The Growth of Strategic It Investments

Restaurant Study

Topline Results

Tracking Upward

If there is anything you should take away from this study it is this: The level of IT investment is on the rise in the foodservice industry. More than any other statistic you hear this year, this is the one that indicates our industry is going in the right direction. Most importantly, the percentage of revenue that is devoted to information-technology solutions continues to rise not just at the major national chains, but across the board at restaurant companies big and small.

The results, we feel, speak for themselves. Last study, when we asked restaurant operators what percentage of revenue they were spending on IT, 60% responded that IT spending was 1% or under a drop of 13% from the previous year. In 2003 that number dropped again to 40%—this in a year where revenue only tracked slightly upward for most of the industry. That is a significant shift such a short period. While it is always tricky to estimate where spending will go, another 17% of respondents indicated that they expect to spend upwards of 4% of revenue on IT by 2006.

One of the reasons we expect these predictions to hold true is the consistent nature of how IT dollars have been and are continuing to be spent. Efficiency and operations continue to get the bulk of IT dollars. The restaurant industry has never gone after new technology gimmicks or other fads. Restaurant implementations, whether electronic cash registers, point of sale systems or the current development of purchasing, business intelligence, loyalty and labor management systems, have always been steady and measured across the industry.

As the study indicates, the slow but consistent penetration of these technologies is due to the careful and rigorous analysis all IT systems must survive before implementation and the careful tracking of ROI and other measures afterwards. According to the study respondents, restaurant companies are extremely concerned with testing thoroughly any system prior to install and determining measurable results from IT systems. As we noted last year, this is an industry of “close followers” and that has not changed. Restaurant operators are highly aware pf the development of new technologies and new feature sets, but cautious in their own implementations.

Given the steady tracking of these numbers from last year’s study Implementation Trends and Strategic Growth of Restaurant IT, we are confident in the validity of these results. More than 200 respondents, each representing distinct restaurant companies answered the detailed questionnaire to participate in the study—we thank them all for their cooperation.
Cooperation was also key to making this study possible. Building on the success of last year’s restaurant industry technology study, Hospitality Technology magazine again teamed with a group of well-respected academic researchers from the Department of Food and Beverage Management at the UNLV College of Hotel Administration and the Hotel, Restaurant and Institutional Management at the University of Delaware. With Cihan Cobanoglu, assistant professor of hospitality information technology at the University of Delaware; Andrew Hale Feinstein, assistant professor at the University of Nevada Las Vegas William F. Harrah College, and Audrey C. McCool, assistant dean for research at the William F. Harrah College of Hotel Administration, this study brings some of the brightest minds together for a restaurant technology study.

Andrew Hale Feinstein, Ph.D
Audrey C. McCool, EdD. RD
Cihan Cobanoglu, Ph.D
Reid A. Paul

Respondent Profile

This study was completed in January 2004. The respondents were selected from Hospitality Technology magazine subscribers. 1145 individuals in the restaurant industry with significant responsibility for technology decisions were contacted via e-mail and Web-based survey method. The respondents were sent two reminders to increase response rate.
The survey was comprised of 21 questions and divided into the following sections: demographic background of the respondents, company characteristics, IT leadership and integration, IT investments, IT strategy, IT priorities, measurement of IT investments’ success, and decision making for IT investments.

There were 226 complete responses to the survey, yielding a 19.7% response rate. The respondents reflected a good distribution of responsibilities and were similar to 2002 study distribution. Forty-one percent were chief information officers, chief technology officers or technology directors; 21% were corporate managers, 11% were owners or operators, 7% were property managers or assistant managers; 6% were chief financial officers or accounting managers, 5% were sales and marketing managers; and 4% were food and beverage managers. (See Figure A)

In terms of number of restaurant units owned, managed, or franchised, on average, 40% of the all units were franchised, 36% of the units were operated, and 24% of the units were owned by the respondents’ multi-unit companies. In terms of the number of units that the respondents are responsible, 34% of the respondents were responsible for 1-10 units, 29% were responsible for 11-50 units, 9% respondents were responsible for 51-100 units, 19% were responsible for 101-500 units, 4% were responsible for 51-100 units, and 5% were responsible for more than 1000 units. (See Figure B)

IT Investment Culture

Although the restaurant industry has long been considered to be very conservative in its approach to the use of technology as an operational tool, today technology is being incorporated into restaurant operations at an increasing rate. Still, there is much more than can be done to enhance restaurants’ operations through the use of technology. Indications are that restaurateurs in all types of operations are becoming much more aware of the potential of IT as a management tool and are expanding their vision of how they might further incorporate IT into their operations.

As might be expected, there is much variance in the use of technology among the different sized establishments, if for no other reason than for economies of scale. Large operations, particularly multi-unit operations, are able to spread the costs of IT development among multiple facilities; thus making the cost of a variety of IT implementations economically feasible at the unit level. Small, single unit operations, though, often cannot afford the investment to develop complex, more comprehensive systems that might be utilized by the large multi-unit firms. However, it is not true that all small restaurant operations lag behind the larger firms in the use of IT. Many small, single unit operations are being very innovative in their use of IT, and because they are small, they have the flexibility to incorporate new IT developments more quickly that is possible for many of the very large multi-unit restaurant firms.

The restaurant industry is composed of very diverse operations, and as a whole, is far more diverse in terms of operational units than any other industry. Thus, no one system can be developed that is “right” for all types of restaurant operations. This diversity is an important factor sometimes delaying the incorporation of IT into restaurant operations as, to be effective management tools, IT systems often have to be customized to fit each operation’s unique needs. The need to customize IT systems for individual restaurants increases both the costs of incorporating IT into an operation and the time required to make a system operational once a decision has been made to utilize IT for a particular purpose.

Because incorporation of IT into a restaurant’s operations is a costly, time consuming endeavor, many operators are still hesitant to make the commitment that would be required to increase the use of IT in their operation. However, as the business environment becomes increasingly automated every day and information flow through the use of technology increases geometrically, it must be asked whether a restaurant’s deferment of the incorporation of IT is a good decision. Could a restaurant’s operations, and ultimately its profitability, be improved through the use of IT? Could the IT investment costs be recovered – and if so, could that recovery be accomplished within an acceptable time frame?

An investment in IT must be evaluated on the same basis as any other capital investment that a restaurant makes even though the life of an IT system may be relatively short because of the speed with which new technological developments regularly occur. An IT system is a tool that can be used to improve the restaurant’s operations, just as new furnishings or new production equipment would be. Thus, the investment decision process should parallel that of other investments in furnishings or equipment.

Restaurant owners, themselves, are becoming more technologically sophisticated as technology increasingly becomes part of life for everyone. As operators become more comfortable with technology – as technology “creeps” into their homes and into their own experiences as consumers of varied services, they are increasingly interested in and willing to consider the use of IT in their restaurant operations. Restaurant employees, too, are increasingly knowledgeable about IT and the use of computer technology. It must be remembered that restaurants employ many young persons in a variety of positions. Young people, today, have grown up with computers; have worked with computers in school; have interacted with computers in many ways throughout their lives; expect to work with computer system in their jobs; and are not intimidated by technology.

Evidence of the changing attitudes of restaurateurs toward the use of IT in their operations is shown through the increasing percentage of revenue which operators are budgeting for IT. In 2001, 72.5% of the respondents to this survey reported that they spent 1% or less of their revenue for IT; in 2002, that percentage had dropped to 60.5%, and now, in 2003, that percentage is only 40.3%, a drop of almost 20% in just this past year. In comparison to this declining percentage of operators spending a very limited proportion of their revenue on IT, in 2001 only 15.4% of the respondents spent 3% or more of their revenue on IT. By 2002, that percentage had increased to 18.7%, and this year, in 2003, that percentage has grown to 19.4%, with the greatest increase being among those respondents who are now reporting that they spend approximately 3% of their revenue on IT. By the year 2006, just 3 years from now, only 20.4% of these respondents anticipate spending 1% or less of their revenue on IT, and 35.3% expect to spend 3% or more of their revenue on IT. That percentage is more than double the percentage spending 3% or more of their revenue on IT in 2001, a change that will have occurred in the very short time span of only five years. ( See Figure 1.1)

It is interesting to note that about 68% of the respondents from restaurant firms with less than $50 million in revenue indicated that they now spend less than 2% of their revenue on IT and only 9.5% of this respondent group indicated that they now spend 5% or more of their revenue on IT. However, in three years, only about 51% of these respondents feel that their firms will spend 2% or less of their revenue on IT, and almost 17% feel that their firms will spend 5% or more of their revenue on IT. In comparison to the larger restaurant firms (revenues greater than $500 million), more of the smaller restaurant firms are spending a larger proportion of their revenue for IT. About 55% of these larger firms are now spending 2% or less of their revenues on IT, and none are spending more than 3%. In three years about 39% of these large firms expect to spend 2% or less of their revenue on IT, but still none of these firms expects to spend more than 3% of their revenue on IT.

This change in the budgeted expenditures for IT in such a short time frame is a significant change and can only be occurring as a result of a significant change in management philosophy regarding the use of IT as an operational/management tool. It is a reflection of owners and managers becoming increasingly comfortable with IT, combined with their recognition of the value that IT can add to their operations, recognition of IT’s value as a capital investment for their firm.

Not only are nearly all types of restaurants anticipating an increase in the proportion of the revenue that they will be spending on IT in the future, a majority of the respondents are also anticipating an increase in their revenues. Thus, as both total revenue and the proportion of revenue spent on IT increase, the actual real dollar investment will increase even more than would seem to be the case if only the percentage increase in revenue that will be allocated to IT is considered.

Although the respondents were generally positive about their anticipated revenue growth for 2004, they were less optimistic than they were in 2002 about the growth they expected in 2003, quite likely a reflection of the relatively stagnant economy that has prevailed throughout this past year. This year, only 61.5% reported that they anticipated a growth in company-wide net profitability in 2004, compared to 87.9% who predicted such growth during 2003. (See Figure 1.2)

The differences in outlook from last year’s report was most notable relative to their expected increase in guest check average with only 21.7% expecting an increase here during 2004, compared to 68.1% that had expected an average guest check increase to occur during 2003. There was also a notable difference in the restaurateurs’ outlook regarding guest counts with just over half of the respondents (52.7%) anticipating an increase in 2004, compared to 84.6% who had expected an increase during 2003. Thus, while the respondents overall outlook for growth in their revenues during 2004 is positive, it is much less positive that it was last year. Still, they are anticipating an increasing proportion of this revenue going toward their IT budget, again underscoring the extensive change in management philosophy that has occurred and is currently occurring in regard to the use of technology in the restaurant industry.

Although there are indications of improvements in the overall economy, the technology industry is still relatively stagnant; thus there are still excellent opportunities available to restaurateurs for IT investment. The pricing of systems should still be favorable for restaurants throughout 2004 as the IT industry continues its effort to return to a pattern of economic growth. That said, even though restaurateurs seem to be more conservative in their outlook toward the future this year than they were in the past year, a question may be why restaurants are not doing even more investment in IT than they are at present.

The restaurant industry is a highly competitive business environment. Often, even a small competitive advantage can be quickly erased if a competitor is able to offer a product and/or service that customers see as the same, or very similar, to that offered by the original restaurant. Thus, restaurateurs are often hesitant to take the lead in making changes, such as investment in IT, if they do not feel that investment will have proven results for them.

When asked whether their organization preferred to be a leader or a follower, from a business perspective, 65.9% indicated that they preferred to be an innovator or leader, and only 7.1% indicated they preferred to a distant follower while another 8.4% said that they preferred to be a reactor to industry conditions and competitor moves. However, when asked about their preference to be a leader or a follower from an IT perspective, only 30.5% indicated that they preferred to be an innovator or leader while 18.1% indicated they preferred to be a distant follower, and another 12.8% said that they preferred to be a reactor to industry conditions and competitor moves. More than 1/3 of the respondents (35%) indicated that they preferred to be a close follower in regard to the IT perspective. Thus, the greatest number of the respondents did not want to be the first ones utilizing a particular IT system or IT innovation. However, they did want someone else in the industry to try it, and as soon as they saw that it worked for one of their competitors, then they wanted to be able to quickly implement the system or innovation as a close follower of their competitor. (SEE FIGURE 1.3)

Even though there were significant differences in organizational preferences regarding leadership from the business perspective and leadership from the IT perspective, the respondents indicated a much greater organizational interest in being the innovator/leader for both perspectives than in the past. In 2002, only 42.9% of the respondents indicated that their organization wanted to be an innovator/leader from the business perspective, compared to 65.9% this year, an increase of more than 50%. There was also much less interest among the respondents in being a reactor to industry conditions and competitor moves as 15.4% of the respondents indicated this position in 2002, compared to only half as many (8.4%) in 2003. That same trend toward an increased interest in being the innovator/leader within the industry was even more apparent in regard to the IT perspective. Here, in 2002, only 17.6% indicated their organization wanted to be an innovator/leader. This year, that percentage was 30.5, a 73% increase from 2002. There was also a reduction in the number of respondents whose perspective was that of a distant follower or a reactor to industry conditions and competitor moves, but there were also a reduction in the percentage of respondents who wanted to be close followers as respondents moved from this classification into the innovator/leader category.

Within the industry, 64.3% of the respondents representing firms reporting less than $50 million in sales indicated that they wanted to the innovator/leader from a business perspective, compared to 77.6% of the largest firms (revenue greater than $500 million) that wanted to be the innovator/leader from a business perspective. None of these large firms wanted to be a distant follower and only 4.1% wanted to be a reactor to industry conditions and competitor moves.

However, this picture changed when the respondents were asked what their firm preferred to be from an IT perspective. The small firms were rather equally divided among all the categories with about 25% of the firms falling into each of the categories from wanting to be an innovator/leader to wanting to be a reactor to industry conditions and competitor moves. In comparison, 40.8% of the largest firms wanted to be an innovator/leader and another 36.7% wanted to be a close follower. Thus, while the smaller restaurant firms are anxious to be the innovators/leaders from a business perspective, they are much more hesitant to be so from an IT perspective. On the other hand, the large firms that want to be innovators/leaders from a business perspective still want to be the innovators/leaders or close followers from an IT perspective.

A question to consider is why the 2004 respondents seemed to be so much more interested in being the innovator/leader within the industry—both from a business and from an IT perspective than they were in 2003. One possibility might be the rather stagnant economic environment, reflected in the much more conservative outlook for growth in 2004 that has already been noted, which has made restaurateurs more aware of the need for aggressive competition in the marketplace. Since it is the innovators or leaders of change that often realize the greatest competitive advantage and the increased profit potential that is associated with a competitive advantage, restaurateurs may be more willing take the risks that may be associated with innovation in order to gain the economic benefits that may be possible if their innovation is successful. In addition, the increased interest in being the innovator/leader in regard to IT may reflect these operators increased comfort with technology and increased awareness of what the incorporation of technology can do for their restaurant operation, particularly in regard to cost management and revenue collection, as well as in regard to the management of their human resource capital.

In summary, while the restaurant industry is still conservative in the use of IT as a management tool, it is becoming less so. Throughout the industry, an increasing proportion of revenue dollars are being invested in IT, and that trend is expected to increase over the next 3 years. Since total revenue dollars are also expected to increase over this time period, the combination of an increased percentage of total revenue dollars and an increase in total revenue dollars means restaurant firms are anticipating investing more real dollars into IT.
Restaurant firms are also becoming more willing to be innovators/leaders in regard to the use of IT. The large firms, especially, want to be either innovator/leaders or close followers in regard to IT. While a lesser proportion of the small restaurant firms are wanting to innovators/leaders regarding the use of technology, there is still a strong entrepreneurial spirit among these restaurateurs, and about one forth of them want to be innovators/leaders. Thus it seems likely that the incorporation of technology into restaurant operations will continue at an increasing rate in the future.

Technology Allows Customers to Help Themselves

One of the distinguishing characteristics of the service industry that differentiates it from the manufacturing sector is the participatory role customers play with regards to the creation and delivery of the service (the core product and experience) being purchased. In service, unlike manufacturing, the customer is inseparable from the process. The customer not only plays a pivotal role in specifying the service parameters but also helps to determine the service outcome and, increasingly, the overall satisfaction with the experience. Because of this involvement, Peter Mills and his colleagues have suggested in the service literature that customers should be considered “partial employees.”1 While this notion may seem contrary to the traditional definition of service in which personal ministry and servitude are at the root and while the use of self-service technology to improve customer service may seem like an oxymoron, there is merit to exploring these lines of thinking.

The service industry is plagued by labor issues, namely the rising costs of labor, high turnover, and the inability to find qualified people. These problems are aggravated by the demands to grow and by competition among service businesses tapping the same labor pool. Moreover, escalating costs of doing business, a weak economy, and sluggish demand are making it more difficult for businesses to maintain service levels and remain profitable. To cope, many businesses are turning to technology in search for ways to do more with less, to allow customers the means to service themselves and to shift responsibilities and sometimes costs from the service provider to the consumer.

Advances in technology and a more technologically literate society are making this possible. Banks started the trend with automated teller machines (ATMs), which were initially deployed to extend banking hours and provide banking access in locations where it may have been cost-prohibitive to build a branch office. Now, ATMs are one of the preferred methods for consumer banking and offer expanded services (e.g., language translation, selling stamps, etc.) to provide additional services and conveniences while appealing to broader audiences.

Now restaurants—with McDonald’s taking the lead—are experimenting with kiosks for customer order entry. Multimedia displays, easy-to-use interfaces, secure networks, and more are making these developments possible and attractive to businesses and consumers alike, and as cellular phones and personal digital assistants (PDAs) converge further to become more powerful and capable computers, the services offered and the conveniences extended to customers will only get better and provide businesses with many more options for servicing customers.

Kiosks seem to be popping up almost everywhere to dispense information, to enable commerce, and to shift work responsibilities from the service provider to the customer, but their rise to prominence in hotels and restaurants has been evolutionary and not without setbacks. In the mid 1980s, Hyatt, working with NCR, was one of the first hotel chains to test the concept of lobby kiosks for guest check-in/check-out. When the kiosks were first introduced, Hyatt stationed service attendants near the kiosks to assist guests and guide them through the check-in or check-out process. However, the concept never caught on, partly because business travelers were uncomfortable with the technology and partly because this technology was still in its infancy. Throughout the 1980s, a number of kiosks were introduced for the hotel marketplace to help with check-in and dispense room keys, but these products only caught the attention of some of the budget hotels looking for ways to reduce labor costs and staffing levels. Some higher-end hotels adopted kiosk technology for concierge functions, but beyond these applications, the upper end of the business proceeded with caution when embracing this technology for fear of depersonalizing service.

Today, however, much has changed on the competitive landscape with the prominence of the Internet and a society more driven to technology gadgets. It is a very different marketplace now than back in the mid 1980s when Hyatt took those first bold steps. Within the hotel industry, there is a new interest in kiosks and self-service technology. Since 1987, Marriott has been using small kiosk devices to collect guest feedback in its Fairfield Inns. Companies like Choice Hotels and Cendant have successfully deployed check-in kiosks and now, kiosks are poised to go mainstream as Hilton and Starwood test kiosk in some of their large city hotels.

On the leisure side, Vail Resorts has been installing Internet appliances, another form of kiosks, in many of its guest rooms. These devices provide guests with high-speed Internet access, an often requested amenity, but more importantly, they empower guests to look up information on their own about area restaurants, shops, and resort services and facilities; make reservations, and find answers to commonly asked questions. As a result, lines at the front desk have been reduced, and sales for resort services are on the rise. In the future, Vail Resorts anticipates using these devices for two-way interaction with its guests to build relationships and enhance sales further through guest messaging, personalized offers, and on-site promotions.

The software used to power the kiosks may include personalization capabilities like what can be seen on web sites with some leading companies doing business on the Internet to recognize guests, acknowledge past visits, remember their preferences, and communicate to them in their native languages. This technology will likely cause some changes in staffing requirements, particularly with the skills sought. If customers are doing much of the data entry and transaction processing, service agents can focus more on greeting and conversing with guests. Personal skills rather than technical skills will once again rise to the top of the selection criteria. The business, in most cases, will still be about people serving people.
Kiosk applications offer a great deal of appeal to service providers. Theoretically, they are always available. They generally never miss a day of work or show up late. They are consistent, follow instructions well, and are not subject to mood swings. If used effectively, they can help lower overhead, extend service capacity, and collect important customer information that can be used to personalize subsequent encounters with the customer. To customers, they offer convenience, speed, immediacy, and control of the transaction, not to mention the satisfaction of doing it themselves. Some might even say they are fun to use, and as they become more commonplace, they will likely become expected.

The younger generations have been weaned on computers. As such, they are more accepting of them and more willing to use them. This does not mean they are for everyone. Service providers must understand their customer base (both actual and targeted), know their preferences, and appeal to their interests and comfort zones. The best advice is to provide options and let guest or customers choose which method is best for them, given their needs and particular set of circumstances. Some will naturally gravitate to helping themselves. This will free up other channels, say the front desk, to service those with more involved needs.

The Internet is perhaps the biggest kiosk of all. Companies are increasingly turning to the web to disseminate information, engage customers, enable transactions, and provide personalized customer service. They are recognizing the tremendous cost-savings potential of the Internet as well its always-on, multimedia, rich content, and two-way interactivity features. Company websites have evolved from electronic brochures (i.e., information only sites) to electronic commerce and now to full-blown customer portals.

In summary, kiosk and self-service technologies are becoming more important in the hospitality industry and are tools hospitality leaders should watch and experiment with—especially given the growing ubiquity of these technologies, a more technologically sophisticated society, and the need to combat labor problems (turnover, shortages, and rising costs). The successes experienced thus far in hospitality and other industries suggest that these technologies offer potential and worthy of consideration. In terms of widespread adoption within the industry, much will depend on the outcomes reported by industry leaders like Hilton, Starwood, and McDonald’s for the tests they have currently underway.

Considerations for IT Investment

Generally, most industries base IT investment decisions on cost-benefit analysis. However, such analyses are considerably more difficult to calculate within the foodservice industry because of the perishability of the product sold and the many intangible factors associated with product sales and customer satisfaction. Product perishability means that restaurants face very different inventory management challenges than do most other industries. Food products, particularly products that have been prepared for service, are highly perishable, and if not sold within the allowable time for the product, are generally a loss; yet, if there is insufficient product available to meet customers’ requests, then customer satisfaction and good will may be lost. Thus restaurateurs must be as accurate as possible in their product production estimates.

Intangible factors, such as atmosphere and service, are also major factors that a restaurateur must consider if the restaurant is to be a successful business. For example, a restaurant may serve a very delicious meal at a reasonable price, but if the atmosphere of the restaurant or the service received during the meal does not meet or exceed a customer’s expectations, then there is a high probability that the customer will be dissatisfied and will not return to the restaurant.

Such intangibles, along with product perishability and production estimate issues, make the calculation of a valid IT cost-benefit analysis very challenging for the restaurateur. Thus a restaurant’s cost-benefit analysis regarding a potential IT system is likely to be incomplete, i.e. based primarily on tangible factors. While the cost-benefit analysis may also incorporate estimates of the impact of intangibles, such estimates are essentially “educated guesses”, and they may or may not accurately reflect the actual impact of the IT investment on such intangibles as service.

Reflecting the uncertainly of structured calculations, such as cost-benefit analysis, to accurately reflect the impact of an IT system on a restaurant’s operations and, ultimately on its profitability, only 37.8% of the respondents indicated that their organization used a structured assessment approach to making IT decisions. Also, only 17% of the respondents indicated that IT projects required different criteria, analysis tools, and assessment techniques than was required for other types of capital expenditures. About half of this year’s respondents indicated that they had no opinion in regard to the use of a structured assessment approach or whether different criteria were required. Further, 44.8% of the respondents said that their organization had no formal process, methodology, or measures for selecting or rejecting IT projects. (See Figure 2.1)

This response was markedly different from that obtained in the previous year’s survey when about two-thirds of the respondents indicated both that their firms did use a structured assessment approach when making IT system decisions and that different criteria were required for the evaluation of IT projects than for other capital investment projects. Consistent with this decline in the use of a structured assessment approach to evaluate proposed IT projects was a decline in respondent firms’ consideration of opportunity costs and the life expectancy of a proposed project as factors considered when IT investment decisions are made. While more than half of the previous year’s respondents indicated that opportunity costs and project life expectancy was key factors considered in IT investment decisions, this year only 15.1% and 14.2%, respectively, considered these factors. (See Figure 2.2)

Why was there such a significant change in the respondents’ opinions? One reason might be the restaurateurs’ increasing familiarity with IT and the application of IT to their operations. As has been noted, restaurateurs are investing an increasing proportion of their revenues into IT budgets. This increased familiarity with IT, the varied systems available in the marketplace, the experience of “leader” firms with IT, and the declining costs of IT systems and equipment may be causing restaurateurs to take a less structured approach to their IT decision making than in the past.

However, restaurateurs are not just investing in IT systems at random and then walking away from the system once it is installed. Almost half of the respondents (48.6%) indicated that their organization used a detailed measurement approach both before and after IT investment decisions are made and, once a system is implemented, 42.3% compare pre- and post-implementation measures to assess the impact of the IT system on their operations. Thus, it would seem that restaurateurs are focusing more on a specific IT system, taking operational measures both before and after the system is purchased and implemented, and comparing those measures as the means of determining the value of that system.

Many factors may enter into restaurateurs’ decisions regarding IT investment. However, there was limited agreement among the survey respondents about the factors that entered into their firm’s IT decisions. There were only two factors that more than 20% of the respondents agreed entered into their firms’ decision process. These were 1) that the approval process in their organization supported and favored the use of IT, and 2) that the proposed benefits of an IT project had to first be compared to the company’s strategic drivers before the project could be approved. Another factor, business practices support and encourage people to look for and use IT as part of the solution, was a factor that 19.7% of the respondents indicated influenced their firms’ IT decisions. All of the other factors listed were influencing factors for 15% or less of the respondents’ firms.

The three factors that were most frequently indicated as impacting restaurant firms’ IT decision making seemed to be focused on support of the use of technology within the firm and on usage relative to the firm’s strategic planning. This focus would seem to indicate an important change in restaurateurs’ attitudes toward technology. Where firms were once quite hesitant about using technology and seemed to focus more on the risks associated with IT rather than on the benefits that IT might offer their firms, they now seem to accept IT as desirable for their firm. Their focus now seems to be on “how can we use IT to resolve problems and make our operation more effective”, a focus in concert with the ever increasing investment in IT by restaurant firms.

Even though restaurateurs seem to have a considerably more positive outlook toward the incorporation of IT into their operations than was previously the case, they have not completely forgotten about the risks that may be associated with IT investment. An increasing number of restaurateurs, 58.5% of this year’s respondents, would prefer to outsource their IT requirements rather than relying on their own internal systems development and support—thus passing the risk on to outside firms. In last year’s survey, only 17.6% preferred to outsource their IT requirements as a means of minimizing their IT risk. While one possible reason for this significant increase in outsourcing interest would be the restaurateurs’ interest in reducing risk to their firm, another may be the restaurateurs feeling that they should focus on what they do best and outsource other activities. In other words, restaurants are firms with expertise in food and beverage preparation and service. Their expertise is not in IT. IT service firms, on the other hand, have the IT expertise that can be utilized by restaurants. Thus, by outsourcing many of their IT needs, restaurant firms are able to both capitalize on the expertise of the IT firm to handle their IT needs and the required support services and know “up front” what their IT costs are going to be for a particular IT activity or service that they feel would enhance their operations.

If restaurants do not outsource their IT needs, but do decide to consider proposed IT projects as internal projects, there are several actions that restaurateurs might take in order to minimize the proposed projects’ risk to their firms. The most common action that respondents indicated that their firms would take was to conduct pilot projects (indicated by 55.8%). Pilot projects enable firms to collect pre- and post-implementation data for the operational area where the proposed project is being tested and to evaluate that data to determine the effectiveness of the pilot IT project in enabling the firm to meet the objectives proposed for the project. As previously indicated, more than 40% of the respondents indicated that their firms did collect and evaluate pre- and post-implementation data as a strategy for evaluating IT projects that might be employed by their firm. (See Figure 2.3)

Other strategies that the respondent firms used to minimize their IT project risk included strategies that incorporated a closer, more detailed analysis of the project, the use of outside consultants with IT expertise, and the use of modular units to phase in the project over time (indicated by 31.9 to 42.5% of the respondents). Again, consistent with the decline in the use of a structured approach to IT project assessment, the least frequently utilized approach to reduce the risk associated with proposed IT projects was the application of hurdle rates for the estimated return on the IT investment (indicated by only 6.2% of the respondents).

In addition to financial risk, there are other obstacles that may impede a restaurant firms’ investment in IT. When given a list of possible obstacles to the incorporation of IT into their firms’ operations, 38.4% of this year’s respondents indicated that “people issues” were an obstacle to IT adoption. People issues might include difficulties such as the need to train personnel in the use of the system; changing employee attitudes toward IT; or the difficulties associated with getting employees to accept change in the way that they work. The other most frequently indicated obstacles included: 1) the need for and difficulties associated with the integration of various systems (38.1%); 2) securing the funding necessary for IT projects (34.1%); and 3) the difficulties associated with the need to share information across the organization (30.5%). (See Figure 2.4)

Systems integration and networking are always technological challenges for any firm. Rapid changes in technology often make newly implemented systems incompatible with older systems already in place within an organization. Looking ahead into the future, it is possible that the integration and networking obstacles may be lessened as the technology industry continues to make progress in developing means of making systems more compatible.

It is important to consider that “people issues” topped the list as the most frequently selected obstacle to the adoption of IT by restaurant firms. Employee acceptance of any IT system is essential for successful system implementation. Even though the use of computers and IT in many forms is becoming increasingly pervasive throughout the U.S., the survey participants’ response about “people issues” seems to indicate that first-line management and possibly the employees using an IT system should be involved in the decision process. It also seems to indicate that restaurant firms considering the use of an IT system should not only consider the financial aspects of that decision, but should also seriously consider the impact of that system on their employees and the training and “socialization” that may be required.

This focus on “people issues” as an important obstacle to successful IT system implementation parallels the factor previously noted as one most frequently selected as important to restaurant firms when making IT investment decisions—the factor of “business practices support and encourage people to look for and use IT as part of the solution for challenges encountered within the company.” When business practices support and encourage employees to look to IT as a means to address operational and management challenges, success often breeds success. Indeed, IT investments will generally be most effective in organizations where the cultural milieu is supportive of IT systems; in organizations where IT is viewed as having a high positive potential for contributing to problem solutions and organizational effectiveness.

Once an IT system has been implemented, it is important for the restaurant firm to evaluate how successfully the system has contributed to the goals set by the firm when making the decision to invest in the system. Survey respondents were asked to indicate which, if any, of a listing of possible measures for evaluating the success of an IT project, i.e. what the project contributed to the firm, were used by their firms. Return on investment (selected by 70.4%) and contributions to customer satisfaction (selected by 67.7%) were the two most frequently indicated measures that restaurateurs used to indicate the success of their IT investments. Other measures frequently indicated included: 1) contributions to the organization’s strategy (59.3%); 2) contributions to employee satisfaction (54.0%); and 3) improvements to cash flow (45.1%). (See Figure 2.5)

It is interesting to note that only two of the top five measures used to evaluate the success of an IT investment are tangible, financial measures (return on investment and improvements to cash flow). The other three are intangibles which would be subjectively estimated by the restaurateurs even if customer and/or employee satisfaction surveys are incorporated into the firms’ evaluative measures. There was no change in the most frequently indicated measures indicated as the means for evaluating IT investment in 2003 from those indicated most frequently in 2002.

In summary both tangible and intangible factors enter into restaurant firms’ decision to invest in IT. While restaurant firms previously relied heavily on structured assessments as the basis for their IT investment decisions, they are not using such assessments as much now. Instead, they seem to be relying more on collecting pre- and post-implementation data to evaluate the success of an IT investment relative to their goals for that investment. While there are many factors that may drive a restaurant firm’s IT investment decisions, having an organizational environment that is supportive of and compatible with the use of technology as an operational tool seems to be important for success IT implementation.

Although restaurant firms are using structured assessments less when evaluating IT initiatives, they have not forgotten about the financial risks that may be associated with IT projects. Many firms are interested in outsourcing their IT needs, and pilot projects are common as a means of evaluating the potential success of an IT initiative. However, in addition to consideration for potential financial risk, one of the most important obstacles to successful IT implementation within restaurant firms is people issues. Thus, as restaurant firms more toward increasing use of IT for both operations and management, it is going to be important for these firms to consider their human resource capital and the impact of IT system initiatives on their people.