Finance, Funding and Legislative Frameworks for Success - Example

Finance, Funding and Legislative Frameworks for Success Contents Executive Summary 3 Introduction 3 Vision and Strategy 4 Balanced Scorecard 5 The Financial perspective 7 The customer perspective 10 The Learning and Growth Perspective 12 The internal business process Perspective 16 Strategy Map 19 Recommendations to the Board 20 Evaluation 21 Conclusion 21 References 23 Executive Summary InterContinental Hotels Group plc is the largest British multinational hotel. Balance scorecard and strategy map is used to evaluate an organisation. Balance scorecard is used extensively industry wide and is used to align the business activities according to the strategy and vision of the organization. The balance score card of IHG looks after the four perspectives of the company. From the balance score card it can be seen that IHG has been successful in implementing the balance scorecard and has developed appropriate action plan to carry out its strategies. Next the strategy map is shown which is constructed from the balanced scorecard. The strategy map shows communication between important factors within and between each perspectives and shows that IHG has created a fine balance between all the factors. Introduction InterContinental Hotels Group Plc is a British multinational hotel which is headquartered in Denham, UK. The company has over 4,600 hotels with 687000 rooms in over 100 territories and countries all over the world. InterContinental Hotels operate under nine hotel brands which have a deep history and heritage. Hotel industry is expected to grow in the long term which indicates that over the next few decades there will be an increase of demand for the hotels. There is a positive demographic, socio-economic and technological change across the world which indicates the number of people who joins the travel market each year increases. Balanced score card provide the managers an instrument which they can use to navigate to future competitive success. It translates the mission and strategy of an organisation into a comprehensive set of performance measures which provides a framework for management system and strategic measurement. InterContinental Hotels group uses it’s balanced score card to deliver high –quality growth and long-term value to all their stakeholders. They have achieved significant scale, broad geographical exposure and strong understanding of the industry which puts them into a well positioned company meant for future growth. It helps them deliver attractive shareholder returns and creating enhanced brand propositions for their customers. Their strategy is to be a responsible business. This report focuses on the balanced scorecard and strategy map of InterContinental Hotels group. Vision and Strategy InterContinental Hotels Group is aiming to make their brands the first choice for customers like guests and hotel owners. InterContinental Hotels group (IHG) wants to deliver their guest needs across the entirety of their journey which can be broken down into five distinct steps namely dream, plan, book, travel and share. IHG aims to build a strong portfolio and loyalty programme which will be reflected in their strategy. They aim at delivering consistent, locally relevant and differentiated guest experiences which increase their profitability. Strategy of IHG aims at building a strongest operating system in the hotel industry focussing on biggest segments and market so that they can take advantage of scale of operation. They try to improve the performance of their brands using their insights to make the company first choice among customers. They aim at generating excellent returns from their hotels by improving the efficiency and operating processes of their hotels as well as improving the revenue of the hotel by encouraging more number of guest visits. Their strategy is to strengthen their organisation by building strong partnerships with their owners across the world and within their own company. Their growth strategy is focused on the fastest and largest growing markets where IHG has a strong existing brand presence, their revenue and scale delivery systems confers huge benefits and are aligned to their asset-light business model. Presently IHG has five percent share of global hotel industry rooms supply and hold 12 percent share in the active industry hotel pipeline. This position helps them in achieving greater growth in the future. Asset-light model continues to be their core strategy and acts as a key for increased income stream. IHG focuses on using their massive scale to drive efficiencies while investing behind the growth of the business. IHG maintains high standards of corporate governance which are fundamental to the way they operate (Proctor, 2012, p. 211). Balanced Scorecard InterContinental Hotels Group can implement their balanced scorecard to covert the organisation’s mission and strategy into a comprehensive set of performance to provide the framework for strategic measurement and management system. The scorecard measures the organisational performance across four balanced perspectives like financial, customers, internal business processes and learning growth. The Financial perspective Goal KPI Target Performance Measure Action Plan Increasing the global market sales Profit margin and Revenue IHG plans to increase the gross sales from the hotels by 4%. It is further planning to increase the group net profit by 1.3%. IHG should continue to strengthen the revenue delivery systems to deliver profitable demand to hotels. It should continue to drive loyalty to their portfolio of brands, drive awareness of IHG Rewards Club and leverage this across their brands and regions. Net Rooms Supply Growth rate of number of rooms Increase IHG system size and achieve a growth rate of 2% of number of rooms or achieve at least 7,00,000 rooms in 2014 at the same time maintaining quality of their real estate including construction of 50 hotels in the pipeline for the HAULUXE brand and EVEN brand. Accelerate the growth strategies in priority markets and key locations in agreed scale markets and continue to leverage scale. Should support growth of their new brands HAULUXE hotels & resorts and EVEN Hotels. Growth in Fee revenues Long-term Incentive Plan Increase the growth of fess revenue by at least 7%. Increasing the number of open hotels in developed and developing markets which will drive incremental fees at a higher rate. System contribution to revenue Annual incentive plan (Annual performance Plan) Increase the annual incentive plan so that the system contribution to revenue is at least 70% in 2014. Continue to drive adoption and impact of their performance tools, systems and processes amongst their workers. They should continue with their investment in technology systems and performance. Financial measures are a critical component of the Balanced Scorecard and the objectives and measures in this perspective indicate the strategy execution leading to improved bottom-line results. A proper analysis of the plan will lead to improved customer satisfaction, quality, on-time delivery etc. The above table shows the key financial indicators like net sales, net room supply, growth in fee revenues and system contribution to revenue. IHG is looking to achieve better results in each of the factors (Johnson, Scholes and Whittington, 2007, p. 152). The customer perspective Goal KPI Target Performance Measure Action Plan Improve Guest Heartbeat Innovation, Quality monitoring and quality control Improve the guest satisfaction scores in every region for all of their brands and receive external recognition through awards Try to reposition the Crowne Plaza Brand and refresh the marketing messages for Holiday Inn and Holiday Inn Express to better reflect the differentiated brand propositions and drive brand consideration (IHG, 2013, p. 52). Improving customer services Minimizing customer complaint Redressal time Try to obtain a good rating, like Market Metrix Hospitality Index as one of the top 10 brands in terms of satisfaction of the customers around the world. Continue to empower their frontline teams with tools and training to consistently deliver great guest experiences which builds the brand preference. Improving the brand awareness Marketing promotions and advertising Investing $ 300 million in marketing activities in 2014. IHG should build awareness and loyalty programs, particularly in their priority markets, through a blend of local and global marketing promotions, brand initiatives and sponsorships. Customer perspective identifies the value proposition of the company and the demands of the consumers. IHG is pursuing operational experience by improving guest heartbeat, customer services and brand awareness by managing brand consistency through entire hotel life cycle. IHG needs to make the hotels first preference among the customers (Arnold, 2009, p. 76). The Learning and Growth Perspective Goal KPI Target Performance Measure Action Plan Improving employee participation and corporate culture Organisational performance and employee appraisal Improving the business model and performance of the business by 10% as measured from cultural aspect Should continue to follow their Winning model framework by delivering superior value creation through their brands, their people and their systems. They should continue delivering new training programmes for their hotel General Managers to ensure that strongest possible connection happens between what each brand stands for and the delivery of brand experience at the front line thus encouraging general managers to behave like brand managers. IHG should build strong leadership from the top to encourage employees. Rewarding and recognizing the employees Reward system and performance evaluation Providing 15-20 hours training per week to old and new employees IHG needs to put in place a range of programmes, polices and training with the aim to keep in place with latest update in the hotel industry. IHG should extend all possible support, experience and training they need to perform at their best and provide various development opportunities. IHG should evaluate the performance of the employees in line with Code recommendations. Retention of more employees to increase the satisfaction level Motivation Decrease the attrition rate IHG should focus on delivering their preferred brands throughout all their hotels, and develop a set of People Tools, industry-leading best practices tailored specifically for their brands, to assist hotel management and human resources teams hire, train, involve and recognise colleagues. It will help increase employee retention and performance, drive efficiencies and increase revenues of the owners (Neale and McElroy, 2004, p. 122) Improving employee productivity Revenue per employee Increasing revenue per employee and increasing the employee productivity Provide adequate training and motivation to increase the efficiency of the employees (Bocij, Greasley and Hickie, 2008, p. 64). This factor is the main enabler for other three perspectives and they act as the foundation upon which the Balanced Scorecard is built. It essentially focuses on areas of employee retention, employee management, corporate citizenship, job satisfaction, training, motivation etc. which is vital for making the business achieve profitability. Improvement on the above factors helps IHG to make their business model successful (Angwin, 2007, p. 121). The internal business process Perspective Goal KPI Target Performance Measure Action Plan Prompt service delivery Production and delivery time Improve customer service Try to understand customer’s need better than their competitors. Try to be sensitive to the demands of the customers and notice things that matter so that responsibility can be taken for doing right things (Kaplan, Norton, 2006, p. 152). Customer satisfaction Number of complains Reduce the number of complaints in each quarter so as to reduce it to zero Try to meet the customer expectations (Boddy, 2005, p. 96). Increasing competitiveness and sustainability Environmental compliance Lessen their carbon footprint for each occupied room by 12 % across their entire area. Lessen water usage for each occupied room by 12% in water shortage areas. Design, build and operate more environmentally sustainable hotels through IHG Green Engage, their online system for measuring, monitoring, managing and reporting on carbon, energy, waste and water (Collier, 2009, p. 85). Community development CSR activities Contribute $ 10 million to societies through financial donations and in-king support including finances arranged through IHG Shelter in a Storm Programme. IHG should try to integrate Corporate responsibility criteria into the assortment as well as evaluation process for all chosen suppliers (Hill and Jones, 2007, p. 142). IHG should track and report supply chain diversity (IHG, 2014, p. 1). Internal Process Perspective identifies the key processes a firm must excel at so that they can add value to their customers and ultimately shareholders. Organisations have to identify new internal processes instead of focusing on their efforts on incremental improvement of existing activities. IHG has focused on improving their business model by delivering preferred experiences for their guests continuously (Bertalanffy, 1950, pp. 134-140). Strategy Map Figure 1: Strategy Map of InterContinental Hotels Group Strategy Map is a diagram which is used to find out the strategic goals of the management team. It is prepared after preparation of Balanced Scorecard. The strategy map shows each objective as oval and relationships between objectives are shown with arrows. A strategy map is used to communicate strategy of the organisation to financial managers and is used for finding action plans to implement strategy. Strategy map helps to manage performance better since it contains the operational detail of the organisation. It raises the quality and level of conversation amongst the management team (Kaplan and Norton, 2004, p. 312). Strategy maps ensure that the strategy is a boon to the organisation since it helps to capture, manage and communicate the strategy. Learning perspective acts as the lower base for the organisation based on which the entire organisation increases the employee satisfaction level and employee participation. Then second perspective is the internal perspective where efforts are made to improve the sustainability of IHG. The four factors namely prompt service delivery, customer satisfaction, increasing competitiveness and community development acts as an enabler for improving the internal processes of IGH. The third perspective is the Customer perspective where the entire focus is put on improving the customer satisfaction level. Three factors helps namely improving guest heartbeat, improving the brand awareness and improving customer services as a whole improves the customer perspective. Finally financial perspective helps achieve overall profitability of the company by improving rooms supply, growth in fees revenues and improving the system contribution to revenue (Bertalanffy, 1968, p. 176). Recommendations to the Board Balanced score card and strategy maps show that InterContinental Hotels Group Plc. is identifying critical aspects of the company and formulating appropriate strategies so that they can attain competitiveness and improve performance of the business. IGH should acknowledge that there is tension between tourism and environment but at the same time there is an opportunity for them to innovative solutions to the social, environmental and economic effects of their business. IHG has more than 4,700 hotels and they need to develop innovative improvements for them to work. The group should go for joint ventures and alliances to improve its competitive positioning in the global hotel industry. They should also focus on creating differentiation strategies to make their brand presence unique. The management needs to implement balanced scorecard to ensure quality service delivery system which would help increase the financial returns of the company. IHG group should lookout for innovative approaches to run their hotels to mitigate their impact on climate. Evaluation IGH have maintained high corporate governance standards which is fundamental to the way IHG operates. The company is committed to ensure that they operate efficiently and each of the employees plays their part effectively. The company deliver preferred experiences to their guest by effectively taking into consideration all factors of customer perspective. IHG gives importance to their people since their brands are brought to life by their employees. They give importance to training programmes to ensure that they create possible connection between brand experience and the employees. IHG aims at building trust by offering a strong loyalty programme which is tailored to meet the guest needs. It enables them to meet different needs and occasions of their guests and thus strengthens their proposition. IHG focuses on delivering their guests quality services so that they can have a wonderful experience. Thus IHG has implemented their balanced score card and strategy map and have followed action plan which meets their strategic plan and objectives. Conclusion The balanced scorecard is an important tool used by organisations for converting the strategies and mission of an organisation into action plan for management and strategic system. InterContinental Hotel Groups Plc. have so far used its balance scorecard in keeping track of the organisational goals and objectives and have formulated their strategies for developing their business. Through balance scorecard IHG have created customer value which is considered an important factor for improving the business performance. IHG has aligned all the four perspectives and maintained proper communication between all the factors for implementing the action plans. The strategy map of IHG have identified strategic goals and captured, communicated and managed their strategy better. But there are still room for improvement to capture larger market share. References Angwin, D. 2007. Mergers and Acquisitions. Oxford: Blackwell Arnold, G. 2009. Corporate Financial Management. (4th Ed) Harlow: FT/Prentice Hall Bertalanffy, L. von 1968. General System Theory: Foundations, Development, Applications. New York: George Braziller. Bertalanffy, L. von. 1950. "An Outline of General System Theory." British Journal for the Philosophy of Science, Vol. 1(2), pp. 134-140. Bocij, P., Greasley, A. and Hickie, S 2008. Business Information Systems (4th Ed.), Harlow: FT/Prentice Hall. Boddy, D. 2005. Management: An Introduction, (3rd Ed), Harlow: Pearson Education Limited. Collier, P. M. 2009. Accounting for Managers: Interpreting Accounting Information for Decision Making. (3rd Ed). Chichester: Wiley. Hill, C.W.L. and Jones, G.R. 2007. 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Managerial Accounting: Decision Making and Performance Improvement (4th Ed) Harlow: FT/Prentice Hall. Read More