In the hotel industry, undistributed operating expenses represent a significant portion of
the operating costs for a hotel. Exactly how most of these expenses arise is not well under
stood. Using data from more than 40 hotels operated by a major chain, the authors examine
the links between the variety of a hotel's products and customers and its undistributed op
erating expenses and revenues. Their findings show that undistributed operating expenses
are related to the extent of the property's business and product-services mix. The results
suggest that although increasing a property's product-service mix results in higher undis
tributed operating expenses, the incremental costs are compensated for by higher reve
nues. However, increasing business mix while increasing undistributed operating expenses
does not result in higher revenues.
Other ways to reduce complexity may be to lease out facilities to independent contractors and to outsource the provision of services and products.
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