Does this type of revenue management conversation sound familiar?
General manager:
“Thank you for showing us the numbers, but I really believe we have to hold the rates.”
Revenue manager:
“But the trends show we are behind in our business on the books.”
GM :
“Trust me, I have experience. I know this city, these rates will sell, we will do fine.”
RM:
“But ……..”
GM :
“That is my final decision. Let’s move on.”
In this case, in the end it turns out that the numbers and statistics were showing the truth and the pricing strategy had to be adjusted with aggressive last-minute offers to regain a substantial loss of occupancy.
Unfortunately, too often general managers still influence the strategic decision making process of hotels based on feeling, market knowledge and “experience”.
And not to single out GM’s, in the hotel industry in general we have the tendency to base strategic decisions on intuition instead of hard factual data. We are driven by a crystal globe kind of syndrome.
But where does this come from?
Traditionally in the hotel industry many people are promoted from within – which is very good. We all know the stories of the GM who started off as a busboy, bellman, dishwasher or waiter, etc.
Nothing wrong with that in essence, internal promotion is a great stimulation and motivation for the staff.
However, different skill sets are needed for being a food and beverage manager or a general manager, like wise for a sales manager and DOSM.
Unfortunately we see far too little education to give senior management the required for the tasks ahead in the new position.
We highly encourage hotels to invest more in financial, business management and analytical training of their staff. Moreover we advocate to create a clear separation between the strategic departments and operational ones.
For the strategic departments like revenue management and reservations for instance you need much more Beta than Alpha oriented people.
Nor can the person dealing with operational issues truly focus on strategic decisions effectively. Strategies can’t just be done on the fly; it is a process that requires constant study and preparation.
Before taking decisions on price tactics market data, history and trends need to be analyzed in detail, to come to a proper founded conclusion. Moreover it should be done with a full focus and concentration it deserves without any distractions.
It surprises me that in the hotel industry however operations and strategies are still very much intertwined. In which other industry do people on the “factory floor” or production line (without any further training) make such important decisions?
Too often the business side of the industry is being approached using a service mentality. We just want to keep everyone happy, right?.
This simply is not possible if we want to optimize revenues and profits for our hotel. We have to analyze which parts of the business truly add value to the bottom line, and which don’t.
Sometimes a corporate account, distributor or group request, simply does not bring us additional profit, but this will cost the hotel money.
It seems that many senior managers in the hotel industry still have problems with saying NO to unprofitable business. They confuse financial strategies with guest service.
It is time for the international hotel industry to take the next leap forward and professionalize by separating the operational and strategic departments.
The chains have started doing this for certain but still have quite a lot of progress to make. Independent hotels need to take a big jump if they want to be able to keep up the fight against their competition.
With the internet the market is developing faster and faster, don’t get left behind. We have to seperate the business from the service side!
NB: More on hotel asset management from Xotels.
NB2: Not listening image via Shutterstock.
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About Patrick Landman
Excellent article Patrick, and you’ve made some excellent points. I doubt many hotel managers even understand the importance of implementing an effective yield management strategy.
Patrick, can’t agree more. I’m a vendor and constantly amazed how many GMs’ eyes glaze over when the conversation goes to ‘P&L’ and ‘Balance sheet’. No kidding, I had to explain how to calculate a ROI to a GM of a 600+room hotel. That GM started his career as a chef and then climbed the ranks.
Our product challenges the status quo of labour management with the proven opportunity to save 8-20% of labour. Yet inertia and fear of the unknown is our greatest competitor and many managers shy away from introducing something fundamentally new during their short GM-tenure.
I personally went to university for a hotel management degree. Spent the first 6 months learning how to fillet a chicken and making crepe suzettes, then left. This industry needs to separate the functions of operational managers and business managers, the latter, as managers of multi-million dollar businesses, should have an MBA. For internal promotions, the MBA should be one of the critical steps.
And it doesn’t stop at revenue management. They’re resistant to improving customer service and the guest experience too. It never ceases to amaze me the number of GMs that only give lip service to customer service.
The Appraiser, Hotel Evaluations Sydney.
Oh dear, I had assumed the demand for five star service was lower than in the US because the lack of tipping has limited the knowledge people have of the service culture. Too bad if GMs can’t see the potential out there…
Thanks for replying to my comment Amelia and I understand your meaning. The problem in Australia is that a hotel can receive an official 5 Star rating, even if customer service is terrible. Only the facilities, services (e.g. Room service is available etc) and cleanliness are assessed. The standard or quality of customer service is not taken into account. Your point on our lack of tipping is a very valid one. If hotel staff here had to rely on tips (as they do in the US), instead of just their salary (which they receive regardless of how well they serve), they (and their GMs) would take service much more seriously.
The Appraiser, Hotel Evaluations Sydney.