by Eric Berkman

Heartbreak Hotels: The Pervasive Misalignment in the Hospitality Industry

Jan 01, 200114 mins
Business IT Alignment

Reader ROI

Realize the unique alignment challenges facing the hospitality industry

Learn what is being done to better align hospitality IT and business objectives

Determine how far the industry still has to go to get IT and business in sync

It’s 12:30 a.m. in St. Louis as you stagger to the registration desk at the Monolith Royalty Hotel. Your back is in knots from being stuffed into an undersized seat in coach, your clothes reek from the smoky traveler’s lounge, and your head is pounding from the screaming toddler in 17F. All you want to do is take refuge in your 15th-floor suite and sink into a bed the size of Rhode Island.

But your “suite” turns out to be a glorified walk-in closet on the second floor. Your “king-size” bed is a double that looks more like a roll-away cot. The room smells like a pool hall, and your pillow sits 7 feet above the karaoke machine in the hotel bar downstairs.

What the heck happened? You stayed at the Monolith in Boston last night, and everything was fine; same thing in Orlando, Fla., the night before. In fact, in the past eight months, you’ve stayed at Monolith Royalty Hotels from Kalamazoo to Timbuktu 22 times. You always request a nonsmoking room on a quiet upper floor. Shouldn’t they know your preferences by now and value your business enough to satisfy them?

The answer is yes and yes. Unfortunately, Monolith is still operating as it did during the 1980s. It hasn’t grasped the concept of customer relationship management and thus has no central database with which to track your personal data to ensure that you’re treated in a manner befitting your value to the company.

This horror story may seem extreme, but it illustrates a real condition: the pervasive misalignment in the hospitality industry. In this industry, IT is often viewed as a service, much like housekeeping or maintenance, rather than an integral component of business strategy and the fulfillment of business goals.

The epidemic lack of efficient CRM is a powerful sign that IT is simply not in sync with business strategy. According to “Hospitality 2000: The Technology,” an Arthur Andersen report with survey results from more than 300 hospitality executives worldwide, most large chains have begun to grasp the concept of CRM, yet implementation is uneven and incomplete. Overall, only 13 percent of the survey’s respondents have integrated their property-management and central-reservation systems into a fully integrated customer information system (CIS), with another 11 percent aiming for a CIS in the next several years.

“As an industry, we have great customer information at a hotel level, but the collection of that data at a chain level is typically a big missed opportunity,” says Scott Heintzeman, CIO of Carlson Hotels Worldwide, which includes the Radisson, Country Inns and Suites, and Regent chains. “Only in recent years have companies woken up to the opportunities of using this information at an enterprise level.”

Other signs of misalignment abound. For example, though 90 percent of the survey’s respondents have websites, only 39 percent of these sites take reservations in real-time. In terms of reporting structure, the numbers suggest that IT is viewed as a cost center throughout the industry. Of the mere two-thirds of respondents who actually have a separate IT department, the largest number—45 percent—is headed by a CFO, while a mere 16 percent is headed by a CIO and another 17 percent by a CEO. Of the third that don’t have a separate IT department, the function reports overwhelmingly to the CFO or comptroller. “For IS to really play a proper role as benchmarked against other industries, it should be reporting more strategically to the CEO or embedded as a critical part of the marketing organization,” says Roger Cline, Arthur Andersen’s director of hospitality consulting services and coauthor of the report.

To be fair, however, the hospitality industry faces a host of challenges that makes alignment more difficult than in some other industries. For one thing, the hospitality industry is built on a patchwork of proprietary IT systems at the hotel level, which makes it tough for chains to mine customer data from their affiliates. Because most properties are locally owned, though they operate under a larger corporate flag, it’s tough to make the local owners see the value of investing in more compatible technology at the property level. Most experts believe alignment is perfectly realistic—provided that old-school attitudes in the industry can change. “The industry needs to migrate to a more customer-centric philosophy,” says Cline. “Right now, we’re stuck in a property-centric landscape where the local property-management system is the center of the universe as opposed to CRM.”

Information Vacuum

According to Cline, if the hospitality industry were perfectly aligned, each chain would maintain a “single-image inventory” of each customer, meaning that a single, consistent profile of the customer would appear at every distribution point. No matter where you tried to book a room—whether through a call center, a website, a travel agency or the hotel itself—the reservationist would have access to the same personal information and the chain could tailor your experience accordingly.

“Some hoteliers are still horrified by this concept because this is a people business where all customers are created equal,” says Cline. “But when you think of harsh economic values, they’re not.”

Varied room rates depending on the method of booking is another symptom of misalignment. According to Tim Harvey, CIO of the Beverly Hills, Calif.-based Hilton Hotels Corp., customers should be able to go to any distribution point—the Web, a call center or the actual hotel—and get the same rate. You destroy customer confidence if they can’t, he explains. Unfortunately, this happens quite frequently in most chains, and it stems from each distribution point using a different system and seeing different information. “It’s the silo theme,” he says. “The call centers worry about how they do their business, the Internet worries about how it does its own, and the hotel itself then has its own system and sees its own information. They all pick their own right tools.”

Local Problems

Unfortunately, good CRM is a lot easier said than done given the huge alignment challenges facing the hospitality industry.

Perhaps the biggest challenge is the technology itself. The center of the hotel universe is the property-management system, which provides all the financial and accounting support, as well as various subsystems like the equipment used to track and bill phone calls and services. This is where the chain needs to go to mine customer data. Close to 85 vendors have property-management solutions on the market, and they’re not operating with common interfacing standards. According to Carl Wilson, executive vice president and CIO of the Washington, D.C.-based Marriott International, no major packaged software provider has stepped into the breach with an off-the-shelf, ready-made solution. The end result is a patchwork of locally designed systems implemented at the hotel level.

This problem is compounded when chains grow by acquisition, as most do, says Ed Nesta, senior vice president of operations and CIO of The Leading Hotels of the World, a New York City-based hospitality marketing and reservation service. “The more acquisitions you do, the more systems you have to integrate,” he says.

The structure of the industry itself also fosters misalignment. Hospitality corporations don’t actually own and operate the majority of their hotels. Most properties are locally owned and operated with the right to use the brand name. They have implemented their own proprietary technology to meet their own needs. So if you’re the CIO of a major chain, you’re fighting the alignment battle on two fronts. You have to convince the executive committee to implement a particular CRM solution (as most have), and you have to convince each local operator to scrap the IT investment they’ve already made in favor of your chosen solution. “You have to make sure all the property conforms to the system you’re putting in,” says Nesta.

Obviously a chainwide CRM solution would mean better service for your most valuable customers, which strengthens your brand chainwide, but it’s tough to convince local operators that there’s value in adopting your solution. Hotel operators see their business as a local competition, Harvey points out, and they can’t see beyond trying to outdo the folks across the street. CRM might play to the value of the brand, he says, “so it’s harder for them to get their arms around how [CRM] directly translates into profitability on the street corners.”

Hotel operators are also engaged in a highly capital-intensive business. When you’re trying to get your affiliate to spend money to adopt your enterprisewide IT solution, you’re fighting with someone who says his ballroom needs a new carpet, his parking lot needs to be repaved, and his guest rooms need to be renovated. This is all stuff the customer actually sees, bringing immediate gratification. “Nobody’s saying to the customer, ’Gee, look, we’re using an Oracle-based property-management system now—look how much faster we can check you in,’” says Richard Moore, associate professor of IT at the School of Hotel Administration at Cornell University in Ithaca, N.Y. “Technology just doesn’t have the same pizzazz [to hotel owners] that some of the other expenditures have.”

Meanwhile, some operators still feel burned by failed technological investments they’ve made in the past and are reluctant to do it all over again. “The thing is, the hotelier could walk into the kitchen and chat with the chef about the quality of the sauce and make some recommendations, but he couldn’t walk into that computer room and suggest to the technologist things to do to fix it, and it became very frustrating,” says Scott Anderson, executive vice president of Internet strategies for Cendant in New York City, the world’s largest hotel franchiser.

Then there’s a general discomfort among operators about sharing too much guest information with the chain. “I’m not so sure customers would like the idea that everyone within, say, Sheraton, could access a profile of everything they’ve ever done, where they’ve stayed and how they’ve acted,” Anderson says. “It would cause me discomfort, and I’ll bet it would cause you discomfort too.”

“The issues are profound in terms of guest privacy,” Moore says. “Do you put negative comments into the system as well as positive ones? Do you mention that a particular guest always questions his movie bill or has a tendency to be rowdy? That’s the other side of a centralized guest history.”

Then, there’s the issue of ROI. The reality is, CRM may have tremendous value, but it’s hard to directly attribute payback. “You can’t isolate a particular data-management activity and assign it to a specific guest behavior,” Heintzeman says. “You can quantify the payback in electronic marketing, but it’s very difficult to assign specific ROI to the value of collecting guest information or managing it properly.”

When you put all these issues together, you wonder whether the industry understands or agrees on its business goals in the first place. This only makes things tougher for IT, which is trying to align with a vague, moving target.

Improvements on the Horizon

Despite the challenges, observers are optimistic that the hospitality industry will become better aligned as time passes. In fact, a few chains are on the right track already. For example, Cendant—whose brands include Days Inn, Howard Johnson, Ramada, Super 8 Motel and Travelodge—is one of the few chains that has managed to standardize the property-management systems across all its hotels.

Of course, there’s a catch. Cendant paid for the whole thing, at an investment of more than $100 million, avoiding the problem of having to convince local owners to foot the bill for enterprisewide technology. The very fact of this outlay suggests alignment at the corporate level. Even with the corporation picking up the tab, though, Cendant faced resistance from local operators, some of whom had just spent up to $100,000 upgrading their property-management systems on their own and some of whom were just plain afraid of the technology. “So it took a gentle hand to encourage acceptance,” says Anderson.

Has it paid off? Anderson won’t share revenue figures, but he says Cendant now has a significant data warehouse that assists all brands with marketing. Cendant has also improved its revenue per available room. Additionally, the central reservation system issues fewer room denials (based on vacancy) at particular rates than it did in the past, now that each hotel’s property-management system can update the central system automatically—enabling booking agents to see identical room inventories regardless of where they’re checking from.

Other chains, like Hilton and Marriott, are actively standardizing their own technology and customer touch points, enabling better CRM through airline-style frequency programs. Hilton—which owns, manages or franchises the Doubletree, Embassy Suites, Hampton Inn and Homewood brands, among others—is already pulling in data from its 1,775 hotels to identify valued customers and then try to convince them to join its Hilton Honors program. “A consistent technology platform has been put in place for four of our brands, which represent about 1,461 hotels,” says Hilton’s Harvey. “We’ll know your value, and we’ll begin to gather more information on your preferences.”

Of course it may be just another sign of misalignment that the hospitality industry took so long to grasp the value of frequency programs in the first place. Though major hotel chains have offered frequent-stay rewards for more than a decade now, they are still several years behind the airlines. Instead of taking the lead in the early 1980s, the hotels sat back and watched the airlines pioneer the concept, leaving them far behind. “It took our industry a while to understand that you can use frequency programs to buy loyalty,” Harvey acknowledges.

Another indication of alignment is the increasing use of the Internet for supply chain management. Hotels are tremendous consumers of products in bulk—meat, produce, linens, china, televisions, cleaning supplies, clock radios, televisions, stationery—you name it. Global hospitality chains are already taking initiatives toward automating this process. For example, Marriott, the Hyatt Hotels Corp., ClubCorp USA and Bass Hotels & Resorts (which owns the Holiday Inn brand) recently partnered to create Avendra, an e-procurement consortium intended to provide “one-stop shopping” for hotels, country clubs and city clubs to fulfill their supply needs. Hotels face unique obstacles in automating their supply chains. As Anderson explains, it’s easy to consolidate and automate the purchase of nonpersonalized products like toilet paper, vacuum cleaners and towels. “But logoed silverware is a lot tougher,” he says. “Distilled spirits and wine will also be tough because of varying state laws around alcohol.”

Meanwhile, IT executives will continue to struggle for a strategic voice if they don’t start to do a better job articulating just how their proposals will help. Anderson, who spent a dozen years as president of the Hotel Del Coronado in San Diego and comes from a marketing and management background, speaks from the business perspective when he says CIOs and technologists often hide behind techie lexicon. “It’s very difficult for a business executive to understand the underpinning solution if it’s explained in technobabble,” he says. “Demystifying the technology would help.” While this may sound like a clich¿it could never reach clich¿tatus if it didn’t have a strong, recurring element of truth.

Cline takes it a step further, suggesting that IT executives are not developing solid business cases for their proposals. This makes it harder for them to allocate capital between competing projects. If a project does get funded, it’s hard to measure the results because they haven’t set out the proper metrics. The end result is undisciplined IT planning and spending, and a perception that IT can’t get the job done, he says.

In the end, Anderson suggests, the level of alignment that some IT executives strive for may be inappropriate for this particular industry. That’s because hotel operators simply will never go for the coolest new thing on the block when what they have accomplishes 90 percent of their desires. Of course, this may not be misalignment at all, though the hard-core techie won’t see it that way. “We’re never going to see hoteliers pioneering technology,” he says. “And frankly, from the technologist’s perspective that’s misalignment. They want to be on the cutting edge, learning, creating and doing new things all the time.”