Chris Nassetta: First 120 Days At Hilton

By Jeff Weinstein, Editor in Chief -- Hotels, 5/1/2008

Chris Nassetta left a comfortable position at Host Hotels & Resorts to take on the challenge of making Hilton Hotels Corp. the recognized global powerhouse it should have been years ago. The company had barely been merged into one cohesive group when it was sold to The Blackstone Group last July. Since Nassetta took on the challenge December 1, he has been logging miles to get his hands around the organization, figure out its strengths and weaknesses, and reorganize its structure. Nassetta also is working seriously to create a lifestyle brand. HOTELS’ Editor In Chief Jeff Weinstein chatted with Nassetta on the phone in mid-April to see how he has progressed in his first 120 days on the job.

HOTELS: How are you operating differently at Hilton?

Nassetta: In the first 120 days, I spent a lot of time getting to know the organization, traveling around the world to get a sense for the people and what they are doing, finding the strengths and weaknesses, and trying to figure out how we should be doing things differently and more effectively and efficiently. It has been more of a fact-finding time, focusing on organizational issues while getting up to speed on the overall business, and making sure I am out with customers.

HOTELS: Reports suggest the past management was slow and bloated. What are your thoughts?

Nassetta: I am not going to suggest any of those things. There are a lot of things going on within the company that are going extraordinarily well. Like any company, there are ways we can be more effective to accomplish our objectives. The ways we can do that relate to integrating our businesses around the globe in a more comprehensive way. It has been only 18 months since these two companies—Hilton Hotels Corp. and Hilton International—were put back together again. Not too long thereafter, the focus was on the sale to Blackstone. So by no fault of anyone on the prior management team, there wasn’t a significant [amount] of time or opportunity to fully integrate that acquisition… The business’ prior management put together through mergers and acquisitions were incredible and built the foundation for the most powerful lodging company with the most significant growth opportunity of any lodging company in the business. That built the foundation for the next stage of this company to fully exploit opportunities to grow at a much faster pace, particularly outside the United States.

HOTELS: There has been a shake-up in the organization. Is there more to come?

Nassetta: I wouldn’t describe it as a shake-up. I went out and talked to the top 150 people in the organization over first 60 days and asked what we do well, [what we] don’t do well, whether or not we are structured effectively and efficiently, and what they would do differently. The result of all that was a global reorganization plan I rolled out three weeks ago (late March). We took a geographic organizational structure with regional heads, collapsed it and re-cut it to have global functional heads so we can have a laser focus in each function driven by our core four businesses: a global head of operations, a global head of real estate and development, a global head of brands and shared service, and a global head of timeshare.

As a result, there have been some changes, and a number have been based on people making decisions to do different things with their lives. For example, our CFO decided after 30 years he wanted to do something more entrepreneurial; our general counsel wanted to retire; Tom Keltner has been a terrific asset to the company and didn’t want to be in the trenches anymore. He was kind enough to agree to be a senior strategic advisor to me over the long term, but it was his decision to do that. In the end, we have filled the majority of our senior positions with talent from within the company. We are tapping into our significant bench strength along with a few key people outside the business… My objective, to the extent it is possible, is to fill these senior roles with people on our bench. The majority of the leadership team in our company is going to come from the ranks who have been in the company.

The Hilton Baltimore Convention Center opens this fall with 757 guestrooms.

HOTELS: Critics say Hilton has been too slow to develop its timeshare and ultra-luxury businesses. How do you respond?

Nassetta: In timeshare, we have a terrific business and we are having terrific success year over year. Our strategy of being focused on certain core markets (Hawaii, Las Vegas, Orlando, New York City) and having a significant presence and substance in terms of sales and marketing in these clusters is a good strategy, and we don’t expect that to change.

At high end of the business there is no question we have work to do. We have the beginning of a strategy above the Hilton brand with Conrad and The Waldorf=Astoria Collection. It is in its infancy and we have a significant amount of work to do, but we are far along in defining the brands at the high end in a way that makes sense, where they have their defined swim lanes and end customers and owners understand what they represent and what we are trying to do with those brands. There is work to be done in accelerating growth at the high end of the business.

There are a number of ways to accelerate growth. Most importantly we are going to be converting many LXR assets that Blackstone owns independently into our high-end brands. It is a very unique opportunity to accelerate growth and in reality comes close to nearly doubling our presence in the next 12 months. We are not ready to say exactly how Conrad and Waldorf=Astoria will be differentiated. Historically, they have been somewhat in the same space, but we are trying to make sure they are clearly enough defined to make sure there is differentiation in what they represent.

HOTELS: Steve Bollenbach never wanted to get into lifestyle hotels. What is your take?

Nassetta: A space we are not in that I have personally been spending a lot of time on is the boutique or lifestyle space. We really want to get in and the primary driver is that growth in the segment is three times the average of the business. There is a significant amount of demand from our ownership community who wants to be in that space because they see the same thing we see, which is a dramatically better growth rate in terms of demand. We are hard at work and moving very quickly to develop a powerful concept in the lifestyle space. We should be ready to announce something in the next 90 to 120 days.

HOTELS: Based on current economic conditions, how good is your timing on expansion?

Nassetta: We are going to face economic headwinds, and it is naïve to think it won’t have an impact on our business. But I don’t think it is a gale force wind; it is a modest headwind driven by a demand-induced slowdown… It’s a big world, right? There are a lot of reasons why in other parts of the world, not withstanding a slowdown in the U.S., you will still have fairly robust growth. So when I think about our business, I think about it in a global context. We have a huge pipeline of hotels today with over 150,000 rooms, and over 50,000 rooms under construction around the world, with the greatest proportion in the U.S. As time goes on that is going to change. If we accomplish our objectives, as every year goes by, a greater proportion will be outside the U.S.

HOTELS: Based on current conditions, what are you doing to create efficiencies?

Nassetta: We are looking at all assets and working with owners to make sure that we are as intelligent as we can be about our operating models. We are looking at our owned assets and ways to continue to invest and maximize our positioning and returns. When you look at current results, even though the economy is slowing, our results thus far are quite good. In the first quarter across the board, particularly in owned assets in strong markets, we are doing exceptionally well.

One of the most significant opportunities for revenue and profit growth could be in food and beverage. We are focusing on co-branding and outsourcing, and at how many outlets we have in particular hotels.

HOTELS: How is Blackstone doing with placing the debt from its acquisition, and what effect does it have on Hilton?

Nassetta: From the standpoint of where I sit and Blackstone sits that deal is done and financed. The ultimate placement of that debt does not impact our results. The banks have sold some of it and still hold a lot of it. Based on where the capital markets are today, it makes it difficult for anybody that holds any of the paper to move it in volume. It is going to take some additional stabilization in the credit market for that to occur. Our deal is not dependent on how they place the debt in the market. Having said that, however, when you think about a lot of the deals out there, the banks and ultimate buyers of the debt should feel really good. The company is actually performing extraordinarily well. As far as the underwriting of the deal, we are beating the numbers.

HOTELS: What is keeping you up at night?

Nassetta: I am sleeping well. What helps me rest is knowing that after spending 120 days figuring out what the opportunity is, I think the future is very bright… When restructuring an organization, it is important to get the culture right. It is easy to say we are going to organize as a functional structure versus regional structure—which everyone in the company thinks is the right thing to do—but we have to execute on it and build a culture around it to make it work. I think we absolutely can do that and everyone in the company is confident we can, but it will take some work.

Direct comments to: jweinstein@reedbusiness.com