This journal post is based on the mini-case and extensions provided below. Please read scenarios A-C, and answer the questions below, showing your math.

Questions:

Explain how value is created and appropriated by WizTechs solution. Show you calculations for total value created, identifying Supplier Opportunity Cost and Customer Willingness to Pay.

Explain how the addition of a competitor to WizTech impacts how value is appropriated.

Explain how the addition of the mobile app impacts the value added analysis. Show how the calculations of value added and value appropriation changes.

Are WizTechs solutions an IT-dependent Strategic Initiative for Royal Hotels? Justify your answer.

Scenarios:

The Analysis of Added Value (A)

The Royal Hotel in New York City is a luxury all-suite hotel primarily serving an executive clientele who are visiting Manhattan on business. Typically, these business guests stay for three to six days, during which time they use their hotel suite as a temporary office. Thus, Royal Hotels management has positioned the property to cater to the many needs of this busy and demanding audience. Amenities include in-suite printer, and copier, three two-line telephones with voicemail and remote message alert, 24-hour business center, wired and wireless Internet access in rooms and public areas, fitness center, insuite dining, laundry service, complimentary shoe shine, complete Bluetooth audio system, dedicated high-speed elevators, and more. Hotels management is proud of their capacity to always meet and sometimes anticipate -the evolving business guests needs. Back in the 90s they have been one of the first properties to offer wired internet connection in every room. Today, guests can control rooms facilities through their smartphones, select TV and radio channels and stream content from their devices to the large-screen wall mounted television. However, as the old saying goes the cobbler's children go unshod. The hotel was still using an aging server lying on a rack in a small equipped room converted from managers office. The system is critical for hotels operations taking care of bookings, accounts receivable, accounting, materials, payroll, and maintenance. The server is a tier-1 enterprise class hardware with associated storage and backup units. The server is running 24/7 with the exception of scheduled downtimes for maintenance and upgrades. The server costs the Royal Hotel $25,000 and has operating costs (e.g., electricity, software licenses and maintenance) of about $2,100/year. The server has a usable life of five years. WizTech, a California-based hi-tech firm specializing in cloud solutions, has recently contacted the Royal Hotel. This contact is very timely as the Royal Hotel was about to replace the aging server and assume the costs discussed above. WizTech is beginning to commercialize a cloud solution of the same system the hotel uses that enables any computer connected to the internet access the property management system (PMS). Thus, the cloud solution is a perfect substitute for the server. Moreover, to ensure a degree of business continuity, WizTech offers, free of charge, a work offline service that enables temporary operations in case of unavailable internet access; this service is secure and managed seamlessly by WizTech until the connection is back in operation. WizTechs premium solution costs $500 per month. Each customers cloud solution costs WizTech $1,500 to setup

The Analysis of AddedValue (B)

As ROYAL HOTEL is about to make its decision, Cloud It, a Canadian competitor of WizTech who offers a solution identical to WizTechs, contacts the IT department to push its wares. Cloud It allows the same PMS functionalities implemented by WizTech, thus ensuring identical performance and cost structures. The cost that Cloud It incurs to deliver its solution is also identical to WizTechs ($1,500).

The Analysis of Added Value (C)

When ROYAL HOTELs IT department contacts WizTech and informs the company about Cloud Its competing offer, a conference call with the VP of Engineering, Marketing, and Business Development is scheduled. During the call, WizTechs VP of Engineering points out that while the solutions proposed by the two companies are the same, thereby ensuring comparable performance and cost structures, there are key differences between them. Specifically, since WizTechs solution offers an open and well documented API, a smartphone app can be provided at no extra cost to receive customers direct booking. That is, at no extra cost an app will be made available to the hotel for direct booking (note that while WizTech offers the app at no extra charge, it will cost them $30 per app in extra labor). As WizTechs VP of Marketing indicates: This is certainly a value-added service that you can offer to your guests. With our solution they will be able to simply access the app, book and customize their stay as much as they want with a quicker process, without intermediaries, and all in the cloud. This will definitely differentiate the ROYAL HOTEL from the increasingly intermediated competition. After the conference call ROYAL HOTELs executive team and the IT group meet to discuss their next step.