Communication Technology in the Hospitality

¶ … Communication Technology in the Hospitality Industry

Computers, global telecommunications and the Internet have all fundamentally changed the manner in which companies of all types and sizes operate and market their businesses today. In fact, information and communication technology (ICT) have been responsible for fueling the globalization of the marketplace and these same forces have contributed to the resurrection of the travel and tourism industry following the major downturn the industry experienced following the terrorist attacks of September 11, 2001. Today, the tourism industry is the largest industry in the world and the hospitality sector that is supports has enjoyed the results of this upsurge. Some hospitality organizations, though, have benefited from their ICT initiatives in more significant ways than others, but it is clear that virtually any type of company competing in the hospitality industry can benefit from the use of ICT provided that certain factors are taken into account during its selection, implementation and administration. Therefore, to gain some valuable insights into what is involved, this paper provides an overview of the use of information and communication technology in the hospitality industry today to determine the impact that information technologies have had on the industry's structure as well as an examination of ways in companies are using these technologies to add value to their business proposition by measuring the added value originating from IT. A Porter's five forces analysis of the hospitality industry is followed by an analysis concerning how both existing and emerging IT technologies can be used as a source of competitive advantage. Finally, a summary of the research and important findings are presented in the conclusion.

Review and Discussion

Background and Overview

The term "hospitality industry" is an umbrella reference for all of those companies that have as their primary purpose the provision of food, beverages and accommodations for sale on a commercial basis (Lucas 2003). The most common activities or sub-sectors in the International Standard Industrial Classification of all Economic Activities (ISIC) Division 55 (Hotels and restaurants) are (a) hotels, (b) restaurants, (c) bars (this designation includes pubs and clubs) and contract catering (Lucas 2003). As noted above, the hospitality industry is part of the tourism sector which is the largest industry in the world and is estimated to employ more than 255 million people, accounting for fully 10% of employment worldwide (Spillane 2001). Given the enormous numbers of people that are competing in the hospitality industry, it is clear that a competitive advantage is needed to survive and grow. Because the hospitality industry depends on delivering high quality products and services with a view towards providing high levels of customer satisfaction, this competitive advantage will naturally be related to this function. For instance, according to Spillane, the tourism industry "has now grown into a modern, mature industry where workers are forming their professional identity. These 'hospitality professionals' are primarily concerned with customer satisfaction. But that's not always easy to achieve and many problems can -- and do -- arise" (2001, 16).

Problems with customer satisfaction are certainly not unique to the hospitality industry, of course, but companies competing in this service industry in particular must depend on a track record of satisfied customers in order to sustain their existing levels of operations and to grow their businesses in the future. Because the hospital industry typically caters to a global consumer base, providing consistently top-notch services in such a transcultural environment can be a daunting enterprise that is fraught with opportunities for failure. Indeed, the tourism and hospitality industry have had a global focus in the past, of course, but this focus has become increasingly pronounced in recent years due in large part to the innovations introduced by ICT. In fact, according to Egger and Buhalis (2008), "As more consumers move online, travel has become the most commonly sold online product" (16). As a result, the competitive environment in which companies in the hospitality industry operate has become increasingly fierce in recent years and there has been a push among many companies to "reinvent or differentiate themselves successfully, especially if they become homogenized as predicted by some researchers. In particular, destination organisations will need to seek competitive advantage by providing a quality service product" (Wahab & Cooper 2001, 37). Therefore, companies competing in the hospitality industry must take advantage of every resource available to help them achieve the operational capability to both deliver high quality customer services as well as to communicate this feature to the prospective clientele. These companies must also be able to identify trends in the marketplace that have the potential to affect their operations and to monitor costs and other operational data in the process. All in all, it is hard to imagine how these processes were ever accomplished efficiently without ICT, and these issues are discussed further below.

Applications of ICT in the Hospitality Industry

The research shows that there are a number of ways in which ICT can help to facilitate the development of a competitive advantage for companies competing in the hospitality industry and innovations continue to be introduced that hold a great deal of promise for this industry in the future. According to Crandall and Gao (2005), "Specific applications in the hospitality industry have also been recognized, such as reservations and sales and marketing functions" (31). There are a number of other applications currently being used as well. For instance, according to Domke-Damonte and Levsen (2002), "As information technology usage has increased greatly due to more user-friendly applications, cheaper and faster software and hardware, and major advances in telecommunication capabilities and usability, more business are including the Internet in their strategies" (31).

Although there is no "one-size-fits-all" IT solution available for all companies competing in the hospitality industry, the research shows that the manner in which hospitality organizations can use ICT to develop a competitive advantage depends on their location, targeted customer base, size and the type of services offered; however, there are also some common approaches being used that can serve as good examples of how these techniques are being applied by hospitality companies today. For example, all hospitality organizations need timely information concerning what their customers want, what the most popular tourist destinations are at a given point in time, and what their competitors are doing to remain competitive and it is in this area in particular that ICT can help. In this regard, Taylor advises, "No business, and especially no customer service intensive business, can operate without information. From the broader understanding of what customers want, need, and desire to the feedback concerning how well a business has met those demands, information provides the rudder to guide the service ship" (2002, 36). Based on his empirical observations and experiences, this analyst cites as especially salient the following examples of how hospitality organizations' ICT failed in recent months:

1. The information system has failed if the international travelers who comprise 80% of a hotel's business have no World Wide CNN on their TVs.

2. The information system has failed if a business does not know why first time visitors to its facility seldom return.

3. The system has failed if 60% of a business' customers are Jewish and the business does not provide Kosher food in its restaurant.

4. The system has failed if a company's front-line workers know customers' most common complaints, but management only knows the complaints listed on the complaint cards filled out by one-fifth of one percent of its customers (Taylor 2002, 36).

Because customer service is the focus of the hospitality industry, it just makes good business sense to use these technologies to their best advantage in acquiring needed information. As Taylor emphasizes, "Customer service requires market research, communication barrier reduction, and proactive use of the information subsequently generated. Customer service requires knowing when customers are upset and being willing to take action to recover from a service failure" (2002, 36). Instances of these types of customer service feedback can be easily categorized, the information plugged into a database and trended to identify failures and opportunities for improvement, but other information related to customer satisfaction and current trends is also important. It is in this area that ICT can play a major role. The information-gathering function has historically been a labor-intensive and time-consuming operation but ICT has changed this in major ways. In the past, Domke-Damonte and Levson report that, "Information relating to the future of an industry required interorganizational cooperation at the local level. With increased, cheaper, and more user-friendly access to the Internet for noncomputer specialists, much of this information can now be collected by small business owners" (2002, 31). In addition, even an inexpensive personal computer with Internet access can provide smaller companies with a competitive advantage. For instance, Domke-Damonte and Levsen note that, "The World Wide Web can be used to investigate competition, gain information about innovative practices within the small hotel industry, and stay ahead of the curve on the technological, regulatory, and economic issues that target the industry" (2002, 31). Contributing to the utility of information technologies is the proliferation of off-the-shelf software applications, some of which are specifically designed for the hospitality industry. In this regard, Higgins (2002) reports that Micros Systems Inc. introduced a custom application specifically for the hospitality industry early on, and despite the lingering effects of the September 11, 2001 terrorist attacks on the market, this company and others such as BDM International Inc. are continuing their efforts to provide hotels, restaurants and other organizations competing in the hospitality industry with the information technology they need to become more competitive (Bear 1999). More recently, companies such as Avendra have started offering integrated software applications that are specifically designed for various segments of the hospitality industry. This company's integrated software application provides purchasing support for food and beverage operations, room operations, engineering/building and construction, administrative, professional and financial services; cleaning solutions and sanitizing systems; grounds and agronomy maintenance; as well as gift shop and spa equipment operation and products (Avendra's purchasing programs 2010).

According to Richer (201), a trend that has experienced substantial growth recently is the ability for online systems to collaborate in a networked fashion to search bed banks and other third party product suppliers to provide customers with real-time availability and booking options. In this regard, Richer notes that, "Virtually every system supplier is offering operators the ability to sell far more than their own stock. Systems now offer seamless connectivity to bed banks, transfers, flights and other products" (4). It should be noted, though, that Richer also cautions, "There is a danger that with universal connectivity to relatively few bed banks, tour operators will all end-up selling the same stock, so commoditizing the industry. It is very important for operators to maintain their own unique identity and remain competitive by continuing to negotiate contracts directly with the hotels which they sell most. They should only use third parties to supplement their own stock, so widening the range of product on-sale but maintaining a unique core" (5).

Besides the foregoing, companies competing in the hospitality industry can launch a sophisticated Web site for free or a modest monthly charge that promote their business and provide the means for potential customers to arrange their own reservations at hotels or restaurants (Domke-Damonte & Levsen 2002). Taken together, there are three basic ways that ICT can help companies competing in the hospitality industry better reach their market:

1. Gaining information about the industry in general and specific local competitors;

2. Developing Web sites to transfer information about a specific hotel to prospective customers; and,

3. Developing a Web site where customers may make and check reservations directly with a specific hotel through the Internet (Domke-Damonte & Levsen 2002, 31).

Besides the foregoing information-gathering function, ICT can also be used by companies competing in the hospitality industry to custom-tailor their message for existing and potential customers. According to Spillane (2001), "There are many different ways to tailor the service to meet the needs of individual customers" (16). The customization process can take place along two dimensions at a minimum:

1. Companies must consider whether the characteristics of the service and its delivery system lend themselves to customization; and

2. Companies must determine how much judgment customer contact personnel can exercise in defining the nature of the service received by individual customers; some service concepts are relatively standardized, while other services offer customers a wider range of options (Spillane 2001, 16).

In addition, hotel franchisees typically purchase specific interfaces for the franchising brands' own reservation system (Luftman 2003).

Porter's Five Forces Analysis

According to Kermally (2003), Porter's five forces framework can provide an improved analysis and understanding of the competition that exists in a particular industry. This author points out that, "In order to construct a competitive strategy, an organization needs to know what is likely to happen in the markets in which the organization delivers its products and services. It also has to know who its competitors are in a particular industry structure" (Kermally 2003, 58). In order to accomplish this type of strategic analysis, it is helpful to refer to the rules of the competition governed by the five competitive forces described by Porter in his five forces model, and these forces are applied to the hospitality industry and its competitive environment in Table 1 below.

Table 1

Porter's Five-Force Hospitality Industry Analysis

Force

Overall Assessment

Analyses and Comments

Power of Buyers

ICT provides travelers and other potential customers with the ability to shop and compare offerings and prices and can even give them a virtual tour of a company's facilities before they make a purchase decision. Internet usage statistics point to more than one billion users worldwide, with an astronomical growth rate of about 15% per month, a growth rate that translates to 180% per annum, compounded monthly (Eger 2006). The Internet's most popular component is the World Wide Web which has been widely integrated into the marketing, information, and communications strategies of almost every major corporation, educational institution, charitable and political organization, community service agency, and government entity in the developed world; there has never been an innovation in communications that has been so widely or rapidly adopted by the public (Eger 2006, 18).

ICT levels the playing field for companies competing in the hospitality industry, with small- to medium-sized enterprises enjoying the same opportunities for promotion and customer relationship marketing as their larger counterparts. This point is made by Richer (2010) who advises, "New entrants into the marketplace are using the latest development languages to construct straightforward yet reasonably comprehensive reservation systems that are specifically designed for online sales" (3). In addition, Richer notes that, "Selling online need no longer be an expensive exercise. There has never been a better time for smaller operators to compete on a level playing field with their larger competitors who can more easily afford heavy investment in technology" (4).

Power of Suppliers

ICT provides hospitality organizations with the ability to customize their offerings and promote them in a cost-effective fashion based on current trends and the analysis of their customer relationship marketing data. In addition, hospitality organizations can use information technologies to improve their internal operations by automating many human resource functions and by improving communication throughout the organization (Conophy 2005).

The cost-effectiveness of information technology applications mean that smaller marketing budgets can be translated into more competitive pricing levels.

Threat of Substitution

The hospitality industry survived for thousands of years without ICT, but it is reasonable to suggest that the ubiquity of these technologies and their importance to the operation of businesses of all types today indicate that there are no viable substitutions currently available to replace them.

Some low-tech alternatives remain useful in the hospitality industry; for example, customer comment cards are an effective way to collect customer satisfaction feedback and brochures and fliers continue to be used as responses to mailed inquiries for information.

Threat of Entry

The barriers to entry for the hospitality industry are directly related to what type of enterprise is involved. Restaurants or bars can be launched for far less, for example, than a hotel.

Major chains enjoy brand recognition creating a major hurdle for start-ups.

Internal Rivalry

The research was consistent in showing that although ICT has made the hospitality industry more competitive, some hospitality organizations collaborate with their competitors (and others) to help redefine their destination and improve business for all.

For instance, Domke-Damonte and Levsen note that, "A firm may collaborate with direct competitors, customers, suppliers, and other organizations providing services to their customers in an effort to build its competitive position" (31).

Overall Industry Assessment

As part of the travel and tourism industry, the hospitality industry has regained much of the business that was lost immediately following the terrorist attacks of September 11, 2001;

The current global economic downturn has affected this industry as well.

Using IT Technologies to Achieve a Competitive Advantage

Perhaps the most important contribution that information technologies have made to the hospitality industry in recent years is the manner in which it has improved customer service and the level of professionalism among hospitality organizations, and these outcomes can be used to gain a competitive advantage. In this regard, Jafari emphasizes that, "During the past several years, nothing has increased professionalism or more greatly enhanced customer services within the tourism industry than automation. Technology will continue to change the way companies plan, co-ordinate, control and evaluate operations" (46). Given recent trends in the widespread use of information technologies by industries of all types, these trends will likely continue into the foreseeable future until the march to ubiquitous computing is achieved. Even then, though, software engineers will be working on "the next big thing" in information and communications technology.

Just a few years ago, computers were prohibitively expensive, cumbersome, difficult to use and required a significant amount of training to use effectively. By sharp contrast, the situation is much different today and even computer novices can become proficient in the use of sophisticated customer relationship marketing packages quickly thanks to intuitive graphic-user interfaces and user-friendly software applications. As Jafari points out:

Automated information system design and implementation is one of the fastest changing aspects of the industry. Future technological developments will be more intuitive, object-oriented, global and portable. The traditional approach of cultivating an appropriate level of computer literacy in order to render a more effective utilization of technology is rapidly changing. (Jafari 2000, 46).

A study by Piccoli, O'Connor and others (2003) examined the risks and benefits of customer relationship management in the hospitality industry. According to O'Connor and Murphy (2005), the CRM approach "can lower marketing expenditures and increase sales through closer relationships and increased satisfaction. For this to occur, the entire hotel chain must cooperate in the collection, management and dissemination of customer information -- an expensive and complicated process" (p. 10). In their study, Picolli et al. point out that a potential data-ownership problem exists that is related to the structure of the lodging industry in the United States in which owners, management companies, and brands are required to collaborate to effectively operate their properties but the structure makes it particularly difficult for all three of these segments to effectively share customer data. Because these three entities are in competition as often as they are cooperating, implementing CRM initiatives could be constrained or entirely unsuccessful in achieving their corporate goals. In this regard, Piccoli and his associates (2003) maintain that in order to overcome these constraints, it is important to identify situations that are amenable to the use of CRM. Consequently, Picolli and his associates (2003) suggest that within the hospitality industry, CRM applications have the best chance of success when they are implemented at the brand level and cite the results of two case studies of brands with strong CRM programs (i.e., Wyndam International and Harrah's Hotels and Casinos); the latter example also highlights the value of data mining techniques when using CRM applications. According to O'Connor and Murphy (2005), "This procedure applies artificial intelligence and sophisticated statistical techniques to customer data to perform five tasks: classification, clustering, deviation detection, associations and forecasting, and can be a valuable tool for hotels seeking to better understand and predict guest behavior" (p. 10). Other factors that must be taken into account when implementing a CRM initiative include how customers will be interfacing with the hospitality company's Web-based services. In this regard, O'Connor and Murphy (2005) emphasize that, "Consumers increasingly use a variety of devices (for example cell phones, Interactive television and kiosks) to access the Web, and need different types of interactions, information and procedures depending on the relationship stage" (p. 11). As a result, any type of "one-size-fits-all" approach for operating a CRM approach will likely fail to provide the desired results (O'Connor & Murphy, 2005). The research to date indicates that in order to successfully integrate a CRM application in the hospitality industry, the specific characteristics of XML that use content-specific tags instead of stylistic ones could assist hotel companies in their implementation of the needed device specific and loyalty level personalization that are needed (O'Connor & Murphy 2005).

In order to use these technologies to their best effect in achieving a competitive advantage, though, there must be some overarching vision or plan to guide the process, which naturally begins with the company's top leadership. According to Taylor, "No number of operational or computerized systems can provide good customer service without good leaders to learn and teach the processes. The hotel, resort, or restaurant must have a vision about where it is heading, must have strategies in place for meeting that vision, and must have inspired and motivated employees to meet the challenges associated with the vision and strategies" (36). Likewise, in their study of the effects of information technology on the hospitality industry, Bassoppo-Moyo, Bassoppo-Moyo and Dube (2002) emphasize that, "For information technology to be applied in any given entity, there must be managers assigned to running the affairs of that environment. Management can be defined as the person or persons that manage an organization" (289). Although many larger organizations in the hospitality industry enjoy economies of scale in their marketing efforts, smaller organizations can use ICT to overcome to these competitive disadvantages. In this regard, Domke-Damonte and Levsen point out that, "One significant advantage to Internet usage for small business falls in the marketing realm. Almost 9% of all Internet users made travel reservations through the Internet in 1998. By having an interactive Web site online, small hotels and other small businesses are offering their services to a global market at an inexpensive rate" (2002, 31).