“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
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.
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