News for the Hospitality Executive
The Great Debate: Internal vs. External
Revenue Management Operations
By Jean Francois Mourier, March 23, 2010
There has been some very interesting discussion lately about the value of outsourcing revenue management operations. With technology available that can manage multiple sales channels, adjust rates in real time based on demand, generate optimal pricing targets determined by competitors' rates and historical data, and intelligently control yield to maximize RevPAR, many would ask what is the return on a flesh-and-blood revenue management team? Conversely, are some departments too central to a hotel's key operations to be delegated to automated systems? The implications of this ongoing debate resonate throughout an industry that is simultaneously seeking to minimize expenses while maximizing revenues in a prolonged period of flat growth.
So, should revenue management be outsourced, or kept internal?
At REVPAR GURU, since we offer precisely those technological solutions outlined above, you might expect us to be on the side of outsourcing. And in a sense, we are. But we also believe that revenue managers and revenue management teams serve a vital function within a hotel - one that cannot and will not ever be replaced by technology.
Before we can really examine the issue, it's important to frame our discussion in terms of how the day-to-day operations of the revenue management department have changed in the past few years. Whereas once there were less than five potential sales channels, now there are hundreds. Revenue managers perform more ‘maintenance' tasks now than ever before, because the conditions of room sales fluctuate more wildly and more often than ever before. Just to maintain a high occupancy rate and a healthy ADR, a revenue manager must monitor a dizzying array of online sales channels, determine which rate is selling most briskly (or too briskly), reconcile that with in-house reservations and those gleaned from a GDS, adjust that rate, allocate inventory to the channel, and communicate this information across the various operating departments within the hotel. And this must be done every day.
In fact, to maximize RevPAR, this process must be repeated as often as possible, down to the second. This is beyond the capacity of even the most talented revenue managers (everybody has to sleep, right?). The futile pursuit of rate-adjustment perfection, only attainable through technological outsourcing, takes the revenue manager or revenue management team away from the more productive initiatives they might otherwise undertake - like managing the commercial side and content of OTAs, reviewing department incentive programs, managing merchandising campaigns, etc. The physical and time-consuming actions of consulting a rate generator (or worse, historical tables), manually manipulating rates in any or all of the online travel agency websites where the hotel might have room inventory available, and updating the property management system rob a revenue management team of the opportunity to work with sales and marketing to develop new guest pipelines, or consult work across hotel departments on new sales-boosting initiatives.
Yet these duties are at least as important as obtaining the right rate on each and every online transaction. Strategic planning isn't something that can be automated or outsourced; only qualified personnel can do it. Why not release them from the tedium of pricing minutia and allow them to focus their energies where they can make the most impact? Nearly every hotel we've ever worked with would benefit from more interaction between their revenue management staffs and other key departments within the hotel (and once they began running the REVPAR GURU system, they were able to... but that's a different story).
So in truth, we at REVPAR GURU advocate a mixed strategy: outsource some of the revenue manager's duties (like the day-to-day pricing updates and endless calculations), which frees them up to focus on creative, collaboration-intensive revenue development tasks, like long-term planning and inter-department strategy development.
In short, keep the revenue managers, but make their lives easier by providing them with the tools that make them more productive and effective. In our humble opinions, this is the best path toward efficient revenue management today and in the future.
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