PERFORMANCE EVALUATION IN THE HOSPITALITY INDUSTRY: THE

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PERFORMANCE EVALUATION IN THE HOSPITALITY
 INDUSTRY: THE BALANCED SCORECARD AND BEYOND
                                    Alfred QUINTANO

                                    University of Malta

Abstract : A systematic performance measurement and management system (PMMS)
needs to be in place for the successful achievement of stakeholder objectives and strategy
in the hospitality industry. The paper will focus in particular on the highly competitive
Superior-hotel market category. Global hotel chains in this category, such as Hilton Hotels,
Four Seasons, and Marriott have opted for a Balanced Scorecard (BSC) approach or its
adaptation. In the basic BSC model, a number of Objectives or Key Result Areas (KRAs) are
grouped into four Dimensions, namely the Customer Dimension, the Employee Dimension,
the Internal Process Dimension, and the Financial Dimension. All four Dimensions are
perceived to be equally important or ,,Balanced. Within each Dimension, a manageable
number of Objectives are also deemed to be equally important or ,,Balanced. However, one
would question the applicability of such an assumption.

Keywords : Performance measurement, performance management,                       dimensions,
objectives/key result areas, balanced scorecard, analytic hierarchy process.

1. INTRODUCTION

Performance evaluation at enterprise level implies that a performance measurement and
management system (PMMS) has to be in place for the successful implementation of
Stakeholder Objectives and Strategy in the hospitality industry as in any other enterprise.
Research beyond this introductory paper will focus on the highly competitive superior hotel
category. A good number of ,,independent and ,,chain hotels have opted for a Balanced
Scorecard (BSC) approach or its adaptation. In the basic BSC model, a number of
Objectives (alternatively known as Key Result Areas or Critical Success Factors) are
grouped into four major Dimensions, i.e., the Customer Dimension, the Employee
Dimension, the Internal Process Dimension, and the Financial Dimension. All four
Dimensions are perceived to be equally important or ,,Balanced. Within each Dimension, a
limited number of Objectives/Key Result Areas (KRAs) are also deemed to be all equally
important or ,,Balanced.

The paper will argue that in reality and at any point in time, some Dimensions are more
important than others. Similarly, at any point in time, some Objectives/KRAs are more
important than others, hence at both levels there arises the need for ,,prioritisation by means
of a merger of BSC tenets and a ranking method, such as the Analytic Hierarchy Process
(AHP). The paper will postulate therefore that a merger of basic BSC tenets and Analytic
Hierarchy Process (AHP) method could be a better way forward in Hospitality industry
performance evaluation. Subsequent research will be directed at exploring whether
management, by means of a hybrid BSC/AHP methodology reaps better results than either
of them used separately.


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Also, the need arises to question whether the Dimensions and Objectives/KRAs identified by
management (supply side) in reality reflect what the hotel guests (demand side) consider to
be critical to their actual and post-consumption satisfaction.

Bain & Companys report "Management Tools and Trends", surveys executives at
companies of varying size around the world. In the report released on 1st May, 2009 (Bain &
Company, 2009), the BSC ranked high in both usage and satisfaction, actually improving in
both categories since the previous report.

Of the twenty-five management tools considered in the survey, the BSC ranked 6th in usage
and 8th in terms of satisfaction. The top four tools (Benchmarking, Strategic Planning,
Mission and Vision Statements, and CRM) also happen to be prime movers in Strategic
Planning. Moreover, the BSC is used heavily throughout the world with, according to Bain &
Company, a full 49% - 56% of all companies surveyed using the BSC with a global spread.
The report also highlights that the heaviest use of the BSC is among large corporations with
turnover in excess of USD 2 billion per annum. The tourism and hospitality industries are
characterised by SMEs and it therefore follows that only large hospitality chains, such as
Hilton and Accor, use the BSC or variations thereof, whereas smaller enterprises tend to be
run and operate mostly on impulse or ,,management/owner experience. This is not to say
that stand-alone SMEs or ,,owner-managed enterprises do not stand to benefit from a
straight forward and tested PMMS such as the basic BSC.

It is hereby contended, however, that for a better way forward, greater emphasis on ranking
and prioritisation must be brought into play at all stages of the BSC process. In this paper
the author argues two important points. Namely, i) that some Objectives/KRAs are more
important than others, hence the need for prioritisation by means of the merger of BSC
tenets and AHP principles, and ii) that the need arises to question whether the
Objectives/KRAs identified by the management team (supply side) in reality reflect what the
consumer (demand side) expects. In the case of a hotel operation, do the Objectives/KRAs
that find themselves in the four (or more) Dimensions of the BSC actually mirror the
expectations of the hotel guests and, indeed, the employees that make the experience
possible ? Indeed, before the roll-out of a BSC application, are the Supply-side and the
Demand-side objectives/expectations confronted in practice ?

2. PERFORMANCE EVALUATION

At any point in time, enterprise management requires that managers know how they, as a
team, are performing in relation to the achievement of the enterprise Strategy. In its
elementary form Strategy is the road map leading to the fulfilment of set Stakeholder
Objectives within a short to medium term timeframe. Evaluation involves two main
consequential tasks. These are Performance Measurement and Performance Management.

Performance measurement in any sphere is an information gathering process. On its own it
has very limited merit and only achieves credit when aligned with performance evaluation
and management. Indeed there can be no change management without a modicum of
information as to performance information in basis period and, ideally, a targeted
performance in a future time period. The dictum that "If you cant measure it, you cant
manage it" remains true today as it did when first propounded by Frederick Taylor (1911)
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nearly a century ago in what we still know as "Scientific Management". Even then, the theory
was attacked on ethical grounds, in particular by industrial psychologists (March, et al.,
1958) as they saw it as an affront to the human spirit and believed instead that allowing free
rein to human initiative produced far superior results. Trade unions traditionally distrusted
and opposed performance measurement in the work environment from their own ethical
perspective and saw it as ,,an instrument in the hands of the slave drivers. (March, et al.,
1958). Till this very day, however, it is considered that the ,,modern writings of the likes of
Michael Porter (1985) and Michael Hammer (1993), with their focus on breaking businesses
down into measureable (and consequently controllable) value-adding activities, to have more
than a faint genesis in Taylors ,,scientific management.

The most quoted performance measurement definition is Neely et al.s (2002, p.13) as "the
process of quantifying the efficiency and effectiveness of past actions". Max Moullin (2004,
p. 181) is critical of this definition and suggests "evaluating how well organizations are
managed and the value they deliver for customers and other stakeholders". Moullins
definition seems rather restrictive and it is no wonder that Neely et al.s definition has
withstood the test of time. Moullin (op.cit.) over extends the meaning of ,,quantifying to
,,evaluating because the latter implies interpretation and analysis already at the information
gathering stage. Interpretation and analysis are pure management functions and Moullin
blurs the clear distinction that needs to be made between performance measurement and
performance management. Given a propensity to keep things simple, it may be suggested
that, at the end of the day, performance measurement is information gathering.

According to Harbour (1997), "Performance measurement is the process of measuring work
accomplishments and output, as well as measuring in-process parameters that affect work
output and accomplishments." This is restrictive. It limits the field to in-house, in-production,
readings without taking cognizance of the fact that there are other, sometimes critically
important influences on performance that are outside of, and sometimes exogenous to, the
,,internal business process. A case in point is measuring customer satisfaction, an outside
measure that should influence and be influenced by internal processes. In fairness, the
author of this tiny ,,how to handbook, does go on to give clear meaning to information
gathering and in particular the relevance of SMART (i.e., specific, measureable, action-
oriented, relevant, and timely).

Kaplan and Norton (1996b) provide their own set of guidelines for the design of performance
measurement systems that would lead to performance excellence in todays highly turbulent
and competitive business environment. These guidelines are :

           1. Measures must be organization-specific  that is linked to the organizations
              strategy.
           2. Multiple measures  internal and external, financial and non-financial
              measures, performance drivers and outcome measures  should be used to
              achieve balance in perspective, and to communicate the causal relationships
              for achieving business success.
           3. Measures should be user-friendly  they must be simple, easy to use, and
              available promptly.
           4. Measures at different levels of the hierarchy must be aligned and integrated
              across an organizations functions.

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           5. Employees must be involved in formulating strategies and help in identifying
              the appropriate performance measures.
           6. The organizations infrastructure must encourage the desired behaviour and
              support the operation of the measurement system.
           7. Effectiveness of the system and its contribution to overall organizational
              performance are reviewed periodically in order to allow changes and
              improvements to be made where and when necessary.

Performance Management, on the other hand, is defined in the landmark text by Armstrong
and Baron (2004) as 'a process which contributes to the effective management of individuals
and teams in order to achieve high levels of organisational performance. As such, it
promotes the shared understanding of what is to be achieved and an approach to leading
and developing people which will ensure that it is achieved'. They go on to stress that it is 'a
strategy which relates to every activity of the organisation set in the context of its human
resource policies, culture, style and communications systems.

One appreciates that this classical definition of performance management is grounded too
deeply in the humanistic or management-by-people approach whereas a systems approach
would perhaps be more conducive to an objective appraisal of enterprise health by means of
performance measurement that feed into systems that almost automatically ignite Tactical
Actions that keep the enterprise on course just as the booster rockets place a satellite into
earth orbit or de-orbit almost without human intervention according to a pre-fed flight-plan.

Armstrong and Baron (2004) stress that, at its best, performance management is a tool to
ensure that managers manage effectively and that they ensure the people or teams they
manage:

            know and understand what is expected of them
            have the skills and ability to deliver on these expectations
            are supported by the organisation to develop the capacity to meet these
            expectations and are given feedback on their performance
            have the opportunity to discuss and contribute to individual and team aims and
            objectives.

So performance management is about establishing a culture in which individuals and groups
take responsibility for the continuous improvement of business processes and of their own
skills, behaviour and contributions. It is about sharing expectations. Managers can clarify
what they expect individual and teams to achieve. Likewise, individuals and teams can
communicate their expectations of how they should be managed and what they need to do
their jobs. It follows that performance management is about interrelationships and about
improving the quality of relationships - between managers and individuals, between
managers and teams, between members of teams and so on, and is therefore a joint
process. It is also about planning, that is, defining expectations expressed as objectives and
in business plans. It is also about measurement. It should apply to all employees, not just
managers, and to teams as much as individuals. It is a continuous process, not a one-off
event. Last but not least, it is holistic and should pervade every aspect of running an
organisation. (Cannell, 2007).



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3. ALTERNATIVE PERFORMANCE EVALUATION SYSTEMS IN HOSPITALITY

The Balanced Scorecard model (Kaplan & Norton, 1992) is one of a number of Performance
Measurement and Management tools used in the hospitality industry in order to execute
Strategy. A measure of the success in its implementation can be said to be its ever
increasing popularity having been pioneered by Hilton Hotels in 1994. (Phillips and Louvieris,
2005). It has certainly gained in width but one could argue not in depth. Another successful
PMMS used in the global hospitality industry is Six Sigma which, amongst others, is
extensively used by Starwood Hotels (a global chain that includes a number of brands such
as St. Regis, Sheraton, Le Meridien, Westin, Four Points and W Hotels). As a matter of fact,
one notes a gap in the academic literature in connection with the use of Six Sigma in the
hospitality industry.

The literature, however, contains interesting testimony to alternative approaches to
performance evaluation in the hospitality industry.

Paul Phillips (1999) proposed a ,,contingency approach claiming that (at least until that time)
there had "unfortunately been a paucity of hospitality related research to assess the
appropriateness of existing hotel performance evaluation systems in use". His paper
speculated that competitive advantage can be achieved using a ,,contingency approach if
inputs, processes, outputs, markets, environmental characteristics are congruent with
business objectives. Same author in later years gave us a wealth of literature on the
application of the BSC in hospitality.

In the same year, to be precise in the same journal issue, Geoff Southern (1999) suggested
a ,,systems approach to performance evaluation in hospitality at an operational level.
Systems concepts and techniques are applied in a hotel situation to describe and analyse
influences between subsystems. "An operations management analysis framework is then
used to consider the design of operating systems with specific reference to performance
measures which drive and support an organisations competitive stance based on
competitive factors".

Anderson et al. (1999) came up with a ,,stochastic frontier approach to performance
evaluation in the hotel industry with particular reference to managerial efficiency levels. The
procedure allowed a manager to determine if the optimal amount of resources have been
employed given the revenues achieved. Any resources employed in excess of the optimal
quantity are denoted as a deviation from efficiency or X-inefficiences. The model is based on
"cost X-efficiency (which) requires achieving the lowest possible cost, given current prices
and firm output. In determining the efficiency level for hotels, this study uses a stochastic
cost frontier approach". This is considered restrictive and uni-dimensional compared to multi-
dimensional approaches such as the BSC.

At a similar operational level, albeit many years later, Sharma and Christie (2009) propose
"performance assessment using Value-Chain Analysis". The authors base their research on
the "growing hospitality and related service industries in the Mozambique where its
government is emphasizing hospitality and tourism as leading sources of economic growth,
diversification and poverty alleviation". The authors use value chain analysis to evaluate the
sequential chain of primary and support activities and in the process identifying key

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