The Strategic Value of IT in the Hospitality Industry - Essay Example

Strategic value of IT in the hospitality industry Table of Contents Introduction Information and Technology Strategic value of IT 1 IT in large hospitality organizatioons 4 IT in smaller hospitality firms 7 Challenges in the use of IT 10 Conclusion 11 References 12 List of Tables Table I Focus of Management 3 Table II Architecture Development Process 4 Table III Problem situation at Hotel Lannentie 8 Introduction Technology has changed the way people think, work and act. Technology has changed the way people interact and conduct business. Information technology (IT) is applied in different aspects of business which includes Inventory management system, sales force administration, human resource management system, customer relationship management, and finance and accounts. IT can enhance firm performance but much depends upon the right investment and the right training that is given to the users of technology. Those that have invested in information technology find that the investment complements changes in other aspects of the organization (Brynjolfsson & Hitt, 2000). Technology can become the main source of sustainable competitive advantage and a strategic weapon especially in the hospitality industry (Buhalis & Main, 1998). Information and Technology Information plays a pivotal role in the description, promotion, distribution, amalgamation, organization and delivery of hospitality and tourism products (Main, 2002). Technology can offer advantages in the management of operations, in the delivery of services and also be useful as a strategic support system. It helps in forming strategic alliances, in developing strategic distribution methods, communicating with customers and partners, and satisfying consumer demand. Strategic value of IT Camisón (2000) contends that there are two approaches to introducing IT into business – the first focuses on the introduction and management of IT and the second is the management of the systems that use IT. There is abundance of information available in any business and through IT business re-engineering is possible which can help to enhance the intra-organizational information systems. Markets have become turbulent which enhances the need for managers to be able to predict change. There is a need for information and information has become a strategic resource which can give a firm competitive advantage. Hence the role of IT has to be strategic so that it can back the management functions. The information systems should allow effective measurement and monitoring of the strategic factors. It has been found that firms that take up IT as an asset and dedicate specific resources to the information system have achieved their business goals. Hence information and technologies that optimize its management should become the main resource used by the administration. This also help to free up resources – mostly people – who can devote their time and attention to focus on other jobs that add value to business. To increase competitive position of an organization, IT can also be used to make it a “communications-intensive information system”. Through this all sorts of IT functions converge into one single digital system for the transmission, processing, storage and accessing information. This generates a rich environment for information exchange. If IT is used as a strategic asset as described above, it can result in efficiency and effectiveness (Melville, Kraemer & Gurbaxani, 2004). Efficiency relates to internal perspective leading to cost reduction and production enhancement. Effectiveness on the other hand denotes the achievement of organizational objectives in relation to a firm’s external environment. This may result in gaining competitive advantage for the firm. In the initial stage of automation efficiency is the primary focus and later effective functioning becomes the goal of the organization (Klouwenberg, Koot & Schaik, 1995). This is demonstrated by the Nolan growth curve in Table I. Organizations gradually realize that apart from efficiency and effectiveness, IT can be a catalyst to company’s success. Table I Source: Klouwenberg, Koot & Schaik, (1995). Investment in IT has to be accompanied by the right strategy because a good strategy focuses less on the product or service and more on rendering the service. The opportunities of technology can create restrictions and the process itself can be laborious, full of doubts and uncertainties (Klouwenberg, Koot & Schaik, 1995). Hence to develop the IT architecture, the organization must have a vision of the way the organization must function in order to sustain competition. The architecture development process is demonstrated in Table II. developing the business vision should be the responsibility of the management and should never be contracted out. In the field of hospitality the business objectives would be to enhance the service delivery, enhance customer satisfaction, achieve efficiency in operations, and keep costs to the minimum. While the use of technology by the larger organizations is well known, the smaller organizations in the hospitality industry have remained skeptical about IT investments. After describing the benefits that larger hotels have experienced with the use of IT, this paper will discuss to what extent small organizations in the hospitality industry have been able to employ technology and derive competitive advantage. Table II Source: Klouwenberg, Koot & Schaik, (1995). Use of technology by larger organizations in the hospitality industry Technology enhances information search Globalization and technological advancements have changed the way people travel (Erdly & Kesterson-Townes, 2003). Technology provides unhindered access to information. Enhanced operations in hotels The hospitality industry is customer-centric and hence the use of technology in its operations not only serves to satisfy the customer but also results in saving costs. Wireless broadband, biometrics, and customer relationship management have enabled the hospitality firms to make travel a powerful personal experience. Computer technology is applied at two levels in the hotels – for in-room guest services and at the managerial and operational level (Lee, Barker & Kandampully, 2003). In-room guest services Technology can help provide in-room services to guests at hotels and the scope is beyond imagination. In-room services that can be provided include multiple telephone lines, electronic meal ordering, self-check out and self-wakeup systems, business services, entertainment like internet and video-on-demand (Lee, Barker & Kandampully, 2003), video check out, electronic in-room safes, and a software library (Victorino, Verma, Plaschka & Dev, 2005). Guests today prefer to have the internet access from their rooms and this has been found to have a profound impact in enhancing customer value especially for the business travelers (Victorino et al., 2005). Personal communication channels like face-to-face, mail, phone and the web have impacted the way a customer interacts with a business (Spencer-Matthews & Lawley, 2006). These help to identify and meet individual customer needs. Management and operations In the hospitality operations the use of technology ranges from reservation system to recipe costing, property management, stock controls, conferencing and banqueting (O’Connor, 2004). Hotels can post telephone call charges directly to the guests’ bills through the hybrid computer systems, assist in food and beverage services by electronically transmitting orders to the service areas like the kitchen. The charges too get automatically posted on the guests’ bill. Savings in energy consumption can be achieved as it is possible to automatically switch off services to unoccupied areas. Hybrid computers also help in providing entertainment to the guests in the comfort of their rooms. Electronic door-lock system helps improve security by generating a unique electronic key for each new guest. All these ultimately deliver superior customer value while benefiting the hotel as well. Apart from operational efficiency, technology provides a variety of management information and analyses. It is now possible to collect information, maintain and retrieve it through a marketing database. Information accessibility is the key to success which was not available in the traditional form of business.The IT has reshaped the basic structure of the hotel industry as it enables the customers to have a better experience and the hotel staff to work more efficiently to serve the customers. The use of IT can place knowledge and information at the core of a hospitality organization’s competitive profile. Technology facilitates distribution Hotels use computer technology and internet as a means of distribution. Hotel distribution channels have two functions – timely, accurate and high quality information distribution and convenience in terms of finding information as well as facilitating purchase and payment process (O’Connor & Frew, 2004). In the tourism sector the electronic distribution system was first started by the airlines by developing the global distribution system (GDS). The larger chains in the hotel industry developed their own systems with more appropriate data architecture while the independent hotels and the smaller chains used alternative methods like outsourcing or making use of public funded Destination Management Systems (DMS). Despite the benefits, the hotel managers remain skeptical about investing in IT. They want results overnight but such investment decision must have a long-term perspective. Use of technology by smaller firms in the hospitality sector The vast majority of tourism suppliers globally belong to the small and medium tourism enterprises (SMTEs). Because of limited resources and deficient marketing and management functions, they usually depend on intermediaries for their product distribution (Anckar & Walden, 2001). Such SMTEs do not recognize that internet has empowered the consumer and provided them with a choice. The SMTEs lack the financial resources or the IT skills to take advantage of technology. Small and medium hospitality organizations (SMHO) are usually located in the semi-urban areas where the proliferation of internet is not as pronounced as cities. Because of lack of technology, such firms can fail to build a relationship with their customers, which is the most vital requirement in the hospitality sector. Since SMTEs and SMHOs lack the IT infrastructure and resources, as part of a project funded by the European Union, a complete integrated Web booking and hotel management system was developed. Hotel Lannentie, a small-size Finnish hotel participated in the project but due to lack of clear business objectives and other constraints could not achieve the goals. There are several barriers that hinder SMHOs from capitalizing on the IT and interne platforms. The project that was developed offered real-time inexpensive reservation services for the customers. This was a user-friendly solution which could be easily used even by those who had no prior experience of IT. The study found that apart from lacking in resources and knowledge of IT, such organizations also are resistance to change. Because the firms lack the skill in selecting, installing and operating the computerized system, they fear that they would lose control if they allowed the IT experts to take over. Technology provides new facilities for the organizations but it also sets new demand for the success of the technology. The managers must understand the underlying technology of their business and they must also ensure human interactions are positive in order to deliver satisfactory customer service. Resistance to change most often stems from a feeling of insecurity as managers too feel that they might lose their job. Resistance could also be due to the fear of being declared incompetent before the management. The picture below demonstrates the problems that the hotel encountered. Table III Source: Anckar & Walden 2001. Hotel Lannentie was reluctant to participate in the project firstly due to lack of financial resources. Secondly, the owner could not perceive the benefits that the hotel or its customers would derive from such a platform. Thirdly, he had no confidence on his own people about the usage of the system. They did participate in the project eventually but they kept the physical verification and confirmation of bookings a manual process even though the requests were received through emails. They were concerned about high costs arising from internet cable connection. This process did not give the hotel much benefit of IT as the web system must support the existing information system for bookings and reception services. As the owners got confidence in the system they enhanced he IT infrastructure and the customers could check online the number of rooms available in each category before they proceeded with registration on the website. Soon the hotel stared having regular business customers which became an exceptionally important customer segment. When the customer made a booking, the hotel does not have to be connected to the internet. When any booking is made online, the reservation and customer data is saved on the web server and the availability table on the website is updated automatically. However, the entire experience of this hotel suggests that before any organization invests in IT they must have the right people or experts in the field. Even small-scale web projects can fail without the skill of IT in the people handling the services. The involvement of top management is essential in such projects and they need to be convinced of the benefits. It also brings to light that the business objectives have to be clearly laid out and all steps must be taken towards achieving these goals. The management and the workers have different perspective of IT and hence arises conflicts and resistance. The workers must be involved in the change-over process which would reduce the resistance and prepare them ahead of the challenges. Challenges in the use of technology While computers provide immense benefits, these benefits are not automatic. Computers are merely tools to automate the manual processes to enhance efficiency and control. Computers cannot compensate for management shortcomings and hence in poorly managed properties, the management finds a convenient excuse for all operational problems (O’Connor, 2004). According to Brynjolfsson and Hitt (2000), a firm must understand the value of investment in technology and computers. IT in any organization have to be adopted as a part of the system of reinforcing organizational changes. Investing in technology would be in vain if no organizational change or partial change is brought about. This could in fact result in significant productivity losses due to negative interactions with existing organizational practices. Along with the technology the process and the people are equally important. The people must be willing to apply the technology; they must have the necessary training and ability to use the system and programs. If the hotel employees are not well trained in technology they would be reluctant to implement in the service offering to the customers (O’Connor, 2004). Apart from this, the right to privacy of data should not be encroached upon. Privacy regulations have to be complied with for instance what data can be kept for how long and for what purpose (Inge, 2008). A European Commission recommendation states that personal data of users conducting a search should not be stored or processed beyond providing search results. If the user has not created an account it should not be used to send personal advertisements. CRM technology should not be abused as it can offend the guests. Misusing or losing control over confidential guest information can lead to loss of reputation and financial losses arising from personal identity theft. Conclusion It can thus be seen that the larger hospitality firms are employing IT to leverage advantages in all management and operational functions while the smaller firms could not benefit due to lack of resources. However, when under the aegis of the European Union, the smaller firms did get the opportunity to use IT, there was resistance and reluctance. Firms have been reluctant because of fear of loss of job, fear of change management and because they lack the necessary skills. The introduction of I has to be accompanied by training and development of the skills of the people that would be using technology. In fact, technology and computers should be a part of the system within the organization and not as a separate department. Today technology has pervaded every aspect of life and it has to be fused within the functions. The strategic value of IT was realized by the management of Hotel Lannentie as they became familiar with technology. The introduction of IT does require business re-engineering in the beginning but when backed by management functions, its advantages are evident. IT can augment customer service, customer relationships, distribution and sales, and operational efficiencies. Thus, with IT, it is possible to achieve efficiency and effectiveness. Reference: Anckar, B & Walden, P 2001, Introducing Web technology in a small peripheral hospitality organization, International Journal of Contemporary Hospitality Management, vol. 13, no. 5, pp. 241-250 Brynjolfsson, E & Hitt, LM 2000, Beyond Computation: Information Technology, Organizational Transformation and Business Performance, The Journal of Economic Perspectives, vol. 14, no. 4, pp. 23-48 Camisón, C 2000, Strategic attitudes and information technologies in the hospitality business: an empirical analysis, Hospitality Management, vol. 19, pp. 125-143 Erdly, M & Kesterson-Townes, L 2003, Experience Rules, Strategy & Leadership, vol. 31, no. 3, pp. 12-18 Inge, J 2008, Lets Get Personal. Hospitality Upgrade. 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