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According to Butz and Goodstein (1996) customer value is the emotional bond established between a customer and a producer after the customer has used a product or service produced by the supplier, such leads to the customer to buy repeatedly. The aim of this study is to discuss how operation management concepts can be applied to provide superior customer value continuously and efficiently in the present economic climate.
The context of this study is aimed to front office operation services in four star upper market full service hotels and resorts. The main reason for choosing these four star upper market companies is that Hospitality tends to be a late cycle industry in terms of registering the impact of recession either positive or negative. Slowdown in business occurs because corporate clients review their own polices when they see business slowing (PriceWaterhouseCoopers 2008).
Despite the banking and credit crisis which began in 2007, the UK economy remained in a reasonable condition during 2007. The Gross Domestic Profit grew by 3 per cent during the year following a growth of 2.8 per cent in 2006. In the year 2008 however the UK saw an overall drop in occupancy of 1.5 per cent in the first nine month's of trading. Two major cities of the UK Edinburgh and Birmingham saw the largest occupancy decline of 3.8 percent and 4.1 per cent respectively (PriceWaterhouseCoopers 2008).
Inter Continental hotels group, the world's largest hotel company recently warned that the recession would affect its pipeline of new developments. The downturn hit the hotel sector as leisure and business travellers cut back on their travel plans and developers struggled to complete openings (Lau 2008).
According to Blitz (2008), Marriott, one of the worlds leading hotel operators became the first company to warn that a pipeline of new openings could be hit by owners forced to cancel or delay projects due to the recession. In the interview with Financial Times Mr Marriott said
"Given the deteriorating financial markets, the company, owners or franchisees may decide to delay or cancel some of the projects included in the pipeline. Such decisions may lead to write-offs of amounts invested, which cannot be estimated at this time..."
It can be clearly seen from the above that the recession has negative impacts on upper market hotel companies like Intercontinental and Marriott. Companies are forced to delay or cancel their upcoming projects due to a decrease in business. Budget hotel companies like Travel Lodge however have a positive impact in the recession in terms of business. Travel Lodge, the budget hotel operator planned to spend 125 million pounds on opening 22 new hotels before the end of the year 2008. According to Mr Paul Harvey, managing director of development (cited in MacNamara, 2008) the credit crunch has forced consumers to review their spending habits thus more customers are attracted towards budget hotels. The arguments above thus define why this study has aimed towards four star upper market hotels.
In order to critically evaluate how operations management concept can be applied to the four star upper market hotel sector front office operations to provide superior customer value continuously and efficiently, firstly it is important to understand how front office operation works in hotels and where the operation creates the customer value.
To many guest in the hotel the front office is a main point of contact for every thing. All the functions, activities, and areas of the front office are geared toward supporting guest's transitions and services (Kasavana and Brooks 2005). According to Kasavana and Brooks (2005) four star upper market hotels appeals to largest segment of the travelling people. Traditionally, the flow of front office operation can be divided in to four stage guest cycle, pre arrival-arrival-occupancy-departure. This guest cycle is explained in detail through following model.
Source: Kasavana and Brooks (2005) p92, chapter 1
It can be seen form the model above the flow of front office operation can be divided in to four stage guest cycle, pre arrival-arrival-occupancy-departure and how guest interacts with hotel front office staff during each stage. The guest chooses a hotel during the pre arrival stage of the guest cycle. The guest's choice can be affected from many factors. The type of travel is often an important factor. Because business travellers are more concerned about convince than price where leisure travellers are more likely to be cost conscious since they are paying the bills not the company (Kasavana and Brooks 2005).
There are certain ways where hotels can create customer value during pre arrival stage. For example Marriott Hotels offers virtual concierge facility to their guests on pre arrival. Guests are planning stays at the company's full-service properties can customize their experiences online. The virtual concierge helps guests order ahead for room service, make dinner reservations, arrange for car service, order a roll-away bed or request connecting rooms. At Marriott and Renaissance resorts, guests can also schedule a round of golf, sign up for tennis lessons or book spa treatments. The virtual concierge is available at nearly 400 properties worldwide (Marriott, 2009).
Another hotel company Embassy suits hotels offers "Request upon Arrival" program to their guests. This program further personalizes guests' experience by giving them the opportunity to order complimentary or paid in-room offerings, services, snacks and beverages even before embarking on their trip. By ordering these items or services online prior to check-in, "Requests upon Arrival" saves guests time and frustration by eliminating the need to ask for amenities after they arrive in their suite (Business wire, 2009). Rick McCue vice president for Embassy Suites Hotels (cited in business wire 2009) said,
"This is just another way in which we strive to make a difference in our guests' lives by anticipating their needs, saving them time and making their life a little bit easier every day."
Arrival stage of the guest cycle includes registration and rooming functions. After arriving at the hotel guest establishes a business and legal relationship with a hotel through the front office (Kasavana and Brooks 2005). Kerr (2007) suggests the importance of courtesy and of controlling guest's gestures and emotions in public would have had a bearing on the administration of the hospitality. This is particularly important upon the guest's arrival to make a first and lasting impression. Those who welcomed their guests warmly and exhibited a generosity of spirit would surely secure favourable reports.
Kasavana and Brooks (2005) points out that during guest checking in process front desk agent must be vey familiar with the hotel's room types, rates and guest services and be able to describe them in a positive manner. The front desk agent should determine the guest's reservation status before beginning the registration process. Person with reservation may have already undergone pre-registration activity. These procedures makes guest feel valued.
As it can be seen in the guest cycle model shown previously, during occupancy stage of the guest cycle customers' have maximum interaction with the hotel. At this level customers' are interacting between front desk agents, switch boards, mail and communication and cashier. Guests also use other facilities like their bed rooms, leisure centre and/or food and beverages. The manner in which front office operation re presents the hotel most through out the guest cycle is the occupancy stage. Being the centre of the hotel activity, the front office is responsible for coordinating guest services (Kasavana and Brooks 2005).
Dube and Ranaghan (2000) points out that, to develop loyal guests' managers must give value during their hotel stay. The most efficient way to achieve that is to provide out standing service. One of the key effort that hotel must make in developing a unit of loyal, satisfied customer is to create value. They define value as customer's perceptions that hotel have fulfilled during their hotel stay.
As seen previously in guest cycle model, a customer ends their stay in the hotel with their departure. It is not a difficult procedure for hotel front office to follow, however it does require planning in order to organise the details of this part of the guest's stay (Bardi, 2006). A most critical point at this stage is customer's satisfaction. During guest check out front office staff must determine whether guest was happy with the stay or not and encourage guest for repetitive business. The more information hotel has about guest more customer value can be created by anticipating and fulfilling their needs and requirements. In addition it is important for guest to leave positive impression of the hotel (Kasavana and Brooks 2005).
The discussion above well explains how front office operation and guest cycle works in the hotel. It can be understood from the discussion how each of the stage of guest cycle links to each other and most important aspect is that the hotel staff's communication in between. It is a chain which can be linked together to create a customer value. This links can be explained through value chain model which was first developed by Michael Porter in the book "Competitive Advantage: Creating and
Sustaining superior Performance" (1985).
The basic model of Porter's value chain is as below.
Source: Porter 1985
Value chain analysis describes activities that organisations performs and links them together to provide customer value. Value chain analysis is a power fool tool for managers to indentify the key activities within the operation with forms value for customers (Net MBA, 2009)
The value chain analysis essentially entails the linkage of two areas. Firstly, the value chain links the value of the organisations' activities with its main functional parts. Then the assessment of the contribution of each part in the overall added value of the customer is made (Lynch, 2003). As it can be seen in value chain model above in order to conduct the value chain analysis, the hotel front office operation is split into primary and support activities. Primary activities are those that are related with the front office operation, while support activities are those that provide the background necessary for the effectiveness and efficiency of the front office operation, such as human resource management.
As seen in the value chain model the primary activities (Porter, 1985) of the hotel front office operation include the following:
â€¢ Inbound logistics
These are the activities concerned with receiving the reservation from guests, storing these externally sourced materials, and handling them within the operation.
These are the activities related to the production of services. This area can be split into more departments to create value. For example, the operations in case of a hotel front office would include reception, concierge, valet parker, porter among others.
â€¢ Outbound logistics
These are all the activities concerned with distributing the final product and/or service to the customers. For example, in case of a hotel front office operation this activity would entail the ways of bringing service to the customers.
â€¢ Marketing and sales:
This functional area essentially analyses the needs and wants of customers and is responsible for creating awareness among the target audience of the company about the firm's products and services. Companies make use of marketing communications tools like advertising, sales promotions etc. to attract customers to their products.
In case hotel front office operation service refers to making sure during the stay which is occupancy stage of guest cycle in the hotel management need to make sure their guests are feel valued for each and every moment spend in hotel.
The support activities of a company include the following:
This function is responsible for availability of the materials that are necessary for the successful operations to create value.
â€¢ Human Resource Management
This is a function concerned with recruiting, training, motivating and rewarding the front office staff. Human resources are increasingly becoming an important way of attaining sustainable competitive advantage.
â€¢ Technology Development
This is an area that is concerned with technological innovation, training and knowledge that is crucial for most companies today in order to survive.
â€¢ Firm Infrastructure
This includes front office management structure like Front office manager, Front office supervisor, Head concierge, concierge among other staff (Lynch, 2003). Chart below is an example of front office infrastructure in full service hotel or resort serving mid upper market customers.
Front Office Manager
Assistant front office manager
Source Bardi 2003.
According to Bardi (2003) the objectives of the hospitality organisations is to produce superior customer value. To meet this goal factors such as working structure of the organisation, operation plans, staff size, and ability are constantly reviewed. Flexibility is the key to hospitality organisation specifically in the tough economic conditions. Every single opportunity should be accepted to create customer value.
Customer satisfaction or dissatisfaction is the result of interaction between the consumer's pre arrival expectations and departure evaluations (Czepiel and Rosenberg, 1997). Success in the hotel industry requires understanding of the key factors that influences customers' satisfaction both at the hotel property level and at the larger geographic destination (Poon and Long 2005). Satisfying customers during their first visit and delighting their stay can help develop customer loyalty. This leads to repeat business over the time (Otto et. al. 2004).
This is where operation management concept like Total Quality Management (TQM) comes in application. Total Quality Management is a management technique that encourages managers to look with a critical eye at process used to deliver products and services promised (Bardi, 2003). According to Jeffries, et al., (1992), the essence of Total Quality Management is a comprehensive and integrated way of managing any organization in order to meet the needs of the customer consistently and achieve continuous improvement in every aspect of the organisation's activity. It is a management philosophy which seeks continuous improvement in the quality of all processes, products and service of an organisation (Brown, 1994).
The primary objective of hospitality companies is to provide superior customer value continuously and efficiently in the present economic climate. Total Quality Management begins and ends with the customer. It is purely a customer-oriented method of management. Total Quality Management deals with concepts like product quality, process control, quality assurance and quality improvement. In some other aspects it controls all transformation processes of an organisation, which are aimed at satisfying customer needs to the best in a cost effective way.
According to Abrahamson (1996), Total Quality Management can be divided into three parts: Total, Quality and Management. Total means involving the entire organisation supply chain and product lifecycle; Quality as said above means the characteristic or feature of someone or something or, the standard of excellence of something, often a high standard. Management is the system of managing with steps in the organisation like plan, control, organise and so forth.
Lakhe & Mohanty (1995) point out that Total Quality Management is a management approach which concentrates on quality, request for excellence, creating the right attitudes and controls to make prevention of defects possible and optimize customer satisfaction by increased efficiency and effectiveness. It is based on the participation of all the members and it aims for long-term success through customers' satisfaction and benefits to all members of the organisation.
It is therefore an organisation-wide activity and it has to reach every employee within the organisation. From above, it is seen that Total Quality Management is the management of the total quality. In that case, the quality is assessed in the entire organisation such as the producing process, the final product and so forth. This management approach helps hospitality companies to avoid mistakes and prevent defects. Hyde (1992) suggests that Total Quality Management encompasses five principles which are management commitment, employee empowerment, fact based decision making, continuous improvement and customer focus.
It is mainly concerned about continuous improvement in all work from planning to the details of daily work. It is from the shop floor employees to senior managers (Dimitriades, 2000). All principles are aiming to pay attention to the "service quality" which can help hospitality companies to differentiate from other organisations and through it gain a last competitive advantage (Ghobadian, et al., 1994). According to Dotchin and Oakland (1994), that customers assess the quality of service by comparison of expectations and perceptions, thus it is necessary to find out how particular parts of service contribute to customers expectations and perceptions of service quality.
A conclusion can be drawn from this study is that the economic slowdown has effected hospitality organisations, specifically upper market full service hotels and resorts. A key of success in economic slow down is to provide superior customer value continuously and efficiently. A most effective way to achieve a superior customer value is to apply operational management concept like Value chain and Total Quality Management. Hospitality companies can apply these concepts according to their needs and to maintain excellent communication between customer and the organisation as well as within organisation operation. At an operational and strategic level these management concepts can be employed together to create a value. The extent to which various practices correlate with each other and with performance is evident. While these concepts may be distinct characteristics and goals, there are common elements in each which can be reinforced by each other. Lastly, in addition to a having focus on achieve superior customer value in the downturn, understanding these operation management concepts and links between them is a key driver of performance.