0 utsourc .

I% IT for Small tels

0

The Opportunities and Challenges of Using Application Service Providers

Operators of small hotel companies can get big-time help 1,~ It i;::il
: .

BYALEXANDROS

PARASKEVAS

AND

DIMITRIOS

BUHALIS

rom the early stages of the internets commercial use, several authors outlined the unprecedented opportunities for small businesses. It was suggested that the internet would assist organizations in the areas of communications, personnel, sales, advertising, and business intelligence. Those observers thought the internet would support innovative small businesses and even individual entrepreneurs in developing virtual size so that they could compete with much larger corporations. Those predictions stemmed from the unprecedented resources available to entrepreneurs with a PC and a modem. Another prediction was that the internet would enable small businesses to reach a large market and appeal to
For example, see: R.A.Guthrie and L.D. Austin, Competitive Implications of the Internet, Information Systems Management, Vol. 13, No. 3 (Summer 1996), pp. 90-93; and J. E&house, Technology Gives Edge to Smaller Businesses, ZnformationWeek, No. 711 (November 30, 1778), pp. SR2-SR4. 02002,

many different segments. The outcome would be that all businesses would effectively become worldwide enterprises regardless of whether they wished or planned for such globalization.* The internets expansion, however, achieved even more for many organizations, as it forced a revolution in business practices globally. Influential authors, such as Ohmae and Brynjolfsson and Kahin, claimed that the so-called new or digital economy had replaced Porters classic value chain.3 A

* P Oviatt and B. McDougaI, Accelerated Internationalization: Why Are New and Small Ventures Internationalizing in Greater Numbers and with Increasing Speed?, a paper presented at: Globalization and Emerging Businesses: Strategies for the 21st Century, Dobson Centre for Entrepreneurial Studies, McGill University, Montreal, Canada (September 1998). See: K. Ohmae, The Invisible Continent: Four Strategic Imperatives of the New Economy (Naperville, IL: Nicholas Brealey Publishing, 2001); and Understanding the DigitalEconomy, ed. E. Brynjolfsson and B. Kahin (Boston: MIT Press, 2000).

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new digital

value system* models in which styles

emerged, companies

they argued, termed toward elements outside that such and exmove away and by forming

Lodging

firms also built alliances and allied with the hotels both further in terms

with other

ho-

and new business meta-markets,5 from internet-based networks of their partners. that asset-intensive

were formed,

tel chains to gain entrance eign markets, to improve gic alliances, entele and efficiencies.

and acceptance restaurant

in forchains offer-

structures of operation

food and beverage facilitated

ings. The internet

such strate-

continuously with more

replace efficient

of offers to their cliback-of-the-house the largserving the and the USA, Hotels function have Hodishave as &

operation

increased For example, service industry Hyatt Hotels, their

Avendracom, company America ClubCorp

PricewaterhouseCoopers web-enabled supply-chain networks efficiency.

suggested go beyond By combining

est procurement hospitality Caribbean, International, Six Continents

cost savings and

in North Hotels,

was formed

in early 200 1 by Marriott and Fairmont procurement hoteliers Preferred to global Others

Independent hoteliers have been reluctant to invest in information and communications technology-partly due to technophobia.

Resorts through Many

to support collaboration. small,

independent

implemented a consortium tional

a front-end

partnership activities,

by joining interna-

(e.g., Best Western, marketing that small would with and access operators.

tels) that provides representation, systems to such their panding tangible networks expectations. following core competencies assets of their can add value Web-enabled and tangible parties, that exceeds and inthese customer also create the tribution available linked

not be otherwise private channels, or public such computor desIn to (e.g.,

connected

business

networks

tourism-product-distribution hotel-representation WorldRes, Utell, erized reservation systems Lexington systems

a new, collaborative

advantage. business

PwC proposes environment: alliances business,

organizations Services), (e.g., Galileo), has helped

two key types of creative partnerships or customer-facing partnerships, aiming management advantage realized that and

for the new economys

l

Front-end Back-end

tination-management many cases the internet team up with other management solutions, to create alliances. Looking evidence line supply

(e.g., Gulliver). operators or destinationcontent, multi-channel there

create new ways to increase

l

at improvstreamlinand proof the parties. revoto compaprograms.

small hotels

ing the technical ing the supply-chain curement, information The hospitality such partnerships lution. partnerships nies to support and

infrastructure, taking

organizations to collaborate cross-promotions at back-end management both

to offer better service on web-site and and

assets of the connected industry long before the internet

the need of moved

partnerships, networking

is

of web-enabled

to streamStates (e.g., in an creseem

In the mid 198Os, large chains with airlines and car-rental their customer-loyalty

with several hospitality in the United and in Europe hospitalia.com, Similarly, hoteliers repositories as the

e-marketplaces purchasepro.com, (e.g., yassas.com,

goco-opcom) in Greece;

Italy; HotelnetB2B.com,
4 M.J. Cronin, Unchained Value: The New Logic of Digital Business (Cambridge, MA: Harvard Business School Press, 2000). 5 G. Means and D. Schneider, Meta-Capitalism: The EBusiness Revolution and the Design of 21scentury Companies and Markets (New York: PricewaterhouseCoopers, 2000). S.J. Skrovan and E. Pollack, Creative Partnerships: Key Asset of the New Competition, PricewaterhouseCoopers Critical Issues,August 2000, p. 3.

in Spain).

increasing ated Illinois ing little

number

of independent knowledge boards (such (such as Arthur Network-)

to use web-enabled by tourist Tourism companies evidence

ITN-

or by consultAndersens however,

hotelbenchmark.com). exists

In all of this, regarding

the use of web-

7 See: www.ILtourism.net.

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enabled

partnerships

to improve infrastructure to invest technology

the information in small hohoteand

motely located Aimed number tributed internet.

a software servers primarily

application

through

centrally

and communication tels. Research communications ranging liers are reluctant

in a rental

or lease agreement. ASPS host a are disacross the firms which individual

has shown

that independent in information (ICT)

at small businesses, applications, include

of business

for reasons

to a wide range of customers ASP customers

from lack of capital

to lack of IT literacy developments and data centers. service proas the best businesses without to re-

and even technophobia.8 One of the most recent internet is the delivery and management computer viders means quiring embraced This hoteliers with hotels theory services through These organizations, for smallmassive remote regarded of applications

that lease the ASPs software for a fee. For example, some hotel firms may lease property-management (PMS) software According tion as follows. It is application oriented. The ASP offers access to and management an application. It sells application access. Hotels cess to a software ers, personnel, software ment the indusand be wise application ing to make investments and other owned is either have acwithout havservThe distribagreeof from Micros/Fidelio. to International characteristics Data Corporaof an ASP are

called application and medium-size ICT infrastructure However,

the defining

(ASPS), were initially

create an affordable exceptions,

investment.

with few

that model does not seem to be widely hoteliers. of European of the internetworking By reviewing explores the views

by small, independent article toward ICT back-end

in licenses, resources. or merely contractual vendor.

ASPS, aiming

at the improvement

infrastructure.

uted by the ASP under with the softwares through

and reality of the ASP model,

and its ben-

efits and practicalities show that independent

in the hospitality hoteliers would

It is centrally managed. Services are managed location. a central, receives The hotel

and data remote

try, this article aims to demystify to regard ASPS as ICT partners.

the concept

only the re-

sults of the application. It offers a one-to-many service. The ASP generally develops partnerships applications with venpackaged that or

Application Service Providers for the Hospitality industry

An application service provider is a third-party and hosts reservice firm that deploys, manages,

dors to provide standardized Minimal

and manage

software

can be used by more than one hotel. or no customization is provided for each property.

Technology and the Inde See: H. Main, Information pendent Hotel-Failing to Make the Connection?, Inter-

It delivers on the contract. The ASP is solely responsible service-level the provision for the delivery of the services de(often known as a of agreement, (network, or SLA) with the hoall the components platform, applibut it is rescribed in the contract tel. It may not control cations, sponsible operations,

national Journal of Contemporary Hospitality Management,

Vol. 7, No. 6 (1995), pp. 30-32; and J.A. Siguaw, C.A. Enz, and K. Namasivayam, Adoption of Information Technology in U.S. Hotels:

Journal

of Travel

Research,

Strategically Driven Objectives, Vol. 39, No. 2 (2000),

pp. 192-201. ) See: T.C. Weller, Application-hosting p. 5; and Yankee Group, Market, Wood

Equity
De-

end-services)

Research: Industry Update, Legg Mason

cember 30, 1999, = Opportunities?, {available as viewed at:

Walker,

for performance

across all of them.

The Yankee Report, December

www.yankeegroup.com/webfolder/ 25, ZOOl.}

SMBs + ASPS 12, 1999, Cherry Tree and Co., 2nd Generation ASPS: Spotlight 2000, p. 2.

docE826647D468525684FOO557BAA?opendocument.html, on February

Report, September
International Profor

T. Heart and N. Pliskin, viders Enable Cost-effective Travel and Tourism?,

Can Application Service Information Technology

ITIndustry:
September

Data Corporation, TheASPsZmpact on the An IDC- Wide Opinion, Document No. 20323, pp. 3-4.

1999,

m Information and Communication Terhnologies in Tourism 2002, ed. K.W. Weber, A.J. Frew, and M. Hits, proceedings of the 2002 IFITT conference, Innsbruck, Austria.

A. Apfel, Application InfraZtructure and Operations-SAR Research Note M-l 2-132 1, Gartner Group, November 6, 2000.

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Pricing
There are several pricing models for ASP services. Usually each hotel pays a flat fee to sign up and a monthly fee for access to the application, training, expert support, and upgrades. However, other payment schemes may be based on usage rates (such as fees per transaction, number of screen clicks, or amount of computer time). ASPS may be divided into so-called horizontal and vertical service providers. Horizontal ASPS

Industry experts suggest that ASPS are ideal for hotels, especially for small and mid-size properties that want access to the best available business applications.

offer the same application to all comers, regardless of the industry-normally, generic backoffice applications, such as general accounting or human-resources applications. Vertical service providers (VSPs), by contrast, zero in on discrete niches, establishing definite boundaries regarding what they are, what they do, and the sectors that they are targeting by offering industry-specific applications. I4 Hospitality-application hosts are both horizontal and vertical, although one-stopshopping VSPs appeal more to the sector.r5 The emergence of web-enabled application hosting resulted in a proliferation ofASPs, similar to the explosion of dot-corns. The dramatic growth in the ASP sector blurred the distinction between software and service provision, although quite often both are offered by the same organization. Heinlein identifies four distinct business models for ASPS, namely: resellers, aggregators, pure-plays, and business-process outsourcers (see

I4 L. McCabe, VSPs Bloom in the ASP Microclimate, ASPnews.com, E-mail Update No. 78, available at: www.aspnews.com/analysis/analyst_cols/article/ 0,2350,4431_587851,OO.html, as viewed on February 19, 2000. I5 C. Chrestman, ASP Is Here to Stay, Hospitality Upgrade, June 16, 2000, p. 10.

the hospitality-specific examples in Exhibit l). These business models have received a good response, mainly among large hotel comnanies. Resellers normally package an application from another software provider and resell it to customers at a discount. They typically charge hotels for the use of the application and provide the first level of support. They do not have much control over the application, but are experts in the specific market in which they operate and usually own the customer. Normally, resellers combine their own products with the resold applications in a bundle and support several functions. Resellers are not normally responsible for maintaining the application from either a technical or product perspective, beyond first-level support. Aggregatorscombine and distribute multiple applications from different ASPS. These applications are usually offered through the aggregators portal. The use of multiple applications allows aggregators to offer hotelspecific packages (such as PMS, POS, and yield management) or business-wide packages (such as human-resources management, training, accounting, and back office). By offering many applications and comprehensive service, aggregators enable hotels to deal with a limited number of ASPS. This model is ideal for hotels wanting a one-stop application service provider. However, aggregators do not usually offer best-of-breed applications, and some of their products are weaker than others available in the market. l&replays normally have their own data centers where they maintain, develop, and offer their own applications, typically seeking to be the best of the breed. They therefore rely least on partnerships to deliver their applications. They have a high level of control over the service and customer experience and offer end-to-end accountability, Although this is often the most costly of all models, many organizations
I

I6 S. Heinlein, Crash Course for ASPS, available at: www.aspnews.com/analysis/analyst_cols/article/ 0,,4431_592331,00.html, as viewed on February 16,2001.

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Hospitality

ASP Taxonomy
Business-procen3s outsourcers Accuvia

TYP@ Example

R~SdhS

Aggregators
International/ CCSI HotelTools/ Systems Radiant

Pure plays
Pegasus Solutions

Interval

Typical customer

Market directly associated with the company (e.g., vacation-ownership indus-

Small or larger hotel organizations

try)
Services Provides own software alongside partners products and support (e.g., the comprehensive timeshare application Resort Solutions@ alongside with SoftBrands Hospitality suite as an ASP solution). Provides proprietary software on main hotel ITfunctions alongside multiple applications from different ASPS (e.g., call accounting, general accounting; back off ice; data cleansing; e-procurement; electronic bill presentation, and ePayment; etc.).

Mainly hotel chains but also any individual properties interested in a property-management solution Provides its proprietary property-management module (Pegasus Central) as a single image inventon/system, offering traditional PMS functions and connectivity with distribution channels.

Fortune-500 organizations in the hospitality, foodservice and retail industries Provides business process outsourcing services in addition to application services. For example it manages, supports, and integrates both hospitaliD/-focused applications such as POS, PMS, and yieldmanagement systems, as well as businesswide applications such as finance, HR, and CRM.

want

their ASP to offer them the safety of a pure play, particularly if they are running critical business applications. In addition to dealing directly with their own customers, pure plays frequently also contract with resellers who target or have access to markets in which pure plays are not directly interested. Business-process outsourcers can be either resellers, aggregators, or pure plays. The distinction is that they deliver business services in addition to computing applications. They usually manage, support, and integrate both hospitality-focused and business-wide applications. This ASP model can be com-

pared to a professional-service organization. The disadvantage of this model is that it relies on several partnerships and similar aggregators, and it demands both creativity and simplicity in its packaging.

The concept of a hosted application is not new. In the 1960s mainframes (known also as service bureaus) offered a centralized computing model that allowed several users to share the same computer-processing capacity, Mainframes were used mostly by large organizations and governmental bodies to coordinate their operations. This model, however, required high up-front costs and a

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ASP value proposition

Bottom-line benefits lCostsavinsl Costs spread more evenly over time as opposed to massive up-front infrastructure investments. ICT cash flows are predictable and can be managed over the applications life cycle. No need to buy, maintain, and upgrade in-house hardware and software. The only requirement is a computer with a web browser and a high-speed connection. Regular upgrades of the hosted applications are automatic, without significant cost implications and with little or no interruption to service. Cost savings are gained from sharing the cost of specialized ICT personnel, training, and consultancy services. Top-line benefits (Creating or adding value) Continuous high-quality technical support. Ability to focus on the businesss core competencies. Access to best of breed applications at an affordable cost. Increased scalability (for additional operating units or franchisees). Flexibility to switch to another provider. Minimize ICT-investment risk. Minimized administrative burden through the use of ASPs specialized and expertise. Reduced application-deployment time. Training on using the application is provided as part of the package.

support

lengthy deployment and implementation time; plus, it was costly to use and difficult to upgrade. Text-based interfaces and the inherent inflexibility of mainframes were considered counterproductive. Industry experts suggest that ASPS are ideal for hotels, especially for small and mid-size properties, that want access to the best vertical and business support applications on the market without having to deal with the technology or pay for more functionality than needed.As they do not have extensive ICT departments and expertise, such hotel operators can gain easy access to up-to-date applications and benefit from the collective knowledge accumulated by ASP providers without having to invest extensively in technology or expertise building. Although lowering costs and complexity is a major advantage, the model also gives organizations more time to concentrate on their core competencies, allowing them to decide when and where to use their data.lR In general, ASP benefits can be classified into two main categories: bottom-line and top-line (Exhibit 2). Bottom-line benefits are cost-saving measures, such as enabling organizations to manage their resources better. By sharing research and development costs with others, small hotels can maintain up-to-date systems at an affordable cost. Top-line benefits involve creating value, improving customer service, and enabling organizations to improve their services and to add value to those services. These benefits can improve the competitiveness and profitability of an organization.

A Reality Check
No matter how attractive this model looks, the early adopters were faced with problems, which the ASP industry is addressing as it moves from its developing stage to maturity. The main problem has been the stability of the providers them-

M. Rambler and G. McGrew, The Case for ASPS: Opportunities and Challenges With the ASP Model, Lodging, December 2000, available at: www.cyntercorp.com/sections/news_articles/articles/200012ASl?asp, as viewed on March 13, 2001.
s S. Jacobs, ASP-iringTechnology, The CPA Journal, Vol. 70, No. 11 (November ZOOO), p. 66; and A. Fantasia, Decoding ASPS, Harvard Business Review, Vol. 78, No. 6, November-December 2000, p. 33.

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Similar to many dot.coms, the ASPS selves. dramatic growth in 1999 and early 2000 led to a collapse of many prominent providers, leaving customers to deal with the ensuing operational problems. Many early adopters lost faith in ASPS and went back to conventional ICT provision. This shakeout is expected to continue until 2003, when half of the existing ASPS, most likely the small providers, will probably fail or merge with large players, who will eventually offer the stability needed in this marketplace. In addition, the performance of certain ASPS has not matched the promised service levels. Some applications were not as scalable as needed, resulting in delays and frustration. As the ASP customer base increased, users often had to wait for service. In addition, connectivity and access problems were reported, due to heavy internet traffic or during periods of unreliable system availability. Delays of that kind were particularly critical for hotel PMS applications (for example, the speed of check-in and check-out and the availability of guests billing information). Until broadband connectivity is available in every location, connection speed and data-transport capabilities necessary to support the hostedapplication model varies according to the local internet-service providers capabilities. This generates a sense of unpredictability and unreliability, which jeopardizes the benefits offered by ASPS and raises concerns about the services they can actually provide as well as the degree of control they have over the service they promise. Security has also been a concern. The fact that company-critical data must travel a long waythrough a telecommunications-company network to an ISP (internet service provider) and then finally to the ASP and then back the same way-represents a high risk for security breaches by hackers. Many businesses are therefore nervous about allowing their critical data to travel in cyberspace.
I) C. Koch, Boy, That Was Fast!, CIO Magazine, November 15, 2001, available at: www.cio.com/archive/ 111500/boy.html, as viewed on February 8,200l. D. Friedlander, Bain Capitals Investment in USi Is Indicative of Consolidation in the ASP Market, Gigu Znformation Group Analysis, available at: www.gigaweb.com/ search/l,2l97,results,00.html?iContentID=258753, as viewed on October 28, 2001.

Finally, many potential ASP adopters were put off by the idea that they would no longer own the data produced by the hosted application. This created a sense of insecurity and concern, especially by small business owners and managers who often feel they should control all aspects of their operations. An early study of the perceptions of small-hotel managers showed that this loss of direct control over the application would cause apprehension from the traditional power centers in a hotel (e.g., owner, manager, controller). Hence, adoption of the ASP model would imply a major and sometimes painful change in the hotels organizational culture.

One methodological challenge in this effort to document the small-hotel managers perceptions of the application-hosting model was the selection of hotels for inclusion in the study. The existing European Commission and Small Business Administration definitions, which classify firms according to the number of employees, are not universally accepted. Our study included hotels that fit the following definition, thereby offering a quantitative dimension to the sampling process. A small hotel is financed by one individual or small group [and is] directly managed by its owner[s] in a personalized manner and not through the medium of a formalized management structure. It may or may not be affiliated to an external agency on a continual basis for at least one management function. In comparison to the largest unit of operation within the hotel industry it is perceived as small, in terms of physical facilities, production and service capacity,
and number of employees.**

Another criterion used for the sample selection was whether the hotel had a web presence, because that indicated a minimum level of internet awareness. A convenience sample of 420 U.K. and Greek independent hotels of sizes that
A. Paraskevas, ASP: The Affordable IT Answer for Small and Medium-Sized Hospitality Businesses?, a paper presented in the conference Entrepreneurship in Tourism and the Contexts ofExperience Economy, University of Lapland, Rovaniemi, Finland, April 200 1.

* A.M. Morrison, Small-firm Statistics: A Hotel-sector Focus, Service Industries Journal, Vol. 18, No. 1 (1998), pp. 132-142.

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Respondents
category

profile
N= 106 Percentage

Position in the hotel Owner-Manager General manager Assistant GM Financial controller Sales and marketing manager 47 28 12 8 11 44.3 26.4 11.4 7.5 10.4

M
Less than 25 years 25-35 3w5 46-55 More than 55 CT competence High Average LIXJ Hoteltwe City hotel Resort hotel Gther Hotel size 5C-99 rooms 100-I 50 rooms 43 63 40.6 59.4 47 41 18 44.3 38.7 17.0 7 21 78 6.6 19.8 73.6 18 26 34 23 5 17.0 24.5 32.1 21.7 4.7

varied between 50 and 150 rooms was selected. An open-ended question survey was sent by email to all hotel managers or owners in the sample. Although there is no documented evidence that e-mail surveys produce higher rates of response than do postal surveys,23 this survey produced a response of 25.2 percent (106 usable responses), which is considered satisfactory. Exhibit 3 illustrates the respondents profile. The data collected were analyzed using a twostep content analysis. * The initial stage involved developing a coding scheme and coding text from all 106 responses and identifying general themes in the data. Responses were then assigned to each theme category.25 The survey was designed to reflect the respondents general attitude toward using the internet for ICT applications, regardless of their ASP awareness. The respondents showed a good level ofASP awareness (53.8 percent), higher than in a previous study. 26 For the naive respondents, a half-page briefing on ASPS, their value proposition, and the web address of ASPIC (the ASP Industry Consortium2) were attached to the e-mail survey.

We were surprised to find that almost all of the respondents (92.5 percent) either stated or implied that they do not perceive ICT as a means to gain competitive advantage. The general view was that ICT has an ancillary, supporting role in

23R. Mehta and E. Sivada, Comparing Response Rates and Response Content in Mail versus Electronic Mail Surveys, Journal of the Market Research Society, Vol. 17, No. 4 (1995), pp. 429-440.
24K. Krippendorff, ContentAnalysis: An Introduction to Its Methodology (Thousand Oaks, CA: Sage Publications, 1980). 25 Intercoder reliability was evaluated by Cohens Kappa, giving a .92 coefficient for the themes identified and the responses per theme, which shows high intercoder reliability. See: M.A. Hughes and D.E. Garrett, Intercoder Reliability Estimation Approaches in Marketing: A Generalizability Theory Framework for Quantititative Data, JournalofMarketingResearcb, Vol. 27, No. 2 (1990), pp. 185-195. 26 Paraskevas, op. cit.

* See: www.aspindustry.org.

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iv 1 CF2kJF ftr:~?iOl.9~;~

the hotel business. With ICT, the respondents suggested, things have just become easier. However, some respondents felt that they can still manage [their] hotel without [ICT]. The majority of the respondents viewed ICT as tools for enhancing their efficiency by: Improving information processing (e.g., through guest history, arrivals, and departures lists), Developing planning and control (through effective use of reports generated), Enhancing some work processes (by eliminating mundane tasks), Saving time and effort in a number of administrative functions (e.g., guest accounting, reservations, marketing), and Reducing costs (predominantly labor costs and specific jobs such as, for example, night auditing). As we said, small-hotel managers did not regard ICT as a source of competitive advantage. They felt that it is their core functions that give them the edge and this is where they should concentrate. The majority of the respondents classified the various ICT applications in their hotels as commodities, rather than as differentiators, and therefore their ICT applications do not distinguish their property from its competitors. However, they often considered one or two applications (mainly PMS and accounting) as critical for their hotel and emphasized that properties with weak applications in these areas may face a competitive disadvantage. This is in line with some of the new way of strategic ICT thinking,28 which suggests that ICT cannot offer sustainable competitive advantage, although innovative organizations need to adopt ICTs and take advantage of the changes observed in the marketplace. Exhibit 4 shows the respondents degree of involvement with ICT decisions in their hotel. Almost half of the respondents (48.1 percent) stated that they are not directly involved with ICT decisions and probably use the services of either internal or external ICT experts or consultants. Further, more than two-thirds (69.8 percent) of the respondents admitted that they

Hi-?~~i)cllifji-:l?!; !(I
Degree of involvement

k, :r)\r,,iyjil,-~

,:!I,,

I:*,

II,,

/I!

N = 106 6 14 31 48 7

Percentage 5.7% 13.2% 29.2% 45.3% 6.6%

Remote from ICT management and use Limited involvement in an overseeing capacity Close involvement in ICT use and decision making Direct involvement in ICT use and decision making Regular daily direct Interaction with hotels ICT (use and technical aspects)

are often intimidated by the complexity of ICT and are unable to follow its continuous changes and improvements. At the same time, 17 percent of the respondents reported good knowledge of ICT, while only 24.5 percent stated that they were either considering becoming more knowledgeable in the near future or planning to encourage their staff to become more ICT literate.

** M. Porter, Strategy and the Internet, Harvard Business Review, Vol. 103, March 2001, pp. 63-78.

In exploring their views on ASPS, one factor that some respondents cited that makes this model appealing is the ASPS expertise in business applications. Most of the hoteliers (79.2 percent) found the idea of continuous technical support attractive, while more than half linked that with cost savings in expert ICT staff or consultants. The responses clearly indicated that using an ASP would just give hoteliers the opportunity to improve their present use of ICT and relieve them from maintenance headaches. In their view, ASPS are providing the small hotel with relative advantage (i.e., better innovation than its precursor). Despite overwhelming support for the idea of using an ASP, only 39.6 percent (42) of the respondents reported that they were interested in further investigating the possibility of doing so, while the rest dismissed the idea for various reasons that are presented later in this section.

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In Favor
In a further exploration of their interest, the proASP respondents indicated a number of reasons for their interest, which can be classified into three major categories: reduction of business costs (mainly labor), reduction of ICT costs (mainly through eliminating ICT upgrading costs, maintenance, and ICT experts), and improvement of ICT performance (e.g., access to best-of-breed applications, upgrading existing ones). Still, more than half of the pro-ASP respondents (27, or 64.3 percent) would consult an expert before making this decision, while the rest stated that they will make an informed decision by themselves. Of those interested in ASP solutions, the vast majority would investigate the possibility of selective partnering with ASPS, while keeping their critical applications, such as PMS, in the hotel. Only three individuals were

Not Ready for ASPS

The respondents who rejected using ASPSmainly stated the reasons presented in the ASP reality check (i.e., loss of control, security concerns, and internet infrastructure-related factors. They also add problems of interfacing any existing (legacy) property hardware or software with the ASP. However, loss of control, as Exhibit 5 demonstrates, is the strongest reason. Legacy systems play an important role in the decision-making process. One-fifth of the respondents indicated that they were reluctant to abandon the applications that they already have in the hotel in favor of an ASP. This was true even if the change involved an application that could significantly improve operations. Respondents in this case felt that back-end integration would be impossible or that the cost of interface and the disruption caused by a change in the existing ICT status in their hotel would defeat the purpose of using an ASP (e.g., reduction of ICT cost). A final finding was that four of the respondents rejected altogether the idea of using an ASP because they did not see anyone in [their] direct competition using this model, illustrating the power of imitation and leadership in ICT penetration in the hospitality industry.

The existence of a preexisting legacy system often discourages involved service provider. hoteliers from becoming with an application

Implications Hoteliers

for Independent

interested in a total partnering solution. When asked to indicate which applications they would prefer to use through an ASP most of the proASP respondents (36 of 42, or 85.7 percent) indicated secondary applications (e.g., human resources, stock management, payroll), rather than the critical ones (e.g., billing, check-in, checkout). This suggests that even the early adopters are still skeptical of the ASP model and are not ready to use ASPS for applications that they consider as crucial to their property. A considerable number of pro-ASP respondents also expressed their discomfort with the idea that crucial and confidential data about their hotel would be stored and managed by a server the issues of away from home, emphasizing control, safety, and confidentiality.

The hosted-application model of ICT outsourcing offers benefits that small independent hotels should not leave untapped. Regardless of the current slow adoption rate, the model works-and some large players already reap its benefits. For example, Harrahs, VIP International, and Meristar are using the electronicdistribution and reservations-management ASP solution by SynXis@, while 13 Millennium and Copthorne hotels in the United States are the first to use SWANs ASP offerings for yield management, sales and catering, property management, and two-way connectivity to CRSs. However, there are also success stories among small hotels, like the 150-room Nelijarve Holiday Cen-

zL) example, see: Robert B. Cialdini and Noah J. For Goldstein, The Science and Practice of Persuasion, in this issue of Cornell Hotel and Restaurant Administration Quart&y, pp. 40-50.

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ter in Estonia, which uses Nimetas PMS-CRS application. In addition to standard features (i.e., reservations, front-desk functions, guest accounting, guest history, and rooms-division reporting), Nimetas application offers the hotel an interactive marketing tool that allows managers to build ad hoc inquiries to the database for targeted marketing programs, WAP (wireless application protocol)30 functionality for managers, WAP guest reservation, loyalty-point tracking, three levels of data mining, internet reservations, electronic credit-card authorization, and graphic reporting. Although the sampling method in this research does not allow for generalizations, it does raise some issues that are critical for the relationship between small independent hotel properties and ASPS. The first is that small independent hoteliers do not seem to believe that ICT gives them any kind of competitive edge. This challenges the assertions of many authors in the hospitality and tourism field.3 A more careful investigation of the responses, however, reveals a contradiction. On the one hand, some respondents were keen to state that they do not need ICT to run their hotel, but on the other, they listed a number of benefits they regularly gain from using ICTs. In another apparent contradiction, they maintained that only core hospitality and service-related functions can give them an edge over the competitors. However, that point of view fails to recognize that ICT often enables managers to concentrate on these functions, while also en-

Reasons for ASP rejection

Number of respondents mentioning the factor 53 48 27 21 Total number of mentions during the survey 214 102 82 56

Reason

Loss of control Security concerns Internet infrastructure Connectivity with existing (legacy) property hardware or software

Note:The first column indicates the number of responses in which the factor was mentioned, while the second column indicates the total number of mentions of each factor during the study, given that each respondent could name more than one factor

3WAP (wireless application protocol) is a specification that standardizes the way that wireless devices, such as mobile telephones and PDAs can be used for internet access, including e-mail and messaging, on-line reservations management, and data transfer, including payments.
For example, see: D. Buhalis, Information and Telecommunications Technologies as a Strategic Tool for Small and Medium Tourism Enterprises in the Contemporary State of the Art, Business Environment, in Tourism-The ed. A. Seaton et al (London: J. Wiley & Sons, 1994), pp. 254-275; W. Cho and M.D. Olsen, A Case Study Approach to Understanding the Impact of Information Technology on Competitive Advantage in the Lodging Industry, Journal of Hospitality and Tourism Research, Vol. 22, No. 4 (1998), pp. 376-394; and M. Sigala, A. Lockwood, and I? Jones, Strategic Implementation and IT: Gaining Competitive Advantage from the Hotel Reservation Process, International Journal of Contemporary Hospitality Management, Vol. 13, No. 7 (2001), pp. 364-371.

abling them to cut costs, achieve differentiation, and, ultimately, increase their business competitiveness. The attitude of hoteliers toward ICTs may be attributed to the fact that the majority of hoteliers are alienated from or intimidated by ICTs and tend to assign the ICT function and operations to either system managers or to other companies. Hence, hotel managers often fail to appreciate the magnitude of the emerging change as a result of the ICTs. This is illustrated by the fact that almost half of the respondents (5 1, or 48.1 percent) are not directly involved with crucial ICT decisions (although almost one-third report being closely involved-as shown in Exhibit 4). They often leave them to third parties, most probably consultants, who may carry their own agendas and not have the best interest of the hotel at heart. Others simply fail to appreciate the potential that ICT offers for their business. Therefore, a reliable, unbiased partner who can help them solve their ICT problems in an

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affordable way can be critical. This partner can provide collective expertise from other properties, offer flexibility and knowledge, and allow hotel managers to concentrate on what they know and enjoy best: serving their guests. Despite its teething problems, the hostedapplication model seems ideal for small hotels. No consultants are needed, no ICT specialists need to be employed at the property level, and it offers a value proposition that cannot be ignored. Independent hoteliers may find in an ASP apart-

Although

the hateliers in this survey about ASPS, those con-

had concern

cerns are gradually being address

ner that offers the technical expertise and infrastructure that their hotel needs to compete against the industrys behemoths (who have developed their own electronic applications and shared them chainwide). Most of the respondents in this study reported that they would be attracted to the ASP model, mainly by the obvious cost benefits it offers. However, they missed a number of strategic aspects of ASPs, as well as most of the additional critical benefits that ASPS offer. Small-hotel managers need to realize that the paramount consideration for any networking decisions should be the maximization of flexibility, with minimizing operational costs a close second. There is no point in building a business network if doing so does not result in freeing resources for core hotel operations. The hosted-application model offers hoteliers exactly that flexibility, as there is no need to shop, purchase, train, install, or acquire additional hardware components. Installation hassles, incremental upgrades, and ongoing maintenance issues become someone elses concern. Hotel managers may also determine a distinct application configuration and lease only those applications deemed relevant to their business. Our study showed that small-hotel managers were also concerned about ASPS performance,

control and ownership of data, and security. As the ASP industry matures, these concerns are being gradually addressed. The industry has started to stabilize, and a number of serious players now provide reliable services. Gradually, therefore, hoteliers should start trusting ASPSand take advantage of the following developments to address their business needs and functions. Most ASPS use secure virtual private networks (VPN) or offer internet connectivity through partnerships with high capacity (9.6 Gbit/s), fully redundant, scalable global IP networks. Also, ISDN lines are offered by most telecoms worldwide, and broadband connectivity is increasingly available. These developments enable ASPS to improve their web performance. Some ASPS offer auxiliary back-up servers within the hotel, in case of system failure or network downtime. ASPS are assuming the responsibility of back-end integration with hotels legacy systems, making transactions seamless. These developments aim at addressing data-ownership and -control concerns. The back-ups also comfort nervous hoteliers about the reliable performance of critical applications. More recently, a number of ASPS have started modifying their offerings with an eye to becoming real partners with the users of their services. Corio and Jamcracker, for example, in some cases have located their applicationmanagement servers on the customers premises. Security is also strengthened over the networks, with such enhancements as firewalls, PKI (public key infrastructure)32 and security certification to detection of unwanted entries. Additionally, learning defense systems accumulate knowledge and empower their defense mechanisms through the experience of previous attacks. These systems, in addition to providing conventional security infrastructure, are able to update the
3* A PKI (public key infrastructure) enables users of nonsecure public networks to securely exchange private data and money through the use of a public and a private cryptographic key pair that is obtained and shared through a trusted authority (such as RSA, Verisign, GTE CyberTrust,
Xcert)

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security functions continually regarding new, unknown types of attacks and to block them on the first strike. Each hotelier will undoubtedly have a different set of answers to the above issues and adopt dissimilar strategies and solutions. The critical factors determining their decision are the hotels capability to invest in ICT and the degree of dependence that each hotel manager is prepared to have on the ASP network. According to one school of thought, to maintain control of the network environment, the hotel should keep several ASPS battling to provide their services.33 A good strategy along that line would be to periodically reconfigure the network (e.g., every two years), keeping part of the applications in-house and using them as an incentive for the most efflcient and most trustworthy ASI? This approach will enable the hotel to team up only with the best of breed pure plays. The downside of such a strategy is that systems are often not compatible and so the transition from one ASP to another could prove problematic. Such an approach also involves a high level of management involvement. Increasingly, however, there is also the option of strategic partnership with a businessprocess outsourcer (such as the arrangement Hard Rock Hotel and Casino made with Infinium) that monitors and manages a number-if not all-of the hotels applications and reports to the ownermanager, who can make the final decisions. Small-hotel manager-owners may take advantage of the instability in the ASP industry by negotiating their terms on service-level agreements with eager service providers. These should include the normal service and payment details, as well as specific exit strategies, in case the ASP fails to provide the agreed-on service levels or stops its operation. Hoteliers may also demand an articulated process, with provisions for a gap analysis and coverage (e.g., in case of incompatibility with a new ASP). In this case, should the collaboration be terminated due to a breach of contract, the ASP will have to examine the gaps and undertake the task of bridging the differences

between the applications of its successor.

it provides

and those

Innovative hoteliers (regardless of their size) seem to be taking advantage of the power, flexibility, and opportunities offered by business networks. However, these advantages may be enjoyed only if outsourcing decisions are well informed and not influenced by cost-reduction myopia or third parties who may have vested interests. Although independent hoteliers seem to lag behind in the effective use of ICT, we believe they gradually will come to see the difficulties they will have in maintaining their competitiveness without stateof-the-art ICT. By either ignoring or remaining alienated from ICT they are competing with one hand tied behind their backs. One way to untie that hand is by building a web-enabled network in which they can leverage the assets of other connected parties to gain the flexibility needed to continuously create competitive advantages based on their own core competencies. The ASP model of outsourcing, despite the challenges that still need to be overcome, gives them the chance to improve their ICT infrastructure and thereby to compete with every other player on an equal footing.

Alexandros Paraskevas, M.Sc. (left), is a senior lecturer in operations management in the School of Hotel and Restaurant Management

33 M.C. Lacity, L.l? Willcocks, and D.F. Feeny, IT Outsourcing: Maximizing Flexibility and Control, Harvard Business Review, Vol. 73, No. 3 (1995), pp. 84-95.

0 2002, Cornell University; an invited paper.

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