Dr. Bertenrath from IW Consult, you have produced a study on the relevance of the hospitality industry. One of the findings is that the sector is a pioneer in terms of the digital transition. Do you really believe that to be true?
You need to take a more nuanced view of the situation. We came up with a Digital Index (DI) of 4.8 for the entire hospitality industry. Compared to other sectors, such as information and communication with a DI of 8.0 or manufacturing with a DI of 6.6, the hospitality industry is actually in the middle bracket overall. However, when you take the catering and hotel industries separately, the catering side demonstrates a DI of 3.94, whereas the accommodation side achieves a DI of 8.1. As you can see, the hotel industry is doing rather well.
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However, in its most recent study on digitalisation, Deutsche Telekom emphasises that, compared to other sectors, the hospitality industry is not a front runner in terms of digitalisation. So who’s got it right?
As regards catering, Telekom is quite right. But its assessment is not true of the hotel industry. Of course, you have to bear in mind that the methods used in the two studies vary significantly. Telekom surveyed 2000 companies about what they are doing in the field of digitalisation. IW Consult, on the other hand, fed over 10,000 objective digitalisation criteria into its analysis. As such, we looked at the status quo in the sector from an external perspective, whereas Telekom also attempted to find out what the situation is in terms of processes within individual companies.
Dr Roman Bertenrath, lawyer and business studies graduate, studied Business Management and Law at the University of Cologne. Since 2010, he has been head of the Strategy and Growth Division at IW Consult, a subsidiary of the German Economics Institute in Cologne. Since August 2009, he has also been a business studies lecturer.
So what is the added benefit of your study?
We carried out an exhaustive survey, which allowed us to get a very good idea of what is referred to as the sector's ‘digital appearance’. Within eight different clusters, the Digital Index rates companies’ digital appearance on the basis of factors such as technology (programming languages, servers, cloud), mobile (mobile maturity, apps, mobile devices), social media, speed of access, Google page rank, etc. This also allows us to accurately measure the digital gap between the catering and hotel industries.
Does that mean you know how many hospitality companies don’t have their own website?
Indeed: 36% of hotels don't have a website. In the catering sector, 65% of companies have no online presence.
What explains this enormous disparity?
On one hand you have restaurants, ice cream parlours and snack bars with sometimes very low DI values. Then on the other hand you have the hotel industry where there are large chains with many establishments that push up the overall DI. Players like Airbnb and the major booking portals are another catalyst behind the score for the hotel industry. This kind of development can also be observed in other business areas, too. For example, the retail sector is coming under pressure from Amazon and Zalando.
Many small businesses could benefit from digitalisation.
So are we becoming increasingly dependent on internet platforms telling us how we should digitalise?
Essentially, with digitalisation it always comes down to the question of the extent to which the economy is now dependent on platforms. What companies such as Google and Amazon do incredibly well and have a good understanding of is how to look at an individual and ask: what do they actually want? Amazon and its contemporaries are used to thinking big and processing large quantities of data whilst at the same time focusing on extremely user-friendly business areas. You have to admit, Silicon Valley companies have got very little wrong in the past twenty years, and have done a good job of making their big visions a reality.
So if I have no online presence and am not digitalising my establishment, do I have a bleak future ahead of me?
If you're not online, you don't exist – at least not in the eyes of young people. Consumers can change their habits very quickly, and hotels must be able to respond to this. For most of us, the first place we go to look for hotels at our destination is online. The internet means networking. Individuals are there to find something, and companies are there to be found. However, the key for hotel operators is to be quickly distinguishable from competitors online with a mobile application or at least a website, to be easy to find and to be able to generate new business. This is often more efficient than publishing an ad in a regional directory.
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And what else do you think ought to be digitalised?
Everything that goes on in the back office, so ordering processes and accounting systems. The technology needs to be simple and logical. I should immediately be able to check whether my establishment is full. If everything is interlinked and interconnected, so if the data architecture is right, there is enormous efficiency potential to be tapped into.
However, many hotels are not currently located in a well-networked city but in the countryside, where there are no fast data connections.
IW Consult has calculated that GDP would go up by 0.04% if there were a 1% increase in the number of fibre optic connections. This goes to show that investments in digital infrastructure pay off, because we are moving towards a gigabit society.
What’s a gigabit society?
In 1992, the global data volume stood at 100 Gb per day; by 1997 it had risen to 100 Gb per hour, and in 2016 to 26,600 Gb per second. According to predictions, by 2020/2021, we’ll have reached 105,800 Gb per second. Artificial intelligence, driverless cars and so on – these require enormous quantities of data to be processed. 50 Mb networks simply aren't up to this task.
Educational systems also need to be aligned with the requirements of the digital world. In addition, the digital transition is sometimes the subject of harsh criticism. Such a critical approach is certainly appropriate in many cases, but reservations should not be allowed to turn into scepticism or prejudices.
Does that mean only large hotel chains will be able to manage and benefit from digitalisation given the degree of competition and costs involved?
Not at all. However, it is usually the case at the moment that the smaller an establishment is, the lower its degree of digitalisation – it is a question of economies of scale, which are typical of this sector. It also works the other way around, though. Since 36% of accommodation establishments do not yet have a website, they still have huge potential for efficiency gains. As such, many small businesses could benefit from digitalisation and thereby offset other disadvantages.
Dr. Bertenrath, thank you for talking to us.