Hotel matters - Issue No 3 - September 2007

© The Hotel Solutions Partnership Ltd 2007

Contents

Small is beautiful
The end of budgeting?
Coaching to win
Mine host

Small is beautiful

Contributed by lead associate Katrina Craig

Urban myths abound – not least within the hotel industry.

Food and beverage is at best a loss leader; unbranded hotels cannot compete with against the major global brands; location, location, location; fill your hotel then push up the price; boutique hotels will always win out.

Recently, we’ve conducted some unique research that throws light onto some of these assertions. We dug into the Deloitte Hotelbenchmark™ database and extracted data relating to three European cities well-known as upmarket leisure destinations – Edinburgh, Florence and Prague.

We wanted to understand how small hotels (defined here as four- and five-star hotels with less than 100 rooms and including some hotels with as few as 18 rooms) which are largely unbranded fared against the branded hotels which tend to be larger than 100 rooms.

What we found was that:-

• in the last five years, small hotels are more likely to under-perform larger hotels (most of which are branded) – and that small hotels trail in particular, on achieved average rate;
• in two of the three European cities surveyed, small hotels real RevPAR (excluding inflation) has declined in the five year period 2003 -2007 which we suggest is likely to have led to loss of asset value.

But these trends are not rules. In at least one city, Edinburgh, hoteliers managing small hotels (<100 rooms) have proved that it is possible to outperform the majors consistently and grow asset value in real terms. We suggest that this is the case if the right product, guest experience and operating skills are brought to bear in the right location. 'Twas ever thus' you'll rightly say.

If there is a hypothesis, we'd suggest it is that, in cities with strong year round occupancy (>70%), small hotels can find a profitable niche that seems to be off the radar screen of the major brands.

And we'd put down a new challenge to managers of branded hotels in such cities.

Build your RevPAR not just by stealing share from traditional branded competitors and growing demand through your branded channels but also by marketing experiences that are attractive to the individuals successfully targeted by the smaller niche players that you may be ignoring today.

The end of budgeting?

As they return from their summer holidays, hotel management teams around the world are facing up to the annual task of preparing the annual budget.

Despite years of being pilloried as being a process that is out of touch with modern business needs, taking too long, costing too much, encouraging value destructive behaviour, almost all companies will oblige their teams to take their eyes of the ball of guest satisfaction to serve the alleged needs of corporate office in preparing the budget.

Looked at it positively, a budget provides a focus for a hotel and a hotel company. It aids the co-ordination of activities and facilitates control. But, as they say, if the budget provides a route map, it's only valid if you keep your eyes open and if the destination remains the one you need to get to. If not, the business will come off the rails.

And, since we live in changing times and always have done, the chances are the goals established for the business in the 2008 annual budget by the team working on it will prove to be misplaced (as indeed will the goals for the month January 2008). Humanity is not blessed with 100% foresight and hotel management is no exception.

Increasingly, we find businesses making use of rolling forecasts. Many companies will regard the rolling forecast as a more important directional tool, whilst the annual budget allows the opportunity to look into some of the darker corners of a business' processes and their inter-relationships. Perhaps the key benefit of the annual budget process is that it requires the leadership of the business and all the functional leaders to talk to each other. The budget forces something that should be happening but may not be.

The other significant change that has occurred in recent years has been a move away from a financially-based budget towards a route map that is denominated in both financial and non-financial terms. Usually referred to as the balanced scorecard, the intent is to target financial, operational, customer and learning goals. The accountants who typically still run the budget process may feel challenged as they are required to give as much credence to soft indicators such as 'employee satisfaction' as to hard data such as 'days inventory held'.

There are conflicting views that suggest the budget enables behaviours to change as well as constraining behavioural change. Certainly achievement of annual budgeted goals by the first quarter can lead to underperformance in the next three quarters, whilst an overly ambitious budget may have the effect of switching off the management team. In the end, the important issue is to ensure there is a culture in which value-adding decisions are encouraged rather than limiting decisions to simply making budgeted profit.

How can you make sure this takes place? In the first place, aspirational goals need to be set that encourage continual improvement rather than attainment of fixed annual targets. Success needs to be shared, based on relative performance rather than fixed annual targets. Planning should be a continuous background process rather than an event that disrupts the annual corporate calendar. Corporate management and company leadership need to learn how to allocate resources – people, time, money – as needed rather than through annual allocations. And there needs to be continual cross-functional co-operation rather than the annual planning cycle.

This has some leadership implications. The hotel needs to be focused on improving the outcome for the guest and the customer - full stop - rather than focused on improving life at headquarters. There should be a matrixed network of teams accountable for results rather than centralised hierarchies. The leadership team should explicitly reward success in the marketplace rather than success against internally determined benchmarks. Once teams are accountable for their success, they should be given the right (indeed, the obligation) to act rather than merely adhere to plan. In this adaptive world, values and boundaries are established rather than detailed rules and budgets. And, importantly, data, information and knowledge need to be made available to all and not limited to those with a 'need to know'.

We've yet to see enlightened hotel owners build such requirements into hotel management contracts. Regrettably these documents seem to be stuck in the 1960s in some respects. But we have no doubt that those who do will improve profit as well as their embedded management teams.

Coaching to win

Contributed by lead associate Rosemary Jackson

Increasingly major hotels and hotel companies, other corporations in both the public and private sectors, as well as in the not-for profit sector, are integrating coaching and mentoring into their development programmes for senior and other executives.

These programmes will also typically include work based development, formal training and self learning. The terms 'coach' and 'mentor' have tended to merge as if into one but, in fact, there are critical differences between being a coach and being a mentor.

If we think about the great sports coaches acclaimed by fans and media - and indeed by the boards of the companies that run football, cricket, basketball, ice hockey - it becomes clear that a coach is focused on improving performance. The coach has a single goal. The relationship between coach and executive is tied up in the organisations structure and the coach exercises influence because of the position he has been given. As the recipient of coaching, the executive hopes to benefit from improved personal performance as an individual and as a member of the various teams in which the executive plays. The arena in which the coach and the executive interact is limited to the task in hand – the task that is to be improved.

Compare this to the role of a mentor. The mentor is charged with facilitating an individual as they self-select how to learn for any or all of life's challenges. Generally, the mentee selects the mentor; the relationship is not forced upon the mentee by the shape of the organisation. The mentee reacts to the mentor's words and actions not because of any organisational power play but because the mentee perceives the mentor's advice to have value.

A mentor is biased in favour of the mentee – a coach is impartial, focused on improvement in behaviour. The coach develops specific skills for the task, challenge and performance expectations at work.

A mentor is a power-free two-way mutually beneficial relationship. Mentors are teachers and facilitators, allowing the protégé to discover their own direction. They let their mentees find their own solutions. A coach has a set agenda to reinforce or change skills and behaviours.

Even in formal mentoring programmes, the protégé and the mentor have choices – to continue, to stop, to change focus. If I'm your mentor you probably chose me. Coaching is much more likely to be imposed as part of an agreed organisational programme Indeed your coach probably hired you.

A coach is strategically assessing and monitoring progress and giving advice for effectiveness and efficiency. A mentor is much more like a sounding board.

So coaching and mentoring are not the same thing. If I am your coach, then you probably work for me and my concern is your performance and your ability to change and I want to enrol you in the vision and direction of the hotel or hotel company that we are both part of. In realising my organisational requirement as a coach, I may need to add competence, inject elements provided by external resources, change my own behaviour, to better achieve the coaching responsibilities that my position places on me.

Mine host

Contributed by lead associate Mike Wrigley

There used to be a time when IT departments were concerned with hosting software appropriate to the business's needs, enabling each user to access the required application and then storing the data created by the business’s transactions. This is no longer the case.

Increasingly hotel and hotel company IT professionals are recognising that data storage and application hosting are best done by specialist professionals outside of the organisation and that the real role of IT is to enable all users to access the best application for each separate business need.

Just as hotel management has evolved from a focus on the product to a focus on service and now increasingly to a focus on experience (for guests, intermediaries and staff), IT has moved from being concerned with the boxes that house the applications to the applications value add. Now, savvy hotel IT directors are primarily concerned with better enabling the user experience and enhancing revenue. As professionals, we are much more inclined to keep increasing the amounts of corporate data in the internet cloud.

The widespread use of the internet and affordable secure bandwidth has enabled these changes and this is now truly a borderless world (save for the legalities of data protection). There are many examples of businesses making use of applications hosted elsewhere and outside the organisation. Few hotels or hotel companies would today consider owning and operating a payroll application.

Almost everyone will be making use of web browsers to access applications held elsewhere - to open up a file on a new employee, to input the hours worked and to running the payroll. Many employees will go to a web browser to access their pay-slip which is composed of data that is residing on a specialist organisation’s hardware behind firewalls. Security of data and service levels tends to be much better at data centres operated by such external organisations. Far better than any hotel and far better than any hotel company can realistically achieve.

If we can all accept that human resource records (private and personal data) and payroll can be operated using an ASP (application service provider) providing SAAS (software as a service), we have accepted that sensitive data can go outside the organisation and processes can be refined to meet the standard approach defined by the vendor's application.

So it is that we start to see more business applications being hosted off-premises. Think accounting, procurement, training, knowledge banks - to name a few. Whilst we still hear of major hotels going through the up-front cost and organisational agony of a PMS upgrade, we also know of European, Indian and Chinese organisations that offer the core PMS and POS functionality as an ASP service.

Software giants such as SAP and Business Objects offer, or plan to offer, entire suites of applications on-demand. Most of the UK's restaurant groups have long ago adopted this approach, not only to transactional applications but also to higher value knowledge tools such as decision making applications.

We are increasingly being asked to assist IT departments metamorphose into business partners, charged with ensuring that the right (externally hosting) vendor is providing the right functionality to the right users at the right time with the right speed and the right level of security.