an e-Strategy Plan
Real Estate Report
Published peridocially for professionals in the real estate and hospitality industry by KPMG LLP
The e-business renaissance has revolutionized the use of technology by consumers and business entities. During the past several years, e-business has changed the business paradigm and has created a new business model across all industries. This new business model is based on creating new channels that facilitate open communication among “service users” and “service providers,” enabling information access, information exchange, and procurement of goods and services faster and cheaper. Using this business model, a new breed of young companies have entered the market attracting massive investments and creating extremely high market values. These new companies have been able to effectively compete with more established and mature companies, taking away their market share, and even acquiring them. Examples of these are AOL acquiring Time Warner, and Travelocity providing air-line and hotel bookings at lower rates than classic travel intermediaries. However, since the new companies have focused on growth and not paid much attention to profitability, their long-term success is questionable, unless they can use the mature company approach of combining growth with profitability.
The emergence of these new e-business organizations has awakened the mature organizations to the need to focus on the e-business paradigm and position their own organizations to benefit from this new business model. These organizations have realized that if they can be successful in taking advantage of the e-business paradigm, they can regain market share from the new companies because they have the skills and discipline to focus on generating both profit and growth and positioning themselves ahead of their new competition.
DEVELOPING THE E-STRATEGY AND PLAN
The hospitality industry is a prime candidate for benefiting immensely from e-business. In the more distant past, the hospitality industry had been a technology leader with its comprehensive reservation systems and property management systems. Unfortunately during the past decade, this industry has not placed as much emphasis on technology as a critical factor for its future, as it did in the past. However, this industry can no longer lag behind with its technology usage. Now is the time for the hospitality industry to bridge the gap in its technology usage and embrace the Internet and e-business. The hospitality industry has the benefit of learning from other industries’ successes, as well as mistakes, and approach e-commerce with a solid e-strategy to avoid potential pitfalls that its predecessors faced.
Currently, most hospitality executives are aware of the impact of this new business model and are actively searching to find ways of incorporating e-business into their companies’ operations. However, often these efforts are done reactively and without a clear strategy and plan. While this reactive approach can produce short-term benefits, it will be less effective and more expensive in the long run.
Therefore, to truly benefit from the impact of e-business, it is imperative to develop a clear strategy and roadmap that addresses all aspects of e-commerce. The market leaders are those companies that have a clear vision of how their organization will benefit from e-business, supported with a comprehensive strategy and plan. A key critical success factor for e-business is having a viable e-business strategy and plan.
There are several steps for hotel companies to consider in developing an effective e-strategy, depending on what their focus is and whether it is mainly directed to identifying and defining new markets and business opportunities or looking to e-commerce to improve the operating fundamentals of the organization.
There are a number of steps typically involved in developing an e-business strategy. Which steps to begin with depend on the focus of the initiatives. A suggested stepped approach to developing an e-business vision, strategy, and plan follows.
Stage One: E-Strategy and Branding — The first stage in developing the e-business strategy involves determining the e-business readiness of the company and preparing a high-level vision and strategy. Typical steps are as follows:
PRIORITY AREAS OF E-BUSINESS FOCUS FOR HOTEL COMPANIES
While some hotel companies are successfully entering the e-procurement business and others employ Web-based reservations networks, the industry as a whole is not yet where it should be when compared to other industries. E-business is quickly spreading throughout all aspects of the business. Some of the priori-ties are briefly described.
Customer Oriented e-Business Initiatives
In the guest room, for example, guests in some hotels can use the Internet to do a variety of things: access entertainment, shop, plan tours, make reservations, and plan further travel. Several hotel companies, for instance, Hilton.com, are extending their reach to offer services and purchase options to customers outside the hotel environment through their commercial Web sites and Customer Loyalty Program. As hotel customers increasingly adopt a self-serve view of the world, those properties and chains that capitalize on this trend will be able to differentiate themselves from the competition and gain market share. Wireless applications relating to customer self-service are addressed in another section of this publication. E-business initiatives are underway to connect with and service corporate accounts as well, with proprietary Web-based programs and services and on-line bookings of meetings and catering events.
Hotel Back-Office Functions
Another area with potential is the use of the Internet to facilitate hotel back-office functions. The financial, human resources, asset management, and other back-office needs can be effectively addressed through this new channel. Back-office managers, by out-sourcing IT infrastructure and business applications management, may no longer have to worry about maintaining their own systems or having the right technical people to sup-port them. They can “have their cake and eat it too.” They can have access to what applications they need through the Internet, when and where they need it. They can focus on their core competency and be business managers who can get the data that they need to manage their operations effectively and turn their organizations into effective and profitable entities.
E-Integration of Disparate Systems
Hotel companies generally have disparate systems that support individual needs, such as reservation, property management, revenue management, financial management, human resources, payroll, sales and catering, marketing, and many more. Each of these systems is very vital to the operations of the hotel. Each hotel application stores and produces valuable data that needs to be transformed into information that various resources throughout the organization can access and use to perform their jobs more effectively. Having consistent, accurate, and timely information can position a hotel with the information that it needs to manage itself more effectively and produce results that can increase revenue, control and reduce expenses, and finally increase profits. The Internet can serve the vital purpose of providing a foundation for integration of various systems and business applications across a wide spectrum of business constituents, including hotel companies, their franchisees, corporate customers, and dispersed business units. This is accomplished by deploying middleware solutions to link legacy back-end business applications to Web front-end applications.
The need to have access to the right data to manage the hotel operations is compounded for the owners of proper-ties with multiple hotel chain affiliations. Since they use different chains’ systems, being able to roll up their performance data into a single database that can be used for management and reporting purposes across all properties and chains becomes a significant critical success factor. The ultimate questions for any hotel owner or operator is how to get good customer data and how to store it in a proper repository so it can be utilized as needed. Many organizations can gather data, but don’t know how to consolidate it by different names or variations, such as Bill Smith, William Smith, or W. Smith. Furthermore, a long-standing challenge is to be able to determine who are a hotel’s best customers and subsequently tailor specific services for them. For many companies, this is still an impossibility. However, in this day and age and with the new tools available in the marketplace, this should become a reality. In order to achieve the out-lined objectives of integrating data across a company or portfolio of properties, hotel companies need to integrate the data from these disparate systems, maintain the data in a single data repository, provide tools that transform the data into information, and facilitate access to the right data at the right time from any location within the hotel company. A good vehicle to access the data from any location is the Internet or the World Wide Web. There are new tools that help with data integration, transformation, analytics, and Internet-based access. Using these tools, coupled with a thin client application, staff managers and headquarter personnel can access the right level of data that is pertinent to their need from any location. By using this approach, the dream of knowing who are the right customers can, and will, become a reality.
Single Image Room Reservations Inventory
Having an integrated environment, coupled with an integrated database, can help achieve another long-standing hospitality dream. The dream is to have a single image inventory system where the total room inventory for any major hotel entity is maintained in one place, and all reservation sources access the same database to book rooms. The value of the single image inventory system is in eliminating all unnecessary intermediary reservation steps, thus avoiding over and under bookings. Although many claim to have this capability, it is not yet widely available. The first organization that can fully achieve this capability will enter a new era in reservations and will be able to achieve tremendous success. A number of e-business initiatives are under way to de-couple rooms inventory management from PMS applications and distribute reservation data and information over the Web from centrally hosted applications. A number of Web-based reservation services, like Worldres.com and others, are providing fully Web-based solutions for hotels.
Vertical Web Portals and Hotel Chain Extranets
The industry needs an effective Web portal, perhaps on a chainwide or even an industry wide basis, that provides operators and owners with information, tools, business applications, and industry best practices to help them run their businesses. Topics could range from labor issues, including how to hire the best people, what incentives to offer to properties for sale, the availability of service companies, and many other functions. A number of hotel chains, such as Cendant, Choice, and others, have established extranet information portals to push vital information and business tools out to franchisees. A number of hospitality industry vertical Web portals, such as VerticalNet’s hospitality portal, have also been introduced recently to offer similar capabilities and information to independent hotels.
E-procurement as a viable business-to-business Internet solution has taken hold in a major way in the hospitality industry. One major e-procurement consortia, Avendra, involves a joint venture between Bass Hotels, Marriott International, Hyatt, and Club Corp. These companies have pooled their buying power and are in the process of implementing an integrated catalog ordering system linking a variety of suppliers to their hotels and clubs. This is in an effort to dramatically stream-line the purchasing process. Other competing e-procurement exchanges, including Zoho.com, PurchasePro.com, and H-Suppy.com, are also gaining significant traction within the hotel industry.
Many companies in the hospitality industry are mired in legacy technology, and too often owners are more open to putting money into new carpet than into technology. As a result, many of these systems are held together with band aids. In the long run, however, this approach will be more costly to maintain than the new systems. The hotel industry is behind other businesses when it comes to issues of e-commerce and, more specifically, e-integration and data ware-housing. The financial services, retail, and some other travel industries are more advanced.
In the future, the difference between properties and companies that
maximize profits, and those that don’t, will be competencies in the new
technologies. Using effective technologies can make the difference between
good decision making and bad. Appropriate systems and efficient system
integration are an absolute must to making good management decisions. The
Internet will be the factor that will propel the hospitality industry into
the development of next generation business applications and technology
solutions, and finding new ways to integrate interactions with employees,
suppliers, and customers over the Web. A viable e-strategy is the basis
for launching into appropriate e-business initiatives and making a proper
selection, implementation, and integration of appropriate hospitality systems.
KPMG Consulting, LLC
Francis J. Nardozza, Managing Director
National Hospitality Industry Director
Tel. 305 913 2642
Fax. 305 381 6529
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