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May 12, 2013

Space Ho­tels, LTD —Part 2


Business Case Post-Analysis

Obvi­ous­ly, this is a hy­po­thet­i­cal case study. The sto­ry may be sim­ple, but it il­lus­trates those crit­i­cal is­sues that are at the cen­ter of the mod­ern-day-or­ga­ni­za­tion­al co­nun­drum. To name a few:

  • Inherent inefficiencies of hierarchical organizations
  • Explosive crisis of knowledge, information and complexity
  • Hyper-accelerated advances in science, technology and society
  • Power shift to a network world
  • The questioning of authority


As for me, all I know is that I know nothing.
—Socrates (469 / 399 BC)


Why did Space Hotels lose its 2nd place?

groupthink1SHL lost its mar­ket share to its im­me­di­ate com­peti­tor, Hun­gry Ho­tels, Inc. (HHI) in less than a year. There was an el­e­ment of luck be­cause HHI’s cus­to­di­an had im­por­tant in­for­ma­tion and he was able to de­liv­er it to his CEO. Still, this does not ex­plain why SHL mis­in­ter­pret­ed the mar­ket so bad­ly, es­pe­cial­ly if we con­sid­er that they were get­ting ac­cu­rate field re­ports.

How­ev­er, this man­age­ment style dates back to ear­ly 19th cen­tu­ry or be­fore; since the be­gin­ning of the in­dus­tri­al rev­o­lu­tion.

SHL was an or­ga­ni­za­tion whose pow­er was con­cen­trat­ed and its busi­ness driv­en, from the top. Ideas that did not come from the top ech­e­lons were ig­nored. In any giv­en or­ga­ni­za­tion, the amount of knowl­edge and in­for­ma­tion gen­er­at­ed grows ex­po­nen­tial­ly. Most of it is missed by the small num­ber of peo­ple which make up the lead­er­ship group. There­fore, SHL had to re­ly on lim­it­ed da­ta.

It was al­so men­tioned that SHL was a hi­er­ar­chi­cal / pyra­mi­dal or­ga­ni­za­tion. Com­mand-and-con­trol would be its pre­ferred man­age­ment method. This is not unique by it­self. How­ev­er, this man­age­ment style dates back to ear­ly 19th cen­tu­ry or be­fore; since the be­gin­ning of the in­dus­tri­al rev­o­lu­tion. In the in­for­ma­tion in­ten­sive world of the 21st cen­tu­ry, this man­age­ment style is in­ad­e­quate.

groupthink2In­for­ma­tion that flows from the base, to the top of the pyra­mid, is in­her­ent­ly flawed. This is not on­ly true of SHL but it is true of most of hi­er­ar­chi­cal or­ga­ni­za­tions. The rea­son is qui­et sim­ple. Hu­man be­ings are no­to­ri­ous­ly poor at com­mu­ni­cat­ing.

Most of us are fa­mil­iar with the chil­dren’s game called Chi­nese whis­pers or Bro­ken Tele­phone. The ob­jec­tive of this game is to have a per­son whis­per a sim­ple sto­ry in­to the ear of the per­son that is next to him or her. In turn, this oth­er per­son whis­pers the same sto­ry in­to the ear of the next per­son down the line, and so on. In the end, the last per­son in the line will tell ev­ery­body what he or she heard. Then the first per­son in the line tells ev­ery­one the orig­i­nal mes­sage. Typ­i­cal­ly a big laugh­ter en­sues, be­cause the orig­i­nal sto­ry and the end­ing sto­ry have noth­ing in com­mon.

Just as with the chil­dren’s game, as in­for­ma­tion trav­els up the or­ga­ni­za­tion­al pyra­mid it gets dis­tort­ed. There­fore, it is not far fetch to think that what start­ed as a cus­tomer de­mand for “pink toi­let pa­per” was re­ceived by the board as “rain­bow col­ored nap­kins.” This is plain to see in our sim­ple lit­tle sto­ry. How­ev­er, in the re­al world, the num­ber of in­for­ma­tion points that will af­fect the de­ci­sion mak­ing pro­cess is al­most in­fi­nite: The prob­a­bil­i­ty of er­ror is there­fore much greater.

Could Space Hotels, Ltd change?

information-cascadesThe larg­er ques­tion is: Could SHL change so that they re­gain their mar­ket share and avoid sim­i­lar mis­takes? Yes it is pos­si­ble; but is it prob­a­ble? SHL could pour a gar­gan­tu­an ef­fort of la­bor, time and mon­ey to re­gain its mar­ket share, at least in the short run. How­ev­er, avoid­ing sim­i­lar mis­takes would lit­er­al­ly re­quire an or­ga­ni­za­tion­al paradigm shift; and these cul­tur­al changes are most dif­fi­cult to achieve.

SHL, as well as mil­lions of busi­ness large and small, face sim­i­lar struc­tural prob­lems. To­day it is im­per­a­tive for or­ga­ni­za­tions to ex­cel in the fol­low­ing ar­eas, in or­der to sur­vive the com­plex glob­al en­vi­ron­ment.

  • Identify changes rapidly
  • Creatively adapt to changes
  • Respond effectively

It was al­so stat­ed the SHL em­ploy­ees where com­pe­tent and loy­al. It is like­ly that they were al­so very well trained. Many of these work­ers prob­a­bly held col­lege de­grees. But in a com­part­men­tal­ized and over spe­cial­ized or­ga­ni­za­tion, most of the knowl­edge held by their em­ploy­ees goes to waste. There is very lit­tle lat­i­tude for cre­ativ­i­ty to flour­ish. Hav­ing to per­form a work ac­tiv­i­ty which is be­neath ones po­ten­tial is a cause of frus­tra­tion, ap­a­thy, dis­sat­is­fac­tion, etc.

SHL could train its man­agers, di­rec­tors, su­per­vi­sors to see them­selves as men­tors and en­ablers to the peo­ple that re­port to them. This vi­sion is in stark con­trast to the idea of the all pow­er­ful you-do-as-I-say “boss.” Fur­ther­more, SHL could im­ple­ment in­for­ma­tion tech­nol­o­gy tools which make the or­ga­ni­za­tion op­er­ate more like a net­work than a pyra­mi­dal hi­er­ar­chy.


Try­ing to keep up, adapt and grow us­ing the meth­ods of a much slow­er era is a recipe for dis­as­ter.

In the 21st cen­tu­ry, or­ga­ni­za­tions large and small face a new cri­sis which, iron­i­cal­ly, does not get much cov­er­age. This is the cri­sis of com­plex­i­ty. In­for­ma­tion and knowl­edge ex­pan­sion are mov­ing at ac­cel­er­at­ed speed. Con­se­quent­ly, prod­uct and ser­vice ob­so­les­cence has be­come more preva­lent. Many new prod­uct ef­forts be­come ob­so­lete in their blue-print state.

Try­ing to keep up, adapt and grow in this en­vi­ron­ment us­ing meth­ods of a much slow­er era is a recipe for dis­as­ter. Nev­er­the­less, this new era has al­so cre­at­ed a wealth of tools which could, if ap­plied cor­rect­ly, help thou­sands of or­ga­ni­za­tions thrive.


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