|by David Lysne and John Goetz - Spring 1999
If 1998 is remembered as the "Year of the Deal" when mergers and acquisitions captured headlines and drove frenzied growth, then 1999 will surely be known as the "Year of Economization." In the aftermath of "big companies getting bigger" by merger and new development, operators have been shouldered with a primary responsibility - producing a streamlined business at a lower cost structure. Two questions remain on the table. How will the individual pieces of a company be reassembled to create a greater whole? And more importantly, how will the larger company maintain customer loyalty and high service standards, while delivering on the promise of a more efficient operation?
In hospitality, the responsibility for a company's growth is frequently relegated to the sales and marketing people who must find ways to fill the additional rooms. This is often the case even if the expansion adds questionable new inventory to a brand struggling for consistency -or in the face of the company's preoccupation with other priorities. The ability of the sales and marketing team to deliver business and the operations people to produce bottom-line results will often depend on a well-orchestrated program of system integration that improves efficiency, increases productivity and supports higher guest-service standards, particularly in a multi-property environment.
In producing a "systems solution," the challenge is to make technology
work in a truly integrated way. Traditional technology offerings tend to
be architected for a single function (i.e., point-of-sale, food & beverage,
security and the like) and mostly for a single property. Often these systems
operate on multiple hardware and software platforms. Typically, these systems
have not provided the necessary level of integration, having been developed
without using progressive "open system" client/server concepts. Consolidating
and sharing data
In the aftermath of a new business combination or multi-property development, a system approach must be considered, but only at the appropriate functionality and at the right price. And when it comes to making these choices, both functionality and price depend on the company's strategic business plan and organizational design. Three primary technology options are available: development of a Superbase, a shared-service center or a hybrid integration of these two approaches.
One-Way Integration -- "Superbase" Approach
For those companies willing to forego some functionality to maintain a lower cost structure, a system approach may include designing a wide area network (WAN) to an already existing local area network (LAN) at the property level. This approach provides a one-way information download from the property unit to a central site that incorporates a centralized super-database (Superbase), which connects the individual properties via a WAN. Each property's LAN essentially becomes a node on the cross-property WAN. The Superbase contains mini-databases for hotel gaming, and property transactions. Either an Enterprise Resource Planning (ERP) system or an optional data warehouse could integrate the data by combining it from each of the other databases, providing a means for three-dimensional data cubing and transaction analysis. Prior to making the trek across the WAN to the Superbase, the data is accumulated in staging areas (located on each LAN), then translated and standardized into a common data format.
The solution is simplified if all of the properties to be linked share a common technological infra-structure. This is rarely the case, however. Once the data is in the Superbase, it becomes part of a set of databases. Getting the data to the Superbase in a common format, however, can be quite a challenge. This can be achieved by using a "universal translator" attached to the staging area on each LAN. This translator converts the data from the individual systems into a format that is used by the Superbase and is designed to be flexible enough to easily incorporate the constant flux of changes that the individualized systems go through in their lifetime.
Pros and Cons -- Superbase Concept
Scenario One illustrates advantages and disadvantages to the one-way integration solution. The Superbase concept allows each property to maintain its individual systems with minimal cost overhead. The wide area network (WAN) provides the holding area for multi-property data. The WAN file server can be located at one of the properties or at the corporate office. As a result, there are few organizational changes and investment outlays. In addition, the Superbase is designed to be expandable. If a new data stream is added to a property, it would not be a major technological under-taking requiting several months of development work to link to the Superbase. A translation protocol to interpret and standardize the data -and space on the Superbase to store it - is all that would be required. The data residing on the Superbase can also be easily funneled into a data warehouse for three - dimensional financial and marketing analysis.
One of the biggest disadvantages to the Superbase is illustrated by
the casino example in Scenario One. For the cross-property comp information
to be used, it must be 'viewed on the Superbase, which is limited by the
one-way interface from the property LAN to the WAN. In addition, the Superbase
requires clearly defined business rules agreed upon by all properties as
a result of consolidating data using one standardized approach.
Two - Way Integration - Shared Service Center Approach
The second system integration approach addresses the concerns of the especially complex organizations that need to manage and manipulate enterprise-wide data with functionality extending to both property and corporate sites. This approach offers a two-way solution that is most often developed through a shared-service center design. While the upfront investment associated with this second option may be costly, the long-term return for a shared-service center may outweigh the short-term outlays - if the organization and its respective properties can reach the required economies of scale.
Business functions, especially those in the finance and accounting arena, are prime candidates for a shared-service concept given the repetitive nature of these processes. Hospitality companies comprising a mix of owned, managed, and franchised properties have historically had accounting and finance employees at the corporate office, as well as at the property level. All financial information has typically been sent to the corporate office for consolidation, data analysis and reporting although the primary process has taken place at the property level. The different systems and processes used at individual hotels have often resulted in inefficiencies at the corporate level with many manual processes being required, including data re-entry to complete a consolidation and prepare the necessary executive information.
Scenario Two presents an example of solutions in a shared-services approach. In a multi-property environment, the shared - services model can help to lower processing costs, create a customer -driven "center of excellence," consolidate multiple processing locations into one location and incorporate a "fee for service" approach to transaction processing.
Similar to the one-way and hybrid integration approach, each site will need its own LAN, which will then be connected to the WAN. The WAN will connect all remote sites to the central service center and allow users to access data for the entire enterprise as appropriate. To access the data, communication lines from each remote site to the service center database will need to be in place. The application software, however, is key to developing the two-way integration approach for the shared-service center. Both the properties, as well as the shared-service center, need to invest in software that is capable of replicating data content.
Pros and Cons - Shared Services Model
The two-way, integrated shared - services model is geared towards repetitive transactions that can be somewhat automated or handled through mass processing. Companies that have numerous locations that handle the same types of transactions can also realize significant savings. Arthur Andersen studies in the hospitality industry indicate that the shared-service center model reduces costs, improves productivity and can have a satisfactory payback period.
The shared-service model, however, requires major upfront investment
in new technologies, as well as commitment to planning and organizational
change processes. Developed in-house, costs can range from new hardware
and software purchases to relocation costs of employees leaving their location
to work in the service center. The initial investment in the service center
includes application hardware and software expense, the WAN and LAN costs,
rent and building improvements, employee relocation and severance expense,
initial training and change management expenses, and the costs to implement
the new structure. The on-going costs include the training and procedure
development, communication costs, payroll and other overhead expenses.
The Hybrid Integration - "Complexing" Approach
A third option is a hybrid of the Superbase and shared-service center approaches. Using a clustering or complexing structure within a confined geographical boundary, an organization can enjoy some of the benefits of the two-way integration approach for a select number of properties, but without some of the costs associated with developing a shared-service center. Using a WAN, this method processes information or transactions at one site/property for multi-properties in the local geographic region. What distinguishes this approach from the one-way Superbase method is the assumption that the combining properties use the same technology and business rules at the property' level. This can sometimes be found in a particular region or city where properties of a similar brand are standardized in their informational reporting and technology specifications.
Pros and Cons of the Hybrid Approach
This method benefits organizations that adopt a regional management structure. By linking a few properties to a central site, the organization receives some of the two-way integration advantages without spending the requisite costs to develop a shared-service center. In addition, overhead and communication costs can be kept low while reducing some headcount. As supporting documentation can be kept within reach, operators can also receive the added benefit of knowing that back-up files and information is easily accessible.
The drawbacks to the hybrid approach depend on the level of technology existing in the clustering of properties. If each property has its own proprietary systems, the cost for a hybrid solution may be more than the one-way Superbase approach. In addition, the regional structure does little to contribute to the enterprise solution the organization still has the issue of consolidating multi-property information in an integrated fashion.
The Right Approach
The best integration approach depends not only on your organization's strategic goals and objectives, but also the level of functionality and investment that is required to provide high guest value in a multi-property environment. While a shared-service center approach might be suitable for a highly centralized company with properties distributed across a wide geographic region, a one-way Superbase approach may be more applicable to a decentralized company that requires enterprise-level data in limited and time-independent increments.
Prior to a merger, consideration should be given to the level of technology resident in each respective entity. An operational due diligence in a merger should include a broad understanding of the target company's processes, technology (property management, gaming, sales, POS, ERP, HR, and central reservation systems) and back office facilities (i.e. accounting). When considering integration options in a newly formed merged or multi-property environment, it is important to assess the future information needs of the organization and determine whether your company is best suited to provide it. If the information that you are seeking to provide has limited differentiation in the eyes of the customer with no enduring competitive advantage, then perhaps the activity should be outsourced. Ultimately, only those market leaders who "stick to their knitting" and focus on their core competitive strengths will deliver on the promise of greater efficiency in a multi-property environment.
(David Lysne is a Manager and John Goetz is a Senior Consultant in Arthur Andersen's Business Consulting practice. They are based in the firm's Las Vegas office. Sharon Collins, based in Los Angeles, is a Manager in the firm's Hospitality and Leisure Services Group.)
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