Managing for Productivity in the Hospitality Industry

The subject of productivity, which has immediate bottom-line impact for both individual and corporate businesses, has gained nationwide attention in recent years, with good reason. Productivity in the United States has dropped steadily since World War II from an annual growth rate of 3.6 per cent to a recent and continued actual decline, according to the Houston-based American Productivity Center in Texas. This general decline is mirrored in the hospitality industry, which for many years has been able to hide its poor productivity behind the dramatic increase in the size of the market. As the industry moves into the mature stage of its life cycle, however, deficiencies in productivity are showing up on the bottom line.

Future increases in profits will have to come from gains in productivity. There is much room for improvement: America’s National Restaurant Association estimates that the restaurant industry is only half as efficient as manufacturing industries; an earlier US Department of Agriculture study of 13 restaurants found that they were operating at between 74 per cent and 78 per cent efficiency.

Business school graduates are ill prepared concerning productivity, ongoing research by the accrediting agency for business colleges, the American Assembly of Collegiate Schools of Business indicates. Responses from 160 randomly selected corporate personnel offices reveal the following:

• Fifty per cent think recently hired MBAs have an inadequate knowledge of productivity.
• Sixty per cent think bachelor-level graduates have an inadequate knowledge of productivity.
• Business students were rated only marginally better than other students.

The objectives of this book are twofold: to indicate how critical improved productivity is to improving the bottom line, and to show how productivity improvement programs can be designed and implemented. The book takes a practical approach, dealing with the basic problem: “What is productivity and how do I, as a line manager, improve it within my operation?” Four key questions determine the book’s structure.

Why should we be concerned about productivity and what can we do about it?

The chapter “Defining productivity” reviews past attempts to define productivity and outlines their shortcomings. Many traditional measures of productivity have not been inflation-proof. For example, defining productivity as employee costs divided by sales 2 means it could be increased as costs rise simply by raising menu prices or room rates. But this would not indicate whether employees were working harder or smarter.

We must be concerned about productivity because of the evidence suggesting it is on the decline. This is increasingly important to the hospitality industry, which can no longer count on a growing market. Because it is a labor-intensive industry, relatively little substitution of technology for people can occur without losing the whole meaning of the terms hospitality and service. When we add to these concerns the fact that human resources traditionally have been undervalued in the hospitality industry, the scope of the problem becomes clear. The focus of this section is on the need to increase profitability by hiring, developing, and motivating productive employees.