This year’s summit was held in the picturesque city of San Antonio, Texas, at the Hotel Contessa, a beautiful property nestled along the famed River Walk. In addition to the numerous networking opportunities each day and evening, the program focused on the importance of relationships and partnerships – those between different vendors, and those between vendors and hoteliers. Other key topics were communication between these parties and the forecast for a positive turn in the economy.

Session One
Survival Guides
In this session, several experts were on hand to give insight into the strategies and tactics to ford the current economy. The session began with a frank talk from two hoteliers: Ken Barnes, vice president information technology, White Lodging, and Vivek Shaiva, CIO, LQ Management, LLC (La Quinta).

Barnes said White Lodging is doing everything at the corporate level to reduce costs. Regarding capital expenditure (capex), there is less available, and the current strategy is to maximize current applications and infrastructure. “We are going back to some of these applications and maximizing their use,” he said. But, the company still sees an importance in the IT spend. “The owners reduced their budgets from 25 percent to 13 percent, but did not reduce the capital investment in IT from $1.4 million.”

At the property level, owners see the need for tactical capex for projects like high-speed Internet and PCI-related products. Strategic capex must have a two-year ROI before consideration, and proof-of-concept projects are taking a back seat.

Barnes discussed one of the main focuses of the summit: vendor relationships and the importance of partnerships. He said these relationships need to be a win-win and equitable for both. Barnes pointed to the help that vendor relationships can give him in his position. “Putting a gap analysis together, that is something I have to do,” he said. “If a vendor offers to help, that is great.” But, Barnes said, he is less likely to work on a project like this with a vendor who is just cold calling him than one with whom he has an established relationship.

With the current economy, he said it is a two-way street, and it is good to see some give on the vendors’ side. White Lodging has one HSIA provider in 100 of its properties. Barnes asked for a 10 percent discount and the vendor asked if he could add five more properties. He said, “I’m in a good place to be able to accommodate that request… when you build a partnership, and though these are tough times, there can be a win-win situation.”

Ted Horner, owner, E Horner & Associates Pty Ltd, asked about brand preferences across the board. Barnes replied, “One brand standard should not be a requirement. There may not be a market at one property, but there may be elsewhere. We have to give the owners a little bit of leeway on these type choices.” He does challenge the brands quite often though, citing a quote from the owner of White Lodging, Bruce White: “Pioneers are great, but they ended up face-down in the mud with an arrow in their backs.”

One thing many hoteliers did post-9/11, was to offer free HSIA. He said, “Many of us regret that now due to increasing costs today. We are having to accommodate people needing more bandwidth (with Xbox®, Slingbox™, Netflix, etc.). There will be a day real soon when we may get back to a charged model, maybe after the next 24 months.”

According to Shaiva, La Quinta’s current IT mission is to “keep the lights on… and drive cost savings while enabling competitive advantage through selective investments.” The focus is still the same for the company, as with most; to make more money for the owners. Like Barnes, Shaiva said, “The good thing is, we have vendors who are absolutely willing to talk about this (cost savings) at this time.”

In late 2008, capital budgets were tightened to preserve capital; available capital was focused on continuing hotel renovations and improvements. The customer-facing IT infrastructure spend has been retained, including items like high-speed Internet (HSIA) and telecom. Shaiva said, “(The 2009 IT focus is) ensuring scalability, stability and performance of existing systems; managing systems’ impact due to continuing growth of chain.”

The nature of the IT capital spend for 2009 includes compliance-related projects, projects that can generate ROI within the year and property IT infrastructure needing an upgrade (i.e., HSIA, telecom). Shaiva said, “The bar is higher for the approval of new long-term strategic initiatives.” Most importantly, he said, “Large projects must demonstrate significant, established impact to revenue or guest satisfaction.”

Connie Rheams, senior vice president for AltiusPAR, asked if the expectation of the CIO role is changing in light of the current conditions, pointing out that six out of the top 10 CIOs have changed in the last six months. Shaiva said, “I personally have not seen that happening at the limited-service level. Technology is so intertwined, they are recognizing the importance of technology and now the CIO reports to the CEO.”

In the next session, Parag Gheewala, partner, Wilson Sonsini Goodrich & Rosati examined the importance of contracts. “Handshake deals, or those on the back of a napkin are certainly OK for some,” he said, “but from a legal and business perspective, there is always going to be a risk.”
 
Some benefits of partnering he gave include: leveraging the sales and distribution channels of your partner, branding, gaining access to funding, getting to market faster, and access to market. Aside from the benefits, Gheewala also pointed out some of the risks: you can lose control over development, create a dependence, create a competitor, realize tainted technology, or there may be some sort of exclusivity in the agreement. He said, “If you have the technology and you are going to work together to improve it, (in the end) who is going to own (the product).”

Christa Degnan Manning, director, research and media, global advisory services for American Express Business Travel, analyzed current trends in spending, investments and mergers and acquisitions (M&A). Currently, American Express represents a little more than half of the travel spend worldwide.

Manning said that business travel, even though down slightly, still represents roughly 66 percent to 75 percent of the travel industry. As she said, “Clearly, business travelers still have to travel.”

She recommended that hoteliers really need to know how they stack up against their competitors. “It is a buyers’ market,” she said. “If amenities are not important to (the guest), they can negotiate the rates. If they aren’t going to use unlimited phone service, they can say they aren’t going to pay for it. You (the vendors) have to really educate your clients (the hoteliers) about their costs.”

Next, David Sjolander, senior vice president strategy and business development for TravelCLICK, a provider of hotel e-commerce solutions, discussed what TravelCLICK is doing in these economic times. Sjolander said, “In terms of revenue, and in spite of the economy, we are actually doing pretty well.” But, as he said, “We are being cautious. We are being very careful regarding capex… we are hiring, but strategically, and we are continuing to invest 8 percent to 10 percent of our revenue on product development.”

Sjolander said one main reason for the company’s resilience is that it is a totally on-demand software as a service provider. “Even though hotel bookings are down, Internet bookings will increase this year,” he said. The company’s business model also helps with keeping costs down.

Sjolander recommended using the down time in the economy to be proactive and he sees a greener pasture on the horizon for the industry. He said, “Everything goes through cycles – business, economy – when companies go a little bit dormant, that is the perfect time to (get to) work. What can we be doing to position ourselves so when the economy turns around, we are ready for it.”

John Rovani, managing director, the McLean Group, discussed other trends for the travel industry and the outlook for hospitality technology mergers and acquisitions, including the input from two former business owners who each sold their companies: Peter Marguglio, former president of Eatec Corporation, and John Broughan, founder and former president of Discovery Travel Systems LP.

Rovani pointed to the outlook for the coming year, and said, “Mergers and acquisitions are great opportunities for middle-market, hospitality technology companies in this environment... Expect increased deal activity in the second half of 2009 and a very strong year in 2010.”

Rovani said that when the economy improves, 48 percent of the consumers surveyed said they would spend more on travel, and 44 percent are interested in dining out and everyday entertainment. He said that although the leisure and hospitality segment shed 40,000 jobs in March, industry unemployment has remained steady since the beginning of 2009.

He said the industry believes Americans will continue to vacation, but will seek trips closer to home, with alternate, less expensive packages. Luxury hotels and resorts have been severely hit due to cutbacks in business travel and meetings, which represent approximately 25 percent of revenues currently. For this reason, midscale and economy lodging have performed better as consumers seek less expensive alternatives.

Regarding mergers and acquisitions, he said, “Total disclosed M&A transactions decreased by 33 percent or 3,496 deals for the 12 months ending Feb. 29, 2009.” The largest drop was among higher value deals, but all activity was impacted. The leading industry was computer software, supplies and services with 1,345 deals, decreasing at 18 percent for the 12-month period. 

According to Rovani, the travel and hospitality 2009/2010 focus includes productivity and efficiency software, financial management, green technology, subscription-based software as a service (SaaS) versus enterprise software, licensing and transaction-based businesses; and B2B business models.

Rovani pointed out some important considerations when selling your company: develop your exit plan; think strategically, is the business unique; financially, is the business attractive; are the books in order, have they been audited; are business arrangements formalized; are key managers under contract; what is the tax structure of your company, have you eliminated problems such as outstanding litigation or tax liabilities; is your intellectual property protected.

Rovani said, “It is a good time for mergers and acquisitions. There are buyers looking for additional growth in 2010. I see a lot of positive things on the horizon.”

He also mentioned another important sign; the baby boomer generation is approaching retirement. “When the economy begins to do well, guess where people are going to spend their money,” he asked. “Travel is at the top of the list.”

Two individuals explained how they approached selling their own companies and what the processes entailed. Peter Marguglio, former president of Eatec Corporation, at the time a leading provider of open architecture-based inventory and procurement software for the hospitality and foodservice industries, sold the company to Agilysys, Inc., in 2008. After several interested parties looked at Eatec, he said, “We found an absolutely great solution in Agilysys. They bought the company for cash at a fair price, the employees were protected, and I’m retired.”

John Broughan, was founder and former president of Discovery Travel Systems, LP. In 1991, the company partnered with a large travel company in Atlanta, which enabled it to spend money on the business. The companies provided booking engines and other software products and services for the cruise, tour and vacation travel industry.  He too looked for a fair agreement including a retention bonus for those employees who stayed. After he found the right buyer, he said, “I think (the agreement) was set up correctly and was a very fair deal.” DTS was sold in 2006 to IBS Software Services, a unit of IBS Group of India.

Session Two
Life Without Lawyers
This session was an open question and answer session. Parag Gheewala returned to the podium for an examination of contracts and agreements within the vendor community. Many of the audience questions focused on labor contracts as well as mergers and acquisitions and protecting intellectual property globally.

Ted Horner questioned the enforceability of a non-disclosure agreement globally. He said, “In Australia, a NDA (non-disclosure agreement) is nothing more than a moral obligation.” Gheewala replied that he couldn’t speak for Australian law, but said, “It is a binding legal contract. Under trade secret law, you have to ‘take reasonable steps’ to protect your trade secrets. The key is not to rely on the NDA though.”

Ron Tarro, president of SDD, expressed a concern over employment contracts when hiring individuals from competing companies. Gheewala recommended finding out if the employee has a non-compete that is enforceable, and having the employee purge every bit of information from their previous employer.

Session Three
All a Twitter
This interactive session provided a forum for the attendees to ask questions and answer them while their peers served as facilitators. The audience members voted on the actual discussion topics, with the first being a discussion on the future of trade shows, lead by Frank Pitsikalis, president of ResortSuite.

Most in attendance agreed that they must see a return to warrant attendance. Tim Tiller, president, Multi-Systems Inc., said, “We spend a lot of money to go to these shows. They have to quantify ROI.” Jeremy Rock, president of RockIT Group, agreed. “From a consultant’s standpoint, I can only attend a certain number of shows. So many have cropped up, I have to focus on ROI,” he said.

MTech’s president and CEO, Luis Segredo said shows like HITEC are very beneficial and offer the opportunity to see a lot of customers in one place in a short period of time. “In that regard, it is very cost effective. Like we have said, you are building a relationship,” Segredo said.

Horner agreed and said, “You get face-to-face time; you get information that you wouldn’t get through e-mail.”

Segredo introduced a discussion on trends in online training as the next topic. Murat Ozsu, founder and CEO of innRoad, Inc., a software-as-a-service company, has found the ability to maximize his time with online services. He said, “We’re an online company. We only visit two out of 100 customers. Online is much easier to schedule, and it is just as effective.” Jacob Dehan, CEO of NORTHWIND Canada Inc., likes the ability to provide additional services to his clients through the Internet. “Products are getting so sophisticated these days, that it is impossible for clients’ staff to get much out of classes,” he said. “You have to provide other tools and options.”

The third topic examined in this session was social networking and whether to use it for business, pleasure or both. Jo Masters, senior vice president, SoftBrands, moderated this segment. Edward St.Onge, president, EZYield.com Inc., pointed out that it can be both. He said, “That is what gets people on it so much. It can give you a chance to get to know some of these people personally.”

Frank Pitsikalis, ResortSuite president, offered another use for social networking sites. “Instead of having to create all the infrastructure, you can set up a group on Facebook and start a community around your product. You can certainly have your friends list, but I am seeing a lot of movement toward (groups),” Pitsikalis said.

The final topic from the session focused on compensation in a down economy, and strategies to retain employees. This section was moderated by Bruce Bensetler, president of Data Plus Inc.

Ravi Mehrotra, president, IDeaS, Inc., said that they have had to make some changes. “Before being acquired by SAS, we were a very small company,” he said. “We had a salary freeze and have asked our employees to do more.”

Frank Wolfe, CEO of Hospitality Financial and Technology Professionals (HFTP), has asked for more effort, but as an incentive to employees, has offered a four-day work week during the organization’s down time. He said, “It is a tradeoff. I believe we’ll get more hours out of our staff by doing this.”

Other options are in altering compensation, as Terry McGowan, president of Datanamics, mentioned. “We took sales off commission and changed them to salary,” he said. “The sales haven’t been affected by this.”

Session Four
What Becomes a Legend Most
With the help of Stephen Beaumont, vice president-lodging, Kohler Co., attendees had a chance to take a look behind the scenes at an iconic destination, St. Andrews, Scotland, the birthplace of golf. Beaumont gave an indepth explanation of the history surrounding when the course was built. “The general topography of the land drove the design of the golf course,” he said. There are seven courses as part of the Links Trust, with the Old Course being the most famous. Where the Old Course sits, shepherds used to knock stones into rabbit holes, thus the beginning of golf.

Kohler Co. owns The American Club, the Midwest’s only AAA Five-Diamond resort hotel, many surrounding points of interest and four championship golf courses including Black Wolf Run and Whistling Straights, in addition to its AAA Five-Red Star-rated Old St. Andrews Hotel. Kohler Co. likes the concept of links courses and is planning to add a third golf property to its portfolio.

Final Session
Flies on the Wall
This panel of industry consultants examined how companies are coping with current economic conditions and whether the changes they are witnessing will have a short or long-term impact on the industry. Panelists included: Ted Horner, owner of E. Horner & Associates Pty Ltd.; Jon Inge, president of Jon Inge & Associates; and Jeremy Rock, president of RockIT Group, who all work with independents, and Sally Kelly, senior manager, KPMG, who works with brands.

HU’s Rich Siegel opened the questions by asking Horner if it is currently different in Australia. “My clients are primarily owners and developers,” Horner said. One hotel wanted to upgrade from analog to IP, but even though he was given a preference list, he had a budget to meet.

“It is very different between new builds and existing renovations,” Rock said. “An existing renovation is way, way harder. I am a big proponent of IP, but the truth of the matter is, budgets are what count. The move toward more ASP-based models is really key.

“I understand it’s all budget driven,” he continued. “The owners come back to us and tell us they just don’t have the money. We have to make hard choices at times.”

Inge addressed the attendees. “I really applaud you for building partnerships and working together,” he said. Horner agreed with the importance of partnering. “PMS today is commoditized,” he said. “It’s all about four things: CRM (customer relationship management), BI (business intelligence), distribution and yield. These are the areas where you need to start partnering.”

Kelly brought up that social networking is changing the way hotels do things. “There is more real-time feedback now than you ever got before,” she said. “The impact is, that there must be strategies put in place to respond immediately – also in real time.”

Rock agreed with Kelly that social networking has changed things, including how you market your Web site. “All of that is tied in with integrating systems,” he said.

Kelly recommended returning to the basics and defining what these terms mean to hoteliers (CRM, BI, etc.). “We are looking at budgets and budgeting cycles that they are going to have to pay back within a year,” she said.

Rock said, “You are going to get a lot of push-back from the operator side because it’s going to hit them in the wallet.”

Horner described the challenge in proving ROI on some systems. “There is no ROI in replacing a PBX (or linens). (It’s hard to justify) $200 for a phone that will only be used to order room service, wake-up calls or to call the bloke down the hall. I think you guys are going to see partnerships with vendors to look at some creative ways to finance.”

He pointed out that one problem is that properties are hiring fewer IT people, and younger and less expensive employees, all because of cost. “We need these people there to manage their technology,” he said. Even with the importance of relationships, there is a risk. “I sympathize with vendors who spend a great deal of time (building a relationship) and the person is cut,” he said.

Rock agreed that this can cause problems. “Senior people are being released. The junior people have to make decisions they are not qualified for,” he said. “The knowledge base at the property level is diminishing. We are installing new systems, but the understanding of how to use them isn’t there. We all need to figure out how to bridge them, or we’re all going to fail.”

Frank Pitsikalis asked, “With regard to aging properties, are they starting to look at the costs of all the interfaces?”

Inge said the one thing properties look at is how much they are spending in overtime. They don’t look at the cost of interfaces, but freeing up people.

Rock said the properties’ job is to try and stay as current as possible. “At the property level you don’t really know what is happening,” he said. “Maybe the key point is to educate them.”

Inge recommended that the vendors communicate with the consultants. “You have to keep us up to date on what you are doing – new features, new clients, etc,” he said.

When asked about what will happen when the economy turns around, Rock said he thinks we will start to see hotel transactions going again. “I think there will be a dry spell for a little while; decisions on technology are just being pushed off (for now),” Rock said.

Horner said there are some areas that still have money too. “Projects have been canceled because of no money, but the Gulf is still in great, great shape. Watch out for Abu Dhabi,” he said.

Kelly thinks by the first quarter of 2010, things will start to pick up. “RevPAR is down 21 percent this year and we are only in the second quarter,” she said. “The challenge is to (free up) capital; they need better business plans and better strategies. They need to step back and understand their business strategies because the money will be harder to get this year.”

Inge said he has seen a different side with many of his clients – proactivity. “I haven’t seen that much of a slow down. A lot of people I work with are trying to position themselves for when (the economy) does turn around,” he said.

Those were the main themes at this year’s event: relationships, whether vendor-hotelier, vendor-vendor or vendor-consultant; communication between all of these parties; and looking toward a projected upturn in the first quarter of 2010. As Bruce Bensetler said, “Anyone who did not come away with a better understanding of their business strategy – good or bad – simply was not paying attention.”

Thank you to the 2009 event sponsor TechTeam Global, partner KPMG and founding association supporter HFTP.