Hospitality Industry Innovation in Technology - A call to Arms - Written By: Chris Hartmann - HVS International

But much of the information that is presented and almost all the reservations booked come from third parties such as travel sites and GDSs, where it's not only outside our control for the most part, but sterile and unattractive. Even when an individual property prepares the information for the GDS, it's the GDS that governs how the information is presented. The Internet in many ways is a low-cost media channel. It provides the ultimate in flexibility where published information can change as often and as dramatically as you like. Many marketers remember the good old days of late night TV direct marketing. You found out how effective your advertising was six weeks later and you could adjust and try out three or four strategies a year. It was Heaven, but it's even better now.

Using the Internet you can get answers back the next day or certainly within a week. Want to try three messages? Do them all at the same time. Want to know which media provides the most exposure? Offer the same deal through a different URL for each "publication". Need to close out discounts quickly or want to allow "pay in advance" rates? You'd better be online because you're not going to be able to explain it to customers who call up after reading a magazine ad. Flexibility is not a hallmark of most third party information and reservations providers. Finally consider customer acquisition. The cost of a new customer versus retaining an existing one has been quoted at anywhere from 2 to 1 to 10 to 1, or even more. We know more about our customers (or at least should) than almost any other business, yet my kids get contacted weekly by clothing stores that they've visited on the web or shopped in, while I can't remember the last time I heard from a hotel that I stayed in, let alone ever been told, "Since you requested high-speed Internet access during your last stay, we wanted to let you know all our Executive level rooms now have complimentary access."

Those who still believe technology does not play an important role in hospitality should look to K-Mart's current problems and Wal-Mart's success to understand what ignoring technology can do to any business. In a recent piece on K-Mart's problems, Forbes magazine noted: "He (K-Mart's CEO James Conaway) is also hacking away at the supply chain mess left by decades of under-investment in technology. Scanners in the stores were outdated and didn't feed purchasing information back to headquarters, leaving the central planners in the dark about what customers were buying. When Conaway arrived at K-Mart, the distribution centers were late in delivering merchandise to stores 11% of the time, or about one in ten deliveries. Most retailers are late just 5% of the time. The supply chain system also bungled 15% of stores' orders from the distribution centers. The industry's discrepancy rate is less than half a percent. And until last year, shrinkage, the percentage of goods lost to mishandling and theft, was three times that of competitors. K-Mart took a $195 million charge in the October quarter to jettison old software. Conaway is devoting $1.7 billion to upgrade store and back-office technology, including new software from I2, Manhattan Associates and other tech outfits, in hopes that the applications will fix the underlying problems. He's also spending $200 million on high-tech checkout scanners from IBM. Rafts of consultants from Deloitte & Touche, where Conaway worked early in his career, are doing the integration. "Project Elmo," the 400-person initiative to combine the two separate hard-line and soft-line purchasing systems into one, will be done by quarter's end. Conaway told analysts the conversion would eliminate 5,000 computer jobs and get goods to the stores two weeks faster. K-Mart is also redoing its demand-planning and forecasting software to get the right goods into stores, hoping to reduce the replenishment cycle from the current five- to seven-day levels to between 48 and 72 hours."

Contrast that to the numerous stories of Wal-Mart's success including this recent study by McKinsey (Retail: The Wal-Mart Effect) that explains that while half of Wal-Mart's innovations came from managerial decisions, "Even so, IT was a necessary if not a sufficient part of Wal-Mart's success. The company invested in most of the waves of retail IT systems earlier and more aggressively than did its competitors: it was among the first retailers to use computers to track inventory (1969), just as it was one of the first to adopt bar codes (1980), EDI for better coordination with suppliers (1985), and wireless scanning guns (late 1980s). These investments, which allowed Wal-Mart to reduce its inventory significantly and to reap savings, boosted its capital productivity and labor productivity." Note the dates carefully as most of these initiatives were completed years and even decades before Wal-Mart decimated its competition.

Hospitality has recently had some bad experiences with e-procurement and high-speed Internet access providers. Companies launched products that were sustainable only via massive investments and quickly collapsed. Although hotel companies relying on their services paid very little or nothing, they lost a great deal both in service levels and time. "Free" to the property only meant they didn't send any cash to the service provider. It definitely wasn't free of cost. Although ours was certainly not the only industry burned by the technology bubble, one need only look to manufacturing and office buildings to see examples where e-procurement and high-speed access continue to flourish for both suppliers and customers. At least part of the reason for their success is the fact that the customers were and are, deeply involved in the creation and development of those services.

It's time for the hospitality industry to step up to the next frontiers of innovation, the Internet and data integration and management. Computers can improve everything from sales to yields to cost efficiency. We don't have to do it all - any more than Michael Dell or Sam Walton did, but nor can we rely on transaction processing companies and generic web developers to provide "out of our control" pre-packaged solutions while we sit back and watch. We've got to be active participants, come up with ideas, work with others to implement them, and take the lead in innovation within our own industry.

Chris Hartmann is Chief Technology Strategist for the HVS Technology Strategies division of HVS International. Chris has a computer science degree from Harvard as well as over 18 years experience as Chief Technology Officer at a large advertising agency in New York.