Interstate Hotels & Resorts

ORGANIZATION BACKGROUND

Interstate Hotels & Resorts is one of the largest independent hotel management companies in the U.S., as measured by number of rooms under management. The company has three business segments:
hotel management, hotel ownership (through whole-ownership and joint ventures) and corporate housing.

Interstate Hotels & Resorts manages 232 hotel properties, with over 52,000 rooms in 41 states, the District of Columbia, Canada and Russia. These hotels represent over 50 different ownership
groups, including more than 30 franchise and brand affiliations (e.g., Marriott, Hilton, Sheraton, Westin, Radisson, and others) plus 22 independent hotels. In this segment, Interstate Hotels &
Resorts is a pure management company, operating each property for other owners.

Interstate Hotels & Resorts also owns four hotels with 655 rooms and has 3,786 apartments under lease or management in the United States, France and the United Kingdom through BridgeStreet, its
corporate housing subsidiary.

Competitors include the brand-name hotels, who also manage many of their own properties, and other third-party hotel and apartment management companies.
Interstate Hotels & Resorts is headquartered in Arlington, Virginia, and has over 33,000 employees. Revenue in 2005 was $1.1 billion.

For this case study, we interviewed Paul Bushman, Senior Vice President, Information Technology (IT).

THE BUSINESS PROBLEM

Hotel management is a dynamic industry at many levels. At the highest level, Interstate Hotels & Resorts is a company of mergers and acquisitions. Since Bushman joined the company 10 years ago,
the company has been through three mergers. Each one requires knowledge of the ins and outs of all the hotels under management. According to Bushman, “When we first merged, we doubled the
size of the company. This aspect of our business is why we originally looked at the need to have a fast, responsive system for incorporating new companies and consolidating our data.”

Another business driver is the fact that hotel management contracts are typically short-term with one- to two-year renewal periods. So there can be significant turnover. As an example, the
Blackstone private equity fund bought MeriStar Hospitality, Interstate Hotels & Resorts’ largest customer, in August 2006, resulting in the turnover of 25 hotels. Blackstone will keep
some of the hotels and sell the rest; in the meantime, Interstate Hotels & Resorts will manage the remaining hotels. The company needed a system that could handle the turnover of management
contracts both “in and out.”

A third issue is the speed with which individual hotels can experience changes in planned room occupancy and associated revenue and costs due to group reservation decisions, new or lost business,
weather, and other daily variables.

In 1998, all of Interstate Hotels & Resorts’ data was spreadsheet-based. “Each person had his or her own reports which meant two problems: variations in bottom-line numbers, and
duplication of effort.” As a result, the company identified the need for a common data source accessible to everyone. The goal would be to provide accurate, timely, actionable and accessible
daily and monthly operating information to all Interstate Hotels & Resorts operators and management. The solution was to create a consolidated repository for operational data on which the
company could build both reporting systems and Web applications – a business intelligence portal, or BI portal. Through the BI portal, the company would drive everyone to the same set of
data.

THE OPERATIONAL BUSINESS INTELLIGENCE SOLUTION

The Enterprise Portal
In evaluating how to implement its enterprise BI portal and underlying data repository, Interstate Hotels & Resorts looked at all of the leading
players at the time. When the company found it could download a trial copy of Applix TM1, Interstate Hotels & Resorts took that opportunity and ran with it. Applix TM1 offers a combination of
the following capabilities: OLAP (online analytical processing), report templates, data exchange, and in-memory data marts.

Interstate Hotels & Resorts found TM1’s performance equal to or better than many other products it had considered, and liked TM1’s support for real-time, sophisticated calculations.
An example is “cost per occupied room,” a calculation that involves many small, detailed cost items (such as guest supplies – shampoo, etc.) TM1 handles these calculations
“on the fly” with excellent performance. TM1 does not require recalculating unless the underlying data changes; and because TM1 uses in-memory processing where all of the data is
memory-resident, all calculations are extremely fast.

After installing TM1 in 1998, Interstate Hotels & Resorts built several BI reporting systems and an online budgeting and forecasting application on top of TM1. This set of applications was
introduced in the 2000-2001 timeframe as the “BI portal.” However, users had to visit multiple Web sites to access many different applications and content. Additionally, the BI portal
was not a single sign-on environment, and sign-ons were not role-based. Since then, the company has worked on better integration of applications, content, and security.

IHR1 Portal
The result is the new IHR1 portal. This has been rewritten in Microsoft.NET to provide ease of use, improved performance, consolidation of content, more
flexibility, and faster delivery of new content. IHR1 provides a single point of access for all BI applications and a single, integrated sign-on. All users have role-based access, with access
levels that can be customized by each manager or hotel operator.

Implementation of the IHR1 portal began in earnest in October of 2006 and is 90% in place. It provides daily plus month-, quarter-, and year-to-date reports for one or a group of hotels, plus
multiyear tracking of room revenue; online financial statements; and online plans for sales and marketing, quality assurance, and food and beverage. Coming in Q1 2007 is a 12-month rolling,
driver-based forecast and budget model called “BudCast Next Generation” (more information provided in Budcast section of this study). This will enable real-time updates to forecasts and
provide additional functionality for the end users.

The IHR1 architecture has three components (see Figure 1).

• Web servers – The Web sites all sit on a Web Farm consisting of multiple servers.

• Template engines – TM1 templates connect report formats to the underlying data.

• TM1 and Microsoft SQL Server data – TM1 is the OLAP database repository and the source of business rules. SQL Server contains the structure (pages and security) for the site and is
  used to store performance commentary. Both TM1 and SQL Server run on 32-bit Windows-based servers. TM1 uses approximately 2.4GB of memory, employing the /3GB switch to allow programs to access
  more than 2GB of RAM. With over 2GB of in-memory capacity, Interstate Hotels & Resorts has not yet experienced problems with memory limits. “We do archive data to reduce the amount of
  data in memory and are currently looking into Applix’s 64-bit version of TM1,” explained Bushman. Because a 64-bit server supports much more memory, it would extend TM1’s
  in-memory processing capacity and the volume of data and history that could be maintained in TM1.

IHR1 Architecture

Figure 1: The IHR1 portal delivers TM1 and SQL Server data using TM1 report templates.

Data Sources
There are several sources for the TM1 data repository.

• Daily hotel revenue data – After each hotel closes out its daily business (typically midnight local time), a night audit is run to post a daily income journal and balance cash
  and revenue. Once the reconciliation is complete, the data is published and loaded into TM1 in real-time (i.e., as soon as the night audit is completed). The data is available as soon as it is
  published. This is possible because TM1 does not pre-aggregate or pre-calculate data. Daily hotel data includes room, food and beverage revenue, and miscellaneous revenue as well as room
  statistics.

• Daily labor costs – TM1 also receives daily feeds from time clocks to capture payroll costs. These costs are analyzed daily against forecast and budget via an IHR1 template. A
  full-time equivalent-staff projection helps with scheduling needs.

• Financial data – The company uses a custom “data pump” application to read general ledger data from its Lawson financial system and load the data into TM1. The data
  pump flags any new accounts or hotels and adds them to TM1. The data-pump process runs automatically five times a day, and it also can be executed on demand. As invoices are paid and payroll is
  processed, managers and operators can view this data versus their budgets and forecast at any point in time. Historical data is first loaded into Lawson and then the pump processes the data
  into TM1.

• Market research data – Monthly, Interstate Hotels & Resorts receives competitive market research data from a third-party vendor. The data is e-mailed to a
  “dataload” mailbox in a predetermined format and is processed as received from the external source into TM1. Managers and operators use this data to compare how their hotels are
  doing against the competition in revenue per available room (RevPAR) and other metrics.

• Purchasing data – Purchase order data from Interstate Hotels & Resorts’ third-party purchasing system is loaded into TM1 weekly. With this information, hotel operators
  can see exactly where they stand versus budget and forecast.

Within TM1, there are two databases, or “cubes” of multidimensional data. The daily cube provides daily revenue and labor data, and four dimensions: time (day, month, year), account,
hotel, and scenario. The scenario dimension contains elements such as Actual, Budget, Forecast, DailyDetail, etc. Market segment information (e.g., sales by categories such as groups, associations,
airlines, etc.) is contained in the account dimension. The daily cube has historical data back through 2004. The second cube has monthly data, including actuals from Lawson and budget and forecast
versions of the data. Dimensions are the same as in the daily cube. The monthly cube has historical data back to 1998.

Reporting
There are currently about 700 users of the IHR1 portal. The IHR1 homepage is customized depending on the user and integrates non-Applix GIS (geographic information
systems)/mapping software with TM1 data. This integration enables a regional hotel operator, for example, to initially see a map of that region color-coded to highlight problem areas using
“traffic-light” coding. (For Interstate Hotels & Resorts, green indicates revenue above forecast, yellow is total revenue within 2% of forecast, and red is total revenue more than
2% lower than forecast). The hotel operator can drill down to individual states and then individual hotels to identify which ones are behind forecast and view detailed data. Operators can also
define data-rollup hierarchies in addition to standard organizational rollups by operator, brand, region, owner, sales, state, and division.

Primary reporting applications are daily detail reports and monthly reports (see Figure 2). With these reports, a manager or operator overseeing the management of a group of hotels can see how one
or all of his hotels did the previous day and month-to-date: current actual versus forecast, budget, and last year’s actual. Budgets are set once a year and do not change during the year.
Each hotel updates its forecasts monthly for the remainder of the year. In the daily reporting section, if a hotel does not report daily numbers for some reason, the reporting application plugs in
forecast numbers instead of actual for the missing hotel so that any rollup is not skewed.

All of the reports are based on TM1 templates. These use a familiar Excel spreadsheet interface, and every cell on the spreadsheet is directly connected to data within TM1. These templates enable
Bushman’s staff and financial analysts to more easily and quickly change the content and format of reports. For example, users may request the addition of a line on the monthly snapshot to
provide additional data for analysis. According to Bushman, “Instead of a one-day exercise to modify a hand-coded ASP page, this process now takes about two minutes using TM1
templates.”

IHR1 Portal Daily Snapshot

Figure 2: Hotel managers and operators have access to a number of daily and monthly reports for both individual hotels and groups of hotels.

BudCast
The BudCast Next Generation application will be part of the final rollout of the IHR1 portal in the first quarter of 2007. This enhancement builds on the current BudCast model with additional
functionality such as the ability to select from multiple drivers, view rolling forecasts, and more. Changes will be reflected immediately in any report that includes BudCast numbers.

According to Bushman, “Smart hotel operators will use the tools we have in place to update their forecasts each day for any changes they anticipate for the rest of the month.” Depending
on how actual numbers look versus forecast and budget, each hotel operator can decide on an optimal strategy for raising revenue or lowering costs. Driving the room rate (how much more can I sell a
room for?) migrates to the bottom line as increased revenue. Driving occupancy (if I push to sell more rooms, I will need more staff) affects costs. If occupancy is way down, the hotel operator
would look at staffing levels (concierge, restaurant servers, etc.) and may revise the schedule for how many people should be on staff. Here are a couple of examples.

• With Hurricane Katrina, some hotels were affected positively and others negatively. The storm closed down hotels where it hit, and others got a lot of business as people moved out of the storm
  area. Operators had to revise their forecasts to accommodate these changes.

• Interstate Hotels & Resorts is constantly getting new group business. If a hotel gets a reservation (or a cancellation) for a large block of rooms, the operator also needs to revise the
  forecasts on BudCast. As mentioned earlier, this can be done online.

External Access
Hotel owners can also access their daily and monthly data through Interstate Hotels & Resorts’ Web site. “All of the systems we have built internally are available to hotel
ownership, leveraging what we already have in place,” states Bushman. “This is a great selling point in that ownership groups that do not have reporting systems in place get all of our
tools when they sign a management contract with us. They won’t have to spend thousands of dollars to build a reporting system.”

IMPLEMENTATION STEPS AND ADVICE

The BI portal application was developed to consolidate all Interstate Hotels & Resorts data using in-house resources. Here is a high-level summary of the major implementation steps.

1998 – While evaluating several BI products, Interstate Hotels & Resorts tried out a downloadable version of Applix TM1. Impressed with TM1’s performance, the company installed TM1
as its consolidated repository for operational data. The company then proceeded to develop several BI and Web applications on top of TM1.

2000/2001 – The company introduced its first edition of a BI portal. Users still had to access multiple Web sites and multiple BI applications to access TM1 data.

2006 – The follow-on to the BI portal, the IHR1 portal, was introduced. This implemented a single sign-on, role-based access to data, a single point of access for all BI applications and
reporting, and a sophisticated set of reports. IHR1 will also serve as a “universal toolset” for accessing any and all data in the future.

Advice
Bushman offered several thoughts on how to ensure the success of an operational BI effort.

• Ensure adequate resources – It is very important to have the requisite resources to implement the operational BI solution. “There must be adequate resources on the
  development side to ensure you can deliver as promised, and adequate resources on the business-sponsor side to ensure delivery of a quality and worthwhile product.”

• Ensure business owners are committed – Business owners need to commit to a common goal and common expectations, buy off on content, and participate in the selection of the right
  BI product/environment. According to Bushman, it is extremely important to have a “steering committee” made up of all disciplines within the organization to oversee what content is
  developed and delivered.  Bushman described the need for content buy-off as a time-consuming task because “everyone has a set of preferences about how he wants to see
  data.”

• Ensure data integrity and quality— “You need to have the checks and balances within your systems to ensure that data remains valid from one system to another.” A
  periodic review from accounting or finance to ascertain that content is accurate is also important.

SUMMARY OF BENEFITS AND ROI

Benefits
Interstate Hotels & Resorts’ operational BI solution has resulted in many benefits to the organization.

• Better and faster business decisions – Having a single, common set of data on which to base business decisions has allowed the company to make informed and value-driven business
  decisions.

• More effective hotel management – A streamlined and customized BI portal enables users to spend more time serving guests and operating hotels and less time grappling with access
  to multiple BI applications.

• Agility – The platform in place allows for rapid deployment of new content as business needs change. Bushman explained, “Because a majority of content is already captured
  on TM1 templates, the template may already exist, or a new one can be developed quickly. Using TM1 as the repository and engine for IHR1 allows us to adapt to end user needs by making these
  changed templates available on IHR1 within minutes.”

ROI
Bushman’s group has not yet developed a formal analysis of ROI. But the system has clearly saved the organization money.

• Reduced staff – “When we first implemented TM1, we had a full-time person receiving daily faxes or e-mails from hotels (yesterday’s data), entering the data into TM1,
  and running reports. It took 24 hours from receipt of the data to availability of the daily report. So Monday’s data wasn’t available until Wednesday at best. We have one less
  person on staff now, and have all or most of the previous day’s data by 9 a.m. the next day.” In addition, by providing a common, agreed-upon reporting function, each discipline no
  longer needs staff to create individual reports. Another example is the recent implementation of an automated weekly feed of hotel purchasing data into the TM1 repository. Previously this was a
  manual function, performed by hotel-based personnel; automating this freed up six hours a week per hotel.

• Reduced training costs through ease of use – By using Applix TM1 and leveraging it across the organization, Interstate Hotels & Resorts has saved on training costs.
  “Applix TM1 has an Excel interface, which all our users know. TM1 is very intuitive so training can be handled by internal resources.”

SUMMARY OF CRITICAL SUCCESS FACTORS

Bushman identified the following aspects of implementing Interstate Hotels & Resorts’ operational BI solution as critical to its success.

• Usage of the system – “You need to build a quality product that has superior performance, is easy to use and intuitive, and contains accurate data to keep users coming back
  to your product.”

• Ensuring users have the information they need to make decisions – Content must be accurate, informative, and easy to use to ensure that users make proper business decisions based
  on the information presented.

FUTURE ISSUES

Bushman envisions the IHR1 portal as a “universal toolset” that provides everything that the corporation, the hotels, and IT need to run the business and support users. Toward that
goal, future plans include the following:

• Implement an online lead referral program – The “Interleads” application will support cross-selling among hotels. For example, a hotel in Virginia that knows of a
  group needing 20 rooms in California in August will be able to post that lead through IHR1.

• Tie in the accounting system – The plan is to add access to the financial system to the IHR1 portal, making it a front end for accounting functions (such as remote inquiries to
  accounts payable and general ledger, check printing, journal entries, etc.) in addition to BI.

• Dashboards – The plan is to provide dashboards so operators can see a “scorecard” view of property portfolios.

• Add hotel system inventory data – As another page accessible through IHR1, this will help internal IT resources better support their hotels and owners.

SUMMARY

Interstate Hotels & Resorts’ operational BI solution delivers a comprehensive platform for information access, analysis, and decision making across the organization. Through the IHR1
portal, the Applix TM1 BI solution and reports are available not only to internal managers and hotel operators, but also to hotel owners. Latency of operational data has been reduced to one day or
less, and the new version of the BudCast application supports near-real-time updates of monthly forecasts. Managers and operators can now make informed business decisions based on a common set of
current, accurate, and actionable operational data.

In the future, the company will expand the BI platform to deliver access to a broader set of integrated applications and data from a common interface. The goal is to enhance the company’s
agility, flexibility, and competitiveness in a dynamic industry where business strategy at the hotel level can change daily.