Opportunity presented by globalization for hospitality related industry

Under the umbrella of hospitality industry, media & entertainment industry, food & beverage industry, airline industry and travel agency industry are typical service industries which can apply cloud computing.  They can be niched and share the same supply chain to increase the business opportunity with each other.

Opportunity presented by globalization

1.          No time lag on business

With cloud computing, the main benefit is users can access company service anywhere in the globe with network connection. Companies in different industries can be benefit from sharing information and company service by some self-developed internal software instantly without time lag through cloud. Also, it allows them to handle and resolve different requests from different places efficiently. For example, all industries can manage global online purchase and global supply chain by setting up a private cloud. The private cloud in headquarter can handle all request instantly without time lag from anyplace. Even the company has many different business location, cloud computing can reduce lag time in the business decision making in order to avoid business risk and increase utilization of working capital.

2.          Remote visualization

Remote visualization is a concept that visualize the data computed on server side with high computing power (Innovation, 2015). Therefore, the client terminals from user side can have less or no computing power but just visualize the result. With the service nature of hospitality, many of the staffs need to walk around to serve during duties. We can understand that it is not handy for a customer facing staff to use a full function notebook to handle customer requests. It would be more efficient to use handy device with efficient software which cater the service need. Remote visualization allows employees to access anywhere with network-connected tiny, handy device as cloud will perform all computing in the backend. The terminal of staff can be small with less computing power and longer operating time which can access anywhere in the world. It would be a nice service for business with multiple locations with high mobility.

3.          Increase outsourcing

Furthermore, globalization resolves the geographic limitation by increasing the ways of communication and not limiting just face to face format.  At the same time, cloud base server allows users to access anywhere, even offshore.  Therefore, some of the back-office duties can be outsourced or moved to the places with lower operation costs.

4.          Increase B2B collaboration

By collaborating supply chain perspective, business opportunities can be created through cooperation or strategic alliances between corporates.  While cloud computing can share the platform as a service to different users with a centralized work station, new services combination release.  For example, strategic alliances companies in different industries share the same booking system and offer different discount or loyalty programs for customers so as to increase one and others profit and lower maintenance cost.

Emerging innovation practice

Customer service quality is the core value in hospitality industry, while globalization speeds up the creation of new business model, customer co-creation, by combining the use of cloud technology.  For instance, customers were involved in the business process by making online reservation, flexibility to select and fulfill personal needs, wherever they are with handy intelligence device.  These experience emerges with cloud computing development.    

New knowledge management or organizational learning models

1.          Knowledge management

In the era of globalization, knowledge is being considered as one of the key drivers that provides company with business intelligence and competitive intelligence. Cloud computing provides new models of knowledge management and knowledge sharing, and enable people to develop set of practices to create, capture, share and use knowledge in a new way. Service industries are always facing the problem of growing need of IT and infrastructure to keep and manage customer information so as to improve customer service level. With cloud computing, SMEs aiming for service industry is also given the chance to have better ways of knowledge management and quicker access of knowledge sharing. As cloud computing can provide the right level of security for knowledge management, service-providing companies can achieve protection of customer information at the same time provide them with the most desirable experience. Hybrid cloud can help overcome organizational culture challenges by developing company culture that embraces learning, sharing, changing, and improving knowledge sharing.

2.          Organizational learning

When applying cloud computing to organization learning, it can also change the current situation through several ways. Could computing enabled organization with anywhere and anytime access to learning applications. It also help companies streamline learning delivery, enhance video and mobile learning access, improve management costs and efficiency, and most importantly, it gives users much more autonomy to its learning process. (Ramani, 2012)

Reference

Innovation, S. A. (2015, 4 18). Remote Visualisation. Retrieved from http://www.hpc.cineca.it/services/remote-visualisation

Ramani, R. (2012, 07 31). Six Ways Cloud Technology Will Impact Learning. Retrieved from clomedia: http://www.clomedia.com/articles/six-ways-cloud-technology-will-impact-learning

Sajid Ibrahim Hashmi, V. C. (2011). Using the Cloud to Facilitate Global Software . 2011 Sixth IEEE International Conference on Global Software Engineering Workshops, 70-77.

Cloud Computing in Hotel Industry

Introduction of Cloud Computing

Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction (Mell & Grance, 2011). With cloud computing, an individual or business pays only for the services they need, when they need and where they need, much as we use and pay for electricity and water. Unlike to past, companies needed to invest huge amount on hardware, software and networking system. They needed to employ IT technical people to maintain and develop according to their needs. They may have a system with excess capacities to cater future business expansion and they needed to save capital to roll out outdated system. However, for cloud computing, it is a concept that “Anything as a service”. Rather than acquiring a full set of system, companies can subscribe service from cloud with software service, storage, database, server functions or even computing power etc. So that companies can enjoy cost benefit by “Investment is Small, Benefits are huge” from cloud computing.

*For more technical information, please visit this website and watch videos below.

https://technet.microsoft.com/en-us/magazine/hh509051.aspx

The status of Hotel Industry

Hotel industry composes of different business: hotel, restaurants, event management and even entertainment. Hotel has different organization structure from other commercial sectors, as its main deliverable is service which is intangible.  For instance, it has department of front office, housekeeping, security and back office including HR, Finance and IT support.  The vision is to ensure sustainable growth, quality of service and customer loyalty. Therefore, it is important to provide customized services for guests while they experience a comfortable and safe environment at the same time and exceed customer expectations.

Hotel Industry with Cloud Computing

Hotel industry has been majorly affected by the economic turmoil.  Re-prioritizing the strategies and looking out for cost-effective and on-promise solutions should be helpful to capture the market opportunities (Cybage 2010).  It is very common for the consumers to reserve hotel rooms, facilities, (e.g. spa, restaurant, limousine) via on-line system.  Therefore, Cloud computing as a perfect tool for handling the large numbers of reservation all over the world.  In the meantime, connection or alliance with airlines, travel agency to be business partnership, cloud computing is very helpful to develop their business, for example, Cathy Pacific offering air ticket with hotel rooms for travel package in its web-site.  Customers relationship management (e.g. customers record as staying history across the chain, hobby), marketing, management in Front offices, reception, concierge, with cloud computing will be more efficiently.  

How cloud computing has impacted hotel industry

At the most recent Hospitality Industry Technology Exposition & Conference (HITEC), the theme upon cloud services and how they can revolution the hospitality industry demonstrated a shift towards accepting cloud computing as the norm which may shape the whole industry. Many real M&A cases in hotel industry also verify the popularity of offering cloud solutions for hotels, such as Priceline that acquired direct-booking marketer Buuteeq in addition to OpenTable and added cloud-based hotel property management system Hotel Ninjas to their roster (Coleman, 2014). The hotel industry has reached a turning point to realize benefits of upgrading from in-house enterprise software to cloud based system through cloud computing technology.

Cloud Computing Technology is no longer in its emerging phase, though the technology itself is still being innovated, and will further evolve in the future. It has changed the dynamics of many hotels not only by offering new approach for fast, on-demand and highly available applications in cost-effective manner, but also by providing support to functions ranging from business intelligence, customer relationship management, collaboration solutions to back office operations. More importantly, it endorses hotel industry with new competitive advantage.

Cost Saving

No Heavy Upfront Investment

Most of companies consider “cost” one of the most important factors for adopting cloud computing, which is especially true for small sized companies like hostels and motels. This cost advantage includes both upfront investment and operational cost. As it would be a huge investment on acquiring hardware with servers and all related software for a standalone system for the company, cloud computing platforms are based on subscription pricing, it can be viewed as pay-as-you-go service based on the usage instead of maintaining whole set of hardware and software. Therefore, companies can be free from the heavy infrastructure investment, in other words, it will be easier for start-ups to enter hotel industry. It lowered new entries barrier and excess investment costs on hardware and software as well as future cost of maintenance. It is so called  “Investment is Small, Benefits are huge”.

Reduced Operational Costs

Moving hardware from hundreds or thousands of individual hubs to cloud system not only means less upfront investment, but also less labor to manage since you don’t need to retain too many IT guys, less energy to cost since you don’t need to keep too many your own data center running, even less telecommunication costs within company as communication is done via cloud system. Real case such as La Quinta Inns & Suites, a limited service hotel chain that adopted cloud computing in 2007, its operating costs have been reduced by 50% and have saved 30% to 50% in telecommunications bills at each company-owned property (Sanghi, 2013).

Overall, cost savings for hotel industry by moving to cloud computing can potentially be very high. West has estimated that a range between 25% to 50% cost savings is realistic (West, 2010). While Tucker estimates that using the cloud service would potentially lower IT labor costs by 10% to 15% (Tucker, 2009).

Cloud-Based Reservation

Cloud-based reservation system becomes increasingly popular in hotel industry because it has huge potential to increase direct booking revenues. In recent years, more and more customers began to book hotels online, or via mobile, and are even eager to use mobiles or tablets to complete these transactions. 


According to a report on mobile bookings by L2 Think Tank, hotels are benefiting from the increasing booking via mobile. As 70% of customers prefer to book via mobile site compared with applications, which means that hotel brand name is considered importantly credible to customers, and hotels should consider how this experience informs the customer’s preference.

Better Customer Experience

Having a cloud-based reservation system allows hotels to capitalize on this trend, appealing to a customer that is only set to become more knowledgeable about online booking, which can be quite attracting especially to tech-savvy guests. For example, Choice Hotels International has rolled out its Web-based central reservation system, Choice Advantage, to more than 4,500 hotels throughout the world (Mayock, 2011). Besides revenue increases, hotels also rely on the capabilities of cloud-based reservation systems to provide them with competitive advantage over how they calculate rates and room availability.

Since cloud computing relies on sharing of resources and hotels can benefit from this sharing, further cost savings with high utilization on investment could be achieved from the creation of a shared, industrywide reservation system. This idea brought many big hotel groups such as includes Starwood Hotels & Resorts Worldwide, Marriott International, Hyatt and InterContinental Hotels Group together to explore the possibilities, as industry believe it can help share cost and enable all players in the shared system to use the system at the same level of application capacity and stability in terms of infrastructure and features, which otherwise won’t be possible without cloud computing technology.

Elimination of Downtime

One of the biggest unpleasant things that customers encounter in hotels, especially on busy weekends, is waiting at front desk for check-ins and check-outs. Those downtimes affect customer experience at a large extent. However, through better staff collaboration, cloud computing help hotels to provide more responsive service in an efficient way. Cloud computing like public cloud can have more reliable server and network directly linked to data centers with power protection in order to keep the up time more than 99%. It would be more reliable than owning a own server system. With cloud-based IT support, you have engineers and help desk service available around the clock, but not a fully staffed IT department.

Engagement with other Services

Cloud computing enables hotel industry engaging with various services: it help hotels to better integrate with cloud applications to provide customers with better services. For example, Force.com cloud computing platform provides built-in support to integrate with many other services such as Amazon, Google and other major applications.

Cloud computing makes it faster and easier to integrate and extend legacy environments as well as connecting to other cloud services. And because of the cloud multitenant architecture, integrations with these services will have no "break" during upgrades, which require intricate technology dependencies, and finally lead to vendor lock-in (Hopkins, 2011)

Customization of Customer Experience

Customer experience plays a vital role in hotel industry. A number of hotels have already begun apply cloud technology in order to improve overall customer experience in all aspects of business and consumer touch points.

With cloud shared information and  large storage resources, hotels can extract data and interpret it to help provide individual customer personal service within small amount of budget and limited extra time. Hotels can take advantage of social media and mobile data via cloud system to provide customers with customized service. For example, if customers book online, hotels can trace their individual preference and then prepare for their arrivals, even a cup of customized drink or small gift will definitely give customers a memorable experience. Or if hotels know customers’ general health condition, they can make customized food menu for room service, such as amount of sugar, calorie or cholesterol.

Cloud computing has major impact on the ways of how information and resource are dealt by hotel industry. Hotels that establish strategic partnership with technology providers and implementing a variety of solutions unique to your needs, hotels can avoid excess expenses and increase efficiency.

Strategic choices for hotel industry

In order to simulate different strategic approaches for hotel industry, we would like to adopt The Competing Values Framework (CVF) in our analysis. The framework is about understanding how to appreciate conflicting values and integrate them successfully so that an organization is open to collaboration and growth (Klein, 2015). Also, according to  Jeff DeGraff, the developer of the frame work, "Sometimes the most effective leadership decisions that enable innovation are more about stopping current practices than starting new ones” (Klein, 2015).

For create

Difficulty for create in hotel industry

In fact hotel industry is an industry with rules and traditions while the main deliverable were intangible products such as service. Good service can be positive aspect in the guest's perception of the hotel and its service (Saleh, F., & Ryan, C., 1991) which is not easy to manage as it is a kind of perception from customers. Therefore, it is limited on create side. It is not preferred to have creativity in this industry. So, the strategy would be more likely to be focus on improving current process by new innovation which gives differentiation from competitors on image and service. By using cloud technology, it can have a more efficient and user friendly system on maintaining booking details, customer information even handling customer special behavior over the world across the chain which can exceed customer expectation.

Strategy for create

For create, the system should be customer orientated and it cannot violate current service delivery as customer loyalty is the core value. The ideal system such as a cloud system can add value to current system which helps to save cost, improve efficiency and help to deliver more than customer expectation under current system.

For Collaborate

People

To have cloud technology in hotel industry, people would be an important factor to deal with. As the system will totally change after using cloud technology, there is resistance of change on employees as they need to be familiar with the new system. Also, not all staffs were educated enough to adapt cloud system in this industry. Some jobs such as cleaning and housekeeping may use no computer for their records but just pen and paper. It may costly to educate them to change their record system to computer. For IT department, as using cloud system may outsource the maintenance to external hosting company, they may lose their job in implementing new cloud system. Also, the external vendor may not be as reliable as recruiting owns IT staff who are readily available. Besides, to customer side, it may not easy to educate customers too. As some brand new hotel may put an all in one PC connected to cloud providing a comprehensive platform of TV, Internet, booking of service and hotel information. It would lead to service failure if the customer failed to turn on the TV inside the room.

Environment

For customer side, even cloud system with extensive media service is provided to them, the current system is still needed to be functioned since not every customers like to use those facilities. Not everyone preferred to use the cloud system to set morning calls, booking facilities and ordering meals. Some of them still expected all services can be delivered by just a phone call or delivered by so called “hotel service”. So there is not system can one size fit all.

For employee side, proper communication is needed for service delivery. Cloud technology can provide efficiency on maintaining information through the hotel or the chain. However, traditional communication among staff and direct communication is also needed to maintain well. It cannot rely on cloud computing too much.

For Control

The purposes for implementing cloud computing technology in hotel are to add value to customer service quality, scalability in terms of data usage and globalize business and enhancing corporate reputation and its social responsibility by green computing.  To achieve these goals, it is essential to control the resources and procedures throughout the process.

Cost

Cloud computing can be categorized into private cloud and public cloud (Schneider, 2012), while the set up cost and investment capital will be varied base on the choice.  Also, the infrastructure and the level of technical support such as required IT staffs are different.  Hence, it is needed to develop a comprehensive financial plan with considering these factors.

Security and Legal issue

Since the data are centralized at cloud server, it may eventually locate somewhere offshore (Jaeger, 2011).  If hotels use a public cloud service, data may be stored at external service provider which may led to security concern. As the data owner, it is important to ensure sufficient security measurement for protecting such important intangible property.  On the other hand, legal issue will be more complicated if public cloud server is used. Privacy is another point to beware when using the data to design the “customer behavior fit service”.  Otherwise, customers may feel offensive more than caring.

Human Resource Management

After implementing cloud computing into the hotel, the role of staffs is changed.  Employees shall act more like problem solvers than operators, knowledge required and code of conduct should also be changed with the new business model. Moreover, departmental headcounts shall be adjusted with the business needs.

Time

To respond to the market change quickly, management decision making should be fast.  On the other hand, it is important to allow sufficient time for the project itself and modification in later phases.  Also, the improvement in data transfer speed, operating service efficiency should be monitored.

For Compete

To standout in the hotel industry, it is important to manage customer relationship by providing excellent service quality with fastest pace. The short term goal is to modify the business fast.

Service Differentiation

Intelligent devices like smartphone, tablets are popular nowadays.  By combining cloud computing into those intelligent devices, it can extend into central reservation system, property management and even in-house entertainment. By increasing customer satisfactory and exceeding customer expectations, it helps to retain loyal customers and therefore business sustainability.

Scalability

Cloud technology enables greater data storage size.  Hotels can make good use of the big data to analyze customer behaviors, so as to design corresponding marketing strategies and maintain customer loyalty in the long run.

Corporate Social Responsibility

Cloud technology is a typical example of green computing. It can replace and reduce the use of hardware by centralizing the content (Nidhi Jain Kansal, January 2012) and hence the energy used.  Once prestige reputation is gained, it is considered as an alternative marketing promotion for the hotel.

Managing Cloud technology in Hotel industry

In summary, Managers need to understand the nature of the industry and the nature of the new technologies.

Access the Change

To summarize the management view, managers need to think on both employee side and customer side to see if the new cloud technology workable or not. As service quality is the core value of hotel industry, it would be more expensive to get a new customers than retain the current customers. So, they should access the risk of service failure due to the new cloud technology. The availability of technical support from cloud service provider as well as the reliability of cloud service would be critical. Beside, how to implement proper control is also important. As cloud technology will use network system, the internal network system needed to be stable and reliable to access cloud service. In addition, network system of cloud computing will increase the concern on data and privacy protection within hotel internal and external network. Lastly, choosing a right form of cloud computing service to suit the business needs and all concerned factors would be strategical for managers in order to achieve highest cost and benefit.

Suggestion

In order to maintain the service quality and customer expectation, we suggest running the new cloud system with existing computing systems in parallel before adapting the new technology. Also, as it would be very costly for a service failure for this industry, in order to avoid service failure, it would be favorable to set up contingent plan when the cloud technology fails.

InterContinental’s strategic approach in adopting and building on Cloud Computing

InterContinental Hotels Group, short for IHG, is the world’s largest hotel group by number of rooms that it owns and manages. IHC has franchises over 4,400 hotels in over 100 countries and operates seven hotel brands, including InterContinental, Hotel Indigo, Crowne Plaza, Holiday Inn, Holiday Inn Express, Staybridge Suites and Candlewood Suites. What’s more, it has the world’s largest hotel loyalty program which is Priority Club Rewards with 48 million members worldwide. IHG is a very active hotelier in planning the roll-out of cloud-based server solutions in recent years. According to IHG’s worldwide Chief Enterprise Architect Bill Peer, Cloud computing provides the company with a tenable utility-type computing model. Considering company’s specific business strategy, IHG has its unique strategic approach built to identify major business issues when applying cloud computing.

Develop “Hybrid” Cloud

Security is one of the major issues that hamper the growth of cloud. However, in hotel industry, the benefits that companies can gain from cloud overweight the risks that they may suffer from. It’s important for companies to define the boundary of how far it can go with cloud technology.  As cloud computing has three model, including public cloud, private cloud and hybrid cloud. Ultimately, IHG chooses hybrid cloud computing that blends an in-house cloud data center with public cloud services from providers.

According to Bill Peer, VP of Enterprise Architecture of IHG, there is still risks existed that once a cloud is compromised, other clouds will also be compromised. Since IHG don’t want to take this kind of risk with its brands, and committed to put customer information as one of its key business priority. IHG adopted cloud computing by allowing a system to run in the cloud that provides rate information for hotels than anything with our customers’ information. In this way, even there is a cloud breach happens, the impact will not be that huge as there at least won’t be any customer data. (Peer, 2010)

By applying hybrid cloud model, the company’s strategy is to work both on “private” cloud and public cloud services. IHG builds its private cloud environment to move its core customer relationship management systems off its previous mainframes and onto industry-stand equipment. In private cloud, there are scalable resources and virtual applications that provided by cloud vendors can be put together and can be available for cloud users to share and use. But it differs from public cloud in that all the cloud resources and applications are managed by IHG itself. In this mode, utilization of private cloud can be much more secure than that of public cloud because of its specified internal exposure.

On the other hand, IHG still takes the best advantage of pubic cloud to manage other types of information, such as rates and resource availability which is sensitive to changing demand. The company strategically leveraged cloud to manage its complicated in-house system, making system information be updated within a very short time. Indeed, it is also one the reasons that the company decided to move most of its UK properties to the cloud, then it can update hotel prices in real time across all hotels within the group with a simple click. Besides, IHG is using public cloud infrastructure for application development and testing, trying to make web content closer to customers worldwide (Babcock, 2011)

Since InterContinental Hotels Group is a franchise-based business, the company works especially hard to operate its business in the most cost effective way, and cloud computing technology can practically help IHG meet this business objective.

Lastly, again quote Beer Peer’s words “IHG’s need grows as more hotels fly the IHG flag and as more people stay at our hotels, and will result in more revenue to the business to accommodate the computing needs. Cloud computing is a wonderful financial and computing model that, done correctly, can scale together without bound.” (Peer, 2010)

Conclusion

For traditional industry like hotel industry, it is service and people oriented. In order to manage emerging technology to this industry, cloud computing proofed to be the one with high flexibility and high compatibility. As cloud computing provide “Anything as a service”, management of hotels can acquire specific service to suit their business need but not invest excess hardware and software. However, as cloud computing was provided by external service provider with specific service, they also needed to access their business needs, accessibility, availability and risk on choosing suitable service and service provider.

Reference

Babcock, C. (2011, 01 14). 4 Companies Getting Real Results From Cloud Computing. Retrieved from informationweek: http://www.informationweek.com/4-companies-getting-real-results-from-cloud-computing/d/d-id/1095455?

Coleman, R. (2014, 07 09). The Cloud In Hospitality Technology: Not Just A Trend! Retrieved from stayntouch: http://stayntouch.com/cloud-hospitality-technology-just-trend/

Hopkins, G. (2011, 06 02). Why the Cloud is Right for Hospitality. Retrieved from hospitalitynet: http://www.hospitalitynet.org/news/4051622.html

Jaeger, J. (2011, March). Cloud Computing Poses New Risks, Opportunities. Retrieved from www.complianceweek.com: WWW.COMPLIANCEWEEK.COM/ 888.519.9200

Klein, M. (2015, 04 11). Create, Compete, Control, Collaborate. Retrieved from http://upstatebusinessjournal.com/innovate/create-compete-control-collaborate/

Mayock, P. (2011, 08 19). Hotels find savings, other benefits, in the cloud. Retrieved from Hotelnewsnow: http://www.hotelnewsnow.com/Article/6249/Hotels-find-savings-other-benefits-in-the-cloud

Mell, P., & Grance, T. (2011, 9 1). The NIST Definition of Cloud Computing. U.S. Department of Commerce National Institute of Standards and Technology.

Nidhi Jain Kansal, I. C. (January 2012). Cloud Load Balancing Techniques : A Step Towards Green Computing. IJCSI International Journal of Computer Science Issues, Vol. 9, Issue 1, No 1, 238-246.

Peer, B. (2010, 04 21). The Intercontinental Cloud. Retrieved from cleverhotel: http://www.cleverhotel.org/resource/interview/intercontinental-cloud

Saleh, F., & Ryan, C. (1991). Analysing service quality in the hospitality industry using the SERVQUAL model. Service Industries Journal, pp. 324-345.

Sanghi, M. (2013, 08 05). 2013: The Biggest Year Yet For Cloud Computing in Hospitality. Retrieved from capterra: http://blog.capterra.com/2013-the-biggest-year-yet-for-cloud-computing-in-hospitality/

Schneider, A. (2012). The Adaptation of Cloud Computing by the Hotel. UNLV Theses/Dissertations/Professional Papers/Capstones.

Schneider, A. (2012). The Adaptation of Cloud Computing by the Hotel Industry.

Tucker, L. (2009). Introduction to cloud computing for Startups and Developers. San Francisco: CA Sun Microsystems Inc.

West, D. M. (2010, 04 07). Saving Money Through Cloud Computing. Retrieved from brookings: http://www.brookings.edu/research/papers/2010/04/07-cloud-computing-west

HD-DVD Failure

Company profile

Toshiba Corporation is a diversified manufacturer of electronic devices and home appliances. Its product portfolio includes information systems and communications equipment, power systems, electronic components and materials, industrial and social infrastructure systems, and household appliances. Toshiba expanded through strategic acquisitions.  Also, they actively participated in R&D so as to maintain competitive advantage. However, it has to face intense competition within the industry in different area like price, quality, product image, technology innovation, reputation, supply chain distribution and product variety.

Introduction of DVD format

In the digital world that Toshiba situated, competition was not as simple as the period of Betamax competed with VHS. After VHS was weeded out, DVD became the next successful commercial format that all the hardware manufacturers were willing to compromise on avoiding another format war by that time. The standard DVD format was first launched in 1995, Hitachi, JVC, Matsushita, Mitsubishi, Philips, Pioneer, Sony, Thomson, Time Warner, and Toshiba participated in the game.  To stand out from the competitors, manufactures tried to diversify the DVD content.  Many DVD videos have   menu with different options for consumers to make their own choices. The user preference of the audio configuration should be compatible and best fit with the existing home system of users. In order to enhance consumers experience, many DVD videos also contain additional features such as extra language options, sound track control, outtakes from the original filming, etc.

In fact, audiences care about video quality the most. Video quality is highly correlated resolution, which is stated by the number of pixels that make up the image on the screen.  Therefore, studios considered improving video quality and creating remarkable visual experience  as their new challenge.

Timeline for emerging of HD-DVD

In 2002, the emerging of DVD did not only gain great success in technological innovation, but also changed the movie industry.  Due to the emerging of DVD, many US audiences changed their habit by collecting movies DVD rather than just hiring videos from Blockbuster or going to theater (Brookey, 2007).  Hence, studios temped to increase profitability by reproducing the same film content into several ways.  Besides, the profit of selling DVD is more attractive than that of video rental.  To enhance picture quality and storage capacity, global studios collaborated into DVD market by seeking compatible format.  Toshiba foresaw the potential business opportunity once it won the battle of second generation of DVD format.  It believed that high-definition (HD) format has the price advantage than others.  Therefore, Toshiba worked on developing HD-DVD.

From 2003 to 2008, Sony and Toshiba started a next generation DVD standard battle with each other, aimed at controlling over the next generation video format. Sony’s Blu-Ray technology was backed by a consortium that included Philips, Matsushita, Hitachi, and others. In contrast, Toshiba HD-DVD was supported by the DVD Forum, making it the “official” successor to the DVD format. Both companies aligned with major movie studios and video game consoles to promote their standards.

How the HD-DVD development influenced by the globalization process in their innovation process

Toshiba is the adaptive follower on DVD development while she is the innovator of HD-DVD technology. After Sony announced Blu-ray technology in 2000, Toshiba unveiled its HD-DVD player at the computer electronics show in the following year. The HD-DVD technology was based on DVD technology but with blue laser, and DVD production facilities could easily and economically convert to HD-DVD disc facilities. However, data encoding differed in two ways and Toshiba could not obtain the first mover advantage in the new disc format war. So in the innovation process, they considered different factors to make HD-DVD sustainable.

On market price and adoption

According to Cozzarin, Lee & Koo (2012), Toshiba launched the HD-DVD player for US$936 in 2006 in response to the Blu-ray player introduced in 2003 for US$3,815. With the help of a lower price strategy, more HD-DVD players were sold than Blu-ray players. But the format war moved to the war between new generation of game consoles globally, Sony has included Blu-ray in PS3 console with video player function to increase the adoption of Blu-ray hardware to battle with HD-DVD. In contrast, HD-DVD supported by Microsoft, launched HD-DVD player on XBOX 360. Comparing to Sony, this HD-DVD player is an optional item for XBOX 360. So, it merely relied on how consumers interested in HD technology and hence to acquire the HD-DVD player. In one sense, Blu-ray player would have an advantage on market share from sale of PS3 gaming console.

On technology side

HD-DVD is not a brand new technology but an enhanced DVD format. As mentioned, DVD production facilities could easily and economically convert to HD-DVD disc facilities. Also in comparing storage size, HD-DVD has disadvantage comparing to Blu-ray on 15GB in single layer disc vs 25 GB in single layer disc. So, HD-DVD would be less attractive to stakeholders who supporting the most advance technology. Toshiba would like to use cost strategy to provide a cheaper entry cost to both manufacturers and consumers to enter the market.

On product market competition

Toshiba faced major challenges on acquiring support from global hardware producers, movie studio and retailers. To let HD-DVD to become major media on HD discs, Toshiba need to gain support from other hardware producers and movie studio in order to have higher bargaining power in the market. At start, Toshiba do a great job while Paramount, Studio Canal, Universal, Warner Bros support HD-DVD and release their title in HD-DVD format. Also famous hardware firms like LG, Samsung, Toshiba release HD-DVD related hardware for home use. Toshiba did a good job on market analysis and good strategy on entering the HD discs battle with Blu-ray disc.

Industry analysis that Toshiba situated by Porter’s Five Forces

Industry Rivalry

The threat of industry rivalry is high.  There were several global home applicant manufacturers like Samsung, LG, Philips, Sony, etc., which produced DVD player.  At that time, Sony was main competitor of Toshiba who only supported Blu-ray format.  Moreover, Sony extended its Blu-ray technology onto its video game market while PS3 used Blu-ray as standard format.  Though Microsoft Xbox 360 agreed to use HD-DVD as HD format, its coverage was comparatively smaller due to its greener history and HD-DVD drive was optional accessories.

Moreover, there were indirect rivalry like Apple and Sun.  According to Dilger (2008), Microsoft was still a magnificent proprietor in the PC industry. The action of Microsoft chose HD-DVD as external drivers of its computing devices actually irritated Apple to fight back by speeding up to increase its market share in small handheld computer industry.

Bargaining power of supplier

As mentioned above, Toshiba collaborated with Microsoft so that Xbox 360 supported HD-DVD as HD video format.  Additionally, Warner Brothers, Universal and Paramount signed the exclusive agreement with Toshiba on releasing HD content.  All these global corporates were huge and maintained influencing power at the industry.  They relied on Toshiba for completing its product cycle in terms of DVD production. On manufacturer side, DVD production facilities could easily and economically convert to HD-DVD disc facilities. The switching cost of existing DVD or its facilities manufactures are relatively low.  Therefore, the bargaining power of suppliers is moderate to high.

Bargaining power of customer

The prerequisite of HD-DVD is having HD TV.  Besides, the first generation of DVD released in 2002 while Toshiba announced and released HD format in 2006.  Consumers might need time to digest for another technology change.  Another feature of HD-DVD is its compatibility for playing lower format, so that consumers need not to throw away first generation DVD when using HD-DVD player.  It has both pros and cons in terms of upgrading DVD player to HD one. Besides, the cost of HD-DVD hardware is relative low comparing with Blu-ray hardware. That is why the bargaining power of customer is moderate.

Threat of substitute

Apart from different format of DVD, there is various kind of substitute such as different entertainment, video games, online video streaming, even iPod.  As substitutes always exist and it might not be the main threat in this case.  Additionally, not all customers were interested in HD formats since some people think lower resolution satisfied their needs already. Besides, for visual and audio lovers or high end consumers, they would prefer the most high-tech technology like Blu-ray but not HD-DVD as they always looked for advanced technology and the best quality. Therefore, the impact of substitutes is low to moderate.

Threat of new entrants

Due to the lack of standardized DVD format, manufacturers put on hold for further invention until the winner of such battle became clear.  Though both HD-DVD and Blu-Ray has supporters, except Toshiba, they won’t put all eggs in the same basket.  Manufactures would either adopt both format into its devices or even pend the production plan.  In fact, it is a huge investment cost to invent a new disc format.  It might be difficult for the third DVD format to stand out.  The threat of new entrants is believed to be low.

Product Curve for HD-DVD

In the Product Curve model, DVD was reached the technological limit as it cannot support HD video in capacity which was the left curve in the figure. HD-DVD and Blu-ray was the new technology which was the right curve in the figure. In fact, HD-DVD was lack innovative as an incumbent technology. Even Toshiba has used a lot of resources to invest, HD-DVD has got some support from studios, producers and consumers in ferment period. But after a period of time of active competition with Blu-ray, it failed to market itself well. So, it get lose in the format war and exit the market. Since Toshiba discontinued HD-DVD product line. HD-DVD faded out from the market in a very short period of time like the red arrow shown.

Technology Forecast done by Toshiba and Why Toshiba failed in developing HD-DVD

One of the main reasons for the fail of HD-DVD was the wrong market strategy set by Toshiba.  HD-DVD was not an innovative product but modified DVD technology with blue laser. At first, Toshiba would like to develop a new format with low price and cost which satisfied high definition requirement  It enhanced current DVD technology in order to achieve lower conversion and development cost.  Since Toshiba wrongly defined such incumbent technology as radical one, it focused on pricing strategy, increase market penetration and reduce consumer resistance to new technology. These are traditional marketing strategies while new market or customer groups have not been created.   In one sense, the marketing and R&D costs could not spend effectively.

Larger capacity and higher resolution requirement are the trend of the market. Therefore, the technology of larger capacity should be more welcomed by the studios. Toshiba adopted the strategy of low price with larger capacity than DVD and high enough definition videos.  However, it put all effort on and focused on consumer market penetration, i.e. it has selected wrong data and made wrong beliefs with bias among the ‘ladder of inference’. Also,  Blu-ray comparatively has smaller size but larger capacity , As a result, HD-DVD provides less room for initiating innovative software and variety contents itself. Without nailing appropriate product development scheme, it could not sustain and technological limitation  eventually affected HD-DVD performance by which could not attract studios and high end consumers.

On the other hand, Toshiba was worse performed on its marketing aspect compared with Sony. Sony included Blu-ray in its PS3 as the main media format which served as the best valued high definition video player for home use. PS3 also helped to boost up the penetration of Blu-ray media player as it included video playback function. However, Toshiba was stuck in its old mind and merely focused on selling traditional HD-DVD video player. Though its alliance with Microsoft Xbox 360 supported its HD-DVD format, yet with optional HD-DVD drive for only HD-DVD video playing but not for game function, the pushing effect is limited. As it is not a necessary item on playing games on XBOX360. The effectiveness was much weaker than Sony as Sony fully utilized Blu-ray disc function on gaming and home video which fit the latest global trend. Moreover, Toshiba has lawsuit in several countries in terms of DVD patent and antitrust issue when binding exclusive agreement with studios. It somehow distracted and confused Toshiba in developing HD format. 

Fairly speaking, the innovation of HD-DVD is not bad. The concept meets HD video requirement and can be economical for most producers and consumers, though it is less high-tech product compared to its competitor Blu-ray. Toshiba failed to satisfy those consumers who look for high-end and high profile media. HD-DVD’s cost competitive advantage helped Toshiba gain certain support from studios and consumers. The main failure for Toshiba is mainly not on technology forecast, but mainly on marketing strategy by falsely classified HD-DVD as disruptive technology. 

Suggestions and Learning lessons

In IT industry, technology was changing rapidly, only breakthrough and innovation can help firms to achieve great success. Price is not always the key factor in competition. To think out of the box, Toshiba should create a storage format not limited to disc but with competitive capacity, cost, copyright security and function which is different from traditional DVD player. Moreover, the new media is suggested not to follow the  classic round shape. With other or smaller shape, it can reduce the size of home media equipment which may lead to new impact the market. It is suggested to have wide range of usage but not be restricted to video playing, but mange to serve all video market, PC file storage, smartphones memory and gaming media, better stands out as a new standard storage to serve all kind of entertainment use. Besides, Toshiba could also consider the benefit of downstream or upstream to achieve win-win situation in its industry value chain. Successful companies doing well in this aspect such as Airbus created the biggest airplane A380 which provides larger space for passengers, especially business and first class passengers, trying to open a new market on giant jets while its competitor Boeing still haven’t get in. A380 as a new model of commercial jet become very popular to the passengers worldwide and achieved great success, which is a good example for Toshiba to learn to find new market with different perspective.

Additionally, current electronic market is changing so fast that too many parties are involved. At the same time, consumers nowadays are exposed to too much information and choices. Even a firm with good innovation at reasonable price, marketing still plays quite an important role for the company to achieve success. Without correct and proper marketing, even a potential good technology cannot become popular.

Toshiba is still a top manufacturer in electronic and IT products in global market.  Toshiba is keeping develop its NAND flash memory clip, the smallest size of which accompanied with larger capacity and faster writing speed. Compared with HD-DVD, NAND flash memory clip is wider range for use, such as PC, smartphones, robotics, medical electronics, etc. Moreover, Toshiba is the leader in the industry of NAND flash memory.  With strategy of product development, flow the trend of demand, i.e. smaller size with larger capacity, any new products introduced will lead a huge demand from customers.  Therefore, try to evaluate the trend of market and demand of customers, keep creation and innovation constantly, it will be not difficult to gain succeed.

Reference

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