Effects of Outsourcing in Hospitality Industry

Abstract

Outsourcing is a management concept that makes work for managers easier. This is mainly because the managers have to contend with less human resource issues and the logistics that accompany human resource management. Like every other sector that has embraced outsourcing, the hotel industry is presented with mixed fortunes by the concept. On one hand, some benefits are accrued by having the outsourcing vendor handle the non-core activities in the hotel, but on the other hand, is the danger associated with the managers loosing some of the managerial power to the outsourcing vendors. It also emerges that being a sector whose main resource is the customer; the hotel industry has a difficult time differentiating the core activities from the non-core activities. This is especially so because every activity in the hotel industry has a direct effect on the customer.

Introduction

Outsourcing has become the “in-thing” in the service industry and the hospitality industry is no exceptions. According to Nag (2004), “outsourcing is the arrangement where one company provides services that could be or usually have been provided in-house for another company” (59). A simpler definition of outsourcing can be gained by separating the two words that make it: “out” “sourcing”, which means external source.

Franceschini et al (2003) define outsourcing as a management approach which slows the delegation of responsibilities for services and processes previously delivered by the company or organisation to an external provider (246). The process also includes the transfer of responsibilities from a group of employees within a company, to a group that is not employed by the company. According to Lankford & Parsa (1999), outsourcing in the services sector also includes a reassignment of the operational control from the company to the supplier of the outsourced services.

Hotels, lodges and restaurants have caught up with the bandwagon and are outsourcing everything from food preparation, beverage preparation, house keeping, stewarding, laundry services, accounting, maintenance and payroll among others (Nag, 2004). Augustine (1979) notes the providers of outsourcing services market themselves as providers of routine nut-and-bolt activities that “need not concern” the management of the service industry too much.

The impression created by the outsourcing firms to the players in the hospitality industry is that they (outsourcing firms) are specialized providers of some of the tasks that the companies undertake and have the capacity and the means to execute those tasks more efficiently and at lower costs than those companies (Augustine, 1979). Notably, this has come as a welcome relief to the managers who have always perceived managing routine basic activities as something that takes a substantial amount of their time, time which would be spent well doing better things (Augustine, 1979). Like every other sector, this trend has presented mixed fortunes to the hospitality industry.

While the management has to contend with less human resource issues, supply chain processes (logistics, manufacturing and procurement) and other overhead tasks such as billing, they have no power to deal with the employees of the contracted outsourcing company. This leaves the reigns of power with the contractor. As such, whenever the management notes a problem in the way things are done by the employees, they cannot address the situation directly, but would have to contact the contractor, who then contacts the employees under his direction with the instructions from managers in the hospitality industry.

This study argues that although outsourcing has many benefits to the players of the hospitality industry, it has the potential to compromise the quality of services provided hence driving consumers away. It also elongates the chain of command meaning that more time is spent resolving customer complaints.

The problem

According to Augustine (1979), the outsourcing craze caught up in the developed world starting 1997. Before this, the providers of the nut-and-bolt services could market their services vigorously but a lot of middle and large scale companies would “simply nod their heads but never get to signing up the contract”. Their reluctance to sign up was fuelled by the fear that they would become hostages to the service providers. They were also concerned about the interaction costs that could arise from relegating the most basic duties of attending to their consumers to the service providers (Augustine, 1979). This study seeks to find out if the same fears that had made the operators of the service industry before the 1997 have become a reality. The study seeks to answer the following questions:

  • Q1. How are relationships between the outsourcing firms and the Contracting companies managed?
  • Q2. How is the delivery of services monitored?
  • Q3. How is the exchange of information between contracting companies and the provider coordinated?
  • Q4. Are there hidden disadvantages and risks in outsourcing that companies are yet to know?
  • Q5. How well can outsourcing allow hotels to deliver 21st century service delivery strategies?

Baum (2006) claims that, theoretical approaches on the principles of outsourcing are wide spread, hotels and other players in the service industry lack practical advice on how they should weigh the benefits and costs of outsourcing. As such, most hotels, which take up outsourcing, learn the pro and cons of the same practically. Due to the limited research documentation found relating to this study topic, all questions except question 5 were comprehensively answered.

Methodology

This research is based on literature review. As such, qualitative data was sought from different published literature that had been done by authors, scholars and experts in the same field. The method used to collect data was internet based where searches with specific keywords were done using search engines. Keywords like “outsourcing hotel services”, outsourcing hospitality industry services”, “and challenges of outsourcing” and “benefits of outsourcing” among others were used.

Area of research

Research was done specifically on literature that addresses the advantages and disadvantages of outsourcing in the hotel industry. To get a deeper understanding of how outsourcing works, its merits and demerits, the research also covered scholarly journals and articles that addressed outsourcing in the services industry.

Measurement variables

The main research variables for this study were based on the subjective information regarding hotel performance that was attained from the different literature that was reviewed during the study. The study noted the financial and non-financial benefits of outsourcing that was documented in the different literature sources, identified the disadvantages that were documented in the same literature, in addition to noting the challenges and “grey” areas identified in the different studies.

Literature review

Being a fairly new concept, especially in the hospitality industry, not much has been written or at least published regarding the same. However, in the course of this study, I was able to gain invaluable insight into the outsourcing processes in the hospitality industry through searching internet databases. The homogenous nature of the hospitality industry worked to my benefit because I was able to use studies conducted on the industries in different countries.

M-consulting (a British consulting company) (2005) has published a business strategy brief that covers specific subjects in outsourcing. The brief cites some advantages of outsourcing as the ability for a business to focus more on its core function when leaving the non-core functions to be attended to by the outsourcing service provider; it also notes that businesses which outsource benefit from lower process costs (p. 4). More to this, the brief states that companies which have taken up outsourcing their non-core activities have been able to restructure some of the departments that have resisted change over the years. More so, compared to traditional organisational structure, the M-consulting (2005) report states that business enterprises in the hospitality sector can achieve better coordination across structures (p.4).

The same report however notes that outsourcing can fail to deliver the expected results. Based on early research conducted in the outsourcing industry, M-consulting (2005) notes that 80 percent of the managers who had outsourced IT services in 2002 terminated the contracts before the expiry of the same citing low delivery of results (p. 2). A survey conducted on American service industry managers in 2003 by the American Management Association reveals that 75 percent of managers were not satisfied by the services offered by the outsourcing companies (M-consulting 2004, p. 4).

The hotel industry is customer–oriented, as such, the perception of the customer towards outsourcing matters. Although this study is not focusing on customers, it is worth noting that at least 81 percent of customers said they would have less confidence about the quality of service offered in hotels where services are outsourced to a contracted company ( M-consulting, 2005). Fortunately, most customers do not get to know if the services are outsourced or not.

Nag (2004) notes that the success of outsourcing in any industry, hospitality included depends to a large extent on the managerial ability of the contracted company (p, 63). For starters, the contracted company has to learn the vision, the goals and objectives of the company they are providing services for.

The contractor then needs to communicate the same to his team of workers. In instances where this does not happen, the contractor company will register reduced customer satisfaction and low job performances by the contracted firms’ workers. The Centre on Wisconsin Strategy (2003) further notes that most outsourcing providers employ people on contracts and as such, the kind of training offered by such providers pales in comparison with how the hotel would train its staff members. Consequently, this affects the quality of services offered by the staff.

More to this, the Centre on Wisconsin Strategy (2003) notes that outsourcing companies rarely employ people who belong to a trade union, mainly because they are concerned about cost-cutting measures. In such a case, the employees are paid little money and are forced to work for longer hours. Consequently, this affects their quality of work. Cristina et al (2008) note that if the outsourced workers are to perform according to set company standards, they need to be treated “using the same rules and principles that the company uses on its core employee to maintain motivation and job involvement” (1212).

The International Labour Organisation (ILO, 2001 cited by Kusluvan, 2003) argues that outsourcing by hotels and other player in the hospitality industry created divisions among employees, while imposing them with unfavourable working conditions. According to ILO (2006, cited by Kusluvan, 2003), such practices led to employees who were not unionized and hence could not engage in collective bargaining (p. 11).

This study is however of the opinion that treating the outsourced workers same as the core workers is not possible because they earn less and Cristina et al (2008) note; “they are always looking for better jobs elsewhere. This means that they do not share in the company’s vision or long term strategy” (1211). Augustine (1979) notes that not all service provider companies deliver on the promised quality of service, which includes productivity and efficiency. This study has established that the main reason why this happens is because the service provider fails to transform or streamline the processes of service provision. In the end, the contracting company ends up with the same services it would have had if it had accomplished the tasks indoor.

Context and background to the research problem

The main concerns regarding outsourcing in the hospitality industry are related to performance measures. To this end, Lai and Soltani (2006) suggest that hotels should only outsource services that cannot be handled by their core employees. But just who are the core employees in a hotel? According to Guerrier & Lockwood (1989), Company core workers are divided into three categories: 1) those who are free to develop their careers across units in the same hotel or group of hotels, 2) those who have some flexibility of career growth within the same hotel unit, and 3) those who are free to develop their careers within the same hotels or other hotels (p, 9).

Blumberg (1998) however, has a different description of just who the core employees are (p. 10). According to them, core employees in the hotel industry are employed on permanent terms, are well remunerated and are perceived by the hotel as an asset. As a result, they have good attitudes regarding their jobs and rarely look for jobs elsewhere. The peripheral employees on the other hand are in the lower jobs such as room service, food and beverage preparation, hotel service and laundry, and are always looking for better jobs elsewhere especially where their employer has no comprehensive work and pay policy in place (Deery & Jago 2002).

The core activities in the hotel industry are also shrouded by ambiguities thus even making it harder for hotels to know just what to outsource and what to leave for in-house attendance (Bertolini et al, 2004). The four pointers however developed by Blumberg (1998) indicate that a hotel can determine the core activities as those activities that have always been performed by the hotel most important staff members, activities that are critical to a hotel’s performance and competitiveness, activities that create or have the potential to create a competitive advantage and activities that can bring about growth, rejuvenation and innovation (p. 12).

Food and beverage is one area identified by Bertolini et al (2005), for outsourcing by medium as well as bigger hotels. The range of activities within the food and beverage bracket include operating restaurants, overseeing food and beverage preparation, room service, catering, operating the vending machines and managing the dining room (p. 775). Hallam & Baum (1994) observes that most hotels that outsource the food and beverage activities consider the hotel size, the operations therein and the market segment being served. The ownership of the hotel further seems to be a major consideration.

Hemington & King (2000) through a semi-structured interview found out that outsourcing food and beverage was affected by factors such as organisation culture, core competencies of the hotel, brand compatibility between the hotel and the service providers, evaluation, control and systems that the hotel had put together for purposes of reviewing the performance of the service provider (p. 88). Different studies however note that food and beverage are an integral activity of many hotels and therefore very few would consider outsourcing the same. Of interest to hotels are the disadvantages that Goldman & Eyster (1992) associated with food and beverage outsourcing.

This includes banqueting restrictions, difficulty attracting local clientele especially those who disapprove the outsourcing, fluctuating occupancy especially if the services do not meet the quality requirements, improper maintenance of the hotel, poor management of the hotel by the service provider, slow reimbursement to customers because of the bureaucracy created between the service provider and the hotel and negative dining perception created in the hotel. The employment terms through which most service providers employ their talent do not have a reason to make the workers stick around for long and this usually leads to a high staff turnover.

As opposed to Goldman & Eyster (1992) view that food and beverage is a core activity for the hotels, Rowe (1993) states that “in the hotel business, food and beverage are seen as a necessary evil rather than a core profit making activity” (p. 76). This comment suggests that hotels can willingly outsource food and beverage activity if they find the right service provider for the job. This is not forgetting that food and beverage services can make customers keep coming back to the hotel, or make them stay away from the hotel after a single dining episode in the hotel. This is supported by Hallam & Baum (1996) who state that “food and beverage are viewed by many customers as an important hospitality product. Customers peg their perception about the hotel on their experience in dining, beverages and the room service they receive” (p. 257).

Overall, this study is motivated by the possibilities that outsourcing hotel services could decrease employee motivation (both retained employees as well as employees in the contracted firm), hence bringing down the commitment that such employees would have towards the hotel. In addition, the study is concerned that trust issues among the hotel, the contracted service provider and the employees would emerge, especially when dealing with the customers.

Due to the decreased commitment levels of the employees from the contracted companies, too much work as their employer tries to reduce costs and maximise work output, the employees may be less enthusiastic dealing with clients, more fatigued and more likely to avoid attending to some of the complimentary duties that in-house based employees would have no problem attending to.

Critical analysis and discussion

Hotels outsource for two main reasons;

  1. gaining competitive advantage and
  2. reducing costs.

For hotels, outsourcing for purposes of gaining competitive advantage would mean that they outsource their non-core activities and concentrate on activities that would make them better competitions in the market. This means that hotels get the leeway to concentrate on activities that improve the direct relationships between them and the client, while leaving the outsourcing service provider to handle the non-core activities.

In the hotel industry however, this raises several concerns: first, all activities touch on the customer in one way or the other. This then means that hotels need to consider which activities deal indirectly with the client, because as noted elsewhere in this study, the business cannot simply relegate its main resource (the client) to the service provider. As much as there are benefits of outsourcing, there are an equal amount of risks associated with the same.

Potential benefits

This study cannot succeed in finding out if the fears expressed about outsourcing before 1997 have come true without appreciating some of the benefits that have been documented about outsourcing in the hospitality industry. Cost reduction, flexibility, specialization and access to innovation are some of the main advantages noted by different studies

Cost reduction

This is usually one of the greatest motivators of outsourcing. According to Blumberg (1998), outsourcing companies always ensure that they charge the hotels lower fees for service delivery than the cost that the hotels would incur if they choose to deliver the same service through an in-house employee team (p. 12). Hotels also consider the managerial costs that they would have to undergo while attending to specific activities in-house as compared to the cost of having the outsourcing company attend to the same.

Performance improvement

M-consulting (2005) notes that the service industry (hotels included) in the 21st century, will require the players therein to build relationships with their customers, provide superior services and improve their processes to maintain a competitive edge. Accordingly, cost saving is not the only measure that hotels can use to increase profits. Rather, attracting more customers through faster and efficient processes, better service provision and building stronger relationships seems like the way to go.

The question therefore remains; can hotels rely on the outsourcing service providers to provide this or at least part of the services that would meet these requirements? M-consulting (2005) believes the answer to this question is “yes” (p. 2). However for such to happen, communication between the hotels and the service providers will be of essence because only then can the management of the hotel pass their scenario planning, short and long-term strategies to the service providers.

Table 1: Advantages of outsourcing.

ADVANTAGES OF OUTSOURCING
Outsourcing enables the hotel to obtain skills and capabiities that are difficult to access
Outsourcing increases flexibility in the hotel operations
Outsourcing allows concentration on the hotel’s core activities
The outsourcing helps to reduce the level of investments
The outsourcing permits the hotel’s resources and capabilities to be complemented
The outsourcing enables hotel costs to be reduced
Outsourcing permits access to more qualified and experienced personnel
Outsourcing enables resources to be released for other purposes
Outsourcing means that a cheaper service can be obtained than if it is performed in-house
Outsourcing permits better hotel performance
Outsourcing means that a higher quality service can be obtained than if it is performed in-house
Companies to which services may be outsourced can offer the hotel good services
In general, our hotel is satisfied with the outsourced activities
Outsourcing facilitates the performance of the hotel’s in-house activities
Outsourcing permits the advanced production technique provided by the outsourcing suppliers

Flexibility

This refers to the ease of adjustment that the hotel has in regard to adjusting its production and service delivery. The hotel industry has peak and low seasons. During such times, staff employed permanently may be too idle or too busy depending on the season. With outsourcing however, the hotels can organise with the outsourcing company to adjust the staffing needs depending on the season. Peak season would therefore be met with an increased number of staff, while low seasons would be met by less staff members. According to Bertolini et al (2004), employees of outsourcing service providers are linked to their employers by short-term contracts, which allows for flexibility (p. 775). It would be hard for hotels to attain such high levels of flexibility on their own because hiring and dismissing staff members when they need to do so arises would not be a viable idea both for the hotels and the employees.

Large hotels tend to be vertically integrated thus making flexibility almost non-existent. Even in hotels where the decision making organs are diversified, Embleton (1998) notes that bureaucracy can prevent flexibility to be realised (p. 96). By contracting an outsourcing firm however, hotels can spread their operations and thus allow more flexibility to take place; this is especially the case when decision making is the major hindrance to flexibility in the hotel.

Research into flexibility brought about by outsourcing reveals that some authors (Bertolini et al, 2004; Blumberg, 1998; Embleton, 1998) see the practice as a wider strategic framework that includes empowerment and decentralisation. The argument behind this is that outsourcing relates to operation strategy, which in turns relate to business strategy (p. 14).

Specialization

According to Embleton (1998), specialisation refers to the concentration of human resource on activities established by an organisation as requiring distinctive capabilities (p. 94). In the service industry; specialisation results in economic benefits, which result from more efficient performance of duties. This consequently leads to more value on the activities performed by the specific staff members.

Kakabadse & Kakabadse (2002) notes that the greatest benefits presented by outsourcing are the abilities of the hotels and other players in the hospitality industry to fully utilise the outsourcing service provider’s innovations, investments and professional capabilities. Compared to the cost that a hotel would need to replicate such capabilities in-house, the cost paid to the contracted company is to many hoteliers worth it (p. 680).

Apparent downsides

The fears that hoteliers and other players in the hospitality industry identified in the beginning of this study are well addressed in this section. Overall, they are the disadvantages and risks that come up when a hotel gives parts of its management power to a third party.

Dependence on a single supplier

This raises several risks to a hotel. Kakabadse & Kakabadse (2002) notes that when a hotel outsources part of its activities, the managers no longer feel the need to scout for other providers who may have better services. “It is an issue of being content and loosing the vigilance that is needed to improve services to the customer” (p. 671). The overreliance may also create a crisis to the hotel should anything like a go slow or a worker strike happen. This them jeopardizes the operations of the hotel even though, the hotel may be just an innocent bystander in regard to the employment relations between the staff and the contracted outsourcing company.

Disadvantages of Outsourcing
Loosing the differentiation products and services
possible loss of control over activities
Uncertainties on how companies that may be subcontracted work
Uncertainties about the possible benefits of outsourcing activities
Difficulties controlling operations performed by subcontracted companies
Difficulty coordinating outsourced activities with those performed by the hotel
Outsourcing decisions are usually irreversible by the hotel
Outsourcing decisions may mean loss of autonomy in decision making
Outsourcing decisions may harm the hotels resources and capabilities
Outsourcing may harm the hotel performance
We have inadequate experience in monitoring outsourcing supplier

The major risk in this is that the hotel would always have challenges bringing back talent it had lost during outsourcing should it find that the services provided by the outsourcing provider are unacceptable. Dombeger (1998) however argues that analysts of outsourcing benefits have overemphasized this concerning stating that the employer does not have to bring back the same personnel. “The pertinent issue should be whether the kind of talent needed can be acquired with relative ease from the market” (Domberger, 1998)

Financial difficulties faced by the supplier

The contracted service provider may face the same challenges that other businesses face. One such difficulty that could affect negatively on the services provided to the contracting hotel is bankruptcy. As Baum (2006) notes, this would mean that the service provider would be unable to meet even the basic service agreements under the contract. Consequently, the service company would have to withdraw the staff working in the company, mainly because they cannot raise the salaries. In such a scenario, the hotel would be forced to either contract another service outsourcing company or revert to training and maintaining own hotel workers (p. 27).

Unmet service targets

According Bertolini et al (2004), unmet service targets are the most registered complaints by hotels regarding companies contracted to offer services (p. 772). In most cases, the outsourcing company will simply not meet the required or agreed on standards. According to Kakabadse & Kakabadse (2002), this problem usually occurs because the contract negotiation phase does not address the issues of performance measures and what the hotel would do if their needs are not met. Blumberg (1998) on the other hand states that the failure by the outsourced company to communicate the expectations of the hotel clearly to the employees is the single biggest contributor to unmet targets.

Bertolini et al (2004) however say that often hotel managers sign a contract without reading the fine details and with very high expectations for the outsourced company. “ without a clear understanding or insight into the activities that the outsourced service provider will undertake, managers initially have unrealistic assumptions of the outsourcing benefits and models that the outsourced service provider can offer” (M-consultancy, 2005, p.4). This means that when the expectations are not met, then the managers are disappointed.

Inability to manage the activities of the supplier

The inability of the hotel to manage activities of the outsourced service provider in regard to the activities that the latter owes the hotel in relation to the contract between the two parties; then the hotels feels it lacks the powers to rule over things within its jurisdiction (Bertolini et al, 2005). According to Kakabadse & Kakabadse (2002), the hotel managers need not feel threatened by the outsourced service provider unless there are some things that the service provider is not doing right.

The loss of control is among the cited disadvantages of outsourcing. But is the concerns varied? Langfield-Smith et al (2001, cited by Lamminamaki, 2003) did a study on two firms and found that this was not true in both cases. The study however shows that managers had more control in in-house based services, while the different work cultures between the outsourced services and the hotels main culture acted as barriers for most managers (66).

Key issues of outsourcing relating to organizations, sectors and nations

Benefits/ Opportunities Risks/ Disadvantages
Organization
  • Enable focus on core
  • Reduce costs, providing short-term balance sheet and P&L benefits
  • Increased flexibility to configure resources
  • Increased ability to meet changing market needs
  • Provision of benefit through economies of scale and scope
  • Ability to access best in class skills and capabilities
  • Freeing of constraints of in-house cultures and attitudes
  • Provision of fresh ideas and objective creativity
  • Failure to identify core and non core may lead to outsourcing core
  • Difficulty in in-sourcing later Difficulty in deciding how close to core outsourcing should get
  • Lack of skills and competence to manage outsourced relationships
  • Increased costs in relationship management
  • Lack of understanding, skills and competence to design appropriate service level agreements with outsourced company
Sectors
  • Provides opportunities for niche players to enter a sector, enabling original sector players to focus on core
  • Improvement of products and services from the sector
  • Improved ROI, leading to increased investment in the sector
  • In public sector, policy can be redirected to focus on improvement of services
  • Privatization by stealth
  • Reduction of government control over sector
  • Creation of powerful outsource companies who gain leverage over a sector
  • Possible adverse impact on employment in the sector
  • Possible reduced consistency of training and development
  • May conflict with some stakeholders’ objectives
Nations
  • Increased use of world-wide “best in class” capabilities
  • Enables national focus on improved services to citizens and taxpayers
  • Improved GNP and employment for nations who become outsource centres of excellence
  • Possible adverse effect on national employment
  • Downward pressure on domestic salaries
  • Mismatch of international cultures, beliefs and traditions
  • Risk of foreign control of critical resources and possible subversion
  • International exploitation of less developed nations human resources and environment

Inability to stick or negotiate acceptable contracts

According to Bertolini et al (2005), the inability or ignorance with which hotel managers to negotiate outsourcing contracts can sometime pose problems in the future working relations between the hotel and the outsourced service companies (773). Lamminamaki (2003) however notes that as changes occur in the hotel industry; the hotel managers may expect the outsourcing companies to expand their services to cover some more areas other than what was negotiated in the original contract (p. 70). When such happens, the outsourced company will need the hotel to review the payments to cover the added duties.

Blumberg (1998) notes that if the terms of additional remuneration for additional work were not covered in the original contract, them a strain in the working relationship between the two parties may ensue (p. 17). Bertolini et al (2005) note that such incidences among hotel managers have led to an increase in complaints that indicate that most do not perceive outsourcing as a cost-cutting measure anymore (775).

The fears that hoteliers have when considering outsourcing are well put forth by Hemmington et al (2000) who states that “ the delivery of a core dimension of the hotel, production by the outsourcing provider has the potential to be complex and threatening to a hotel’s brand and image” (p. 256).

Hidden downsides

This sections defines some of the disadvantages that previous studies (Hayes & Ninemier, 2008; Lamminmaki, 2003; Salih, 2008) have discovered are not well apparent to the hoteliers who contract outsourcing service providers. As noted elsewhere in this study, the lack of theoretical advice on what to expect when one outsources their services to an outside company means that most businesses are not well aware of what to expect when signing up for such services. Negative innovation impact, strategic inflexibility, negative environmental impact and the human resource dimension are some of the disadvantages that may affect hoteliers as well as other players in the hospitality business, and even the wider service industry.

Negative innovation impact

Hotels apply different service provision innovations to make their customers feel appreciated and hence encourage repeat customers. They do this by training their staff on ways to treat the customers in every aspect of service delivery. “the customer will feel appreciated right from the way the waitress takes the meal or beverage order, how room service is executed and how the laundry is done” (Brody et al, 2002). This study has however established that there are notable discrepancies when it comes to communicating the innovation measures from the hotel management, to the service provider, who them must communicate the same to their employees (p. 2).

According to Espino-Rodriguez and Padron-Robaina (2003), most outsourcing companies “want to do the job and be done with it”. To them, speed is of essence and in the end; they want to employ all the available cost-cutting measures that will allow them to make as much profits as possible (p. 9). Brody (2002) states that, a hotel customer will always sense a job that is done in a hurried manner; “they will sense food items that were hurriedly put together, laundry that was quickly done, and room service that does not pay too much attention to them, because they need to attend to another customer” (p.20).

Brody also notes that stiff competition in the industry may require a hotel to adjust its services to be ahead of the competition or simply catch up with the competition. In such a case, the service provider may have to chip in some extra services. Usually this requires flexibility on the service provider’s side since it may involve putting in more staff, restructuring the working hours and re-negotiating the original contract he had with the hotel.

The hotel industry needs to keep adopting new ideas to keep a competitive edge. M-consulting (2005) however notes that when specific activities or services in the hotel have been outsourced, the management may face challenges “along the path that starts with idea generation to the launch of a service or product that is pegged on the same idea” (4). This view is shared by Espino-rodriguez and Padron-Robaina (2003), who state that the hotel industry mostly relies on customer response and input to improve their services (p.4).

This means that departments that deal with customer interaction can be interpreted as core. Yet the same departments (customer services and hotel service) may seem like viable outsourcing areas. M-consulting (2005) cautions that this would deny the hotel the interaction and hence the customer response or input that they require in building new products or services that would appeal to the customers.

The Human resource dimension

According to M-consulting (2005), the human resource is the single-most biggest performance measurement that the hospitality industry possesses. The employees of any hotel determine whether the business will excel or not. When the hotel outsources its non-core functions, it means that the hotel is more or less gambling with its performance measures (p. 4). This idea is shared by Embleton (1998) who reckons that giving up some of the hotel operation to the service provision companies means that the company does not possess as much authority and ability to direct processes in that area (p. 100).

Consequently, the hotel cannot decide on the issues such as what needs to be done to improve efficiency, motivation among employees or simply their employment contracts. According to Espino-Rodriguez and Padron-Robaina (2003), the pay check is the biggest motivator for workers (p. 9). Having established earlier in this study that outsourcing companies are not very good in paying their employees, rarely employ unionised employees and rarely give job security to their employees, then the hotel served by such employees will no doubt feel the effect of having unmotivated workers working in the hotel.

M-consulting (2005) further notes a different perspective in the human resource effect. According to him, even the employees who are retained by the hotel to work on its core services register a declined sense of job security. Kakabadse & Kakabadse (2002) argues that employees who remain in an organisation following outsourcing have low job morale, are more distrustful towards their employer, register more absenteeism, low productivity and register higher turnover (p. 80).

Often, if some employees were dismissed to create room for the outsourcing service provider, the remaining employees in the hotel will perceive their employer as disloyal. “They will start thinking that the management does not fully appreciate their services and could also be a matter of time before their skills and contributions are disregarded and given to the service provider” (p. 81). According to Lamminmaki (2003), employees left in an organisation after the initial round of outsourcing suffer from “survivor syndrome”, whereby they feel less secure and seek new employment where they feel more secure (72). In the midst of this, a hotel may lose some of its core workers.

Negative environmental response

The jury on whether outsourcing in the hotel industry is good is out for all to judge. On one side is the hotel owner, who considers the benefits vs. the disadvantages involved in the process. On the other hand are the consumers who consider if indeed they are getting value for their money.

Applied, evaluative conclusion

Outsourcing in the hotel industry is defined as “a complicated industry variable with many potential advantages, and similarly comparative disadvantages” (Zhang’ et al 2005) p. 220. One thing that is apparent in the literature review however is the fact that the hotel management is frightened about losing the hotels’ control to the service provider. There are also fears over the quality of services and goods, as well as the quality of the staff recruited by the service providers. Hoteliers realize that outsourcing service providers, just like other businesses have a profit motive. This means that they will take cost-cutting measures that could end up jeopardizing the quality of staff members recruited and hence the service that hotel customers receive.

According to Hayes & Ninemeier (2008), employers need to identify the skills, knowledge and abilities of employees in the recruitment phase if any effective recruitment is to take place (p. 101). After the recruitment, the employer must then create a proper training program where the new employees are taught the basics of working in their new place of work. In addition to the basic skills and knowledge requirements, the hospitality industry needs potential employees to be vetted for basic people’s skills such as friendliness, good attitude, punctuality, personal grooming, and communication skills among other things.

Augustine (1979) notes that although the contract agreement between vendors and outsourcers usually state that the latter have to train staff, there is no single way that the former verifies that the staff has indeed been well trained (p. 267).

The fact that hotel outsourcing leads to staff layoff is actually to the individual hotels, because as Zhang et al (2005) note, this discourages the development of talent that would have served the hotel diligently and with good results in future. As opposed to Lamminmaki (2003), who claims that outsourcing encourages flexibility in the hotel, Zhang et al (2005) states that the mere fact that outsourcing vendors encourage hotels to sign long-term contracts with them negates the flexibility advantage. “These contracts provide stable revenues for the vendors. They however impose constraints on the hotel’s flexibility” (p. 220).

Overall, Han (2002, cited by Zhang, 2005), states that outsourcing affects the hotel negatively

  • Degraded staff morale
  • Clash and negation of hotel’ organizational culture
  • Sub-standard staff selection as the outsourcing vendor tries to minimize costs
  • Unmet service standards
  • Loss of control to the outsourcing service vendor

This study has also established that without the proper mutual collaboration between the outsourcing vendor and the hotels, the success of outsourcing hotel services cannot be guaranteed. According to Zhang et al (2002), though the contract signed between the vendor and the hotel should be the basis through which the two parties work, it usually takes the establishment of trusting relationships between the two parties for the outsourcing to be of any beneficial use to the hotel (p.222). It also requires that the outsourcing service vendor to demonstrate commitment to the work, and this is something that the hotel has no control over.

Taking the example of outsourcing of hotel services and activities in China, Zhang et al (2005) note that most managers do not have proper or well-informed motives when adopting outsourcing measures. “Hotel managers are trying to learn from each other how to outsource hotel functions even though they do not quite understand the strategies or the benefits therein” (p. 215). The three core reasons why hotels outsource (maximizing revenue, reducing hotel’s risks and utilizing exiting the hotel’s internal resources) are far from most managers intentions.

According to Hayes & Ninemeier (2008), employees work well if they get a sense of stability of employment in their jobs, when they are given room for growth, where there is enhanced team spirit, where they are rewarded for serving others and where the general work atmosphere is pleasant (p. 104). According to Lamminmaki (2003), however, not most vendors can provide the above named things to their employees (p. 90). This is especially the case because the work environment is partially managed by the hotel, thus making the atmosphere even harder for the employees.

Recommendations

Having established that there is no clear distinction between the core and non-core functions in the hotel industry, this study recommends that each hotel decides on whether to outsource or not based on their situations. Managers should weigh the benefits of outsourcing against the disadvantages and lean towards the option that gives the hotels more leverage. Hotels could also consider using agency services instead of going for complete outsourcing as identified by Baum (2006, p. 73) Agencies assure the hotels quality workforce at agreed prices and the hotels do not have to contend with losing control as is the case with total outsourcing. In addition, the hotel can gain flexible labour, which is cost effective and can be easily terminated when the need to do so arises (Baum. 2006, p. 73).

To reduce the chances of unmet expectations, this study in line with Baum (2006), recommends that outsourcing service vendors train staff members well to ensure that quality services are delivered to the hotels. The vendors can also work with the hotel management to ensure that the vendor employees receive similar treatment as the hotel’s core staff member hence reducing chances of morale problems, which negatively affect employees of most outsourcing vendors (p. 73)

Examples of outsourcing in the hotel industry

Hotels can outsource as many aspects of their operations to reduce risk and improve performance. Some of the aspects that can be outsourced include front desk operations, housekeeping, gift shops, restaurant administration, the Spa and even the conferencing facilities. In the height of the financial meltdown that occurred between 2007 and 2009, the Intercontinental hotel was among the big players in the industry that adopted the business model referred to as “Asset-lighting”. In this arrangement, the brand owner retained only 16 out of the 4,186 hotels through out the world. The rest were outsourced to licensed franchises (Sheber, 2009).

Reflective report

This study has produced observed evidence that outsourcing in the hotel industry is an absolute necessity in the 21st century. As hotels compete with each other in an attempt to capture a sizeable share of the market, only the best will manage not only to attract more customers, but provide them with services that will keep them coming back. The hotels will need to use some of the best talents available in the market, and which can be provided by the outsourcing vendors at no added costs to the hotel. Even though this might cost the hotels some flexibility as noted elsewhere in this study, it will bring more creativity, innovation and variety to the hotel industry.

This study has managed to shed some light on some of the motivation factors that make hotel outsourcing so likeable and tempting to hotel managers. In answering the questions that were formulated in the beginning of the study, the research has found out that the fears of the hotel owners and managers though founded, can easily be overcome by careful planning and outsourcing non-core functions in the hotels.

Caution must however be exercised when deciding which among the hotel activities are core and non-core. This is especially because even the activities or services that are non-core may have a direct impact on the customer, and hence every care should be taken to ensure that they are of high quality. This study holds the opinion that hotels should identify employees with knowledge and skills that will give the hotel a competitive edge. Such will need to be retained irrespective of the need to outsource. To do this, the hotel will need to consider its flexibility needs and the requirements needed to excel in specific circumstances.

More importantly, the hotel must train specific employees to oversee the outsourced processes. This is necessary because the relationship between the hotel and the outsourcing company may be breached at different times during the contract. Should the hotel find that the outsourcing company is not meeting its objectives, or is too inflexible, the trained employees would then play a vital role in overseeing the back-sourcing processes, whereby the hotel starts employing staff to cater for its non-core processes.

When outsourcing non-core activities, Lai and Soltani (2006) recommend that hotels owners or managers should consider things that have always been performed in-house as core item. The core-activities criteria should also apply to all activities critical to the business performance, as well are the activities that hold a potential of giving the hotel a competitive advantage. The final criteria for considering core activities in the hotel should be the activities that drive growth, rejuvenation and innovation.

This study has established that one of the effective ways that hotels can minimise the risk of low-quality service delivery to their customers is by wisely choosing the activities that need to be outsourced. Not all non-core activities should be outsourced. Lai and Soltani (2006) state that the hotel owners should decide the activities to outsource based on transaction costs that the hotel will have to foot to outsource the services, the vulnerability that the hotel business will be exposed to in case the service provider fails to keep his end of the bargain, and the controls that the hotel needs to put in place to ensure that the vulnerability in case of failure is reduced.

The transaction cost is defined as any cost that the outsourcing service provider considers when determining his charges for the services (Lai and Soltani, 2006). Such include staff development costs, cost of infrastructure development, head –office costs, supports costs among others (p. 11). As stated elsewhere in this study, the hotel industry should never consider outsourcing areas that have a direct impact on the customer.

This study is also of the opinion that hotel managers must insist that outsourced employees receive good motivation from the outsourced contractor, because that will in both the short and long term affects how the employees work. Overall, outsourcing as indicated elsewhere in this study is a necessary management function whose time has come of age. As such, hoteliers will need to develop best practices in the same by developing rules that must be followed by the outsourcing service vendors. This will in turn lead to the development of standards in the industry hence making future outsourcing more certain and straightforward.

References

Augustine, R. (1979) Carbon-carbon bond formation, 1st edition illustrated. London, CRC press.

Baum, T. (2006) Human resource management for tourism, hospitality and leisure: an international perspective. London, Cengage Learning EMEA.

Bertolini, M., Bevilacqua, M., Braglia, M. and Frosolini, M. (2004) An analytical method for maintenance outsourcing service selection. International Journal of Quality and Reliability Management, 21(7), 772-788.

Brody, R., et al. (2004) The Development of an Accounting Performance Measure to Minimize Inter-departmental Conflicts in the Hospitality Industry. International Journal of Management, 21(3), 324-340.

Centre on Wisconsin Strategy (2003) Hotel Workers and Industry Change: Improving competitiveness and Working Conditions in the Hospitality Sector. Web.

Cristina, S., Dan, P., and Iulia, C. (2008) Headhunting challenges and opportunities for the Hotel industry in Romania. Management Marketing, 4(1), 1209-1212.

Deery, M., and Jago, L. (2002) The Core and the periphery: An Examination of the flexible workforce model in the hotel industry. International Journal of Hospitality Management, 21(4), 339-351.

Dombeger, S. (1998) The Contracting Organisation: A strategic guide to outsourcing. Oxford, Oxford University Press.

Espino- Rodriguez , T. and Padron-Robaina, V. (2004) A resource-based view of Outsourcing and its Implications for organizational performance in the hotel sector. Tourism Management, 1-12.

Franceschini, F., Galetto, M., Pignatelli, A., and Varetto, M. (2003) Outsourcing: guidelines for a structured approach. Benchmarking: an International Journal, 10(3), 246-260.

Goldman, K., and Eyster, J. (1992) Hotel F&B leases: The view from the restaurant. The Cornell H.R.A Quarterly, 32(10), 72-83.

Guerrier, Y., and Lockwood, A. (1989) Core and Peripheral Employees in Hotel Operations. Personnel Review, 18(1), 9 – 15.

Hallam, G., and Baum, T. (1994) Contracting out food and beverage operations in hotels; a comparative study of practice in North America and the United Kingdom. International Journal of Hospitality Management, 15(1), 41-50.

Harland, C., Knight, L., Lamming, R. & Walker, H. (2005) Outsourcing: Assessing the risks and benefits for organisations, sectors and nations. International Journal of Operations & Production Management, 25(9), 831-850.

Hayes, D., and Ninemier, J. (2008) Human resources management in the hospitality industry. London, John Wiley and Sons.

Hemington. N., and King, C. (2000) Key Dimensions of outsourcing hotel food and beverage services. International Journal of Contemporary Hospitality management, 12(4), 256-261.

Kakabadse, N., and Kakabadse, A. (2002) Critical review- outsourcing: a paradigm shift. Journal of Management Development, 19(8), 670-728

Kusluvan, S. (2003) Managing Employee Attitudes and Behaviours in the Tourism and Hospitality Industry. Hauppauge, NY: Nova Publishers.

Lai, P., and Soltani, E. (2006) Outsourcing hotel service operations. The case of Taiwan hotels. Vol.3-25-36.

Lamminmaki, D. (2003) Outsourcing in the hotel industry: A management accounting perspective. International Journal of Contemporary Hospitality Management, 17(6), 516-528.

Lankford, W., and Parsa, F. (1999) Outsourcing: A primer. Management decision, 37(4), 310-316.

M-consulting (2005) Outsourcing: the strategic risks. Business strategy brief. 1-4.

Nag, B. (2004) Business process outsourcing: Impact and Implications. Bulletin on Asia-Pacific perspectives 5(1), 59-72.

Rowe, M. (1993) If you can’t beat ‘em, join’em’. Lodging hospitality, 49(13), 57-59.

Sheber, A. (2009). Hotel Outsourcing: Can it reduce your overall strength? Hotel marketing strategies. Web.

Zhang, H. et al. (2005) Tourism and hotel development in China; from Political to economic success. New York, Routledge.

Make a reference

Pick a citation style

Reference

PapersGeeks. (2022, July 1). Effects of Outsourcing in Hospitality Industry. Retrieved from https://papersgeeks.com/effects-of-outsourcing-in-hospitality-industry/

Work Cited

"Effects of Outsourcing in Hospitality Industry." PapersGeeks, 1 July 2022, papersgeeks.com/effects-of-outsourcing-in-hospitality-industry/.

1. PapersGeeks. "Effects of Outsourcing in Hospitality Industry." July 1, 2022. https://papersgeeks.com/effects-of-outsourcing-in-hospitality-industry/.


Bibliography


PapersGeeks. "Effects of Outsourcing in Hospitality Industry." July 1, 2022. https://papersgeeks.com/effects-of-outsourcing-in-hospitality-industry/.

References

PapersGeeks. 2022. "Effects of Outsourcing in Hospitality Industry." July 1, 2022. https://papersgeeks.com/effects-of-outsourcing-in-hospitality-industry/.

References

PapersGeeks. (2022) 'Effects of Outsourcing in Hospitality Industry'. 1 July.

Click to copy

This paper on Effects of Outsourcing in Hospitality Industry was created by a student just like you. You are allowed to use this work for academic purposes. If you wish to use a snippet from the sample in your paper, a proper citation is required.

Takedown Request

If you created this work and want to delete it from the PapersGeeks database, send a removal request.