The Chesapeake Point of View

Is It Time To Change Hotel Management?

Is It Time To Change Hotel Management?

February 07, 2012

10 Questions to Ask When Deciding Whether or Not to Make a Change
By Joseph Smith, Executive Vice President, Chesapeake Hospitality

Change can be daunting. But for hotel owners and operators who suspect they’re not getting the most out of their property or properties, change can also be essential. Changing hotel management companies can have a potentially dramatic impact on your day-to-day operations, your long-term prospects and your bottom line. The big question, of course, is whether or not to make a change in the first place. Will a new management company add value you’re not getting from your current management company? How do you know if your current management company is underperforming?

What are the most important things hotel owners and operators need to look for when evaluating the performance of their current management company, and what considerations should play into the decision-making process? The following is a list of the top ten questions you should ask your management company—and yourself— when deciding whether or not to make a change:

Are you getting quality feedback?.
Every management company provides the hotel owner/ operator with regular status reports on a range of topics, from RevPAR to occupancy and booking trends. Make sure you’re receiving your reports in a timely manner and the information in those reports is consistently and verifiably accurate.

Are budgeting targets being met?
Is your management company operating within the confines of the annual operational budget? Obviously, budgeting is not an exact science, and it’s not realistic to expect to hit the mark exactly every year. But it’s a problem if you’re substantially missing projected budgets.

Is there a comprehensive marketing plan in place?
Many companies will tout their marketing efforts, but it’s important to determine if a comprehensive marketing plan is in place for the property. Determine if marketing strategies are evolving and adapting over time, and make sure there are sophisticated marketing metrics and standards in place to evaluate the effectiveness of those efforts.

Are you using day-by-day budgeting and forecasting?
Is your management company budgeting and forecasting your segment production daily to optimize your segment mix? If your targets are not being met it should be clear to you and your management company where they’re missing the mark, and, the need to immediately implement strategies to reverse the trend.

What is you revenue management structure?
Is your revenue management team set up to be successful, and are they operating with a sense of urgency? Your revenue management must be vigilant, reviewing market intelligence and demand factors to maximize rate opportunities. At a minimum, there should be a daily business review meeting with the executive team and at least a weekly more comprehensive revenue meeting. Management should be able to provide detailed minutes of actions and results regarding their revenue strategies.

Are your profits competitive with industry averages?

Are departmental and overall profit numbers consistent with or better than industry averages? If your gross operating profit isn’t in the neighborhood of 40-45% for select-service hotels, and 30-32% for full service hotels, you’re not where you need to be. Do not evaluate in a vacuum: a RevPAR increase of 2% might seem encouraging, but if industry numbers in your market segment are up 5%, an encouraging indicator is now a potential red flag.

Are brand standards being met?
Make sure brand standards are being met and your hotel(s) is/are fully compliant with the terms of your brand or franchise agreement. If service score calculations lag or your hotel fails an annual audit, the implications could be significant; up to and including losing your flag.

Is your management company communicating with you?
Is your management company meeting your established communication/coordination objectives with regard to clarity and frequency? Perhaps more importantly, are you having to reach out, or is your management company proactive with regard to keeping you in the loop and delivering efficient and effective communication? Make sure that you meet—in person and with senior management—on at least a monthly basis to receive updates, evaluate progress and determine strategy.

Is the property being maintained?
Is your asset being well taken care of? Make certain all capital issues are being brought to your attention and are addressed promptly and effectively. Ensure that there are no safety issues, and that regular maintenance is being done to limit avoidable and potentially costly breakdowns.

Does your management company have a strong community presence?
Is the management company involved in the local community? Ask if they participate in and support local and regional charitable initiatives, and if they regularly attend local convention and chamber of commerce meetings. Their visibility on your behalf can be critical to driving business and strengthening your market share.

Is there an established level of trust and reliability?

Is your management company keeping its promises? Is there consistent follow-through, or just talk? Are there verifiable metrics and results? Credibility is hugely important—perhaps the single biggest issue for many owners and operators.

Poor performance, poor results and unfulfilled promises are the most common drivers of management change. But outside of a major event such as a failed fire department safety inspection or some other egregious violation, the need for change is not always glaringly obvious. As a result, far too many hotel properties are underperforming relative to their potential, simply because owners and operators do not take the initiative to rigorously evaluate the performance of their current management company. Sometimes, routine and longevity can contribute to a kind of staleness and lack of drive and innovation; a fresh perspective can be invaluable. The bottom line is to take ownership (no pun intended) of your situation; don’t accept less than superior quality and expertise, and remember you have the right to demand high levels of service, performance, accountability and communication. If your property is obtaining a 100% RevPAR share, is that acceptable? Not if the brand, location and quality of the asset dictate that you should be commanding a 120% share. It is up to you to take the initiative and challenge the status quo. Making a management change might seem like a daunting process, but to wait may mean missed opportunities. Experienced companies can get a new system in place and running in less than 30 days. Most importantly, the dividends of a positive change can be enormous. Finally, if you do decide to make a switch, remember the need to maintain standards doesn’t stop there. Use the questions above as a guide to help you negotiate your next management agreement and as an analytical tool to make sure that your new management company is living up to the highest standards of hotel management excellence.