Editor's Note: This is part two of a two-part series. To read the first part, please click here.
As noted in my previous article, most major hotel brands are quite sophisticated, care deeply about building winning cultures and have established clear metrics that define winning in real estate, property operations and online distribution. But prior to 2020, few have set diversity as one of their top management priorities. This is often due to the fact that the hotel industry remains extremely conservative with few outsider CEOs which means leadership tends to do things the way it has always been done. In some cases, such as when it comes to championing diversity, this can be very problematic. So what's a hotel CEO to do?
Hotel CEOs can start by identifying the toxic orthodoxies that must be challenged to accelerate diversity and then brainstorm what opportunities could be made possible if they are overturned. To start the process, the following are five industry orthodoxies regarding diversity in the hotel industry:
“The focus of a CEO’s diversity agenda should be the Board and Human Resources leader, including a strong diversity department in the corporate office.”
To overturn this orthodoxy, start with the hotel properties.
Jim Reynolds, the African American Chairman and CEO of Chicago-based Loop Capital, recently said in a CNBC interview: “I have not ever been able, and I’m trying, to find a correlation between Blacks on the board of directors and a company doing more for Blacks and African Americans. I haven’t seen it.”
Adding a few diverse members to your Board of Directors and building a diversity department in HR is important but it is table stakes – the cost of entry. Moreover, hotel companies have been doing this for decades with little if any meaningful progress.
For hotel CEOs, the leadership challenge is achieving diversity at the property managerial levels, where an array of owners, lenders, third party management companies, unions and other stakeholders can intentionally or unintentionally block progress. To accelerate progress, CEOs must focus more time on implementing change in the properties starting with those they manage and with real estate owners and third-party operators who get it.
“Diversity data on employees and the talent pipeline is best kept confidential both internally and externally.”
To overturn this orthodoxy, collect and share employee-volunteered data with all levels of the entire organization and franchised properties. Then make it public before the governments and regulators require us to do so.
The NAACP already publishes an annual report where it grades hotel operators and their franchisees on minority representation of skilled versus unskilled labor, property management and corporate ranks. In 2019, the NAACP declared that “little progress has been made since the organization’s 2005 evaluation,” and gave Hilton, Hyatt and Wyndham each a C and Marriott a B. For top management representation, the range of grades was from C (best score) to many F’s. How does this square with the same brands winning diversity awards from major publications?
The issue is data transparency. While I applaud the NAACP, their grades are based on EEOC data and surveys with grades based on results against their own targets. Meanwhile, hotel industry leaders have not been forthcoming in sharing data. This is the same approach they used to protect customer reviews while TripAdvisor and other online travel agencies established the high ground with consumers, adding travelers’ photos and property ranking algorithms. To this day, Marriott is the only hotel brand that shows customer reviews on its own website.
Hotel CEOs manage a complex ecosystem of stakeholders and recognize that the first step in leading any change process is to collect and disseminate data widely. Data also helps stimulate debate and new ideas and may even create entire markets for innovation. It is also in the shareholders’ best interest for hotel CEOs to take the lead rather than hide beyond legal excuses and wait for regulators and politicians to legislate requirements that may serve their parochial political interests.
Regular reports on diversity gaps should be as important as customer reviews. Diversity should be an integral part of a talent pipeline, integrated into dashboards and pushed all the way down to hotel management teams.
“Our labor costs are already too high, and diversity will only increase our recruiting, training and legal costs.”
To overturn this orthodoxy, use zero-based budgeting and reset the entire recruiting and HR model to reduce expenses.
Labor-related costs are over 50% of the cost structure of full-service hotels and have been increasing at 5-10% per annum, outpacing revenues since 2000. However, do not forget that the U.S. hotel industry generates profit margins of 25-50% and just came off a decade-long streak with record profits of $70-80 billion annually. Unlike airlines such as Southwest and Delta and other lower margin service industries, no publicly traded hotel management company has ever implemented an employee stock ownership plan. To my knowledge, no private equity firm has implemented a promote structure that gives hotel executive teams compensation for increasing real estate value.
Still, contrary to conventional wisdom, accelerating diversity does not require spending more money or increasing a hotel’s fixed cost structure. What it does require is cost innovation that results from restructuring the talent acquisition process. The outcome of a new process should be spending less money on the internal resources, vendors, and search firms that are recycling the same candidates, sell data as their business model and increase employee turnover which remains at 40-75%.
We know that talent attracts talent. Diversity also attracts diversity. The marginal costs of building a diverse workforce should drop considerably if the diversity at managerial levels are addressed up front.
“The best way to reduce turnover and ensure fit is to use assessments and personality tests.”
To overturn this orthodoxy, stop using assessments and personality tests.
Hotels should take a cue from colleges and universities and decrease their reliance on standardized testing. In 2020, UCLA eliminated the standardized testing requirement in their application and saw a 28% increase in applications for freshman seats compared to the previous year. The campus also saw a historic increase in Black applicants, rising 48% over last year, and significant gains across all other racial and ethnic groups: 33% for Latinos, 35% for whites, 22% for Asian Americans, 34% for Pacific Islanders and 16% for American Indians. UCLA Campus officials also credited their long years of active recruitment in underserved areas and community partnerships.
The lesson is clear: even if standardized tests are not inherently racially biased, they stand in the way of attracting diverse talent. To be fair, test creators have never claimed to measure drive, resilience, or human potential. At most, assessments should be reserved for highly technical roles or to de-risk hiring candidates from another industry.
Also, while we all look for that hospitality gene to make a hiring decision, there is no correlation between a personality type and elite talent even at the front-line. Personality tests that can easily be used to wrongly label people and homogenize workplace cultures should be dropped altogether.
“There’s already enough diversity in our industry. Let’s just steal talent from our direct competitors.”
To overturn this orthodoxy, spend time scouting talent in other service industries and testing new platforms.
Conventional wisdom says that with at least 4 million women and minorities working in U.S. hotels prior to Covid-19, there is enough supply of supervisor-ready talent to source or promote from within the industry to make progress against stated diversity objectives. However, our analysis suggests otherwise: the quality and depth of the diverse talent pool is a significant problem. For example, at the hotel General Manager and Director levels, including rooms and food and beverage (the two functions that manage the most people and budgets), diversity drops by two-thirds compared to the front-line. According to our algorithm that uses customer reviews, brand scores and market difficulty to rank the elite talent pool, only 15% of this smaller diverse talent pool are ready to be promoted to these senior property-level positions. In total, we estimate 2,000-3,000 minority candidates are ready for promotion from within the hotel industry versus the 10,000 required to fulfill the diversity objectives set by the hotel brands. This does not even factor in the talent needed for the record hotel pipeline which remains largely intact.
Accelerating diversity requires more than increasing pay or incremental innovation. It requires experimentation to identify up-and-coming diverse talent in hotels as well as adjacent industries, schools, and communities. Above all, breakthroughs will require new scouting systems and new listening posts. CEOs should make it a higher priority to establish their employer brand where more diverse service leaders can be found. For example, the proportion of black mid-level managers in retail is 9% compared to 1.6% in U.S. hotels. This is just one example of a more managerially diverse industry that could be tapped by hoteliers to build a more diverse talent pipeline.
The U.S. hotel industry, one of the greatest human meritocracies on earth, is poised for a remarkable comeback but there is much work to be done. In the short term, 5-10% of the pre-Covid talent has turned to the gig economy and other industries. A new talent pool must be discovered and accelerated. The industry’s ability to improve service and meet its diversity goals will determine the pace of recovery. Significant innovation in all dimensions of human capital will be required to fend off substitutes like Airbnb and more alternative employers such as Amazon and food delivery apps. Hotel CEOs should begin by developing strategies to overturn orthodoxies and allocate more resources to those courageous enough to do so.
ABOUT THE AUTHOR
Alexander Mirza is the founder and CEO of Mogul, with a mission to address talent in the hospitality industry through data science and artificial intelligence. He has over 25 years of experience in management consulting and hospitality as a senior executive.
As a management consultant, Alex led scientists in Shell’s Gamechanger Program and generated $3 billion of new businesses addressing climate change. He advised CEOs, Heads of State, and the Davos World Economic Forum.
Afterward, Alex joined Starwood as Head of Strategic Planning, reporting to the CEO and the CFO. He led high profile projects including corporate strategy for the board of directors. He was subsequently the SVP of Corporate Development at Hilton and the SVP of Hospitality at Caesars Entertainment where he reported to the CEO and Chairman.
In 2012, Alex founded Cachet Hospitality in Shanghai. Under his leadership as CEO, Cachet opened properties in China, Southeast Asia, and North America, received design awards, raised four rounds of capital, and was recognized as “Asia’s Up and Coming Management Team.”
Alex received his MBA from Harvard Business School and holds a Bachelor of Arts and Sciences and a Master’s from Queen’s University at Kingston, where he was an Aga Khan Foundation Scholar. He has been recognized as Canada’s “Top 40 under 40” and awarded Toronto’s Mayor Volunteer Creed
