When profits fell at a hotel management company, it was time to slash human-resources spending. Or was it?
"We're number one.
Not number two.
We're gonna beat the WHOOP out of you."
-- MMI cheerleaders
"WE WON. WE SMEARED 'EM," SAYS Avanell Hurst, member of the winning bed-making team. Hurst, veteran maid at the Jacksonville, Fla., airport Holiday Inn, was competing in the 1982 Mississippi Management Inc. employee Olympic Games. Other events in the company's games: drink mixing, key sorting, sheet and towel folding, nail pounding, directory search, housekeeping-cart relay, egg cracking, table busing, wine relay, and commode seat change.
The games cost MMI, which owns and/or manages 14 assorted hotels, motels, and resorts in the Southeast, about $150,000 to stage. The employees enjoyed themselves for two days on company time, but what did MMI get for its money?
Or for the money it spends on employee training? Every year the 30-year-old, privately held company, with headquarters in Jackson, Miss., sends two housekeepers (room maids) from each property to overnight seminars; their rooms, transportation, meals, and entertainment expenses are paid. MMI cooks have their seminars, too. So do front-desk clerks and supervisors in every department. The company budgets nearly $100,000 for these jaunts and gets back . . . what?
Cash awards to 5- and 10-year employees, watches for those with 15 years, and trips awarded to employees with 20 or 30 years of service dropped $34,600 out of MMI's pretax profits in fiscal 1986.
Last year's budget for MMI's human-resources department, comprising a vice-president and a full-time trainer, came to $376,000. Too much? Too little? How do they know? How does anyone know?
Is MMI wasting its money?
What if you don't give a damn whether you win another award?" Joe Morgan demanded, by no means rhetorically, one Sunday afternoon. "What if you'd rather turn in a 32% [gross operating profit] instead? Do maids have to go to seminars every year? My people keep asking me, 'How is this, or this, going to improve my GOP?"
MMI's managers -- chief executive officer Earle Jones, the seven senior corporate staff people, and the two senior operational vice-presidents, Morgan and Dean MaKinster -- were meeting in a room at the company's Lake City, Fla., Holiday Inn. Instead of a bed, there was a table. They hashed over next year's plans and budget. Human-resources vice-president Jim Hart wanted 20% more money: $450,000 in '87, up from $376,000.
Nobody objected to Hart's programs. That wasn't Morgan's point at all. He was just reacting to another reality, which is that in the past two years, MMI has seen profits decline. Its room occupancy rate has dropped from 74% in 1984, eight points higher than the industry average, to 63% in its 1986 fiscal year. The industry average, computed on the calendar year, dropped less than a point. MMI's gross operating profit, measured in dollars, declined in 1984 and again in 1985. It rose in '86, but as a percent of revenues, GOP has continued to fall from its '83 high of 33.8%. It hit 31.8% in 1984; 26.5% in '85; and 24.7% in '86.
Jones blames this disappointing performance on overbuilding in the industry, lower demand for commercial hotel rooms in the Mississippi-Louisiana division's energy-depressed market, and the resulting pressure to keep room rates low. If Jones is right, it means, among other things, that he ought to be diligently cutting costs wherever he can to ease the pressure on profits. Which would suggest that Hart's nonessential human-resources spending ought to be reduced, not increased as Hart asked.
Cutting Hart's budget surely was tempting that Sunday afternoon.
The way Mississippi Management runs what it calls its human-resources programs, just to give a single name to a lot of different activities, suggests that you don't need the accountants' formulas to judge the value of human-resources spending. The company, with $40 million in revenues, uses informed common sense, plus a good deal of sensitivity, to sort out the worthwhile from the wasteful. The people running MMI don't pursue human-resources programs primarily for the sake of corporate culture. They won't undertake a program, retain a benefit, or expand a perk unless there's a pretty good business reason for doing so.
They are, for instance, very high on training.
At the annual seminar for housekeepers, corporate trainer Colleen Maloney has the maids play her version of "The Price is Right." Two teams, two tables. On the first table are a dozen items the housekeepers frequently use in their work -- bars of vanity and bath soap, for instance. On the second table sit 12 price tags. The first team tries to match prices to products. The second team tries to correct the first team's unspecified errors. The competition, reportedly, is keen, and the debate among team members gets hot, which is Maloney's cue to make her point. "'Let's see,' I'll say, 'what the cost of soap is for a 200-room property in a year. One vanity bar and one bath bar. Let's multiply by 200. That's so much per day. Now let's multiply by 365. . . .' If you walk it through with them, they're very comfortable. It ends up being $10,000 and something. 'Wow,' they say. Later I'll ask them, 'How much was that vanity soap?' 'Four cents,' they'll say. They wouldn't remember if I had just told them."
About a quarter of MMI's nearly 1,300 employees go through one of these formal seminars annually. Employees also see Maloney at ad hoc sessions, such as the three-day series she held for dining-room workers at the Radisson Walthall Hotel in downtown Jackson. MMI had taken over management of the hotel just six weeks earlier.
After the first of two role-playing sessions -- one employee playing him- or herself, the other taking the customer's role -- Maloney gave both players $5. But the two participants in the second session got only $1 apiece, an inconsistency that Maloney used to start a discussion about customer expectations. Later she spoke directly to a waitress, crowding closer and closer to the young woman's face. The waitress retreated into her chair back, and the group turned to talk of body language.
Foolishness? MMI's managers disagree.
"The link between training and service is just obvious," said Radisson general manager Ron Stull, an 11-year MMI veteran, the next day. Like other general managers, Stull takes more than an academic interest in the amount of time his employees spend in training, if only because the payroll charges come out of his budget; the short-term cost in lowered productivity appears on his performance reports; and both count against his year-end bonus. "Remember," he said, "the waitress yesterday who brought up the customer who complains about the meal? Her attitude was, 'The guest is trying to take advantage of me.' We've got to change that attitude, change the reflex of that employee. She is an example of what you get if training is not important to you."
At some companies, executives pay administrative lip service to training. They talk about its value to the organization. Some may even believe it. But getting line managers and supervisors to take training seriously is often another matter. At MMI, they do. Sparky Sparkman, maintenance supervisor at the Jacksonville airport Holiday Inn, says he is supposed to give 45 minutes of training a week. "But we do more. My job," Sparkman says, "is a continuous training program."
Arthur White, a kitchen supervisor in Jacksonville, believes in training, too. At the seminar, he says, "They told me that each supervisor needs to sit down and write out a training outline for every job. So I took that advice. When I hire a salad person, I sit down and write out what I'm going to teach that person every day. They do 100% better."
Cathy Rieley, night auditor at Jacksonville, who also works the front desk, just completed 30 extra hours learning the new computer system that's about to be installed. "Tuesday," she says, "the Holiday Inn people are coming to test us. It's going to be great for room control."
"Training may not pay off immediately, today," explains CEO Jones, "but its cumulative value builds in the company."
Not to train, at MMI, is unthinkable. It's become part of the culture.
The distinction between employee training and employee motivation is frequently arbitrary. "It isn't so much the education [at the seminars]," says Claude Collins, general manager at Jacksonville, "as the experience. What I gain is two or three maids being shown how special it is being a guest."
But when motivation is the deliberate motive, as it frequently is, MMI uses two techniques: executives and managers share information, all the way up and all the way down; and they promote internal competition.
The formal channel for moving information up is the annual, or ad hoc, rap session. Someone from the corporate staff holds at least one for each department at every hotel. No property managers are allowed. When they were started 15 years ago, they were bitch sessions. To an extent they still are: Why doesn't the dining room have a vacuum cleaner? If we don't get our break, why can't we take it after our shift? But now line employees talks as much about guests' problems as their own.
"Last year," says Carol Terrell, "at the rap session with Mr. Morgan [senior vice-president for the Florida-Georgia division], I got more pay phones in the lobby. Guests needed them. That was my suggestion."
At their last session, dining-room employees at the Lake City Holiday Inn reported that guests thought the lunch menu was boring, and complained about the absence of dessert on the buffet. Front-desk clerks at Lake City pointed out that a change machine in the game room would keep quarter-hungry youngsters from cutting ahead of guests conducting business at the desk.
When a department has a problem that management can't put its finger on, the department head or general manager may ask someone from corporate to hold an extra rap session. They say it makes a good purgative for whatever ails the group.
The formal channel for moving information down, on the other hand, is the financial report. MMI's corporate headquarters in Jackson sends all its financial data -- the P&L, the general ledger, everything -- to managers of MMI properties in Mississippi, Louisiana, Florida, and Georgia. Department heads of those properties get their own copies of a twice-monthly report that breaks out revenues, productivity, and margins (down to gross operating profit) by department and property. They are encouraged to share them with employees. "How can you run a company if you don't know what's going on?" asks controller Mickey Brady.
Or even a housekeeping department?
"I believe," says Jones, "that all of our housekeepers could explain what their productivity has to be. They've got to know what's going on before they can do something about it."
Avanell Hurst, a housekeeper for seven years, knows exactly what hers has to be, and why. "I run about a .38 [hours per room]," she says. She is, she explains, on an incentive-pay plan. The standard at Jacksonville is .42 hours to clean a room. If she agrees to keep her performance at .40 or better, and if the rooms consistently pass inspection, she collects 20? more per hour. "You get paid more," she says, "any you're helping the company out, too. So what's the difference? A company can't give people benefits if they don't make money."
Two other Jacksonville housekeepers want to get on the incentive-pay plan, says Ruth Heck, executive housekeeper, who charts each maid's performance daily. "One of them, though, her dusting isn't so good. We have to work on that."
Sharing performance figures company-wide may foster competition, but it also promotes cooperation. "The Baton Rouge maintenance guy," says Dean MaKinster, senior vice-president in charge of MMI's Mississippi-Louisiana division, "wasn't meeting his [productivity] numbers and couldn't figure out why, but he could call his counterparts. Sometimes we egg 'em on a bit. 'Hey, John, why can't you do what Claude's doing?' That gets them to call."
"How," asks Craig Michelet, food and beverage manager at the Radisson Walthall, "do you motivate somebody to change a toilet seat the fastest? Not by telling him to do it, buy by motivating him to be the best." That, presumably, is what the MMI Olympic Games were all about. "It allowed some everyday people to be stars in a large organization," says Claude Collins. "They felt good about themselves. . . . Our team in the housekeeping-cart relay practiced a couple of hours a day, two to three days a week, right outside here. Other employees saw that. It was mostly on company time."
"Braggin' rights," said Ron Caimano, general manager of MMI's Embassy Suites Hotel in Orlando, after his division took the Olympic honors. "That's what we won. We can talk about this until next time" . . . until 1988, when the next MMI Olympic Games are scheduled.
Olympics aside, every year every department competes with its counterparts at other MMI properties. "My first day here," says Cathy Rieley at Jacksonville, "I remember people telling me about the competition to be the best front desk in MMI. We all did it, sometimes unconsciously, but we won. . . . Management's attitude, instilled in us from the very first day, is that we always do whatever we have to do. I know at 5:30 [a.m.] to check to see if the coffee girl is here. If she's not, I make the coffee. We promised to bring coffee to guests after their wake-up calls, so we have to have coffee. . . . It's just this feeling that we all have that we have to be the best. So we are."
"Last year," says Arthur White, who began as a dishwasher in 1979, "we won food and beverage department of the year. The year before we were runner-up. Do employees care? When award time gets close, they get real motivated. When we get an award, they get a bonus in their checks, $15 or $20. That motivates them."
At the end of the week, the cook who comes the closest to averaging 9.5 to 10 ounces of prime rib per portion served gets an extra $10. The buffet carver who comes closest to a 3.5- to 4-ounce average also gets an additional $10. The housekeeper who returns the most guest comment cards gets a gift -- "Something I pick out for her," says Heck.
General managers can earn up to 100% of their base pay in performance-based bonuses. Food and beverage managers can increase their salaries by as much as 50%.
"Internally," observes Jones, "it's a very competitive group."
One of the benefits of working at MMI is that, after five years, no one may be fired -- not a maid nor a dishwasher nor a vice-president -- without the approval of the board. Holding on to good people, in fact, is one of the rationales influencing the content of MMI's entire benefits program.
Besides the cash awards, longevity brings employees other benefits. After 15 years, they get a trip anywhere in the United States. Twenty-year employees get a Caribbean cruise for two. MaKinster recalls seeing off two women from Vicksburg who had never been on an airplane, never been outside of Mississippi. "The cruise," he says, "was the biggest thing that ever happened to them in their lives. . . . That's the kind of thing that spreads throughout the organization."
Vesting in the company's profit-sharing plan increases with each year of service. Annual vacation time expands with seniority.
"I know some of our employees would have been long gone," says Jacksonville general manager Collins, "but for the benefits program. It doesn't attract people, but it helps us retain people -- maids, waitresses. You tell them about all that stuff, but what they want is an income. But they start working, and when summer comes and the kids are off, they think twice about leaving. It gives us a higher-quality work force."
About half of the human-resources spending falls under corporate overhead, which is not allocated among MMI's 14 managed properties. This half covers Hart's and Maloney's salary, and their office and travel expenses. But the other half -- covering the cost of seminars, 15- and 20-year trips, department-of-the-year awards, and the other goodies -- is allocated among the individual hotels. It appears as a cost above the general manager's bottom line, which is the gross operating profit that he, or she, reports. And it is gross operating profit that determines, in large part, the general manager's annual bonus. Consequently, general managers don't happily accept human-resources costs unless they can see an offsetting benefit. If they didn't see it they wouldn't be bashful about complaining to senior operations vice-president Joe Morgan, who is a large and persuasive man. When budget time rolls around, he doesn't guard his skepticism, especially on this particular Sunday, after two years of generally depressed business.
This arrangement is one way MMI holds human-resources spending in check and ensures that human-resources programs are directed at actual operational needs. It's less important during budget meetings that Morgan and Hart agree on every point and more important that they keep challenging each other. What Hart and Morgan, and the other executives, can settle on Sunday afternoon as a reasonable human-resources budget is probably as good a measure of the program's effectiveness as any accounting device might yield.
It is not all done by feel, though. There are measures by which MMI can tell if it is doing something right, even if those measures don't always relate directly to a specific program or identifiable cost.
Guest comment cards, for example, say something about the quality of service rendered by MMI employees. Currently, compared with all Holiday Inns as a group, MMI properties get 25% fewer guest complaints.
Productivity, which MMI measures differently from most of its competitors, responds to many factors -- for example, the quality of management, selectivity in hiring -- but training and motivation are certainly among them. MMI expresses productivity as hours per room cleaned, or per restaurant or lounge customer served, or per room rented. By computing them this way, instead of as a percentage of revenue, MMI makes the numbers meaningful to employees at all levels -- general managers as well as lounge waitresses.
Such measures as gross operating profit and occupancy rates tell a company something about how well or how poorly it is performing in a market environment. They say very little, however, about why the company is performing well or poorly. If the problem is that room prices are depressed, MMI executives know that they won't solve it by eliminating training or employee-motivation programs. Especially not if they have good reasons to believe that those programs actually help keep costs down.
When the final 1987 budget was put together, Hart's request for additional human-resources spending remained largely intact. Jones and his crew believe that to cut it would be a false economy. And a dangerous one. Their experience suggests that spending wisely on human resources is a way to shave costs, not raise them. They can look at, among other things, productivity figures to see the effects of human-resources spending.
In 1981, its first full year under MMI management, the Parkway Holiday Inn in Tallahassee, Fla., required 1.069 hours of total labor -- such as maids, desk clerks, and porters -- for each occupied room. In 1982, after a year of MMI management, productivity improved to 0.713 hours per room. After two years, it improved again to 0.702 hours per room. That's a 34% labor reduction in just two years, one of the reasons Jones can claim to be among the lowest-cost Holiday Inn franchisees.
Or, management can look at employee turnover rates. MMI's is slightly less than 100% a year, which sounds terrible, except that in the industry, 200% and 300% turnover rates are not unusual. By keeping an employee, MMI knows that it saves hiring and training costs.
It also saves other costs that are difficult, perhaps, to quantify precisely, but are just as real. A new employee's productivity is never as high, MaKinster points out."Two-thirds of the cuts, falls, and slips occur with new employees," says Jones, "so the way to reduce accidents, and claims, is to have fewer new employees." The new employee takes a heavy toll on guest satisfaction, says MaKinster. "For instance," says Jones, "it's hard to get new front-desk employees to understand their authority on refunds or check cashing. So they refuse to do anything for the guest. They won't refund the 50? someone lost in the Coke machine. But over time, people begin to feel comfortable with their jobs, and that builds goodwill with guests."
"It's great to go out and market a hotel, to get those people here," says Stull, general manager of the Radisson in Jackson, "but if we can't get them to come back, it's a very expensive way to get a onetime guest."
MMI could, if someone there wanted to, compute the time required to recover the $165 it cost to send Debra Jones from Jacksonville to the housekeeper seminar in Orlando. "They told us," she says, "about how much the soap costs. If a guest used one, I used to just throw it away. But now if they're staying over, I leave a new bar, but I don't open it. Most of them will use the old one." Let's see. Jones cleans about 16 rooms a day, times two bars of soap, times six days a week. . . .
But how should Claude Collins compute the return on the dollars he spent training and motivating Carol Terrell on the Jacksonville front desk? "If a rude customer comes in," she says, "I just give 'em a smile that knocks 'em over so they feel bad about being rude. . . . It works."
The dollar value of the young lady's smile? That's hard to say. But it has value. "I can't compute the return on $190,000 invested in training," says controller Brady. "I wish I could, but . . . if we thought our hotels were poorly run, why would we go on doing this?"