BSC in Hospitality

 

Managing organizational success and implementing effective performance management strategies represents continuous challenges for managers, researchers and consultants. Since its introduction in the early 1990s the Balanced Scorecard has captured the attention and interest of many corporations that started to rethink their performance management and measurement systems, in a wide variety of industries.

 

One particular industry, in which the Balanced Scorecard concept seems to be adopted and applied with increased success as demonstrated by the specialty literature and case studies published in the last decade, is the hospitality industry.  

 

Characteristics of the hospitality industry

According with Atkinson (2006) the hospitality industry is a complex and multifaceted sector of the global economy being in continuous expansion.  It brings together large hotelier chains as well as small and medium sized enterprise activity. What all these entities have in common is a complex business framework that integrates complex and interrelated activities under the same roof. Some of the most important functions that characterize the business are the service, stock management, production and marketing functions.

 

Due to the multifaceted enterprise structure and complex characteristics of the business, adequate and streamlined performance management systems needs to be set in place. These prerequisites are necessary in order to secure a smooth and successful business operation in an environment that is continuously under change and pressure. Increasingly fierce competition, especially in emerging markets but also multiple external factors that can dramatically influence the hospitality industry, such as natural disasters, war outbreaks, or epidemics are important risk aspects of the business that needs to be carefully monitored and managed.

 

Balanced Scorecard in the hospitality industry

One framework that provides with a consistent approach to successfully manage the business performance in the hospitality industry is the Balanced Scorecard.

 

This can be proved by the successful documented experience with the Balanced Scorecard implementation and use of Hilton Hotels and Marriott franchisee White Lodging Services, both worldwide recognized hotelier brands (McPhail et al, 2007).

 

Case Study - White Lodging Services

White Lodging Services Corporations is a corporate entity that manages Marriott’s limited service franchises comprising Courtyard, Fairfield Inn and Residence Inn. The company started to implement its Balanced Scorecard system both at the corporate and property levels in January 1997.

 

Some of the corporate strategic objectives were to:

  • Record a 15% annual compounded annual growth in revenues
  • $ 300 million in revenues by 2003
  • 20% increase in guest scores
  • Exceed brand average yield and Revenue per Room (RevPAR) levels
  • Achieve a Hourly employee turnover of less than 60% annually
  • Achieve a Management turnover of less than 20% annually
  • Deliver high return on investment: an unleveraged Cash on cost target of 15% (Denton and White, 2000)

 

In order to meet the new strategy and all the strategic objectives identified, the challenge put forward was the creation and implementation of a scorecard with the following characteristics:

  • The scorecard tracks both financial and non financial measures that are important for long time growth and value creation
  • It communicates owners’ objectives for growth, profitability and internal processes
  • It is simple to be monitored and easy for operating managers to be understand and accept
  • The scorecard needed to be implemented at all organizational levels and focus on only the Key performance indicators (KPIs) of each of the four original Balanced Scorecard perspectives. (Denton and White, 2000)

 

In order to secure an easy review process of the property performance and enable property managers to monitor their performance relative to goals a selection of the most significant KPIs for each perspective was performed. For each scorecard KPI a numeric point system and five color rating scheme with concrete targets was established

 

Point System for Balanced Scorecard indicators

Performance

Color ranking

Points

Superior

               Platinum

10

Above expectations

               Gold

7,5

At expectations

               Green

5

Below expectations

               Yellow

2,5

Unacceptable

                Red

0

Source: adapted after Denton and White, 2000

 

bsc_in_hospitality_industry_592

Source: adapted from Denton and White, 2000

 

Results Achieved

Two years from the Balanced Scorecard implementation, White Lodging Services has recorded performance improvement in several areas as follows:

  • Quantitative improvements both in revenue and profitability
  • Greater alignment of strategic objectives
  • Better understanding for the property managers of owners’ long term expectations (Denton and White, 2000)

 

Literature review

Despite the fact that there is an increasing adoption of the Balanced Scorecard concept in the hospitality industry, several research studies show that there still is a long way to go, until registering a wide adoption of the concept in the industry.

 

According with a research study findings performed by McPhail et al (2007), there is limited awareness of the BSC concept amongst hotel managers, the adoption of the Balanced Scorecard in the hotel industry being still limited. The study also suggested that most hotels were using a single measure; % Employee satisfaction, to represent the BSC Learning & Growth perspective which didn’t reflected the intended multifaceted aspects of the dimension.

 

Atkinson and Brown (2001), investigating the state of the performance management use in the UK hotel industry, acknowledge that although the companies in the industry do seem to monitor performance in great detail, with few exceptions, the emphasize is still on traditional financial measures.

 

 In the same line of thought, Kim and Lee (2007) suggest that despite the fact that many companies have tried to apply the BSC concept, quantifying the non financial measures was a big problem. According with their research results, the financial attributes are considered the most important (36%) among the four traditional Balanced Scorecard perspectives, followed by the customer (31%), learning & growth (18%) and internal processes (15%). The same study shows that the most used Key Performance Indicators for the four Perspectives are as follow:

 

Hospitality Industry – Most used Balanced Scorecard KPIs by perspective

Financial

$ Return on Investment (ROI) (7 out of 10 points)

Customer

% Customer retention (6.8 out of 10 points)

Internal processes

% Occupancy rate (6.7 out of 10 points)

Learning & growth

% Employee satisfaction (6.1 out of 10 points)

 Source: Kim and Lee, 2007

References

  • Atkinson, H. & Brown, J., B. (2001), Rethinking performance measures: assessing progress in UK hotels, International Journal of Contemporary Hospitality Management, Vol. 13, No. 3, pp. 128-135.
  • Atkinson, H. (2006), Strategy implementation: a role for the balanced scorecard?, Management Decisions, Vol. 44, No. 10.
  • Denton, A. & White, B. (2000), Implementing a balanced-scorecard approach to managing hotel operations, Cornell Hotel and Restaurant Administration Quarterly, Vol. 41, No. 1, pp. 94-107.
  • Kim, W., G. & Lee, S. (2007), Developing a new hotel performance measurement system: application of the Balanced Scorecard and Fuzzy Analytic Hierarchy Process Model, Proceedings of the First Hospitality and Leisure: Business advances and applied research conference, Lausanne, Switzerland.
  • McPhail, R., Herington, C. & Guilding, C. (2007), Human resource managers’ perceptions of applications merit of the balanced scorecard in hotels.

BSC in practice : By industry

 

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