Identifying Vulnerabilities and Enhancing the Resilience of Auckland’s hospitality Businesses

 

27/07/2018

By Dr Alice Chang-Richards


Photo: Franklin Heijnen via Flikr

Small businesses in the hospitality industry play a vital role in New Zealand’s economy. Researches have been analysing risks affecting small business in Auckland’s hospitality industry and investigating how to enhance their resilience.

 

New Zealand’s small businesses

 

Small businesses, also referred to as SMEs (small to medium sized enterprises), are defined as enterprises with less than 20 employees. They make up 97% of all businesses in New Zealand and make a significant contribution to our economy and society. However, they are subject to a wide variety of potential natural hazards and weather events, and, unlike larger companies, they often don’t have the resources or extent of knowledge to cope with these unexpected disruptions.  However, their survival is vital for the long-term health of New Zealand’s economy, and  it is essential that we identify and understand the vulnerabilities faced by small businesses. Once we understand what they are up against, we can develop and provide mitigation and management techniques that will help businesses to enhance their resilience. 

Many of New Zealand’s small businesses, particularly in our cities and tourist areas, are in the hospitality industry. With this in mind, researchers in the Resilience to Nature’s Challenges Urban Resilience programme approached 200 hospitality industry businesses from late June to early August 2017, of which 71 took part in a survey looking at their resilience and perception of risks.

 

Risky business

 

First of all, researchers wanted to find out how aware hospitality businesses were of the potential threats they faced, and what they saw to be the biggest risks. Of the respondents surveyed, 80% considered themselves to be somewhat or fully aware of the potential threats facing their business. When asked what they saw to be their biggest barrier to resilience, staff levels and competencies was by far the most common response. Respondents also recognised the threat of natural hazards, which had been highlighted recently in New Lynn where severe weather earlier in the year affected both patronage and supplier prices. However, issues with staffing, downturns in economic conditions, and damages from fire or similar were most commonly thought to be the greatest risks overall. The table below shows the how the top five risks were ranked by different groups of businesses.

Surveyed businesses’ awareness of potential risks
Top five risks (with highest risk at the top and lowest at the bottom) for:
All Businesses “Fully Aware” Businesses 10+ Years Businesses Best Performing Businesses
Staffing Issues Fire or Similar Poor Economic Conditions (1st=) Natural Hazards (Incl Severe Weather, Earthquakes, Etc)
Poor Economic Conditions Staffing Issues Staffing Issues (1st=) Poor Economic Conditions
Fire or Similar Natural Hazards (Incl Severe Weather, Earthquakes, Etc) Natural Hazards (Incl Severe Weather, Earthquakes, Etc)(3rd=) Theft or Robbery (3rd=)
Competition Poor Economic Conditions Fire or Similar (3rd=) Staffing Issues (3rd=)
Natural Hazards (Incl Severe Weather, Earthquakes, Etc) Theft or Robbery Theft or Robbery Competition from Other Businesses

Mitigation Plans

 

When asked about contingency planning, 71.7% of businesses reported having a structured insurance portfolio. However, under half of those surveyed had business continuity plans and only 63.3% had some form of emergency or crisis plan. In addition to this, most businesses did not regularly run through or practise their emergency plans with staff, and some managers could not provide details about their emergency plans other than to say they were aware of their existence. This is a major concern as it highlights how ineffectual many businesses’ emergency plans would likely be in the case of a real crisis.

 

What makes a business resilient?

 

Researchers also asked respondents about the factors that contributed to their resilience. Overall, respondents thought leadership and management was the most important factor. This suggests that the drive for resilience is seen to need to come from the top. Ensuring that staff are competent in their roles was ranked the second most important factor in business resilience. This reflects the importance of staff members’ specialty and soft skills in an industry that is heavily dependent on customer satisfaction. Preparedness was ranked third, showing that hospitality businesses in Auckland have an appreciation of the importance of being ready for the unexpected. The overall weighted order of rankings of the resilience factors is given below.

 

Overall Factor Ranking
1 Leadership and Management How the business is run, and the ability to be responsive and make good decisions
2 Staff Core Competency The capability, work ethics and skills of staff
3 Preparedness Internal framework/schemes to mitigate against the unexpected
4 Market Sensitivity How in touch the business is with market changes and the effects of market changes on the business
5th= Adaptive Ability How well the business adapts in the face of crises/disruptions
5th= Aligned Business Practise Compliance and Regulations
7 Situational Awareness Risk awareness as it pertains to potential effects on the business
8 Leveraging Knowledge Access to and use of information for the benefit of the business
9 Innovation and Diversification New ideas, business models and novel ways to increase revenue
10 Reflective Business Model Regular reflection on business operations and performance to help improve in future
11 Network Robustness Robust supply chain and social capital
12 Access to External Resources Access to funding, materials and external assistance

Business age and staff retention

 

Generally, the study found that newer hospitality businesses in Auckland were less resilient than older businesses. This was because they were untested to crises, and so had less experience in emergency management. Another factor in business resilience was retention of competent and skilled staff. Staff retention is difficult in the hospitality industry, due in part to foreigners on working holidays, among other things. High staff turnover results in lower skilled staff as newer staff members need time to develop skills, while longer-standing staff are experienced and have a higher capacity to cope with unexpected events.

 

Photo: Premshree Pillai via Flikr

Improving the resilience of our businesses

 

Overall, the study found that  effective leadership and management are critical for organisational resilience, along with a number of other factors including staff retention and economic conditions. While many hospitality businesses in Auckland tended to be reasonably resilient, there is significant room for improvement, especially with regards to  planning and risk mitigation. The results of this study give us a good indication of where to focus energy and resources to help build the resilience of businesses in the hospitality industry. For more information about the project, please contact:

Project leader: Dr Alice Chang-Richards, Email: yan.chang@auckland.ac.nz

Research students: James Alach, Email: jala346@aucklanduni.ac.nz and Boris Yiu, Email:  byiu517@aucklanduni.ac.nz