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Maverick Lodging

Memorandum
% Robert, Sadlin
FR Brian Wenbai Li
CC Cindy, Baum
DA% 11/18/2011
SUBJC% Comments on current Balanced Scorecard
Mr. Sadlin
am so glad that our business gained some developments both at corporate level and
Hotel`s level last year. would like to comment on current Balanced Scorecard Ior
hotel managers by analyzing Iinancial and non-Iinancial results oI last year.
%o achieve the corporate objective, we made a 6.56 growth in RevPAR and 1.35
growth in Growth Yield, though 15 annual revenues growth was not met and
slower than the growth rate in prior year. ProIitability also increased considering the
continuously declining brand average proIit percent. However, the goal oI less than 20
manager turnover was not achieved even with a little increase oI manager turnover.
As to each managed hotel, both the ratio oI averick Lodging Yield to Average
Brand, and the ratio oI averick`s RevPAR to competitors` were above 100 and
illustrated increasing trends in 1999. Courtyard and Residence perIormed better than
budget when FairIield Iaced remarkable diIIiculty to meet the budget. FairIield nn
and Residence nn managed by averick showed a little decrease in proIitability
compared to increase oI Courtyard`s proIitability. However, we should not neglect the
signiIicant negative change oI arriott average proIitability Irom 1998 to 1999, and
thus proIitability perIormance is needed to be reevaluated. %he customer satisIaction
results are Iar behind the objective oI top 20 oI brand and indicate an unexpected
Iall. Associate turnover did not reach to the projected level oI 60 though reduction
was obvious. nly Audit PerIormance was undoubtedly improving.
AIter reviewing all Iinancial and non-Iinancial perIormance, we got both good and
bad news. Some of the corporate and individual hotel objectives, like revenue and
profitability growth and audit performance, were achieved while some were not,
such as customer satisfaction and employee turnover aspects. As we all know, the
strategic concentration oI our company considers premium and diIIerentiated
customer satisIaction as key driver oI Iinancial growth, and thus Iocus on employee
development and standards compliance to improve customer satisIaction by

development current Balanced Scorecard. owever, measurement results show that
good financial performance does not match poor customer satisfaction and
employee development and retention performance. Current Balanced Scorecard
had some design drawbacks that can not reIlect the nature oI Iinancial and non-
Iinancial perIormance, and cannot establish the eIIective motivation Ior Iinance
improvement. y standpoints are demonstrated as below.
First, revenue measurements are not all correctly related to expectation for
company and each hotel. The corporate goal requires 15 annual revenue
growth is important at corporate level, but not appears on Scorecard. %he
measurements Ior revenue perIormance only emphasize the relationship with
objectives oI each managed hotel. %his means that measurement does not match the
strategy, which leads to bias measurement result. Accordingly, though all managed
hotels indicate good revenue perIormance in comparative index, the revenue growth is
Iar below 15. %hat is, the nature oI revenue perIormance is not so good as results in
Balanced Scorecard because oI ignorance oI annual growth goal.
Second, there is something wrong with flow-through flexible budget design and
measurement selection for profitability. %he classiIication oI variable controllable
cost, Iixed controllable cost and uncontrollable cost is appropriate, but actual vs.
budget proIit did not measure the proIitability properly, because budget proIit should
be the diIIerence between reIorecast controllable proIit and budget uncontrollable
expenses. The use of original not reforecast profit budget data fails to evaluate
fair budget profit and performance of profit management. n addition, only use oI
actual vs. budget data is insuIIicient considering comparable competitors and brand
environment. Some comparative measurement as Maverick profit percentage vs.
brand average should be included.
Third, there are some problems about cost measurements. Both two Iinancial
measurements emphasized revenue perIormance than cost management. %he
proIitability measurement may not help to improve cost control, because managers
can increase proIit by either revenue growth or cost cutting, and revenue growth
seems less diIIicult than cost cutting. As a result, managers may preIer to Iocus on
revenue and ignore cost management. n addition, the budget includes uncontrollable
expense that managers can do nothing to cut it. %he measurement oI net proIit can not
properly value managers` perIormance on cost management.
Finally, measurements of customer, internal business and learning& growth
perspectives are not reasonable and reliable. Based on the relationship chart oI
Iinancial and non-Iinancial measurements, high-level employee attraction and
retaining is necessary and relevant to ability oI standard compliance and consequently
customer satisIaction, the determination oI Iinancial success. Research by Rajiv,
Gordon and Dhinu also concluded highly related revenue, cost and proIit perIormance
with return oI customers and customer complains. Accurate and rational design Ior
these non-Iinancial measurements is the most important Iactor to success oI whole
Balanced Scorecard and inIluence on management by Ieedbacks oI measurement
results. However, current Balanced Scorecard did poor in this aspect. Guest

Satisfaction Survey is not so convincing and should not be the only determination
for customer satisfaction. We can Iigure out how complicated the survey is. %here
are hardly patient customers willing to spend halI an hour on the survey and mail back
without beneIit Ior doing that. ven though customers don`t mind, some
miscellaneous questions on the survey are ineIIective and ineIIicient to evaluate
customer satisIaction. For example, question 5 and 8 are boring Ior guests, and some
customers may rate without serious consideration and diIIerent rating standards with
designers. Some customers may rate Iriendliness oI staII 5 while some others rate 8
Ior the same staII. Some customers that have high requirements Ior timely resolve
may rate low to the same situation compared to others. Questions 10 to 16 are too
speciIic. Question 6 and 17 are hard to answer when they have no experience in other
hotels in the same areas and have no idea about Iuture decision. ther survey methods
should be taken into account to support the customer satisIaction results. Meanwhile,
internal business evaluation should not be conducted only by internal auditor.
%hird-party external audit overview oI inIrastructure is also inevitable. Then,
learning& growth perspective should not be limited to manager or associate`s
turnover. Change in employee turnover is not totally aIIected by management and
alone cannot indicate the atmosphere and environment Ior employee development.
mployee training and satisIaction with manager and other considerable
measurements should be added to generate a comprehensive valuation oI learning and
growth oI each managed hotel.
%o cope with the problems existed in current balanced scorecard, suggested several
solution Ior improvement.
1. Combine revenue growth rate with %op-line yield Ior Iinancial measurement.
Absolute and relative value should be both considered. I averick wants to make
a great growth within several years, the operation should not just result in a little
better perIormance than competitors or comparable brand. %he absolutely
increasing revenue is expected however the industry runs.
2. Use reIorecast controllable proIit minus uncontrollable expenses instead oI
original budget proIit to evaluate the budget meeting level. Also, comparative
index with average brand should be included when considering the same reason as
comprehensive oI revenue measurement.
3. Cost-related measurements should also be included in Iinancial measurement,
because it is directly relative to cost control objective. %hat is, revenue, proIit and
cost measurements should be considered equally.
4. %he measurement oI proIitability should Iocus on controllable proIit but not net
proIit, because consideration oI uncontrollable proIit is meaningless and helpless
to cost improvement by managers.
5. Customer SatisIaction Session should be redesigned. Guest Survey questions
should be more simple and understandable Ior customers. %o acquire inIormation
about customers ranking oI hotel Ieatures, 3 levels are appropriate while 10 levels

are too much and diIIicult to deIine. Company may use more eIIicient methods
to leave space Ior customers to write down complaint directly or make telephone
or internet interviews, as Hilton Hotel`s customer tracking survey. Customer
loyalty inIormation can be derived through establishment oI customer inIormation
database. Comparative inIormation about competitors is not so reliable according
to customer survey.
6. xternal audit process should be added to measurement Iramework.
7. mployee training, teamwork and satisIaction with manager and other
considerable measurements should be added to generate a comprehensive
valuation oI learning and growth oI each managed hotel.
entioned above is my advice to develop our Balanced Scorecard Ior managed hotel,
wish that it will be helpIul to company`s beneIit. %hank you.
Brian Wenbai Li