While serving as a hotel asset manager, I always dreaded the annual capital expenditure process and budget meeting.
Because the assets I oversaw were mainly branded, it was always a surprise with what new technologies the brand headquarters were going to roll out. I never seemed to know what software was becoming outdated, what new hardware or software would need to be purchased, and there was always an endless list of nickel-and-dime items that needed renewals or upgrades. Those expenses could range from $5,000 to over $100,000, which initially caused me anxiety and fear mainly because I was making purchasing decisions about technologies that I was either unfamiliar with and in many cases would never use. Therefore, it was extremely difficult to evaluate the effectiveness of the technology, measure increased efficiency and understand the overall return on investment.
Over time, those annual meetings became more relaxed and less intense because I took some time to better understand the technology acquisition process and learned to ask the right questions. In general, branded hotels must adhere to the brand’s technology standards, but independent hotels need to keep up with technology, as well, if they are going to remain competitive. For anyone involved in technology procurement, I strongly recommend developing a technology plan to be reviewed at least twice a year or, preferably, once a quarter.
Decision makers — generally the ones writing the checks — need to accept that almost every department on a hotel’s profit-and-loss statement is going to require some type of technology. The plan should start with a review of all hotel departments and ask what technology does the department already have and what may be required in the future. This step alone will help ease some of the anxiety associated with the process. A hotel may not have the budget to procure technology with all the bells and whistles, but at a minimum, leaders should be aware of what is on the market and thinking about future investments.
It is important to remember that there are three core elements involved with information systems: People, processes and technology. I have found decision makers tend to only look at functionality, integration and cost, often with cost being the primary driver. Rarely have I found questions being asked about the skill set required of the individuals using the technology, how much training will be required and what organizational processes will need to be put in place to maintain and manage the technology in the long run. Privately, I have a long list of technologies that hotels have purchased or subscribed to that are never used. This is usually because the people that are supposed to use those systems have never been properly trained, a process has not been put in place to support the technology, or even worse, when new employees are onboarded, they don’t even know the hotel has a specific technology — especially new managers or department heads.
Before asking the price of a technology, procurement managers need to think about people and training requirements. Managers should ask if the technology is intuitive or does it require in-depth training to use. I can think of a simple property-management system that works great for small hotels that I was able to navigate very easily with no training versus a much more complex PMS system that I spent no less than 40 hours of training to understand. Hours of training required to operate a technology should also be calculated into the overall purchase price. For example, assume a hotel is implementing a new PMS system and has 10 front-desk agents making $12 per hour. Now assume the training, either classroom or computer-based, takes 20 hours to complete, that would be an additional $2,400 of payroll expense, plus employee benefits and taxes, for just the front desk alone. While accounting rules vary depending on the hotel and management company, consider adding the initial set up and training wages as part of the overall CapEx expense in the project cost, especially if the technology is being financed. In general, ownership would prefer to avoid adding these expenses in the CapEx budget, as it artificially inflates GOP and increases management fees for operators that earn income as a percentage of the GOP. Nonetheless, it is worth the conversation. Segregation of wages is also critical when considering year-over-year comparisons and departmental productivity ratios (like CPOR).
Ongoing support is another critical area that must be considered when contracting long-term technology agreements. Due to COVID-19, one major central reservation system provider started cutting support staff and is slowly losing market share because they can’t quickly solve a customer’s problem. When a hotel has a distribution issue with its CRS, the property cannot wait for a phone operator — I use this term deliberately, because they often have no skill set to solve the problem — to write up a ticket and then wait five or six days for a response. Every minute the hotel has a distribution issue is a potential loss of revenue. Some CRS providers do a great job of answering the phone quickly and solving problems in the context of the call. Others do not. Understanding ongoing support issues and a provider's reputation is important when making evaluations of technology providers.
Hardware is another noteworthy piece of the puzzle. Servers add to the cost of the project as they can break and may need costly repairs. If this happens, how long will a property be down before the problem can be fixed? Fortunately, many technology providers are moving to cloud-based systems, which speeds up implementation, and upgrades can often be carried out without an interruption to property operations. However, cloud technology can add security risks and makes the discussion of data safety protocols a critical part of the conversation. Consumer protection laws are evolving around the globe, and failure to protect guests’ data could create liability problems not only for the data provider but for the hotel itself. Asset managers may also want to talk to their insurance providers about adding data breach protections to their liability policies and better understand their risks of exposure.
When developing a technology plan, it is important to involve department heads and other stakeholders. Consideration should be given to who has access to a system and when they will need access. Many vendors charge for licenses, and this too can be a layered question. For example, a vendor might say that hotel can have 50 users, but you only need to buy five licenses. This means that although there are 50 different logins, when the sixth person tries to log in, they will not be able to, because all five licenses are in use. System integration can play into this conversation, as well, because if the PMS talks to the CRS, they may both need a license for mutual access. I also recommend developing an integration map — and keep it updated — to understand what systems “talk” to each other. Ultimately, the key question here is to ask what time of day will the maximum number of people — or other systems — need to log into an application, what level of access do they need and how many licenses will be required?
The hotel should keep an updated secure log of who has access to what systems and understand how many licenses are being used and when. The log should be formally reviewed by operation managers at least once a month. Several years ago, I had responsibility for a branded property, and during an internal audit, we discovered numerous email accounts of individuals that no longer worked for the hotel. With this particular brand, they charged $5 per month per email account. In our audit, we found emails of 23 former employees with active email accounts. Not only was this a security risk, but the property was paying over $1,380 in unnecessary fees for email accounts that were no longer used. Managers need to understand the details of every expense associated with technology and root out hidden costs that can drive up the overhead of technology operations.
As you develop your technology plan, there will be numerous more questions to consider and answer. One thing is for sure, however: Technology is not going away. Hopefully this gets you thinking about the bigger technology picture and motivates you to develop a plan so you can master the consumption of technology solutions.
William P. Perry Jr. is a hotel professional with a highly diverse background whose career spans more than two decades both domestically and internationally with major hotel brands including Ritz-Carlton, Marriott, Hilton, St. Regis and Conrad. He currently serves as a Director of Revenue Strategy for Revenue Matters.
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