Disruptive Revenue Management: Reinventing How We Do Business
The pandemic has forced us to fiercely restructure our organizations. In order to streamline revenue processes with the downsized staffing, I started thinking that maybe the time has come for us as an industry, to seize the day and address those much-needed innovations we’ve been muttering about for years. Is now the time for revolutionary changes in how we structure revenue optimization in hospitality? In a word, YES! There has never been a better opportunity to take a chance and create the ideal revenue optimization structure with minimum challenges for the team and maximize potential returns for an organization.
how do we do that?
Approach this as a full-on project, with a detailed critical road map with specific timelines and target dates. This approach can be used up and down any level of the organization, including corporate, regional, ownership, and/or property level. Before beginning, think through what is missing now in your organization. What focus has been given to each revenue stream? How is each one performing? Are the different revenue-generating disciplines working with each other, or is each division or department working in silos? Are there areas where underperformance is rearing its ugly head?
Brainstorm these questions at the leadership level, reviewing each revenue stream and creating a few broad categories of focus. Some areas that spring to mind are rooms (of course), food and beverage (including restaurants, banquets, & catering, in-room dining, and meeting space), wellness (spa, fitness centers, fitness and meditation classes, in-room fitness equipment, etc.), leisure activities (golf, watersports, pool cabanas, and retail sales) to name a few examples. There are plenty of areas of opportunity…
By going through the above exercise, you will realize how siloed our organizations are, especially when driving revenues. There is a strategy, or at least you would hope there is one, for rooms, another one for catering, another one for spa, and so on. The tried-and-true method is to harness the driving of revenues in the same way we organized the oversight of expenses long ago with the Director of Finance and all its title variations. We must, however, change our focus on revenues to more than just pricing if we truly want to optimize every opportunity.
great, now we have our needs, what next?
As we all know, there has been a massive exodus of talented professionals from the hospitality industry, particularly in the revenue management discipline, to other industries, such as the medical industry. This makes complete sense because while our industry was going through the worse crisis ever, the medical-related fields were flourishing because of the impact that COVID 19 has had on healthcare overall. As we all know, the key to restructuring the revenue processes and leadership requires qualified talent, which leads us to the quandary of how we build the new organization model we are talking about since part of our talent, has left the industry.
Noting the above, a few things to consider. The extremely qualified leaders are now few and far between. A quick review of the DORM roles available on LinkedIn® and Indeed® shows that good talent is hard to find, not to mention the numerous articles published over the past few months lamenting the same. With that in mind, the Revenue Organization needs to solidify its standing in oversight of ALL REVENUE STREAMS, not just rooms. Just as the financial leader of an organization controls the administrative keys to all expense-related fields of the P&L, having one thought leader for all revenue streams will create a unified revenue-generating direction for the entire organization.
To showcase what I describe in this article, I will use a large, independent, full-service resort with significant meeting space as an example of an executive committee organization chart. However, it can be easily modified to all business units, i.e., corporate level, brand, region, or even smaller, less comprehensive revenue-generating properties.
Now we have our leadership role, let’s define the role’s responsibilities. Inhale and exhale, the list is extensive:
· Broad scope, participate at the senior leadership level to deliver strategies and define goals on business development, distribution channels, 3rd party partnerships, sales, marketing, food and beverage, valet parking, and all other ancillary departments.
· Optimize RevPAR (revenue per available room), ARPAR (adjusted revenue per available room), and TRevPar (total revenue per available room) by demand analysis and forecasting,
· Set sales strategies, continual review of the optimal market mix by season through each revenue stream and across all segments within those streams.
· Ownership of all the systems that compile and analyze the data and strategies and provide pertinent updated reporting.
A key to this role will also be creating an organizational structure so that we’re developing an internal pool of revenue-generating talent. The revenue leader will grow into the role because of their inherent nature to analyze and strategize, positioning the revenue optimization discipline to lead this newfound path of organizational revenue focus.
The great news about combining different revenue-generating departments into this one leader is that strategizing, and forecasting look similar across all disciplines. All departments have competitors to monitor for services, promotions, pricing, availability, and market positioning. Additionally, each division has a set of similar KPIs. RevPAR becomes RevPASH (per available seat hour) in restaurants, meeting space becomes RevPAS/M (per available square foot/meter), and RevPATH (per available treatment room) for the wellness facilities.
Is this beginning to feel profound? Are any of the Executive Committee leaders getting nervous? Maybe, but that’s OK. It’s clear that with the above definition, the organizational structure will change, but all roles are still invaluable. Each leader is a subject matter expert and will assist in driving revenues, with just a slight change in mindset. Since we have involved the leadership team in the thought process this far, we hope, have removed the surprise element from the change process.
An article published by Kelsey Miller, “5 Critical Steps in the Change Management Process,” at the Harvard Business School Online, on March 19, 2020, https://online.hbs.edu/blog/post/change-management-process, states that once we’ve identified the need for the organization to fine-tune, step 3 in change management is to implement the changes. After the plan has been created, all that remains is to follow the steps outlined within it to implement the required change. Whether that involves changes to the company’s structure, strategy, systems, processes, employee behaviors, or other aspects will depend on the specifics of the initiative.
Ongoing and clear communication of the organization’s vision is critical throughout the implementation process to remind team members why change is being pursued. Also during the implementation process, change managers must be focused on empowering their employees to take the necessary steps to achieve the goals of the initiative. They should also do their best to anticipate roadblocks and prevent, remove, or mitigate them once identified.
ur plan is beginning to take shape.
Now that we have defined our leadership role, it’s almost time to begin the project rollout and to review what a revenue-centric organizational chart may look like. Changing the process of reviewing operating departments may prove to be more challenging than the revenue-generating fields of sales, marketing, and revenue management. Moving to more of an operating approach and taking the pricing and positioning out of the hands of food and beverage, wellness and other departments isn’t practical. Of course not! The implied suggestion here is that the revenue leader is now the go-to position for analytics and understanding of the market trends. Relying on each disciplines' subject matter experts, the Chef, the Restaurant Manager, the Spa Director, the Director of Sales, etc. is crucial, as each of these disciplines holds the key to the deeper understandings of the individual department's potentials. In the model below, the revenue optimization leader role takes on oversight of revenue generation, just as the financial leader takes on the expense control oversight, and the general manager has oversight on the overall organization.
With the revenue leader at the helm of generating all top-line revenues, as well as high probability forecasting and budgeting of those revenues as well, just how will that org chart flow? Below is a simple sample. In this chart, the revenue and financial roles are reflected in the hierarchy so that it is noted that each has responsibility for all departments, Finance for expense control and Revenue for, well, revenue.
originally published in hotelexecutive.com on October 24, 2021