EHLITE: Nine months after the official launch of HTNG and the release of your white paper, what has been the feedback from the industry?
Prof. Dan Connolly: Feedback from the hospitality industry has been overwhelmingly positive regarding the HTNG initiative. People are generally eager and feel that the timing is right. We have received hundreds of endorsements covering all aspects of the hospitality industry—from hotel companies, hospitality technology vendors, consultants, educational institutions, industry press, and industry trade associations. Most have expressed a willingness to join the effort through their personal involvement or through commitments of their institutions. Others have indicated their willingness to help contribute to the funding of the HTNG initiative. Clearly, there has been a groundswell of support and an interest to see HTNG move forward.
EHLITE: In your paper, you suggest some reasons to the current state of technology in the industry. Among them, you mention the decentralized decisions within hospitality groups and the fragmentation of the vendors. One of the key propositions you make is to improve—if not change—the actual budgeting process. What is your opinion on that issue? Should the vendor community become more consolidated like in other industries such as banking?
Prof. Dan Connolly: The way in which the hospitality industry views information technology (IT) needs to change for a number of reasons. The industry is steep in tradition and often resists change. With the rapid developments coming about as a result of advanced technologies and their implications to the competitive landscape, hospitality companies must take a more proactive stance towards IT. This requires many changes including attitudinal, cultural, and budgeting. IT is no longer strictly a back-office or support function. IT is a strategic enabler and quickly becoming an integral part of any business decision facing hospitality executives. Consequently, these executives must understand the merits and demerits of IT, when to use it and when not to, how to apply it in their organizations, and how to fund it. IT is a strategic investment and, like any investment, requires on-going management, commitment, and funding to realize the best possible returns from it and the business as a whole. As such, hospitality businesses need to set up capital reserves specifically for IT, just like they would for property improvements, if they have not done so already. IT, contrary to the behavior of many hospitality firms to date, is not a one-time expense that can last a lifetime. It requires constant refreshing and on-going development to stay current with business needs, competitive requirements, and technology trends.
The financial models used to date to try to justify IT projects and gain the necessary resources (e.g., funding, people, and equipment) have not worked effectively. This is due to the complex nature of IT, the many variables involved, and the challenges associated with identifying, measuring, and articulating in quantitative terms the returns derived from IT investment—especially when the costs and benefits cross multiple areas of a firm and, therefore, multiple budgets. Calculating a financial return on investment (ROI) is a major hurdle to the industry's advancement of IT, which needs further study.
The budgeting approach will also need to change to reflect new ways in which software solutions can be delivered; for example, an application service provider (ASP) model. Under such an approach, companies can rent applications or pay as they go, somewhat like pricing models used by utility companies. The initial capital costs are greatly decreased, and a good deal of the capital investment is shifted to periodic expenses—from fixed costs to variable costs.
With respect to the second part of your question, the banking industry has benefited immensely by the consolidation of technology vendors. This consolidation has strengthened the profitability of vendors, improved industry standards, provided better technology support globally, and enhanced the overall technological capabilities and sophistication of the banking industry. HTNG would like to see the hospitality industry gain some of these same benefits. Presently, the hospitality industry lags other industries with respect to its technological sophistication and, therefore, its competitiveness.
HTNG recognizes the need and promotes free-market competition between vendors. However, the industry is so fragmented, both on the hotel supplier side and on the technology supplier side. This fragmentation makes it extremely difficult for technology vendors to gain critical mass, be profitable, and survive. Our industry has seen many short-lived players who have entered and left the marketplace. We have also seen the introduction of many niche solutions due to gaps in vendor offerings or problems related to compatibility between systems. HTNG would like to see a strengthened competitive landscape, stable vendors and products suitable for a global economy, and guest-centric solutions that are responsive to changing business needs and that can be easily supported and integrated. We believe this will provide a win-win for both hotel companies and technology suppliers and help provide some direction and a future orientation for how IT can be deployed in the hospitality industry in the years to come.
Given the present economic situation and outlook for the global hospitality industry, many hotel companies are reluctant to invest in IT in order to preserve their capital in case situations worsen. While a cautious attitude may be necessary, hotel companies must continue to plan for and invest in the future. They cannot afford to fall behind because they may never catch up. This is actually a good time to invest in IT because IT providers are heavily discounting as they struggle with the economic situation and because competition is deferring technology investments. Thus, this is an opportunity to improve one's competitive positioning in the industry.
EHLITE: If hotels want to go forward, huge investments in technology will be required across organizations. In such an economic climate, hoteliers do not seem ready to make such a commitment to technology. As you point out in your paper, budgeting and valuation processes of technology investments are currently clearly not effective. You suggest that organization-wide budgeting should be adopted. Wouldn't that require a drastic change in the entire budgeting process of the industry? Isn't there a big paradox between the willingness to make people more accountable and the drive to develop integrated systems across organizations?
Prof. Dan Connolly: As you clearly imply in your question, the move forward is not going to be easy. It will involve a great deal of change, but it will come from necessity. Many hotels are approaching or will soon be approaching the end of the useful lifecycle of many of their core systems and technologies they have in place. Keep in mind, many of these key systems are based on technologies and technology architectures that are decades old; they pre-date the Internet, graphical user interfaces, and object-oriented programming. Hoteliers are beginning to recognize the fact that they cannot continue to breathe new life into their existing systems and that they will soon have to make some critical replacement decisions. The challenge today, however, is what to do. There are few options available in today's marketplace that can address all of the important business needs that hoteliers have identified for the present and can articulate for the foreseeable future. There is a large void between industry needs and solutions to meet these needs. This is where the real frustration comes in that led to the HTNG initiative. This is what we hope HTNG will help to solve by building bridges to the future. It is a large and aggressive undertaking that had been previously ignored. The founders felt that the time had come for action; hence, the formation of the HTNG initiative.
EHLITE: HTNG recommends the adoption of a list of technical standards. There have already been some attempts in that direction by groups such as IFITT, HITIS and others. What differs from your attempt to the others? How do you plan to obtain acceptance for your proposal?
Prof. Dan Connolly: HTNG recognizes, supports, and applauds the industry efforts that have gone before it to develop industry standards and better integration. However, many of these efforts have been vendor-dominated and not well understood by hotel companies. Additionally, there has been no means to effectively enforce these standards.
HTNG is different from some of these prior initiatives in several ways. First, it is the philosophy of HTNG that ownership and direction must come from hotel companies, not vendors. This does not mean that vendors will be excluded. We want them involved in every step of the process. However, we believe that to be effective, hotel companies must take ownership and responsibility for defining their needs, setting direction, and communicating these to the vendor community.
A second difference with HTNG is the orientation in which we take. We have established and plan to build upon a set of guiding principles—a "Bill of Rights," if you will—that will help vendors and hotel companies work better and more closely together and under a new set of paradigms. Traditionally, the foci of hospitality systems and integration efforts have been on transactions and record layouts for data transfer. HTNG proposes a new paradigm, one in which the guest—or the core of our business—is the center of attention from a global context. Moving forward, systems need to be based around guests, not transactions, and help hotel staff customize products and services based on needs, cultures, etc.
Finally, HTNG proposes a set of architectural principles that will help to simplify the technical environment in a hotel, reduce the technical knowledge required on site to run IT applications, and minimize the risks associated with technology implementation for everyone—not just for hotels but also for vendors. These architectural principles, taking advantage of the Internet and related technologies and protocols, will also promote integration between applications and products—not just from a transaction perspective but from overall design, database architecture, and security points-of-view. In short, HTNG would like the hospitality industry to feature a number of integrated and interoperable solutions and a variety of options in terms of pricing models and technical models (from a delivery standpoint) suitable and scalable to a hotel's needs based on size, class of service, ownership structure, budgetary considerations, etc. We want to get away from having separate, disparate systems perform the essential informational tasks required in today's complex business environment.
Ultimately, hotel companies will vote with their pocketbooks. They will select technology vendors who can address their present needs and adapt to their future needs via interoperable, flexible solutions. Those who fail to comply run the risk of becoming irrelevant in the marketplace.
EHLITE: Looking at technology integration's advantages, how will, in your opinion, such integration affect customers, employees and management?
Prof. Dan Connolly: Better IT integration will help hotels and their staff in a variety of ways. It will simplify the technical environment required at a hotel (and within a hotel company, in the case of a chain). This will led to reduced infrastructural costs, support costs, training, and resources required at the property-level to maintain systems. The disparity between systems will go away, allowing for better guest service, single points of data entry, and more seamless integration between departments. System tasks will become routine, automated, and run in a background or transparent mode. Thus, general managers, department heads, and staff will be able to focus their attention on running the business, not on running the technology applications needed for the business.
EHLITE: It is commonly accepted that technology—when well integrated—significantly improves productivity and quality. How do you see the industry evolve in these fields over the next decade?
Prof. Dan Connolly: We are really only just beginning to tap the potential of IT in the hospitality industry, and we still have a long way to go. Wireless devices equipped with mobile commerce capabilities and easy access to key guest and operational data will change the way people work and the service levels they are capable of providing to guests. If we do our homework right, information will be at everyone's fingertips when they need it to help personalize guest experiences and "wow" guests. People will work with a multitude of systems without even realizing it. This is ubiquitous, seamless computing.
EHLITE: I am always quite disappointed when I observe hoteliers using technologies. Most of the time, I have the feeling they haven't improved their ways of working. It seems to me that technology has been put in place without any amendment in work processes. Don't you think that the issue of work processes should also be part of the debate over technology integration within the industry? Shouldn't hoteliers rethink their work habits?
Prof. Dan Connolly: I totally agree with your point. My observation over the years has been that when the industry has adopted and applied IT, it has replicated the manual processes it was to replace. The focus was on doing the same processes faster, cheaper, and more efficiently, not differently. This certainly helped to ease the adoption of technology because it provided a sense of familiarity. However, we never asked important questions like "why do we do things this way?" and "how can we deconstruct processes and the hotel value chain to reinvent the value we provide?" Quality improvement and business reengineering, popularized in the late 1980's and early 1990's, and downturns in the economy have helped somewhat, but the industry is still steep in tradition and tends to resist change. Clearly, the industry needs to be challenged to think outside the box, continuously innovate, operate under new paradigms, and eliminate obsolete tasks. The technology advances brought on by the Internet have told us this. Future technology advances will only put more pressure on us to change how we do business and make it easier for us to do so.
EHLITE: In such an uncertain and ever changing environment, what are, in your opinion, the major forces that will affect the industry's future?
Prof. Dan Connolly: The most immediate forces impacting the industry today include the economy, and safety and security. These are complex issues, and their impact is far-reaching in terms of how the hotel industry will conduct business, not to mention the very survival of many companies. In response to the economic downturn, many hotel companies have resorted to discounting, and in the process they have lost control of their distribution channels. If they cannot regain control, the impacts will affect guest ownership.
Safety and security is becoming one of the greatest concerns of our guests and our employees. Hotel companies have an obligation to provide safe havens for both, but the added costs and inconveniences of securing hotels, supply channels, technology environments, etc., make this a daunting task. Unfortunately, many companies are not paying close enough attention to the risks and adding the necessary, albeit costly, security measures.
From a technology front, e-business and mobile applications will continue to dominate our radar screen. We will continue to find ways to use these technologies to interact with and serve our guests, drive revenues, reduce costs, and change the ways in which we compete. Due to the present economic conditions in the industry globally, many hotel companies will likely continue to focus their immediate attention on cost reduction measures and survivability. Long-term, however, the industry must focus on guest-centric developments, redefining the very nature of the hotel business and industry structure, and value-driving opportunities.
ABOUT PROF. DAN CONNOLLY - Dr. Daniel Connolly is an assistant professor of information technology and electronic commerce at the University of Denver's Daniels College of Business with a dual appointment in the School of Hotel, Restaurant and Tourism Management and in the Department of Information Technology and Electronic Commerce. His teaching, research, and consulting are in the areas of information technology strategy and electronic business. Dr. Connolly earned his Ph.D. from Virginia Polytechnic Institute and State University, his MBA from American University, and his BS from Cornell University.
By Nicolas Graf
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