Issues And Assumptions Of Hotel Mangement

The following report is a thorough analysis of the outrigger Hotels and Resorts case that describe the current Information Technology (IT) being used by this firm and the Information System resources that are being employed by Outrigger Hotels and Resorts. We will first start by giving a brief background history of the company and then analyze the current business structure and the Information System currently being employed. Key Issues and assumptions are identified from the case and thoroughly analyzed. Additional SWOT (strength, weaknesses, opportunities and threats) analysis questions are answered and finally, additional recommendation on how Outrigger can improve their current IS and IT infrastructure are provided to improve the future outcome of Outrigger Hotels & Resorts.

INTRODUCTION:

Outrigger Hotels and Resorts is a management company that is owned by its holding corporation, Outrigger Enterprises. It is one of the largest, privately-held leisure lodging and hospitality firm in the Asia Pacific and Oceania. With rapid growth, Outrigger is expanding its presence throughout the Hawaiian Islands and the south pacific. By the dawn of the 21st century, the industry was estimated to have exceeded $295 billion in sales (Outrigger, 2010). With more than 60 years of hospitality experience, Outrigger has a diverse product portfolio that include highly successful, multi-branded line of hotels, condominiums and vacation resort properties, including Outrigger Hotels & resorts, OHANA Hotels & Resorts and Outrigger Condominium Collection (Outrigger, 2010). It is considered as one of the leading destination and vacation spots in the Hawaiian market with above average performance levels of the global industry (Piccoli, G., 2005, p. 106).

KEY ISSUES AND ASSUMPTIONS:

Main focus is to gain competitive advantage.

Currently in waves 1 and 2 of the “Waves of Innovation”

development of its electronic interfaces with their wholesalers. But not all wholesalers were interested in automating

The firm’s integrated CRS/PMS (Central Reservation System/Property Management System) IT infrastructure – Stellex, failed to migrate with a modern platform that was thought to simplify connectivity with the other off-the-shelf computer systems

Having a Central Reservation Office (CRO) operating in Denver, Colorado. Reservations were centralized for all properties in Hawaii and beyond Hawaii, reservations was taken at each property.

Issues with distance, high telecommunication costs and unacceptable reliability of international network led to a decentralized structure.

Competitive pressures raising the importance of integration as larger branded hospitality and resort companies are entering the market.

travel agents and wholesalers were finding the condominiums hard to sell

advancements in technology and the overall internet boom proving a challenge for outrigger to keep up with and jeopardizing Outrigger’s future stability

Detailed description:

The main concern that Outrigger had was to analyze the current outrigger’s business strategy and to come up with an appropriate IS vision, IS architecture, and a strategic IS plan for outrigger hotels and resorts that not only gives Outrigger competitive advantage but also ensures future stability and success of the firm.

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When looking at IT and how it is used by industries and enterprises, waves of innovation chart is used (provided in the appendix, figure 4) that identifies the current evolution of IT within a firm (McNurlin, Sprague, & Bui, 2009, p. 46). Currently, it is our assumption that Outrigger Hotels and Resorts are in Wave 1 and Wave 2. Their main goals are to reduce costs (Wave 1) and in leveraging investments (Wave 2) that focus on cutting cost through organizational effectiveness while increasing corporate assets and profitability (McNurlin, Sprague, & Bui, 2009, p. 47). Outrigger achieved in reducing costs by automating manual processes to wholesalers such as billing and invoicing generating organizational effectiveness. They gained competitive advantage by implementing the electronic interface to be used by wholesalers. As shown in Figure 4, both Wave 1 and Wave 2 are below the line as this identifies that systems were developed mainly for administration, finance, and manufacturing (McNurlin, Sprague, & Bui, 2009, p. 47). Furthermore, with the outsourcing of their website and web services, they introduced online chat to better help their customers and provide more information to them. Although this can be regarded as Wave 5 under the Waves of Innovation as it shows how “IT is used to communicate directly with consumers,” thereby leading to new marketing, distribution and service strategies (McNurlin, Sprague, & Bui, 2009, p 47). Also what can be considered under Wave 5 is the adoption of a dynamic package that Outrigger serves that appeals to travellers, suppliers, even travel agencies. It provides the option and flexibility to choose air, hotel, car rental and even activities, ticketed independently and then priced out as a bundle to the buyer. This is another example of how Outrigger is reaching consumers and creating opportunities (Wave 5 in Waves of Innovation) by directly communicating with their prospective clients, making use of internet and e-commerce (McNurlin, Sprague, & Bui, 2009, p. 47).

Outrigger Hotels and Resorts historically maintained a highly centralized organization structure. As the firm grew in size from Hawaii locations and expanded internationally such as Australia, Outrigger remained consolidated and offered centralized services where possible such as in accounting, IT, finance, engineering, purchasing etc. The challenge that was presented with their Australian resorts was of distance and real-time coordination of the reservation system with the central reservation service.

Within the IT infrastructure, the firm felt that its current centralized IT infrastructure was the source of competitive advantage. Their software Stellex was an integrated Central Reservation System/Property Management System (CRS/PMS) which was upgraded to Stellex 2.0 in 1992 to provide revenue management functionality and reservation center support. But with the expansion of the firm internationally, they ran into issues such as high telecommunication costs to and from Hawaii and the unacceptable reliability of international networks. Therefore, they did not extend their centralized model to their operations in Australia and the Pacific.

Outrigger’s IT professionals did minimal application development wrote customized reports, and configured and interfaced with off-the-shelf applications. Even their website development and web services were outsourced and hosted by a third party in Portland, Oregon.

Their main competitive advantage that outrigger had was the development of real-time electronic interfaces with wholesalers as mentioned above. Outrigger felt that with the use of technology, electronic interfaces will generate substantial efficiencies, including automatic billing and invoicing without human handling and thus lowering costs. But not all wholesalers were interested in automating reservation processing. The lack of interest was generated from those doing small operations or those for whom Hawaii and the Pacific represented a small percentage of business. Not only that, but the electronic interfaces proved to be expensive to maintain and replace and didn’t provide the expected goals that Outrigger envisioned to gain to get beyond their competitors (Piccoli, G. 2005, P 113).

System integration is the trend that allows different departments to have communication and information flow amongst each department and thus making technologies and systems co-exist with one another to work together. This is usually accomplished by implementing and ERP system that provides the accessibility of working from a single computing platform integrating different departments and functions across an organization (McNurlin, Sprague, & Bui, 2009, p. 333). With stellex software though, it failed to migrate with the modern platform that integrated other off-the-shelf application prompting outrigger to re-evaluate Stellex’s role. Additionally, Stellex also failed to interface with outrigger’s Point of Sales (POS) system which were old and needed to be upgraded first. Therefore, the whole project was aborted.

Outrigger’s management is also in need of change management. They had this misconception that they did not want to extend their centralized model in operations because of high telecommunications cost and the unacceptable reliability of international networks. They had no central servers, stand alone systems and their use of outsourcing was limited to website development and hosting. Their data management systems consisted of data marts setup to hold detailed information for a maximum of three years, and later they would consolidate this data for aggregate analysis. Overall, Outrigger’s management felt that their IT function was enabling them complete success and that their IT function would be able to operate more efficiently than its competitors.

QUESTIONS:

What are Outrigger’s most important internal business strengths and weaknesses, as well as, the external opportunities and threats to their competitive environment?

Strengths:

Through Partnerships and management agreements with third party owners, Outrigger added properties on Maui and Kauai and grew to 26 locations in the Hawaiian Islands. Furthermore, through partnerships, joint ventures, acquisitions, and new developments the firm grew internationally adding properties in Guam, Fiji, Tahiti, Australia, and New Zealand thus becoming geographically dispersed.

They also begain to diversify their product portfolio by adding condominium resorts

The changing of their name from Outrigger Hotels Hawaii to Outrigger Hotels and Resorts and rebranding their off beach hotels in Waikiki to launch a new hotel brand name OHANA Hotels of Hawaii. OHANA became the largest Hawaii-owned operator in Waikiki catering to budget travelers looking for value on off-beach properties.

Even though they were expanding their firm and buying properties (both on-beach properties/condominiums and off-beach budgeted properties) their commitment in their identity remained the same. Providing hospitality and “sense of place” to their guests visiting and a leisure experience that is rich in culture and the characteristics of their destination.

2004 data showed outrigger as being the stronghold in the Hawaiian market with performance levels above the average of the global industry. By 2005, Outrigger had a portfolio exceeding US $1.4 billion and approximate revenues of US $45 million. It awarded their success of their destination markets and to the well-being of airlines serving its destinations. Being quite isolated from any large population pool, Hawaii is a classic destination market with an exclusive fly-in customer base.

Their Stellex software proved to be an anchor from which all operational systems connected, including telephone switches, call accounting, and in-room entertainment. All the Hawaiian islands had access to Outrigger’s centralized IT system which was served from the Honolulu-based data center, through the firm’s Wide Area Network.

Their management of their multicultural and multilingual employees and guests in a multicultural environment adding to the richness and culture of their organization. Also, engaging in a non-unionized business in a heavy unionized Hawaiian labor market.

“Operating properties that have good location, strong travel distribution network and employees who provide hospitality from the heart adds value and creates a differentiated product.” – David Carey

Use of outsourcing was limited to website development and hosting.

Weaknesses:

Even though condominiums represented an increasingly important share of the total portfolio of properties, travel agents and wholesalers found them hard to sell. Not only are condominiums expensive, but they were also complex and proved to be a non-standard product from what Outrigger offered. It appealed to independent travelers and are built to serve as primary or vacation homes for the tenants offering little office or staging space for management companies to operate in. They also lacked typical hotel services and departments such as food and beverage, room service, laundry, and daily maid services. Thus, there was a lack of reasoning involved on Outrigger’s behalf when they decided to expand their firm into condominium market and acquiring expensive properties.

As Outrigger started to diversity their product portfolio, the profile of their customers and competitors also changed. Traditionally targeting to middle class travelers and families with income below $100k a year, they became to target towards leisure travelers. A typical guest staying at their premium brand was often a multigenerational customer with a sense of loyalty to the brand and an income exceeding $75,000. Their guests became exclusive leisure travelers.

Outrigger still relied on the traditional system of faxing. Reservations were taken at each location and almost all the reservations were faxed to the property.

Although Outrigger was expanding rapidly, they had yet to find an integrated solution for international properties namely for operations in Australia and Pacific. Having centralized stand alone systems or legacy systems. It created high telecommunication costs to and from Hawaii, as well as international networks proved to be unreliable.

Their Stellex software failed to migrate to a more modern platform that was thought to simplify connectivity with the other off-the-shelf computer systems.

Point of Sales (POS) systems were not centralized and couldn’t be interfaced with Stellex software as they were old and needed to be upgraded first. This resulted in inefficiency as a manual charge voucher had to be manually written.

Data marts were setup to hold detailed customer information for three years, but later this data would be consolidated and it would only provide aggregate analysis.

Outsourcing was done to website only.

Opportunities:

Investments in condominiums provided a way for expansion to expensive properties. It created value to on-beach property location spots

Condominiums also appealed to independent travelers and couples who desired privacy.

Hawaii is a classic destination market

Competitive pressures will raise the importance of integrated system and the benefits that come along with it within Outrigger’s IT infrastructure. Better integrating of its international properties is a crucial stepping stone to the firm’s continued success.

With the increasing competition in its key markets, outrigger should also look towards strengthening their electronic presence and relationships with their distributers, improve their trademark hospitality and customer service.

Threats:

More competition from larger brand competitors entering into the market. Hawaii is the classic destination spot and many competitors are entering into the Hawaiian market. More larger branded hospitalities and resorts are entering into the Hawaiian market

Not all the wholesalers were interested in automating the service of billing and invoicing for small operations

IT infrastructure needs to be upgraded and changed to keep up with modern platforms. Competitive pressures will raise the importance of integration systems within Outrigger’s IT infrastructure

The change in the overall hospitality distribution is also rapidly changing. Historically, travel agents would provide significant amounts of information, counseling, and reassurance to leisure travelers, but more and more consumers are turning to the internet for this information. Thus, Outrigger should challenge populating the new electronic world and create a powerful presence. The emergence of online agencies such as Expedia has created significant opportunities and threats.

Explain the strengths and/or weaknesses of Outrigger’s existing infrastructure – i.e. Information Systems Technology, People (users and IS staff), and Data. Include your assessment of its performance today as well as how well equipped it is to support future needs.

Outrigger existing infrastructure includes the overall establishment with their Stellex software. It was introduced in 1987 as a COBOL application and guaranteed complete redundancy and 24/7 uptime. Later in 1992, and update to stellex, Stellex 2.0 was introduced by Outrigger which ran on Sun Microsystems UNIX platform and provided revenue management functionality and reservation center support. They also implemented JD Edwards ERP system as a foundation for their back-office operations. This led to Outrigger having a competitive advantage by having centralized IT infrastructure (Piccoli, G., 2005, p. 111). All of the properties in the Hawaiian Islands had access to the Outrigger’s centralized IT systems and was served through their Wide Area Network based in Honolulu. Stellex provided the anchor to which all other operational systems connected, including telephone switches, call accounting, and in-room entertainment. Due to the high telecommunication costs to and from Hawaii and the unreliability on the international networks, Outrigger did not extend this centralized model to its operations in Australia and Pacific. The properties in Australia and New Zealand which were all condominiums, used standalone Property Management Systems (PMS). None of the properties in Hawaii had a server on property and these other regions used standalone PMS’s and on-property reservations.

Additionally, Outrigger’s IT professional engaged in interfacing off-the-shelf applications and writing customized reports with minimal application development. The use of outsourcing was limited to the Web site that was developed and hosted by a third party in Portland, Oregon. But to maintain the integration of the direct channels, Stellex served as the booking engine behind Outrigger’s Web site. The development of electronic interfaces with wholesalers was considered a key initiative and was custom-developed by the firm’s IT group using XML (Piccoli, G., 2005, p. 113). This provided real-time electronic interfaces for wholesalers allowing them to check availability, to get reservations instantaneously, to provide automate billing and invoices, and ultimately lowering any estimated costs. However, not all wholesalers were interested because of Outriggers small percentage of business.

In 2001, business intelligence software, a data mart and analytical tools, were acquired from E.piphany and the application ran on Windows 2000 platform. Their data management system could hold data for up to three years, and then it would get consolidated for aggregate analyses (Piccoli, G., 2005, p. 118). Being able to harness the analytical power of E.piphany to do forecasts and generate business intelligence, outrigger could better use the data for marketing and operational analysis as well as incorporate information into their daily operations with improved efficiency and service to their customers.

With regards to their IT staffing and organization as a whole, an organization chart has been provided in the appendix section detailing the distribution of duties and responsibilities among Outrigger’s IT staff. The overall IT function was organized along user needs one IT professional in charge of Australian properties’ application needs. The hardware support was contracted out to local vendors.

Outrigger’s senior executives found technology a great asset to enable communication and felt confident that the IT function was enabling the firm to compete effectively and that they were operating more efficiently than their competition (Piccoli, G., 2005, p. 116). As the firm was expanding aggressively, they still had yet to find an integrated solution for their international properties. Some even questioned the viability of reinvesting in Stellex. The IS group felt that their legacy system – namely their ERP, integrated PMS/CRS, and electronic interfaces with distribution partners was serving the firm quite well. They were prompted to re-evaluate the role of Stellex after a failed attempt to migrate a more modern platform thought to simplify connectivity with the other off-the-shelf computer systems in the portfolio.

Outrigger engaged in limited formal technology training and relied mainly on on-the-job training when it came to software applications. This approach however created difficulties for people who were hired from outside the firm.

With the latest advancements in technology, even the guests who arrive to resorts expect to have access to their technological needs. Eg wireless access and thus outrigger should look into future to provide that feasibility to their guests. Additionally, it would be best to strengthen their internet presence and populate the electronic world strengthening their electronic relationships with their distributers, improving their own trademark hospitality and customer service. Although currently their firm is doing well, but for the future, a better integrated system that connects all the international properties is a crucial step in enabling the firm’s continued success. Developing a right kind of information strategy and developing a clear vision for the role of IS and a solid IS architecture are a crucial step in enabling these goals.

Based on your assessment of the case, state your key recommendations and rationale to Outrigger’s senior management to ensure that it competes successfully.

To compete successfully in the future, a key recommendation for Outrigger is to implement a change in their overall current IT and IS systems and strategy and look towards the advantages that are offered by a complete ERP system. An ERP system aims to integrate corporate systems by providing a single set of applications from a single application (McNurlin, Sprague, & Bui, 2009, p332). Although Outrigger has already implemented the JD Edwards ERP as their back-office operations, it’s more advantageous to have the ERP system integrating the whole overall different departments and properties together with one module and have information flows in real time. These days, an ERP system is used extensively in almost every major organization whether it be in manufacturing or distributing services, an integrated ERP system allows a firm to gain competitive advantage. Not only that but competitive pressures have raised the importance of integrating business processes and thus, the underlying information system. Additional motivations for ERP implementations are provided in Figure 4 outlining the advantages of an ERP system implementations. To realize the benefits of ERP, Outrigger must therefore change its organizational structure and culture.

APPENDIX

CASE 1: OUTRIGGER HOTEL & RESORTS

Outrigger Organization:

Figure : Organization Chart

Outrigger’s Infrastructure:

Figure : Timeline of Major Infrastructure Developments at Outrigger

Waves of Innovation:

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Figure : Waves of Innovation

Motivations for ERP implementations:

Figure : Motivations for ERP implementations