The International Network of Hospitality Consulting Professionals

The Pros and Cons of Mediation in Hotel Disputes

As a lawyer involved for over 30 years in the drafting and negotiation of contracts for the hospitality industry, I can assure you that disputes are inevitable. Even among parties such as owners and management companies that have the best working relationships, there will nevertheless be issues that cause discord.

It is in how we resolve these matters that will determine if the relationship between the disputing parties will survive. If preservation of the contract and the relationship is desired, then the goal of both parties should be to resolve the matter quickly and efficiently, while also recognizing at the outset that neither of them is likely to be completely satisfied.

Resorting to court, for so many reasons, should be the last resort. Going straight to court is analogous to going to war without any attempt at diplomacy. Short of a pitched battle, there are three recognized alternatives: mediation, expert resolution (or determination) and arbitration. This article will focus on mediation, which offers the best opportunity for the parties to move forward in the ‘status quo ante’ following resolution of the dispute.

Before diving into the pros and cons, a definition is in order. Mediation means the intervention of a person chosen by agreement of the conflicting parties to promote reconciliation, settlement or compromise. Most people are familiar with mediation in a marital context. It applies with equal efficacy to commercial disputes as a means to bring the parties ‘into the same room, face-to-face’ so that, with the assistance of a trusted and sometimes trained/certified mediator, the parties can craft a resolution themselves.

For a summary of mediator certification requirements state-by-state, go to: http://www.mediationworks.com/medcert3/staterequirements.htm

A mediator assists the parties to find common ground and, where the parties disagree, to make concessions in the interest of a compromised solution. Mediation techniques include separate meetings with each party, developing a statement of the parties’ exact differences to avoid having the dispute expand in the heat of disagreement and drafting a memorandum of understanding to capture the ‘deal’. This memorandum may be enough for the parties, or it may in some cases go to the lawyers to become a more formal contract or contract amendment.

Generally, agreements to mediate that are often found as mediation clauses in contracts are enforceable. But as a consensual process, a settlement is less likely if one party is forced to participate. The mediation clause recognizes that both parties have considered and are open to the mediation process. If the mediation fails to produce an agreement, then typically the contract in question will provide that the parties may then go to arbitration or court.

Advantages of Hotel Mediation:

  • Consensual in nature; no one feels ‘summoned to appear in court’
  • Brings the parties together before the relationship is destroyed
  • The mediator, chosen for relevant experience, will be someone who knows the industry and has experience specific to the matter in controversy
  • The mediator is acceptable to both parties
  • The parties contribute to the process that results in a mutually acceptable resolution
  • The cost of a mediator is not exorbitant
  • Lawyer involvement in most cases is minimal
  • The scheduling is up to the parties

Disadvantages of Hotel Mediation:

  • No binding award is issued until the agreement is memorialized in a written agreement executed by both parties
  • Can consume a lot of time with no resolution
  • The admission of documents, statements and other ‘evidence’ is left to the mediator who will not be constrained by formal rules of pre-trial discovery or the rules governing the admission of evidence during a trial
  • Each party will ‘show its hand’ in the process and that information may result in a tactical advantage if the parties later arbitrate or litigate

Hotel Mediation Case Example

For years, a hotel used a particular vendor for linen services. Then, a new driver was assigned to the account. This driver became verbally abusive to the hotel receiving clerk and her manager within days of taking over the route. Repeated complaints were made to the vendor management without response.

The hotel was left with no choice but to file notice with the vendor to cancel their contract. The vendor refused to meet with hotel management about the situation and instead commenced a lawsuit to collect damages from the cancelled contract. Because the damages claimed fell within state mandated amounts requiring mediation prior to a trial, the case was directed to mediation.

Within two hours of discussions managed by an independent and unbiased professional mediator, not only was the case dismissed by the vendor, but both parties also left the mediation expressing relief and affirming how valuable they were to one another. With apologies to the hotel staff, reinstatement of the vendor contract and dismissal of the abusive driver, both parties found a path forward and preserved an important relationship.

While this case may have been for a relatively small sum of money, it nonetheless represents the importance of using mediation to limit legal costs, business disruption, management time dedicated to the issue and the unpredictability of a court decision. Whether it’s a simple vendor dispute, an employee/employer conflict or a larger issue such as a management contract challenge, mediation should be considered as the first course of action to prevent escalation.

Mediation Clause

Here is a sample mediation section for a contract.  Shorter, less detailed versions are also available. Please review so you are familiar with the terms when it comes time to put them to use.

1. The parties agree to attempt to resolve any dispute, claim or controversy arising out of or relating to this Agreement by mediation, which shall be conducted under the then current mediation procedures of [AGENCY] or any other procedure upon which the parties may agree. The parties further agree that their respective good faith participation in mediation is a condition precedent to pursuing any other available legal or equitable remedy, including litigation, arbitration or other dispute resolution procedures.

2. Either party may commence the mediation process by providing to the other party written notice, setting forth the subject of the dispute, claim or controversy and the relief requested. Within ten (10) days after the receipt of the foregoing notice, the other party shall deliver a written response to the initiating party’s notice. [OPTIONAL PROVISION: The mediation shall be conducted by ___________ with its principal offices located at __________]. The initial mediation session shall be held within thirty (30) days after the initial notice. The parties agree to share equally the costs and expenses of the mediation (which shall not include the expenses incurred by each party for its own legal representation in connection with the mediation

3. The parties further acknowledge and agree that mediation proceedings are settlement negotiations, and that, to the extent allowed by applicable law, all offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties or their agents shall be confidential and inadmissible in any arbitration or other legal proceeding involving the parties; provided, however, that evidence which is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation.

4. The provisions of this section may be enforced by any court of competent jurisdiction, and the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including reasonable attorneys’ fees, to be paid by the party against whom enforcement is ordered.

(Article by Albert Pucciarelli, published in Hotel Executive on May 29, 2016)


About the Author

pucciarelli

Albert J. Pucciarelli is a partner with McElroy, Deutsch, Mulvaney & Carpenter, LLP, a national and international law practice. Active with the firm since September 2005, Mr. Pucciarelli is recognized for his expertise in hotel and resort development and operations. His practice is concentrated in these areas, as well as in aviation law, general corporate law and real estate law. Mr. Pucciarelli served as: Executive Vice President, General Counsel and Secretary of InterContinental Hotels, Chair of the Hotels, Restaurants and Tourism Committee and as Chair of the Aeronautics Law Committee of the Association of the Bar of the City of New York. He is a Director and past President of the Hospitality Industry Bar Association. Albert is a Consulting Member of Cayuga Hospitality Consultants.

Control the Process to Get the Best Deal on Hotel Insurance

A common question for hotel and restaurant operators is: How do I get insurance that effectively covers my operation for the lowest price available? While insurance is a complex topic with many intricate layers, the answer to this specific question is fairly simple – control the process.

When you ask for a certain grade of steak or a set of linens with a defined thread count or a specific piece of equipment, you can compare ‘apples to apples’ and make a decision based on price, delivery, installation and so on. But insurance does not work this way.

Why not? Well, the ‘playing field’ is hardly level. Typically, you do not have the knowledge that your ‘vendor’ is bringing to the table. Do you know how to read a ‘quote’ when the various ISO forms are listed as part of the policy? Do you even know what an ISO form is? Be honest with yourself; understanding insurance is not for the faint of heart.

You’ll often start the process by asking three insurance agents or brokers to give you a quote (I use agent / broker interchangeably because, for all intents and purposes, they are the same for your purposes). What do you give the agent to get you this quote? Is it a copy of the current policy or the last ‘proposal’ that you purchased? Most agents will jump at the chance to work with this limited information and run to the insurance marketplace with your account to see what is available.

And why would they jump at this opportunity? As insane as it sounds, any agent with an application can submit your account for a quote – whether you sanctioned it or not, whether the details are correct or not and whether the submission is complete or not. Once the insurance company receives the submission from an agent, that insurance company is precluded from offering a proposal to any other agent.

Yes, you read that correct. This is called ‘blocking the market’ and it makes sure the agent submitting your account ‘locks up’ the insurance companies with his or her submission. It doesn’t matter if the submission is accurate or complete; you are simply tied to that agent for the bidding process. Some agents have no problem rushing to the marketplace to ‘block’ the insurance companies. This isn’t necessarily good for you, but incentivizes the agent.

Your main recourse to prevent any trauma is to control the process.

Create detailed bid specifications that are in underwriting terms – insurance speak – and are applicable to any insurance company. This means a ‘statement of values’ reflecting all of the data needed to understand the buildings to be insured, the revenue streams to be insured and the employees to be insured. Many insurance companies require not only the standard ‘Acord forms’ but also detailed supplemental applications. You can and should have a very detailed supplemental application already completed that answers every question an underwriter can think to ask before they ask it.

To help with your understanding and the development of these bid specifications, there are three legs to the stool of insurance that you should know. First, what is the exposure? That is answered by the generic Acord forms and the supplemental that answers every question an underwriter can ask. Second, what are you paying for the insurance now, in details by line of coverage? Not sharing the current cost is detrimental to the effort. What you are paying now is combined with the third leg, which pertains to what has been paid out on your behalf in terms of claims?

If you can explain how your account can be profitable to the insurance underwriters, you can get the best deal because you can show the underwriter how much the insurance company will be able to charge, the exposure they are insuring, and the ‘payout’ from prior insurance companies for the same risk.

Remove one leg from the stool and it wobbles. Too many buyers think they are able to get a better deal by not sharing all three legs of critical information. They won’t share the current premiums; they have no idea of the true exposure; or they cannot provide hard copy results of the losses paid out on the account (called ‘loss runs’). In this sense, controlling the process means arming yourself with as much information as is possible.

Lastly, think about broker selection as a concept. Create an RFP for your insurance needs. Ask agents to review your three legs and provide the approach they will take to soliciting your account to the insurance marketplace. Interview as many as you wish, just make sure you clarify what you want in the RFP. Only then should you pick the best one based upon your internal criteria, and let that particular agent run the marketplace.

When I am in control of an account, I have the luxury of bidding to the insurance world, knowing that I control who gets the final order based on your criteria and my relationships. The analogy is the hiring of a real estate agent to sell your home. They control the process and get you the price you desire based on what you have to sell and what you want. Make the process simple so that you can control it and so you can get the best deal possible.

(Article by Tom Cleary, originally published in eHotelier on June 15, 2016)


About the Author

tom_cleary

Tom Cleary is an Equity Partner with the Sihle Insurance Group in Clearwater Florida and a member of Cayuga Hospitality Consultants. Based in Florida for his entire career, Tom has expertise in commercial insurance with a focus on hospitality and real estate as well as flood and wind exposures. Products offered include property, liability, automobile, crime, umbrella and workers’ compensation throughout the United States and the Caribbean. Tom also serves as a regional director for The Cornell Society, has been a board member and longtime member of the Florida Restaurant and Lodging Association, and serves in an advisory capacity to the Resort Hotel Association.

Preparation Is the Foundation for Achieving Settlement in Mediation

Mediation is becoming a “must” in many states prior to a judge hearing a case.  While it may not be a written statute or rule, it is a preferred practice, especially in civil cases.  Having the opportunity to achieve settlement of a dispute without the time, expense and unpredictability of a trial takes an effort, but when properly planned for can allow both parties to feel that a fair resolution has been accomplished.

Whether you are one of the disputing parties or the mediator/facilitator, being prepared to participate in mediation responsibly, collaboratively and rationally is essential for a positive outcome.  Especially as one of the disputing parties, being prepared to present your case in a clear and convincing manner is important.  Before entering the meditation session, having some idea what possible areas of compromise you might accept, what issues you believe your opposing party would most likely be unwilling to concede to and compete to protect, those issues that are simply best to avoid, and finally what your ultimate objective is gives the best chance for a positive outcome.

However, the emotional quotient in the midst of an unresolved conflict is highly charged and, if not controlled can too easily hijack any chance of settlement.  Most of us know better than to go into a negotiation/settlement discussion ready to pick a fight so, why do so many parties still show up unprepared with teeth bared and weapons drawn?  I suppose it goes back to our primitive instinct of “fight-or-flight.”  Executives or high level professionals didn’t reach their positions by being push-overs, so it is possible that if the parties participating in the discussions have not prepared properly for the settlement conference, which includes managing emotions, we will unconsciously (or consciously!) come ready to do battle.

Whether you are the participating adversaries in the dispute or the third-party facilitator, preparation for the dispute resolution conference is essential.  Being prepared before entering the dialogue gives the best chance for a positive conclusion to be reached in mediation.  If given the opportunity to advise participants prior to the mediation, some of my recommendations are:

• If you have never been in a mediation before, do not hesitate to ask attorneys or other professionals who may have knowledge of the mediation process if they can give you an overview.  Having some idea of what to expect will ease stress, anxiety, or apprehensions you may have, which will help you to be more productive once the session begins.

• Come organized and ready to clearly and rationally explain your position in an opening statement.

• There may be elevated emotions at the start of mediation, which is natural when disputing parties find themselves face-to-face and having to listen to the opposing party describe their perception of the situation.  Focus on entering the process as calmly as possible.  It is likely that you know the opposing disputants emotional triggers.  If you are truly looking for resolution, think of ways to approach and present those issues differently to prevent any unnecessary distractions during the mediation.

• Know, as best you can, what your ultimate objectives are.  Also know what the minimum is that you expect to settle for.  Sometimes the issue is not just monetary, but emotional distress, repairing brand damage, or other issues may also need to be considered when working toward a final settlement agreement.

• Know what the priorities are you want discussed and included in a settlement.

• Are there items you are immediately able and willing to accommodate?

• Think carefully about which issues you are prepared to collaborate and/or compromise on.

• What are the matters you are prepared to fight to protect?

• If there is something you feel a need to avoid if possible, be prepared to accept that it may be brought up by the opposing party, and have an idea of how you might deal with it if it does arise.

• Come with a focus on settling the case and not on “win or lose.”  Trust that your mediator is able to not only hear what you and the other disputant are saying, but also able to “read between the lines” to help you to reach common ground on even some of the seemingly most disparate issues.  Being ready to collaborate and compromise are essential.

• Think about the worst case outcomes of taking the issues to court and determine the possible actualities if a resolution is not achieved:

• Are you prepared for the public scrutiny and revelation of possible confidential information, trade secrets or “dirty laundry” that arguing in court triggers?

• If the possible damages of leaving the outcome up to a judge’s opinion – both financial and emotional – are worth preventing settlement in mediation?.

• Do you have the time to wait for a litigated resolution that can take weeks, months or even years to work through the court system?

• Are you prepared to fund the potentially significant legal costs to argue the dispute in court, and even take responsibility for the other party’s legal costs if you lose in court?

• Is the opposing party a person or business one with which you want to attempt to remain on good terms?

All too often a mediator does not have the “luxury” of reviewing the issues and having an introduction to the disputants before the dispute resolution conference.  In that case, that is where an experienced third-party often has the most important role of all – setting the table for the most productive dialogue and a positive outcome in the opening remarks and especially in the early part of the conference.  Using the above questions (and so many others that experienced negotiators can add to the list) as a backdrop to establish the key issues will be essential in framing the day’s discussions and effecting a positive outcome.

It is important to remember that mediation is not a guarantee of resolution, but it can be an invaluable tool to settling conflicts.  As prepared as you may be entering the session, there will be issues that arise that you may simply not have expected.  What seemed like realistic compromises and outcomes coming into the mediation can end up being superfluous or even risky depending on how the mediation evolves.  Mediation rarely ends in a “winner take all” scenario.  With the range of options for which professionally facilitated negotiation allows, along with the threat of likely unexpected consequences that could occur in a courtroom, mediation will more likely allow a more balanced settlement conclusion.

Inflexibility, unrealistic expectations, and lack of preparation are sure-fire ways to prevent a case from settling.  Coming prepared for mediation will limit anxiety, expedites the negotiations, and has been proven to result in a higher chance of a resolution of the dispute.


About the Author

kkm-profilepic

Katherine Moulton is an award-winning hospitality executive and industry leader with more than 30 years’ experience..She is widely recognized by peers and business leaders, including as Independent Hotelier of The World by Hotels Magazine. She also offers strong advocacy for hospitality excellence, education and mentoring as well as a commitment to community through diversity of board and institutional roles. Ms. Moulton is a Florida Supreme Court Certified Mediator and focuses her alternate dispute resolution work on issues related to the hospitality and related industries. Katherine is a Partner and the Executive Director of Cayuga Hospitality Consultants and president of Hospitality Advisory Services.

There Are No Stars in Hospitality

No stars…we need everyone! In the hospitality industry more so than any other, knowing how to replace the individual excellence model in favor of building effective workgroups is vital.

Across the world, a competitive spirit is instilled on our children from a very early age. It is from that point onward which gives us armies of highly ambitious young adults crowding ever-more-competitive universities to eventually land in the professional world. Ultimately, generations of individuals come into the workforce after going through a lifelong boot camp on how to outperform others in order to succeed.

And the competitiveness does not stop there. Most organizations set their promotion and pay increase schedules based on individual performance, hence reinforcing this combative behavior on their members.

While some scientists have argued that competitiveness is ingrained in our DNA as part of the evolutionary process that got us to where we are today, more and more research in the field of social studies, however, is bringing to light new evidence on the qualities of highly successful people that is clearly in favor of cooperation.

“People must have a tribe. It gives them a name in addition to their own and social meaning in a chaotic world. It makes the environment less disorienting and dangerous. The social world of each modern human is not a single tribe, but rather a system of interlocking tribes, among which it is often difficult to find a single compass.” (1)

Today’s organizations struggle to provide their members this needed sense of identity and belonging for which they crave. As key executives brainstorm how to build stronger, more effective teams, they sometimes miss the one important element that could exponentially improve their odds – the social connections that hold their members together.

You might have the most brilliant bundle of individuals, but without trust, reciprocity and a bond to a common good, the likelihood of having them succeed as a team is very dim.

The Super Chicken Business Model
This brings me to the now famous experiment from W. M Muir (2) that resulted in what is known as the ‘Super Chicken’ business model (3). Dr. Muir’s study has sparked debate among academics and group behavior theorists in the social sciences. Muir, a professor of animal sciences at Purdue University, conducted a series of experiments on the productivity of chickens as measured by the average amount of eggs they laid. Two test groups of chickens were used to conduct the experiment and then allowed to breed for five generations.

The first test group consisted of chickens with the highest individual productivity – referred to as the ‘super chicken group’ – while the second test group consisted of chickens with the highest average productivity. After five generations, the super chicken group’s production had gone down dramatically and its membership was decimated as the chickens had actually started killing each other! On the other hand, the average group’s production increased 160% and were all healthy.

One of the conclusions of this study has been that, “The highest egg producing hens in each cage tended to be the biggest bully who achieved productivity in great part by suppressing the productivity of the other hens. Bullying behavior being a heritable trait, several generations were sufficient to produce a strain of psychopaths.” (4) The hens from the cages with the highest group output seemed to work better together or at least refrained from exploiting each other – a remarkable outcome.

Working Together
In another groundbreaking study, a group of scientists, under the direction of Thomas W. Malone, conducted tests on over 600 men and women grouped in mixed teams, asking them to perform a series of tests designed to measure their effectiveness in working together (5).

In order to be able to compare group output and correlate the results to specific characteristics of the groups, individual intelligence was measured and averaged for each participant in a group. Other evaluations included a test known as the ‘reading the mind in the eyes test’, broadly known as a standard assessment for human empathy. The groups were also closely observed for interaction clues as measured by individual participation on the group dynamics, or lack thereof, while solving problems.

The conclusion of the experiment was that neither the individual intelligence of the members nor the average intelligence of the group were key factors in the ability to achieve higher scores in the test problems that were presented. The three elements that proved to consistently impact the results the most were:

  1. Average social sensitivity as measured by the level of empathy of the group (empathy factor) based upon the ‘reading the mind in the eyes’ test
  2. Equality in the distribution of conversation turn-taking
  3. Proportion of females in the group

The study supports the theory that individual performance is not the most relevant factor in group performance. It concludes that highly effective groups have a propensity towards social sensitivity and connectedness.

Looking To The Pros
To find more evidence on how these principles play in the dynamics of group performance, I turned to my favorite team sport. In professional basketball, having a few individual stars can lead to success, but having too many of them can lead to problems too difficult to manage.

The Miami Heat’s ‘Big Three’ 2010-11 season featured three of the top ten selections taken in the 2003 NBA draft including Dwyane Wade, LeBron James and Chris Bosh. Although this group led the Heat to four consecutive NBA Finals appearances, the first season presented some challenges for this team of stars. Most of the needed adjustments happened at the start of the season when the team began with a disappointing 9-8 record. In the end, they managed to pull off an amazing season but fell short of winning the NBA championship.

Even when having the right players, team members must learn to trust and respect each other for the contributions made to the overall success as well as properly coordinate their efforts in order to be effective. Under outstanding leadership, this can sometimes take several seasons to achieve. As individual egos subside and true team spirit emerges, each member finds his place in the line up and learns how to support his teammates while also challenging them to do better. This translates into real conversations on and off the court, moving the members to a full realization of their group potential. As for the Heat, once they cracked the code to teamwork, they went on to win two consecutive NBA championships.

Natural Versus Engineered Groups
It is well documented that self-assembled human groups tend to push towards homogeneity which could spell doom for organizations. What about engineered groups? Which ones are most likely to succeed?

In her study of organizational cultures, author Margaret Hefferman argued that we need to assemble ‘motley crew’ types of teams within an environment that fosters, “The knowledge, trust, reciprocity and shared norms that create quality of life and make groups resilient.” (6)

The key factor to keep in mind here is that what holds groups together is just as important as the members themselves. Organizations that wish to build and get the most of this social capital will benefit from applying as many of the following suggestions as possible:

  • Hire more for empathy and ability to work with others than for individual achievements. Building a team of stars is the equivalent to preparing a team of sprinters for the Olympics and hoping they do well for all track and field events. For this, there are several widely used tests that measure empathy. Adopt one and apply it as part of the hiring process.
  • Whether you are assembling a team or working with an existing one, take the time to meet all of the players individually on a personal level. Then work towards ensuring that everyone has an opportunity to meet his or her fellow team members and to learn about them.
  • When conducting meetings, allow for and encourage equal time participation. As a leader of the group, make an effort not to say anything for as long as possible – hopefully until the end – because once you do, others will tend to shut down and position themselves.
  • Reward group performance more than individual performance. If the team wins, everyone wins. This includes promotions, bonuses, gifts and any other form of employee incentive.
  • Allow for people to advocate for groups different than their own within the organization. Ahead of all associate meetings, tell the front desk that they will be bringing up issues related to the housekeeping department and vice versa. Putting team members in each other’s shoes is a way to promote interdepartmental communication and a way of learning how to build empathy and trust amongst team members.
  • Find ways to integrate geographically separated teams. The classic corporate office versus hotel staff bickering can be easily remedied by integrating players from both sides. Any business investment on such integration – which technology makes now simpler than ever before – is worth its price in gold.
  • Create opportunities for people to spend more time together. I firmly believe that if management spent more time having lunch with associates and other managers rather than in private offices by themselves, the impact would be very positive. Schedule lunches and coffee breaks so that more participants can take them at the same time.
  • Finally, keep in mind that building teams where members trust each other takes time and stability within the roster. Transferring successful members to other divisions or different teams sets the clock back. Changing roles within the team is often more effective. Moreover, the introduction of new players must be considered carefully and done sparingly.

.
Conclusion
Our ability as leaders to build the social capital necessary to impact an organization’s success is directly proportional to our commitment to promote social bonding amongst the members of our teams.

Finding ways for people to get to know each other better, to trust each other and to confront one another in a safe way in order to overcome challenges, would not only increase the productivity of your team, but also its overall sense of belonging to your tribe.

References
(1) Edward O. Wilson (2012). The Social Conquest of Earth. (p. 37).
(2) Muir, W. M. (2013). Genetics and the Behavior of Chickens: Welfare and Productivity. In Genetics and the Behavior of Domestic Animals, 2nd Edition. (Vol. 2, pp. 1-30).
(3) Wikipedia. https://en.m.wikipedia.org/wiki/Super-chicken_Model
(4) Article: When the strong outbreed the weak: An interview with William Muir. https://evolution-institute.org/article/when-the-strong-outbreed-the-weak-an-interview-with-william-muir/
(5) Anita Williams Woolley, Christopher F. Chabris, Alex Pentland, Nada Hashmi, and Thomas W. Malone (2010). Evidence for a Collective Intelligence Factor in the Performance of Human Groups. In Science 29 Oct 2010: Vol. 330, Issue 6004, pp. 686-688 DOI:10.1126/science.1193147.
(6) Hefferman, Margaret (2015). Social Capital. In e-book Beyond Measure: The Big Impact of Small Changes. Simon and Shuster/TED (p. 24).


About the Author

romulo_vallejo

Romulo Vallejo is a fully bilingual (English/Spanish) multi-cultural Hospitality Operations Specialist with 20+ years’ U.S. and Caribbean-Latin American experience, leading select-stay, extended-stay, and full-service hotels. Romulo is a veteran hospitality executive with a unique perspective on developing successful organizational cultures. His expertise lies on more that twenty years building teams on multi-cultural/lingual environments specially in South Florida, Latin-America and the Caribbean. He combines utilizing people’s strengths, team building, and focusing all team members on achieving the company goals. Romulo is a consultant with Cayuga Hospitality Consultants.

Engineering 101… Getting The Most From Your Engineering Department

If I have learned anything after twenty years of managing engineering departments it’s this: the most successful engineers thrive in an environment where their leadership has a thorough understanding and appreciation for what the hotel’s maintenance team does, and how its efforts contribute to the overall success of the property.

Sounds obvious, right? But how often is this dynamic a reality? Perhaps more often, general managers’ priorities lay elsewhere, and when it comes to their engineering departments, their paradigm follows the mantra “If it’s not broke, don’t fix it.” So while their engineers likely welcome the sovereignty, it still begs the question…do general managers really understand what their engineers do? And perhaps more importantly, are GMs getting the highest return on their engineering department investment?

Does my well-oiled machine need lubricating?

So how do you know if things are truly running like clockwork? Does the absence of complaints necessarily equate to a well oiled machine? What if the hot water is 135 degrees, or the air conditioning in the ballroom is running 24/7? While these conditions probably would not generate complaints, there would be opportunities for some focus on safety and efficiency. How about guests who have had such negative experiences that they tell everyone about it except you? Clearly, no news may not be good news.

Once you are convinced your maintenance team warrants closer scrutiny, the next step will be to determine how to measure its performance. In this vein, the following tool is designed to help you measure and benchmark your maintenance team against the only indisputable variable in existence…themselves.

The premise is simple: You must be able to measure performance if you are going to be able improve upon it. In a maintenance setting, consider each work group within the department and ask yourself the following question:

“What should this work group be doing so that their success clearly contributes to the achievement of the hotel’s overall goals?”

Once you have identified a goal, ask yourself how you can empirically measure the team’s performance in order to gauge their success toward achieving that goal. Taking this simple incremental approach to each element of your maintenance operation will make it easy to help focus your entire team on what matters to you most: your guests and your bottom line. Here’s an example:

Let’s say you’re operating a 600 room hotel. You employ 22 engineers who handle most aspects of the hotel’s routine maintenance needs. Your team is comprised of:

6 General maintenance engineers
4 HVAC mechanics
3 Painters
3 Operating engineers
2 Kitchen mechanics
2 Laundry mechanics
1 Electrician
1 Carpenter/locksmith

Using the approach described above, let’s look at the first work group, the general maintenance engineers. These are the team members who respond to guests and fellow employees, and are often considered the “face” of an engineering department. Following the guidelines above, you have determined that this team’s responsiveness to your guests and ability to promptly resolve guest issues are both key performance indicators that directly impact your hotel’s overall guest satisfaction goals. After all, guests typically would not even see an engineer during their stay if everything were to go smoothly. So when they do, it is vital that the interaction be as seamless and pleasant an experience as possible.

Using the hotel’s existing maintenance management software (MMS) or manual log book, track each engineer’s response time to guest calls — defined as the time between when the engineer acknowledges receipt of the call and the time he/she arrives at the room. Next, measure their individual completion time — defined as the time between their arrival and when they report back that the issue has been resolved, either to a dispatcher or operator, or directly to the MMS system through an electronic portal, if your system permits. Track performance daily, weekly, and monthly by individual, by shift, or whatever grouping suits your needs. Next, communicate daily performance back to the team relative to whatever goal you have established in the beginning of the process. This communication can be verbal, posted on a bulletin board, sent electronically, or a combination of all these methods. Most importantly however, the communication of progress must be transparent, such that everyone’s contribution to the overall goal, whether it be positive or negative, can be seen by all.

Figure 1 below shows an example of a customized display board used at a convention hotel to track the progress of their general maintenance team; referred to in this case as Guest Service Engineers. An engineering department manager provides his team feedback by updating this board daily, made easy with dry erase markers. The odometer dials indicate the average completion time for each shift on any given day, while the graph tracks each day’s performance over time— making it clearly visible whether or not the team averaged a completion time of 45 minutes or less — the team’s goal. The thermometer at right tracks the number of days the team met their goal or stayed in the green zone, defined as the number of days the entire team averaged less than 45 minutes to complete their guest calls.

In this instance, rather than tracking response and completion times separately, this department is tracking completion time only by shift. By doing so, they have created a friendly competition between the day, evening and overnight shifts…each vying to be the fastest team to respond to guests and resolve their issues.

The key to this board is its simplicity: Any team member can immediately ascertain how he or she and the team are doing with just a passing glance. If it takes more than a few seconds for the board to be deciphered, it is much less useful, even counterproductive.

Using the methodology described above, the same type of customized measurement tools can be used with each work group in the department, such as the HVAC mechanics, painters, electricians, etc. Once goals are defined, the performance of all work groups can be numerically combined and rolled up into an overall department score. Figure 2 below shows an example of such an overall measurement tool, in this case defined as a Property Condition Index, or PCI. The index calculates an overall score based on the individual scores from each work group. Similar to the performance chart above, this board would also be updated daily, and posted in a conspicuous location central to the team’s work area. Thus, every member of the team is able to understand exactly where the department’s performance is in comparison to the goal, what his or her work group is doing to help or hinder the achievement of that goal, and what their individual performance is doing to bolster their work group’s success.

This simplistic method of accountability can be extremely effective and a valuable motivational tool. Over time, it can bolster not only performance and guest satisfaction, but employee satisfaction and team camaraderie.

Energy Benchmarking meets the KISS method

Now that your maintenance team is operating smoothly, your focus shifts toward one of the largest expenses on your P&L…energy. You suspect your hotel’s energy efficiency is middle-of-the-road at best, and you are tired of those client questionnaires that ask about your property’s Energy Star rating, your conservation efforts, and what you are doing to minimize your carbon footprint. You want to improve, but where do you begin? How do you reduce energy without sacrificing comfort or safety, especially after you have already picked all the low hanging fruit like compact fluorescent bulbs and motion sensors? The answer is likely in the basement — in the office without windows. Your chief engineer probably has more than a couple ideas to reduce energy consumption, but has not been given the time, resources or opportunity to bring them to fruition. So why not make it easy for him or her? Here’s how…

First, a quick lesson in physics. All energy can be measured in British Thermal Units or BTUs, defined as the amount of heat energy needed to raise one pound of water one degree Fahrenheit at normal atmospheric pressure. Since all energy can be measured in this manner, BTUs are an ideal unit for calculating a building’s overall energy performance. Armed with this knowledge, ask your engineer to bring last September’s utility bills to your office: Electric, gas, oil, steam, chilled water— whatever utilities your operation consumes other than potable water. Convert each of them to BTUs, and then add them all up. (Note: a quick Google search will make these conversions easy.)

Now that you have a total BTU figure for the month, challenge your engineer to reduce this coming September’s total BTU consumption by 5% year over year, corrected for occupancy and degree days…the two variables that highly impact energy consumption but which your engineer has no influence over. Then lay down the ground rules. Your engineer can pursue the savings any way he/she sees fit, as long as guest and employee safety and comfort are unaffected. Then commit a portion of the anticipated savings back to his/her operation, whether it be in the form of a department party, continuing education assistance, or whatever you think would make the challenge attractive to the maintenance team. Better still, commit the funds back to the operation in the form of self perpetuating savings. Invest in an EMS upgrade, infrared thermometers for the team, or a departmental oscilloscope. Just be sure whatever you spend your money on includes the training needed for your team to use it, and use it properly. Otherwise you will have invested in an extraordinarily powerful paperweight.

You will be amazed at how positively this challenge will be received, and how readily it is likely achieved. Also, be sure to measure performance in energy consumption, and not energy expense. The formula for calculating the latter includes utility rates, and in most cases your engineer does not influence the rates your property pays for energy.


About the Author:

Richard Manzolina is a former member of Cayuga Hospitality Consultants.

When to Use Expert Determination in Hotel Disputes

When we think about alternative dispute resolutions, our first thoughts are likely go to mediation and arbitration. For these situations, a neutral third party is called upon to resolve the issue. In the case of a mediator, it’s by skillful intermediation to bring about a compromise. And in the case of an arbitrator, it’s a decision after a process that is similar to a court proceeding (as a judge might render), but intended to be less protracted and costly.

This article, however, discusses a third option – expert determination – whereby the parties who have been unable to resolve a dispute generally concerning a specific, technical matter, look to a specifically qualified individual to decide the matter for them.

These disputes generally involve a technical issue, one that is limited in its scope and implications for the overall contract. Even among parties such as owners and management companies that have the best working relationships, issues arise that may cause discord if left unresolved. Expert determination is a method to efficiently and quickly lay the dispute to rest before it can erode the relationship or paralyze the operation of the hotel.

Defining Expert Resolution

If parties disagree on technical matters (as opposed to more legally-centered issues such as allegations of mismanagement or failure to comply with brand standards), they may decide either in advance by having ‘expert determination’ drafted into their contract or in an ‘ad hoc’ manner to jointly appoint a professional to render a binding opinion on the matter.

This expert should be someone with specific and extensive knowledge in the technical subject matter, such as a CPA in respect of financial accounting matters or an engineer in respect of a matter involving the need to upgrade HVAC systems. The question to be decided should be carefully crafted by the parties as should the degree of latitude that the expert may exercise in reaching a decision.

If the dispute is monetary, the parties may also agree to ‘baseball arbitration’ whereby the expert is required to choose the position of one of the parties as correct or left free to determine the correct remunerative value. In any case, the parties should agree either in the contract calling for expert resolution or in their subsequent agreement that the expert’s decision is binding and unappealable, except for ‘manifest error’.

Obviously, this expert should have no preexisting relationship so that all judgments are objective and impartial.

Expert determination can involve many different types of disputes including:

  • Calculation of fees such as the license fee, the management fees or the amount of the owner’s priority (if relevant)
  • Calculation, withholding and payment of taxes whereby a tax lawyer or CPA is likely to be considered as the expert
  • Necessary working capital
  • Calculation or payment of disputed central service charges
  • Approval of necessary expenditures in excess of the approved budget
  • Application of the Uniform System and whether or not proposed expenses are operating expenses or capital expenses
  • Termination for failure of the performance test or composition of the competitive set
  • Whether or not capital expenditures are needed to meet a brand standard, an emergency or a legal requirement
  • Whether or not proposed salary levels for key personnel are reasonable

Primary Benefits of Expert Determination

  • Expert determination is likely to ensure the technical accuracy and appropriateness of the solution
  • Expert determination is likely to reinforce party autonomy as the parties can freely appoint their expert as well as define his or her mission and tasks
  • Expert determination is likely to ensure confidentiality as the opinion will very rarely be made publicly available

Disadvantages of Expert Resolution

  • Non-lawyers may not be sensitive to evidentiary issues that are screened in a judicial setting
  • It isn’t clear if a court will enforce the decision, but the contract wherein expert resolution is provided can make it clear that the decision is final, binding and non-appealable

Case Examples

Disputes within the scope of the matters listed above are easy to imagine and are bound to occur between a hotel owner and the management company or franchisor.

For example, the deduction of operating expenses (that is, subtracted from gross revenue) to arrive at gross operating profit (GOP) is often used to determine the management company’s incentive fee. But there may be some issues arising from capital expenditures determined by the management company as below the GOP line. The hotel owner may instead see these as normal operating expenses that must be deducted before calculating the incentive fee.

An expert thoroughly familiar with the uniform system of accounts for the lodging industry will be able to determine if the expenses in question are operating expenses or capex excluded from the GOP calculation. Wall coverings, leased office equipment and kitchen equipment come to mind as areas ripe for this kind of dispute.

As another example, the management company, as is typical in the United States, is the employer of all hotel employees and is responsible to set salaries as well as other key benefits. If the management company has assigned a seasoned general manager from a major metropolitan area hotel to a property in a secondary or tertiary market, and that GM’s salary seems above-market to the owner, resolving such an issue may be best handled by an impartial expert. If the salary is too high by, say, $25,000, then the expert can fashion a remedy whereby the management company bears that amount and the hotel pays only the balance.

Instances like this should be resolved quickly and without a formal arbitration or litigation because it keeps the relationship intact and because these disputes are so common that proceeding immediately to litigation would drown both parties in attorney fees. And this is a recommendation coming from a lawyer!

I am certain that those of you working for management companies and hotel owners can think of many other types of disputes that are ideal for expert determination. Sometimes we litigators are the right choice for an expert, while other times a CPA, operations person or other ‘expert’ is better suited to resolve the matter.

Expert Resolution Clauses

Here is a sample expert resolution section for a contract. Shorter, less detailed versions are also available. Please review so you are familiar with the terms when it comes time to put them to use.

Expert means an independent nationally recognized hotel consulting firm or individual with at least ten (10) years’ experience in the hotel industry relevant to and appropriate for the matter which such individual is being asked to resolve.

Determination by an Expert. Where pursuant to this Agreement a matter is referred to an Expert for determination, the following provisions shall apply to such Expert’s determination:

  1. The Expert shall be appointed within fifteen (15) days after either party invokes the Expert process set forth herein in each instance by agreement of the parties or, failing agreement within such fifteen (15) -day period, by agreement concluded as soon as practicable of the proposed Experts nominated by each party (in any event within thirty (30) days following the date a party invokes the Expert process), in which event the determination shall be made by majority vote of the two (2) proposed Experts and the additional one (1) Expert chosen by them. All references hereinafter to the “Expert” shall be deemed to refer to the three (3) Experts if three (3) Experts are appointed as contemplated herein.
  2. The decision of the Expert shall be rendered within fifteen (15) days after a matter is referred to the Expert, shall be final and binding on the parties, and shall not be capable of challenge, whether by arbitration, in court or otherwise.
  3. Each party shall be entitled to make written submissions to the Expert, and if a party makes any submission it shall also provide a copy to the other party and the other party shall have the right to comment on such submission prior to any decision by the Expert. The parties shall make available to the Expert all books and records relating to the issue in dispute and shall render to the Expert any assistance requested of the parties.  The costs of the Expert and the proceedings shall be borne as directed by the Expert unless otherwise provided for herein. The Expert may direct that such costs be treated as a Net Operating Expense (as defined in the Management Agreement).
  4. The terms of engagement of the Expert shall include an obligation on the part of the Expert to:
    1. notify the parties in writing of his decision within thirty (30) days from the date on which the Expert has been selected (or such other period as the parties may agree or as set forth herein);
    2. apply the Manager’s Standards to issues involving the level of facilities and services at the Hotel; and
    3. establish a timetable for the making of submissions and replies.

(Article by Albert Pucciarelli, published in Hotel Executive on July 17, 2016)


About the Author

pucciarelli

Albert J. Pucciarelli is a partner with McElroy, Deutsch, Mulvaney & Carpenter, LLP, a national and international law practice. Active with the firm since September 2005, Mr. Pucciarelli is recognized for his expertise in hotel and resort development and operations. His practice is concentrated in these areas, as well as in aviation law, general corporate law and real estate law. Mr. Pucciarelli served as: Executive Vice President, General Counsel and Secretary of InterContinental Hotels, Chair of the Hotels, Restaurants and Tourism Committee and as Chair of the Aeronautics Law Committee of the Association of the Bar of the City of New York. He is a Director and past President of the Hospitality Industry Bar Association. Albert is a Consulting Member of Cayuga Hospitality Consultants.

Bundling a Portfolio to Reduce Onerous Insurance Requirements

Hospitality operators borrow money from lenders in various manners. Whether you borrow from a local community bank or complete a commercial mortgage backed securities (CMBS) transaction on Wall Street, in the loan documents you will be required to maintain a certain level of insurance. And with this comes stipulations that may be a tad burdensome for you to obey.

Franchisors also demand a certain level of protection arising from insurance issues created by a franchisee. And prudent hotel operators also desire a level of comfort in knowing they are adequately covered.

You must understand the specific requirements of the insurance you are forced to obtain for any such entity. As a business owner or operator, you may have one level of comfort when buying a certain type of insurance, but the lender or the franchisor may have a different view of the coverage. If you agree to the terms of the lender or the franchisor, you must procure the exact insurance per the agreement you signed.

In other words, there are quite a few stakeholders who will all have specific demands for a loan or insurance agreement. It’s now your job to understand these requirements to know how they can be met or if you should consider other options.

Typically, this relates to property insurance. How many assets do you control under your policy? Will the third parties demanding proof of coverage allow you to buy wisely? Or, will they insist you conform to the documents created by another third-party risk management consulting firm?

Our experience working in the hospitality industry has shown some of the following issues:

  • Requirements can be overbearing or impossible to obtain depending on the current state of the insurance marketplace
  • Coverage terms and conditions required by these entities can be very expensive
  • Over time, any document requiring insurance coverage can become outdated by the marketplace for insurance

We have done transactions under CMBS guidelines, which are rather stringent and in some cases non-negotiable. As the borrower, you have to weigh the costs and benefits of the current affordable or favorable lending arrangement to what is required for compliance down the road.

When the insurance deal is set up, we might have a portfolio insured for a loss limit of $100 million. This could cover assets in multiple locations worth well more than the stated amount on the policy, but from a practical point of view, it makes sense.

If you have 10 hotels in 10 different cities, why insure to the full replacement cost for each and every single asset? Insurers charge premiums based on the overall value, but we also know what the maximum payout will be under the policy. So if you have $250 million of value but only $100 million at risk, there is a composite rate charged, and it is less than the full charge for $250 million. Alas, though, you only get $100 million in coverage.

CMBS specs do not like this. The folks reviewing the insurance for them also do not like this. It takes negotiating, cajoling and straight-up salesmanship to make them understand that it is a prudent decision to buy the $100 million for the portfolio rather than abide by the charge for the full replacement cost.

You will have to back this up with evidence that the losses for the one asset out of ten that they loaned money on are adequately covered. Maybe it is more, but likely you have multiple lenders on the portfolio and they only care about the assets they loaned on. This is done in the industry using various predictive models with a long history and accuracy. Thus far, they work.

Do you think, though, that every major hotel company is buying individual policies and limits for each asset? They just don’t, and neither should you.

Covering the portfolio as a whole will save you money. And thus, one excellent solution for dealing with onerous insurance requirements or disparate stakeholder demands is to bundle.

To reiterate through an example, a former client of ours has $250 million of assets throughout the state of Florida. He had a single policy for each asset. By combining the assets into one policy and running the numbers, we reduced the cost by one half. We had claims to be sure, but they were handled within the newly purchased limits without an issue. Nevertheless, it saved seven digits of premium annually!

So the takeaway is this. Have your insurance professional read the documents you are going through before you execute them. A real professional will bring value to the table above and beyond what the attorneys and lenders can advise because this is what we do. Bundling is but one example of how clever insurance agents will benefit your property’s bottom line.

(Article by Tom Cleary, published in eHotelier on August 5, 2016)


About the Author

tom_cleary

Tom Cleary is an Equity Partner with the Sihle Insurance Group in Clearwater Florida and a member of Cayuga Hospitality Consultants. Based in Florida for his entire career, Tom has expertise in commercial insurance with a focus on hospitality and real estate as well as flood and wind exposures. Products offered include property, liability, automobile, crime, umbrella and workers’ compensation throughout the United States and the Caribbean. Tom also serves as a regional director for The Cornell Society, has been a board member and longtime member of the Florida Restaurant and Lodging Association, and serves in an advisory capacity to the Resort Hotel Association.

Spa Management: Challenges and Opportunities

The operation of a successful spa demands a combination of operational skills, systems and creative promotion. No longer is it possible to develop a spa or fitness/wellness facility and expect that “if I build it, they will come.”

While all studies show that the addition of a spa positively impacts both occupancy and average daily rate for a hotel or resort, how the facility is marketed, exposed and managed are key components to the overall success of any spa.  It is also critical to select, train and develop experienced, service oriented staff who are well versed and skilled not only in customer service but in how best to promote and program the facility.

Once it has been determined a spa will be incorporated into a facility, the next question asked is who should run it?  Options include operating the spa independently, leasing out the space or hiring a third party operator to manage it for you. Each of these three options should be considered carefully.

Owner-managed spas require constant attention and focus from the owner or property manager in order to produce the desired guest experience and financial results. All too many owners decide to operate their spa and fitness facilities without the experience or passion with regard to the delivery of a consistent consumer experience, and without the knowledge to effectively and creatively promote the facility. The operation of a spa exacts a significant time commitment, which many owners do not have, and the ability to consistently interact with and supervise facility personnel.

Leases can create a guaranteed rental stream for the ownership, but control and authority are transferred to the tenant, which can create conflict down the road. The property owner and the tenant may not always be on the same page, and goals and objectives may be compromised as a result of this. In addition, a tenant does not typically have control over hotel occupancy or room rates; thus, during a period of economic downturn, this can present a significant challenge for both parties. Often, it may make sense to consider a third party operator as long as there is no loss of ultimate control or identity for the ownership group, and where the operator can bring to the table a heightened focus on the operation of the spa with accompanying resources, training and support for the staff.

When selecting a third party operator, you must first consider whether they are a good fit for the spa, based on their experience and operational philosophy.  It’s also critical to develop this relationship as a “partnership,” as the spa’s management entity will need consistent input and direction from the development/ownership group and from the hotel operator. Thus, there needs to be an approach which seamlessly integrates the spa into the fabric and culture of the property itself while paying attention to the overall vision that the developer has for the property. Therefore, communication is vital and there should be a constant stream of recommendations, ideas and direction coming from the spa operator to both the ownership and hotel operational group. This can be achieved through monthly written reports, daily and weekly meetings with the hotel management staff, interface with hotel sales and marketing, etc. An experienced spa operator should bring to the table a wide range of services including a training methodology, management supervisory skills, marketing plans, an ability to oversee finance, retail sales, IT support and oversight of all systems necessary to produce a positive financial result. In addition, third party operators must have a vision with regard to the delivery of a high standard of guest service and an ability to execute on this.

If indeed  you are ultimately seeking a relationship with a  spa consultant and/or operator, consideration should be given to those firms that have a diverse background in facility management including staff selection and training, marketing and promotion, product sales, financial management, data support and systems oversight. With that in mind, knowing that your spa operator has a well-established relationship with the proper technology to support your services will assist in your overall business management of the spa.  Some of the basic requirements for an effective data management system include: appointment booking, inventory management, online appointment booking, gift card sales and daily, weekly and monthly reporting capabilities.

Next, the spa needs to have the appropriate staff in place; essentially, the single most important decision is hiring, training and supervising a highly qualified team with specific skill sets related to the delivery of a high standard of customer service. This process is very similar to assessing the qualifications needed to successfully operate a hotel or restaurant.  A third party management partner is able to provide the necessary evaluation to ensure that staff members are appropriately qualified for the positions available, no matter what modality of service an individual may provide.

Why is training important?  It’s absolutely critical for your management team and the entire staff to be aware of and trained in the most current trends, modalities and spa business models to maximize revenue and net operating income.  Continuous education keeps both the service providers and front desk teams engaged in and excited about what’s going on in the spa, the services offered and the products for sale. This engagement and excitement leads to increased revenue and a consistently high level of guest experience.

Success with regard to spa operations is the residue of making each and every guest feel special. If this doesn’t happen, you shouldn’t expect to retain those customers.  Guest service should be the focus at every level and should include customization and authenticity.  Start with the premise that you’re aiming to create “memorable moments” – offering your guests an experience they’ll remember and want to repeat time and again. What does creating “memorable moments” for guests involve?  It starts from the time a guest books a treatment and how the phone is answered to the time they depart.  The touch points start with a warm and friendly front desk and include the journey through the spa.  Treatments must be done by highly qualified and trained staff so guests leave the treatment room feeling refreshed, with all their expectations met. It is important to create specific “wow moments” for the guest, which can be created by staff in the lounge areas, locker rooms, reception and retail area.

Before your spa ever opens, it is vital to determine the most appropriate size, scope and complexity for the facility. This can be done through a commissioned feasibility study, which helps the owner or developer understand what is the most appropriate size and costs for the spa and fitness facility. All too often, an ownership group will plunge into the design process for a spa without having thought through all of the potential pitfalls, and without having done a needs analysis as to what is truly required. This study can be used as a roadmap for a startup process for the spa, and the information that it provides should include the initial space program, competitive analysis, market and demographic evaluation and complete financial projections.  In addition, in order to attract guests within the hotel and from the local market place, it is critical to develop a well thought out sales and marketing plan for the spa. Many spas open without having a plan for how they’ll be promoted within the hotel and to outside guests.  It’s vital to develop and execute a plan which maximizes spa use at off-peak and during off-season periods.

Many spas are busy from Thursday to Sunday but don’t pay attention to developing business during the less-used periods from Monday-Wednesday, so a creative marketing approach is important.  It may hold the key to whether the spa is financially viable or not.   An example of a marketing strategy for off-peak times could be offering special rates which take effect at a certain time of day or on a particular day of the week.  Real-time last minute promotions on Facebook, Twitter and eblasts can also be done, with off-peak promotions targeted at non-hotel guests to encourage a visit to the spa for express treatments.  In short, without a specific plan devoted to promoting guests of the hotel or resort internally, and without a separate plan to promote sales externally, the spa will not meet financial goals and expectations. There also needs to be specific time and training devoted to staff on cross selling and upselling techniques particularly with regard to product sales which is an important component if the spa is to be financially viable. Gift certificate sales are also an important part of this equation and considerable training needs to be devoted to this area alone.

Another key component to successful training and marketing is vendor support.  Product selection and vendor participation is crucial.  Vendors can assist with marketing and merchandising and provide training and excitement for staff.  In addition, they can help develop the treatment menu and marketing materials with regard to treatment descriptions and protocols and participate in the creation of on-site events and promotions. They can also provide special gifts for consumers.

In summary, to open and successfully operate a spa and/or fitness facility is a challenge whether you are an owner or an operator. It demands a combination of key skills, systems and resources in order to produce a successful result, both from an operational and financial perspective. If you are considering the addition of a spa or leisure complex, it makes sense to consider a feasibility study in advance of starting the design process. Once the design process has begun, it is extremely beneficial to retain a qualified spa consultant to work closely with the architecture and construction teams to ensure that the proper attention is paid to functionality, not just to the design of an aesthetically pleasing space. In the pre-opening phase, there are numerous challenges in selecting and training staff, making the right product decisions, developing appropriate systems and marketing tools, and in many other areas where a spa consultant or an operator can be of assistance. Finally, with regard to daily operations, whether you operate a spa internally, lease the premises or bring on a qualified operator it is important to have a coordinated and very focused effort to achieve operational and financial success.


About the Author

garyhenkin

Gary Henkin is the Founder and President of WTS International based in Rockville, Maryland. He specializes in providing consulting and daily management services for spas, fitness centers and leisure facilities worldwide. His projects has spanned the globe including the Middle East, Asia, Latin America, Caribbean and Europe. Mr. Henkin is a frequent speaker at leisure industry and real estate conventions, and has also published numerous articles related to spa or health club design and management. He received a Bachelor of Science Degree from the University of Maryland.

WTS International is the world’s leading consulting and management firm for spas, fitness and leisure facilities. For over 40 years, WTS has provided feasibility studies, design, pre-opening and daily management services for spas and leisure facilities worldwide.

Upsurge in Global Terrorism Is a Red Flag for Hospitality Industry

It is readily apparent that terrorist and active shooter events around the world have experienced s dramatic increase of late. Up until recently, 9/11 was looked upon as a one-time event and billions were subsequently spent to combat terrorism in the US. But the rise of ISIS, lone wolves and active shooters has not been deterred. In fact, it has gotten worse.

terrorism-red-flag_300_240_c1

The highly publicized attacks in Paris are another example, similar to 9/11, of what happens when a major terrorist event is widely covered by news media outlets. Even after the Boston Marathon bombing, the consequences and costs were staggering. And even more recently are the tragic events in Jakarta and Burkina Faso to consider.

Aside from the ultimate cost – the loss of human life – the economic fallout has become a major concern. Complete shutdowns of communities on alert, loss of work days, shopping trips, shut down of public transportation, massive hotel and flight cancellations are what the terrorists want. Terrorists hope to instill fear and change our way of life, and to some degree they have already succeeded.

Hospitality in particular must take extra steps to be better prepared. This requires an investment in time and money. ‘Soft Targets’ is the phrase used to denote any hotel or place where people gather, and all are vulnerable. The Taj Hotel attack in Mumbai is an example of the ease in which terrorists can seize a luxury hotel. From the current list of malls, hotels, casinos and resorts, we should now add movie theaters, stadiums, rented halls and conventions.

In Israel, there has been a direct correlation between periods where highly publicized terrorism attacks have happened and decreases in tourism. The Israeli attitude towards terrorism is that it is a condition that has to be lived with and cannot be completely wiped out. The level of security in Israel has created somewhat of a ‘security culture’. The Israeli public understands what terrorism is and society thrives amidst daily threats. The public is a partner with local authorities and, as the eyes and ears on the ground, this alliance has proven quite successful.

In the US and Europe, the public is still not completely comfortable with visible security measures such as gun-toting guards or having to deal with the inconveniences that accompany increased security such as car searches, guards at public entranceways and passing through metal detectors. The Israeli public has learned that these inconveniences are implemented in order to protect them, and rarely are there complaints about making these minor sacrifices. In addition, tourists visiting Israel quickly learn that these measures are a way of life.

Israeli hotels are given special attention and special government regulations have been instituted. Compliance is mandatory and has resulted in a safer environment for the thriving tourism industry. Hotels are required to have armed guards at entranceways while special building materials must be used such as shatter-proof or bomb-proof glass. Access points require approval. Each hotel must have a security official who is trained to deal with terrorist events in addition to other duties such as theft.

So, how are other nations’ hospitality industries going to adapt to these new conditions? How will operators upgrade security plans to be better prepared? Doing little can be extremely costly. Concern about the financial investment or finding the time to train staff can prove to be a mistake in the long run.

It may behoove management to consider using professional security consultants to develop emergency contingency plans. Having a well-organized emergency contingency plan can improve preparedness, response and recovery including:

  • Security and threat assessments or upgrades of existing assessments
  • Evaluation of physical security measures, surveillance, alarm and communication systems
  • Public safety response protocols, evacuation and lock down plans and drills
  • Crisis communications/public relations and media/spokesperson training to minimize negative public reaction to increased security and the aftermath of an actual incident

(Article by Jim Braver, originally published in eHotelier on January 22, 2016)

About the Author 

braverJames Braver is the US Director for The TIX Group, a consultancy of leading Israeli security experts providing security and strategic services to owners and operators in the hospitality industry. Jim is responsible for coordinating all TIX activities in the U.S. Jim was responsible for facilitating and organizing the TIX Group’s School Security Program in California. He holds a Bachelor of Arts degree in Journalism and Political Science from the University of Massachusetts.

Case Study: Hotel Energy Management at the Ritz Carlton – Naples, Florida

pdf-icon Click here to download a PDF version of this case study, complete with graphic analyses.

PROJECT SUMMARY

The Ritz-Carlton Hotel Company embarked on a three year program centered on reducing energy consumption. The purpose of the program was not only to reduce the portfolio’s energy consumption and cost, but also to raise the awareness of the Ladies and Gentlemen of the Ritz-Carlton as to their personal responsibilities pertaining to energy and the environment.

The Ritz-Carlton program was a resounding success by any measure. On a portfolio basis, energy consumption was reduced by over 13% from the baseline year which gave rise to a substantial decrease in energy spend.

One of the primary success factors in The Ritz-Carlton’s ability to drive down energy use was the more than 400 energy projects and retro-commissioning measures completed during the Program. The energy projects coupled with the increased focus placed on energy conservation yielded outstanding results, as the portfolio far surpassed the 9% stated energy reduction goal at the outset of this program. In fact, the portfolio energy reduction was 47% over this energy reduction goal relative to the collective Energy Baselines of all the properties.

 

IMPLEMENTATION

Operationally each property (a total of 32 at program end) was visited to review energy performance and assess overall building operation. Using energy auditing and retro-commissioning tools, a snapshot of the hotel’s current operation was generated along with a road map of how to reach greater levels of energy efficiency. This was followed by regular communication with the Director of Engineering as a method of placing constant emphasis on the importance of energy reduction.

The key performance indicator for energy consumption used throughout the program was British Thermal Units per square foot (BTU/SF). This is the preferred measure of consumption that best reflects how efficiently a hotel operates. While not a perfect metric, BTU/SF produces a better comparison between properties. Other metrics based on occupied or available rooms can become skewed when comparing hotels with large differences in room count.

Each property reported its energy consumption by energy type on a monthly basis throughout the program duration. Those inputs (kWh, therms, gallons, etc.) were converted to BTUs and subsequently to BTU/SF for each property. Three scorecards were created and posted monthly:

  • A year-over-year performance report
  • A report indicating progress toward 3-year property goals
  • A monthly energy consumption report

The first two reports were based on adjusted energy consumption (see Adjustments section below), and show the final property standings.  The monthly energy report provided the properties with their raw, unadjusted energy use, and, for Ritz Corporate, it documented summaries of energy use and utility costs for all properties.

The second primary measurement tool used during the program was the Energy Reduction Summary Report shown at right.  The data contained here presented the Directors of Engineering with their updated energy reduction requirements necessary to achieve their Program goals in both BTU/SF and in percent.

PERFORMANCE

Energy consumption in any Ritz-Carlton hotel is largely determined by three factors: the overall attitude of the hotel staff as it relates to energy efficiency; the existing infrastructure, and the ability to change and upgrade existing systems.

The commitment of the entire hotel staff to the goal of energy efficiency cannot be overstated. The process begins with the Engineering group, but they must have the support of the entire hotel team in order to achieve lasting energy reductions. The key individuals are the Director of Engineering and the General Manager. The DOE must put forward a plan of attack, and the GM must put his or her position behind it. Lack of commitment by either will produce few results, but an enthusiastic embrace by both can achieve significant savings.

The Ritz-Carlton portfolio participating in the program is diverse with several located in tropical climates, others in cold weather areas, and still others in dry or desert conditions. Location alone will begin to define a hotel’s energy profile. But more importantly, the hotel’s existing systems will dictate where it stands on a BTU/SF metric. A property with a full service laundry will consume more energy per square foot than a similar property that has none. A hotel serving a half million food covers per year will consume more than one serving only 100,000, all other things being equal. Hotels with aging and inefficient lighting or HVAC equipment will also consume more energy.

Therefore, the ability to modify or change existing systems, or change the way in which these systems operate becomes an extremely important process in moving toward greater energy efficiency. Replacing inefficient equipment requires capital expenditures, some of which have attractive returns on investment. These changes and upgrades are identified by doing a comprehensive energy audit on the facility. Modifying the method of operation of certain systems like HVAC can also achieve positive results. This process is called retro-commissioning. Each EMS property had both an energy audit and retro-commissioning done during the Program.

During the course of the Program, through both energy audits and retro-commissioning at each of the hotels, almost 800 separate energy projects were identified. Some of these involved capital expenditures while the rest did not. More than half of the total energy conservation measures (ECMs) were reported completed. Statistics on the savings generated by these ECMs across the portfolio are shown below.

These savings were generated over the course of the program and became valid as each ECM was completed. Some of these projects were done in year one while others were completed in years two and three. But the total energy saved by the completion of these 433 projects is enough to power over 1,300 average sized homes for a year.

 

QUARTERLY REPORTING

One of the key documents reported throughout the course of the program was a usage reduction report. This report outlined the overall energy usage reduction for each property on a monthly basis as it related to its Energy Baseline. A similar report is presented below summarizing the entire portfolio’s Program performance versus the overall goal.

The adjusted Energy Baseline for The Ritz-Carlton portfolio was 175,893 BTU/SF. The baseline was adjusted to account for hotel openings, closings, large variations in occupancy, and other events that resulted in major changes in energy usage and/or baseline year. The Energy Baseline in conjunction with the 3% annual goal was used to outline annual reduction goals for each program year. All baseline adjustments have been incorporated in this table.

The usage reduction report also showed a comparative annual BTU/SF graph indicating the portfolio’s annual performance since the base year. Last, the report contained a table listing the top ten energy conservation measures recommended for implementation at all of the properties. The method of selection of these measures was determined by: (1) the frequency in which they were recommended; (2) the effectiveness of the measure in BTU/SF savings; and (3) its financial viability in terms of payback. All numbers presented are averages from the actual projects recommended. Two of the measures are classified as no-cost, low-cost opportunities generated in the retro-commissioning process; the others are categorized as capital projects.

During the course of the program, the Ritz-Carlton portfolio reduced its overall energy consumption by 13.2% relative to the collective Energy Baselines of all the properties. That is 47% over the stated goal of a 9% reduction

A timeline was generated for each property in order to better grasp visually the effect of their efforts to reduce energy consumption.  Two timelines for the portfolio were developed indicating only major hotel events such as openings, closings, etc.  The first showed raw, unadjusted consumption in millions of BTUs, the second presented consumption adjusted for occupancy and other changes in BTU per square foot.

CARBON FOOTPRINT

The quarterly Performance Report updated the hotels on their historic (unadjusted) performance by utility type. These inputs were then translated into carbon emissions to create a carbon footprint for each specific property. The tracking of carbon emissions became more important as the program progressed, especially for marketing purposes at the property level.

The carbon footprint was calculated by converting both electric energy consumption and natural gas (or propane, fuel oil, etc.) usage into carbon emissions. Electric energy consumption creates indirect carbon emissions (direct emissions associated with this usage comes at the power plant); the burning of natural gas or other fuels on site in boilers or stoves creates direct emissions.  Emissions resulting from on-site combustion are a known fixed quantity per unit of fuel burned; therefore the calculation of direct emissions is simply the product of the usage times the CO2 rate per unit.  To calculate indirect emissions conversion factors obtained from the EPA in their Energy Star program are used by geographic region to translate electric usage into metric tons of CO2.   The portfolio’s carbon footprint over the duration of the program was shown in a separate graphic along with each property’s footprint in kilograms per available room and kilograms per square foot.

ENERGY INDEX

As a part of the engineering service, each hotel had an energy profile calculated to give a better indication of how well that property was performing. The profile took into account the type of building, the existing HVAC systems in operation, operational parameters, occupancy, food covers, and hotel location. The result of this process was a BTU/SF value that was regarded as a norm and not a goal. The property’s energy index was generated by comparing this value against the property’s actual energy consumption. Hence a value below 1.0 represents a hotel whose operation is better than the norm and has less room for improvement. A hotel with a value above 1.0 is one whose operation should be able to be improved.

The chart below shows the energy indices for each property calculated after the base year and the current indices. In most cases, the current indices had decreased indicating better overall performance since the program inception. San Francisco had its index increase dramatically due to the start- up of a co-generation plant. San Francisco consumed significantly more energy on site once the co-gen plant came on line due to natural gas usage for the micro-turbines, but because of the nature of a co-gen system, San Francisco lowered its overall energy cost by hundreds of thousands of dollars per year.

CONCLUSIONS

As previously discussed, The Ritz-Carlton energy program was tremendously successful. On a portfolio basis, energy consumption was reduced by over 13% from the 2005 baseline which gave rise to a substantial decrease in energy spend as outline in the table below.

These gains in energy efficiency are all the more remarkable considering the extremely high standards set by The Ritz-Carlton Hotels to create its ultra-luxury brand. Standards in guest comfort and overall guest experience precluded the use of certain energy saving devices, such as compact fluorescent lamps. As such, energy conservation measures were recommended in order to not compromise brand standards. If additional compact fluorescent lighting projects and other miscellaneous measures had been incorporated into the list of energy savings projects, the savings would have been even more dramatic.

One of the two primary success factors in The Ritz-Carlton’s ability to drive down energy use were the more than 400 energy projects undertaken during the program. As noted above properties that completed energy conservation measures saved more than those that did not. And ECMs tend to have a lasting effect. Once a measure is put in place, it will typically continue to produce energy savings.

The second primary source of success of the Program was the ability of management to change the attitudes of entire hotel staffs regarding the use of energy. This is a key factor because large energy savings are often the result of many small initiatives, ones that the Ladies and Gentlemen are likely to make if they have been well schooled in the value of saving energy. This paradigm change is a testament to the skillful leadership at The Ritz-Carlton and their continued focus on energy conservation.