With reference to the case study given in the image, explain the importance of people, physical evidence and process for the business.

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kipling2448 | (Level 3) Educator Emeritus

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It is highly questionable whether a hotel is an appropriate business model for application of Handy’s Shamrock Organization theory.  Hotels are employee-intensive or labor-intensive operations requiring a continuous flow of services.  In the case study provided, management at Turners Hotel should certainly be trying to identify cost-saving opportunities, but not at the expense of the customer service that, together with quality of the facilities, constitute the most important attractions for customers.  Furthermore, outsourcing those activities, like customer support, accounting, graphics and marketing – the latter assuming that the hotel in question is not part of a chain (e.g., Holiday Inn, Marriott, etc.) where marketing is handled by a centralized corporate operation – will usually lead to cost savings, at least in the short run, without sacrificing quality of service, but the problems being experienced by the hotel in the case study, Turners, will not be adequately addressed by any of these measures.

Handy’s Shamrock Organizational theory consists of a major contraction of corporate employees and functions in favor of contracting-out non-core missions to less expensive companies that specialize in executing specific functions, like data entry, accounting, some maintenance activities, and others.  The company in question, then, retains only a small core of in-house capabilities, shedding itself of expensive labor-intensive activities that entail considerable expenditures for things like employee salaries and benefits, medical insurance, and other cost-drivers.  Personnel costs are consequently shifted to the contractors, which obviously have to recoup those expenses themselves, which results in costs being passed along to clients.  The company implementing the Shamrock theory has reduced operating costs, and can, as the case study points out, divert financial resources to other areas, like offering free high-speed internet, something virtually all hotels, especially higher-end hotels, offer anyway.  Whether this is a good idea, however, is far from certain.  Contractors are not always reliable, suffer from the same operating issues that every business encounters, like personnel costs, labor-management disputes, and potentially high-turnover that requires frequent expenditures for training new employees, and are certainly not free.  As noted, somebody has to pay for the contractors’ cost of doing business, and that somebody will be its clients, which then passes on costs to customers.

Among the problems identified in the case study is a highly-respected in-house restaurant that suffers from frequent over-booking.  That is not necessarily a problem that can fixed through outsourcing.  On the contrary, a restaurant operating at full-capacity on a regular basis is considered a success story, and the logical fix is not outsourcing services, but expanding the restaurant’s size and/or hiring additional staff to support it.  The mere fact that it is operating at full capacity is a testament to its quality; reducing core staff in favor of outsourcing some of its operations will risk degrading the restaurant’s quality – a surefire way of addressing the over-booking problem, but at the expense of reputation and revenue.

Outsourcing staff training is certainly a viable option, but, again, not necessarily the answer depending upon the hotel’s ability to effectively train its own people.  Again, if the hotel is part of a chain, corporate headquarters has almost certainly established fixed procedures for staff training, anyway.  If it’s not part of a chain, then outsourcing that particular function may very well make sense.

Improving customer service while reducing costs is difficult.  Hiring and retaining quality staff is not a luxury in the high-end hotel business; it’s a requirement.  Much of the labor associated with operating a hotel must remain in-house as an integral part of the business.  Managing staff rotations and responsiveness to customer needs are both core functions of a hotel.  If customers are complaining about the maintenance of the hotel, for example, that the leisure facilities are “untidy,” the problem lies in management.  It is the managers who are responsible for ensuring that subordinate employees are doing their jobs, and cleanliness is a sine qua non of the hotel industry.  Employees failing to perform the most fundamental of their responsibilities with regard to cleanliness and maintenance of facilities and equipment (for example, the pool and Jacuzzi, the exercise equipment, etc.) need to be held accountable and, if necessary, relieved of their positions.

Outsourcing can only carry a business so far.  In the hotel industry, the opportunities for outsourcing are even more limited.  As stated, certain activities, like data processing and irregular maintenance and repair activities, can be candidates for outsourcing, but the Handy Shamrock theory is not without risk, and a hotel experiencing quality control problems simultaneous with an increase in competition needs to take a good look at its management practices. 

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