Story By RICHARD KARPINSKI
Source: CMP Media LLC

Bruce Rosenberg's cell phone is glued to his ear. It's not surprising that Hilton Hotels' senior vice president of e-business, scurrying through the Beverly Hills headquarters on a brilliant mid-May morning, needs to keep in touch. The night before, his team cut over the company's new Web platform, a crucial step in building a new Hilton.

Anthony Nieves, meanwhile, is running late for a meeting. Hilton's senior vice president of purchasing last year rounded up more than 3,500 suppliers to participate in a private purchasing e-marketplace. This morning, he's on tap to speak with the members of his high-level steering team-including top executives from Hilton corporate, his supplier base and vendor partner PurchasePro. The team aims to drive e-procurement savings this year across Hilton's expanding base of properties.

Rosenberg and Nieves-with a mandate from CEO Stephen Bollenbach and hotel operations president Dieter Huckestein, and with input from Hilton CIO Tim Harvey-are steering Hilton's second e-business transformation.

Since acquiring Promus Hotel Corp. in November 1999, gaining the Hampton Inn, DoubleTree and Embassy Suites chains, Hilton no longer focuses on a single, upscale brand or on owning its hotels. The company is learning how to run a full slate of brands, from the value-oriented Hampton Inn to the recently opened posh Hawaiian Hilton resort. Meantime, Hilton is increasingly focusing on managing third-party hotels and building a franchising business. The company now gets 30 percent of its revenue from such efforts, up from 15 percent before the Promus deal. E-business is crucial to that transformation.

"Technology has enabled us to beef up our marketing, our distribution, our reservation, purchasing and operational systems," says Hilton president Huckestein. For example, every hotel manager tracks a live "scorecard" that details business goals and performance indicators on an almost real-time basis. "We can aggregate and extract intelligent layers of data," Huckestein says. "Ten years ago you couldn't do that, but now you can, thanks to the Internet and technology."

Adds purchasing chief Nieves: "Technology has changed the face and pace of what we're about today."

Consider Hilton a Phase 2 e-business pioneer. It has taken what it learned from early Internet efforts and applied those lessons to major effect. For relying on the power of e-business not only to boost sales and slash procurement costs, but also to entirely remake itself into a multibrand powerhouse, Hilton stands out as InternetWeek's E-Business Of The Year.

The new Web site, for example, eventually will give the company's disparate hotel Web sites a consistent look and feel. It will also drive the integration of back-end systems, such as reservation booking and call center.

On the supply side, Hilton-especially in tough economic times-needs to cut costs to keep its industry-leading profit margins on the rise. So in the next year it will expand its private procurement e-marketplace-now used by 500 hotels, mainly its owned and operated properties-to its more than 1,600 managed and franchised hotels worldwide.

To support Hilton's Web site and purchasing strategies, CIO Harvey is overhauling key back-end applications. His team has already built a common front end for its now separate Hilton and Promus reservation systems, and it's in the process of integrating them into a single system. Harvey is also creating a common Windows-based property management platform-the onsite platform, dubbed System 21, that hotels use to run their operations-for all Hilton properties. (Read an online Q&A with Harvey at .)

"Hilton is maybe doing the best job [with e-business] of anyone in the industry," says Rod Petrik, who follows Hilton and the hotel industry for brokerage Legg Mason.

Petrik gives high marks to Hilton's success in getting its individual hotel properties to buy into its B2B e-marketplace plans. And he says Hilton's early forays onto the Web (it was one of the first hotels to book rooms and move its procurement online) and its focus on capturing customer information gathered there have improved customer service and boosted bookings.

The company's early Web investments are just beginning to pay off, both in cost savings and new revenue.

"It's getting to be a significant part of how they do business," Petrik says. "If you're not spending the money to track customer service today, you don't get improvements to the bottom line somewhere down the line."

Hilton's B2C Web efforts are just as crucial, helping to drive the company's new multibrand strategy, analysts say.

"What we're seeing here is a hotel that is trying to deliver all of its brands through an integrated channel," says Krista Pappas, director of travel services at consultancy Gomez Inc. "That is very valuable. As the Web sites move through their different iterations, they seem to be making steps in the right direction. But they have their work cut out for them" in integrating the sites at both a brand and technical level.

The strategy to integrate the Web sites isn't without risk. Hilton is moving its hotel sites onto new Web and application servers, which are running in a new hosted environment. Those moves all present operational challenges in an industry where Web downtime means lost customers like almost no other.

B2B efforts

On the B2B front, Hilton is betting its procurement strategy on a tight relationship with upstart vendor PurchasePro, which has seen its CEO resign, its accounting practices questioned and its share price devastated in recent months. If PurchasePro goes bust, it could be disastrous for Hilton. Competitor Starwood Hotels recently suffered a major setback when its dotcom B2B partner, Zoho.com, went out of business.

Even without those challenges, some analysts say Hilton has a tough e-business road ahead. Although Hilton was one of the first hotels with a public Web presence, its sites have been in need of an upgrade, says Forrester Research travel analyst Henry Harteveldt.

Hilton has spent the past year updating its back-end systems, including reservation and property management, and crafting a more integrated Web site strategy, Harteveldt says.

"It's encouraging to see they're giving their Web sites a fresh look," he says. "But has the damage been done-not to the brand, of course, but to the patience of online travelers? Once you lose a customer online, it can be hard to win them back."

The first step in winning over more customers online began last month when Hilton rolled out its new corporate-wide Web platform, offering a rede-sign backed by an entirely new IT infrastructure. Hilton also unveiled www.hiltonworldwide.com, the company's new corporate home page and overarching brand for its hotel properties.

The launch culminates a nine-month project that e-business vice president Rosenberg says was delivered on time and on budget.

Hilton was already having success online. In 2000, the number of visitors to its Web sites doubled to 30 million. Hilton booked $300 million in hotel room revenue (1 million room bookings) from its Web sites, more than double 1999 levels.

Hilton has had success turning site visitors into buyers: At least one of its hotel Web sites reports that 10 percent of site visitors last year booked a room online. Hilton won't give projections for 2001.

The acquisition of hotel chains in the Promus deal (the company added 200,000 rooms, bringing its total number to 318,000) and the goal to strongly brand the hodgepodge of properties under the Hilton banner create a new challenge for Hilton, Harteveldt notes. "They have eight or so brands now, and few of them don't have any association at all with Hilton," he says.

The new Web platform is designed to address that challenge. The individual hotel sites have not only a common look, but also common interactive tools.

"One of the goals was to have a consistent look and feel and a consistent user experience, but still allow the individual brands to focus on their customized functionality," says Jeannie Moran, Hilton's director of e-business for its branded Web sites.

Features such as booking engines and hotel finders are common from site to site. Other tools, such as a "plan a driving route" application, appear only on sites such as Hampton-Inn.com, whose guests arrive mostly by car.

But the new Web sites are also designed to make it clear to consumers and businesspeople-for the first time ever, in most cases-that Hilton is now a multihotel, multibrand company.

"We want to make sure the consumer understands there's a Hilton family of brands," Rosenberg says.

In May, for instance, Hilton launched a site to support its HHonors frequent visitor points program. Hilton added 1,400 former Promus hotels to the program, which today drives more than 20 percent of the occupancy in those hotels.

Later this year, Hilton will better integrate the program with the individual hotel Web sites and add personalization capabilities that will deliver more customized information, including the latest point redemption opportunities, to Hilton's important high-frequency visitors.

In the next few months, the company's central reservation system will get an overhaul. First up is an integrated user interface that brings together the separate Hilton and Promus reservation systems, at least from a Web site point of view. True application-level integration of the two separate systems is a major IT project slated to begin next year. The company will use an XML interface to link the reservation systems to the Web.

Hilton has set itself apart from rivals historically by keeping control of its booking systems rather than relying on third parties-both offline and on the Web.

The company has also continued to Web-enable its call centers and provide its reps with better data and tools to sell across the full range of Hilton properties. Hilton's new "Horizon" call center software was in place by year-end 2000 across its five domestic call centers. Hilton reported $100 million in incremental billings, thanks to the ability of phone reps to cross-sell the Hilton and former Promus properties.

Sitting behind all of the new Hilton Web site features and upgrades is a new technology platform, also developed in the past year. Hilton tapped design shop Xceed to oversee the site redesign, and worked with vendors, including Art Technology Group Inc. (application server and personalization tools), Interwoven Inc. (enterprise content management), Acxiom Corp. (Web hosting), E.piphany Inc. (customer relationship management) and Akamai Technologies Inc. (content caching and delivery).

FUTURE FEATURES

Key next year will be to add more Web CRM and personalization capabilities to the site, taking advantage of the new technology platform. That effort is still in the early stages.

"We have an active development effort going on right now with CRM," Rosenberg says. "It's an enterprise effort, not just the Web sites."

With the Web site relaunch completed, Rosenberg's 25-person Web team met in late May to decide which new e-business areas to tackle. "Our whole effort was to get us to launch. Now that the site is up and launched, we're going to restructure the group," Rosenberg says.

"I told everyone from day one today you're going to be doing job A, but at the end of this project you might be doing job C. We're going to match their needs and interests to where we have needs," Rosenberg adds.

As a first step, Rosenberg will likely create separate development and brand marketing groups within Hilton's e-business group, as well as a hands-on operations team.

"We need a group of people that will continue to improve the product and recommend the next group of changes," Rosenberg says. "Then we need another group that will create the revenues and the user experience. And the third group focuses on operating the site on a 99.9 percent uptime basis."

Supply Chain Plans

Hilton is working just as diligently on the B2B front. The payoff has been not only cost-savings across its existing hotel properties, but a turnkey procurement system and supply management infrastructure Hilton can use to entice developers and franchisees to do business with it. That's a key part of the hotel chain's new corporate strategy.

"This is a differentiating factor for us as a hotel company, something additional that we're bringing to the table for potential owners and developers," Nieves says. "It's up to them as a franchise if they want to participate. And on the managed hotel side, it definitely has proved cost-effective."

Executives at PurchasePro, which is helping to build Hilton's private e-market, credit Hilton for a firm focus on the payoffs of B2B.

"We started out in the hospitality industry, and we've worked with every big name in the industry at one time or another," says Chris Benyo, PurchasePro's senior vice president of marketing. "Hilton will do anything to improve their efficiency, their profits and their ability to serve their guests better. Every person we've dealt with at Hilton has that kind of focus."

So hungry were some Hilton hotel general managers to improve their purchasing that several started buying on the system before the formal rollout-and before they'd even been trained on the system, Benyo says. Often, companies have to "beat their buyers over the head with a stick" to get them to move to a new buying process, he says.

What the Internet provides is "an enterprisewide conduit that in the old EDI environment would have been very costly to try to achieve," Nieves says. "We were perplexed about how to get all these remote locations up on some common platform. With the ASP model we have, it's been a thing of beauty."

The technology backbone for this effort is an enterprise resource planning system from PeopleSoft (replacing an Oracle ERP back end) and a front-end Web interface and private marketplace solution from PurchasePro (replacing tools from EDS SupplySource). Both systems were cut over simultaneously in the past year.

Nieves has led the B2B charge, fronting a team of more than 200 at the project's height. He's backed by a steering committee that includes CIO Harvey; the heads of architecture, construction and corporate finance; and representatives from key suppliers.

In the past year, Hilton has rolled out the new purchasing system, via a hosted Web interface, to more than 500 hotel buyers and 3,500 suppliers, about 1,000 of which are very active on the system. The rollout has almost fully penetrated Hilton-owned properties, but where franchisees expressed great interest, they came aboard as well. The hotels on the system are already directing 60 percent or more of their spending onto the e-procurement marketplace.

The rollout was regionalized, Nieves says-meaning that Hilton corporate negotiated a handful of key national and global purchasing contracts, but a large number of deals were made with distributors regionally. The purchasing infrastructure is set up like a hub and spoke, with five regional purchasing offices feeding back into the corporate hub.

Even when ordering regionally delivered goods, buyers work with the same template-based purchasing system, ensuring comfort with the system while keeping a lid on maverick buying, Nieves says.

"The hotels can go in there and see our brand standard items, our product standard items, and yet still have the capability to do spot buys on the fly," Nieves says.

The geographic coverage not only has affected buying on the system, but has also helped ease the system rollout. User and supplier training on the system was delivered on a regional basis using a combination of onsite training, teleconferences and Web classes. Supplier training ensured that key trading partners weren't scared off.

"A lot of suppliers had a lot of concerns," Nieves says. "They felt this was a threat to their profit margins. Perhaps this was going to cost them more money to do business. We wanted to let them know our goal was to realize efficiencies and drive down the total cost of ownership of products and services on both sides of the equation and that, working together with us in this initiative, we could all reap the benefits."

No Intermediaries

While e-procurement platforms and e-marketplaces are becoming more common, Hilton-because of its supply chain history-has taken a unique approach. The company runs a wholly owned subsidiary, Hilton Supply Management, which sits in the middle of the buying process as a stockless distributor and merchant of record on all purchases. The group never takes physical possession of the goods but manages the information flow.

The new PeopleSoft back office runs Hilton Supply Management's operations. "We get a requisition in from a hotel, and we treat it like a sales order," Nieves says. "We, in turn, generate a purchase order to the manufacturer, and then we generate an invoice to a particular hotel. That allows us to act as a dealer and drive costs out by eliminating intermediaries in the supply chain."

Supplier interfaces into the system include a full XML, API-level interface; support for XML "punch-out," where the PurchasePro system taps supplier-hosted catalogs; and less sophisticated transactions such as auto-fax messages that start as a fax but end up as data input into the procurement system.

Another business-and philosophical-decision for Hilton was to avoid passing on the costs of the procurement system to the company's hotels or their suppliers. Rather, Nieves says, all expenses are absorbed by Hilton and recovered by the system's cost savings.

Hilton also made an early, and apparently wise, decision to focus on building a private marketplace rather than join an industry e-marketplace consortium. One hotel industry consortium, Zoho.com, has already gone bankrupt, while a second, Avendra, is still in business but has been quiet since its launch.

At one point, Hilton was keen on adding other buyers to its procurement platform. It still may attempt to do that, but whichever companies it adds to the platform most likely won't be a hotel industry competitor, Nieves says.

"I struggle with how can it really work," Nieves says. "You're basically helping your competition. If they realize a benefit and you realize a benefit, that's fine. But then what becomes of the differentiating factor between those two companies when a consumer books a hotel or a developer wants to make a choice of who they want to develop their hotel with?"

Hilton also must keep a close eye on its PurchasePro relationship. The e-business vendor has seen its stock price fall into the single digits, and a recent surprise earnings shortfall led to a shareholder suit and complaints about its accounting practices.

Despite these problems, Nieves isn't concerned and maintains that Hilton's relationship with PurchasePro is solid.

"We knew there'd be a flush-out in the market, knew there would be consolidation," he says. "We talked about it from day one. But we never hinged our selection on a valuation play in the stock market. With all their ups and downs, they have not wavered in their support of our initiative. They've kept a lot of resources on our account, and it's been full steam ahead with no misstep on their part."

Hilton is moving ahead with other B2B initiatives. Nieves's group is rolling out a project management bolt-on to the PeopleSoft system that lets hotels manage not only the procurement needs for a new hotel launch or expansion project, but schedule the installation, receipt and installation of goods and services as well.

Also on tap is the integration of things like freight calculators and logistics scheduling into the procurement process to get a truer up-front idea of costs and to expedite the delivery of goods to the hotels. Still to come is the transition of the Promus properties, which had been using a buying solution from Commerce One, onto the PurchasePro platform beginning later this year.

From its broad B2B work to its new Web site technology and branding efforts, Hilton is paying strict attention to meeting customer needs and garnering tangible payback on its investments. The company has come a long way since Conrad Hilton bought his first hotel in Cisco, Texas, some 80 years ago.

HILTON HOTELS
Headquarters: Beverly Hills, Calif.
Line of business: Hotels and vacation resorts
2000 revenue: $2.83 billion
2000 net income: $272 million
Percentage of revenue from e-business activity: 9 percent
CEO: Stephen F. Bollenbach

TOP E-BUSINESS EXECUTIVE: Bruce Rosenberg, senior vice president for e-business and distribution

E-BUSINESS HIGHLIGHTS: Expanding private supply e-marketplace to 500 sites and 3,500 suppliers; in the process of launching all hotel brands on a single integrated Web site platform

E-BUSINESS CHALLENGES: Weathering problems with B2B partner PurchasePro; integrating systems and Web sites from Promus Hotel acquisition; dealing with the economic downturn and with the increase in energy prices, which are hitting the hospitality industry hard and cutting into margins

TOP E-BUSINESS ACCOMPLISHMENT: E-business strategy becomes central to achieving corporate goals of integrating new brands and executing a new market strategy following the $4 billion acquisition of Promus Hotel Corp.

HUCKESTEIN: HOW E-BIZ WORKED FOR HILTON

As president of Hilton's hotel operations, Dieter Huckestein is responsible for some of the best-known hotel brands in the world, including New York's glitzy Waldorf-Astoria and Chicago's historic Palmer House. Huckestein has worked closely with Hilton CIO Tim Harvey to build the company's HHonors loyalty program and roll out new reservation and call center systems, and a customer database that will drive Hilton's customer relationship management efforts. He spoke with InternetWeek editor-at-large Richard Karpinski at Hilton's Beverly Hills headquarters.

InternetWeek: What have been the e-business successes-things that have really impacted the bottom line in the past year?

Huckestein: To a great extent, technology has enabled us to beef up our marketing, distribution, reservation, purchasing and operational systems. [For instance] we have a balanced scorecard in place, which every hotel has live and in front of them. That enables every general manager to understand what are the key performance indicators. We can aggregate and extract intelligent layers out of that. Ten years ago you couldn't do that, but now you can, thanks to the Internet and technology.

Because of the [expanded] scale and scope of the company, we are able to contribute a reasonable amount of money to enhancing our systems and maintaining the speed and the focus we have. I think we will really be able to enhance our [hotel] services tremendously.

InternetWeek: How has your IT department supported the e-business efforts?

Huckestein: I think we have great technology partners, and we're developing our systems. The trend in IT for us is bringing many of our key systems in-house. System 21 (a Hilton-built system that runs its hotels) is one of the most solid property management systems, and we're building a new version on top of that. We're doing this in-house because we have the capacity now, the know-how and the resources to do so. Same with our reservation system.

InternetWeek: How have your suppliers responded to your B2B and supply chain efforts?

Huckestein: We've been doing this now for a few years. For instance, our Hilton Garden Inn is a prototype hotel for us. We now have a hundred hotels open-a billion dollars of investment-with another hundred in design. We created a prototype Hilton Garden Inn online, so as an investor or a developer, you can look at our prototype and within a short amount of time you can come up with a cost estimate [for building a new hotel]. It's a very cost-efficient way for a developer [and] our partners, and a very efficient way for us to maintain our brand standards.

All of our suppliers have been eager to be part of things like this. It didn't come from osmosis. And there were some hiccups in the process. But today we can look back and say we did it.

InternetWeek: How important is the Internet for enabling cost cutting?

Huckestein: I think the Internet is really a primary driver for customer relationship management. It's just a wonderful way to offer our products throughout the world. It is just a great thing-not just to make a reservation anytime and anywhere but also to be able to look at the locale and the hotel. To me, that's creating value. On the cost side, I think we are just starting, just getting the benefits of the investments we've made.

Our goal is to have a totally integrated [e-business] system. That's where we want to be. No hotel company is there yet, but I think we will be there in a short period of time. And every quarter, as we get closer and closer to that target, we see benefits and tremendous savings. It's not just a cost savings-it also saves time. Any time we can speed up a process and enhance productivity, it's a great thing for us. And with it there are cost savings.

In terms of innovation, traditionally our industry takes a little longer to get it vs., say, a high-tech company. We are getting there. Compared to a [high-tech company like] Microsoft, it may look like we're crawling. But we're getting there. And for that, I really want to give credit to Bruce [Rosenberg, vice president of e-business] and his team; they really have enkindled a new spirit in our thinking and really opened our minds-and our purse.