Asset managers should be on the lookout for elite talent when putting together a hotel’s management team.
This is part two of a six-part series on the topic of asset management.
Let me begin with three statements that I believe to be self-evident.
- Once a hotel is open and operating, the general manager is the single most important element in the success or failure of that hotel, followed by the quality of the GM’s management team.
- The greatest asset manager in the world cannot optimize the success of a hotel without having at least a “good” general manager.
- A great general manager can be successful without a good/great asset manager, but they can be more successful with one!
The people who comprise every profession are distributed on a bell curve. On one end—numbering only few (thankfully)—are people who are incompetent and seriously dilutive to the human gene pool. They survive through nepotism, politics, accident or other similar factors—but they do survive. On the other end are superstars, which are sadly also few and far between. As one moves toward the middle of the curve, the numbers increase. Because of the first statement above, asset managers demand—or should be demanding—GMs who fall into the upper end of the quality range.
Fortunately, one’s position along the curve in most professions, including hotel management, is not predetermined at birth. Raw intellect plays a role, but it is not the most important factor. The industry has its complexities, but let’s face it, we’re not dealing with Inter-universal Teichmüller Theory here. While there may be “born leaders,” leadership skills can be learned and developed with experience, mentorship and encouragement. Therefore, the pool of people who can be successful is relatively large.
So, what can a person of above-average ability do to be considered among the industry’s most desirable GMs? What defines a best-in-class GM?
Here are the answers to that question, based on what I’ve seen and feedback from my CHMWarnick colleagues.
A best-in-class GM:
- Is a leader—they know how to select the best talent, retain them, and motivate them to achieve their highest potential;
- is a business person and knows how to put themselves in the owner’s shoes;
- can think strategically;
- knows their market and hotel and can demonstrate that knowledge;
- is fair and rational but demanding, meaning they do not abide mediocracy;
- is willing to take measured, thoughtful risks and make timely decisions instead of residing under a blanket of politically safe indecision or obscurity;
- owns his or her decisions and acknowledges and learns from mistakes without making lame excuses or playing the blame game;
- is good at setting priorities for himself/herself and the team;
- is constantly seeking to improve and is never complacent; and
- has a positive, can-do attitude, while remaining turned on and tuned in.
These are traits, and in the words of venerable management consultant Peter Drucker, “If you can’t measure it, you can’t manage it.” So you must identify criteria where these traits can manifest in clearly measurable results.
Here’s a partial list of useful criteria:
- Revenue-per-available-room Index and Net RevPAR (net of customer acquisition cost);
- gross RevPAR (especially where F&B and other ancillary income could be material);
- flow through (preferably measured against a prior actual versus budget);
- forecast accuracy, a fundamental element to labor productivity and owner cash management;
- hitting/exceeding budgeted GOP;
- guest satisfaction, both internal—typically brand administered—and external, such as TripAdvisor, J.D. Power, etc.;
- employee satisfaction/engagement and employee turnover statistics;
- community involvement and industry leadership; and
- demonstrated knowledge of the hotel’s operation and relevant market, which is qualitative, but observable.
A note of caution: the budget has inherent weaknesses as a measurement tool. They are set too far in advance to be accurately predictive. They are fixed; in other words, they do not automatically adjust for higher or lower utilization, and are often driven or influenced by broad brush corporate mandates. Moreover, they are set by the operator—the very entity responsible for achieving them.
Operators have powerful incentives to set a low, easily achievable bar. At the corporate level, achieving budgets is often a criterion in the management contract performance clause. At the property level, team bonuses are at least partly dependent on hitting or exceeding budget.
Evaluating a GM’s performance still requires experience-based judgment, because there are a number of intangibles that should also be considered, including:
- Demonstrated general business acumen and ability to think like an owner;
- demonstrated owner empathy;
- problem-solving ability and creativity;
- attitude; and
- effort and drive.
To demonstrate genuine owner empathy, it is strongly recommended that general managers take the time to get to know their owner, either directly or through their asset manager.
Here are some questions a GM should be able to answer about their owner:
- What is their background?
- How did they make their money?
- Why did they invest in the hotel sector generally and in your hotel specifically?
- How knowledgeable are they about the hotel business?
- What are their financial expectations/priorities, and how will they be measured?
- Do they have nonfinancial motivations (e.g., legacy, ego)?
- Do they have indirect financial motivations (e.g., the hotel is part of a mixed-use project)?
- What is their exit strategy?
- What is their preferred method(s) of communication (detail, form, frequency, to/through whom)?
The GM must then consider whether any of this information is in conflict with the terms of the management agreement, the management team’s objectives and approach, the directives from their superiors, or market and product realities.
It might not be a GM’s role to resolve such conflicts, but it is certainly a GM’s responsibility to raise awareness with those whose job it is to resolve current or potential conflicts, preferably before they become serious problems in the owner/operator relationship.
I will conclude with a few “Rules of Engagement” with asset managers:
- Recognize that the relationship with an asset manager is a partnership, and leverage your asset manager’s knowledge and expertise.
- Invite the asset manager to the process via challenges, opportunities, ideas and analyses.
- Don’t “hide the ball.” Communicate regularly, because transparency is key.
- Over-communicate, and let them dial it back.
- Act like you care about the owner and their position vis-à-vis the hotel as an investment. Fake it if you have to.
- Accept criticism. Tell your defensive instincts to take a long vacation.
- Think strategically, critically, outside the box, like you own the place. How would you feel if you did own it, and your manager was doing what you are doing?
Richard Warnick is Managing Director and Co-Chairman of CHMWarnick (“CHMW”), the leading provider of hotel asset management and owner advisory services. The company asset manages over 50 hotels comprising approximately 24,000 rooms valued at roughly $10 billion. CHMW’s owner advisory services cover virtually every aspect of the hospitality industry, and all phases of a hotel’s lifecycle, including ground up development and repositioning. The company is currently providing development advisory services for client hotel and resort projects valued at over $3 billion. CHMW has offices in Boston, New York, Los Angeles, Phoenix, Fort Lauderdale, Minneapolis and Honolulu. For more information, contact 978.522.7000 or visit CHMW’s website at www.CHMWarnick.com.
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