Hotel Online Special Report

The Devil’s Advocate...inventorying the population 
of the average hotel corporate office
by Benoit Gateau-Cumin
Heads Above the Rest
The Newsletter of The Boutique Search Firm
January 2001

Since we have just jumped into a fresh New Year, in a brand new century, within a new millennium, why not consider doing things differently. Once again.

Let¹s just suppose that we are buying one of the largest hotel groups currently open for sale. Let us call them Brand M. and let us make the assumption that we have 125 or so luxury hotels under the same banner, worldwide. Some landmark properties in Old Europe, some dogs in Africa, a mix of the very lavish and the very profitable-yet-a-bit-tired in the Middle East, a resort division with generally­speaking outstanding and relatively new product, a modest portfolio in the Americas of luxury hotels located in the right gateway cities.  One brand, one name, but a dog’s breakfast when it comes to the cohesion of the product. Certainly not a Marriott type of image where the best surprise is no surprise at all. 

Let us take the Jimmy Goldsmith approach and go against what everyone has been preaching and doing in the eighties and nineties. Instead of centralizing and regionalizing to the hilt, we will do the opposite and are ready to bet we will better maximize assets that way than the other way around.

For one thing we do not believe a hotel group (we prefer to avoid the word chain, which evokes slavery) should have a heavy corporate staff: even the smartest, most equipped, most organized and best meaning people have never been and never will be able to manage a hotel product from a few thousand miles away.  Not even from a few hundred miles away. And, by the way, hospitality is not rocket science. All it requires is experience, a healthy dose of intelligence, and, more than anything else, the master’s eye. Let us stop having great CEOs and lousy General Managers. A hotel gets managed from within, not from far away. The best CEO will never be able to grasp the individual product in different countries and/or different cities. And unless your hotels all have the same clientele, do not bore us with consistency in food and beverage: beyond breakfast not too many care. 

Let us inventory the population of the average corporate office:

The CEO and the COO: We propose to keep them; after all they provide momentum, and once you have a few hotels in the group, their distributed salaries (and perks) do not amount to too much per occupied room.

The finance guys: Definitely need a CFO and a CTO. Funnily enough, many corporate entities still do not have a CTO. The best investment they could make for under (in most cases) $ 250,000 per annum. In communications savings alone, they will pay for their keep within the first two months of the calendar year.

Auditors? Why not farm that out and pay on a “piece” basis rather than “as long as it takes”.  Ever noticed how auditors take a lot longer to audit your resort property in Phuket around Christmas time than your troubled hotel in Uzbekistan at the same time of year? Gee, I wonder why?

The central purchasing team: these people, who incidentally mean extremely well, probably cost the most of any overhead staff. Too bad since their job is to save money. The nemesis of individual owners of managed hotels, they create obsolescence and dead inventories. They generate quagmires of shipping and distribution. Last but not least, they are so far removed (geographically, that is) from the marketplace, that they cannot have a clue as to what costs what in which country. Just like applying American or European rules of thumb throughout the world without thinking: if it says paper supplies should be a certain percentage of cost, that may work in New York, but will it play in Timbuktu? If you have a hotel in Santa Barbara and the best organic heirloom tomatoes are grown smack across the street from the loading dock, would you believe that some have to buy those same tomatoes from a produce distributor in Los Angeles, for twice the price and (obviously) half the freshnessŠ I have seen it happen. Many, many times.

Sales and marketing people: I guess all groups need a VP Marketing: somebody has to be able to coordinate a certain image, a corporate identity, but is there a need to have a full team up there? Does having a lot of sales and marketing people at the corporate and regional levels reduce the need to have a full sales and marketing team on property or selling directly and solely for the individual property? We do not think so.  And who needs one more location for last year’s brochure to accumulate next to those of two years ago?  Who paid for those? The individual hotels, of course. Ask the CTO to maintain the ultimate brochure: the one on the web site, which can be updated in seconds, worldwide. Why not download brochures one at a time, on request? We do not have a brochure at the Boutique Search Firm, but we think we do have a heck of a web site.  

Architects and engineering folks: Many groups no longer have them. Gone are the days when management contracts were signed even before a property was but a twinkle in the eye of a developer. Hotels are built by developers these days, who start worrying about operators once a good chunk of the building is up (unless the bank says otherwise). They have their hospitality advisors on their own payroll, and can wait until management companies line up at their door and compete for the business. The Monarch Beach resort in Laguna Niguel, which is due to open as a St. Regis next summer had been pretty much built up by the time it signed up Starwood as its operator with the St. Regis brand.

Rooms experts and revenue managers: No need to have any at the corporate level. Let each hotel pay for its own.

By now it seems we have eliminated, for Brand M and its 125 properties, a few million dollars in annual payroll. Why don’t we add to that half a million bucks a year in office rent savings? Make that another quarter mil by eliminating all regional offices.

I know what we will be doing with some of the savings: get better General Managers, give them “teeth” and get managers who can act locally. Let us stop all those costly and meaningless transfers between Africa and Louisiana, between Istanbul and London, between Sri Lanka and Toronto. Instead of Talent Plus and other psychological tests, let us give our General Managers quizzes about their own city. And let’s make sure that if we have a hotel in Turkey the GM speaks Turkish fluently; and that if we have one in Bangkok, he/she speaks Thai fluently. Let us get General Managers who do not look clueless when asked what makes their city tick and why their food and beverage outlets are empty. Let them have their salary depend very heavily on getting that local business in. Let them be in charge of their hotels, and let them choose their teammates. Let us stop cronyism, courtesy transfers and nepotism. It costs a heck of a lot more to transfer someone than hire someone locally, even if you have to pay 30% to one of us pesky headhunters. And we provide you with a guarantee you won’t get when uprooting a family from Rio de Janeiro and throwing them into Manhattan overnight. Let us stop having “expat” status and packages in locations not considered “hardship destinations”. In fact, let’s avoid having hotels in hardship destinations, since they seldom are worth the aggravation. Many second tier operators will be happy to take those. 
What have we done to Brand M. in a few lines and sentences?

We have trimmed a bunch of overhead, shed some non-performing assets (suppose they owned their corporate offices in one of the most expensive cities in the world, they are now sitting on a neat pile of cash).  At the regional level we have trimmed healthily likewise. Wanna see how desirable a regional office team is?  Threaten the GM of the local hotel to have the regional folks move into some of his/her space: won’t they all be all of a sudden recommend trimming the size of that team?

Revenue management, central reservations? Some people do nothing but that for a living. Why not sub-contract to them and let them deal with hidden costs, benefits and the like?

So we no longer have overhead. We have better General Managers in each hotel, and we have put an end to relocation costs. By doing so we have also probably stabilized a slew of employees since they are getting used to having superiors of a culture similar to theirs, or one which at least understands them, since they come from the same city. We have a much greater local following because we no longer have jerks doing Mediterranean cuisine in Tbilisi or serving tacos to the Eskimos. We have owners who gradually get to know the General Managers in charge of their investment, as opposed to seeing a new face every 24 months.

I could go on and on. But do you know what we mostly have? We have a substantially increased net worth, we have maximized hard assets and we can pretend to sell hotels one by one, which can stand on their own two feet in every major city.

And we have not laid off all that many people: if you have 200 staff at the corporate office for 125 hotels, it means you have laid off the equivalent of one and a half persons per hotel. 

Agree? Disagree?

Voice it by sending your e-mail to Benoit Gateau-Cumin

[email protected]     

A California Corporation
3916 Sepulveda Boulevard Suite 203
CULVER CITY, California
Tel. 310-398-9320
Fax. 310-398-9541
8, Rue David, 69003

LYON, France
Tel. (33) 4-72-12-04-32
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Also See Global Update: Who’s Where and Doing What / The Boutique Search Firm / Jan 2001
Global Update: Who’s Where and Doing What / The Boutique Search Firm / Nov 2000
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