In this entry I would like to discuss why IS is important for the hospitality industry, and how it can be used as a competitive advantage to drive up company profitability today and especially in the future. Nicholas G. Carr in his controversial article “IT Doesn’t Matter”, published in Harvard Business Review (Vol. 81, No. 5) in May 2003, argues that IT has become a “commodity” today, a “part of infrastructure” and it does not matter how much companies spend for IT innovations, it cannot give them a competitive advantage over rivals anymore.
I agree with Mr. Carr’s opinion in the first part of his assertion. I think IT has become an indispensible part of everybody’s life today. It’s almost like the air we breathe. And with information technology’s rapid growth in the last decade, it is hard to imagine how people could live without it today, and to what degree our life will depend on IT innovations in the future. The Internet and especially dynamic Web 2.0 platform inventions enable people from around the world to communicate, shop, share videos, and do many other activities online. There are already many goods and services only available on-line. Thus IT innovations not only continuously modernize previously IT-unrelated activities, but also become cannibalized by the new ones making old innovations obsolete.
As IT innovations proliferate and standardize, costs are also decreasing as more and more people around the world are able to afford to use these innovations. Thus IT has become a part of “infrastructure” in both trivial everyday activities and business processes. Therefore for a majority of hospitality companies, it is absolutely necessary to implement standard IT and IS solutions to be active participants in the “hospitality industry infrastructure”. For example, if the owner of an independent hotel decides to franchise his property with a big branded hotel chain, he will be required to purchase the Property Management System used by every hotel of the company; this could cost up to $150,000 today. The relevant question arises: will each hotel or the corporate office of this branded hotel chain have a competitive advantage over rivals if they feel compelled to acquire the latest IT innovations and update their Property Management System every time a “hot” new product arrives on the market? Probably they won’t if this new IT product is just a “nice-to-have” and does not support radical improvement in the company business strategy. Therefore the benefits from this new Property Management System implementation will be offset by the huge investment cost across all the hotels in the chain and company will just simply lose money. Moreover even if the company can gain a short term competitive advantage with the new IS implementation, competitors will react very quickly by deploying a similar IS solution of their own, erasing the advantage.
However I would like to challenge the second part of Mr. Carr’s assertion. I do think IS applications can provide a competitive advantage for a company in support of a well-conceived strategic plan. The main question here is: When and from what angle should a company start to think about deploying a new IS application and what is its role in the organization? It is a mistake to plan an IS project for the sake of IS itself. . First and the most important step is the correct choice of the future company strategy and all the goals that have to be accomplished to succeed with this strategy. Then company managers should evaluate all the possible alternatives helping to reach these goals. IT is usually only a part in the process of accomplishing the goals—an important part, but not the main. Often companies are not required to use the newest IT innovations to achieve the desired results along the strategic path. There are many examples in the hospitality industry of how a competitive advantage could be achieved using just widely available IT applications on the market: Harrah’s Loyalty Program, Marriott Rewards, Starwood Preferred Guest Program, and others. Hence I think the most important factor that gives a company a competitive advantage not IS itself, but the context: a great strategic idea bundled with the IT! Only in this case IS is a differentiator used in support of this particular company goal that will drive up company profitability. Without context and purpose IT is not a competitive advantage, but just a required “commodity”. Can companies accomplish their strategic goals without the IT as a foundation? - Yes perhaps some small hospitality family-owned companies can. But for the major players in the market: big hotel chains, multi-billion dollar casinos, and restaurant chains, dealing with warehouses of data, relevant IS, aligned with the company’s strategic initiatives, is crucial for success. Because it is only IT that can help hospitality “giants” discover and profit from the “hidden” information about their customers, which cannot be distinguished otherwise.
Thursday, February 26, 2009
Tuesday, February 17, 2009
Today I would like to discuss the significant role and influence of the e-marketing, online reservation channels, and social travel networks on the hospitality industry. If someone needed to travel 20 years ago how he or she could choose and book a hotel? In the best scenario he or she could find it in some travel magazine with limited information and pictures and make a reservation by phone. In the worst case he or she could just find it in the phonebook and make a reservation by phone without any information about the hotel except the short talk with the reservation or travel agent. However, the booking process changed with the creation of the Internet, so most hotels now build colorful web-sites with plenty information about the hotel and ability to make a reservation online. It was a dramatic change in the way of doing business for the hotels. But still this was not the most efficient and most popular way of making reservations. Thus only small percent of total reservations were submitted online and hotel web sites were very simple, not dynamic and mostly played an information role—offering “brochure-ware.” The ”revolution” happened in the e-marketing, online reservation channels, and social travel networks with invention of Web 2.0, which not only had changed the previous ”old-fashioned” use of the Internet, but also opened the door of opportunities for the future applications. It basically helped to connect customers with hotels online and added new players in the hospitality industry, like online retailers, intermediaries, and content providers. Social networks also sprang up like TripAdvisor which enabled hotel guests to comment on their stay for others looking to book at trip.
E-marketing and online reservations are significant part of total hotel reservations today and increasing rapidly. Max Starkov, Chief eBusiness Strategist at Hospitality eBusiness Strategies, in the Hotel Internet Marketing Best Practices and 2009 Action Plan argues that “by 2010 the Internet will contribute over 45% of all hotel bookings in North America.” I agree with Mr. Starkov’s opinion that the role and importance of e-marketing and online reservation channels are continuously driving sales in the hospitality industry. Travelers are becoming more knowledgeable and demanding because trusted sources of information are widely available today through the Internet. Online reservation channels force hotels to drop prices and provide customers with plenty of hotel choices. Customers and online reservation channels have much stronger bargaining power today than hotels. Competition is becoming more aggressive. Thus hotels are on the lookout for new and more efficient ways to catch the customer and win his loyalty. The knowledge and use of e-marketing and online reservation channels are a competitive advantage for hotel managers today. It is crucial--especially in today’s economic downturn--to use it as the revenue enhancement tool to increase and maintain company profitability. “In difficult economic times like this, Internet marketing can help smart hoteliers generate incremental revenues, improve ROIs, attract more affluent travelers, and out-smart the competition,”- said Mr. Starkov in 2009 benchmark survey on e-business strategies. Furthermore, the e-marketing and abundance of online reservation channels today are changing the global structure of the hospitality business. For example, in Europe, Middle East, and Mediterranean regions Tour Operators historically were the major players on the hospitality business arena. They were the intermediary between the travelers and hotels. Therefore they had tremendous bargaining power over the hotels, airlines, and customers because they were buying inventory (rooms and seats in the airplanes), bundling the ‘deals’, and selling them to the customers. But today they are losing their market share dramatically because customers can get information and make online reservations themselves without Tour Operator assistance. I think that in the next decade online reservations either through online reservation channels or hotel web sites will totally supplant the traditional reservations by phone and through travel agents, because they are much faster, convenient (24/7), and do not cost anything for customer. Also online reservation channels and hotel web-sites started to use ‘virtual tours’, ‘match the room with your personality type’, and personalized newsletters to provide customers with the maximum information about the hotel, room, amenities, prices, and special offers and help them to make a choice.
Furthermore, I think it is important to understand the continuously increasing role of social travel networks like TripAdvisor in influencing and shaping customer travel choices. If yesterday’s travelers received mostly positive facts about the desired hotel from travel magazines, TV, or the hotel web site, today they have access to more realistic and reliable information, submitted by the other travelers on travel social networks like TripAdvisor.com. Moreover they can share their own experiences with other users. TripAdvisor.com is becoming a powerful tool not only in influencing and shaping customers preferences but also in forcing hotels to improve the quality of service. Hotel managers cannot ignore their influence anymore. Good hotel managers usually check the content postings about their hotel on a daily basis and react immediately to any complaints about the hotel. For example, in the Taj Hotel Group every hotel manager must submit a report about the time of response and recovery actions for every customer complaint on TripAdvisor.com. It can cost him his job if he does not react in-time. Therefore TripAdvisor.com is a not only a great source of reliable information for travelers, but also it is their protection from the possibility of poor service. The number of visitors to TripAdvisor.com had been growing dramatically since it was created. Thus according to TripAdvisor.com Press Release today TripAdvisor, LLC attracts nearly 32 million monthly visitors across 12 popular travel brands. TripAdvisor-branded sites make up the largest travel community in the world, with 24 million monthly visitors, six million registered members and 15 million reviews and opinions. Featuring real advice from real travelers, TripAdvisor-branded sites cover 300,000+ hotels and attractions and operate in the U.S.” I think in the future the number and importance of travel social networks will grow and they will play not only the role of content-provider, but also could add some other activities: for example ‘Trip planner’-helping travelers plan the ‘perfect’ vacation based on their preferences, ‘Life Interviews with Travelers’, sharing of travel experiences with photos on Flickr or videos on YouTube. I also see Facebook, Twitter and MySpace exposing groups in a social network to relevant travel booking opportunities based on their giving permission to group members’ travel itineraries.
E-marketing and online reservations are significant part of total hotel reservations today and increasing rapidly. Max Starkov, Chief eBusiness Strategist at Hospitality eBusiness Strategies, in the Hotel Internet Marketing Best Practices and 2009 Action Plan argues that “by 2010 the Internet will contribute over 45% of all hotel bookings in North America.” I agree with Mr. Starkov’s opinion that the role and importance of e-marketing and online reservation channels are continuously driving sales in the hospitality industry. Travelers are becoming more knowledgeable and demanding because trusted sources of information are widely available today through the Internet. Online reservation channels force hotels to drop prices and provide customers with plenty of hotel choices. Customers and online reservation channels have much stronger bargaining power today than hotels. Competition is becoming more aggressive. Thus hotels are on the lookout for new and more efficient ways to catch the customer and win his loyalty. The knowledge and use of e-marketing and online reservation channels are a competitive advantage for hotel managers today. It is crucial--especially in today’s economic downturn--to use it as the revenue enhancement tool to increase and maintain company profitability. “In difficult economic times like this, Internet marketing can help smart hoteliers generate incremental revenues, improve ROIs, attract more affluent travelers, and out-smart the competition,”- said Mr. Starkov in 2009 benchmark survey on e-business strategies. Furthermore, the e-marketing and abundance of online reservation channels today are changing the global structure of the hospitality business. For example, in Europe, Middle East, and Mediterranean regions Tour Operators historically were the major players on the hospitality business arena. They were the intermediary between the travelers and hotels. Therefore they had tremendous bargaining power over the hotels, airlines, and customers because they were buying inventory (rooms and seats in the airplanes), bundling the ‘deals’, and selling them to the customers. But today they are losing their market share dramatically because customers can get information and make online reservations themselves without Tour Operator assistance. I think that in the next decade online reservations either through online reservation channels or hotel web sites will totally supplant the traditional reservations by phone and through travel agents, because they are much faster, convenient (24/7), and do not cost anything for customer. Also online reservation channels and hotel web-sites started to use ‘virtual tours’, ‘match the room with your personality type’, and personalized newsletters to provide customers with the maximum information about the hotel, room, amenities, prices, and special offers and help them to make a choice.
Furthermore, I think it is important to understand the continuously increasing role of social travel networks like TripAdvisor in influencing and shaping customer travel choices. If yesterday’s travelers received mostly positive facts about the desired hotel from travel magazines, TV, or the hotel web site, today they have access to more realistic and reliable information, submitted by the other travelers on travel social networks like TripAdvisor.com. Moreover they can share their own experiences with other users. TripAdvisor.com is becoming a powerful tool not only in influencing and shaping customers preferences but also in forcing hotels to improve the quality of service. Hotel managers cannot ignore their influence anymore. Good hotel managers usually check the content postings about their hotel on a daily basis and react immediately to any complaints about the hotel. For example, in the Taj Hotel Group every hotel manager must submit a report about the time of response and recovery actions for every customer complaint on TripAdvisor.com. It can cost him his job if he does not react in-time. Therefore TripAdvisor.com is a not only a great source of reliable information for travelers, but also it is their protection from the possibility of poor service. The number of visitors to TripAdvisor.com had been growing dramatically since it was created. Thus according to TripAdvisor.com Press Release today TripAdvisor, LLC attracts nearly 32 million monthly visitors across 12 popular travel brands. TripAdvisor-branded sites make up the largest travel community in the world, with 24 million monthly visitors, six million registered members and 15 million reviews and opinions. Featuring real advice from real travelers, TripAdvisor-branded sites cover 300,000+ hotels and attractions and operate in the U.S.” I think in the future the number and importance of travel social networks will grow and they will play not only the role of content-provider, but also could add some other activities: for example ‘Trip planner’-helping travelers plan the ‘perfect’ vacation based on their preferences, ‘Life Interviews with Travelers’, sharing of travel experiences with photos on Flickr or videos on YouTube. I also see Facebook, Twitter and MySpace exposing groups in a social network to relevant travel booking opportunities based on their giving permission to group members’ travel itineraries.
This Blog’s main idea is to discuss the importance of the Information Systems (IS) and Information Technology (IT) for the global hospitality industry, explore recent business and technological trends in the industry, and evaluate which of them will become benchmarks of performance improvement and efficiency for hospitality in the future. To make the entire Blog easier to follow and more interactive, I would like to cover four different dimensions addressing the relevant questions about the future of IS and IT in the global hospitality industry: “What changes in hospitality industry--internal and external--will need IT support in the future? What IT innovations can be adapted to hospitality? How they can be implemented? Why it is important? Who are participants in this process and what do they need to know?” Hospitality managers, employees, students, or anyone who has an interest in the topic or valuable information to share are welcome to participate in the discussion. Today I would like to discuss the importance of IS for the hospitality industry and address the following questions: Is it worth investing in IS projects today? Is this investment a needless expense or cost-saving practice for the hospitality industry players? How to invest in IS “smart”?
With development of computers and later the Internet companies began to enjoy the benefits of using IT and later IS for their internal processes. Historically business processes were organized on a hierarchical or functional perspective. Therefore IS supported those processes providing great help in performing some particular functions along organizational levels or in department. Basically companies used internal IS tools as ‘calculators with advanced functions’ and underestimated their potential for company business process organization and profitability. However, recently many companies discovered a “revolutionary way” of organizing their business based on the process perspective: BPR (Business Process Reengineering). When BPR just first introduced there was a lack sufficient IT to support this process, but today it is available in the form of EIS (Enterprise Information System). EIS offers great opportunities for hospitality companies not only in collecting and storing data, but most of all in analyzing all the information and using it to make strategic managerial decisions. Some hospitality players, for example casinos, adopted this new approach very quickly, implemented the latest IS to support and enjoy the benefits of it in the form of increased profitability and customer loyalty. But other hospitality companies, for example restaurants and independent hotels, still do not see any added value in implementing EIS and instead use a “middleware interfaces” approach to interconnect different internal applications. Even five-star luxury hotels in Central Park area in Manhattan where I had my winter externship use this approach. It did not work effectively, was very time-consuming, and created a lot of errors in the finance department, which were very hard to find and fix later.
One of the biggest barriers for hospitality managers to adopt EIS today is the expensive implementation and coordination costs. High cost is a crucial issue especially today when forecast for the future of the hospitality industry does not look bright in light of the global economic recession: significant decreases in ADR, occupancy rates, and RevPar; very limited new hotel development; cost-cutting polices. Thus the recent events have forced the big hotel and restaurant chains and independent operators to re-evaluate their priorities in spending in order to lower costs and try to maintain profitability. However, despite all these “dark” forecasts for the future, some experts are finding the current economic environment a perfect time for companies to replace their current information systems or adopt new ones. For example, Eric Kimberling, President and founder of Panorama Consulting Group, in his Blog discusses “top 10 benefits and results of implementing ERP (Enterprise Resource Planning)--type of EIS--in the current economic environment:
1. Reduce total cost of ownership2. Increase revenues 3. Increase productivity 4. Improve business process efficiency 5. Ability to choose from multiple ERP delivery options 6. Scale for growth and economic recovery7. Leverage available resources
8. Prepare for mergers and acquisitions 9. Force management to focus on benefits realization 10. Increase rationalization of ERP investments.”
In my opinion, supported by Mr. Kimberling analysis, hospitality managers should consider EIS today not as an expensive investment increasing the total operating costs, but as a valuable tool that will help them not only gain a competitive advantage in the future but also cut operating costs today. I think the benefits of using EIS for the hospitality industry are obvious and taking into account the rapid growth of IT in recent decade it will be the ”only way” of doing business soon.
However, hospitality managers should be “smart” in selecting the appropriate IS for their company needs. Even before the recent economic downturn many of the companies invested in IT “blindly” without considering how the particular IS or IT innovation can be useful for their company. Thus, as a result, “between 1999 and 2001, U.S. companies spent $130 billion on IT they never used,” according to the analysis of Andrew McAfee, Associate Professor in the Technology and Operations Management area at Harvard Business School. Thus hospitality companies should invest “selectively” only in the IS or IT innovations that align with their business strategy. For example, it does not make sense for a small family-owned restaurant or bar to invest in a gigantic EIS project, simply because they do not need to use all the functions of EIS in their business process and implementation and coordination costs will be higher than the benefits. I found out about this problem in my conversation with the owner of the ‘Pixel’ Lounge in Ithaca, NY who developed a novel inventory control and purchase system for small and medium size bars and restaurants and is trying to market it. Thus, there is a lack of EIS for small and medium size businesses in hospitality today which need more simple and less expensive IS for their business processes. It represents an opportunity for some IT providers to work in this direction today.
With development of computers and later the Internet companies began to enjoy the benefits of using IT and later IS for their internal processes. Historically business processes were organized on a hierarchical or functional perspective. Therefore IS supported those processes providing great help in performing some particular functions along organizational levels or in department. Basically companies used internal IS tools as ‘calculators with advanced functions’ and underestimated their potential for company business process organization and profitability. However, recently many companies discovered a “revolutionary way” of organizing their business based on the process perspective: BPR (Business Process Reengineering). When BPR just first introduced there was a lack sufficient IT to support this process, but today it is available in the form of EIS (Enterprise Information System). EIS offers great opportunities for hospitality companies not only in collecting and storing data, but most of all in analyzing all the information and using it to make strategic managerial decisions. Some hospitality players, for example casinos, adopted this new approach very quickly, implemented the latest IS to support and enjoy the benefits of it in the form of increased profitability and customer loyalty. But other hospitality companies, for example restaurants and independent hotels, still do not see any added value in implementing EIS and instead use a “middleware interfaces” approach to interconnect different internal applications. Even five-star luxury hotels in Central Park area in Manhattan where I had my winter externship use this approach. It did not work effectively, was very time-consuming, and created a lot of errors in the finance department, which were very hard to find and fix later.
One of the biggest barriers for hospitality managers to adopt EIS today is the expensive implementation and coordination costs. High cost is a crucial issue especially today when forecast for the future of the hospitality industry does not look bright in light of the global economic recession: significant decreases in ADR, occupancy rates, and RevPar; very limited new hotel development; cost-cutting polices. Thus the recent events have forced the big hotel and restaurant chains and independent operators to re-evaluate their priorities in spending in order to lower costs and try to maintain profitability. However, despite all these “dark” forecasts for the future, some experts are finding the current economic environment a perfect time for companies to replace their current information systems or adopt new ones. For example, Eric Kimberling, President and founder of Panorama Consulting Group, in his Blog discusses “top 10 benefits and results of implementing ERP (Enterprise Resource Planning)--type of EIS--in the current economic environment:
1. Reduce total cost of ownership2. Increase revenues 3. Increase productivity 4. Improve business process efficiency 5. Ability to choose from multiple ERP delivery options 6. Scale for growth and economic recovery7. Leverage available resources
8. Prepare for mergers and acquisitions 9. Force management to focus on benefits realization 10. Increase rationalization of ERP investments.”
In my opinion, supported by Mr. Kimberling analysis, hospitality managers should consider EIS today not as an expensive investment increasing the total operating costs, but as a valuable tool that will help them not only gain a competitive advantage in the future but also cut operating costs today. I think the benefits of using EIS for the hospitality industry are obvious and taking into account the rapid growth of IT in recent decade it will be the ”only way” of doing business soon.
However, hospitality managers should be “smart” in selecting the appropriate IS for their company needs. Even before the recent economic downturn many of the companies invested in IT “blindly” without considering how the particular IS or IT innovation can be useful for their company. Thus, as a result, “between 1999 and 2001, U.S. companies spent $130 billion on IT they never used,” according to the analysis of Andrew McAfee, Associate Professor in the Technology and Operations Management area at Harvard Business School. Thus hospitality companies should invest “selectively” only in the IS or IT innovations that align with their business strategy. For example, it does not make sense for a small family-owned restaurant or bar to invest in a gigantic EIS project, simply because they do not need to use all the functions of EIS in their business process and implementation and coordination costs will be higher than the benefits. I found out about this problem in my conversation with the owner of the ‘Pixel’ Lounge in Ithaca, NY who developed a novel inventory control and purchase system for small and medium size bars and restaurants and is trying to market it. Thus, there is a lack of EIS for small and medium size businesses in hospitality today which need more simple and less expensive IS for their business processes. It represents an opportunity for some IT providers to work in this direction today.
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