Developing hospitality operation through adoption of management techniques
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As with other businesses hospitality operations including hotels, restaurants, pub and bar businesses are now facing very tough trading conditions. Their operation environment that is being hard hit by the effects of an economic slowdown and the credit crunch. Britain is approaching a sink into recession in the current year with a contradiction of economic output in both the third and fourth quarters (Seager, 2008). Paris based Organisation for Economic Cooperation and Development released its latest set of economic forecasts.
According to the report, ongoing effects of the credit crunch and a weakening housing market will cause the British economy (claimed to be the worlds fifth largest) to shrink by 0. 3 percent in second quarter and by 0. 4 percent in the October to December period. According to the shadow chancellor George Osborne (cited in Seager, 2008). “Not only is the British economy predicted to shrink in the next two quarters, but it is also the only economy not predicted by the OECD to see a recovery this year. All of our major competitors are predicted to see at least some growth by the end of the year. ”
This statement thus defines that the service industry faces tough trading conditions. It has resulted in a business slow down affecting various factors. According to e-hotelier (2008), the UK hotel market reported a 9 per cent fall in profit in the month of October 2008. Higher costs and a shrinking pool of demand resulted in low profit. The sample of 509 UK branded hotels reported a 3. 2 per cent point drop in average occupancy to 77. 4 per cent. “For most UK hoteliers the effects of the economic downturn were clearly felt in October. With fewer guests and higher operational costs, pressure on profitability was inevitable,”
Jonathan Langston, managing director, TRI Hospitality Consulting (cited in e-hotelier 2008). The aim of this essay is to critically assess and evaluate how hospitality operations may seek to lessen the possible impacts of the economic slow down through the adoption of operation improvement techniques. The main objective of this essay is to evaluate how hospitality operations are impacted on by the recession in the UK and to discuss various operation techniques that seek to reduce wastage and improve product and service quality. Discussion of the techniques will establish the most efficient way to survive the recession.
In order to evaluate how hospitality operations can improve their productivity to survive the recession, firstly it is important to understand how the hospitality industry has been impacted on by the recession. Hospitality tends to be a late cycle industry in terms of registering the impact of recession either positive or negative. Slowdown in business occurs because corporate clients review their own polices when they see business slowing (PriceWaterhouseCoopers 2008). Despite the banking and credit crisis which began in 2007, the UK economy remained in a reasonable condition during 2007.
The Gross Domestic Profit grew by 3 per cent during the year following a growth of 2. 8 per cent in 2006. In the year 2008 however the UK saw an overall drop in occupancy of 1. 5 per cent in the first nine month’s of trading. Two major cities of the UK Edinburgh and Birmingham saw the largest occupancy decline of 3. 8 percent and 4. 1 per cent respectively ((PriceWaterhouseCoopers 2008). On the other hand some city markets behaved differently around the trend by increasing both average room rate and profit due to local events.
Liverpool’s European Capital of Culture status made it a popular leisure destination during the half-term break, and a series of major football events kept demand high. As a result average occupancy rose by 1. 9 percent. In Newcastle, the great north run helped daily income before fixed charges increased by 6 per cent to 44. 32 pounds per available room (e-hotelier 2008). Inter Continental hotels group, the world’s largest hotel company recently warned that the recession would affect its pipeline of new developments.
The downturn hit the hotel sector as leisure and business travellers cut back on their travel plans and developers struggled to complete openings (Lau 2008). According to Blitz (2008), Marriott, one of the worlds leading hotel operators became the first company to warn that a pipeline of new openings could be hit by owners forced to cancel or delay projects due to the recession. In the interview with Financial Times Mr Marriott said “Given the deteriorating financial markets, the company, owners or franchisees may decide to delay or cancel some of the projects included in the pipeline.
Such decisions may lead to write-offs of amounts invested, which cannot be estimated at this time… ” It can be clearly seen from the above that the recession has negative impacts on luxury hotel companies like Intercontinental and Marriott. Companies are forced to delay or cancel their upcoming projects due to a decrease in business. Budget hotel companies like Travel Lodge however have a positive impact in the recession in terms of business. Travel Lodge, the budget hotel operator planned to spend 125 million pounds on opening 22 new hotels before the end of the year 2008.
According to Mr Paul Harvey, managing director of development (cited in MacNamara 2008) the credit crunch has forced consumers to review their spending habits thus more customers are attracted towards budget hotels. In addition to the evaluation of the impact of the recession on hospitality, another business sector needs to be considered that of restaurants. Eversham and Paskin (2008) suggest that the restaurants sector could suffer 3 years of recession. During a discussion on the credit crunch at a panel debate at the restaurant show in London, food critic Charles Champion said, The established restaurants will go on doing it as they’ve always done, and the people at the bottom serving meals for four quid will be ok.
It’s the people in the middle ground – people charging more than they should for not very good grub – where the trouble will be. ” As mentioned previously however budget hotels welcomed the recession which gave a boom in business, fast food restaurants are in a similar situation. Mc Donald’s, the worlds largest fast food chain said that consumer demand for burgers and fries was proving resistant to economic slow down both in the United States and Internationally.
Globally Mc Donald’s store sale has increased by 1. 7 per cent during the second quarter of the year 2008 (Birchall 2008). After evaluation of the recession’s impact on hospitality this essay further discusses various operational improvement techniques to survive the recession. As discussed during the evaluation various business sectors have different impacts from the downturn. For example budget hotels and fast food restaurants have a positive reaction from the recession whilst fine dining restaurants and luxury hotels have negative results. Business still needs to adopt new techniques to survive.
By adopting operation improvement techniques positively reacted business can continue with stability like wise negatively reacted business can improve sales to survive. Firstly, examples are taken from positively reacted establishments. As discussed previously because consumers are re-calculating their spending, they are more attracted towards cheap products; however such establishments still need to react to boost their sales in the downturn. As an adoption of management improvement techniques for such establishments the Six Sigma system is used. Six sigma is a statically based quality improvement programme.
The main objective of six sigma is to improve the business process by reducing waste, by reducing costs occurring from poor quality and by improving levels of efficiency and effectiveness of process (Hoeral and Snee 2002 cited in Hensley and Dobie 2005). In order to successfully introduce six sigma to the hospitality industry, companies require the ability to assess their readiness along with their ability to choose a proper tool to begin. The benefits of six sigma that are experienced in a manufacturing environment should be transferred to the service industry (Hensley and Dobie 2005).
Slack et al. (2007, p-611) suggests that the use six sigma has enabled significant benefits to be achieved by reducing costs and improving customer service. Researched by Hensley and Dobie (2005) indentifies four potential difficulties when implementing six sigma in service industries. 1. It is generally considered that it is more difficult to gather data than the manufacturing industry. 2. Measurements of customer satisfaction may be more difficult in services because the interactions between customers and the service provider may create complications. 5. The measure and control phase of six sigma may be more difficult to control in the service industry because service sub-processes are harder to quantify and the measurement data are harder to gather. 4. Much of the data are service is collected manually in face-to-face interaction. Six sigma however can work most successfully when it is adopted as managerial philosophy rather than as a quick fix for a particular problem. As an example Starwood, US based hotel operator have implemented six sigma in the year 2001.
After implementing six sigma Starwood saved millions of dollars through improved efficiencies and maximized targeting of employed capital. Further, Starwood expected to generate significant incremental revenue and profit due to enhanced loyalty and additional products and services (hospitality net 2001). It can thus be understood how six sigma can help organisations to achieve customer service. According to Pratten (2003), service quality is a core element for hospitality organizations to be successful because the success depends on the customer’s satisfaction which is the customer’s entire experience.
As the hospitality industry goes to the global scale, those firms are busy seizing customers in order to sustain businesses. A quality service is thus a crucial approach for gaining customers because quality service is basically perceived as customers subjective interpretations of their experience and it is also crucial to customer satisfaction (Garavan, 1997). Secondly, examples are taken from negatively reacted establishments. As per discussion such establishments will be required to work harder than any other service industry in order for the business to be sustainable in the recession.
Adoption of operational improvement techniques for such organisations will be focused on reducing waste to protect capital and on improved customer service to gain repeat business. William (2008) suggests that 9 percent of customers leave because of competitors, 14 percent of customers leave because of dissatisfaction with the product, and 67 percent of customers leave because of an attitude of indifference on the part of a company employee. Follow up is an art form. In many ways, one of the biggest differences between good, great, and engaging service is the quality of the follow up.
Another operation improvement technique which can be implemented in the hospitality industry is Total Quality Management. According to Jeffries, et al. , (1992), the essence of Total Quality Management is a comprehensive and integrated way of managing any organization in order to meet the needs of the customer consistently and achieve continuous improvement in every aspect of the organisation’s activity. It is a management philosophy which seeks continuous improvement in the quality of all processes, products and service of an organisation (Brown, 1994).
The primary objective of hospitality companies is to survive downturn. Survival in the hospitality industry means delivering the products and service that satisfy the required quality, quantity and schedule. Total Quality Management begins and ends with the customer. It is purely a customer-oriented method of management. Total Quality Management deals with concepts like product quality, process control, quality assurance and quality improvement. In some other aspects it controls all transformation processes of an organisation, which are aimed at satisfying customer needs to the best in a cost effective way.
According to Abrahamson (1996), Total Quality Management can be divided into three parts: Total, Quality and Management. Total means involving the entire organisation supply chain and product lifecycle; Quality as said above means the characteristic or feature of someone or something or, the standard of excellence of something, often a high standard. Management is the system of managing with steps in the organisation like plan, control, organise and so forth.
Lakhe & Mohanty (1995) point out that Total Quality Management is a management approach which concentrates on quality, request for excellence, creating the right attitudes and controls to make prevention of defects possible and optimize customer satisfaction by increased efficiency and effectiveness. It is based on the participation of all the members and it aims for long-term success through customers’ satisfaction and benefits to all members of the organisation. It is therefore an organisation-wide activity and it has to reach every employee within the organisation.
From above, it is seen that Total Quality Management is the management of the total quality. In that case, the quality is assessed in the entire organisation such as the producing process, the final product and so forth. This management approach helps hospitality companies to avoid mistakes and prevent defects. Hyde (1992) suggests that Total Quality Management encompasses five principles which are management commitment, employee empowerment, fact based decision making, continuous improvement and customer focus. It is mainly concerned about continuous improvement in all work from planning to the details of daily work.
It is from the shop floor employees to senior managers (Dimitriades, 2000). All principles are aiming to pay attention to the “service quality” which can help hospitality companies to differentiate from other organisations and through it gain a last competitive advantage (Ghobadian, et al. , 1994). According to Dotchin and Oakland (1994), that customers assess the quality of service by comparison of expectations and perceptions, thus it is necessary to find out how particular parts of service contribute to customers expectations and perceptions of service quality.
In terms of reducing costs, one of the most effective tools for hospitality companies is just-in-time. JIT was designed to assist every worker involved in the production process to concentrate. It aims at doing things right at the first place within the assembly flow, instead of performing quality control after products or even defects have been made. Lai and Baum (2005) refer to Hutchins, (1999, p. 44) “Everything must be right the first time! ” Just-in-time management consists of a range of techniques to improve the production process and reduce associated costs.
JIT gives particular emphasis to delivering specific results by involving all employees in problem solving and making customer satisfaction paramount (Jewitt, 1992, p. 3 cited in Lai and Baum 2005). The hospitality and tourism industries are two of the fastest growing and most dynamic sectors of the UK economy and both of them are highly labour intensive (Jameson and Holden, 2000). Hotels require a lot of staff to work. Government also has great power to regulate its labour and the wage rate.
Previously, the National Minimum Wage was 5. 52 pounds per hour, but it has now increased to 5. 73 pounds per hour from October 1st 2008 (Directgov, 2008). This explains that hospitality companies will be paying out more wages than in previous years. In addition, the Employment law shows difficulties for organisations to terminate labour contracts. Tax legislation creates a large tax burden on companies. The power of government on tax affects the profit of hospitality organisations.
In addition, immigration policies make it more difficult for foreigners to enter the country. Fewer foreigners entering to the country leads to fewer customers for hotels and restaurants. To survive the downturn with very expensive labour, Lai and Baum (2005) suggests a just-in-time labour supply in hotels. According to them just-in-time philosophy through the development of relationships with employment agencies can bring possible solutions to the characteristically erratic demand flections in the hospitality sector.
Their research proved that based on the empirical findings, most hotel managers employ agency staff to prevent “staff sitting there and doing nothing”. Managers want to control their labour cost “down to the last penny”. Financial information also shows that by hiring agency room attendants in house keeping departments, hotels can save 1000 pounds on overhead costs per staff members per year compared to having their own staff. In other words there is a 500,000 pounds saving per year in the house keeping payroll, just by adopting this external quantitative flexibility strategy.
Numerous operations paradigms, initiatives, and practices are available to implement for hospitality companies regardless of positive or negative impacts of the recession. All these available techniques are employed to seek improvement in quality and reduce waste. As discussed previously that by implementing such techniques how much money an organisation can save. However Kannan and Tan (2005) suggests that these techniques are sometimes viewed and implemented as if they were independent and distinct, they can also be used as prongs of an integrated operation strategy.
The Research result demonstrates that at both strategic and operational levels, linkages exist between how just-in-time and Total Quality Management are viewed by organisations as a part of their strategy. For example successful JIT implementation depends on co-ordination of production schedules with supplier deliveries. This requires the development of close relations with suppliers, both in terms of product quality and delivery reliability, which refers to TQM. It can therefore be summarised that while JIT and TQM have certain defining characteristics, they represent elements of an integrated operational strategy.
Snell and Dell (1992), cited in Kanan and Tan (2005) point out that it is hard to distinguish between JIT and TQM since they have common elements. A conclusion can be drawn from this study: economic slowdown has effected hospitality companies in both positive and negative aspects. A most effective way to survive recession can be established and this is to use linkages between various techniques. Hospitality companies can use the essence of various techniques according to their needs.
At an operational and strategic level these management techniques can be employed together to create a value. The extent to which various practices correlate with each other and with performance is evident. While these techniques may be distinct characteristics and goals, there are common elements in each which can be reinforced by each other. Lastly, in addition to a having focus on reducing wastage and improving product and service quality to survive the downturn, understanding these management techniques and links between them is a key driver of performance.