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Focusing on Human Capital in the Next Millennium

The hospitality industry has traditionally focused much of its attention on the assets it best understands - real property and the capital that finances it. And yet what will distinguish the most successful companies of the next century will be the effective management of people, information and customer relationships -    the industry's intangible assets. Today's industry leaders are therefore challenged to develop the tools which will measure, manage and influence these intangible assets as they contribute increasingly to the value of business enterprises.

In dealing with this challenge, our industry's leadership must consider an array of issues confronting the people side of our business -  the methods for learning more about our customers - and how we recruit, train and develop our employees.

To address these and other issues, Arthur Andersen and New York University launched the second in a series of landmark global surveys of the hospitality industry's leadership, Hospitality 2000 - The People. This research provides for the first time a comprehensive view of those factors that will contribute to the successful management of the industry's human capital resources in the year 2000 and beyond. Following a broad literature search, focus group discussions, and best practice benchmarking, a comprehensive questionnaire survey was sent to hospitality industry executives around the world. Close to 500 responses from executives in the Americas, Asia / Pacific and Europe, the Middle East, India and Africa (EMEIA) have now been tabulated and analyzed and will be published along with best practice case studies of major hospitality companies in the final report. An overview of critical findings of our research follows.

Developing the Customer Relationship

While much of the survey focused on the management of employees or "human capital," attention was also paid to the customer and how the relationship is measured in terms of satisfaction, loyalty and value. There is a certain irony in the fact that the industry's customers spend more time with us than with most providers of products and services, yet we know very little about them and more importantly how they feel about us.

As anticipated, most respondents (89 percent) indicated continued use of guest comment cards left in hotel rooms - a practice that clearly does not produce a valid measurement of customer satisfaction. Their use, however, will decline by as much as one-third by the year 2000, to be replaced with more sophisticated approaches to measuring customer satisfaction. In fact, a surprisingly high proportion of respondents currently use research techniques such as telephone surveys (18 percent) and formal surveys during guest stays (35 percent). Electronic surveys upon checkout, which hold much promise for rapid feedback and analysis. are in wider use in the Americas (16 percent). than elsewhere (3 percent). Their use, however, will increase more than four-fold in the future - 43 percent against 10 percent overall today.

In the future, we can expect this process of information gathering to become far more sophisticated and expansive as investments in technology provide for data warehousing, customer valuation and efficient "one-to-one marketing. In the meantime, a surprisingly high proportion of respondents report collecting spending (57 percent) and life-style (27 percent) information.
 
 

Many respondents identified human resources (HR) as an important feature of long-term planning and nearly three-quarters felt their human resource practices, policies and procedures were aligned with their overall business strategy. As to the impact of technology, opinion was evenly split as to whether it will reduce the number of general staff required in the future, although there were some important differences regionally. In Asia / Pacific, close to two-thirds felt that technology would have this impact. In contrast, just one-third in the Americas said this would be the case. Most respondents (89 percent) agreed that technology will necessitate a change in the skills people require. And many more agreed than disagreed that technology could improve job motivation (36 percent compared to 16 percent) and job satisfaction (48 percent to 12 percent).

The role of HR management is not always clear in today's hospitality companies. In our research, we tried
to clarify the industry's view by asking our respondents to categorize their HR management. One-third decided that HR managers were administrative types, while 21 percent preferred the "Business Partner" moniker. "Strategic Partner" was agreed to by 18 percent, while only 14 percent picked "Employee Champion." And trailing in last places were "Line Manager" (11 percent) and "Change Agent" (9 percent). As to the future view, we were pleased to learn that "Administrative Expert" was dropped by most (34 percent today down to 11 percent), offset by a big increase in the "Strategic Partner" designation (18 percent today up to 49 percent in the future). Clearly the human resource function of the future will have a more bottom-line business orientation than it has had in the past. For this transition to be effective, however, a greater alignment of human capital management with the core business strategy will be required, coupled with more sophisticated measurements of performance.

While the human resource function gets redefined within the organization, its component parts are on offer without. Increasingly popular as a tool for more effective business management, outsourcing appears destined to make in-roads into the HR function, part of a larger trend toward increased use of specialized vendors and other partners. In the future, we can expect to see more HR functions outsourced with one-third of respondents seeing training and benefits administration as outsource candidates for their organizations in the future (up 25-30 percent over today).

As those with responsibility for the industry's human capital ponder the future, they should consider the priorities that our respondents have emphasized. Presented with a list of 17 human capital resource issues, we asked our respondents to list the top priorities for the future - and they were quite clear where these priorities should lie - it is in having a customer focus, with satisfied employees who are prepared for change.
 
 

Though sound recruitment  planning is critical to the establishment of adequate human resources within the industry, only 64 percent of respondents reported having a recruitment plan in place - and 40 percent of these plans extended for only one year. This relatively low level of planning appears to contradict the assertion that human resource concerns are being aligned with business planning. In the absence of a solid recruitment plan, hiring can only be reactive - a less than desirable practice given the industry's problem with high turnover and the ever-increasing competition for qualified labor from better-paying industries.

Recruiting people to our industry is unfortunately only one of today's human capital challenges. Employee retention appears to be just as big a headache and it may get worse before it gets better. To counter this, approximately two-thirds of respondents plan an array of strategies, including the increased use of incentive pay, more job enrichment programs, improved working conditions, improved screening tools and increases in benefits. Once recruited, a number of strategies are used to reduce employee turnover - some effective, others less so. Improving the work environment, sharing information and increasing employee involvement in decision making are some of the leading choices. And as if to say that money isn't everything, base pay was suggested by only 50 percent of our respondents as an effective strategy to mitigate employee turnover.

This suggests, however, that the hospitality industry may continue to find itself at a disadvantage when competing for qualified employees with better-paying industries.

In looking at what contributes the most to employee turnover, there does not appear to be an overwhelmingly strong view in favor of any one factor. In order of significance, they were compensation, hours of work, opportunity for employment in other industries, benefits, work conditions, internal opportunity for growth and finally the image of the industry itself.
 
 

The relevance of hospitality education is an important issue for the industry as technology, finance and marketing become big drivers for success. The vast majority of respondents (95 percent) identified customer service as a vital educational issue -  clearly a wellplaced priority that positions the customer at the center of the universe. An impressive majority of respondents (87 percent) also identified marketing as an important educational focus - a reflection of the growing competitiveness of the industry and of its increasing orientation to the customer.

Encouraging more young people into hospitality education is clearly a top priority since a majority of respondents - 74 percent globally - agree that the industry faces a continuing shortage of qualified labor, with respondents from Asia / Pacific noting a more acute shortage than their counterparts in EMEIA. Contributing to the shortages are a variety of factors including competition from better paying industries (cited by 78 percent) and the hospitality industry's low compensation levels (67 percent).

Training and development - Room for Improvement

As hospitality organizations plan for the training and development of their employees in the future, they will evidently need to work more on their planning process - the current view is fairly negative. While just over two-thirds of respondents agreed that their training plan was 'effective', only 18 percent could "strongly agree" with such a statement. And one-third of respondents either took no position or viewed their plan as ineffective responses which suggest plenty of room for improvement.

As to training methods - "on the job" appears to be the dominant theme, although this approach should diminish somewhat in the future. Three out of four report using mentoring and coaching today with plans to increase this in the future. Just over 70 percent report formal classroom training, and two-thirds report video-based methods with plans to significantly increase this latter form in the future. Thankfully, there is also clear evidence of a significant increase in investment in training in the future - 89 percent of our respondents report plans to increase their training budgets, with well over one -quarter of these reporting that such increases will be significant.

The direction of such expanded investments in training, however, remains of concern. Just over three quarters of our respondents report the development and use of their own training programs, suggesting that our industry probably wastes a great amount of effort in duplication. By contrast, only 18 percent report the use of  "pre - packaged" industry wide training programs. We conclude here that the industry's leadership and its educators should devote more attention to this area in the future - providing more in the way of generic training solutions with industry-wide application.

Some of the more popular development programs include multi-skilling, cross-training and career succession - and there are clear plans to significantly expand their use in the future. There also appears to be widespread use of employee participation programs -  close to two-thirds of respondents cite the use of suggestion schemes - a fairly traditional approach, while a surprisingly high 46 percent indicate job enrichment programs and 43 percent so-called "quality circles". Some 29-32 percent of respondents indicate use of autonomous work groups, work councils and self directed work teams. Looking into the future, there should be large increases in all such employee participation programs.

Hospitality organizations also use a variety of methods to identify workplace issues and for the most part intend to significantly increase their use in the future. Employee surveys, currently used by 70 percent of respondents, are planned for an increase in the future (by 79 percent). And while 68 percent of respondents acknowledge the use of suggestion boxes - the "employee" equivalent of the guest comment card - use of these passive instruments is expected to decline in the future.

Improving Performance - The Productivity Challenge

As human capital becomes more expensive to recruit, train and develop, increasing attention is being devoted to those factors that affect productivity. Empowerment, education, training, recognition programs and technology will all play different roles in this area in the future. The area with greatest prospective impact on productivity appears not surprisingly, to be training (cited by 94 percent). Three out of four respondents held that empowerment, education, career advancement, incentive and recognition programs would also have strong impacts on productivity in the future. Somewhat less impactful (although still indicated by a relatively high 70 percent of respondents), was the role of technology.

Following the identification of those factors that will contribute to productivity improvement in the future, we were interested in determining how productivity had changed, if at all, over the last three years. The results were surprising. No fewer than 22 percent of our respondents reported a decline in productivity. The Americas were the big standout with 29 percent of respondents reporting reduced productivity, while 14 percent and 13 percent respectively of respondents from EMEIA and Asia / Pacific cited declines. These responses indicate that in the Americas at least, some of the big productivity gains that were made in the early 1990's under pressures of falling occupancies and disappearing profits, have now been given up as revenues have soared upwards and profits have returned.
 
 

In view of the evident relationship between employee and customer satisfaction, our respondents were asked to rank the different approaches to improving the former. Predictably, the list was led by compensation, although our respondents anticipate this will become less important in the future. Employee recognition programs, the opportunity for career advancement and exposure to training followed in order of impact. Improving performance is desirable but it also needs to be measured. And while most organizations tend to rely heavily on an employee's immediate supervisor for performance review, the increasing popularity of alternative systems such as self, peer and subordinate review to provide "360 degree feedback" are well worth noting as are those involving customers.

Although many would acknowledge the validity of the relationship between customer and employee satisfaction and in turn their relationship to financial performance, only 45 percent of our respondents report an integrated measurement system to account for these factors. In developing an integrated measurement system, the first step is to develop an accurate accounting of employee satisfaction. And to this end, a variety of methods are reportedly used. The leading yardstick appears to be employee turnover - now used by 81 percent of respondents, although this should decline in the future as a greater reliance is placed on other methods. Employee surveys are destined for much greater usage in the future (by more than 55 percent). And finally, upward evaluations now used by 18 percent are expected to more than double in use in the future.

Good Performance Deserves Reward

Dominating the incentive programs in the hospitality industry are cash bonuses, reported by 83 percent of respondents, although there are clear plans to moderate their use in the future. While a minority report use of stock options (18 percent) and team-based pay (19 percent), utilization of these methods is expected to rise dramatically in the future - to 37 percent and 41 percent respectively. For those employees who perform well, there are also various "non-monetary" recognition programs in place throughout the industry as evidenced by the 61 percent of respondents who indicated that their organizations had comprehensive "non monetary" recognition plans in place.