© The Hotel Solutions Partnership Ltd 2008

"When written in Chinese, the word 'crisis' is composed of two characters. One represents danger and the other represents opportunity."
John F. Kennedy

We were reminded of these wise words when reading another doom-and-gloom story in the press. As essentially optimistic folk, we at Hotel Solutions are inclined to focus on the positive rather than the negative. As committed hoteliers, we are reminded of the several decades of continuous growth and development of the sector that we have seen, and contributed to, across the globe during our careers to date.

In this summer edition of our client newsletter, we share with you our thinking about people management, technology trends, hotel operator selection and hotel business plan contents.

Our previous newsletters have been read by an increasing number of our friends, contacts and clients - and we are sure you'll find some nuggets here.

Thank you for your support in the past and we look forward to working with you again.

So get reading! Click on the links below - and enjoy, learn and reflect.

Do let us know what you think.

The Editor

xh

Contents

• The technology landscape
• Choosing an operator
• Delivering your value proposition to employees
• Creating the future
  

The technology landscape

Contributed by lead associate Mike Wrigley

Anytime from mid to late June, my diary is normally reserved for attendance at HITEC, undoubtedly the world's leading hospitality technology event. This year was no exception so I found myself in Austin, Texas. What a great place - with hotels close to the Convention Centre, this ‘Live Music Capital of the World' also enjoys being one of the world's technology innovation capitals.

This year, I came away excited by the evidence that the global hotel industry and its technology providers are working on the right issues.

HITEC offers a unique combination of highly rated educational sessions, a huge technology exposition and many, many sponsored evening parties for those ever valuable networking opportunities and conspicuous consumption of margarita cocktails. Sessions are led by industry peers and experts whilst the expo showcases the latest industry products and services from over 300 companies. Combined with the opportunities to connect with fellow hotel technology professionals, HITEC has everything to keep me current in my thinking for today and the future.

Innovation

Today's connected world allows for businesses to be structured in very different ways, with innovation being accessed from both inside and increasingly outside the organisation. In some ways of course this is the trend that Hotel Solutions Partnership is part of - enabling clients that engage online to import expertise that can be delivered in person and/ or on-line. There are many examples of hotel companies distributing and networking to garner a higher level of thinking and innovations in service, experience, design, creation and execution than that which is available within the four corporate walls.

I've written in these columns before about how technology is allowing the customer to be the innovator of the bedroom experience and once again I saw the Guestroom of the Future at HITEC. Such has been the interest that Guestroom 2010 is looking much further into the future by recently re-branding as Guestroom 20X. At this years show I also noted that progressive hotel brands are increasingly willing customers to engage online with one another and with the organisation. The goal is to tap into this new type of guest engagement for shareholder gain. Brands are engaging with guests to design, test and market different elements of the guest experience. With improved insights into the guests needs, such brands should be better equipped to quickly reconfigure the hotel product, service and overall experience.

As my associate Larry Bowman points out later, technology allows employers to tap into the pool of talent in very different ways than in recent years. And I think we will see an increasing willingness to outsource more and more essential but non-core processes leveraging the web as hotel companies drive toward further and further productivity gains.

Business information

My hobby horse for a number of years has been the opportunity that BI (business information) systems offer; Take a look at the tools provided by such vendors as Datavision and Aptech. Systems are becoming more and more interconnected through common standards (think of HTNG's efforts in this regard) for exchanging data - providing not only better, deeper and wider information for decision making but also enabling new levels of automation.

But its also unbundling that is a trend - using other companies and entrepreneurs to enable rapid scaling (up or down) whilst keeping balance sheets light and tight. This is more and more enabled by technology (e.g. Saas) where hotels and hotel companies are more trusting of security and bandwidth reliability and are making better use of web services and related technologies.

These columns have previously drawn attention to the role that technology tools have played, are playing and will play, in transforming revenue management. Predictive technology tools are increasingly available and used - bringing more and more discipline into many aspects of hotel management. Sometimes I sense the balance has gone a little too far (don't lose sight of the hotelier in us!) but there can be no doubt that the hotel industry is a much more effective user of productivity and performance enhancing technology tools than it was even a few years ago.

Evolution

Finally in this rapid scan across the technology available to the 21st century hotelier it is worth also remembering that some businesses have evolved that are essentially accumulating pools of data and making revenue by providing access to selected data or the entire data. TravelCLICK is perhaps the most obvious example of a business based on this premise, but so too the newly emergent STR Global.

I wonder what the technology landscape in 2020 will be like. Any suggestions? You can bet your last dollar that the new and inventive landscape will be badged as addressing "Generation Z's" "must haves". It's a little scary to be a member of the Baby Boomers - now that is something I can't change.

Choosing an operator

Contributed by principal Ian Graham

When we humans get married, we go through a lengthy and elaborate courting process with extensive support to the couple given by friends and ‘experts' before the knot is tied.

Yet many developers and hotel owners have jumped into bed with a hotel operator under the terms of a 20-year or more management contract on little more than a whim. Having been engaged recently by several clients to assist in the search and selection for hotel operators, what have we learnt?

There are clearly three elements.

• The legal documents
• to protect the owner and incentivise the operator
• to position the operator as the agent of the owner
• The financial package
• usually a mix of basic and incentive fees
• together with charge back provision
• perhaps with fee stand-aside provisions etc.
• The suitability of the operator to the hotel and the business.

The third element is arguably the most important and the one we want to discuss here.

Brand v operator

In our view, one must first separate the decision concerning the brand from the decision concerning the operator. For example, while Starwood might both brand and operate a Sheraton or a Westin or a Four Points, in many countries a hotel owner can, and in our view should, separate the decision as to which brand to put on the hotel and which operator to engage.

What a brand does is quite different to what an operator does and one needs to separate the criteria to identify which brand is most likely to deliver the highest number and value of customers through its branded channels to this hotel throughout its life. Choosing a brand should never be an accident - the decision must be carefully made to ensure the brand strategy, structures, processes and execution drive long term value through guest preference and employee behaviour.

Often, of course, the right brand will come with the right operator - in our example above, Starwood will obviously have an operating advantage when it comes to a Westin or a Sheraton or a Four Points because as a company Starwood will possess the first crucial differentiator of an operator - proven experience with the brand, its channels of distribution, its loyalty programme, its customers, its competitors.

The truly excellent operator will, however, also be able to demonstrate an ability to bring business to the hotel through the unbranded channels - and this can be particularly important in a hotel with extensive conference and meeting facilities, or a spa, or other non-hotel-brand influenced elements of the offer.

Surviving change

A key process that a hotel operator needs to bring to almost all situations is the ability to deliver a range of services through a period of change. This might be technical services support during the design and construction phases or it might be the execution of operational changes that arise from a rebranding or a re-positioning.

An excellent operator will be able to demonstrate deep experience in change management.

Profitability

A further area of excellence required of a hotel operator is the delivery of profitability ahead of market averages over a sustained period of time.

This requires the mix of skills that brings excellence in sales and marketing, with excellence in restaurant and bars, and excellence in financial management and reporting - and a passion to benchmark not only R.G.I. but also GOPPAR.

And it's through employee satisfaction that customer satisfaction comes so an excellent operator will be able to demonstrate a track record in talent management and high levels of employee satisfaction.

Improving employee satisfaction rates, declines rates of labour turnover, an increasing number of skills training hours delivered - these will be the traits of an excellent operator.

Operating performance

One of the key areas of that an excellent operator will focus on is the use of Standards of Operating Performance (SOPs). Whilst such operating manuals should describe the product and service that is intended to be delivered and form the script of skills training, excellent operators have also embedded processes to learn from errors and defects.

Operators that have elimination of error as a high priority will treat guest complaints as an input not an output and will have processes in place that dissect management's misguided thought processes that gave rise to the complaint in the first place.

Outsourcing

In today's world, few hotel operators can deliver such a broad range of services from within its own resource base - so we'd expect most operators to be aligned to one or two key business partners.

An operator that buys in certain resources should not be viewed as inherently weak - far from it, managing a number of outsourced vendors is increasingly what hotel management companies need to do in order to stay focused.

The quality of the partners chosen by an operator will tell you a lot about the quality of the operator. And this is perhaps no where more evident than in the mix of telecoms, technology and technology-enabled partners that an operator brings to the table.

Summary

Above, we've described some of the traits of an excellent operator. This is a selective list and there will be other traits that are relevant according to location.

Delivering your value proposition to employees

Contributed by associate Larry Bowman

It makes sense to reduce the probability of employees leaving through dissatisfaction. It also makes sense to maximise the contribution and satisfaction from your most engaged employees.

However, in many ways, it makes even more sense to focus your efforts on the bulk of employees who are neither engaged nor disengaged.

The Corporate Leadership Council is a membership of senior executives with a shared commitment to steward enterprise-wide human resources management. This membership offers a set of services and tools designed to assist human resources leaders with their most pressing managerial, communications and decision-making challenges.

Drawing on employment preferences data from more than 58,000 employees around the globe, the CLC has investigated how employers can best communicate the strengths and virtues of their organisations to prospective employees - and to current employees to strengthen their commitment. CLC's research has uncovered a handful of attributes that consistently accomplish both outcomes across all talent segments (e.g. geographies, levels, etc.).

Analysis

With that said, significant geographic differences exist that organisations must take into account when building a value proposition. The analysis demonstrates that organisations effectively managing their employee value proposition (EVP) - the set of attributes that current and potential employees perceive as the value gained through employment in the organisation - garner significant benefits in terms of attraction and commitment.

There are thirty-eight separate attributes clustered under the headings of ‘Rewards', ‘Opportunity', ‘Organisation', ‘Ethics', ‘Work' and ‘People' that together form the degree of engagement that an employee will have with your hotel or hotel business.

This was the topic discussed at breakfast club meeting hosted recently by talent retention specialists learnpurple. They suggested that hotel company and unit management should use the 38 potential employee value propositions to find out what your employees most want from you, their employer, to:

• define your deliverables
• write it down
• publish it widely
• deliver it
• reinforce it - over and over again

And they pointed out that in today's world of Facebook, Bebo, etc., potential future employees can rather easily assess the EVP attributes that are important to them.

Promoting the values

So whilst received wisdom is that the newest generation of employees has fundamentally different work/life aspirations from previous generations, progressive people management will start with this as a positive rather than as a negative and will redesign HR processes accordingly.

Defining the employee value proposition that your organisation offers, and making sure it is visible internally and externally, will be very powerful in focusing your business.

Just as it was when the Board sat back and defined and started to deliver against your shareholder value proposition.

Creating the future

Contributed by principal Ian Graham

Creating the future is a leap of faith - and a good jump requires a solid foundation.

In business part of that foundation is generally a business plan. It might be a plan (‘budget') put forward within an organisation in which resources (people, finance, time) are requested; it might be a proposal for lending addressed to debt providers or a prospectus for investment addressed to business angels, venture capitalists or institutional investors.

We've researched and written countless business plans. What do we believe are the essential elements of an attractive business plan?

Profiles

Strange as it may seem, perhaps the most important element of the business will be the profiles of the people who are behind the plan. Not only should there be a profile of the person who has generated the vision but also those others on the team, demonstrating that they too are engaged with the passion to design the business plan and to deliver the customer outcomes.

The profiles should demonstrate that individually and collectively the team has the experience and skills to deliver the plan within the budget constraints. The document should describe those previous business ideas that the team members have realised. If they've done something similar to the current proposal it should be described. If there is an opportunity, the plan should describe the team and its members' track record in innovation, in change management and in cost and time management.

But also the business plan should be honest in an assessment of the other skills and experience still need to be added to ensure that the team is balanced to meet the needs of the project.

Collateral

A key aspect of any business plan is likely to be the proposal to buy or develop assets. The plan needs to address how (or even if) such assets will hold their value for the long-term benefit of the business and how the collateral for the required investment will be provided.

Such a demonstration of value retention will come from describing how the investment value will be crystallised, probably on exit. The plan needs to detail whether the developed asset will be sold on as part of a trade sale or part of a future floatation - and, if so, detail of comparable transactions can be used to provide reassurance of value on exit.

In the case of some proposals - for example a rooms refurbishment programme - there may not, in fact, be any long-term value creation. Rather there will be an avoidance of value loss and this can be just as valuable, so long as it can be demonstrated.

Occasionally, the business plan will be proposing development of an asset that will create new intellectual property. In such circumstances, the plan should identify how intellectual property is going to be protected.

USP

The business plan also needs to clearly establish what is the unique selling proposition (USP) that the investment will deliver and, just as importantly, how the USP will be defended. In the case of a new build hotel, one of the USPs will, of course, relate to the location since this can't be replicated. Other aspects of the development may be capable of being copied, so the plan needs to establish how the business is going to defend itself.

Branding is one form of defence since a franchise will normally come with radius protection for a number of years. If the plan includes development of a signature restaurant, a plausible defence would be a restraint clause on the chef from running off and creating something similar down the road. Sometimes owners will see a 20-year management agreement as an encumbrance but, in the context of a long term funding request, such an agreement provides the lender with certainty that the brand's USP can be defended for the long term.

The management contract provides a further type of defence too as it offers the probability that the hotel's general manager will be qualified and suitably supervised throughout the life of the investment. This will more likely suggest a long-term defendable profit picture to an investor or lender than a situation where an individual hotel owner is proposing to borrow and operate an unbranded hotel by themselves.

Growth

The fourth topic that a business plan needs to address is the nature of the demand being targeted.

The investor or the bank will want assurance that the investment is targeted at meeting the needs of a growth segment of the market.

In the case of an investment driven by a brand's requirements to meet new needs better, evidence for the change in market meets will be provided by the licensor. In other cases, the team proposing the investment need to have researched the market themselves, or commissioned independent research, to provide evidence of the growth in market demand being targeted by the investment.

Some investment proposals will be necessary simply to enable the hotel to stay in business (e.g. the replacement of a kitchen stove) and, in this case, the plan needs to be frank, explaining that the investment is required simply to defend current profitability.

A mature management team will not seek to support an investment proposal that is essentially defensive with arguments that are suited to an investment targeted at expanding the business. And it may well be valid to target investment at an element of cost that is rapidly growing with a view to reducing the long-term cost as it is to target investment at a revenue stream with long-term growth potential.

Market demand

It's all very well to target a growth sector; market demand must also be demonstrated. The use of market research, focus groups, interviews with customers and intermediaries should be produced as evidence for the business plan that not only is investment being targeted at a growth segment but that there is also demonstrable demand.

Sometimes competitors will provide evidence of demand; sometimes experience in other markets and other countries will provide the evidence. An investor will typically fail to attract funding for a proposal that is all vision and no evidence, just as a management team will fail to attract support for a budget that is all evidence and no passion.

Scalable

A business plan addressed to lenders should adequately cap the exposure to lines of credit. By comparison, a business plan addressed to current or future investors will frequently be more successful if the proposal provides for the scalability of the proposal. Investors will not want to be limited by a single location but will more inclined to invest in a new idea if it can be rolled out to other locations.

Emotion

Finally, and not to be forgotten in any plan, budget, board submission, loan application, etc., is to include - and repeat - the ‘wow factor'.

Even in today's hardened times, all the stakeholders - the investor, the board members, the lender and the employees - need to be emotionally engaged by the idea, the opportunity, the vision.

Although it pains me as an accountant to say so, this almost certainly means that the business's conservative accountant should not be the plan's author.