How some firms thrive during recessions & how this can help create better hospitality outcomes
Dr Christopher Warren, founder of My Green Butler
Tourism in crisis
A crisis or recession should not automatically lead to a company’s fight for survival, it can be the spring board to a thriving business. While many hospitality firms take swift action to cut costs and, in many cases, offer discounting as defensive strategies to survive, others actually thrive during such periods to increase revenues, market share and brand presence. But this COVID-19 economic crisis is more complex. We have a double urgency to not only survive financially, firms also the need to meet (in double-quick time) globally agreed sustainability goals (Paris Agreement’s carbon goals and the UN’s Sustainable Development Goals).
In this research report we reveal how some firms manage to thrive in crisis, and recommend ways to harness these strategies to simultaneously create better destination and hospitality outcomes that meet urgent socioenvironmental goals.
Before we talk of solutions it is important to respect that hospitality firms will have to work through several years of the recession. This won’t be easy. Tourism has become used to a boom scenario where growth could exceed +7% p.a. (UNWTO, 2019). This COVID-19 crisis is likely to take a long time for recovery so firms should not simply seek to wait it out. For example, it took international tourist arrivals 3 ½ years to recover from 9/11 in the United States, 29 months to bounce back from the Global Financial Crisis in Europe and 11 months for Asia to revert from SARS (UNWTO Academy, 27th April,2020). Now, COVID-19’s impact leaves us with considerable spare capacity chasing fewer customers. It is during recessions and recovery periods firms either go bust or are acquired; others will cling on to survive; but our focus is on what actions thriving firms take, and how can they be adapted for better outcomes.
Cutting costs or surgical removal of existing wastage?
Cost reduction is the most popular strategy to increase a hospitality firm’s competitive advantage in recession. Cost is cut by delaying maintenance, checking budgets to find cuts, using unpaid vacation to reduce the labour force, and replacing highly paid employees for lower-paid staff (Pappas, 2014). This is because the initial response to a recession is to improve cash flow (Lowth, et al. 2010). However, such tactics, while necessary, may not achieve a competitive advantage for long term durability. Once these cuts are made the firm still needs to build profits which can be difficult if competition responds in a similar manner and/or a lengthy recession constricts demand further. Firms that thrive will also cut costs but at the same time reinvigorate their service.
My Green Butler’s Recommendation: A place to start reinvigorating is to examine costs during ‘lock down’. For example, what elements of the business have required resources (e.g. utilities) during this period, what equipment has been left switched on and what is the impact on utility bills (resources like energy can account for over 20% of tourist accommodation’s costs)? Was it necessary for the equipment to be left on? Are roles and responsibilities sufficiently clear to take greater care over resource use in the future?
Identifying what systems have wasted resources during lock-down reveal an ongoing problem of ineffective equipment and weak application of duties. Hospitality firms are more likely to improve profitability during recessions from effective use of fixed assets than any other means, for example increasing output for the same level of resource use or maintaining the same level of service using reduced resources (Patel & Guedes, 2017). Surgical removal of wasteful operations, identified by sensors and an intelligent system, stops an ongoing drain on cash flow not just in recessionary times but also long-term, and improves service quality and cuts carbon emissions.
Photo: Who is switching off equipment when the building is empty?
Example: Compare your My Green Butler weekly reports over the period and study resource use compared to the period prior to lockdown (case study: My Green Butler client in France with hundreds of self-catering cabins has been able to save carbon emissions and water leaks by examining lock down reports).
Motivation and productivity
Reducing staffing levels is another early response as wages are a high proportion of hospitality operating costs, but there are repercussions taking this action. When staff leave so does their knowledge, as well as the investment that firms have spent in sourcing, hiring, and training. The remaining staff face an increase in workload and strain which can result in a drop in productivity (Phillipson et al., 2004), making the firm less able to steer out of the recession. Thriving companies, on the other hand, may cut staff or hours, but not at the expense of losing human resource capabilities. They see the importance of creating a collective sense of purpose and alignment. Retaining staff obviously also helps the wider community.
High performing companies have been found to cut less, they increase the quality of their employees and motivate them. They see an increase in productivity with the impetus of change representing a motivation. As one research respondent in earlier research put it “if anything the recessions accelerated adoption of our new technologies. It eliminated the inertia. People had to act” (Nickell et al., 2013, p.459).
One key motivation is expressing and sharing the firm’s commitment to socio-environmental actions as staff feel their job is more fulfilling: 51% employees don’t want to work for a company that doesn’t have a strong CSR commitment and 74% say their job is more fulfilling when they are provided with opportunities to make a positive impact at work (Cone, 2016). Motived staff have been found to be a key factor in generating higher profit, sales growth, market share and improved cash flow (Nickell & Rollins, 2013), while employee resistance is a barrier for growth (Lowth et al., 2010).
My Green Butler’s Recommendation: Motivate staff by entrusting them and showing transparency, e.g. by informing them of their true business situation and targets they need to reach. Firms should also introduce training, upskilling, and new responsibilities for all staff to increase loyalty and higher-level contribution as they are best placed to identify inefficiencies and cost savings.
Example: Maximise use of My Green Butler’s Team Activity service by adding resource saving goals and tasks, where a share of fiscal savings can go to a worthy local cause. Involve staff in the choice of this charitable cause. This increases staff’s sense of direct involvement worthiness and motivation. It also helps to refocus the team’s sense of higher purpose of the role of their firm within the destination and its part played within the community (case study: My Green Butler client Langdale Leisure Group with their commitment to local community employment and the Red Squirrel protection).
Discounting should be avoided.
A decline in demand and external competitiveness makes it much harder for firms to compete on price when operating structures and costs remain. Discounting might bring short term cash-flow but does not ignite thriving and may not meet operational cost sufficiently. Use of ‘dynamic’ pricing, ‘competitor based’ pricing or ‘cost-plus’ approaches perpetuate commodified accommodation stock rather than stimulating sustainable hospitality experiences that could help to regenerate destinations, a strategic benefit of supporting tourism in regional and rural areas.
Firms that thrive implement a customer-centric revenue model (Dholakia, 2016), where managers select the best value to price ratio. Managers/owners that correctly identify their distinctive advantages can place a value on these competitive factors, focus on internal quality control to optimise them, and build marketing and communication strategies which promote these attributes. A unique product is not comparable and thus less susceptible to discounting. This enables the tourism business to sell its product at a price which allows the business to offer quality and positively assist cash flow. They can focus on quality not quantity.
My Green Butler Recommendation: seek out the features or innovations which could be integrated into a unique property selling point and apply value-based pricing. A good way to do this is by identifying a value-oriented target audience and their specific interests. Then research and introduce new relevant attractions and activities in the My Green Butler personalised itinerary service that would be of interest to this group. Then promote this added value service where guests receive personalised itineraries updated though the day based on the weather, location and interest.
Example: Identify additional services that can be cross promoted to guests which emphasis your competitive proposition in the destination (case study: My Green Butler client Swan Cove and its wellness services that guests learn about prior to arrival on the web app and on their website drawing attention to sustainability in action https://swancove.com.au/accommodations/).
Creating Shared Value
Beyond value-based pricing is a shared value-based proposition. Shared Value is a concept that emerged from Porter & Kramar (2011, p17) who describe it as a “key to unlocking the next wave of business innovation and growth”. This is not a philanthropic approach, but the core to the way a firm does business. In the past, the majority of firms tended to focus solely on profit ‘at all costs’, ignoring the wellbeing of their customers, health of their suppliers or the availability of non-renewable resources. Now, some firms interweave into the core of their business their customers’ health, and suppliers’ needs to drive business success. It becomes a collaboration, which during recessions is seen as a key to thriving (Piercy, et al. 2010).
Shared Value is particularly pertinent for tourism because hospitality firms depend on the attractions (visitor magnets) and communities (labour, supply chain) within which they operate. Demonstrating a social purpose can provide a competitive advantage that supports a value-based proposition and enables firms to price and promote their service in a manner that protects their margins and attracts visitors who are most likely to enjoy the discerning experience. It builds collaboration within tourism and, importantly, with other sectors of the local economy.
|My Green Butler Recommendation: Use the Fundraising and Pledge service features to promote collaborative projects between your firm and local destination partners. Recent events demonstrate the consumer desire to use their purchasing ‘for good’ following the recent bush fire crisis affecting regions of New South Wales, Australia.|
Example: After the Australian fires in February 2020, city dwellers deliberately chose to visit and stay in bush fire ravaged destinations even though the places had lost their natural beauty. They chose to support community causes, specifically applauding those hospitality firms that shared some of their revenues with local regeneration acts. Some even brought supplies from the cities to help injured wildlife (Crystal Creek Meadows, 2020). The behaviour after the bush fires revealed the immense support to help small firms. It also confirms findings from earlier research showing that people want to contribute to a firm’s sustainability ambitions and for it to become a part of the stay experience. Research shows that guests are motivated to save resources especially when saved dollars are donated to local wildlife causes (Warren et al., 2017), (case study: My Green Butler associate Mae Adams at her Venus Bay Retreat provides guests with a ecotourism walk through her regenerated property and educates visitors on local flora and fauna).
Firms that thrive through improved profit, sales growth, market share and cash flow have been found to see recessions as opportunities to innovate by meeting changing needs of their market (Nickell et al., 2013). Innovation is a broad term. In the people intensive service sector innovation does not have to be considered solely as hard technology. It can be new ways staff collaborate with guests (service), preventing waste (process), changing housekeeping structure (organisation), or applying a value-based proposition (marketing).
My Green Butler Recommendation: Knowledge stimulates innovation. A hospitality firm can innovate by gaining deeper knowledge of the services they offer and contributing factors which increase/decrease carbon emissions, costs or motivation for staff and satisfaction for guests. To build sufficient knowledge that can ignite innovation, a hospitality firm should investigate using audits, monitoring and data analysis of resource use plus study staff and guests’ behaviours. We have shown that behaviour is the key to unlock innovation that cuts cost, carbon and wastage. Then compare with industry best practice examples, liaise with suppliers, experts and assess opportunities offered by new technologies.
Example: My Green Butler provides manager/owners with real time reporting and AI services that identify resource, cost, carbon and the associated human behaviours that positively/negatively affect the firm’s sustainability performance. It tracks the result of staff motivation and guest satisfaction. The combination of these features illuminate experience design changes that will increase people’s involvement in sustainability actions, create a competitive advantage to enable the firm to flourish, even in times of recession (case study: a My Green Butler client in Sydney uses our real-time reporting service to market a market leading Green MICE service to attract corporate clients seeking genuine responsible tourism event venues).
Tourism since the 1970s has progressed on the bountiful wave of growth. Now the COVID-19 recession is forcing hospitality to reconsider the future. The change gives managers/owners the opportunity to creating a better tourism service that helps the firm and destination flourish. Our review of science-based research shows that firms do thrive in recessions. They apply surgical costs cutting, invest in their staff, motivate staff, avoid discounting, promote a value-based pricing strategy, and build competitive advantages through shared values with their supply chain. Recessionary times are times to improve business models and innovate. Firms that tackle the challenges of recession and crisis can come out the other side more successful and build their resilience. My Green Butler is perfectly positioned to help firms to innovate through its persuasive reporting and AI services. They provide managers/owners with the knowledge to innovate. In this paper we make recommendations directly involving staff and guests in the sharing of values to motivate them to adapt behaviours, we illustrate that My Green Butler is successfully applied to create competitive advantages which are not vulnerable to competitive discounting and most importantly that deliver real cost savings and carbon reduction. In so doing this creates a guest experience which better matches people’s continued desire to stay in green eco-friendly accommodation and they are prepared to pay for a genuine greener service which also builds their satisfaction (My Green Butler 7th February, 2020). No one wants a recession of COVID-19 like crisis, but they do teach us to be better prepared for Climate Change impacts which are growing yearly.
Cone. (2016). 2016 Cone communications employee engagement study. Internet: https://www.conecomm.com/research-blog/2016-employee-engagement-study
Crystal Creek Meadows. (21st February, 2020). Rural Australia needs you. Internet: https://www.crystalcreekmeadows.com.au/help-kangaroo-valley-recover-from-bushfires/
Dholakia, U. (2016). A quick guide to Value-based Pricing. Harvard Business Review, Internet: https://hbr.org/2016/08/a-quick-guide-to-value-based-pricing
Lowth, G., Prowle, M. & Zhang, M. (2020). The impact of economic recession on business strategy planning in UK companies. Chartered Institute of Management Accountants, London.
Morgan, A. & Barden, M. (2015). A beautiful constraint: How to transform your limitations into advantages. New Jersey: John Wiley & Sons, Inc.
My Green Butler (7th February, 2020). Hospitality firms save 12-30% energy through conserving behaviours: 2019 UNEP One Planet Programme Report. Internet: https://mygreenbutler.com/hospitably-firms-save/
Phillipson, J., Bennett, K., Lowe, P., & Raley, M. (2004). Adaptive responses and asset strategies: the experience of rural micro-firms and Foot and Mouth Disease. Journal of Rural Studies, 20, 227-243.
Patel, P. & Guedes, M. (2017). Surviving the recessions with efficiency improvements: The case of hospitality firms in Portugal. International Journal of Tourism Research 19, 594-604.
Porter, M. & Kramer, M. (2011). Creating Shared Value. Harvard Business review, January-February.
Ritchie, B., Molinar, C. & Frechtling, D. (2010). Impacts of the World Recession and Economic Crisis on Tourism: North America. Journal of Travel Research, 49(1), 5-15.
Tuppen, H. (28>th February, 2013). Sourcing sustainable food in hotels. Green Hotelier. Internet: https://www.greenhotelier.org/know-how-guides/sourcing-sustainable-food-in-hotels/
Warren, C., Becken, S. & Coghlan, A. (2016). Using persuasive communication to co-create behavioural change – engaging with guests to save resources at tourist accommodation facilities. Journal of Sustainable Tourism, 25 (7), 935-954
UNWTO. (2019). World Tourism Barometer – Nov 2019. Internet: https://www.unwto.org/world-tourism-barometer-2019-nov
UNWTO Academy. (27th April,2020). Quo Vadis Tourism – UNWTO Webinar: The impact of COVID-19 on Tourism. Internet: https://www.youtube.com/watch?v=bw0vD83xIdo&feature=youtu.be
Piercy, N., Cravens, D. & Lane, N. (2010). Marketing out of the recession: recovery is coming, but things will never be the same again.The Marketing Review, 2010, Vol. 10, No. 1, pp. 3-23