Suzy Bibko is editor of Families in Business.
Hawaii is much more than tiki huts and loud floral shirts. Suzy Bibko discovers that no -one knows this better than Outrigger Enterprises, a thriving and expanding hotel and condominium empire passionate about Hawaiian culture – and a true embodiment of the Aloha Spirit
The Aloha Spirit refers to the attitude of friendly acceptance for which the Hawaiian Islands are so famous. However, it also refers to a powerful way to resolve any problem, accomplish any goal and also achieve any state of mind. Quite a powerful force and one that embodies Outrigger Enterprises, a family-owned hospitality company whose strategy is focused on growth while embracing cultural roots.
Outrigger officially took root in 1947. But the story starts well before then when Roy Kelley and his wife Estelle (pictured) made the bold decision to move from Los Angeles to Waikiki, Hawaii in 1929. Back then, Hawaii was only a territory of the USA (it became the 50th state in 1959) and barely developed. Waikiki was a sleepy little town with horse-drawn trolleys; a bedroom community for servicing the port town of Honolulu. Roy Kelley made the move because he needed a job. He had heard that someone in Wakiki needed a draftsman, and Roy, a trained architect, jumped at the chance. After ten years on the island, Roy and Estelle had enough money to build and rent apartment houses in the Waikiki area. But it wasn't until 1947 that Outrigger really took off. It was then that the Kelleys realised they could rent out their rooms on a daily basis (rather than weekly or monthly), throw in some maid service and make a tidy profit. Since then, the company hasn't stopped growing.
Today, Outrigger is Hawaii's largest locally-owned hospitality company and one the fastest growing businesses in the Pacific. Outrigger proudly boasts 56 properties (11,183 keys) in 12 countries, with $350 million in annual sales. It operates under two main brands: Outrigger and Ohana (Hawaiian for 'family'). Outrigger offers luxurious resort accomodation, while Ohana is a more affordable, but still high-quality alternative for guests.
Richard Kelley, Roy and Estelle's son, and Chairman of Outrigger, says that his parents always knew Hawaii had great potential as a holiday destination, despite the fact that it was anything but a tourist trap when they emigrated there. "My father and mother always visualised the potential of Hawaii," says Richard. "But they had a different vision than the paradigm of that moment, which was that Hawaii was a place for the rich and affluent. My parents' paradigm was that the hotels would be economy priced and the customers would be Mr and Mrs Middle America." Quite a vision, considering that Hawaii wasn't easily accessible, in terms of transportation.
But this soon changed. United Airlines, America's second largest airline, had a Hawaiian-born president back in those days, and he knew, like Roy and Estelle, that Hawaii had potential. Although Pan American World Airways had pioneered the development of transpacific aviation, it was United Airlines who really put Hawaii on the map through aggressive marketing and frequent flights to the islands from the US. It wasn't long before these exotic locales were no more than a plane ride away.
Acting on instinct as well as demand, Roy and Estelle continued to build new properties and acquire existing properties, all within Waikiki. This trend continued until Richard came on board in 1970 and expanded the business to Hawaii's neighbouring islands. "Over a period of time, the change that I brought to the company was to get it outside of Waikiki," explains Richard. "I led the development and acquisition of a hotel on the Big Island of Hawaii, and employed a more professional and more organised team of managers and supervisors to run the company." This was a shift from Roy's business strategy and could have been met with resistance by the company founder and patriarch, but wasn't. "He was happy to see it expand, but probably a little cautious because this was out of his realm of comfort," comments Richard on the expansion. "Perhaps he wondered what his son was doing, but he said, 'You're in charge now, you make your own decisions, but be careful'."
Richard has followed his father's lead in passing the business on to the next generation. Richard handed over the reigns to son-in-law David Carey in 1993. David had been working in the company since 1976, when he met Richard's daughter at university and got a summer job at one of the hotels, working his way up the employment chain until going back to graduate school for his law degree. He then served as outside counsel to the Kelley family and Outrigger until Richard made David an offer he couldn't refuse. When Richard was ready to retire, David was the natural successor. President and CEO since 1993, Richard credits David with taking the company to a higher level, beyond the shores of Hawaii and making Hawaiian culture an integral part of Outrigger's culture.
David says that the decision to expand beyond Hawaii came to him and his team naturally: mother nature came knocking. In 1992 there was a category 5 storm with winds of 175mph, heading straight for Waikiki. The storm didn't hit, but if it had, recalls David, "we would have seen a Hurricane Katrina-like problem. We concluded that we needed to diversify the business outside Hawaii. That's when we began to look at international expansion."
But where to expand? There are a zillion tourist hotspots all over the world, many already saturated by the hotel business. "We knew we were good at drawing vacation travellers from around the world," says David. "So the next questions to consider were, 'Where are other places our customers to Hawaii like to go and where would our operating style add value?' Our conclusion was in the Pacific and island destinations, in an area that was relatively undeveloped." It sounds like Roy may have been advising David from the great beyond.
Outrigger's first international venture was in Palau, with projects soon following in Guam, Fiji, Tahiti, Australia and New Zealand. These are distant destinations by any account. Wasn't the company worried that they might be too remote? Not at all. "Palau is well-known by North Americans as a diving spot," explains David. "It is also a popular destination from Taiwan and Japan. Guam is primarily a Japanese market, so our tour operators and travel partners there provide a lot of the business and also built a lot of credibility for us. We had done a lot of business out of Australia. So we were very well-known there. We had envisioned bringing a lot of international business to Australia, but then there was the Asian financial crisis in the late 1990s, so we ended up with almost an entirely domestic business there."
Outrigger's expansion and continued success seem to have occurred quite smoothly, and much of it is due to the company's commitment to culture. One of Outrigger's hallmarks is that it embodies cultural values in its delivery of hospitality. By incorporating elements of Hawaiian culture into both its employee training and guest offerings, Outrigger has managed to successfully stand out among the fiercely competitive hospitality industry.
"The Hawaiians have an interesting belief that there is a relationship between the host, the guest and the place," David reveals. "The host-guest relationship is relatively obvious in our industry. But there is also the spiritual power of a place, called 'mana' in Hawaiian. It tells you about the place. We spend a lot of time doing 'sense of place' training, where we investigate where the land that our hotels occupy came from, what it was used for in the past and who the people were who were here before us. A story line of the property then develops."
David says the training creates an amazing emotional connection for the employees working in a particular venue because they understand the context of where they are. This translates into warmth and hospitality that extends naturally from Outrigger's employees to their guests. And for guests who want to experience Hawaiian culture first-hand, Outrigger runs a series of cultural training programmes on such things as lei-making, ukelele lessons, cultural walking tours with master storytellers and reef culture lectures.
These pioneering ideas extend to the family side of Outrigger, too. Back in the late 1970s, Richard made the decision to employ the services of a family business consultant. In those days, the industry was fledgling and hardly a glimmer of what it is today. Richard says that his father raised his eyebrows at the decision, "asking why I was wasting time and money with consultants. But again, he said, 'You're in charge, you do what you want to do'." Richard hired the consultant to help develop sound policies and procedures for the Kelley family: a mission statement, a family constitution, a family council and a family employment policy. The family also meets quarterly to discuss both family and business issues. Richard's foresight was indeed visionary. "A lot of the policies and procedures we developed as a family and business were experimental at the time, but have become the gold standard for families in business since then."
So, what does the future hold? For Richard, it means keeping in touch with the hospitality industry and continuing to beat the drum that Hawaii tourism is everyone's business. He is extremely passionate about the latter, and explains: "For a long time there was a great gap between the government and the tourism industry. None of the governmental leaders understood or had any involvement in the tourism industry, yet I instinctively knew that we had to work together. I spent a lot of time going to City Hall and the state legislature getting to know the politicians and helping them understand the dynamics of the business – whatever I could do to broaden the understanding of the government about this business. It brings in visitors from offshore and they may crowd the roads and beaches, but they also bring in a lot of money that directly provides probably a quarter of the tax revenue that the government operates on. You could say that the tourists pave the highways, fund the schools and provide the welfare benefits. This was a message that had to get out. In the latter half of my career I've spent a lot of time delivering that message."
For David, his attention is focused firmly on expansion. On the global level that means Asia: "Probably the tourist destinations first, then we'll see where it goes from there." On the local level, Outrigger is in the midst of a massive redevelopment project called Waikiki Beach Walk that will create a gathering place in the centre of Waikiki. It's a 92,000 sq ft retail entertainment mall and plaza, that includes turning two of Outrigger's older hotels into a two-tower all-suite hotel; turning a 400-room hotel into a 190-room holiday ownership resort property; and giving a dramatic make-over to Outrigger's Reef Hotel. David explains further: "The buildings in that area were all built in the 1950s, so the area wasn't the most inviting by modern standards. It is all being replaced with international quality restaurants, shops, open space, grass and activity areas that will dramatically change that section of Waikiki." He admits it's long overdue, but everyone is thrilled with the project.
While sand doesn't usually provide much stability or encourage much growth, the Kelley family and Outrigger have managed to firmly plant themselves on the shores of Hawaii, absorbing its culture and poising themselves for further expansion. The Aloha Spirit is alive and well in paradise.