Hotels A, B and C are located within close proximity from one another in a large town of the Northern Cape South Africa. All three hotels belong to the same owner who purchased Hotel A from his father in 1984. The business expanded under his leadership with the construction of Hotel B in 1991 and the conversion of Hotel C in 1994 from an apartment block.
Each of the three hotels operates in a different rate category market segment. Hotel A is a 3 Star with conference facilities, Hotel B is a 32 room 4 star luxury hotel and Hotel C is a 29 room 3 star budget hotel. All three hotels revenue is driven by a majority share of work related traveller and minor share of leisure / tourist traveller. Although there is no defined high and low season, factors like public holidays, school holidays and seasonal weather conditions, are and influencing factor in both segments. Both Hotels A and B are run as franchised operations. Hotel C is an independent hotel.
The products of all three hotels are made available to the market through both Information and Communications Technology (ICT) as well as conventional distribution channels. The repetition of the same product on different electronic channels such as the franchisor’s web site and third party web sites is problematic for the hotel management, as it provides opportunity for misrepresentation of the products and the prices seldom agree. This in turn affects the hotel’s image and creates the potential for lost revenue and/or legal liability such as covered by European laws regarding misrepresentation.
All web sites that refer to the three properties are regularly scanned to verify the correctness of representation. The web sites of opposition parties are also scanned regularly to assess and compare their value propositions.
Key external parties that form part of the value chain are travel agents, government departments and Personal Conference Organisers (PCO’s) and large corporate clients all of whom make individual or bulk reservations at the hotels, either directly or via the franchisor.
The hotel owner, who is now in his mid-forties, has no tertiary qualifications. Upon joining the franchise in 1984, he and his wife completed a one-year in-house training course in hospitality management. He does involve himself in day-to-day operations on a supervisory level but is primarily responsible for the financial well being of the business. The Hotel Owner’s wife, who is also in her mid-forties, acts as his assistant and acts in a supervisory level for yield management, rate constriction, marketing and system controls. A dedicated professional General Manager runs the hotels. The General Manager has no tertiary qualifications, but has risen through the ranks of the business and together with the owner and his wife; attend from time to time training courses in hospitality management offered by the franchisor.
The owner maintains a very conservative stance towards IS adoption, and is openly sceptical about unproven benefits of IS, his wife, who is very influential, is keen to adopt IS from an experimental perspective. Once IS is adopted it carries the full support and commitment of the owner and his top management team. All management are expected to use and understand the systems. Systems outputs are important points of reference for meetings, and inform decisions related to Capex, staffing and marketing.
Staff are appointed to the hotel at entry-level and have a matric certificate, basic computer literacy and speak English, but are otherwise untrained. Staff is promoted to managerial positions from within the organisation. All staff training is performed in-house. Low staff skills are historically an ongoing issue in the hospitality industry. It is a fundamental requirement that computer systems be easy to use.
Attention to customer service and satisfaction is vitally important at all three hotels, but especially at Hotels A and B. As part of this strategy, a birthday email or gift is sent to all regular guests. This is enabled through a daily report delivered to the receptionist every morning. Thus the system identifies guest birthdays and these are then actioned manually. All special instructions or special requests for Guests are also recorded and stored on Guest information data on the PMS for easy reference for present and future visits.
Every morning, an arrivals report shows the guests that are expected to check in during the day. Important guests are identified on this report, to ensure that they are adequately welcomed.
The franchisor offers a loyalty programme whereby subscribing guests earn points whenever they stay at the hotel and are ensured a percentage discount on the offered rate. The Hotels also have an in house loyalty scheme where -in points are assigned to a rate level; these points may then be redeemed in the restaurant or the gift shop. Both these programmes are designed to attract repeat business and create customer loyalty.
Attention to guest’s complaints is also vitally important from a customer service perspective. The franchisor has a centralised system which is accessed by the hotel. When a guest checks-out, he is encouraged to complete a comment card. This is captured into the franchisor’s system. Every month this system provides the hotel with statistics related to guest satisfaction. The system also calculates the estimated percentage of guests who would be likely to recommend the hotel to their friends and acquaintances. This statistic is especially important in a service-oriented industry which is heavily reliant on word-of-mouth referrals.
The strategic focus is currently on customer service and satisfaction as well as the maintenance of a profitable rate. The management point out that the strategic focus is adapted according to the ruling economic climate. Competition is fierce during the current recessionary times and price wars between the hotels and other accommodation providers are common. Eroded brand loyalty is now evident especially in rate sensitive market segments. In response many properties have lowered their rates to attract guests, but Hotels A, B and C have managed to maintain their occupancy levels while maintaining profitability by relaxing the application of demand-driven pricing, which was strictly applied during the boom years, as well as by increasing service levels by providing value adds such as free mineral water, biscuits and wireless Internet facilities to Guests with higher rates. These results were achieved despite Hotels A and B being the most expensive properties in town.
During the economic boom years of 2007 and 2008, a strategy of revenue maximisation was vigorously pursued. The PMS applied yield management principles at property level to calculate the room rate according to available supply at the time of reservation. The PMS’s yield management rules were carefully devised to eliminate rate dilution resulting from the “wash” factor (i.e. lost room nights through late cancellations and/or non-arrivals). A dedicated yield manager was appointed to be the custodian of PMS pricing structures. The effect of yield management on room rates is clearly visible when comparing the Average Room Rate (ARR), Revenue per Available Room (REVPAR) and Revenue per Guest for any two periods, as demonstrated by the following figures:
2006 to 2007 2007 to 2008
Average Room Rate (ARR) 15% 36%
Revenue per Available Room (REVPAR) 25% 19%
Revenue per Guest 29% 35%
From the information in this table it can be seen that the ARR increased by 15% during the 2006-2007 period, but the revenue per available room increased by 25%. This shows that the increased room rate did not create rate resistance and therefore reduced occupancy but instead translated directly into higher revenue.
When the current owner took over the operations in 1984, all functions were performed manually. Soon thereafter a PABX (Private Automatic Branch Exchange) was purchased that automated the manual routing of incoming telephone calls to hotel rooms. A telex machine was purchased in 1984 to receive bookings made by the franchisor’s Centralised Reservation Office (CRO). This formed part of the franchise agreement entered into in 1984.
From these humble beginnings, more operational functions were gradually automated. The franchisor prescribed the acquisition of a designated PMS (Property Management System) in 1986. This greatly simplified the reservation and invoicing processes and reduced the risk of errors arising from manual transcription errors. This system also provided valuable reports related to turnover. The principal disadvantage of this system lay in its inadequate provision for data security. Backups were made manually onto floppy disks. However these backups proved to be unreliable. On a number of occasions the restoration of data from these backups failed, necessitating laborious recapture of transactions. This early system was also cumbersome to use, as its design relied upon codes that needed to be memorised, since no drop-down picking lists were provided.
In time more applications were acquired. The original PMS system was replaced to achieve greater streamlining of hotel front-office functions. A POS (Point-of-Sale) application was purchased to control stock of liquor and consumables and to capture pub and restaurant transactions. A TMS (Telephone Management System) was acquired to price telephone calls. Both the POS and TMS systems were interfaced to the PMS, to allow for guest transactions to be posted to their hotel rooms. Support functions were also automated through the acquisition of Salary and Wages as well as General Ledger systems.
Acquisition of IS was at times driven by the need to provide competitive technology based products, as was the case in 2007 when all rooms were upgraded with wireless connectivity to provide for Internet access in guest rooms. To use this facility, a guest purchases a voucher for set data usage, which issues him a password to enable him to logon to the wireless system. A dedicated room equipped with PC’s (Personal Computers) linked to the Internet was also created at the time, for the convenience of guests who do not have a laptop at their disposal.
Security at the hotels was enhanced through the installation of a network of security cameras, as well as by the acquisition of a system that controlled access to guest rooms via card key. This system protects the hotel against fraudulent theft claims by guests, as it keeps an audit trail of guest room accesses.
As applications were acquired, management adapted the in-house processes and procedures to embed the use of the applications in the organisation. For example, the front-office check-in procedure was adapted to provide for the issuing of the card key to the guest. The back-office procedures were adapted to include daily reconciliation to system produced reports and the calculation of profit and loss figures on a monthly basis from the accounting system.
Control procedures were also adapted to incorporate IS outputs, for example each morning a report of all expected check-ins and departures is automatically emailed to key managers, who are expected to comply with guests’ special requests. In some cases, error handling routines in the applications themselves necessitated the creation of new control procedures to action the exceptions. For instance, the check-out clerk needs to check for any POS or TMS transactions that could not be posted to the room, prior to finalising the guest’s invoice.
At the close of each day, the heads of departments are expected to acquaint themselves with key indices that are automatically calculated by the PMS and distributed via email. These emails reflect the ARR and the occupancy for the previous night and current day. Further email communications contain the list of important guests resident in the hotel, the total amount taken at the bar (actual versus budget) and guest complaints and compliments during the period.
Organisation structures were also impacted by the acquisition of technology. Before the advent of information systems, each hotel had its own General Manager and functional managers. However the PMS system allows access to the business data of all three hotels from a single geographic location, hence it is now possible to manage all three hotels from one site. Today the centralised management structure at Hotel A manages all three hotels.
The reservations management function was also centralised through the creation of a central booking office for all three hotels at Hotel B. This centre is manned by two staff members who capture all individual and group reservations for accommodation and conferencing products. Prior to the installation of the new PMS system, this was a decentralised function and one or two staff members were posted at each of the three hotels to perform this function. Furthermore the number of receptionists was reduced from two to one in each of the three hotels, resulting from the streamlining of the reservation capture function.
In 1990’s the franchisor acquired a CRS (Central Reservation System) to replace the old telex-based system in use at the CRO. Reservations are captured into this system at the call centres and communicated to the franchised hotels via email. These reservations originate from telephonic bookings recorded by the CRO, but also from travel agent bookings recorded onto GDS’s (Global Distribution Systems), bookings made by STO’s (Standard Tour Operators) and Opaque channels, which are third party agents who market via the web. The CRS continuously delivers bookings to Hotel A via email. The reservations are then manually recaptured into the local PMS. The franchisor also hosts a web site through which bookings may be made by the public directly. These bookings are emailed to the hotel upon confirmation by the guest.
A booking typically progresses through several channels before it reaches the hotel. Costs are typically levied by each channel. For example, when a guest makes a booking through a travel agent, fees are payable to the travel agent, the GDS and the franchisor. The GDS fee is a flat transaction fee priced in US dollars. Thus Rand-Dollar exchange rate fluctuations impact the profitability of transactions received from travel agents.
There are inherent risks associated with the movement of transactions through the channels. Sometimes transactions get lost. On occasion it has happened that bookings recorded by the GDS did not reach the hotel, to the dismay of guests.
There is opportunity for personal negotiation when a reservation is made at the hotel directly, instead of reaching the hotel through an electronic channel. For example, the rate may be negotiated based on the client’s lifetime value to the hotel. Electronic channels do not take this into consideration at all. Furthermore, when a booking is made at the hotel directly, information related to the guest’s last stay (date of last stay, room last stayed in, rate paid) informs the reservation function, thus making it possible for the same room or same rate to be offered to the prospective guest. The depersonalisation of the reservation function through electronic booking mechanisms is viewed by the hotel management as a significant disadvantage of these technologies.
Every effort is made to quantify the value of business received by originating distribution channel, travel agent, government department, company and guest in order to pinpoint profitable sources. This information is then used when devising special promotions and discounts. These are seldom made available on a general basis. The policy is to restrict special offers to very specific market segments.
While the owner makes every effort to track the cost, as well as the return on technology (e.g. the increased revenue from internet sales), the owner has indicated that no conscious effort is made to apply technology beyond the purpose for which it is acquired and that technology is probably not exploited to its fullest.
New hardware was acquired to keep pace with software acquisitions. Today 23 terminals spread across the three hotels provide access to the PMS application. A dedicated computer room, serving all three hotels, is located in Hotel A. This room is home to the dedicated application and database servers that host the PMS, the software controlling the network of security cameras and the wireless Internet control software. The installation is maintained by a freelance network technician contracted by the hotel on an ad-hoc basis. Problem resolution and maintenance of the PMS is performed offsite via ADSL line. This approach eliminates travel costs and expedites resolution.
The physical security of application data is ensured through regular backups. The PMS performs automatic data backups on a daily basis as part of its end-of-day routine. Once a month offsite backups are taken. On an annual basis, databases are cleared of redundant data, following a complete system backup that is kept in the hotel safe.
Thirty staff has access to the PMS. Each user is uniquely identified by the system.
Comprehensive audit trail functionality ensures that all transactions are tracked. Access profiles allow system functions to be restricted to designated user classes. This prevents sensitive functions from being performed by unauthorised personnel. For example, the receptionist cannot process refunds.
Various KPI’s (Key Performance Indicators) are tracked on a daily basis. Important KPI’s that relate to operational efficiency are the occupancy level, the average rate charged per room, the revenue per guest and the channel cost per reservation. Control over operations is maintained by monitoring the cost of food and beverages sold as well as the number of guest supplies issued.
Reports reflecting these key indicators are generated automatically on a daily basis and are emailed to nominated recipients. These reports enable offsite management and tracking of all aspects of the hotel’s operations and are a valuable management tool.
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