Outsourcing within the hotel industry

The decision to outsource

Running a hotel requires the operator to have expertise in variety of different disciplines. Outsourcing provides an opportunity to pass on responsibility for fulfilling certain of these functions to specialists who have the knowledge, the procurement expertise, the back office systems, etc, to perform the outsourced task more efficiently and effectively leaving an operator to focus on attracting, servicing and retaining customers.

Outsourcing back office functions is not new. For many years hotels have outsourced IT, revenue collection and other such services. Under the new models being adopted, operators are outsourcing the customer facing operations (e.g. catering), which means, in effect, that they are placing the goodwill in their brand in the hands of external suppliers. Where on-site customer facing services are outsourced, co-operation may be required on numerous issues that go beyond the pure provision of services, such as joint capital investment in the combined enterprise, development of design and marketing concepts for the outsourced services, maintenance of the shared premises and equipment and employees, and maintenance of customer service standards. This is a relatively new development and requires a different approach if success over the long term is to be achieved.

The outsourcing relationship

From the hotel operator's perspective, it is vital to link up with a service provider with the capacity and experience required to guarantee the maintenance or improvement of existing standards. The hotel operator needs to be sure that not only are costs savings being made, but that these are not at the expense of the quality, reliability and flexibility of keeping the service in-house.

For the service provider, it will be important to carefully monitor the extent of the nature of the business risk being taken on. Is it assuming too much of the risk of running of the hotel? Is the potential liability being assumed sufficiently defined or capped in comparison with the potential profits that may be earned?

The relationship of the parties will often be co-dependent, especially where the service provider's re-numeration is based in the profits of the enterprise. Where the outsourced services are provided on site, co-operation may be required on numerous issues that go beyond the pure provision of services, such as joint capital investment in the combined enterprise, development of design and marketing concepts for the outsourced services, maintenance of the shared premises and equipment and employees and maintenance of customer service standards.

Key considerations for the outsourcing agreement

• Transferring/sharing risk
• Clear and objective performance standards
• Structuring remuneration to incentivise performance and efficiency
• Building in mechanisms to cater for inevitable changes in service requirements
• Protecting the brand through strong and clear dispute resolution and remedial action provisions
• Apportioning risk and liability
• Employee issues, including compliance with transfer regulations at the beginning and end of the relationship, redundancy and redeployment
• Property issues where the supplier is providing services from the customer's premises

How can CMS Cameron McKenna help

Properly structured, outsourcing can provide immense benefits to a hotel operator. Most outsourcings should result in lower costs and an improved quality of service. However, particularly in the case of a long term arrangement there are also risks. CMS Cameron McKenna can draw on expertise of outsourcing and its wider experience of acting for hotel operators and services providers to advise on all stages of a hotel industry related outsourcing. In particular, we can:

• assist in the initial analysis of how the proposed outsourcing will impact on a hotel operator's business and any existing control systems
• assist you in devising an outsourcing strategy and where appropriate, putting the opportunity out to tender or, where appropriate, responding to a tender
• advice you on all aspects of the contractual arrangements between the hotel operator and outsourcing supplier
• provide advice on practical implementation issues.

If you would like to find out more about hotel outsourcing, please contact either Louise Wallace on 020 7367 2181 or at [email protected] or Simon Vere Nicoll on 020 7367 2510 or at [email protected].