Productivity - a Euphemism that Costs Hotels

Are you leveraging productivity beyond its cliched definition?

By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | November 25, 2018

Among the various cliched terms that are bandied around in business circles, nothing is more of a euphemism than the term productivity. Everybody talks about it, everybody claims it in no small measure but rarely does anybody have a hang of it. It means different things to different people and is the equivalent of a business enigma. If you were to pick at random 10 business individuals and ask them what productivity meant to them, it is almost certain that you will get 10 different versions. Productivity may be defined in terms of volume, cost, price, revenue, profit or any number of other performance measures. This has the effect of making productivity an enigma of sorts.

The term productivity can broadly be defined as: "the effectiveness of productive effort, especially in industry, as measured in terms of the rate of output per unit of input."

Going Beyond the Cliche

So, effectiveness or efficiency in terms of output for each unit of input can be considered the definition of productivity. In the manufacturing industry, productivity can be measured with this definition accurately. You produce so many units of output for every unit of input. However, in the service industry and in particular hospitality and restaurant business, definition and measuring productivity are much more tricky.

For instance in the rooms department of a hotel, productivity in cleaning guest rooms is a common measure to determine the efficiency of the Housekeeping department. Productivity here is determined by dividing number of hours spent by rooms cleaned per shift. This is a rooms cleaning efficiency expressed as the time it takes to clean each guest room in a shift. It can also be expressed the opposite way - number of guest rooms cleaned per hour. While all of this is a straightforward seeming performance measure, digging a little deeper raises questions such as: 

  • Are all employees who clean guest rooms in the Housekeeping department permanent employees or are there temporary ones or even trainees?
  • Does the calculation for number of hours include break time? If break times are included, does this really reflect efficiency accurately? and so on.

Finite Resources / Time

In a utopian world, businesses boast of infinite resources and time and so productivity is hardly an issue. But utopia has no place in a business environment where change is the only constant. Markets are in a constant state of flux and the most powerful aspect of a strategy is its flexibility. Productivity as a strategy is necessitated because of the finite element of resources. This finite element in business goes by the grandiose title of "budget." You have budgets for everything in business. It is quite another perspective that budgets simply mean limited resources chasing unlimited targets.

If a typical computation of productivity is analyzed, it is simply any measure of output divided by input. Input in productivity traditionally is represented by either employee numbers or by time or a combination of those two. In the earlier example of cleaning of guest rooms by housekeeping, the fact that budgets determine maximum manning numbers that can be hired means that efficiency is measured by how productive the cleaning is given the limited employee resources available. Often, this calculation, is a combination of employee and time resources technically called employee hours.

Real Power of Productivity

Intrinsically, productivity as a performance measure is powerful if it is used in an objective manner. Key Performance Indicators or the more common acronym for that – KPIs, are not all created equal. Productivity as a KPI comes into its own when its calculated results are analyzed carefully and not just used as is where is. What do I mean by that?

Any ratio expressing a performance measure consisting of a numerator and a denominator produces results influenced by both. This has significant implications. For example, just because output units are divided by input units and a result obtained does not necessarily mean either the input or the output is the one influencing that. It only indicates that given the output units and the input inputs, the results indicate possibly that both such units are weighing in on the results. This is where analysis and interpretation go together.  If the result produces a positive number, it is important to determine cause for that - do the results mean that the output is positive and so results are positive or the same for input or both?

In any KPI calculation, the number by itself has only finite implications. That is why they are called Key Performance Indicators. They merely indicate. What makes a difference is how the output and input units are analyzed to determine impact and then taking it one step further, which factors of the output and input units are the ones influencing the final result is most critical. Let me state it more specifically. If number of guest rooms cleaned in a shift are divided by number of employees of housekeeping in that shift doing the cleaning and a result obtained which shows that so many number of rooms are cleaned per employee in that shift, that is merely the starting point.

What comes next is - are the number of rooms higher or lower than another floor of the same hotel or another hotel as well? Are the number of employees on that shift higher or lower than another floor of the same hotel or another hotel as well? How many rooms are regular rooms? Are there any suites on that floor? How many employees are permanent? How many are temporary? These are questions which will throw light on that productivity number much more than just the arithmetic result.

Productivity KPIs

Productivity KPIs can be volume, cost, revenue or even profit based. Volume based productivity KPIs calculate results without bringing in the price element. When number of guest rooms cleaned in a shift is divided by number of employees on that shift, the resultant measure which represents average number of rooms cleaned per employee in a shift is a pure volume measure which does not bring in any cost or revenue element. On the other hand, if total cost of payroll of employees in a shift involved with cleaning of guest rooms is divided by number of guest rooms cleaned, it is a measure which introduces  a price element (represented by salary or wages per employee) and the result calculates average cost of employee per guest room cleaned.

Another common type of cost based productivity KPI is to take total payroll costs during a period and divide that by total number of permanent employees. This measure arrives at an average payroll cost per employee. Since it takes into account employees at all levels of the hierarchy, it truly reflects how much it costs the organization in payroll per permanent employee.

Revenue based productivity KPIs take into account revenue from hotel guest rooms in a period divided by number of permanent employees in that period yielding a measure which represents dollar revenue per employee. This productivity KPI aims to connect revenues with permanent manning (employees).

A hybrid version of permanent employee complement is including all manner of hires whether permanent, temporary, casual or even trainees. But these are first reduced to a common denominator commonly called Full Time Equivalents. A full time equivalent takes temporary, casual and trainee hires and makes them equivalent to a standard permanent employee. A simple example of this type of calculation is when a temporary hire is made for say a half month period, then a monthly productivity measure would take that temporary hire as 0.5 of a standard permanent employee. If 4 such hires are made in a month, they will be added as 2 Full Time Equivalents (4 hires x 0.5). This kind of productivity measure is an effective reflection of the entire employee strength in determining efficiency.

What Productivity KPIs are you measuring?

As said earlier, Productivity KPIs are not all created equal. Among volume, cost, revenue and profit based productivity KPIs, which types are you measuring? Do you favor volume based ones over either cost or revenue or profit based ones? An effective productivity performance measurement system will be a mix of volume and cost/revenue/profit based ones. This is because a volume based measure as shown with examples earlier does not introduce the element of costs, revenues or profits which connote related but different indices.

Productivity Killers

Productivity cannot be talked about in business without a word about factors which not merely retard it but on many occasions kill it. As said earlier, productivity is a numerical measure which often does not reflect some intrinsically quality based elements For example, a low productivity measure will only show that without say highlighting the lack of a motivating environment within the organization. This is why it is said that merely  calculating the numerical measure of productivity is not enough. It should be considered as the foundation on the basis of which qualitative aspects like culture, motivation, message from the top etc need to be analyzed thoroughly.

Results of productivity are often used as basis for a executive level appraisal of all human resource based factors which influence morale in the organization. It is a wake up call to pay heed. A major factor which kills productivity is employee turnover. Sustainable growth in business performance is predicated on a motivated, stable, consistent complement of employees. The moment, employees start to come and go, the first casualty is productivity followed by business performance.

Performance Vs Productivity

Organizations which are turning out good business performance are normally also the ones who are likely to keep a sharp eye on productivity trends. Productivity is linked to potential and what an organization is capable of  delivering incrementally. This is often more critical than just current business performance which can at times not be the best that can be turned out owing to productivity levels which are not at the best. In the hospitality industry where the business fortunes of a hotel are all the time compared to their competitive set, performing well and at the highest levels of efficiency may well be the trick to survive.  Markets and customers, in this fast changing world can in a blink of an eye transform themselves and hitch their wagon to those who are able sustain an efficient delivery of business performance.

The Last Say

At the end of the day, from an owner and stakeholder perspective, business performance is an operational issue while productivity is a strategic issue. In a manner of speaking, productivity is a reflection of how efficiently business performance is achieved. Owners are in business for the long haul. A long haul can only be sustained if the means to ends are consistently efficient. It is productivity that makes return on investment a long term factor and vindicates the huge investment forked out. Stakeholders tend to sleep well knowing that an efficient system of producing business performance is at work and incrementally improving.

Mr. Narasimhan S. Lakshmi Narasimhan is the Founder of Ignite Insight LLC a New York City based consultancy, which specializes in Group Executive Training, Coaching and Consulting. Prior to founding his company, Mr. Narasimhan was the Vice President Finance of an award winning Hong Kong headquartered luxury hotel chain - Shangri-La Hotels & Resorts. He has more than 25 years of experience in the hospitality industry (14 of them in a senior corporate level) and has held diverse portfolios from a hotel Financial Controller to a group level Human Resources position, head of Corporate Internal Audit and head of Corporate Financial Systems. His career is epitomized by new and challenging roles. S. Lakshmi Narasimhan can be contacted at 201-253-5000 or narasimhan@ignite-insight.biz Please visit http://www.ignite-insight.biz for more information. Extended Biography

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