Ramping up for the Future

By Mark Heymann, CEO, UniFocus

The focus of this edition is looking forward and ascertaining what organizations are planning to do as the industry begins to climb out of the downturn of the last couple of years. And for my part, I have spent much time contemplating this topic from the perspective of someone with many vested years in the hospitality business.

You will find that we have interviewed industry executives and published their insightful comments here. As I was thinking about this issue of FocusED, the other day I read an interesting quote in the New York Times from Robert C. Pozen, Chairman of MFS Investment Management: “What’s worrisome is that American business has gotten used to being a lot leaner, and it could take a while before they start hiring again.” After pondering this comment, it occurred to me that it is actually the opposite scenario that is of concern to me, and I’ll explain what I mean below.

No doubt our industry has gotten leaner. In fact even now we have lean teams in some organizations trying to wring out more reductions in labor; but at the same time I have been in meetings where the discussion quickly moves to the fact that “We are running too lean, and can’t deliver to our service standards,” (and therefore have no time to look at new technology or improved ways of running our businesses).

So the challenge will be how do we not up-staff too quickly and “give away” some of the bottom line improvements that growth, even slow growth, will precipitate. I was recently at a meeting discussing some of UniFocus’ technologies when I was asked if we used cost percentages to manage labor, a practice that led to overstaffing only a few years ago, when average revenue per unit outpaced increases in unit volume. If there is belief that the industry is too lean, or old methods of resource use are employed like utilizing percentages instead of real work content, costs will increase at a rate that will dissolve profits. With unit volume increasing faster than revenue per unit at this point in the recovery, I think that in looking at the future, the real issue will be what does “Ramping Up” really mean for our industry?

I don’t think anyone believes that the industry can go back to the historical labor cost structures of the first half of the first decade of the new century. No doubt business has realized that costs must be more closely managed. I remember reading a study about three or five years ago that stated the industry had done a good job managing labor costs as the percent cost had remained stable over the prior few years. However, when you looked at the data unfortunately what one found was that ADR was increasing much faster than wage rates and overall volumes were increasing at a slower rate, so in essence good control would have seen a reduction in labor percent, not a flat line. And this is what we should be cautious of.

Essentially the industry needs to effectively manage operation costs in light of unit volume changes, not overall revenue changes or percentages. At the same time, some of the new operational paradigms need to be fully integrated into the business philosophy and culture. These are the business improvements that prompted hoteliers to look more closely at service levels and determine what was critical to the guest experience from a real value perception. Improvements in organizational structure should be perpetuated and adjustments only made when it is clear that resources are over-extended. Some of the cross utilization that has been effected during these more challenging times should not be dropped, but be promoted and continued. Likewise, new technology that facilitates planning and measurement needs to be more fully embraced to ensure that cost to demand and subsequent real work content is correctly balanced.

Back in the 80s when Quality Assurance was the hot topic and organizations were embracing varying approaches, we developed a workshop on Change Management. One of the opening remarks in that workshop related to why organizations change, and the industry has surely gone through significant change in the last two years. Change comes from two different directions. The first is visionary; a leader who has an inspirational or revealing view of the future therefore implements change to ensure that the organization can achieve the new vision.

The second and more prevalent reason for change is crisis; either in our ability to continue basic ongoing existence or simply from external business pressures, it forces organizational change. I think most would agree that many of the operational changes in the last couple of years were precipitated by this second source. The industry found itself in a state of crisis, began to adapt and has only recently begun recovering.

The challenge I believe we have today is whether our industry can utilize the crisis motivation that drove the change management (necessary for survival) and then convert that into a new vision for the industry. This new vision should continue to promote the guest experience and ensure that it is consistent with market positioning, while at the same time finding tools and methods to effectively balance financial and bottom line needs. Fixed costs should continue to be scrutinized and impacted as well as variable costs. So the key for the future will be a vision that maintains this vigilance while utilizing better methods of business planning and operational management to ensure the above noted balance is always attained. And the tools and methodologies must not only focus on the top line, but must make management’s day to day tasks of service delivery, staff engagement and cost control priorities also.

To sum it all up, I think that Ramping Up for the future entails a new vision of operations that promotes a culture of progressive change and balance. And as new technologies and new customer demands become evident, these changes need to not only be reacted to, but proacted to.

See you next time.

Mark Heymann
UniFocus Chairman & CEO