The suitability of the operator to the hotel and the business
By Ian Graham
When we humans get married, we go through a lengthy and elaborate courting process with extensive support to the couple given by friends and ‘experts’ before the knot is tied.
Yet many developers and hotel owners have jumped into bed with a hotel operator under the terms of a 20-year or more management contract on little more than a whim. Having been engaged recently by several clients to assist in the search and selection for hotel operators, what have we learnt?
There are clearly three elements.
•The legal documents
- to protect the owner and incentivise the operator
- to position the operator as the agent of the owner
• The financial package
- usually a mix of basic and incentive fees
- together with charge back provision
- perhaps with fee stand-aside provisions etc.
• The suitability of the operator to the hotel and the business.
The third Element is arguably the most important and the one we want to discuss here.
Brand v operator
In our view, one must first separate the decision concerning the brand from the decision concerning the operator. For example, while Starwood might both brand and operate a Sheraton or a Westin or a Four Points, in many countries a hotel owner can, and in our view should, separate the decision as to which brand to put on the hotel and which operator to engage.
What a brand does is quite different to what an operator does and one needs to separate the criteria to identify which brand is most likely to deliver the highest number and value of customers through its branded channels to this hotel throughout its life. Choosing a brand should never be an accident – the decision must be carefully made to ensure the brand strategy, structures, processes and execution drive long term value through guest preference and employee behaviour.
Often, of course, the right brand will come with the right operator – in our example above, Starwood will obviously have an operating advantage when it comes to a Westin or a Sheraton or a Four Points because as a company Starwood will possess the first crucial differentiator of an operator – proven experience with the brand, its channels of distribution, its loyalty programme, its customers, its competitors.
The truly excellent operator will, however, also be able to demonstrate an ability to bring business to the hotel through the unbranded channels – and this can be particularly important in a hotel with extensive conference and meeting facilities, or a spa, or other non-hotel-brand influenced elements of the offer.
Surviving change
A key process that a hotel operator needs to bring to almost all situations is the ability to deliver a range of services through a period of change. This might be technical services support during the design and construction phases or it might be the execution of operational changes that arise from a rebranding or a re-positioning. An excellent operator will be able to demonstrate deep experience in change management.
Profitability
A further area of excellence required of a hotel operator is the delivery of profitability ahead of market averages over a sustained period of time.
This requires the mix of skills that brings excellence in sales and marketing, with excellence in restaurant and bars, and excellence in financial management and reporting - and a passion to benchmark not only R.G.I. but also GOPPAR.
And it’s through employee satisfaction that customer satisfaction comes so an excellent operator will be able to demonstrate a track record in talent management and high levels of employee satisfaction.
Improving employee satisfaction rates, declines rates of labour turnover, an increasing number of skills training hours delivered – these will be the traits of an excellent operator.
Standards of operating performance
One of the key areas of that an excellent operator will focus on is the use of Standards of Operating Performance (SOPs). Whilst such operating manuals should describe the product and service that is intended to be delivered and form the script of skills training, excellent operators have also embedded processes to learn from errors and defects.
Operators that have elimination of error as a high priority will treat guest complaints as an input not an output and will have processes in place that dissect management’s misguided thought processes that gave rise to the complaint in the first place.
Outsourcing
In today’s world, few hotel operators can deliver such a broad range of services from within its own resource base - so we’d expect most operators to be aligned to one or two key business partners.
An operator that buys in certain resources should not be viewed as inherently weak – far from it, managing a number of outsourced vendors is increasingly what hotel management companies need to do in order to stay focused.
The quality of the partners chosen by an operator will tell you a lot about the quality of the operator. And this is perhaps no where more evident than in the mix of telecoms, technology and technology-enabled partners that an operator brings to the table.
Summary
Above, we’ve described some of the traits of an excellent operator. This is a selective list and there will be other traits that are relevant according to location.
IAN GRAHAM
gives his clients high value adding advice, free of all bias, with a passion for the industry that has been slow-cooking for 45 years. He leads and contributes to complex advisory assignments for hotel owners and operators around the world, leveraging his deep understanding of the separate but linked goals of each of the guest, the hotelier, the investor, the lender and the brand owner - and all this from a unique base of experience that has seen him working on hotel issues in more than 60 countries. Ian has built an unrivalled network of clients, friends and colleagues around the world of hospitality and this has enabled him to create and lead The Hotel Solutions Partnership Ltd under which outstanding teams of consultants respond to tough questions asked by savvy clients.
By Ian Graham
When we humans get married, we go through a lengthy and elaborate courting process with extensive support to the couple given by friends and ‘experts’ before the knot is tied.
Yet many developers and hotel owners have jumped into bed with a hotel operator under the terms of a 20-year or more management contract on little more than a whim. Having been engaged recently by several clients to assist in the search and selection for hotel operators, what have we learnt?
There are clearly three elements.
•The legal documents
- to protect the owner and incentivise the operator
- to position the operator as the agent of the owner
• The financial package
- usually a mix of basic and incentive fees
- together with charge back provision
- perhaps with fee stand-aside provisions etc.
• The suitability of the operator to the hotel and the business.
The third Element is arguably the most important and the one we want to discuss here.
Brand v operator
In our view, one must first separate the decision concerning the brand from the decision concerning the operator. For example, while Starwood might both brand and operate a Sheraton or a Westin or a Four Points, in many countries a hotel owner can, and in our view should, separate the decision as to which brand to put on the hotel and which operator to engage.
What a brand does is quite different to what an operator does and one needs to separate the criteria to identify which brand is most likely to deliver the highest number and value of customers through its branded channels to this hotel throughout its life. Choosing a brand should never be an accident – the decision must be carefully made to ensure the brand strategy, structures, processes and execution drive long term value through guest preference and employee behaviour.
Often, of course, the right brand will come with the right operator – in our example above, Starwood will obviously have an operating advantage when it comes to a Westin or a Sheraton or a Four Points because as a company Starwood will possess the first crucial differentiator of an operator – proven experience with the brand, its channels of distribution, its loyalty programme, its customers, its competitors.
The truly excellent operator will, however, also be able to demonstrate an ability to bring business to the hotel through the unbranded channels – and this can be particularly important in a hotel with extensive conference and meeting facilities, or a spa, or other non-hotel-brand influenced elements of the offer.
Surviving change
A key process that a hotel operator needs to bring to almost all situations is the ability to deliver a range of services through a period of change. This might be technical services support during the design and construction phases or it might be the execution of operational changes that arise from a rebranding or a re-positioning. An excellent operator will be able to demonstrate deep experience in change management.
Profitability
A further area of excellence required of a hotel operator is the delivery of profitability ahead of market averages over a sustained period of time.
This requires the mix of skills that brings excellence in sales and marketing, with excellence in restaurant and bars, and excellence in financial management and reporting - and a passion to benchmark not only R.G.I. but also GOPPAR.
And it’s through employee satisfaction that customer satisfaction comes so an excellent operator will be able to demonstrate a track record in talent management and high levels of employee satisfaction.
Improving employee satisfaction rates, declines rates of labour turnover, an increasing number of skills training hours delivered – these will be the traits of an excellent operator.
Standards of operating performance
One of the key areas of that an excellent operator will focus on is the use of Standards of Operating Performance (SOPs). Whilst such operating manuals should describe the product and service that is intended to be delivered and form the script of skills training, excellent operators have also embedded processes to learn from errors and defects.
Operators that have elimination of error as a high priority will treat guest complaints as an input not an output and will have processes in place that dissect management’s misguided thought processes that gave rise to the complaint in the first place.
Outsourcing
In today’s world, few hotel operators can deliver such a broad range of services from within its own resource base - so we’d expect most operators to be aligned to one or two key business partners.
An operator that buys in certain resources should not be viewed as inherently weak – far from it, managing a number of outsourced vendors is increasingly what hotel management companies need to do in order to stay focused.
The quality of the partners chosen by an operator will tell you a lot about the quality of the operator. And this is perhaps no where more evident than in the mix of telecoms, technology and technology-enabled partners that an operator brings to the table.
Summary
Above, we’ve described some of the traits of an excellent operator. This is a selective list and there will be other traits that are relevant according to location.
IAN GRAHAM
gives his clients high value adding advice, free of all bias, with a passion for the industry that has been slow-cooking for 45 years. He leads and contributes to complex advisory assignments for hotel owners and operators around the world, leveraging his deep understanding of the separate but linked goals of each of the guest, the hotelier, the investor, the lender and the brand owner - and all this from a unique base of experience that has seen him working on hotel issues in more than 60 countries. Ian has built an unrivalled network of clients, friends and colleagues around the world of hospitality and this has enabled him to create and lead The Hotel Solutions Partnership Ltd under which outstanding teams of consultants respond to tough questions asked by savvy clients.
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