its hotels in a tier 2 city. But then I got lazy and then busy but not Oyo. Since then, there has been an article a week describing the troubles and turmoils boiling in the company. This culminated today (14-01-2020)with a declaration of Massive lay-off’s and scaling down of operations. In addition to this, the reporting also sourced the internal memo that Ritesh Agarwal wrote to its employees. It is an interesting read. So without further delay, lets dig in.
Implications of Strategic Objectives
One of the implications of the new strategic objectives for 2020, is that, like the leadership team, we will reorganise more teams across businesses and functions. And this means that, unfortunately, some roles at OYO will become redundant as we further drive tech-enabled synergy, enhanced efficiency and remove duplication of effort across businesses or geographies. As a result, we are asking some of our impacted colleagues to move to a new career outside of Oyo.
This is directly from the memo Ritesh wrote to his team. Who am I kidding , I have no such authority or experience to comment on the response he should have for his staff. He is responsible for the payroll of 12,000 employees whereas I am of 3, just 3 and I still panic with the responsibility that comes my way with keeping them employed. So, lets not go there at all.
I am not even going to understand or relate to Ritesh’s state of mind and his decision to fire his staff. It must have been tough and he might be too young to handle all the pressures he is currently facing from every side. You must be thinking, what kind of pressure he must be facing? Let me just give you a small glimpse without expanding much on any one of them.
It’s main investor looking for a guaranteed exit as its other marquee investment derailed completely. ( Context )
A global News organisation sniffing around for any hit job as it missed the previous ones (WeWork) debacle and had to do a catchup job when its competitor was doing exclusives. ( WSJ reporting on We work)
Pundits all across the world who smelled success with calling out on the previous ventures debacle turning their focus onto the other investments of the same venture firm.
Corners cut for scaling fast in a muddied market showing its result at the wrong time.
The unrelenting patience of Indian consumers to not pay up rather always search for the bargain price.
Dwindling patience of the Hotel partners due to the opaque practices and steep fines.
I can keep going with more vague statements like the above ones without precisely writing about any one of them.
You might be thinking, what the hell, Vivek? I am sorry but this is what I exactly felt after reading Oyo’s strategic objectives in the memo. (Not to worry, Links will give you the context and also bring you up to speed.)
So, this post is all about us breaking down the steps Oyo is going to take to the right the ship. It did this by removing the person who was brought in to do that with a board promotion.
Strategic Takeaways : Null
This meeting included 100 people. 100 minds of Oyo came up with 4 objectives roughly summing up to nothing.
Objective 1:
Quoting from the Memo:
Sustainable Growth: Balance the speed of our growth with our operational capabilities, to ensure our growth is sustainable. We have built world-class capabilities since we started and in 2020 we are forming a Global Capabilities Team for each core function that will dramatically shorten the learning curve of every OYO market through knowledge sharing and drive consistent strategy and execution across our brands, teams and locations.
First point states ‘Sustainable Growth’ and what do they mean by sustainable growth? Speed will be balanced with capabilities translating into slashing of staff and incorporation of a core team working across geographies with heightened knowledge sharing.
To be fair, this is an internal memo and the people in Oyo would be more aware than me for sure. But, there is logical and reasonable flaw with this approach. Prior to Oyo no one else could do this because every market is different. Sharing knowledge across regions is not of much use if you go by the market knowledge. The Indian budget hotel price range starts at 1K and ends at 6K where as in developed markets the budget hotel price starts a 7K. ($100). The amenities provided vary from geography to geography. Customers from a country vary vastly. So, what is it that heightened knowledge sharing will achieve ? The answer to that is less employees.
Objective 2:
Second Point of the Memo directs the staff on building on its Operational and customer experience.
Operational and Customer Excellence: Leverage technology and data insights along with our culture of service to simplify operations and drive consistent, high-quality execution
Drive uniform adoption of our own tech products across different geographies. This also makes our guests’, hotel partners’ and our lives easier and efficient.
Move 90%+ hotels from OYO to >7/10 rating through network planning, technology enabled tools and targeted investments.
This entails adoption of technology. Technology adoption by hotel partners will ensure what exactly? It will not pay the bills that the hotel owners pay for running the hotel. It will not help in them in serving guests. Ritesh tends to forget that whatever Oyo may do with tech, at its core it is selling a physical room for rent.
Next, ratings matter, I agree but do you know how they work. I researched to write about it. And found this blog post from the company highlighting the points system. It is an incentive system for the hotel partner to get better ratings because customers only stay at better rated hotels. There was another thing common between the ratings blog and the memo. Both were equally vague.
The irony in this implementation is that it directly conflicts with the core proposition that Oyo sells. Partner with us to have more occupancy. Now, with the ratings you have to get better at service and customer delight as well. Wouldn't the owner do that on their own brand rather than on someone else's brand. To add cherry on the top, end up earning lesser because of the partnership.
Objective 3:
Now, Ritesh and his 100 strong team shifts focus to profitably. Thank God. They talked about it at least. If I was a hotel partner, I would have been shit worried because the company that is paying my Minimum occupancy guaranty doesn't make any money and I have signed a long contract with them.
Profitability: Increase efficiency while focusing on core businesses and rationalizing growth avenues. Focus on profitable locations and buildings and avoid growth that dilutes our margins. Further reduce operating costs.
I will tell you what I understood from this, instead of giving soap and shampoo now they will give both of them mixed in a single bottle. This is definitely stretching and falls flat but I couldn't think of anything else that Oyo does that is visible to a customer like you and me. So, If they do cut operating cost they would either do through my stretchy joke or through reducing on premise staff or worse, hiring at lower wages.
Objective 4:
Last point, comprising lots of platitudes. I am done. I have nothing more to add to this. Why don't you just go ahead and read it.
Training and Governance: Enable OYOpreneurs with the right tools to drive productivity, consistency and governance, while building a high-performing and employee-first work culture
Due to these 4 strategic objectives around 2000 employees are being let go with a severance of 2 months. Not that it is bad or good thing, but as a fellow human you can sympathise with them.
Memo is just a Notice
My issue comes that I never really understood anything that Oyo was doing. Never understood why as a hotel owner will I look to partner with them. And what as a customer to expect from Oyorooms except cheap prices and minimum 40% off.
In order to answer before I throw the person who is the face of the startup economy of India under the bus. Why not check what are they selling first. So, I went to the Oyo Partners’s landing page.
Here they have 4 brands that a Hotel partner can become part off. Added, they also have a mission:
We have only one mission - to increase occupancy and revenue by bringing quality living spaces to a billion plus people.
In order to determine quality they will vet your place and then tell you what is missing and what changes to make your hotel a living space. If you don’t have the money, they will help you in that as well.
They also will buy hotels if needed. But they promise you that you will be better than the competitor because you partnered with them.
Sounds a lot of work but okay I will give it a try. Still you are not telling me why a customer trusts your brand over ours.
In order to subvert the question, Oyo did what every startup does. Bought growth by subsiding everyone involved. All throughout Oyo's existence , hotel partners and customers knew that Oyo is for better occupancy with minimum guarantee and cheaper rates respectively. But, since it started focusing on its own survival, it suddenly became this huge albatross that is hurting everyone.
Oyo claims it is a hotel network, It keeps saying it has a network bigger than the Marriot. To that, you could easily ask, so what? Rather, what I think Oyo is much more of a brand.
Analogy to our rescue
Remember the Kirana shops in your neighbourhood back in the day. They used to have name boards sponsored by either Pepsi or Coca Cola. The store took it because it got a free board, as if it was looking to differentiate from other Kirana stores with branding. Plus, store needs a name. So, they name it and with a sponsored board they don't need to spend money on it. It also helped a customer like you and me to know that in this store , you will get Coca Cola or Pepsi.
Oyo does a similar job. Most of the hotel partners associating with them are not in the business of Hotel Management and differentiation. They are in the asset building and rental business. Just like our Kirana store, open a shop in a strategic location and stock up. People who want to buy something will come to you.
And, Oyo is like Coca Cola offering a stay that goes by some standards by obfuscating the hotel. Unfortunately, It is not as easy as buying a bottle of soda from Kirana store. Hotel stay has 100 complications and interactions. Anyone of which goes unaddressed or wrong will result in customers experiencing severe discomfort.
To pile on further, as a customer what is it that you will get from Oyo was also never a standard. In order to achieve this standardisation, it started running hotels. Indirectly giving a middle finger to its hotel partners. We have covered the differences between aggregator and platform in the past. Whenever an aggregator enters the market with its own asset/product, it is bound to give preference to its own. It is similar to the white labels in the e-commerce industry, like Amazon basics.
Yet, We did book a room with Oyo because for once they allowed couples to enter at peace without any moral policing, they allowed locals to stay at a hotel and they allowed male customers to get rooms at cheaper rates. Wouldn't say the same for women because every stay at an Oyo property came with a cost, your safety. Have known many anecdotal experiences of creepy staff that it cannot be ruled out as a rare incident. All along telling each one of us that there are so many more options we can compare for prices.
While subsiding all of us via offers it never focused enough energy into building a proper brand as it did for its founder. The same founder who threw the very people who gave him a start under the bus. I don't praise journalists much over here but this report from Ashih K Mishra sheds light on the starting days of the Oyo. I am leaving you today and urging you to read it even if you haven't read mine properly (Article).
We will get back to the Idea I had for Oyo that these 100 heads couldn't come up with in my following post.
Regards,
Vivek
The Duologue is an effort by Vivek and Bheem to have a dialogue about varying topics.
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