By Nicolas Graf
Few industries are evolving in such a complex technological environment as the one found in the hospitality industry. Hotels strive to manage more than 100 categories of interacting systems on a daily basis. On the other hand, the hospitality industry is also known for its reluctance to the use of technology.
But today, the risk-averse, technology-laggard hospitality industry seems willing to catch the train of innovation. In recent years, the industry has not only spent proportionally as much as other industries on technology, but it has also recognized the strategic importance of IT to its business.
However, as the recession hit the hospitality industry, executives, while still acknowledging the need for new IT developments, seem to hesitate or delay new investments. There are many factors that can explain executives’ reactions, the key may well reside in the inability of hotel companies to achieve minimum returns on their IT investments.
Among the value drivers that could impact the return on IT investments, labor productivity has been recognized as one of the key ingredient. Hence, with IT investments increasing and labor productivity still stagnating, executives cannot justify further investments in front of their investors in the current economic climate.
A quick look at the past
In the hospitality industry, the first real computer-based application was introduced in the early 1960s on large and expensive mainframes. Due to the cost and limited usage of those large computer mainframes, the hotel industry only started to use computer technology for operational and strategic purposes in the late 1970s. If the use of technology in the hospitality industry has followed the similar life-cycle pattern as other industries, it still tends to lag behind the others by several years (Connolly and Olsen, 1997; Gamble, 1989).
Because of many factors that have contributed to the relatively conservative adoption of computer technology in the hospitality industry, the progresses in that field have been incremental rather than revolutionary.
However, the rapid pace of the developments of technology in business and homes, are changing somewhat its perception and role in the industry. In the recent years, IT spending in the industry has reached the level of spending of other industries usually more aggressive in that field. Since 1995, the hotel industry has increased IT expenditures by 15 percent a year. If this recent development has primarily been enabled by macroeconomic factors - e.g. GDP growth - and higher industry profits, it also shows the shift of technology from a pure operating level to a strategic commitment. The IT spending during this period (1995-1999) was mainly on Property Management Systems (PMS) and Customer Relationship Systems (CRS).
IT, business strategy and investment decisions
IT has been recognized as the single major driving force (Connolly and Olsen, 2000) in the global hospitality industry. As such, it has been recognized by hospitality executive as a necessity to remain competitive, but as an extraordinary difficult investment to judge.
At the first glance, investment decisions in IT could be imagined as being clear-cut: companies have to invest if it increases the value of the firm. However, applying the currently accepted investment valuation models is not an easy task. The complexity of IT projects and the degree of intangibility of the costs and benefits of such projects make any estimates of amounts, timing or scope challenging.
With IT becoming a strategic tool, the investment decision making process becomes more complex due the organization-wide implications of such decision and the amount of capital required. Furthermore, IT projects have a tendency to be poorly considered since they often fail, are abandoned or go well beyond budgeted costs. Many authors have suggested factors that could influence IT projects success or failure. The most common reasons advanced for an IT project to fail are (Collins and Bicknell, 1997; Gamble, 1991, Olsen et al., 2000):
Most investments in IT are technology led.
The most common reason to invest in IT is to cut costs.
A management-focus on technological capabilities and efficiency.
Inadequate attention to human and organizational factors.
No consideration of the work organization and job design.
A tendency to be over ambitious.
Insufficient IT knowledge among executives.
In addition to the poor image of IT projects, the lack of proper valuation models tends to make hoteliers reluctant or suspicious in regards to large investments in IT.
IT project management
In response to the introduction or implementation of new technologies, people and processes in hospitality firms need to adapt. A common topic raised in the industry is whether change is led by new IT systems development or by wider business process reforms. Indeed, the impact of IT projects on organization can be so vast that they can even drive the overall strategy of the company. Independently of the scope or the nature of the IT project, its implementation actually brings change in the organization and needs to be managed as a project.
With regard to IT projects, the critical factors to be considered have important implications in two areas:
The organization of work (new systems usually require new processes and new tasks to be performed).
The integration of systems (integration of new systems with current technologies used).
Any IT projects need project management skills within the organization. The project management process can be broken down into five phases; several functions are involved at each stage. The systems integration issues, the main focus of system engineering, take place at the development stage; namely the requirement/definition and acquisition/development stages of the process. Technical problems such as systems integration are not the main cause of IT projects’ failure. Cooper (1999) proposes seven blockers that could put the success of IT projects at risk:
1. Ignorance: do not know what should be done.
2. Lack of skills: do not know how to perform key tasks and underestimate what is involved in the tasks.
3. Misapplied processes: missing key elements, burdened with bureaucracy.
5. Lack of discipline: no leadership.
6. Big hurry and cut corners.
7. Too many projects and not enough resources.
The “last mile” hurdle
With no doubts, IT has been recognized as a strategic function in hospitality companies. Corporate executives, faced with new challenges, realize the potential of IT. However, some structural barriers to the development of technology tend to limit the benefits of many new IT systems within global chains. The separation of real estate and hotel operation that has occurred in the past two decades or so in the industry has generated conflicts of interests between corporate offices and property management. Few other industries are faced with such division between the brand and corporate ownership, and the service provider. The key issue arising from such an industry structure is to know how to make chain-wide investments. Furthermore, investments such as new IT systems are notorious for producing either intangible value or late payoffs. Under such circumstances, executives are faced with two challenges - they have to sell investments in competitive methods not only to investors, but also to property managers.
Nicolas GRAF is one of the EHLITE magazine managing editors. While on leave from EHL, he is currently enrolled in the PhD program of Virginia Polytechnic Institute and State University.