THE COST-BENEFIT RATIO OF PURCHASING IT INFRASTRUCTURE IN HOTELS

IT infrastructure is a major investment for a firm and the value of IT infrastructure in today’s organizations is of growing importance. If the firm spent too much on infrastructure, it lies slow moving and is regarded as drag on firm financial performance. If the firm spent too little, the important business service areas cannot be delivered and performed, thus, firm’s competitors may outperform the underinvesting firm. Duncan (1995) as cited in Byrd and Turner (2010) defined IT infrastructure as a set of shared, tangible IT resources forming a foundation for business applications. IT infrastructure includes hardware, software and services that are shared across the entire firm. However, from the service perspective, it is defined as providing the foundation for serving customers, working with vendors, and managing internal firm business processes. In this sense, IT infrastructure focuses on the services provided by all the hardware and software. IT infrastructure is a set of firm-wide services budgeted by management and comprising both human and technical capabilities. Major IT infrastructure components include computer hardware platforms, operating system platforms, enterprise software platforms, networking and telecommunications platforms, database management software, Internet platforms, and consulting services and system integrators.

Over the past two decades, IT has been promoted as one of the resources that organizations could use to gain a competitive advantage (Byrd and Turner, 2010). IT infrastructure would be able to support the design, development, and implementation of business applications. In hotels, owners invest million dollars in IT infrastructure to ensure they are capable to enhance the organization performance. Hospitality industries have identified effective implementation of information technology as a vital component of the effort to promote and achieve their goals for successful description, promotion, distribution and delivery of hospitality products and services and have demonstrated a positive and significant relationship between the use of IT and the development of a competitive advantage (Ham et al., 2005). Moreover, IT investment has been found to contribute to increased company productivity and performance (Fink and Neumann, 2009). Metcalfe’s Law helps explain the mushrooming use of computers by showing that a network’s value to participants grows exponentially as the network takes on more members. As the number of members in a network grows linearly, the value of the entire system hypothetically continues to grow forever as members increase.

When a hotel decides to purchase IT infrastructure, they need to focus on the six elements underlying it. These competitive forces model can be used to determine how much to spend on IT infrastructure and where to make strategic infrastructure investments, starting out new infrastructure initiatives with small experimental pilot projects and establishing the total cost of ownership of information technology assets. First, market demand for the firm’s services (Laudon and Laudon, 2010). A hotel needs to make an inventory of the services they currently provide to customers, suppliers and employees. Second, the firm’s business strategy in which to analyze the firm’s five-year business strategy and try to assess what new services and capabilities will be required to achieve strategic goals. Third, the firm’s IT strategy, infrastructure and cost. The firm needs to examine the firm’s IT plans for the next five years and assess its alignment with the business plans. It also would require determining total IT infrastructure. Fourth, IT assessment in which the firm needs to identify the capabilities of the new technology established. Fifth, competitor firm services in which the firm needs to try to assess what technology services competitors offer to customers, suppliers and employees. This would help them to benchmark and identify the strategy used by their rivals. Sixth, competitor firm IT infrastructure investments in which benchmark expenditure for IT infrastructure against the competitors.

Basically, there are main areas that lodging industry look into when it comes to invest in IT infrastructure. It includes front-office applications, back-office applications, restaurant and banquet management systems, and guest-related interface applications (Ham et al., 2005). Hotel operator should underline the importance of these areas because it is vital in order to ensure the hotel perform according to the established standard. Much more attention should be paid to IT infrastructure because of constantly changing condition, especially in the current situation hotels are forced to deal more effectively with the speed and competition and increasing customer expectations.

Today’s guests arrive at a hotel with a high level of expectations. Whether they are traveling on business or on vacation with the family, they are all coming from an environment in which communications technology is an integral part of their daily lives. As a result, they expect that they will be able to stay connected with their business and social networks wherever they are, especially in a hotel environment that is supposed to be designed not only to be their home away from home, but also to offer new services, experiences and conveniences. That means today’s guests expect to be able to use their smartphones and notebook and netbook computers to maintain business and social connections over high-speed Internet access whether they are in their room, in the lobby or anywhere else on the property. A hotel’s existing infrastructure should be able to meet all these expectations today. Designed properly with proven technologies it should be able to exceed these expectations.

Firms will move from focusing on their own shareholder value by optimizing IT infrastructure and functions within their organization to maximizing business and shareholder value for all the firms across the supply chain through shared IT architecture, open source, applications, systems, services, and business processes (Collins et al., 2006). As for hotel operators, they need to compete to acquire the competitive forces model for IT infrastructure investment to create a strong foundation in order to develop their business strategy. Recently, hotels use Fidelio, a property management system used in many large hotel chains. It can essentially be the only management software a hotel needs, as it can handle reservations, customer profiles, housekeeping management, maintenance logs, cashiering, accounts receivable, agent commissions and third party interfaces such as minibar systems or guest television. Arrivals and in-house guests are served using the front desk features of the property management software. This system handles individual guests, groups, and walk-ins, and has features for room blocking, managing guest messages and wakeup calls, and creating and following up on interdepartmental memos. The impact and importance of IT in the infrastructure of the hospitality industry have had solid strategic implications for industry leaders (Ham et al., 2005). This shows that the investment on IT infrastructure has been discovered as competitive advantage in operating a hotel business. Furthermore, it would ease to manage the operation by adopting the software that would be required to achieve strategic goals.

However, cost of investing on Fidelio or other IT infrastructure may increase the firm’s expenses as it involves a high expenditure to be developed. One of the greatest issues regarding the advancement of technology in the hospitality industry is the difficulty in calculating return on investment. When the timing of the cash flows is unpredictable, and when the investment is perceived as risky, hotel operators will most likely channel their investment capital to projects with more certain returns and minimal risk. In contrast, efforts must be made to change this thinking and to develop financial models that can accurately predict and capture the financial benefits derived from technology. But, a firm does not necessarily need to spend as much as the competitors. Perhaps it has discovered much less expensive ways of providing services and this can lead to cost advantage (Laudon and Laudon, 2010). A long-standing issue among firm has been the question of who will control and manage the firm’s IT infrastructure. In contrast, when the firm does not invest in IT infrastructure will experience poor performance and losing market share and in future might be left behind as the competitors move forward. A related question is whether a firm should purchase its own infrastructure components or rent them from external suppliers. Siguaw and Enz (1999) as cited in Chathoth (2007) highlighted the use of IT systems in the hotel industry that firms implemented during the 90s in which stated that in a hotel, the customer–firm exchange takes place when the guest interacts with the hotel system during the pre-arrival, arrival, stay, and departure phases.

Hotels spend a considerable amount of money and time to build IT infrastructure. However, a large number of companies have not achieved their expected returns from their IT investment and they seem to drop into “IT black hole” (Xianfeng et al., 2008). Generally, customer service has been widely recognized as one of the main areas in which a hotel’s product can be differentiated from its competitors. This is the area most hotel focuses on to ensure they remain competitive among competitors and gain competitive advantage. In fact, the implementation of IT systems has resulted in decreased costs, greater productivity and increased revenues in the lodging industry, improving customer service and business operations (Ham et al., 2005). Hotel employees are positioned to assess increases or decreases in hotel performance due to their involvement with the implementation of IT applications to achieve their goals. However, hotels have been slow to implement new technology since the average firm in the industry has implemented new technology-based products and services several years after the technology was first introduced to the market (Chathoth, 2007).

In light of the above discussion, there are major challenges in developing IT infrastructure include dealing with platform and infrastructure change, infrastructure management and governance, and making wise infrastructure investments. Solution guidelines include using a competitive forces model to determine how much to spend on IT infrastructure and where to make strategic infrastructure investments and establishing the total cost of ownership of information technology assets. The total cost of owning technology resources includes not only the original cost of computer hardware and software but also costs for hardware and software upgrades, maintenance, technical support and training. These technologies enable lodging industry to deliver advanced guest-centered services immediately and position their facility for the future.

REFERENCE

Byrd, T. A., and Turner, D. E. (2010). An exploratory examination of the relationship between flexible IT infrastructure and competitive advantage. Information & Management, 39, 41-52.

Chathoth, P. K. (2007). The impact of information technology on hotel operations, service management and transaction costs: A conceptual framework for full-service hotel firms. Hospitality Management, 26, 395–408.

Collins, H., Gordon, C., and Terra, J. C. (2006). The information technology infrastructure dimension. Winning at Collaboration Commerce, 107-132.

Fink, L., and Neumann, S. (2009). Exploring the perceived business value of the flexibility enabled by information technology infrastructure. Information & Management, 46, 90–99.

Ham, S., Kim, W. G., and Jeong, S. (2005). Effect of information technology on performance in upscale hotels. Hospitality Management, 24, 281–294.

Laudon, K. C., and Laudon, J. P. (2010). Management Information System: Managing the digital firm (11^th ed.). Pearson: New Jersey.

Xianfeng, Q., Boxiong, L., and Zhenwei, G. (2008). Conceptual Model of IT Infrastructure Capability and Its Empirical Justification. Tsinghua Science And Technology, 13(3), 390-394.