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Evolution of the Revenue Leader

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November 07, 2019
Revenue Strategy and Metamediaries
Kelly McGuire, PhD

Hospitality companies recognize the value of a revenue mindset and a revenue strategy and are investing in people and technology at all levels of the organization to support profitable revenue growth. As recently as a couple of decades ago, there might have been only a manager or a director at a property dedicated to managing rates. Today, companies have invested in entire departments at large complex properties, as well as large corporate infrastructures. Revenue leaders have a seat at the executive table, and it’s quite common for a hospitality company to have a vice president or senior vice president-level function dedicated to the discipline. 

The practice of revenue management has always been sensitive to changes in the business environment. Although the discipline’s core tenets remain solid, with today’s rapid pace of innovation in technology, changes in consumer behavior and evolving digital footprints, best practices quickly become outdated. This means revenue management and revenue leaders need to stay on top of industry trends and stay nimble in their business processes.

Successfully leading in this environment requires a different skill set and focus than even a decade ago. Traditionally, revenue leaders have been strictly focused on managing day to day pricing decisions and the people, process and technology that support them. As the lines between commercial disciplines blur, today’s revenue leader can continue to lead the charge if they develop an expanded viewpoint, strategic mindset and a more holistic point of view.

It isn’t news that the pace of change in hospitality is accelerating. Consumer buying behavior is rapidly changing with every interaction with a digital native or digitally enabled, buying experience. OTA and search algorithms change daily, impacting your ability to attract consumers to your product and your channel. As consumers move more of their interactions online, more and more detailed data becomes available. Most new data that affects pricing is no longer the sole responsibility of revenue management. It’s generated, collected and managed by a variety of commercial functions. These areas aren’t traditional revenue management concerns, but they play a role in pricing power and competitiveness in a complex marketplace.

I would argue that it’s no longer revenue management’s job simply to provide the right price for the right customer at the right time. Revenue management’s role is to work alongside commercial counterparts to ensure the right prices result in a sale. If the consumer never sees your beautifully optimized price, they’ll never buy and that defeats the purpose. If the price doesn’t reflect all aspects of the buying decision, including competitive environment, value perceptions and product preferences, is it really the right price to begin with? Revenue leaders have an opportunity to expand their purview to include these related commercial functions and continue to drive value for the organization.

Clearly the siloed functions of sales, brand marketing, digital marketing, loyalty, e-commerce, distribution and revenue management are beginning to blend and merge. There’s now a good deal of gray area between the roles and responsibilities of these groups, and an acute need to share data and synchronize activities. The industry has been talking about this opportunity for a decade or more. It becomes more critical as the digital economy evolves. Organizations need to stop thinking of these disciplines in buckets. Rather, they should see them as critical components of the same commercial strategy. Revenue management is perfectly positioned to lead the evolution from silos to an integrated commercial function.

Think of the commercial function as owning the customer and the customer interface with the product or service – basically everything that touches the customer – driving revenue growth and revenue generation. This definition is well aligned with the future of revenue management and its leaders.

The first key step is to rethink the organizational structure. We all know that the right organizational structure, with well-defined roles and responsibilities, is key to successful development and execution of strategy. The right structure can either block or facilitate communication among key functions. It can align incentives or create conflicting ones. It can enable collaboration or create rifts among departments. In the past, I’ve advocated for revenue management not to wait until the organization is properly aligned to begin reaching across the aisle. This is still a good idea. However, it’s past time for hospitality companies to start making organizational changes that will enable a holistic, integrated commercial strategy. I know this is easier said than done, but it’s critical to long-term success.

Unfortunately, there’s no easy answer as to what this integrated organization should look like. In fact, companies must be prepared to continue to adapt their organizational structure as the functions evolve and the strategy develops over time. 

Ask yourself the following questions:

We’ve seen movement in placing some combination of revenue, sales, distribution, digital and direct marketing under one organization. This is probably a good starting point. Some companies are also thinking about brand, analytics, certain IT functions, loyalty and other similar groups. In my opinion, there’s no one right answer. I’d suggest starting with a core group and being prepared to add capabilities as you evolve.

This is a key question in a tight labor market with specialized skill sets. Centralization allows the organization to leverage domain experts more efficiently across the business, but a centralized organization can lose connection to local market conditions. This will impact performance. Some properties are large and complex enough to require local or regional support. In some cases, staffing a property-level commercial function isn’t necessary. In either case, make sure you have a good conduit for communication with operations teams at the properties to ensure that strategies are understood and executed. I’ve heard of several companies that are taking a commercial pod approach – pulling together a group that includes, broadly, sales, marketing and revenue management under one leader. That person is responsible for synchronizing activities and advocating for a holistic strategy with property leadership.

As commercial disciplines become more complex, the degree of specialization required to be successful is rising. In the past, revenue managers have been data specialists, analytics experts, handled distribution and e-commerce, facilitated digital marketing and managed both transient and group pricing. Is it still a good idea to have one person responsible for a wide range of activities, or can you afford to bring on specialists? Can you leverage technology to automate some of these functions? Again, there isn’t one right answer to this question. The best approach depends on your resources and property types.

Regardless of the approach you take today, let the organization know this won’t be the final answer. As your strategy evolves and market conditions change, your organizational structure should evolve as well. Set aside time to evaluate effectiveness and gather ideas for improvement. 

Today’s revenue leaders are well-placed to be tomorrow’s commercial leaders. Those that understand revenue management and strategy bring a valuable, and difficult to train, perspective to a commercial leadership role. But leading new functions will require new skills, such as:

Business acumen and strategic thinking: An analytical mind is a benefit, but the industry is moving away from deeply analytical leadership for a commercial function (you can build a team for that). Instead, commercial leaders must understand all of the business levers available to build and execute a strategy to reach holistic business goals in a competitive environment. 

Leadership: Commercial leaders will have multidisciplinary organizations, and be part of executive leadership. These individuals won’t be experts in every area, but must be able to develop talent, encourage communication and collaboration and ask the right questions to ensure the business is moving forward. These are leadership qualities rather than subject matter expert qualities. 

Communication: This has always been a critical skill set for revenue leaders, and it will be more so for commercial leaders. A successful commercial leader must be able to synthesize the complex details of the commercial strategy into a strong, coherent message that can be executed across the organization. They’ll need to win hearts and minds among counterparts to ensure that the organization continues to drive profitable revenue. 

It’s past time for revenue leaders to adapt their organizations and themselves for an environment where the lines between traditional functions like sales, marketing and revenue management are blurring. Success depends on tight communication and coordination among commercial functions. Fortunately, revenue leaders will be well positioned to lead through this change if they can adapt their organizations and skill sets to meet these new challenges and opportunities. 

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