In recent years, profitability indicators have changed their value, and today, hospitality establishments need to reconsider their evaluation processes and benchmarking tools.
At the Annual Hotel Conference (The AHC) in Manchester this autumn, hospitality leaders took the time to discuss this hot topic. Jonathan Humphries, the chairman of HoCoSo (Hospitality Consulting Solutions), led this lively panel discussion and triggered experts to give valuable insights into their experiences and to give an outlook on steps that need to be taken to increase profitability. In the following three clearly defined outcomes are presented, mutually agreed on by the panellists, which can help you improve your business performance:
1) Wider use of Benchmarking KPI’s to measure profitability such as GOP Flow- Through is essential.
At the top of driving profitability sits the need to access performance among the correctly chosen competitive set. Traditional indicators and their respective benchmarking are not enough in today’s changing business environment. Even though RevPAR remains the most popular benchmarking indicator, the need to add other KPIs to the assessment grows. The rising influences of OTAs and increases in payroll, caused a disconnect in the interests of owners and operators. To realign these interests, best practice benchmarking, productivity and profit-cost benchmarking can help.
The key question, which was asked is: ‘What does it cost me to achieve the RevPAR?’
Wider use of Benchmarking KPI’s to measure profitability is essential.
Shona Whitehead, Managing Partner of Cogent Blue, helps clients to answer this question by calculating the actual costs of acquisitions. It is necessary to look at more factors than just the OTA commissions. Identifying the costs for CRS (Central Reservation System), transaction costs or marketing costs, help operators to manage their channels in more profitable ways. Shona’s experiences show that in some cases lower ADR with lower acquisition cost can lead to higher profit margins.
For the operational level, Area Director of Finance UK & Ireland Marriott Hotels Antony Brister, showcased an inspiring example of best practise benchmarking used to increase Housekeeping efficiency: based on the KPI ‘person hours worked per room sold’, the best housekeepers can be identified. In addition, Jonathan Langston, co-founder of HotStats, mentioned that in one instance, best housekeepers were equipped with a GoPro camera, in order to understand the human success factors behind the numbers. This identification of best performance and its comprehension helps setting the aspirations for the entire team. Essentially, data becomes only relevant when understood and interpreted correctly.
The GOP Flow-Through is the hottest up-and-coming performance indicator. Jonathan Humphries, who develops Hotel Asset Management courses for the academic hospitality education sector, stated that over 1200 EHL (École hôtelière de Lausanne) students have accomplished courses, in which the GOP Flow-Through is an essential analysis tool. The benefit of looking at the Flow Through is the ability of comparing different periods of time versus the amount of incremental profit created by incremental revenue. Through this analysis, operators can focus on the critical points that can drive incremental profit to the business.
2) Consolidation of the “ponds” of data which exist, through integrating systems to provide greater “lakes” of management insight.
Jonathan Langston, the co-founder of Hotstats, identified today’s key issue: currently existing data is not consolidated enough and therefore cannot be used to its full potential. The challenge is to combine the existing “ponds” of data that are out there, internally and sector wide, to a big “lake” that everyone can benefit from. The required technologies are available now and lead to a more sophisticated data analysis. Data becomes more consistent, comparable, regular and detailed. To use the full potential of the improved technology, a change in mind-set is needed: going forward requires more transparency within the industry, commencing operators to publish more data from the general ledger accounts. The more data you make available, the easier the identification on industry wide best practice performance can be achieved.
Consolidation of the “ponds” of data which exist, through integrating systems to provide greater “lakes” of management insight.
Internal cost benchmarking, based on previous performances, is simply not enough for forward going budget processes anymore. Going forward requires investments in integrated systems. Such rounded systems, in which all different sources are talking to each other, will enable the hospitality industry to better understand profit and cost relations. The vital continuation is taking this internal data and benchmarking it versus the competitive set. David Hart, Chief Financial Officer Redefine BDL Hotels, underlines a misunderstanding within possibilities of benchmarking: closing the disconnect between cost and revenue benchmarking enables identifying best performances on a whole new level, whilst at the same time simplifying the reporting of data. His experiences show that in several cases, two versions of the same number have been reported in different places. Data integration can solve inefficiencies within the benchmarking process and realign the focus to the essential task of taking action upon the results.
3) Removing manual processes to provide better services, staff and customer experience.
Driving profitability is often “wrongly” related or even equalized with cutting cost. Cleaning the public spaces only one time instead of three times per week will look great on paper. In reality, it will have negative effect on the satisfaction levels, says Antony Brister. A term that is much more appropriate when talking about driving profitability, is “sizing the costs right”. The goal is to have the most efficient and appropriate costs as possible. This realignment on where the business’ money is invested in, can be determined through the help of KPIs such as the balance score card and guest satisfaction levels. This customer insight data helps to identify what is actually really important to the guests.
Driving profitability is often “wrongly” related or even equalized with cutting cost.
Potential lays within making things more efficient from a process perspective. Investing in the ITC (Information, Technologies and Communications) infrastructure of the business will not only simplify operations, it can recreate the guest experience within the hotel. The right investment in the structural costs, will evoke growth in the revenue lines of the Profit & Loss Statement.
Coherence is found in driving the alignment between all stakeholders – operators and owners need to think alike. Actions taken by the hotel should have the goal to improve customer and staff experiences. With the use of the technology, a growth in transparency and the right processing of data, the industry can move forward for the benefit of all stakeholders.
A term that is much more appropriate when talking about driving profitability, is “sizing the costs right”.
Much appreciation is kindly addressed to the AHC for organizing such an insightful conference and to Shona Whitehead, Jonathan Humphries, Antony Brister, David Hart, and Jonathan Langston for their time, effort and the sharing of expertise. Their commentary and knowledge has been used to create this article.
– By Kilian Vollbach, Research and Media Intern with HoCoSo and final year Bachelor Student at the Hotelschool The Hague and Jonathan Humphries, Chairman and Owner of HoCoSo.
Swiss-based HoCoSo stands for Hospitality Consulting Solutions and brings together teams of global experts to create tailor-made solutions for client projects. Jonathan Humphries, Chairman and Owner of HoCoSo and his direct team share over 50 years of experience and specialize in the extended stay hospitality market, the boutique sector and resort developments in Europe, Middle East and Africa (EMEA). Innovative and future-oriented approaches are created for all of our clients within the following three fields of services:
- Product & Concept creation, for portfolio- & individual project developments.
- Strategic Project Scoping, Execution & Asset Management, with a focus on strategic business planning, partner selection, market & financial feasibility studies.
- Hospitality Education for students, companies, and hospitality/academic institutions, with a focus on course development, training & teaching innovation.
Jonathan Humphries is the Chairman and Owner of HoCoSo. He brings together teams of global experts to suit a client’s needs.
Jonathan Humphries has almost twenty years’ experience in the hotel and real estate sectors. For the last eleven years he covered EMEA region, supporting the expansion of Marriott International’s fifteen brands. He brought a tailor-made extended-stay Residence Inn by Marriott concept to Europe in 2008. He has been engaged on major acquisitions, renovations, extensions, re-brandings, contract extensions and terminations and created strategic road maps for both countries and cities across EMEA.
In the past two years, Jonathan was in charged with creating and delivering new industry focused courses in Hotel Asset Management and Hotel Planning and Development, as a Senior Lecturer, for École hôtelière de Lausanne (EHL). Over 1,000 students completed the first ever Hotel Asset Management course for Europe and courses in Hotel Development & Planning.