Virtuoso CEO and Chairman, Matthew D. Upchurch on the future of digital… and much more.
In December 2017 at ILTM Cannes, we again had the pleasure of getting a luxury tourism update from Virtuoso CEO and Chairman, Matthew D. Upchurch. We asked him what he sees as being the most important trends.
Coming into 2018, one of the concepts I’d like to seed in the marketplace, particularly in the hospitality space, is a concept I’m calling the “myth of the intermediary”, because I believe the term “intermediary” is a completely inappropriate and passé expression from a bygone era. The term was appropriate at a time when technological, logistical and economic barriers really made it impossible for the ultimate provider of anything – not just tourism – to get their product to the consumer. But today we literally live in a world where not only is it possible to deal directly with pretty much anybody, but there are literally hundreds of new ways being invented every day to do so. So, when someone chooses not to deal with the ultimate purveyor directly, they are not an intermediary; they are a primary… meaning that when the customer decides to use an advisor, or Expedia, or a tour operator, they’re not thinking of them as “Oh, I need them to help me go to such and such a place.” They’ve made a conscious decision that this advisor — in my case a travel advisor – that is their primary relationship. They have chosen to have that relationship and expect that person to know things, to have the right relationships, and so on. And the reason I believe this is important is because of the digital revolution. There are way too many people in the digital execution teams of companies and there are too many board rooms and people who are hung up on the measurability of things, and this is wrong. There is a kind of de facto bias towards the point of digital that is to try to get as many people to come to you direct as possible. That is the holy Grail. The holy Grail is, “Oh my gosh, wouldn’t life be wonderful if I had the best margins and the best relationships, because they’ve come to me directly”. But this can never be accurate. There is a McKinsey white paper about this that was written five years ago, and basically what it says is that you should bifurcate between the architecture of your digital strategy and its execution. As the head of Virtuoso, when I talked about this to our members in Marbella, there were audible gasps. I literally said I was going to tell the most powerful hospitality companies in the world – small and large – that they should build the best possible direct to consumer experience they can! It is their responsibility to the shareholders and to their customers. They need to go ahead and do that. But at the same time as doing that, build an architecture that also makes you the best possible digital partner to your value-added partners, because by definition, we are bringing people to you based on the different value propositions that you can offer. And yes, if you execute this appropriately, you literally can have your cake and eat it too. I am not threatened by direct booking, so why wouldn’t you build a strategy that allows you to be the best in both worlds? A major issue, however, is the fact that the thinking around digital, from the business perspective, has not caught up with the technology. The problem is practical. You have a team of people that are in charge of digital, and the only way you can really give them a metric by which they can be compensated and incentivised is based on direct business, and they basically do what they’re rewarded to do. So some of your people need to be rewarded for other things than simple direct results.
The best way to understand this is if you talk to airlines today. They have it figured out. They have spent billions of dollars trying to build technology purely to have the customer come direct and they’ve done an amazing job. But now those of us who sell airline tickets probably have some of the best commercial terms we’ve ever had with the airlines, because after literally 20 years of the digital revolution, the airlines have realised that we actually bring them customers at a yield that they can’t. So, the big news is that there’s not just one path to success, and this happens to be a passion point of mine right now.
In the ILTM opening session, there was a lot of talk about technology and artificial intelligence and the way technology might steal jobs away. What’s your take on that?
I have to give credit to Jess Kimball Leslie, “Chief Futurist”, OgilvyRED, who spoke about the future of work. In fact, I’m going to do a little research on this. I love the concept she introduced about the rise of “empathetic” work. When you think about it, that is hospitality. It’s a good new way to look at it, and so for me, I believe that in fact I’m probably more excited about AI as an opportunity to make our lives better and to help us become more successful than almost any technology I’ve ever seen. It’s all about “automating the predictable so you can humanise the exceptional”, and it’s a great aspirational thing, because now we can develop a real sense of connection. That’s one of the reasons why the last slide of my speech in Vegas (eds: during Virtuoso Travel Week in August 2017) was that I believe the future of our advisers is going to be based not on what you can see, but on what you can feel. I absolutely think that AI has a tremendous potential for liberating the value proposition of what it is to be a human.
One of the other things that I noted in the opening session was when Kimball Leslie talked about the crisis in financial measurement; because the problem is that almost all financial measurements work on that which is tangible. People are only measuring that which is tangible and measuring in the short term, and I think that that’s going to be another interesting evolution, as this needs to change.
You often talk about culture… can you tell us a little more of your thoughts on business culture?
My favourite author on the whole concept of culture is Patrick Lencioni, who is a New York bestseller writer. I run the Virtuoso organisation based on his book called The Advantage. He basically makes the argument that as we continue to get more technological, the only sustainable competitive advantage of any organisation is going to be organisational health. In any organisation, management, employees and owners really have to come together with a sense of purpose, with a sense of collaboration, and above all, the sense of a “safe place” where you can be vulnerable and say “I made a mistake” and not be chastised but be supported. You know, in hospitality, we actually say it’s in service recovery that the greatest loyalty is created. That’s because you can deliver something perfectly that meets with customer expectations, but when something goes wrong, it is in the recovery that some of the greatest loyalty is created. That motion is also happening in employment, with the creation of a culture where people feel safe: safe to be vulnerable, safe to make a mistake and be supported. And what Patrick talks about is that over a period of time, the reason that’s so important is because being smart has become a commodity. There are so many smart people in the world it’s not even an advantage anymore. There so much cash in the world that that’s not an advantage either, and technology is changing so fast that you can’t even keep up with it. So, it’s the ability to build an organisationally healthy company in whatever field you’re in, with people who are aligned, and with the least amount of politics, and the most amount of support, where people are very clear in what the value proposition is. These will to be the organisations that will truly succeed and be sustainable.
Do you have any examples?
There’s a good one in the November addition of Fast Company had Satya Nadella, the new CEO of Microsoft on the cover, and Patrick Lencioni’s company has done much of the consulting for the re-imagination of Microsoft. The cover of fast Company was about how Nadella created US$250bn in market capital appreciation by focusing on compassion and collaboration. Now, if there is one company that you would not have connected to the words compassion and collaboration, it was Microsoft under Steve Ballmer. We’re living in a different world in the hospitality industry.
One of the problems we have in luxury is exactly what Jess Kimball Leslie spoke about when she cited the Wall Street Journal, which suggested the goal of most companies is now to hire as few people as possible. One of the problems with hospitality, and luxury hospitality in particular, is that the people want high yields and they have ownership that has no clue how to really do this, going for short term yields. Today’s western asset managers will need to watch out for the Chinese because the Chinese are not planning for the next EPS on Wall Street. They are planning for generations, so I actually think we are going to have a very interesting time as the asset management arms race is on and will be won by those who build long-term assets.
How is the Virtuoso network moving forward with its sustainability policies?
First of all, practice what you preach. I have to give my wife total credit, as half way through 2016, knowing that 2017 was the UNWTO year of sustainable tourism, she said, “I have an idea for the next year. We are going to plan all our family travel around Virtuoso leaders in sustainable tourism”. So, we started in November last year with The Brando, and I am still showing photos. It’s an incredible place, then we went to New Zealand, also exceptional, and continued on. We just added our first “voluntourism” company – ME to WE – out of Toronto.
As Richard Branson said, we can only advance the environmental movement if we “shame and blame”. There is proven scientific evidence that human beings will only alter a behaviour for a short period of time based on fear, and one of the greatest examples of that comes from Dr Brené Brown in one of her books. She cites the example of people who have had near death cardiac experiences. Then they are told by their doctors if you don’t change this or this, you will die. You know what the outcome of that is? 80% of people who had serious cardiac problems die exactly because they didn’t take action on those simple things or they did it only for a short time. The evidence goes to show that the only way you can change somebody’s behaviour long-term is by painting the picture of what the future could be and showing a potential path of how to get there.
What’s the bottom line of your white paper that was recently released?
At our recent sustainability summit, I was sitting there with massive companies like Royal Caribbean and AccorHotels but also smaller companies like Aqua Expeditions, Nomadic Expeditions or Wilderness Safaris and we asked ourselves what our role should be. There are NGO’s, we are not a certification organisation and we don’t want to be, so what is our role? We are squarely in the commercial aspect of travel and we are squarely in the consumer influence part of that, so the basic outcome of sustainability is that we feel that our core focus should be “How do we help make sustainability a greater factor in consumer choice, so that we can play an active role in making those people that are doing the best sustainability work also the most commercially successful?” We can align sustainability with commercial success by being part of that solution. That’s the best impact we could have on the industry and on the topic and that’s what we are doing henceforth.