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1 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management HOSPITALITY MANAGEMENT Chapter 15 Business Relationships
2 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Outcomes This chapter provides knowledge required for assessment of the following: Build business relationships Conduct negotiations Make formal business agreements Foster and maintain business relationships
3 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Business relationships On the customer side, special relationships may be developed to provide discounted rates to corporate customers; conference organisation for government bodies; arrangements for accommodating flight crews; or outside catering.
4 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Business relationships On the supply side, business relationships are developed with suppliers of a wide range of goods, such as food and beverage, linen, cleaning products, crockery, cutlery and stationery. Service contracts may exist for Internet services provision, printing, landscaping, pool maintenance, fitness instruction and many of the other services offered to customers.
5 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Business relationships Suppliers CATERER Customers/Clients Fresh produce Dry goods Beverages Cutlery and crockery Equipment Major plant Telephone/Internet Gas/electricity/water Printing Advertising Venue (e.g. golf club contract caterer) Venue (as preferred provider) Special event client (e.g. outdoor wedding) Local business (e.g. function catering) Local client (e.g. in-house catering for birthday party) School (e.g. production of meals for staff and students)
6 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management
7 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Types of agreements corporate accounts (between, for example, a hotel chain and a telecommunications company for discounted rates for its travelling staff) service contracts (for example, for providing conference planning and organisation) agency agreements (for example, a booking agency making reservations in exchange for commission) venue contracts (for example, a stadium providing rooms for meetings or space for special events) preferred product agreements (for example, identifying a wholesale butcher as the source for the supply of specific meat products)
8 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Franchise agreements A franchise agreement (contract) has some special features, including supply chain arrangements and marketing strategies. In the fast food industry, for example, which is dominated by franchises, the franchising organisation (the fast food chain) offers the franchise operator a ready-made formula for business success based on standard operating procedures and cost-effective supply lines.
9 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Contracts At the higher levels of contract negotiation and exchange, such as for a franchise agreement, professional legal advice would be necessary for both parties. However, in most business negotiations carried out by a hospitality manager, a letter of agreement is all that is necessary to formalise the terms of the negotiation.
10 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Contracts A letter of agreement should stipulate the goods and/or services to be provided, the prices agreed, payment conditions, and in some instances delivery guarantees. Conditions regarding cancellation of bookings for rooms or food orders would also need to be included in agreements with, for example, hotels and food suppliers. Note that all written agreements of this nature are contracts, even if they are referred to as ‘letters of agreement’ or ‘confirmation letters’.
11 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Contracts Contracts should include for tax reasons: names and ABN (business) numbers of both organisations a statement that it is a fee for service or a purchasing agreement obligation by service provider to use their own tools and equipment obligation by service provider to meet business legal requirements, including taxation, workers compensation insurance and public liability insurance payment for complete work (not hourly) control over work and delegation to staff where necessary (this may be implied)
12 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Contracts Where a contract involves managing millions of dollars of expenditure, then clearly sophisticated agreements, including service level agreements (SLAs) and control measures, are necessary. This type of business arrangement is common in the hotel industry where an account manager will be made responsible for a corporate account, thus encouraging the building of an ongoing relationship between the hotel and the corporate customer.
13 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management
14 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Contract law A simple contract is an agreement made between two or more parties, which is generally supported by a document expressing that agreement in writing, but can be made orally. A formal contract is a deed, or a contract under seal. Clearly, a dispute over an agreement that has been written up and signed is easier to resolve than a verbal contract.
15 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Contract law For a simple contract to be enforced it must meet the following conditions: The offer must be made with the intent to be binding: in other words, it must be a definite promise and not merely an enquiry. A court will not enforce an agreement if the material terms are vague or absent. In the case of hotel rate agreements, while it may not be possible to quote specific rates for the years to come, the offer should at least include a definite formula, or method, for setting rates for the future.
16 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Contracts (continued) There must be unqualified acceptance of the exact terms of the offer for an agreement to exist. Usually, this means both parties signing the agreement. There can be no additions or deletions unless these are agreed to and signed for by both parties. An exchange of money for goods and/or services is the normal transaction for a business agreement. A guest, by ordering a menu item such as a hamburger, is agreeing to pay $9.50 as consideration for the meal. There must be an intention to create a legal relationship. In most business agreements this can be assumed.
17 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Agency contracts Provide staff on an hourly basis Agency employs the personnel
18 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Apprentices and trainees The contract covers the terms of traineeship or apprenticeship, conditions of employment and training and the parties involved Attrition rate (drop outs) for cookery are very high and the aim is to increase the number of completions
19 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Apprentices and trainees
20 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Apprentices and trainees One initiative is the Group Training Organisation These are the legal employers of apprentices and trainees. They carry the risks and obligations of employment and, at the same time, manage training requirements necessary for apprentices and trainees to achieve nationally recognised qualifications. The business can benefit by becoming a host employer who provides employment and training opportunities. Ongoing field support from Group Training Organisations ensures that you and the apprentice or trainee, receive all the assistance needed to maximise the opportunity for work and training.
21 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Networking Networking with people in government and hospitality regulatory bodies can provide outstanding, up-to-date professional advice, particularly to the small to medium business operator.
22 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Ethics Ethical behaviour is of supreme importance in fostering and maintaining all business relationships. Procurement or purchasing is one area in which ethical conduct in the development of relationships is essential.
23 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Negotiating techniques preparatory research of the facts of the business situation or parties to the agreement identification of goals of the negotiation and limits to the discussion clarification of needs of all parties, including third party stakeholders such as suppliers identification of points of agreement and points of difference non-verbal communication techniques to reinforce messages appropriate language, avoiding jargon, acronyms and colloquialisms bargaining strategies, including attempts to achieve win-win outcomes developing options and alternatives using brainstorming confirming agreements verbally and in writing using appropriate cultural behaviour
24 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Negotiation stages Planning and preparation Definition of ground rules Clarification and justification Bargaining and problem-solving Closure and implementation
25 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Organisation as a system
26 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management Organisation as a system The transformation process is the management activity that is brought to bear in planning the production process, monitoring operations and regulating results. All of this occurs within an external business environment where, for example, taxation regulations must be met and the organisation must remain responsive to changes in the economy and in domestic and international tourism markets. Business and employee relations are thus integrated in a complex and dynamic system in which all performance outcomes must be evaluated to provide feedback for ongoing system improvement.
27 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management
28 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management
29 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management
30 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management
31 © 2007 Lynn Van Der Wagen & Anne Goonetilleke Hospitality Management
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