hotelmatters - Issue no 9 - May 2009

© The Hotel Solutions Partnership Ltd 2009

The world in which we do business has changed - fundamentally. It's much harder to improve revenues and profit margins - and risk in this current financial climate comes with a premium.

As always, the articles featured in this edition reflect some of the work undertaken for clients in recent weeks and months. And not surprisingly, if there is a theme, it is how to work the recovery to your advantage.

In the majority of cases, hotel businesses that focus on operational performance rather than financial engineering will be rewarded. But we must also recognise that governments are playing a much greater role, particularly in the Anglo-Saxon world. Increased transparency, regulation and government-backed businesses are a greater part of the economic landscape than before.

At a time when global growth led by the USA consumer is tipping in favour of growth led from Asia, a recent trip to Japan clearly showed that, while there is the potential to lose both market share and profitability, canny hotel brands, hotel operators and hotel investors can make money even in a decade of nil growth.

The Japanese word 'keiki' (meaning economic conditions) comprises two kanji symbols, one for landscape and one for spirit.

The articles we've included reflect the hope that the landscape is one in which the decline in the global economy is bottoming out. Our spirits are good and we hope yours are too.

With best wishes

All @ Hotel Solutions Partnership

Contents

Digging yourself out of a hole
Insincerity is a reputation killer
Japanese lessons
The moral compass

Digging yourself out of a hole

Contributed by associates Alastair Stevenson and Frank Coan

Costs need close attention at all times, not just in this current tough economic climate.

Take marketing for instance.

For independent hotels in particular, which are fully responsible for their own marketing costs, our work has shown that there is frequently scope for a more formal approach to marketing expenditure.

Work we have done in conjunction with management teams has resulted in savings and efficiencies which have paid handsome dividends.

The basis of the approach is to work exclusively by market segment in determining the need for marketing actions/expenditure, the potential returns from effort and expenditure, and the subsequent evaluation of the activity. All too often the failure to follow this approach has resulted in substantial wasted effort and cash.

A hotel can have a large number of market segments and each one is different in terms of need and potential. Out of the many things a business wants to do to market itself, it must identify those that are going to provide the best returns. This can be a lengthy exercise the first time around and outside help can be a useful catalyst (or vital driver in fact). It does get easier over time, as many of our clients will happily admit to.

Segmentation

The starting point is the accurate segmentation of a hotel's revenue, usually separating room revenue from F&B because of the greater conversion to bottom line of the former. (The number of times we have listened to a management team's plans for promoting Valentine's Night dinner or Sunday lunch without having worked out what it would mean in terms of bottom line is extraordinary.)

Each segment must be assessed for what it can contribute to the business and the extent to which it deserves effort and/or cash. The main criteria are as follows.

• The total value of the segment - how important a part of the business is it?
• The 'health' of the segment itself - is it growing or declining for the region or country as a whole?
• How do you stand competitively to get more from the market? Honesty is often needed here to determine if the product you have is adequate to take a bigger share of the market from your competitors.
• How much do you think you could grow the segment - set a realistic volume/ revenue target?
• How easy is it to influence the segment - how much time and money is is needed to achieve the target you have in mind?
• Is there a realistic relationship between the target and the cost of achieving it? Could time and money be better spent on another segment?

This may sound both obvious and simplistic. In fact, it is neither. So many hotel businesses that we work with have sales and marketing plans that cannot be justified on these criteria. Actions are repeated year-on-year without any robust assessment of their value and time is spent pursuing markets of low value and low potential. Senior management is often focused on operational areas and do not challenge substantial areas of marketing spend.

This requires a disciplined approach and a fair bit of effort in the first instance - but it is well worth it in the end.

Insincerity is a reputation killer

Contributed by associate Duncan MacArthur

Our client came to us saying that, while she knew clearly that her employees are the company's most important asset, she was concerned that too often the significance of that assertion was not seen on a day-to-day basis in the workplace.

She understood that lip service to and the occasional enthusiastic recognition of good performance are not enough as they can make employees sense and reflect corporate insincerity. She didn't want any sign of this lack of sincerity to be detected by customers.

As pragmatic hotel consultants, our focus is the success of our client's business and that has to be understood by every one involved, from top down. On many occasions over the years, we have designed and refined a process of involvement that works all the time.

Employee involvement

This system has every employee knowledgeably involved at every level. It starts with ensuring that everyone is always clear about their role - what he or she must do - and the standards required. This clarity enables the individual to communicate with others, intelligently and with appropriate authority, about work issues.

Such informed communication gives the trained individual an agreed degree of control and encourages decision-making at that level, close to where the work is done. This way of working is respectful, efficient and, normally, helps the considerate manager hold back from interfering in the work of subordinates.

Above all, it means that the leaders don't do the work that their more junior colleagues are employed to do. Instead, leaders who know and understand the work involved are able to 'show' their colleagues what to do, to the required standard.

Establishing the system initially demands considerable effort from everyone at all levels but, once in operation, it has been shown to make life at work smoother and more thoughtful - and it strengthens teams.

Because it involves everyone employed in the company, from bottom to top, it is called 'How We Work Together' or, as everyone likes abbreviations, HWWT.

The system

To make it work, it required:

• meticulous time-consuming selection of personnel
• colleagues aware and content that, with HWWT, there is no 'master and servant'
• a practical relentless understanding of what leaders must do
• initial and continuing task and HWWT training, geared to the individual
• careful employee development, guided by the employee's leader regular communication with everyone, in teams, about everything that affects their work
• regular communication with everyone, in teams, about everything that affects their work

Japanese lessons

Contributed by lead associate Rosemary Jackson

A recent trip to Japan afforded the opportunity to stay as a guest in Japanese ryokan hotels.

These hotels provide the guest with a very different hotel experience – one that has been enjoyed by travellers for several centuries.

On arrival, guest enter a large lobby where luggage and wet clothing is taken away, outdoor shoes are removed and replaced with slippers. After check-in, guests are escorted to their rooms.

The entrance door to the bedroom opens onto a small hall where 'common area' slippers are removed and replaced with a 'bedroom pair'. Sliding doors lead to the guest's lounge – a space that may only have a low table and always-on tea maker as furniture.

All cupboards are hidden behind sliding doors, as is the small private bathroom, which usually contains a plunge bath, wall-hung shower, basin and toilet. European visitors will be intrigued by the heated toilet seats that are common in Japan and some other Asian countries.

There is yet another pair of slippers for exclusive use in the bathroom.

Rectangular tatami mats, twice as long as they are wide and usually laid in a 'T' shape, cover the floor. These mats are traditionally made of rice straw with a covering of woven soft rush straw. Cotton yakatas, a casual form of kimono to be worn by the guest indoors and traditionally after bathing, are usually found in one of the cupboards.

Most ryokan bundle the price of dinner and breakfast with the room rate. Meals are generally served in a communal room with the times of sittings predefined but most will also serve meals in guests' rooms. Guests often go to the restaurant dressed in their yakata and slippers. They sit at low tables and, when individual courses are served, staff will kneel prior to placing the dishes on the table.

The ryokans we stayed at offered food and service of the very highest standard. Our kaiseki dinners typically included all or most of the following.

• Sakizuke: an appetizer similar to the French amuse-bouche
• Hassun: the second course, which sets the seasonal theme; typically one kind of sushi and several smaller side dishes
• Mukozuke: a sliced dish of seasonal sashimi
• Takiawase: vegetables served with meat, fish or tofu; the ingredients are simmered separately
• Futamono: a 'lidded dish', typically soup.
• Yakimono: broiled seasonal fish
• Su-zakana: a small dish used to clean the palate, such as vegetables in vinegar
• Naka-choko: a palate-cleanser such as a light acidic soup
• Shiizakana: a substantial dish, such as a hot pot
• Gohan: a rice dish made with seasonal ingredients
• Ko no mono: seasonal pickled vegetables
• Tome-wan: a miso-based or vegetable soup served with rice
• Mizumono: a seasonal dessert - fruit, confection, ice cream or cake.

For each dish to be enjoyed at the proper temperature, we were continually reminded to be punctual for meals.

While guests are at breakfast or dinner, hotel staff transform the bedroom into or from a lounge and vice versa. The futons and pillows are stored away or laid out on the tatami mats and the table positioned for day or night-time use.

Lessons learned

What can a non-Japanese hotel operator can learn and apply from such an experience? I believe it is the importance of the basics of hospitality.

Because hotel management focus on all aspects (the physical ambience, the touch and feel of surfaces, the very personal levels of service that are achieved one-on-one between each member of the service delivery team and guests, the return from eating to a serviced room, etc.), guests feel at home and are able relax and recharge.

There is also something to learn for hotels whose offer includes breakfast and dinner - an offer that explicitly looks after all the guests' needs and does not assume that others can feed and entertain guests better than they can. Done well, and perhaps it only applies when it can be done well, a full-board can create a positive guest experience in a way that cannot be achieved with a room-only or a bed-and-breakfast offer.

Most importantly is the positive impact that a smiling ever-helpful group of hotel staff offering traditional high levels of service will have on the guest. A happy workforce focused on delivering each and every element of the guest experience will lead to a happy guest – and we should not forget this.

Perhaps as hotel brands evolve, some of these elements of traditional service so widely in evidence in Japan can be better incorporated into 21st century hotels elsewhere in the world.

The moral compass

Contributed by principal Ian Graham

A recent assignment reminded me that owners and operators of hotel companies drop their ethical standards at their peril.

At the end of the assignment, it was my job to tell the client's Board that I had uncovered several examples of sensitive information leaking from their business.

This was bad enough but there was also evidence of the receipt and knowing use of the information by executives and staff of an as-yet-potential-and-future business partner.

In my mind, it remains the collective responsibility of the board to address the matter. The chairman and his colleagues need to formulate remedial processes that provide long-term protection to all stakeholders and ensure that any short-term gain by the recipients of the information is nullified. The recipient company also needs to challenge itself, starting at the top of the organisation.

Competitive intelligence

Generating and using competitive intelligence is a key strategic activity in the highly competitive world in which we all work. Most mature companies have guidelines for executives, management and staff that integrate the need for gathering and protecting competitive intelligence into a corporate code of conduct.

These guidelines will be extended to all current business partners, ensuring future business partners are made aware of 'the way we do business here'. Start-ups may not have such processes in place, or may not have robust processes in place, but they need them just as much as established businesses do.

In the EU and USA, the presumption is that the sharing of operating data is likely to be contrary to the interests of consumers. The only way, therefore, in which the industry gains access to benchmarking information is through warehousing data with STR Global, MKG, TRI, TravelCLICK and others.

In other parts of the world, such a presumption is not reflected, either in law or practice or both. Hotel operators seem happy to share the detail of their relative operating performance, obtained through the informal network of contacts that exist at different levels within businesses that are otherwise competitive. Hotel owners and operators both need to introduce corporate codes of conduct to address this matter.

Ethics

Vendors awarded major contracts should be able to demonstrate that they are ethical in their approach to the way they manage their business.

This is particularly the case when awarding a long-term management contract. In such a case, the net present value of the fees payable under a typical 20-year contract can represent the equivalent of half the cost of constructing the hotel. The awarding board needs to satisfy itself that the incoming operator has the same ethical philosophy as itself. In the process of awarding the contract, the board should satisfy itself that a vendor's decision-making process is completely transparent.

An ethical company is one that thinks about the way it does business, including its relations with competitors and business partners.