By Michael Oshins
The complexity and challenges of owning and operating a hotel have changed over the years. Traditionally most hotels were owned and managed by the same person (or company). In today’s marketplace, several entities can be involved, including owners, developers, management companies, brands, affiliations/consortiums and asset managers, resulting in a far more complex organization. The following scenario (created by colleague, Dr. William Kahn) features the relationship between the hotel owner and general manager and highlights the impact of this important relationship on the organizational culture of the hotel. The case was posed to several industry professionals who were asked to use their expertise to advise on how they might respond to this scenario. The BHR would like to hear your opinion; please share your ideas in the comment section at the end of the article.
Steve Leighton, a seasoned hotel manager, is in his fifth year as GM of The Seaside Hotel, a mid-sized property that is part of the world-renowned 60-year old Oceans By The Sea (OBTS) hotel corporation. Seaside was purchased just a year ago by successful manufacturing magnate, Ben Reston, a first time hotel owner. Recently, Steve began receiving more and more emails from Ben, all marked urgent and all addressing matters of day to day operations in the hotel. Much to Steve’s frustration, none of Ben’s communication responded to Steve’s repeated requests for increased investment in the physical upkeep of the hotel, despite the need for capital improvements to address wear and tear in the function rooms and suites at a time when several big corporate contracts were up for renewal.
Today, Steve arrived at the hotel and found a new string of escalating emails from Ben. The first one, from 8:00 p.m. the night before, had the subject line, “Outrageous,” and read:
Hi Steve. I wanted to let you know about the experience my nephew and his friend had at the hotel earlier tonight. I told them that we had a new chef and that they should have dinner at the hotel, my treat. When he called me later, he said he could not believe how rude the desk clerk was to him. My nephew said that he simply asked about getting a cab to go pick up his friend, I think—and that the desk clerk barely gave him the time of day. He asked to speak to you, but you were gone for the day, and the Manager on Duty was busy in another part of the hotel. My nephew said that the dinner was okay (I want to talk to you another time about the salads, which I still think are presented poorly) but that the whole interaction with the desk clerk just ruined it for him. As you can imagine, I was mortified. Please call me.
The subject line of Ben’s second email, this one from late last night, was “Pelham.”
Steve: I called the front desk and found out that the name of the associate who was so rude to my nephew was Pelham. I think I remember him. Wasn’t he the one that messed up one of my wife’s cousin’s reservations last spring? I think so. Anyway, I want you to look into this. If he is making this many mistakes, he’s probably not doing the job that we want. I certainly don’t want someone like that representing my hotel. We can’t afford a reputation for rudeness. The market is just too competitive around here. I’ll call you tomorrow about this.
Steve found this strange. Kevin Pelham was one of the best associates on the front desk. He had a reputation as unfailingly polite and unflappable, calm in a crisis, good with the guests and the corporate customers. Terry knew that there was certainly another side to this particular story. He opened the third email from Ben, sent earlier this morning with the subject line: “Changes.”
Steve. We really need to make some changes. It’s not just this Pelham fellow. There are other associates I’ve noticed recently who are not doing the kind of job that we want them to. Some speak too quickly to the guests, like they’re trying to rush them. Others are too informal in front of the guests. They need to be more professional. They need to be shaped up a bit. Maybe they’ll perform better after we do something about Pelham. That might scare them some. That works in my business—when my staff is afraid for their jobs, they work better and faster. I’m sure it will work at the hotel too. Anyway, I’m coming in around lunchtime, and will want to meet with you then.
Steve went to see Ilana Baylor, the Manager on Duty the previous night. Ilana was surprised that Kevin Pelham was the issue. She told Steve that it had been a bit crazy the night before. There were two wedding receptions, a corporate function, and several mix-ups with guest room reservations, and they had been short-handed at the front desk because one of the associates was called away by a family medical emergency. Ilana said that as far she knew Pelham did a good job holding the front desk together. She said that she would call him to find out what happened with the nephew.
Steve found himself increasingly annoyed with Ben. It seemed, from the emails, that Ben wanted to take a decidedly more active role in managing Steve’s staff. Steve wanted Ben’s support. But wanting Ben’s support and involvement was different from wanting him intruding in the hotel’s basic operations.
Steve walked back to his office. He was not looking forward to dealing with Ben later that day, but hoped that he could find a way to make it constructive. He sat down at his desk, saw yet another “Urgent” email from Ben, sent just minutes before. There was no message, just a subject line: “See you at noon.”
1. What are the key issues you see in this scenario? Which issues do you think are most important?
2. What initial steps would you take to address these issues?
Key Issues in Order:
1. Communication protocol
2. Defined Roles
3. Management Philosophy
4. Mutual Respect
5. Mutual Goals
Initial Steps to address these Issues:
1. Approach the meeting from an offensive not defensive position
2. Imagine the roles (owner/GM) were reversed
3. Present and execute a retraining program addressing service observations
4. Ask to formalize and establish an FFE schedule
5. Emphasize financial and GSS results
6. Agree that management by fear yields at best short term gains.
7. Propose weekly “coffee” chats to keep door open
8. Offer to “walk” the hotel once in awhile.
9. Follow up to benchmark Owners perception status
If all this fails, update CV.
-Tim Kirwan, Principal, Hotel Creation NE, Boston, MA
Tim Kirwan is the Principal of Hotel Creation NE located in Boston, Massachusetts. Prior, Kirwan was the Managing Director of the InterContinental luxury property located on Boston’s waterfront. No stranger to Boston, Mr. Kirwan has been the sure guiding hand behind the openings of the Hotel Commonwealth, the Cambridge Hyatt Regency and the Bostonian Hotel, which he served as Managing Director from 1982 – 1990.
As Managing director of Hotel Commonwealth he created a new destination in Kenmore Square which included thirteen boutique stores, the award wining Great Bay Restaurant with Michael Schlow and Chris Myers, as well as Eastern Standard Brasserie.
He was the General Manager of the 364-room Westin Hotel in Providence, which he also opened and managed with distinction and national acclaim for seven years. In addition, he is deservedly credited with playing a key role in the re-birth of the city of Providence, both through his service as chairman of the Providence Convention and Visitors Bureau, as well as for garnering positive exposure for the city as chairman of the Providence Film Commission.
Three key issues are apparent to me and they are, in order of importance:
The owner’s relationship to operations: It’s pretty clear that Ben wants his hotel to operate at the very highest standard, which is a laudable goal. But he has no idea how to motivate his team toward this end. His style might work in manufacturing, but not in a hotel. A seasoned general manager like Steve will quickly tire of Ben’s constant interference. Experienced general managers are most effective when given measurable goals along with the autonomy and necessary resources to attain them. Being micromanaged demoralizes good leaders and creates resentment, even if both parties share the same goal. Steve needs to show Ben that his constant emails and negative assessments are counter-productive. He should suggest having a regular weekly meeting with Ben to go over the operation and get Ben’s input, at which time he could report out on progress made during the past week.
Turnover: Ben seems to believe that firing people solves problems, but that’s rarely the case. Turnover is expensive and generally leads to reduced service levels until new staff are trained and comfortable in their positions. Again, Steve should speak from his experience in the hospitality industry and attempt to educate Ben on what works and doesn’t work. Let’s hope Ben listens!
Staffing levels: It seems that staffing could have been more robust on the night when Ben’s nephew showed up. I’d review this situation to see if it points to a systemic problem and make adjustments as required.
-John Murtha, General Manager, Omni Parker House, Boston, MA
John D. Murtha, CHA, is a 37-year veteran of the hospitality industry. He is currently General Manager of the Omni Parker House Hotel in Boston, the longest continuously-operating hotel in America. He has been an adjunct lecturer in the School of Hospitality Administration at Boston University since 2001. He was recently inducted into the Hall of Fame by the Massachusetts Lodging Association. John graduated from the Hotel Administration program at the University of New Hampshire, where he is currently a member of the Hospitality Leadership Council and Advisory Board.
The interaction between Kevin Pelham and the nephew.
The communication between Steve (GM) and Ben (owner).
Regarding the incident with Kevin and Ben’s nephew, the first step to a resolution is to inquire about the situation with the employee. It is important to never go into a discussion, or disciplinary conversation, with an anticipated outcome. It is vital to allow employees the opportunity to express themselves and share their point of view. Once hearing from said employee, the supervisor should then elect an appropriate course of action, whether the issue conclude with the verbal conversation, or be taken a step further with written documentation Kevin may have felt frustrated during his shift because of the heavy traffic in the hotel and limited staffing, but it is important to stress to him the importance of hospitality. Without it, our business would not exist. On the other hand, while Ben might be quick to fault Kevin, the core of the problem could be a lack of staffing due to the call-off. This might entice the GM or Director of the Front Office to look into part time staffing for situations such as this. On call employees would reduce fluctuation in quality of service by stabilizing staffing.
A conversation with Ben is a must. It is common for someone with limited hotel operations experience to lack a complete understanding of the hotel culture. While Ben might believe disciplinary actions against Kevin would “scare” other employees and “shape them up,” it is likely to damper the trust between Steve and his employees above all else by turning the situation into a “he said, she said”. Steve should explain to Ben that he has spoken to Kevin regarding the situation, and has informed him how his actions were perceived by Steve’s nephew. Steve should also share Kevin’s explanation for the situation. Steve should then proceed to deliver appropriate disciplinary actions and keep record of the conversation, whether it is a follow up e-mail or formal documentation. It is important to be cautious of disciplinary actions because employers should preserve a good balance between a structured work environment and maintaining trust with their employees.
Steve should also converse with Ben regarding the hotel’s discipline process. He should explain that he apologizes for the unfortunate interaction with his nephew, and appreciates the feedback as he takes guest’s complaints very seriously. Steve should clarify his step by step process for situations such as these, and assure that it will be handled properly. Moving forward, Steve and Ben should agree on a form of communication which eliminates the frustrations and hostility exhibited in these e-mails.
-Chelsea Salamone, Front Office Manager, Washington Hilton, Washington D.C.
Chelsea Salamone currently serves as a Front Office Manager for the Washington Hilton in Washington, DC. Prior to this position, she completed the Management Development Program for Hilton Worldwide. She also worked with Pinnacle Advisory as a consultant analyst, and held interim positions in various hotel departments including Sales and Finance. Chelsea Salamone is a graduate of Boston University’s School of Hospitality Administration.
1) There is only a rudimentary relationship between the new owner of the property Ben and the General Manager Steve. Steve needs to take the lead on building a strong professional relationship with Ben.
2) There is neither a focused nor a sustainable communication between Ben and Steve.
Ben receives ‘snapshot’ impressions from his ‘circle of trust’ about latest service issues.
He forwards these information to Ben with his proposed guidance without listening to the concerning parties’ first or awaiting Bens feedback to the recent happenings.
3) There is a lack of training. Associates need to always put each guest in the center of their attention during each interaction.
4) Steve needs Ben’s commitment and approval for capital investment in FF&E. Strategic capital improvements need to be made in order to maintain the hotel adequately.
1) During the upcoming meeting at noon, I would listen to all of Ben’s concerns first and take notes. A transparent, clear and repeated face to face communication between operator and owner is necessary in order to provide a sustainable and long lasting financial partnership, which is satisfying for both parties. A meeting agenda needs to include all important topics and track their progress.
2) I would find out what Ben’s top three goals are. In general, owners expect
a) return on investment (ROI)
b) maintenance of their product and
c) building a positive reputation/ image.
I would build the meeting agenda around these mutual goals and would diplomatically discuss how to attain these goals in a sustainable way. Due to the high turnover and challenging maintenance in the day to day operation, hotels generally olden much quicker than comparable products like boarding houses, serviced apartments or other paid accommodations. For this reason most operators have contacted capital investment accruals related to the respective revenues. For example 3% FF&E accrual between year one and three after opening a new property, following 4%-6% of total revenue in the following years of operation depending on the standard of the hotel.
3) I would use a diplomatic approach to help Ben see the bigger picture, instead of letting snapshot impressions form his opinion. A strategic approach would be total quality management: by reviewing existing processes and systems it can be determined what elements need to be revised in order to improve guest and owner satisfaction. I would strategically address the problems at hand and make progressive changes in attitudes, practices, structures and systems.
A first action item would be training and improved communication with the associates, e.g. raising the awareness/ knowledge about Ben and his family by using pictures and preferences. The Front office associates will be able to recognize and assist the key players in Ben’s circle of trust more effectively.
A second action item should be interdepartmental cross training of associates, in order to use all resources strategically during peak business periods or when faced staff shortage. By providing lateral service, resources can be optimized and associates can assist where needed most.
-Cyrus Heydarian, Regional VP & GM, Breidenbacher Hof, Duesseldorf, Germany
His extensive hotel experience spans three countries and two continents including Germany, United States of America, and Switzerland for such brands as Broermann Hotels & Residences, Boca Raton Resort & Club, and Seiler Hotel Mont Cervin.
Most outside of the industry and many within it probably perceive the role of a hotel manager to be one mostly focused on guests and employees. However, building and maintaining a healthy relationship with owners is critical.The healthiest and most profitable relationships must be based on trust – trust in knowing that we’ll manage their asset and make the best possible decisions to drive the highest possible return on their investment. In all honesty, most large hotels are now owned by institutional investors who need to be able to focus on the capital side of things rather than operations and they will not tolerate a management team who they don’t have complete confidence in. The case in question is a little different in that the owner is more personally invested in and closer to the asset. This is definitely a situation that could lend itself to a more difficult balancing act for a hotel manager, especially if the manager and the owner are not on the same page about their goals for the property and how the hotel should be managed.Steve is most likely to have a productive meeting and working relationship with Ben if they can agree a few key principals:
1. Managing the people in a service business is very different to managing a manufacturing environment and while Ben has achieved great success in the past, he may need to give Steve time to prove that a different approach to management is required here.
2. There are a huge volume of non-subjective ways to measure the hotel’s performance, from financial metrics, to employee and customer surveys, social media sentiment, etc. The working relationship between Steve and Ben would benefit from setting clear goals around these kinds of KPIs than on the much more qualitative and subjective approach being used today.
3. Finally, it is clear that Steve cannot be successful in his role in the environment today. It seems like he may need to undertake a concerted effort to win Ben’s trust but at the same time may need to convey to Ben that he is concerned for the future of their relationship and the property if they cannot change the dynamics of their relationship.
-Lisa Pavlides, Director of Human Resources, The Westin Boston Waterfront, Boston, MA
Lisa Pavlides is the Director of Human Resources at The Westin Boston Waterfront in Boston, Massachusetts. She began her career at the Westin Copley as a Rooms Management Trainee before moving into a human resources role where she chose to continue her career. In 2005, Pavlides took a role at Director of Human Resources for the Westin Waltham before transition her position to the Westin Boston Waterfront in 2007.
She was born and raised in Dublin, Ireland and received her bachelors degree in business from Trinity College an a Higher Diploma in hospitality management from the Dublin Institute of Technology. Prior to moving to Boston in 1999, she lived and worked in London and California working in food and beverage, sales, and marketing.
What steps and issues do you think are most important to approach this situation?
Michael Oshins is Associate Professor of the Practice of Leadership in the School of Hospitality Administration at Boston University. He is former Vice President of Integer Dynamics, a hospitality consulting firm focused on operational productivity and technology. He holds a doctorate in human resource education from Boston University and a master’s degree in hotel administration from Cornell University. Email email@example.com
By John D. Murtha
Doctors say that people who exercise, eat right, reduce stress, and have a balanced outlook on life stay healthy and live longer. So, could it be said that teamwork, having the right resources, maintaining a stable operation and fostering a productive culture will make a hotel healthier and more successful over time? Yes. A focus on keeping things “healthy” offers useful perspectives for hotel managers looking to enhance the culture and results of their operation.
Setting the Tone
The hotel I manage is home to a lot of history and more than 30 associates that belong to our 30+ Club signifying 30 or more years of service to the property. Their tenure is an important element of the atmosphere, culture, and success of the hotel. Part of my job is to make sure this special staff attribute is nurtured, applauded and contributes to the overall “tone” of the operation.
What’s a “tone”? It’s a style, a manner of being, or as Merriam-Webster says: “The state of a living body or of any of its organs or parts in which the functions are healthy and performed with due vigor.” Establishing a tone that infuses the operation with health and vigor is a critical step in cultivating success over time.
The GM is the one to take the lead on this, enrolling his or her management team in the tone-setting process. It starts with having shared goals and tactics for achieving outcomes. Then, it means fostering an atmosphere where people feel comfortable, recognized as individuals by everyone in the hotel (especially the GM) and acknowledged for their contributions.
A simple thing like noting an associate’s birthday goes a long way. As often as I can, I do so in person with the associate at their workplace, along with sending a card to their home. I also make a point of congratulating sales managers when they hit their monthly goal, or gently urge them on when they miss it. At those times, I find it works better to be a cheerleader and leave the coaching to their director.
Setting the tone includes being fair and consistent in all dealings with associates and guests, being easily accessible to everyone and telling the truth, even when it’s not easy to do so. But, it also means injecting some humor into the operation. The hotel business—and, it is a business—can be stressful at times, so keeping things light when the pressure’s on allows people to relax and perform better.
A Balanced Diet
Doctors also recommend a balanced diet as a way to stay healthy. The same advice works to keep hotels healthy. What constitutes a healthy diet for a hotel? In my view, it comes down to a balanced “feeding” of the primary constituent groups served by the property, including the owner, the guests, and the staff.
In order for a hotel to prosper over time, it must generate a reasonable return for the ownership entity that risked its capital in the first place. You need to pay bills on time, keep the property in great physical condition and acquire, develop, and retain a professional staff. This all requires sustained profitability.
The guest also needs to gain something from the hotel’s operation. Travelers expect personalized service, cleanliness in everything, modern systems, and good memories of their experience. You may very well be leaving some money on the table to generate high levels of guest satisfaction, but that comes with the territory when you’re looking for a balanced diet.
Your staff must be well served in the process, too. Fair rates of pay, good benefits, opportunities for training and advancement, personalized acknowledgement of their contributions to the operation, and consistent application of rules and regulations are essential elements of generating high degrees of employee satisfaction and low turnover. Again, some profit may be foregone to make sure that the staff is happy and taking good care of your guests. But it’s worth it.
Dual Health Benefits of MBWA
A few decades back, we learned that unstructured management by wandering (or walking) around (MBWA) was distinguished as a valid way to improve the morale and productivity of an organization. I think that MBWA is intuitive to most hoteliers because we know the best way to understand what’s happening in our hotels comes from being “on the floor” and responding to what we directly observe, rather than from reports, documents and other sources after the fact.
Japanese businesses use the notion go to gemba (“the real place”) to highlight the concept of having managers spend their time where the work is done. This approach asserts that direct experience best informs problem solving and process improvement.
MBWA is a great way to catch your associates performing well so you can acknowledge their contributions immediately or provide feedback for improvement, when needed. It also works to increase the amount of time you spend with guests, in the lobby and elsewhere throughout your property. One should use time spent at “the real place” productively and not simply to get out of the office.
The second benefit of MBWA is the health benefit to you, personally, from being on the floor. Some fitness experts claim that staying healthy requires a steady diet of 10,000 steps per day, which for a person of average height is about 4 ½ miles of walking. You may not be able to walk that much each day on-property, but practicing some level of daily, unstructured MBWA can reduce stress, keep you healthy and strengthen your operation.
Another benefit of MBWA is that it’s probably the best way to experience how your associates are performing. You can then praise or coach them in “real” time. But there’s an important distinction in how to approach this task. It’s the difference between checking “on,” and checking “in,” with your staff.
Tip: Evaluate everyone involved in assembling and finalized your forecasts, then add to this list. You may find that a “more is merrier” approach will improve accuracy.
I suggest that checking “on” is based on an unstated belief that the person being monitored might have done something wrong—even unintentionally—that needs to be corrected. One checks on people to make sure they adhered to established standards and procedures, to verify that specific instructions have been precisely followed or requests have been fulfilled in an acceptable manner. Managers accustomed to checking “on” their colleagues use the phrase “inspect what you expect.”
On the other hand, checking “in” with an associate assumes no wrong-doing, but rather that you care about them and their work. Good morning! How’s it going today? Is everything okay? Can I give you a hand? Is anything missing? Did you get that report you needed? How’s our guest that needed some TLC yesterday? These are the questions posed by a manager checking “in” with, and not “on,” their associates.
The answers you receive and observations you make still alert you to problems that need to be addressed, but your comments based on the checking-in style will more likely be perceived by associates as support for their efforts, not criticism. I think this is a healthier management approach that works to ensure both guests and staff have a memorable experience of your hotel.
Many hotels have an all-associate meeting, once a month or a quarter, sometimes known as a “Koffee Klatch”. At one of our recent meetings, most members of the
executive committee presented their team’s accomplishments for the previous year.
One member of the committee neglected to do so.
This particular division head knew immediately he’d made a mistake. His team had done quite a lot to improve the operation during the year and they deserved to be recognized in front of their peers. After the meeting, his team politely asked “Hey, what about us?” Be assured that the division head made up for the error at the next meeting.
I’ve normally found it easy to show gratitude to my staff for doing great work but wanted to know if there was evidence that doing so improves their well-being and results. I did some quick online research to see if any studies have shown a connection between showing gratitude and improved employee engagement. It turns out that lots of work has been done on this subject; here are some findings that I found interesting:
- Praising someone’s good work causes dopamine to be released in his or her brain. Dopamine is a chemical that is credited with generating feelings of pride and pleasure.
- Showing gratitude also increases feelings of goodwill in the person delivering the praise.
- People who don’t receive praise for their efforts report having the notion “What am I doing this for?” This implies that it’s not all about the money.
- Recognizing entire teams of associates for the value they add to the overall operation bolsters the enthusiasm of each member of the team and improves their standing within the organization. This is why we celebrate Housekeeping Week.
- Faint praise doesn’t work and neither do scheduled recognition ceremonies, at least not for very long.
- Appreciation and praise needs to happen on a regular basis under typical business conditions for it to be effective.
- Praise also needs to be very specific. A simple “great job” won’t suffice. Tell them exactly what they did that had you say “great job” in the first place.
- Rodd Wagner and Jim Harter, authors of 12: The Elements of Great Managing, said “Great managers are extremely effective in figuring out the best form of praise for each person. Some managers worry that they can give employees too much recognition. But the research shows that it’s extremely difficult to do that, as long as the recognition is right for the person.”
Operating a busy hotel can be stressful at times so it’s in everyone’s best interest to avoid stress whenever possible. Here are some common business activities that most hoteliers wouldn’t typically describe as stress reducers but that I find work that way for my team and me:
Accurate Forecasts: If everyone in your operation knows what is really going to happen, then plans and resources will be aligned correctly. This is especially true when scheduling staff. Accurate forecasts lead to department schedules that appropriately match staffing with business levels, thus avoiding the last minute scrambling that occurs when solid information was absent during the scheduling process.Purchasing activities also benefit greatly from accurate forecasts. Haven’t you ever had to jump in your car to fetch something for the chef that he or she needs right now but didn’t buy sooner because the forecast was “off?”
Appropriate Meetings: Most of us who prefer to be on the floor don’t like to be in meetings, so start relating to them differently—as opportunities to reduce stress. The more that you and your associates know about what’s going to happen, the better that everyone can prepare to deal effectively with those upcoming realities. Your guests will benefit as well, from the friendly service that is naturally offered by relaxed, “in the know” staff members.
Handling Issues Immediately: Issues and the stress they create aren’t going to disappear until you and your staff deal with them head-on, so you might as well handle things quickly and completely. It’s the next best thing to having done it right in the first place, the best stress reducer of them all.
This material was originally published on my blog, “The Healthy Hotel”, at HOTELSMag.com. I hope that you’ll check out future postings and take the opportunity to share with other managers what you’ve done to improve the culture and results of your hotel.
John D. Murtha, CHA, is a 38-year veteran of the hospitality industry. He is currently General Manager of the Omni Parker House Hotel in Boston, the longest continuously-operating hotel in America. He has been an adjunct lecturer in the School of Hospitality Administration at Boston University since 2001. He was recently inducted into the Hall of Fame by the Massachusetts Lodging Association. John graduated from the Hotel Administration program at the University of New Hampshire, where he is currently a member of the Hospitality Leadership Council and Advisory Board. Email firstname.lastname@example.org
By Rachel Roginsky and Matthew Arrants
In prior quarterly reports, Pinnacle Advisory Group presented timely updates about the New England lodging industry, which included focused profiles on particular cities. In this issue, the firm offers more general insight about the hospitality industry. Several Pinnacle executives recently participated in a panel discussion about investment, management, and careers in the hospitality industry. The results appear below.
What issues most affect hotel investment and valuation at the property level?
Within our daily practice, we focus attention on the hotel investment community and what prospective investors are considering when acquiring hotel assets. Two of the most important issues frequently discussed are hotel management and franchise affiliation (flags).
Not all hotel management companies are created equal. We have been involved with several projects involving a turnaround/repositioning where new management was able to drastically increase the profitability of a hotel. Since profitability (or net operating income) directly leads to hotel value, the ability of a management company to drive top line revenues in addition to operating efficiently on the cost side is enormously significant. Depending on the hotel type/chain scale, management must have the tools necessary to drive profitability for the hotel owner. When hotel properties are listed for sale, investors often find unencumbered assets to be more desirable.
While management does not always have the ability to select and/or change a franchise affiliation, this is another integral component affecting hotel valuation. Each brand targets specific customers and offers rewards/benefits to frequent travelers. When investors are considering purchasing a hotel property, one of the first questions is often regarding the brand. Is there an opportunity to renovate and reposition? Is there an opportunity to convert to a new franchise affiliation? The type of brand in each particular location can dramatically affect the overall value of a hotel property. It is important to select the right brand for each location.
Hotel values and investment are typically driven by a hotel’s potential income. A hotel’s estimate of value and investment are further determined, and potentially reduced, by current and/or anticipated capital needs. While property-level managers and owners cannot control the macroeconomics of a particular market, they can certainly impact day-to-day activities, which can ultimately improve a hotel’s amount of income, and they can preserve the physical condition of the asset thereby reducing capital needs. By doing this, the property-level owner and manager are helping to boost the value of the hotel and make it a more attractive investment.
A hotel’s income is driven by top-line revenues and reduced by operating expenses. Competent and effective property-level managers and owners should continuously monitor and address both supply and demand factors within the competitive market. The on-site team should strive to obtain the greatest fair share of demand, and the highest room rates possible, allowing the property to surpass competitors in its REVPAR penetration. Controlling expenses at an optimal level, combined with high gross income, will ultimately provide the hotel higher net income levels and elevated value.
Property-level management and owners also need to be aware of all deferred maintenance. They should continue to upgrade the property to the required standards of the brand, and ensure that the property’s physical condition exceeds the condition of its competitors. When a potential investor is deciding how much a hotel is worth, a lesser amount of capital requirements for the physical aspect of the hotel will only serve to increase the value of the hotel asset.
What strategies should hotel owners or managers follow in times of financial uncertainty?
There has been a fair amount of volatility in the economy over the last decade. One only has to look at the soaring hotel rates and values in 2006 and 2007, and then to the fallout experienced in the industry from 2008 to 2010 following the national economic recession, to have an understanding of how economic instability can significantly impact hotel operations. During tough or uncertain economic times, weakening demand, price sensitivity, and shrinking budgets (both for the customer as well as the hotel operator) can have tremendous detrimental effects on a hotel’s bottom line. To help get through these periods of economic turmoil, hotel operators can focus on two main areas: revenue management and customer service (guest satisfaction). These areas should always be in focus, but they can be particularly helpful in weathering the tougher times.
Revenue management is crucial during economic uncertainty. Understanding how to best utilize the multitude of distribution channels can prove to be the difference between maintaining rate integrity and having average rates fall off a cliff. Significant rate declines that occur as a result of recession often take multiple years to recover. It has not been proven that lower rates lead to more business, but lower rates certainly lead to lower profitability. Equally, if not more important, is a focus on customer service and guest satisfaction. During tough economic times, there is a tendency to eliminate amenities and ancillary services. To some extent, this may be necessary to achieve acceptable levels of profitability. However, ensuring that hotel associates are visible and truly are customer-centric can have a huge impact on the overall satisfaction level, and intent to return, for guests.
During an economic downturn, such as the recent times experienced due to the housing crisis and the years that followed the terrorist attacks of 2001, market demand is negatively impacted as travel across all segments decreases. Subsequently, market rate declines as individual properties compete for what little demand is available. Eventually occupancy will begin to rebound, but it is much more difficult for markets to drive rates to previous levels. For this reason, maintaining rate integrity during financial uncertainty is important to long-term profitability.
One of a hotel’s largest expenses is labor. As demand levels decrease, management must strategically budget (reduce) labor costs, while being careful not to sacrifice the product/service and ultimately the hotel’s reputation. Staffing needs are directly influenced by demand levels. When occupancy drops, so should labor.
Lastly, management will be held accountable for the strategies put in place to mitigate declining profitability. For this reason, communication between management and ownership plays an important role in avoiding any surprises as market demand declines and a hotel’s performance seems to dip.
Financial uncertainty is a given in the nature of the real estate cycle. To protect yourself and your asset during a downturn, it is often best to strive for operating efficiencies throughout the entire cycle, both good and bad. Avoid over-hiring and over-spending. Most of all, avoid over-leveraging the asset and making it more susceptible to risk. Anticipate heavy capital spending at least every four to six years, especially if the asset is licensed with a major brand. Reserve requirements are typically underwritten in the 4 percent of total revenues range, but from an owner’s perspective it may be more beneficial to establish a reserve 1 to 2 percentage points higher than the underwriting standard (especially for a full-service, branded property). Also, avoid ‘giving away’ rates too much during a downturn for the sake of filling up rooms. This will make it harder to re-establish the property’s former rate position following a down-cycle period.
What advice would you give to recent graduates of hospitality schools?
It’s exciting to have achieved a degree. It’s a sign that you have really persevered and completed something. But to make your first years in the industry as productive and successful as they can be, I would offer the following advice.
In the hospitality industry, we all rely on each other. The most expensive facilities in the world do not achieve five-star status without kitchen porters and room attendants who care about their work and take pride in it. Acknowledge and appreciate the contributions of others, particularly the unsung hourly workers who make our hotels great. And along the way, you can learn a lot from those hourly workers, including how to make the hotels you eventually manage more efficient and profitable.
It is very tempting to point out the deficiencies we see in others. “This person messed up this” or “that’s not how this should be done.” The advice: Don’t. When you complain or gossip about others, the walls have ears and it inevitably gets back to the person you are talking about. One management trainee at my hotel complained about a restaurant manager to the food & beverage director. When he completed his training program, he became an assistant manager in that very restaurant. He got the worst possible shifts. Every time. Coincidence?
In interviews, focus on the positive. Telling an interviewer about all the negative things that a prior employer has done will not make you seem more knowledgeable or a pleasant person to be around.
Rather, the interviewer will start to wonder if you are a troublemaker .Nobody knows everything. And if you don’t know the answer to a question, don’t be afraid to say: “I don’t know. May I do some research and get back to you?” Then follow up. At this point in your career, you are not supposed to know it all. You just need to be willing to pitch in and find out.
Be curious. Ask questions. It’s a great way to learn, and most people will be delighted to help. Most people love to be considered experts. Just remember, at this point in your career, you are most expert at being a student of hospitality management, not being a hospitality manager. Be humble. You’ll get farther faster, and people will like you better for it.
When asked for career advice, I encourage students to focus on learning the industry and building strong relationships. They should not focus on the money. That will come with experience. Besides, as my mother used to say: “You’re supposed to be poor when you’re young, it builds character.”
The best way to learn the industry is to expose yourself to as much of it as possible. Most of the leaders in our business started washing pots and pans, or cleaning rooms, or parking cars. They all worked their way up the ladder. Rarely is the ladder straight. The breadth and the depth of your experience are equally valuable.
If you are entering the hospitality industry you are a ‘people person’ by definition. Building and maintaining relationships with your colleagues will serve you well in the future. In this industry, you are going to work hard and work with a lot of different people at a lot of different companies. Over time, you should be developing a strong network of friends that you can call on for advice and information that will provide you with future growth opportunities. Finally, whether you stay in the hospitality business or not, your range of experiences and depth of relationships will provide you with a rich life.
The hospitality industry offers a wide range of career options, and where your interests lie while you study in school may not be the only path worth exploring once you discover more of what is available in the field. Even if your major while in school was in one area, try to be open-minded when considering aspects of the industry that are outside of your focus. For instance, if you are looking to go into operations and your concentration was in marketing throughout your coursework while in school, don’t limit yourself to only looking for job opportunities in the sales and marketing department in a hotel. Often, to get your foot in the door with a company or property that you want to work for, you may need to look for options in other departments, such as rooms or food & beverage. Once you are working for a property and you work hard to prove yourself, others will see your successes, which can open doors for movement into other areas of the hotel. Continue to stay in close touch with senior managers in your hotel, so they know what your aspirations are. Always look for opportunities to show your skills which might be outside of your existing role. You may even discover that your passion lies in an area that you hadn’t considered before being exposed to it.
Along the way, perhaps one of the most important things you can do for your career is to maintain and increase your connections. This starts with your classmates from school. Within a few years, your peers will hold positions in a variety of disciplines, and the connections that you made in school will be valuable as you progress in the industry. The industry as a whole is close-knit, so it is important to maintain friendships and remain in good graces with former colleagues as you change jobs. You never know where your paths may reconnect again sometime in the future.
Rachel J. Roginsky, ISHC, is the owner of Pinnacle Advisory Group. She has more than 30 years of experience in hospitality consulting. Ms. Roginsky is a board member of numerous organizations related to hospitality, is a regular guest lecturer at the Cornell Hotel School, and is co-editor of five leading hotel investment books. Email email@example.com
Matthew Arrants, ISHC, is the Executive Vice President of Pinnacle Advisory Group. Prior to joining Pinnacle, Mr. Arrants worked in operations with Four Seasons Hotels and Rock Resorts.
He holds a master’s degree in hotel administration from Cornell University, and a bachelor’s degree in political science from Hartwick College. Email firstname.lastname@example.org
By Bradford Hudson
Three decades ago, American industry was obsessed with quality management. Thomas Peters and Robert Waterman helped create the enthusiasm during this era with their best-selling book In Search of Excellence. Although the subsequent quality movement was quite successful in the manufacturing sector, it has been less successful in services. Indeed, there is little evidence of effective quality management in the hospitality sector today.
The Quality Movement
The effort to increase consistency, minimize errors, and reduce costs has been a priority in manufacturing since the beginning of the Industrial Revolution. Notable milestones and pioneers include the interchangeability of parts attributed to Eli Whitney, the scientific management approach promoted by Frederick Taylor, the development of statistical process control by Walter Shewhart at the Hawthorne Works, and the influence of quality experts such as Edwards Deming and Joseph Juran on industrial reconstruction in post-war Japan.
The latter contributed to a significant and unexpected quality advantage among Japanese cars, which resulted in serious competitive pressure on the American automobile industry and the near collapse of Chrysler. This served as a wake-up call for automobile executives, but it also served as the catalyst for a renaissance in quality management throughout the economy.
The quality movement reached its zenith during the 1990s, in terms of its prevalence as a topic of discussion among business practitioners and within the popular media, and it has faded in importance during the following two decades. This decline could be attributed to several causes. Perhaps quality was never actually a problem, maybe quality was simply a fad, perhaps ideas about quality were not communicated well, or maybe the solutions proposed by experts never actually worked.
My suggestion is that the principles of quality management were embedded in the repertoires of practitioners and the curricula of business schools, and that quality management has become routine for any executive in the manufacturing sector. The lessons learned from the Japanese were widely adopted in the United States and Europe, and have now become global standards that are followed even in developing nations. The quality problems in manufacturing that existed two decades ago have now been solved or at least improved significantly.
The quality movement in manufacturing was followed shortly thereafter by a quality movement in services. A new academic field, variably referred to as service management or services marketing, was developed by faculty members at several leading business schools. Notable among these were Leonard Berry (Texas A&M University), Roland Rust (now at the University of Maryland), and Valarie Zeithaml (University of North Carolina). The pioneers also included numerous academics affiliated with Harvard Business School including Christopher Hart, James Heskett, Christopher Lovelock, Earl Sasser, and Leonard Schlesinger.
Services marketing is now an established field with its own extensive literature. At the core are two basic principles. First, services differ from manufacturing due to their intangibility, variability, simultaneity, and perishability. These characteristics can be problematic for managers who use principles and tools designed for manufacturing without adapting them to the unique aspects of the service sector. Second, services are usually produced and delivered by people rather than machines. This means that service companies must understand the linkage between employee behavior and customer satisfaction, and develop sophisticated systems in the areas of human resources, management, and organizational behavior.
Service Quality Today
Despite the attention paid to service quality over the past three decades, and the extensive academic literature that has appeared during this time, my contention is that service quality has not improved at all. Problems with service are prevalent throughout the economy, but they are especially notable in the hospitality sector. Two cases from my own experience will illustrate this point.
The first case involves hotels in the luxury segment. Two decades ago, we vacationed at a beach resort, which was part of an international chain of luxury hotels renowned for its quality management systems. The individual property was rated
‘Five-Star’ by the Mobil Travel Guide and ranked as the top resort in the United States by a leading travel magazine. During our stay, we experienced a series of errors and lapses in service that compelled us to write a letter of complaint. The general manager responded with a tepid letter of apology, which offered a complimentary visit to make amends. However, the problems were so serious that we never returned.
Earlier this month, my family vacationed at a different beach resort, which is part of another internationally renowned chain of luxury hotels. This property was rated ‘Five-Star’ by the Forbes Travel Guide and ranked among the top 20 resorts in the world by a leading magazine. Again, during our stay we experienced a series of errors and lapses in service that compelled us to write a letter of complaint. The problems were very similar to those experienced at the other hotel two decades earlier. Again, the general manager responded with a tepid letter of apology, which offered a complimentary visit to make amends. And again, the problems were so serious that we resolved not to return.
The second case involves restaurants in the quick service segment. Two decades ago, we visited a quick service restaurant that was part of an international chain renowned for its standards and consistency. During our lunch, we experienced a series of errors and lapses in service that compelled us to write a letter of complaint to the corporate headquarters. The area manager subsequently contacted me to apologize and offer some coupons to make amends. He admitted that similar problems at this location had occurred so often that his company decided to rescind the franchise rights and assume direct control of the unit.
Earlier this month, my family visited a different quick service restaurant, which is also part of an international chain respected for its standards and consistency. Again, we experienced a series of errors and lapses in service that compelled us to write a letter of complaint to the corporate headquarters. Again, a senior manager contacted us to offer apologies and coupons.
These two cases occurred in different industries within the hospitality sector, in different segments of their industries, with locations operated by different managers, represented by different chains, in different parts of the country, across the span of two decades. And yet, in both cases, the quality problems and the management responses were almost identical.
An astute reader might wonder if the problems in these cases were attributable to difficult customers who were impossible to satisfy or a typical guests with unusual preferences. In response, it should be noted that every unmet standard had been established by someone else. Guest expectations were calibrated against widely recognized industry or segment norms, explicit standards of the chain or property, or the star-rating system that the property was promoting.
One could also argue that these cases, while compelling, are limited and anecdotal. However, my personal experience as a consumer of services in numerous industries and contexts indicates otherwise. It seems indisputable that poor service remains a real and widespread phenomenon, and that these cases are representative of the status of service quality throughout the hospitality sector to day.
A Missed Opportunity
My academic expertise includes services marketing and hospitality management. My prior career includes work as a manager with a leading luxury hotel chain and as a consultant in the area of service quality for multinational corporations in numerous industries. Based on these experiences, three conclusions seem valid.
First, the quality management revolution somehow bypassed the hospitality sector. This is a stunning contention, given that leaders in the hotel and restaurant industries consider themselves to be the exemplars of superior service.
Second, the basic principles of quality management, specifically that poor quality and customer dissatisfaction are costly, remain valid. Service problems undermine the financial performance of hospitality companies and, due to the immersive nature of services, have a significant impact on the quality of life for guests.
Third, the techniques of quality management have proven to be quite successful in the manufacturing sector, and academics have subsequently offered voluminous advice on how these principles should be applied to the unique characteristics of services. The hospitality sector is simply not using them.
The Cost of Quality
Business practitioner and quality consultant Philip Crosby devised the maxim ‘quality is free’ to convey the idea that the savings achieved through improved quality typically exceed the expense of implementing quality programs. This reflects the prior work of Demings and Juran, who had proven conclusively that improved quality delivers financial benefits in manufacturing contexts.
The same dynamic also occurs in services. An example in the hotel industry is an erroneous room service order, which requires the entire production and delivery sequence to be repeated and the improperly prepared item to be discarded. The duplication in labor and food costs, which typically represent about two-thirds of the revenue generated from the order, are quite significant and completely eliminate any operating profit for that transaction. Now imagine the cumulative cost if such errors occur repeatedly.
My first job in the hospitality sector was as a room service manager in a five-star hotel. Even minor errors, such as a missing spoon on a tray, would cause significant problems, because the server would be required to repeat the delivery process. Given the consequences of failure, it was astounding to discover that the error rate for orders in room service was nearly 50 percent. More astounding was the revelation that senior managers had known about this situation for months and, while concerned, had not done anything to implement a systematic approach to diagnose and resolve the problem.
The hospitality sector has an amazingly lackadaisical attitude about service failures. Even in five-star hotels, a service failure will result in little more than a sharp rebuke to the manager responsible, a computer-generated apology letter to the guest involved, and perhaps an offer of a complimentary dessert or a room during the off-season.
This amounts to little more than appeasement of angry guests, and does virtually nothing to correct the root causes of problems, which will undoubtedly occur again.
Although service failures are typically regarded as independent events, caused by uncontrollable circumstances or ineffective employees, they are more often the result of poorly designed service delivery systems or inferior management systems throughout the organization. In some instances, such problems reflect the nature of an entire industry. My contention is that quality failures in the hotel and restaurant industries have fundamental causes.
First, the hospitality sector is not particularly sophisticated in terms of management systems and practices. The inseparability of production and consumption results in thousands of small and relatively independent locations, which cannot support the types or layers of specialized management that are common in centralized manufacturing facilities. This is further exacerbated in the case of independents, which have no corporate infrastructure. The tools required to effectively manage service quality are simply unavailable. Even if front-line hospitality managers understand quality techniques, the analysis necessary is often seen as peripheral to basic operations.
Second, the financial costs of implementing quality management systems are readily measurable and significant, while the financial costs of service failures are hard to measure and easily overlooked. It is very difficult to predict, capture, and measure events that never occur. Services generally cannot be returned after delivery, and the easiest remedy for unsatisfied guests is simply to return less often or never return at all. Nonetheless, the work of Frederick Reichheld and others in the area of loyalty and retention has demonstrated conclusively that a lost customer has a significant negative financial impact.
One of the case scenarios discussed earlier will illustrate this point. Since we experienced problems at the first beach hotel two decades ago, we have never visited another property in that chain, despite staying at numerous competing luxury hotels in destinations where the offending brand had a hotel. The leaders of the parent company have no idea that they have lost us as potential customers, nor have they attempted to measure the lifetime value of our patronage, which amounts to tens of thousands of dollars.
Third, strategic management is often separated from daily operations, even in contexts where operational experience is a necessity for career progression, such as the hospitality sector. During my appointment as chief executive officer of a restaurant company, my attention was devoted almost exclusively to financial performance and acquisitions, rather than the details of daily operations and the satisfaction of individual guests.
It was amazing how quickly my own experience as a quality consultant was forgotten, despite my philosophical commitment and practical expertise in this area.
A Way Forward
Another round of enthusiastic promotion and persuasion by quality experts, in which a series of logical arguments is used to garner commitment to quality principles by hospitality executives, is unlikely to have the intended effect. If the impasse is being caused by excessive attention to the costs of implementing quality management programs, and a lack of understanding about the true costs of service failures, then perhaps a solution can be found in the particulars of cost accounting rather than the platitudes of service excellence.
It is my contention that academics in business schools and hospitality programs who are committed to service excellence, and who have their primary appointments in non-financial disciplines (such as marketing, management, or operations) should engage more effectively with topics and colleagues in the disciplines of finance and accounting. The financial analysis of quality failures must be embedded within courses or modules about service management or services marketing. To the extent possible, faculty members interested in services should also request and encourage the discussion of service quality in courses about financial accounting, managerial accounting, and corporate finance.
One practical example of integrating quality management and financial management can be found in the service guarantee technique. In its purest form, guests are offered the opportunity to ‘return’ unsatisfactory service experiences by invoking a guarantee, which results in an immediate and unchallenged refund of their expenses.
To be clear, this is not the same as offering a complimentary dessert or room during off-season to placate a guest. This is a reversal of the entire amount charged to their credit card for the visit in question, which must then be deemed waste, in the same manner as an improperly formed beam in the steel manufacturing industry.
The nuances of the guarantee approach are described extensively in the work of Christopher Hart, who popularized the technique during his time at Harvard Business School, and will not be repeated here. The point is that, in the guarantee system, the amorphous nature of poor quality is made concrete, because it is formalized as an exact amount of unrealized revenue in the financial statements. At the end of every month, even the chief executive officer of a huge chain can evaluate the effect of quality levels at the unit level, and even a chief financial officer will become committed to guest satisfaction.
A Time for Reckoning
It is time for executives in the hospitality sector to be honest about the ubiquitous nature of service failures and admit that service quality has not improved in decades. Quality management systems must be adopted or improved, even at five-star properties. Significant advances could be made by more closely linking service operations to financial accounting, and academic curricula should be adapted to recognize this connection. Beyond that, we have an ethical responsibility to deliver on our promises. We can and should do better.