THE INFLUENCE OF CLOUD COMPUTING ADOPTION BENEFITS ON HOTELS' COMPETITIVE CAPABILITIES

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1 THE INFLUENCE OF CLOUD COMPUTING ADOPTION BENEFITS ON HOTELS' COMPETITIVE CAPABILITIES Darko Etinger Juraj Dobrila University of Pula, Croatia Marijan Cingula Faculty of Economics & Business Zagreb, Croatia ABSTRACT In the competitive environment of the hotel industry, a sophisticated portfolio of IT applications and high-quality IT infrastructure is an important driver of hotels' performance, playing a strategic role in organizations, where it creates competitive advantage and enables new business opportunities. Cloud computing, the latest strategic inflection point in the development of IT, can deliver new value for customers through innovative applications along the value-chain. The purpose of this research is to explore the impact of organizational and business benefits of cloud computing adoption on the hotels internal and external competitive capabilities. A survey was conducted in hotel companies in Istrian county in Croatia and based on hotel managers perceptions and attitudes, a research model is assessed using the PLS-SEM method. Implications for hotel management are provided. Keywords: Cloud computing benefits, Competitive capabilities, Hotel information systems, Hierarchical component model, Partial least squares, Structural equation modeling 1. INTRODUCTION The digital convergence of information technologies in combination with miniaturization, portability and cutting costs, are part of a trend that leads to the ubiquity of computers in everyday life, to the extent that they are regarded as essential for survival in today's world. As such, IT in hospitality industry is redefining communications among employees, guests and suppliers, changing the nature of business transactions and increasing technological needs and expectations of guests. Cloud computing, the latest strategic inflection point in the development of IT, is a model of computing that is paid per use, which allows a convenient network access on request to the shared source of configurable computing resources (networks, servers, storage data, applications, services) that can quickly be allocated and released with minimal user effort and minimal interaction with the service provider. A computing cloud is a set of easily usable and accessible virtualized hardware and network resources, storage capacity, services and interfaces that enable the delivery of software, infrastructure, and storage over the Internet, either as separate components or as a platform, as needed. Key characteristics of cloud computing services make the user's request, broad network access, resource pooling, rapid elasticity and measured service. The origin of cloud computing lies in the virtualization technologies, Internet technologies, distributed computing and data center automation. Cloud computing service models include infrastructure as a service, platform as a service and software as a service and a computing cloud can be deployed as a private cloud, community cloud, public cloud and hybrid cloud. Formulating their own Cloud Computing definition, Marston et al. (2011, p. 177) encapsulated the key benefits of cloud computing from a business perspective as well as its unique features from a technological perspective: It is an information technology service model where computing services (both hardware and 270

2 software) are delivered on-demand to customers over a network in a self-service fashion, independent of device and location. The resources required to provide the requisite quality-ofservice levels are shared, dynamically scalable, rapidly provisioned, virtualized and released with minimal service provider interaction. Users pay for the service as an operating expense without incurring any significant initial capital expenditure, with the cloud services employing a metering system that divides the computing resource in appropriate blocks. In the competitive environment of the hotel industry, access to timely information is crucial for decision-making and customer service delivery. Consistently achieving this goal requires a sophisticated portfolio of IT applications and high-quality IT infrastructure. Erbes et al. (2012, pp ) state that the current rapid move toward cloud services has a profound impact, creating an environment in which specialized suppliers balance innovation with quick responses to market demands and resulting in an efficient system for service production and distribution. In this new environment, the in-house development of IT services is losing ground to the use of service supply chains created by external providers. The purpose of this research is to explore the impact of organizational and business benefits of cloud computing adoption on the hotels competitive capabilities. The basic set of research for this study consists of hotel managers of Istrian county hotel companies in Croatia. 2. LITERATURE REVIEW AND THEORETICAL FRAMEWORK Nowadays, IT is an important resource driving hotel s success, playing a strategic role in organizations, where it creates competitive advantage and enables new business opportunities. Attention is now being given to IT's ability to differentiate products and services, to create new product and service offerings, and to build and sustain core competencies; all of which lead to the creation of competitive advantage (Nyheim et al., 2005, p. 29). Thus, business managers must focus on the business value of IT and less on cost reduction. Business managers must strive to understand how to use IT, see its strategic potential, and recognize its limitations so as not to be confused by it, led astray, or constrained by the limitations of the firm's IT infrastructure (Nyheim et al., 2005, p. 6). For many decades, IT was largely shielded inside an enterprise. Enterprises used traditional ways to map their internal business needs to the IT processes and systems that they built, operated, and maintained in-house (Erbes et al., 2012, pp ). The emerging new trend of cloud computing challenge the fundamental assumption of shielded IT in a closed enterprise and provides new opportunities for IT infrastructure design. (Erbes et al., 2012, pp ) state that IT traditionally provided value by offering a standardized experience across the enterprise. This centralized role includes consolidation, centralization, and standardization of IT systems and services. However, modern hotels demand flexible IT services, that can be provided directly by a growing number of external providers offering cost-effective and reliable services. In order to effectively enable and support enterprise business goals and strategies, information technology (IT) must adapt and continually change. IT must adopt emerging technologies to facilitate business to leverage the new technologies to create new opportunities, or to gain productivity and reduce cost (Buyya et al., 2011, p. 552). Emerging technologies (e.g., cloud computing: IaaS, PaaS, SaaS) can be disruptive to the existing business processes, including core IT services. Thus, it is extremely important to minimize the negative impact to the business, particularly the potential impact on morale and productivity of the organization. Whenever there are major changes being introduced to the organization, changes that require redesign or re-engineering the business process, change is usually required to the organizational structure and to specific jobs (Buyya et al., 2011, p. 553). Galičić and Ivanović (2008, p. 292) argue that getting a hotel information system to work is a great challenge for 271

3 the entire organisation and all the people that are a part of the organisation (including two interest groups of people: the end users and the personnel in charge of IS development). Nyheim et al. (2005, p. 7) point out that IT-related decisions require input from multiple perspectives within the organization since IT is pervasive throughout the firm's value chain. If the organization is to exploit IT for competitive advantage, business leaders, regardless of the discipline they represent, must (l) focus on enterprise-wide solutions, (2) be able boundary spanners (people who can cross multiple disciplines or areas of knowledge), and (3) become technologically savvy. Marston et al. (2011, p. 185) state that cloud computing can deliver new value for customers through innovative applications along the value-chain. Nyheim et al. (2005, p. 30) concludes that competitive advantage derived from IT will occur only when IT improves an organization's primary business functions, creates value-adding experiences that enhance customer service, and focuses on changing demand patterns to increase purchases Research methodology and model development The potential financial benefits of adopting cloud computing, especially for small to medium size companies, is the savings made from buying, running, and maintaining their own IT infrastructure. According to Lin and Chen (2012, p. 2), the elasticity of cloud services also means more flexible resource management which can also lead to cost savings. In other words, with cloud services companies can scale up and ramp down capacity on demand and only pay for the actual usage. There are also obstacles to their growth and adoption: the lack of broadband Internet connections, the lack of standardisation of application program interfaces and platform technologies and an overall perceived lack of control that can discourage companies from adopting cloud computing. While financial benefits and cost reduction of cloud computing adoption have been extensively studied, there's a lack of research regarding the impact of organizational and business benefits of cloud computing on the hotels' competitive capabilities. The constructs of organizational benefits and business benefits (Table 1.) were adapted from prior studies (Shang and Seddon, 2002, pp ; Bustinza et al., 2010, pp ). Specific measurement items were selected and refined for this study to reflect the most important aspects of cloud computing benefits perceived by the hotel managers in Croatia. Shang and Seddon (2002, p. 274) state that business managers have a comprehensive understanding of both the capabilities of enterprise systems and the business plans for system use. Thus, the measures were tailored for the context of this research, although an extensive list of benefits is provided by scholars. Organizational benefits orgb1 improves effectiveness orgb2 increases efficiency orgb3 increases overall performance orgb4 improves focus on market Business benefits busb1 increases customer satisfaction busb2 increases hotel profitability busb3 supports business growth busb4 improves hotel reputation Table 1: Items measuring cloud computing benefits in relation to hotels' resources and capabilities (developed by the authors) The constructs of internal and external competitive capabilities were defined by Miller and Roth (1994, p. 289) and refined by Bustinza et al. (2010, p. 281). For this study, those items were adapted to its specific context. A total of 11 items represent the hotel's competitive capabilities gained from cloud computing adoption (as shown in Table 2). 272

4 Internal competitive capabilities intcc1 enable punctual delivery of the service intcc2 enable faster delivery of the service intcc3 increase the competitiveness of our prices intcc4 enable us to offer consistent quality intcc5 enable us to obtain better results from our services External competitive capabilities extcc1 provide flexibility to face market demand extcc2 introduce new services into the market more rapidly extcc3 distribute our services more widely extcc4 increase the number of our services extcc5 contribute to promoting our services more efficiently extcc6 develop post-sales services Table 2: The impact of cloud computing adoption decisions on hotels' competitive capabilities (adapted from Miller and Roth, 1994) Oliveira et al. (2002, p. 734) define capabilities-based competition through operations as the ability of the total service delivery system extended through the service supply chain to meet external customer requirements through operations criteria, such as quality, delivery, flexibility, and/or cost. They conclude that competitive capabilities and strategic choices of structure, infrastructure and integration are core elements of service operations strategy. Bustinza et al. (2010, p. 278) argue that the impact of outsourcing decisions on the competitive capabilities has been undervalued, as well as the fact that these capabilities can produce competitive advantages in the long term. Thus, for this study the following research hypothesis is proposed: H1. Benefits of cloud computing positively influence the hotel's competitive capabilities. 3. DATA ANALYSIS AND DISCUSSION 3.1. Descriptive statistics To explore the impact of organizational and business benefits of cloud computing adoption on the hotels competitive capabilities, an online survey was used. The questionnaire is composed of multiple choice questions (to collect demographic information) and multipleitem measurement scales. The measurement items are adapted from measurement instruments based on the literature review. Each question was tailored to fit the context of this study. The survey items related to each of the constructs included in the model were measured using a seven-point Likert scale. All items ranged from 1 (strongly disagree) to 7 (strongly agree). The basic set of research consists of 79 hotel managers of the four largest hotel companies in Istria County, the most important tourist region in Croatia. A survey plan for each studied organization was developed in collaboration with hotel administration. The survey was conducted from July to September 2013, during the period of high season in selected hotel companies. As an adequate platform for online survey Wufoo was chosen, an online questionnaire prepared, with results stored in the corresponding database. Statistical analysis was performed after the completion of data collection of the questionnaires. A total of 44 completed surveys (out of 79 targeted managers) was collected, accounting for 56% of the population. The hotel managers include 60% first-level managers, 68% second-level managers and 47% third-level managers. All collected questionnaires were properly filled Model assessment This research is based on Partial Least Squares Structural Equation Modeling (PLS-SEM) to develop a model that represents the relationship between 6 proposed constructs measured by 19 items. PLS-SEM is a multivariate technique for assessing structural models. Hair et al. (2012, p. 415) point out that PLS-SEM maximizes the explained variance of the endogenous 273

5 latent variables by estimating partial model relationships in an iterative sequence of ordinary least squares (OLS) regressions. An important characteristic of PLS-SEM is that it estimates latent variable scores as exact linear combinations of their associated manifest variables (Hair et al., 2012, p. 415; from: Fornell and Bookstein, 1982) and treats them as perfect substitutes for the manifest variables. Hair et al. (2011) state that the assessment of reflective outer models involves determining indicator reliability (squared standardized outer loadings), internal consistency reliability (composite reliability), convergent validity (average variance extracted, AVE), and discriminant validity (Fornell-Larcker criterion, cross-loadings). The software tool SmartPLS was used to assess the measurement and the structural model of the research. Lowry and Gaskin (2014, pp ) argue that before running a PLS analysis, the model must be configured in a way that will produce usable results. For this research model, constructs were set up as reflective, in compliance with prior studies. A factor analysis was employed to establish the reliability of the items and the convergent and discriminant validity of the constructs. The factor structure matrix of item loadings and cross-loadings (Table 3.) confirms that the convergent validity of each construct is achieved as the item loadings for each construct are above the threshold of (Hair et al., 2014). 5 items didn't meet the minimum requirements (excessive cross-loadings) and were removed from the measurement model. ORGB BUSB INTCC EXTCC orgb orgb orgb busb busb busb intcc intcc intcc intcc extcc extcc extcc extcc Table 3: Factor structure matrix of loadings and cross-loadings (authors' calculations) Organizational and Business benefits as well as the Internal and External competitive capabilities are part of more complex constructs, that can be operationalized at a higher level of abstraction. Thus, second-order constructs were created, namely Cloud computing benefits and Competitive capabilities. To do this in PLS-SEM, a repeated indicator approach was performed, in which the second-order constructs Cloud computing benefits and Competitive capabilities contain all the indicators of its first-order subconstructs. This hierarchical component model model, as Hair et al. (2014, p. 240) state, is a higher-order structure that contains several layers of constructs and involves a higher level of abstraction. After that, the research model was analysed with the subconstructs predicting the second-order constructs. The verification of the reliability of indicators was obtained using Cronbach's alpha coefficient, testing the contribution made by each indicator to be similar, as well as the 274

6 composite reliability coefficient which takes respective indicators into account. Convergent validity, measured by Average Variance Extracted (AVE), represents the common variance between the indicators and their construct and should be higher than 0.5 (Hair et al., 2014, p. 105). In order to confirm the discriminant validity among constructs (Fornell-Lacker criterion) the AVE square root must be superior to the correlation between constructs. Table 4. indicates the Cronbach's Alpha coefficient, Composite reliability coefficient, Average Variance Extracted (AVE) along with the square roots of the AVE (highlighted numbers in the diagonal) and the correlation between constructs. CA CR AVE (1) (2) (3) (4) (5) (6) COMPC (1) CLOUDB (2) BUSB (3) EXTCC (4) INTCC (5) ORGB (6) * square root of AVE on diagonal Table 4: Cronbach's alpha, Composite Reliability, Average Variance Extracted and Discriminant Validity of the constructs (authors' calculations) Figure 1: Research model results (authors calculations) After establishing the reliability for the items and the convergent and discriminant validity of the constructs, the structural model was assessed. The results of the PLS analysis are shown in Figure 1. The predictive capability of the model is satisfactory because the R-Squares are higher than 0,10; the coefficient od determination for Competitve Capabilities (R 2 =0.546) can be interpreted as moderate. The structural model shows a significant positive relationship between Cloud Computing benefits and Competitive capabilities (β=0.739, p<0.001), supporitng the proposed hypothesis H1. 275

7 By adopting cloud computing, hotel companies may improve some elements of competitive capabilities. Cloud computing enables hotel companies to deliver services faster, ensures cosistent quality of services and contributes to promoting services more efficiently. While cloud computing should deliver benefits to any client organization, the challenge of differentiating an organization and gaining advantage depends on development and use of internal IT-related capabilities (Garrison et al., 2012, p. 68). Information systems affect the competitiveness of business by positively influencing the operational efficiency of operations, and in certain circumstances become drivers of innovation and change in business. The use of IT within the hotel company should reflect the strategic plan of the company. All decisions about investing in IT serve to enhance strategic value, business results and return on investment. To achieve this effect, it is necessary to make effective use of these tools and technologies and use their capabilities in ways that strengthen core competencies and positively impact competitive capabilites. 4. CONSLUSION In this study, a PLS-SEM analysis of quantitative data has supported the proposed hypothesis that Cloud computing benefits positively influnce hotels competitive capabilities. The empirical data, based on the hotel managers perceptions and opinions, helped in the development of a model that explains the relationship between the organizational and business benefits of cloud computing, and its relation to the internal and external competitive capabilities. However, this study is contains several limitations. First, the sample is very small, thus the implications of this research should be taken with caution. Second, the proposed model is based solely on managers perceptions and opinions. Also, other dimensions of cloud computing benefits could be incorporated in future studies. Decisions related to IT require inputs from several perspectives within the organization. Since IT spreads out throughout the entire value chain of the company, the managers of hotel organizations that want to use IT to achieve competitive advantage must focus on enterprisewide solutions. The adoption of information technology remains one of the most important decisions to achieve growth, productivity and competitiveness in the market. LITERATURE 1. Bustinza, O. F., Arias-Aranda, D., & Gutierrez-Gutierrez, L. (2010). Outsourcing, competitive capabilities and performance: an empirical study in service firms. International Journal of Production Economics, 126(2), doi: /j.ijpe Buyya, R. et al. (2011). Cloud computing: Principles and Paradigms. New Jersey: John Wiley & Sons, Inc. 3. Erbes J., Motahari-Nezhad H.R., & Graupner S. (2012). The Future of Enterprise IT in the Cloud. Computer, vol. 45, no. 5, pp Retrieved from itle=the-future-of-enterprise-it-in-the-cloud 4. Etinger, D. (2014). Suitability and Organizational readiness Cloud Computing adoption model in hotel companies (doctoral dissertation). Pula: [D. Etinger] 5. Hair, J. F., Sarstedt, M., Ringle, C. M., & Mena, J. A. (2012). An assessment of the use of partial least squares structural equation modeling in marketing research. Journal of the Academy of Marketing Science, 40(3), Hair J. F., Hult, G. T. M., Ringle C. M., & Sarstedt, M. (2014). A primer on partial least squares structural equation modeling (PLS-SEM). CA, Los Angeles: Sage Publications Inc. 276

8 7. Galičić, V. & Ivanović, S. (2008). Quality Management Of Hotel Information System. Informatologia, 41(4), Retrived from 8. Garrison, G., Kim, S., & Wakefield, R. L. (2012). Success factors for deploying cloud computing. Communications of the ACM, 55(9), doi: / Lin, A. & Chen, N.-C. (2012). Cloud computing as an innovation: Percepetion, attitude, and adoption. International Journal of Information Management, 1 8. doi: /j.ijinfomgt Lowry, P. B., & Gaskin, J. (2014). Partial Least Squares (PLS) Structural Equation Modeling (SEM) for Building and Testing Behavioral Causal Theory: When to Choose It and How to Use It. IEEE Transactions on Professional Communication, 57(2), doi: /tpc Marston, S. et al. (2011). Cloud computing The business perspective. Decision Support Systems, 51(1), doi: /j.dss Miller, J.G. i Roth, A.V. (1994). A Taxonomy of Manufacturing Strategies. Management Science, 40 (3), doi: /mnsc Nyheim P.D. et al. (2005). Technology Strategies for the Hospitality Industry. New Jersey: Pearson Prentice Hall 14. Oliveira, P., Roth, A. V., & Gilland, W. (2002). Achieving competitive capabilities in e- services. Technological Forecasting and Social Change, 69(7), doi: /s (01) Ringle, Christian M., Wende, S., & Becker, J.-M. (2014). Smartpls 3. Hamburg: SmartPLS. Retrieved from Shang, S., & Seddon, P. B. (2002). Assessing and managing the benefits of enterprise systems: the business manager s perspective. Information Systems Journal, 12(4), doi: /j x ******* 277

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