Best Impact: Grupo Posadas and Oracle On Demand
Award criteria: The partnering efforts of the parties enabled the buyer to enter a new market or dramatically improve its standing in the current marketplace.
In 2002 Grupo Posadas, the largest independent hotel chain in Latin America, signed an outsourcing contract with Oracle On Demand to provide an on-demand solution for its distribution and ERP system. Eight years later, this relationship has benefitted Grupo Posadas by streamlining its IT operations and creating four new companies. "Oracle On Demand, our technology partner, helped make all of our companies very successful," reports says Leopoldo Toro, CEO of AltiusPAR, Grupo Posadas's first new company.
Toro says Grupo Posadas was one of Oracle On Demand's first Latin American customers. "They were our anchor tenant," says Mike Beck, Senior Vice President, Oracle On Demand operations. Last year Latin America was one of the fastest-growing areas for Oracle On Demand, he adds.
Today, Oracle On Demand provides ERP functionality (both hosted and managed) for financial services, purchasing, and human resources for more than 9,000 Grupo Posadas employees. The company has over 100 properties with more than 19,000 rooms in Mexico, the United States, Chile, Argentina, and Brazil. It also owns Mexican Airlines.
"They took advantage of the fundamentals of outsourcing," says Beck. "They used technology to improve their operations and achieve a successful business transformation, which continues to this day."
Oracle On Demand took over hosting and managing the ERP functionality for a shared-services center Grupo Posadas created. Now that it didn't have to worry about the technology back office, Grupo Posadas used its industry knowledge to develop its own reservations software on Oracle's technology platform.
This new sales, inventory, and distribution platform for hotels runs on Oracle On Demand in the "cloud." "The system manages reservations and helps hotels maximize revenue and profitability," explains Toro. "We sell this software-as-a-service (SaaS) solution to other hotels, which is part of our transformation to a services company." AltiusPAR delivered the solution to market faster, and with Oracle On Demand behind it, helped convince its first external customer to do business with AltiusPAR.
The original outsourcing success creates a new company
A year later, Grupo Posadas and Oracle On Demand executives assessed the success of their reservations project. At that time, Grupo Posadas created AltiusPAR, a wholly owned subsidiary, to "start selling the solution we created for Grupo Posadas," says Toro.
Today, AltiusPAR provides hotel room reservations, revenue management, and customer relationship management (CRM) to four hotel chains with properties in the United States, Mexico, Brazil, Argentina, Chile, and the Netherlands. Last year AltiusPAR had over 250 million room rate requests and processed 2.5 million reservations. Its central reservation system serves over 2,000 call center agents from New York, New York, to Santiago, Chile. It also provides real-time pricing for the 25,000 rooms in its distribution channel.
"AltiusPAR removes the hurdles hotels face when trying to manage complex inventory and pricing data across multiple channels," explains Toro.
Toro says the Oracle On Demand leadership helped the fledgling company with the security certifications it needed. "They even helped us with our business plan," says Toro. He says Oracle On Demand's top leadership provided advice "on how to launch an on-demand company." He says Oracle On Demand was "instrumental" in the birth of AltiusPAR, which formally opened its doors in 2004.
The spin-off model has been so successful, Toro says Grupo Posadas used the same model to launch three other companies. "This changed the way we do business together by expanding our relationship. They went from being an IT supplier to a supplier doing strategic and value-adding activities. We created an ecosystem with an aligned vision to achieve our goals," says Toro.
For example, Grupo Posadas next created Ampersand, a loyalty company that provides services to banks and other companies. (Eighty percent of Amepersand's customers are financial institutions.) Toro says, as Ampersand grew, it faced "a lot of problems. So we decided to apply the same Oracle On Demand solution."
Connectum, another Grupo Posadas company, is a business process outsourcing company that delivers back-office hotel services to hotels. Grupo Posadas brought Conectum to life in 2003 by with the main objective of consolidating and integrating all the financial operations of the different hotels in its portfolio. After the success of the shared-services center, Posadas decided to go to market with the same cost and process optimization benefits it brought to Grupo Posadas. Together with Oracle On Demand, Grupo Posadas is transforming Conectum into a BPO services provider that offers the market best-practices-based financial processes supported by state-of-the-art applications such as Oracle ERP Suite.
The AltiusPAR CEO says Grupo Posadas's new companies rely on Oracle On Demand "to help us close the deal" because the Oracle On Demand model is a key part of the solution. "They are the operating partner, so they participate in our sales calls," he says.
New companies have no brand awareness, adding an extra degree of difficulty to their marketing efforts. So Oracle On Demand helped Grupo Posadas. Its leaders introduced the executives of AltiusPAR to their PR firm and the consultant community and spoke at their industry conferences. "Having an Oracle Certified Partner on our collateral gave us instant credibility in the marketplace," notes Toro.
AltiusPAR became the first SaaS company in the hospitality industry.
Outsourcing decreased Grupo Posadas's total cost of ownership by over 30 percent, says Toro. Now the hotelier's "services and prices are competitive in the market."
Customer satisfaction increased more than 20 percent since the partners signed their contract.
Today the IT systems are "much more stable," says Toro. Instead of doing a lot of hot fixes, the company now releases new applications every six months. "Our users know that if they have a problem that is not a show-stopper, they will get the enhancement in two to three months," says Toro. In addition, Grupo Posadas now has "a rigorous method of prioritization, which has proved to be the right way to do things," he adds.
The hotel company now has mirrored servers for disaster recovery and high availability, just in case. They optimize the use of planned downtime, integrating Grupo's innovations and enhancements with the proactive patching applied by Oracle On Demand. "We can't be down for hours because we take reservations 24/7," explains Toro.
Before outsourcing to Oracle On Demand, employees in the IT department had to be technologists and business strategists. Outsourcing allowed Grupo Posadas to reduce its technology team. It transitioned these employees to the business side. "They added value to the business because they had the vision of both the technology and the business. This was a great help," says Toro. "We no longer have to worry about a lot of things that were distracting us from the value-added things," says the executive. The company was devoting up to 70 percent of its time and resources on IT operating issues like hardware fixes and security patching. "Now our people are free to work on strategic projects," Toro continues.
Grupo Posadas now has process flexibility. When it signed its original contract, one service level required its customer service agents to respond to its reservation partners in 15 seconds. "Nowadays, our channels are asking for five seconds," says Toro. The partners adjusted the service level metrics accordingly.
In addition, Oracle On Demand "adapted its pricing model to our business model. That makes our corporate financial projections more efficient," says Toro.
Outsourcing helped Grupo Posadas weather the global recession. "We have an agile relationship," says Toro. Before the recession, he says the company "lived in a steady state. After the downturn, we had to change our dynamic and look for new opportunities," he continues.
Oracle On Demand tracks innovations in the IT industry and shares its findings with the Grupo Posadas leadership. "They will tell us, ?This will be increasingly important in your industry. It's embryonic now but will be a key success factor three years out. "Here's what our experts think. Together we prototype it to see if the innovation makes sense for us," says Toro.
Why this relationship works
Grupo Posadas created new positions, "hired the right people," and trained them with Oracle to manage the outsourcing relationship. In fact, Grupo Posadas required all its key people to become certified in Oracle's tools.
During the transition, the new networking process wasn't "mature; we probably didn't pay enough attention to this area," says Toro. Grupo Posadas "got a lot of help from Oracle and its experts, so we solved the problems in a timely manner," he reports. Oracle experts from Asia, Europe, and the United States flew to Mexico for two weeks to help Grupo Posadas design, then implement the needed network. "It was a non-stop effort," reports Toro.
Whenever a challenge arises, the partners first discuss the problem. "Our problems are always tough," Toro explains. Next, they discuss how they are going to solve it technically. "Then Oracle on Demand commits the extra effort to deliver," says Toro.
When one side makes a mistake, they work together to fix it. After the go-live, Grupo Posadas had a performance issue. It had to grow the infrastructure but didn't have the cash to make the needed investment. Oracle On Demand needed the extra infrastructure to meet its service level agreements (SLAs). "We had a conflict," says Toro.
Instead of discussing "who was guilty of making the sizing mistake, we came up with a long-term solution in which both companies had to invest," says Toro. Grupo Posadas committed to more volume in the future and Oracle On Demand committed to having the requisite infrastructure in place to meet the SLAs. "This solution was a success for both companies," he says.
When Grupo Posadas wanted Oracle On Demand to relax its security rules so it could connect its reservation system "to everybody in the world," the service provider studied the issue, but decided not to do it. "So we adapted our operations to fit their security rules," says Toro. "In the long run, this has been the right decision."
Toro says both share the same "passion of how technology can enable business." The executives of both parties meet socially.
Grupo Posadas executives help Oracle On Demand design new products, providing constant feedback, Toro reports. In return "they helped us in the investor community," he notes.
Oracle On Demand helped train Grupo Posadas's staff "to make sure we understood the SLA and the processes," says Toro.
Why Grupo Posadas outsourced
Until the hotelier signed its outsourcing contract with Oracle On Demand, one big result of its prior outsourcing initiatives was finger-pointing. It had three different service providers handling its software applications, data center management, and networking. "These deals didn't work well because there was a lot of finger-pointing," Toro recalls.
In addition, the company wanted to save money and reduce head count. Centralizing operations was important, too. The company had its entire infrastructure on site, which was costly and labor intensive. And the IT operation was decentralized as each hotel ran its own IT.
Grupo Posadas selected Oracle On Demand as its service provider because it had "a single point of accountability for the ERP solution," says Toro. "It was the only company at the time that was a fit, given their business model, expertise, and senior-level commitment."
"They understand part of the story. We understand part of the story. Together we put together a plan. Our shared vision streamlined the operations and ultimately provides SaaS to the hospitality industry end to end," says Toro.
Lessons from the Outsourcing Journal:
- When a buyer and service provider share a vision, they can work together to launch a new company and help it survive at the outset with marketing and branding support as well as IT enablement.
- Outsourcing frees IT professionals from operational duties, allowing them to focus on new projects that potentially can support new revenue streams.
- A service provider can expand its reach in a new geographic region when it has a local champion with a success story.