The Future of Hospitality: 5 Realities Changing the Industry

Though they’d be forgiven for taking some time to catch their breath—following the reinvention marathon the industry endured in recent years—hospitality leaders and their businesses aren’t slowing down. They’re busy experimenting with new service options and channels, planning ambitious future initiatives, and redefining hospitality for guests and employees alike.

Accelerating digital transformation unlocks operational scale and agility—and the ability to deliver engaging guest experiences. That’s key, considering that ongoing staffing challenges could otherwise hamper the industry’s ability to keep up with guest demand. 

Here, we examine five truths that hospitality leaders should embrace as they seek to create optimized, seamless, and satisfying experiences now and well into the future.

1. Experimentation Is Key to Meet Evolving Guest Demands

The hospitality industry is evolving at a rapid pace—even the concept of a restaurant has drastically changed in the past few years. The simple proposition of dine in or takeout has expanded to include curbside pickup, digital orders, third-party delivery apps, and “ghost kitchens” (food prepared for delivery or takeout), as restaurateurs pull multiple levers to satisfy customers and realize profits. 

This experimentation is set to continue as all hospitality operators strive to create sustainable models that meet guest expectations, seamlessly integrating physical and virtual services. Restaurants, for one, will need to adopt an omnichannel approach that blends dine-in and takeout experiences with varying price points to match. Think upscale in-person dining in the front of the restaurant with affordable delivery options out the back, or the continuing trend of ghost kitchens that evolve into virtual food halls.

To meet this demand, nearly a quarter of hospitality and travel operators are increasing their IT spending, according to data from market intelligence company IDC, with more than one-third planning to drive business objectives through innovation. 

“There’s definitely going to be a continued and accelerated adoption of different automation technologies both in the restaurant and in back-office and enterprise systems,” says Ken Duffy, principal at Deloitte. “We’re going to see more experimentation with different restaurant formats like smaller-footprint restaurants that are focusing just on off-premises dining, and we'll probably see some modifications to existing restaurants to alleviate some of the operational strains of all these different ordering channels.”

But experimenting doesn’t mean throwing darts. Taking smart risks requires analyzing reams of data to identify patterns and trends in guest behaviors. Operators need instant access to huge volumes of financial, workforce, and operational data to make faster, better-informed decisions amid changing market conditions. 

Unfortunately, some hospitality organizations’ inflexible, on-premise systems—which produce siloed, inconsistent data for operations, human capital management, and middle-office functions—make this near impossible. It’s not surprising, then, that hospitality leaders say digital automation, connecting front- and back-of-the-house systems, and harnessing the power of data are top priorities, according to Workday’s latest global CFO and CIO indicator survey.

To experiment wisely, hospitality operators need to see the full picture of their people, operations, and finances in one place. Solutions that combine disparate data sources are key to providing this 360-degree visibility. Blended metrics pulling in granular details, such as point-of-sale checks, square footage, foot traffic, and channel, will help hospitality leaders answer complex operational questions and better anticipate where guest demand is headed. 

“Agility and being able to make data-driven decisions is going to define success,” says Rich Bye, vice president of human capital management and workforce product strategy at Workday. “Companies with full-stack integrations are able to speed their operational awareness and are more successful tracking their experiments with delivery, different methods of operations, and controlling labor costs.”

2. Scenario Planning Will Remain Synonymous With Success

In an industry that’s especially sensitive to disruption, a single plan just won’t cut it. 

Hospitality leaders “are absolutely building very detailed scenario plans to understand how to react to different market conditions and figure out what levers to pull, what initiatives to drive, depending on how the market plays out,” said Scott Rankin, KPMG’s advisory industry leader for consumer and retail, at Workday Rising this past fall.

To build powerful short- and long-term plans, hospitality operators will need a technology platform that empowers them to react to a range of possibilities.

Many learned this lesson during the pandemic, when existing strategies went out the window. Amy Smith, senior vice president and CFO at Drury Hotels, notes that her company lost 80% of its revenue in one month during the pandemic, and at that point, the company had almost no ability to forecast effectively. 

This served as a wake-up call to replace its 20-year-old on-premise system with an integrated, cloud-based solution, including financial planning software. “That has transformed how our team interacts with the budget and forecast process,” Smith says. “[Today] we have an ability to set up everything as assumptions and then turn around and drive formulas for anything that’s variable on those assumptions.”

But across the industry, many organizations still grapple with spreadsheets and siloed data, struggling to execute efficient what-if scenarios on the impacts of labor shortages, rising prices, occupancy changes, and more. In fact, 70% of hospitality leaders say they have not yet developed a digital finance transformation strategy or are still in the process of developing one, a Workday survey found.

Going forward, hospitality leaders will take a more proactive stance by investing in technology that bridges the front and back offices—everything from inventory management and menu planning to cash-flow analysis and scenario planning—in one intuitive, trusted source.

“Operators are taking a much more strategic approach so they can react quicker and better, with stronger scenario planning and multiple back-up plans,” says Eric Washer, vice president, industry product strategy at Workday. “With everything going on in the world, we expect that organizations will only be looking further out, no longer content to have just one or two options for a certain supply or a certain region.”

3. Labor Challenges Spur Investments in Employee Experience  

Demand for travel and dining has roared back since the start of the pandemic, while at the same time the industry faces historic labor shortages. In 2022, hospitality’s labor force stood at just 84% of 2019 levels, while 46% of hospitality executives reported higher employee turnover than the historical average. The labor crunch isn’t just pay related, either: Hospitality frontline workers are seeking out a better work-life balance via entirely new careers.

“It’s been kind of a reinvention,” says Jude Reser, vice president of human resources at hotel and asset management company Atrium Hospitality. “People have decided that they would rather work 9 to 5, five days a week, and have some flexibility.”

According to a recent Workday study, frontline hospitality employees are also tired of feeling less valued than back-office workers. Only 34% of hospitality respondents say that they value frontline staff as much as office staff. 

Hospitality leaders will need to attract and retain frontline workers by giving them more control over their work lives and focusing on their development and wellbeing. One way is by offering more flexible scheduling options to compete with remote and hybrid jobs. They’ll also offer more visibility into additional opportunities available within the organization, so that workers can see a path forward that doesn’t require leaving for a better position elsewhere.

“It’s become quite evident that sensitivity to your workforce is more mission-critical than ever before,” notes Mark Cohen, director of retail studies at Columbia Business School. “People who run businesses need to have their frontline workers staff their business. But, if they’re not sensitive to their frontline workers as human beings, they may not have a large enough workforce to do business at all.” 

The enormity of the labor issue also requires careful use of data to track employee engagement. According to Workday research, 29% of organizations say an inability to quantify the value of an engaged frontline workforce or to gather the data necessary to do so are barriers to improving their frontline experience. 

One way businesses will address this issue is through technology. Tech will help hospitality organizations better understand the distinct needs, preferences, and goals of each worker. 

Machine learning (ML) will help personalize experiences so that employees can grow, be more productive, and feel more supported.

“It’s about asking, ‘How can I help you? How can I make a comfortable environment for you to work in?’” says David Morrell, a human resources leader and assistant professor at SUNY Empire State College. “You want to help the employee to be as satisfied, comfortable, and happy as they can be.”

4. ESG Emerges as a Growing Competitive Differentiator

Consumers and investors alike are paying more attention to hospitality companies’ environmental, social, and governance (ESG) practices, such as green accommodations and climate risk disclosures, and are adjusting their purchasing and investment behavior accordingly.

“Customers want to understand and feel confident that the products they’re buying and the operating model of an organization fit their values from an ESG perspective,” noted KPMG’s Rankin at Workday Rising. 

To meet these increased guest expectations, as well as regulatory requirements, hospitality companies will need to not only collect the correct data—from both internal and external sources—to properly track ESG initiatives, but also incorporate that data into core finance and human resources (HR) processes through a single platform. 

This creates what Stefan Ball, a senior solution marketing manager at Workday, calls “a robust central repository” for managing ESG performance, allowing operations, HR, and sustainability teams to work together to accomplish ESG goals. 

Hospitality companies’ finance teams, in particular, will be called to track information for ESG reporting and analyze how ESG objectives align with business performance. Empowered by cloud-based planning platforms that house financial metrics and ESG statistics in the same place, finance leaders can track ESG progress with integrated data from finance, operations, and other business units. This will help hospitality leaders immediately understand the ESG impact of business decisions and make adjustments as necessary. 

With the right commitments powered by the right technology, the industry can succeed in taking care of both its guests and the world at large. 

5. Hospitality Will Embrace AI and ML to Better Manage People and Operations

Not only do 70% of restaurant operators not have enough workers to support current demand, they also don’t expect a reprieve anytime soon. That’s a situation that extends across the industry—and one that leaders will need to address by investing in contactless capabilities and workflow automation across the employee life cycle, from recruiting and onboarding through offboarding. 

To augment the gaps in their human workforce, restaurants will increasingly leverage AI (artificial intelligence) for chatbots, personalized content on mobile apps, social media ordering, and administrative support. 

At Shake Shack, CIO Dave Harris says the organization automates processes wherever possible to reduce the time that managers spend on administrative tasks so they can spend more time with their teams and guests. 

Hotels, meanwhile, will depend on AI to improve personalized customer experiences and smart room service. While many guest-facing experiences are already conducted through autonomous channels, 50% of hospitality and travel operators by 2026 will fully automate tasks such as booking and staff interaction, personalized check-ins, maintenance, and occupancy and room optimization. 

Automation will also grow beyond more simplistic tasks. “I look at automation in two different buckets,” Deloitte principal Duffy says. “One is automating tasks, like automating flipping a burger. But then there’s also automation around decision-making, and that is where I think a lot of investment is going to be made over the next couple of years.”

The same data used by AI and ML to make operational decisions will also strengthen the hospitality industry’s skills-based approach to hiring, resulting in a workforce that’s better equipped to face future challenges. For example, AI and ML applications can speed up recruiting processes, scraping high volumes of resumes to highlight best-fit candidates for open roles. At Shake Shake, automated systems search for candidates with a growth mindset who are looking to develop new skills, rather than candidates with specific restaurant experience. Skills-based hiring will be a critical tool for the hospitality industry as leaders vie to attract workers from a smaller talent pool.

To learn more about how Workday can help your hospitality organization evolve, visit our website.