“Checking Out” F&A Outsourcing in the Hotel Business Take a pdf of this article with you At a Glance Company Profile Client is a UK-based asset manager specializing in hotels and multi-unit residential properties. As with many asset managers of its kind, the Client has a long-term relationship with a global hotel manager/operator. The Client’s manager is responsible for all facets of operations for 50+ hotel properties located in the UK including the delivery of finance & accounting services. These services are currently delivered mainly from a single captive offshore service delivery center. Services Featured Strategy & Assessment, Solution (e.g. RFP development, outsourced transaction support, business case) Business Processes Involved Finance & Accounting services: order-to-pay, reservations-to-cash, account-to-close, governance & compliance (e.g. indirect taxes, etc.), and payroll & HR administration. Prominent Hotel Asset Manager Seeks Visibility to Potential Benefits from Migrating Captive F&A Processing to an Outsourced Provider Executive Summary This Client initially partnered with EquaTerra to answer the question: What is the composite of best-in-class commercial terms, service levels and delivery capabilities the Client should expect if it migrated its F&A demand to a leading service provider? Combining the outcome of a blind market test of the Client’s requirements with three leading service providers with our resident domain knowledge of F&A service delivery model optionality, EquaTerra responded that risk adjusted savings in excess of 50% were possible with improved service levels and a more robust service delivery model. The Client accepted EquaTerra’s recommendation to enter into a comprehensive RFP process (including the incumbent). Over the course of the subsequent four months, EquaTerra supported the client through a comprehensive RFP design & build process, a go-to-market strategy including short-list RFP recipients, conducted the RFP process and solutioning, and made final recommendations for a finalist.. Complimenting this process, EquaTerra built a financial business case, supported the risk identification and mitigation strategy and due diligence efforts for all potential service providers. In parallel, EquaTerra supported the Client with some ground-breaking work centered on managing the future operational and governance issues that would arise from a "tripartite" of stakeholders (e.g. Client as Owner, the Hotel Operator, and a potential service provider of the F&A services.) The results of the RFP process directionally validated commercial and service improvement prospects initially surfaced in the original indicative market test. That said, in the face of a serious downturn in hotel revenues arising from the global recession, the Client chose to suspend the process to focus management bandwidth on efforts to mitigate the severe effects of the revenue downturn. The Business Challenge The Client and its hotel operating partner are both expert in marketing and operating high-quality hotel accommodations and food & beverage services. When the time came to review the operating partner’s incumbent provision of F&A services via an offshore captive, the Client acknowledged the need for specialized assistance and contacted EquaTerra. The principal business challenge was to conceptualize and lay the foundations for a "tripartite" relationship between the Client, operator and service provider that (1) minimized future potential operational disruption, (2) maximized commercial benefit and service enhancement potential, and (3) preserved the operators overall responsibility for managing the Client’s hotel assets and delivering value. How We Helped From the very outset of the initiative, EquaTerra realized the importance of winning the trust of the operator, the incumbent deliverer of F&A services. We communicated openly and often with the operator regarding the goals of the initiative we were instructed to support and demonstrated reasonable flexibility in the planning and execution of the process. The operator occupied a special position in that they both delivered the F&A services as incumbent and received them as internal customer (e.g. the hotels themselves). EquaTerra crafted its approach acknowledging and respecting these unique stakeholder dynamics. A second unique element of our approach related to solution design. EquaTerra organized the timeline of the project’s RFP phase to allow for maximum time "solutioning" with the service provider finalists. The solutioning process is an intensive series of workshops between the Client and the finalistswith two main goals. The first is to conduct focused discussion and collaboration to allow the service provider’s solution to begin to "live and breathe" at a level of detail the Client can firmly grasp, not simply a solution on a RFP response page. The second goal was to bring the Client team together with the providers’ teams and allow for several days of cultural fit assessment. Given the Client’s sensitivity to potential operational disruption arising from partnership with a third-party service provider, the solutioning sessions succeeded in providing strong comfort that these operational risks were well understood and could be suitably managed. Results At the conclusion of the engagement, EquaTerra made comprehensive recommendations which included partnership with a service provider. The Client’s ultimate decision to suspend the process until the need for revenue recovery focus becomes less acute was unrelated to the process EquaTerra supported. In the absence of the global economic downturn, the Client has informally acknowledged that it would have accepted and agreed with EquaTerra’s recommendation and chosen a service partner. Advisor Insights Here are some key insights to keep in mind when evaluating outsourcing in a hotel portfolio environment: Don’t Underestimate the Importance of Stakeholder Communications & Management: A central success theme on this engagement was an early acknowledgement of the importance of seeing the operator incumbent as both deliverer and recipient of the services. Understanding this allowed us to craft a stakeholder engagement plan that allowed us to preserve the commercial integrity of the process while anticipating and proactively overcoming objections. In short, the timeline was preserved and the ultimate solution met all parties’ key requirements. Invest Time and Effort in Service Provider Interaction & "Solutioning": As outsourcing is still relatively nascent as a transformational option in the hospitality industry, additional time should be taken understanding the details of all service providers’ proposed solutions and how they would integrate with hotel operations. This investment of time (before selecting a finalist) will serve to "de-risk" all options and allow for smoother, timelier decision making. Additionally, interaction between the teams brings more clarity to the solution and makes them more tangible. In effect, the Client was able to visualize "what it would be like" to do business with the service providers. About EquaTerra EquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported more than 2,000 transformation and outsourcing projects across more than 60 countries. Supporting clients throughout the Americas, Europe, and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions.