It was 3 a.m. on a Sunday morning in August, and Lodgian CIO Charlie James was trying to figure out how to tell his boss that the company had to re-create four days of transactions for its scores of hotels across the country. The company had long been plagued by software problems, but losing half a week of business data would have been a disaster of a new magnitude: Everything from payroll to accounts receivable was hanging in the balance.
The problem had started weeks earlier after Lodgian upgraded to Oracle 11i, which awoke a sleeping bug in the database that was now crashing the enterprise resource planning (ERP) system regularly. Oracle had dispatched a consultant, who seemed to spend most of his time calling the vendor's help desk. "He was just doing what we had been doing," James recalls.
The CIO needed a real expert, so he e-mailed the Oracle sales rep, telling her that he was going to complain all the way up to CEO Larry Ellison if he didn't get better help. A week later, a new consultant showed up. "Amazingly," James says, "we got one of Oracle's best DBAs."
In two hours, the consultant confirmed James' suspicions about where the corruption had lodged in the database. James was impressed and asked the consultant if he could fix the problem while the system was still in use. No problem, the consultant assured him.
But the system crashed again. James checked Lodgian's aging backup system and, to his horror, discovered a tape failure. "I have never had this happen," the consultant muttered repeatedly.
The words "tape failure" would make any IT chief queasy. But for James, a backup failure was just another stomach-churning dip on the rollercoaster ride of his six-year tenure as CIO of Lodgian, a beleaguered hotel management company. After years of upheaval, it has turned itself around, emerging from bankruptcy and returning to profitability last year.
James' career has been a study in disaster recovery. He has survived a series of business plagues of near-biblical proportions, including a merger, a bankruptcy, a hostile takeover attempt, a charge to fire half his IT department and constant executive turnover, including at last count five CEOs, six CFOs, and three COOs. "I love hard challenges and have had that here," James says. "And it has almost killed me."
"We've talked each other off of a lot of ledges," says Miriam Holland, Lodgian's director of accounts payable and payroll, whose department was prepared to handwrite checks for the company's thousands of employees if the database problem wasn't resolved in time. "Everyone was frustrated. We were working on a shoestring."
Racing the payroll clock, James and the consultant put together a plan to repair the database corruption, estimating that a fix would take about 30 hours and that it could be done over a weekend. "We were wrong," James says. "After 30 hours, we had fixed approximately 10% of the corruption."
By 3 a.m. on Sunday, they were still slogging through code. James sat in his home office, staring at his computer screen in dismay. Then he called into a teleconference with the consultant and other members of the team. The fix was taking too long. The consultant said that he had figured out a quick fix -- although when he tried it in a test, the system crashed.
"Having nothing to lose but my job, we decided to let him try it," James says. He got down on his knees to pray. The consultant ran the new script. In 10 minutes, the problem was fixed and the lost data was restored. Payroll could run.
"That was my lowest point here," James says, recalling that morning in 2003. "I had a sickening feeling in my stomach. I was an emotional wreck. It can bring tears to my eyes thinking about it. The folks outside of the IT department couldn't understand the pain we went through."
A Challenging Start
In 1997, Charlie James took on a consulting project at Impac Hotel Group in Atlanta, which owned and managed 55 hotels in the Southeast. James had worked as a consultant for MCI and Coca-Cola. When the Impac project was finished, the company's CIO offered him a job. "She kept saying, 'Come on board,'" he recalls. "It didn't really interest me."
The CIO then mentioned that Impac was merging with a public company and that the new company would be rolling out an Oracle ERP system, which would give James intimate experience with the hottest cutting-edge technology at the time. James joined the company as an applications development manager. "I had to take a pay cut," he recalls. "My parents and wife gave me grief. But it was going to be a rapidly growing, challenging environment. I was going to get to learn Oracle apps. I got more than I bargained for."
In the 1998 acquisition, Impac acquired Servico Inc., based in West Palm Beach, Fla., for $513 million. The deal created a new company called Lodgian, which ran 142 hotels under various brands, such as Marriott and Holiday Inn. The deal made Lodgian one of the largest independent hotel management firms in the country -- and also made it heavily leveraged, with $860 million in debt on its balance sheet.
"Lodgian dug a pretty deep hole that they're still digging out from," says Rod Petrik, an analyst who covers the company for Stifel Nicolaus & Co. Inc., an investment bank based in St. Louis, Mo. "It was a merger of two underperforming companies. And the industry hit a downturn."
By the end of 2000, the company was losing more than $115 million a year. The company's board retained turnaround firm Jay Alix & Associates (now Alix Partners) to clean up its finances. That included bringing in a new CFO, Thomas R. Eppich. "We had $750 million in revenue after the merger, but it meant nothing," James says, "because we weren't profitable." Problems were exacerbated by hedging a loan against interest rates. When the loan was called, the company faced an immediate cash crunch.
Robert Cole, Impac's former top executive, was the first CEO of the new company. Before long he announced that Lodgian was for sale. "In the next 45 to 60 days, we should have a very good handle on who we will end up signing a definitive agreement with," Cole told the Atlanta Business Chronicle in November 2000. "It's not like we are on the verge of bankruptcy."
He spoke too soon.
James had a chance to escape. In September 2000, he lunched with the CFO of a smaller hotel company who offered him a job. They agreed on a salary, and James went home to sleep on it. The next morning, he went to work at Lodgian, ready to tender his resignation and accept the new job. Then Lodgian CFO Eppich suddenly offered James the CIO post.
"How can I pass that opportunity up?" James recalls thinking. "I was on the verge of leaving. Here I laid the foundation. It was my architecture; I wanted to see it grow."
The House That Jack Built
When James started at Impac, the company ran 50 different PC-based systems. Servico had used a customized Pick operating system. After the merger, the IT department unified financials on Oracle, phasing in other systems later. Getting there wasn't easy. "Planning had not been done properly with the merger," recalls Holland. "IT and payroll had to jump in. The executives didn't plan for integrating systems and converting data. That was a crisis."
The Oracle system at first seemed like a godsend. Before the ERP deployment, individual hotels would fax in business updates that someone had to compile into detailed reports. Payroll reports took two weeks to reach headquarters. "Labor is the most controllable cost in the hospitality industry," James says. "We wanted a real-time labor-reporting system."
And so James built NetTime: a labor-reporting time clock that automated payroll processes and allowed managers to better handle staffing levels. He also created a daily manager's report, which replaced manual reporting by totaling revenue and costs per room from the previous day. All these initiatives required customizing the ERP system.
"Oracle said, 'Whatever you do, don't customize the applications,'" James says. "Guess what? We customized the Oracle applications. When you do that, every time you do a patch you overwrite your changes, and you have to go back and rewrite your changes."
There was a good reason for Oracle's warning. "We encourage our customers to extend their applications in ways that support the unique attributes of their business," says Bob Wynne, vice president of corporate communications at Oracle. "However, we do not recommend that customers modify the core code, as it can make upgrades, integration and maintenance incredibly costly and complex."
Still, Forrester Research analyst Henry Harteveldt says that many hospitality CIOs don't have much choice. "There's car rental, airline, hotels," Harteveldt says. "It's not a single industry, and to view it as such is a one-way ticket to failure. It's an industry incapable of taking something off the shelf. Most travel companies build their own CRM [customer relationship management]. Although [vendors] have gotten better in the past few years, none of these travel CIOs are thrilled with what's out there."
For James, keeping up with Oracle patches became a big job. When he took over, Lodgian was three months behind in applying patches. The team's two DBAs were soon spending at least two weekends a month trying to update the system, which grew increasingly sluggish. One hotel manager called every week to complain about how long it took Oracle to generate reports. "Performance sucked," James says.
A former DBA suggested to James that a multithreaded server might improve the system, replacing a dedicated server connection with up to 80 different processing threads. This would free up memory and increase speed. James asked his staff about this approach, which involved changing only four lines of code. The new DBAs were insistent that a multithreaded server wouldn't work. "The DBAs were raising Cain," James says. "Go to any Oracle shop and ask about a multithreaded server, and you'll get the same reaction. They had problems in the mid-'90s."
But one Monday morning, James made a CIO's decision, ordering his DBAs to change the code. "It's a risk we had to attempt," he says. His confidence was quickly rewarded. The ERP system started cranking out daily management reports in 10 minutes instead of 30. "You'd have thought I'd put in a supercomputer," he says. "It was one of the best things I've ever done. That's probably what saved my job."
By the end of 2001, Lodgian was upgrading to Oracle 11i. James finished the process in 72 hours without having to hire any consultants, which was a good thing given the company's financial straits. But what he didn't realize was that a bug was sleeping somewhere inside the company's ERP system.
Into the Executive Storm
As Lodgian's losses mounted in late 2000, top shareholders launched a hostile takeover bid. William Yung, whose Edgecliff Holdings owned 15% of the company's stock, offered $140.6 million for Lodgian, a fraction of Lodgian's estimated value just two years earlier. The bid poured buckets of work on the CIO. "I had to do all the due diligence with his lawyers, 10 to 12 hours every day," James says. "I thought we were going to be bought. Lucky for that guy, he didn't."
The takeover bid floundered, and in February 2001 the new CEO, Thomas Arasi, arrived, followed shortly by a new CFO. The new CFO spent a lot of time with James -- too much time. "You know you're in trouble with management when they start focusing on your group," James says. "He heard that Oracle's ERP system was the problem. He had me try to outsource the department. I couldn't do it cheaper than what we were doing."
Sensing that layoffs were in the offing, James created what he called the IT Book of Knowledge, asking all his techies to document the department's processes in a reference manual. That summer, James was told to fire more than half his IT staff, going from 35 people to 14. "That's when things started to get really crazy," James says. "The first thing I told the CFO is, 'You're going to have to lay me off, because I can't run a department without people.' I called a headhunter, and she said, 'You'd better get back and start kissing booty. This isn't 2000 anymore."'
Then the Sept. 11 terrorist attacks walloped the hotel industry. Two weeks later, Lodgian fired 1,600 people, about a third of its workforce. Soon after, Arasi resigned. In November the company got kicked off the New York Stock Exchange. Before the end of the year, Lodgian filed for Chapter 11 bankruptcy protection.
"It was extremely stressful," James says. "There wasn't any team cohesion. We lost a lot of key people." One employee worked an entire weekend installing a storage area network at the office; the following Monday, James had to fire her. "That," he says, "sucked."
James spent most of the next year dumping data out of the accounts payable system. "We just had to do a mammoth amount of work," recalls Holland, who found herself doing double duty when her payroll department was combined with accounts payable. Lodgian had to create two data sets and share them with the bankruptcy court: one for previous operations, a second for operations during bankruptcy. "It took the first six months of the year," James says.
Lodgian's financial troubles also shook up its technology vendor relationships. Some vendors cut off Lodgian, while others limited the amount of credit they would extend. "The big vendors kept doing business with us," James says. "Before, we weren't [even] paying bills 90 days out. We started paying within 15 days."
The vice president of sales and marketing warned James that Lodgian's next new CEO, David E. Hawthorne, a turnaround specialist, hated IT. Soon after, the VP told James that he himself had been laid off. "You better get ready," he added. One day Hawthorne approached James in his cubicle and threw down a telephone headset. "Fix it, please," he said. James demurred that he didn't know anything about headsets. "Fix it," the CEO repeated and walked away. James gave the headset to a team member who liked to tinker with stuff. He replaced the battery. The boss was pleased. That, more than anything else that IT did, seemed to win over the CEO, James says. And so James kept his job.
Soon after, Hawthorne told James that it wasn't Oracle, but rather the business process, that was broken. "What will it take to fix the process?" he asked. The CIO said they would have to replace all of the customized applications in the system with a custom, intranet-based financial statement generator, which would speed up the process. "Oracle might take 20 minutes to generate consolidated financial statements," James says. "We can do the same report in two minutes. Most people do not log into Oracle to get information; 90% of information is retrieved by logging into the intranet."
James proceeded to make the switchover, which eventually did speed up the process. Meanwhile, Lodgian's balance sheet improved. The company sold off hotels and cut expenses, and just before Thanksgiving 2002, the company emerged from bankruptcy. The following May, Hawthorne resigned as CEO and was replaced by W. Thomas Parrington.
In 2003 the company's Oracle upgrade and near meltdown with its database corruption brought IT to the fore again. "We were all up 30, 40 hours without any sleep," says James. He was so rattled by the experience that he implemented several new policies. Now IT checks the system for corruption by running a program called DBVERIFY once a month as well as before and after major upgrades. Another program creates an alert when Oracle doesn't complete a process. Given the aging backup system and consequent tape failure, James was able to sell management on a new system. The department migrated from Legato to Veritas and purchased Sun Microsystems backup equipment. "I told the CFO we almost didn't make it," James says.
A Veteran Emerges
Walk off the elevator into Lodgian's headquarters in a high-rise in Atlanta's Buckhead section today, and the company's belt-tightening becomes evident. There's no reception desk. You have to start wandering the halls to find someone who can direct you to where James works.
At one time, Lodgian filled two floors in the building and also leased space in an adjacent property. Now the company occupies a single floor. The company's head count has shrunk from 15,000 in 1999 to 5,500 in 2006, while the number of properties dwindled from 140 to 75, though in 2005 the company purchased a property. While the company is smaller, it's also more efficient, with a staff-to-property ratio at headquarters that's gone from 1.45:1 to 1:1.
Lodgian finally reached profitability last year, posting net income of $12.3 million on revenue of $319.3 million, compared with a loss the year prior. In September yet another CEO, Edward Rohling, came on board, followed in March by a new CFO, James A. MacLennan.
"I was pleasantly surprised and amazed at the power of the systems in a company that's about as decentralized as it gets," says MacLennan. "What we're dealing with is 75 small businesses scattered all over the country, and each has its own quirks. IT is essential to keeping on top of everything. I walk into my office, and at 7 a.m. I can see occupancy rates, revenue per available room, average daily rates at every hotel. Those are key, powerful data. Growth will come from efficiency. IT has a lot to do with that."
Analyst Petrik notes that Lodgian still faces challenges, especially because most of the company's property is concentrated in the lackluster Holiday Inn brand. "Lodgian owns real estate, not brands," he says. "Traditional real estate investors look for a dividend. They don't have a dividend. They have a secondary brand. They've improved the balance sheets, but they still carry more leverage than their peer group. Lodgian's model is only beneficial if they manage the properties better than the brands would themselves."
That's where James says IT has been key to building a leaner organization. In-house developers created numerous interfaces for the Oracle 11i modules that improved productivity by tens of thousands of man-hours. Lodgian's Invoice and Payment Systems (LIPS), for example, simplifies accounts, while its Contract Tracker created a single place to view contracts for multiple locations. And when hotels demanded high-speed Internet access, the IT shop found a way to deploy its own solution that is much cheaper than commercial alternatives. Then there's Lodgian's homegrown Internet-based CRM system -- called Sales Analysis and Lead Tracking, or SALT -- which James says rivals industry-leading systems.
"The IT department can't take full credit, but we were a part of driving those savings," James says. "They couldn't have done it without automation of processes. No way. If we ever get back into the growth mode, we can grow without adding to the staff at corporate." Such nimbleness and creativity, James says, is one reason for the department's relative steadiness amid all the corporate turmoil. "I lost my first person in three years in November," James says. "People can be innovative here. There are plenty of new things to learn."
Of course, after all the chaotic years, James is happy to once again have time to coach his son's basketball team instead of constantly managing emergencies. "Whatever crisis we've had, we've always improved something as a result," James says. "I could never learn in any other company what I've learned here."
Michael Ybarra is a contributing writer for SearchCIO-Midmarket.com. To comment on this story, email firstname.lastname@example.org.