RSBA & Associates 
Hospitality Consulting Services
400 Spear Street, Suite 106
San Francisco, CA 94105
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 Focus On Operations Is Not Enough  
by Rick Swig - August  1999 

The current buzz phrase for public and private holders of hotel real estate is “Focus on Operations”.  This mantra is a direct result of the inability to create growth through new acquisition and development.  Industry trends show flattening occupancies, while there is just so much growth achievable through continuing to raise room rates.

So what about the focus on operations and what are the opportunities as well as the pitfalls?

The critical areas are certainly the following:

  • Revenue Management
  • Expense Management
  • Human Resources 
  • Technology
In revenue management the game is clearly the balance of selling the highest capacity for greatest overall price.  Hotel general managers huddle over their Smith Travel Reports monthly to discover how their hotels have faired against that important competitive set.  There is the ongoing battle to blend the market occupancy penetration with the highest possible average daily rate to create that maximum REVPAR yield and market share.

The front office concentrates on revenue capture from the customer, while other department heads minimize expenses, as pressured by their general manager on the mandate from the quarterly earnings driven corporate office.  Results have been extremely positive, as hotel industry profits continue to grow and prosper with continued earnings growth for several quarters.

Higher rates coupled with a conscious attempt to minimize expense risk “price/value” due to the potential demise of guest service and product quality.  The early 90’s recession expense management learning curve is evidenced by lower employee per guest ratios, diminishing retail food and beverage hours, and the proliferation of job sharing within and between departments.  These are all positive trends, if the related activities do not diminish guest experience and service delivery.  Additionally, price elasticity at some point does snap.

 Human resources are definitely the Achilles heel of the hotel industry.  Well-trained people make successful hotels regardless of market segment.  While making the most important first and last impressions, front desk and reservations personnel are the front line of attack to close the final sale with the customer and present the image of any hotel.  Guest service personnel and maids provide comfort, cleanliness, and security - the true staple products for any hotel.  The question remains in every case whether these incredibly valuable people have been trained and are knowledgeable about their vital activities.

Training and sustaining of human resources have become Herculean tasks, which if not managed effectively or at all may nullify all of the aforementioned corporate or general manager profit initiatives.  It becomes obvious, therefore, that the areas of recruiting, training, and sustaining employees should become sacrosanct and guarded from expense surgery.

The overall hotel industry is in a life threatening battle against other industries for human resources.  Nationally low unemployment has triggered a financial competition for both hourly and salaried human resources.  Several industry sectors, and most prominently the hi-tech domain, now represent lifestyle, career path, and financial considerations, which may be more attractive and contemporary than the traditional hotel model. 

The hotel industry must once again place priority on career development, competitive pay scales, as well as the lifestyle expectations of the contemporary workforce.  Just as it is for their customers, hotels must also provide a good price/value for their potential employees.  This will become an ongoing challenge in the context of managing expense to create financial growth.

Competing for human resources is not the only challenge that technology is creating for hotel owners and operators.  Keeping up with operational and guest service technology is also a formidable task.  

Growth from operations depends ultimately on systems integration.  Although automation in the hotel industry is less than two decades old, there have been multiple generations of hotel operating systems, as well as service systems expected by customers in their guest rooms.  

Systems technology implementation and integration must not be underestimated by any hotel owner or operator.  The “instant gratification” orientation of hotel guests demand speed at every level from check in at the front desk to the delivery of a restaurant guest check.  The expectation continues in the guest room, where incoming and outgoing telephone access by voice or data line must be immediate and flawless.  Delivery of messages, faxes, and other communications must be instantaneous.  Additionally, access to entertainment media must be broad from the amount of channels on the television to the CD/AM/FM format of the alarm clock radio to internet access.

Internally, guest history data, including their service preferences, spending habits, plus home, fax, and e-mail addresses are now critical marketing elements.  The integration between property management, sales/catering, and reservations systems are critical to developing yield management successes through the recognition of booking trends, lead times, and customer price elasticity. 

Y2K compliance becomes an elementary inconvenience in anticipation of designing and installing system architecture to both maintain guest service expectations and provide effective competitive management tools.  The task becomes further daunting when issues of prioritization, finance, installation, training, and implementation are surfaced.  Surely, a strategic business plan dedicated to technology projects is an absolute requirement in the evolution of a successful hotel operation.  Yet, how many hotel operators have one?

“Obsolescence” has a broad application in the context of the above topics.  To prevent obsolescence as an investment option, the hotel sector must prove the ability to continue its growth through operations when other means of expansion are not available.  Achieving this requires the hotel industry to attract and develop a trained and competent work force for the assurance of price/value to customers.  Finally, as the basic rule in technology seems to indicate that “if it works it must be obsolete”, owners and operators must develop an affordable and workable strategy for the ongoing integration of new technology to compete effectively.

RSBA & Associates
400 Spear Street, Suite 106
San Francisco, CA 94105
Tel:  (415) 541-7722
Fax: (415) 541-5333
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