The future of revenue management is now

10th Jan 2012

Tammy FarleyNB: This is an article written By: Tammy Farley

The past 18 months has been one of the most turbulent and challenging times for the hospitality industry, but all signs indicate we are over the worst of it and headed into a period of healthy recovery. One of the clear messages from leaders in the industry is that revenue management was crucial for survival during this challenging time.

 As a result, many companies have realized the importance of this function and are beginning to elevate it within their organizations. As they do so, the job description is growing and evolving; no longer are revenue managers simply ‘controllers’ of inventory or ‘setters’ of rates. The future role of revenue managers is very different—and quite frankly, that future is now.

 A quick detour to the past

In order to talk about the future, it is worth taking a quick look at the past. Hotels have been practicing revenue management (initially called yield management) for more than 20 years. Many companies have invested significant resources, both human and financial, in sophisticated systems. But at the end of the day, it is not about systems; it’s about culture and organizational commitment.

 In a large number of organizations, revenue managers came from either reservations or the front desk, and their primary focus was forecasting occupancy, setting room rates and managing group business.

Going forward, this will simply not work. Successful revenue managers now have advanced degrees and/or experience in business or finance and are corporate leaders in pricing strategy who seek to maximize the profit of the enterprise.

  While revenue managers are often at the center of pricing decisions for many companies, they are often charged with making decisions they are not empowered to enforce. This is where things must change. Revenue managers must have seats at the executive table.

This is where things get complicated. Not only must revenue managers be analytical, evaluate market conditions and understand existing demand to make pricing decisions, but they also must be able to interpolate this data in the context of corporate strategy and brand standards in order to determine the best tactical actions to take. Getting it “right” is critical to the success of the profitability of the organization, which means finding the right revenue manager is essential.

Redefined roles and responsibilities
No longer can a good reservations manager be moved into revenue management with an expectation of automatic success. Revenue managers are now corporate leaders, formulating cross-departmental strategies for profit optimization. This means knowing what other departments are doing and interacting with them on a routine basis. That’s a radical departure from a few years back when revenue management operated as a silo, independent from marketing, sales and finance.

Revenue managers should chair weekly profit optimization meetings with representation from each of these areas—which requires candidates with strong leadership and communication skills. In these meetings, they will need to present complex analysis and recommendations in a digestible way. It has often been said that the best revenue managers are “geeks who can speak,” and there is a lot of truth to that. When meeting with senior executives, they need to be able to remove emotion and gut feel in favor of informed decisions based on data turned into information.

And, they need to be able to know when to say “no” no matter who the audience is. At the 2011 HSAMI Revenue Optimization Conference, Paul Wood, VP of revenue management for Greenwood Hospitality Group, said during a panel: “The personality of revenue managers is going to change. We’re no longer robots you can stick in a dark cave. People are realizing revenue management is not just a science or an art—it is both. We’re going to be the key asset for the hotel.”

The challenge is finding this resource. Hotel companies have struggled to find qualified revenue managers, and as the role and responsibilities have shifted drastically, the task is now even more difficult. This is compounded by the rapidly increasing complexity in the industry. There are more distribution channels than ever before. Flash sale sites seem to crop up overnight, making it nearly impossible to keep up with the competitive landscape. There is more data available than ever before, and it’s critical to know how to monetize it. Then, there’s customer data—how, where and when do you collect it? And once you have it, what do you do with it? That’s the Holy Grail!

 Great by choice
In “Great by Choice,” a new book from Jim Collins and Morten Hansen, the authors suggest that even in the most tumultuous business conditions, we can choose to be great. They are certainly correct in their position that we have entered an extended period of uncertainty and turbulent disruption that might well characterize the rest of our lives. The question is, what is required to perform exceptionally well in such a world?

In their research, the authors learned that the most successful business leaders displayed three distinctive behaviors: fanatic discipline, empirical creativity and productive paranoia. And the businesses that succeeded didn’t simply succeed; they delivered returns that were a minimum of 10 times the industry index over a 15-year period.

Perhaps the one behavior that can most define the future of revenue management is fanatic discipline—that is, consistency of action. Collins and Hansen recommend that a “20-mile march” to implement consistency.

“Number one, you set a progress standard for yourself,” the book reads. “Secondly, you (have) a lower boundary, what you must hit, and an absolute commitment to hitting it in bad times and good times. Then there is an upper boundary, and you have the discipline to hold back and not just maximize growth because you can, because that is going to expose you to possible storms coming your way down the road. Then the fourth characteristic is that you must hit it. It’s not about good intentions; they don’t really count here. It is about hitting it.”

Revenue management as a discipline has come a long way since its early days of inventory control. Having the most talented revenue manager is not enough, especially if we burden them with the time consuming tasks of manually collecting and processing data from these complex information systems. We need to equip him with the analytical tools that integrate various systems and derive valuable insights from data by applying sophisticated algorithms.

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