Improving Hotel Starlac's Human Resources and Talent

Management System

Case
Independently owned by Carla and Steffen, the Starlac is a small 5-star hotel located in
Geneva, Switzerland. It has around 15 direct competitors. Two of the competitors are
about to open a new spa service to differentiate themselves. Others have recently
renovated their rooms to equip them with the latest technology and innovative features.
Some competitors have even launched exclusive catering services based on new
concepts of food courts and buffets—all in order to attract groups and seminars,
especially tour groups from Asia.

The Hotel Starlac has a small, underground parking area, a franchised spa, as well as
a gym, banquet hall, and seminar facilities. It currently has 50 rooms and one
gourmet restaurant, called the “Holy Swan” (30 seats). In order to attract new
customers, Steffen has purchased the building adjacent to the Starlac. Indeed, Hotel
Starlac is preparing to open a new casual dining restaurant called the “Happy Cow”
(60 seats) and 50 additional hotel rooms in the next four months.

Starlac currently employs 70 full-time equivalent (FTE) employees. Six people work full-
time in the administration department: Steffen, the general manager (GM); Carla, both
the HR manager and Steffen's assistant; the chief financial officer (CFO); the chief
marketing officer (CMO); one booking and sales agent; and the IT and maintenance
manager, who was hired four months ago. The rooms department counts 24 full-time
and 12 part-time employees, working in the housekeeping and the front office divisions.
The food and beverage (F&B) department employs 30 full-time and eight part-time
employees in the kitchen, bar and restaurant, and for room and banquets services.

Starlac's Management Traditions

Since its founding by Carla's grandfather, Hotel Starlac has been managed with a
small
-company feel. Carla's father was the second owner. For more than 25 years, Carla
worked in various positions for several airline companies and travel agencies in Asia
and Australia. About 15 years ago, she married Steffen, a restaurateur from Zurich,
Switzerland, and returned to Geneva where she was appointed head of the front office
division of Hotel Starlac, while Steffen took the lead in the F&B department. Ten years
ago, Carla was promoted to head of the rooms department, leading both the front
office and the housekeeping divisions of the hotel. When her father passed away five
years ago, Carla inherited Hotel Starlac. Over the years, she has been committed to
improving the hotel's overall image. She personally oversaw the renovation and
redecoration of the rooms, especially the suites. She also came up with the idea of
building the spa, a ground breaking move at the time. Just a few months before Carla's
father passed away, Hotel Starlac became a 5-star establishment. Meanwhile, Steffen
was promoted to general manager (GM) and Carla created and filled the position of
HR director to assist him.

Both Carla and Steffen have always shared the goal of Hotel Starlac's
founder:

To build an enduring company, where clients would be offered personalized, and

innovative service provided by highly competent, motivated, and responsible
Starlacians.
Both Carla and Steffen really want to implement the practices of upscale businesses
described in hotel and management magazines: top-notch managerial practices as
applied in exemplary luxury palaces and international hotel groups. For instance, they
often praise Yannick Alléno, who, during his time as head chef at the 5-star palace Le
Meurice in Paris between 2003 and 2013, was able to formalize a successful
suggestion

System for his commis to propose practical ideas, explore ways to renew the range
of services offered, and create new dishes and menus.

Carla is particularly impressed by what she regularly reads about hotel management in
magazines. Examples include employee involvement in developing a new line of
restaurant dishes to reduce breakage, innovative soundproofing in the ceiling,
improvements in nonslip flooring, or modern extractor systems that help reduce the
temperature in the kitchen. On occasion, she notices articles in newspapers about
seemingly highly engaged employees at certain establishments who take part in
collaborative groups with the goal of reducing waste to improve workplace efficiency.

Because she is committed to introducing similar workplace practices that honor her
employees' responsibilities on the job, Carla involves her employees in every decision
made. In weekly, informal meetings, any room attendant can voice his or her opinion
on marketing strategies, while any steward can also take part in decisions such
as whether to partner with online travel agents (OTAs).

A few months ago, for example, Carla made several decisions that were based on
random discussions she had with employees from both F&B and rooms departments.
Notably, she replaced heavy silver trays with carbon fiber composites, making them
lighter for the waiters, while room attendants' winter uniforms were replaced with
thicker Bragard coats protecting them from low temperatures.

Human Resource Management at Starlac

Thanks to the daily, personal contact she has with “Starlacians,” Carla takes care of all
of Hotel Starlac's employees, making sure they have all the necessary resources to
achieve their daily duties and missions in their own way. On a weekly basis, Carla has
a talk with each staff member that constitutes an informal evaluation based upon a mix
of feedback and self-assessment. Carla also holds monthly meetings with a number of
employees randomly picked from different departments during which she discusses
interdepartmental problems and seeks ideas to continuously implement customer-
related and integrated solutions. Although these meetings are entirely voluntary, it is
common knowledge that participation carries some form of reward—sometimes lump-
sum bonuses, but for the most part, travel or entertainment vouchers and discounts,
membership in a sport club, bottles of wine, or flowers—a variety of perks Carla
believes any Starlacian will value.

At Hotel Starlac, there is a “matching policy” regarding compensation (i.e., their pay
scale is on par with that of the competition) but bonuses and incentives as well as
benefits and perks offered to employees make their direct and indirect monetary
compensation package more attractive than those of its local competitors. As a result,
Starlacians are satisfied with their compensation and benefits. Most department heads
and supervisors have been working for the hotel for over 30 years, having been
promoted from within the organization after they had held entry-level positions.

For employees at operational levels, the average seniority is 20 years, ranging from
15 to 25 years. Only 10 employees have been working at the Hotel Starlac for less
than three years. These employees mainly serve in front office and bar/restaurant
positions. Yet, the staff turnover rate has steadily increased over the years, notably in
the front office and the bar/restaurant service. Carla does not seem to worry about
the increasing turnover. She believes it is related to the millennial generation's general
lack of loyalty to any one company.

Nevertheless, Carla is obsessed by the idea of satisfying each individual employee's

needs and expectations, always striving to ensure good psychological and physical
working conditions. Unlike the classical brigades working in the kitchen according to
the typical standard operating procedures (SOP) of many hotels, work organization and
relations at Hotel Starlac seem relaxed and informal. Although the hospitality industry
is primarily a service industry, it can sometimes feel more like a production line. In
most hotels and restaurants, the Taylorization of tasks is omnipresent, with division of
labor, time-and-motion measurements, job prescription, and centralized standard
procedures the norm. And, as in the army, hotel and restaurant employees are usually
divided by rank, which creates a hierarchical structure. Carla, as the HR director,
believes that the classical principles of managerial supervision do not apply at the
Hotel Starlac.

Carla and Steffen believe in the importance of employee well-being. Like other hotels,
they organize quarterly staff parties to ensure staff cohesion. Although there is no
employee satisfaction survey, they keep daily contact with each and every employee in
order to guarantee that any doubt, problem, or difficulty is addressed through fluid and
open communication. Having had the opportunity to hire employees who previously
worked for hotel groups such as Ritz Carlton and Carlson Rezidor, Carla and Steffen
are impressed by the employee surveys that are conducted in other establishments
and could be tempted to implement them at Starlac in the future.

Hotel Starlac's Customer and Employee Relationship Management

Carla and Steffen have recently acquired revenue management system (RMS) and
customer relationship management (CRM) software through which guests' preferences
can be entered into the hotel's IT system and accessed by employees. This software
program, which has proven to be extremely successful and cost-efficient for several
direct competitors, tracks certain clients' preferences.

To get the best out of the CRM, Carla put in place a voluntary “train-the-trainer”
program three months ago, akin to that of premier hotel groups, which offers monthly
workshops. At Starlac, employees who receive training are then expected to share
their learning with other Starlacians. By analyzing the CRM output, data from the RMS,
and the balance sheets, together with some data from OTAs, Steffen, the CFO, and
the CMO figured out that Hotel Starlac had not been able to adapt to changes in guest
segmentation, which have been taking place in recent years. At Hotel Starlac,
international leisure groups and business travelers have replaced domestic free
individual travelers (those not traveling with a group or marketed package) on an
increasing basis. These market segments have very different expectations in many
areas. New customers from Asia-Pacific tend to prefer travelling with a well-run tour
 group, which has become a vital market segment for the hotel. To meet their
expectations, tour operators must, for example, guarantee total transparency regarding
hygiene and food safety.

However, Hotel Starlac's related procedures were not yet ready to meet such
standards. At Hotel Starlac, the CRM shows that Asian customers frequently asked
front office clerks how their personal belongings could be protected from thieves and
expressed concerns about the honesty of staff such as cleaning staff. At Hotel Starlac,
the room occupancy rates have decreased over the last four years, from 65 percent
to 55 percent. Both revenue and gross operating profit for the whole hotel have
steadily decreased over the last four years. However, to serve the expected increase
in the number of guests, as a result of doubling room capacity and tripling seat
capacity, the hotel must hire more employees (although the hotel is receiving fewer
and fewer unsolicited applications every month). Investments must be made, and
higher labor costs will put Hotel Starlac in a difficult situation. With more employees,
Carla fears it might be difficult to sustain her practice of contacting each employee
daily. Therefore, she aims to create a program equivalent to the Starlac's CRM to
track Starlacians' satisfaction with the organizational climate, appraisal and feedback
system, compensation and benefits, assigned responsibilities, and physical working
conditions for each position. However, implementing this type of employee-relationship
management system would mean new costs, while revenue and profit are decreasing.

Certainly, Carla and Steffen have to make some changes to keep the hotel afloat over
the long term, but they are also close to retirement now. Steffen and Carla have no
children. They have no inheritor who would have the necessary knowledge, skills, and
abilities to run Hotel Starlac. Carla and Steffen respectively own 55 percent and 45
percent of the hotel. Each could sell his/her share as they wish. If one sells but the
other does not, then the one not selling would have the priority in purchasing the other's
share. Carla and Steffen could reposition the hotel on a niche market and rely on
their most loyal Starlacians to manage the hotel once they retire. Some Swiss studies
have shown that the area might lack medical and social institutions to take care of
elderly people. By transforming the current facilities and adding the new lodging and
dining capacity, Carla and Steffen could tap into an entirely different market. They
could also have the hotel run under a management contract while keeping ownership,
or even sell the entire hotel.

Indeed, one of Steffen's old friends, Benjamin, currently works for Whitestone, a
private equity firm that invests in businesses, improves, and subsequently sells them.
Steffen set an appointment with Benjamin a few days ago, to discuss the future
of the esteemed hotel. Before Steffen could even speak a word, Benjamin informed
Steffen that he had just met Isabelle, a former Starlac bartender who had quit a few
days before and who was spreading a negative image of the hotel.

Isabelle: A Deluded or Reluctant Employee?

I worked for weeks on polishing my CV and my handwritten cover letter. I'd heard
Hotel Starlac uses graphology to pre-select applicants, a reference checking
system, and CV screening before selecting those candidates who will make it to the
interview phase.

Anyway, I was short-listed for the bartender position and was really excited. It was
an opportunity to work in a hotel that employed Michelin star chefs, which had been
redecorated by world-renown designers, where international celebrities used to
book their rooms on a daily basis. Thrilling!

My selection interview on the phone with the bar manager lasted barely 20
minutes. It was a weird interview. The bar manager asked me about a wide range
of topics, some of them not clearly related to my position. Yet, I thought it was
worth answering any question if that is what it takes to get a great job. The bar
manager stressed that my personality type fits with that of his cohesive “team
of champions.” He went on to spill the beans about how great the job would be. He
told me that for an entire week his team of champions would take care of my
orientation. On my first day, I would be introduced to Hotel Starlac's values. I
would be personally welcomed by Steffen, the GM. I would watch a video about
Starlac's history.

The bar manager also assured me that I would have dinner at the “Holy Swan”
during my orientation program. Finally, the team of champions would introduce me
to other employees, and I would attend training courses on the CRM program and
on some basics of my job. Eventually, he told me that work would be fun at the bar,
that the team of champions was really nice and helpful, and that he counted on me
to be nice and helpful as well. Actually, I wonder if the bar manager ever had an
idea of the kind of ideal candidate he was looking for. I even realize that he ended
the phone interview without giving me any specific information about the job,
duties, or responsibilities. In fact, nothing in the orientation program the bar
manager had described ever actually happened!

On my first day, I was told the hotel was in a rush and that the usual orientation
would take place later—which never occurred. On my second day of work, the bar
manager asked me whether I could replace the night auditor during his break, from
1 a.m. to 2 a.m. He told me that it was the GM who asked the F&B manager who
asked him to ask me, or something to this effect. To keep my job, I accepted, of
course. Actually, not only have I had to replace the night auditor during his breaks
for two weeks, but then, when he went on sick leave, I had to replace him for an
entire month. This was really far from being a bartender. There was supposed to
be another night auditor … who actually never came back from his vacation! So in
fact, I had to replace two night auditors. My workload was crazy! And I never had
the mandatory training I was expected to have, neither for my bartender position nor
for any night auditing duties. Later on, I was told by a room attendant that this kind
of situation was quite common and that I shouldn't complain to Carla and Steffen
about that. Essentially, the bar manager probably knew from the beginning that I
would have to be in charge of some night auditing but didn't dare tell me.

Eventually, the bar manager told me in a very rough manner that I did not
perform up to his standards and that I was not nice and helpful enough with his team
of champions. Despite all the work and filling in that I had done, I got no recognition
at all. I have worked for Hotel Starlac for two months, and I think I have had
enough. Although I met Carla and Steffen many times, I was too scared by the
bar manager to talk openly with them. The bar manager seemed to be like one
of their favorite “Starlacians,” as they say, so I thought I would have no chance at all.
I don't know what's going on here. In appearance, people look friendly, but I think
this is only window dressing in front of the bosses. There are rivalries and
everyone gossips. There are more hidden conflicts than clear rules. Some
Starlacians can do whatever they want there!

A few of them actually told me that they were using the CRM program only at its
minimum capacity. They never believed the CRM system would improve anything.
They said they know their customers way better than any software program. They
must be wrong because I just met the former CMO, who worked at Hotel Starlac
for six months. He told me that most of the former repeat customers do not come
to the hotel anymore. The client segmentation has changed. Clients' comments on
websites and OTAs are turning sour. Things could be done to reverse this
situation, but the owners seem oblivious to the situation or are unwilling to change.
Maybe they are being blinded by their Starlacians. Senior employees have too
much influence over the owners, and are making them believe that nothing should
change. They are stuck in their comfort zone, and pleased to be there. Seriously,
there is no way I would spend another day working there!

Whitestone: A Partner or a Buyer for Hotel Starlac?

After having devoted his life to the hospitality industry, Steffen is planning to retire and
travel the world to benefit from worldwide hospitality as a customer this time. Not only is
the Starlac facing commercial and financial challenges but some staff issues also need
to be addressed. Steffen wants Benjamin to tell him about his options with regard to
signing a management contract with whitestone … or even selling the hotel to
Whitestone.

Whitestone is an investment and advisory firm that includes a private equity fund.
Thanks to its capital, strategic awareness, and operational backing, the company aims
to create value by investing in different businesses. For more than 15 years, Whitestone
has been driving hotels' repositioning and restructuring while pressuring management
to implement all changes that would enhance staff performance and increase return on
investment. In many of the hotels it has been partnering with, Whitestone has designed
a clear organizational chart, documented new rules, regulations, and disciplinary codes
for each department, and provided training related to standard operating procedures
(SOPs) for heads of departments (HODs).

Whitestone's plans include procedures aimed at distributing and coordinating tasks

among line employees to clearly state what they have to do and how to do it. That way,
bottom-line employees need not talk to each other while executing their specific and
precise tasks. Underlying this approach is the expectation that faster work means
greater productivity and ultimately more profit. To emphasize the connection between
an individual's work and the hotel's bottom line, individual incentives are based on
individual productivity in a clear-cut individual pay-for-performance HR system. In
compliance with Whitestone's productivity planning and performance-driven processes,
employees are instructed not to waste time. Procedures and disciplinary codes are
created by Whitestone and transmitted to HODs, who must inform supervisors of such
organizational policies. In turn, supervisors are to pass these policies on to bottom-line
employees.

Under Whitestone's new management contract, personnel administration at Hotel

Starlac would be more formalized, centralized, rational, instrumental, standardized, and
impersonal. Labor division, regulations and control procedures would be stronger.
Whitestone would conduct job analyses and create clear and specific job descriptions
and job specifications for each and every position in the hotel. Job descriptions would
be based on time-and-motion measurements to analyze the time and movement
necessary to perform the components of a job. Job specifications would include a
Detailed list of qualifications and technical knowledge required at each position. Then,
Whitestone would conduct a detailed and systematic manpower planning to identify
personnel needs and ensure that the labor supply could be modified according to
forecast occupancy rates, so that the hotel would never be overstaffed. Moreover,
Whitestone would select applicants for basic operational positions by using a General
Mental Ability (GMA) test, an integrity test, and a work sample, while applicants for
higher positions would participate in a series of structured interviews. All new
employees would have a short but intense training session to learn the details involved
in performing their jobs, in compliance with the SOPs defined by Whitestone. During
these sessions, newcomers would engage in role-play and scenario exercises to make
sure they were sufficiently familiar with the hotel's SOP and regulations. For instance,
new hires in the marketing and sales department would engage in mock phone calls
with representatives from tourism agencies. Whitestone would search for any flaw in the
new employee's reactions and let them know what to improve on the spot. Those
observations would serve to evaluate employees' training needs.

Overall, the whole hotel organization would have in place a strategic balanced
scorecard system, akin to those in hotel groups like Hilton and Taj and which ties
departmental profit and loss—and income statements—to standard operating key
performance indicators. A strategic balanced scorecard measures employees'
performance across all hierarchical levels against a set of predefined targets and
identifies discrepancies. Whitestone would use the balanced scorecard approach to
keep a tight control over Hotel Starlac's management, while Steffen and Carla would
retain ownership.

An alternative to a management contract would be to sell the Hotel Starlac outright. In

fact, one of the most popular ways to raise the value of the asset is the income
capitalization approach. This approach is based on the principle that the value of a
property is indicated by its net return, or what is known as the “present worth of future
benefits.” The future benefits of income-producing properties, such as hotels, include
the net income estimated by a forecast of income and expense along with the
anticipated proceeds from a future sale. In brief, by forecasting the net income of the
future years, Whitestone would evaluate the present value of the hotel. To forecast the
future, they would probably use numbers over the last three years. It means that the
more profit there will be during those three years, the higher the hotel's value when
Carla and Steffen eventually sell it, if Carla agrees to do so.

How to Go Forward with Hotel Starlac?

Steffen and Benjamin's conversations have yet to be formalized because everybody

knows that Carla is very attached to the venerable institution. Steffen has told Carla
about Isabelle's story, but Carla, relying on the bar manager's testimony, has
discounted Isabelle's description as that of a lazy ex-employee. Therefore, Steffen
suggested that he would arrange a meeting with Isabelle. Carla agreed and then told
Steffen she had had a talk with Benjamin. She thinks a management contract with
Whitestone would probably maximize hotel profit but would do nothing to advance their
original dream: to benefit society. It could also put their loyal employees at risk or
imperil their retirement. They could keep the Hotel Starlac and help loyal employees
find jobs elsewhere. They could donate the establishment to the Leodora Foundation, a
nongovernmental organization that puts smiles on patients' faces by sending clowns
into hospitals. Carla and Steffen have been donating to the charity for many years.
Questions

1. How would you characterize Hotel Starlac's current organizational structure and
culture in terms of their strengths and weaknesses?
2. What are the strengths and weaknesses of Hotel Starlac's current hiring
practices, including their orientation practices? To what extent should we take
Isabelle's description as being accurate? If further investigation is needed, how
would you conduct it? How can hiring practices at Hotel Starlac be reassessed?
3. Perform an assessment of Hotel Starlac's current management of working
conditions and social dynamics, including leadership aspects. What measures
can be implemented to identify and address employee dissatisfaction?
4. What are the strengths and weaknesses of Hotel Starlac's current performance
management and appraisal practices? How can its performance management
system be improved?
5. What are the strengths and weaknesses of Hotel Starlac's current reward
practices? To what extent does the monetary and nonmonetary rewarding
system contribute to retaining the top performers? To what extent does it lead
to dysfunctional turnover? How should it be improved?
6. Both from the owners' and the employees' perspectives, what would be the pros
and cons of the changes that would (1) be implemented by Whitestone under a
management contract, and (2) occur if Hotel Starlac moves into a niche market
by becoming a medical and social institution?
7. What decision should Carla and Steffen make about Hotel Starlac—transform it
into a medical and social establishment to enter a niche market? Run it under a
management contract and keep it? Make it profitable within three years before
selling it?
8. What kind of data on Hotel Starlac's external environment would you need to
collect and analyze to make a more accurate diagnostic and formulate more
reliable recommendations?
9. What kind of data regarding Hotel Starlac's internal environment would you need
to collect and analyze to make a more accurate diagnostic and formulate more
reliable recommendations?
10. Discuss the advantages and disadvantages of adopting the Whitestone
approach to bottom-line labor. What moral issues confront employers who want
to implement such an approach? What would be the likely reaction of hotel and
restaurant employees' unions if Hotel Starlac implements the Whitestone
approach?