During our presentation at Valamar, I listed several questions that I thought would be interesting to have answered by the Valamar IT team. In this post, I restate the questions with a little more context and summarize the answers or insights we gained.
How is IT spending managed across properties?
Centralized IT is a common cost optimization strategy, but it is not always trivial to achieve successfully. In particular, the nature of centralization places a huge burden on the Wide Area Network, which must be fast, robust and redundant. Achieving this takes expertise and significant expense. From Valamar we learned that they do centralize the IT function. They provided us a lot of detailed information about their WAN, and the criticality of their relationship with HR Telecom. As the details of their enterprise architecture emerged through the presentation I hope that our team could appreciate just how obvious the economic advantage of central IT can be. Each system they described in their “Picasso” has to be licensed, scaled, maintained only once.
What processes are followed during an acquisition?
This topic was of interest to me, as I suspected there would be a chance to get some lessons learned from Valamar that I could apply to my own role at CommerceHub. Ultimately we did not address this directly, though we saw a few peeks behind the curtain.
1. They use the offseason for investment activities in their properties. I suspect the IT merger of a new hotel would be very similar
2. Critical components of their IT operation is dependent on industry standard platforms such as Opera. This increases the chance that they are migrating new employees to a system they are already familiar with. This reduces the switching cost for the in place team.
3. Bookings are seasonal in nature. In a typical city hotel, you would struggle to find a cut over point from one system to another. In the case of Valamar, it is easy to imagine that this year's reservations are in the legacy system, and all of next years will be in a new system.
Is IT a business driver, or a basic business need?
Every person working in IT hopes to be a business driver, an enabler of strategic goals. Based on my personal experience as a traveler, it is clear to me that IT is in that position in the US market, especially in the highly competitive city hotel market. I was interested to know if Croatia, Valamar, and the leisure tourism sector reflects this same observation. I was very impressed by how critical IT investment has become to Valamar. They have adopted an ambitious “Digitalization Initiatives” strategy, which includes 30 critical initiatives in 2016/2017 alone. More details are available on the Valamar presentation available on BB (I am not sharing this on the public web).
What is the vendor landscape like?
Increasingly IT has become a major cost center for many businesses, while at the same time vendor consolidation, and solution customization has limited businesses abilities to maintain a strong buyer force. At Valamar it is clear that they suffer from this trend. Companies such as Opera are more important to Valamar, than Valamar will ever be to Opera. Additionally, Valamar has been mindful of this reality within their system architecture. Vlastimir Ivančić described their use of interfaces between systems, as a means to minimize the interdependencies within the overall system. Although this strategy may not turn the page on something like Opera, it is undoubtedly effective for dealing with smaller vendors and less critical components such as payment management.
The availability of more integral solutions was also mentioned. In my role at CommerceHub, this is what I foresee being the greatest source of cost savings for our teams. The glue to connect distinct systems can be just as burdensome as the systems themselves. As Vlastimir said, eliminating it is the “holy grail”, though it further weakens the buyer's force.
Does Valamar rely on outsourced IT?
Outsourced IT is like a swinging gate in most businesses. They go through a swing of pushing everything out followed by another swing to bring everything back. Successful outsourcing companies avoid this yo-yo effect. I expected that Valamar would require some outsourced IT and was interested to know how successful they had been. I believe the strategy they have is a very good one. They avoid outsourcing their innovation. The small team at Valamar spends their efforts on Proofs of Concept and uses outsourcers to deliver a production-ready implementation. This allows Valamar to quickly innovate, and potentially get multiple bids to complete a project. While the project is being fully built, they immediately have a chance to move onto the next innovation POC. This is a strategy that I call, “just enough design”.
Valamar impressed me. They have a small team, dealing with a massive amount of complexity, and delivering innovation at exceptional pace. The company has a clear vision, with a balance of knowing who they are, while dreaming big about who they will become.