Mr. van Meerendonk

Revenue Management

Can You Use Change Management and Revenue Management in the Same Sentence?

By Paul van Meerendonk, Director of Advisory Services, IDeaS Revenue Solutions

The hospitality industry experiences change every single day. Each day sees changes in guests, rates, menus, events and staff. At a higher level, hotels across the globe experience changes in management, brands, job responsibilities, revenue strategy and guest expectations. Sweeping changes in distribution, technology, analytics and merging industry conglomerates also affect nearly every hotel in every region.

Heavy market competition and compression also adds to this revolving door of continuous change. In fact, stiff competition and the relentless dynamics of the distribution landscape has forced hotels to begin thinking differently about their strategies for driving profitability. Today's progressive hotels are looking to holistic business approaches to take analytical revenue management approaches beyond guestrooms, optimize all revenue streams and pursue Total Revenue Performance to drive profitability. But while the revenue management industry remains busy just keeping up with these conversions, it is also essential to evaluate the impacts and implications of all these changes.

Change management in revenue management refers to how hotels transition their individuals and teams and align their resources, processes and technology to meaningfully restructure their organization toward a common goal. What do changes in analytical revenue strategies mean for the hotel revenue manager, the general manager, the owner, the franchise? Quite frankly, how can hotels effectively and sustainably manage all of this change?

Let's take a closer look at the holistic revenue management opportunities driving change for today's hoteliers - and how an adept change management structure can ensure a smooth alignment of people, process and technology for long-term profitability.

Total Revenue Performance

The holy-grail of many revenue managers is to apply their analytical approaches to all areas of the hotel. Total Revenue Performance, the holistic approach to revenue management that aligns all income streams with overall business goals, requires the support of an informed and progressive executive management team to encourage its strategic revenue approach. It also requires the right systems and technology to allow visibility and control across all of a hotel's revenue streams.

This is why evaluating hotel team alignment, business processes and technology requirements to determine whether cross-functional sales, marketing, catering and revenue management teams are working together effectively is one of the most important steps for hotels to take. It is also critical to evaluate the type of educational and training support necessary to manage pricing and inventory decisions in a scientific and methodological way.

The biggest challenge in applying Total Revenue Performance is the convergence of the traditional roles of sales, marketing and revenue management with food & beverage, banqueting, finance and other hotel departments. It takes the entire hotel team to capture the right guest, at the right time, for the right price - and in the right space.

Going Beyond Guestrooms

Revenue managers are generally comfortable managing hotel guest rooms; however, meetings, events and other ancillary revenue streams make up a considerable amount of revenue for many hotels - and the science of managing this area of revenue is still a relatively new practice for many hotel organizations. Taking the principles of revenue management beyond guest rooms into other areas of the hotel is one of the leading opportunities in the pursuit of Total Revenue Performance.

Total Revenue Performance, at its most basic level, starts by focusing on applying a data-driven approach to optimizing non-room revenue. For hoteliers looking to take revenue management past guest rooms, establishing key performance indicators and function space forecasting are the first steps to take. Hoteliers now have access to technology that provides function space forecasts that determine future space utilization, helping revenue managers make better decisions for using their available spaces and applying dynamic pricing based on demand.

However, optimizing function space revenue is only part of the equation. Meetings and events often have great variability in components (food, beverage, AV, meeting room rental, etc.) with different profit levels, which is why folding profitability into function space is critical. Hoteliers need to make decisions based on the most profitable business for the hotel, not necessarily the business with the most revenue. This gives hoteliers greater control of not just their revenue, but their profits as well.

Increasing Revenue Stream Profitability

Total Revenue Performance doesn't occur in a vacuum, and increasing prices in one area of the hotel may affect the profitability of another. While adjusting individual revenue streams, revenue managers also need to keep an eye on the bigger picture for maximum profitability.

Practicing Total Revenue Performance sometimes involves making decisions that seem counterintuitive or unprofitable at face value. This is especially true for revenue managers focused on one stream of revenue. For example, setting higher room rates during peak demand (a logical practice when considering only room revenue) may deter potential participants of a business conference who would have paid a lower room rate but spent more at restaurants, spas, golf courses, function spaces or other onsite activities. Total Revenue Performance enables hoteliers to optimize overall revenue - even if that means compromising desirable metrics like average daily rate (ADR) in rooms - to the benefit of higher profitability in an alternate revenue stream.

Many innovative hotels and hotel groups are now actively pursuing Total Revenue Performance strategies. How can hoteliers ensure that they keep up with the pace and smoothly implement these analytical revenue management approaches throughout their organization? The revenue capabilities of an organization will define their readiness for change. The more developed and innovative the revenue capabilities of an organization are, the more effective their ability to implement change. Let's take a look at how hotels can effectively manage the impacts of applying analytically-driven approaches on their people, processes and technologies.

Managing the People

One of the preliminary questions hoteliers need to ask themselves is who is going to apply sophisticated analytics within their organization. The role of a data scientist is becoming an essential component of an effective revenue management strategy. In-house resources are also becoming more common-place in larger organizations. There's also been recent industry discussion about the opportunity of a cross-departmental data scientist that can apply their skills where needed at the right times, while balancing the overhead costs to maintain this new role. External resources and third parties that can provide analytics as a service are also available. Dedicated support services for analytical technology and processes ensure hotels can perform at their maximum potential.

Restructuring a hotel organization around such new processes requires an active, engaging transition plan for employees and teams that supports the new direction. This may involve adding new leaders, redesigning job roles and responsibilities, and developing a higher standard of skills and capabilities. And since many people are often intimidated and resistant to changes in the processes, practices and technology they've grown familiar with, it is important to recognize that taking a proactive approach to change will help negate the potential risks to employee morale and acceptance.

Thoroughly planning for upcoming organizational changes - and the impacts to and requirements of its people - requires comprehensive development and a structure open to adjusting as the effects of change are felt at various stages. Hoteliers can begin the implementation by focusing on data collection, analyzing, planning and implementing business practices that support the new processes, technology and revenue strategies. These efforts should also consider the hotel organization's realistic capacity for change. It is important to recognize whether the desired change is the natural next step for the organization, or if there are more appropriate transitions that may be better suited. Moving too fast - too soon - can leave hotel teams feeling like they are being set up to fail.

Active involvement, communication and support from the hotel's executive team is a critical piece of the change management puzzle. A leadership team with unified messaging and exemplifying the behaviors and processes expected from their own teams demonstrates the organization is wholeheartedly embracing change from the top down. This is critical to the success of any change management plan, and when teams are facing stressful situations, they can feel supported by their leaders and deliver results.

Managing the Process

Optimal processes should not only look at taking advantage of the analytics outputs, but also the inputs. To make analytics work effectively for a hotel organization, the company culture needs to be geared toward a common goal of data integrity and the effective implementation of analytical decisions.

Change is a process in itself, and different levels of a hotel organization are going to be impacted by the progress of change. Hotels should outline the current state of their organization, transitionary periods and the desired future outcome - and how they are going to involve every layer of the organization for a smooth flow throughout every department. Identifying, training and aligning the appropriate leaders at every layer - and communicating progress and messaging to the entire hotel - will help make the transition from point A to point B a manageable and successful process.

Managing the Technology

Analytics help hotels move even further beyond the normal revenue management processes into harnessing data and forecasting capabilities to explore, predict and optimize revenue results. Today's analytics help hotel organizations explore why patterns and trends are happening to predict whether similar or different results will occur moving forward. By determining why specific results are emerging - and if they expect to continue - organizations can then start to optimize them by taking action to get the best effects and deliver revenue performance.

There are many aspects of analytics and technology that play a role in delivering optimal results: High performance forecasting capabilities provide a dynamic selection of hundreds of forecasting algorithms and models to give the best possible results; granular data and decisions can be provided for multiple hotels by departments, segments, room types, day parts and rate codes; predictive analytical tools allow hotels understand the impacts of changing strategy; advanced pricing and inventory controls maximize revenue opportunities; and expanded data sources such as reputation, competitive performance, rate shopping and value of demand can be integrated into decision outputs.

The hospitality industry continues to evolve, change and innovate. It is essential for today's forward-looking organization to ensure they are moving up the revenue capability ladder to effectively apply analytics across their income streams. The race for Total Revenue Performance is relentless and only those that can adapt quickly and effectively will ultimately benefit from these sweeping changes impacting the industry.

As Director of Advisory Services for IDeaS Revenue Solutions, Paul van Meerendonk leads a global team of revenue management advisors focused on hotel revenue optimization projects. Mr. van Meerendonk is responsible for global development, management and operations of the Advisory Services team. He oversees the hiring, training and management of industry-leading consultants located in London, Beijing, Singapore and Atlanta. Mr. van Meerendonk also represents IDeaS on industry thought-leadership initiatives related to trends and best practices within revenue management, including authoring a number of white papers, conducting public speaking engagements, as well as leading key client webinars with an average audience of over 200 global representatives. Mr. van Meerendonk can be contacted at +44 (0) 118-82-8100 or Extended Bio...

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