Can Tech Spend Shield Hotel Performance in Volatile Markets?

Study finds that the benefits of investment in information technology were significantly reduced during the pandemic

By Raymond Ma, Managing Editor, China Business Knowledge@CUHK

Faced with increasing competition and disruption in their industry from the likes of Airbnb, in recent years the hospitality industry has been quick to adopt new technologies, whether that be for customer facing roles or in the back office to streamline operations and cut costs.

At the most hardware-intensive of the spectrum, hotels are increasingly experimenting with and deploying robotic help to supplement its human workforce. On a less high-profile basis, many hotels are also opting to go “smart”, incorporating technologies such as voice control, facial recognition as well as automation into the customer experience where guests are also able to interact and control their hotel rooms remotely using mobile devices.

“If not carefully aligned with their specific business strategy, investments in technology can even backfire and damage a hotel operator’s performance.”

Prof. Choi Sungwoo

Lastly, hotels around the world are also using technology to accelerate their efforts to go green, adopting digital practices to help control their environmental footprint and while at the same time streamlining operations, such as by going paperless for guest check-in, for interacting with customers, as well as in their daily back-office management. A survey in 2022 by hotel sector service provider Duetto found that over 77 percent of hospitality industry respondents expect to increase their tech investment in the next three years.

“The adoption of technology in hotels has been accelerating in recent years as they look to boost efficiencies both in their customer-facing roles, as well as in their back-office operations,” says Choi Sungwoo, Assistant Professor at School of Hotel and Tourism Management at The Chinese University of Hong Kong (CUHK) Business School, and a co-author of a new study looking at whether hotel establishments benefit from splurging on technology investments during periods of high market volatility the same they do during periods of normal economic activity.

Adapting to the Pandemic

Prof. Choi notes that the recent COVID-19 pandemic has further sped up the adoption of new technology. With many businesses in the hospitality and tourism industry hit hard due to the extensive curtailment of cross-border travelling, businesses in the sector have sought new and innovative ways to adapt to the new normal to boost performance, with a special focus on reducing operational costs and improving service productivity.

“There’s been a great deal of research, not to mention strong consensus, that during periods of normal economic activity, investment in information technology tends to yield a direct and positive impact on hotel performance,” he says. “However, what is less certain is whether pursuing this type of advantage will allow hospitality providers to reap similar benefits during a crisis such as what we experienced during the pandemic.”

Prof. Choi noted that on one hand, during the pandemic hotels operators around the world were quick to deploy technologies such as self-service kiosks to cater to heightened concerns over the risk of infection from person-to-person contact. However, owing to the high-touch nature of the hospitality and tourism sector, there was risk that this may put off customers expecting to see a friendly face in their service encounters.

“Hospitality providers face substantial risk if they seek to make rapid decisions to invest in new technology in an attempt to respond to the changing operating circumstances posed by the pandemic. If not carefully aligned with their specific business strategy, investments in technology can even backfire and damage a hotel operator’s performance,” he says.

The latest study, detailed in the research paper titled Information Technology as a Buffer Against COVID-19, was conducted by Prof. Choi in collaboration with Prof. Yeon Jihwan at the University of Surrey, Prof. Song Hyoung Ju at the University of Central Forida, and CUHK Business School PhD candidate Hu Jihao. The researchers collected the financial performance information on nearly 7,000 hotels in the U.S. between the years 2017 and 2021. They then analysed this data to examine the effectiveness of investments in technology in boosting hotel performance before and during the pandemic.

Lifting Financial Performance

They compared three performance indicators, namely total revenue, EBITDA (earnings before interest, taxes, depreciation, and amortisation) and net income, against total expenditure as well as changes in information technology investment for a given hospitality provider during the years 2017 to 2019 (before the pandemic), as well as from 2020 to 2021 (during the pandemic).

The study found the pandemic had a significant and negative effect on the ability of spending on technology to lift the financial performance of hotel establishments. In another words, the positive impact of the same amount of investment on information technology was reduced during the COVID-19 pandemic.

On the other hand, the researchers found a positive and significant impact of changes in hotel investments in information technology between one year and the next, with financial performance. “The more a hotel overinvests in technology compared to the previous year, the better the organisational outcomes tends to be, on average,” says Prof. Choi. This positive relationship held when the pandemic was factored in, indicating that the positive impact of an increase in information technology expenditure on financial performance actually increased after the outbreak.

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“Our findings suggest that while investment in technology had positive effects on the financial performance of hotels before the emergence of COVID-19, these very same advantages were significantly reduced during the pandemic,” says Prof. Choi, adding that a continuous and elevated level of spending on information technology can help provide hotel establishments with a certain amount of buffering from external economic shocks, such as the pandemic.

“We suggest hotel managers should try to sustain or even gradually increase their investments in information technology, even when times are tough, such as during the pandemic. It is only this way that they can most effectively reap the financial benefits that comes with keeping up with the latest developments in technology for the hotels sector,” he says.