International Journal of Contemporary Hospitality Management

Emerald Article: The characteristics of IT investment decisions and

methods used in the US lodging industry
Ersem Karadag, Cihan Cobanoglu, Clay Dickinson

Article information:
To cite this document: Ersem Karadag, Cihan Cobanoglu, Clay Dickinson, (2009),"The characteristics of IT investment decisions and
methods used in the US lodging industry", International Journal of Contemporary Hospitality Management, Vol. 21 Iss: 1 pp. 52 - 68
Permanent link to this document:
http://dx.doi.org/10.1108/09596110910930188
Downloaded on: 20-04-2012
References: This document contains references to 48 other documents
To copy this document: permissions@emeraldinsight.com
This document has been downloaded 1580 times.

Access to this document was granted through an Emerald subscription provided by BINA NUSANTARA UNIVERSITY
For Authors:
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service.
Information about how to choose which publication to write for and submission guidelines are available for all. Additional help
for authors is available for Emerald subscribers. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
With over forty years' experience, Emerald Group Publishing is a leading independent publisher of global research with impact in
business, society, public policy and education. In total, Emerald publishes over 275 journals and more than 130 book series, as
well as an extensive range of online products and services. Emerald is both COUNTER 3 and TRANSFER compliant. The organization is
a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive
preservation.
*Related content and download information correct at time of download.

The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0959-6119.htm

IJCHM
21,1

52
Received 17 August 2007
Revised 14 February 2008
Accepted 14 April 2008

The characteristics of IT
investment decisions and
methods used in the US lodging
industry
Ersem Karadag
Robert Morris University, Moon Township, Pennsylvania, USA

Cihan Cobanoglu
University of Delaware, Newark, Delaware, USA, and

Clay Dickinson
EDS Consulting, Plano, Texas, USA
Abstract
Purpose The purpose of this study is to examine and to compare the most utilized information
technology (IT) investment decision methods between hotels with centrally managed IT, and hotels
with locally managed IT.
Design/methodology/approach The empirical data were collected via a structured questionnaire
from hotel managers in the USA.
Findings The key findings of the research are that evaluation activities for hospitality IT
investments have not been performed widely and consistently. Although sophisticated evaluation
methods have been developed over the years, they do not appear to have provided a satisfactory
answer to improve IT decision-making practice. In this study, significant differences were found in
how IT investments are evaluated in hotels with centrally managed IT as compared to hotels with
locally managed IT. The hotels with centrally managed IT tend to use more financial and non-financial
evaluation methods since all investments are expected to show a positive return on investment.
Practical implications The research findings highlight the importance of the use of IT
investment evaluation techniques in hotels and the major differences between hotels with centrally
and locally managed IT.
Originality/value The literature on IT investment evaluation methods in the lodging industry is
limited. Being one of the first studies in this area, these research findings are particularly valuable for
practitioners and researchers.
Keywords Communication technologies, Hotels, Investments, Decision making
Paper type Research paper

International Journal of
Contemporary Hospitality
Management
Vol. 21 No. 1, 2009
pp. 52-68
q Emerald Group Publishing Limited
0959-6119
DOI 10.1108/09596110910930188

Introduction
During the 1980s and 1990s, many hospitality companies invested billions of dollars in
information technology (IT) (estimated $4.4 billion in 2002; Meyers, 1999). According to
many authors hoteliers will continue to invest in IT to enhance service quality, reduce
costs, improve productivity, gain competitive advantage, and increase bottom line
profitability (Cobanoglu et al., 2004; Kasavana et al., 2004; Siguaw et al., 2000; Van Hoof
et al., 1996). As cited by Cline (1999), the Hospitality 2000: the technology survey
states that hotel companies spent an average of 3.1 percent of revenue on IT

investments and within the next three years will devote approximately 4.0 percent of
their revenues to these investments. Casino hotels lead the way in IT spending with 4.3
percent.
Despite the large amount invested in IT over the years, research has shown that
decision-makers have difficulty in selecting appropriate methods in making decisions
on whether to invest in a specific IT project. The perceived risk, unavailability of
accurate measurement methods or identifying and assessing the costs and benefits of
IT investments precisely are the major bars for decision-makers (Anandarajan and
Wen, 1999; Clemons, 1991; Epstein and Buhovac, 2006; Irani, 2002; Powel, 1992). There
are some major concerns about how to measure the benefits of IT investments and how
to select a measurement method that best serve the goals of managers of lodging
properties. This view was articulated by many scholars and also was supported by the
study of Watkins (2000). Watkins further states that many hospitality firms do not
have adequate oversight procedures to monitor the effectiveness of their IT spending.
A great number of these difficulties are associated with the value of information itself.
Since information has no intrinsic value, its value depends on the specific purpose and
the individuals and situations involved: managers use qualitative arguments when
benefits are difficult to quantify (Maritan, 2001).
There are mainly two research streams within the literature relevant to IT
investment decisions. The first research stream focuses on IT productivity and benefit
measurement issues by analyzing empirical data at the industry, firm and application
level. The second research stream focuses on IT investment decisions, which include
evaluation methods and evaluation processes. The assessment of the productivity and
benefit measurement of IT investment is an extensive subject; it has many dimensions
and involves many theoretical discussions (Irani, 2002, Peffers and Saarinen, 2002;
Smithson and Hirschheim, 1987). In particular, this study focuses on how hotel
executives decide to invest in IT, and the evaluation methods they employ when
selecting technology applications in US hotels, rather than focusing on the outcome of
productivity and benefit measurement issues.
Problem statement and purpose of the study
Although there has been a great deal of research on the relationship between the
money invested in IT and firm productivity and profitability, there is a dearth of
research in the literature exploring financial and non-financial IT investment decision
methods employed by hotel executives. The only exception in this area is Watkinss
(2000) study. Increasing awareness of this subject may contribute significantly to the
decision-making process of the lodging properties and the capital budgeting practices.
Prior research demonstrates that providing decision makers with pre-decision
information can have beneficial effects on evaluations of decisions (Hershey and
Barron, 1992, 1995; Tan and Lipe, 1997). When decision-makers have information on
the IT decision methods, they usually consider how they would have made decisions
(Brown et al., 1993; Hershey and Barron, 1995; Tan and Lipe, 1997). This study will
help decision-makers, industry scholars and researchers alike to better understand the
IT investment process, the measurement methods used, and the logic and process
behind IT investment decisions. Therefore, the purpose of this study is to examine and
to compare the most utilized IT investment decision methods in US hotels with
centrally managed IT and locally managed IT.

IT investment
decisions

53

IJCHM
21,1

54

Review of the literature

IT investment decisions
A review of the research literature reveals that the contribution of IT investment to
companies is unclear and there are many controversial results. This contribution
puzzle motivates decision-makers to employ some formal methods to help ensure that
their decisions will generate positive outcomes. Watkins (2000) stated that the majority
of hotel companies use a formal process that includes consultation with the senior
management team to budget IT investment. However, 61 percent of company
executives indicated that they had no formal procedures to measure IT performance. In
a similar study in manufacturing industry, Hochstrasser and Griffiths (1991)
demonstrated that only 16 percent of companies employed specific measurement
methods related to IT investment decisions. As cited by Connolly (1999), an almost
equal number of respondents, about 15 percent, indicated that their investment
decisions were aimed at maintaining investment-level parity with their competitors,
rather than playing a pioneering role in IT investment. It is certain that an investment
is made in order to generate a higher value than the invested amount. From this
standpoint, an investment can also be seen as an equation with two sides, i.e. costs and
benefits. Companies should successfully manage both cost and benefit sides of the IT
equation, making sure that the stakeholders interests are being properly managed
(Jurison, 1996).
IT investment evaluation and methods
IT investment evaluation can be described as the the weighing up process to
rationally assess the value of any acquisition of software or hardware which is
expected to improve the business value of an organizations information systems (Lin
and Pervan, 2001). The most important element of this evaluation is weighing up
process of benefits and costs, which emphasizes the financial and economic
contribution of IT to a firms success; this is well documented in the literature (Bacon,
1992). Decision makers should also perform thorough research on what benefits might
spring from an IT investment (Westerlind, 2004). As the literature suggests,
quantifying the benefits with financial terms in the service industry is more difficult,
because value-added benefits do not necessarily translate into hard financial terms
such as profitability, productivity or increasing sales. Thus, the discussion of IT
system evaluation still focuses primarily on using subjective, informal or qualitative
techniques to establish the worth, contribution, value or level of benefits associated
with a particular IT investment (Doherty and King, 2005).
The literature is rich with IT investment decision methods. Some firms use financial
and some non-financial decision methods, depending on the nature of the technology,
the companies strategic plans, and the approach of the decision-making authority
involved in the decision-making process. In practice, financial methods are more
popular than non-financial methods. Despite the common applications of financial
methods, many researchers today claim that the intangible benefits of IT should be
included in the decision-making process to eliminate the negative aspects of these
methods. In response to this, Anandarajan and Wen (1999) proposed a method that
incorporates both tangible and intangible components of IT investments. Moreover,
Anandarajan and Wen (1999) claimed that every investment should involve some
types of risks in the evaluation process. When taking into consideration tangible and

intangible benefits with risk evaluation, Wen and Sylla (1999) suggested a three-step
process for IT evaluation:
(1) intangible benefits evaluation;
(2) IT investment risk analysis; and
(3) tangible benefits evaluation.
Hallikainen and Chen (2005) used a similar approach and suggested using strategic
value, risks and financial profitability as major considerations when evaluating
IT investments.
In a research study conducted in the hospitality industry, Watkins (2000) reported
six major financial measurement methods:
(1) internal rate of return (IRR);
(2) payback period;
(3) return on investment (ROI);
(4) revenue enhancement;
(5) employee productivity; and
(6) cost reduction.
Hochstrasser and Griffiths (1991) and Connolly (1999) stated that only a small portion
of companies (16 percent and 15 percent, respectively) use specific measurement
methods for IT investment decisions. Since Watkinss (2000) study ignored
non-financial decision methods, in this study, the researchers preferred to combine
the financial methods employed by Watkins and the non-financial methods employed
by Suwardy et al. (2003). Thus, this study uses the following financial methods:
.
return on investment;
.
net present value;
.
payback period; and
.
cost savings analysis.
This study also uses the following non-financial methods:
.
best fit;
.
previous contacts;
.
new version; and
.
instruction from senior management methods.
The following section provides an overview of the financial and non-financial methods
used in this study.
Financial evaluation methods
Financial evaluation methods compare solid input/output or cost/benefit values. This
study employed the following financial methods.
Return on investment (ROI). The ROI method is a set of calculations by which costs
and benefits are calculated and compared to determine if a project is worthwhile to
pursue. The most simple form of ROI is: ROI net benefits/costs. The ROI method

IT investment
decisions

55

IJCHM
21,1

56

uses several financial metrics, such as ROI itself, net present value (NPV), internal rate
of return (IRR), payback period (PP), accounting rate of return (ARR), and discounted
cash flow (DCF).
Net present value (NPV). NPV is a financial metric of the ROI and is usually
employed for long-term projects and in capital budgeting. NPV compares the current
value of a dollar today to the value of that same dollar in the future, taking inflation
and returns into account. If the NPV of a prospective project is positive, it should be
accepted; if negative, the project should probably be rejected.
Payback period. The payback period metric represents the amount of time that it
takes for an investment to recover its initial cost. The shorter the time period is, the
better the investment opportunity is. Payback periods are sometimes used as a way of
comparing alternative investments with respect to risk: all other things being equal,
the investment with the shorter payback period is considered less risky.
Cost savings analysis. This is a subset of cost benefit analysis (CBA), where only the
financial costs and financial savings are analyzed. Cost savings analysis is based on
measurable costs of adoption of a technology versus not adopting that technology over
a period of time. This includes decreased supply costs, replacement costs, maintaining
costs, or upgrading equipment over time, efficiency gains such as error reduction or
improved communication and the projected life of an application.
Non-financial methods
In cases where benefits of an IT investment are difficult to quantify in financial terms,
managers prefer to use qualitative, non-financial methods. Non-financial decisions are
made based on the experience and discretion of decision-makers and are influenced by
many factors. The descriptions of the non-financial methods used in this study are as
follows.
Best fit to technical requirements. This method is used in specific lodging properties
(Suwardy et al., 2003). For example, a hotel company may have to use a certain PMS
because it could be the only system or vendor that interfaces with a chains central
reservation system. Since this interface is critical to the success of the chain, this IT
investment decision can be based on best fit to technical requirements.
Previous contacts or track records of vendors/consultants. In this approach, a system
may be chosen because of its track record with a particular vendor (Suwardy et al.,
2003). For example, Micros/Fidelio Company offers many IT applications such as PMS,
point of sale (POS), sales and catering, and employee paging systems. In cases when a
lodging property considers adding a POS, for instance, the large majority of Fidelio
PMS users will choose Micros POS as their restaurant management system.
New version. In this approach, an operator may choose a particular vendor based on
the availability of a new version of the IT application currently being used (Suwardy
et al., 2003). This approach may be preferred because of higher alternative costs
associated with switching a vendor (i.e. data transfer to the new system), or costs of
re-training IT employees.
Instructions from senior management or head office. In this approach, senior
management or head office may dictate the IT to be used by affiliated properties
(Suwardy et al., 2003). For example, Marriott Company may require all of its affiliated
hotels to install a technology package in which a particular vendor must be used to

ensure consistency among all hotels and reliable support. In this case, the operator has
no choice but to obey instructions as long as they want to keep the Marriott flag.
Research hypotheses
In an attempt to reach the study goals, three hypotheses were developed and tested by
using different statistical methods as explained in the next section.
The first hypothesis of this study is:
H1. Hotels with centrally managed IT use significantly more financial IT
investment assessment tools than hotels with locally managed IT.
Some researchers argue that financial assessment methods are inappropriate given the
nature of IT investments (Bacon, 1992; Hochstrasser, 1992; Miller, 1993; Willcocks and
Lester, 1993). Investments such as projects aimed to improve customer support or to
offer better market information cannot be quantified, at least in the short term.
Therefore, the second hypothesis of this study is:
H2. Hotels with centrally managed IT use significantly more non-financial IT
investment assessment tools than hotels with locally managed IT.
Researchers suggest that the use of information technology applications in hotels with
fewer than 50 rooms are significantly limited compared to hotels with more than 50
rooms. This is because of their limited resources, limited scope of activities and limited
customer base do not demand for small hotels to adopt costly technologies (Bick, 2003;
Buhalis and Main, 1998; Cobanoglu et al., 1999; Namasivayam et al., 2000; Van Hoof
et al., 1995). However, there have been few studies conducted on the differences in the
number of technology applications used in hotels with centrally managed IT and in
hotels with locally managed IT. In this study, hotels received one score with a
maximum score for each implemented IT application (with a maximum score of 26), so
that the total score is assumed to be the IT innovation index of that hotel.
Therefore, the third hypothesis of this study is:
H3. The IT innovation index of hotels with centrally managed IT is significantly
higher than the IT innovation index of hotels with locally managed IT.
The innovation index used in this study was calculated based on the number of IT
applications implemented in a hotel. In the methodology section, the IT innovation
index is explained in more detail.
Research methodology
Survey design and data collection procedure
The population of this study was corporate-level and property-level hotel executives
employed in US hotels. The American Hotel and Lodging Association (AHLA) member
database was selected as the sample population. A descriptive, cross-sectional survey
was developed based on extensive review of literature and expert opinions. A
seven-page questionnaire form was developed consisting of 25 questions that include
most commonly used corporate- and property-level IT applications. Housed in an Excel
file in the AHLA database, there were 46,498 members from all over the world; the
database included the name, title and e-mail addresses of the members, addresses of
the organizations, number of managed properties (if chain), and size of the hotels. In

IT investment
decisions

57

IJCHM
21,1

58

order to obtain the name of the managers working in the US hotels, all hotels outside
the US were deselected from the database. Since research suggests that the use of IT
applications in hotels with fewer than 50 rooms is significantly limited (Buhalis and
Main, 1998; Cobanoglu et al., 1999; Van Hoof et al., 1995), hotels with fewer than 50
rooms were also deselected from the list. These two processes left 26,841 managers in
the database. Due to limited resources such as time and money, the researchers deemed
that collecting data from a sample of 1,000 members would be sufficient to satisfy the
research findings. In order to give an equal chance to each member in the database
when pooling the names of 1,000 members (the sample), a random number was
generated by using the RAND() function in the Microsoft Excel software. The
remaining managers were re-sorted based on this random number. After the re-sorting
process, the names of 1,000 managers were selected as the sample for this study.
Two versions of the survey instruments were created:
(1) online (web-based); and
(2) paper-based.
An invitation letter stating the purpose of the study was sent to all the members who
had an e-mail address in the database. A paper-based survey with a pre-paid response
envelope was sent to those members who did not have an e-mail address in the
database. The survey instrument consisted of three sections:
(1) corporate- and property-level IT applications;
(2) a list of financial and non-financial assessment methods; and
(3) demographic information of the respondents.
In the first section, the most commonly used nine corporate-level and 17 property-level
IT applications, totaling 26, were listed and respondents were asked to indicate which
of the applications were utilized in their properties. Hotels received one score for each
implemented application out of 26, so that the total score was assumed to be the IT
innovation index of that hotel. In the second section, respondents were asked to
indicate the utilization frequency of IT evaluation methods using a scale from 1
(never) to 5 (always) with an additional notation that 3 indicated sometimes. The
final part of the survey included demographic information on the hotels and the
respondents, such as position title, class of the hotel, and management structure.
Out of the 1,000 surveys sent to the AHLA members, 120 usable responses
(generated through both e-mail and US mail) were achieved, for a 12 percent response
rate. Careful consideration was given to the degree to which the respondents were
representative of the target population, which has important implications for the
validity of the results (Diem, 2002). Some suggested strategies to handle a relatively
high non-response rate include:
.
following up with non-respondents;
.
comparing respondents to the target population;
.
comparing early respondents to late respondents;
.
double-dipping non-respondents; and
.
comparing respondents to non-respondents (Moore and Tarnai, 2002).

In this study, the comparing early respondents to late respondents (i.e those who
responded after the second reminder) method was utilized. The differences between
early and late respondents were evaluated to determine any significant differences
between the respondents at corporate and property level managers. No significant
differences were found. Therefore, it can be inferred that the sample was a fair
representation of the target population.

IT investment
decisions

59
Study findings
Table I shows the demographic information of the hotels and respondents. As can be
seen in Table I, the majority of respondents were general managers (75 percent), while
13.4 percent were owners and 8.3 percent were chief executive officers (CEO) or
presidents of the company. Sixty-two percent of the respondents indicated that in their
n

Percent

Present position
General manager
Owner
CEO/president
Other

90
16
10
4

75.0
13.4
8.3
3.3

Company structure
Global hotel chain
National hotel chain
Non-franchised ind. management company
Franchised ind. management company
Franchisor
Referral system
Missing

23
17
32
7
9
26
6

19.2
14.2
26.7
5.8
7.5
21.7
5.0

Management of IT
Corporate level
Property level
Missing

75
40
5

62.5
33.3
4.2

Property segment *
Luxury
Upscale
Mid-priced
Economy
Missing

15
50
46
5
4

12.5
41.7
38.3
4.2
3.3

Revenue ($US, yearly)

.1 billion
500 million-1 billion
100 million-499.99 million
50-99.99 million
I wish not to answer
Missing

8
9
16
31
51
5

6.7
7.5
13.3
25.8
42.5
4.2

Note: n 120

Table I.
Demographic and
property information of
respondents

IJCHM
21,1

60

companies IT was managed by the corporate office, while in 33.3 percent it was
managed at the property level.
In terms of company structure, 19.2 percent of hotels were affiliated with global
hotel chains and 14.2 percent with national hotel chains. Similarly, 26.7 percent of the
hotels were non-franchised independent management companies, while only 5.8
percent were franchised independent management companies. The remainder were
franchisors (7.5 percent), referral systems (21.75 percent), and missing respondents (5.0
percent). In terms of hotel classification, 12.5 percent of the hotels were luxury hotels,
41.7 percent were upscale hotels, 38.3 percent were mid-priced hotels, and 4.2 percent
were economy class hotels.
Factor analysis: IT investment evaluation methods
Table II indicates that there are two main IT investment decision methods, each
method with four submethods. Since main categories were determined by the
researchers, an exploratory factor analysis was deemed necessary to measure the
reliability of the research instrument.
Factor analysis was used to condense the information contained in these attributes
and to confirm the notion that distinct dimensions existed. There are two main issues
to consider when determining whether a particular data set is suitable for factor
analysis:
(1) sample size; and
(2) the strength of the relationship among the variables (Pallant, 2004).
In terms of the sample size, Tabachnick and Fidell (2001) suggested that a data set
would be suitable if it has 300 cases. However, they also suggested that a smaller
sample size would be suitable provided that they have several high-loading marker
variables (above 0.80). Through use of the data reduction function of the Statistical
Package for Social Sciences (SPSS, 2000) a factor analysis was performed on all eight
variables (i.e. four financial and four non-financial methods) to determine possible
underlying factors. Initially, a Spearman rank-order, inter-item correlation matrix was
calculated for these items. It was observed that the majority of the variables were
highly correlated with each other, indicating that this was suitable data for factor
analysis. In addition, Nunnally (1978) recommended that at least ten cases for each

Factor name

EV1

PV2

CV3

Financial methods

4.48

56.04

56.04

Non-financial methods
Table II.
Summary of factor
analysis

1.45

18.15

Component variables

Factor
loading

Net present value

Payback period
Cost savings analysis
Return on investment

0.687
0.873
0.825
0.890

Best fit
Previous contact
New version
Instructions

0.575
0.872
0.793
0.887

Reliability score
(Cronbachs a)
85.94

74.20

85.89

variable be factor analyzed. In this study, all of the variables had more than 100 cases,
more than Nunnallys (1978) suggested number.
In terms of the strength of the relationship among the variables, two statistics were
used to test the appropriateness of the factor analysis (Hair et al., 1998). First, the
Kaiser-Meyer-Olkin (KMO) statistic was calculated as 0.847 for IT investment decision
methods, which is meritorious (Kaiser, 1974). The KMO index ranges from 0 to 1, with
0.6 suggested as the minimum value for a good factor analysis (Tabachnick and Fidell,
2001). Since KMO was over 0.80, the variables were interrelated and they shared
common factors (Hair et al., 1998). Second, Bartletts test of sphericity was conducted,
yielding a significant x 2 value in order to test the significance of the correlation matrix
(x 2 572:457, df 28, sig: 0:000). Both tests indicated that factor analysis was
appropriate for this study.
In addition, the communalities ranged from 0.51 to 0.82 with an average value of
0.74, suggesting that the variance of the original values were fairly explained by the
common factors. As Table II shows, the reliability coefficient for factors ranged from
0.8589 to 0.8594, which was above the minimum value of 0.50 that is considered
acceptable and reliable for basic research (Hair et al., 1998). All of these analyses
indicated that this data set was suitable for factor analysis and that the proposed
categories of IT investment decision methods were indeed categorized in two distinct
groups:
(1) financial methods; and
(2) non-financial methods.

IT investment
decisions

61

The factor analysis explained 74.2 percent of the total variance. The contents of the two
factor dimensions were analyzed and named as follows: financial methods and
non-financial methods (see Table II). The financial method factor had the highest
eigenvalue, i.e. 4.48, and represented 56.04 percent of the explained variance. The
eigenvalue of the second factor, i.e. non-financial method, was 1.45, and represented
18.15 percent of the explained variance in the sample.
Hypothesis testing
Research question 1: What are the IT investment evaluation methods most utilized by
hoteliers?. To answer this question, the mean values and standard deviations of each
method were calculated as shown in Table III. Return on investment (ROI) was found
as the most utilized method by all hoteliers, followed by payback analysis. A special
IT assessment techniques
Return on investment (ROI)
Payback period
Cost savings analysis
Best fit
New version
Net present value (NPV)
Previous contacts
Instruction
Note: a 1 never, 5 always

Meana

SD

4.35
4.13
3.96
3.96
3.70
3.65
3.57
3.52

0.82
0.80
0.96
0.75
0.69
1.05
0.88
0.88

Table III.
IT assessment techniques

IJCHM
21,1

form of cost/benefit analysis, cost savings analysis, and best fit method were
utilized frequently by hoteliers. Previous contact, instruction, and net present
value (NPV) methods were found to be the least utilized methods.
H1. Hotels with centrally managed IT use significantly more financial IT
investment assessment tools than hotels with locally managed IT.

62

To test this hypothesis, Hotellings T 2 was conducted. For two-group multivariate

analysis, the appropriate test statistic is Hotellings T 2, which is a special case of
MANOVA (Hair et al., 1998). Hotellings T 2 was conducted with SPSS syntax GLM.
The analysis of Boxs test of equality of covariance matrices (Boxs M test) statistics
yielded no significance (sig: 0:622) that the observed covariance matrices of the
dependent variables are equal across groups. An insignificant Boxs M test suggests
that the data is suitable for Hotellings T 2 test. Hotellings T 2 statistic yielded a
significant overall value for the multivariate test (Pillais trace F 9:37, sig: 0:000;
Wilks lambda F 9:37, sig: 0:000). The individual tests of between-subjects effects
yielded three financial IT investment decision methods with significant differences
between respondents who manage their IT at the corporate level and who manage it at
the property level. Table IV shows the test results along with the means.
Table IV shows that the hotels managing IT investments at the corporate level
use financial methods significantly more frequently than the hotels managing IT
investments at the property level. Based on the test results, H1 is supported. This
finding is logical because hotels managing property-level IT applications from
corporate offices tend to be more outcome-oriented than hotels managing IT at the
property level. At the same time, corporate offices employ more knowledgeable IT
experts who serve multiple properties. Although this may be a smart and economic
choice for controlling IT investments, it may inhibit innovative ideas since
innovative technologies tend to be less promising financially in the early stages
(Cobanoglu, 2007).
H2. Hotels with centrally managed IT use significantly more non-financial IT
investment assessment tools than hotels with locally managed IT.

Financial methods

IT decisions are made predominately at the . . .

Meana

SD

Net present value (NPV)

Corporate level
Property level
Total
Corporate level
Property level
Total
Corporate level
Property level
Total
Corporate level
Property level
Total

3.80 *
3.37 *
3.65
4.20
4.00
4.13
4.20 *
3.50 *
3.96
4.53 *
4.00 *
4.35

0.99
1.13
1.05
0.84
0.72
0.80
0.84
1.01
0.96
0.72
0.88
0.82

75
40
115
75
40
115
75
40
115
75
40
115

Payback period
Cost savings analysis

Table IV.
t-test results for financial
IT investment decision
assessment methods

Return on investment (ROI)

Notes: a 1 never, 5 always. *Significant at the a 0:05 level

To test this hypothesis, another Hotellings T 2 test was conducted with SPSS syntax
GLM. The analysis of Boxs test of equality of covariance matrices (Boxs M test)
statistics did not yield a significant result (sig: 0:827) that the observed covariance
matrices of the dependent variables were equal across groups. An insignificant Boxs
M test suggests that the data is suitable for Hotellings T 2 test. Hotellings T 2 statistic
yielded a significant overall value for the multivariate test (Pillais trace F 20:0,
sig: 0:000; Wilks lambda F 20:0, sig: 0:000). The individual tests of
between-subjects effects yielded three non-financial IT investment decision methods
with significant differences between respondents who manage their IT investments
through corporate offices and those who manage their IT investments at the property
level. Table V shows the test results along with the means.
Table V shows that hotels that manage IT investments from corporate offices use
non-financial methods significantly more than hotels that manage IT investments at the
property level. Based on the test results, H2 is supported. This finding also is logical for
all of the variables. For example, a hotel IT department governed by a corporate office
tends to align IT projects more with the strategic goals of the company, which may
explain why a best fit method is used much more frequently. In considering new
version, it is well known that it takes much more effort and time to implement new
technology. For example, it took Marriott Corporation about two years to implement a
small patch to their mission-critical software (Schubert, 2008). However, in a hotel where
the IT is managed locally, the implementation process is much simpler, allowing the
hotel to use different software instead of a new version of existing software.
H1 and H2 show that the use of financial and non-financial IT investment methods
differ based on whether IT is managed at the corporate level or the property level. This
finding indicates that it may be easier to implement new technologies in hotels where
IT is managed at the property level. At the same time, this may also be an obstacle,
because hotels where IT is managed locally may lack the funding that new IT
investments need. This appears to be a Catch 22 situation.

IT investment
decisions

63

H3. The IT innovation index of hotels with centrally managed IT is significantly

higher than the IT innovation index of hotels with locally managed IT.
Non-financial methods

IT decisions are made predominately at the . . .

Meana

SD

Best fit

Corporate level
Property level
Total
Corporate level
Property level
Total
Corporate level
Property level
Total
Corporate level
Property level
Total

4.27 *
3.38 *
3.96
3.67
3.37
3.57
3.93 *
3.25 *
3.70
3.80 *
3.00 *
3.52

0.68
0.49
0.75
0.95
0.70
0.88
0.68
0.44
0.69
0.84
0.72
0.88

75
40
115
75
40
115
75
40
115
75
40
115

Previous contact
New version
Instruction

Notes: a1 never, 5 always. *Significant at the a 0:05 level

Table V.
t-test results for
non-financial IT
investment decision
assessment methods

IJCHM
21,1

64

To test this hypothesis, an independent t-test was conducted. The dependent variable was
the IT innovation index, which is a continuous variable. Table VI shows the technology
applications that comprise the IT innovation index. The independent variable was the IT
structure of the hotel, managed either by a corporate office or managed at the property
level. The first part of this analysis included Levenes test for equality of variances. This
was particularly important because of the differences in the number of responses between
these two groups. If the Levenes test for equality of variances was not significant, equal
variances were assumed (Pallant, 2004). If it was significant, then equal variances were
not assumed. For this test, Levenes test for equality of variances was not significant;
therefore, it was assumed that the variances were equal.
The mean value of the IT innovation index for centrally managed IT hotels was
16.69, and was 11.42 for locally managed IT hotels. The t-test statistics were significant
at the a 0:05 level. This result may suggest that hotels with centrally managed IT
can afford more technologies and that the more frequent use of financial and
non-financial IT investment decision methods may better justify investment decisions.
Conclusions
The key findings of the study reveal that evaluations for hospitality IT investments
have not been performed widely and consistently. Although sophisticated evaluation
methods have been developed over the years (Wang, 2006), they do not appear to have

Table VI.
Enterprise and property
level IT applications

Enterprise-level technologies
1.
2.
3.
4.
5.
6.
7.
8.
9.

Enterprise resource planning (ERP) system

Electronic mail (e-mail) for managers
Internet access
Office software (MS Office, Open Office, etc.)
Intranet
Extranet
Central reservation system (CRS)
Global reservation system (GRS)
VOIP for managers

Property level technologies

10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.

Integrated property management system

Yield (revenue) management software
PBX interface
E-mail access in guest rooms
Interactive guide (TV-based)
Remote check-in/check-out station
Electronic locking system
Room energy sensor
Voice over IP guest rooms
Wireless internet access
High speed internet access (HSIA)
Wireless/remote check-in
Check-in/check-out kiosk
Internet check-in
Smoke, fire and heat detectors
Guestroom security panels
CCTV (closed circuit TV system)

provided a satisfactory answer to the question of how to improve IT decision-making

practice. In this study, significant differences between the methodologies employed in
hotels with centrally managed IT as opposed to locally managed IT were discovered.
Hotels with centrally managed IT tend to use more financial and non-financial
evaluation methods because all investments are expected to show a positive return on
investment. However, this could be an advantage to a hotel with locally managed IT,
because when there are no strict ROI benchmarks, innovation can be spurred easily.
Hotels with corporate managed IT can also achieve this, if they can manage to separate
innovative projects from strict evaluations. It is clear that chain hotels have a clear
advantage over independent hotels in terms of IT investments because of the size of the
IT budget and expert IT employees. This was verified by the discovery that the IT
innovation index of hotels (defined as the number of technology systems used) with
corporate managed IT is significantly higher than the IT innovation index of hotels
with IT managed at the property level.
Implications and future research
This study has important implications for both theory and practice. There are three
critical theoretical implications. First, decision-makers need to understand critical
aspects of the decision-making process before making critical decisions. Second,
previous research mainly focused on the measurement of outcomes (e.g. productivity,
effectiveness, profitability) of the IT investment, but largely ignored the
decision-making process. This research draws attention to the decision-making
process and investment evaluation methods before an IT investment is made. Third,
understanding the preference of decision-makers in terms of the assessment tools is
essential in accurately describing the IT investment assessment process.
There are also several important practical implications. First, IT investment decisions
may be ineffective if perceived risks lead to inaccurate evaluations. An inaccurate
evaluation may lead to poor IT investment decisions. Subsequently, if the position of
decision-makers influence the evaluation process and promote non-utility maximizing
decisions, then performance evaluation processes will not serve their intended purposes.
Second, a decision tool employed by a specific hotel may not be appropriate for a similar
hotel, since customer segments, market conditions, technical quality of IT, users skills
and knowledge level, and finally priorities and expectations of decision makers from an
IT investment may differ. Third, strategic IT decisions should be separated from tactical
IT decisions and each should be evaluated at different management levels, since the
invested amounts and perceived risks are dissimilar. Fourth, IT investments, in some
cases, are not easy to justify with financial/quantitative evaluation methods. In these
cases, non-financial methods may be valuable. Executive management teams need to
understand the characteristics of IT investments and consider non-financial evaluation
techniques as viable evaluation techniques.
Based on the findings of the study, the researchers suggest that future research should
include a comparative analysis of the IT investment decision and outcome evaluation
methods in order to determine if there is a strong relationship between those two factors.
Since IT investment decisions tend to be tactical rather than strategic, it is crucial for
managers to invest resources in productive projects that will achieve the most desirable
benefits for the organization. Therefore, if there is a strong relationship between those two
factors, it will be easy to decide which investment decision methods should be chosen.

IT investment
decisions

65

IJCHM
21,1

66

Additionally, future research should go beyond the financial and non-financial methods
and focus on a study of cost/benefit analysis in order to determine the costs and calculate
the benefits derived from IT investments. A positive ratio from this comparison will
probably convince company executives to take initiatives for IT investments and
approve new projects. Finally, this was one of the first attempts to look at differences
hotels with centrally managed IT as opposed to locally managed IT. This study found
significant differences in regard to how IT decisions are made. Further research may
investigate the organizational characteristics of IT management for hotels with centrally
managed IT and hotels with locally managed IT.
No study is without limitations and this study is no exception. One of the limitations
of this study includes the sample size. Another limitation is that this study represents
only AHLA members, and not non-members. Although this may not be a limitation, it
is worth acknowledging that the data was collected by mail and online methods.
Finally, the IT innovation index was used for the first time in this study; this needs
further validation by future studies.
References
Anandarajan, A. and Wen, J. (1999), Evaluation of information technology investment,
Management Decision, Vol. 37 No. 4, p. 329.
Bacon, C.J. (1992), The use of decision criteria in selecting information systems/technology
investments, MIS Quarterly, Vol. 16 No. 3, pp. 335-42.
Bick, I. (2003), Information technology in small Scottish hotels: is it working?, International
Journal of Contemporary Hospitality Management, Vol. 15 Nos 4/5, pp. 243-7.
Brown, C.E., Solomon, I. and Jamal, K. (1993), An experimental investigation of explanations for
outcome effects on appraisals of capital-budgeting decisions, Contemporary Accounting
Research, Vol. 10 No. 1, pp. 83-111.
Buhalis, D. and Main, H. (1998), Information technology in peripheral small and medium
hospitality enterprises: strategic analysis and critical factors, International Journal of
Contemporary Hospitality Management, Vol. 10 No. 5, pp. 198-202.
Clemons, E.K. (1991), Evaluation of strategic investments in information technology,
Communications of the ACM, Vol. 34 No. 1, pp. 22-36.
Cline, R.S. (1999), Hospitality 2000: the technology, Lodging Hospitality, Vol. 55 No. 7, pp. 18-26.
Cobanoglu, C. (2007), 9th Annual Restaurant Technology Study: tracking progress and spotting
trends, Hospitality Technology, Vol. 11 No. 2, pp. 3-14.
Cobanoglu, C., Connolly, D. and Piccoli, G. (2004), 2004 Lodging Industry Technology Study:
developing IT strategy, Hospitality Technology, Vol. 8 No. 4, pp. 1-29.
Cobanoglu, C., Ryan, B. and Beck, J. (1999), The impact of technology in lodging properties,
Proceedings of the Annual Conference of the Council on Hotel, Restaurant and Institutional
Education, Albuquerque, NM.
Connolly, D.J. (1999), Understanding information technology investment decision-making in the
context of hotel global distribution systems: a multiple-case study, doctoral dissertation,
Virginia Polytechnic Institute and State University, Blacksburg, VA, available at: http://
scholar.lib.vt.edu/theses/available/etd-113099-200845/unrestricted/connolly1999.pdf
(accessed May 22, 2007).
Diem, K. (2002), Maximizing response rate and controlling non-response error in survey
research, available at: www.rce.rutgers.edu/pubs/pdfs/fs997.pdf (accessed April 26,
2007).

Doherty, N.F. and King, M. (2005), From technical to socio-technical change: tackling the human
and organizational aspects of systems development projects, European Journal of
Information Systems, Vol. 14 No. 1, pp. 1-5.
Epstein, M. and Buhovac, A.R. (2006), Organizational risk reporting for internal and external
decision-making, CMA Management, pp. 26-30.
Hair, J.F., Anderson, R.E., Tatham, R.L. and Black, W.C. (1998), Multivariate Data, 5th ed.,
Prentice-Hall, Upper Saddle River, NJ.
Hallikainen, P. and Chen, L. (2005), A holistic framework on information systems evaluation
with a case analysis, Electronic Journal of Information Systems Evaluation, Vol. 9 No. 2,
pp. 57-64.
Hershey, J. and Barron, J. (1992), Judgment by outcomes: when is it justified?, Organizational
Behavior and Human Decision Processes, Vol. 53, pp. 89-93.
Hershey, J. and Barron, J. (1995), Judgment by outcomes: when is it warranted?, Organizational
Behavior and Human Decision Processes, Vol. 62, p. 127.
Hochstrasser, B. (1992), Justifying IT investments, Proceedings of the Advanced Information
Systems Conference: The New Technologies in Todays Business Environment, London,
pp. 17-28.
Hochstrasser, B. and Griffiths, C. (1991), Controlling IT Investment Strategy and Management,
Chapman & Hall, London.
Irani, Z. (2002), Information systems evaluation: navigating through the problem domain,
Information and Management, Vol. 40 No. 1, pp. 11-24.
Jurison, J. (1996), The temporal nature of IS benefits: a longitudinal study, Information
& Management, Vol. 30 No. 2, pp. 75-9.
Kaiser, H.F. (1974), An index of factorial simplicity, Psychometrika, Vol. 39, pp. 31-6.
Kasavana, M.K., Knutson, B.J. and Lee, H. (2004), Electronic perception technology applications
in food service, FIU Hospitality Review, Vol. 22 No. 2, pp. 18-27.
Lin, C. and Pervan, G. (2001), IS/IT investment evaluation and benefits realisation issues in a
government organisation, Proceedings of the Twelfth Australasian Conference on
Information Systems, Coffs Harbour.
Maritan, C.A. (2001), Capital investment as investing in organizational capabilities:
an empirically grounded process model, Academy of Management Journal, Vol. 44,
pp. 513-31.
Meyers, C. (1999), Closing the technology gap, Successful Meetings, Vol. 48 No. 11, pp. 14-16.
Miller, J. (1993), Measuring and aligning information systems with the organization,
Information and Management, Vol. 25 No. 4, pp. 217-28.
Moore, D. and Tarnai, J. (2002), Evaluating nonresponse in mail surveys, in Groves, R.M.,
Dillman, D.A., Eltinge, J.L. and Little, R.J.A. (Eds), Nonresponse Error in Surveys, Wiley
Interscience, New York, NY.
Namasivayam, K., Enz, C.A. and Siguaw, J.A. (2000), How wired are we?, Cornell Hotel and
Restaurant Administration Quarterly, Vol. 41 No. 6, pp. 40-8.
Nunnally, J.C. (1978), Psychometric Theory, 2nd ed., McGraw-Hill, New York, NY.
Pallant, J. (2004), SPSS Survival Manual: A Step by Step Guide to Data Analysis using SPSS,
Allen & Unwin, New York, NY.
Peffers, K. and Saarinen, T. (2002), Measuring the business value of IT investments: inferences
from a study of senior bank executives, Journal of Organizational Computing and
Electronic Commerce, Vol. 12 No. 1, pp. 17-38.

IT investment
decisions

67

IJCHM
21,1

68

Powel, P. (1992), Information technology evaluation: is it different?, Journal of Operational

Research Society, Vol. 43 No. 1, pp. 29-42.
Schubert, N. (2008), personal communication.
Siguaw, J.A., Enz, C.A. and Namasivayam, K. (2000), Adoption of information technology in US
hotels: strategically driven objectives, Journal of Travel Research, Vol. 39 No. 2,
pp. 192-201.
Smithson, S. and Hirschheim, R.A. (1987), Information systems evaluation: myth and reality,
in Galliers, R.D. (Ed.), Information Analysis, Addison-Wesley, Reading, MA.
Suwardy, T., Ratnatunga, J., Sohal, A.S. and Speight, G. (2003), IT projects: evaluation,
outcomes and impediments, Benchmarking, Vol. 10 No. 4, pp. 325-42.
Tabachnick, B.G. and Fidell, L.S. (2001), Using Multivariate Statistics, 4th ed., Allyn & Bacon,
Needham Heights, MA.
Tan, H. and Lipe, M.G. (1997), Outcome effects: the impact of decision process and outcome
controllability, Journal of Behavioral Decision Making, Vol. 10, pp. 315-25.
Van Hoof, H.B., Verbeeten, M.J. and Combrink, T.E. (1995), Technology needs and perceptions,
The Cornell Hotel and Restaurant Administration Quarterly, Vol. 36 No. 5, pp. 64-9.
Van Hoof, H.B., Verbeeten, M.J. and Combrink, T.E. (1996), Information technology revisited:
international lodging industry technology needs and perceptions: a comparative study,
The Cornell Hotel and Restaurant Administration Quarterly, Vol. 37 No. 5, pp. 86-91.
Wang, Y. (2006), Information technology investment decisions and evaluation in large
Australian companies, unpublished dissertation, Griffith University.
Watkins, E. (2000), How do you measure your tech investment?, Lodging Hospitality, Vol. 56
No. 12, p. 25.
Wen, H.J. and Sylla, C.A. (1999), A road map for the evaluation of information technology
investment, in Mahmood, M.A. and Szewczak, E.J. (Eds), Measuring Information
Technology Investment Payoff: Contemporary Approaches, Idea Group Publishing,
Hershey, PA.
Westerlind, K. (2004), Evaluating Return on Information Technology Investment, Department of
Informatics, Goteborg University, Goteborg.
Willcocks, L. and Lester, S. (1993), How do organizations evaluate and control information
systems investments? Recent UK survey evidence, Oxford Institute of
Information Management Research and Discussion Papers, Oxford Institute
of Information Management, pp. 1-24.
Further reading
Sahadev, S. and Islam, N. (2005), Why hotels adopt ICTs: a study on the ICT adoption
propensity of hotels in Thailand, International Journal of Contemporary Hospitality
Management, Vol. 17 No. 5, pp. 391-401.
Corresponding author
Cihan Cobanoglu can be contacted at: cihan@udel.edu

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints