Focusing on Labor Can Improve More Than Just Cost

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June 01, 2002
Labor | Management
Scott A. Smith -

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© 2002 Hospitality Upgrade. No reproduction without written permission.

Many organizations have fewer employees than they did nine months ago...Implementing improved labor management techniques will be easier and more manageable with a smaller workforce and will help maintain efficiency as the organization ramps back up.

In today’s business environment labor is both a key to driving revenue growth and the largest cost item in the operating budget. Given this, establishing a solid strategy and tactics for managing labor cost is crucial. What’s your plan for managing labor cost? Is it reactionary or strategic? Focused on cost or service? Well articulated and visible or vague and unfamiliar? Applying a focused and proactive approach to your labor management program can help you assure that you have the right answers to these questions.

The average full-service hotel spends between 32 percent and 36 percent of revenue on direct labor. Because labor represents such a large percentage of the cost base at the property level, improving labor efficiency represents a tremendous opportunity for profit improvement. However, it would be a mistake to consider a labor project strictly as a cost reduction opportunity. A plan to manage labor costs should not be about reduction. It should be about establishing a mechanism to continually ensure an organization has the right amount of labor in place to provide the necessary level of service. No more. No less.

More often than not, labor is viewed purely from the cost perspective and often adjustments result in negative impacts on guests, employees and ultimately the shareholder. A more effective approach is to take a strategic view of labor costs to ensure that all aspects of labor management are taken into account. The result is a broader approach that takes into account key areas of impact:

  • Guest service levels and guest satisfaction
  • Internal service levels
  • Employee satisfaction and retention

Understand Objectives
Make sure objectives are determined at the start of the project. These will likely focus on cost reduction expectations, integration of service standards and the impact on employee satisfaction. Organizations need to incorporate a balanced approach and not just focus on the cost aspect in order to generate results that are sustainable.

Executive Sponsorship and Support
It is imperative that executives buy into the objectives and will support the development of the plan. Support and buy-in from operations is especially crucial.

Visibility Is a Necessity
In order to continually manage the improvements made to labor management capabilities, an organization must be able to review labor cost figures on a timely basis and down to a level that is meaningful such as by property, by department, by shift and by labor classification. This will require that a process be developed to gather, analyze and distribute labor cost information in a timely manner.

Make Competition a Factor
Internal benchmarking and comparisons of each property on the basis of defined, comparable labor metrics can be very powerful. Once department heads know that their numbers will be compared with their peers and included in performance measurements, they look for every improvement opportunity available. A key to this is using a balanced set of performance metrics that encompass not only cost but also guest and employee satisfaction.

Skill Assessments and Effective Training
A very important and necessary factor in the effectiveness and efficiency of an organization’s labor force will be their mastery of the required skill sets. Identify the competencies that are required for each position at each level. Evaluate employees and design and implement the needed training programs. The cost of this effort will typically be returned many times over through labor productivity gains.

It’s Good for Employees – Let Them Know It
While tighter labor management can be viewed as a negative by employees — it actually is quite the opposite. Employees gain by knowing what is expected of them, avoiding the frustration of performing a job they are not well trained for and by having a schedule they can count on and that suits their needs. Additionally, the better the company is doing financially the more secure the employee is and the better the opportunity to participate in the rewards.

Do It Now
Many organizations have fewer employees than they did nine months ago. Take advantage of it. Implementing improved labor management techniques will be easier and more manageable with a smaller workforce and will help maintain efficiency as the organization ramps back up.

For many companies the development of an effective labor management program is an untapped opportunity to improve profitability, guest service and employee satisfaction. So why wait? Take the first steps in initiating a labor cost project today and begin enjoying the benefits sooner rather than not at all.

Effective Labor Management
A project methodology that can be quite effective in establishing a focused program for labor management should include the following:

  1. Eliminate any unnecessary work through process reviews, activity analysis and other means including the review of best practices.
  2. Review the organizational structures in the identified areas for opportunities to improve effectiveness.
  3. Once processes and organizational structures are optimized, labor standards and the accompanying management processes will need to be established. The resulting labor standards must be beta tested at a selected group of properties with the appropriate level of monitoring, adjustment and reporting
  4.  Based on the resulting labor standards, an implementation plan must be established that will include the resulting labor standards and an action plan to implement the standards across the organization.
  5. Prior to rollout the organization should ensure that a mechanism to forecast the need for labor is in place. This is critical to making effective use of labor productivity standards.
  6. Additionally, automation of the scheduling process is necessary to achieve the full benefits of labor productivity standards. There are several impressive labor scheduling systems available. Selecting a package that best matches the specific needs of an organization is important.
  7. Finally, labor analytics provided to key information points are necessary to effectively maintain and continually improve labor cost. An organization will need to design the process and mechanism to distribute the information in a timely manner.

Whatever methodology is pursued there are steps an organization can take to avoid some of the common pitfalls of a labor management project.

Scott A. Smith is practice leader for the Hospitality & Leisure Practice in the America’s at PwC Consulting. Scott is based in Tampa, Fla. He can be reached at

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