Ferree & Associates: Why Does The Contribution Factor Work?

It is based on three well known premises:

Premise 1: People make 95 percent of their total contribution to a position during their first three years in the position.
The thought process behind this premise is that people are the most enthusiastic about a position during their early years on the job. Therefore they make the majority of their contributions their first three years. After three years they may be steady performers, but their contribution to your profits has most likely peaked.

To maintain competitive profits, companies need to consider re-assigning their management people between the third and fourth year. Or the companies can re-engineer positions. Re-assignments or re-engineering can be as simple as switching jobs among employees within the hotel or just re-assigning employees within the same job to a different hotel (as long as the new hotel isn't a carbon copy of the hotel the person left). The key? Make sure the new assignment is enough different to rejuvenate the person so the three year cycle starts over.

Premise 2: Plan your attrition.
It's well documented that companies that have been the most successful over time have had planned attrition.

The ideal formula states that hotels (or management companies or chains) should plan to bring 20% of their management team from outside their company. Remember, the key word here is "planned attrition."

The hotel industry, like many others, typically has plenty of management turnover. Unfortunately most hotels experience most of their turnover in just a few positions. The last study we saw on the hotel industry indicated average management turnover of over 40% per year for hotels. Many times Corporate Management initiates the turnover, but all too often it is reactive turnover. Our industry loves to set very ambitious targets for our hotels.

Premise 3: When management turnover exceeds 20-30% per year, profit improvements will be minimal, or at best short lived.
1994-1997 have been record breaking years for most hotels for revenues, ADR, occupancy, and REVPAR. While the industry has had record breaking years, many hotels have missed their profit projections (and bonuses). We are starting to see a significant increase in assignments to replace "managers who are not hitting their numbers." It's OK for any business to miss their revenue targets, as long as the profitability targets are met.