Digital transformation in the hospitality industry

1.1. Digital transformation in the hospitality industry

Hospitality is a growing sector with a very bright future for those who manage to adapt and redefine their offer and way of doing business.

The global revenue in the hospitality industry reached $490bn in 2016, and is predicted to grow by 13% to reach $554bn in 2018. It represented 9% of the world GDP in 2015 and employed 1 in 11 jobs in the world.

To match an increasing demand, the world accommodations hotel counted 22 million of rooms in 2016, which represented a 4% growth compared to 2015 and was mainly supported by hospitality groups.

The key regions are traditionally Europe and North America with the largest number of rooms (respectively 7.9 million and 5.4 million) but these numbers are today almost stagnating. The growth is focused on Latin America and Asia Pacific (+300 000 rooms in 2016), with the rise of powerful Chinese hospitality groups. Today China counts almost 2 million of hotel rooms and is the second country in number after the USA with 8.7% market shares, whereas it was not even in the Top 10 countries ten years ago. A significant example is Home Inn (http://www.homeinnhotel.com/), a Chinese hospitality group, the ninth in the world, that grew its accommodations capacity in number by 15.4% in 2015.

Just as for every sector, technology has become a critical asset for hospitality groups and the expenses are rising to take the advantage of this new opportunity. According to the 2016 Lodging technology report lead by HT Magazine, 54% of hotels have increased their expenses on technology in 2016 to meet their three biggest priorities: mobility, the upgrade of existing systems and boost security.

Mobility is mainly related to the usages of customers, that are requiring an omni-canal interaction, but also of the staff that can gain in productivity by being more flexible. The upgrade of existing systems aim to improve the efficiency of hotels staff and are necessary to provide an effective platform, key of success for the digital transformation. With the increasing data from customers and digital payment solutions, security has become key for hotels to manage the information about their customers.

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The average of the technology budget for hotels is 6% of the revenue in 2016 versus 4.9% of revenue in 2014.

Figure 1: The top objectives for Technology in the hospitality industry in 2016.

Source: 2016 Lodging technology report, HT Magazine

This digital transformation brings important evolutions to hospitality groups and disrupts their business-models with a first impact: being “customer centric”. The leading companies do not control the customer relationship anymore and focus increasingly on their customers’ needs. The consumerization of IT, that is “the specific impact that consumer-originated technologies can have on enterprises” according to Gartner (research and advisory firm specialized in IT), has disrupted the balance between companies and customer by giving to the last one superiority. This new consumerization is today at the same time an opportunity for companies to take advantage of new technologies and develop them while focusing on consumers, rather than on the IT perspectives.

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Thanks to technologies, hospitality groups can offer more added-value services/products and acquire new customers. If they fail in doing so, they are highly exposed to the risk to become obsolete, to suffer from new entrants and not to be able to match the customers’ new needs.

This adaptation is quite consequent as guests have now strong expectations from hospitality groups, especially regarding the bandwidth Wi-Fi, the hotel arrangement and amenities and the automation of services.

The high-bandwidth Wi-Fi has become a critical criterion, so much that 87% of guests expect it to be free and consider it as the first desired criterion. It should be available both in common spaces and in private rooms according to a TripAdvisor survey in 2015.

Elevenwireless, a company specialized in delivering global trends in guest technology, has published some data and information regarding the hospitality sector and the evolution of customers’ needs regarding the hotel arrangement in the survey named “6 hospitality tech trends for 2014”. “Millennials like to be alone together” states Michael Tiedy from Starwood Hotels&Resorts (http://www.starwoodhotels.com/). It means that this wide range of customers are more and more independent from each other and travel alone but at the same time they are more likely to easily meet new people and to share some moments when traveling. Therefore, they expect the common spaces, such as the lobby, to be warm and convivial to enable people to meet and network and at the same time to be the center for technology. Hotel can for example mix couches and communal work-stations that give a wide choice to customer for seating, working and chatting. Jeremie Trigano, the founder and CEO of Mama Shelter (http://www.mamashelter.com/fr/, brand AccorHotels) highlights that the lobby should be “made of meetings, freedom, fizz, interactions and emotions.”

Hotels should offer high-tech and state-of-the-art products to their customers as well. In fact, 99% of guests travel with at least one device and 40% of them with three devices or more (Elevenwireless survey, “6 hospitality tech trends for 2014”). They bring content from these devices and expect to use it in the most enjoyable way. They do not only need a good Wi-Fi connection, but as well devices to attach their own, such as a personal television with syncing services.

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To get deeper into figures about guests’ expectations, the graph hereinafter represents the current matching of customer new needs with hotels offerings.

Figure 2: The customer facing tech rollouts.

Source: 2016 Lodging technology report, HT Magazine

This graph reflects that hotels have well understood the importance of high bandwidth and an automation of services through online and mobile platforms. Their current use is quite high and a majority plans to use it in the future if it’s not already done. This becomes an expected criterion.

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In the guest room, the high-bandwidth Wi-Fi is a priority as well but providing state-of-the-art technology is not the first focus for hotels as shows the graph below.

Figure 3: Tech rollouts in the guest room.

Source: 2016 Lodging technology survey, HT Magazine

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Technology has empowered people to achieve more in their daily life. Hotel guests are looking for efficient interaction with hotels and they prefer automated services through online platforms. These platforms give them more flexibility to choose when, how and from where to connect with the hotel.

Online services are no longer peripheral services and have become expected from customers, for example 91% of guests prefer an online check-in. Technology and digitalized services should be present all along the customer experience.

Customers take already advantage of available digital tools when it comes to comparing hotels for prices and quality of services. The rise of technology has empowered the customers to the detriment of traditional actors. They now have the power to compare the prices and they have access to a bunch of information and choices. That means that customers have the ability to choose the service with the best value for money, one of the most determinant factor in their decision-making process, especially in economic downturns period when traveling is considered as a secondary need.

According to a survey lead by TripAdvisor in 2016, the price is the most important criteria for 95%

of the respondents and the ratings of accommodation on a review site comes right after for 91% of respondents, even before the location and proximity to key attractions for the hotel (80%).

This new power offered to customers increase the competitivity between traditional actors and force them to be very customer-focused.

To summarize, the main customer trends regarding technology in the hospitality sector are the need of a high bandwidth Wi-Fi and of the automation of services that offers mobility, and the importance of hotel arrangement favoring socialization and empowers guest with high-tech amenities.

These elements are shown on the figure on the next page.

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Figure 4: The predicted hotel technology trends for 2016 Source: Loungeup.com

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