The 2012 CIO Summit, Hospitality Upgrade’s 11th event, was held at the Hyatt Regency Lake Tahoe Resort, Spa and Casino. CIOs and technology professionals from hotel companies, management companies, timeshare companies, casinos and cruise lines met for some very thought-provoking educational sessions, and even more importantly, for some very beneficial networking with others from the hospitality technology industry.

Monika Nerger, global CIO of Mandarin Oriental Hotel Group, described the event as, “a great opportunity to meet your peers and colleagues and really have an understanding and a feel for what’s happening in the industry today.”

The annual golf tournament was held nearby at Incline Village, a course with beautiful vistas and multiple twists and turns, creating a challenging round for all players. This year’s winning foursome included The Hotel Group’s Robin Koetje, Canyon Ranch’s Andy Ross, Greg Taylor of Kimpton Hotels and Restaurants and Jalaj Sachdeva of Wipro Technologies. Jay Reed of Pillar Hotels and Resorts took home the longest putt honors, and Bob Magliozzi of Cendyn was named straightest drive winner.

Another group went white water rafting along the Truckee River’s class III Boca Run. The sought-after paddle award went to the raft carrying David Barbieri of Red Lion Hotels Corporation, Hyatt’s Jim Gery, Peter Engel of Marcus Hotels and Resorts and Wipro Technologies’ Uma Mahesh. Brian Garavuso of Diamond Hotels and Resorts was awarded scariest on the water honors, with Luis Segredo of MTech, a division of Newmarket® International, bringing home the best maneuver award.

This year’s welcome reception and opening night barbecue was held just offsite at Tunnel Creek Lodge, a private home nestled on a bluff with absolutely breathtaking views of Lake Tahoe. Even though the rain threatened a bit, the attendees were able to enjoy a fabulous dinner and of course the awards for that day’s events.

Session No.1:
Gettin’ Strategic With It
Thursday morning began with a session focused on how to be a strategic CIO. Jack Bergstrand, founder and CEO of Brand Velocity, Inc., addressed the group, and referred to Frederick Taylor, the father of strategic innovation, and Peter Drucker, the father of modern management, as great resources. But, as he said, “It is hard to be a strategic CIO… There has never been a strategic CIO without a strategic team, and unfortunately, there aren’t many strategic teams.”

He continued, “We’ve been taught to be scientific; we’ve been taught to be objective. Why Peter Drucker was different, he was the first to talk about knowledge and productivity… unlike math and science, leadership and management are a social science.”

As he mentioned, unlike math where the answer you get today is the same answer you will get tomorrow, with social sciences each situation is different, and therefore requires a different solution. “Our tools were built on scientific management; it was based on a world that was visible, stand-alone and unchanging… when you apply the scientific method (to many projects), the failure rate is 70 percent. It is important to have a framework that is (both) objective and subjective,” he said.

According to Bergstrand, most critical initiatives do not achieve original business cases; over 70 percent exceed their budgets, most by over 40 percent; most are over one year late in achieving their value proposition; virtually all reduce scope and benefits prior to implementation; and over half have more than one change in project leadership and executive sponsorship.

Strategy is a vital component of a CIO’s job, and yet, many CIOs are shut out because they are not seen as strategic contributors to the business. “It’s hard to be a strategic CIO; people are going around behind your back, the systems are complicated… that’s why strategic influence needs to be reinvented,” he said.
Bergstrand pointed out that people are wired differently and solve problems differently. He classified people into four different categories: people who are wired for envision (subjective knowledge problem solvers), design people (objective knowledge problem solvers), those who are wired to build (objective work problem solvers), and those who operate (subjective work problem solvers).

Bergstrand said, “An envision person is solving a problem in an entirely different way. Build and operate people are both work based, but they solve problems differently and they still communicate somehow. But, with opposites (i.e., design and operate, like a controller and a sales person), how many times have we seen them at odds?”

Bergstrand said that people and things need to be managed holistically. “Seeing the big picture through our lens and communicating through other people’s lenses makes results better,” he said.

Monika Nerger, CIO of Mandarin Oriental, asked, “Where do you see the role of the CIO and how will it change in the next decade?”

Bergstrand said, “In general they will be less technical and more general, better communicators and much better at writing, much better at managing two outcomes.”

Gustaaf Schrils of IHG asked, “There is a high percentage of projects that are not successful. Do you see a difference in projects lead by different personalities?”
Bergstrand replied, “More is learned from a turnaround than system implementation. (People) are subjective by nature. Almost always, it’s people in the middle (certain personality types) who expand the scope. You need to get them out of the equation because they can hurt the project.”

Bergstrand reminded the CIOs in the room to think differently and recognize all people in all roles are different. He closed with Peter Drucker’s famous words of advice: “Don’t tell me you had a great meeting. What are you going to do differently on Monday?”

Bergstrand's session takeaway: Strategy, like management itself is a social science. It is a human construction. It doesn’t ignore engineering, but requires what can be learned from the social sciences. Unlike a math problem, one size fits one. Strategic influence isn’t about being right or wrong
– it’s evolutionary.

Session No.2:
State of the Security Union
The vast majority of attendees expressed how they wished this session actually had gone longer, as data security is constantly at the top of the priority list for many in the room.

Tia Ilori, business leader, VISA, discussed security compliance standards and had the opportunity to answer many questions from the floor. Ilori said in many cases, the liability rests with the card issuer, as VISA and its counterparts are not the issuers. In response, attendees expressed frustration in the current systems in place.

Ilori discussed encryption (P2PE/point-to-point encryption which protects sensitive cardholder data in transit), tokenization (which replaces cardholder data with surrogate values) and EMV technology (which protects against counterfeit cards by replacing static data with dynamic authentication like chips, contactless, NFC or one-time passwords, for example). What does she recommend as the best authentication strategy from these three measures? A blend of all three.

“Hackers have shifted their focus to e-commerce, to online retailers or those with an online presence,” she said. “The most attractive thing to a hacker is the PIN number… With (only the) mag stripe, they still have to purchase equipment/electronics and then fence it for 50 percent to get cash.”

She added, “Cyber criminals continue to be attracted to the remote access business model commonly implemented at Level 4 and franchise merchant locations (primarily in the United States), which is the main contributing factor for the increase in the number of intrusions.”

According to VISA, restaurant franchises continue to be the dominating target by hackers in the United States, with 97 percent of events occurring at small merchants, 91 percent of U.S. incidents in brick-and-mortar merchants and 81 percent involving small restaurant merchants.

In 2009, VISA started to see a disproportionate trend in the hospitality industry. This continued through 2010 and 2011. In some cases, she said, “The PMS served as the back door… Hackers got through the franchise system and had access to others.” She said these properties did not have proper access controls or authentication in place.

Even one property can be a big problem for a brand or management company. “Independents bear the name of the organization,” Ilori said. “When there is a breach, the consumer can’t tell the difference between the corporation and the franchisee... this can damage the brand.”

Luckily, VISA does not see the hospitality industry as a particular target today. “We are seeing third-party companies that provide services to the hospitality industry as targets, however,” she warned.

Targets they do see currently include online gaming, online data, airlines and universities.

Speaking the minds of many in the room, Scott Gibson of Best Western International expressed his concern that VISA and its counterparts are requiring the properties to purchase equipment and they aren’t equipping them or solving a problem. He added, “If credit card companies did not exist, we would still be renting hotel rooms.”

VISA Authentication Vision:
1 Eliminate vulnerable data where possible
2 Maintain effective security where vulnerable data remains
3 Devalue transaction data by moving to dynamic data

Session No.3:
Appetite for Disruption
This session focused on what the venture capital and private equity communities are investing in and how these investments will impact the hospitality industry. Chris Hemmeter, partner with Thayer Ventures, represented the venture capital side, and Sergey Shneyerson, partner with Exigen Capital, represented the private equity end.

Shneyerson said the Internet and new technologies are causing a massive disruption to traditional distribution and business models. “New technology and the Internet introduce enormous changes to established industries and business models with huge implications for industry incumbents,” he said. “Traditional businesses lose significant shareholder value as the result of those changes and must adapt to changing business environments.”

He added,“The incentives of OTAs (online travel agencies) and asset owners are not aligned, which has caused a travel industry re-organization as a result of OTA disruption.”

As Shneyerson said, for asset owners, OTAs are now the least profitable, but fastest-growing booking channel. Intermediaries are expected to contribute upwards of 50 percent of hotel revenues by 2015.

He said that brand owners need to transform IT systems to respond to OTAs, but face capital constraints in an uncertain business environment. “Brand owners need to invest in IT systems in order to be able to enforce brand standards and deliver brand value to customers,” he said. “However, wild swings in supply and demand make long-term capital investments in technology challenging.”

Capital investments are typically very large, he said. Large-scale technology integrations can cost upwards of $300 million and are frequently ~100% over budget; the cost for a typical CRS can reach $100M+ and the cost of a typical PMS can be $100M+ as well. “Brand owners are not tech companies and cannot afford unhedged capital expenditures in technology,” he said.

Hemmeter described how the various investors are different. “PE (private equity), real estate and hedge funds are much more about math. VC is more about emerging markets, strategy,” he said.

“We (our firm) are big believers that travel is very dynamic,” he said. According to Hemmeter, there will be 150 million smartphones in 2015. “We are seeing massive growth in mobile… half of all smartphones have downloaded a travel app.”

There is also enormous growth of e-commerce. “Online travel is one of the most exciting industries for us,” he said. “Only 20 percent (of travelers) have a schedule or itinerary; there is a huge audience/market in flux… This is a very, very exciting time in hospitality travel and innovation.”

Hemmeter said his company actually makes money by saying no in some cases, that is, by saying no well. “We leverage our network and do our due diligence,” he said. “A very important aspect of VC is knowing how much to invest and how much to reserve. You’ve got to have the resources to figure it out.”

Nerger asked Hemmeter, “Of the 741 nos (you have given to companies), were there any success stories?”

Hemmeter said, “I’d rather not talk about that (with a smile)... actually yes, Tripit… we learn from them (the nos) too.”

John Burns, a consultant specializing in distribution and central reservation systems, asked Shneyerson, “How do you address the concern, putting together a system that you will be invested in for 3, 5, 7 years? You will be there short term and we will be involved for the long term. How do you make us feel comfortable that you will be with us long term?

Shneyerson said, “It is a very high margin business. If it’s growing, we can sit on it; it’s about how much money (we can make on it).”

Hemmeter added, “It’s a mistake to connect companies with their capital structure. If the company does well or not, who cares how it’s financed as long as it’s financed well. (It doesn’t matter if one investor rolls off the capital stack.)”

The CIO Summit program moderator, Sally Kelly of NTT Data, asked what was rising to the top. Hemmeter responded, “Mobile e-commerce, social media travel sharing, photo sharing – not so much the Facebook thing as the travel thing.”

Hemmeter continued, “We are really interested in travel e-commerce. We are interested in data and analytics, and we are really focused on the social sharing aspect.”

Hemmeter's session takeaway: The rapid growth of travel e-commerce is much more than just a B2C phenomenon and the enormous amounts of dynamic data resulting from both traditional and mobile engagement is creating powerful new problems and opportunities for suppliers, and their business partners.

Session No.4:
Sourcing Industry Briefing
Harvey Gluckman, partner, ISG, lead this session which focused on the current state of industry sourcing trends.

“This was the busiest year ever in the broader outsourcing market,” Gluckman said. In the wider marketplace, there has been $99 billion in transactions, a third of which was through restructuring. According to Gluckman, last year, the United States and Asia were in a decline, but Europe had a record number of transactions.

He said 70 percent have some sort of offshore delivery component, with more than 50 percent having a multiservice provider, and pointed out that service provider diversity creates price pressure.

Kelly asked, regarding different verticals, “The hospitality industry has had some meltdowns. Are these typical of other industries?”

Gluckman said, “There are bumps in the road with any outsourcing project. Of those that occurred in the hospitality industry, why some of those unraveled, some was picking the right (operational capacity)... it was already too late. They thought it would be a lot easier.”

Regarding call centers and reservation centers, Burns asked, “Is there some move toward repatriation; is this an anomaly?”

Gluckman replied, “No, it’s strategic (differentiation) rather than outsourcing. We have seen some of that coming back in house in this and other industries.”

Session No.5:
Your IT Roadmap: Building Your Personal Brand
Many have focused on marketing their companies’ brands for years, but how many actually have focused on marketing their own personal brand. One CIO recruiter, Phil Schneidermeyer, partner, Heidrick & Struggles, and one former CIO himself, Tim Harvey, CEO, Core Ideas and past CIO for Hilton, had some answers and very useful advice for those in attendance.

Schneidermeyer opened the session by asking the attendees a few questions. He began by asking to whom they report. Thirty-eight percent said the CEO, 30 percent said the CFO, and 32 percent said someone else.

He then asked is any were officers of their company. Thirty-seven percent were actually officers. Schneidermeyer confirmed that a very small percentage of CIOs are on boards (S&P500 boards).

He pointed out the skills around transformation and change and said, “The capabilities companies demand when someone is asked to step aside, it’s generally relationship building, leadership... things like this.” Schneidermeyer added communication, transformation, track record of success, being a coach/team player, innovation and diversity of cross-culture. He also described companies like Apple®, GE and Pepsico that invest heavily in human capital because they recognize the importance of people.

But he warned, “The company brand you are with, the perceived culture and reputation is what they will think of you.”

Harvey used some highly entertaining and extremely applicable baseball metaphors and movie clips to very creatively describe the five IT principles needed to build a personal brand, having been the former CIO of Hilton Hotels Corporation for 30 years.

Harvey said the attendees should align business strategy and IT strategy. He recommended that the CIO get together with other C-level executives and co-create a plan, build it together. “The CEO I reported to at Hilton really believed we had an integrated plan,” he said. “I really got to know the business… what our owners wanted… (we) focused on the data about the business and then we took that data and reapplied it back in,” he said.

“I believe in integrating the business and IT strategy, and it helped me become who I am,” he said.

He recommended doing this by speaking the business language, understanding the goals and objectives of the enterprise, bringing data to planning discussions, identifying business differentiators, modeling success strategies to meet desired outcomes and keeping the technology roadmap flexible.

Some of the major things that CEOs are dealing with are all because of technology. “Every business is driven by technology,” he said. “CEOs are dependent. They need guys (individuals) they can trust. CEOS need (information) about the business… (information that tells them) how do I drive more revenue.”
Harvey spoke about the people who lead business innovation in the attendees’ companies and should it be them (as CIOs). “It’s a revolutionary approach – our CEOs are looking at ‘how can I use technology to better serve our guests,'” he said.

He said, “Wowing our customers created new revenue opportunities. It was about driving revenue in the business.” Harvey recommended thinking about new revenue from IT, and said, “Look at the customer. Think about technology and the revenue it can drive.”

He agreed that the role of the CIO is becoming more strategic. Kelly asked if he meant more strategic in the future. He said, “What I’m saying is that the role, what can you generate and create by pushing into other areas of the (organization) and not just the CIO.”

One other recommendation he made was to look at the CMO differently. “The CMO is my friend,” he said. “You really need to start thinking that way. That’s a really important relationship.”

Before Harvey closed, Gibson said, “I agree with just about everything you said… we need for CIOS to be innovators and strategists, more than just tech people. It’s imperative to have this. We are seeing more of this because we have not (historically) played the strategic role our organizations want us to.”

Harvey agreed and said, “We have to balance and understand both sides. We have to understand business and technology too.”

Session No.6:
Intel from Intel
Ed Goldman, former CTO of Marriott International, and current IT CTO of Intel, shared some insight on the transformation of IT.

“We had data processing, accounting had its tools in the '80s and sales and marketing had their tools,” he said. “In the '90s, we had a goal of moving to a more centralized environment. Today, it’s about mobility.”

Goldman said the drivers for change are consumerization and the cloud. “Consumerization is really about the influence, the people who are coming in. They are used to any device and supporting any device.” He described consumerization further as the increasing influence that our technology experiences in our personal life; both hardware and applications, have on the technology that we expect to use at work, adding that choice is at the center of consumerization.

Regarding the cloud and its impact, Goldman said, “It’s really about the ability to have multiple capabilities within one.” He described the cloud as the ability to deliver the right availability computing environment where secure services and data are delivered on demand to authenticated devices and users utilizing a shared, elastic infrastructure that concurrently supports multiple tenants, with the key being on-demand provisioning.

Pinkham asked about some of Intel’s capabilities, “In the future... (with) smart apps, Bluetooth, do you see a chip in the TVs? With Apple TV, there was some very cool stuff on Apple’s roadmap before Steve Jobs died.”

Goldman said, “Yes, we actually have some of those capabilities. We have Whitebox in Europe, India and China; you can actually buy an Intel phone (there)... and in digital signage, (we have a product that) recognizes you are a male in a certain age group, and it does this privately.”

Schrils asked, “What do you think will be the most disruptive technology in our industry?”

Goldman answered, “(Regarding VISA’s earlier session on data security and PCI compliance) All of those things are the biggest problem, and connectivity. I don’t see another tech component that’s going to cause a problem right now… (Regarding) outsourcing, for these properties that may not be up to the quality level of the rest of your brand, the use of technology may impact them, but I don’t see a specific technology that will.”

Closing Session:
Expert Panel: You Talkin’ to Me?
Probably the most popular session of the week was the closing panel with Laurent Idrac, worldwide CIO, Accor; Nelson Garrido, vice president, technology, Noble-Interstate Management Group; Gustaaf Schrils, vice president global technology, IHG; and Ken Barnes, vice president IT, White Lodging. Had the attendees not have needed to get to the airport, this session could have easily gone on for several more hours.

The most popular aspect of this session was the representation of both brands and management companies (owners/operators and franchisees) and their abilities to interact and respond to audience questions at the same time. Topics included technologies, standards, working together and goals for the future.
When looking at some of their challenges, they ranged from franchisee issues to integration to security to dealing with investors and owners.

Idrac, with over 7,000 properties, said Accor has to convince the franchisees that his company is bringing value to the customer.

Garrido’s company, as both owner and franchisee, sees his biggest challenge as whether the brands are customizing so much and how difficult it will be for the owner. If a property has its own sales system, it is difficult for his sales team, as they then have to learn two different systems.

IHG has 4,600 hotels, with 2,000 worldwide. As an owner and operator, the company has to answer to its board. “There are two things they are looking for,” Schrils said. “A trust factor with the company (does the company have good financials) and ROI. How you sell technology to them is really making sure how they participate in your brand and making sure they have a voice.”

He added, “The fact that the investors don’t look at technology as an integrated component (can be difficult). We all need to do a better job of educating them, but still meet the brand’s ultimate strategy... When they are looking at better quality carpet, they don’t want to hear Gustaaf talk about voice-over IP.”

He also mentioned the importance of setting expectations, being transparent and putting it in business language. “The word cloud goes right over their head,” he said. “And infrastructure, they feel embarrassed to ask us what that means... we could all (in this room) write down a definition and all be different and we are asking for millions of dollars.”

Barnes, representing a management company/owner/operator with 165 hotels in several states, said his company has been dealing with the franchisees for many years. He said in his case, “It’s about the communication factor and how involved the brand is with them… we are creating value for our owners by reducing cap costs and reducing operating expenses.”

He said they have to work jointly with the brands to come up with a solution. “Some brands are easy to talk to and some aren’t. Overall it’s communication that keeps the relationship going forward,” he said.

The panel discussed concern over the OTAs and the challenges they present. “The OTAs are a big concern to us,” said Idrac. “We have to find an easier way for our guests to book through our website.” He cited exclusive benefits if guests use the website like express check-in and other opportunities.

Garrido agreed that sometimes it is tough to control. “At the end of the day, the people make the decision where to book,” he said. “We don’t depend on the revenue people to figure this out.”

Schrils also mentioned mobile booking. He said, “The reality is mobile. Who would have thought we would be booking $15 million per month on mobile? We are constantly looking for ways to maximize the channel. The consumer behavior changes and we have to look at that.”

In a nut shell, all agreed that having an ability to work well together can only add benefit to their businesses. Idrac concluded that clear strategy and a straight-forward approach is the key to a successful relationship, while Schrils ended by saying more alignment leads to guests wanting to return. Garrido reminded the group of the challenge of managing data across multiple brands (as a management company), and Barnes said that through relationships and collaborative efforts, with franchisees and brands, when it works, it becomes a partnership.

As Schrils said, “The content of the conference was great, the networking was fabulous and Lake Tahoe is spectacular.” I couldn’t have said it better.

Special thanks to event sponsors: Agilysys, SAS, Infor and Wipro Technologies; event and wireless sponsor HFTP; and transportation sponsors: Newmarket International, Inc., Cendyn and Cisco.