To Cluster or Not to Cluster. That is the question
by Kelly McGuire and Paresh Bhandari
For many years the hospitality industry has debated the structure of the revenue management function, questioning whether RMs needed to be located on property, near property or even in the market at all. We have debated whether RMs could balance multiple properties, and if so, how many, and of what type of properties. We have discussed the right reporting structures and even titles. Through this, there were small adjustments, but the jury has been out for years on what the right path forward should be, and there wasn’t much test and learn to help industry come to a decision.
Then along came COVID-19, which overnight forced the hospitality industry to make drastic decisions about operating models. With the necessity for staffing reductions across the RM function, many revenue managers saw their portfolios grow. On-property RMs took on additional nearby hotels, more hotels were added to existing cluster portfolios, and a few hotels, unfortunately, were left either with no revenue manager oversight, or with a revenue manager who was also cleaning rooms and running the front desk.
Circumstances forced the hospitality industry to make these decisions, and they were frequently made with barely any time to plan or consider. In the midst of managing through a crisis, there hasn’t really been time for follow up analysis to understand the impact of those portfolio decisions on the revenue managers’ efficiency or effectiveness. However, now we have a great opportunity to take some evidence from these forced changes over the last year and purposefully build them into our go-forward plan.
Before making any decisions, challenge all your prior assumptions. Do all your full-service hotels need an on-property revenue leader? How important is it for an RM to be located in the market if they can do the research to learn and track the market? Where and how much did properties that had limited or no RM support suffer? Are performance impacts from those overloaded RMs a result of too much work, or too many inefficiencies in the work?
To help leaders answer some of these questions, ZS and HSMAI conducted an industry wide study called Voice of Revenue Manager. This study collected responses from RMs on how they are spending their time and the challenges they faced in their day-to-day. The study results provide some guidance for leaders as they consider whether the pandemic-forced clustering should become a model for the organization moving forward.
Trends in Cluster Revenue Management
We were interested to know how the trend towards clustering and consolidation during the pandemic manifested in our study population, so we asked some detailed questions about the participants’ portfolios.
Here is what we discovered:
· On average, a cluster revenue manager manages 13 hotels (min: 5, max: 23)
· Most RMs have hotels with same or similar chain scale within their portfolio; upper upscale & upscale, upscale and midscale are the most common combinations
· Very few luxury hotels were a part of cluster revenue manager portfolio
We did not capture performance data in our study, so we can’t say what the “right” combination of chain scales or number of properties should be. We do see from the study results that the most common practice was to keep portfolios at one or two chain scales, but some revenue managers did have more complex portfolios. We suspect that the more similar the hotels are, and the more similar the markets they operate in, the more efficient and effective the revenue manager can be.
Time allocation
The study asked RMs to self-report on time spent across activities which happen once a year and activities which are performed every week. We discovered some key differences in time spent by cluster RMs versus on-property RMs on the following:
Efficiency gains across hotels is frequently cited as one of the primary reasons to form a cluster revenue management team. With one person serving multiple properties, the resource costs can be spread, but time is spread as well. Custer revenue managers need to be focused on only the key tasks that support revenue generation, if they have less time per hotel. However, the study responses show that that only 45% of cluster RMs’ time is spent on revenue generating activities. The overall average for the study was 49%, so cluster revenue managers are spending even less time than their counterparts on revenue generation.
Advice for hoteliers
How can leaders get all the proposed efficiency benefits from cluster revenue management, without losing the focused attention on revenue generation at each property? It’s a challenging balance. Over the last few years, we at ZS have setup an in-house cluster revenue management team which manages revenue management activities for ~650 midscale to upscale hotels in North America. The team looks after optimizing day to day pricing, customer and channel mix, as well as corporate and group RFPs for their portfolio. They are delivering ~6% RPI YoY growth consistently while managing ~30 hotels per revenue manager.
How did we manage to create such a team? It didn’t happen overnight (but hopefully we can shorten the development time for you with some practical advice). We did it by constantly asking questions: what is the right number of hotels in the portfolio? What are our revenue managers spending time on? are we coaching RMs sufficiently to be successful in this role? are we enabling them to improve their hotel performance? which non-revenue generating activities can be reduced through automation or process redesign?
Lessons we learned from our journey:
Part of our success in standing up this organization was to take a hypothesis driven approach. We identified issues that arose in our process, hypothesized the root causes and constantly tested solutions. We also challenge ourselves to be relentless in our pursuit of improvement. It is a lot of work, but it pays off in improved revenue for our properties, and improved efficiency for us!
Below are few examples of the challenges we faced and how we solved them.
With the industry poised for recovery, and a year of testing out new structures and operating models under our belts, this is the perfect time for revenue leaders to evaluate their organization and find ways to make their revenue teams more efficient and effective. There are many opportunities to do this in a cluster model, but extra attention needs to be given to ensure that you are not bogging these revenue managers down with even more non-revenue generating work. You also need to rethink the leadership structure of these teams to ensure that revenue managers receive the training, guidance and support to be successful in these complex roles. Unfortunately, it’s not quite as easy as handing the RMs more hotels and telling them “go”!
We are interested to hear your cluster revenue management story and discuss challenges you are facing or have solved within your organization. Please share your thoughts and reactions.
