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Investments in Technology - Where Did All the Money Go?

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October 01, 2005
Technology | Investments
Amitava Chatterjee, CHTP - amitava.chatterjee@us.ibm.com

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© 2004 Hospitality Upgrade. No reproduction without written permission.

Hospitality companies are known for investments in guest-facing aspects of their business, such as comfortable beds, work desks, décor and unique architectural designs like atria. However, a lesser known fact (except to those who deal with nothing else) is their investment in technology and systems to help hoteliers serve their guests better. These investments work behind the scenes, helping craft memorable experiences that create repeat clientele.

What Are the Major Investments in Technology?
IBM Business Consulting Services looked at major areas of technology investment over the last 18 to 20 months as reported in the public domain (industry news sources, Web sites and SEC filings). Research has shown that investments are being made in a few key areas:

Distribution Channel Strategies
We are familiar with ongoing battles to regain control of distribution. Hotels have been losing margin to the Internet. PricewaterhouseCoopers estimates the net Internet effect on the U.S. lodging industry in 2003 was minus $1.27 billion1. Hotels are striving to reverse the revenue-eroding effects of third-party intermediaries. They began by offering lowest-rate guarantees on their Web sites—a concept pioneered by InterContinental Hotels Group. Direct-to-consumer and price integrity across channels are important strategies. Agreements with distribution partners are being analyzed closely, and slowly dissolved, if not aligned with overall corporate strategies. An example of this happened recently with a large hotel company2 that pulled its inventory from Expedia. Another trend is the development of increased focused and strengthened relationships between a hotel brand and generally one Internet intermediary (not many as in years past). Hotels have the goal of offering the best room rate to the right client at the right price point, thereby ensuring the best profit margins for themselves.

Property Management Systems
In the not-so-distant old green screen computer days, each hotel in a multi-unit chain was a silo, with its own database of accounts and guest preferences. Corporate business intelligence was a tedious, painful exercise fraught with issues. Numbers did not match, accounts did not match and guest profiles did not match. Fortunately hotels have moved away from those times. Advances in database technology, privacy and security, and the role of the Internet have all contributed to the attainment of the single-image dream. Hotels realize how advantageous it is to have a single view of their guests, corporate accounts and guestroom and function space inventory, therefore enterprise-level investments are being made to standardize PMSs.

Web Site Re-Engineering
Web sites are an integral part of doing business today. Ease of use, easy access to information (design) and regularly refreshed and relevant content (content management) are very important.

Online presence, quality of user experience and content management are key themes, and independent firms rank hotel Web sites regularly, against a number of factors such as usability, security and privacy. According to Cornell’s Center for Hospitality Research, 1 in 5 hotel bookings will be made online in 2005, up from 1 in 12 in 20023. Hospitality companies recognize this and are enhancing their sites, focusing on a number of different areas.

Number of clicks to book should be the lowest possible. At present it takes an average of seven clicks to book a room4. Many hotels are making strides in this area and are simplifying the process involved in booking a room online.

Content management is very important. Hotels must leverage robust systems that provide a single source of truth for content that powers Web sites, brochures and collateral. One source of content implies that it is easy to make changes in one place and have the new version reflected wherever it is used.

Accessibility to the visually impaired also is omportant. Disability rights groups claim that Internet Web sites constitute places of public accommodation and must comply with the prohibitions against discrimination5.

Sales and Catering Systems
An enterprise-wide view of availability and inventory, coupled with tightly integrated online booking and cross-selling capabilities, will help maximize sales and catering revenues. In 2003, Web channel group business increased 428 percent6—face-to-face conference sales are fast being replaced by Internet-based decisions as meeting planners moved their group business to the Internet in 2004. The ability for meeting planners to dynamically create packages is important as well. Hospitality companies are rising to meet these demands. From the sales office’s point of view, a centralized view of sleeping and function space inventory across the enterprise provides the ability to identify ideal function venues for groups, based on multiple criteria, thereby maximizing lead conversion rates, function space and hotel utilization and ultimately yields for the company.

Revenue Management Systems
Revenue management systems are truly evolving into yield management systems, seeking to maximize a hotel’s revenue earning potential. Emphasis on understanding the holistic value of a business opportunity is key, instead of merely focusing on room revenue. Coupled with advances in PMS/CRS and sales and catering systems, they are able to offer intelligent recommendations based on the total value of an opportunity from all possible revenue streams. Several vendors are making strides in these areas, and hotel companies are reaping the benefits by making investments in such systems. (See this issue’s feature article, page 6)

Traditionally, CRM programs have had a one-size-fits-all approach. Frequency of stays was tracked more closely as compared to value of stay or profitability. A new wave of CRM analytics is forcing a paradigm shift, by looking at the lifetime value of a guest and/or company and making intelligent recommendations on a series of actions that may be used to increase customer value. Cookie cutter approaches are out7.

Self-Service Applications
In past articles the role that self service plays was discussed. Self-service provides several benefits, specifically it allows multiple channels of customer interaction to be employed, e.g., kiosk, Web or PDA. In addition, it allows an overall reduction in labor costs because employees are freed from routine tasks to focus on value-added interactions with guests. Further, empowering guests to take charge of transactions on their terms enhances guest satisfaction. Kiosks are an effective channel for suggestive selling and target marketing—the revenue enhancing opportunities are tremendous.

It is evident that hospitality companies are investing significant time and money in the areas of distribution, PMS/CRS projects and Web site re-engineering (e.g., over 70 percent of companies surveyed are investing in distribution). CRM, revenue management and wireless projects represent the second tier, while approximately 20 percent of companies studied are investing in POS, sales and catering and self-service kiosks. This last tier, particularly sales and catering and self-service kiosks, represents a growth opportunity with the expectation that more companies will be making investments in these areas.

Hotels are investing their technology dollars in several areas. Given this, it is important to remember that there is no golden rule to these technology investments. Decisions will continue to be based on a variety of factors depending on the type of hotel and target clientele. It is not what goes in; rather, it is how the technology furthers the business strategy, enhancing the bottom line and creating memorable guest experiences.

Amitava Chatterjee, CHTP, (amitava.chatterjee@us.ibm.com) is a senior consultant with IBM Business Consulting Services’ Travel and Transportation, Hospitality and Travel-related Services industry. He is based in Fairfax, Va.

1 http://www.hotel-online.com/News/PR2004_2nd/Apr04_PWCStudy.html
2 http://www.hotel-online.com/News/2004_Aug_16/p.286.1092760094.html
3 http://www.traveldailynews.com/new.asp?newid=13307&subcategory_id=77
4 http://www.hotelsmag.com/0504/printer/covstory.htm
5 http://www.wrf.com/publications/publication.asp?id=1458312202002
6 Meeting Planners International, 2004
7 Please see “Taking CRM to a Higher Level” which appears on pg. 118 of this issue

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