Ms. Rheams

Revenue Management

Our Occupancy Is Up: Are Profits?

By Connie Rheams, Global Business Development, Altiuspar

Many hospitality industry executives instinctively feel that technology is both a blessing and a curse. Yes, technology increases productivity and enables new ways of communicating with customers, but it also creates new challenges as distribution channels emerge, and new headaches when the technology doesn't work the way it's supposed to-which seems to happen all too frequently. Urban legend has it that more than 70 percent of technology projects fail. That's likely an exaggeration (it all depends on how you define "failure," of course), but it is true that far too many implementations do not provide the expected benefits.

Part of the reason for this lack of success is that most technology initiatives are planned around the technology, not the customer. In today's competitive market, with constant pressure on profitability, hotel operators need a better strategy-one that focuses on the business from start to finish.

A recent survey by New York University and PhoCusWright Inc. (The Effects of Emerging Technologies on the Travel, Tourism and Hospitality Marketplace, Jan. 2006) of 95 executives from various sectors of the travel industry confirmed that most executives recognize technology's potential to provide real business benefits. The key motivators cited for investing in new technologies were: improving competitive position (85%), controlling costs and increasing customer satisfaction (both 76%), and streamlining operational functions (73%).

And technologies that are aimed at providing these benefits will, at least in the near term, continue to be given greater emphasis than emerging "novelty" technologies such as mobile technology and RSS. The respondents ranked data mining, data warehousing, metasearch and business management applications as being particularly important to their business operations.

But although most technology projects are implemented for a business reason, most IT organizations don't really have much skin in the game when it comes to accountability for the benefits.

Benefits realization (defined by Gartner Group as "the discipline of ensuring that business initiatives deliver expected benefits") requires that IT organizations focus on the benefits life cycle rather than the systems development life cycle. Traditionally, IT organizations have considered their role largely complete-aside from whatever ongoing training and support might be needed-when the software is implemented and confirmed to be functioning as intended. If the system is delivered on time and on budget and with the required functionality, IT views the project as a success.

But technology by itself can't provide business results. The benefits don't just magically emerge when a new technology is implemented; they develop and change over time as people learn to use the system and as other internal and external variables change. To ensure that benefits are being maximized, continuous monitoring and adjustment are necessary.

Aligning IT projects with business strategies is a popular mantra among executives wanting to ensure accountability on the part of the IT organization, but it is often difficult for IT to articulate its contribution to the overall business. Taking a benefits realization approach is one way to ensure that each technology choice the company makes further its goals.

So what does all this mean for a hotel operator in particular?

One hotel group that has implemented a benefits realization approach with great success is Grupo Posadas, Latin America's largest hotel owner and management company. Grupo Posadas, headquartered in Mexico, owns more than 90 properties and has 14,000 employees around the world.

The company wanted to increase revenue, decrease operational costs, and improve the customer experience. The executives knew that technology held the key to significantly improving the company's business processes-by providing real-time access to inventory, transparency across multiple channels, seamless exchange of operational information, and detailed performance data, for example. But they also knew that technology alone wasn't the answer.

The team decided to tighten operations by implementing a shared-services and revenue management project that would enable the company to maximize profit and reassign personnel from the administrative office to guest services. The specific goals were to reduce labor costs by 60 percent, reduce IT total cost of ownership by 25 percent, increase RevPAR (revenue per available room) by 4-6.5 percent, and increase the hotels' gross operating profit by 3-5 percent.

The team's integrated approach to strategy, project management, and change management played an important role throughout the project. Grupo Posadas makes sure that every project has a sponsor, and major projects have both a business and an IT sponsor. During the planning stage, expected benefits are presented to the board, and updates are provided regularly during execution. After deployment the project sponsor reviews the anticipated benefits and the team begins to capture learning. The benefits harvesting is closely monitored and regular updates are provided to the executive committee.

The technology components of the shared-services portion of the project included a shared Oracle ERP system to manage accounting, payroll, accounts payable/receivable, and procurement. For the revenue management portion, the team found no acceptable existing solution and determined to invest in the development of a tightly integrated system that would provide real-time access to all distribution channels including:

The revenue management solution emerged after more than a year in development, and the project delivered the expected benefits. Grupo Posadas was able to increase RevPAR by as much as 6 percent across its chains, centralize key business processes, and reduce distribution operating costs by as much as 15 percent. Recognizing the potential demand for the new system, Grupo Posadas created a separate company, AltiusPAR, to market the solution to other companies in the hospitality industry.

The demand for a central inventory system and revenue management technology to help with demand forecasts, inventory allocation, and the determination of optimum rates is in part a response to the growing complexity of the distribution environment. The rise of electronic distribution channels-GDSs and the Internet-has challenged conventional inventory and revenue management practices.

How do hotel operators maintain control of their inventory and rates when dealing with Internet-only rates, consolidators, Web sites offering last-minute discount bookings, and other new channels? And these new options affect other traditional channels as well. Negotiated and consortia rates, for example, are under pressure, as many business travelers are now price shopping like leisure travelers. Corporate travel managers and agencies today are perfectly willing to ignore the negotiated rates and look for lower rates on the Internet.

Obviously, it's more profitable to sell through some channels than others, so rather than trying to maintain consistent rates and availability for all distribution channels, hotel operators are increasingly attempting to maximize sales through the channels offering the highest margins, selling only the last remaining rooms through the lower-margin channels. It's a complicated balancing act, and managing the wide variety of distribution channels is not easy.

The greatest challenge cited by the New York University / PhoCusWright survey respondents (30%) was achieving seamlessness between the customer and the organization. This suggests, according to the researchers, that "there is still a breakdown in systems and/or processes that could result in lost bookings and revenue."

Most hotel operators recognize that technology has the potential to solve these problems, but the solution must be integrated and implemented as part of an overall business strategy, not a collection of quick-fix point solutions. Change management must also play a key role in any major technology deployment. Employees need to understand why the new system is being implemented and be clear about how their roles fit into the big picture. The corporate culture must be supportive of a benefits focus.

Today, hotel operators are faced with a wealth of potential distribution channels, an overabundance of data, and a wide variety of technology options to deal with it all. The right technology, based on the right strategy and implemented in the right way, can help hotel operators significantly increase profitability. In the end, it always comes down to the bottom line.

Connie Rheams heads strategic corporate initiatives at AltiusPAR, including partner relations, global business development and marketing. Ms. Rheams was VP of the Travel Distribution Hospitality and Leisure Group at Cendant Corporation. She led business development, management of sales initiatives, and implementation of programs. Prior to Cendant, she was president of TRUST Inc. She spent 14 years at AMR Corporation, where she served on the Latin American Task Force at American Airlines, led the hospitality division at TeleService Resources, and was head of product marketing for SABRE. Ms. Rheams can be contacted at 940-497-5300 or connie.l.rheams@altiuspar.com Extended Bio...

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