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Indian Hospitality Industry in Transition

In this article we have tried to assimilate and share our thoughts on the micro and a macro level, changes which will become dominant issues for the Indian hospitality industry in the next three to five years.
Natwar Nagar The hospitality industry is seeing good times, better than ever before. Hotels across all segments are reporting strong occupancies and average rate. A buoyant domestic economy, the aviation and real estate boom, initiatives to liberalize foreign investment and improve infrastructure and, perhaps, most importantly, efforts to communicate the Brand India message have contributed to strong demand conditions in most cities across the country, with the result that India is, today, one of the world’s fastest growing hotel markets.

From a seven-eight brand hotel market a few years ago, India will be a 40-brand hotel market by 2010, redefining both the personality and structure of the hospitality industry as it stands today. Clearly, some very important changes will be required, at a micro and a macro level, and these adjustments will become dominant issues for the industry in the next three to five years. With the influx of international brands and global funds, the Indian hospitality sector will witness fundamental alterations in its organization and management and the industry’s impact will be felt in corporate boardrooms.

One of the important areas of reorganization, that this article attempts to look at, is to do with the existing structure within most hotel companies operating in India. About 80% of the existing cumulative inventory in the market today is individually owned. The existing structures within these companies will have to pave way for leaner and more accountable systems.
 
We feel that the current organizational structure in majority of Indian hotel companies is weak and top heavy. Such a structure cannot be sustained for long, in light of the changing face of the industry. The old paradigm of loyalty and experience will have to change, as companies can no longer afford to have people sitting in the corporate office with no work. Organizations will become more accountable to the environment.

Matters relating to corporate governance, talent retention and strategic development will emerge as core issues in the coming years. Questions will be raised on the governance and profitability of hotel companies.  Who are its promoters, what are their core competencies and what are their long-term plans? How efficient is the strategic and core operational group of the organization? Hotel companies will have to take a serious look at increasing the accountability of their top management and boards.  Moreover, this sector has not paid due attention to a fundamental question, “Who are the leaders and where are they?” The leaders will be more accountable and visible to the public eye and will have to demonstrate a vibrant work environment in their respective organizations. 

The emergence of the new class of first-time entrepreneurs will be another new development. They will play a dominant role in changing the current equation in the country. This would throw open new opportunities and challenges to both existing and international players.

The most fundamental change would arise from emergence of strong international competition, which would require domestic hotel chains and existing players to ’shape up’. Marriott, Hilton, Starwood, Accor, Golden Tulip, and Hyatt are among the companies that are planning to expand their presence in India. The regional offices of these companies will witness a more active and robust structure in place in the country. 
 
Accompanying the entry of new branded properties will be stiff competition for talent. According to our preliminary estimates, there are about 55,000-60,000 rooms presently under construction and this amount accounts for only 50% of the estimated demand of 100,000-125,000 rooms over a five-year horizon.  At an average of 1.5 employees per room, there will be demand for 187,500 new jobs in operations and at the managerial level. Money will no longer be the only motivation; those seeking to make a career in hospitality will closely evaluate the hotel’s/company’s work environment and work culture and opportunities to learn and grow. We foresee some of the international companies having larger operations in India than several domestic players.

Indian hospitality will see the rise of the Marketing and Finance functions. Both functions, we believe, will play the role of key drivers and will also be largely responsible for shaping the future of the companies. Senior-level Marketing and Finance executives will assume top leadership positions in the country. The role of General Manager would undergo a sharp shift, from its traditional mode of ‘managing things’ to a more focused approach on improving bottom line. The General Manager will play the role of Marketing Guru and wear new hats everyday. Moreover, the GM would no longer necessarily be someone with a background in hotel operations; he or she could emerge from non-operational areas of Marketing to Finance. The General Manager of tomorrow would be a sharper, more focused and agile animal.

The Sales function would erode and merge with Marketing in the true sense! Current sales structures would need to be transformed and those heading this function would have to do serious thinking in order to attract and retain their people. Operational areas will see the emergence of  ‘specialists’, from the kitchen to the bar, who would mostly be expatriate chefs, to cater to the better-informed, and more discerning, traveler of today. The Kitchen, the Back Office and other functional areas would become more demanding and difficult to manage. The average span of the worker right from GM to trainee will be time-bound; and this would change continuously, becoming a critical issue for Human Resource managers. Service issues will play a crucial role in the success of operations.

The industry would provide a huge opportunity for expatriates to come and work in India. This in turn, would result in Indian managers gaining new training, as well as exposure to cultural changes on the shop floor. 

HVS Executive Search’ five years of industry experience has enabled us to assimilate crucial issues affecting employees working in this sector.  We have tried to focus on two key issues, or areas, that we believe merit priority attention at this time: the Human Resource (HR) function and Compensation.

HR: HR would be the single most important issue that would make or mar the organization of tomorrow. Intervention must be from the very top in order to get clear, visible time bound action. Talent scouting and retention would need a lot of emphasis, and HR would need to take direct responsibility for attracting talent from outside the industry.  All non-operational areas would require constant attention. Internal attitudinal and behavioral training should be provided to the functional heads; and a dedicated effort must be made to understand, and attempt to meet, the needs and aspirations of a more demanding generation of employees.

Compensation: Life is not the same! The booming Indian economy has led to many industries offering significantly better remuneration; the Indian hotel industry, too, will have to rework, or even overhaul, its compensation policies and practices. Unfortunately, many employers do not even have compensation experts to track the market reality. The functions of Operations and Sales need special attention, especially in view of scarce talent. Companies need to look at costs differently and add more purchasing power to the employee. Is it not ludicrous that the Head of a key department in one of India’s most respected hotel companies has a monthly salary less than that of a fresh recruit from a premier MBA school? How will the industry be more vibrant and competitive if the anomalies are so large? Unlike other industries we do not have any new supply as it is controlled and limited. It would indeed be paradoxical to have to pay a US Dollar salary to hire a Housekeeper because one could not retain the available talent! Incentives and bonus to employees could be made more transparent and flexible keeping in mind the interest of the employee.

The opening of the retail sector would pose a serious threat to the industry by way of more demand for trained manpower. Moreover, an increasing demand for expatriates in the industry would force the Human Resources specialist to be aware of recent trends and compensation practices.

To conclude, I would like to say that we, at HVS, are proud to be associated with and happy to witness the meteoric rise of the Indian hospitality industry. We will witness the steady emergence of this sector, which we expect will surge ahead of several other sectors in the coming years. There are ample opportunities within this industry, and this augurs well for the future.

About Natwar Nagar

Natwar Nagar is the Managing Director of HVS Executive Search in India. Natwar initiated the division in 2001, and has more than a decade of successful experience in the area of Executive Search, built on his insight into people dynamics and the ability to seek out key executives whose perspectives and competencies match the future needs of the business. He has considered attrition trends and the availability of a talent pool to make successful forays into other sectors like real estate, creating a strong presence in the latter's terra ferma. He has created a team that specializes in senior management search assignments for a wide variety of clients, including multi-national corporations, mid-cap and start-up companies and governmental units.

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