“An analysis of challenges in introducing performance measurement systems in small and medium scale tourism and leisure industries in Sri Lanka”

 

“An analysis of challenges in introducing performance measurement systems in small and medium scale tourism and leisure industries in Sri Lanka”

ABSTRACT

The objective of this study is to identify and analyze the constraints that small and medium scale hotels of the Sri Lankan leisure industry face in introducing performance measurements systems. This report has been prepared in view of the radical development and growth that has taken place with the end of the three decade long civil war of the country.

With tourism being one of the main sources of foreign revenue generators to the country, the government now aims at positioning the island nation as a top tourist destination in the world. In achieving this, the government has initiated various tourism developmental projects that would enable to cater to the growing tourism demand.

Thus this report prepared aims to identify how to effectively monitor and evaluate the performance of small and medium scale hotels of the Sri Lankan leisure industry. The findings of this study wishes identify and introduce a unique set of performance measures that would be required when measuring the achievement of both financial and non-financial goals. This report also tries to identify the challenges of introducing the same.

This study will be done by selecting a sample size of 100 SLTDA (Sri Lanka Tourism Development Authority) registered two star and unclassified hotels of the Southern and Western provinces of Sri Lanka.

Key words: Performance measurement systems, challenges of introducing performance measures

 

 LITERATURE REVIEW

 

2.1 Introduction

Performance measurement systems were traditionally used by organizations as a control mechanism to achieve its financial goals and objectives. As identified by Ittner and Larcker, 1998, performance measurement systems are critical for long term strategic planning and for the evaluation of achievement of these long term goals. Studies reveal that traditional performance measurement systems were purely focused on financial and quantitative measures and were criticized due to its inability to identify the implications of non financial, qualitative performance measures on an organization’s performance (Fitzgerald and Moon 1996; Ittner and Larcker 1998).

 

2.2 Dependent variable:

“The challenges of introducing performance measures in the tourism industry”

 

2.3 Non-traditional performance measures

Harris and Mongiello 2001, points out that the recent developments and increased competition of the hospitality and leisure industry has given rise to the need to incorporate more effective operational and business decision making activities. As argued by Harris and Mongiello (2001), despite a hotel being thought of as a service, a hotel offers three different types of industrial activities namely Rooms, beverage and food exhibiting different business orientations; hence, calling for a diverse set of performance indicators.

As revealed in several studies it would be most effective to incorporate multi-dimensional performance measures along with performance measurement models for a more comprehensive approach (Kaplan and Nortan, 1992; Fitzgerald et al., 1991; Johnson and Kaplan, 1987).

 

2.4 Challenges

Therefore, it is evident from above that, international hotel companies have now begun to focus their attention on performance measurement and strategic implementations evaluating both financial and non-financial aspects (Evans, 2005).

Despite understanding the role of non-financial performance measures on an organization’s performance, Hussain and Gunasekaran’s, 2002, studies reveal that these non-financial performance indicators do not receive the same degree of emphasis as financial performance indicators and adds on to say that non-financial indicators that are directly contributing towards achieving financial goals are placed greater emphasis than non-financial performance indicators that do not have a direct impact on profitability (Ex: Social and environmental responsibility).

 

2.5 Independent variables:

The overall performance of a hotel firm should not be evaluated purely on financial performance measures as it would not give a holistic view. The overall product offered by a hotel is in the form of a service. Thus, this service rendered is a combination of offering which is in the form of staff service, creation of a unique guest experience, concern towards environment/sustainability whilst building long term relationships with the aim of creating repeat guests. Therefore, a hotel’s offering would meet criteria of brand recognition, sustainability, and new developments whilst understanding the influence of special task forces on the hotels performance.

Therefore, having identified from previous studies that there are internal/external and quantitative/qualitative factors affecting a hotels performance, this study tries to identify the impact of the following independent variables on a hotel’s overall business performance.

 

2.5.1 Impact of Intangible Assets

In identifying non-traditional performance indicators, the study of intangible assets and its impact on business performance is important. As Carmeli and Tishler (2004) argue, intangible assets are more likely to create a competitive advantage than tangible assets. However, the limited recording of intangible assets has become a major hindrance in measuring the true performance of a business (Brooking, 1996; Van Der Meer-Kooistra and zijlstra; 2001). Considering the increased awareness of this aspect, Studies of Cater and Cater, 2009; Cohen and Kaimenakis, 2007; Ittner, 2008; etc has identified that there is a link between intellectual capital and business performance.

In applying the above findings on the tourism industry of the service sector, it is evident that a hotel’s performance is dependent on the degree of customer satisfaction which is based upon a hotel’s efforts in creating a unique guest experience. Considering the nature of service, a hotel’s intangible assets which are in the form of brand name, customer satisfaction (rating), and star rating play a major role in winning a customer.

Fung So et. al; (2013) in their studies states that, from a hotel’s perspective, a strong brand would enhance the property’s market value (O’Neill and Xiao, 2006), financial performance (Kim and Kim, 2005; Kim et al., 2003; Kwun and Oh, 2007), and other key performance indicators such as average room rate, occupancy, revenue, and return on investment (Forgacs, 2003), where, customer’s brand loyalty would be the indicator of brand strategy success. Findings of Fung So et. al; (2013) also reveals that when customers identifies themselves with the brand psychologically, they tend develop a strong  attachment to the brand, that would result in a favorable evaluation of the brand and its offerings.

Considering the above, it is important to identify such variables and assess the challenges these intangible assets will post as a key value driver on a hotels performance.

Finally, the management should keep in mind to identify the ‘key’ intangible resources affecting business performance as all intangible resources do not equally contribute towards high business performance (Walsh et al; 2008) .

 

2.5.2 Influence of environmental and sustainability aspects

 

Environmental and sustainability aspects are the talk of the day with the government imposing new laws and restrictions on industries. Hence this gives rise to the need for a firm to adhere to these laws and restricts which could also benefit a firm in achieving its long term vs. short term goals. For example at the present context a hotel managers performance will be measured not only in terms of the amount of profits achieved but also on the savings achieved in terms of water consumption, the carbon foot print of the resort, waste  management etc.

Hence giving rise to the need to develop performance measures in assessing the above.

Findings of Wadongo et. Al; 2010 revels that, despite performance indicators relating to the community/environment being given less emphasis by hotel firms, these indicators should be considered due to the growing concern for environmental and community impact on an organization’s activities. Studies also revealed that, with the effort towards rating a hotel on eco-tourism and waste management, a hotel firm should also be more conscious of the impact of its business activities on the environment. In observing the recent developments of the tourism industry within the country, a growing trend towards obtaining HACCP and Green globe certifications has been identified, giving rise to a new performance driver, a challenge that every hotel try achieve . Therefore, it is important that hotel firms introduce suitable performance measures to measure the impact of environmental and sustainability aspects on business performance whilst identifying challenges of introducing same.

However Kang et. Al; 2012, states that Not all hoteliers are willing to invest in such green initiatives as they are not convinced if such investments will be financially beneficial. Furthermore, their findings also reveal that there is a positive relationship between the level of environmental concern and willingness to pay a premium for hotels’ green initiatives. Thus, making it important to assess if the target clientele will be willing to pay extra for the green initiatives implemented (Ajzen 1991).

 

2.5.3 Influence of New Technology

 

Similarly, the impact of new technological developments on a business should be evaluated as the effects of this are spread across all sectors irrespective of the nature of business. These radical technological developments have gives rise to new opportunities, which is a challenge that every firm should constantly meet. In view of a hotel, this involves the automation and integration of, reservation systems, front office systems, accounting systems, HR systems etc. Phillips and Louvieris; 2010, states that, digitization should enable quick retrieval of financial and management information that enable greater operational control. Their studies further ads on to say that when digitizing performance measurement systems all systems should be integrated so as to provide a holistic view.

Stemming from above, it is also important for a hotel to understand the use of internet and social media as a platform to reach out to its target and potential customers and as a means of shaping brand image. As per Gretzel and Yoo (2008), three fourths of travelers would consider online consumer reviews when planning out a trip.

For example, studies of Tuominen, 2011; reveal that it is necessary for a hotel to consider the visibility and existence a hotel would receive on the Trip Advisor popularity index as hotel properties are ranked and presented based on the order of the popularity received. The popularity ranking which is purely based on guest reviews would directly influence the purchasing decision of a potential guest.

Self-service technologies are other recent developments within the hospitality and tourism industry. Haemoon Oh et. Al; 2013 defines that; a self-service tourist is a traveler that experiences a wide range of technology applications online and offline, before (information search), during (actual visit) and after the visitation. Haemoon Oh et. Al; 2013 findings further states that tourism operations managers need to understand that some customers desire interaction with the service provider that is very critical in developing a sense of loyalty towards the hotel firm. Their research also identifies the importance of maintaining a right balance in terms of self service technology and staff deployment.         

Considering the above, in the present era of internet and digitization, it is important for a firm in the tourism industry to evaluate the impact of new technology in business performance along with the challenges of implementing same.

 

 

2.5.4 Influence from special task forces (stake holder/ External forces)

 

Similar studies were carried out by Pickworth (1994) in relation to the hotel industry and findings reveals that apart from internal factors, external forces such as political, economical, legal and social/cultural factors also have a direct bearing on hotel productivity and overall performance. Studies of Baker and Riley, 1994; David et al., 1996, Sasse and Richardson, 1996; further identifies that the impact of these external variables on hotel performance should be measured in quantitative measures unique to the industry, rather than on qualitative grounds. Ex: guest nights, bed occupancy, staff to guest ratio etc.

Despite above findings, studies of Kilic and Okumus, 2005; reveals that participating managers of hotel firms did not perceive crises or volatile political and economic conditions as key factors affecting hotel performance. He further adds on to say that, as per studies of Altinay et al. 2000; Clements and Georgiou, 1998, political unrest in Cyprus has been a key barrier towards the development of the Cyprus tourism industry, thus, highlighting the need to evaluate the influence of stakeholder groups on hotel performance.

Imran et al 2014, in their findings state that people develop ‘place attachments’- a positive or negative relationship developed with a place, creating an emotional bond with it (Alam, 2011; Kyle, Mowen, Absher, & Havitz, 2006). Similarly, Lee (2008) states, with users that have positive perceptions about environmental conservation and benefits of tourism, the sustainable use of the environment can be increased. Imran et al 2014 further states that, factors such as ecological understanding, education and knowledge sharing, availability of resources and opportunities, adaptive legislation and regulations, and collaborative planning and management could enhance stakeholders’ perceptions on the environment and help to form policies that can help narrow the ‘knowledge-action-impact gaps’.

Applying above, on a local context, SME hotel firms should identify the influence of religious groups, environmental activists, social groups, customer groups etc on hotel operations, where this gives rise to the need to identify how well a hotel meets with the expectations of these task forces when running a hotel.

 

2.5.5 Attractiveness of the Location

 

The location of a hotel also plays a major role on overall performance. As identified by Newell and Seabrook, 2005; location sub factors have been identified as more important than economic sub factors when making a hotel investment decision. Studies also reveal that site attributes were the second most important sub factors that include factors such as hotel visibility, proximity, infrastructure, convention facilities etc, where these factors are also identified as demand generating facilities. As per Newell and Seabrook, 2005; hotel investors are conscious of geographic diversification to reduce property specific occupancy risk.

In applying the above on a local context, the performance of beach side hotels will be negatively affected during the monsoon season while the performance of hotels in Kandy will be exceptional during the period in which the Kandy Perehara takes place. Similarly for example, a hotel situated in a unique location of historic value would be generating rather consistent results throughout the year than a hotel situated in a relatively less attractive location. In such a situation it would be most appropriate to assessing the performance by comparing against other hotels which are similar in terms of location, nature, size and capacity.

Findings of Cuervo-Cazurra et al 2013, reveals that the total benefits a firm of a particular location achieve will comprise of the location advantage, that arise from the ability to access external resources available and unique to that particular location and scarce elsewhere. Their study further reveals that, location resources would comprise of tangible and intangible assets that are semi-permanently tied to a location that would include educated labor, technological infrastructure, good regulations, network of competitive firms etc. Their findings conclude that location advantage can be developed through the interaction of social actors operating at different levels that often contradict, thus providing with new insights.

 

 

List of References

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Sophia Imran; Khorshed Alam; Narelle Beaumont (2014), Environmental orientations and environmental behaviour: Perceptions of protected area tourism stakeholders, Tourism Management 40 (2014), 290-299.

 

Hao-Chen Huang; Wenyi Chu; Wei-Kang Wang (2007), Strategic Performance Measurement and Value Drivers: Evidence from International Tourist Hotels in an Emerging Economy, Routledge, pp.1111-1127.

 

Álvaro Cuervo-Cazurra; Pablo Martin de Holan; Luis Sanz (2013), Location Advantage: Emergent and guided co-evolutions, Journal of Business Research, pp 508-515.

 

Christopher D. Ittner, David F. Larcker, Marshall W. Meyer (2003), Subjectivity and the Weighting of Performance Measures: Evidence from a Balanced Scorecard, The Accounting Review, pp 725-758.

 

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Hasan Kilic and Fevzi Okumus (2005), Factors influencing productivity in small island hotels- Evidence from Nothern Cyprus, International journal of contemporary hospitality management, pp.315-331.

 

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Pasi Tuominen (2011), The influence of trip- Advisor consumer generated travel reviews on hotel performance, University of Hartfordshire Business School working paper (2011).

 

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