No. 1: Host Hotels

The top people in any business usually have an instinctive sense of how to make money—and feel it in their gut when they strike a deal that is not to their advantage. The challenge is ensuring that the same business savvy is present thoughout the organization.

Host Hotels, the real-estate investment trust that is the No. 1 company on Underground Reporter’s smart list this year, is addressing that challenge through the use of business intelligence software. A $750,000 Cognos system running on a SQL server has helped the Bethesda, Md.-based company fine-tune operations at many of its hotels, including 70 Marriotts and nine Ritz-Carltons.

Host’s executives and analysts review monthly reports that show comparative market data on hotel labor costs, occupancy rates and average room revenue. They use this information to press hotel managers to adopt more-profitable business practices.

For instance, a hotel in a big Eastern city had food and energy costs that were out of line with those of a hotel across town. Hotel management made changes that boosted profitability by $2 million a year. Since hotels nowadays sell for about 15 times cash flow, that $2 million improvement translated into a $30 million increase in value.

“We spend an inordinate amount of time looking at data,” says Larry Harvey, the company’s chief accounting officer. “We believe that provides a real competitive advantage.”

Restaurants, which are usually money pits at hotels, are one area in which the Cognos system has helped Host improve its profitability. Analysts have sometimes used data from the system to persuade hotel managers to lease their restaurant operations to outside companies, replacing uncertain revenue with rent.

Host has also used the system to emphasize price hikes, which require no additional staff, over occupancy increases, which do. In 2006, Host’s average room rate rose 9.2% to $183 while its occupancy rate barely budged. That contributed to a 54% jump in operating profit.