2015 was a busy year for the hotel industry. ADR, Occupancy and RevPAR achieved record highs. We saw extensive merger and acquisition activity, culminating at the end of the year with the acquisition of Starwood by Marriot and Fairmont by Accor (and don’t forget Expedia’s Orbitz acquisition, of course). Favorable economic conditions are expected to continue, but it is difficult to predict what the impact of the acquisitions will be. As one of my favorite analytic hospitality executives always reminds me, it will probably be the “unintended consequences” that we need to watch out for as the industry adjusts to this consolidation. 2016 will be very interesting, to say the least.
In the tradition of The Analytic Hospitality Executive, let’s kick off the new year with some tips to set you up for success in 2016 and beyond. Here is my advice for what we need to stop doing, start doing and do more of:
Stop operating in silos – This is not the first time I’ve said this. Probably won’t be the last. Departmental barriers and conflicting incentives are holding us back. Hotels must start synchronizing decision making across marketing, revenue management, finance, development and operations, and need to be supported by a collaborative and business-focused IT organization. There have been some encouraging signs that we are moving in this direction. In 2015, Hilton Worldwide pulled together Hilton reservations, customer care, regional marketing, eCommerce and revenue management, under Chris Silcock as Chief Commercial Officer. Wyndham Hotel Groups recently announced that they will consolidate sales and revenue management under Kathy Maher, SVP, Global Sales and Revenue. Organizational changes like this will go a long way to facilitating more coordination. Beyond consolidating related functions under strong leaders, however, we must foster cross-departmental decision making and reward decisions that holistically benefit the organization.
Stop relying on gut instinct – Data and analytic systems have become more accessible. There is no longer any excuse to rely strictly on guess work or gut instinct. Hoteliers need to foster a culture of fact-based decision making, or risk falling behind. I am not suggesting that a revenue management system or a data mining platform can replace an experienced revenue manager or marketer. In fact, it’s quite the opposite. The systems are there to provide decision support, but the manager needs to make the decisions through the lens of their experience and business acumen, based on what the data tells them. I’ve been encouraged to see more hospitality organizations investing in data and analytics systems and people over the last few years. This must continue.
Stop blaming the OTAs for everything – We spent a lot of time in 2015 talking about rising distribution costs, and the OTAs got vilified all over again. Now, I don’t disagree that rising distribution costs should be of concern to hoteliers. Cindy Estes Green and Mark Lomanno have provided strong evidence that we need to shift this trend, or we will be in trouble. However, we also need to keep in mind that we have control over our distribution costs – it’s not something that the OTAs are doing TO us. It is easy to sit back and simply blame the OTAs. The OTAs have proven their value in generating incremental demand from markets that an individual hotel could never reach on their own. It is crucial to manage the relationship with these OTAs carefully, in light of your pricing strategy and the marketing opportunities associated with each partnership. Consider the concessions that Hilton Worldwide recently got in their negotiations with Expedia. Of course, being a large global company helped, but so did having a strategy, and knowing the role that the OTAs would play in that strategy. It wasn’t just about commissions, it was about terms. Instead of blaming, build your business strategy considering the opportunities to use the right distribution partners as an integral component. Make the costs you pay worth the opportunities you achieve.
Start preparing for the future – This business isn’t getting any easier. Consumer behavior is changing rapidly, as alternatives for research and booking flood the market. Technology continues to evolve, creating more data sources and more operational complexity. Recent hotel company acquisitions will change the competitive landscape. It is up to each of you to prepare yourselves and your organizations for this change. You need to stay updated in the latest trends in technology and consumer behavior. You need to learn how to evaluate a technology investment from a business perspective, and communicate those needs clearly with the IT organizations that support you. You are taking a great first step by reading our blog. Attend conferences (some outside of the hotel industry), read articles, look at software demos, ask for proof and interface with your peers. Organizations like HSMAI have great educational materials. Most importantly, however, is to keep asking questions. Don’t take anything at face value. With all the noise out there, it is up to you to cut through the hype and determine what will be most effective in moving you and your organization forward.
Start becoming more prescriptive –As more and more different data are available and the influences on our business grow and change, it’s not enough to be able to predict what will happen, you must be able to prescribe solutions to achieve desired outcomes. It’s great that your revenue management system can tell you that you will get to 90% occupancy next month, but what if business goals require you to be at 95%? In the current climate it can no longer be about knowing what will happen, it’s about knowing what to do about it. A prescriptive manager can synthesize a wide variety of inputs, read the market and work with other departments. Start asking the question “So what?” and “What do you plan to do about it?” of your managers and analysts now. This is useful during any economic climate, but think about how powerful it will be if you were already practiced at this kind of business decision making as we move into the inevitable next downturn.
Start testing to innovate - Speaking of the economy… Strong conditions provide the opportunity to invest resources in experimentation and innovation. 2016 is the time to try out some new techniques, new programs, new strategies and new technologies. Even if you don’t have the budget for a huge technology investment or massive program change, you can use what you have access to do a bit of experimenting. The most important factor is to establish a solid testing methodology so that you can clearly demonstrate success. Analytic hospitality executives are probably familiar with the concept of A/B testing. In this process, random groups of real consumers are shown alternatives and statistical tests show which treatments are most effective. It can be as simple as testing which image increases conversion or which email title generates the most openings. Every hotel company should learn this technique. It’s so easy to deploy in the digital environment, you’d be crazy not to. You could find you are missing out on a huge revenue opportunity only because you are not talking to your guests in the right way.
Do more collaborating – Going along with “stop operating in silos”, we need to foster a more collaborative environment across the hotel – at corporate and the property level. Even if your company has not yet aligned organization structure or incentives, you can still build informal cross-functional teams and start working through broader strategic initiatives together. As hotel companies take on more complex initiatives like personalization (described in a previous blog), it will become more crucial to get input and buy-in from across the organization. Take the time to learn about goals, metrics and operating procedures across the organization, and get used to gathering input and gaining consensus.
Do more automating – There is simply no reason anymore for analysts to spend large portions of their time on data gathering and cleansing, or for managers to have to wait days to access operating reports. These routine analyses should be automated through business intelligence and analytic applications You should have an automated revenue management system, a reputation management system, a business intelligence application and an automated marketing system, so that the organization can focus on interpretation and prescriptive decision making. When analysts and IT are not stuck on routine tasks, they have more time for more strategic or ad hoc analyses. Make a point in 2016 to invest in some technology that will automate routine tasks, providing the right information to the decision makers in the formats they need to take action.
Do more strategic thinking – I’ll end with this because I say it every year – and it’s important every year. It is easy to get caught up in the day to day and not leave enough time to look forward. Particularly after this year, ripple effects will last well into the next few. You should know where you want your organization to be three, five or ten years in the future, and make a plan to get there. Follow trends and understand impacts. While you are at it, think about your own career. Where do you want to be five years from now, and what will it take to get there?
It is clear that 2016 will be a year of great change for the industry as the dust settles from 2015. We have a lot to do to keep up, but there are a lot of opportunities. In fact, it will be a year of great change for me personally as well. This is my last blog at the Analytic Executive. I am leaving SAS to take on a role leading a hospitality analytics team. The blog remains in the capable hands of Natalie Osborn and Lee Ann Dietz, so you can expect more of the same kind of quality content you’ve always seen from us. I’m not going away completely, though. I’m in the process of working out a new collaboration with the Cornell Center for Hospitality Research, so keep your eye out. It has been a privilege to be able to share my insights with you. Let’s keep working together to move our industry forward!
What are you thinking of starting, stopping or doing more of in 2016? We would love to hear from you!