Third-party politics
Outsourcing has become all the rage in the hotel industry of late. Ever since Gordon Ramsay snuggled into bed with the Savoy Group at Claridge's and then at the Connaught, hotels around the country have realised that a celebrity chef in an outsourced restaurant can cut out catering headaches, bring in extra cash and raise the profile of the property.
But while London success stories such as Ramsay at Claridge's and Locanda Locatelli at the Churchill InterContinental make the strategy look tempting, outsourcing parts of your hotel can be a complicated business. Even if you do find a marriage made in heaven, just like any other relationship it will take a lot of nurturing.
Some functions of a hotel are outsourced out of necessity. Lift management and security both require a licence, and companies offering such services are numerous. But outsourcing in other areas - food and beverage, housekeeping or conference and banqueting, particularly where staff come into direct contact with your guests - is far from straightforward.
Where it's appropriate
Robert Barnard, managing consultant at hotel consultancy firm PKF, warns that quality is always the key factor. "Hotels have to consider whether they're enhancing the quality of their operation as a whole. This means deciding what is appropriate for their individual operation," he says.
The simplicity of a budget hotel may make it appropriate to contract out house-cleaning services. But in an upmarket hotel, where guest behaviour is less predictable, managers face a much more complex situation. Many hoteliers are reluctant to lose control over aspects of their business that involve interaction with guests, and which ultimately have an impact on their brand.
Hoteliers remain wary of outsourced staff who will not necessarily provide the level of loyalty or commitment that a high-quality establishment relies on. One ex-hotelier, who wished to remain anonymous, recalled an occasion when guests in a large luxury hotel group complained that the quality of sheets was better in its Paris hotel than in the London properties. An investigation revealed that a dedicated in-house laundry team at the Paris hotel made its polycotton sheets feel superior to the brushed-Egyptian cotton of the London hotels.
When hotels do decide to outsource, it is vital to establish a harmonious and communicative relationship with the service provider.
"Getting the relationship right depends on very careful preparation for the contract and knowing that you've got a good cultural fit," says Barnard. "And it's got to be beneficial for both parties." Hotels also need to consider the prospect of non-compliance. While financial penalties for not adhering to service agreements can be built into a contract, an unhappy guest and a damaged reputation cannot necessarily be restored.
What the operators have to say
Geraldine McKenna, executive vice-president, Savoy Group
We have outsourced several of our restaurants and it has been a huge success.
As hoteliers, we have always got to think of our guests and there have been learning curves in understanding each other's responsibilities. The Gordon Ramsay restaurants are stand-alone, but they must remember that they are not working in isolation. There is an enormous amount of time involved in communication. Having similar high standards in both cultures is vital.
Other than night-cleaners, we would not outsource other areas of the hotel. Knowing our customer is an incredibly important part of our business. We have to control our service and quality standards, particularly as our business is so individual.
It takes time to train staff and build up their product knowledge. We need guests to have the feeling of staff being permanent and having a pride in the hotel, otherwise we would be soulless.
Dave Turnbull, regional industrial organiser, Transport and General Workers Union
From a union point of view, we would rather all employees were in-house. Once you start contracting services out, employees may be regularly changing employers as the hotels swap between contractors. This takes away any sense of continuity for the workers and can reduce motivation and loyalty.
Contracting out services also usually means cutting back on pay and reducing benefits. TUPE regulations do not protect pension schemes so these are frozen if staff are transferred to a new employer. Disruption to employees and deterioration in terms and conditions often affects the level of service passed on to the guest.
Mark Selawry, vice-president management services for Hilton UK & Ireland
Hilton has no overall policy for outsourcing, as its portfolio of hotels is so diverse. Any decision to outsource is about getting the balance right for the hotel and having a well-structured agreement. There must be strict, agreed service and quality levels established in the contract and penalties built in if these are not adhered to. Ultimately, we as a hotel are still accountable to the guest.
The risk involved is the potential loss of control over the output of contracted staff. Staff motivation could also be at risk. This must be mitigated with strict service agreements, clear standard-setting and active account management. It's vital to work with the service provider to form a partnership. We are also very careful to scrutinise the third party's background before entering into any agreement.
Edward Winterschladen, purchasing director, Thistle Hotels
Losing control over parts of the hotel can lead to a dilution of the brand. This is because when wages aren't dependent on us, it is difficult to get brand or company messages through to staff and therefore the guest. It would be very difficult to provide a personal touch if we outsourced key staff.
We all want profitable businesses, but a hotel's success depends on guests coming back. It's important, therefore, to have very detailed contracts and maintain high levels of communication between both parties. You also need procedures in place to control suppliers and remove them if necessary.
The time involved in managing outsourcing can also be significant. Service-level agreements can be very difficult to measure and, overall, the management time necessary could be greater than the costs you save at a basic level.
Outsourcing and TUPE
Under TUPE (Transfer of Undertakings, Protection of Employment), a contractor that employs a hotel's existing staff must offer them exactly the same terms and conditions as they had under the hotel's employment.
Responsibility for the cost of redundancies is a matter for agreement between the hotel and contractor, but the TUPE rules cannot be sidestepped by sacking staff before a contractor takes over. It is important to note that any dismissal connected with a TUPE transfer is automatically unfair unless there is an ETO (economic, technical or organisational) reason. The hotel would want indemnities in the agreement to cover any liability that arises after the contractor takes control. The hotel must comply with "informing and consulting" obligations before the transfer. Failure to do so can result in a financial award to the affected employees.
The hotel does not have contractual liability to the service provider's staff but can write conditions into a contract to help protect staff and maintain service standards.
For more information, contact Beverley Whittaker at Stevens & Bolton Solicitors.
Tel: 01483 302264www.stevens-bolton.co.uk
Outsourcing in the USA
American hotels, more cost-conscious than ever, are turning to outsourcing in growing numbers, writes Gillian Drummond. Although housekeeping is still the most popular service for outsourcing, hotels are also doing it for laundry, parking, retail, security, IT and even human resources.
"It's definitely a continuing trend," says Harry Nobles, owner of Optimum Rating hotel consultancy in Virginia. "There's no additional cost in terms of benefits, training or recruitment, and hotels know exactly what the contract is going to cost."
Some hotels, ranging from independents to chains, report savings of 30-40% through outsourcing.
Mark Hagopian, owner and general manager of the year-old Charlesmark hotel in Boston, says outsourcing has helped him to keep costs down in a tough market. He farms out sales and marketing, public relations, IT, maintenance and some food preparation to outside companies. He views outsourcing as a short-term solution while his business gets off the ground.
Job agencies such as Florida-based HospitalityStaff say the benefits of outsourcing are not just economic. If an employee doesn't work out, the hotel doesn't run into any union difficulties, says owner Charlie Savarese. It simply calls the agency and asks for a replacement.
American hotels also see the downsides, such as lack of control over their own staff and lack of staff loyalty.
Some aren't even convinced of any economic benefits, saying financial savings are cancelled out by the extra money paid out to an agency.
But for most operators, economics tend to win over any other arguments. In the current climate, says Nobles, "everybody's just trying to survive".
