Rethinking Organizational Models

By Mark Heymann, CEO, UniFocus

As noted for the past few months and further confirmed in this edition of FocusED, it appears that the worst is over for the hospitality industry. While rates are not growing at the pace we saw in the early to mid-part of the last decade, things surely are moving in the right direction. Clearly, there is less pressure on management teams and a bit of “returning to the norm.” But I think this may well be the right time to have another look at how properties are operated and specifically the work structure that is the basis of how organizations incur labor costs.

As the downturn in late ’08 and well into ’09 began to have a severe impact on profitability, ALL costs were scrutinized and some historic “sacred cows” were not so sacred anymore. Simply put, properties could not afford to do some of the things that they did in the past. Frequency of tasks were changed, activities revised, some informational metrics were stopped, and generally every cost was assessed. The mantra of “is there a more cost effective means of delivering the service or can we do without” was heard in every corridor and office in our industry. And while results were significantly and negatively impacted, by all measures survival mode worked out and we have now come to the upswing in business.

Now what we hear is that with business returning, will cost management still be the priority it was and how can we ensure that costs don’t creep up faster than revenues? I remember reading an analysis of costs in the industry about four or so years ago, and in short the article said that the industry was doing a good job because cost percentages had remained constant over a few years with revenues increasing. The problem with this evaluation was that revenues were increasing due to rate, not volume, so in essence cost percentages should have been lower. Constant percentages are not necessarily an accurate measure of effective cost management. It depends on whether revenue increases are due to rate or volume. And in today’s environment, it is volume that is having a larger impact on revenue than rate. Therefore, as volume increases, the amount of work generally does also and this is where costs can become problematic.

In past articles we have focused on improving labor productivity by using zero based analysis of work coupled with better forecasting, planning, scheduling and evaluation systems. And this is surely one of the most effective ways to ensure optimal productivity. But here I want to look at a different but related approach: specifically, the effect that organizational structure has on a company and the innate costs that are associated with labor due to the structure that is employed.

Since I began working in the industry, especially in full service properties, operations have been structured into divisions. Rooms and Food & Beverage are the main ones, but then you have some sub-divisions like Banquets/Catering, Recreation/Spa, and other activities. No doubt there is some special knowledge that is needed for some of the operational components, but I can’t help but wonder if there is not a better way to structure an organization that would improve efficiency, costs, and quality of service while still ensuring expertise was available when needed. Compartmentalization in an organization cannot help but increase costs. So I think the industry needs to re-think some of its historic assumptions.

The key question is why an organization is set up in divisions. Or more importantly, just because you need an F&B profit and loss statement, does labor also have to be so structured? With today’s sophisticated technology, allocation of labor costs should be and is pretty easy. We can charge a server’s time to both a restaurant and banquet operation when he/she is cross utilized. So why not broaden cross utilization to truly optimize costs? In essence, let’s begin to look at functional issues instead of organizational structure.

One good example is a Hotel Chain that uses Bell Staff to provide room service. The basic function is delivering something to a guest room. The Bell Staff historically brings luggage, packages and amenities, so why not food? It seems to work pretty well, especially in off-peak times, instead of having someone sit around waiting for an order. But I believe this is just the tip of the iceberg. Much more can and should be done to enrich jobs and improve overall performance. The following is a few examples that can get the so-called ball rolling:

Houseman: Why do we separate Banquet from Housekeeping? Let’s put them all together in a pool of employees, which also would reduce some of the challenges in shortage of staff when there are quick turns in catering. Additionally, I can’t even count how many hotels have housekeeping going to the Banquet areas to clean restrooms when Banquet Housemen are available. The basic functions are setup, teardown, and cleaning, which both groups do, just in different departments. They could instead be combined, which would improve quality, productivity and reduce costs.

Restaurant Lunch Host: Consider using Front Desk Staff to handle this responsibility. Generally this is off peak for the Front Office, so people are available for greeting, interacting and directing guests. Both groups do this, so why not use non-restaurant Staff in the hotel to complete this task?

Basic Food Prep: Consider using restaurant service staff to complete basic prep, especially at lower volumes during non-meal hours. Rate of pay can be adjusted while doing this work, which enriches the job for the staff and enables them to earn more during down time. Nothing fancy, but some work can be off loaded here and it enables the service staff to really understand the dishes they are serving.

These are just a few ideas, but again, the key question is why should an organization allow the P&L structure to dictate how they run their business? It surely dictates how to report results, but a more functional approach that looks at down time of staff can uncover many ways to improve service, reduce costs and enrich peoples’ jobs.