By Paul West
May 3, 2010
As we move well into the current year and beyond, there may still be
discussion on the possible purchase of technology, and if so, then how
should a business approach such decisions? Now it is more important than
ever that hotel companies make sensible choices with any purchases; so
business should consider only those technology purchases which could improve
or benefit operational efficiencies. One important question is then how
can one determine which choices would most directly impact the bottom line?
For instance, over the last several years leading into the current economics,
discussions and choices seemed to have focused mostly on the same technologies.
These technologies invariably always included High Speed Internet Access
(HSIA) and the all encompassing Property Management System (PMS). Certainly,
after the implementation expense of HSIA, there was the option of including
that sale in the cost of a slightly higher room rate or as an additional
fee for the guest. As well, there were often obvious benefits to the upgrade
or change to a more suitable or multi faceted PMS that could offer cost
savings or increased revenues which were both tangible and intangible.
Regardless of the repeated publishing of related articles and continued
panel discussions at trade shows, etc. for both of these solutions which
may have resulted in the increase of both implementations throughout the
industry, in many cases it may be that neither was the most profit oriented
choice. Certainly, as HSIA is an expected option for every traveler today,
it has also become one that is more and more expected to be a free room
amenity much like shampoo and soap. Similarly, accurate reservations, an
expedient check-in and a correct bill at check-out are also expected items
for the busy traveler. In most cases, the additional expense in implementation
costs of either substantial technology undertaking may never really have
translated into the calculable return in investment that was expected.
If this is so, then it would behoove one to ask more specifically: What
in fact should be the method used to determine the right technology choices
for the remainder of this year and the coming year that could impact the
bottom line and contribute to operational positive cash flow?
Let us then begin with the most important considerations upon which
every new technology implementation decision should be based at any time.
Hence, every selection process for technology purchases for any hardware
and/or software product for the coming years should include the following
points to determine if the purchase is at all feasible:
1. Technology that impacts the guest experience does not necessarily
mean it is the definitive reason to implement it. Clearly the first
priority of business beyond making a profit in the hospitality industry
is to service the guest in such a way that a second visit is being planned
even before that guest leaves the property the first time. Although any
technology that can impact the guest experience is certainly something
to consider; it does not in most cases justify its implementation during
tough times. Moreover, it is more likely as explained below that an impact
on cash flow will be realized more easily from the less obvious technologies
to which the guest is oblivious.
2. Is the current solution one that is no longer viable; that is, is
it really too expensive to maintain, visually unsightly, out of date to
the point of miscalculating its intended result or otherwise simply not
as functional as it may have been upon its original installation? This
is often the first way that businesses recognize the need for new technology.
However, it is often too late by this time in most cases as one can attest
to from the number of outdated systems located in so many properties throughout
the world. Certainly, if Call Accounting systems were as important as in
years back for instance, then an archaic system that was missing important
calculations or charges to the guest, or overcharging/undercharging a guest
and thereby causing checkout disputes would certainly be high on any list.
Either way, most any software or hardware that barely made the Y2K cutoff
in the first place should most definitely be included in any review for
the possibility to create a drop in expenses or increase in revenues if
replaced or updated.
3. The implementation and use of technology that may offer an additional
fee to present to a guest does not necessarily mean that a guest would
be open to paying for such a service. Trying to come up with new revenue
streams in technology are not only difficult to do, but they can often
end up appearing to the guest as if they are being squeezed to pay for
every little amenity. In fact, as shown below, it is more likely that it
will be less conspicuous to the guest if a hotel can discreetly cut costs
behind the scenes as opposed to trying to add previously unavailable revenue
options. The paying public, particularly at a time like this, is not unaware
of such tactics and in fact is more aware than ever so as consequently
to be more offended as well. Just consider the outrage resulting from airlines
fees for extra checked bags or carry-on bags!
4. Would the implementation and use of this technology impact employee
efficiency, thereby impacting both the guest experience perhaps in delivery
time as well as bottom line in hours worked by employees? This of course,
is the kind of item that should be discussed at every meeting during every
type of economy! Any time a hotel or hotel company can implement new technology
that can accelerate the staff to guest delivery, expedite a staff working
process or generally increase efficiency levels for staff without any deterioration
in guest service - or maybe even improve it with an amplification in the
guest service experience, then the track is open for potential cash flow
increase or cost savings.
5. Finally, what is the overall return on investment for the implementation
and use of the technology calculated to be? This should most definitely
be the single most important factor that drives any decision making for
this year and beyond! This could also be the most basic concept to implement
in that it is defined as a percentage or ratio that can measure positively
or negatively the value of any purchase. The approach to this calculation
alone however does have varying options such that the division of revenue
by expense is open to interpretation such that resource expenses that one
may not have included could be added to the equation so as to affect the
outcome of the ratio. No matter which methods are used to calculate, once
the process is decided upon, the resulting number is still derived from
revenue and expense values and consequently offers the best method of achieving
a non emotional outlook to the selection of any purchase, particularly
the type upon which this article is focused technology.
Now that we have established a simple guideline to process the decisions
for selecting the right technology for the times, the next question to
answer is What would be the best types of technology choices that are
most likely to impact the bottom line and influence a more positive cash
flow for an operation?
First of all, it always seem that the most obvious technology selections
are PMS, HSIA, Sales and Catering or Revenue Management Systems, may not
necessarily be the best options based on the above five points. Although
that may not have been the case in every scenario up to now, it is certainly
something to consider from this point in time moving forward. In fact,
it would just make more sense overall to follow any suggestions that would
have the best opportunity to yield a positive cash flow result. Such suggestions
are as follows:
1. Labor Control and Productivity Systems Clearly
the biggest operating expense in the industry, yet either carelessly neglected
or improperly utilized throughout beginning or ongoing operations. However,
labor still manages to be something that managers only discuss as secondary
to discussions of payment for some random $500 invoice or other insignificant,
one-time expense. Without question, if there is a system to invest in now,
it is one that can measure productivity in terms of important cost indicators
so that the labor used can be justified and adjusted on a daily basis so
as to produce minimal expenses and allow for the most favorable possible
results in overall profit!
2. Zero Base Budgeting Systems Perhaps maybe the one system
that so obviously should be on the radar of every hospitality business
owner, investor or manager; yet surprisingly, is a highly overlooked option.
Regardless of the fact that managers universally complain about the suffering
process involving enormously complicated spreadsheets that can rarely be
accurately tied to any backup for the details of expense accounts, it continues
to be tolerated and accepted. Certainly, imagine how much more beneficial
it would be to any operation if budgeting were handled more intentionally
and intelligently such that forecasting were also included similarly on
a daily, weekly and monthly basis depending on whether working with revenues,
expenses or labors, etc.
3. Revenue Management Systems In the early days when the hospitality
industry followed the lead of the airline industry for handling reservations
with the intent of optimizing revenues; these systems were called Yield
Management Systems. The yield in the name should still apply in the use
of such applications which assumes the direct interaction of an educated
user who can interpret the data that is calculated based on criteria that
is input for the property. As well, the criterion that is input into these
systems is also heavily dependent on an educated user in the first place
which is why I have rated these systems behind the previous suggestions.
In general, revenue systems are designed to implement the established
reservation and marketing plans of a company or chain; but are also subject
to the comprehension and interpretation of the revenue system user. This
may explain why some of the best of the original RMS products that were
predominantly more complex and mathematical, have been dismissed in lieu
of the simpler revenue management products which can be utilized so much
more easily although with less understanding of the true RMS concept. On
the one hand, this trend has produced a number of more user friendly products;
but on the other hand, it has also resulted in less analytically sound
products. Most now come packaged such that they often reside on top of
a PMS Reservations module; but, these are hardly as sophisticated as it
was originally intended. Consequently, the implementation and success of
such a system assumes the extreme training and understanding of the market
for the product, the company and the property itself in order to realize
even the slightest improvement in reservation revenues.
4. Inventory Control Systems One of those systems which immediately
prompted the use of the early databases such as Fox Base or DBase in the
old days that may also have given way to some of the most extensive spreadsheets
in use today is the Inventory Control System. No matter how one approaches
the concept of this type of hotel system, the use of a system that can
account for the current level of inventories as needed in a business without
keeping more than is necessary on hand for an extended period of time is
a sure way to manage cash flow at its most basic level.
5. Food and Beverage Cost Control Systems Another one of those
most obvious systems that has been overlooked or reduced in level of priority
over the last twenty years is the F&B Cost Control System. When installed
properly and utilized fervently, a properly installed and well-maintained,
Food & Beverage Cost Control System can rapidly bring to light the
use and misuse of food and beverage related purchases from raw goods to
finished products before it is too late.
6. Purchasing Systems This is again a system that was once
ubiquitous in the industry; but also has since managed to drop in the priority
listing of systems to implement or certainly on which to report is the
Purchasing System. Given the proper monitoring of the purchasing process,
such a system can expose weaknesses, point out shortcomings and certainly
prompt more efficient operational changes and positive changes in cash
flow. It is most definitely however, a system that is extremely dependent
on policy, procedures, controls and maintenance.
7. Energy Management Systems The final system that can be extremely
effective in saving money which is more so a result of simply not wasting
money. The electricity costs to operate a property that includes large
meeting, conference or auditorium spaces can be exorbitant, particularly
in the extreme climates where air conditioning or heating must run for
the better part of an entire year. Implementing an automated system where
rooms are out of use for instance can cut the lighting and reduce HVAC
flow such that a fair decrease in a monthly expense can be recognized.
Again, this is another great way to cut some corners without disturbing
the guest or operation. However, it too does require regular managing and
monitoring to prevent opposing instances such as the open door to the outside
from the unused section of a building in dead of summer in Florida while
the air conditioning pumps continuously.
In conclusion, it would makes sense that if there is any funding to be
approved or used in any technology items any time soon, then it should
be for those systems which offer the best opportunities in cost cutting
measures and operational efficiency that may be less obtrusive to the guest
experience as noted above. Again, that is not to say that one of the usual
system options may not offer a possible increase in revenue and is not
a good option; but these usual selections may in fact not make sense for
the particular operation particularly at this point in the economy. Either
way, utilizing the noted points above will certainly allow for a more methodical
approach to selection and consequently should lead businesses in the most
sensible direction. Furthermore, it is my feeling that utilizing the proper
points of discussion prior to selection of one of these noted, more relevant
systems in the coming months or year, a hotel company or hotel may at least
establish the basis for helping the business to become more profitable
over the long term no matter what the situation.
Paul West is a principal and Technology Consultant at priZem Hospitality
Solutions, a provider of hospitality corporate and property financial solutions
that cost effectively reduce the budget/forecast preparation cycle; facilitate
the daily labor/revenue preparation and reporting process; increase overall
operational data accuracy and allow for faster corporate and departmental
report distribution. Go online at www.prizem.com,
call 646-213-0067 or email firstname.lastname@example.org
for more information.