Face to Face: An Interview with Tom Murphy, Chief Information Officer, Royal Caribbean Cruises Ltd.

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October 01, 2002
Face to Face
Richard Siegel

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© 2002 Hospitality Upgrade. No reproduction without written permission.

Rich: People might not realize your background is in the hotel industry.

Tom: I spent 15 years in the hotel industry. I was the CIO at Bristol Hotels & Resorts, which at the time was the largest franchiser of Crowne Plazas, before I joined Royal Caribbean (RCCL).

How has this transition been from hotels to the cruise industry?
You go into it thinking, “No problem, this is just a hotel that floats.” The scale of both the company and IT were beyond anything that I dealt with previously in the hospitality industry. From a company side, the marine element to the cruising industry changes everything.

How so?
It’s thousands of years of maritime tradition. There is a very militaristic hierarchy of the shipboard life with crew members coming from 75 different countries and all of the related diversity challenges. All of these people are on contracts. It’s just a whole different world. These ships are literally small cities that are out there floating and the hotel element is an important element, but it’s only a small element.

How do you hire people for a cruise ship?
We have an entire human resource marine organization. They have what we call HR representatives in about 20 countries who are constantly looking for new talent. Those countries are in places like Eastern Europe, mainstream Europe, Asia … all over the world.

So if someone in a foreign country gets interviewed by Royal Caribbean and wants to come work with you, what’s the next step?
They go through a screening process with our international representatives, who are employees but who we pay them on a per person hired basis. They go through a screening process, a security process and a hospitality process. Do these people have the right attitude? Do they speak English if it’s not going to be a foreign or internationally sourced ship? What other languages do they speak? We often get people who speak three, four or more languages. We then hire them on a contract that allows them, and us, to get to know each other. So it’s a shorter contract than a normal contract would be.

How would you define shorter?
A typical contract is six months on and two months off. For example, if you start as a waiter, you come on the ship for six months and you’re an employee of that ship for that period of time and then you go off for two months. Our deal is that we fly you to the ship and fly you back to wherever you want to go. If we renew the contract, which can be our choice, their choice or we mutually agree, we bring them back.

So, when you fly someone in from Eastern Europe and they are doing six months on and two months off, do they literally work every day for six months?
Yes.

Do they live on the ship?
Absolutely. And they maintain their home wherever that may be. We have shipboard systems managers who live in South Africa. South Africa has become a real hot bed for talent onboard the ships. We also have a lot of employees from Jamaica, the Philippines, Armenia and other places throughout the world.

Living on a ship for six months is amazing.
It’s a whole different lifestyle. And this is certainly a difference from the hotel industry in that these people literally live where they work. You think about the HR implications of that; it’s huge.

What about when you fire somebody?
We put them off at the next port and we fly them home, unless they have broken the law, in which case they are turned over to authorities. That’s the way it works. We have a zero tolerance for a lot of things, including drugs and alcohol on the job. We have all sorts of zero tolerance issues.

How many ships do you have now?
Twenty-four in the fleet between two brands. Celebrity Cruises is our premium brand which has nine ships and Royal Caribbean is our contemporary upscale brand where we have 15 ships and three more under construction.

When I cruised with RCCL years ago, I read you were building a very, very large ship.
That is the Voyager Class. The first one came out in November 1999 and now we have Voyager, Explorer and Adventurer. Navigator is coming out in November.

How large are these ships?
Those four are all the same class and size. They are 138,000 tons, and three football fields long. They are the largest passenger ships in the world.

How many people do they hold?
Approximately 3,100 passengers and 1,500 crew members.

The effects of last September have obviously hurt the cruise business. Have you had to cut back as far as employees go? Do you run less people on ships now?
From a shipboard perspective we have done very little to change staffing roles, which we call par-levels onboard. This is because traditionally we price to maintain 100+ percent occupancy on every ship. We are actually running about 104 percent year-to-date right now.

One hundred and four percent? Is that due to cancellations?
Yes.

So you are saying that you are still sailing near 100 percent occupancy?
Post-Sept. 11, except for about a six-week period of time, we have been at 100 percent or more. We have had to lower prices significantly, but we did very little to affect the customer experience. We did more reduction shore-side post-Sept. 11.

How bad?
We had a reduction in force of 400 employees shore-side, which includes 50 percent IT work force reduction of approximately 220 people, including full-time employees and contractors.

How big is your IT structure today?
We’re 275 right now, plus maybe 10 to 20 contractors.

What do you use contractors for? Programming?
Not necessarily. We have a great deal of shipboard people, wiring people and similar staff and quite a few are Web developers.

Most consumers understand airlines and hotels, but when it comes to a cruise, that is not the case. But then again, we use airlines and hotels all the time, but hardly ever cruise.
We are trying to change that. There are some interesting demographics right now in terms of the boomers and the next generation which indicate that people … and we actually talked about this at your recent CIO Summit … are taking more shorter vacations. From a cruise perspective, if you have cruised once you’re likely to come back faster, often in the 2.3 year mark, which is what we want. But we also have to figure out how to do more of these three and four-day cruises to take advantage of people who don’t want to go for a full week or 10 days. I think you will see that as a trend in the industry.

I did the four-day trip and thought it was really fun.
It’s a great intro. And we think once we get you, then you will be willing to do a seven-day or longer cruise when you realize there is a lot to do.

How do you pick places you’re going to cruise?
We have a strategic planning group and a gentleman who is director of ports and itineraries who literally goes around the world looking for new and interesting places to cruise. Today, Royal Caribbean International almost owns the Caribbean. Princess and Holland have traditionally owned the Alaska space and we have gone in there hard the last few years to disrupt them a little bit. Then there are the traditional places we go like the Mexican Riviera and the European/Mediterranean area. We’ve also branched out and started doing Australia and New Zealand.

You have entered both Asia and Brazil as new markets. How has this worked out?
It’s very difficult to start a new market and to build the market. It comes to the question, “How committed are you?” Can you give enough to lose money for three or four years or do you re-deploy. After Sept. 11 everybody re-deployed out of Europe and out of the exotic locations back to the United States doing the drive market thing.

How has that worked out?
That has worked very well. The cruise industry has rebounded faster than any other part of the tour/ travel industry and has amazed the skeptics with how resilient the cruise industry has proven to be.

Why do you think that is?
I read something recently that said we’ve benefited from the fact that people are re-evaluating their lives after Sept. 11 and seeking more balance. Therefore being in the leisure sector, being close to home and offering pretty flexible vacations has turned out to be a real plus.

That makes sense if you look at it from the big picture. But how about your initial reaction?
I expected the worst. I think we all did. I was part of a small group of six executives who formed the Survive and Thrive committee right after Sept. 11.

Survive and Thrive?
Yes. Our charge was to reduce costs significantly, up to 25 percent of the company’s cost, without affecting the customer experience.

How did you do that?
We looked at every single department and where we could cut. That’s how IT ended up taking such a huge hit. We also had Custer’s Last Stand, the list of things you do when things are absolutely as bad as you might imagine they can be. Fortunately, we never had to go to that. But we budgeted in such a way that when you look at the budget today vs. forecast you realize how bad we expected 2002 to be, and it’s actually turned out to be much better.

How so?
In just telecommunications/call volume we were off by $3 million to $4 million in our estimate of telecom in a good way. We’ve driven more traffic than we expected.

Can you explain your reference to telecom?
We expected our telecom budget, which IT happens to carry, to be much lower. All our calls come in on a 1-800 number and we expected our call volume to be light because we expected business to be so crummy. It’s a good place to be when you are $4 million off in forecast because the call volume is so strong.

That is good as long as you are converting those calls to bookings.
Correct.

What about your ships? You are a U.S.-based company, correct?
We’re an international company.

People are often confused by where ships are registered. Who owns the ships?
Royal Caribbean owns the ships. This is one of the benefits compared to the hotel industry. The companies that run hotels so seldom have control over them. We have talked about that before, how hard it is being in IT and making changes in a place where you don’t actually own the property, but we actually own our ships. They are registered internationally and are generally registered in the Bahamas and places like that. It’s all about international maritime law. I don’t pretend to understand it, but they must be registered and you pay a certain amount of tax to have them registered.

Let’s go back to your call volume. I always found it intriguing, and correct me if I’m wrong, but don’t cruise lines try to steer people to travel agents instead of booking directly with RCCL?
Yes. Ninety-five percent of all bookings continue to float through the travel agent distribution channel. Thankfully we are up to 39 percent electronic bookings, which is good. That’s about a 5 percent to 6 percent increase over the last two years.

Define 39 percent.
Thirty-nine percent of our bookings come through the GDS or other electronic channel like the Internet. Most are still booked through the travel agents, but they are coming through electronically, which is a good thing. For every booking that we take, on average we will take 13 subsequent telephone calls, or the travel agent will take 13 subsequent telephone calls, to manage that booking.

Why do you think that is?
It has to do with people being a little uncomfortable with cruising and not really understanding what it is all about. Unlike a hotel where you might call to make sure you are getting a king bed on a high floor at the point of the reservation, here there are so many questions. What are the shore excursions and onboard amenities? How should I dress? How many formal nights are there going to be? Thirteen calls per booking are generated. So we want the travel agent to continue to be a close partner because we cannot afford to take that many phone calls.

The hotel industry continues to drive people away from the 1-800 numbers and to their Web sites. Shouldn’t you be doing the same thing so the customer’s questions are answered via the Web site?
Absolutely. And if you go to our Web site you will see we are catering to the people who are willing to use the site. The site is informational and is meant to provide almost a virtual cruising experience. So you can find out anything you need to know on the Web site. You can book your shore excursions, you can fill out all your own embarkation forms and you can book a cruise directly on the Web site.

Are people using it?
Today, we are doing about 1.9 percent of all bookings via the Internet direct. The travel agents scream bloody murder every time we put something out on the Web site. The truth of the matter is that we are increasing our capacity by almost 100 percent from 1998 to 2004. The travel agents are going to continue to get the lion’s share of that capacity opportunity. We will continue to drive toward the lowest cost distribution channel possible, given the demographic we are appealing to. Right now it’s a very small number. In the future we expect it to be much bigger. The travel agents will continue to be close partners to us, but they also have to understand the realities of the various distribution channels available to us.

If you look at what the airlines did to the travel agent and what the hotels will probably do to them, you might be their last hope.
Within smart business practices, we try to drive as much business to the travel agents as possible. When we do onboard future cruise bookings, we make sure that if you booked through a travel agent and you do an onboard future cruise with us that the travel agent gets credit. We do everything we can.

Come on, everybody is marketing through the Web extensively, aren’t you?
Right now we are doing a very special thing with www.Cruisecritic.com. If you’ve got 25 or more people who come together via a virtual community who are going to be cruising on the same ship, we will give you a party onboard the ship. It’s called the Cruisecritic Virtual Party. The travel agents don’t like it.

Why?
Because when you go to www.Cruisecritic.com it advertises other companies selling cruises and other ways to contact the cruise companies. They are saying this is diverting people’s attention. We don’t agree; we think this is adjunct to booking a cruise.

I understand the travel agent part of the equation because of the phone calls they handle for you. But if your Web site is going to answer these questions, then things are eventually going to change. When I was booking my cruise and was told to go through a travel agent, I thought that was weird since the hotel industry tries to get you to go to their own Web site.
We don’t help ourselves. Because of our sensitivity to the travel agent community, for instance, we don’t offer better pricing on the Web than we offer through the travel agents. Travel agents also rebate so you can actually find lower costs going through a travel agent than you can typically through Royal Caribbean direct. We don’t allow rebating, but it happens. So we have pricing challenges as well as how do we drive traffic to which channel. It is part of the strategic planning process for the next three years looking at our pricing strategies in conjunction with our distribution channel strategies and our partnership strategies. What makes the most sense for this company over a period of three to five years is the question we need to answer.

OK. Let’s switch gears. What is the story with this boat and ship thing? Why is it that the people in the cruise line business hate when you use the word boat?
(laughing) A boat is hanging from the cruise ship. I don’t know, it’s a Marine thing. Again, maritime influences so much of this industry it’s incredible. It has to do with the size; boats are small and ships are big.

OK. So let’s look at a ship. Do you look at the big picture as far as technology when somebody gets on a ship? Today hotels are offering free long distance calls or are packaging long distance. I laughed when I looked at your brochure and read $7.95 a minute to call a ship. Is that to call in or out?
That’s to call off the ship. That’s a satellite phone call.

Do people pay this?
(laughing) Absolutely. It used to be $15.00.

Cell phones don’t work on the ship, right?
Cell phones don’t work once you get out of the cell territory. There are technologies that would allow us to offer cell technology using the satellite PBX technology that we have, but only within certain areas.

Could you explain?
We would like to offer it when we get to places like St. Thomas, but the governments want a piece of it. We’re not going to get into this game where we have 50 cell jurisdictions we have to deal with. So it’s satellite telephony or nothing.

Let’s look at the last ship you’ve launched. Do you look at that ship as you would opening a hotel as far as your technology initiatives go? There are things you’ve been using on the other ships, but now is it time to look at something new?
There is a very rigorous process to putting any technology old or new on a ship.

Why?
Because of the nature of a ship. It doesn’t have the ability to be supported seven,10, 15 or more days at a time. So we really have to bullet-proof our technologies. We’ve got a very sophisticated configuration center in Hallandale, Fla.

What do you have there?
Every single piece of equipment. There are about 3,500 individual technology components that make up a ship. All the equipment is shipped to the configuration center. Our project manager who is responsible literally builds the entire ship at the configuration center. And we can replicate any ship and any class of ship with the computer systems we have there. So we replicate the satellite network, the onboard network, and we actually have three networks onboard the big ships. We replicate the entire environment of the ship. We build out every point-of-sale unit, every PMS, every PC that’s going to go onboard and the Lotus Notes environment. Everything is replicated in real time and real life. We test it out from a technical standpoint – every single unit – and then the business comes on and tests everything. So they build their point-of-sale menus, accounting builds their general ledgers and everything they are going to have onboard. Everything gets set up in a virtually live environment in Hallandale, Fla. We start with a base of technology, which is PBX, PMS, point of sale, all the network components, all the Internet café devices, a myriad of locking systems and casino systems. We build all that out and then we bring in the new things. We always try to introduce one or two new things onboard every new launch.

For example?
On Brilliance of the Seas, our last ship, we have taken our great success with Internet café and extended it to the childrens’ program, Adventure Ocean. For our aquanauts who are the 6 to 12-year-olds, we created an Internet café for children. That worked very well and that’s a pay-as-you go kind of thing. We also did café in our teen area, a kind of Generation Y thing, and that has been a huge hit onboard Brilliance. We isolate this technology in the configuration center, test it all and then the business tells us what they like and don’t like. We are also introducing a new newspaper kiosk that allows you to order a newspaper from virtually anywhere in the world using your supercharge card.

This is great, keep going.
Everything onboard a ship has to be engineered to operate on a ship via satellite, which is a very different situation than the hotels have to face in terms of bandwidth capabiity. So every application you develop has to be designed to work over the Internet or over satellite and also be isolated and alone for periods of time where you don’t have satellite connectivity.

Do you have IT support people on every ship?
Yes. We have a full data center on every ship. Depending on the size ship, we have a systems manager, two assistant managers and one or two other data center people. They provide first-level support to the entire ship as well as data center operations. And, again, they are supporting thousands of components. The systems manager is part of the executive committee, so he/she is also very involved in the operations of the ship.

Are those employees hired just for ship technology?
Yes.

Those who have cruised always think of the waiters being from all different parts of the world. With ship technology staff, it is the same thing, correct?
Absolutely. As I said earlier, South Africa has become a real hot bed for talented IT people. We have people from Jamaica, a great deal from the United States and virtually all over the world. It’s difficult to find people who are truly diverse enough in their technical talent to be able to go onboard a ship and be effective. You have to have networking skills, basic PC skills and you’ve got to have some data center skills. The diversity of what you have to cover with a relatively small amount of people is challenging.

You mentioned PMS earlier. When you get on the ship, is it just like a hotel’s PMS as far as controlling the rooms? What do you use?
It’s similar. We have the Encore system that was the old, original Encore, which was then cruise-ified as opposed to crucified. (smiling)

Did you “cruise-ify” it internally?
No, it was cruise-ified by a gentleman, Alan Miller, who we’ve kept on retainer because he is about the only person in the world who knows how to fix that thing. And we also use an old version of TTG on our Celebrity ships. We will eventually get around to building a new or retrofitting PMS, but it’s just not our highest priority. We front the whole process with an embarkation system. Everything starts with a reservation system just like a hotel. Then we have an embarkation system and that interfaces to the property management system that takes over once you actually get on the ship. It behaves very similarly to the hotel property management system with the exception of all of our employee certifications.

What are certifications?
There are a lot of maritime laws around your life safety certifications and so forth. That’s all housed in our property management system along with employee files. So it is customized in a sense that it can handle some HR elements because we also have all our shipboard crew that go through the PMS: their charges, where they’re rooming and all their other information is held in there. So there is a deliniation of your customer property management system and your employee system.

The hotel industry needs to deal with the integration of systems. Do you have the same dilemma?
Absolutely. It’s the exact same issue and we’re starting to address it. We have a multi-million dollar project called Jump Start to bring in middleware and we are very close to making a selection on what middleware we are going to use. Using brokers to improve integration, we are going to do proofs of concept shore-side and shipboard. The shore-side project is going to probably be amenities. We have three entirely distinct amenity systems.

Tell me about your amenities.
You can call ahead and have wine and a robe delivered to your room; I can have cake and candies and all sorts of amenities sent there. You can also pre-order amenities yourself. You know I’d like to surprise my wife with champagne and strawberries when we check in. So amenities make up a great deal of the cruise experience. But we have three different databases, three different applications for providing amenities depending on where in the world you are. Middleware is going to allow us to integrate, eliminate three into one and show that we can simplify and detangle a great deal of our internal systems’ mess. Onboard the ships, we are going to introduce a new product called Silverwhere, which is a dining management system. Dining is a huge animal onboard the ships and this will allow for much simpler management by the maitre d’ and dining staff such as: who is sitting where, with whom, managing the process better and aligning people with their likes and dislikes. It’s a slick little program. But it needs to interface to the PMS that needs to interface to the point of sale, and so forth. We are going to use the message brokers within the middleware program to implement Silverwhere and show that we can do this onboard the ship.

I remember the big dining areas on the ship and the two seatings (early and late). I think it would be a pain to control this.
It’s huge. Right now they manage everything on a spreadsheet, plus there is a shore-side group that does dining. One of the things you find when you get into a project like Silverwhere is that there are different constituents all over the company that have some vested interest in this. There is a group that does this shore-side; there are the reservations people who have something to do with dining; and there are the shipboard people (the maitre d’) who make money on these things. There are all sorts of different constituents and I have a little group I call the Enterprise Performance Group that we throw into the middle of this because there is so much process change involved in putting in such a simple little tool. And there are so many different departments battling for how they want things to look. You need to throw an independent, unbiased process person in there to say, “OK, here’s the best way to do it for everybody concerned.” So, we spend a lot of time managing across the departmental conflict.

How about purchasing? How do you fill the ships?
They’re containerized. We containerize and fill the ships all over the world. Our logistics supply chain is very manual; we are working on that. But it’s also very global. We order from everywhere, we deliver everywhere and we load everywhere. The purchasing logistics here are awesome.

So, do you do a good job controlling it?
Not nearly as good we need to do. Again, it is very manual. We’ve done a lot of good things over the last couple of years to improve that process. The only major project that survived Sept. 11 was our supply chain initiative. We are using JD Edwards One World’s supply chain module and we are putting in a new warehouse system. We have a large warehouse in Hallandale that serves the Ft. Lauderdale, Cape Canaveral and Miami areas because we do source a lot of our ships out of this general vicinity. So we are putting in a new warehouse system to better manage that.

How are you implementing all this?
It’s a phased process and it is going to take a couple of years to truly automate. Then you have the shipboard environment. Inventory management onboard the ships is a challenge. So, we are looking at new systems. But again, I’m hiring this person to do this job, who may not have English as a first language, arguably has never worked on a computer and is expected to adapt to new tools we put into place, that candidly, he is not going to adapt to.

It must be real tough supporting these systems with your employee situation. From an IT perspective, it takes six months to get an IT person up to snuff– and then they move on.
That’s right. They become functional and then they are gone. Traditionally they go to another ship. It’s kind of like the hotels having categories C, B, A and the AA properties, representing increasing size and complexity of the operation. We have the same thing, plus we want people to experience different ships so we move people around. They might go to one ship like the Voyager, which has a tremendous amount of technology, and then they go to a ship like the Sovereign or the Majesty.

The technology on most of the ships is similar, correct?
It’s a huge cost to go back into the fleet and take a new idea like teen café that I talked about on Brilliance, and take it back to the rest of the 23 ships. So, you can go from a ship that’s highly technically enabled to a ship that’s very rudimentary technically enabled or vice versa. So not only are you learning a new ship, you are learning a whole new set of tools to do your job. We are really wrestling with this and how to make these people comfortable and functional.

If I am reading you correctly, it seems like you keep your technology in place a lot longer than they would typically in a hotel or restaurant.
Unfortunately, in all of their tremendous wisdom, our company years and years ago started to depreciate technical components just like we depreciate the ship, which is 30 years. So I’ve got networks onboard ships that are suppose to be depreciated over 30 years as opposed to a typical three to five years. This creates a little bit of angst on the part of finance when we say that we need to start retrofitting a lot of gear. But we have a schedule over the next four years of the retrofit work we have to do. So we look at the world as going backward in managing the 24 ships and going forward in what we are doing to advance the ships, kind of on the same investment lifecycle.

How many ships have you launched since you’ve been here?
Eleven.

How long have you been here?
Three and a half years.

Do all of the new ships use the same technology as the older ones for the most part?
We are standardized on all the big systems. For property management on Royal Caribbean we go with Encore. We are not crazy about it, but we maintain that standard. Our point-of-sale system is InfoGenesis; our locking system is VingCard; and our PBX is Alcatel. Again, our big systems are standardized. We might go with a different version, but I have a team that is constantly going back and bringing the other systems up to current versions.

We use Cisco gear for networking and we use HP and Compaq servers. Because of the nature of the business and, again the need to bullet-proof the systems, we maintain pretty strict standards on what goes on the ships. Maritime law also has very strict standards in terms of gear. Fire safety and life safety issues dictate what PBX systems are allowed to go on ships that are going to sail the seven seas because that is the core of life safety. What goes into our PBX is very different than a hotel because of managing the life safety environment.

I never equated PBX on ships as overly important since there are no incoming or outgoing calls.
PBX is huge onboard the ships.

Because of the security?
Yes. It manages all of the controls that are relative to life safety with the exception of, perhaps, the elevators. All your alarm systems are connected through the PBX. The room-to-room calling and the off-shore calling is a very small part of it. Plus, you’ve seen the ships and how spread out they are. The crew and the management in particular use dec phones, which creates an environment similar to cell phones but using the Alcatel system to communicate with one another. We put hundreds of dec phones on every ship so the crew can communicate with one another from all over the ship.

Interesting. There have been booking changes in the cruise industry since Sept. 11, right?
Just a week or so after Sept. 11 the INS and the Customs Service started requiring more information from our databases in terms of who was going to be sailing with us. They wanted names and certain data (booking ID information). They also put a requirement into place that said that we couldn’t do name changes during embarkation and we had to send them our itinerary list 48 hours before sailing. Essentially they were saying you have to have a lock-down list 48 hours in advance.

How has this affected you?
We did a great deal of last minute bookings and at the point of embarkation name changes would come up. They essentially said with one fell swoop, no more of that.

So what did you do?
We are increasing the amount of time between booking and sail date in order to watch those itinerary lists.

Think about hotels and airlines. An airline is the same way; if I’m not going to make a flight, I can’t send my employee.
Exactly right.

The hotels are the other side of the coin. To a hotel, it is not a big deal if you change a name at check in.
Exactly.

Your rules are now closer to what airlines do, but to most people you are looked at as a floating resort hotel.
Different oversight though. What I think drives it, in terms of our behavior, are the oversight groups. We have Customs Service and INS, but hotels have the FBI and the local police jurisdiction, and for the most part that’s who controls them. In the airlines it’s the FAA and so forth. We have a different controlling agency. Our control agencies are international because of maritime.

You have gaming on your ships. It must be a good source of revenue for you, right? I know I have never won there.
(laughing) That’s why it’s a good source of revenue for us.

Do you operate the casinos and the systems or are they outsourced?
We manage all the casinos and the systems. Casino management is very involved, as you can imagine. The configuration center that we talked about is where we build out the casino systems. We are also becoming more wireless and card based. We are putting new systems into place and new wireless components into place in the casinos and arcades to better manage that.

Explain how wireless comes into play as far as managing the gaming side of life.
Let’s take wireless communication from a slot machine, for instance, into the casino system. Eventually we want to get to the point where you can use your supercharge card to go up to a table and hand them your card instead of using cash. The casino is the only place where we actually handle cash. Everything else is on a supercharge card. We’d like to get away from cash all together. We may never do it, but we’d like to and we need some systems to work with our supercharge cards and wireless to do that.

So the casinos are not outsourced. What is outsourced on your ships?
The gift shops are outsourced to Greyhound and the spas are outsourced to Stiener. We do everything else.

When you are building a new ship, do you look at the newest slot machines that are out there?
Yes. There is a whole group, Total Guest Satisfaction (TGS), which is what you would call operations. TGS has a VP of revenue, but casino is his main focus. He is the one with his team that selects the slots and how they are going to be configured on the floor. There is a science to this. How much you jack up the slot machines in terms of return and such, where the tables go, how many tables and what types of tables. It really is a science. IT just handles the IT and he handles the science part.

Do you miss the hotel business?
Yes. When I’m at sessions like you did at the CIO Summit, that’s when I miss it. But what I realize is that I miss the people, not so much the environment.

What do you mean?
The cruise industry is so much more macro than the hotel industry because I touch so many different areas that I simply didn’t get exposed to in the hotel industry. It’s hard for me to imagine going back in the hotel industry as a hotelier, even as a CIO of a large hotel company. Right now when I look at the hotel companies and their staffs, I have an IT organization that is as big or bigger than them. I believe we are doing better and more interesting work.

At the CIO Summit, you talked about how your people take ownership of IT projects. Explain what you really meant by that.
A big part of my job has been changing the perspective of the business in terms of how we invest money and in helping RCCL understand that IT is not an entity in itself making decisions in a vacuum about how they are going to spend IT money. There is no IT money. Short of the G&As, I need to staff and train people; this is all about the business. What does the business want to do? How much do they want to invest? How big is their appetite and how big is their investment portfolio? My job is to make sure that the people I’ve got working on basic support are as efficient as possible so that I maximize the amount of hours available to work on business projects. We don’t do projects in IT that are IT projects.

Never?
There are very few exceptions such as an ethernet conversion, which you have to do to keep the business running. We’ve changed this mentality of how much IT is wasting, which was the mentality in 1999, to the business wants to accomplish a lot of these things. I tell them exactly how much it’s going to cost to get your project done and I say here is the line we draw up against the project/man hours we have available and the resources available to do all those projects.

Great approach.
You know a certain percent will fall below the line since we simply can’t do all that work. But these are all business projects. So I sit down with the business leaders every quarter and we say, OK here’s where we are, this is what’s active and here is where we are spending your hours. You say, “Brian, you’re getting this much. Dan, you’re getting this much and Adam you are getting this much.” Now you’ve got these things lined up, and you know we can only get the four of them unless we adjust other projects. Then we go through an exercise of adjusting where the priorities are for each of these business leaders. Our goal is to get through the entire year without having to go to the president to arbitrate a disagreement. We all share that goal. But it’s all about the business and sitting down and saying this is more important than that, or this can drive more ROI than that, or I’m going to cut five people out of my organization if we do that, and they debate among themselves. IT simply arbitrates and then we enable. That’s what we’re here for and we’ve totally changed the perspective within the company of how they manage their investment. I can do as much or as little as the company tells me to do.

Do you have big projects that you are doing that you can share with us?
Jump Start is a huge project for us in terms of enabling technology. And this is truly an IT project that will have business benefits.

What are the benefits?
Bringing middleware in to decouple systems. Before Sept. 11, we had a $200 million initiative called Leapfrog, which focused on Customer, Employee and Supply Chain systems. We have accomplished some things there. We brought PeopleSoft shore-side and did about a $17 million project there. We also did a supply chain project, which we whittled down from a $20 million to a $3 million project this year. Our other project, customer, was essentially rebuilding the reservations system from scratch. Post-Sept. 11 we’ve changed our strategy because we don’t think there is a time in the near future when the company is going to have $200 million to invest. Justified or not, we simply do not have that kind of cash flow right now. So, we went back to the drawing board and said all the projects that made up Leapfrog are still valid. There are still reasons to do them, but we cannot afford to do them the old way. So the new way was that we decided to bring in middleware to help us decouple components within the reservations environment.

What makes up the reservations environment?
The reservations environment is made up of 120 to 130 discreet applications and many databases. In using middleware I can start breaking those up.

How so?
For example, I can pull out an air/sea component or yield, or I can pull the booking process out once I put in that middleware and detangle some of that mess. Now in a more discreet investment manner if you say you want to re-do air/sea now, we can do air/sea for this much. I don’t have to do a complete overhaul where three years from now I flip the switch and all of the sudden you have a new reservations system. We are going to modularly go after the reservations system using middleware to free up components, and then componentize and create data layers and application layers, which is a more current approach to reservations. That’s under way right now. We have another $17 million on supply chain initiatives over the next year or two that we are getting after. And we have $40 million worth of requests from business for 2003 capital. We have a huge appetite in this company for technical investment.

Do you think it’s because you haven’t been spending money in the past?
(laughing) No, it was actually $80 million going into 2001. There is no lack of appetite and creative thinking in this company when it comes to business. What has changed is that people now realize that there is an IT element to almost everything they want to do. You know we are doing really cool stuff with benchmarking and with scorecards. The company has very creative, clever people. The problem is managing their level of frustration when they have a great idea and they can’t get IT resources to focus on them because it’s not a high enough priority. We’ve set that priority bar so high that we risk alienating the people who drive great ideas in the company. That’s kind of where we are right now in terms of IT investment.

Since you package cruises, do you have working arrangements with the airlines and hotels?
Less with the hotels. Air/sea is a major part of the company right now; they manage the airline relationship. Pre-post manages the hotel relationships we do have, and certainly in Alaska where we do a lot of land tours. In Europe we are going to start doing land tours so we are developing relationships with more hotels there. But here it’s more adhoc. We try to fly people in on the day of departure, but we do offer a Miami pre-post experience.

What do you do if bags don’t arrive at the ship on time? What about passengers that miss boarding? How do they get on?
We just fly bags to the next port and most people will fly to the next port of call and board late. That is a huge security issue now.

When you think about it, it must be a real drag losing a bag.
No doubt. And it happens. We handle a lot of luggage and it’s a whole other side of the business. Our passengers don’t hand-carry their bags on. They check their bags just like in the airport and we containerize them, put them on the ship and deliver them to every single room for every cruise. Then we pick them up the night before they disembark and containerize them and off load them. It’s a whole component that the hotels never really have to experience.

Is there any technology for tracking bags?
Not really. We use limited bar coding and a lot of colored tags. We were trying to work a baggage deal, but Sept. 11 really got in the way.

What kind of deal?
There were a couple of airlines like Alaska Air and Air Canada who wanted to do a thing where once you leave your bag whether it’s at the airport or the cruise line or wherever, you would never have to touch it again until it gets to its destination. The airline or the cruise line literally handles the bags almost like Intraline for the airlines. There are agreements between the airlines that they will take a bag and transfer it to another airline. We were going for Intraline for the cruise portion too. So when you are flying to Miami, you check your bag at your departing airport and you never see it again until it’s in your room on the cruise ship.

So you aren’t doing that today?
No, we want to do that. There is a lot of technology involved in that. We thought we could pull it off, but then Sept. 11 happened and with it the need to containerize, seal and secure bags that you’ve taken when you haven’t met the passengers themselves. It isn’t going to happen anytime soon.

Are you under the same restrictions as the airlines are as far as checking bags?
Every bag goes through detection devices. I’m not sure if we’re under the same dictate that requires by the end of the year that every single bag has been screened. When you go onboard the ship, you go through a detector and your carry-on goes through as well.

Cruise lines could obviously be somebody’s target.
We are very sensitive to that—very sensitive.

Are you doing anything with handheld devices?
We are doing some work with handheld devices working with InfoGenesis to improve the pool service and line ordering in the dining rooms.

Are you making progress?
At times, but it has been very frustrating. We’ve been working with them for three years. We are finally at the point where we are doing some proof of concept onboard Voyager and a couple of other ships. But as these ships get bigger, the need for this kind of thing is critical.

Where would be a better place to use wireless technology than on a cruise ship?
Right. We had some operations and industrial engineers go onboard with their stop watches. If you measure how much time a waiter or a pool attendant spends going back and forth between the bar and the passenger, more than 50 percent of their time is spent walking. It’s clear that handhelds could drive a huge amount of efficiency and more satisfied customers. I know when I’m on vacation I get frustrated. I don’t wait for the attendant to come around with my next soft drink; I go get it myself at the bar. It’s just frustrating.

How about embarkation and disembarkation?
We are doing a lot of work to try to improve the process of embarkation and disembarkation. Those are the two points besides the airline which we can’t control. These events tend to leave the most negative feelings or perceptions of cruisingwith our customers. When they get on the ship and as they are leaving the ship you don’t want to leave them with negative perceptions. We are spending a lot of time and money trying to improve the process of getting people on and off. The security issues haven’t helped, but there are technical things that we are working on to improve that. This is a huge opportunity for us.

How else are you using technology to avoid having your passengers stand in line?
One thing that we have done is use the Web more to book shore excursions. In the first 12 months, shore excursions via online bookings brought in $40 million in revenue to the company. Also, we are now doing embarkation forms online and it’s huge. We are going to isolate a place for embarkation that if you filled out your embarkation forms online, you go to the special place and you will get speedier service. We are trying to eliminate having to present and swipe the credit card at embarkation. You know the hotels do it in some cases. We already have your credit card and we have you check a box online that you approve us using this so we can consider that as a signature on file. Why go through the extra process of swiping the card?

(smiling) I know why.
(laughing) Yes, we get a better discount rate, but what’s more important? You do start to boil this thing down to dollars and cents. If I can move a person out 26 seconds faster and I can process this many more people and they are going to be onboard that much faster spending more money, which is more valuable to the company? Is it a .03 discount point or is it a satisfied customer? And that’s not a clear answer. I’m presenting that as a clear answer. Accounting has a very strong position. Operations has a very strong position. All we do in IT is raise the point and present the facts from both sides and debate it as a company.

Interesting. I don’t remember getting onboard and getting off as a bad experience.
On Majesty it’s a lot better. Were you pre-Sept. 11?

Yes.
It’s much more difficult since INS or the Customs Service people have to check every single person and they’ve lost so many people in Miami to the Air Marshalls program. Generally we can only get two people. Well that’s one thing for Majesty, but a whole other thing for Voyager when you have a third more passengers coming off and you are having to stage these people over the course of three to four hours. It is a huge challenge.

It’s a drag getting off, but I know getting on was different since we were all in a good mood.
Getting on is better, but not as good as it could be. I still go down to the pier and look at the lines and think there has got to be a better way to do this. It might be with handheld technology or driving people to the Web. There are options out there for us.

This has been great talking cruises. My first cruise was on Holland-America to Alaska.
Holland-America has a great product, but now we’re hurting them in Alaska, which is good. We put some new tonnage out there and they have older ships. This is very much an industry that is similar to the rental car industry where one company comes out with something that works and everybody else does it. We come out with something new and everybody else does it. So you have a very small window of competitive advantage. I view it from a technological standpoint. Operations looks at it from their standpoint. This also colors what you do and how much you invest. Does this thing have legs and does it really drive customer value? If it doesn’t, you’re only going to get five or six months worth of competitive advantage out there.

People might not realize that you also worked for Avis at one point in your career.
Yes, I’ve seen all sides. Avis had, including WizCom, about 500 people in IT. They were making a lot of investment in IT and they were constantly chasing Hertz. What it boils down to here is how to use the technology and the process. This is an old argument, but if you’re just putting the technology into place and you are not changing the people and the process then you are wasting money. You need to have a company that is willing to look at the big picture and say OK you are right, there is a better way to do embarkation or there is a better way to do dining. We have to break down 15 processes in order to have a very efficient/effective use of this technology. We have a company here that is willing to do that, but I have to force that a great deal. I have a group that does this and they are not technologists, they are process people. And I assign, just like a project manager, a process manager. They get in there, understand what’s going on, figure out where the mess is and fix it. Because 9 times out of 10, the technology isn’t fixing the mess – it’s departmental process and people. Embarkation won’t get any better as long as we keep hiring temps who don’t know how to use computers. You know it seems simple, but it’s not.

You have thrown out some pretty big numbers that you are spending on technology. Is there a percentage that you use?
We don’t operate as a percent of revenue on purpose. It’s the same reason why we don’t do a lot of allocations in IT. I carry most of the burden of cost for the organization. I carry telecom for instance, which traditionally is allocated out or charged to the call center. I manage the contracts, we manage the technology and we carry the costs. To try to gauge that against revenues is not very effective. It goes back to what we talked about earlier, whether it’s 1 percent of revenue or 5 percent of revenue, nobody looks at that. They say, “What do we need to do this year? What does our capital funding look like? What makes sense as a company? Where are we going to focus our dollars?” and then we do that. We will go through a process of review and say look this is how much you invested last year and this is what you got for it. This is a conversation I have with the president of RCCL. This is how much your people consumed this year, this is how much your direct reports consumed this year, and here’s what they are asking for next year. Now if I’m going to need to do that, I need to hire about 50 to 75 more people. Obviously, we are not going to do that. So let’s work together and prioritize this down to a point that you are comfortable with. It might be 25 people. It might be 30. It might not be anybody. You tell me. But we are not setting up an arbitrary percent against an arbitrary number. We are just saying, “How much do you want to spend?” Royal Caribbean spends more on IT than any of the other major players; no question about it. The CEO said the other day he believes he also gets more out of it than anybody else.

There are a lot of people reading this who are going to be very envious.
(laughing) I’m very, very lucky. We talked earlier about how long I’ve been here compared to other jobs. A big part of that is that the CEO and the president are huge proponents of IT. They really see that we are strategic and that we are enabling virtually everything that they want to do or we have a hand in it. IT is not a necessary evil; it’s a huge benefit to the organization.

I think more and more people are aware of that today then they were 10 years ago.
But I think there is a difference between walking the walk and talking it. I think a lot of CEOs these days talk it and they presume to understand it and they really don’t; they are scared by it still. The guys here really understand it. If you sit down with our president, he can talk about relational databases with you in fairly good detail. That’s a good place to be. We are more kin to companies like Dell and Amazon who are driven by technology.

How so?
They sell product, but they are driven by technology. I see Royal Caribbean very much in that vein. You know we’re not fighting to do smart things, we are doing smart things. We are fighting to get more bandwidth to do more smart things.

Speaking of smart things…
I know, being interviewed by you is easily one of the smartest things I have ever done.

(smiling) I couldn’t have said it better myself. This has been great. Thank you for meeting with me here in Miami. Next time, let’s do it in the dead of winter.
I will work on that.

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