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23 Jun, 2011

Measuring Hotel Management’s Performance In Ways That Count

David McMillan

By David McMillan, former CEO of the International Hotel & Restaurant Association, presently a hotel industry consultant. David’s blog can be found here. The views expressed are his own.

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The experts weigh in on measuring performance in an uncertain world. As is my custom, I question whether the experts have identified the best method.

“Measure hotel managers using RevPAR-adjusted budgets”. Perhaps the day has come to take the clamps off the Uniform System of Accounts for Hotels and really measure performance based on what is controllable and what is not.

The recent announcement by a major Hospitality Consulting group that Budgets are no longer the best measurement of performance was met in my office with a huge yawn. The arguments are well thought through theoretically and I invite my readers to review the logic here,

http://www.hotelsmag.com/MembersOnly/webNews/details.aspx?item=23901

The logic is sound in the hallowed halls of academia but, respectfully, does not hold water in the hallowed halls of my School of Hard Knocks. It is also a fine method of demonstrating to the industry that Consultants are indeed a worthwhile entity, providing alternate methods of measurement for management’s excuses for not meeting or exceeding budgets.

It is my belief that the time has come to use the full power of technology to break down performance on a regular and scientific basis so that management can ‘land this baby on a dime’. We have long heard the extraordinary stories from NASA’s headquarters of the millimetric precision of their space engineers as they control the destiny of their missions in space. The time has come to use it in our industry.

1. Hospitality is not space science!!

2. Space science is ‘details’.

3. Hospitality is ‘details’.

4. Hospitality is in the present and the future, not in the past.

5. REVPAR is the past, not the present or the future.

The ability of management to foresee the future and plan to deal with it determines the hotel’s eventual performance. Future events are either fixed or variable. Revenues are either fixed or variable. Expenses are either fixed or variable. Measurement therefore of the results should therefore be focused on the variable components because let’s face it, what can you do with something that is fixed?

That’s easy to say, one might conclude. But some expenses are partly fixed and partly variable.  And some revenues are partly fixed and partly variable. Yes, that is true and who is best at determining whether it is one or the other? Managers.

http://davidmcmillangroup.typepad.com/consulting/2007/07/profit-or-break.html

My position in this argument is that measuring financial performance uses an antiquated method of gauging the success of a General Manager and is hugely dependent on who does the measurement and by what subjective means. I would make the argument that we now have the methods, the means and the intellect to determine precisely the effectiveness of an operation financially and then start to measure.

Or at least start the measurement of other more important factors such as

  1. Guest Satisfaction
  2. Employee satisfaction,
  3. Innovation,
  4. Quality Assurance,
  5. Time management,
  6. Community involvement,
  7. Employee performance evaluation & reward,
  8. Employee turnover,
  9. Employee development
  10. Local procurement or Carbon Footprint reduction

………….and other stuff that goes by the inspector’s nose as he seeks to impose his accounting-based performance measurements on the whole team.

  • Kevin Murphy

    All indeed of what David is suggesting as relevant other performance criteria for judging hotel managers have been around in hotel operations for years with many of the larger companies, as well as the better smaller ones. Even the former however (and usually at the beck and call of Wall Street and their Quarterly reporting requirements or their equivalent) more often look only to those basics he refers to of the more known “Language of Hospitality” that we have all managed to inject into the vocabulary of the analysts, like ADRs, Revpars, GOPs, and others, instead of also including a better awareness and measures for those 10, and more, of the factors that he has again highlighted.

    (As an aside, less than 1 in a 100 of even hotel employees, let alone analysts, today can tell you the real origin of that other oft used term, “Rack Rate”! – proven in our “Industry Trivia Tests” with both industry and public.)

    In my own experience as both an asset manager and a past senior operational executive for multiple hotels, I found nos. 2 and 8 the most critical in my own judging a Managers real
    effectiveness in ever achieving serious profit improvement, along with his or her’s achievement of any minimum budget performance target set in a particular market.

    Indeed ,even that minimum performance was not always acceptable if it was achieved solely by the “rising tide” syndrome!

    But don’t hold your breath if you expect the major companies to use those too often however in their public explanations, or to educate owners and investors to the real cost of employee turnover (David’s no.8 – my no.4!), and any drop in employee or even guest measured satisfaction levels.

    I have seen the last two used too frequently to support their minimal compliance with performance targets rather than as effective tools to extend into further business success, for both their own and that of the hotel owners.

    Without major operators continued sponsorships,it might also be a long time before those bet schools and more skilful academics in our industry are willing to risk their sponsors alienation by revealing too early the high but hidden cost to a hotel’s profitability of any personnel turnover, and particularly of management level employees.

    To their credit, many also have to unwillingly engineer such turnovers frequently at an owners behest and often on their whim, or worse that of a family member who’s taken a dislike for reasons infrequently valid or business like.

    At such a point both parties more often stay silent as to what the financial implications might be, out of both embarrassment and concern to each other and not to further rock the boat.

    I am sure both David and many of us will continue to push for those changes – and hope that any growing affection for we, The Neanderthals of the business to some, will continue to allow a hearing on ways to ensure better profitability – if even only in those media avenues as your own!

    kind regards

    Kevin B Murphy
    Asiawide Hospitality Solutions