Faculty & Research
Best Practices in US Lodging Industry Introduction
Many hotels are testing new practices or activities conceived to improve effectiveness and performance. The desire to learn from these hotel companies and then experiment with bringing new ideas, approaches, and processes into another organization is at the heart of a best-practice study. The Best Practices in the U.S. Lodging Industry study, the first of its kind, fulfills this fundamental goal of helping the industry learn from itself by stimulating creativity and providing ideas for improvement that might trigger the desire to change and encourage innovation in hotel operations.
Given today's fierce global competition, the identification and use of best practices is a critical component of managerial excellence and a means of producing the best possible performance (Rogers 1997). Examination of the practices of other companies requires investigating new ideas, activities, or managerial processes and determining which organizations have the most effective or profitable approach.
The adoption of best practices has been shown to benefit companies through lower operating costs, increased revenue, and the more effective use of monetary and human capital (c.f. Rogers 1997; Sullivan 1995), as long as these adopting companies have the quality infrastructure in place to make the major transformations that may be required (Hequet 1993). Consequently, efforts to delineate and embrace best practices are occurring in every business sector, but may still yield failure. O'Dell and Grayson (1998) revealed that many companies have excellent practices within their own organizations but are unable to transfer and share their own best practices. The inability of many companies to share practices highlights the difficulties of using and managing knowledge. One challenge for those using this book of best practices is to develop effective mechanisms to share these insights and to help the good practices within your own operation to be passed on internally.
What Are Best Practices?
While many definitions exist to define best practices, generally they refer to "any practice, know-how, or experience that has proven to be valuable or effective within one organization that may have applicability to other organizations" (O'Dell and Grayson, 1998). Best practices are exemplary or successfully demonstrated ideas or activities, viewed by some as top-notch "standards" for guiding benchmarking and making comparisons. A best-practice champion is a person or organization that supports and defends an approach, idea, or practice that has proven to be valuable.
It is essential to realize in any study of "best practices" that no single practice works in all situations, and hence the word "best" is defined in context, is situational, and means "best for you" (Hiebeler, Kelly, and Ketteman, 1998). The term "best" is constantly evolving in a world in which good practices must change to respond to new environmental conditions. To label any practice as best immediately raises the possibility of dissenting voices from other companies or properties within the same organization. In addition, the term best may suggest that there is only one way to do things. Therefore, the terms excellent or successful could replace the term best to avoid the disagreements that can result when too rigid an interpretation is placed on the collection of "best" practices.
Review of the Best Practices Literature
A review of the literature reveals a paucity of published best practices related to the service industries in general (Stank, Rogers, and Daugherty 1994), and more specifically, to the lodging industry. A few well-known hotel chains have been recognized and discussed, most notably Ritz-Carlton, but a broader-based industry specific review of best practices is absent from the current literature. This lack of managerial insight from research in best practices in the service industries in general, and in the lodging industry in particular, is unfortunate because in this sector of the economy, balancing best practices aimed at controlling cost with those aimed at building revenues is particularly challenging. Not surprisingly, Fornell, Rust, and Anderson (1997) found that a five-year wave of downsizing and process reengineering had a far more detrimental impact on customer satisfaction for the service industries than they had in the manufacturing sectors. In fact, the national level of customer satisfaction (American Customer Satisfaction Index [ACSI], Fornell et al. 1996) for services has consistently decreased in the USA since 1994. To further complicate matters, the lodging industry has distinctive characteristics that require a particular approach to the study of its best practices. Thus, the lodging industry may not be able to simply borrow universal or general practices that work in other industries (Keehley et al. 1997; Young 1997).
The pressure is on lodging firms to seek new practices to improve their effectiveness and performance for several reasons. First, competition is intensifying, bringing the industry once again close to the point where lodging supply will be greater than lodging demand. Second, consolidation in the industry has resulted in the difficult corporate task of instilling targeted behavior and practices into large, diverse hotel operations so that all properties function effectively, although distinctively, under a common corporate umbrella. Third, the realities of today's stock markets require publicly traded companies to show continuous improvement in financial performance. The "winning" lodging firms will be those that identify, adopt, and evolve the best of these practices.
Certain distinctive characteristics of the lodging industry were influential in our decisions when designing this study. The first characteristic of the lodging industry considered in formulating this best practice research relates to the intricate relationship between corporate and property level operations and management. To build a strong brand for a hotel chain, managers cannot rely primarily on advertising, as is done to a large extent in the selling of manufactured goods. Lodging brand equity is based upon each property's ability to deliver on the core component of the concept while responding each day to specific needs of their clientele in a profitable way. In one of the few best-practice studies within the industry, Enz and Corsun (1996) found that best practices promoted and instituted at the corporate level were often unrelated to profitability at the property level. The singular relationships among management companies, owners, brands, and other critical partners in hotel operations makes the success of selecting and implementing best practices far more complex than in many businesses. In this study we elicit and analyze best practices at both corporate and property levels to account for the particular relationships that exist inside the lodging industry.
The second characteristic of the lodging industry that shaped the design of this study is the experiential nature of the product (Brown 1997) that calls for excellence in two types of practices: overall practices that reflect the strategic decisions that guide the champion toward balancing the benefits to the key stakeholders (i.e., owners, employees, and guests), and specific functional practices that are needed to deliver on the multitude of details necessary to create a satisfactory hotel experience. Many of the best practice cases feature core competencies that focus on factors critical to the success of this industry. These two levels of best practices are interrelated. As Parson (1995, p. 88) noted, "Total customer satisfaction increases customer retention and employee satisfaction. Employee satisfaction increases sales and profits. A momentum builds that drives sales and productivity up while it pushes costs and employee turnover down." A limited number of studies conducted on best practices in the lodging industry (e.g., Cline and Rach 1996; Enz and Corsun 1996; Renaghan and Green 1993) have shown that some best practices can be identified in specific functional areas such as quality control of operations (e.g., regular inspections) or cost management (e.g., strategic alliances with major suppliers). However, the implementation of best practices is still nascent in many functional areas (Enz and Corsun 1996).
Finally, a key aspect of the lodging industry that calls for a creative approach to the study of its best practices is the pervasive presence of the customer at the core of service operations. Recent research has shown that customers' evaluation of a hotel and their decision to patronize it do not depend so much on what services are provided as on how the firms go about delivering on many aspects of the service experience being purchased (Dub?t al 1997; Dubé, Johnson and Renaghan 1999). That is, the organization and operation of the staff, the information systems, the facility configuration, the hotel environment, and other resources are part of the product the customer is purchasing and are important to satisfaction and repeat patronage. In a recent study on best practices in service industries in the United States (including lodging), more than 50% of the best practices judged by business executives as most important to firm success were related to the interface between the firm and the customer (Roth, Chase and Voss 1997). Moreover, even the numerous management practices that remain imperceptible to the customer are ultimately justified by the extent to which they contribute to some specific aspects of customers' needs and expectations. Therefore, it is crucial to assess customers' perspectives to have a comprehensive representation of the best practices in the lodging industry.
In sum, the existing literature gives evidence that the identification and sharing of best practices produces positive outcomes. In addition, most work on best practices examines general, broad, multi-industry, and universal processes. This, the Cornell University Best Practices Study, is the first known comprehensive study to examine overall and functional best practices in the lodging industry, at corporate and property levels, and across industry product categories and key competency areas. This study is also distinctive because it builds in customers' perspectives as a fundamental component of best practice.
We define successful lodging operations as those that make a hotel a compelling place to stay for the guest, a compelling place to work for the staff, and a compelling place to invest for the owners (Rucci, Kirn; and Quinn 1998). Lasting success relies upon managers' abilities to develop the core competencies needed to make these three components work in balance. The lodging industry has distinctive characteristics that makes balancing these three components a challenging task. Different customers in the same hotel have different, sometimes conflicting, needs and wishes. Regardless of the nature of customer needs, their successful fulfillment relies upon strategies and tactics that yield programs, practices, processes, and activities that are planned by management at both property and corporate levels. The practices and processes that have been designed are ultimately delivered by frontline employees, in the pervasive presence of the customers. Customers have developed expectations regarding what and how things should happen during the hotel stay, but they will also perceive and judge a hotel at each visit on the basis of its ability to deliver on these expectations, giving no consideration to managerial or operational constraints. Hence, the route to success in the lodging industry is likely to be paved by sustained competitive advantage, intricately linked to sustained management action, in a way that makes a hotel, as we said, a compelling place to stay, to work, and to invest in. Our strategy for the analysis of best practices in the lodging industry was to unravel the practices of the top performers keeping this balanced view of success in mind.
Study Objectives and Overview
The objective of this study was to identify best practices across the U.S. lodging industry. For purposes of this study, we have defined best practices as highly effective and profitable practices that represent the best in the industry. Thus, this study presents a compilation of strategies and techniques used by the lodging industry's "Best of the Best" in different segments, across different functional areas, and at both corporate offices and property locations; this study also examines lodging practices that are perceived as the best by the customer. The best practice champions we feature in this study have experimented with new ideas, or creatively applied existing ideas, in the lodging industry to achieve results.
This research identified and explored best practice champions in detail to understand the importance of their practices from managers' and customers' perspectives. The case analysis portion of this report is a comprehensive directory of best practices designed to enhance the awareness of the lodging industry to ideas and activities that may improve their businesses. Identifying, sharing and using the practices of others in the lodging industry is the desired outcome of this research project.
The study involved three phases as shown in Figure 1. In phase I of the research program, we asked a national sample of 13,400 managers at both corporate and property levels, stratified by several key factors, to identify from the entire United States lodging industry those companies, brands, hotels, or individuals they perceived as best-practice champions. In phase II, we prescreened those frequently nominated as best practice champions and then interviewed them in depth to obtain information to facilitate the understanding and the eventual adoption of those best practices by others. Finally, in phase III, we interviewed a national sample of frequent-stay customers, stratified by key market segments, and recent guests of the overall best practice champions. First, customers talked about their purchase motives, their experience with one of the hotel champions and their intention to remain loyal. Second, customers talked about their experience with those hotels that they considered, industry-wide, as champions on a each of a series of hotel attributes recognized as value drivers.
In summary, this study combined the perspectives of managers and customers' to present information on overall and function-specific best practices. The study's multi-phases culminate in an extensive and accessible guide to management practices in the form of short cases. It is the purpose of the case portion of this report to provide a valuable reference tool for hotel practitioners at all levels and across all key functional areas. Finally, the Customers' Perspectives on the Best Practices component of this report compares the perceptions of these two constituencies concerning what practices make a hotel a compelling place to stay. This information should assist hotel management in identifying which practices are most critical in meeting or exceeding customer expectations.
Organization of the Report
This report is comprised of six sections including this introduction. The next section summarizes the methods and approach used in each of the three phases of the project. The third and fourth sections present the functional and overall best-practice case summaries. The case studies are based on information recorded and verified by each of the best practice champions and are cross-referenced for easy reading. The fifth section provides the customers' perspectives on the overall best practice champions. The final section summarizes and discusses the conclusions and insights obtained from the study.