The way hotels are owned, managed and structured is complicated and unique to the hospitality industry.
The management structure of a hotel plays an important role in your employment, legally speaking. But it is also important to understand because you need to understand who your ultimate boss is.
I am going to break down for you the three different stakeholders involved in the ownership and management of a hotel, how they work together, and give you a real-life example to put it all into perspective.
The three stakeholders in hotel ownership and management
These are the three key stakeholders in the ownership and management of a hotel, however, the divide is not always between three of them. Let’s look into each one of these and see how they work together.
This would be someone that literally owns the physical building of the hotel. They own the physical asset and are fully responsible for maintaining it. The owner is the one that collects the profit from the hotel.
This is the ultimate boss and the one that reaps most of the financial rewards, but also bears the most amount of risk.
The brand manager is the company that owns the brand that is the face of the hotel. They provide standards for the hotel team and the owner to follow. Standards vary from the physical design of the hotel to operating standards, employment rules, and soft guest touches.
The management company is the one that actually runs the hotel day to day. They are responsible for making sure that the hotel has enough employees, provides good service and makes money. This includes managing the competitive market, filling rooms and maintaining the building.
The way the three stakeholders work together can be illustrated this way:
As you can see on the illustration, the three stakeholders can interact with one another in different ways. This creates complex relationships and various management structures.
It is important to note that they are not always three different stakeholders and can be one, two, or three different companies.
Before we dive into the different setups of these stakeholders, there is an important note to make. In all circumstances where the Brand Manager is involved, they are the stakeholder that provides the point of view on the management structure mix. If the hotel is independent or licences the brand the set up would be different, we will not cover that today.
The different management structures
Owner + Management Company = Franchised Hotel
Most popular scenario with big global brands is when the Owner and the Management Company are one company. The owner of the estate not only owns the building but also runs the hotel. They simply hire a brand to be the face of the hotel and follow their standards.
This is a Franchised hotel: the franchisee is the Brand Manager company and they just collect a brand fee, without being involved in the operations.
Owners often also work in close partnership with a Management Company that they contract to manage their hotels for them. This allows them to outsource the expertise of hotel management and remain purely the asset owner.
Brand Manager + Management Company = Managed Hotel
A second most common ownership structure is when the Brand Manager is also the Management Company, operating the hotel. They manage the hotel and are responsible for the financial success of it, but do not own the real estate. The Owner hired the Brand Manager to put their brand on the hotel and to manage it.
This is a Managed hotel: The Brand Manager is also the Management company and they manage the property and are fully responsible for its financial performance.
Owner + Brand Manager + Management Company
However, all three could be combined in one company as well. In this case, it is the brand manager that owns the real estate and manages the hotel. They collect all of the profit and carry all of the risks as well.
This is an Owned hotel: The Brand Manager is also the Owner of the asset and the Management Company, meaning that they are not only responsible for the operational and financial success of the hotel, but also the management of the building itself.
Brand Manager + Owner = ?
There is a final combination that these three stakeholders could form. The Brand Manager could purchase the real estate and put their brand on it but not manage the operations, hiring a third party to do that for them.
However, this is not a model by which Brand Managers work. Owning the asset is a huge investment and as an owner, hiring a third party to manage operations and be in charge of the potential financial returns, would be too much of a risk. It would be reliant on the management company to do a good job for them while being fully responsible for asset maintenance.
A real-life example of how the hotel management stakeholders mix
Marriott owns and manages the W Barcelona hotel. They have full autonomy over the building maintenance, operational delivery, service, and the financial performance of the hotel. They can do anything they want with it any time they like.
When they sell the building to an owner, they could do it in two ways:
1: Become a franchisor and simply own the brand of the hotel and collect their franchise fees regardless of hotel performance. The Owner and the Management Company would be responsible for the operations, the management, estate maintenance, and the financial performance of the hotel. However, Marriott would lose all control over the hotel.
2: Sell the asset itself only and keep W Barcelona as a Managed hotel. This means that Marriott is responsible for the day to day running of the business and the financial performance. They would need to work with the owner if anything would need to be renovated or changed in the building, but would collect more of the profit and be responsible for any loss.
These two options are the most common ways the hotels are currently owned and managed. Brand Managers rarely own the assets of their hotels anymore, it is called the asset-light strategy. It was popularised by IHG about 8 years ago and allows the brand management company to effectively eliminate all risks that come with owning assets, aka physical buildings.
How to know what ownership and management structure a hotel has
It is very easy to find out if a branded hotel is franchised or managed by the brand manager and who the owner is.
If you are in the hotel physically, each hotel must have a plaque in the reception that explicitly explains just that. It is a legal requirement.
If you are not looking to leave the comfort of your home, you can find information on their website or simply email them to ask. They must provide you with this information.
Brand Managers have gained a lot of power in the market because they are the guest-facing element that drives consumers to or away from a hotel.
If you think: Holiday Inn, you probably know exactly what to expect, it’s an iconic brand. That kind of recognition and brand power is attractive to owners as it attracts guests and in the end deliver profits to them.
Across the industry, in the budget, mainstream, upscale, and luxury categories there are market leaders globally and locally that are attractive to both guests and owners.
While the mix of the three key hotel owners and managers remains the same, the relationship between them changes as the industry develops and guests demand new experiences and brands that cater to their individual needs.