New York Hospitality by Vijay Dandapani
* required

A data breach encore. A moral hazard issue?

September 29, 2015

Data breaches, hackings, online invasions etc occur with such distressing regularity that there seems to be a sense of ennui when these incidents occur. The breaches result in more than a loss of privacy as was the case with Ashley Madison, something which Facebook founder Mark Zuckerberg airily dismissed as a given some years ago, but often cause considerable financial harm to companies and individuals.

Whether privacy has gone the way of the dodo or not data breaches present a different set of problems to consumers and businesses alike and ought not to be countenanced much less endured by firms. Nevertheless, some interesting research reported earlier this year in The Conversation suggests that there is an element of moral hazard at work that fails to incentivize companies to take data breaches more seriously and invest in cyber-security.

Benjamin Dean, the author of the article in the Conversation cites the example of Target where "the gross expenses from the data breach were $252 million. When we subtract insurance reimbursement, the losses fall to $162 million. If we subtract tax deductions (yes, breach-related expenses are deductible), the net losses tally $105 million."  That Mr. Dean points out was a rounding error amounting to a mere 0.1% of sales in 2014. In other words, Target had no incentive to step up its cyber-security both due to a de-minimis (to them) loss as well as very little if any customer blowback.


In the hotel space, the latest victim is Hilton Hotels and many of its brands as reported on the website Krebs on Security which focuses on cyber security. The site reports that the data breach was first noticed by Visa in an alert to various banks saying that it occurred sometime between April 21, 2015 to July 27, 2015.  Visa's policy precludes it from naming where the breach occurred but sources at five different banks soon "determined that the common point-of-purchase for cards included in that alert had only one commonality: They were all were used at Hilton properties, including the company’s flagship Hilton locations as well as Embassy Suites, Doubletree, Hampton Inn and Suites, and the upscale Waldorf Astoria Hotels & Resorts." 

It is not clear yet whether these breaches in the hospitality industry (Choice hotels had one a couple of years ago) stem from the same lack of financial incentive that has been ascribed to Target but its recurrence ought to spur a far more consumer sensitive industry than retail to be more proactive and responsive. After all in retail consumers  merely visit as opposed to staying or living in hotels. A memorable stay can quickly turn sour when on returning home guests find  both their privacy and finances ravaged.

Resorting to fees to boost profits

September 04, 2015

Hotel fees for "use" of a resort's facilities as well as other "amenities"  have unfortunately come under the scanner in a variety of forums and even invited comment from a Federal Advisory Committee focused on airlines surcharges. USA Today recently ran a story pointing out that "U.S. hotels are projected to reap a record $2.47 billion this year from fees and surcharges that require guests to pay extra for everything from getting into their room early to leaving bags with the bell staff" per a recent report from New York University.

While there is a lack of transparency on the part of a few operators the industry is unfairly being tarred by the brush used on the airlines, particularly US airlines.  With the exception of Southwest most of the others continue to find innovative ways to pick passengers' pockets while steadily constricting their offerings. United Airlines, for instance, is notorious for its steep baggage fees and outrageously high costs for sitting in any of the rows in the front of their economy cabin allegedly for an extra inch or two of leg room and insult to injury by "upselling" while passengers board the plane!

Left out in the clamor over undisclosed fees is that hotel room rates across the United States are actually below what they were for the peak year (2008) when rates were $107. Adjusted for inflation that amounts to  $117 in 2014 as compared to the actual average room rate of $113 for last year. While consumers are obviously unbothered by the escalating costs (real estate taxes for example in New York City have gone up between 35 - 70% for the same period) what is pertinent is the range of amenities that hotels have added since the advent of the Great Recession. These range from the by now ubiquitous free WiFi and continental breakfast to the more esoteric electric car charging.

Perhaps hotels need to do a better job of price perception by consumers and steer away from the airline or what's worse Uber's (surge) pricing models and take their cues from giant suburban retailers who give the impression of being cheaper than their specialty counterparts even if, on many occasions, that is not the case.  "Unbundling" amenities that indeed are optional (and desirable)  is also another way to overcome consumers' ire at "mandatory" fees.  In any event, a better job of conveying the fact that a highly fragmented industry like hotels can never act in the rapacious manner of a quasi-oligopolistic grouping like airlines is what is urgently needed.


The Yes - No Continuum for Bosses and Customers

July 30, 2015

The Harvard Business Review' has an article that reviews the difficulties faced by many managers in “getting to no” which they term as the "process for agreeing on what not to do" when dealing with tasks delegated by superiors.  The authors of the piece note that people frequently are "encouraged to be team players and responsive to colleagues" which makes it "seem counter-intuitive or even selfish to encourage managers to say no more often".  Nevertheless that is what they urge pointing out that while saying yes to every assignment may initially please the bosses it usually leaves "people over-stressed and inundated with work — a lot of which ends up half-finished or forgotten and "in the long run, no one is happy".

A key way to avoid getting onto a relentless treadmill of assignments is to learn how to "get to no" for both the individual's success as well as that of the firm. That, they point out, "requires tradeoffs as it is not possible to please everyone or even one person all the time.  "For example, if a new strategic project becomes top priority, managers need to ask what tradeoff should be made to accommodate it. And it’s important to engage in these dialogues regularly."

It is not a stretch to apply the foregoing precepts to a firm's "real" bosses - customers and deliver better service.  Too often, particularly in the Far East and South Asia customers, demanding and not, end up being promised goods and services that associates and managers fail to deliver on. That appears to stem largely from a desire to please both bosses, the employer and customer without fully considering the entire workplace framework and institutional capacity to deliver. Some hotels exemplify that gap as they strive to meet demanding customers who don't take no for an answer while also dealing with a culture that views a "no" as "disrespectful".  India and China are good examples of the latter with some Indian hotels being notorious for "over-promising" : A browse through Tripadvisor reviews of leading hotels in both countries (and a few others) easily underscores that.

Hoteliers in some of the above situations could improve upon service delivery through a combination of strategies ranging from empathizing with a customer who won't take no for an answer while not taking the easy way out by saying yes.  Empathizing requires trying to understand the customer's viewpoint while also conveying one's limitations inoffensively.  Another palliative is to offer an alternative as in a situation where a queen bed is unavailable by unhesitatingly offering another bed type with a promise to try and move them up when available. 

Asking a customer, even an irate one whose request is beyond one's wherewithal, how best to satisfy him/her the next time is a way of lowering the temperature while also serving to mitigate the situation.  In sum, as the HBR authors suggest saying "yes" in the short term leads to a no-no for the long term.

Age in the digital age: Are younger bosses more connected?

July 09, 2015

Quips about fifty being the new forty aside, chronological age does appear to matter in the C-suite if one were to go by the thesis of a new article in the Wall Street Journal on Gen X moving into the corner office.  The report notes, perhaps a bit redundantly, that as "older baby boomers retire, more companies are turning to members of Gen X" who are "generally more tech savvy".  That has led to knock-on effects on how companies go about acquiring and retaining employees with online platforms transforming the way a bench of talent is created. That said, few would differ with the notion that, regardless of age, the digital era has brought about new and more apt ways of linking talent to jobs and careers.

McKinsey and Company thoroughly explores the preceding point in a report published in June of this year that laments the missed opportunities arising from a platform mismatch as labor markets haven't kept pace with rapid shifts in the marketplace. The consulting giant suggests that utilizing better platforms would not only result in higher productivity in companies of all sizes but also increase global GDP by the trillions, a welcome game-changer in an anemically growing world economy. A creative example of a digital platform is Austin Digital Jobs, a private Facebook based network that has an online and offline social component to job searches.

However, the Journal's claim that this new (younger) breed of CEOs  "spend more time wooing and keeping younger staffers, and worrying about how to keep products and services relevant for the rising millennials projected to comprise 75% of the workforce by 2025" ought to invite more scrutiny.  Apropos, that it is pertinent that a Harvard study from last year found that many tech company founders in their twenties and thirties ended up having presidents and CEOs in their forties either as a consequence of the founder staying on or bringing in more experienced talent.

Hotels, even luxury hotels,  have historically had general managers who are in their forties or early fifties given the path to the GM's office is on average about 15 years with employees in North America ascending to the top the fastest while those in Asia (China, India) taking the most time.  The statistics portal has some interesting graphics and data on the average age of hospitality and tourism sector employees in the United Kingdom. Although, from four years ago, the data shows GMs on average are 49 years old, almost on par with tech companies in the US!

In the end,  the premise that younger C-suite occupants are better geared to drive profitability besides acquiring and retaining talent is perhaps not entirely on firm ground given the buying power and needs of baby-boomers. Too often hotel rooms designed by young, sometimes brash, designers end up with light switches that cannot be seen  or lettering on menus and instructions that require a combination of magnifying glasses and flashlights  resulting in missed opportunities at many levels.

Rating customers: feedback or blowback?

June 05, 2015

Earlier this year the New York Times ran a story headlined "Ratings Now Cut Both Ways, So Don't Sass Your Uber Driver" which suggests that the tables are being turned in terms of reviews being the prerogative of the customer. The Times article says that "companies are rating their customers, shunning those who do not make the grade." The ability to create a mutually reinforcing feedback mechanism has been the hallmark of unregulated economy companies like Uber and Airbnb.  But as the Times piece points out, the pioneer in this field was eBay which introduced it over a decade ago only to cut it out a few years later in 2008.  eBay now allows sellers to make only positive comments about buyers. It is unclear what if any benefits there are from its now censored efforts.

If the thinking behind rating the customer is that it may enforce better conduct on the part of those customers who are normally inclined to treat assets outside their home with less than due respect, a spate of stories on things going awry in the misleadingly labeled sharing economy tends to give that notion the lie. The stories also include an orgy in an apartment that resulted in an Airbnb "victim" being rendered persona non grata to landlords and some Uber drivers who ran amok

Perhaps one reason for consumers' aberrant behavior is a subconscious devaluation of the asset by the consumer due to it being more freely accessible. That likely makes them, sometimes consciously, to inflict more than wear and tear on the "shared" item. Regardless, that approach to a customer has not thus far been tried out on a systemic basis in the regulated world of hotels and airlines. One UK based hotel made a ham-handed effort at getting back at customers who posted bad reviews on Tripadvisor by levying a "fine" of £100  only to find themselves rapidly making a refund after they found themselves in the news for all the wrong reasons.

A more sophisticated and subtle essay at rating customers was tried by the Australian luxury boutique group, Art Series hotels, a company "dedicated to Australian contemporary artists".  The company called the endeavor "reverse reviews" and "invited" prospective guests to be reviewed by the hotel if they stayed between April 17th and May 31st of this year. The website termed it as a "social experiment" while noting that it was an attempt at creating a two-way street for the feedback process. More importantly, they said they sought to find out who the "best guests" are. It is, as yet, unclear how far they succeeded in the venture but following the example of the unregulated economy is not likely to produce a better feedback system.  False and misleading reviews on user generated content are an occupational hazard for hotels but increasingly customers are able to tease these out while making their buying decisions.

More relevantly, minor imperfections may actually give the establishment better credibility particularly if attempts are made to remedy them. An industry that has thrived best with a motto that puts the customer, good and bad, first ought not to try and reinvent the wheel despite the threats from the unregulated operators.


My Photo


  • President of Apple Core Hotels, a chain of 5 midtown Manhattan hotels offering value and comfort in the heart of the city.

    Member of the board of Directors - Hotel Association of New York.



  • The views expressed in this blog are my own and not that of any company, association or organization.