hotelmatters - Issue 13 - June 2010

© The Hotel Solutions Partnership Ltd 2010

As we come to the end of our seventh year of trading, we find ourselves busier than ever.

Despite this level of activity, our team has found time to put pen to paper to share with you some of our recent learning from assignments in different parts of the world.

We believe that we get deeper into the hotel business than any other consultancy and, as a result of this depth and our values, our clients gain from our assignments a much better understanding of their businesses than they had expected.

We hope that you will enjoy reading the articles and apply some of our suggestions to your own hotel business. If you think we might be able to assist you, do contact us.

We look forward to hearing from you

Have a great summer

From us all @ Hotel Solutions Partnership

Contents

• Blame technology
  
• Back to basics
  
• Common sense and sound judgment
  
• White swans
  
• Great hotel experiences
  
• The most important numbers in hospitality
  
• The price is wrong
  

Blame technology?

Contributed by associate Mike Wrigley

During the economic downturn, clients have asked for guidance in the creation of a technology strategy to be implemented as soon as they are confident of improved and sustainable earnings.

This is a familiar request and seems straightforward until one gets a meaningful understanding of how the business is run and the perceived technology problems the client is wrestling with.

In the majority of cases, a blame culture exists – not 'people' blame but 'technology' blame.

What these clients failed to recognise - and getting this message across takes a great deal of diplomacy from the consultant - was that technology does not fix an inherent weakness in people skills, some of which may be some self inflicted. The foundations need fixing whilst architecting an appropriate technology and application strategy. The foundations must be fully repaired before implementing a new strategic direction.

Constraints
Do you recognise any of these constraints in your organisation? Shuffle the cards and take your pick.

• High user / staff turnover
• Weak 'hand me down' training and no planned refresher training
• Lack of technology management and direction
• Technology staff with limited experience of our unique 365x24 hotel world
• No documented IT policies, procedures, contingencies or disaster recover planning
• Single point of failure – a poorly paid and positioned IT manager in control of hundreds of thousands of dollars worth of technology (if not a couple of million) with all the 'know how' in his/her head.
• Chief Operations Officer doesn't reach out to the technology leader to be a major contributor in the management team.
• Chief executives not taking ownership of or responsibility for the issues or past performance.
• Poor IT thinking or non-existent budgeting resulting in no continuous timely investment in upgrades and competitive technologies – a 'flog it 'til it drops' mindset.
• Not listening or giving airtime to technologists – hear them out, they have smart ideas - not all are geeks, we promise.
• Shoot from the hip 'I know best' leadership, crushing confidence and contribution.
• No understanding of the annual running costs incurred by the technology in use or better ways to redeploy the 'accepted' running costs.
• Weak relationship with technology suppliers and, therefore, no knowledge of how better to use what is in place already or what is in the pipeline for the future (next generation)
• Failure to renew support agreements; no awareness as to what would be achieved and improved with a support service in place.
• Resistance to outsourcing at least some of the core systems and services.
• Lacking business acumen and negotiating skills for obtaining best price/performance.
• No knowledge of what the competitors are doing, no membership of peer technology groups and certainly no learning or networking at such events as HITEC (www.hftp.org/hitec), HosTec (www.hostec-europe.com) or BAHA (www.bahaconference.co.uk)

If many of the above 'cards' are not being addressed (or not being seriously worked through), what on earth is the point of developing a technology strategy and implementing it? Isn't it ultimately doomed to fail at a colossal cost and disruption to the business?

The best foundation
As far as we are concerned, experienced skilled and visionary technology people who are part of the teams led by rounded outward-looking chief operating officers and/or hotel general managers provide the best foundation for successfully implementing the latest, greatest and (dare I say it) sometimes fashionable technologies.

Back to basics - first steps in managing representation companies and partnership relationships

Contributed by associate Doreen Boulding

Why is it that most general managers are aware of the costs of sale of food and beverage items but very few are aware of the cost of a reservation in each of their key distribution channels?

Is your hotel getting a return on investment from all of your marketing and global distribution systems (GDS) partnerships?

It is very interesting, but ultimately depressing, for a consultant to see how hotels waste money on partnerships. Hotels and hotel companies pay a large joining fee, followed by monthly fees but do not read the contract to understand fully the product and services they have bought into. The hotel may not have fully identified what it requires from the partnership – e.g. general room night production, specific segment production, geographical revenues, overall market awareness and/or a return on the investment.

Involve the whole team
Whether it is Leading Hotels of the World, Preferred Hotels, Design Hotels or Utell, the principle is the same. It should not be just an owner's or general manager's decision as to which company to partner with. All key departments must be involved - revenue management/distribution, front office, finance and sales and marketing - so that the whole team is on board as to which company is used and why. Only with such an approach is the hotel team more likely to take ownership and manage the relevant aspect of the relationship.

Choose carefully
So how do you go about choosing your marketing and distribution partner? In the first place, I would recommend that the sales and marketing team obtain comprehensive information packs setting out the benefits and costs from at least three companies that are to be considered for the partnership. After analysing the proposals, the results should be shared with the whole team and the pros and cons for each company's proposition discussed.

The hotel team should meet with a representative from each company to discuss all aspects of the contract, comparing fees and marketing opportunities, taking into account the following.

• Terms and conditions
• Contract period and renewal period conditions
• Joining fees, monthly fees, commissions per GDS, OTA and mileage programme fees
• Marketing - partner opportunities
• Promotions - free and fee based
• Responsibilities defined
• Revenue management / reservations - loading rates and availability.
• Sales and marketing - marketing and partner opportunities
• Communication procedures – account manager personal visits and telephone call with actions, updates and opportunities
• Extranet site - access codes, passwords and usability for hotel team
• Monthly reports
  • how are these received and when?
  • What information do they contain?
  • When can they be downloaded?
  • What information is given
  • GDS by channel, geographical source, rate plans, room nights, occupancy, revenue?
  • List of travel agents and OTAs that produce business
• Property performance plan – when is this available?
• Hotel marketing pages, images and content
• RFPs – how do the partners introduce hotels to consortia, corporates and travel management companies?
• New hotel awareness promotions
• Partner – database usage
• Public relations
• Escorted sales trips
• Presentations to partner reservation agents
• Familarisation trips
• Airline partners

Once a preferred partner has been identified and a decision made in their favour, a copy of the contract together with marketing and promotional collateral should be given to the sales and marketing director to create - and subsequently implement - a standard operating procedure on how to manage the relationship with the partner and how the partner can be managed to improve bottom-line performance delivery by each of revenue management, reservations and sales and marketing.

Common sense and sound judgment - the essential ingredients for the condo resort business

Contributed by associate Duncan MacArthur

Clients have come to us saying that they thought they understood the condo resort model and then discovered that it was all very different.

We have lots of experience of this model and thought it useful to list a few important common-sense points for guidance in what can be a complex business. In this model, there are pitfalls everywhere to trap the unwary.

What follows are a few important points to be taken into account with this style of development, gleaned from many years of problem solving. They stem from experience with some enlightened owners and developers who have been ready to acknowledge they know little of the complexities and unforeseen elements of the business and want a guide through the maze.

Known advantages of the condo hotel model

• By raising and using condo purchasers' funds, there is less need for bank finance, thus reducing the overall development cost.
• Stage payment purchase plans for purchasing condo units encourage selling off-plan prior to and during construction, making it easier to get an inflow of funds - this means that a development gets started quicker and the developer receives purchasers' funds at strategic stages of the construction process.

Always bear in mind the necessity to:

• create the structure of the development and rental and associated agreements so that they are fair and equitable for unit owners and developers alike. Inequitable agreements usually cause serious trouble downstream.
• treat owners with respect and create positive, open, sincere and active channels of communication. Your owners are your ambassadors. To have owners speaking positively about you and your development speaks well for the future of this and successive projects.
• develop a strong service culture within the development company; ensure that this culture is standards-based, honest and respectful; holding all to account for excellent customer and employee satisfaction.
• consider carefully and plan for all aspects of the customer experience; a deficiency, even a small error, in one single aspect can have a detrimental effect on the entire project.
• understand the reasons and motivation of the potential owner for the purchase – personal use, lifestyle, rental revenue opportunities and capital appreciation. A combination of these works well; they seldom work as a pure passive investment.
• recognise that condo hotels/resorts generally work best in leisure and vacation destinations. The model is typically successful in an upward market and can be value-destructive in a market turning down. Here, diminishing room rates make for a lesser amount of room revenue available for distribution; also condo unit sales are less likely and existing condo purchasers may not complete their purchase if market conditions become difficult.
• make sure that the unit owners understand the difference between a resort programme and an apartment rental; many condo resort owners tend to confuse the two.
• share the net room rate between the management company and the purchaser, making it difficult in challenging times for the management company and the condo unit owner even to cover costs, let alone to make a decent return.
• make sure that the resort operator or management company understands and appreciates the need to work successfully with unit owners, maintaining awareness that it has to deal with several owners - the condo purchasers and not just one traditional hotel owner. Simultaneously, the management company must work with the Property Owners Association (P.O.A or Strata) and create a sense of community.
• ensure that the management company runs the hotel operation and the condo owner's association (POA or Strata) and keeps accounts for both operations. All expenses must be justified and apportioned fairly between the hotel operation and the condo operation, which needs sensitive and logical expertise.
• ensure that developers and management companies never become complacent; each property is different from another and can be improved, drawing upon and creatively using the experiences gained.
• be reminded that there is no substitute for experience; there are many who suggest they have expertise and, in the end, only practical hands-on experience can deliver value to all parties in a very complex environment.

White swans

Contributed by principal Ian Graham

I am lucky enough to live on an estuary - where the river runs off the hills and into the sea, where fresh water meets sea water and where swans live and breed. They are beautiful big birds and part of the landscape of our lives.

As I write this, a pair of swans has just launched themselves from the mud banks of low tide and their wing beats echo up and down the valley as they fly inches above the ground.

One of the most important business books of recent years is 'Black Swans', in which Nassim Nicholas Taleb puts forward the proposition that there should be no surprises. Everything can be forecast. It's our biases that, collectively and individually, get in the way and make us blind to uncertainty. If your strategy hasn't anticipated an unusual event, it's not that the event could not have been forecast but it's your thinking and processes which were not robust enough to anticipate the event.

I got thinking about this as this pair of swans just flew by. They are white swans and it reminded me that we can also forget to pay sufficient attention to the customer who will always come to us or who is, at least, is loyal to our brand. We ignore the beauty of the swans on our back door. We can be blind to certainty and near certainty – just as we can be blind to the 'black swan'.

Loyal customers
We spend an inordinate amount of time and effort attracting new customers and forget to recognise the regular guest - the customer who will always use our hotel. The Sunday brunch buffet queue probably contains quite a few. This week's wedding couple will be celebrating their anniversary in 12 months time and will have good memories of our hotel. The corporate guests exercising in the gym were probably here in this hotel last month / last year.

Do we pay enough attention to the white swans that are the bedrock of our business as well as to managing the risks and opportunities that the black swans of our business represent?

Great hotel experiences

Contributed by principal Ian Graham

I am writing this at 39,000 feet, returning home from another assignment. As usual, I have been living in the hotel this past week that is the subject of my advisory services.

I left university in 1972 with a degree in hotel management and qualified as a Chartered Accountant in 1976 so I guess that makes about 35 years worth of hotel industry career living and working in hotels in more than 60 countries.

It is probable that I have had more than 4,000 separate hotel experiences and, during these years, I have spent perhaps up to ten days a month staying in a hotel - mainly in urban hotels rather than resorts and mainly in upscale hotels.

In the airport lounge waiting for boarding today, I was reading a newspaper with its favourable hotel reviews. I got to thinking that one reads too often about great hotel experiences but, if my journey through life is anything to go by, the road warrior has his / her fair share of things to moan about.

Here's my Top Twenty - in no particular order.

1. The all-too-frequent 'what room are you in?' barked at you as you carry your room key in a highly visible way into the breakfast room and then ticking me off on a dirty crumpled sheet of paper before the room manager even starts to think about welcoming, recognising and seating me.
   
2. Live music in the bar or lounge that is so loud you can't carry on a conversation.
   
3. Bedroom light switch configurations that seem to defy logic and require you to get out of bed to operate them.
   
4. Overly stuffed pillows
   
5. Bath towels that are too small and / or have been laundered for so long they are uncomfortable to use.
   
6. Restaurant and bar prices that bare no relation to the world outside the hotel.
   
7. WiFi access I have to pay for.
   
8. The barrier between guest and employee that is called 'Reception Desk'.
   
9. Overly zealous restaurant managers who won't leave the diner alone to enjoy the meal without constant interruptions.
   
10. The check-out queue.
    
11. The long wait for the bill (check) to be brought to the table in the restaurant or bar.
    
12. Ridiculous prices for photocopying and printing in a hotel targeting the business guest.
    
13. The notice telling me that the hotel manager kindly invites me to postpone laundry of sheets and towels for the sake of the environment but doesn't reward me for the implied cost saving.
    
14. In-room climate control that switches off in the middle of the night making the room airless and warm just because the chief engineer thinks no-one will notice his energy saving initiative.
    
15. Buffet chafing dishes that need replenishing before I arrive at the counter.
    
16. Cold plates, cold food
    
17. Plated food that has obviously been sitting under a salamander too long waiting for the waiter to regain interest in serving me.
    
18. Groups.
    
19. Cheap instant coffee for use by the guest with the in-room kettle.
    
20. Aloof pretentious management and staff who forget that its my room rate that is paying their salary
    

What are yours?

The most important numbers in hospitality

Contributed by principal Ian Graham

A client asked me the other day about the KPIs that the hotel management team should regard as key. I gave my usual answer - you can probably guess.

But then I got to thinking because I read something that an associate had written in a document for a client.

This was something of a personal journey on the road to Damascus (where I lived for a couple of years as it happens). My new answer in the future, which I offer to you, is that the two most important numbers in a hospitality business are 10 and 5.

Because a service provider should make visual contact at a distance of 10 paces as a guest approaches - and make verbal contact at five paces.

A recipe for success in this business, if ever there was one.

Don't you agree?

The price is wrong

Contributed by principal Ian Graham

Revenue management has become a key focus for professional hotel management in recent years and those charged with responsibility for this area of a hotel's performance increasingly have the ear of the whole organisation.

Our consulting assignments more frequently include a review of the organisation, people, processes and technologies that drive revenue management.

It was interesting to read in 'The Economist' of a recent piece of research conducted by the UK's Office of Fair Trading entitled 'The Impact of Price Frames on Consumer Decision Making'.

As consumers, we are exposed to five different price frames.

• Drip pricing - where only a part of the price is revealed at first and extra charges are levied as the sale progresses (think about buying an airline ticket online)
• Sales - where the price is contrasted with a higher price (was £2 now £1)
• Complex pricing - such as 3 for 2 offers where the unit price has to be worked out
• Baiting - where a cheap deal is advertised but restricted to a few lucky shoppers
• Time-limited offers - only available for a short period

Shoppers in this experiment made the right decision most of the time, even when faced with drip pricing. In the research, customers (read 'guests') made two mistakes. The most frequent was to shop around too much or too little.

Under straight per-unit pricing, consumers tended to over search but with the above price frames, consumers tended to snatch at the deals offered. Interestingly, although the research clearly showed consumers lost out, there was no corresponding gain for the seller. Sales volumes were virtually the same whichever way the prices were presented.