2. 2 D. Kala and S.C. Bagri
S.C. Bagri is Professor at Centre for Mountain Tourism and Hospitality
Studies, Hemwati Nandan Bahuguna Garhwal Central University, Srinagar
Garhwal, Uttarakhand, India. He carries 34 years of rich experience in the field
of mountain tourism, tourism planning and development, and ecotourism. He
served as Consultant for United Nations World Tourism Organization, Madrid,
University Grants Commission, All India Council for Technical Education,
Indian Council of Social Science Research and GTZ, Government of Germany
on Tourism and Hospitality.
1 Introduction
Performance measurement system is an integral part of the contemporary management
system which provides information to encourage managers to think strategically about
how their activities fit with other parts of the organisation, and also to assist them in
managing their organisations’ operations (Ittner, et al., 2003). Measuring organisational
performance and implementing effective strategies for future success brings in
continuous challenges for organisation due to the complex nature of an organisation
concern and many continuously changing influential forces (Assiri et al., 2006).
Performance measurement has become a part of the necessary requirement for hospitality
organisations to operate successfully and to create competitive advantages in the dynamic
environment. Hotels in India operate in a highly competitive environment as a
consequence of a number of factors such as emergence of new markets, rise in market
demand for, expectations of, in-house facilities, quality of services and products and
value for money, significant increase in hotels’ capacity, a sharp rise in operational costs
and declining profitability in addition to the inflation. These trends require hotels in India
to be more efficient and competitive in meeting the needs of their customers, who are
increasingly growing in sophistication. There is a growing awareness to optimise the
effectiveness of operational and business decision-making activities, such as those
relating to profit, planning, control and continuous improvement, in order to maintain a
competitive edge. The ability of Indian hotel entrepreneurs to adequately respond to these
challenges will determine their long-term success.
Over the past few decades a variety of measurement approaches have emerged in
terms of selecting the optimal financial and non-financial performance measures to
achieve superior quality and better outcomes. Of these generic approaches, balanced
scorecard (BSC) has attracted considerable interest both in practice and theory. BSC is an
adequate evaluation methodology that has been gaining prominence globally and being
adopted by organisations for performance improvement, strategic alignment and
organisational goal achievement (Davis and Albright, 2004; Aravamudhan, 2010). BSC
focuses on financial and non-financial aspects, long-term and short-term strategies, and
internal and external business measures. BSC allows managers to consider all of the
important strategic measures simultaneously, letting them see whether improvement in
one area is achieved at the expense of another (Kaplan and Norton, 1992). The four
perspectives – financial, customer, internal business, and learning and growth perspective
describes the knowledge, skills and systems that employees will need to innovate and to
build the right capabilities and efficiencies that deliver specific value to the market which
3. Designing the strategy map for hotels with key performance indicators 3
will eventually lead to higher shareholder value (Kaplan and Norton, 1996b; Ittner and
Larcker, 1998a).
The BSC approach has attracted much attention of performance management
researchers as a method of integrating financial and non-financial performance measures.
The results of empirical studies of Hoque and James (2000) in Australia, Rigby (2001)
and Ittner et al. (2003) in the USA, Kald and Nilsson (2000) across all the Nordic
countries (Denmark, Finland, Norway and Sweden), Speckbacher et al. (2003) in
Germany, Austria and Switzerland, Cohen et al. (2008) in Germany, the UK and Italy,
Malmi (2001) in Finland, Oliveras and Amat (2002) in Spain, Nielson and Sorenson
(2003) in Denmark, Braam et al. (2004) in Netherlands, Anand et al. (2005),
Aravamudhan (2010) and Farooq and Hussain (2011) in India, Xiong et al. (2008) in
China, Jusoh et al. (2010) in Malaysia, Hendricks et al. (2012) in Canada and Salehi and
Ghorbani (2011), Khani and Ahmadi (2012) and Keshavarz et al. (2014) in Iran reported
the successful application of BSC for measuring and managing organisational
performance. In context of hospitality industry, a number of studies (Huckestein and
Duboff, 1999; Denton and White, 2000; Harris and Mongiello, 2001; Doran et al., 2002;
Banker et al., 2005; Evans, 2005; Haktanir and Harris, 2005; Phillips and Louvieris,
2005; Bergin-Seers and Jago, 2007; Huang et al., 2007; Min et al., 2008; Chand, 2009;
Kim and Lee, 2009; Pavlatos and Paggios, 2009; Ivankovič et al., 2010; Chen et al.,
2011; El-Hindawy and Alamasi, 2014) have acknowledged the successful application of
BSC as a performance measurement system. Incidentally, very few studies have been
carried out in context of Indian hospitality industry.
Most of the BSC related studies have focused mainly on performance measures; only
a few papers have examined the creation of a mechanism that shows causal relationships
between key performance indicators (KPIs) for the purposes of strategy implementation.
To enhance hotel performance, BSC should emphasise upon the incorporation of
effective performance indicators and construction of optimal strategy map for initiating
improvement in organisational performance through logical relationship among
indicators. In the previous studies, almost none of the contributors proposed any
methodology for the construction of strategy maps for hotels; rather, these studies mainly
focus on the generic framework of four BSC perspectives for performance measurement.
Strategy mapping is the most important concept in building BSC framework, since the
strategy map establishes casual or logical linkage among performance measures of BSC
perspectives.
2 Objectives of the study
The present study sets out to outline KPIs in hospitality industry and to propose a modus
operandi to design BSC strategy map for hotels, showing the logical relationship among
performance indicators. The decision making trial and evaluation laboratory
(DEMATEL) method is used as a tool to examine the cause-and-effect relationships
between hospitality performance indicators in order to establish strategy maps. The
objectives of this research are:
4. 4 D. Kala and S.C. Bagri
• to identify appropriate KPIs for the evaluation of performance of hospitality
organisations based on the BSC perspectives
• to use DEMATEL technique to explore the logical relationships among KPIs and to
design the effective and result-oriented strategy map for improving performance of
hospitality organisations
• to provide constructive suggestions for measuring and improving performance of
hospitality organisations for future.
3 Literature review
3.1 Performance measurement
Performance measurement is seen as an important way of keeping a company on track in
achieving the organisation’s objectives and as a monitoring mechanism employed by the
owners of organisation (Ittner and Larcker, 1998b). It is a process of assessing progress
towards achieving pre-determined goals, including information on the efficiency by
which resources are transformed into goods and services, the quality of those outputs and
outcomes, and the effectiveness of organisational operations in terms of their specific
contributions to organisational objectives (Amaratunga and Baldry, 2003). Most
organisations rely exclusively on financial performance measures to assess organisational
performance. Critics have argued that these measures are excessively profit-based
(Brown and McDonnell, 1995), short-term (Denton and White, 2000), unbalanced
(Harris and Mongiello, 2001), unsatisfactory for businesses seeking a competitive
advantage (Evans, 2005; Phillips, 1999), past-oriented (Atkinson and Brown, 2001),
little market-oriented (Phillips and Louvieris, 2005), inadequate for strategic decisions
(Kaplan and Norton, 1992), unable to measure value created, unable to measure
intangible assets (Norreklit, 2000) and non-holistic (Phillips, 1999) and therefore, over
reliance on them is no longer appropriate for today’s managers.
In this information-age, non-financial performance measures are believed to be better
indicators of managerial effort and valuable in evaluating organisational performance
(Kaplan and Norton, 2001c). Non-financial measures of customer, internal processes and
innovation and improvement activities are also believed to be better predictors of
long-term performance and are used to help refocus managers on the future aspects of
their actions (Kaplan et al., 1996b). These measures are more timely and precise than
financial ones, meaningful for continuous improvement, consistent with company goals
and strategies and vary over time as market needs change so tend to be more flexible.
Reliance on non-financial measures does not mean that non-financial measures replace
financial measures. Financial and non-financial measures are not substitutes, but that
non-financial measures are used as additives to financial measures (Govindarajan and
Gupta, 1985). Several research findings in performance management advocate the
relevance of both financial and non-financial measures for balanced performance of hotel
(Fitzgerald et al., 1991; Denton and White, 2000; Harris and Mongiello, 2001; Atkinson
and Brander-Brown, 2001; Evans, 2005; Huang et al., 2007; Wadongo et al., 2010; Chen
et al., 2011).
6. 6 D. Kala and S.C. Bagri
3.2 Key performance indicators
KPIs are selected indicators for monitoring the qualitative or quantitative performance of
strategic objectives, outcomes, or key result area absolutely critical and important to
success and growth of the organisation. The purpose of performance indicators is to
provide to decision makers measurable indicators for measuring organisational
performance, optimum utilisation of resources and achieve main objective of any
organisation – profit maximisation through stakeholders’ satisfaction. The development
and use of KPIs form the basis for the analysis of organisation’s current performance, its
future requirements and improving strategies required for ongoing success. For the
present study, critical and measurable KPIs for hotel performance were identified through
reviewing studies of prominent researchers. Table 1 summarises the indicators of
hospitality performance that have been investigated in several important studies, along
with their main research methodology. These indicators consist of financial and non-
financial measures to have the balanced and comprehensive focus on performance.
The above studies make no attempt in designing strategy map. The map is the
essential part in designing BSC that can assist management in identifying causal
relationships between performance indicators (Kaplan and Norton, 2006). As a result,
there is a need to accurately identify effective financial and non-financial measures for
measuring performance of hospitality organisations and also properly design effective
strategy map to screen logical links between performance measures for making strategic
improvements.
3.3 Strategy map
The cause-and-effect relationship is argued to be the feature that distinguishes BSC from
other kinds of performance measurement frameworks (Kaplan and Norton, 1996b). The
chains of cause-and-effect connect all the performance indicators through four
perspectives of BSC, which reflect dynamically the change of strategies and indicate how
organisation creates its value (Kaplan and Norton, 2006). In particular, the relationship
builds on the assumption that learning and growth measures are the drivers of internal
business process measures. The measures of internal process are in turn the drivers of the
measures of customer perspective, while these measures are the drivers of financial
perspectives. Strategy maps express causal relationships in this sequence. Strategy
mapping is the process of visually making cause and effect relationships between all
possible strategic objectives in organisation. Strategy map is a tool for constructing
linkages between strategic objectives among perspectives of BSC and depicts objectives
in multiple perspectives with their corresponding cause-effect relationship(s). Strategy
maps provide a visual framework and a concise description of organisation’s strategy,
and they can convert intangible assets into tangible outcomes (Banker et al., 2011).
Designing of strategy maps with clearly established logical links, leads to cascade down
the understanding of strategy through the organisation. To construct strategy maps
suitable for the strategy implementation of different institutions, proper performance
indicators must be selected.
7. Designing the strategy map for hotels with key performance indicators 7
As discussed in the review of relevant literature above, most of the past researches
emphasised on more comprehensive performance measurement consisting of four BSC
perspectives with both financial and non-financial indicators for evaluating hotel
performance, but these studies do not consider the construction of strategy maps that
makes up such a crucial part of BSC framework. Therefore, in order to fill the gap of the
existing body of knowledge concerning the hotel performance evaluation, the present
study proposes a systematic approach using DEMATEL method to systemically
incorporate experts’ knowledge in order to identify logical relationships among
performance indicators for a strategy map. It attempts to help management investigate the
complicated cause-effect relationships of performance indicators for building up the
strategy map based on the basic BSC framework in a visual diagram.
4 DEMATEL method
DEMATEL is a sophisticated tool for building and analysing a structural model involving
causal relationships between complex factors (Gabus and Fontela, 1973, 1976).
DEMATEL was developed by the science and human affairs programme of the Battelle
Memorial Institute of Geneva in 1973 and is used to solve the complicated and
intertwined problem group. DEMATEL method can convert the relationship between the
causes and effects of criteria into an intelligible structural model of the system. It is best
suited for strategy map building and design since nature of strategy mapping is structural
modelling (Jassbi et al., 2011). It uses matrix calculations to obtain all the direct and
indirect causal relationships and impact strength. It has been widely accepted as one of
the best tools to solve cause and effect relationship among the evaluation criteria (Wu and
Lee, 2007, Lin and Tzeng, 2009). The digraph, the graphical output, portrays the
contextual relationship (strength and direction of influence) between the elements of
systems. The end result of DEMATEL process is a visual illustration – an individual map
of the mind – by which the organisation organises its actions and strategies. The
procedure of DEMATEL method is discussed below in Figure 1.
Figure 1 The procedure of the DEMATEL technique
Step 1:
Gather expert’s opinion and
calculate the average matrix Z
Step 2:
Calculate the normalised
initial direct-relation matrix D
Step 3:
Derive the total
relation matrix T
Step 4:
Calculate the sums of rows
and column of matrix T
Step 5:
Set the threshold value
(α)
Step 6:
Build a cause and effect
relationship diagram
8. 8 D. Kala and S.C. Bagri
Step 1: Gather experts’ opinion and calculate the average matrix Z
A group of m experts and n factors are used in this step. Each expert is asked to view the
degree of direct influence between two factors based on pair-wise comparison, according
to their own judgment. The degree to which the expert perceived factor i affects the factor
j is denoted as Xij. The integer score ranges from 0 (no influence), 1 (low influence),
2 (medium influence), 3 (high influence), and 4 (very high influence), respectively. For
each expert, an n x n non-negative matrix is constructed as k K
ijX [X ],= where k is the
number of experts participating in evaluation process with 1≤ k ≤ m. Thus, X1
, X2
,
X3
….Xm
are matrices from m experts.
To aggregate all judgments from m experts, the average matrix Z = [zij] is shown below.
m
K
ji iji 1
1
Z X
m =
= ∑ (1)
Step 2: Calculate the normalised initial direct-relation matrix D
The normalised initial direct-relation matrix D = [dij], where value of each element in
matrix D is ranged between [0, 1]. The calculation is shown below.
( )n n
ij ij
j 1 i 1
z
D
max max1 i n z ,max1 i n z
= =
=
≤ ≤ ≤ ≤∑ ∑
(2)
Step 3: Derive the total relation matrix T
The total-influence matrix T is obtained by utilising equation (3), in which, I is an n×n
identity matrix. The element of tij represents the indirect effects that factor i has on factor
j, then the matrix T reflects the total relationship between each pair of factors.
1
T D(I D)−
= − (3)
Step 4: Calculate the sums of rows and columns of matrix T
In the total-influence matrix T, the sum of rows and the sum of columns are represented
by vectors R and C, respectively. Let R be the sum of rows in matrix T. The value of R
indicates both direct and indirect effects, that factor has on other factors. Let C be the
sum of columns in matrix T. The value of (R + C) shows ‘degree of importance’
indicating the strength of influence of both dispatch and receipt. The higher values
(R + C) the factors have, the more related they are. Similarly, the value of (R – C) shows
the ‘severity of influence’, indicating the prioritisation of factors. If (R – C) is positive,
then the factor is a ‘cause-factor’, dispatching the influence to other factors. If (R – C) is
negative, the factor is an ‘effect-factor’, receiving the influence from others. The higher
values (R – C) the factors have, the more influence they have on others, and with this
influence, they are presumed to have higher priority. In other words, the lower value of
(R – C) factors have, the more influence they receive from others, and the lower priority
they are assumed to have.
9. Designing the strategy map for hotels with key performance indicators 9
( )
n
i ijn 1 j 1 n 1
R R t× = ×
⎡ ⎤= =
⎢ ⎥⎣ ⎦∑ (4)
( )
n
j ij1 n i 1 1 n
C C t× = ×
⎡ ⎤= =
⎢ ⎥⎣ ⎦∑ (5)
Step 5: Set a threshold value (α)
The threshold value (α) is computed by the average of the elements in matrix T. This
calculation aims to eliminate some minor effects elements in matrix T. (Yang et al.,
2008).
[ ]
n n
ij
i 1 j 1
t
N
= =
∝ =
∑ ∑ (6
where N is the total number of elements in the matrix T.
Step 6: Build a cause and effect relationship diagram
The cause and effect diagram is constructed by mapping all coordinate sets of
(R+C, R-C) to visualise the complex interrelationships and provide information to
judge as to which are the most important factors and how influence affected factors
(Shieh et al., 2010). The factors where tij is greater than α, are selected shown in cause
and effect diagram (Yang et al., 2008).
5 Research methodology
In the first step of designing a strategy map from BSC perspectives, the most appropriate
performance indicators were selected for hospitality industry on the basis of review of
relevant literature as shown in Table 1 and with the help of detailed discussion with a
group of qualified experts. The group of qualified experts consisted of hospitality
professionals from the industry and academicians from academic institutions. A group of
qualified experts reviewed and tested the designed questionnaire to assure the content
validity of questionnaire. From four perspectives of BSC, various financial and non-
financial performance indicators were identified and experts have finalised only 20
important indicators for hotel performance since too many indicators may cause
vagueness and divert decision-makers. The descriptions of the 20 KPIs for hotels that
were chosen on the basis of BSC are listed in Table 2. 22 hospitality professionals of
luxury hotels in Uttarakhand state of India were asked to complete the questionnaire. All
of the respondents had notable experience of the hospitality industry. In addition, they all
were working with the capacity of general manager and assistant general manager in their
respective hotel establishments. After obtaining the completed questionnaires from
respondents, DEMATEL analytical technique was used to establish a logical cause-effect
relationship among selected performance indicators and to identify the significant
perspectives and criteria.
10. 10 D. Kala and S.C. Bagri
Table 2 KPIs selected for hotel performance
Financial
perspectives
Customer
perspectives
Internal process
perspectives
Learning and growth
perspectives
Growing
operational profit
(F1)
Customer
satisfaction and
retention (C1)
Number of product/service
innovated per year (I1)
Employee satisfaction
and retention (L1)
Total revenue
achieved (F2)
Market share and
position (C2)
Degree of competitiveness
(I2)
Employee training and
development (L2)
Occupancy rate
(F3)
Quality of service
(C3)
Operational
efficiency/productivity (I3)
Employee skill and
competence (L3)
ROCE/ROI (F4) % of new customer
added (C4)
Flexibility in offerings (I4) Responses of
customer service (L4)
Profitability (F5) Market orientation
(C5)
Improvement in quality of
facilities and services (I5)
Developing customer-
oriented culture (L5)
6 Result
6.1 Construction of strategy map using the DEMATEL techniques
To construct a strategy map, the responses of hospitality professionals about the influence
of performance measures (ranging from 0 to 4) in the DEMATEL questionnaires were
administered. Then, after averaging all received values, the initial direct influence matrix
(Z) for all performance indicators for hospitality performance was derived with the help
of equation (1). From the matrix Z the normalised direct influence matrix is computed
using equation (2). The matrix of total relations of performance indicators for hotel
performance is calculated by equation (3) as summarised in Table 3. The (R + C)
(relation) and (R – C) (influence) of the criteria obtained by equations (4) and (5) are
given in Table 4.
6.2 The rankings of (R + C) and (R – C)
According to Table 4, the top five central indicators with the highest (R + C) values are
C1: customer satisfaction and Retention (12.4345), C5: market orientation (12.3880),
C3: quality of service (12.3381), F2: total revenue achieved (12.3336), and
F5: profitability (12.3285). The top three indicators with the highest (R – C) values are
F5: profitability (0.2573), I5: improvement in quality of facilities and services (0.2521),
and L5: developing customer-oriented culture (0.2178). The top three indicators with
the lowest (R – C) values are C1: customer satisfaction and retention (–0.5285),
L2: employee training and development (–0.3959), and L1: employee satisfaction and
retention (–0.2570). Further, as indicated in Table 4, the central roles (i.e., indicators with
the highest R + C value), main-cause factor (i.e., indicators with the highest R – C value),
and main-effect factor (i.e., indicators with the lowest R – C value) in each perspective
are determined. For example, in the learning and growth perspective, L4: response of
customer service is the central role, L5: developing customer-oriented culture is the main
cause factor whereas L2: employee training and development is the main effect-factor
among the five indicators (L1–L5).
11. Designing the strategy map for hotels with key performance indicators 11
Table 3 The matrix of total relations of evaluation indicators for hotel performance
F1F2F3F4F5C1C2C3C4C5I1
F10.10120.29270.30920.44780.33740.26990.33320.39470.27360.28800.3210
F20.33670.41070.32060.35810.40790.31220.26520.23100.22990.34620.3678
F30.28610.28770.30320.28000.29250.36190.35360.24260.26910.20790.1421
F40.34450.30250.29520.28400.24020.35210.24990.28860.37600.33780.3765
F50.30820.30280.36350.24550.28590.33650.27830.33390.28390.29450.2746
C10.37960.38060.38920.28310.28590.43400.37810.34310.29150.36800.3363
C20.40190.34220.19140.35930.24020.13150.34270.40680.09660.29230.3651
C30.27390.30480.31800.32510.30870.18710.24730.32430.38180.36190.3356
C40.26700.30800.39250.29980.35570.28930.19030.41480.23190.30450.2505
C50.29380.32370.28300.24260.30990.35520.32600.25640.31480.25710.2777
I10.38420.41090.18910.42430.36530.26930.25920.29920.32750.38020.2712
I20.31660.31620.32900.30770.22020.27550.21700.36790.43330.35200.3004
I30.33090.27630.35330.32840.37410.38240.30980.34580.32550.27140.3018
I40.25610.28200.35410.33080.35140.29260.31170.22880.27790.33100.3102
I50.26680.20280.21040.25390.27590.41300.30840.20210.37650.33820.2417
L10.25650.25910.24530.22360.32560.39060.31220.30860.29220.22850.3116
L20.23690.23310.20920.22640.28370.36020.38740.33810.33780.26740.3640
L30.26380.30970.28330.25850.27580.33800.32810.27340.24820.25860.2905
L40.35720.35410.30280.28170.24940.36520.35840.29820.27230.28280.3146
L50.26600.29300.30590.26020.24980.36500.29110.29880.33490.31880.2934
12. 12 D. Kala and S.C. Bagri
Table 3 The matrix of total relations of evaluation indicators for hotel performance
(continued)
I2I3I4I5L1L2L3L4L5RC
F10.39410.32630.36230.17400.25180.32710.24190.21090.22515.88215.9281
F20.24850.30130.29190.15120.37320.38910.24850.31350.23706.14046.1933
F30.38390.29030.29240.34030.37330.31930.38620.34770.36216.12235.9481
F40.28270.28070.28560.29310.33200.32900.28470.28460.35216.17186.0208
F50.35350.34920.30800.38030.35660.32530.31810.30740.28696.29296.0356
C10.12130.27990.25240.21440.24790.25470.26050.33950.11315.95306.4815
C20.24910.36590.37100.29990.37570.22020.18300.26890.38215.88586.0478
C30.26830.33540.33550.14290.31080.43520.37460.22200.34786.14126.1970
C40.33860.26850.20120.18620.26760.43280.25230.23200.49445.97795.9750
C50.36540.29860.35170.39450.23280.36860.34120.33090.37726.30106.0870
I10.32010.35950.28460.15830.25230.32570.24340.26830.27106.06346.0464
I20.34300.26490.23960.32520.31250.32240.36190.26360.10545.97445.9846
I30.30020.30630.26480.25870.22770.31680.22900.32400.25626.08336.1572
I40.27590.29350.27960.39990.31930.41150.34560.34440.18836.18456.0528
I50.41540.35890.29120.30020.21890.19130.22060.31210.34745.74575.4937
L10.25090.31140.34250.13210.27410.14830.31650.37070.32925.62935.8863
L20.20820.34120.29930.25930.23110.17470.27070.36870.43985.83736.2332
L30.21070.27090.35820.40980.34740.27310.43790.31880.33636.09095.9668
L40.42260.33590.32160.27890.30930.24900.26210.34970.19946.16526.1251
L50.23210.21870.31930.39450.27190.41930.38830.34750.31086.17935.9615
13. Designing the strategy map for hotels with key performance indicators 13
Table 4 Results of the (R + C) (relation) and (R – C) (influence)
BSC
perspective
Performance indicators R + C Rank R – C Rank
Growing operational profit (F1) 11.8102 18 –0.0460 13
Total revenue achieved (F2) 12.3336c
4 –0.0529b
14
Occupancy rate (F3) 12.0703 13 0.1742 5
ROCE/ROI (F4) 12.1926 9 0.1509 6
Financial
perspective
Profitability (F5) 12.3285 5 0.2573a
1
Customer satisfaction and retention
(C1)
12.4345c
1 –0.5285b
20
Market share and position (C2) 11.9336 17 –0.1620 17
Quality of service (C3) 12.3381 3 –0.0558 15
% of new customer added (C4) 11.9529 16 0.0029 11
Customer
perspective
Market orientation (C5) 12.3880 2 0.2140a
4
Number of product/service
innovated per year (I1)
12.1098 11 0.0170 10
Degree of competitiveness (I2) 11.9590 15 –0.0102 12
Operational efficiency/productivity
(I3)
12.2406c
7 –0.0739b
16
Flexibility in offerings (I4) 12.2373 8 0.1317 7
Internal
process
perspective
Improvement in quality of facilities
and services (I5)
11.2394 20 0.2521a
2
Employee satisfaction and retention
(L1)
11.5156 19 –0.2570 18
Employee training and development
(L2)
12.0705 12 –0.3959b
19
Employee skill and competence (L3) 12.0577 14 0.1241 8
Responses of customer service (L4) 12.2903c
6 0.0402 9
Learning
and growth
perspective
Developing customer-oriented
culture (L5)
12.1407 10 0.2178a
3
Notes: a
“Main cause-factor” (highest R – C value): dispatching the strongest influence to
others.
b
“Main effect-factor” (lowest R – C value): receiving the strongest influence from
others.
c
The central role in each dimension.
6.3 The causal diagrams
According to Table 4, the causal diagrams mapping the dataset (R + C, R – C) of
20 performance indicators in terms of R – C (Y-axis) and R + C (X-axis) are depicted in
Figure 2. In Figure 2, C1: Customer satisfaction and retention with the highest value of
(R + C) has the most relationships with other roles and it has the central role among
indicators. The value of (R – C) represents the severity of influence. The higher R – C
values have greater influence on others and is thus called as main cause factor and the
lower R – C receives the strongest influence from others, and is called the main effect-
14. 14 D. Kala and S.C. Bagri
factor among the indicators. F5: Profitability with the highest (R – C) value dispatches
the strongest influence on others, and it is thus called the main cause-factor among the
performance indicators. C1: Customer satisfaction and retention with the lowest (R – C)
value, receives the strongest influence from others, and it is thus called the main
effect-factor among perspectives.
Figure 2 A causal diagram of the KPIs for hotels
11.2 11.4 11.6 11.8 12.0 12.2 12.4 12.6
-0.6
-0.4
-0.2
0.0
0.2
0.4
I2
C4 I1 L4
I4
F4
F1 C3
F2
I3
L3
F3
L5
C5
F5
C2
L1
L2
C1
I5
R+C
R-C
6.4 A strategy map of KPIs for hospitality industry
When constructing the strategy map, the threshold value of each factor is decided by the
experts to eliminate the insignificant connections derived from DEMATEL analysis. In
this research, researchers after discussion with experts, set the value 0.3400 as the
threshold limit for 20 performance indicators. According to Table 5, strategy map is
constructed as shown in Figure 3. The connecting lines represent relationships between
indicators. The head of an arrow indicates the direction of influence. Table 5 summarises
the numbers of dispatching and receiving indicators for each BSC performance indicator.
As can be seen in Table 5, three important indicators, including Customer satisfaction
and retention (C1), Market share and position (C2) and developing customer-oriented
culture (I5) received and dispatch influence from significant numbers of indicators. Total
revenue achieved (F2), growing operational profit (F1), degree of competitiveness (I2),
improvement in quality of facilities and services (I5) and employee training and
development (L2) are also receiving and dispatching influence from good numbers of
performance indicators. Table 5 summarises the analysis results obtained by DEMATEL
method according to Tables 3 and 4.
16. 16 D. Kala and S.C. Bagri
Figure 3 A strategy map of KPIs based on the BSC for hotel
Total
revenue
achieved
Marketshare
andposition
Customer
satisfaction
andretention
%ofnew
customer
added
Market
orientation
Improvement
inqualityof
facilitiesand
services
Operational
efficiency/
productivity
Degreeof
competitiveness
Numberof
product/service
innovated
Develop
customer
oriented
culture
Responses
ofcustomer
service
Employee
skilland
competence
Employee
trainingand
development
Employee
satisfaction
andretention
ProfitabilityOccupancy
rate
Growing
operational
profit
ROCE/
ROI
Qualityof
service
Flexibility
inofferings
17. Designing the strategy map for hotels with key performance indicators 17
7 Analysis and discussion
An attempt was made to strategically analyse performance measurement practices of
hospitality industry of Uttarakhand state of India using key performance of BSC and
DEMATEL. Strategy map – a technique for constructing a strategic cause and effect
relationship among different performance indicators – is applied to depict strategic
linkage among perspectives of BSC. The present work utilises DEMATEL technique to
analyse casual and ‘logical’ relationships among KPIs in order to establish a strategy
map. DEMATEL technique has advantage over other methods such as SEM, since
DEMATEL uses the knowledge of experts to design the model of performance
measurement system in order to determine valid relationships among performance
indicators and requires no pre-hypotheses and large-data verifications (Wu, 2012). The
proposition of strategy in this map is expressed in terms of the critical performance
measures that are rationally related to each other. Strategy mapping proposes several
casual and significant linkages or ‘strategic steps’ in order to guide managers to direct
their efforts to ensure strategic improvement in all key areas.
As shown in Figure 3, the study revealed eight most critical and influential
performance indicators from four strategic perspectives of BSC. These are growing
operational profit (F1) and total revenue achieved (F2) from financial perspective,
customer satisfaction and retention (C1) and market share and position (C2) from
customer perspective, degree of competitiveness (I2) and improvement in quality of
facilities and services (I5) from internal process perspective and employee training and
development (L2) and developing customer-oriented culture (L5) from learning and
growth perspective. Results indicate that ‘Customer satisfaction and retention (C1)’ is the
most critical lagging (result) indicator used to measure hotel performance, because
‘Customer satisfaction and retention (C1)’ is the main effect factor with lowest (R – C)
value and is affected by 10 indicators. In internal process perspective, improvement in
quality of facilities and services (I5) is the critical indicator with strong influence on
customer satisfaction and retention (C1) and moderate influence on percent of new
customer added (C4) and operational efficiency/productivity (I3). Employee training and
development (L2) is the important indicator in learning and growth perspective. This
indicator has strongest influence on developing customer-oriented culture (L5); strong
influence on market share and position (C2) and moderate influence on customer
satisfaction and retention (C1), number of product/service innovated per year (I1),
operational efficiency/productivity (I3) and Responses of customer service (L4). Total
revenue achieved (F2) is the important decisive indicator in financial perspective. This
indicator is having strong influence on profitability (F5), employee training and
development (L2) and moderate influence on number of product/service innovated per
year (I1), and employee satisfaction and retention (L1).
As indicated earlier, if factors have higher positive values of (R – C), implying that
they influence other factors much more than other factors influence them, they are
considered to have a higher concern for improvement. The result shows that top five high
concern indicators for hotel performance are profitability (F5), improvement in quality of
facilities and services (I5), developing customer-oriented culture (C5), market orientation
(C5) and occupancy rate (F3). These five performance indicators are considered to be
critical cause-factors in the constructed strategy map. Tables 4 and 5 shows that
Profitability (F5) is identified as the most causal factor with the highest (R – C) value and
18. 18 D. Kala and S.C. Bagri
influences five indicators, especially improvement in quality of facilities and services
(I5), degree of competitiveness (I2), operational efficiency/productivity (I3) and
employee satisfaction and retention (L1). All indicators have strongest to moderate
influence on customer satisfaction and retention (C1) which is considered as the most
critical indicator in hotel performance. Improvement in quality of facilities and services
(I5) also influences five indicators, namely customer satisfaction and retention (strong
influence), percent of new customer added (moderate influence), degree of
competitiveness (strong influence), operational efficiency/productivity (moderate
influence) and developing customer-oriented culture (moderate influence). Developing
customer-oriented culture (L5) indicator strongly influence improvement in quality of
facilities and services (I5), employee training and development (L2) and employee skill
and competence (L3). In this study, researchers examined the significant influence of all
these cause factors on the performance of hotel establishments.
The present work also advocates the feedback relationship among several financial
and non-financial performance indicators. These relationships indicate that managers
should be aware of logical linkages among KPIs and significance of their effective
management in order to take the advantage of their synergistic relationships. For instance,
among top five high concern performance indicators, profitability (F5), market
orientation (C5), and developing customer-oriented culture (L5) have strong mutual
relationship with improvement in quality of facilities and services (I5). The moderate
influence exists between developing customer-oriented culture (L5) indicator and
occupancy rate (F3), market orientation (C5), improvement in quality of facilities and
services (I5). Form this finding, it can be concluded that development of customer centric
organisational culture can help the hotel to develop effective strategies to meet needs and
requirements of market/customers. This certainly improves quality of existing facilities
and services provided by hoteliers to present and prospective customers. These market-
oriented outlook will thus further enhance the occupancy of hotel units. Keeping all these
logical feedback relationships into considerations, the recommended improvement path
of KPIs in the constructed strategic map can be visualised as follows: Development of
customer-oriented organisational culture and proper training and development initiatives
for employees should be the first step of hotel mangers/entrepreneurs. These two
indicators will improve quality of hotel operations and services and provide competitive
advantage to hotel units. Improvement in the quality of facilities, operations and services
will enhance customer satisfaction and consequently lead to retention of existing
customers. Degree of competitiveness will improve the market share of hotel
establishment and create a superior position of hotel in the mind of target market
customers. Customer satisfaction and retention, growing market share and favourable
positioning will eventually enhance total revenue achieved and operational profit of the
hotel.
The fundamental purpose of DEMATEL analysis is to decide causal relationships
among variables in a complex system. The present study used DEMATEL method to
design a strategy map of hotel performance by extensively reviewing the relevant
literature and by objectively evaluating expert opinions, a method different from the
conventional approach of building strategy maps from four BSC perspectives only by
experts’ rules of thumb (Davis and Albright, 2004; Wu, 2012). The qualitative and
quantitative analysis results obtained by DEMATEL in the present study can determine
not only the direction of influence (quality) but also the strength of relationships
(quantity) between KPIs. Compared with the traditional method of constructing strategy
19. Designing the strategy map for hotels with key performance indicators 19
maps, DEMATEL is a more rational approach to understand casual relationships among
performance indicators. The complex cause-and-effect relationships among KPIs
displayed by DEMATEL are more balanced and provide a clear road map to help
management choose the high priority cause and effect indicators and focus on
performance improvement-related activities. The construction of the logical
interrelationships among four perspectives of BSC proposed by the present study will
help hotel managers/entrepreneurs to make effective strategic initiatives to improve
organisational performance through outcome measures and drivers of performance. The
results of strategic improvement in performance indicators indicate an efficient way for
organisation to ensure the proper focus on those critical areas which requires
improvement the most. The present study also reveals that although financial
performance indicators are important, the focus on non-financial performance indicators
may offer greater opportunities for measuring organisational effectiveness of service
sector in the longer run. In hospitality industry, setting up strategic objectives of strategy
maps must be driven by a customer-orientation and should take customer-related
indicators as final outcome measures. This study also recommends that hotel managers
desiring to develop effective performance measurement systems should view
performance measurement holistically. Financial, customer, internal business process,
and learning and growth should not be measured in isolation but must be viewed as part
of a whole.
8 Conclusions
KPIs provide vital information to organisation for tracking and predicting business
performance against strategic objectives in a way that complements financial measures.
There is a concern that in using inappropriate measures, hotel managers may be ignoring
issues, which really matter, potentially to the serious detriment of their organisation’s
performance. In this attempt, there are some critical success factors highlighted for
hospitality industry. These factors are critical because if they are executed properly, hotel
will achieve excellence in its chosen field. Hotels can take the advantage of BSC
methodology to focus on critical areas and design appropriate strategies to improve
organisational performance. Researchers and practitioners utilise a comprehensive
performance measurement consisting of four BSC perspectives with both financial and
non financial indicators for evaluating performance of hotel properties, but they do not
consider the construction of strategy maps that makes up such a crucial part of BSC
system. Therefore, in order to fill the gap of the existing body of knowledge regarding the
evaluation of hotel performance and strategy development, the present study proposed the
strategy map using DEMATEL method to systemically identify causal relationships
among performance indicators. In the present study, logical links between the most
suitable performance indicators of hotel performance based on the content of BSC is
recognised.
By combining the opinions of hospitality experts, DEMATEL technique was
employed to determine rational relationships and strengths of influence among
performance indicators to establish a strategy map. The multidimensional
cause-and-effect relationships between the performance indicators displayed by
DEMATEL are more logical and provide a clear road map to help manager choose
20. 20 D. Kala and S.C. Bagri
critical indicators and focus on the strategy-related activities. The use of cause and effect
analysis helps managers to identify the mix of feasible improvement paths for hotels in
all of four BSC perspectives. Referring to the strategy map designed systematically in the
study, DEMATEL method can provide workable references for the prioritisation of
strategic steps in practice since valid links between all performance indicators are
logically exposed. These considerable strategic steps indicate a path for hoteliers and
managers to better invest organisational resources in those aspects which warrant the
most improvement.
Management should also pay more attention to feedback relationships among
performance indicators, since the influence of interdependence can produce positive
reinforcement among performance indicators. The knowledge, skills and professional
behaviour of employees will innovate and build the right strategic capabilities and
efficiencies that deliver specific value to the customer which will eventually lead to
higher shareholder value. Results also reveal that customer satisfaction and retention,
market orientation and quality of service are the three most important evaluation
indicators of hotel performance. Interestingly, these all critical indictors belong to the
customer perspective of BSC. Thus, it can be concluded that customer perspective of
BSC should be emphasised by hotels as final outcome measure. The present study also
provide valuable suggestion to hotel managers to focus on profitability, improvement in
quality of facilities and services, developing customer-oriented culture, market
orientation and hotel occupancy rate. These factors dispatch the strongest influence on
other indicators of hotel performance and therefore, managers are advised to pay
adequate attention to them. Moreover, there are certain indicators which are
extremely important for successful functioning of hotels but quite susceptible in nature
such as customer satisfaction and retention, employee training and development,
employee satisfaction and retention, market share and position and operational
efficiency/productivity. These indicators, capable of generating competitive advantage,
receive the significant influence from all other performance indicators and consequently
should be monitored by hoteliers regularly. In short, strategy mapping is an effective and
powerful approach that can help to keep a hotel at its competitive peak. The steps
provided in the map enable hotels to successfully implement strategy in a manner never
before experienced. Hotel units struggling with strategy execution will find this map a
convincing way to think about, agree upon, and communicate their strategic initiatives to
various stakeholders.
However, there exist some limitations of the current research that warrant discussion.
First, the industry population surveyed represents hospitality managers of some selected
hotels of India; therefore it is not appropriate for this study to make the claim that
findings are applicable to entire hospitality industry, especially in developed countries
where hotel industry has flourished marvelously. Though, these implications can be
valuable to hotels of developing countries, like India, where hotel industry is in growing
stage. It is hoped that the study can be reproduced to test the extent of the applicability of
findings. Second, in DEMATEL questionnaire, like all the other questionnaires,
responses are necessarily restricted to individual subjectivity. Third, the subjective
judgments of hospitality experts about four perspectives of BSC may vary from each
other. Fourth, selected performance indicators that were adopted for hotels with respect to
BSC may not be suitable to other establishments because of unique nature of
organisations and their strategic objectives. Therefore, necessary precautions should be
taken about the applicability of the results to other industries. Precisely, the present study
21. Designing the strategy map for hotels with key performance indicators 21
established logical links among KPIs, which provides important insight into the
managerial implications of strategic steps for hotel performance improvements. Authors
suggest that hotel establishments should take into account the results of the study and
develop adequate strategies that address the necessity of performance measurement
system. By having this provision of assessing the performance of hotels, there are all
possibilities of having bulk business from the existing customers making the hoteliers
more prosperous.
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