Small hotels must think big!

Lesley Hare, GUEST COLUMNIST

Prior to, and since, the influx of large and multinational hotels into the Jamaican economy in 2001, a significant number of small hotels have gone out of business. Small hoteliers, media practitioners and policymakers alike have lamented the dire straits being faced by this subsector, with the underperformance of these hotels.

According to Jamaica Tourist Board (JTB) statistics, in 2010, small hotels (i.e., those with 10 to 100 rooms) represented 72 per cent of the hotel inventory in Jamaica and 17 per cent of the room stock.

However, from 2005 to 2010, there was a dramatic decrease in the stock of small hotels from 164 to 121. This begs the question, how competitive are small hotels in the Jamaican economy? Do they operate at international standards, as pertains to cost, service level, operational standards and quality; and do they earn above-average returns in a market which includes domestic competitors and rival enterprises from other countries? These are factors which researchers suggest as reflective of enterprise competitiveness.

Researchers have suggested that profitability is a strong measure of enterprise competitiveness. Indeed, PA Consulting Group indicated in a study released in 2006 that hotels gauge their profitability using key operating ratios such as occupancy percentage and average rate. In 2010, hotels in Jamaica with fewer than 50 rooms recorded an average occupancy rate of 27.6 per cent, and those of 51 to 100 rooms saw an average occupancy of 35.5 per cent. These represented a fall from 34.8 per cent and 47.4 per cent, respectively, in 2005.

This is worrying, as JTB analysis indicates that a 60 per cent annual-average occupancy is considered acceptable for Jamaica's hotel industry, and represents the general break-even point for the hotels.

A case study of 11 small hotels was conducted in 2011 for the completion of a research paper under a Tourism & Hospitality Management postgraduate degree programme at the University of the West Indies. Small-hotel managers were interviewed in the six main resort areas in Jamaica (i.e., Ocho Rios, Montego Bay, Negril, Port Antonio, the south coast and Kingston), and the results were troubling.

Only one hotel achieved above-average returns for the period 2005 to 2010, when measured against the JTB's analysis of the acceptable occupancy percentage. This hotel earned an average of 80 per cent occupancy between 2005 and 2010, while not discounting its rates. Two other hotels achieved average occupancy of 70 per cent and above. However, they heavily discounted their rates while the other eight hotels achieved between 10 per cent and 50 per cent occupancy, while discounting their rates for the most part. Ten of the 11 small hotels in the study were, therefore, not profitable.

Improving Small Hotels' Performance in Jamaica

The factors that generally help firms attain competitiveness are critical for small-hotel owners and managers to keep in mind as they try to improve their performance. Alvin Wint has summarised these factors in his work on drivers of competitiveness in Jamaican firms. He posits that there are seven key drivers that are pertinent to tourism firms. These are: innovation, industry knowledge, international benchmarking, leadership, factor conditions, quality focus and responsiveness to competition.

A crucial factor in the drive for enterprises to improve their competitiveness is innovation. Research on small tourism enterprises in Switzerland - the country that was rated number one out of 139 countries in the Travel and Tourism Competitiveness Report 2011 - indicates that a reason for the success of many of these hotels is the high level of industry innovation, backed by a high level of research.

This innovation relates to the hotels successfully exploiting new ideas on the dimensions of product, process, position and paradigm. In fact, researchers specifically suggest that hoteliers would benefit from adopting innovations in areas such as product development, marketing, technology and 'greening' of hotels. It must, however, be continuous if the small hotels are to obtain or enhance a sustainable competitive advantage over their competitors such as all-inclusive hotels.

Also critical for improving the performance of small hotels in the Jamaican economy is the need to carry out international benchmarking. This has been defined as finding an organisation that is best at what the company does; studying how it achieves its results; making plans for improving the company's own performance; implementing the plans; and monitoring and evaluating the results.

The key is to implement continuous improvement strategies based on identified indicators, and applying these procedures to those processes that are vital for positive organisational performance. By way of this mechanism, modern guest, market needs will be continuously tracked; and then it becomes imperative to adapt to these trends, ensuring quality and value creation in a market where guests have become more sophisticated, value-driven, demanding and informed.

Research has also indicated that strong, effective corporate leadership is critical to competitiveness. It is necessary for creating a dynamic and innovative environment, and is able to steer the organisations into uncharted territory. Small hoteliers must think outside the box if they are to survive and thrive.

Leadership critical

Good leadership will allow freedom for new ideas to emerge within the organisation, and release creativity among employees. Leaders in the hotels must create an organisational culture of reward and recognition of employees, as key motivators; and they must give detailed attention to staying up-to-date with industry practices and new developments. It is also imperative that they provide clear strategic direction for their employees.

Quality is another important driver of competitiveness at the enterprise level. It relates to the organisation's ability to satisfy the guests' needs, and captures dimensions such as accuracy and timeliness. It requires that managers facilitate worker flexibility, training and up-skilling, so as to increase work quality and productivity.

It also requires that small hotels in Jamaica meet international quality management standards by meeting the requirements of the International Standards Organisation (ISO) and Hazard Analysis Critical Control Point (HACCP) measures. This will ensure that certain essential and in-demand characteristics of services, such as quality, reliability and efficiency, are in place. It will also mean that the hotels' services will meet specifications that have wide international acceptance, thus allowing them to compete with many more markets globally.

Also essential to driving competitiveness at the enterprise level is the speed at which firms respond to competition in the marketplace. How do the small hotels in Jamaica respond to changes in external conditions and events? What is their level of speed, consistency and effectiveness in their response?

The case study conducted in 2011, mentioned above, showed that only one of the 11 small hotels involved in the study had six of the competitiveness drivers in place and earned above-average returns; while the other 10 hotels had from one to four of these in place, and achieved minimal to no profits, with the vast majority of the cases recording no profits. This is in keeping with the assertion made among researchers that the drivers work collectively to enhance the profitability of the enterprise, and this is what small hoteliers should aim for.

Competitive Strategy

The research has proven that most small hotels compete in the marketplace based on price. This is, however, not sustainable for small hotels, as larger all-inclusive hotels are able to generate economies of scale in production and distribution, while the small hotels are not. For their survival, therefore, these firms will have to change their competitive strategy from price competition to differentiation based on service and quality, for example, in addition to putting the drivers of competitiveness in place.

Also, pooling resources under one small-hotel umbrella organisation can help to lower the costs of procurement, quality checks, marketing, etc., and generate economies of scale.

There is a definite market for small hotels. Europeans are known to favour small hotels over large all-inclusive hotels. However, it is a matter of the small hotels bringing their offerings in line with international standards, and then targeting this market. Our small hotels play a vital role in the diversification of Jamaica's tourism product, and deserve to be saved.

Lesley Hare is managing director of Great Achievers Training Organisation. Email feedback to columns@gleanerjm.com and lesleyrhare@gmail.com.