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Pros and cons of hospitality outsourcing
April 26 2010

When done the right way, outsourcing can provide a hotel or company with a host of benefits.

REPORT FROM THE U.S.—The decision whether to outsource is a question nearly all hotels will have to address at some point.

The practice of outsourcing has been increasing every year in the hospitality industry, according to Mark Hoare, a partner with The Prism Partnership, a Boston-based travel and leisure consulting company.

Thomas Morone
principal
Warnick + Company

“The argument for outsourcing is, in the majority of cases, driven by a desire to reduce cost while at the same time maintaining or even elevating quality of service,” he said. “This is especially true where the function being outsourced is very labor intensive.

 “Payroll is the largest cost center for almost all functions within the hospitality industry, so any opportunity to outsource functions that can be performed off-property to lower-salary areas of the country, or world, is attractive.”

Thomas Morone, a principal in Los Angeles with Warnick + Company, a strategic advisory firm, said outsourcing is a fairly widespread practice.

“Anything that saves labor is outsourcing,” he said. “At the end of the day, we do outsource a lot of stuff in the hotel business.”

A number of hotel executives declined to be interviewed for this story.

When should hotels not outsource? When a function involves direct guest contact at the property, such as bell staff, housekeeping and front desk employees, according to Morone.

“The rule is if you can touch it, it has to be real, such as never put a fake plant within reach of the guest,” he said. “You need to have consistency in the guest experience.”
 
Advantages of outsourcing

Hoare said the drivers for outsourcing are many, and he believes in today’s market every hotel would benefit from some form of outsourcing.

Probably the biggest push behind outsourcing is cost, according to Morone.

“You outsource because you can get the best talent in a highly specialized area and not have to carry them on your payroll,” he said. “If you’re installing a new computer system, you might have one IT person and outsource beyond that. The big benefit is it’s a contracted price and a predictable cost.”

Outsourcing can help hotels see the forest for the trees, said Leora Lanz, director of New York-based HVS Sales & Marketing Services.

“(Hotels) like someone from the outside driving the momentum, to help them think outside the box and think of other methods,” she said. “It can be very refreshing for the hotel to have someone push them to act proactively instead of reactively all the time.”

Hoare said another benefit is maintaining competitive advantage when competing with larger competitors who have the budget, in-house skills and technology to go it alone.

Morone also cited these benefits:

  • The contract typically is terminable at will or after 30 days notice. “You have the chance to test drive things,” he said. “If you don’t like it, you get rid of it and bring in someone else;”
  • you don’t have to own and maintain highly specialized equipment that’s not used every day; and
  • there’s no training or retraining involved. “It’s a plug-and-play model,” he said. “It’s almost like going to the Yellow Pages. You hire somebody, you wind them up and let them go.”

Disadvantages of outsourcing

The hotel’s loss of control when outsourcing is one disadvantage, Morone said.

“GMs really like to control what’s going on in their shop,” he said. “When you outsource, you lose some control. You have absolutely no control over those employees. They are not your employees.”

Another disadvantage, particularly for luxury customers, is the perception that people who aren’t on the payroll are a guest security issue, according to Morone.

Then there’s the question of service. A number of hospitality companies that outsourced their guest contact centers, central reservation offices and other functions have brought the jobs back in house because of declining service levels, Hoare said.

“For those that outsourced to an offshore provider to realize even further cost reductions, they have in many cases found that the degradation in quality of service—language, accent, cultural, etc.—has been a proven cause of loss of business, and therefore the original outsourcing return on investment has been completely overturned,” he said.

Another issue to be aware of is the ramp-up period when knowledge transfer takes place, Hoare said.

“During this interim period, the fully expected ROI may not be realized,” he said. “This isn’t a reason not to outsource, but is something that must be factored into your short-term outsourcing expectations.”

COMMENTS   Show All
MBurgelin
4/27/2010 3:05:00 PM
Well written and good information by Mr. Marone. I work in the Employee Leasing/PEO industry and we've noticed a huge increase in outsourcing in the hospitality industry over the past few years. I've noticed it's always a mindset of control - or the individual who does their homework and takes the time to investigate the pros and cons of any service and then makes a smart business decision. Mike Burgelin www.EmployeeLeasingQuotes.com
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