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"WHY?" Revenue Management

In the past 20 years of my career in hotel Marketing, Revenue Management and Distribution, I am not surprised when family and friends approach my job as being that belonging to “Finance” or “Chartered Accountancy. Having said that, even after years of evolution to what we regard today as modern Revenue Management practice, the understanding and application within the industry bears a cloud. I find that even a broader understanding of Revenue Management, in general, either flawed or lacking.

Therefore, I partnered with an industry colleague and friend of many years to invest our time in demystifying Revenue Management. This literary work in form of soon to be released book, in reality reflects our own quest for the right answers to piecing the “Revenue” puzzle together. It has been our journey through both theoretical and practical aspects that have come to enrich our understanding of the fine art and science of Revenue Management. This is but a short except from our journey that might stimulate a perspective at a more strategic yet foundational level.

Neil Salerno in his article “Revenue Management for Dummies” states that understanding 'why' something is done is far more important than knowing 'how' it is done. Knowing 'why' gives people the ability to be innovative and the creativity to improve how something is done to get even greater results. Those only knowing 'how' are doomed to repeating what they've always done. The thoughts that you are about to read is more about explaining “why”.

The challenge we encounter today is that the focus on Revenue Management is on “HOW” and not the “WHY”.

Revenue Management is a combination of people, processes, technology and information. Therefore, we introduce our Revenue Excellence Model (REM) that illustrates the interdependent nature of process areas that affect revenue generation. The approach is to obtain an understanding of those competencies and activities that have a significant impact on revenue and a high likelihood of causing revenue loss if not effectively integrated across the organization and throughout the end-to-end revenue cycle.

Bear in mind that this important understanding has an outcome on the quality of talent that you hire, the resources you invest in and the paradigm shift that an organization needs to embrace to be successful “Revenue Leaders”.

The inner most core of REM is based on four key competencies. Competency is the cluster of skills, abilities, habits, charactertraits, and knowledge. It embodies the ability to transfer and apply skills and knowledge to new situations and environments. Competencies, in essence, represent the DNA of organisational effectiveness that provides with the complete picture of the behaviors and values required for an organisation’s success (Rankin, 2004). The four key competencies, namely, Research, Analysis, Convince and Execute form the organizational DNA that drives revenue performance.

Wikipedia defines researchas an active, diligent and systematic process of inquiry in order to discover, interpret or revise facts, events, behaviours, or theories, or to make practical applications with the help of such facts, laws or theories. In this context, the most important part of running the business is in understanding the health of your business. This can only be gauged by a systematic process of on-going and dynamic research that consistently scans both internal and external environment. Like the great military strategist Sun Tzu puts it:

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle”

The competency of research is closely interlinked with that of analysis; since research leads into analysis which is representative of problem solving and decision-making skills. It is here that an organisation needs to utilise creativity and innovation to resolve problems or evolve new strategies to gain competitive advantage. In today’s day an age of technology, strategies and tactics are extremely transparent and quickly replicated by competitors hence, innovation is the key in sustaining competitive advantage and thus, must form an integral part of decision-making and problem-solving skills.

It is a commonly heard remark that “90% of the strategies fail due to lack of implementation or ineffective execution”. The competency of execution thus, becomes an important aspect of the REM. However, even before we can proceed towards execution; the key aspect remains buy-in and commitment of all stake-holders. Hence the competency – convince.

This competency reflects the ability to impact and influence the key stake-holders in order to gain their commitment as well as the flexibility to adapt in case of exceptions.

Taking an example from my own personal experience; after having completed an in-depth research and analysis we decided to move to a chain-wide implementation of certain pricing reforms. Detailed notes on the new pricing reforms were circulated to all hotels for implementation. Two months down the line when we were reviewing one of the hotels, we found that the hotel was not making use of the new pricing policies. When questioned they explained that the reforms were not valid for the hotel and came up with a variety of reasons and explanations resisting the change. Basically, they did not see the value in the new initiative and hence had not bought into the process even though enough research was available to prove otherwise.

Therefore, the competency “convince” is all important since the Revenue Management process is a catalyst of change owing to its nature of being ever-evolving and dynamic. Thus, it becomes even more critical that all stake holders and those affected by change, understand the need to change and at the same time are able to adapt to this dynamic environment.

Execution on the other hand is all about planning, organization and an insatiable drive for results. This competency always takes me back to an all-time favorite book and author – Stephen Covey in his book 7 Habits of Highly Effective People (1989) states that “for many people, it is not just that they did not begin with the end in mind; it goes a bit deeper - they did not ever get around to definingthe enditself and so they simply could notbegin with the end in mind. So, what does all this mean?

The end represents the purpose of your life. Until you can say what that purpose is, with assurance, then you just cannot direct your life in the manner that would bring you the greatest satisfaction.” He adds “you need to have a dream, define your own vision and get into the practice of setting goalswhich will allow you to make measurable progress toward the dream.”

Execution is all about achieving an objective or an end-result that is driven by research, analysis and convince. The objective needs to be supported by actions that are specific, measurable, achievable, result-oriented and time-bound (SMART).

The inner core represents the underlying competencies or the most valuable behaviors and values.

The outer core on the other hand represents the key activities that are required for revenue management success. Though driven by the competencies; these activities are dynamic in nature and directly affect the revenue performance in both long as well as the short-term. These activities as illustrated in the model are in constant exchange with both the external and internal environment. Changes in either the external or internal environment, has a direct impact. Likewise, these activities induce changes or rather have a bearing on the external or internal environment.

I hope that this brief excerpt in one way or form stimulates thought and further introspection towards reflecting how you approach your Revenue Management process. Are you hiring the right set of competent talent? Is your research inward looking? Are you always navel gazing or exerting an effort to understand your competitive and industry environment? Are you setting active goals and measuring them effectively? Do you consume reports/data or information?

Our endeavor is to answer a number of aspects associated in a comprehensive yet simple manner and we can’t wait to do so in the near future. Until then do reach out to us with your comments, remarks and questions.

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