HOTEL MAGANJIS

Business Transformation through Information Systems Assignment

FT MBA 2010-11

Z0917525
Word Count: 3932

Table of Contents
Introduction ............................................................................................................................................ 2 Establishing Strategy ............................................................................................................................... 2 Porters Five Factor Model.................................................................................................................. 4 PESTAL Analysis ................................................................................................................................... 5 Internal Analysis .................................................................................................................................. 7 Strategic Priorities for specific investments: ...................................................................................... 8 Building transformational Capability .................................................................................................... 9 Benefits Management Context ......................................................................................................... 10 Benefits Management Process (BMP) .............................................................................................. 12 Other factors ..................................................................................................................................... 13 Conclusion ............................................................................................................................................. 15 Reference .............................................................................................................................................. 16

Table of Figures
Figure 1: Business, IS and IT strategy relationship .................................................................................. 3 Figure 2: Competitive Competency Model ............................................................................................. 8 Figure 3: Four Phases in evolution of Formal Strategic Planning ........................................................... 9 Figure 4: The IBM Model of Stages and States of E-business ............................................................... 10 Figure 5: Benefits Management Context .............................................................................................. 11 Figure 6: Benefits Management Process .............................................................................................. 12

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Introduction
Hotel Maganjis is a two-generation small family owned and operated hotel. It is a heritage building as such has a homely feeling. It is located in Mt Abu, which is a hill station in the desert state of Rajasthan (India). Due to the location it gets a lot of customers. Besides the owner, the hotel currently employs 10 people. It is a full-fledged hotel with restaurant. It has 25 rooms (9 Suites & 16 Deluxe Rooms). All the rooms are double occupancy with option of having child bed added. As the place is a hill station, there are numerous other hotels present, some single property ones like Hotel Maganjis while others while are part of international and national hotel chains. So the competition is very intense. The owner is 45 years old and bachelors degree holder. He has basic computer knowledge. Information technology resources of the hotel are limited. There are three computers in the hotel; one is in the owners office and the other 2 are available for general use by the patrons of the hotel on payment of extra charge. The hotel is not Wi-Fi enabled nor provides any internet facility in the room. However the internet connection to the three computers is broadband. Customer records are manually updated every evening on the owners computer mainly for tax and audit purposes. There is no process for collection and analysis of customer data beyond that required for financial purpose. At present, room reservations are usually made via telephone enquiries direct to the hotel. The hotel has a basic informational website with contact details and enquiry facility. The website is basic, simple and easy to use and navigate. It contains some sample pictures of the rooms, a list of the services provided by the hotel, contact information. The submitted enquiry is delivered to owner by e-mail who will then respond. He currently checks e-mail every 3 hours. The hotel website doesn't include Web-based booking system and doesn't offer online payment. It was built in 2006 and has not changed since then. Incremental changes like translation service from Google, Like button, have been added.

Establishing Strategy
Recently due to insistence of his son, the owner approached me to undertake a project to understand the benefits of adopting Information Technology (IT) implementation and the cost involved. However before talking about cost benefit analysis, I decided to engage with him in a discussion to identify the stakeholders and strategic priorities and explain that information technology and information systems are different things. This step is extremely important because for any business there are multiple stakeholders who have different priorities (often conflicting!). IS strategy always has consequences which may be intended or not. Avoiding harmful unintended consequences means considering business and organizational strategies when designing IS deployment. 2|Page

Obviously what was asked of me was to provide the IS strategy which will support the business strategy, but kept on referring to it as the IT strategy. Earl (1987) has made a distinction between the two and puts IT as a part of solution. According to him IS is concerned with what is required question, while IT is concerned with how it can be delivered question. The alignment of IS strategy to business strategy results in organizations acquiring the IT that is best suited for its business processes, thus deriving more value from IT investments. The relationship has been depicted by Ward and Peppard (2009) as follows:

Figure 1: Business, IS and IT strategy relationship

Further according to them, IS/IT should be treated like other functions of business with well defined strategy and can be source of competitive advantage. To devise a strategy it is very important to know the stakeholders. Incase of this hotel the main stakeholder is the customer of the hotel. The feedback from customers is mostly positive. They were happy with the stay and the service provided. However they were concerned about being able to communicate with the hotel. As the hotel did not have web booking system, the customers had to rely on telephone/email for confirmation that they have a room available. Further the hotel faced risk of customers not turning up and room not earning revenue. Also the hotel was losing opportunity to personalise the service and gain competitive advantage. The other aspect which the owner mentioned was that currently he is not able to provide any differentiated offerings like conference package, wedding package, weekend specials. He was also interested in running Special schemes and web-exclusives. As other hotels start having a web-presence, being able to differentiate would be the key to survive and prosper in the market. 3|Page

The other stakeholders were the owner themselves. They had a well know heritage hotel. As national and international hotel chains started operating in Mt Abu, they have seen a decline in the business. They provided service at a decent price but getting the customer in the first place was proving difficult.

Porters Five Factor Model

In 1980, Porter outlined five forces which impact competitiveness: barriers to entry, threat of substitutes, bargaining power of buyers and sellers, and the rivalry among existing competitors. In 2001 Porter considered these factors in light of the internet technologies. According to Porter (2001) the internet is an enabler which can be used to drive good business strategy. Porter indicates that the great paradox of the internet is that the benefits it creates such as making information easily available, reducing purchasing hassles, and marketing which allow customers to find what is of interest are the very things that make it more difficult for companies to capture those benefits as profits. (2001).However at the same time we have numerous examples where companies have benefited from Internet (Amazon, ebay). So even though experience shows that Internet alters industry structures and dampens profitability, it can improve business performance if it is implemented correctly. The influence of the internet has been profound especially in the hotel industry. Threat of Substitute Goods For hotel Maganjis there is usually another hotel just around the corner. The challenge is to be the preferred one. The internet creates a more efficient market and increases the reach. At the same time it creates new substitution threats. Given the potency of this threat a superb internet presence is vital. Another threat is the flexibility provided by internet. Hotels can informate to understand what works best for them and devise a strategy accordingly. Bargaining Power of Buyers Internet hands the buyers powers never seen before in history. People can just go online and seek information they need before booking hotel. They can compare deals without moving from their computer. They no longer need middle men of any kind. Porters model predicts this elimination of intermediaries. Another phenomenon which is being promoted by internet is word of mouth publicity. Internet makes it easy to publish experience to the public at large. Therefore it is imperative that hotel Maganjis uses its one time opportunity when a customer stays at the hotel to deeply impress the customer with a unique and valuable differentiator. Loyalty is a thing of past.

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Rivalry among existing competitors The rivalry among competitors of hotel Maganjis is fierce. They are known to engage in price competition. With internet this multiples manifold. Comparison sites, social media sites accentuate the rival further. People tend to seek the best price for the best experience and the industry tendency is to reduce price to be competitive. The internet widens the market to include many geographical areas increasing the number of competitors. For example, a person may be holidaying in Mt Abu, but decide to stay at a hotel in nearby town if the experience/price is better. Barriers to Entry All these years the initial investment in the hotel industry created natural barriers to entry but certain barriers to entering the hotel market are reduced by the internet. Any new hotel had to spend a fortune on marketing but with internet these are reduced. Further internet gives the new competitor access to potential suppliers and resources. A vital barrier would be differentiation. A hotel differentiating itself either by location, by service, amenities or some other quality can potentially attract and keep its clients. Another barrier to entry would be expertise. Unfortunately, hotel industry is plagued by high attrition rates and the employees take the expertise in terms of training or of experience with them. People can take away experience and training but the processes cannot be taken away. Thus information systems can make the greatest impact in the areas of expertise and of differentiation. Bargaining power of suppliers Internet can give suppliers a lot of power. These suppliers are not only goods and service providers but also tour operators, employee agency, etc. As with customers, suppliers can also expand their business geographically and drive a bargain. They are able to access information about their product/service from world over and accordingly influence the price leading to increase in prices. Similarly tour operators can bargain to get better deals.

PESTAL Analysis
The Porter five forces gave a view of the hotel industry as a whole. PESTAL (political, economical, social, technological, ecological and legal factors) is a framework used to analyse the broad environment. In case of hotel Maganjis, the PESTAL analysis is as follows: Political + Legal The tourism industry has been focus area for the government as such hotels have been granted infrastructure status. This allows them to avail cheap loans and host of other benefits. Government support is expected to continue. However the government is committed to improving the tourism industry and hence has been pushing for entry of foreign hotel chains increasing pressure on the local hotels. Therefore it is important that Maganjis gets ready for competition. As the consumer is 5|Page

increasingly international, the is pressure on Maganjis to ensure that international laws related to privacy, data protection, etc are adequately handled. Economical As India increasing integrates with the world economy, the people are economically benefitting leading to increased spending on leisure activities. At the same time, they are being exposed to high standards of service and experience and demand the same from local businesses. However due to increasing competition, the hotels cannot charge extra for the improved service. This is putting pressure on hotels like Maganjis to be innovative and be cost effective. They also need to take care of the foreign exchange regulations. Business hospitality is an exciting growth area. Social Similarly increased exposure to western influences, are causing social changes putting pressure on Hotel Maganjis. Increased foreign tourists are forcing them to provide service and amenities which would be considered inappropriate in a traditional small town. At the same time the domestic tourist market is huge and cannot be ignored. Hotel Maganjis has to strike a balance between the two markets. Technological This has been widely discussed in the previous section so would be repetition to discuss it again. In a way it is the driving force behind all the change sweeping hotel Maganjis. Ecological Hotel industry has a bad name as far as environment is considered and hence there is pressure on them to regulate their activities.

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Internal Analysis
The above gave me an idea of the signals coming from the external environment. The next step is to look at the internal competencies using tools like SWOT and conducting brainstorming. The results were as follows: Strengths Location of the hotel Committed Owners Heritage status of the building Homely feeling and service Services Provided Restaurant Committed employees Large open space Opportunities Extend the internet connectivity to the rooms Wi-Fi Redesign the website Expand to other market segments like business hospitality, wedding packages Get a complete Hotel Management software package Weakness Lack of IS/IT strategy Modes of communication Reservation Options Deal options Payment Options

Threats International brands Other options to stay Information on Internet

Combining the above analysis and resource-based view, I developed the application portfolio as below: Strategic Redesign the website Web booking Engine Connectivity SEO strategy High Potential Hotel management software Develop capability to cater to various segments As the hotel did not have any Business Intelligence Software it will currently fit her in the portfolio but will move to Key Operational as soon as it is acquired. Having translation facility on the website.

There is no key operational investment done however there is a need for investments in some kind of Business Intelligence software Key Operational

Support

The Strategic and High Potential investments would help Maganjis gain competitive advantage while the others will help prevent being disadvantaged in the market. Superimposing these on the Competitive Competency model achieved the following results:

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Priority Areas

Figure 2: Competitive Competency Model

Strategic Priorities for specific investments:

1) Implement web-connectivity in all the rooms. 2) Redesign the website with online booking facility. 3) Implement SEO strategy.

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Building transformational Capability

Gluck, et al. (1980) have described a model to understand the evolution of strategy. According to the model strategic management evolves through 4 stages. In the first stage the focus is short term goals like annual budgets. In stage 2, the organization starts developing medium term plans and forecasting. In the stage 3, the organization starts to be aware about the external environment and its strengths and weaknesses and develops strategies accordingly. In the stage 4, the organization has a well-defined management framework. It innovates and continuously improves its products and efficiency. It is capable of defining its own business environment. Below is the diagrammatic representation:

Figure 3: Four Phases in evolution of Formal Strategic Planning

Im of the view that Hotel Maganjis was progressing to stage 3 where they wanted to understand the market and develop strategy. As such it was very important to provide then with robust plan so that they succeed. The above model talks about the complete business strategy including making use of IS/IT. Below is a model from Stone (2003) in Ashurst, et al (2011) which is relevant to the Internet strategy of Maganjis.

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Figure 4: The IBM Model of Stages and States of E-business

In the initial stages the organization is testing waters where it tries to increase its market reach by having mail communication and/or website. This is the stage were Maganjis is currently and trying to move to the next step. Both these models are important to understand the current stage and the desired stage of IS capability, so that appropriate strategies can be formulated. A well defined IS strategy will lead to following benefits (Valacish & Schneider, 2010): 1) Transactional benefits: These include reduced operating costs, reduced communication costs, improved employee efficiency and productivity, increased return on investment. For Maganjis, these would improved sales. 2) Informational benefit: This type of benefit enables faster and easier access to information, leading to better planning. It also improves the accuracy of the information and helps in intelligent data mining. Maganjis could analyse trends and devise marketing plans. 3) Strategic Benefit: These include creating competitive advantage by aligning IT strategy with business strategy, enabling quicker response to change in market or competition, improving customer relations, and providing better products or services to customers. Maganjis could increase product offerings.

Benefits Management Context

Even with clear idea about the benefits of IS, it has been found that IT Doesnt Matter its what you do with it. In business there is always a risk that Information Technology will drive the business, where in actuality it should be the other way round, i.e. business drives suitable technology adoption. Technology does present opportunities to be exploited, but its always important to remember the business context. All these years, it was thought that keeping up investment in IT/IS to support business change was sufficient. However the role has now changed. Increasingly IT/IS is 10 | P a g e

expected to drive strategic thinking. As such the business -> IS -> IT model described in the first section looks increasing unable to cope with the changing role (Ward and Peppard, 2009). Under this model, there is a danger that IS and IT will be dictated by business strategy, whereas what is being observed it that IS is increasing seen as part of the business strategy. Business Transformation has been defined as the alignment of process, people and technology such that it can both support and innovate business strategies. Given that technologies evolve and develop at a rather rapid pace, it is desirable for managers to develop skills that allow them to understand what technologies can do and how they might be leveraged to create real value. Ward and Peppard (2009) term them as Forth Era-IS capability Era. In other words IS capability is enabler of competitive advantage1. In this context, one of the most comprehensive approach is Benefits Management (BM), which is defined as the process of organizing and managing such that potential benefits arising from the use of IT are actually realized (Ward & Peppard,2009). Using this process we can consider information system success as a function of management processes rather than the application of technology (Remenyi and Sherwood-Smith 1998). The Business Management process takes a 360 view of the benefits to be achieved by asking the following questions: 1) Why is the investment being made (benefits driver analysis) 2) Types of benefits being sought 3) How will the organizational context interplay with the process. This creates stakeholders across the organization in the success of the strategy. Below is context of the business management process:

Figure 5: Benefits Management Context

http://research.ncl.ac.uk/transform/resources/Benefits_case_study_report.pdf

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Benefits Management Process (BMP)

Below is the pictorial representation of Benefits Management Process

Figure 6: Benefits Management Process

The basic idea behind the model is the lifecycle view of the benefits of IS/IT investments: benefits have to be identified, evaluated (ex ante), realized and evaluated again (ex post). 1) Identifying and structuring benefits: First, the different stakeholders within Maganjis should agree on the projects objectives. Subsequently, they have to identify all potential benefits, which can range from being directly measurable or quantifiable as financial value or simply being observable. The benefits should also be tested against the Benefits Drivers to ensure that they are relevant. Lastly, ownership of the benefits needs to be established. This is important to ensure that delivery of the planned benefits is achieved. 2) Planning benefits realization: The next step is to develop cause-effect dependency network map, which identifies the changes required for benefits delivery and the manner in which IS/IT will enable these to happen. Like previous step, ownership also needs to be established. Another important step in this is to get the buy-in of the relevant stakeholders (anyone affected by the changes). In this exercise benefits/disbenefits, perceived resistance and action plan to enable or encourage involvement is identified. Ultimately, stakeholders must perceive more gain from the benefits than pain from the change required supporting the project. (Ward and Peppard, 2009). Generally the next step is to present a business case to the senior management team for funding the IS/IT investment. There are various ways in which it can be done. It is good idea to be as detailed as possible so that rejection chance are minimised.

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3) Executing the benefits realization plan: Stage three of the BMP Model consists of execution of the benefits realization plan parallel to the execution of the IS/IT implementation project. Whereas the latter is mostly concerned with finishing the IS/IT implementation within the Iron Triangle of Project Management, the execution of the benefits realization plan is mostly concerned with change management. As the whole process is iterative, it is necessary to ensure that any new benefits identified are feedback for action. At the same time any benefits which have become unfeasible/irrelevant should be acted upon appropriately. 4) Evaluating and reviewing results: Most of the IS/IT projects would stop at the previous stage and managers would move on to other things. However BMP insists that evaluation and review should be carried out to understand what was achieved and any shortcomings discovered. The purpose is to maximize investment and to add to the knowledge base for future projects. However, it is important that such ex-post evaluation should not simply allocate blame for failures (Ward & Peppard, 2009). It should be seen as a constructive exercise. 5) Discovering potentials for further benefits: A number of authors have pointed out that owing to the complexity of many IS/IT projects, it is often not possible to identify all benefits prior to start of the project. Or it may be that further benefits are identified once the project is complete. Therefore it is very necessary to have a process around this so that the BMP can be restarted with new set of benefits realization. As BMP is a rigorous process, all possible aspects are studied and only those changes which provide substantial are implemented, thereby reducing costs. This is very critical for small organization like Maganjis. As pointed out by Ward and Daniel (2006), BMP is geared towards delivering benefits using change management plan devised through business driver analysis. Further stakeholders are involved and IT functionality is selected to complete the work and there is post completion review. All this make BMP an excellent way of building transformation capabilities of Maganjis.

Other factors
More than 30 years ago, Senn (1978) noted that successful development, implementation, and operation of an MIS require the continued support and interaction with top corporate management. This has also been reported by a number of subsequent authors. Study by Dong et al., (2009) shows that top management have a distinct role in resource provisioning, change management and vision sharing to ensure that everyone in the organization develops a common understanding of the information systems. Further senior management must be available for project related decisions, they must track, review and control IS/IT projects progress. In case of Maganjis this doesnt pose a problem as the manager/owner is the single person to make all decisions. And because he is convinced of the benefits, implementation will have his full support. 13 | P a g e

Deciding how to go about implementing IT is a very critical issue. A lot of managerial attention and rigorous discussion should be done before deciding whether to have these capabilities in-house or out-sourced. For a small organisation like Maganjis, its best to outsource this. However strategising functions should be strictly maintained in house. Another important factor is the communication between various parties to the strategy. A lot of time, team work in silos and dont talk to each other therefore problems are not resolved. These come to fore in the final integration when its too late and the project fails. By adopting BMP, this problem is avoided as at each stage all the stakeholders have to come together to decide on action plan and also accountability is assigned. IS/IT investments by themselves dont provide any sustained advantage or have any inherent value (Ward and Peppard, 2009). Organizations and their managers thus need to understand that business benefits are ultimately derived from understanding the business and committing it to change (Earl, 1992) and that IT impacts organizational performance via intermediate business processes. So even though hotel Maganjis is currently a small organization, it would be worthwhile that they invest time and energy in developing Benefit Driven Approach.

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Conclusion
Developing Transformation Capabilities is not an easy task. It requires commitment and resources. As organizations realise that gaining competitive advantage is significantly dependent on IS capability, there is a need for change in mindset. The ways are important than means or ends. How you gather, manage and use information will determine whether you win or lose. Bill Gates2

Business @ the Speed of Thought: Using a Digital Nervous System (1999). London: Penguin Books.

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Reference
Gluck, F.W., Kaufman, S.P. and Walleck, A.S. (1980). Strategic management for competitive advantage. Harvard Business Review. July-August, pp, 154-161. Valacich, J & Schneider, C (2010). Information Systems Today. New Jersey: Pearson Education Inc. Porter, M. (2001). Strategy and the Internet. Harvard Business Review 79(3). 62-78 Senn, J. A. (1978). Essential Principles of Information Systems Development. MIS Quarterly. Vol 2 (2) pp 17-26. Stone, M. (2003). SME e-business and supplier-customer relations. Journal of Small Business and Enterprise Development. Vol 10(3), pp 345353. Earl, M. J. (1992). Putting IT in its place: a polemic for the nineties. Journal of Information Technology. Vol 7 (2), pp100-108. Dong, L., Neufeld, D. and Higgins, C. (2009). Top management support of enterprise systems implementations. Journal of Information Technology. Vol 24 (1) pp 55-80. Colin, A., Cragg, P and Herring, P(2011). The role of IT competences in gaining value from e-business: An SME case study. International Small Business Journal. March 2011. Remenyi, D. and Sherwood-Smith, M. (1998) Business benefits from information systems through an active benefits realisation programme, International Journal of Project Management, 16, 2, 81-98 Ward J and Daniel E (2006). Benefits Management. Chichester: John Wiley & Sons. Ward J and Peppard J (2009). Strategic Planning for Information Systems. Chichester: John Wiley & Sons.

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