by Stephanie Overby

The Price Is Always Right

Jun 13, 200717 mins

Marriott applied its business wisdom to building an IT system that has successfully tackled its greatest challenge -- maximizing revenue.

When Nell Williams was the director of revenue management responsible for the 400-room Long Wharf Marriott in Boston, there were certain days of the week-Wednesdays, Thursdays and Saturdays-when she could easily sell out the hotel twice over. But on other nights, like Sundays, occupancy rates dipped so dramatically that she would’ve been lucky to have filled the rooms three times a year.

Both situations presented challenges for Williams, whose job was not just to sell rooms but to sell them in such a way that would make the most money for the hotel. She used a combination of pricing and inventory controls to maximize profits. On the high-demand nights, she had to be careful not to sell out early at low rates. She also had to consider lengths of stay. There were plenty of business travelers wanting to stay one night and willing to pay top dollar. But those customers would not help her fill the hotel on less busy days the way a three-night stay might. Meanwhile, on Sundays, she needed enough rooms available at the lower rates to attract customers, but not so many that she might give rooms away to someone willing to pay more.

Back then (some 17 years ago), Williams and her counterparts tackled these challenges on an ad hoc basis, with only homegrown statistics and their wits to help them decide what rates to offer to any given customer. Such prognostication took up the better part of her day.

Today, Marriott’s revenue managers can do the same work in less than an hour thanks to One Yield, an enterprisewide system that automates the business processes associated with optimizing revenue for more than 1,700 of the company’s 2,600 properties. Unlike earlier systems that attempted to tackle this seminal issue of the hospitality industry-that is, maximizing the revenue for every available room-One Yield takes most of the guesswork out of setting rates by providing recommendations to Marriott employees about what rates to offer at any given property on any given day. The system has enabled the $9 billion company to extend its competitive advantage at a time when many of its peers were struggling just to survive.

“Because the system was foundational in nature, we got about 80 percent of the value when we first put it in,” explains Marriott Executive Vice President and CIO Carl Wilson. Marriott hotels that have installed One Yield have seen an increase of up to 2 percent in revenue from leisure travelers in 2004, providing an annual profit increase for individual hotels totaling $86 million. In 2003, operating income rose 17 percent, while Marriott added 185 new hotels and over 31,000 rooms, approximately one-third of which were conversions from competing hotel brands. Marriott attributes these results in part to One Yield. Because of these results, One Yield has the potential to change the value proposition for the hospitality industry, and thus earned Marriott a Grand Enterprise Value Award. “One Yield is impressive because it fundamentally alters the dynamics of the industry it operates in,” explains Enterprise Value Award judge and Unicef CIO Andre Spatz.

To get such returns, Marriott had to manage inherent risks. It built a system in-house from scratch. It chose a Web-based application based on J2EE architecture and WebSphere development tools, technology that no one at Marriott had worked with before. It had to juggle several constituencies-from the inventory managers who would use the system to the franchisees that would have to pay for it. And it had to pull off a rollout across the enterprise and its disparate brands in 64 countries.

Birth of a System

Marriott has been known as an industry leader in revenue management since before the practice had a name. According to company lore, when Marriott’s senior vice president of sales first approached CEO Bill Marriott Jr. in 1985 to discuss the importance of a new business discipline called revenue management, Marriott had to chuckle. The senior VP explained the benefits of the nascent practice (just taking off in the airline industry), which focused on boosting profits by timing price increases and discounts as well as using inventory controls. The company could use computer models to figure out the best pricing and sales procedures for its hotels.

If that was revenue management, Marriott told his senior VP, then the company had been practicing it for a long time. He recalled nights he spent at his father’s first hotel venture, the Twin Bridges Motor Hotel in Arlington, Va., which opened in 1957 and featured a drive-through registration desk. His dad knew that when cars spanned the parking lot, he would soon have more customers than rooms. So the elder Marriott kept an eye out for the cars with two passengers, because he could charge them the double room rate. Certainly, you didn’t need a computer to do that, Marriott teased.

The CEO had a point, says Williams, who is now Marriott’s vice president of revenue management transformation and systems strategy, and is the business sponsor of One Yield. The concept is straightforward. But optimizing revenue for hundreds of thousands of rooms around the world can be, well, rocket science. When the airline industry introduced computer models to maximize revenue, “it was like a black art,” explains Robert Goodwin, managing vice president for Gartner. “These pointy-headed guys with PhDs got paid lots of money to come up with complicated algorithms.” After two decades, he says, Marriott has succeeded more than its competitors in the hotel industry at prying out the secrets of revenue management.

Shortly after the Marriott CEO’s tutorial on the subject (and despite his good-natured ribbing of his gung-ho senior VP), the company was the first in its industry to make revenue management a C-level discipline. During the 1990s, Marriott developed two revenue management systems-the demand forecasting system (DFS) for Marriott’s full-service hotels and the revenue management system (RMS) for its lower-priced, select service properties like the Courtyard.

John Whitridge, vice president of revenue management systems and a 14-year Marriott veteran, saw the birth of both systems. In the back of his mind, he knew that it would be better to have one revenue management system for the enterprise. Not only would IT support be easier and less expensive, but one system also could be integrated more easily with Marriott’s central reservation system. Users who managed multiple properties could work more efficiently. In addition, the system would help senior managers to promote a single set of revenue management best practices across the company.

In 1999, Marriott saw its opportunity. RMS and DFS users were increasingly asking for the same functionality. Meanwhile, revenue and inventory management was becoming a regional-and clustered-discipline for Marriott. More and more, inventory managers were required to use both systems to manage multiple properties among its various brands. Furthermore, the Web was well on its way to becoming a proven platform for new systems. Whitridge knocked on Wilson’s door to tell him. He left with Wilson’s OK to go to Williams and Marriott’s finance teams to start hammering out a business case for what would become One Yield.

A Case for Enterprise Value

Building the business case for One Yield was made simpler by the fact that Williams and Whitridge, as well as their staffs, had worked together previously on IT initiatives. All IT projects at Marriott must have a business sponsor and joint business-IT project management. In the area of revenue management, alignment between business and IT has been a necessity because of the complexity of both the discipline and the IT systems required to support it. “We’re always going to conferences together, holding meetings, talking on the phone, e-mailing,” Whitridge explains.

To get the green light from the executive committee, Williams and Whitridge and their teams knew it was critical to tie the business value of One Yield to Marriott’s three goals: profitability, preference and growth. One Yield represented a convergence of all three. If it were successful, it would make Marriott as a corporation, as well as its franchisees, more profitable, because the hotels would keep more rooms filled at higher rates. As Marriott brands became more profitable, they would become preferred by attracting more franchisees. And that would lead to growth, as reflected in the total number of hotels and rooms operated under the Marriott flag.

Whitridge worked with Williams to describe even the technical aspects of the system in business terms. For example, Whitridge knew the J2EE platform the Marriott Architecture team chose offered the benefit of quicker, less expensive upgrades. The business audience knew that with the old systems, every new release took ages. “So when we talked about the benefit of the Web in the business case,” says Whitridge, “we didn’t say, Hey, the Web is cool. We talked about instantaneous, hassle-free upgrades.”

That understanding of the business paid off in another way. Because the Marriott IT team worked arm-in-arm with revenue managers to develop One Yield’s functionality and features, the risk of building a customized system was minimized. “What if the computer models don’t work right? You risk giving away huge amounts of revenue or losing business if you do this wrong,” observes Gartner’s Goodwin. “But these guys at Marriott seem to have understood their business well enough that those risks were minimal.”

Setting Expectations

The executive steering committee gave Williams approval to start work in 2001. The next step was to reach out to the community of people who would either use or have to pay for the system. (Each Marriott property is billed for their IT systems usage.) The One Yield team wanted to learn from users what they needed, including what they loved and hated about the legacy DFS and RMS applications.

But the communications effort had a dual purpose. The One Yield team wasn’t just seeking input about what to include in the new system, it was also laying the groundwork for what the users could expect from the system. Setting expectations is critical to the success of any system rollout, but particularly one in which some users can decide whether they want to install it. “There’s always a risk when you do something across the entire organization of properly assessing the organization’s readiness for the change,” Wilson says.

The deployment plan for One Yield called for all RMS or DFS users to be automatically moved onto the new system, but the 50-plus percent of franchisees who worked without a revenue management system in the past could make the choice for themselves. Some franchisees had never seen a need for such a system. If they adopted One Yield, then the system would deliver real enterprise value.

The job of liaison fell to Russell Vereb, Marriott’s director of inventory planning. “We needed to make sure we understood the audiences, how they wanted to be communicated to, what information they needed,” says Vereb. So he developed a plan for dealing with the inventory managers, franchisees and general managers who needed to be sold on One Yield. “A GM wants to know how much its going to cost or how much it will impact staff. A user wants to know why this feature they loved isn’t going to be in the new system.”

As part of his strategy, Vereb sent monthly press releases to One Yield’s business constituencies for a full year-right up until rollout. In them, he highlighted One Yield benefits and provided information about project status, pilot results, new training tools and system costs.

The communications effort confirmed the importance of accommodating the human element in One Yield. “What we in IT do is science; that’s for sure,” says Whitridge. “These users have a lot of art in their job. What we do for them is just part of an overall picture of their jobs, managing rooms and function space and customer needs.”

There’s only so much a computer system like One Yield can do. It can provide historical data on past bookings for a particular day and show what reservations are currently on the books, then make recommendations on how to price the room inventory. But One Yield doesn’t know that a new hotel has opened across the street from the Marriott Courtyard in Pensacola, Fla., and is taking away business or that cancellations are going to pour in because a hurricane is forecast to make landfall in the next three days. The local revenue manager will. So the One Yield team designed the system so that the user can either accept or override One Yield’s recommendations before pressing a button to send those rates to Marriott’s central reservation system. Sometimes an inventory manager can make a better decision than the system, and that ability to override the system ensures its value.

The users also wanted to monitor their performance. So the One Yield team built a revenue optimization module, now referred to by users as their “Monday morning quarterback.” The module brings together data not only about actual bookings but also about rates that either were turned down by potential customers or that weren’t offered to them. Users can then have One Yield perform a postmortem revenue optimization, looking back up to 28 days at the decisions revenue managers made and how they could have done things differently. “The system can figure out-if you made all the perfect decisions-what the optimal amount of revenue would have been,” says Williams. The inventory manager in Pensacola might find he overestimated the impact of that new hotel and offered too many rooms at lower rates.

The Importance of Prototypes

While the business side of the One Yield team both pumped and primed the user audience, work was under way to prepare the IT department for the nearly three-year effort to build One Yield. The goal was to create a system that would work upon rollout and also be robust enough to carry Marriott through years of growth and changes. “Based on our corporate growth objectives, we wanted to design One Yield to ensure that it could scale to include more [users] than the prior systems,” explains Whitridge. “And as with any system, if [it’s slow or hard to use], users will find workarounds. So we wanted to make a very responsive system as well.” Complicating matters, no one on the development team had much experience with the WebSphere development tools and J2EE architecture. “Our only Web experience had been small-scale projects with static display of content,” explains DeeGee Ingco, senior director of revenue management systems and IT project leader for One Yield. So, as most companies would do, Marriott augmented the IT staff with consultants. But Whitridge also made a key decision to use prototypes as a way to both give the IT team practice with the technology and to anticipate potential bugs.

The prototyping of key modules began even before work on a pilot version of the system-back when the business case was being developed. As a result, “a lot of things other projects would have encountered during rollout, or even during a pilot, we avoided,” Williams says, such as reports that took five minutes to run when they should have taken five seconds.

The prototyping meant a two-month delay in the ultimate rollout date, but it wasn’t hard for Whitridge to sell this to Williams. “If that two months makes the rollout [happen in] four months instead of two years, that’s a great ROI,” Whitridge says.

A New Way to Train Users

When it came to training users, the One Yield team also decided to take a different tack. In the past, users had to go offsite for training, which took them away from their jobs for a minimum of two days and required Marriott to find and pay for facilitators and space. To train users on One Yield, the team built instructional materials into the system and allowed users to train themselves to use the features they needed most. Users adapted to One Yield more easily, and thus enabled Marriott to get value from the system more quickly.

But they didn’t stop there. It’s standard practice at Marriott properties for the staff to meet for 15 minutes each day to review some element of training, such as how to anticipate a customer’s needs. The One Yield team took their cue from that practice and built what they call “training energizers” into the system. Vereb monitors the usage of the One Yield, and if there’s a feature that doesn’t seem to be getting enough use or that people are having trouble with, he’ll provide one of these training energizers via the One Yield main menu to help the revenue manager brush up on that skill online.

Wilson says that the continuous training on One Yield is critical to achieving enterprise value. “The sustainable advantage we’ll get from this system will come from the fact that we’ve created an environment that ensures that our people will be better trained than the competition.”

Ongoing Value

One Yield continues to add value to Marriott’s bottom line as users become more experienced with it and suggest new ways to apply it. For instance, the data generated by One Yield has led to a corporatewide management metric called inventory effectiveness, which measures the ratio of actual revenue to optimal revenue. One Yield has helped to improve Marriott’s ratio of actual revenue to optimal revenue from 83 percent to 91 percent. (For more about enhancements to One Yield, see “Users Add Value to One Yield,” this page.)

Meanwhile, one-third more properties than expected are getting revenue management religion. Franchisees and general managers who never wanted a revenue management system are signing up as One Yield users. At a meeting of general managers recently, Vereb says he witnessed new enthusiasm for the practice because of the system. “I saw general managers taking each other by the hand and running over to the One Yield booth saying, You gotta see this; you need this.

Fargo, N.D.-based Tharaldson Lodging, which operates 355 properties for several hospitality companies, plans to move all of its Marriott properties onto the One Yield system. “Our Marriott-flagged hotels using One Yield are outperforming those that are not.” says Aimee Fyke, Tharaldson’s vice president of operations.

Many revenue management systems operated by other hospitality companies are still run at individual properties (as Marriott’s legacy DFS and RMS were) and aren’t integrated with their central reservation systems. One Yield ups the pressure for other hotel companies to create similar enterprisewide systems.

At Marriott, the more properties that sign up for One Yield, the more value it will continue to bring. Concludes Williams: “One Yield is the platform for our future business strategy.”

Users Add Value To One Yield

By Stephanie Overby

Process for vetting features aligns system with needs

Since the rollout of One Yield in April 2003, ideas for enhancements have streamed in from all areas of the company. Most suggestions come from the Market Board, a worldwide group of 25 One Yield users representing different job functions who meet every month via teleconference and two or three times a year in person.

“We run ideas by them, ask them about the revenue management problems they’re trying to solve, get usability feedback,” explains Nell Williams, Marriott’s vice president of revenue management transformation and systems strategy. Her team prioritizes the ideas based on their potential ROI, then creates business cases for the most valuable suggestions. And because One Yield is Web-based, new functionality rarely takes more than a couple of months to deploy.

One of the most significant enhancements has been to the Total Hotel Calendar, which can now be applied to hotels’ meeting and catering businesses. This was something Samantha Nasr, director of inventory management, who oversees revenue managers responsible for 20 hotels in Northern Virginia, had been dying for. She can now look a month down the road and easily see that there’s a weekend when she needs to fill some rooms and that a couple of ballrooms also happen to be available. A quick call to sales, and she offers a free dinner incentive to the first salesperson to book a group for that night. The rooms and the conference rooms are filled, and revenue shoots up.