6th of May, 2008

BUS 301

What is the revenue department’s position in a medium sized hotel and how easy has it

been for it to breakthrough?

Business Dissertation

Tutor: John Harrison Student: Christian Östlundh

ACKNOWLEDGEMENTS

By handing in this business dissertation, a long journey is finally ending for the author.

Experiencing European Business School London has been great in the ways that it has been

developmental, career stimulating and improving my knowledge about business in an

international environment. The author would like to give a big thank you to all the tutors and

students that have helped supported and motivated him during this rocky road to graduation.

But, the biggest thank you of them all goes to the author’s wife that he met within his first

month in London.

In the context of the business dissertation, the author would like to thank HKC-Hotels for

giving him access to do his research, without which this dissertation would have been much

weaker in its content. Many thanks also to all the interviewees that so generously took time

away from their work to participate in this project.

Last but not least, the author would like to thank his tutor Dr John Harrison who contributed

with feedback based on his many years of experience from the hospitality industry, and also

the very controversial, but helpful, Dr Peter Thomas who gave some very useful pointers

about how to write a dissertation.

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EXECUTIVE SUMMARY

This business dissertation aims to investigate what position revenue management departments

currently hold in medium-sized hotel businesses and what challenges have been faced in

reaching this position. It is argued that one of the most important difficulties has its roots in

the conservative nature of the hotel industry, as revenue management practices have been

understood as conflicting with more traditional sales maximisation practices and have

therefore been accepted fully only after having been able to demonstrate impact. This tension

and ‘entry barrier’ is clearly demonstrated in the case of HKC Hotels, which serves as a case

study of the research question laid out above. It is examined how HKC Hotels has applied and

developed its revenue management practices over the past years and based on this, it is

explored what next steps need to be taken in order to take full advantage of revenue

management as a profit lever. HKC Hotels was here chosen as a case study as it was judged to

be a typical example of the sector under investigation, especially since many medium-sized

hotel businesses, like HKC hotels, are today family-owned. This is important to consider as

family involvement and control, and the culture it creates, can have a significant impact on

how well a revenue management department can establish itself and subsequently how well it

can deliver on its targets and develop its practices. Specifically, one of the most important

challenges identified in this context is the need to prevent an over-reliance on a few key

individuals and it is suggested that this is best done by articulating a consistent and

comprehensive approach to revenue management, which can then be cascaded top-down

across the organisation. Furthermore, it is argued that many medium-sized hotel businesses

believe they are practicing revenue management when in reality they are likely to practice

yield management, which is defined as only one part of revenue management. It is therefore

suggested that more effort should be invested going forward into expanding practices to

include activities such as up-selling, cross-selling and analysis for profit margins and sales

volumes for each product line. Finally, it is argued that a hotel’s own customer-facing staff is

today underleveraged in aiding the guest data collection process, which is a critical enabler of

segmentation analysis, and a new routine is proposed for receptionists to capture more of their

knowledge around guest needs and requests.

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In summary, the author argues that all the interventions mentioned above would significantly

help HKC Hotels, and therefore other businesses in the medium-sized hotel sector, to develop

revenue management capabilities and execution in such a way that the impact of revenue

management as a profit lever could be maximised and optimised.

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TABLE OF CONTENTS

1. Introduction 8

1.1 Objectives 8

1.2 Why is this important? 8

1.3 Sub-questions explored through the published literature 9

1.4 Scope of my review 9

1.5 Company Background 10

1.6. Limitations of the review 11

2. Literature Review 12

2.1 The concept of revenue management 12

2.1.1 What is yield mgt and what is revenue mgt? 12

2.1.2 How does it really work? 13

2.1.3. Conditions under which revenue management

could operate more effectively 15

2.2. How revenue management is frequently organized and what common

difficulties and challenges within the organisation of a hotel are 17

2.3. Loyalty in the context of sales activities 19

2.4. The future of yield management and how a hotel should optimize sales

and maximise revenue 20

2.5. Conclusion of the literature review and the hypotheses drawn from it 22

3. Research Methods 23

3.1 Research question 23

3.2. Research Design 23

3.2.1. Selection of Respondents 24

3.2.2. Design of Research Instruments 24

3.3. Procedure 26

3.4 Credibility, reliability and limitations of the research 27

4. Findings 28

4.1. Structure of the Organisation 28

4.2. How accepting is a hotel of new things? 31

4.2.1. Cultural Web 31

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4.2.2. Revenue management in light of the cultural web 36

4.3 What is the financial position of revenue management today? 36

4.4 How well do people understand revenue management? 37

4.5. How developed is HKC revenue management today? 39

4.5.1 The revenue practices that HKC does well 39

4.5.2. What HKC has not successfully incorporated in regards to their

revenue management 41

4.6. What are HKC’s next steps to further develop their

revenue management? 42

4.7. Discussion and hypotheses 43

5. Recommendations 44

5.1 Develop yield management into true revenue management 45

5.2 Increase understanding of customer needs through

guest segmentation analysis 45

5.3 Improve collaboration between the marketing department and

the revenue department 47

5.4 Organisation structure 48

6. Conclusion 49

7. Bibliography 51

7.1. Textbooks 51

7.2. Journals 52

7.3 Websites 53

7.4 Lecture notes 54

7.5 Annual Reports and Business plans 54

8. Appendice A: Interviews 54

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ABBREVIATIONS

HKC-Hotels Hotel Kung Carl’s Hotels

HKC Hotel Kung Carl

HNH Hotel Noble House

HHH Hotel Hudik Hudiksvall

GM General Manager

RM Revenue Manager

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1. Introduction

1.1 Objectives

This dissertation aims to investigate what position revenue departments today hold in

medium-sized hotels and how easy or difficult it has been to establish this position. It will

further examine whether the difficulties revenue departments have faced in establishing

themselves are linked to traditional pains of the hotel sector. For example, in order to fully

understand this, revenue management will first be examined in the light of the various reasons

why hotels have revenue departments. In this context, the term yield management is a practice

that is done by the revenue department and that is considered part of revenue management in

the broader sense of the term. It can therefore generally be referred to as revenue management

or/and as yield management. It is furthermore likely that what has traditionally been referred

to as yield management will more and more be referred to as revenue management since the

literature indicates that the former now has to involve actions traditionally outside its original

scope. In order to focus the research specifically on medium-sized hotels, HKC-Hotels will be

used as a case study of the question at hand. Medium sized hotels generally operate ca 130

rooms. However, it is important to keep in mind that medium sized hotels do not necessarily

fall under the category of ‘a medium sized firm’ but would more likely be seen as a smaller

firm (Carter & Jones – Evans, 2006). In order to examine the research question stated above, a

360 degree look has to be taken of the revenue department, of the circumstances under which

it has had to operate and of what developments can be expected for the future, given its

history.

1.2 Why is this important?

Yield management practices have been around for ca 30 years and the larger hotels are

increasingly using newer versions of it. Even so, yield management still is a relatively new

practice for many hotels (Shoemaker, 2007). Revenue management practices are fairly easy to

understand on a theoretical level but are complex in practice, which often hinders the

realisation of their full potential (Salerno, 2007; Kumar, 2006). It has however been argued

that many of the issues around optimizing revenue management seem to be internally created

and if these were investigated and fully understood, this could facilitate improved practicing

of revenue management within the medium sized hotel sector in the future. Furthermore, it

needs to be acknowledged that revenue management can benefit hotels hugely. For instance,

one hotel with 200 rooms increased its revenue by $600 000 over one year just by improving

yield management practices (Bowen, Kottler & Makens, 2006). It has also been argued that

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sophisticated yield management will benefit several key parties when done correctly. Price

elastic segments would be able to afford more hotel nights, the inelastic segments would

experience more flexibility (some even argue cheaper rates) and hotels would be able to

increase their revenue (Bowen, Kottler & Makens, 2006).

1.3 Sub-questions explored through the published literature

The following questions serve to divide the subject of this dissertation into its component

parts, which will then be addressed one by one for clearer focus and digestibility:

How can yield and revenue management be explained? Why do hotels practice

revenue management? What can it look like specifically in terms of the numbers?

What possible gains are there and what conditions are important for it to operate

effectively?

What differences and particular challenges are there in relation to the size of revenue

departments? How does it work when they set rates? What are common pains and

what conflicts of interest are likely to arise between revenue departments and other

parts of a hotel?

Are there any key trade-offs that need to be considered in optimising revenue

management? How are guests reacting and responding? Is there any training required

for staff? What capabilities do frontline staff need in relation to revenue management

or is it enough to have revenue management competence only in the back office?

What does the future look like for revenue management in medium-sized hotels? What

has not worked well in the past and what could be improved? How sophisticated is the

practice of revenue management at medium sized hotels and how developed are their

revenue departments compared to larger hotels?

1.4 Scope of my review

To examine the research question from various angles, the secondary research has not been

limited to any specific geographical region. However, the primary research, i.e., the case

study itself covers only a specific 4-star city hotel, with a mix of both corporate and leisure

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guests and a room capacity of around 130 rooms. This hotel operates as an independent

business under the brand Best Western Premier and is a wholly owned family hotel.

1.5 Company Background

Hotell Kung Carl (HKC) is classified as a 4 star hotel by the Swedish hotel association (SHR,

2008). HKC started its operations as early as 1866, although in a different location from

today. The hotel moved to its current location during the 1930s. HKC is part of ‘HKC-hotels’,

a small Swedish hotel group consisting of 4 hotels in four separate Swedish cities (Stockholm,

Malmö, Örebro and Hudiksvall). The entire group has 459 hotel rooms, about 150 full-time

employees and in 2007, had a turnover of around £11 million (1SEK = £0.084). HKC

specifically had a total turnover of £4.1 million in 2008, whereas lodging revenue accounted

for £2.9 million. The occupancy rate has steadily been around 75% (+/- 1%), but the RevPAR

(revenue per available room) has increased with 9% over the past three years. The gross profit

has been impacted by extensive refurbishments, but was in 2007 £160.000 (in comparison, the

gross profits for 2005 and 2006 were £280.000 and £310.000 respectively) (Lundgren et al.

2008).

The current location of the hotel is on the border between Stockholm’s financial district and

the most exclusive part of the city, which results in a local surrounding characterised by

exclusive boutiques, high-end restaurants and commercial offices. The HKC property itself

consists of 134 hotel rooms and in 2007, a new conference and ball room facility with a

maximum capacity of 150 people was added. The latter is targeted at the premium market

segment (Lundgren et al. 2008). In the property, there is also a HKC-hotels subsidy operating

the restaurant under the name ‘Kung Carls Bakficka Mat & Bar AB’. The restaurant has been

particularly successful in generating high customer volumes around lunch and has also

brought an overall boost to the entire hotel, enabling rate increases (Hammar, 2008).

The hotel is today well-prepared for the looming slowdown in the business cycle as it has

gone through a number of refurbishments across the property. The several different rounds of

refurbishments over many years have also led to a strategy emerging around offering a set of

different room styles to suit a range of customers’ tastes. The hotel now offers rooms that are

categorized as classic elegant, Spanish, French, business and traditional standard (Hammar,

2008). The hotel group is wholly owned by the Östlundh family while the subsidy ‘Kung

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Carls Bakficka Mat & Bar AB’ is owned to 51% by the Östlundh family and to 49% by Jan

Andersson (who is also the restaurateur).

1.6. Limitations of the review

Extensive research has been conducted around revenue management in the past but it is

mostly aimed at larger brand hotels and not generally suited to help medium-sized

independent hotel owners. Having said that, one should keep in mind that much of the brand

hotels’ individual property size and capacity is often not too far away from 130 rooms, which

results in important similarities to individual hotel operators, although the latter have fewer

benefits from economies of scales. The hotel sector is comparatively conservative and

secretive by nature, leading to literature that is often quite brief and speculative (Peters &

Buhalis, 2004). Much of the existing literature is also written by a specific hotel group

themselves, which often means that the focus is on what has been done in the past and not so

much on what can be relevant for the future. In addition, they have a tendency to cheer the

corporation’s practices, which clearly limits the objectivity of such material.

In order to place the case study of Hotell Kung Carl within its relevant context, the existing

literature on revenue management has been examined with a focus on five specific topics. The

first section will cover some explanations revenue management and how it is viewed from

various sources and angles. This will be followed in the second section by examples and

calculations in order to provide a thorough understanding of what the practices are really like

and also to illustrate how the level of sophistication differs across the industry. Section three

will then explain why hotels work with yield management and the conditions that are a

prerequisite to making it useful and effective. Subsequently, the main topic of this review will

be covered in the fourth section - conflicting interests and challenges in the organisation

around revenue management, more specifically also opposing conflicts in sales and around

loyalty towards the guest for example. Last but not least, the fifth section will cover a review

of what the future may bring given the history of revenue management in medium-sized

hotels.

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2. Literature Review

2.1 The concept of revenue management

2.1.1 What is yield mgt and what is revenue mgt?

In examining the position of revenue management in medium-sized hotels, one fundamental

question emerges immediately around the definition of different terms frequently used in the

relevant literature. So what is the difference between yield and revenue management? Yield

and revenue management are mostly quite carelessly used as interchangeable. Salerno (2006)

suggests that yield and revenue management have different meanings for different people.

Bowen, Kottler & Makens (2006) on the other hand differentiate between yield and revenue

management by defining yield management as a subdivision of revenue management. These

authors argue that revenue management is much wider than yield management and includes

activities such as up-selling, cross-selling, analysis for profit margins and sales volumes for

each product line. Hence, yield management is narrower and is, according to Fitzsimons and

Fitzsimons (2006), best understood as a revenue maximizing strategy that intends to make full

use of service capacity. Nevertheless, it is still often referred to as revenue management (or

both). Yield management is generally a price discrimination strategy that has its fundamental

base in market segmentation, where consumers get charged different rates for more or less

identical services (McMahon-Beattie, 1999). Anderson and Carroll (2007) see yield

management as…

“… The base of a funnel where the demand for service pours into the top is managed using

price, terms and conditions, layovers, and length of stay controls to optimise revenue…”

(Anderson and Carroll, p. 260)

Maybe it was this definition Salerno (2006) was thinking about when he wrote that the experts

make yield management more mysterious than it really is. Yield management forecasts

demand but the focus is on demand amongst different market segments and it is ultimately

about selling the right room, to the right price, at the right time, and to the right person (Jones,

1999). It is furthermore important to consider that revenue management includes the key tools

enabling yield management, for example the various computer systems that help to maximise

revenue potential on any given night (Withiam in Lewis, Chambers, Chacko, 1995). For this

reason, these tools need to be considered to some degree here as well.

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2.1.2 How does it really work?

Salerno (2006), who specializes in making yield management easy to understand, agues that

in its simplest form yield management is very easy to understand. For instance, the first step a

hotel might take is to scale down rates after which it sets up the parameters:

“Rack Rate

Disount 1 (walk-in corporate)

Discount 2 (government/military)

Deep Discount 3 (segment discounts)

Deep Discounts 4 (promotional rate)”

(Solerno N, 2006, p. 2)

Once this is done, a hotel needs to determine where the limits need to be when closing each

channel, something that can look like the following example (of a 100 room hotel):

“0 to 50 rooms sold… all rates are available

51 to 70 rooms sold… close deep discount rates

71 to 85 rooms sold… close all rates except walk-in corporate and rack rates”

(Solerno N, 2006, p. 2)

However, this is certainly a very simplified method, which suits independent hotels but

which, in comparison to Lewis, Chambers, Chacko (1995), disregards the essence of yield

management, namely the lead times and the fact that the elasticity among different guest

segments varies. Lewis, Chambers & Chacko (1995) perform a calculation that is similar to

Salerno’s (2006) but which takes into account the predicted room reservations and compares

them with the actual room reservations at different stages (the following example is for check-

in the 1st of August):

April 1 May 1 June 1 July 1 August 1

Room Reservations 300 340 400 440 500

Actual Room Res 250 305 380 450 500

Difference -50 -35 -20 +10 0

( Lewis, Chambers & Chacko, 1995, p. 502)

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The differences between Lewis, Chambers & Chacko (1995) and Salerno’s method (2006) is

that the former finds it irrelevant how many rooms the property has since the essential

challenge is to understand how many potential rooms can be sold. When a hotel is not in line

with projected numbers, the hotels manipulate prices to attract more people from the relevant

segments. By dividing it up like Lewis, Chambers & Chacko (1995) do, you also benefit (to

some degree) from taking into account various lead times and the elasticity of various

segments. Fitzsimons & Fitzsimons (2006) use ‘the critical fractile model’ to demonstrate that

you can predict the minimum level of rooms to block so that they will be sold to the full rate.

In order for the calculations to be useful, a mean and the standard deviation of the mean are

required. By taking ‘the price of full rate’ subtracted by ‘the price of discount rate’ / ‘the price

of full rate’, a critical fractile value is obtained. From “areas of a Standard Normal

Distribution”, ‘the critical fractile value’ is then exchanged for ‘the cumulative probability’

and then needs to be multiplied with ‘the standard deviation’ and added together with the

mean (Fitzsimons & Fitzsimons, 2006, p.368).

Like many other authors, Lewis, Chambers & Chacko (1995) discuss the harmonizing effects

that yield management can have on loyalty. However, it is also important to remember, as

Bowen, Kottler & Makens (2006) illustrate, that just because a guest stays more than one

night, he/she should not automatically receive a concession in exchange. An example scenario

would be the following:

“[…] a guest checking in May 8 and checking out May 10 would be quoted a $65 rate as the

lowest available rate. A guest checking in May 8 and checking out May 12 would be quoted

$85 as the lowest available rate, because the hotel can sell more rooms for May 10 and 11 at

a minimum of $105 a night…”

Projected Occupancy

May 8 60%

May 9 60%

May 10 85%

May 11 90%

(Bowen, Kottler & Makens, 2006, p. 479)

Bowen, Kottler & Makens (2006) also highlight the importance of working with the potential

room rate and agree with Lewis, Chambers & Chacko (1995) that the use of rack rates in this

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sense is irrelevant since this just represents a minor segment. Bowen, Kottler & Makens

(2006) finds it useful to calculate ‘room-nights sold / room nights available * actual room rate

/ room rate potential = yield’ (Bowen, Kottler & Makens, 2006, p. 478). However, Lewis et

al’s (1995) calculation may be more applicable because it covers all sources of revenue

coming from guests. Therefore, it also takes into account the amount of cross-selling the hotel

is able to do:

Revenue realized / revenue potential * 100 = yield

(Lewis, Chambers & Chacko, 1995, p. 500)

The main point these calculations illustrate is that by juggling around with rates and potential

rates for different segments, you do not necessarily need to sell all rooms in order to maximise

your profits. In addition to these calculations, Fitzsimons & Fitzsimons (2006) write about the

importance of projecting the demand from various seasonal periods, for instance the

customers in June may be of the following composition: 10% business guests, 50% family

guests, 40% budget guests. In comparison, March guests may be composed as follows: 60%

business guests, 20% family guests, 30% budget guests.

Unlike much of the other literature, Burrows (2007) does not ignore the problem of ‘no-

shows’ and the significance of maximising the revenue when the hotel has the possibility of

being 100% occupied. The process of calculating the ideal number of overbookings is a

manual and long procedure, but nonetheless a rather simple one. The approach here is to

create a table where you consider the number of ‘no-shows’ combined with its probability and

relate this to overbookings.

2.1.3. Conditions under which revenue management could operate more effectively

Yield management was first developed in the airline industry by American Airlines through

SABRE. Since the nature of their product is rather similar to hotels, American Airlines was

able to capitalize on its innovation by selling it to Marriott hotels (Fitzsimons & Fitzsimons,

2006). Fitzsimmons & Fitzsimmons (2006) and Carvell (2008) suggest that yield management

operates best in service firms where all of the following conditions are met:

Capacity is relatively fixed

Demand originates from distinctive market segments

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Inventory is perishable

Products are sold in advance

Demand fluctuates

However, Fitzsimons & Fitzsimons (2006) also add that low marginal sales costs and high

marginal capacity change costs are important as well. Overall, scholars seem to agree that the

most fundamental factors are demand originating from distinctive market segments,

perishable inventory, and fluctuations in demand (Carvell, 2008; Bowen, Kottler & Makens,

2006; Fitzsimons & Fitzsimons, 2006; Lewis et al, 1995). However, Lewis, Chambers &

Chacko (1995) make an important remark regarding market segmentation – it is important not

only to be able to segment markets but also that those markets have varying lead times in their

bookings.

Unlike the above mentioned four scholars, Bowen, Kottler & Makens (2006) also explore in

more detail what yield management needs to focus on in order to be more effective. They

argue that the most critical requirements are to have knowledge of the effects of price

changes, to have a good information management system for internal and external data, and to

have an explicit overbooking policy. Overbooking is often viewed controversially but without

it, the potential losses for the service provider would be significant. An overbooking policy

must still be backed up by a good enough compensation system in order to maintain the

reputation of the hotel (Burrows, 2005). Carvell (2008) is less focused on price knowledge,

but rather highlights the importance of knowledge around what drives demand, awareness of

what your competitors are doing, and the right experience of what can cause fluctuations in

demand. He also states that it is important to measure the successes that arise from practice.

This can be done in several ways, for instance in the average room revenue, revenue per

available room, occupancy, or yield percent itself. In order to measure the success accurately

and with reasonable ease, good information systems need to exist to back revenue

management up. Jauncey (1995, in Sanchez & Satir, 2005) highlights the importance of

applying relevant information. He states that forecasts must be based on demand analysis and

emerging patterns, for example impacts of events, local attractions, holidays, and social,

political and economical factors (RevDev Consulting in Sanchez & Satir, 2005). RevDev

Consulting (in Sanchez & Satir, 2005) also suggest that revenues shall not be viewed in

isolation as just the room units, but needs to be integrated with other guest expenses such as

food and beverage. It is important to clarify here that the issue is generally not the lack of

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information about these events, but rather that hotels often fail in tracking ‘declines’ and

‘denials’. One of the most important activities in yield management is to fence segments from

contact with each other, meaning that people paying less should have no opportunity to sell on

to a more elastic segment. This is critical because different people value the same hotel

differently and hence prices will differ. Prices essentially need to be flexible enough to adapt

to fluctuations in demand, while also offering preferential rates for e.g., frequent or

exceptional guests (RevDev Consulting in Sanchez & Satir, 2005). In the context of this

dissertation, the requirement for flexibility and adaptability depending on guest type is

relevant since to avoid confusion, frontline staff need to be trained in making sense of yield

strategies and explaining the logic behind why rates differ between guests (Bowen, Kottler &

Makens, 2006; Carvell, 2008). However, according to for instance Jones (1999), this is easier

said than done and a particular challenge in this context is the lack of relevant and effective

in-house training. Furthermore, even senior management often lacks competence within yield

management, which can result in a risky over-reliance on a small number of experts.

2.2. How revenue management is frequently organized and what common difficulties and

challenges within the organisation of a hotel are

According to Bowen, Kottler & Makens (2006), revenue management has become such an

important task, that it is now often linked to the marketing department and managers in charge

of revenue management are frequently promoted to corporate vice-president of marketing.

However, it is important to acknowledge that there is a difference in the practice of revenue

management in smaller and larger hotel operators, in particular when it comes to setting

prices. For instance, in small companies top management sets the prices, while in larger firms,

corporate departments usually receive input from senior management and then develop a

marketing plan that is approved or rejected. Revenue management departments are then

responsible for pricing and coordinating with other departments that influence price

accordingly. The debate on what revenue management should involve also covers the

question of whether the revenue department should manage activities like up-selling and

cross-selling (Bowen, Kottler & Makens, 2006).

The person responsible for revenue management practices in smaller and medium-sized hotel

firms is often the one with best multi-tasking skills and scholars here argue that cost hinders

smaller firms from fully exploiting them (Salerno, 2006). It is important to note in this context

that the hospitality industry is full of smaller and family owned firms:

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[…] SMEs employ about 83% of all hospitality workers, while across all

industries SMEs provide employment for 66% of the labour force. In the

European Union, the average size of hotels was 46 beds in 1994 from

where it changed only marginally to 48 beds by 2001 (Eurostat 2003;

Peters & Frehse, 2005, p.56)

This is particularly interesting as many small and medium-sized hotels are also family firms

and tend to take a ‘family first’ approach in comparison to a ‘business first’ approach (Basu,

2004). Many scholars, for example Reid & Adams (2001) argue that family firms often have a

‘paternalistic’ approach, an example of which is many smaller firms’ preoccupation with not

losing control over the business to ‘outsiders’ and therefore the limited openness to bringing

in non-family members. This could mean that family firms treat revenue management

practices as yet another risk of losing control and are therefore more reluctant to bring in

external talent to help maximise it.

Interestingly in the context of revenue management capabilities and talent, Jones (1999)

argues that one common challenge for hotels is that they are over-reliant on a few key

individuals, which causes difficulties in case of sickness or employees exiting the

organisation. Another challenge Jones (1999) addresses is the lack of expertise among senior

managers. This capability gap and the tension that often exists between revenue management

departments and senior management come across in many studies (Bowen, Kottler & Makens,

2006; Fitzsimons & Fitzsimons, 2006; Salero, 2006). Another typical scenario involved the

sales department clashing with the revenue department as sales is working towards increased

market share and building on loyalty, while revenue management’s priority is to maximise

revenue. These two agendas can and often do collide. One particular underlying cause of

conflict between sales optimization and revenue maximisation can be that yield analysts, in

contrast to sales representatives, have little contact with the end-consumers (Fitzsimons &

Fitzsimons, 2006). Kumar (2006) addresses this by stressing the importance of integrating

sales and revenue management as a lop-sided emphasis on market share alone can lead to

price discounting, attraction of undesirable market segments, cost cutting, and even employee

unhappiness. On the other hand, in order for revenue managers to price appropriately, they

need to have the level of hands-on experience that sales representatives often have around

understanding the customer, the competition and even the market factors including the

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economic environment (Fitzsimons & Fitzsimons, 2006). A common source of conflict here is

that revenue managers often want to establish sales volume in several product lines, which

sales representatives can find too restrictive and unrealistic. Lastly, staff interacting with

guests on a daily basis are not always prepared and fully trained in explaining why price

differences exist (Bowen, Kottler & Makens, 2006), thus risking that the customer looses

his/her sense of loyalty to the hotel. However, Kumar (2006) points out that for some hotels, it

may not even be a question of training staff or integrating relationship marketing into revenue

management as in reality, this may just not work for some hotels.

2.3. Loyalty in the context of sales activities

In exploring the potential conflicts between sales and revenue maximisation, one needs to

take into consideration one of the most important tasks sales representatives have – building a

loyal customer base. This is arguably the largest source of conflict between revenue

management and sales departments and so will be addressed in some more detail here.

Although loyalty creation is viewed as very important between guests and a hotel, it has been

proven that if a hotel just manages to keep 5% of its guests loyal, that could equal a revenue

increase from 25% to 125% (Reicheld and Sasser, 1990 in Bowen & Chen, 2001; Lovelock &

Wright, 1999 in McIlroy & Barnett, 2000). Advantages of having loyal guests would not only

include increases in the purchasing of for example overnights, but it would also mean more

money being spent on other products and services offered at the property, e.g., food and

beverage. Loyal guests have been found to recommend restaurants and other amenities to

others, so acting as ‘objective concierges’. The word-of-mouth method can be delivered in a

very credible way by loyal guests and the importance and potential of this ought to be

considered with the greatest respect in the hotel sector (Reicheld and Sasser, 1990 in Bowen

& Chen, 2001). For instance, a guest saying he/she would definitely revisit the hotel has been

proven to provide ‘word of mouth’ advertising to as many as 10 people. It is also important to

mention here that a loyal guest is less likely to swap hotels when price changes occur or other

problems disturb the guest’s stay.

It needs to be made clear here that just because a guest is a frequent visitor, this does not

mean that he/she is loyal. A guest may stay at the hotel of other reasons than loyalty, for

instance location preferences, corporate rates and/or service agreements. It is also possible to

envision a scenario where a loyal guest stays at the hotel relatively infrequently compared to

19

other guests due to a lower frequency of travel or other factors not with his/her control

(TePeci, 1999).

Many hotel brands and chains are using special schemes or discount cards to increase loyalty.

One potential issue with these types of cards is that it does not take into consideration that a

guest may be satisfied, but still not loyal. Loyalty schemes and discount cards are mostly

constructed in the way that the guests see it as ‘good value for money’, meaning that the guest

will still monitor other alternatives and when he/she finds ‘a better deal’, may swap his/her

accommodation (McIlroy & Barnett, 2000). Consequently, it has been argued that this could

actually lead to decreases in the hotel’s margins. It should be noted here that, according to

McIlroy & Barnett (2000), costs are just one factor influencing customers’ choice of hotel.

Others may be recommendations from friends, previous experiences and the relationship itself

between the guest and the hotel. Basic guest satisfaction here needs to be a minimum

condition but real loyalty only comes with extreme satisfaction.

The result of an earlier survey conducted by the author indicated that spending the night in a

hotel is a very subjective experience (Östlundh, 2007), which suggests that win each and

every guest’s loyalty, there needs to be a relatively high degree of customisation. In order to

deliver on such a promise successfully, front line staff is critical as receptionists, bartenders

and breakfast hosts are the face of the entire hotel to the guest. The critical task here is for the

staff members to create a relationship with the guest as establishing such relationships

increases loyalty. It has been suggested that the most important aspects of such a relationship

are a feeling of being fairly treated on the guest’s side, a sense that demands and expectations

are being met, the opinion that the core service adds value and the impression that staff is

ready to think outside of the box in order to mini-customize the service to the degree possible

(McIlroy & Barnett, 2000). This demonstrates that flexibility and creative thinking are highly

appreciated by guests and can make the difference to a stay at any hotel.

2.4. The future of yield management and how a hotel should optimize sales and maximise

revenue

One issue around yield management that has recently been widely raised is the very short

term focus it has and the danger it brings of commoditizing hotel rooms (Anderson & Carroll,

2007). Under certain conditions, yield management can be prioritised at the expense of

loyalty. For instance, if a hotel denies a certain group rooms because their contracted rates are

20

too low and the group finds out that there are rooms still available, this might lead to the

group moving its future business elsewhere. This would then mean short term revenue is

maximized but long term revenue is compromised (Bowen, Kottler & Makens, 2006). Milla

and Shoemaker (2007) write about the importance of integrating customer relationship

management (CRM) with revenue management. They quote the example that a hotel might

want to have special corporate rates for volume accounts in order to ensure key customers

relationships are managed sustainably. Anderson & Carroll (2007) refer to this as ‘demand

management’, stating that hotels need to ‘[…] dynamically manage demand to optimise

distribution and maximise customer relationship’ (Anderson & Carroll, 2007, p.260). The

authors then suggest that demand management should be an extension of traditional yield

management in the sense that it will create value and consequently create demand, something

that yield management fails to do today. According to the literature reviewed, relationship

marketing will be very important as an extension of yield management (Anderson & Carroll,

2007; Milla & Shoemaker, 2007; Noone et al., 2003; Shoemaker, 2003).

Shoemaker (2003) focuses primarily on the idea that loyal customers are most important in

regards to their inelasticity, cost of serving them, and word-of-mouth promotion. Bowen,

Kottler & Makens (2006) argue that a potential issue with yield management being a price-

discrimination strategy is that it can lead to some customers feeling cheated into paying

higher prices than others. However, yield management is also about reaching out to different

segments and Shoemaker (2003) believes that in the future, hotels will need to pay more

attention to the way they present and price their hotel rooms. He refers to the 2002 Noble

prize winner Daniel Kahneman’s work on prospect theory (Shoemaker, 2003). Kahneman

discusses the importance of presenting a product with the right reference point. Consider the

following: a more price-elastic guest may be presented with a £80 non-refundable room for a

certain date if he books a certain amount of days ahead but he discovers that with the

possibility of cancelling the room he needs to pay £120. The guest has now set this as the

reference point meaning that it is a loss relative to the reference point. The first loss is the $40

and the second is the lack of flexibility. However, if the guest’s reference point is £120 per

room with the flexibility, this means that he/she is guaranteed the flexibility of cancelling the

room and rewarded £40 if he/she wishes to remove this flexibility (Kahneman in Shoemaker

2003).

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2.5 Conclusion of the literature review and the hypotheses drawn from it

The literature reviewed here is aligned around the opinion that fundamental changes are about

to take place in how hotels manage revenue. What scholars and hoteliers have so far often

referred to as yield management or revenue management will in the future probably be

referred to more and more as revenue management with sub-divisions such as yield and

demand management. As has also been demonstrated, for many hotels the first question to

deal with is how to catch up with hotels that have been practicing revenue management well

for years. There is furthermore strong evidence suggesting that sale and revenue people could

benefit from learning more about each other. In relation to this, the question emerges of how

high up in the hotel hierarchy a revenue department should be. As an extension, this also

means that hotels need to review what should fall into the responsibilities of the revenue

management department. For instance, should revenue management be part of the marketing

department or should the revenue department replace the name of marketing department?

There is also much evidence indicating that a lot of people do not know how revenue

management truly works and that the knowledge is poorly spread across the organisation,

potentially being a source of conflict. Revenue departments often do not get the full resources

they would need and other practices seem to intervene with much of their workload, which

results in hotels not fully exploiting their competences. Consequently, from the literature

reviewed, the following hypotheses were articulated:

H1 – Revenue departments at medium sized hotels are too restricted in their work by

not being ably to truly focus on their tasks due to lack of time, other responsibilities or

limited capabilities

H2 – Developing revenue management into a more stand alone and respected

department would help to increase the hotel’s revenue but also on a more strategic

level, it would provide the opportunity to reach out to various market segments, so

increasing market share

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3. Research Methods

3.1 Research question

As explained earlier, this dissertation sets out to answer the question of what the revenue

department’s position is in a medium sized hotel and how easy it has it been for it to break

through?

3.2. Research Design

The researcher has concluded that in order for him to receive the most representative findings,

he decided to implement a qualitative approach where individual interviews will serve as the

method. There are a number of advantages to this approach. Firstly, the author found that

individual depth interviews would be the best approach in order for him to receive more

perspectives and not limit the report to any kind of perceptions or misunderstandings

(Gaskell, 2000, p.41). To develop a comprehensive picture, the author found it important to

observe different positions, their requirements in terms of resources, how they viewed the

culture of the organisation, their view on hospitality, their view on the family aspect,

interviewees’ own opinion about revenue management related tasks and how much they

believe it has helped the hotel. For this, qualitative interviewing seemed to be the most

appropriate for identifying and understanding the set up and link the different insights to each

other (Bauer, Gaskell & Allum, 2000, p.7). Furthermore, individual interviewing is great in

the sense that it benefits discussions of potential sensitive issues, which the author identified

many of as he is part of the family owning HKC-hotels.

A thematic analysis was early indicated to be the most suitable approach to data analysis. In

regards to the research question and the data collection procedure, thematic analysis was in

particular suitable because it gave the author a greater chance to examine the textual data on

different levels and to identify reoccurring patterns (Attride-Stirling, 2001, p.387).

Additionally, the thematic analysis approach permits consideration of underlying issues in

both a hidden and on a visible dimension (Boyatzis, 1998, p.4). However, the author also

made use of a the so called thematic networks technique, meaning that he connected the

findings into a illustrated network which made it easier to view the issues and topic in the

context of the organisation in a more logical way (Attride-Strirling, 2001).

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3.2. Methodology3.2.1. Selection of Respondents

The most important thing in regards to selecting the most suitable interviewees for the

research was that their position needed to be relevant in relation to the research questions and

the research design that was chosen for this project. Obviously, for this there were a number

of underlying factors that had to be considered. As already mentioned, the objective of this

research is to determine at what stage in the development of revenue management medium-

sized hotels generally are and how they compare to larger brand hotels. It is then important to

draw recommendations for what these hotels can feasibly do - otherwise this business

dissertation is of limited use. The author decided that the most just picture to determine the

position was to interview the revenue manager, but perhaps even more importantly the people

around the manager. Based on firstly the reviewed literature, secondly the potential effects of

unequal access to information, and thirdly the author’s previous knowledge about the

company and industry, the decision was made to take a 360 degree approach, meaning that the

revenue manager’s subordinates, bosses and chief executive as well as peers in other

departments needed to be interviewed. The author also found it crucial that at least one new

hire within the organisation was interviewed since this would provide additional and

potentially different perspectives. It furthermore became necessary to consult with certain

people outside the organisation as more specific questions arose that related to revenue

management in general or different research methodologies.

From the organisation, there were a total of 7 participants interviewed and outside the

organisation there were about 10 asked about task specific issues (mostly in regards to the

preparation for the interviews). From the 7 interviewed, only 2 people belonged to the same

department and they were the revenue manager and the reservation manager who both are

considered to belong to the revenue department.

3.2.2. Design of Research Instruments

The interviewer concluded that two different phases were required to answer the research

question, which meant that different research instruments needed to be constructed. The first

one was as a topic guide that served as a framework for the interview conversations. The first

version of this guide was developed based on the relevant literature but prior to conducting

the first real interview, the guide was tested on one pilot interviewee and was later revised in

line with feedback from the test interviewee. The pilot interviewee was an external hotelier,

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meaning that he was not familiar at all with HKC-hotels group. Therefore, the interview was

not part of the analysis stage.

The first section of the interview guide was intended as an introduction to the interview, in

which permission to record was obtained and the first critical foundation for rapport was built

(Gaskell, 2000, p.45). The second section contained general questions about the interviewee’s

background, future and hotels in general. The third section included a number of questions

connected to the practices of revenue management at the hotel and what the revenue

department’s position is at the moment. In the context of this section, information was sought

specifically on the perceived importance of the revenue department, on the level of

interviewee knowledge around revenue management and on whether any clashes or conflicts

could be identified. The fourth section referred to those issues judged by the researcher to be

the most sensitive or potentially threatening, and would therefore be included towards the

later part of the interview, so that enough rapport would have been built up. This section

sought to bring forth views on how respondents thought about various relevant issues that

were typical for the organisation, for instance what are the career prospects like, what are their

views about the family side of the organisation, are there any ‘heroes and villains’, what else

would they like to see in the context of the organisation etc. In this section, respondents were

also asked to give their personal opinions of any changes and their own perceptions of the

culture of the company. On the basis of the last part, a more accurate ‘cultural web’ could be

developed. The final section concluded the interviews and intended to remind the researcher

to thank the respondent and to emphasize confidentiality. This topic guide was subsequently

employed as a framework for conducting interviews, although a certain degree of flexibility

had to be retained, so as to allow the conversation to flow naturally.

The core challenge in the second phase of the research was to find the appropriate tools for

conducting an effective thematic analysis. In the context of learning about the organisation’s

culture, the author decided to complete a ‘cultural web’ to identify the behaviours and the

taken-for-granted assumptions of members of the company (Johnson, Scholes & Whittington,

2006, p. 204). The author had included in the interview guide some appropriate questions that

would inform the creation of such a ‘cultural web’ and it proved to be a very insightful

exercise. However, the author also found it important to use a second instrument in order to

generate a comprehensive picture. A ‘value chain analysis’ was found to be the most

appropriate framework for this. The format of the ‘value chain analysis’ was refined based on

25

the value chain example from Johnson, Scholes & Whittington (2006, p.135). The data itself

was obtained from internal budget records, which the organisation decided to share on the

condition that it would not fall in the hands of any of their Swedish competitors.

After completing the interviews, the author proceeded to construct a coding frame consisting

of basic codes, code descriptions and example quotes, which were tested with the help of a so

called inter-coder reliability measure (Liakopulos, 2000, p.162). This measure is useful as it

‘tests’ the agreement between, in this case, two coders to determine the reliability of the

findings and the analysis. During the research, a number of practical constraints resulted in

the employment of a relatively simple measure called “the coefficient of reliability” (Holsti,

1969, p. 140). This measure works on the basis of having two different coders categorise

insights separately and then calculating how frequently the same coding appeared.

3.3. Procedure

As a primary step, it was important that the hotel and the author became aligned in terms of

what could be expected out of this dissertation. The author tried to make it clear with the

upper management that this would give them free information about how their organisation

has evolved, the reason for it, in what context this is relevant for their revenue department and

what the recommendations of actions relevant for the future would be. Before finalizing the

question, the author also sent out an e-mail to two revenue managers within HKC-Hotels as

well as revenue managers in London. The purpose of this was to ask what topics were

currently top of mind for practitioners of revenue management. Both of HKC-Hotels’s but

only one external revenue manager responded to the e-mails. However, this was still found to

be a sufficient foundation for articulating the research question that needed to be explored

most.

Even though the author knows the company well, he has not been part of the operations for a

considerable amount of time, so a number of additional conversations with external observers

(i.e. non-interview candidates) became necessary. This included employees who are employed

by the Group but work in one of the other HKC hotels. Having such pre-discussions proved

useful as the author was able to start the interviewing process with a good sense of key

questions and recent progress within revenue management. This not only helped the

interviewer to focus on the core topics in the interviews but also helped to establish the author

as a knowledgeable ‘insider’ with the interviewees.

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After the first draft of the interview guide had been completed, it was tested and refined with

an additional interviewee outside the scope of the actual research. This pilot was conducted

with the help on an external hotelier, who had a good level of general knowledge of the

industry and revenue management. The actual interviews then lasted from about 50 minutes to

1 hour and 15 minutes, and they were all taped in order to allow the interviewer to focus on

the interviewee and not getting distracted by having to take notes.

3.4 Credibility, reliability and limitations of the research

Among the seven interviewees, three had a business degree, one had a degree in hospitality

management, and the last three started off in the front desk and have consequently learnt

about the industry and the hotel sector ‘on-the-job’. Two of the interviewees have academic

experience from abroad and two have industry specific work experience from abroad. One of

the interviewees is the hotel owner, who has consequently worked in the company for over 40

years. Five of the interviewees have worked from 8 to 10 years in the company and one is

new to the organisation. All candidates have previous experience from the hotel sector for

over 10 years and many of them have previously worked in brand hotels as well as boutique

hotels. The various backgrounds of the interviewees make this a good composition for

different sources of inspiration, knowledge and experience. The greatest risk in relation to

harming the credibility of the report comes from the author himself and the fact that he has a

family-related engagement in the company, which means the report is vulnerable to

accusations of being positively or negatively biased.

All the interviewees have long experience from careers within the hotel sector and the

advantage is that everyone (except one) has built much of their career in various hotel brands,

which has exposed them to new views and alternative ways of doing things. Having said that,

a big challenge during the research was the complex relationship between the researcher and

the interview candidates, as the answers of the latter at times seemed to reflect what they

thought the author wanted to hear rather than what they believed to be true. There were a few

precise limitations that prevented the interviews. One limitation was the lack of diversity in

the guest representation in regards to what their views on fluctuating prices were. The author

planned a survey, but the limited time in Sweden prevented him from administering it.

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4. Findings

4.1. Structure of the Organisation

In order to get a good idea of how the organisation is structured, the author decided to

illustrate this in an organisation chart (table 1). HKC-hotels have tried to create an

environment and culture characterised by ‘freedom under responsibility’ (Kurt Östlundh,

2008). In regards to the interviews and the structure that can be seen below, it has not

succeeded 100% since it becomes clear during some of the interviews that there is a

paternalistic management style in the organisation. For instance, it could be argued that that

the COO and HR-Manager are more playing the role of assistants to the CEO than of key

executives. Their level of influence can in reality also be seen as equal to the GMs’ influence.

It is however important to remember in this context that Sweden is low on ‘power distance’,

meaning that work tends to be conducted through a ‘consultative approach’ (Hofstede, 1997).

In order to make the organisation chart as clear as possible, positions less relevant in the

context of this dissertation were excluded (e.g. lower level restaurant positions). The blue

colour in some of the boxes in the chart in table 1 indicates that the person was interviewed.

Table 1

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Kurt ÖstlundhCEO

Malin LundgrenCOO

Caroline ÖstmanHR-Manager

Jan AnderssonGM - HKC Bakficka

F&B AB

Breakfast Lunch & Catering Restaurant Ballroom

Therese HammarGeneral Manager

HKC

Reception

Camilla RothAssistant GM & Sales Manager

Siv FlodströmRevenue Manager

IT ManagerMaintenance Sales Housekeeping

Reservation

Johanna EliassonConf. & Reser.

Kurt Östlundh – CEO

Kurt Östlundh is the CEO and at the same time owner of the entire Group. The focus of his

role should consequently be less on operational issues and more on HKC-hotels corporate-

level strategy, the hotels’ concept, key competitors and planed projects, proposed budgets,

larger investments and expansion possibilities. Moreover, he also has an important role to

play in monitoring occupancy and total sales from both the hotels and the restaurants,

motivating the GMs and restaurateurs, monitoring and commenting on the expenditure

developments and regularly inspecting hotel rooms. This currently also requires trips every

third week to the hotels in Malmö and Örebro, and monthly visits to the hotel in Hudiksvall.

Malin Lundgren – COO

Malin Lundgren was promoted into a role where she would be able to utilise her talent for

numbers and interest in accounting. Her formal role is that of Chief Operating Officer for all 4

hotels, but much of her responsibility is also to act as a business controller across the Group.

Caroline Östman – HR Manager

The HR manager role is a new role within HKC-hotels. Caroline was judged to be the most

appropriate candidate for this position, not because of her prior experience of personnel and

organisational development topics, but because she was the most determined to create this

role and because she possesses vast knowledge about the hotel industry and the day-to-day

operations of the hotel in question. Her most immediate duties will be to standardize HR

processes across the Group, to coordinate training and to manage projects such as the

development of a service manual and the classification of HKC-hotels as an environmentally

friendly hotel.

Therese Hammar – GM

Therese Hammar is in charge of all the everyday functions and management of the hotels,

with a priority focus on the finances, quality and revenue. She has the ultimate responsibility

and is in one way or another involved in all issues around organizing and directing the hotel’s

services, controlling budgets and formulating financial plans, overseeing staff members,

promoting the business, controlling the standards of the facilities, meeting customer

complaints and comments, and last but not least achieving and reporting profits and expenses.

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Camilla Roth – assistant GM / sales manager

Camilla Roth’s title is assistant general manager with a focus on sales topics. She has

experience as acting general manager during Therese Hammar’s maternity leave, and is

therefore in a role where she is supporting the general manager in many areas, which has also

resulted in her becoming a natural link between all levels of management.

The sales function at HKC is supported nationally by the Director of Sales at HKC-hotels,

who is responsible for larger accounts across the entire Group, but also for the cooperation

with local sales office belonging to the Best Western brand. However, according to Kurt

Östlundh, Best Western has downsized its sales efforts, leading to more sales responsibility

falling on the hotels themselves.

Siv Flodström – Revenue Manager

Siv Flodström splits her capacity across the revenue manager role (75%) and the IT manager

role (25%). The revenue manager monitors the occupancy from a long term perspective. She

also updates and uploads all the rates and corporate agreements. Together with her

subordinates, ‘the revenue team’, and in agreement with the GM, Sales Manager / Assistant

GM and the reception manager, the local revenue strategy is articulated, but then scoped and

implemented by the Revenue department. The revenue team is acting on the corporate level

and is supposed to be more coherent in terms of what the entire industry is doing in regards to

revenue management. The team then develops the final strategy, which becomes an overall

strategy for all HKC-hotels. The team itself consist of 3 people - the Revenue Manager at

HKC, the Revenue Manager at the HNH and the Sales Director for HKC-Hotels.

Johanna Eliasson – Responsible for conferences and reservations

Johanna Eliasson is a new hire from a competitor and she has extensive experience of the

level of revenue management that the hotel market in Stockholm is currently at. She is

responsible for conferences (intended to take up 25% of her time) and is together with another

person (Susann Bodin) handling reservations (intended to be 75% of her time) and therefore

also assisting the revenue manager in her role.

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4.2. How accepting is a hotel of new things?

4.2.1. Cultural Web

In order to find out how accepting this medium-sized hotel is towards new things and

practices, it is crucial to find out what the company culture is about. The author has therefore

conducted a cultural web analyses on the organisational culture of HKC.

Stories

Stories are predominantly about the heroes and villains that have been in the organisation over

the years and there are a couple of names constantly re-occurring. The author has made a

conscious decision to not mention any names but rather acknowledge the common traits that

can be found among these heroes and villains.

There are four traits that are regularly repeated when heroes are mentioned:

1) The hero is a self-starter who does not wait for instructions but rather picks up things

spontaneously, regardless of whether it is within the scope of his/her formal role.

2) The hero is flexible and willing to cooperate. (S)he is humble and ready to let other people

get a chance to move on. (S)he thinks first of all about the collective and how HKC will be

able to grow rather than about himself/herself.

3) The hero has great respect for the fact that the organisation is a family business, meaning

that family members are involved and have perks in the form of promotions and benefits in

the way that no one else has.

4) The hero’s attitude is informal with a sense of humour that (s)he also often demonstrates.

Villains

Similarly to the heroes, some common traits emerged among the people considered villains:

1) The villain is an individualist who rather informs and directs people on what to do in

his/her area of expertise rather than cooperating and seeking input from others.

2) The villain has a more articulated need to develop his/her own career rather than looking

out for what is the best action to take for the collective group.

3) The villain has strong view combined with an unwillingness to compromise and remain

flexible.

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Symbols

The most transparent symbols are the language and jargon among members of the

organisation. Hotel staff are predominantly female with less than 20% male employees.

According to the employees themselves, this is also reflected in the language and jargon being

more ‘girly than in other companies’ as expressed by one of the interviewees (Roth, 2008).

The communication is open, which almost all interviewees explain as a consequence of

maintaining a collective sense of humour that makes the culture informal. According to the

assistant GM, this creates misunderstandings with new hires because they are not sure what to

make of certain things that are being said. The same person would also like to see a higher

tolerance level and a stronger fighting spirit among the younger staff but the interviewee

believes this could be due to the fact that younger employees have never experienced a

slowdown (Roth, 2008).

Power Structures

There is a lot of individual responsibility, where you have a good chance of shaping your own

career. There is currently a group of people that has been in the hotel for about 8-12 years,

and whose members hold a great deal of power. These individuals also have the self-starting

characteristics typical of the heroes and therefore have been able to grow within the

organisation and help the organisation itself grow. This group of employees has also learnt to

accept that working in a family business is different from other companies.

The organisation was previously dominated by the former COO who held a large share of the

power in the organisation. Like today, hotel staff had weekly meeting but these meetings were

according to Caroline Östman (the current COO) meetings were ‘(…) the COO lectured and

the rest of us listened’. When the COO left the company, the owner and CEO became more

involved in the operations again, which lead to a number of changes. The previous COO had

forced people to run everything by him but this now changed with the owner in a more

operational role and it enabled the employees to take more responsibility (Östman, 2007). The

focus also shifted from just being on figures and sales to include much wider topics such as

having people specialized and responsible for various departments such as revenue,

housekeeping, sales, front desk, etc. Having said that, the owner is still physically located

within the building, which enables him to be more involved in the operational parts of his own

choice (the owner left all the operations after a while to take up a more traditional CEO role).

32

Being the owner, he can also make decisions based on his gut feeling more so than other

employees in the company. One final challenge that was mentioned was the owner’s focus on

details and sometimes difficulty to see the whole picture.

Organisational Structures

There is a very collaborative culture among members of staff, as foe example the current

COO says ‘(…) the competition between fellow co-workers is almost non-existing at each

hotel’ (Malin Lundgren, COO). Contrary to this, some employee at HKC suggest that there

have been an ‘us against them feeling’ when it comes to the hotel’s restaurant and the rest of

the hotel. This improved however when Max started a couple of years ago as a new restaurant

manager.

Some level of competition exists between Hotel Noble House and Hotel Kung Carl. When

talking to staff, it becomes clear that the hotel in Örebro, operating under the name Clarion

Hotel, is viewed as an outsider and not as a true member of the HKC family. The reason

seems to be that Clarion’s culture was shaped by the Radisson SAS brand, which it was

‘borne and raised’ under. Interviewees argued that they viewed themselves as a little better

than the other hotels, but on the other side some of the interviewees do not really find it

interesting to be compared with them since they have struggled with losses since the opening

in 2001.

Control Systems

At first, much of the control systems appear non-existent but there are some, although they are

of a very informal nature. The most formal one is through Malin Lundgren’s role, whose most

important duty it is to act as a controller for all of the hotels’ actions. Besides Malin, business

performance is controlled through weekly meetings where everybody presents key figures

from their area of responsibility and where any discrepancies need to be explained. However,

on top of this, people do a lot of informal historical comparisons. The entire current

management was in place already during the latest slowdown when the hotel was fighting on

all fronts to remain profitable. Consequently, the current management regards it as critical to

be more prepared than other hotels for the next slowdown in the economy. To achieve this,

HKC have focused on creating a solid product without any refurbishment needs or

outstanding debts that needs to be paid off (Hammar, 2008).

33

The entire management has been in the organisation for between 8-12 years and the

interviewees also emphasized that the hotel and the collective needs come first before their

own careers, which would indicate that the loyalty and the willingness to cooperate are the

two main things that the top management rewards. Something that the corporate parent is now

trying to improve is to standardize processes, procedures and systems more. Developments in

the organisation seem to have been driven ‘bottom-up’, i.e., from the staff’s own initiative,

rather than ‘top-down’ with top management setting a clear direction. This has caused a

diverse set of routines and process across the Group.

Historically, success has been defined in terms of the occupancy level of the hotel but as the

revenue department has grown and achieved early results, monitoring and controlling have

shifted more towards how much the RevPAR (revenue per available room) is.

Routines and Rituals

Regular ‘cake invitations’ that everyone attends to celebrate the past months’ birthdays have

provided an opportunity for management to show a less formal side and therefore increase

informality in the communication and atmosphere. Furthermore, the increased amount of

weekly meetings and a similar pace of promotions among employees recruited ca 10 years

ago, has created a group with various areas of responsibilities, but with a great degree of

cooperation. It has been suggested that the reason these people cooperate so much now is that

they were all working under the past COO who was employed for 15 years and who they all

remember as difficult and blocking developments (Östman, 2008). The weekly meetings have

also to a great degree increased everyone’s responsibility to explain results and outcomes of

their areas, which leads to a greater sense of accountability and ownership.

As mentioned early, standardizing processes and procedures is something that is high on the

agenda at the moment, especially when it comes to training and recruitment of employees that

traditionally have been very spontaneous and unevenly distributed:

‘Today everything is so spontaneous when it comes to recruitment and training… We need to

set standards and demands on what we require from our staff’

(Östman, new HR-manager, 2008)

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The Paradigm

The hotel has been going through an on-going change process ever since the past COO left

the HKC-hotel group. The organisation went then through a transformation, as already

mentioned, from being a very controlled organisation with a narrow top into being ‘freed up’

and people started to develop a vision of what they wanted the organisation to look like.

Today the organisation is more professional and flexible. However, the professionalism and

flexibility depends much on the bond that is between the new middle management rather than

being the outcome of a solid and well planned organisation. For instance, as the assistant

general manager (who is also responsible for sales at Hotel Kung Carl) says:

‘ Siv and I should not be friends, she is focused on revenue and I am focused on market

share… but, at the moment everything feels incredible good, we have a good gang and I am

enjoying everyday at my job.’

This quote is one of the examples illustrating how the effectiveness of current practices to a

considerable degree is reliant on personal relationships that have been created among middle

management rather than a solid structured designed by upper management. This could

perhaps also be a function of the fact that the economy has not slowed down yet. The

interviews provide support for this as most examples of bad practices are from times when the

economy was not performing well. One implication of having this tight-knit management

community is that when the day comes for some of these employees to exit the organisation, it

should cause a significant “shake-up” of the organisation and potentially open up for ideas

and knowledge of the most loyal and self-starting staff working, or alternatively, any family

members that would be ready to enter the organisation.

The hotel is still heavily shaped by being a family owned hotel. The communication across

the business may be much more open today than it was in the past but still, certain actions can

either be blocked or introduced as a result out of the owner’s ‘gut feeling’. One example of

this dynamic was the exclusion of breakfast from the room rate, which was first introduced

last summer. The interviewees discussed that it did not matter what arguments they brought

forward to the owner as he had simply made up his mind already.

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4.2.2. Revenue management in light of the cultural web

As Peters & Buhalis (2004) suggest, the cultural web indeed confirms that HKC, as many

other independent hotels, is conservative towards new practices. According to the HR-

manager, who has been with the company for a long time and also has a long career in the

hotel sector, she had to ‘fight herself bloody’ in order to convince upper management to

develop a revenue manager role for one of the staff members.

The revenue manager has today reached a point where she is one of the most respected

persons in the hotel and she has impressed upper management with an increased RevPAR,

which has improved her chances of getting through to them with requests for additional

resources. However, the development of revenue management has been slow and when

compared to the literature, it seems that what HKC revenue management is currently doing is

more in line with yield management than revenue management, as Bowen, Kottler & Makens

(2006) define it. This means that HKC still does not practice activities such as cross-selling,

‘declines’ and ‘denials’ as they ought to. The revenue manager has now requested to be

responsible for profile management and to be able to acquire the right tools in order to

account for the amount of ‘denials’, ‘declines’, and the various types of segments etc.

The cultural web also indicates strongly that HKC has an approach leaning towards ‘family

first’ rather than ‘business first” (Reid & Adams, 2001). This means that loyalty and

acceptance of extensive family involvement in the organisation likely have also contributed to

the slow pace of developing revenue management. Many of the interviewees mentioned that

originally, HKC put together its own simple tools to help with revenue management, which

meant that the practices were more subject to the knowledge of one revenue manager rather

than being developed as key capabilities for the organisation.

4.3 What is the financial position of revenue management today?

In HKC, the revenue department makes up about 4.5% of the total expenditure but a large part

of it is related to investments. This figure is significant as it suggests that upper management

has acknowledged the importance of this function and is willing to purchase more resources

for its development, for example in terms of bringing in revenue consultants, sending the

revenue managers on training, purchasing more revenue management tools and dedicating

more time to revenue meetings.

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4.4 How well do people understand revenue management?

Upper management

The upper management of HKC today consists of a relatively small number of people. Among

these, the current COO has worked within the hotel sector for many years and has a good

basic understanding of revenue management. The CEO/owner still has a tendency to be

somewhat narrowly focused on sales but has now seen the results of the revenue manager’s

effort, which has shifted his opinion to some extent. One common problem among senior

managers is that they tend to underestimate the amount of time and effort required to conduct

effective revenue management. For example, even though there is now a greater willingness

to purchase additional revenue management tools, there is still no real acknowledgement of

the fact that the current revenue manager has no time to dedicate to market segmentation and

analysis.

Middle management

The traditional clash between revenue and sales representatives occurs occasionally when

there are special circumstance guests, which usually is resolved through a compromise on the

room rate. However, the frequency and severity of conflicts has been remarkably low and the

sales manager seems to have a good understanding of the importance of the revenue

manager’s work. Furthermore, according to the COO, the clashes that have occurred have

been of a good kind as they have served as healthy discussion starters. Nevertheless, there is

some evidence to suggest that not all colleagues appreciate the importance of the revenue

department as the sales manager admits:

‘Everyone who wants a special rate comes to me and not to [the revenue manager]’

Even though there still seem to be staff members who do not fully understand the importance

and centrality of revenue management, the revenue manager herself is well-respected among

middle managers and considered to be one of the heroes in HKC. Furthermore, the

composition of ‘the revenue group’, i.e., the Director of Sales, the HNH general manager

(spending 30% of capacity on revenue management at HNH) and the revenue manager, has

contributed greatly to its success and position in the company. These three employees not

only have extensive and diverse experience, they are also highly respected across the

company.

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Line Staff

HKC’s customer-facing staff generally have a good understanding of the company’s revenue

management strategy, and the use of more sophisticated revenue management practices has

also increased motivation and team moral among these employees. Up-selling competition

has increased visibility of individual performance and enabled comparisons with colleagues,

which has so far had a purely positive effect.

Guests

It appears that individual guests have accepted the fact that demand drives prices and

therefore fluctuations in room rates will occur. However, it has been suggested that this level

of tolerance is not found to the same degree among corporate guests. For instance, as the sales

manager at HKC explained, Scandic hotels recently stopped agreement prices like flat rates

and this has meant a loss of some dissatisfied corporate guests. According to the HR-manager,

the hotel sector is now becoming more and more like the airline industry in terms of

acceptance of price fluctuations, especially because she believes the loyalty factor in this

sector is limited. Her point, which is also supported by the literature (McIlroy & Barnett,

2000), is that when you look at hotel chains like Scandic, Choice hotels, Radisson etc., who

all offer frequent loyalty cards, they are ‘sharing the wallet’ with each other, i.e., most guests

who have a loyalty card with one chain will also have them with other chains and it could be

questioned how ‘loyal’ these guests really are.

One potential risk with focusing heavily on revenue management is the deterioration of trust

between the hotel and its corporate guests. For this reason, the revenue manager points out

that it is really important for corporate guests to also experience the benefits of fluctuating

price structures, meaning that they get to experience cheaper rates during low season periods

as well. However, it will be very interesting during the next slowdown in the economy to see

whether corporate guests will honour the loyalty they may have committed to in order to be

granted flat rates during the ‘economy boom’ or whether they will switch for example to

Scandic hotels where rates are predicted to dive during the next slowdown.

Another factor that can influence loyalty between a hotel and its guests is the often limited

understanding guests have of the logic behind different pricing strategies (Bowen, Kottler &

Makens, 2006). For example, it may be counterintuitive that the room per night rate can

increase for a longer stay compared to a shorter stay. However, all of the interviewees in this

38

research acknowledged this risk but said they themselves had never observed an actual

instance where this caused a problem. Also, it is generally believed that guests will in the

future come to accept rate fluctuations more and more, just like they do with air fares.

4.5. How developed is HKC revenue management today?

The revenue department at HKC is still fairly newly developed, so it is interesting to assess its

level of sophistication in relation to the rest of the sector. When asking upper- and middle

management themselves, they suggest to focus primarily on five key aspects of pricing

strategy and revenue management:

Monitoring the 5 nearest competitors

The stage of the business cycle

Best Western’s overall pricing strategy

The room rates of other Best Western hotels in Stockholm

The result of HKC

The following section represents an analysis of how developed HKC’s revenue department is

in comparison to what appears to be common practice, judging from the literature review.

Much of the thinking and empirical data found in the relevant literature comes from larger

hotels. Therefore, it indirectly enables a comparison between HKC and larger hotel’s revenue

management activities.

4.5.1 The revenue practices that HKC does well

The revenue department today has its own team devoted to the various tasks of revenue

management. HKC has successfully stopped practices that were no longer useful, e.g., giving

concessions depending on the length of stay, and instead applied the view that a hotel is a

different product depending on the day of the week, the month or the year. This is very much

consistent with Lewis et al (1995, p. 502), who describe an approach of analysing each day in

relation to what the potential room sales and room revenue ought to be.

The revenue department at HKC is supported by a ‘revenue group’, consisting of HNH’s

revenue manager and the Sales Director for the entire group. The composition of the ‘revenue

group’ is suggested to be one of the reasons why HKC has experienced relatively minimal

levels of clashes between sales and the revenue department. The two other strengths are

linked to having the right talent in place to effectively manage revenue – i.e., the close

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relationship between HKC’s sales manager and revenue manager could mean that there is

both more communication and more collaboration between the two, so mitigating the risk of

each working in a functional silo. Furthermore, the corporate Sales Director is said to put the

company first and has strong leadership qualities. She looks into how the hotel group can

develop and prosper together with its employees and the family owning the hotel. She is also

providing an on-boarding guidance for newly hired sellers around how they need to think

when working at the hotel.

HKC has over the past years become well aware that a hotel does not necessarily need to sell

100% of its room capacity in order to maximise profits and the organisation has developed a

good structure for this, separating out the owner who is traditionally very sales focused. In

this context, HKC spends most of its effort on monitoring product line and distribution

channels in regards to the on-going analysis of what drives demand, for example local

attractions, holidays, social-, political and economical events. Additionally, they now have

sophisticated systems supporting the overbooking policy, resulting in increased revenue.

The revenue department has by now acquired the appropriate tools to analyse the effects of

seasonal periods and to monitor the competition, which has increased flexibility around price

changes. However, in comparison to many other hotels, HKC has decided to keep agreements

to large corporate guests as this helps to maintain trust and offers the advantage of predictable

room expenditures for the guests. Additionally, they have developed a system of ‘ear-

marking’ some rates for specific people who could be beneficial to the hotel in different ways,

for example those viewed as good ‘ambassadors’ in terms of recommending the hotel to other

potential guests via word-of-mouth. As the assistant manager argues:

‘We will first know after the next slowdown whether this strategy has been successful.’

(Camilla Roth, assistant general manager]

Last but not least, as already mentioned, the revenue manager has successfully illustrated to

staff that revenue management is important and thus should receive the necessary backing in

terms of tools and resources.

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4.5.2. What HKC has not successfully incorporated in regards to their revenue management

As mentioned earlier, Bowen, Kottler & Makens (2006) would probably categorise HKC’s

revenue practices as yield management and not revenue management. The reason bring that

activities such as connecting the amount of cross-selling to specific guest segments have been

excluded. Furthermore, they do not perform any real guest segment analysis in terms of

profiling the leisure traveller and the corporate guest for example. Lastly, they do not analyse

cross-cultural differences in their guest base. The root cause of this appears to be related to

ineffective training and lack of initiative among staff members, which results in a failure to

capture this kind of information.

The revenue manager has limited capacity, which at the moment is not sufficient to complete

all revenue management tasks. As explained earlier, there are also some additional activities,

which should be incorporated into the revenue department but are currently not.

Consequently, the revenue manager who is only supposed to work 70% with revenue

management spends most of her time on revenue management tasks. On top of this, there

have been delays in the distribution channels as a lot of them are not seamless into the PMS,

which can mean that there are as many as 40-50 delays in the reservations.

One aspect that HKC is currently working on is applying more sophisticated methods to

group reservations. They are currently creating routines and calculations, which will help to

assess which groups they should take and what prices they should give. In regards to the last

paragraph, it becomes particularly important to have more seamless distribution channels,

which go without delays right into the systems. This is critical as more modules for groups are

being created as part of online distribution. In this context, the revenue manager admits:

‘Personally, this development frightens me a bit because I feel like we will lose the control

over what groups we would like to take and to what price we will take them for. To be frank, I

don’t understand how it’s going to be done’ (Revenue Manager)

There are a number of routines that are currently poorly performed as a result of time

constraints on the revenue manager’s behalf. In particular, there is today a lack of integration

and alignment in how routines in the different hotels belonging to the Group have developed.

Today each hotel still works a little bit differently from each other. More specifically at HKC,

difficulties exist primarily around setting up routines, which would track and identify

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‘denials’, ‘declines’, the person making the most bookings at the hotel and on how to be able

to fence one guest segment to sell to another guest segment.

A considerable share of the revenue manager’s time is today spent finding ways to work most

effectively with the systems currently in their possession. The problem is that there is no-one

to ask, which means that a lot of time is spent learning through ‘trial and error’. This is also

highly symbolic for the revenue department, which has suffered from a lack of outside

consultancy and has therefore been developed more or less in full by the current revenue

manager at HKC. As previously mentioned, this could harbour a risk of becoming over-reliant

on one or just a few persons in the organisation.

The revenue department has gained more and more freedom to set its own agenda as the

owner has realized and acknowledged its importance and potential. However, as concluded in

the cultural web, HKC-hotels is very much a family firm and even if it has shifted somewhat

from the ‘family-first’ approach to the ‘business-first’ approach, there are still some aspects

that are typical of companies with a family heritage. A frequently quoted example of this is

the owner simply overruling any activities pursued by the revenue department. In the short-

term this can be good as the owner is still the most experienced person in the company, but in

the long-term there is a risk that it hinders the revenue department’s development.

4.6. What are HKC’s next steps to further develop their revenue management?

The interviews with the COO and HR-manager clearly showed that they believe the revenue

department is now fully developed in terms of its activities, although the COO did

acknowledge that the ideal scenario would be to have one revenue manager on the corporate

level with direct reports in each hotel. The revenue manager herself however feels that there is

still a significant amount to be learnt about integrating revenue calculations and thinking in

regards to group reservations. Furthermore, as confirmed by both the CEO and the GM, HKC

needs to improve its ability to sell various room categories. They also believe it would be

beneficial to be more aggressive in advertising price leadership during the summer as this is

an important marketing tool and lever to attract families.

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4.7. Discussion and hypotheses

Having reviewed the literature, two hypotheses were articulated and these were subsequently

tested in the primary research. The first hypothesis states the following:

‘H1 – Revenue departments at medium sized hotels are too restricted in their work, meaning

that they are not able to focus fully on their tasks due to a lack of time, responsibilities or

capabilities’

The challenges the HKC revenue department is currently facing are primarily related to time

management and capabilities. However, the research findings suggest that the revenue

department is restricted in terms of time but not necessarily in regards to their resources. It is

rather a question of where the priorities are – specifically, the question is whether sales should

come before revenue management as is currently the case. Some of the interviewees did for

example question whether it is even possible to ‘build up loyalty credits’ with large corporate

guests by offering them better prices when the economy is booming, so as to later ‘cash in

these credits’ in times of recession. In this case, it might be better to focus on maximising

revenue even in the good times. One important question in this context is whether it would be

possible to create a role, which was more actively focused on sales during downturns but

shifted towards prioritising revenue during economic booms. If it was possible to create such

a dual focus role, it would furthermore imply that loyalty building would become a more

important part of the customer-facing staff’s job, e.g., receptionists, bartenders and breakfast

hosts.

The second hypothesis has similar issues but may be more easily solved:

‘H2 – Developing revenue management into a stand alone and well-respected function helps

a medium-sized hotel increase its revenue, but also enables wider reach across market

segments, so positively impacting market share.’

The revenue department as a whole is highly respected within HKC Hotels and people who

work with revenue management are, as previously explained, considered ‘heroes’ in the

organisation. There are primarily 3 reasons why this is the case: 1) Past revenue management

practices have had very visible results in terms of the RevPAR. 2) The revenue manager at

HKC has a long history within the company and has coached and developed many of the staff

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working on the floor today. 3) Lastly, the owner/CEO has very visibly acknowledged and

encouraged a further refinement and development of revenue management practices.

As already mentioned, one of the greatest challenges HKC Hotels is now facing is to

streamline and standardise processes and procedures across the Group. In doing so, it could be

argued that having just one central revenue department managing revenue optimisation across

all hotels could be a more efficient and effective solution than maintaining part-time roles in

each location, as is currently the case. In addition to increasing efficiency and effectiveness,

this could also reduce the hotel’s dependency on individual employees, as previously

discussed. If much of the knowledge and working mode is dependent on a few key

individuals, the consequences of losing these employees can be detrimental. To balance this, a

central revenue department could establish a more consistent approach, which new sales

representatives, new revenue management representatives and other new hires could more

easily adopt.

5. Recommendations

5.1 Develop yield management into true revenue management

As previously explained, there are practices that HKC Hotels should introduce in order to

conduct revenue management in the true sense of the word. The interviews clearly

demonstrated that most HKC staff believe they are already applying revenue management

practices, which is only accurate to some extent. HKC Hotels argues that they cannot

currently absorb a full-time role dedicated to just revenue management at each of its 4 hotels.

Therefore, it is suggested that they develop the revenue department into a central function,

which would mean 4 part-time employees’ jobs (15-70%) could be integrated into 2 full-time

roles staffed centrally. Another benefit of this move would be that these two potential

employees would be accountable for 459 rooms in total rather than only having a maximum

of 137 rooms to work with. Lastly, this would allow for greater specialisation and build-up of

particular expertise.

In terms of staffing, it is furthermore recommended that the current revenue manager at HKC

should retain one of the two full-time positions. She is not only the most motivated one but

also the one acknowledging that there is still significant room for development of the revenue

department as it stands today.

44

In addition to the current HKC revenue manager, a co-revenue manager needs to be sourced

from outside the company. It is strongly recommended here that the position is filled with an

external recruit. The optimal candidate would be someone coming from a larger brand hotel,

preferably with experience from New York or London, where revenue management is at its

most advanced. There is not necessarily a language requirement for this position but another

cultural perspective could add greatly to the diversity of thinking in the revenue department.

Although many benefits can be envisioned around having a central revenue department, there

are also some important risks. For example, a centralised revenue department could become

detached from the Sales function. It is therefore important that the ‘revenue team’ (including

the newly hired co-revenue manager) is still in charge of the revenue strategy for the Group.

Secondly, it is crucial that ‘the revenue team’ regularly educates staff about revenue

maximization, sales and especially loyalty. As previously mentioned, HKC has in the past

sometimes followed an approach of offering rooms to highly discounted rates or even free of

charge to large accounts. However, there is considerable evidence to suggest that what is

achieved through such methods is ‘shopping around’ behaviour rather than loyalty. Hence, it

is recommended that HKC becomes more conservative against these practices and further

investigates how loyalty can be built through creating more value for guests.

5.2 Increase understanding of customer needs through guest segmentation analysis

In order to improve guest segmentation analysis, HKC Hotels needs to improve its access to

reliable data about its guests. This become particularly important in identifying and targeting

new segments the Group is trying to expand into. One channel through which additional data

could be obtained is through customer-facing line staff. It is therefore recommended that

HKC explicitly includes guest data collection in the job descriptions of pivotal customer-

facing roles. This clearly needs to be supported through adequate systems, process and

incentives, which should be reviewed as part of this change. For example, one suggestion for

shaping employee behaviour in line with the objective of collecting more guest data could be

to abolish the traditional check-out machines (used by the staff to determine the length of their

workday) among receptionists. This would mean that exact leaving times would no longer be

logged and receptionists would therefore be more willing to establish a new routine at the end

of each day, which would entail writing down all the suggestions and information

encountered from guests throughout the day. This could be set up in the easiest possible way

through the everyday data capturing technology hotels anyway possess. Information to report

45

back could for example be guest comments about the various rooms, requests for currently not

existing services, the split of nationalities among guests and the reasons for staying at the

hotel. All this information would enable a more accurate guest segmentation analysis.

However, in addition to the fact that the hotel’s understanding of its guests would increase,

there are also other reasons why this would be a beneficial routine:

It increases employees’ awareness of their profession, their employer and the industry

they work in

Employees’ interest and knowledge about their profession, their employer and the

industry becomes more transparent and measureable

Communication between customer-facing staff and management could potentially

improve if this routine and the data gathered was leveraged adequately

Employees could feel more positive about the value management attributed to their

opinions

In summary, this relatively simple routine could serve to increase motivation, productivity

and knowledge sharing across the HKC Group.

The author furthermore recommends that HKC Hotels increase their cross-training of staff.

The underlying philosophy would be that all staff will have the chance to try all departments

(including housekeeping) to build a thorough understanding of the different ‘workstreams’

that feed into the day-to-day running of a hotel. This would enlarge the pool of employees

who would potentially aim to become General Managers of the hotels and it would also

enable more horizontal movement across departments. In addition, it would enable employees

to take a multi-perspective view of the guest and the information fed back to the revenue

department by customer-facing staff could thus be of better, more rounded quality. In

summary, more cross-training of staff would create greater understanding across departments,

it would make the employees more familiar with the hotel and its guests, and it could also

provide the foundation for a less functionally siloed and more flexible organisation structure.

In the context of increased staff training, the issues of cost as well as greater ‘employability’

of staff have to be considered. In regards to the first issue around cost, it is acknowledged that

cross-training will indeed incur additional cost and this of course has to be weighed against

the benefits, which the author believes to be great. However, more in-depth analysis would be

46

required to measure the benefits of cross-training once it had been trialled at one of the hotels

for some time. This would be a pre-requisite to making a fact-based decision around cross-

training.

Regarding the second issue around greater ‘employability’ of staff, the author argues that

building the capabilities of employees naturally also makes them more attractive to other

hotels and so strengthens their position on the job market. As a consequence, HKC Hotels

would need to ensure that it had a sufficiently attractive employee value proposition to retain

staff while there was a position for them at the hotel, and then to help them transition to other

hotels if HKC could not absorb them for senior management positions. In this context, it is

therefore suggested that HKC Hotels should find foreign partners who are not considered

direct competitors, to work with around talent management. HKC Hotels could offer an

attractive talent pool for such foreign partners as they could efficiently source trained staff

with good English proficiency and extensive experience from a medium-sized hotel to apply

in new organisations. Establishing such a program of course comes with the risk of losing the

staff HKC Hotels wants to keep and this risk needs to be carefully managed through a

thorough and continuous individual performance and development dialogue with each

employee. However, if this risk can be successfully managed, it is believed that HKC Hotels

would increase its ability to attract and retain top talent for its critical management positions

despite being a family business with limited capacity to absorb high-potentials once they

reach senior management grades.

5.3 Improve collaboration between the marketing department and the revenue department

As previously mentioned, many hotel businesses have over the past years understood the

importance of maintaining a close link between their marketing departments and their revenue

departments. Many of the activities around setting and communicating prices for example

require extensive collaboration between revenue management and marketing. This close link

has not yet been established at HKC and HKC Hotels, and it is therefore recommended that

the current revenue management and marketing functions are either brought closer together in

terms if joint activities, or even merged. This would be particularly beneficial if HKC is

looking to develop its guest segmentation, which requires more comprehensive marketing

experience than the revenue manager alone possesses. It would then also better enable the

revenue manager and the marketing manger to jointly decide, plan and implement how

desired guest segments can be reached and successfully penetrated.

47

5.4 Organisation structure

HKC Hotels is a business that has gone through extensive change over the past years and will

continue to do so going forward. It is critical that the right organisation structure is found and

maintained to ensure the further success and development of revenue management. For

example, there have been instances in the past when the organisation has been narrowed down

at the executive level to make it less top-heavy, which has however also enabled a small

number of individuals to decide whether progress is encouraged or blocked. Depending on the

particular set of people at executive level, this could be detrimental to HKC’s revenue

department. Today, this group of people is working well together but they will not retain their

positions forever. The CEO/owner will also move into a different capacity at some stage and

it is critical that this transition is set up in a seamless manner. In this context, it will be a

challenge for the organisation to find or create the right position for the CEO, which takes

advantage of his expertise, while limiting his involvement in the day-to-day running of the

Group. This will be particularly important to make the CEO position attractive to the person

filing it next and to ensure HKC Hotels can effectively go through continuous renewal cycles

over the years to come.

Management renewal will in most cases bring some culture change to an organisation. The

author therefore recommends that going forward, management positions are filled with a

particular view to foster a philosophy of diversity, collaboration and talent development

across the HKC Group. The earlier recommended cross-training programme of staff could be

one way to facilitate the creation of such a culture and to remove the ‘us against them’ feeling

that was mentioned in some of the interviews. Furthermore, a decision could be taken to limit

the direct involvement of Östlundh family members to one organisational level, unless future

growth of the business permits otherwise. In order to still maintain the sense of a family

business however, family members could agree on a long-term rotational scheme where some

are directly involved on an operational level while others contribute in an advisory capacity.

In summary, the author proposes that the current philosophy of ‘freedom under responsibility’

is complemented to include notions of sharing knowledge, training each other and always

looking out for the company’s best interest. This could be summarised as another philosophy

of ‘diversity increases our understanding of our guests, our colleagues and ourselves’.

6. Conclusion

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HKC Hotels is fairly far developed when it comes to some aspects of yield management,

which also has been evident in its RevPAR. However, the company now needs to move to the

next level of revenue management and possibly even demand management. HKC Hotels’

recipe for success has been the philosophy of ‘freedom under responsibility’, which has

encouraged much individual initiative-taking. Furthermore, the family feel to the organisation

is appreciated by the employees in many ways, but it has also led to the business being more

conservative in an already conservative industry. For these reasons, it is particularly important

that line managers, in collaboration with the HR function, now develop a more consistent

approach that clearly lays out which objectives and targets employees’ should aim to achieve.

It is furthermore time to develop more solid and professional structures to prevent the

organisation from becoming overly reliant on a few key individuals and whether they form

strong bonds between them, as is currently the case. In order to organise the business in line

with the strategic priority of further developing revenue management, supporting systems and

routines are needed around knowledge sharing, cross-training, and individual talent

development. This could be summed up in a philosophy of ‘diversity increases our

understanding of our guests, our colleagues and ourselves’.

One of the most immediate actions the author recommends in this dissertation is to enable the

revenue department to learn more about the advanced systems it already has access to, and to

expand its work to include additional revenue management activities such as guest

segmentation analysis. Furthermore, instead of keeping multiple part-time revenue manager

positions across individual hotels, it is suggested that HKC moves its current revenue

manager (who has developed most of today’s revenue management practices) to a central

function, where she would be in charge of all hotels and could, together with one newly hired

co-revenue manager, build up this function as a shared centre of excellence. In this context,

the author argues that the new co-revenue manager should be an external hire in order to bring

in new capabilities and new perspectives. This new revenue department, consisting of a

manager and a co-manager, would then need to become more closely linked to, or merged

with, the marketing function in order to bring together the experience and knowledge most

relevant to guest segmentation, price setting and demand stimulation.

It is also argued in this dissertation that customer-facing staff are a currently underleveraged

source of information about guest needs. It is suggested in this context that especially

receptionists should be given more responsibility around data collection, which would most

49

likely have the added benefit of increased motivation and team spirit. In order to achieve this,

already existing technology could be used to enable customer-facing staff to share first-hand

guest information crucial to informing segmentation and loyalty strategies.

In summary, the author concludes that HKC Hotels is well positioned to continue to take

advantage of revenue management practices if they are owned by a central function, which is

tasked with developing a consistent and comprehensive approach. This approach would then

have to be cascaded downwards across all hotels and it would be crucial to ensure it was

supported by the necessary systems. It is believed that this conclusion is valid not only for

HKC Hotels but for most medium-sized hotel businesses today. HKC Hotels was chosen as a

case study in part because it was judged to be a typical example of a medium-sized hotel

business, which has just started to develop its thinking on revenue management. In particular,

many medium-sized hotel businesses are today family-owned, which adds a further dimension

to the reserach. This therefore suggests that the most immediate challenges for the medium-

sized hotel sector are very similar to the challenges that have been identified in the course of

this dissertation.

It has furthermore been argued here that much could be learnt from hotels in London and New

York were revenue management practices tend to be developed and established first. It will be

interesting to follow how well medium-sized hotel businesses in other locations are able to

apply the revenue management practices developed in London and New York, and the author

therefore suggests that this question is revisited in 3-5 years’ time to evaluate again how much

progress has been made and what next steps should therefore be in order to optimise the

impact of revenue management as a profit lever.

50

7. Bibliography

7.1. Textbooks

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Bowen P, Kottler J T, & Makens J C (2006);”Marketing for Hospitality and Tourism”; 4th

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Boyatzis R (1998); “Transforming Qualitative Information: thematic analysis and code

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Carter S & Jones-Evans D (2006); “Enterprise and Small Business: Principles, Practice and

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Handbook”; p. 38-56; SAGE Publications Ltd London, UK

Hofstede, G (1997); “Software of the Mind”; McGraw Hill International Ltd; New York,

USA

Holsti, O R (1969). ”Content Analysis for the Social Sciences and Humanities”; Addison

Wesley Publishing Company; Reading, MA, USA

Johnson G, Scholes K & Whittington R (2006); “Explore Corporate Strategy”; 7th Edition;

Pearson Education Ltd; Harlow, UK

51

Lewis R C, Chambers R E, & Chacko H E (1995); „Marketing leadership in Hospitality:

Foundation and practices“; 2nd Edition; p. 498-504; Van Nostrand, New York, USA

Liakopoulos, M (2000); “Qualitative Researching with Text, Image and Sound: A Practical

Handbook”; p. 152-171; SAGE Publications Ltd; London, UK

7.2. Journals

Basu A (2004); “Entrepreneurial aspirations among family business owners: An analysis of

ethnic business owners in the UK”; San José State University, San José, California, and

University of Reading, Reading, UK; Emerald Journal of Entrepreneurial Behaviour &

Research, vol 10, no ½

Bowen J T & Chen S-L (2001); „the relationship between customer loyalty and customer

satisfaction“; International Journal of Contemporary Hospitality Management; Vol 13, Issue

5, p. 213-217; MCB UP Ltd

Frehse J (2005); “the internationalization of the European hotel industry in the light of

competition theories”; Tourism (13327461); 2005, Vol. 53 Issue 1, p55-65, 11p

McIlroy, A, Barnett, S (2000); "Building customer relationships: do discount cards work?";

Managing Service Quality, Vol. 10 No.6, pp.347-55

Milla S & Shoemaker S (2007); “Three decades of revenue management: What’s next?”;

Journal of Revenue and Pricing Management, vol 0, no 0, p.1-5;

Noone B M, Kimes S E, & Reneghan L M (2003); “Integrating customer relationship

management and revenue management: A hotel perspective”; Journal of Revenue and Pricing

Management, Vol 2, no 1, p. 7-22

Orali, B (2002); “Active Minorities and Social Representations: Two Theories, One

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Östlundh (2007); “Cross and up-selling among guests: a study of the needs of the hotel

guests”;

52

Peters, M and Buhalis D (2004); “Family hotel businesses: strategic planning and the need for

education and training”; vol 46, no 8/9, p406-415

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Operational Research Society, vol 50, no. 11, p.1111-1119.

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services”; Journal of Revenue and Pricing Management, vol 2, no 3, p. 271-279

Tepeci M (1999);  "Increasing brand loyalty in the hospitality industry";  International

Journal of Contemporary Hospitality Management,  Vol.11,  No. 5

7.3 Websites

Carvell P; ”Yield Management – “a strategy for increasing profits”;

http://www.hotelmarketingassociation.com/aoiyieldmanagement.htm

Kumar P; “Revenue management for the hospitality industry”;

http://www.bpoindia.org/research/revenue-management-hospitality-industry.shtml

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pricing and yield management strategies in the hotel industry”

Salerno N (2006); “Hotel Revenue Management… The way I see it”; http://www.hotel-

online.com/News/PR2006_2nd/Apr06_HotelRevMgmt.html

53

Salerno N (2006); “Revenue management for dummies…(Like me): smaller Hotels should

Reap the Benefits too”; http://www.4hoteliers.com/4hots_fshw.php?mwi=1414

Salerno N (2006); “Revenue management for dummies…(Like me) – Part two: Knowing Why

is More Important than knowing How”; http://4hoteliers.com/4hots_fshw.php?mwi=1515

SHR (2008); The Swedish Hotel Association’s web site for star-classified hotels

www.hotelsinsweden.se

Swaminathan S (2000); “the Power of cross-selling”; June 8;

http://www.godubai.com/business/co1.asp?article_id=2000/SSW%2334

7.4 Lecture notes

Burrows, F (2005); “Managing Capacity and Demand”; Operations Management; European

Business School London; September

7.5 Annual Reports and Business plans

Lundgren M, Östlundh K, & Koch L (2008); ”Affärsplan 2008”; Hotel Kung Carl, HKC-

Hotels

Östlundh K (2006); ”Affärsidé, Vision och Målsättning”; HKC-Hotels

8. Appendice A: Interviews

Camilla Roth

Birger Jarlsgatan 21

111 87 Stockholm

Tel: +468 463 5000

E-mail: camilla.roth@hkchotels.se

Assistant General Manager at Hotel Kung Carl

Caroline Östman

Birger Jarlsgatan 21

111 87 Stockholm

Tel: +468 463 5000

54

E-mail: caroline.ostman@hkchotels.se

HR-Manager at HKC-Hotels

Johanna Eliasson

Birger Jarlsgatan 21

111 87 Stockholm

Tel: +468 463 5000

E-mail: johanna.eliasson@hkchotels.se

Reservation & Conference responsible at Hotel Kung Carl

Kurt Östlundh

Birger Jarlsgatan 21

111 87 Stockholm

Tel: +468 463 5000

E-mail: kurt.ostlundh@hkchotels.se

Chief Executive Officer at HKC-Hotels

Malin Lundgren

Per Weijersgatan 6

211 34 Malmö

+4640 664 3000

E-mail: malin.lundgren@hkchotels.se

Chief Operational Officer at HKC-Hotels

Siv Flodström

Birger Jarlsgatan 21

111 87 Stockholm

Tel: +468 463 5000

E-mail: siv.flodstrom@hkchotels.se

Revenue Manager at Hotel Kung Carl and member of the Revenue Team at HKC-Hotels

Therese Hammar

Birger Jarlsgatan 21

111 87 Stockholm

55

Tel: +468 463 5000

E-mail: therese.hammar@hkchotels.se

General Manager at Hotel Kung Carl

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