The use of outsourcing has become a very common thing in modern business. There are many advantages (as well as some disadvantages) for businesses opting to use this approach. More recently, the hospitality industry has begun to employ outsourcing for a number of different purposes. The primary reason that many businesses choose to use outsourcing is in order to ensure their profitability. At the same time, while fiscally it can be a smart move it can have very negative social and public relations consequences. In the United States, there are considerable objections among the general public to the idea that yet more jobs sent elsewhere, either on shore or overseas ("Cambridge, MA, Sweeps Away Outsourcing of Hotel Housekeepers", 2011, Online). The following essay will focus on the benefits for businesses, as well as possible risks for them, when it comes to outsourcing in the hospitality industry.
Outsourcing Onshore
Many companies choose to do their outsourcing onshore, which means they pay another business within their country to perform work that they would otherwise have to have their own employees perform. For instance, rather than having a hotel business center, they can bring in a company that specifically focuses on operating business centers for convention centers, airports and hotels ('Outsourcing as you sleep' 2009, 67). This will allow the hotel to concentrate on its core specialties, such as checking people into the hotel, ensuring that they have a comfortable stay, providing concierge services and so on. Many hotels are also choosing to outsource their food services (Ruggless, R. 2004, 110).
Reasons for Hotels to Outsource
One reason that hotels may decide to outsource is that they may not feel entirely at ease when trying to provide activities or services in which they lack expertise or experience (Hottman, R.B. & Adams, J.J. 1996, 23). In such a situation, it is more reasonable to bring in an outsider that understands this particular aspect of the business and can provide this service better than the hotel could (Manzin, M, & Kodrič, B 2009, 47). In the case of a business center, the company providing the services may be able to offer competitive pricing, features and capabilities similar to what a Kinko's could offer. While the hotel itself may not be receiving the full revenue from providing the services, they can at least get a sizable proportion but profits and be certain that their customers are receiving quality service.
Furthermore, the hotel may in its contract with the business center operator insist that the center hit certain goals in a way that will benefit both businesses. Furthermore, the hotel may decide it doesn't want to deal with hiring, managing and firing employees working in a business center. Outsourcing will allow them to shift these activities from their own HR department on to that of the service provider. This allows them to avoid providing meals, paying wages and offering benefits to these employees (Kandampully, J, & Promsivapallop, P. 2005, 19).
Functions That Are Frequently Outsourced
Some functions that are frequently outsourced onshore include business centers, IT services, gift shops, janitorial services (Seifert, A, & Messing, K. 2006, 562), small restaurants and valet services. The decision as to whether a particular function is outsourced is usually based on the preferences of the owner or the general manager. Over time, the owner or general manager may choose to switch from one outsourcing provider to another based on the services they are receiving and their perception of the efficiency of the provider. Companies often choose to make this change when a provider's contract expires.
Outsourcing can also serve as a sort of test run to determine what is the best approach for the hotel to take. The hotel manager may find over time that it would be more effective, efficient and profitable for the hotel to carry out one or more of these functions themselves rather than outsourcing them to someone else.
Outsourcing Offshore
In addition to offshore outsourcing, hotels sometimes also choose to outsource their needs to offshore firms. Outsourcing offshore in this manner means that a business can access outsource providers from virtually anywhere in the world. For instance, the Hyatt hotel chain has been outsourcing many of their customer services to India since 2010 (Stamm, P. 2009, Online). In particular, they have shifted their accounting services there. Prior to this, each hotel had its own accounting department for dealing with customer needs ("Outsourcing In Financial Services", 2005, 65). In serious situations, the Hyatt corporate offices will take over the case from the India outsourcing provider. In the same way, payroll functions for Hyatt are also outsourced to India. While each hotel has its own payroll officer, when this individual finalizes that hotels payroll it is forwarded to the India outsourcing provider for approval. Another item that Four Seasons Hotels and Resorts is choosing to outsource onshore is their laundry (Hudson, K. 2010, Online).
Some of the Risks in Outsourcing
When a company makes a transition to outsourcing, particularly when that outsourcing is offshore, they frequently receive numerous complaints from both employees and customers (Adams, B. 2003, 128). For example, when major hotel from Hyatt decided to transition its call center offshore to India, many of the guests had trouble understanding the Indian accents of the people to whom they were speaking. While the representatives were competent and well trained and did speak English, the customers were frustrated by the accents they encountered. A large percentage of the calls to the Indian call center resulted in complaints about the experience. This is turn could have driven away customers who might have otherwise stayed at the hotel at some time in the future. On the other hand, employees were annoyed that any issues regarding their wages were delayed because of using an intermediary in India. These and other risks are inherent in the outsourcing process (Sebahattin Y. & Zümrüt H. 2014, 519).
General Reasons Why Companies Choose to Outsource
Hotels, like most companies, choose to outsource because it allows them to get the best possible, highly skilled talent without having to keep them on the payroll full time (Bertagnoli, L. 2007, 26). For example, the company can choose to have a single IT person on staff full time and outsource any additional work in the IT area. This limits costs and makes them more predictable in the long-term. Thus, outsourcing offers companies both reductions in their labor costs and increased efficiency. For instance, for hotel that chooses to outsource its valet needs, it can be sure that a company specializing in those services will be experienced and efficient (Spector, A. 2004, 19). The following illustrates this.
Valet managers provided through outsourcing companies have to be familiar with statistics relevant to the process, and be knowledgeable as to pricing policies. They have to know how to provide groups with discounts when organizing events. They need to remain cognizant of the particular demographics of the attendees. All of these details need to be carried out by a professional, rather than someone who does the job on a part-time basis. If there is a convention that is paying the parking for attendees to encourage attendees to attend, just what kind of rate should the hotel be changing them? A profession valet service would know.
Furthermore, just how many attendees would be the right number for the hotel to avoid losing money on the deal? The hotel in question would need to ask themselves if this would be a service they would want to provide for free if the conference organizers commit themselves to spending a specific amount on other services the hotel offers. In such a case, if the hotel chose to give away parking for the event they would probably needed to compensate the valet outsourcing comping for the revenue they would be losing. Of course, this kind of function would need to have a clearly laid out contract that insures that all parties in the deal are satisfied with the result. In addition, every time such a convention or event took place the details of the valet service provided would have to be tailored to that event. Again, this would be much easier for a hotel if they outsourced the responsibility to someone else.
Businesses may also choose to employ outsourcing to reduce their labor costs. Obviously, it financially benefits the company if they can offer a service to their customers for which they are paying considerably less than they would if the person performing that service was actually located in the United States. Many companies in the United States do not have (or no longer have) the financial resources required to run their company entirely within the United States. Raises in the minimum wage and increasing labor union demands make it extremely difficult for companies to compete. Many companies that would otherwise have gone out of business have been able to find a new lease on life because they were able to provide services or goods because of less expensive offshore labor (Connelly, P. 2013, Online). In addition to this, the supplies and/or materials this offshore labor uses are frequently less expensive as well.
The greatest cost for any company is usually its payroll. When a company outsources to (for instance) India, that company usually pays one third of the wages they would have paid if they had employed someone in the United States to do the same work (O'Donoghue, C. 2009, 17). This is (to say the least) a substantial savings. Many businesses have relocated their factories or stores for a much lower percentage savings than this. Thus, outsourcing seems from this perspective to be an obvious choice. One advantage for the remaining employees onshore is that this kind of company outsourcing for some of the jobs means that the company can stay in business and everyone else can keep their jobs.
Reasons Companies Choose Not to Outsource
Because of the risks mentioned above, there are a number of reasons why a company might choose not to outsource certain jobs or activities. Many companies that have tried outsourcing to offshore providers have found that the quality of the services they offered their customers dropped noticeably. The meant that the return on investment in outsourcing was minimal or even represented a loss. Obviously, for the hospitality industry poor quality service is something that has to be absolutely avoided, since it can badly damage a hotel's reputation.
Many hospitality companies prefer not to outsource because they want to maintain complete control over their business. Having less control can result in serious problems, including legal complications should the outsource provider do something that places the hotel at risk. Choosing an outsourcing provider can be extremely difficult and risky, since many of these companies just want to make fast money and aren't interested in providing high quality for the companies hiring them. Hotels are often seen as a cash cow by such companies, since the large revenues that hotels take in mean that even low quality providers can often make a good deal of money even if they do a poor to mediocre job.
Choosing an Outsource Provider
Avoiding incompetent or underperforming outsource providers begins with an organized and thorough search. Companies should contact other companies that outsource the function that they are considering outsourcing in order to obtain recommendations and references. In the case of a hotel firm, this would mean contacting other hotels. Any outsource provider being considered should be examined carefully to determine if they get good reviews, have solid references and are on a sound fiscal footing. The last thing any hotel would want to do is hire an outsource provider to handle an important function only to have that provider be unable to provide that service because of poor liquidity or because they go bankrupt (Lewis, M. 2005, Online).
Naturally, a hotels lawyers would need to be involved from the start to ensure that everything is done in a legal and binding way. Depending on the service or function being outsourced, the contracts involved can be very complex and lengthy. Moreover, each situation is unique and require a contract that is tailored to suit that situation. Particularly when a significant function or large expenditure is involved, it is vital for not only lawyers, but also investors, owners and executives to have input on the contract details and the final choice of outsource provider.
Functions That Should Not Be Outsourced
There are certain areas of any business that are usually best to outsource (assuming the company is going to outsource) onshore rather than offshore. Most of these areas are ones that require a face-to-face contact. They are also usually ones that have less to do with expertise that is specific to the primary operation (such expertise-based operations should be carried out by the company internally if possible).
Certainly, employees whose activities bring them into direct contact with the guests on a constant basis should be directly employed by the hotel rather than an outsource provider. This makes it easier to coach, constructively criticize and (if need be) discipline workers. Generally speaking, if the hotel has a criticism of a specific outsource provider water, they have to go through the outsource provider rather than directly speaking to the worker themselves about the issue.
Another important benefit when hotels hire directly rather than outsource is that such employees usually come from the area in which the hotel is located, which means they will be able to answer guest questions regarding local events, sites and the best restaurants (Shendrikov, A, & Skorobogatova, T. 2012, 136). An outsource provider who lives outside the country can give little to no information regarding such questions. It would be virtually impossible to provide training for such employees that would give them such insider knowledge. Instead, a local employee serving as concierge can bring with him or her a lifetime of experience about local customs, food and activities.
Functions That Can Be Outsourced
Functions that can be outsourced include a hotel's phone activities and call related needs. In fact, almost any type of service that can be performed from behind a desk can usually make use of offshore outsourcing (with the potential exception mentioned above of jobs requiring local knowledge or understanding). Another example of a good desk job to outsource overseas would be that of a reservation desk (Carter, B. 2013, Online). This is because people do not actually need to meet a reservation representative. Furthermore, emails are generally used for any followup, questions or confirmation. This helps to minimize the possibility of there being any issues with regard to difficult to understand accents. Also, much of the information the representative is asking for will be in a standard format and repetitious, which will also reduce the chance of misunderstanding.
Production is another potential activity that many companies can potentially benefit from outsourcing to an offshore firm. Particularly for firms located in the United States (where wages are relatively high), it cab be beneficial to relocate production to another country where wages are much lower. Taxes are another area where companies might benefit from relocating their production offshore, since many nations have considerably lower corporate taxes than the United States. Lower material costs are another reason to relocate. While it might on the surface seem like a hotel would be uninterested in production, many hotels produce custom made items for their establishments (Zhu, Z., Hsu, K. & Lillie, J. 2001, 378).
In conclusion, more and more hotels are choosing to take advantage of the many advantages offered by outsourcing either onshore or offshore. However, its important for the company in question to fully understand the potential pitfalls as well. As has been discussed above, there are many instances where outsourcing is simply not the best option. Even if outsourcing is the best choice, it is essential that the right outsourcing provider be selected and that the contract clearly lay out both what is expected and provide and easy exit should the hotel discover that the provider is not living up to its obligations under the contract.
References
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