It is clear that hotel revenue management is taking on a more strategic role and that the discipline is moving from traditional inventory optimization to price optimization. In the midst of this evolution, one thing remains constant; the person that fills the revenue management role is the key to a successful revenue management program. This role requires an analytically-minded leader, who can successfully work across the organization to drive results. In this article, I’ll discuss the skills and experience you should watch for when hiring or developing revenue management capabilities within your organization.
Cross et al (2009)(i) provide an overview of the evolution of RM in the lodging industry, from the inventory-focused role it played in the late 1980s and 1990s, to the post-9/11 shift toward a more expansive role within the organization. Historically, revenue managers were tasked with opening and closing predefined room rates based on predicted demand such that the best combination of occupancy and rate was achieved for any given night. More recently, RM has begun to evolve from this tactical orientation to a more strategic role that encompasses marketing, sales and channel strategy. With this evolution has come a broader set of responsibilities across a number of domains including pricing, management of the entire revenue stream (total hotel revenue management), and a customer-centric approach to developing demand. The background and skill set of an “ideal” revenue manager has evolved along with the discipline.
Sherri Kimes (2010)(ii) conducted a broad survey of revenue management professionals to understand the future of revenue management from the industry’s perspective. In her research she identified the direction that the discipline will take and the skill sets that revenue managers of the future will need to be successful. The following list of skills is taken from her research and my experience.
Revenue management is an analytical discipline, and is becoming even more so as it evolves from inventory optimization to price optimization. Even if you are using an automated revenue management solution, the revenue manager will need to be able to interpret the results, adjust them as necessary and conduct ad-hoc analytical analyses to support special projects. Your revenue manager should be very comfortable with analytic techniques like forecasting and predictive modeling. Look for a background that includes some statistics or operations research or, at a minimum, previous experience that included working with numbers.
• Good communication skills:
Sherri Kimes calls the ideal revenue manager a “geek who can speak”. Not everyone in the hotel is, or will be, analytically minded. An ideal revenue manager will be able to clearly and effectively translate complex pricing concepts into understandable actions. In order for the revenue manager to be successful in a strategic role within the organization, they must be effective and persuasive communicators.
Successful strategic pricing decisions require gathering and interpreting data from a multitude of sources. The revenue manager must be comfortable with data – where it comes from, how it is collected, how to identify and overcome data quality problems, and how to adjust for missing information. Data is never perfect, so a good revenue manager will be able to identify strengths and weaknesses of data sources that support strategic decision making.
Revenue managers have always needed to be comfortable utilizing revenue management software, interacting with databases and performing ad hoc analyses in external analytics packages. Many revenue managers are very familiar with the Hotel PMS systems as well. The revenue manager of the future will need a basic knowledge of systems integrations and should have an interest in staying current with trends in any technology that influences bookings. The rapidly evolving distribution space is putting pressure on revenue managers to also develop expertise in web page design, mobile platforms and social media channels. They should be able to provide advice and guidance as the hotel considers participating in new channels, launching mobile applications or making changes to booking engines on the website. Any of these decisions will have an impact on your revenue performance. It is imperative that the revenue manager is savvy enough to understand the implications and build a solid strategy around them.
Revenue management is expanding beyond rooms to other revenue generating outlets within the hotel. As I’ve written about previously [insert link], revenue management and marketing are beginning to realize the benefits of synchronizing their activities. As revenue managers begin to work more closely with departments across the organization, and influence the decisions that are made by those departments, adept negotiators will be able to navigate tricky political waters to drive results.
Increasing numbers of undergraduate and graduate programs are offering courses in revenue management, some even offer concentrations. In fact, while revenue management had been the exclusive domain of a few hospitality programs, traditional business programs are incorporating pricing and revenue management into their course offerings. A formal revenue management education is a bonus, but a candidate with a general business or economics background would also be valuable, provided they understand supply/demand dynamics and the analytics. In addition to degree programs, there are also many excellent certification programs available. If your revenue manager doesn’t come to you with formal revenue management education, or previous hotel revenue management experience, you have options for filling in the gaps.
Clearly, the ideal revenue manager must possess quite a unique skill set. Attracting the right talent will require a change in the industry’s traditional mindset. A background in front desk operations or reservations is no longer sufficient, or even required, for a revenue manager. You may have to look beyond the hotel industry to identify someone who has the right analytic background (maybe a general business degree), and is willing to learn the industry. (Let’s face it, most hotel executives have expertise in running a hotel, but not specialized pricing skills – why not find someone who compliments your knowledge and teach them what you know!). Unfortunately, this may require making a larger investment in this role than the industry is used to, but the right candidates will more than make up for the investment!
Another trend identified in Kimes’s research is the move towards centralization of the revenue management function. Obviously the unique set of skills described above will make it difficult (and expensive) to attract and retain qualified candidates. A centralized revenue management function would require fewer revenue managers to operate, but there are tradeoffs. Some pricing decisions do require intimate knowledge of operating conditions at the property. However, automated revenue management systems are making it easier to manage pricing decisions remotely. Many hotels have structured centralized or regional revenue management functions that act as support systems or consultants to the properties. Smaller hotels can be managed as a cluster. You won’t have to staff a revenue manager at each hotel, but the cluster revenue manager can still develop an intimate knowledge of the characteristics of the market. The structure you choose will depend on the characteristics of your company and your goals. Just make sure it’s a well thought out choice!
In fact, when considering organizational structures, it is also important to consider the reporting structure for your revenue management department. There has not traditionally been a lot of consistency in the reporting structure for revenue management. Revenue management has reported through finance, IT, marketing, sales or directly to the general manager. The participants in Kimes’s study predict that in the future revenue management will be its own department within the hotel organization, with its own reporting structure through the executive level. Given the growing strategic importance of revenue management, it makes sense that they have their own seat at the table, with an equal voice in decision making. Regardless of whether this will work best for your organization, you must ensure that goals and incentives across the organization are aligned. The biggest impediment to successful, profitable operations is misaligned incentives. For example, the sales department is typically incentivized on their ability to generate room nights, meaning that they are only concerned about volume, not revenue. Revenue management typically has an opposite goal, resulting in conflicts between these two groups. The best thing you can do, after hiring the right revenue manager, is take some time to review your incentive structure and ensure that all departments are aligned towards generating profitable demand.
One final piece of advice: When you make the investment in the right revenue manager, make sure you also make the investment in the right tools to support their work. The revenue management professionals in Kimes’s study overwhelmingly identified technology as playing a key role in the future of revenue management. At a minimum, an automated revenue management solution is becoming a must-have for hotels. If you are not already using one, make it your revenue manager of the future’s first task to select the right one for your property. Be sure to listen when your revenue manager requests access to additional data sources or technology. In order to stay competitive you will need to stay on top of innovations in technology, data and analytics. Your revenue manager of the future will make sure you do!