STRATEGIC USE OF TECHNOLOGY IN THE HOSPITALITY INDUSTRY

STRATEGIC USE OF TECHNOLOGY IN THE HOSPITALITY INDUSTRY “Leadership requires setting the right tone in making full use of technology. ” Jon Inge

Chapter Outline • • • • Strategic Value of Technology Strategic Enablers Information Revolution Competitive Advantage IT Capabilities and Competencies Technology’s Impact in the Hotel and Restaurant Industry IT Investment Philosophies Industry Specific Technologies Strategic Analysis Importance of Environment in Strategic Management Synergy Between Higher Management and IT Engineering Technology Induced Competitive Advantage Stages Barriers to Technology Projects in the Hospitality Industry Market Oriented Strategic IT Investment Planning

Introduction • Some firms respond to the use of technology defensively, showing resistance to change and seeing technology as a problem and burden, while others through strategic use of technology gain competitive advantage. • It would be extremely hard to compete in the hospitality industry without the support of IT. From a strategic point of view, ITs have changed the whole hospitality industry competitive landscape.

Stages of New Product Development

Product and Process R&D in the Innovation Lifecycle

Strategic Value of Technology • Harvard Business professor Michael Porter supports the view that technological change is among the most prominent forces driving competition. • Hospitality firms must seek to deploy technologies that will help their employees learn faster and know more than anyone else about their business, customers, and competition.

Strategic Enablers • Some technologies are used to meet basic business needs; others are strategic enablers. • Mandarin Oriental hotels are using CRM as a strategic competitive weapon. The Hong Kong based luxury chain attaches so much importance to personalized service that individual properties have built their own extensive databases of their guests’ histories and preferences. • Hotel CRM software example

Information Revolution • Most executives are aware that the technology can no longer be the exclusive territory • • of IT departments. Instead, technology should be viewed more holistically. The information revolution affects competition in three vital ways: 1. It changes industry structure and, in so doing, alters the rules of competition. Think about how GDS altered the rules of competition in the lodging industry. 2. It creates a competitive advantage by giving companies new ways to outperform their rivals. When American Airlines introduced SABRE, it was the best reservation system and it enabled American Airlines to outperform their rivals. 3. It spawns whole new businesses, often from within a company’s existing operations. Airbnb created a community marketplace for people to list, discover, and book unique accommodations around the world online. Whether an apartment for a night, a castle for a week, or a villa for a month, Airbnb connects people to unique travel experiences, at any price point, in more than 33, 000 cities and 192 countries.

Competitive Advantage • In simplistic terms, competitive advantage (CA) is derived from one or more unique capabilities of the firm and brings value to the firm. • To achieve sustainable CA, industry leaders agree that a firm must continuously invest in its resources and capabilities, especially technologies to build core competencies and a culture that encourages learning, innovation, and risk taking so that new advantages can be created.

IT Capabilities and Competencies • There are three different views on creating competitive advantage, which are: • Positioning view: supports the view that companies should choose one of the three competitive positions in the marketplace if they want to achieve and maintain competitive advantage: cost leadership, differentiation, and focus on niche segment. • Resource based view: contributes to the performance of an organization by providing resources and competencies not be easily imitated and substituted by competitors. • Dynamic capabilities view: integrates, builds, and reconfigures internal and external competences to address rapidly changing environments.

IT Capabilities and Competencies • IT investments can lead to developing IT capabilities and dynamic IT • • • competencies, which can lead to achieving the following six closely interrelated outcomes: Low cost: refers to providing products/services at the lowest costs. Value added: refers to offering products and services which are highly desirable and have distinct features/functionalities. Speed: refers to systems and processes that offer faster and superior services and products. Agility: refers to the ability to manage change faster than competitors. Innovation: refers to the continuous flow of new products and services, which are valued by the customer. Customer service: refers to a superior responsiveness to customer needs.

Sustaining Competitiveness • Creating competitive advantage requires managers to see things that others cannot see and then act on these opportunities to make them happen. • Sustaining that competitive requires replacing IT solutions with something else before anyone else has time to copy it and catch up to their lead.

Technology’s Impact on Hotels and Restaurants • Research indicates that companies that effectively use technology will have the highest impact on customer satisfaction. • Fairmont Copley Plaza’s PMS was adopted and incorporated to expedite the concierge services at the hotel. PMS enabled to get guest information such as newspaper preference, wake-up time, overnight laundry service, as well as many other options, resulting in 90% customer satisfaction. • Avero, a New York City based software company, helps restaurants to analyze POS data and support managerial decision-making. Such systems can help managers to increase the revenue per available table and help reduce waste in the restaurant (e. g. , as a manager you will know the exact estimate of a specific ingredient consumption in any given week).

Prevailing Hospitality IT Investment Philosophies

Industry Specific Technologies • Many hospitality ITs were adopted from other industries; they were considered inadequate or clumsy because of their poor fit and their inability to address hospitality industry-specific needs.

Strategic Analysis • Strategic analysis is a dynamic process that requires examining both environmental and • • • firm environments to An effective strategic analysis (Co-Alignment Model) addresses: Environment factors: Environmental events are the environmental forces evoking change in an industry. While these do present threats to a firm (e. g. , raising gas prices), they also present opportunities (e. g. , certain trends) for which firms take advantage. Strategic choice: After the firm sees the opportunities and threats in the environment, next step is to choose a strategy and put the firm’s selection of competitive methods (product and services) that it will utilize in competing in the industry. Firm structure: The firm structure will determine how easily the selected competitive methods can be converted into competitive advantages. Firm performance: As long as the environment events align with the strategic choice and firm structure, firm performance will align with firm objectives. Several research studies have shown that a significant level of variance in a firm’s performance is due to those key factors.

Synergy between Higher Management and IT Engineering • The IT department typically contains the bulk of the firm's technological expertise, yet engineers and engineering managers are seldom directly involved in strategic analysis. Strategy typically trickles down to engineering in the form of technological problems demanding solutions. • The linkage should be strengthened, however this philosophy requires behavioral and managerial changes at the top of the firm and at the engineering level.

Resources Integration • Resource integration becomes a must in strategic technology management. • For example, resource integration enhances the guest experience (e. g. , one easy-to-use device can be used for different services like turning on the TV, setting the lights, and managing the curtains). • The integration of the technologies was critical for hotels to gain IT induced competitive advantage. It is also important to note that IT integration is one of the biggest challenges of the industry.

Technology Induced Competitive Advantage Stages • Depending on the company’s resources, management skills, • • • integration of the technology, and the sophistication of the deployed technology determine the results of the technology. The four stages or levels of IT deployment: Operation: Technologies that manage daily operations. Enhancement: Technologies are used mainly to increase productivity and efficiency of operation. Strategic: Organizations align their technologies with overall organizational goals to set apart themselves from competitors. Transformation: Technologies are used in an integrative and synergistic manner in order to achieve ultimate competitive advantage.

Barriers to Technology Projects in the Hospitality Industry • Cost of Implementation • Return on Investment • Leap of Faith • Resistance from Owners • System Integration/Interoperability • Outsourcing communication problems • Contract management • Guests’ perception • Resistance to change • Training issues • Pace of technology • Time

Market Oriented Strategic IT Investment Planning • Market oriented strategic planning is the managerial process of developing and maintaining a feasible fit between the organization’s objectives, skills, and resources and its changing market opportunities. • For example, f you provide excellent service as a luxury hotel, personal interactions would be important for your business, therefore, investing in a self check-in kiosk might not be a good idea for your hotel.