By John Repa, Senior Manager, Summer 1996

The age of consolidation should continue as the hospitality giants keep purchasing smaller, sometimes struggling, companies and portfolios. The view toward “bigger is better” is sweeping the lodging industry. Economies of scale realized by the lower cost of capital, national vendor relationships, shared resources, and common systems and infrastructure go fare to corroborate the viewpoint that “bigger is better.”

But, the critical next step toward assuring that this viewpoint endures will be the continued refinement of operational strategies leading to increased profitability and shareholder gains within the industry. For many companies, improvements in operations, information systems and management infrastructure have not kept pace with rapid business growth. To realize the full benefits of consolidations, many companies are turning to management and operations and the redesign of business processes and functions to maximize efficiencies. Some re-engineering approaches can be characterized as “slash and burn,” without consideration of the domino effects on customers, human resources, and the future health and welfare of the hospitality industry. Others, however, can be synergistic, building on interrelationships within an organization.

What should be considered in the early stages of business processes redesign? Any approach to redesigning business processes and functions in the hotel industry should start with an analysis of these factors as well as the interrelationships between human resources, technology, operating controls, and capital expenditures & maintenance. These areas are closely related - a change in one will likely affect a change in another. So every effort should be made to test and maximize the effective relationships among them.

Human Resources

The greatest cost savings potential for most hotel companies is gained from eliminating middle-management positions and empowering line employees. Strategic deployment of well trained, hourly labor raises employee morale. Employees are given more responsibility, their skills are broadened, and they can rely on a consistent work schedule - making them less vulnerable to layoffs. The two major management benefits of maintaining employee satisfaction while reducing employee headcounts are improved guest satisfaction and reduced expense - a win/win situation for all involved.

Technology

Technology can contribute to effective cost reductions and operating efficiencies in every department and function. Technological innovation in areas such as document scanning, data entry, business demand forecasting, human resource management, energy management, preventive maintenance, and asset management are areas where big gains can be realized in productivity and cost reduction. The strategy is to be aware of the existing and evolving technological possibilities and weigh the price/value relationship of investing in new technologies.

Operating Controls

Employee empowerment and technological advancement can enhance the traditional operational control process. Current operating controls sometimes are built around obsolete paper flows to control expense, or the expense control process itself is costly and inefficient. The training and re-deployment concepts discussed here, used in conjunction with new applications of technology, should result in better and more cost effective operating control policies and procedures.

Capital Expenditures & Maintenance

Processes and functions targeted to maintaining asset quality while minimizing costs and inefficiencies associated with repairs and maintenance are probably among the most critical areas requiring constant monitoring of business tradeoffs. Process redesign in this area typically involves implementing preventive maintenance programs and asset replacement strategies to minimize major, emergency capital expenditures. Concurrently, redesign creates the mechanisms - that are integrated as part of the asset management process - to provide critical information electronically to the asset manager for capital expenditure decision - making.

In summary, as a result of an ongoing industry consolidation, bigger companies are becoming more prevalent in the lodging industry. Many have grown too quickly and are in desperate need of improved systems, procedures, and controls. Is bigger, better in the lodging industry? Only time will tell, depending on whether the anticipated economies of scale are realized by large hotel companies, thereby significantly improving their bottom line performances.

The Real Estate Report is published by KPMG's National Real Estate, Hospitality, and Construction Practice. © 1996 by KPMG Peat Marwick LLP All rights reserved. For additional information email KPMG.

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