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may have a system with excess capacities to cater future business expansion and they needed to save capital to roll out outdated system.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.

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