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How Outrigger Bounced Back With New IT Systems, Business Processes

How an island-based hotelier caught up with the industry, drove out cost and continues to expand globally with IT.

How an island-based hotelier caught up with the industry, drove out cost and continues to expand globally with IT.

Last year Alan White came back from a run to discover that the digital clock in his house near Honolulu was blinking. An earthquake had hit the island. White, the CIO at Outrigger Enterprises Group, hadn't felt a thing. But the city certainly did when the electrical system suffered a 12-hour grid failure.

Outrigger, the largest local hotel operator in the state, had planned for short power failures and full-blown disasters, but the company still found itself unprepared. Its corporate office and 11 local hotels -- totaling some 7,600 rooms -- had generators and plenty of fuel; but Outrigger's vendors, especially datacom carriers, didn't have adequate fuel reserves. Three hours into the blackout, Outrigger's voice and data network failed.

Now the company houses its own mission-critical systems, in addition to using SunGard facilities in Philadelphia and Scottsdale, Ariz., for business continuity operations. Outrigger's central reservations office in Denver boasts a redundant Global Distribution System (GDS) and voice agent systems. And a new enterprise storage area network (SAN) in Hawaii will be mirrored to a facility on the mainland next year.

"We plan a whole lot better now," White says. "What a painful experience."

Outrigger is a company in transition. Long a Hawaiian institution, the company hit the skids after 9/11 when tourism collapsed in the islands. During that slump, Outrigger's IT systems and business processes grew almost as outdated as its namesake canoe. But recently, Outrigger has managed to catch another wave. Today the company is a fast-growing midmarket firm that does 35% of its business outside of the U.S., running 195 companies under its corporate umbrella. IT has been crucial to that turnaround. For Outrigger, technology is part of everything, from managing condo rentals in Thailand to hosting services for business partners.

"Technology is driving hotels," says Henry Harteveldt, an analyst at Forrester Research Inc. "But that means that the IT department is faced with an ever-growing number of challenges. It's probably never been more difficult to be a CIO at a hotel."

Especially in paradise.

"We're a relatively small company in a land of giants," says CEO David Carey. "We've tried to use technology to keep us in the game and even give us an advantage."

And Outrigger has been able to do that, spending only about 2% to 3% of revenue -- about half the industry standard -- on IT. "We run circles around other hotel companies," White says. "IT used to be a pure overhead service. Now we're active business partners. We're a profit center."

In the Beginning

In 1947, architect Roy Kelley designed and built a 50-room hotel called the Islander in Waikiki. Rooms cost $7 a night. Over the years Kelley and his wife Estelle built the company into Outrigger Hotels, the largest lodging business in the state. Yet Kelley worked from a desk in the lobby of one hotel and could be seen helping guests load their bags into the elevator.

Once the elder Kelley saw his son and successor, Richard Kelley, talking to an IBM salesman in one of the company's hotels and sent him a note: No computers.

"Fortunately," says Carey, "Rich didn't listen."

Carey, who has an undergraduate degree in electrical engineering, joined the company as an attorney, married a Kelley and became CEO in 1994. Over the years Outrigger has moved into resort management and expanded into Australia, New Zealand and countries across the Pacific.

Carey hired consultant Joe Durocher to write a central reservation system (CRS) named Stellex (after the founder's wife). Durocher became the company's first CIO. To help overhaul Outrigger's IT systems, he called his friend Alan White to fly over as a consultant.

White had stumbled into the hotel industry after he found it hard to make a living with a graduate degree in international affairs. He took a job as a night manager at a Sheraton. "I needed to pay the rent," he says. "I thought it was a wonderful business. I was introduced to technology by hotels. I got into software out of a frustration from not getting stuff done."

White moved up through the industry and wound up running the hospitality operations at a golf resort in North Carolina, where he helped develop a system to manage reservations and tee times. That led to a series of jobs at hospitality software vendors, including Pegasus Solutions in Dallas. White and Durocher had worked together on the Open Travel Alliance, an industry standards group.

After cashing out from his last job, White was looking to buy and run his own boutique hotel in Arizona when he got a call from Outrigger. White went to Hawaii, first as a consultant, and before long he became vice president of operations and IT. "I was going to buy a hotel," White says. "Then Joe said, 'I got a problem.' Six years later, I'm still here."

A Wave Crashes

White's first official day on the job at Outrigger was Sept. 11, 2001. When the federal government grounded air traffic after the terrorist attacks, visitors in Hawaii were stuck. Outrigger offered employee rates to stranded guests until flights resumed the next week and people could return home. But no visitors replaced them.

"On September 11 we were full," Carey recalls. "When planes started flying again, 50% of the house checked out. Then another 25%. Then another 10%. Then nobody checked in. You could have taken a nap on Kalakaua Avenue and not been run over by a car. It was absolutely frightening. We weren't sure when, if ever, business was going to recover. We went into survival mode. We got the Band-Aids and duct tape out."

"There was no business," White adds. "Every single week it was a struggle."

Occupancy rates plummeted from 88% to 12%. Employees shared jobs, worked four-day weeks, took vacation time. The company closed three hotels and considered a fire sale of assets. "The family dug into their own pockets to keep it alive," White says. "The company had a dedication to the people here. They take ohana (family) very seriously. Our chairman can tell you the names of half of our housekeepers on neighboring islands."

White found himself on manager duty once again.

In 2003, when travel finally started to rebound in Hawaii, Durocher and White really began reshaping the IT shop. "There had been no investment," White recalls. "Every operation was discrete. There was no interoperability. All the basics were missing. Other hotels already had figured out that automation was the way to go. We had people do stuff that computers usually do." When guests called the hotel operator, for example, clerks looked up the person's name on a sheet of paper to offer a friendly greeting.

"It was either adapt or die," White says. "Joe ran interference and I started plugging stuff in. We used to keep up with other hotels by sheer brute force. The big thing was to automate the mind-numbing stuff."

Big Kahuna: Central Reservation System

In 2002 Outrigger's central reservation office in Denver processed more than a million pages in faxes. The majority of the company's bookings came from more than 500 wholesalers offering package tours, which locked up blocks of discounted rooms in advance even if they went unsold and made it extremely difficult for Outrigger to forecast demand. A reservation cost the company $18.

"We were a small hotel company and we were filling up landfills faster than we could dig them," White says. "There was a lot of labor involved. Everything we did was customized for a different vendor. You were absolutely full or empty. You couldn't influence anything."

Outrigger decided to build a new version of its CRS, giving it seamless electronic connections to airlines and direct interfaces with its major wholesalers. The company did the development in-house, dedicating four programmers and a business analyst to the project for more than a year. The environment was built using Microsoft's .NET framework, using secure Internet communications. End users interface with simple Web browsers.

The company adopted industry-standard XML message formats and encouraged its partners to adopt the same message sets, so that they could reuse the interface they built with Outrigger with other hotel chains. The company provided extensive sample message documentation, assisted with data mapping, gave programming assistance and maintained a full test environment, available 24x7, for partners' use. The system runs a property database on a Hewlett-Packard NonStop platform with dual paths and mirrored disks, meaning it's fault-tolerant with no single failure point. Outrigger actually operates two of the platforms in Honolulu with duplicate disk arrays, giving it five-nines uptime, including service periods.

The CRS feeds both an E.piphany datamart and several GuestWare property-level customer relationship management (CRM) systems. The entire guest accounting, credit card processing and statistical data is fed into Outrigger's JD Edwards (now Oracle) back-office system, running on an IBM AS/400 platform. The company also does most of its billing through electronic invoicing and settlement.

The results? Cost per transaction dropped to pennies. Wholesalers went from 45-day lead times to real-time booking. Now more than two-thirds of reservations are done electronically. The CRS proved so efficient that Outrigger went into the application service provider (ASP) business with some of its wholesale partners, hosting their reservations on its platform. While this yields a small additional revenue stream, it is mostly done as a favor to partners.

"To have real-time, online live inventory and reduce the human element cost has been a huge win," says Carey. "The old system was an incredibly manual operation. It didn't make any sense."

In November 2006 the company's own Web site finally handled more bookings than Expedia did for it -- a significant win for margins. "We took a whole percentage off credit card transactions," White says. "That's serious money."

A Revenue Management System

Of all the skills needed to run a hotel, one of the most esoteric is forecasting demand, figuring out when business is likely to peak and fall and maximizing incentives to keep rooms full. A single hotel can generate 200,000 transactions a day -- everything from ordering room service to renting a movie -- while convention bookings can affect occupancy rates five years down the road. Revenue management is what it's called.

"Revenue management was a people function," White says.

Automating that task is one of the company's biggest projects. Last year, Outrigger launched a pilot program to try a revenue management system (RMS) from Houston-based PROS. The hotel shipped the vendor four years of occupancy data to create an algorithm to chart demand. Other inputs included a calendar of events (high and low demand expectations) and a synopsis of all the hotel's guest data. The latter is key to determining booking patterns, demographics, responses to advertising and repeat booking trends.

White says the project, which is scheduled to begin rolling out later this year, promises to save the company a high single-digit percentage in costs.

"We're crunching the last year's data and building the forecasts now and training all the revenue managers on operations and what to expect, how to read results and which areas they will need to fine tune every day," he says. "PROS is helping us better refine our advance booking windows. We had a good handle on the macro views of high-demand weeks and low-demand weeks, but PROS is helping us find the high-demand days and the low-demand days far enough in advance to make a difference in hotel occupancies."

Knowing the Business

Walking out of Outrigger's headquarters, White heads toward the beach a couple of blocks away. Passing a number of the company's properties, White talks about occupancy rates, real estate costs and retail synergies as he strolls down to Beach Walk, an eight-acre hotel/restaurant/entertainment complex the company opened this year. The $535 million project was the largest development in Waikiki's history and demonstrates the diversity with which Outrigger is expanding its business. Today hotels account for only half of Outrigger's revenue, with retail making up a quarter, followed by management fees for running other people's property.

"We just had the best year in our history," White says -- $474.9 million in revenue.

White clearly knows the company's business. In 2004 he decided that the company needed to know exactly what IT was doing for that business, so the department switched to zero-based budgeting: Every year, every budget item is recalculated and nothing is taken as a given.

White came up with reports showing cost per guest and breaking out detailed reports of services for the company's 900 users. After seeing what computers actually cost, one hotel cut its number of machines from 85 to 55.

"I was tired of hearing the [complaining] in the budget sessions," White says. "They saw the allocation in their budgets, but they had no idea what they were getting. Now almost all of our services are metered and transaction-based. The managers know exactly what everything costs. They can get their minds around that."

White introduced service-level agreements (SLA) and began charging 40 cents per occupied room for IT. Over beers with his tech colleagues from other hotels and resorts, White benchmarks Outrigger's service costs against the competition.

As IT became more central to Outrigger's business, White found himself needing to sharpen his own skills. He took an online finance course -- "a mini MBM," he calls it -- so he could participate more thoroughly in the company's aggressive expansion plans.

In 2005, as Durocher was getting ready to retire, White was invited to a board meeting to present a five-year IT plan. Afterward, CEO Carey offered him the CIO job.

Staffing Challenges

Breakers lap Waikiki beach as surfers steer their boards toward shore and Diamond Head rises proudly in the distance. Wearing an aloha shirt and sipping a drink at a beachside table at one of Outrigger's hotels, White has a job that seems ideal. Yet being a CIO in paradise has its problems.

Hawaii ranks 47th in the U.S. in technology jobs. The state has 2% unemployment, although many people work more than one job to make ends meet in one of the most expensive places to live in the country.

White has to fly consultants back and forth from the mainland to augment his 28-person IT staff. When he arrived, Outrigger was a COBOL shop. No one on staff had any professional certifications.

"The talent just isn't here," he says. "We're halfway between America and a foreign country. We're 2,500 miles from the mainland, and it feels like it."

When White had five jobs to fill, it took eight months to find a qualified person. Two recruits from the mainland found Hawaii not to their liking and left. To get coding done, White sometimes has to outsource work to the mainland.

Sending his staff to training helped beef up their tech chops, but White also found that he needed to expose his team more directly to the business.

"One of the big changes was aligning ourselves more with the business," says JoAnn Okawa, Outrigger's director of IT. "We were like a lot of IT shops. Users didn't know who to speak to."

White put coders into the reservation center and gave them tours as desk night managers at hotels.

"I've been on both sides of the desk," he explains. "I had a lady hit me in the face with a purse because I had to explain that her room wasn't in the hotel. My guys on the help desk were scared to death of customers. All of a sudden, it becomes not these guys who call you when something breaks. They become customers. The only thing I haven't done yet is make them clean a room."

Michael Ybarra is a contributing writer for Write to him at [email protected].

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