A Strategic Approach to Managing Costs

Abstract

The greatest challenge facing most firms in the hospitality industry continues to be the management of costs. Even the success of firms such as Marriott and McDonald's is as much dependent on managing unit costs as it is on customer service, development and marketing. In fact, the inability of accommodation and foodservice firms to improve productivity has become a primary issue among executives and economists (Haywood, Patterson and Upton, 1985; Witt and Witt, 1989). Companies are being urged to implement strategies that will increase productivity and reduce unit costs. Unfortunately, little has been written on what such strategies involve, and how they can be implemented successfully.

This article describes the key elements of a comprehensive cost management strategy. Readers will learn how one company is implementing such an approach to ensure that it becomes and remains a low-cost provider of hospitality services. Although the strategy provides some short-run cost reductions, it is primarily aimed at preserving long-term competitiveness by maintaining cost management activities. The essential features of this strategy are: committed management, supervisors and employees; implementation of the best possible technologies; and vigilance in achieving measurable cost reductions and productivity gains year after year.