Tourism is a major driver of economic growth and livelihood promotion in the Uttarakhand state of India. The contribution of tourism to the state gross domestic product (GDP) and employment generation is significant. The expansion of tourism inevitably brings about the development of the hotel industry. Hotels must create effective competitive strategies for survival and use a performance measurement system that meets the requirements of a changing environment. Several studies have been conducted to study the rich tourist potential of the state. However, no research studies are available regarding performance measurement practices adopted by hospitality managers in Uttarakhand for measuring the performance of their establishments. The present study examines existing performance measurement practices used by hotel managers that employ the balanced scorecard (BSC) − an innovative and comprehensive performance measurement framework for assessing the performance and progress of hotels in this mountainous state of India. The results indicate that in spite of using measures from different perspectives inherent to the original BSC, hospitality managers are not aware of the concept of BSC in a formal manner. The study reveals that hotels in Uttarakhand still focus on the use of financial measures as compared to non-financial measures for measuring performance. The study supports the link between hotel performance and BSC measures usage.
Keywords:Balanced scorecardperformance measurementhotelUttarakhand
Suggested citation: Kala, D. & Bagri, S.C. (2014). Balanced scorecard usage and performance of hotels: A study from the tourist state of Uttarakhand, India. Asia-Pacific Journal of Innovation in Hospitality and Tourism, 3(2), 153-173.
We have recently had a discussion about showcasing the Balanced Scorecard approach to the hoteliers, specifically the way the strategy can be described and executed using it.
The best way to explain something is to come up with an example! In this case we had an example of generic strategy map for a hotel business, and I’d like to share this example with some comments.
Some important notes before we start:
- Real strategy must be tailor-made according to the needs of the hotel;
- This example can be a base for a strategy analysis, but the end strategy of your hotel will be very different from what you see here;
- This is a top-level scorecard, as you will notice most objectives are general sounding; in your business they need to be cascaded down to the lower organization levels.
- Whatever you do, don’t forget about the cause-and-effect connection, and particularly the connection to the customer value that you create, like those hotel performance hacks that we discussed.
On the top of the “Finance” perspective we have Shareholders Interests. They might be formulated in various ways, as we agreed to discuss here a generic strategy then we can simply use “Profit Growth.”
How a hotel can increase its profits? According to the generic strategies discussed before, a hotel might work on:
- Growing current productivity, which in the case of a hotel might be decreasing the operation costs and optimizing the usage of the resources.
- Increasing revenue, which can actually be achieved by improving current profitability or by developing new sources of revenue.
I would be great to have respective measures that would give us an idea about the inputs and outputs of these goals. For outputs in this example we used two lagging indicators:
- Service Cost per Room which is aligned with “Decreasing costs” objective, and
- Average room rate which is aligned with “Improving current profitability” objective.
Here we’ve done the easiest part of the job finding some lagging indicators, as for leading ones, I believe they need to be defined during strategy discussion between hotel management and their operational partners/employees.
As you can see objectives from the “Finance” perspective as linked to the objectives on the lower levels, so let’s discuss those objective now.
As was explained in the previous article, customers are actually:
- The guests of the hotel and
- Various partners of the hotel.
For example, when we discuss the “Improving profitability” objective by improving customer value, we need to think about two type of customers – hotel guests and partners.
From the view point of hotel guests, high profitability can be achieved by focusing on high-value customers and their needs. We formalize this on the strategy map with the objects “Add and retain high-value customers” and “Room excellence.” Basically, in this way we focus on high-valuecustomers and we need to improve their hotel experience.
From the view point of partners: the generic goal sounds like “Achieve and retain win-win partner relations.” One of the sub-goals might be “Improving hotel’s image on booking websites.”
Respective lagging metrics for these objectives are:
- Booking website score. A score that is based on user opinions that one can take directly from the booking websites.
- Room excellence score, % according to the experts opinion or room quality scorecard.
Two financial objectives – “Decrease costs” and “Develop new revenue sources” are tightly linked with current products and services provided to the hotel guests. That’s where the business genius of your team need to start working, hopefully after a discussion you’ll come up with some strategic hypothesis that you will test in your hotel.
According to the goals discussed before, we can come up with some generic objectives for the “Internal processes” perspective.
- Implementing customer relationship management system (or focusing it on the specific objectives) will help to understand the current value proposition and show you possible ways to improve it.
- Existent room need to be modified according to the established standards. A basic lagging indicator here is the percentage of the rooms according to the quality standards.
- The image of the hotel on booking websites need can be addressed by some brand and quality programs. For example, when cascading this objective to the level of specific manager, we might want to formalize such goals as “Keeping information on booking sites up to date,” “Analyzing customer feedbacks” and so on.
Learning & Growth Perspective
Finally, learning and growth perspective. According to the objectives specified before our goals are to learn:
- What are the expectations of our guests from the room? (remember, we are focusing on those high-value guests)
- What additional service might our guests need?
- What are the factors of high or low scoring on booking websites?
The answers to these questions are not written in some user survey feedback form; these questions are the directions where you might want to focus your search. In some case you will need to improve your business systems in order to be able to answer them.
An example of a strategy hypothesis
Let’s take a small piece of this generic strategy and see where one can use it.
According to the strategy map one of the possibilities to increase revenue is to improve the room quality for high-value customers. In the Learning and Growth perspective we have a focus on the analysis of the guests’ expectations from the room. What is the next step? Bring your team together and start a brainstorming using this strategy map as base for the discussion!
- I’m sure you are communicating with your guests in some way now, but what about those who did not stay in your hotel? You might want to reach those guests who canceled their room reservation for some reason. The idea is not to make them change their mind, but to understand what was the factor of their decision. You might find out that by just adding a cheap coffee machine to the room, you might satisfy several expectations.
This is a hypothesis that you might have. Before implementing it, you might want to check if it is disagree with other goals. For example, if one of the ideas was to open a 24 hour bar downstairs, then this idea with coffee machines in each room might not be the best one.
- You might test it by asking your guests, or by placing some coffee machines into rooms and seeing how this will influence your costs, client scores in the surveys, and feedbacks on the booking websites.
Properly designed measures on the scorecard will tell you if you are on the right track. Make sure you have adequate metrics aligned with your goals.
- For example, a score on the booking website might be a good metric, but if it is not changing that fast; you might want to combine it with asking 2-3 key questions to the guests when they do a check-out.
Balanced Scorecard in Chained-Brand Hotels
Let’s review some famous hotel brands that use Balanced Scorecard. Studies presented by Huckstein and Duboff in 1999 and by Denton and White in 2000 summarized some results of the Balanced Scorecard implementation in Hilton Hotels and Marriott franchisee White Lodging Services. According to these studies Balance Scorecard helped management to focus on both long-term and short-term goals (and respective measures) and identify negative trends before they affected ultimate financial results.
Balanced Scorecard at Marriott International
In the official Marriott’s brochure the Balanced Scorecard is mentioned not only as a tool for “reporting and measurement,” but for “achieving Marriott’s vision.” It is also recognized as a mean to incorporate goals related to the intangible assets.
Although Marriott doesn’t share their Balanced Scorecard with the public, one can deduct some general directions that the company has on it:
- Finance: Shareholders Interests; Cost-effective Business; Efficient Business;
- Customers: Providing High-quality Service; Achieving Customer Satisfaction, Achieving Partners Satisfaction
- Internal business processes: Standardized processes;
- Learning and growth: Motivation and Skill Development of Associates;
From the brochure one can see that their strategy is divided into several strategic schemes, and some of them are mentioned by the authors:
- Marketing excellence. The Marriott’s marketing strategy is focused on finding, attracting, and retaining high-value clients.
- A separate theme is “Strategic Account Management,” the strategy that “deploys a proactive sales effort against top accounts.”
- Operational excellence. As explained in “Operations Planning”, Marriott’s provide each hotel with the resources in the diverse areas, such as room operations, engineering, food and beverage, spa, event management, and quality assurance.
I believe there are a few more themes related to the Construction, Franchise, and the extensive efforts to achieve excellence in management of a multicultural workforce.
Balanced Scorecard and management compensation
In the annual report published in 2004 it was mentioned that the leaders’ compensations is aligned with the balanced scorecard that took into account such factors as associates’ satisfaction, customer satisfaction, and profitability. In the annual report for 2013, scorecard is no longer mentioned as a tool for the calculation of compensation, which is probably now incorporated in “Stock and Cash Incentive Plan.”
Hilton Worldwide Quality Balanced Scorecard and Connie Award
According to the Hilton Worldwide, the Balanced Scorecard is used widely to reward teamwork and achieve customer service excellence. Based on the year-end evaluation best hotels are recognized with Connie Award.
The winners are selected according to:
- Total Quality Scorecard (TQS),
- Loyalty score according to SALT (Satisfaction and Loyalty Tracking)
- The quality assurance (QA) score.
The role of strategy execution software
For this example we used BSC Designer to describe the strategy, formalize objectives, and align metrics with them. In the end of the article you will find a link to download the source project discussed here. Feel free to modify it according to your needs.
Is using the specialized software a must? Well, it is not, but it saves your time and gives a framework for the discussion around the strategy!
- A similar strategy map can be designed in PowerPoint, but it won’t be so easy to maintain it or visualize up-to-date performance indicators on it.
- Metrics and KPIs can be managed in MS Excel, but when one have 15 metrics that are cascaded (multiply 15 by the number of levels) to the different levels, it might be a big challenge to maintain all this in order and be able to use it effectively.
- With professional strategy execution software you can save a lot of time on visualization of the strategy and reporting of the progress. The software gives a framework that is easy to follow.
I invite all professionals from the hospitality industry to ask questions below and share their thoughts.
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