When the Market Gets Tough, It’s Time to Invest...Not Just Cut

by Mark Heymann, ISHC — UniFocus Chairman & CEO

With a focus on fixed overhead in this edition of FocusED, I was going to discuss performance measurements and how to determine if your undistributed costs were at the right level, given that most organizations have some rules of thumb, but those “benchmarks” have been around for many years. Then on the way to my desk, I stopped by the Lodging Conference in Phoenix last month and heard a great deal about the coming softening of the economy and its impact on the hotel industry. So instead of proceeding straight ahead, I decided that a right turn was more in order. And that turn has to do with employees / associates and how we deal with them during soft periods in occupancy and overall profitability.

What I found was not very encouraging, although it does seem to be consistent with other soft economic environments that I have worked through. About 30 years ago I first heard the phrase, “Guest Relations Mirror Employee Relations.” Since that time I have read countless articles about the importance of a motivated and engaged workforce. In fact, during the conference, I served on a panel that was focused on improving performance and maximizing ROI at the hotel. We talked at length about new technological directions, about proper advertising and promotions and other revenue generating opportunities. But after all the discussion, the one overriding factor that came into play (if one is to really outperform the norm) is how an organization deals with its employees. More specifically: How they are motivated, trained, evaluated and finally, how an organization can ensure that the interaction between its staff and customers can create those memorable experiences that we, as an industry, strive for. And as was noted during the panel discussion, I don’t know of anyone who came back to a hotel because it had a new flat screen TV on the wall, but I sure do know people who return because of that special attention they received from one of the staff.

This being said, why then does our industry start cutting employee related programs when the market gets soft? First on the chopping block: training. Next to be cut are employee surveys. Then we start looking at the overall Human Resource function to see where more “cost impact” can be achieved. And as noted above, this seems to be a phenomenon that occurs mostly during soft periods. However, instead of bolstering staff related activities to help ensure those memorable guest experiences, organizations seem to focus first on cutting and not investing. Now I’m not referring to a major capital investment, but rather to one that further ensures staff motivation and engagement. In markets that are soft or softening, the simple truth is there are fewer customers, and unlike the airlines that can right-size capacity, the hotel industry can’t really reduce and/or change the bed count each month.

As most of us have seen, the airlines have been reducing seat availability to better balance demand with supply. This is clearly having a negative impact on many resort destinations and some urban areas. But, unless the hotel industry decides to “shutter” rooms or entire buildings, it is more challenging or nearly impossible for us to better balance demand with supply in the short run. What’s begun to be built will probably be finished and supply will be greater than demand, which means occupancy will be decreasing as well as average rate.

What better time than now to invest in your staff to ensure that when you have an opportunity to service a guest, the experience is unforgettable? And this type of “investment” really doesn’t cost very much, especially when you look at the cost of a non-returning guest or the cost of uncontrolled turnover. This is the exact time to heighten the focus on service delivery which means knowing what your employees are thinking and perceiving, making sure they are well trained and motivated, and that you’re doing all that is necessary to ensure an engaged staff. Not only will this approach pay off during the softer periods, but will pay multiple dividends when the markets turn, as they so often do.

If you are focused on fixed overhead, I suggest one of the last areas that should be reduced are the processes and systems utilized to know how your employees feel about the work environment, how well they are being trained and finally, how often they create memorable guest experiences. Employee related programs and processes should not be considered overhead in my view, but required operating investment for exceptional performance. In any soft economic period, productivity is key to maintaining optimal profitability but reducing Human Resource programs in our industry frequently has the opposite effect, especially in the medium to long run. There is no question that all costs need to be evaluated for ROI, but those investments that directly impact staff should be closely scrutinized before the hatchet comes down.