Rich: Tim, first of all let me thank you for allowing me to sit here with you in lovely Memphis, Tenn.
Tim: Rich, I am honored to have you here.
Before we really get into this, let’s delve into your background a bit. When and where did you start your climb to become the CIO of Hilton Hotels?
I started in the industry in 1979 as an application programmer intern.
With which company did you start?
I graduated with a degree in management information systems and accepted a position with Holiday Inn as a programmer.
What languages?
Cobolt and a 4GL called Mantis.
How long did you program for?
About six months.
Why only six months?
If you want the truth, I wasn’t very good at it.
What did you do?
I realized my strength was instantly the business end and then applying technology. So, I moved into an analyst role. Two years after I started, they made me a project manager.
What did you do after becoming a project manager?
In 1984 I became the manager of property management systems development for the company.
You went back to school to get your MBA, correct?
Yes, I did that at the University of Memphis around the same time in the mid-‘80s.
Even with your exposure to technology, you went back to school to get your MBA, why is that?
My goal was not just to be a technologist, but to be a business person that could see the benefits of technology in running a business. Plus, I love business.
We are approaching the time frame when Holiday Inn was sold to Bass, correct?
In 1990 Holiday Inn was sold to Bass Hotels & Resorts.
This must have been interesting. What happened?
There were 13 or so people selected out of the Holiday Inn organization to start the new technology organization for Promus Companies, which was primarily a gaming company with a relatively small number of Hampton Inn, Embassy Suites and Homewood Suites hotels.
Did you sell all your technology to Bass when Holiday Inn was sold to them?
Yes. This included the Holidex reservation system.
Oh yes, Holidex. For those of us who have been around awhile, this was a very advanced technology back then.
I agree. After the sale of Holiday Inn to Bass, our job was to create all of the technology to support the hotel business. This was a tough goal considering the great reputation of Holidex.
And this was in 1990?
Yes. At that point in time, Holiday Inns were 50 percent of the revenue for the corporation.
So, you basically sold off 50 percent of your revenue stream. What were you left with?
We became a company driven by gaming revenues from Harrah’s.
Did you have any straight hotels at this point?
We had about 250, including Hampton Inns, Embassy Suites and Homewood Suites. I remind you, this was the early ‘90s during recessionary times.
So, what did you do?
I need to credit the vision of Ray Schultz and Mike Rose and the technology leadership of Chris Gibbons, the CIO at the time.
Why?
They provided the guidance to go ahead and build the technology as if we were going to be 1,000 hotels, and not just for 250 hotels.
Where did you start?
The first thing we needed was a technology architecture and plan that supported a single, integrated solution including reservations, marketing, property, revenue management and back office.
Tell me the schedule of what you have done with your systems since the sale of Holiday Inn in 1990.
First, we brought up our back office system which included accounting and human resource applications. Then we brought up our marketing systems and our reservation system. On the reservation front, we started working with Anasazi and got our reservation system up in 1993.
What was next?
As a part of the original strategy crafted with the sale of the Holiday Inn brand, we were scheduled to deliver a new generation PMS with Sulcus Hospitality that would work with our reservation system, our new marketing system and our new back office system.
This was to be delivered in mid 1993?
Yes.
Who was the CIO at that time?
As mentioned before, it was Chris Gibbons who ended up leaving us to become a CIO at Microsoft.
You worked to deliver the PMS project for a year which brings us to mid-1994, correct?
Yes.
What happened then?
We realized it was not going to happen the way we had hoped and planned.
So, what did you do?
We decided to develop our own PMS, System 21, which would be a true Windows-based system.
This must have been a turbulent time for you.
It was. I had to look franchise owners in the face and tell them we told you we were going to do something and we didn’t get it done. This was a very embarrassing time.
Did they appreciate your honesty?
People often judge you as to how you get out of uncomfortable situations. We were honest with them and that helped us come out of this situation pretty well.
So, what was next?
We experienced a major business change. In 1995 the hotel business was really growing and the market conditions were right to separate the gaming and hotel businesses into two separate public companies. We created Promus Hotels Corporation and I became the CIO. Hampton Inn, Embassy Suites and Homewood Suites had grown to about 1,000 hotels at this time.
When was your System 21 ready?
We started rolling the system to new hotels in 1997 and retro’ed to the existing hotels in 1998.
Wasn’t this about the same time Promus merged with Doubletree?
Yes.
How long did it take you to get your arms around this situation from a technology standpoint?
Assessing the technology situation was relatively easy because Doubletree had grown so quickly that they had not had time to develop their technology. So the strategy was to leverage investments made in Hampton Inn, Homewood Suites and Embassy Suites into Doubletree. The tough part was getting consensus on a number of business issues. It was fundamentally two different types of businesses. Neither side could really appreciate the other except for the concepts that each brought to the table. It was a tough time with the shareholder value going down. After 18 months we became a good acquisition target.
So, with the merger of Doubletree you remained CIO?
That is correct.
And then with your acquisition by Hilton?
I still remained CIO.
Let’s see if that will be the case after this interview (smile).
Hey, you are starting to scare me (smile).
You mentioned the time you had 250 hotels, but you had to approach your technology needs as if there would be 1,000. Could you expand on how you did this?
Our technology had to be modular and expandable. That was why we chose Anasazi for our reservation system. As a side note, many of our competitors questioned that decision relative to performance for a 1,000- hotel company. Additionally, we took a multi-brand focus. We knew that we would grow our existing brands as well as likely acquire/merge with others. Finally, we focused our technology delivery around the customers and their patterns across all brands.
But?
It has worked out fine. We knew the technology could grow as we did. Expandable technology was very important to us. For all our technology needs, we looked where you didn’t have to have huge fixed costs to get into the game, but instead got in with something smaller and growing.
Was there any influence from the gaming side of the business to what you were doing with hotels?
Yes. Gaming particularly helped us in the back of the house, so we followed their lead and did the same thing.
Lots of people, myself included, think that the gaming industry is a lot more aggressive than the hotel industry when it comes to technology. Why do you think that is?
I think any business that fully controls the assets can grow and do things faster than those that do things through other people.
That sounds good. But what do you really mean?
Think about the hotel business.
I do daily.
The hotel business is where some person builds the hotel, then you have a management contract with them under a brand umbrella. Now you can come up with the greatest idea as to what you want to do, but you have to convince the owner to do that. So, when you have hundreds of owners it takes a long time to move.
Well said. One of the toughest things for hotel companies is getting individual owners of their properties to invest in technology.
We have always taken a strong brand approach and try to think of technology as one of the tools in the tool bag that will make that brand successful.
And with gaming?
My experience in the early 1990’s saw the industry as mostly wholly owned by the parent company.
Which means?
They can make a decision on what they want to do and since it is their money they don’t have to convince others.
Good point.
I must remind you that it is not because the hotel industry doesn’t have great ideas. But to really be deemed successful, it has to be everywhere in every hotel. In the hotel industry, due to the nature of franchising, you have a lot of owners that need to be convinced.
So what you are saying is hotel companies that are embarking on technology initiatives can get these initiatives implemented in the corporate-owned and/or managed properties, but have a tough time implementing it across the franchise community?
That would be a fair statement. I might add that this issue is improving daily.
How does the industry address this?
I can tell you what we are doing. We have consistent technology in around 1,600 of our 1,900 hotels.
But isn’t this mainly the three Promus brands, Embassy, Hampton and Homewood?
True. Remember when these three brands started in the mid-‘80s, they were organically grown products. And remember what Ray Schultz said back then. He said technology has to be a major competitive weapon for us because we are not going to have large staffing levels at the properties.
Back in the ‘80s when you started the three brands, did you mandate your technology solution as part of the franchise agreement?
No, but we did make sure that the technology at our hotels supported the brand strategy and made a difference in business operations. We offered our franchises the solution that did these things which is why most everyone came on board with us.
Do you think the mindset of franchise owners will change?
Today, I truly believe that individual owners are seeing that there is so much more you can do with technology to properly take care of your customers. Also consider that the brand business is a scope and scale business.
What does that mean?
As an individual hotel owner within a brand, you can join a whole bunch of other hotels and get more crossovers and sales. The only way to efficiently do this is through technology.
Tim, can you honestly say that today the franchisor is endorsing the concept that a bigger technology investment is acceptable since they do see a payback and/or an increase in efficiencies?
I can. But most of the franchisees I am dealing with are those that own multiple properties. These owners see economies in their business and get creative through the use of different technologies. But these owners also realize that it is a hassle to do this on their own and they have more confidence that the path we are leading them on is a good one.
When you pitch your technology initiatives to franchisees, what are the things you bring up most as positives?
The positive impact on their bottom line.
How so?
Through connectivity to all distribution channels, customer databases, national sales office and revenue management. These are tools that will increase revenue and efficiencies. We have 1,900 hotels that we do things through technology. Based on competitive pressures for business and maximizing the yield for getting the right business, franchisees do not want to miss out.
When all is said and done, and put the selling aside for a second, what does all of it come down to?
Trust. It is all about trust. It is a business being a franchiser, but it is truly a two-way street. As a company we grow through franchises and technology does help us offer more to the franchisee. If they benefit from their investment in us, they will endorse us and it will help us grow.
Hotel companies once believed the strategy with the franchise was a push strategy. In other words technology had to be pushed on them. Do you agree?
No, I believe today it is much more of a push-and-pull. A great number of franchisees come to us directing us on technology initiatives they want to happen.
I am glad to hear this. But in reality the hotel industry deals with many management companies. Management companies often operate hotels that cross over many brands. I sold PMSs for years. Management companies also want consistency and they felt using the technology they chose across different brands benefited their business. This is why they wouldn’t follow the lead of the hotel company like yours. Isn’t this still true today?
Yes, it is true, but not to the extent it was in the past.
Do you think the industry will ever reach a point where connectivity is not an issue? In other words whose PMS or whose sales system doesn’t matter as long as they are integrated to each other and to GDSs and to the corporate back office systems, et cetera?
Information integration across technologies is what is important. It is very difficult to take different solutions and try to put them together. Ultimately we might get there, but I believe we are many years away from that.
Maybe. But if the ASP concept really does take off, this issue could become moot. What are your feelings on ASPs for hotels?
The fundamental problem with an ASP is it takes a company with a strong balance sheet to be able to go out and invest, buy the computers necessary and create the ASP while they are waiting for the hotel to commit.
Keep going.
Without a large cornerstone client with enough scope and scale to afford that computer equipment, it is going to be tough for the ASP provider to get off the ground and make it.
But?
I believe people can build it, but they have to have that big cornerstone client to make it work.
Why do you say this?
Because the provider will have a big fixed cost running this over the Internet and because there have to be computers centrally located. There will be thin clients at the hotel and hotels will then pay a transaction fee. So, the investment in this technology and servicing this technology takes a lot of capital dollars.
Keep going.
It is very difficult to get these capital dollars without a big cornerstone client to give you all of the stuff you need for an ASP. The notion of an ASP is right on and the fact is it is much more economical and efficient, especially for a brand, not to have a tremendous amount of technology at the hotel.
Why is that?
It is costly and often difficult to support and training can also add to the cost at the property. It is much easier to support a central site.
You are giving us good arguments why an ASP is a perfect fit for the hotel industry.
We have incorporated this concept into our System 21, a total technology solution.
How so?
We don’t have a full-functioning PMS at our properties with the System 21. We downscaled a lot of the property functionality and instead put it into the network.
So recap your thoughts about ASPs?
I believe the notion is a fantastic one. Whether or not the major players in the hotel industry move in this direction depends on the suppliers.
What you are really saying is?
I am not sure they can depend on the suppliers based on their financial strength. If hotel companies want to do this, they might have to do it themselves. It takes a lot of faith and a lot of commitment to enter into an ASP relationship.
Because?
A hotel company has to be prepared to say they are going to give away all of these things they did themselves and give them to a supplier. Remember, the supplier will only be a success in this model if they either have a strong balance sheet and have that cornerstone client. I am not sure if any vendor in our industry has a strong enough balance sheet.
With these concerns, do you think ASPs will ever happen in our industry?
Truthfully, I am not sure.
I am not sure I agree with your comments about balance sheets. I have seen large companies jump into the hotel industry because they believed it was ripe. Six months later, they are gone. Often they are not aware how frugal our industry can be. With the smaller companies who live or die by this industry, you can at least be sure they are committed.
I can agree with you there for the most part.
For the most part?
Let me give you an example. A smaller vendor we choose is excited because we are Hilton Hotels. And, of course, they are excited to be doing business with us and will literally jump through hoops to appease us and keep the relationship growing.
This makes sense so far.
But then Marriott approaches the vendor, gets interested and starts talking to them.
I think I see where you are going with this.
As a small vendor that needs to grow, they start shifting resources to the next big account. Sometimes this allows them to grow, but sometimes it becomes their downfall with their inability to live up to their previous commitments.
And this is why you find the balance sheet so important.
Often times, yes. By definition, growth is often defined as changing your focus from one company to others. We have some great technology vendors in our industry as far as intelligence, products, thoughts and ideas. There is no question about this.
But?
Again, their need to re-focus as they try to sustain growth can adversely affect their earlier customer.
Do you think the problem or should I say answer to the problem might not be black or white?
You know, maybe the problem lies somewhat with us, the hotel company.
How so?
We are frugal in our spending, which we should be. Additionally, we want the functionality our way.
Elaborate on the frugal part.
I’ve tried to look at what we spend on technology as an industry. In truth, we are not spending that much on technology.
I have also believed this.
Why is IBM successful? How much do the financial institutions or the banking industry spend vs. the hotel industry? They spend a lot more than we do.
Tim, thanks for being so blunt. Let’s move on. You have spent a lot of time developing and installing your System 21 Total Solution in your hotels. How many do you have installed today?
Approximately 1,600.
How long will they be installed for?
Considering there will be System 22, 23 and so on, I hope forever.
Forever?
The solution will evolve as technology and business need evolves.
How so?
It may not be a Windows-based system tomorrow, it may be Internet-based, but the concept of what it is will be around forever.
You really believe this?
Absolutely. In fact, we’ve worked with some of our franchisees and some of our brands and set up a technology fund that fluctuates with the financial success of our owners and brands.
What will the fund do?
It will fund the technology perpetually. Hardware, software and other things related to our technology are a piece of it. This is an example of how much I believe in the ASP notion where our customers pay for this on an on-going basis just like they pay for electricity to keep the lights on.
What are you trying to accomplish?
I want technology tools that absolutely support the business, to be easy to acquire, operate, and support for our franchisees. I don’t want them to have large capital expenditures every three to five years for new technology, but rather invest as you go and we will manage any new big investments through the fund.
Tim, let’s switch gears again.
OK. Go.
The issue of high-speed Internet access for the guest rooms has been under much scrutiny. Where is Hilton with this situation?
As you know, Hilton has a relationship with LodgeNet where we created a joint venture company called InnMedia.
What was the goal of InnMedia?
The idea was to build a total experience for the guest in the room.
What will this experience be?
It will be a culmination of data access and the TV experience. It will be a blending of all the media on the television.
Just the television?
No. You have to be sensitive to all the devices that people bring with them. In some cases it will be computers, in some cases it will be PDAs and in some cases it will be wireless devices. As an industry, we absolutely have to address this issue.
How is this joint venture going?
We think very well.
When can we expect to see some products?
InnMedia will launch at this year’s HITEC. You will see deployed products by the first part of 2002. LodgeNet is doing on-demand music and on-demand movies, but you are going to see archived television and time-delayed TV shows. If you want to see a baseball game from the beginning that started hours before you arrived at a hotel, you will be able to do this.
Where do you see the revenue stream coming from?
There will be multiple revenue streams. Advertising will be a piece of it, but there will also be additional features and functions available that we think people will be willing to pay for, like archived television.
This is very similar to the current purchasing of movies in the room.
We believe so.
How does this come into play regarding high-speed Internet access (HSIA) in the room?
In order to promote this kind of activity on the television in the room, it requires high-speed access.
What if people bring their own devices like laptops into the room?
We all know the masses will not pay $9.99 for HSIA, this has already been proven.
I agree.
We are in discussions with our franchisees about how to approach this since it is not inexpensive. I wouldn’t be surprised to see this become more of a guest amenity than it is today.
Do you really think it will be common to be free?
More and more providers need Internet access. LodgeNet needs it. The PBX needs it. POS vendors need it. If we all get together and pool our needs, it might become free or at least a lot less expensive for the hotel guest.
Do you think there will ever be anything as embarrassing to our industry as what happened with these in-room Internet providers? The way these deals were done just to get market share was borderline crazy.
I’m not sure I would call it embarrassing.
Why not?
There was cheap money available in the public market allowing many vendors to launch products without a sustainable business model. Remember, there were a lot of come and go stories across many industries, not just the hotel industry. When the money dried up, vendors like these in our industry started to fail.
What should we have all learned from this?
We need to take what these vendors learned and understand where the economics have to be to make this technology offering viable. Additionally, we learned a lot about usability of the products, customer needs for access and security requirements.
I guess we all learn by other’s mistakes.
We do. I know lots of people learned about frequency programs at Holiday Inn’s expense when we launched the Priority Club.
For example?
They learned how to offer rewards and how to maintain costs around these programs. But again, with regards to HSIA, we have all learned a lot.
Speaking of learning a lot, what are your feelings in the wild and wacky world of e-procurement?
Well, let me say that I believe that companies need to make their purchasing more efficient than what it is today.
How so?
We need to get rid of as much paper as we can and have things flowing through the system on a timely basis to get to that notion of just-in-time inventory. The technology that is available in these e-procurement systems will definitely bring efficiencies into the business that we don’t have today.
What about cost savings?
I believe these systems are efficient which will lead to cost savings.
So, what is Hilton doing?
Hilton supplies our purchasing division with Purchase Pro. We made the decision that we wanted it to be easier for our hotels to buy than it is today. We wanted to provide them with an electronic purchasing capability.
Did you integrate it with your back office?
Yes, we did which helps with items that we buy automatically getting paid with minimal human intervention. In other words, we did this to help efficiencies, that ultimately lead to saving money.
You brought up efficiencies quite a bit.
I think the hotel industry must balance the total picture.
How so?
Technology should be focused on both driving efficiencies as well as providing information that can be effectively used to drive revenue. As I stated earlier, you then must consistently deploy this technology to all customer touch points.
How do we do this?
By having our technology highly integrated with our people gaining access from any place. When I think about technology, I think about how I can put it into the business where it really has an effect and offers us a competitive advantage. I look at how tightly it is integrated, how widely it is proliferated and how much manual effort it takes out of the hotel at the same time it brings more customers in.
Tim, being perfectly honest, I do like the way you think. Tell me what you see as the hot issues down the road regarding technology.
I think customer relationship management will continue to be paramount to what we do. We need to constantly strive to do a better job tracking and understanding the customers that are important to our business. As a result, we will be able to have a better relationship with these customers and ultimately know enough about them to show increased value by truly customizing their stay.
What else will you do by knowing this?
We must make sure our products are easy to buy for the guest. We also want to be easy and efficient to settle with. We want the settlement process to be done electronically. When the guest goes to his room, we want that person to have his own experience just the way he wants it.
What are you really saying?
We will eventually, and in the not-so-distant future, get to one-on-one marketing.
Do you think marketing and technology work closely together in the hotel industry today?
Here at Hilton, I believe not only are we on the same floor, but we are in the same room.
Remember the CIO panel you were on with me at HITEC two years ago?
(laughing) How could I forget; it changed my life.
This year it is a C-Panel that will explore the relationship between technology, the CIOs and the chief marketing officers (CMOs). Your previous comment was perfect.
Thanks. I am sure you will do well.
Tim, I think you are truly one of those CIOs of tomorrow and fortunately for Hilton, you are in that position today. This has been great.
Thanks Rich. I am glad that you were able to come to Memphis and meet with me. Your publication is great and I am honored to be in it.
The Honor, Hilton’s or any other, is all mine. (smile)