“Classic Hotels – State of the Art Technology”, that’s the promise of Fairmont Hotels & Resorts, owner of such vintage lodgings as The Fairmont Royal York Hotel in Toronto, The Fairmont Banff Springs, and Fairmont Le Chateau Frontenac in Quebec City.
Rather than being hidden in the backrooms and glass houses of the company, IT today is a major part of Fairmont’s branding initiative and is positively connected with its public image. Sales and marketing is one of the last frontiers for IT in organizations. How IT came “out of the closet” at Fairmont is a story that illustrates the potential of technology to help a company differentiate itself from its competition and deliver true customer-facing business value.
“Five years ago, IT was totally in a reactive mode,” says Vineet Gupta, Fairmont’s VP of Technology, who joined the company in 1999 after working in the aerospace industry. “We only had about 15 people in corporate IT with a limited brand technology strategy, and we constantly spent all our time on fixing things as they broke.” In addition, there were about 40 IT people located in the hotels themselves. However, because each hotel operated independently, there were very few interfaces between the properties and a wide variety of incompatible technologies. As a result, IT as a ‘brand’ had limited capabilities.
In order to use IT as a competitive advantage, Gupta and his boss, Tim Aubrey (Senior Vice President of Finance), had to develop a strategic technology plan that would enable each of Fairmont’s four main constituencies: guests, owners, employees and the brand, and address their different and often conflicting cost/benefit concerns.
For example, guests wanted high-quality IT services at minimal cost, while owners were very cost-conscious and somewhat resistant when it came to buying new technology. Employees wanted effective, easy-to-use technology but didn’t care as much about costs. And as a company, Fairmont wanted to use technology strategically for positive public relations and to attract new owners. Any IT strategy therefore had to make sense in the eyes of each of these groups. IT’s strategy had four main elements:
1. Low cost technology with long-term investment protection for the brand’s owners. The technology team selected Web-based technology standards that provide any time, anywhere access. They also agreed to guarantee that IT costs would remain flat or diminish over time, even with the company adding new capabilities.
2. Strong, guest-facing applications. Here, the team decided to use a self-funding model that would provide a high ROI.
3. Off-the-shelf products. IT committed to buying packaged software and tailoring it to meet the company’s needs. “In-house builds are just too expensive,” said Gupta. “Fortunately, many vendors wanted to be aligned with the Fairmont brand and became our strategic partners.”
4. Selective outsourcing. The team decided to outsource non-strategic components.
Three frameworks for three markets
By 2001, the IT team realized that it also had to do something about providing Internet access for in-house hotel guests. Well over half the population of affluent households were online and business travelers were particularly heavy users. These two groups are Fairmont’s key target markets.
In addition, the company’s competitors were introducing high-speed Internet access. IT knew the company “had to get on the bandwagon or be left behind”. IT therefore introduced a program of three connectivity frameworks that would position Fairmont favourably and rapidly in the eyes of its target audiences. This was the first time IT had become directly involved with a sales and marketing initiative and the first time it became a visible part of the company’s brand positioning.
The three frameworks are as follows:
– TheFairmontNet – for in-hotel guests. It offers low-cost wireless access in hotel lobbies and meeting rooms and high-speed Internet access and other external online capabilities in guest rooms.
– Fairmont.com – for the general public and loyal and potential guests. It captures information about their interests and needs and attracts up to 30,000 visitors per day.
– myFairmont.com – the desktop for all employees. Accessible from anywhere via the Web, most brand applications are delivered to colleagues through this portal.
Each of the delivery frameworks uses the same databases: one for guest data and the other for additional content. From these, the company has been able to initiate direct mail and email campaigns and develop personalized content for guests. These databases are now mined by sales and marketing staff to help them better understand and segment their marketing efforts.
The costs involved in wiring the chain’s guestrooms, meeting areas and lobbies for connectivity were substantial. Basic capital outlays per hotel included $20,000 for a server, installation and configuration, and $500 per room for cabling. In addition, there was an annual fee for technical and guest support. Because of the costs involved, high-speed access was first established as a brand standard for high-end rooms and meeting rooms – differentiating Fairmont Hotels & Resorts from their competition. And cabling for future expansion of Internet access was required for all room refurbishments. Today, more than 80% of Fairmont’s guest rooms are Internet-enabled and all meeting rooms and hotel lobbies are both Ethernet and wireless enabled.
The delivery frameworks and connectivity together enable the company to offer many different capabilities over a number of delivery channels. For example, TheFairmontNet will soon enable guests to use their room TVs to access the Internet. The company is also experimenting with other devices for some guest services. These form a platform from which further layers of guest applications can be provided, such as email, dining room reservations, concierge service, and golf and spa reservations. This approach has proven very attractive to guests since they can access both hotel and outside services more easily. It also gives Fairmont the capability to market to guests behind closed doors.
Building the business case
Because the hotel owners were sceptical about the value of IT’s plans, the technology team met with each owner individually to present their strategy and listen to his/her concerns. They had to directly address changing the owners’ traditional operational attitude toward technology and help them to see that it could be used competitively. The owners also had to be convinced that the strategy could be introduced in a cost-effective manner and that it was advantageous to approach this problem corporately.
“We had to get the value proposition into people’s heads if we were going to be successful,” said Aubrey. “The unstructured nature of our business helped, because we were able to show the benefits of structure.”
While IT was convinced that guests and staff needed additional connectivity, persuading senior management and owners to back it required a strong business case. The technology team first documented the problem. They noted the increasing length of hotel calls for dial-up access and the growing need for expensive PBX technology to keep up with the demand for telephone services. They also pointed out the rising number of guest complaints about inadequate Internet access.
Next, they came up with a cost proposition that the owners could live with. They concentrated first on wiring each hotel’s upper-end guestrooms, and introduced guest and meeting-room charges to recover the cost of capital investment within two years. Other benefits were also documented, such as capital avoidance for PBX upgrades and additional potential revenue sources (e.g., movie rentals, increased restaurant bookings).
IT’s business case provided the owners with two different ways they could finance connectivity and other IT services and recover their costs. If a hotel made the initial capital outlay, then it would be charged only a small amount (10 cents per room per day) for operating expenses (including technical support). However, owners could choose to have Fairmont fund the capital and then reimburse the company back at a rate of 50 cents per room/per day for four years. In both models, a percentage of the revenues were returned to IT for technical support and new development. As a result, IT has become a revenue centre within the organization.
The hotel industry typically spends only about one percent of revenues on IT. About one-half of these costs are labour. To maintain its budget levels, IT adopted a shared service model for basic utility functions, which reduced costs and increased funding for corporate IT initiatives. Value-added services were layered on top of these basic services.
IT also established brand standards and imposed strong controls over local application development. Originally, Internet access was outsourced to an external supplier. However, service quality was problematic and customer complaints and costs increased. Therefore, the service was brought in-house, with IT acting as an Internet service provider through its internal WAN. This has proven to be a cost-effective solution.
The high-speed Internet-access business case planned for online access in meetings to grow from five percent to15 percent within four years. This goal was achieved in one year. Similarly, it planned for high-speed usage to be between two to five percent of occupied rooms. This is now at eight percent and rising. Financially, Internet access was a surprise as well. Although the business case had called for guest and meeting room charges to decline over time due to increased competition, the hotel has been able to continue to charge a premium for this service. This has helped make Internet access a very profitable service for the company, and for IT.
Gupta believes that this initiative has completely changed perceptions of IT in the sales and marketing sector of the firm. “When IT ventures into the area of marketing, it can expect some ‘push back’ from the business. It is therefore very important for IT to keep sales and marketing people involved in these types of projects and to build strong relationships to be successful,” he explained.
They were the ones who came up with one of the company’s new positioning statements: “Old World Company Embraces Cutting Edge Technology”. It was easy to market and attracted considerable press coverage. Most importantly however, IT and marketing have together created real competitive differentiation with technology that has led to long-term business and customer value for Fairmont.
Heather A. Smith is a Senior Research Associate at Queen’s University School of Business and a Director of the CIO Brief, a group of CIOs that meets quarterly to share experiences and best practices. She can be reached at firstname.lastname@example.org.
The Fairmont Family
Fairmont Hotels & Resorts is a collection of 42 world-class resorts and city centre hotels that enjoy considerable prominence in the communities where they are located. The brand’s parent company, Fairmont Hotels & Resorts Inc. (NYSE & TSE: FHR), is one of North America’s leading owner/operators of luxury hotels and resorts. It owns and/or manages 81 luxury and first-class properties under two brands – Fairmont & Delta – with over 32,000 rooms worldwide.
Formerly known as CP Hotels, the company went public with a new name in 2001 when CP merged with the Fairmont Hotels. The company also holds numerous real estate interests and is a major investor in Legacy Hotels Real Estate Investment Trust.