Hyatt’s Really Big PR Blunder

It is such an obvious statement — employees are critical stakeholders — that to say it seems foolish and sophomoric. But it is a critical fact that needs to be repeated because Boston executives at three Hyatt Hotels seem to have missed that lesson in their corporate management class.

Here’s how this blunder came about at the Hyatt Regency Boston, Hyatt Regency Cambridge and Hyatt Harborside at Logan International Airport.

First, of course, the global economy has been in a really serious nose dive during the last year. This brought on an equally serious decline in business and recreational travel, including hotel bookings in many parts of the world, and Hyatt is a global brand.

Hyatt Hotels Web site image; facial image intentionally distorted

As a result, hotel managements everywhere have been under pressure to cut expenses, and try to salvage their corporate bottom lines.

Facing this dilemma, the Hyatt brain trust decided housekeeping costs were too high, especially in Boston where the cost of living is comparatively high by U.S. standards.

To cut those expenses executives decided to outsource housekeeping responsibilities. Such a move would replace employees earning up to $15-an-hour (plus benefits) with less experienced workers making about $8-an-hour and with no benefits. (And people complain about Walmart; they’re saints!)

As an aside, this reminds me of a passage I read in a J.W. Marriott biography while staying at one of their hotels many years ago. It stated that one of Marriott’s biggest challenges and responsibilities was to prepare every guest room so that each new customer would feel that they were the first person to stay in that room. I’ve always thought that was a wonderful objective, and it has influenced my selection of business and personal accommodations.

To smooth the transition from the existing workforce — some of whom had over 20 years on the job at the hotel — to the new contract crew, the 100 in-place workers were required to train their replacements.

Sound strange? If you were being fired, why would you train your replacement? Because Hyatt told their employee stakeholders that the trainees would be vacation replacements, not permanent replacements taking their own jobs.

Not only could Hyatt management not tell the truth to its employees, it didn’t even have the courage and integrity to be straight forward in its public statement:

“As part of an ongoing drive to address challenging economic conditions, the Hyatt hotels of Boston have restructured their housekeeping services. Regrettably, the restructuring included staff reductions [emphasis added],’’ according to The Boston Globe. What about the minimum-wage, no-benefit replacements?

Since other hotel operators are suffering from the same global economic downturn, how are they handling the inconvenience of paying housekeeping staffs?

Earlier this year the Liberty Hotel, a posh Boston establishment, took the opposite route. They eliminated their outsourced security and night janitorial services to replace them “with hotel workers from other departments who might have otherwise been laid off,” The Globe reported

“We would not [outsource housekeepers] because we want to tightly control the guest experience here and the cleanliness,’’ managing director Jim Treadway told the newspaper. Sounds rather like the J.W. Marriott statement from several decades earlier.

Then, when asked, Hilton and Marriott executives told the newspaper that they had no plans to outsource their housekeeping responsibilities.

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But back to stakeholders, who are many and varied depending on the type of business you are in. However, some stakeholders recur regardless of your business and those are: employees, customers and investors.

Employees; Hyatt thinks so much of their employees — especially housekeeping — that indeed those housekeeping folks are prominently featured on Hyatt’s Web site (see image above).

Customers, of course they are important; Hyatt boasts boldly about all of the wonderful services they provide their customer guests.

Investors? The Pritzker family of Chicago owns Hyatt, so they don’t have any equity stockholder stakeholders to suck up to, or analysts to mollify, or financial markets to placate.

Oh, but not so fast. Changes are afoot!

“Hotel and resort operator Hyatt Hotels Corp. said Wednesday [August 5, 2009] it has filed a registration statement with the SEC proposing an initial public offering of its shares,” the AP reported. “In a regulatory filing, Chicago-based Hyatt valued the offering at a maximum $1.15 billion for the purposes of calculating its registration fee.”

So, what do you want to do in such a situation: You clean up the balance sheet; you cut expenses to the bone; you boost top line revenues as high as possible; and you optimize cash flow — everything a potential investor wants to see.

But, since employee costs are always a big service industry item, they’re going to be among the first to get whacked at the chain’s 413 branded hotels scattered across 45 countries.

Of course, if service goes to hell because employees are demoralized, don’t report to work, or are indifferent about the quality of their work, who cares. Once the Prizker family members get their money from the IPO,  the whole unhappy mess will be the shareholders’ problem. Let them worry about shoddy service and dirty linens and the resulting lousy reputation, which (by the way) impacts the bottom line!

Stakeholders count big time; all of them. And management should never, ever forget it.