When a Plan Isn’t a Plan

When the Asset Manager for a real estate fund in charge of a property called us in to investigate why their hotel was losing market share, we asked to see the hotel’s Business Plan in advance.  It was a crisply printed, inch-thick document, not unlike a hundred other pedantic plans we’ve seen (a few of which we’ve written), spiral bound and complete with tabs:  Market Conditions; Business Climate; Competitive Review; SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats); Key Account Lists; Sales Action Plan.  Yes, it looked like all the basics were pretty much there.  Since the Asset Manager was seriously contemplating a termination of the agreement with the management company supervising operations of this asset, however, one thing was seriously amiss with the Plan: it wasn’t working.
We set about the task of reviewing the Plan in an attempt to understand the hotel’s strategic positioning.  We were immediately struck with the thought that the Plan looked an awfully lot like a corporate template; a fill-in-the-blank format that metaphorically resembled a square peg trying to fit into a round hole.  The hotel we were reviewing had a 50/50 leisure to business mix, yet the Plan seemed slanted heavily toward the development of the corporate transient and corporate group segments, as if the home office was more accustomed to running corporate hotels, and used a one-size-fits-all model for its Plan.  Perhaps this foreshadowed what we would  learn when it came time to meet the hotel’s General Manager. 

Amid the many strategies that were presented in the hotel’s Business Plan, considerable coverage was devoted to a Business Travel Club that was to have been launched in the first quarter.  You probably know the concept. The booking agents, typically office administrative assistants, receive redeemable points for every roomnight they book, while the end-users receive a special rate and other hotel perks.  The strategy was expected to produce a 10% improvement in the hotel’s Preferred Transient market segment over the prior year.  The strategy was all laid out very methodically:  collateral materials, key target accounts, past and predicted annual room night production - The Works.

In our meeting with the General Manager, the conversation finally got around to discussing the hotel’s Business Travel Club, since it appeared the program wasn’t producing anywhere near its intended target numbers.  “Your Business Plan called for the launching of a Business Travel Club,” I asked, “How is that program going?” 
“Oh, we never did that,” the General Manager said, adjusting the cufflink of his right-hand shirtsleeve, “And we really don’t have any plans to.” 

“But your Business Plan spelled this out as a part of your strategic positioning,” I said incredulously, “Why wouldn’t you execute a strategy that seems to be an important part of your hotel’s positioning plan?”

“Hey, I’m not a Business Plan kinda guy,” he said, “I’m a results kinda guy!”

An Annual Migraine

This story is true and so is the fact that the management company in charge of this asset has been terminated.  Their Business Plan failed not because is was necessarily a bad plan, but because the hotel’s maladroit management never implemented it.  Instead of producing a Business Plan because it was the right thing to do, the hotel produced it because the home office said they had to and the hotel’s leadership took no ownership of it.  The home office provided the template for the Plan which in this case didn’t fully meet the needs of the hotel.  No one can say for sure if the Plan was ever read by anyone at the home office or further refined by the hotel.  But in this case for certain, the Plan wasn’t being monitored for success. Nor was the hotel using it to guide their daily tactical decisions intended, one presumes, to produce specific and positive financial results.

An Ancient Belief that Bigger is Better

There is a kind of pre-diluvian credulity in our industry in believing that lengthy, verbose Business Plans have value. We would argue that this annual ritual in its present pervasive form is a waste of time and furthermore, we believe that the vast majority of hotel Business Plans in circulation today have very little value as a tool to drive hotel market penetration.  Mandated and formatted by corporate entities, some of these plans take weeks of valuable management attention away from the operation and then don’t produce results.  Even worse, many of these Plans are put together by the people responsible for group Sales, which might explain why some hotels have trouble making their fourth quarter financial goals.  The height of folly in the practice of producing the protracted, bombastic Business Plan, and that which proves our very point, is a segment many such Plans contain called the “Executive Summary.”  Because these Plans are bloated and grandiloquent, many of them require an abridged regurgitation of the same information that is a more palatable length for owner reading and approval.  It’s time for an overhaul to this antique way of doing business.

What You Really, Really Need

We believe that a hotel Business Plan should be brief and succinct,  containing just five sections in about eight to ten pages.  The quality of the plan rests in the reconnaissance and accumulation of data, not in its size. Brevity is the watchword with a focus on strategy and positioning, not mindless fillers and superfluous content.  These sections are: 

• Competitor Review and Positioning; 
• Hotel Positioning and Strategic Mix (Past and Current); 
• Future Intended Positioning and Strategic Mix; 
• Overall Strategy by Market Segment; 
• Top Account Pursuits & Top Level Action Plans. 

Let’s take these sections one by one:

Competitor Review & Positioning

The majority of plans that we’ve evaluated spend an inordinate amount of time on competitive evaluative sections without ever getting to the real meat and potatoes of their business.  We would argue that you really need only four bits of information to get to the main entrée of your competitors’ business and anything else you learn along the way is just dessert. You must know:  (1) their rate structure; (2) their strategic mix (when we talk about strategic mix, we are stating, quite simply, the percentages of their business that are Base, Transient, Preferred, and Group); (3) their top five accounts: who they are, how many rooms do they consume and at what rate; (4) is the competition repositioning in some way?  Are they re-branding?  Refurbishing?  Renovating?  Adding meeting space or altering their style of service?  If you spend all your time finding out these details and nothing more, you won’t need to waste pages with the traditional, abused and over-used SWOT analysis.

Why is knowing the competition important?  There are very few growing lodging markets in the U.S. today.  In other words, there are few markets where demand is growing at a pace faster than new supply is coming on line to absorb it.  The only way to gain market share, therefore, is to take it from your competition. Consequently, there are going to be market leaders and market losers.  Unless you know what your competitor is up to, you cannot capitalize on opportunities to capture his market share and you’re more likely to be the latter.  In addition to knowing what your current competition is up to, you need to find out if any new competitive supply will be coming on line in the coming period.  You should validate any rumored supply and pay attention only to additions that that are going to directly compete with you either due to proximity or because they will vie for the same market segments in the same market that you do. 

Additionally, any changes to the market’s demand patterns should be highlighted in this section, especially to the extent that they may impact the market as a whole and any competitive moves that might be made in response.

Hotel Positioning & Strategic Mix - Current and Past

Skip the effort of writing a position statement, a mission statement or value statement.  While these may have their uses, they add little toward the hotel’s most important business goal, which is to produce an intended return to those that have invested in the asset.  The hotel’s positioning, simply stated, is its strategic mix against its position in the market place.  How many rooms and at what rate has the hotel sold in each of the predominant market segments of Base, Transient, Preferred and Group.  You can sub-segment all you want and all that is necessary to your marketplace: Discount Transient, Government Transient and Group, SMERFE (social, military, education, religious, fraternal ethnic groups), Tour Group, Wholesale, Internet, GDS (global distribution system), Consortia, Corporate Group, and so forth.  Once you have determined your historical mix (look at it in terms of two years ago, last year and this year) , then you must look at how your hotel penetrated its competitive set in rate, occupancy and RevPAR (The easiest and most credible method is using a STAR report from Smith Travel & Research). Either you are gaining on the competition or they are gaining on you.  The only way to determine this is to know your position in the marketplace and what you did that got you there. 

Future, Intended Positioning and Mix

Once you know where you are , you can determine where you want to go.  Assess the market.  Where will it go next year?  Will RevPAR grow, decline or remain static?  What is your rationale for your conviction?  Are you guessing, or have you sought empirical evidence to support your contention:  PKF evaluations of major markets, for example, can give you general macro market information.  Price-Waterhouse-Coopers also routinely provides lodging market information and your local CVB has some notion about what the bed tax collection rate will be in the coming years, too.  These are all ways to help you gauge where the market is likely to go in the coming year. 

Once you know this, then you determine where you want your hotel to be:  Five percent improved RevPAR penetration to the market? Ten?  More?  After you have determined your goal, then you must set about the task of redefining your strategic mix.  How many more rooms of Base business will your hotel need to get to its intended penetration target?  How many more Transient rooms will you capture?  How much more revenue will Sales be responsible for generating in the Group segments?  Are your key local accounts going to improve their roomnight production, or are they cutting back on travel expenses?  Do you intend to renegotiate their volume discount rate?

Overall Strategy by Market Segment

When you reach the fifth section of your Business Plan,  you know what your competition is up to and you know what the market is going to do.  You have evaluated what you want to do to improve your position within your market and you have identified what market segments are going to change from the prior year. 

Now you must define how you are going to accomplish your goal.

What are the key strategic objectives, for example, in growing your Base segment 10%?  That probably means you are entertaining the notion of adding an airline crew to your hotel’s occupancy next year. If that is the case, then have you identified a potential piece of business that presently resides in the market?  Is it a strategic fit?  Have you begun the sales process to qualify the account, expose your product and are you in negotiations for securing the business at this time?

This kind of strategic thinking is required in every market segment, with your key, strategic plan to accomplish the objective.  If group business is going to lift next year, then you have to explain where this business is coming from and what your sales team is going to do to secure it.  Be careful when you come to the Transient segments, though.  If you have historically captured only, say,  15% market share of available transient rooms, then you are probably not going to capture a different percentage unless you do something significantly different like lowering your transient rates.  We have had occasion to observe Business Plans in which the hotel’s entire RevPAR improvement in the forward year came from its transient segments, without a solid justification or explanation of just how the hotel intended to capture it.  Unless a brand new transient demand generator is going up in your market, you are likely to capture historical percentages of transient demand unless you are repositioning in some way, or deploying a new strategy.

Top Level Action Plans

Forget the reams of action plans that accompany most Business Plans. The truth is, you’re going to be redeveloping your action plans on-going throughout the year.  What you really need to be doing in your annual Business Plan is defining the key – and the key word here is key – action steps that will meet the strategic objective.  What accounts are you specifically targeting, for example, to grow your Preferred segment 10% next year?  Where are they staying now and at what rate (which is information you garnered in the first section of this Business Plan), and what are you going to do to get them into your hotel?

Any and all action plans in your hotel’s Business Plan must be specific, and measurable; someone must be accountable for producing the result; results themselves must be reported; and the action steps themselves must be time - bound.   If you put those elements together, they create an acronym, SMART (specific, measurable, accountable, reported, time-bound).  If every action plan meets the SMART test, then you will have smart action plans indeed that will produce an intended result. 

A Business Plan That’s a Plan

Don’t really throw your Business Plan away.  Throw away the old methodology of doing them!  The focus today is on getting quality information presented in as brief a format as possible, discarding everything that detracts from lucidity, clarity and simplicity.  Spend energy accumulating good data, not filling out reams of reports with superfluous and unused content.  And above all, define your intended position in the market with sound, logical reasoning.  If you don’t know where you are and where you want to go, it’s very difficult to know where you’re going because you’ll never know if you’ve  arrived.