The global digital revolution is driving all businesses to change, including those in the hospitality industry. The New Economy is radically changing distribution patterns and traditional customer behavior. It is disintegrating barriers to market entry and causing a disintermediation of customer channels. A key issue for all hospitality CEOs then, is how to evolve their companies from an old economy to a New Economy business.

Today, the Internet dictates the speed of doing business and has created an imperative for all companies to move more rapidly to change the way they operate. As a result, there is a need to better leverage customer and supplier knowledge and relationships, “e-enable” the workforce, and at the same time build new organizational core competencies.

Four Stages in the e-Business Evolution

So far we have observed four stages in the evolution of old economy to New Economy companies in the hospitality industry.  These are briefly described below.

Rational Experimentation. 

Currently, most hospitality companies are in the stage of rational experimentation with e-business initiatives. They see new revenue or cost saving opportunities and dabble in e-business experiments.

They may launch a Web site, work with an e-procurement company to do some catalog buying, put some of their inventory on Travelocity or
Priceline, introduce high-speed Internet access into their hotels, or possibly Web-enable a small number of business applications.

Establishing New Fundamentals. 

The larger hotel companies have already moved into the stage of establishing new fundamentals through e-business. They are evolving their businesses to find strategies and points of view that are more bold and broad in scope across the enterprise to improve on existing fundamentals of doing business. In short, they have an e-business plan and are beginning to execute it.

Operational Excellence.

Some companies, like Marriott and Hilton, are striving to move far beyond fundamentals to a stage of “operational excellence” by embracing the power of the Internet and e-commerce in every aspect of their business operations. They’re leveraging the digital economy to maximize revenues, reduce costs, and increase shareholder value.

Breakthrough strategies.

Along the way, a really good idea or two may percolate within a company until it forms a radical strategy that may eventually pull the whole organization into a new business model or give rise to the launch of a whole new business venture. A good example is 3Com and its development of the Palm Pilot, which eventually was spun off as a separate company. In the hotel industry an example could be Avendra, a newly organized e-procurement joint venture between Marriott, Hyatt, Bass Hotels, and Club Corp. Only a small handful of hospitality companies are at the stage of major Internet breakthrough strategies.

The hospitality industry is very ripe for companies to take advantage of e-business. The industry is very broad and fragmented from the standpoint of both customers and suppliers. The human effort involved in the daily dealing with this fragmentation is cause for extremely inefficient and costly hotel operations and heavy reliance on “middlemen” to drive the business model.

The new digital environment affords hotel companies the opportunity to more efficiently interact with customers and suppliers, and in some cases disintermediate access channels. The Internet also provides hospitality companies with an excellent platform to better integrate disparate business units and business operations across the enterprise and effectively deal with the challenges of unconnected legacy technology applications.

Many hospitality owners and operators today aren’t willing to bite the bullet to invest in the technologies necessary to support an effective e-business strategy. In most cases they’re just not moving quickly enough to Web-enable systems and business applications. It involves heavy investment in networks and infrastructure, developing new business applications, and working with the right channel partners to make all of this happen. Those moving rapidly are already reaping the benefits of their investments by gaining better positioning and affinity with their customers, better productivity from their employees, eliminating stifling and antiquated business processes, and generally increasing their readiness and speed of doing business.

In this publication, we will explore in more depth the digital economy and the implications for the hospitality industry. We’ll take you through the process of developing an effective e-business strategy and plan, discuss the applicability of a number of new and innovative Web-enabled technology solutions for the hospitality industry, and provide practical thoughts and perspectives on funding technology projects and assessing their potential return on investment. Hopefully our perspectives will be helpful to you as you transition your business from the old economy to the new digital economy.