By David Lund
In the hotel business, we have three pillars, the guests, the colleagues and the money. They’re not equal. They’re not equal because we ignore the third pillar and we do so at our own peril and out of ignorance to what we can do to manage this cagey and slippery bugger. There is a fundamental disconnect in our industry, and it’s high time it changed. It’s no longer acceptable to throw our hands up in the air and say the numbers are the accounting department’s responsibility as if the rest of us are 5-year old’s without a clue what to do. If you’re one of those it’s time to move and get some financial leadership game on. This article will show you what’s possible and point to a fantastic model that has your owner happily paying for the whole deal.
Pillar 1 – Guest Service
We manage guest interaction with an understanding and belief that we’re all invested in good guest service. Even the departments that don’t have direct guest contact help support the colleagues and departments that do. We are all responsible. Good guest service is a no-brainer for anyone in the hotel business. It’s the very moral foundation that our business is built upon. Finding ways to increase guest service is just good business. We invest in guest service at all levels in our hotels and we take the function of providing great service very seriously. In branded managed hotels, the management company typically has guest service programs that they have either created or they provide in alliance with a vendor. In addition, we spend serious dollars asking our guests how we are doing. Guest service scores are critical to the operations of the hotel. In every instance the brand mandates the guest service programs inside their hotels and the owners pay 100% of the tab, for everything related to creating and maintaining guest service. Many owners question the management company’s programs, these can be very expensive and the results are hard to nail down. Annually the brand will send their hotels the yearly programs via the budget documents that outline all the programs the hotel needs to add to their upcoming year. Even if the hotel adds labor for training the owner, in the end, pays 100%. When we think about a brand and its service reputation it’s interesting to see through this mirage, to look and see that ultimately the owners of the hotels are paying to create the brand's service promise. This is largely a secret to most people. Understanding the relationship between the brand, the owner and what is created via this dance is an interesting segway. In most branded hotel’s, the annual guest service score forms part of the executive team’s bonus criteria and achieving the targeted number or better is a direct link to their pocket books. The last thing I will say about guest service is we do not tolerate leaders or staff that does not provide excellent service.
Pillar 2 – Colleague Engagement
With colleague engagement, it’s the same: We’re all involved and implicated in managing departments and creating hotel teams that have high-colleague engagement. No leader or department manager is excused from the mission of colleague engagement. We have a myriad of tools to engage the staff, from employee newsletters, town halls, monthly colleague meetings, seasonal parties, special celebrations, sports teams, long service awards, employee of the year, employee opinion surveys, whistleblower lines, employee assistance programs, employee benefits, employee meals etc. etc. I could go on and on, this list is very long. The irony in all of this is the owner pays 100% of the cost of any program or event. Once again having an insight into this dynamic between the brand and the owner is an interesting dance to watch. Owners question many expenses related to “creating” colleague engagement but in the end, they pay. So where is the benefit of good employee engagement? It’s obvious, good engagement coupled with great service equals a fantastic opportunity for our guests to have a wonderful experience. It used to be the case that human resources were “responsible” for creating colleague engagement, but not any longer. Each department has its own employee opinion survey score and a bad apple in the bag will not last long. No leader is excused from the necessity of a great colleague engagement.
Pillar 3 – The Money
The money, the P&L, the owner it all boils down to the same thing, providing a superior return for the stakeholder. How is this pillar different? Well, really it isn’t different we just treat it differently. When we talk about the money and we ask ourselves what do we do to create financial leadership inside of our hotels the answer 19 times out of 20 is NOTHING. We do nothing to lead and educate our management teams on the matter of financial skills. I am not talking about the accounting department and the financial function; I am talking about the education and the skills of the non-financial leaders in your hotels. What do we do inside our hotels to create management teams that have a solid financial foundation? The answer, NOTHING. Why may you be asking is this the case? There are three reasons that I will point out. One, we still live in an owner operator mindset that still echoes the idea, “look after the guests and the money will look after itself”, but the reality today is that we manage hotels and as a management company we sell expertise to owners. Brands need to slow down long enough to realize they need to evolve. Two, the finances and talking about the money for many people is still “Taboo”, the idea that we share the P&L and the managers get to see the financial results is a sacred cow for many people, to this notion I can only say, “get over it”. If we want to have mature responsible leaders, we need to trust them and share the financial information. Third, we seemingly don’t know how to lead and educate our managers financially. We hide behind the numbers and push it off as the responsibility of the finance department. This is really the opportunity in all of this. We have the ability to train and lead our managers financially and it’s not difficult to accomplish. In fact, the owner will pay 100% of the cost to create the financial leadership in your hotel. Just as we have discussed in the other two pillars the brand can mandate the training program and the owner will pay 100% of the cost.
Leaders want to be educated finically and they want to have financial responsibility. The idea that leaders don’t want to do this work is nonsense. Today’s leaders are literally dying to get financial leadership skills, they know without these abilities their career is limited. There are some conditions to this. First, the leaders need to know your there to support them, to provide the education and the training to facilitate the creation of financial leadership as part of your culture. Giving your leadership the responsibility for the numbers is not enough, you need to give them a system and be there when it counts, be there when it’s a mess and support their efforts, be there when it’s a win and celebrate their success. The brand and the general manager need to get behind this initiative, it’s not a finance and accounting function it’s one of the three pillars, therefore, it’s a front-line management function for every single leader, it is not someone else’s responsibility. Hiding out behind the numbers is not a viable strategy. Leaders need to know you have a system for them to follow, a predictable process with defined timelines and accountability for all. Leaders want to produce their own budgets and forecasts, not be given numbers that someone else has cooked up and then their told “good luck here are your numbers”. Lastly, leaders need to see that you are investing in them, in their career and in their success. Once they see you're committed to their success it’s a game changer. If they sense in any way that it's anything less that you are offering, you will not succeed.
The benefits of finical leadership are everywhere. First leaders that know what’s happening financially in their departments can plan and execute better. Imagine a leader who knows their expenses and payroll and he or she tracks the sales and volumes in the month and adjusts spend and schedules accordingly. The flip side is flying by the seat of our pants. We have all been there. What will happen the next time we have financial headwinds in your hotel? If you have created a financially engaged team you will have choices and buy-in when it comes to cost reduction. The brand also benefits from financial leadership training, building bench strength as leaders move throughout the organization. A brand with this kind of talent would quickly make a name for itself. The owner benefits big time. Having a financially engaged leadership team means the team is all in when it comes to maximizing resource and profits. We all know that in our industry we have a million ways to waste money, it’s literally everywhere, on the flip side with a financially engaged team we have a million ways to save money. It’s all about the culture you create, and it’s fun! Like building a great service culture or a colleague engagement machine, financial leadership teams are every bit as possible. How do you grow a garden? You plan seeds and you nurture and care for it. The financial leadership piece in your hotel is exactly the same.
Return on Investment.
A client of mine showed me a wonderful thing. We wrapped up a day of financial leadership training and he thanked me and asked the workshop participants for feedback, I got some great comments and ideas. Then he said something unexpected, he said, “would all of you like to make an agreement with me” and then he put his hand up, every single hand in the audience went up. He then said, “I want to pay for David’s fee today, could each one of you find $200 is savings this month in your individual departments” and he put his hand up, again every single hand in the audience went up. There were almost 40 people in the workshop – that’s $8000 in GOP, just like that. Then he did something truly remarkable. He said, “thank you and one last thing before we go, would all of you agree to do that every month this year?” Again, his hand went up and every single hand in the audience went up. What just happened here? $8,000 has now become $96,000 and that’s just GOP, what about asset value? Using a cap rate of 8, he just added a million dollars to the value of this hotel. That’s amazing.
Following up with him over the following months his leaders came up with some amazing ideas to find their $200. Here are just three, there are hundreds of ideas. The fist idea came from the chief of security; his idea was to turn off people’s PC monitors. He did some research on the electricity costs and his idea netted the hotel $3,000. The second idea came from the assistant restaurant manager, her idea was to stop giving dinner guests bread and butter, instead, we will offer bread and butter, overnight a 30% reduction and an annual savings of over $12,000. The last idea came from the executive assistant, she had mentioned that her $200 would be hard to find as she had no budget or staff. As it turns out she managed the relationship with Xerox and she had an idea she had been thinking about it for some time. Her idea was to default the hotel's fleet of copy machines to duplex. This hotel was a big group house that produced more than 2 million photocopies per year. Her idea resulted in a 25% reduction in paper and copy costs, a $50,000 savings.
That’s how you do it. That’s how you make the third pillar as important as the other two. Our business is a transaction, volume business. Find a way to save a penny or two and see the multiplier effect.
The irony in all of this is, hotel brands largely don’t own hotels anymore. Brands today sell expertise to owners. The brand with the best financial leadership model would be very attractive to owners. Brands mandate standards and owners pay to have these in place. In the case of financial leadership like service programs and colleague engagement efforts, the owner pays the way for the brands. What are brands waiting for?
