OYO has scaled back its growth and has fired around 600 of its 12,000 China employees and 1,200 India employees.
In an email to employees, CEO and founder Ritesh Agarwal explained the rationale behind the mass layoff. It is part of the strategic objectives for 2020 due to which “we will reorganize more teams across businesses and functions.” According to Oyo, it is lying off poor performers and has set up a “meritocracy-based” performance evaluation programme.
There is no denying that OYO’s growth is astronomical, especially after heavyweight investor Softbank’s Masayoshi Son invested USD 1.5 billion in the business, , pushing the hospitality company’s valuation to USD 10bn.
According to reports, SoftBank has given Oyo a deadline of 31 March to phase out contracts or businesses, which are not EBITDA-profitable. The company has a deadline to post positive earnings before interest, tax, depreciation and amortization (EBITDA) for its self-operated hotels and July as the deadline for positive EBITDA of its ancillary businesses.
The sudden pressure to show profitability is a result of Softbank suffering a jolt after the disastrous IPO of its top two bets – WeWork and Uber. The Japanese conglomerate is now looking at the companies it financially back from a different lens.
OYO also teased on its strategic plans this year to fast track growth and profitability. Some analysts fear that OYO’s blueprint is looking similar to WeWork and investors are starting to doubt it is able to show profits in the long term. In his letter, Ritesh gave an overview of his plans:
As we enter 2020, we are taking steps to optimize and strengthen our business. We have heard what our guests, asset owners and colleagues have to say and are fully committed to delivering by focusing on the following strategic objectives:
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.
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.
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
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