Key Aspects in Growing a Hospitality Portfolio and Organization
By Mark Ricketts President & Chief Operating Officer, McNeill Hotels | February 03, 2019
Hospitality is a demanding, fast-paced operating business all rolled into a complex commercial real estate investment. As we know, those entities looking to expand their portfolios, and their accompanying organizations at the property level and in the C-suite, have their work cut out for them.
Between our competition on the one hand and the guests we care for on the other, there is always a scramble for properties and people. For any given entity, finding the appropriate properties in which to invest must fulfill a demanding constellation of well-defined parameters. These include such factors as location, per broad national region and within a discrete market; the condition of the property, from new build to complete rehabilitation; the class of property, whether economy, select-service or upscale/boutique; debt structure and overall financing; anticipated operating income or the potential for asset appreciation.
Similarly, a host of factors determine which people are best suited for any organization, whether we are considering a housekeeper, front desk staff, director of sales or human resources manager. Who to hire and when to hire are traditional challenges, perhaps complicated further by the competition for talent in today's strong employment marketplace.
In this article, we will look at some of these challenges and discuss principles and approaches to achieving that desired path of growth. Issues considered include: core philosophies; operations and outsourcing; property type, geographic region and brand affiliations; and the overall "people part" of hospitality.
Setting Core Values and Culture
It may be useful to consider the difference between an organization's investment and operational strategies, even its vision or mission, and its core values.
Growing a portfolio of upscale properties, focusing on independent hotels or a specific brand, or limiting properties to a region or asset value are all examples of hospitality strategies. All well-organized groups will also have a clear vision of what they want to achieve, including financial goals, and a mission statement - a shorthand for these strategies and vision.
Perhaps a bit more difficult to articulate are the uncompromising, often unspoken, principles that should guide our behavior and help cement relationships within the organization. We are speaking of values like do onto others as you would have them do onto you; we are about people serving people; we will respect all cultures and walks of life; we win or lose as a team; or we will function at all times with honesty and integrity. All that simple stuff!
Our core values and culture are what we rely on "when all else fails." They must be zealously guarded as the hospitality hierarchy grows larger and individuals get further apart, physically and, perhaps, emotionally. One of the chief responsibilities of leadership is to help set these core principles and, then, translate them into the organizational structure and employment practices.
Moreover, the hospitality organization must sustain its core values and culture in practical ways. In some cases, these will be procedural. For example, making sure that executives remain accessible to staff and sustain what has always been an open door policy, or following a thoughtful and systematic approach to interviews and hiring, as we did when we were less busy.
From a human resources perspective, this also means backing up our values with real-world benefits. A company culture of "caring about others" must give practical expression to its values. One example is updating benefits packages in order to honestly reflect the organization's growth and profitability and the contemporary employment environment. Another might be backing a belief in community involvement with a corporate commitment of paid volunteer time and dollar matches to donations raised by staff-initiated efforts.
Basic Growth Strategies
The case can be made that in the early stages, at least, of growth it makes sense to work predominantly within a given geographic region and property type, while also narrowing brand choices.
There are several reasons for this, especially with respect to communications and travel expenses for headquarters staff, and for training and staff assignments. With properties relatively close to each other, say within two time zones and an equivalent dimension of latitude, it is much easier and less costly for key executives and human resources professionals to have feet on the ground and maintain a personal connection with general managers, specialists like maintenance or security personnel, and frontline staff. Yes, email and video conferencing are valuable communication modes, but nothing connects like a real world smile and handshake, reminding staff that their property is top of mind.
Proximity also makes it practical to share staff across several properties, including temporary "cover" assignments. An example might be a general manager or assistant general manager, or director of sales, who has to take a short leave. A close-by executive can do extra duty in such instances. Reasonable proximity can also make it easier or more attractive for staff to accept new assignments at another property, including for career progression. Advancement need not mean moving far away from family and friends.
Moreover, a portfolio of similar property classes, whether it's economy, limited service or full service, confined to select brands, helps economize in many individual property start-up and company wide support areas. These include areas like brand training or reservations and other IT systems. In many instances, brand concentration can be a key component of portfolio growth.
Expanding Functional Areas: Do we outsource or not?
Almost gone are the days of clipboards or walkie-talkies. Today's hospitality operations rely on a substantial array of expensive support systems, including in the areas of accounting, human resources and training, reservations and revenue management, plant maintenance and landscaping, information technology, asset management or sales and marketing.
Certainly, the major brands have developed outstanding systems for many of these functions and continue to push the integration, even co-dependency, of many of them. This trend seems to have gained a lot of momentum, driven by technology, i.e. cloud computing, as well as competitive factors, i.e. OTAs and other new reservation or concierge-like portals. Everyone seems to be racing to build the best guest acquisition breadbox.
Regardless, as they grow, most hospitality organizations will need to consider the value of outsourcing major support functions versus bringing them in-house. It can be a delicate balancing act for several reasons. First is cost. Once the hotel portfolio reaches "critical mass," there are clearly cost savings in bringing functions in-house. Balanced against these potential savings are the costs to establish new departments and recruit their leaders; the potential costs to continually upgrade these functions as technologies and methodologies advance; and whether these in-house functions can be scaled back, if need be, should a portfolio become smaller through dispositions.
Each organization will find its comfort level in this regard and the best balance among costs, control and operational and strategic flexibility going forward. If there is any yardstick here, those functions where technology is moving rapidly and where everyday decision-making is less impacted make good candidates for outsourcing. On the other hand, building up the executive team demonstrates a commitment to future growth, provides an enhanced career path for professionals, and helps build an organizational solidarity and memory.
Similar considerations apply when the numbers of frontline staff must increase to serve a growing number of properties. We want to develop a group of productive, motivated and dedicated individuals with the goal of retaining as great a percentage of staff as possible. This not only minimizes ongoing recruiting and training costs, but, also, helps when bringing new people on board, as they have quality staff from which to learn. When acquiring established properties, one valid strategy is to retain as much of the existing staff as possible, but also to have home-grown team members, ready for promotion, to help "seed" the new hotel.
As an aid in the duality of staff retention and portfolio growth, a growing hospitality organization should offer advancement opportunities for both property-level managers and frontline staff that directly serve guests. This is extremely important in today's intense labor market. However, our ultimate goal is to make hospitality an attractive career field, regardless of economic cycles.
The Real Bottom Line
Certainly, there will be some inevitable stumbling blocks along any organization's growth path, as well as inevitable changes in acquisition, development or investment strategies. How to meet those challenges is the subject of another article.
To conclude here, it is important to emphasize the positives of industry growth, as well as the bedrock on which we stand - those core values and culture. Today, we are in an enviable position. Despite some recent issues with respect to data management, which we know will be solved, well-run hotel properties continue to enjoy excellent returns on investment and a favorable reputation in the minds of investors, business leaders and consumers. We are an important economic engine of global economies, supporting business and travel, and a valuable job creator. In the U.S., hotel entities appear regularly on Best Places to Work lists.
As a result, it is our responsibility to maintain this quality and credibility, and role in the modern economy. A hotel investment may begin with a location, but it is built and sustained on relationships, the trust we place in others and in giving back to our partners, our people and our guests. In this way, growth is good.
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