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Common Sense Benchmarking of Hospitality Technology

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June 01, 2003
Implementation | Reviews
Michael L. Kasavana, Ph.D., CHTP - kasavana@pilot.msu.edu

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© 2003 Hospitality Upgrade. No reproduction without written permission.

Performing a post-implementation review usually is a cause for confusion. With the many financial techniques, return on investment analyses and other complicated schemes designed to evaluate the technological success of proposed or installed application software, industry practitioners considering adoption of such metrics usually are confused and dismayed by the breadth and depth required to perform a formal review. Managers are challenged to conduct a system audit, develop a process review or perform a workflow analysis. Leaving many asking: Is there an easier way? The answer is yes.

The inherent problems associated with technology implementation reviews revolve around the fact that the candidate application may have missed its intended target in the first place. More sensible than a complex formulation is a straightforward set of test criteria that can be applied either pre- or post-implementation. Three common sense benchmarks to measure the appropriateness of technology applications in the hospitality environment are: a) competitive advantage, b) productivity improvement, and c) profitability enhancement. In other words, management needs to focus on responding to three simple questions: Will implementation of the application provide a competitive advantage? Will it improve productivity? Will it enhance profitability?

While not all hospitality entities will respond the same, a simplistic benchmarking analysis can generate a good basis for evaluating application success. In addition, this three-dimensional approach avoids the pitfalls so often accompanying complex analyses.

Competitive Advantage
Technology can produce a competitive advantage in the hospitality industry. Consider a hotel company’s Web site with self-reservation capability, or a restaurant’s point-of-sale system with frequent diner software, or even a country club with a cybercafe. Each application produces an outcome unparalleled by non-automated or semiautomated approaches and therefore a competitive advantage is created. The goal of competitive advantage is to cultivate customer loyalty while increasing purchase frequency. Technology can help change the impact of competitive advantage so that the short list of items that once were perceived as the only differentiators in the hospitality industry (i.e. pricing or quality) are being supplemented by innovative outcomes of the digital era (e.g. brand image, personalized services and product customization).

Competitive advantage is typically established through one of four dimensions. The most obvious is product differentiation, or the art of applying technology to produce a product that is unique (e.g. high-speed in-room Internet access or the personalization of a frequent-stayer program Web site). Differentiation of a product can also be gained through customization of product features or unique capabilities. Product differentiation is intended to create value and enable the supplier to effectively satisfy or exceed customer needs and expectations.

A second means for establishing competitive advantage is to use technology to generate unparalleled service (e.g. CRM — customer relationship management). CRM is built on the proposition that knowledge of the customer is valuable to loyalty and revenue enrichment programs. CRM requires capturing interactions and analyzing past consumer behavior to predict or direct future behavior.

Using data mining to learn which wine is frequently ordered with a specific entrée then using that information for product bundling and pricing to increase customer satisfaction is a good example. Just as unique product features can serve as a point of differentiation, customer service is also effective (e.g. exceptional services of Ritz-Carlton Hotels and Nobu Restaurants). The development of personalized products and services is reshaping the hospitality industry.

A third form of competitive advantage arises when a product can be produced at a lower cost. When technology is applied so that costs are reduced, margins are higher and selling prices may fall. A cost advantage is established when a substitutable product cannot be produced for the same low cost and therefore the seller gains a pricing advantage. Lower costs usually create a natural means to gain competitive advantage. Cost reductions are more specifically addressed in the areas of productivity and profitability.

A fourth technique for establishing competitive advantage through technology is market segmentation. By employing technology to target specific market segments, a hospitality business is able to expand its reach while exceeding customer expectations. Most hospitality firms have moved into the customer service phase of competitive advantage, and are heading toward market segmentation, realized differentiation on price and quality alone may be insufficient. Market segmentation involves product branding, which can help establish competitive advantage.

It is important to note that once a market leader establishes a competitive advantage the rest of the market will move quickly to catch up. It is for this reason that it is difficult to create a sustainable competitive advantage in the marketplace. This may well help strengthen the case for technology’s role in establishing marketplace advantages.

Productivity Improvement
The second benchmark that can be used to test the effectiveness of technology is productivity improvement. There are two aspects of productivity evaluation: data processing and workflow processing. From a data processing perspective there are three categories of metrics. The first is minimization of the time it takes to transform data from input (raw facts) to output (information). When the time of the traditional data processing cycle is minimized, the firm is operating in a more efficient manner and technology should be credited for having made a positive difference. For example, the processing time required for aggregating one month’s data under a legacy application, compared to processing the identical sample through the new application, will reflect the efficiencies of the newer application. If there is a gain, then improved productivity has been demonstrated.

Second, the optimization of data handling procedures must also be evaluated to determine improvement. The goal is to reduce the number of times the same piece of data must be handled. For example, taking a guest’s dinner order tableside using a handheld device will lead to singular data capture for subsequent processing.

This is illustrative of a significant gain that arises from data capture, thereby omitting the need for additional data entry, subsequent data handling or data re-handling procedures. Recognizing that each time data is processed there is a chance of transposition or omission errors, an effective application will minimize data handling procedures. A third category for data processing is streamlining output. Modifying reports so that only the most relevant statistical and analytical information is produced can render an application more productive. Report content needs to be in an efficient format to enable more effective managerial decision making.

From a workflow perspective normal measurable outputs for productivity are the number of transactions per hour, process integration, resource scheduling and inventory control. These remain important evaluative tools when determining an application’s impact on productivity. If the adoption of an application allows staff to be more efficient, then this is a positive benchmark. One perspective is to analyze the workplace pre- and post-implementation to determine measurable and auditable outcomes that may not appear obvious. For example, don’t forget to investigate gains in expanded guest services, rapid access techniques and data mining tools.

Profitability Enhancement
Evaluating the impact technology has on profitability may be the most difficult of the three benchmarks to determine. Direct and/or indirect impacts on revenues and expenses may be quite complex. Nonetheless, this benchmark is critical for firms mindful of a return on investment. The main question being: Will the business benefit financially by adding the proposed application? Will there be net profit? Will revenues exceed expenses? Stated simply, this benchmark is designed to measure whether the benefits of an application outweigh its costs. If this is the case, then the application is a profit enhancement.

POS Example
Implementation of a point-of-sale (POS) system can impact all three benchmark standards. First, a competitive advantage can be gained from several perspectives. Frequent diners can use account numbers for settlement and reward tracking; gift certificates can be logged or applied at the POS; and menu item modifiers may be used to enable guests to build entrees to order with custom recipes stored under unique PLU identifiers. Each of these technology applications can help differentiate an operation from its competitors.

From a productivity perspective, a POS system with remote kitchen displays will help minimize kitchen traffic, provide production staff with legible accurate orders, monitor tip pooling and enable guests to receive more attentive dining room service. Together these factors can lead to enhanced revenues and a positive measurement of installed technology.

Technology can provide a hospitality firm a competitive advantage through product differentiation, unique services, cost reductions and informed market segmentation. In addition, productivity is improved through gains in both data processing and workflow processing procedures. Together intelligent applications can be evaluated relative to enhanced profitability. Using these three simple benchmarks provides a quick and easy scheme for the evaluation of technology in the hospitality industry.

Michael L. Kasavana, Ph.D., CHTP, is NAMA Professor in Hospitality Business, School of Hospitality Business, Michigan State University. He can be reached at kasavana@pilot.msu.edu.

© Hospitality Upgrade 2003 Reproduction without written permission is prohibited.

3 common sense benchmarks to measure the appropriateness of technology applications in the hospitality environment are:
1. | Competitive advantage
2. | Productivity improvement
3. | Profitability enhancement

Management should focus on responding to three simple questions:
Will implementation of the application provide
a competitive advantage?
Will it improve productivity?
Will it enhance profitability?

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