Why Travel companies should spend more on their IT systems
The common law of business balance, often (but unreliably) attributed to John Ruskin, states this:
“There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person’s lawful prey. It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”
When I saw this recently on the wall of our local Indian takeaway, it resonated so strongly with my experiences in travel technology that I felt compelled to put some thoughts in writing.
I have heard of many travel companies over the years who have succumbed to paying too little for a technology solution, and ended up with a failed project. Yet, almost the first question we are asked by most enquirers is “what does your system cost?“, rather than “what can it do?“, or even better “what does it do for your existing clients?“. This simple, but incisive question would allow those requiring travel technology solutions to rapidly weed out suppliers who cannot deliver, or who have poor systems. It may still be that they cannot then afford what they want, but at least they would not waste money on something that will deliver nothing.
This leads me on to my second point, which is why do travel companies not work out in advance what they really need, rather than a wish list of what they’d like? I do understand that when visiting car showrooms, one enjoys poking the buttons of the car you’d like to buy, before actually deciding what you need from a car and making a sensible purchase within your budget that meets your daily needs. But really, in a business context, it would be better to spend time up front deciding what you need before approaching suppliers, rather than just asking for the world, when your budget is limited. No point wasting everyone’s time. Rant over.
However, back to my third, and this time more serious point: The leisure travel product is complex. Very complex. This complexity may be related to the product components themselves, the itinerary, the party makeup, the business rules around the financials (payments, commissions, discounts, markups) the business relationship with customers and suppliers (amendments and cancellations, XML supplier links, nett fare rules), various points of sale (web sites and call centres) or even the business’ brands (multiple web sites, white labels, markets, business units). The technology to manage all this complexity is necessarily complex, and when you buy that technology and run your business on it, you are also buying into a relationship with the technology supplier. Once you’ve made that decision, you are in a partnership relationship, which both parties should want to be long term and mutually beneficial. Given the strategic nature of these decisions, it makes sense to pay the right amount, or as Ruskin suggests, maybe even a little too much, but it makes no sense at all to pay too little. Some technology suppliers are naive, promising more than they can deliver for the price agreed. Sometimes however, they are not. They know that in the end negligence is hard to prove conclusively, and possession is nine tenths of the law, so what’s been paid along the way will not be recoverable. We have seen this scenario played out several times already in recent memory in the UK, although of course I will not name names.
There has also been a move in recent times to offer pay-as-you-go solutions for cloud based reservation systems, with little or no up-front payments and a monthly rental/booking fee/commission taken once the system is live. This is often described as a ‘shared risk’ approach. However, I would argue that in this case the vast burden of risk lies with the IT supplier. They have invested in developing their technology and service platform, then in finding their customers, and now they are asked to invest in getting a customer up and running, all before there is any return on investment. In what way is the travel company investing and taking risk in this transaction? These arrangements can work, but there must be some sharing of up front implementation costs, and also some commitments made on minimum volumes and length of contract. GDS’s have made this their business model for many years, but still bear the dissatisfaction of disgruntled customers who push for lower transaction fees and lower commitments. No wonder GDS technology is so out-dated and inefficient.
So, what can be done? In my experience, successful projects and customer relationships start with honesty and straightforwardness on all sides, followed by a realistic assessment of what is needed now and in the future, and what can be delivered in what time-scale. Start with something straightforward that fully exists today, implement that and get revenues flowing through it relatively quickly, and then have a phased plan to build out the business and technology on that firm foundation of a live system. Never buy solely from Powerpoint slides, screen-shots or promises. Check out others’ experiences of the systems you are buying. Have someone independent and experienced with travel technology look at your plans. Assess the project risks fully. Hope and expect the best, but also make a contingency plan for a worse case scenario. And finally, make sure you are paying enough money to allow your supplier to do a proper job, and to make a little profit from their labours!
Rob Wortham, May 2012