No one can predict the timing of the next downturn, but every hotel owner can act now to protect their NOI when the downturn inevitably occurs.
Hotel owners come in two distinct varieties: the lucky ones who inherited their hotels and entrepreneurs who worked a lifetime focused on making enough money to buy one. And from my personal experience, the last thing the latter group ever wants to talk about is human resources and culture. But hold on entrepreneurs keep reading—this is about net operating income!
Today, costs are rising faster than revenue even without a downturn. Don’t make the mistake of overlooking and underinvesting now in culture and HR—both can make significant contributions to NOI especially in a downturn. There’s recent academic proof which backs up my personal experience at Prism Hotels & Resorts.
If you want to increase your NOI read “A Case Study into the Benefits of Management Training Programs: Impacts on Hotel Employee Turnover and Satisfaction Level” published in the Journal of Human Resources in Hospitality & Tourism. The authors, Youngsoo Choi and Duncan R. Dickson, evaluate the impact and return on investment of HR efforts in the hotel business, outlining a study that evaluated two years of data to assess the benefits of HR programs and initiatives. Those programs include things such as cultivating smarter hiring practices; providing training to navigate and resolve modern workplace challenges like sexual harassment; promoting workforce diversity; and helping employers learn how to evaluate and reward employees effectively and match new employees with the jobs that match their strengths.
Those programs led to greater employee satisfaction and a dramatic reduction in costly employee turnover. The money saved by avoiding new hiring and training expenses more than offset the cost of the training. And because we already know that there’s a direct connection between employee satisfaction and guest satisfaction, it’s a gift that keeps on giving.
A lot hotel companies talk about how their employees are their most important asset. But that talk isn’t always followed up by actual dollars. The reality is that more hotel decision-makers should be walking the walk and making a significant investment in human resources training.
Recently, the August HVS Report summarized the state of affairs in a piece released after the NYU International Hospitality Industry Investment Conference in June. Author Rodney G. Clough points out that “It is harder and harder to find staff members to fill positions at virtually all levels of a hotel’s operation, particularly the line-level positions.” That scarcity “is driving hourly wages higher, as hotels compete for fewer and fewer available workers.”
There’s plenty of reasons for a leaner hiring market for employers, but the upshot is that “labor costs are rising 5%-6% in some cities.” And when you consider that roughly 50% of the costs in our hotels are labor expenses, we literally can’t afford to ignore this. High employee satisfaction scores can have a big time impact on your bottom line, and not just through lower turnover and training costs. Happier employees are healthier and more productive employees, and the resulting health insurance savings can be significant—even dramatic.
Here at Prism, where we take a heck of a lot of pride in treating our people well as well as building and maintaining a culture of care and consideration for every team member, we’ve seen an eye-opening correlation between employee satisfaction and bottom-line results.
We have a 95% employee satisfaction rate, well above the industry average of 73%. We have 5.8% annual turnover, compared to 20.7% across the industry. And here’s the kicker: our annual insurance premiums have gone down 2.2% on average over the past five years, at a time when the average annual premium increase has been 10%. That all shakes out to an incredible $2.5 million in savings during that time period. There are talented professionals who have proactively reached out to us and let us know they are willing to wait for a job to open so that they can get a seat on our bus—because we’re putting our money where our mouth is.
Whenever the next economic and industry downturn happens—and there are some signs it could be sooner than most of us would like—the time to prepare for it is now. As an industry, we’ve had a great run, which is all the more reason to invest some of those profits in a better-trained, HR-savvy, happier and healthier, and more satisfied and productive workforce. Entrepreneurs eat your vegetables they are good for you!
Steve Van, president and CEO of Prism Hotels & Resorts, founded the Dallas-based company in 1983. Under his leadership, Prism has become an award-winning full-service hotel management, investment and advisory services company. For more information, visit https://prismhotels.com/.
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