Balanced Scorecard Method Performance Measurement

Balanced Scorecard Method Performance Measurement for Small-Sized Hotel: a Balanced Scorecard Approach The balanced scorecard approach to the measurement of company performance is gaining popularity. This approach takes into account financial and non-financial aspects of company performance. This research explores the application of the balanced scorecard approach to a small-sized hotel chain in China. The study uses a case-study approach due to the uniqueness of every situation. The results of the study demonstrate that although, profit margins are thin, the hotel is stable and set for long-term growth.

Case Analysis Performance Measurement for Small-sized Hotel: a Balanced Scorecard Approach Introduction The balanced scorecard is quickly becoming one of the most widely used strategic management system in the business community. The brainchild of Drs. Robert Kaplan and David Norton, this performance metric can be applied a variety of situations and institutions, both large and small (Balanced Scorecard Institute 2009). This performance measurement system recognizes that a company is more than its bottom line. There are many factors that do not appear on the balance sheet that constitute a company's performance.

The balanced scorecard approach takes these factors into account, providing a better over-all picture of the company. This research will explore the application of the balanced scorecard method to a small hotel in China. It will use a case analysis approach to the research and will provide recommendations for the performance of the hotel, based on the balanced scorecard analysis.

1.1 Background The history of the balanced scorecard approach dates back to the 1950s and the work of the General Electric Company for the development of a more accurate performance measurement system (Balanced Scorecard Institute 2009). However, the term "Balanced Scorecard" was not coined until the 1990s. This approach represents a the full spectrum of strategic planning and management.

Even in its maturity, the balanced scorecard approach continues to undergo changes in its framework that take it from a passive, broad document, to one that can be put into action on a daily basis within the organization. One of the key criticisms of the earlier versions of the balanced scorecard system was that it was too broad to be put into action, it was visionary and goal oriented, but the language was too general to produce real-world results (Balanced Scorecard Institute 2009).

More recently, the manner in which the balanced scorecard approach is applied has changed, transforming it into a system that produces real results that are consistent with the goals and expectations of the company (Balanced Scorecard Institute 2009). Clarification of company vision and goals is the hallmark of the balanced scorecard approach. Prior to the balanced scorecard approach, metrics could measure company performance, but they gave no clues as to how to resolve issues, or how to improve performance.

The new balanced scorecard approach provides not only a philosophical overview of the company, but results in a plan of action that can be used to develop a plan that can be used in daily management tasks that will result in the company achieving its strategic goals. A review of the literature reveals that the most common type of research into the balanced scorecard method is the case study that allows the researcher to examine the method in light of its strengths and weaknesses in a particular business setting.

The focus of this research is to examine how the balanced scorecard approach can be applied to small hotels in China. In order to accomplish this task we will examine the overall travel and tourism industry in China, as well as the specific conditions that apply to the hotel in question. The hotel chosen for this study is the Commercial Center Hotel near Jingbo Lake, a natural volcanic tourist site. The Hotel is situated close this world famous tourist attraction near Ning'an City.

It is located in Heilongjiang Province, an area rich in tourist attractions. Commercial Center Hotel is only one of three hotels in the city of Ning'an City. Yet, despite the rich opportunity that lays in area tourism resources, performance of the hotel has only been minimal at best. This research will use the balanced scorecard method to assess the strategic position of the hotel, allowing it to capitalize on the rich tourism industry of the area.

This research will demonstrate how the balanced scorecard method can be applied to small-sized hotels in China. 1.2 Statement of the Problem Although this research will only use a single case study, the results will demonstrate how the balanced scorecard method can be used in other small-sized hotels in China. It will examine the problem of how to apply the balanced scorecard method to the hotel industry in general and also how to apply it to small-sized hotels that are similar to the Commercial Center Hotel.

The balanced scorecard method is highly subjective and it can be difficult to determine how to apply it in every situation. This research will explore the problem of how to apply the balanced scorecard method to small-sized hotels in China. 1.2 Variable Definitions This research study differs from the traditional research format where one has dependent and independent variables.

Such a strategy would not be likely to answer the research questions in such a way that the results could be applied to other situations that are similar to the one being studied. In this research study, the dependent and independent variables are difficult to isolate due to the subjective nature of the balanced scorecard method and the specific conditions that apply to the hotel in question.

Cast study analysis will provide the most accurate picture of how the balanced scorecard analysis can be applied to small hotels in China, This method will differ from the traditional experimental design, but will provide the best means to answer the research question. This is the most common method found in academic literature for study of the balanced scorecard method and is the most appropriate method for this research study as well.

1.3 Purpose of the Study The purpose of the study is to determine how the balances scorecard metrics methodology can be applied to small sized hotels in China. The study will focus on one particular hotel chain, but the results can be applied to other small hotel chains throughout China. The primary objective of the study will be to develop a method for applying this method to other small hotels in China, making them more competitive and sustainable in the future.

1.4 Hypothesis There are several potential hypotheses that could be answered using this research methodology. The first is whether the balanced scorecard method could be applied to small hotels in China. However, this question can be answered by an examination of the balanced scorecard method itself. The balanced scorecard method is highly malleable and can be adapted for use in almost any business setting. It is general enough to be able to be transformed in any business situation.

Rather than focusing on the obvious, this research will focus on the advantages and disadvantages of using the balanced scorecard method to study small hotels in China. The study will examine the following hypotheses, as they relate to this research study. H1: The balanced scorecard metrics methodology will be shown to be superior to traditional financial-based system in the assessment of Commercial Center Hotel in Ning'an City, China. H2: The balanced scorecard approach to metrics will prove to be easily applied to other small-sized hotels throughout China.

H3: The balanced scorecard approach will result in a decided competitive advantage over financially-based metrics systems for the Commercial Center Hotel. These three hypotheses will form the key guidance for the research study. They will serve as the central focus of the research and are directly related to the research goals and objectives. 1.5 Research Questions The research hypotheses will form the key questions and problems that will be addressed in this research study.

However, the extent of knowledge to be gained by this study does not end with these central questions and issues. The study will address many issues regarding both use of the balance scorecard method and how it can be applied to the small sized hotel industry in China. The following research questions will be addressed, in addition to the hypotheses previously mentioned. 1. What are the advantages and disadvantages of using the balanced scorecard method to assess small hotels in China? 2.

How can the balanced scorecard approach give small hotels a competitive advantage over other metrics methods? 3. Does the balanced scorecard method provide a means to address specific needs for small sized hotels in China? Other questions may arise throughout the course of the research that apply to both the Commercial Center Hotel and other small-sized hotels in China. Many of these cannot be foreseen until the case study is underway. These additional questions will be addressed as needed.

They will provide valuable insight into the three main research questions and will add depth to the knowledge obtained in this study. 1.6 Significance of the Study The literature review revealed that a vast number of studies has been conducted on the use of the balanced scorecard methodology in a variety of business settings. However, none was found that centered on small hotels in China. This research add to the existing body of research by providing an assessment of the balanced scorecard method in this special business setting.

The information obtained by this study will help to make small hotels in China more competitive and able to compete well into the future. This research will play an important role in the development of the small hotel business in China in several important ways. It will help them to see what areas of their business need improvement, it will help them to pinpoint specific problems within their organization. It will help to bring weakness from obscurity into the forefront where solutions can be found.

It will also show them their strengths and the area that could be developed for even greater prosperity in the future. This research will help small hotels to develop long-term vision and goals that will drive them to greater success in the future. 1.7 Conclusion The business environment in China has been changing rapidly as a result of economic reform. As the Chinese attempt to move into a competitive position in the global marketplace, both large and small businesses will benefit.

However, in order to be competitive on an individual basis, companies will have to make certain that their business practices are ready to make the move into the global economy. The Commercial Center Hotel may be a small business entity, but it is located near a world-scale tourist attraction. It is important for the hotel to capitalize on its strengths and to minimize its weaknesses. The balanced scorecard perspective will give the company the knowledge that it needs to put a plan into action.

Through reading this case analysis, other similar hotels will also gain the knowledge that they need to conduct their own assessment. This research is a small part of the overall scenario of economic growth that currently characterizes China. This research will take a qualitative approach due to the subjectivity of the balanced scorecard method and the individual circumstances surrounding the Commercial Center Hotel. This research method will provide the flexibility needed to address any issues that may arise during the research procedure.

This approach is similar to that used by other studies researching application of the balanced scorecard approach to business metrics in other areas and industries. This research methodology has proven successful in similar studies in numerous studies in a variety of business settings. Chapter 2: Literature Review The balanced scorecard approach offers companies the ability to see many things that are not included in traditional financial metrics. Much has been written about the balanced scorecard method in recent literature.

However, one of the difficulties in a thing this literature to a case study is that every situation is unique. The balanced scorecard method allows for the amount of flexibility needed to the applicable in these many unique situations. This characteristic of the balanced scorecard method makes it difficult to apply the findings of one study to the current situation. Another difficulty with using findings from previous literature regarding the balanced scorecard method is that the subjectivity of the method does not lend itself to traditional research methods.

The following literature review will provide information on the balanced scorecard method and the business environment in which it will be applied in this research study. 2.1 Understanding the Balanced Scorecard Method The first step in applying the balanced scorecard method to a case study is to understand not only what it involves, but also its limitations and abilities. The balanced scorecard method retains many of the traditional financial methods found in other systems.

However, one must understand that traditional financial measures were developed during the height of the industrial age (Balanced Scorecard Institute 2009). This age represents a different philosophy then exists in today's business environment. At the time when these measures were developed customer relationships were not critical success of the organization. The only factors that were of importance were those that told a story of how past investments would perform in the future (Balanced Scorecard Institute 2009). The technology of today has changed the way in which companies manage their assets.

The relationship between customers, suppliers, employees, business processes and procedures, and innovation cannot be ignored in terms measurement and strategic analysis (Balanced Scorecard Institute 2009). This is the key reason for the popularity of the balanced scorecard method. It is much more suited for today's business environment and methods that relied on financials only. The balanced scorecard method suggests that businesses be viewed using four different perspectives that embody different aspects of today's business environment. The four perspectives are financial, internal business processes, learning and growth, and the customer.

All four of these aspects are interrelated and must be considered in light of all of the other aspects of the business. The following figure represents the relationships between the four aspects of the balanced scorecard approach. Balanced Scorecard Approach Fig. 1. source: Business and Strategy Insight for You. 2009. [Online]. Available at: http://strategy-insight.blogspot.com/2008/12/balanced-scorecards-case-study-in.html The financial perspective is given the least amount of attention in the balanced scorecard method. In older measurement systems the financial perspective was practically the only consideration.

Financials are still important using the balanced scorecard method, but they do not take precedence over the other aspects of the business (Balanced Scorecard Institute 2009). They are considered in relation to these other characteristics. Technology makes processing of financial data much easier than it was in the past. This part of the scorecard takes the amount of effort to complete that it did in the past. Financial reporting no longer stops but the bottom line.

It now includes areas such as risk assessment and cost-benefit data as well as traditional assets and liabilities (Balanced Scorecard Institute 2009). Financial data now gives a much more rounded perspective of the ability of the company to succeed than it did in the past. The learning and growth perspective of the balanced scorecard includes employee training and organizational cultural aspects that may benefit or harm the future performance of the company (Balanced Scorecard Institute 2009). People are now considered a viable asset of the company.

It is recognized that they bring to the company a library of past knowledge and experience that can be used to help the company grow a competitive advantage. The balanced scorecard method provides a means to measure how individual knowledge benefits the company in contributes to performance of the organization. Although measurement of learning and growth does not supersede financial performance, it is now considered just as important, lest the scorecard becomes "unbalanced." The business process perspective of the balanced scorecard refers to internal business processes.

It lets managers know whether their products are conforming to custom expectations or whether they need to change how they are doing their business. This metric helps keep the business in line with goals and visions set forth in the strategic plan (Balanced Scorecard Institute 2009). The customer's perspective is the fourth aspect of the balanced scorecard approach. This perspective as a result of recent management philosophy changes that reflects the realization that the customer's satisfaction must come first (Balanced Scorecard Institute 2009).

Managers knew this inherently in the past, but they had no means to measure it or to include it in their business strategy. The most recent rendition of this recognition is the development of metrics, such as customer satisfaction surveys (Balanced Scorecard Institute 2009). These metrics provide the company a means to quantify customer satisfaction. The central philosophy of the balanced scorecard method is that all of these aspects must be in balance in order to maximize company performance.

If one of these aspects is out of balance, then the entire scorecard is also out of balance. The balanced scorecard method gives the company a means to identify problem areas and to developing means to fix them. Strategic mapping is used in the balanced scorecard method as a communication tool that connects company's strategy with goals and objectives (Balanced Scorecard Institute 2009). Strategic mapping is one of the most important tools used in the balanced scorecard method.

The balanced scorecard system has resulted in the development the various software packages that help to implement the balanced scorecard system. However, understanding the balanced scorecard system goes beyond using software. Software can help to automate the balanced scorecard system, but to implement the key concepts of the strategy, one must be able to integrate this knowledge and to apply it to daily business operations.

The balanced scorecard system goes beyond the numbers and this is what makes it one of the most valuable metrics available to businesses today, but it is also the aspect that makes it one of the most difficult systems to apply in a real world situations. Applying the balanced scorecard involves a combination of techniques that have been developed throughout the business world. It involves SWOT analysis and strategic mapping as key techniques.

2.2 Academic Research and the Balanced Scorecard Much of the earlier literature on the balanced scorecard method focused on the advantages of using this approach an over more traditional financial measurement methods. Early literature, much of which was written during the 1990s, focused on how to apply the balanced scorecard method to a variety of business situations. Since that time literature has consisted mainly of case studies regarding companies that use the balanced scorecard method.

These case studies do not provide definitive quantitative statistics regarding use of the balanced scorecard method, but they do provide examples of how to apply the method and the results that can be obtained. These case studies serve as a guide to applying the balances scorecard method to a number of research settings. It is difficulty to quantify many of the qualities addressed by the balanced scorecard approach. Unlike strictly financial metrics, the balanced scorecard approach is not easily described using quantitative methods.

Many of the studies that were located in the literature review used a quantitative method or case study. Although the sample population for a case study only involves a single sample, it is the only manner that can clearly address the uniqueness of the business in terms of how to apply the balanced scorecard approach. The balanced scorecard approach has been applied to almost every part of the business cycle.

It has been used to address only a portion of the business entity, such as supply and distribution chain issues (Zimmerman & Seuring, 2009). The Balanced Scorecard Approach and be applied as an interactive tool that provides a means to better manage changing resources, such as with the case of Changi General Hospital in Singapore (Qudrat-Ullah, Chow, & Goh, 2007, pp. 230-237). One of the most applicable studies found in relation to this research involved a three-year longitudinal study where the balanced scorecard approach was applied to the organization.

This study was similar to the research conducted in this study, only the time span was for a longer period of time. In this case study, it was found that an organization may be forced to make an exit strategy for a profitable product in order to achieve balanced scorecard metrics (Phillips, 2007, pp. 2064-2069). This case demonstrated that reliance on the balanced scorecard approach could lead to poor financial decisions, if proper strategic control is not enforced.

The balanced scorecard is only one example of the metrics that can be used to guide business decisions. The balanced scorecard, or any other metric for that matter, cannot replace managerial common sense. The importance of developing an appropriate strategy cannot be overemphasized when using the balanced scorecard method (Kaplan and Norton, 2001, pp. 147-160; Kaplan and Norton, 2004; Kaplan and Norton, 2005 pp. 59-60). When appropriate strategic goals have been developed, the balanced scorecard approach is considered to be a reliable instrument for making capital investment decisions (Lyons, Gumbus, and Bellhouse, 2003, pp.

34-38). 2.3 Choosing the most appropriate measure Balanced Scorecard is not the only nonfinancial metric available. Other measures include Economic Value Added (EVA) and trading stocks. Choosing the appropriate metric is the key to using nonfinancial measures to boost company performance (Jalbert and Landry, 2003). EVA, trading stocks, and balanced scorecard all have their strengths and weaknesses which gives them an advantage in different business situations.

For instance, according to the authors, EVA is much more suited to small businesses, as opposed to tracking stocks, which is more appropriate for larger firms (Jalbert and Landry, 2003, pp. 32-41). According to these authors the balanced scorecard approach is good for both long and short-term decisions, as well as for any size of company (Jalbert and Landry, 2003, pp. 32-41). This was one of the key reasons for choosing this metrics approach for this study. The authors provide the following decision tree for making an appropriate choice of measure. Fig. 2.

source: Jalbert, T. And S.P. Landry. 2003. Which performance measurement is best for your company? Management Accounting Quarterly (Spring): 32-41. One of the key criticisms of non-financial measures of business performance is that they fail to address issues such as customer loyalty and employee satisfaction (Ittner and Larcker, 2003. pp. 88-95). The Balanced Scorecard Approach is considered to be a boilerplate method, along with other measures, such as Accentrue's Performance Prism, and Scandia's Intellectual Capital Navigator.

One of the general criticisms that has arisen regarding these types of approaches is that they often only address what happened. They fail to address the cause and effect relationships between the measurements and desired outcomes (Ittner and Larcker, 2003. pp. 88-95). Another key criticism of nonfinancial measurements is that they are subject to manipulation, much more so than strictly financial measures (Ittner and Larcker, 2003. pp. 88-95). There is much more room for interpretation and stretching when one uses these types of metrics.

The following represents an extension of the balanced scorecard approach that addresses the issue of causality between the various elements. It goes into more detail than the balanced scorecard approach used by many companies. It demonstrates the flexibility and ability of the balanced scorecard approach to adjust to the individual needs of the companies. Fig. 3. Source: Ittner, C.D. And D.F. Larcker. 2003. Coming up short on nonfinancial performance measurement. Harvard Business Review (November): 88-95.

Ittner and Larcker (2003) found that not accounting for causality was only the first of many mistakes that companies make when using measures such as the balanced scorecard. They also found that of the companies that developed causal models, only 21% bothered to validate the linkages found with the model. They also found that many of the companies failed to set the correct performance targets. Nonfinancial targets do not always translate into financial outcomes. Ittner and Larcker also found that many of the companies surveyed were measuring their metrics incorrectly.

Although the balanced scorecard and other similar approaches are nonfinancial, the statistical methods used must still reflect statistical validity. Ittner and Larcker made several suggestions to help companies use nonfinancial metrics correctly so that they will yield the needed results and provide valuable information. Their suggestions are as follows. 1. Develop models that show causal relationships 2. Pull together all of the available data. Do not allow isolation to develop where one group refuses to share information with the others. 3.

Turn data into information that can be used and put into action on a daily basis. Numbers alone cannot solve problems, One must get down to what the numbers mean and what they are telling us in order to represent useful information. 4. One must continually refine the model and make certain that it is still appropriate for the business environment. 5. Base one's actions on the findings obtained rather than suppositions 6. Assess the outcomes of the changes to determine if they have produced the correct results.

Norreklet (2003) also questioned the validity of the "score" obtained as an indicator of the company's health. One of the most important points made by this author was that is would be easy to fall into a the trap of a false sense of security if one received a poor score using the balanced scorecard.

Likewise, if one received a low score and then took actions to raise he score, they may be lulled into a sense that they had achieved their goal and no longer needed to continue to strive for improvement. Both of these errors are a serious mistake when one is considering the results of a balanced scorecard analysis. Schonberger (2008) also supports use of caution with metrics such as the balanced scorecard for similar reasons.

As one can see, academic literature provides a solid basis in support of using the balanced scorecard approach as the key metric device for this evaluation. However, there are also critics of the approach who raise some important cautions regarding use of the approach. All of these factors must be taken into consideration in the analysis conducted for this research study. The balanced scorecard approach is the most widely applicable in a variety of business settings.

2.4 Metrics and the Hotel Industry Hotel management is a sector of the travel and tourism industry. It is considered a service industry that depends heavily on maintaining high levels of customer satisfaction in order to continue to drive sales. Much has been studied concern the relevance of data and metrics to actual performance in the hotel industry. The hotel industry is unique in that its produce is intangible. The service aspect of the business represents the product. One cannot separate service and performance in the hotel industry.

This can be compared to a manufacturing setting where the company produces a product. In this case, the product is the most important. Service is important, but it is not the only factor that is considered in building a customer base. It makes sense that different metrics would have to be applied to the hotel industry and that the results would have different implications for the hotel industry than for a manufacturing industry.

Phillips and Sipahioglu (2004) found that in some cases metrics that measured the performance of capital investments were unrelated to hotel performance. The ownership structure of the hotel was found to have a significant impact on staffing and strategic management activities. Sino-Foreign ventures were found to be heavily influenced by the introduction of another culture into the business setting (Wong, Luk, and Li, 2005). There are many factors that can influence the performance and measurement of the performance of hotels in the travel and tourism industry.

It is estimated that use of the balances scorecard method will continue to increase well into the future. Adoption of the balanced scorecard method will involve companies from every business sector. The hotel industry is not exception. However, caution must be advised in adoption of the balanced scorecard method for this industry. There are many pitfalls for the hotel industry that must be avoided, but there are many opportunities to increase sales as well (Doran, Haddad, and Chow, 2002, pp. 33-58).

The Grey model was found to be an accurate means of forecasting for the hotel industry in Taiwan (Wann-Yih, Shih-Wen, and Cheng-Hung, pp. 140). The Grey model was found to accurately predict hotel sales one year in advance. This model is strictly financial. It proved accurate during the period from 1992 to 2005. However, the model failed to take into account many intangible factors that could change the results obtained.

This study was conducted using historical data, while it concluded that the Grey model is an accurate instrument for predicting future performance, one must be cautioned that it only considers a few of the factors that could affect actual performance (Chen and Ting, 2002, pp. 838-861). Unlike the balanced scorecard, the Grey model depends on only a handful of variables, among the many that could affect the outcome.

The Grey model was found to be more useful in the manufacturing sector than in the service sector of the economy (Hsaio and Tasi, 2004, pp. 222-231; Hsu, 2003, pp. 563-574; Hwang and Chang, 2003, pp. 357-369). The adoption of formal human resource practices was found to be a key factor in the success of hotels in Barbados (Alleyne, Doherty, and Greenridge, 2006, pp. 94-109).

This study found that the existence of formal human resource practices was more prevalent in Barbados due to its status as a developing nation than in UK, which has a more developed industry. It is expected that the small sized hotel industry in China would be more comparable to the Barbados model that to the UK model, as the countries are in a similar development stage. Certain aspects of resource management were found to have an effect on hotel success.

Some of these factors carried more weight than others (Galbreath, 2005, pp. 979-987). Function space optimization was found to be a key factor in the management of revenue in the hotel industry (Orkin, 2003), pp. 172-174). A recent study found that using the balanced scorecard approach in the hotel industry resulted in several limitations as a result of a lack of structure to the approach (Evans, 2005, pp. 376-390). The use of managerial accounting systems and market competition had a direct impact on firm performance in Australian hotels (Patiar, a. And Lokoman, 2008, 209-234).

The unstructured approach of the balanced scorecard approach to hotel metrics highlights both the positive and negative aspects of the approach. 2.5 Conclusion The literature review focused on the balanced scorecard method as a metric for the evaluation of many different industries and sectors. It was found to be versatile in its ability to provide valuable data in a number of settings. However, it was also found to have several caveats and pitfalls.

It was found that although the data is useful, it should not be relied upon as a sole source of information for managerial decisions. It is only one of the many tools available for managerial decision-making. The literature review then focused in on the use of the balanced scorecard method in the hotel industry. Many of the studies found the balanced scorecard method to be a reliable instrument for managerial decision-making. The balanced scorecard method was compared to other metrics and their ability to predict future trends in the industry.

Although the Grey model has a proven track record for forecasting, like many financially-based forecasting methods, it fails to consider many factors that are important to the accuracy of the information provided by other metrics. The balanced scorecard method focuses on improving the competitiveness of the hotel, rather than providing an exact means of forecasting. The literature review supports use of the balanced scorecard method as a means to assess the competitive advantage hotels of all sizes.

This method can be used on large and small hotel firms and was found to be valuable in a number of situations and locations. Studies conducted on the balanced scorecard method and the hotel industry took place in a variety of places around the world. However, none were found that addressed the emerging market represented by small hotels in China. This research will examine the usefulness of the balanced scorecard method for use in small hotels in China.

Chapter 3: methodology Many of the research studies found during the literature review used a qualitative approach to the research methodology. The key reason for this was that the balances scorecard approach used both financial and nonfinancial data for its assessment. Information for the balances scorecard is collected from a number of sources, some of which represent the opinions of customers, managers, or employees. Numerical and non-numerical data are used to perform a balanced scorecard assessment. For this reason, a qualitative research design was chosen for conduct of this research study.

The literature review supports both use of the balanced scorecard approach in the hotel industry and the use of a qualitative research design in this research study. 3.1 Study Design The study design will utilize a case study format with only a single sample subject. The study will follow the design of many of the research studies discovered during the literature review.

Instrumentation for the study will involve SWOT analysis, strategic mapping and the other tools used in the balanced scorecard approach, as they are determined to be appropriate for this particular hotel. The sample population will consist of a single hotel, the Commercial Center Hotel, located in Ning'an City near the popular Jingbo Lake. The study design is simple, but is expected to answer the research questions sufficiently. 3.2 Limitations of the Study Several limitations are inherent in any case study.

A case study allows the application of real-world principles and theories to the research setting. It has the advantage in that it represents a real-world example instead of simply theory. The results obtained can be applied to other hotels with similar characteristics to the one being studies. However, the key limitations of this research method are also based on the small sample size. Due to the small sample size of case study analysis, the applicability of the findings to other research settings is often questioned. Every business setting is unique.

One of the key difficulties with this type of research is that it is difficult to standardize the research method or the interpretation of the results. Whether the research results can be applied to another business setting or not depends on the similarities that exist between the hotel that is being studied and the one being used for comparison. The Commercial Center Hotel is similar to many other hotels of this size. However, it is located in a unique district that already has a considerable amount of tourism traffic.

It is expected that the results of the study will be limited to only those hotels that are located in districts that have tourist traffic similar to that of Jingbo Lake. Hotels located in urban centers or in remote rural areas could be compared to Commercial Center Hotel. The following case analysis will examine the details of the balanced scorecard approach to Commercial Center Hotel. Chapter 4: Case Analysis The hotel chosen for this analysis is the Commercial Center Hotel. This facility is a two-star standard hotel. It was established in 1995.

It has 60 rooms, including single rooms, double rooms, and deluxe double rooms. It has one meeting room, as restaurant and small shopping center. The hotel employs approximately 40 employees. It has one general manager, one resident manager, a general service desk manager, and two accountants. The hotel is located in Ning'an City, a small city located near the famous Jingbo volcanic lake. There are only three hotels in the city, which is located in a heavy tourist traffic area.

The hotel has always retained a high revenue base, but has suffered due to rising operational and administrative costs. Although the revenue of the hotel is high, the retained profit of the hotel remains low. Last year their costs were approximately 90,00 pounds, while their profits were only around 40,000 pounds. 2.1 Market Information In order to conduct a balanced scorecard analysis, one must understand the market climate that exists for the business. The following discussion will discuss general economic conditions surrounding the travel and tourism industry in China.

It will then discuss the specific market conditions that affect Commercial Center Hotel. The analysis will include a SWOT analysis and strategic mapping as well. China is host to millions of business travels and tourists every year. According to a recent study, many of them do not require five star accommodations, but are rather satisfied with the budget options available in China. The study found that as long as the accommodations are clean, the customers are satisfied (Shen, 2008).

The tourism industry in China is growing rapidly, thus, the market for hotel accommodations is also growing. The study found that money not spent of deluxe accommodations meant more money left to spend at the tourist destinations themselves (Shen, 2008). Many of the larger chains such as the 7 Days Inn is planning to expand the number of hotels, particularly near high traffic tourist areas (Shen, 2008). However, there are still many opportunities for the small hotel in rural locations that are not attractive to the larger hotel chain.

In 2008, new rules were drafted to help regulate the sector and to assure that even smaller hotels must meet minimal service standards (Shen, 2008). These new rules are both a blessing and a boon for smaller hotels. More government regulation means just that, more paperwork and oversight. However, it also means that consumer confidence is likely to increase due to at least minimal quality assurances. The competitive landscape in the Chinese hotel industry means that many smaller hotels will have to compete with larger chains (Shen, 2008).

This does not mean that the smaller chain is automatically at a disadvantage, they just need to clearly define their target market and make certain that their marketing efforts are directed towards that segment of customer. The hotel industry in China is changing rapidly, with many smaller chains being bought by larger chains. It is a time of reorganization in China's hotel industry and the opportunities for growth are tremendous. However, the competitive environment is also getting tougher as well.

It is time for smaller hotels to take a hard look at their business and to be prepared to make any changes that are necessary in order to survive. 4.2 Creating the Balanced Scorecard There are many ways to construct the balanced scorecard and strategy map. It can be as simple as simply charting them out and distributing them. There are also many software packages available on the market to help with the task.

Regardless of the method used to create the final produce, strategy should be at the center of the process in every case. The strategy should be based on how the organization intends to create value for its shareholders. The first step in developing the strategy map involves clearly defining the company's mission, vision, goals, and values. After consultation with management, the following were determined to represent these items for the Commercial Center Hotel. Mission: to provide a comfortable atmosphere and clean accommodations for travelers in the Jingbo Lake district.

Vision: to ensure that travelers to the area have a pleasant experience while visiting the an area, increasing the likelihood that they will return in the future Goal: To cut operational costs by 30%, while increasing occupancy of the rooms to a minimum of 90% average. Values: To operate with a sense of passion for making a difference to the customer and establishing trust in our facilities and staff. One of he most common mistakes in creating the balanced scorecard is failing to realize the precise differences between these four elements.

The mission typically reflects a purpose greater than the company itself. It summarizes how the company sees itself and how it wishes to be seen by the public. The vision is more internal and relates more closely to company strategy. It sets forth a philosophy that will allow the company to achieve its mission within the community. It defines the relationship between the company and the larger community in which it exists. Goals are specific.

Whereas, the mission and vision provide a general direction for the company and define its purpose, the goal is a means to move in this general direction. A well-written goal is concrete and measurable. One must be able to determine in the end that either the goal was met, or it was not. The goal usually contains some type of numerical marker that can be used as a means to measure success or failure of the company.

A well-written goal is the key to achieving the more abstract aspects of company strategy. Values set parameters for achieving the company goals, vision and mission. These parameters often define the social framework in which the company operates. It is often assumed that the company wishes to operate with integrity and honesty. However, the value statement does more than to state the obvious, it helps to define company culture and the values that will be the driving principles behind every action in the business day.

Values are an integral part of company culture and form the basis for organizational communicative styles, responses of authority and the manner in which all members of the organization will be addressed. These core values will be the driving strategy for the Commercial Center Hotel in the future. Strategy is a continual process and does not stop as soon as the plan is in place. These core values are well written, but they only represent success and improvement when they can be operationalized and put into action every single day.

4.3 SWOT Analysis It is difficult to proceed with planning strategy when one does not know the key strengths and weaknesses of their firm, or the opportunities and threats that may affect their progress. Therefore, the next step in the development of the balanced scorecard for the Commercial Center Hotel will involve a SWOT analysis. 4.3.1 Strengths. One of the greatest strengths of the Commercial Center Hotel is that it ha a high return rate for business travelers and for tourists in the Jingbo Lake area.

It is a relatively new facility and presents a pleasant and home-like atmosphere. It is convenient and has shopping located close-by within walking distance. One of its key strengths is that it has a high rate of repeat customers. 4.3.2 Weaknesses. Although Commercial Center Hotel has many strengths, one of which is its reputation as a quality place to stay, it also has many weaknesses. One of the key weaknesses of the hotel is lack of a web presence and marketing efforts altogether.

When one visits a sight advertising Jingbo Lake and clicks on the hotels link, Commercial Center Hotel does not even come up (Hotels in Harbin, 2000). However, nine other competitors do come up. Flights are available to Mudanjiang, which has plenty of hotel accommodations nearby, but Commercial Center Hotel suffers from a lack of transportation from major population centers, such as Beijing and Shanghai (NEWSGD.com, 2006). It is not known what drives the business of Commercial Center Hotel, but it is certainly not a web presence.

This is a key weakness that translates into a key threat as well. An examination of websites offering hotel accommodations around Jingbo Lake, the major driving tourist attraction of Commercial Center Hotel, not one mention was found of this hotel. This weakness demonstrates a lack of advertising and points to a key area of the balanced scorecard that needs to be addressed. 4.3.3 Opportunities. Two key opportunities exist for Commercial Centre Hotel.

The first is that as China's economy grows, so will the opportunities in every area of the travel an tourism sector. Although ownership of many hotels is changing and the competitive landscape of the future is difficult to determine at this time, the opportunities for growth in the future abound. The general economic conditions in China are favorable to the growth of the travel and tourism industry. The greatest opportunity for Commercial Center Hotel lies in its location in proximity to Jingbo Lake, a volcanic barrier lake (Jingbo Lake, 2000).

Jingbo Lake is a popular location for hiking, boating, fishing and sightseeing (Jingbo Lake, 2000). It is also located very close to the beautiful Diaoshui Lou Waterfall, another popular location. The proximity of Commercial Center Hotel to these attractions offers the greatest opportunity for growth of the hotel industry in this area. This is a proven opportunity, as it has been the key driver of revenue in the past. 4.3.4 Threats. An examination of the key weaknesses of Commercial Center Hotel revealed one of the key threats to their existence as well.

The competitive landscape of China is changing due to economic reforms aimed at rapidly escalating growth opportunities for all Chinese businesses. These reforms are forcing consolidations, and major growth by the giants of the travel and tourism industry. As a result, many smaller fish are in danger of being eaten alive by bigger fish. In order to avoid being eaten by the bigger hotel chains, Commercial Center Hotel will have to increase their advertising efforts.

Much of their business currently consists of local traffic, word of mouth, and the occasional passer by who may happen to be in that area on tour. However, in order to draw a bigger clientele, more advertising is needed. A lack of advertising represents a key threat to the future of Commercial Center Hotel. 4.4 Balanced Scorecard Now we have examined the key strengths, weaknesses, opportunities, and threats that exist for the Commercial Center Hotel. This portion of the analysis revealed may opportunities and threats to the business.

Now we will use the balanced scorecard to evaluate the various aspects of the business in a manner that reflects the current opportunities for growth and the current threats to the hotel's existence in a changing market. The following will examine the various aspects of the balanced scorecard as they relate to the Commercial Center Hotel. 4.4.1 the Learning and Growth Perspective. Since its establishment in 1995, company strategy has changed little. The daily management of the hotel has changed very little since its inception.

Yet, the area around it has changed dramatically, particularly in the amount of tourist traffic available. Revenues have hinged on a steady customer base generated by local advertising through brochures and signage. However, from a learning and growth perspective, very little growth has occurred. Commercial Center Hotel has many opportunities available, but will not be able to achieve he growth that it needs to survive in the future unless some changes are made that create growth opportunities. From a balanced scorecard perspective, this is an area that is lacking considerably.

The new company strategy needs to address the area of learning and growth if it wishes to continue into the future. 4.4.2 Business Processes. Analysis of this portion of the balanced scorecard involved an audit of current business processes. Many of the processes were found to be operating just as they did in 1995. Few changes have been made in the way staff performs their daily operations or in the way managers respond. This is another area that could use some serious updates.

The most profound area in need of reform was the efficiency and speed with which rooms were cleaned and made ready for the next customer. The housekeeping staff was found to be friendly and pleasant. However, during the audit it was discovered that almost every one of them had a different method for cleaning the room. This resulted not only in some inefficiencies speed wise, but also in inconsistencies in quality. Some of the housekeepers were very efficient and did a thorough job.

However, some of them left items undone and had some obvious issues with cleanliness. Consistent methods and standards need to be developed in order to remedy this problem. Another inefficiency that was found was that the staff often complained that they ran out of supplies often. An examination of this problem revealed that this was a result of the process in which supplies were approved and ordered. Supplies had to go through the managerial staff, to the accounting staff, then back to the managerial staff for approval.

This cumbersome structure added days or even weeks to the supply ordering process. The housekeeping staff had absolutely no input into the supply ordering process. This represents another area where the business processes are in need of further development. 4.4.3 Customer Perspective. The rate of repeat customers is a key indication that Commercial Center Hotel is doing something right. The hotel is has an ongoing practice of having customers fill out a survey after their stay to help determine if there are any areas that are in need of severe improvement.

Most of the feedback is positive and reflects that the clients had a pleasant stay. However, some comments have been made about the inconsistent housekeeping issues addressed earlier. The biggest issue from the customer perspective is that they are not aware that the hotel exists. The hotel needs to get the message out that they exist and that they offer an alternative to the more expensive hotels near the airport. They must engage in an active web presence and develop relationships with international travel agents.

This was found to be the biggest threat to their existence in the future and one of the key areas that needs the most attention. 4.4.4 Financials. An audit of the accounting records of the company reveals that the company has a steady revenue stream, but that they have only experienced a minimal growth rate over the past five years. Without continual revenue growth, they have been unable to compensate for rising operational costs. In the past, they have relied on revenue growth that outpaced operational costs.

However, in recent years, this scenario has changed. Economic growth in China has meant that the costs for purchased goods and services has increased as well. In order to succeed in the future, the hotel will have to find a way to experience greater revenue growth in the future. A second aspect to their overall financial picture is that housekeeping inefficiencies result in operational efficiencies. For instance, the time that it takes to clean a room and prepare it for the next guest sometimes creates delays in room availability.

This undoubtedly translates into lost revenue due to frustrated customers who go elsewhere. In addition, when housekeeping is out of supplies, this also creates a delay in room turnover. Operational inefficiencies translate into financial inefficiencies. Changes in the business process, as well as the needed advertising efforts are the key reasons for the lack of revenue growth that is needed to offset rising operational costs. 4.5 Analysis The balanced scorecard method focuses on four key processes of the business environment.

These four areas are financial performance, customer knowledge, internal business processes and learning and growth. In our analysis of Commercial Center Hotel, it was found that problems existed in all four areas of the scorecard. All of these problems were interrelated, which creates a compounding effect on the hotel. The financial problems were found to have their cause elsewhere. For instance, inefficiencies in housekeeping, combined with a lack of appropriate advertising create problems in the business processes.

All of these factors combine to have a negative effect on the company's financial position. An analysis of the balanced scorecard for Commercial Center Hotel reveals that several key problems do exist that could threaten their ability to grow in the future. Although the hotel offers a friendly and comfortable atmosphere, the introduction of several key business processes would lead to greater revenue growth and lower operational costs in the future. This would increase profits and ensure that sufficient operating capital was available in the future for advertising and expansion.

The scorecard indicated that there are improvements that can be made on all levels of the organization, with some more serious than others. Operational inefficiencies and a lack of advertising stood out as the key areas of concern. Overall, the hotel is doing well and enjoys a fairly steady and consistent revenue stream. However, the competitive landscape is changing and the competitors already have the advantage of web advertising.

This gives Commercial Center Hotel's competitors the advantage of being able to reach a larger target audience, capitalizing on an increasing tourist trade in China. The balanced scorecard approach to measurement revealed many things that could not be discovered through financial metrics alone. Financial metrics were the trigger for the need for another tool to measure performance. It was clear from the financials that something needed to be done, only it was not clear just what that something entailed.

In this case, the balanced scorecard approach demonstrated the causal relations between operational inefficiencies and financial inefficiencies. It provided valuable insight that can be used to develop a strategy for improvement in the future. The next step in the process is to create a strategy map that will lead to the development of a process for improving the areas that were found to be lacking using the balanced scorecard. The company mission and vision are a result of the industry in which they operate.

All of the areas of the balanced scorecard should support realization of the vision and mission of the company. When one element of the scorecard is not functioning at its maximum potential, it weakens the ability of the company to achieve their vision and mission. The balanced scorecard method is based on the need to strengthen the central vision and mission of the company. All of the elements of the balanced scorecard should be focused on supporting the central philosophy of the company.

Customers are at the center of the balanced scorecard for the hotel. Every element ultimately focuses on the customer and their role in assuring the future of the company. The balanced scorecard provides a means for graphically representing these relationships. The following is a graphic representation of the balanced scorecard for Commercial Center Hotel. Balanced Scorecard for Commercial Center Hotel 4.6 Strategic Mapping Strategic mapping and the balanced scorecard create an inseparable pair of techniques.

Strategic mapping allows managers to put the ideas on the balanced scorecard into action so that they will result in measurable change for the company. One of the key aspects of the strategic map is that it is dynamic and can be changed in response to any factor that has an influence on the business environment. They can be changed due to reorganization of the business sector, new moves by competition, or factors in the macro environment that will have an impact on the business.

The strategic map represents a set of guidelines that will help the company achieve their goals in a way that is tangible, given the particular business environment at the time. At the current time, the business environment surrounding Commercial Center Hotel is changing rapidly in response to national level economic strategies, changes in the global marketplace, and increasing opportunities for travel and tourism in China. The following strategy map represents the changes that are needed in response to the current market conditions surrounding the hotel.

Strategy Web for Commercial Center Hotel This strategy map demonstrates that the problems at Commercial Center Hotel are all somewhat interconnected. The resolution of housekeeping issues will result in better financial performance and growth. These relationships demonstrate clearly what steps need to be taken in order to resolve the issues that will lead to the fulfillment of the company's growth in the future. The chart shows that the company has not been in a state of decline, but rather, that their position could be described more as one of stagnation.

They have maintained a certain level of business for quite some time. However, as business in the area increased for the region, they remained the same. They failed to realize the potential and growth that was possible in the area. In the world of hotel management, growth is an essential part of stability. Failure to grow means that competitors are gaining an advantage. The findings of the strategic map will be discussed in the Findings and Recommendations portion of this dissertation.

Chapter 5: Findings and Recommendations Throughout the course of this research we have examined a case study involving Commercial Center Hotel in Ning'an City, China. The hotel chain currently faces a dire situation due to macroeconomic forces that are causing a change in the structure of China's travel and tourism industry. The balanced scorecard gives managers an accurate perspective as to how the firm is doing.

The scorecard serves not only as an assessment of the financial indicators that govern, but also of the climate and customer satisfaction characteristics that are important to the success of the hotel in the future. The approach taken in this study was similar to that taken in Denton and White (2000). In this case, strategic mapping showed that the problems at the hotel are all interrelated and that one simple, single solution may be the answer to may of the hotel's worries.

If the hotel addresses the inconsistencies in housekeeping methods, then many of the other problems will go away as well. The steps that need to be taken are now clear using the balanced scorecard method. The hotel needs to develop policies and precise procedures for their housekeeping staff. Then the housekeeping staff needs to be trained so that everyone is aware of the new policies and procedures. This will not resolve all of the problems found using the balanced scorecard approach, but it will eliminate many that are interconnected.

The second action that needs to be taken is to increase targeted advertising. An examination of the hotel's marketing efforts revealed that they are not reaching their maximum potential customer base. They do not have a web presence and are not listed with the online travel agencies that were examined in this study. Unless customers know that they are there, they will not visit. This is a high priority item to correct, particularly in light of the competitive landscape that currently exists.

The primary recommendations that resulted from the balanced scorecard approach at Commercial Center Hotel are easily put into action. Two new policies and procedures need to be developed in order for the hotel to retain its competitive advantage. The first is the development of processes and procedures aimed at increasing the turnover of rooms. Training the staff to follow these procedures will also help to improve the quality and consistency of the rooms that the hotel has to offer.

These little changes will mean big changes in terms of the amount of investment that is retained. The second key recommendation is to develop a less redundant and more efficient means for ordering supplies. At the current time, the housekeeping staff is out of the loop and often find themselves without what they need to do their job more efficiently. Involving the housekeeping staff by having them report low stocking levels of supplies would help to assure that they have what they need when they need it.

This would allow them to adjust their quantities during times that were busier and to avoid an overabundance when tourism is slow. In addition, one entity, either a manager or an accountant needs to be able to make the purchase approval. The current system slows the process down to the point where housekeeping has difficulties performing their job. The findings of this study demonstrate that the balanced scorecard method can be applied to the small sized hotel industry.

The first hypothesis of the research study stated that, the balanced scorecard metrics methodology would be shown to be superior to traditional financial-based system in the assessment of Commercial Center Hotel in Ning'an City, China. Based on the fact that the causes for the crisis could be clearly seen, particularly when viewed using the strategic map. The balanced scorecard method was able to uncover reasons for trends seen in the financials. The solutions to the problems were clear once the right approach was chosen.

The second hypothesis of the research study examined whether the balanced scorecard approach to metrics will prove to be easily applied to other small-sized hotels throughout China. Using the current research methodology, it is difficult to say definitively, as the method was not applied to any other hotel in this study. However, an examination of the processes involved in the development of the balanced scorecard make it apparent that it could be applied to other small to mid-sized hotels.

Of course the results would be quite different from those obtained in the study. The balanced scorecard approach demonstrated a high degree of flexibility, making it easily adaptable to a number of circumstances. The third hypothesis was that the balanced scorecard approach would result in a decided competitive advantage over financially-based metrics systems for the Commercial Center Hotel. In this case study, financially-based metrics revealed that operational problems existed, but they did not reveal anything about the causality behind them.

In this case, financials alone were unable to tell the entire study. It took the balanced scorecard method to pinpoint the problem so that solutions to it could be devised. In addition to the research hypotheses, several research questions were also addressed by the study.

The first research question was, "What are the advantages and disadvantages of using the balanced scorecard method to assess small hotels in China?" The literature review and conduct of this study found that the flexibility of the system is the most important advantage of the system. This led to a high degree of adaptability and the ability to adjust the strategy to meet the needs of individual companies in the hospitali8ty industry.

The second research question asked, "How can the balanced scorecard approach give small hotels a competitive advantage over other metrics methods?" The answer to this question became clear during the course of the research. By revealing the areas that needed to be addressed and helping to point out what they were doing right, the study revealed that they are using metrics in an attempt to understand what their customers want and how they feel about the hotel. This insight was the a.