Meaningful Metrics vs. Manipulated Math. Focus on Numbers That Reflect True Performance.
By Shaun Burchard President, Meridian Hospitality Group, Inc. | May 19, 2010
How do you define the mission and communicate it to the teams expected to deliver the win? What are the true targets defining your desired performance? What numbers are meaningful and which are inconsequential? Knowing the difference is somewhat easier said than done. Why? I'm reminded of the Wizard of Oz and the ultimate realization that unless you pull back the curtain, the magical, mystical Oz merely creates the illusion that he has the power to change your destiny. The truth is that most of us focus on all of the wrong metrics to push our results in the right direction because we're distracted by the smoke and mirror metrics, and the industry is happy to let us continue being so.
Lenders make money by lending money to those whose past performance indicates they will maintain sufficiently profitable hotel operations going forward thus enabling them to pay back the loan plus interest. Simple enough. Borrowers borrow to further develop their portfolios (empire expansion) and count on the performance of their current operations to convince lenders that they are a good risk. Simple enough. The relationship is symbiotic and both sides manipulate the data to continue the cycle – and both sides know (and accept) that they are dealing with, at least a good portion of the time, completely manipulated data. To work with true results is often in neither party's interest (note I did not say "best interest"), so we continue on, and then we wonder how we find ourselves in 2010 with frozen credit markets and underperforming assets in overdeveloped markets.
A recent article in the Wall Street Journal details how the film industry crowns champions. The agreed upon metric is box-office revenue, but the current system does not adjust for inflation and other critical variables like population size and distribution. The result? 18 of the 25 top grossing films of all time have been released in just the past decade. According to the article, if we adjust for today's higher admission prices, (factoring in inflation), "Avatar" would be the only one of those same 18 to make the list – at number 24 (because the movie is still in theaters as of this writing, this is subject to change as well). What if we determined success by the total number of admission tickets sold? "Gone With The Wind" has sold more than three times as many tickets as "Avatar." How do we account for "Star Wars," which has seen multiple re-releases since its game-changing debut? So what is the most successful movie of all time? Who knows? It depends on the metrics and who's selling what to whom.
The point? All industries have metrics and all metrics are manipulated to present the picture we want our audience to see, and the same data set is maneuvered in different ways to produce "best in show" performance for different constituencies.
The hospitality industry has no shortage of data points – all representing some metric that we agonize and obsess over as each month, quarter and year come to an end and we have to share our editorialized performance with our lenders and other constituencies in order to continue our empire expansion. We micromanage occupancy percentage, average daily rate (ADR), revenue per available room (RevPAR), revenue growth index (RGI), cost per occupied room (CPOR), and the list continues. Are these valid data points? Are they meaningful? Other than to create a common context for discussion, not one of these metrics has any real value beyond planning for future or rationalizing past performance. You cannot pay a single bill, incent and retain a single valued associate, pay one dime of your mortgage or grow your empire with any of these data points, because they are simply data points and nothing else.
So what should you focus on instead?