Investing in Technology Innovation - How Much is Enough?
13 experts shared their view
In the first viewpoint of this panel, several experts weighed in that the Hospitality Industry does not properly invest in technology innovation. Apple spent about $15 billion in research last year alone… or 5.5% of its annual gross revenue. We ask ourselves these questions: Is this level of investment purely in R&D also necessary in our industry, and is it possible to get that kind of money? What's your take?
Lots of us think that there is not enough investment in innovation in the hospitality industry. I disagree - at least as it relates to the investment by chains. When you include technology refurbishment and renewal, it is the independent properties and to a lesser extent the loosely managed brands such as Best Western individual member properties that fall behind.
Chains are in a bitter war to attract a technology-savvy generation of travelers and are spending big to do this. Independent hotels as a group, not so much. And to a degree, that division of dollar investment has driven our oft-stated view that hospitality players spend less than their contemporaries.
How much is enough? In many industries renewal alone accounts for 2 1/2% of annual budget. If you add new technologies to the mix, perhaps another 1 1/2% of budget would be a target. Chains spend to research; properties spend to implement. It is the property spending that lags, again with independent hotels taking the lead in reduced spending.
I think looking at how much you should invest as a percentage of gross is the wrong approach. You should invest the right amount at the right time and on the right things. A big problem I see often is that people in this industry tend to spend money on what's perceived as cool and innovative tech, rather than investing in tech that's fundamental to the success of the hotel/hotel chain.
We can't move forward if we don't solidify the base. We rushed to mobile key without solidifying our Wi-Fi, rushed to “the cloud” while our applications weren't ready for it, and rushed to “big data” without really having our data figured out. Even tasks like financial reporting and the flow of money are still done manually.
We shouldn't chase the next shiny thing without first fixing the present, and that requires investing quite a bit more up front. So you should invest as much as is necessary to get the foundation right, and then build the cool innovative things on top of it.
It should be. As an industry we should take a more collaborative approach to R&D. We do too much in silos. It would be great to see more companies and technology providers coming together and creating a place of R&D for the overall betterment of the hospitality industry. For the funding we need to see hotel companies and technology providers as well as various associations come together.
I think a joint effort between technology vendors and hospitality customers has been needed for many years and hasn't been successfully implemented. Too many times I see blocker to true innovation with the line 'it's not on the roadmap' or 'cost prohibitive' from vendors, something that is slowly changing with the introduction of new technologies that can shake-up the traditional suppliers.
I also think that the main investment on the hospitality side needs to be less on tech innovation and more on tech culture. Changing the culture of the industry will in turn bring innovation and investment and see the end of the line 'we've always done it this way'.
I don't believe that this is about Billions of dollars or even percentages of revenue. It's about a willingness to change, and unfortunately we are not very good at that. In our industry innovation or R&D does not have to be very technical and therefore does not have to be done by specialists. It should really be part of everyone's job. Innovation can come from anywhere.
In order to think differently and to create a culture of change and creativity we don't need money, we need a culture shift and this requires only one thing; strong leadership!
A recent HFTP Americas Research Center analysis of IT lodging spending, based on CBRE data from 5,640 properties with 72,135 average available rooms, determined that the average IT spend was a mere $1.90 per available room (PAR), including:* Labor Costs for IT personnel: $1.04 PAR
* Tech Services for Operations, including HSIA: $0.35 PAR
* IT System Expenses for Operations (Rooms & F&B): $0.51 PAR.
In other words, at a projected RevPAR of $87.94 for 2019 (STR), the average IT spend, including IT personnel was a mere 2.11% from RevPAR. This is It! What happened to the recommended technology investments of 5%-7% from RevPAR (or from room revenue)?
This underinvestment in technology by our industry comes from the lack of understanding that we are serving technology-obsessed travel consumers who demand:
*Engagements that are up-to-date from technological perspective throughout their digital customer journey (mobile, website, app, social media, digital marketing, loyalty, CRS, CRM, etc.), as well as
* On-property technological experience that is equal or better to what they already have at home.
Hospitality must be transformed, which means adequate investments, into a 100% digital technology-enabled industry, powered by online, mobile, cloud, IoT, AI, automation, robotics and blockchain. Digital technology should be the foundation of every aspect of the industry: hotel operations, guest services, communications, revenue management, distribution, CRM and marketing.
Robust investments are needed in both categories of guest-facing digital technology:
- Guest Engagement, Acquisition, and Retention Technology – these are technology applications focused on engaging and bringing the guest to the property, continuing the conversation pre-, during and post-stay and eventually turning the guest into a loyal and repeat guest.
- Guest Services Technology – these are on-property hardware devices and software applications (on-premises or cloud-based) that provide or enhance guest services, improve guest comfort and satisfaction and enable customer service and communications.
Today, the vast majority of hoteliers are primarily focused on and investing in Guest Services Technology, while underinvesting in Guest Engagement, Acquisition and Retention Technology.
Unlike hoteliers, the OTAs are focused exclusively and investing only in Guest Engagement, Acquisition and Retention Technology since they do not have to worry about on-property technology and guest experiences. In other words, hoteliers’ technology focus and investments end where the OTA focus and investment begin.
It’s no wonder that over the last 6 years the OTAs have increased their market share by over 50% at the expense of the hotel direct channel. By investing heavily in technology applications to engage the traveler at all possible touchpoints of the customer journey, OTAs have monopolized the guest relationships and left hoteliers to do ...the housekeeping.
A huge chasm exists between investment in technology at the brand or chain level and the investment (and adoption) of technology at the owner/property level. At the chain level CEOs and boards have realized that technology is at the core of creating competitive differentiation. Not to invest in technology would mean leaving the playing field open to tech-savvy startups, OTAs and AirBnB, which means eventual slow death. All the large brands have poured hundreds of millions of dollars into technologies to enable more seamless experiences and higher stickiness for their guests.
On the other hand, at the property and owner level, technology does not have the same priority. However, squeezed by increasing labor and distribution costs, I predict we will see an acceleration of automation and technology adoption. Finally, with devices starting to “talk” to each other, the Internet of Things will bring a new wave of productivity and efficiency gains for hotels.
Investing in tech is scratching the surface of the issue. Yes, there needs to be a heightened spend on tech and IT, but what's more important is investing in an IT team that is just as innovative as the tech you're implementing. Make a solid investment on an IT team that has a genuine tech-architectural background, then utilize that team to find efficient tech solutions. That team doesn't have to have a hospitality background – bringing in someone with an outside scope provides a keen insight into tech solutions outside of the hotel space that would truly benefit your hotel. As a result, tech solutions will be implemented to truly fit the needs of the individual hotel/hotel chain and your knowledgeable IT team will be well-suited to understand and operate these new solutions.
Technology represents one of the significant opportunities for competitive advantage in our industry. Market dependent, the physical aspects of a hospitality product are fairly static. The space where the opportunity lies to make the difference is in the 'software' as we often refer to it.
Software, being people, but also the technology that goes with them.
It is true that the same software is available to the entire industry. Where is the advantage? The timeline of adoption. Even if all company's in a market were forced to use the same technology tools, the differentiator is at what point the investment is made vs. when the competitors make their investment. Time to enjoy capability before the pack catches up is the true advantage. If an organization continues to stay ahead of the pack, then they continue to enjoy capabilities the rest of the market does not have. It's through time and capability that we empower the other software - people, with tools that make a difference to a business in general.
The early bird catches the worm.
I don't believe it's about R&D from a technology perspective as far as Hotel companies are concerned. Hoteliers need to concentrate on their core business in a congested marketplace. However, hoteliers do need to keep a close view on the adoption of tools that can provide the leap forward.
I also firmly believe that annual investment is not about set figures and arbitrary percentages. More so that constant improvement is imperative. Well constructed initiatives that an organization wants to achieve in the business are the key. The importance of these goals determine right-sized technology investment and when funds will be made available.
Apple, as an example, is a technology company. Their business motivations differ from that of a hospitality company. Many of the technology vendors providing tools to the Hospitality industry invest more than 5% per annum in moving their products forward.
The pricetag will vary by hotel and hotel group, but the end goal is always the same: enough is when your hotel brand is able to delight its guests throughout the entire guest journey, all while streamlining its operations and finding ways to increase its revenues. How can hotels do this? By investing in the right technology. Smart, innovative technology. Technology that works together seamlessly and can automate mundane processes. apaleo's property management system allows for this, with the industry's only API-first approach and pre-connected systems that allow data to flow.
In the past this type of innovative technology was limited to the bigger chains that could afford investing tons of money. Nowadays, with an API first approach, open platforms, connected apps and in particular the true native cloud PMS of the newest generation, this picture has certainly changed. Any hotel group or hotel can put a great guest journey in place with limited effort and at very reasonable expenses. Hurdles that existed before such as up front or project fees, interface licenses, or certification cost do not exist any more in the modern world of hotel technology.
Without proper investment in research & development of “future” tech there is no path enabling hoteliers to achieve their goals. If you think about the number of hospitality technology companies that are out there you can already see we probably spend close to what Apple and other tech giants spend in relation to a “percentage of revenue”. Brands and management companies should not be responsible for this type of massive R&D efforts - leave that to the technology experts. Companies like Amadeus, Oracle, Shiji and Infor are all spending money on innovating technology solutions for the industry. That's not even taking into account the $10's of millions of dollars invested in start-up firms whose ideas fuel R&D that help reshape the technology landscape in our industry.
Hotel brands, management companies and owners need to work alongside hospitality technology companies by sharing their goals and visions so that everyone is on one accord. This way R&D dollars will be allocated and spent in a way that will most benefit the industry. We need to break down the vendor/customer transactional interactions and create meaningful “trusted partner” relationships to truly achieve more together. Hoteliers should give direct and meaningful feedback to their tech partners and in turn should listen with an open mind so that both parties can help craft the best direction.
It requires both sides to cooperate and work together - assigning less blame and working together to shape a better guest experience.
Digitization means democratization. Today it is not the budget that decides but the competence of the management about success and failure. Hotels should invest first and foremost in the quality of management, in their continuous education and training.
Above all, the CEOs themselves must understand the changing world. The necessary change processes have to be initiated and managed from the very top, the organizations have to be adapted, decision-making competencies are to be rethought and a central data management vision has to be defined and implemented. CEOs need to understand that the guest data and thus the guest must be the focus of the company, not the hardware, ie the hotel product itself.
When that's understood, the budgets are no longer a problem. Until then, the management will continue to invest in the product rather than future-proof the company.
You should always overinvest in things that have compounding results. A good technology plan can support those results and therefore deserves a long-term investment commitment. For example, hotels which have had a strong direct booking strategy (where technology is a key piece) for a sustained period are now getting much better results than those who have been timid about investing on it.
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