Solving the Labour Cost-Service Equation: A Formula for Success
Managing the cost of labour is a key management task for hoteliers. Labour cost reports, staffing schedules, and productivity statistics are the tools of the trade as hotel leaders balance labour costs while providing the level of service customers expect from their establishments. Financial targets, margins, and shifting business levels contribute to making this balancing act even more difficult. Most hoteliers would argue that providing above than expected levels of service is key to success, however, delivering these service levels in an effective and efficient manner while staying on budget is easier said then done. In this article I explore three related concepts that can help achieve this balance: 1) develop a strategic service plan, 2) create a service quality management system, and 3) develop and implement human resource strategies aimed at controlling labour costs. The rationale for this approach is simple. If you know the level of service your customers expect, manage service outcomes, and have effective human resources policies aimed at controlling costs and you’ll be ahead of the game when it comes to balancing labour costs with service expectations.
Developing and Implementing a Strategic Service Plan
Developing and implementing a strategic service plan is perhaps one of the most vital components in ensuring effective and efficient service delivery. A strategic service plan contributes to making service quality a core organizational competency. A strategic service plan provides clarity and direction in planning services while setting out the various achievable business objectives by outlining how to meet the needs of various market segments. Further, the strategic service plan includes how services will be delivered, and what operational resources will be required.
There are four general areas in the strategic service plan: (a) target market segment, (b) service concept, (c) operating strategy, and (d) service delivery system. Target market segment answers the question of: Who? Who is the customer, what are the various needs, how well are these being already served, and who is serving them. Segmentation is the process of identifying groups of customers with common needs to tailor appropriate services to their needs and goes beyond geographic or demographic factors. Service concept answers the questions what elements you need to provide, and what efforts you require to get the service designed, delivered, and marketed. In short, how the organization would like the customer to perceive the service. Operating strategy asks how you will achieve the service concept. Finally, the service delivery system is simply the effective delivery of your service concept.
An effective strategic service plan provides organizational leaders with a framework in which to develop a service quality management system that responds to the needs of various client segments and produces quality services with reduced waste and an increased potential for success.
Quality Management Systems
The term quality brings with it much ambiguity. Researchers report that in defining quality we need to keep in mind the following. Quality: (a) is defined by customers, (b) is a journey, (c) is everyone’s job, (d) is inseparable from leadership and communication, (e) is a design issue, and (f) is keeping the service promise as outlined in the strategic service plan.
A service quality management system evaluates the quality of all the various processes that affect customers. The first principle to grasp when establishing a service quality system is that you must see the level of service quality from the customer’s perspective. What this means then is that if a customer perceives a service as being of quality then it is—no more no less. However, if a customer deems it is not of quality then it isn’t no matter what hotel leaders think. It is as simple as the old adage: the customer is always right.
When a customer interacts with a service provider they create a moment of truth. In these moments customers evaluate their expectations against the service quality they are being provided. This evaluation is called perceived service quality. Research into perceived service quality lists ten standards customers use to evaluate service quality: reliability, responsiveness, competence, access, courtesy, communication, credibility, security, understanding/knowing the customer, and tangibles. It is in these moments that we assess the effectiveness of a service quality management system. If the perceived service quality matches the expectations, then customers see value and feel you have met their needs. When you do not meet customer expectations of quality, then a “gap” exists between expectations and customer perceptions. It is this gap that contributes to the unbalancing of labour costs and service delivery. Think about it: If your hotel isn’t delivering on service promises then it’s costing you money.
Human Resource Strategy
With a strategic service plan and a service quality management system hotel leaders now have two important elements in place to balance the labour and service equation. The strategic services plan delivers what customers expect and a quality management system helps ensure that you provide quality services. While these two elements are important, hoteliers also need a comprehensive human resources strategy aimed at controlling labour costs. Strategies aimed at employee retention, recruitment, and training and development are instrumental in keeping labour costs in line. All too often hotel leaders forget that hotel human resource leaders are vital to this equation.
What I’m suggesting here is that we often focus on the short-term without considering the long-term effects of poor human resources planning. Consider the following scenario. Employee turnover is a key labour cost: the cost of on-boarding, training, and limited productivity greatly contributes to labour costs. It has been estimated that the cost of turnover can range from 20% to 30% percent of an employee’s salary. If you are paying a front office associate $12.00 per hour it will cost anywhere from $5000 to $7500 to replace that position. While hotel leaders cannot control all the factors as to why people leave, what they can do is ensure that they hire the right people in the first place; a task that can be increasingly difficult when much needed expertise is not available. Hiring left to inexperienced managers with limited interview skills and with a poor understanding of job fit criteria can result in high labour costs. Here, human resources managers can implement strategies aimed at limiting turnover because of poor fit by, for example, identifying and developing managers with poor interview skills or by creating robust job fit criteria. Often hotel leaders sideline human resources managers to the peripheries of the labour cost control discussion when, in fact, they are key players. While balancing the labour cost service equation is a delicate business, a tried and true formula exists. Ensure that you know what kind of service you need to provide to your customers and produce a plan to provide it. Evaluate the quality of service and correct as needed. Implement human resource strategies aimed at controlling labour costs. You’ll soon find that balancing this delicate equation can be a lot easier.