The Balances Score Card Method for Forester Hotel - Term Paper Example

Management Decision Making at Forester Hotel  This report will consider the case of Forester Hotel and will help in highlighting the competitive priorities for the customers of the paper. It will also assess the decision regarding changing the revenue generation model of the hotel. In the case of Forester Hotel, the requirement is of high quantity and low variety in terms of service. The choice of products or services that are offered at the hotel are limited and rigid though the hotel has undertaken segmentation of its market in terms of needs of different people – from middle aged couples seeking some private time, young families on outing, businessmen for conferences, wedding party members and casual diners. This report will present an analysis of the hotel’s resources and systems and evaluate the financial systems, customers, internal business operations, learnings and growth of Forester using the method of balance score card. It will also employ the SERVQUAL method to help in the decision making about the change in revenue generation model. The main task of the report is to conduct an analysis of Forester Hotel in order understand the competitive priorities for the hotel’s customers. This is undertaken by using the Balances Score Card Method for Forester Hotel. The Balanced score card is a technique that provides in depth insights about what a given strategy’s impact may be on different aspects of the organization including the operational and the financial performance, the customer satisfaction and the learning and growth of the organization (Kaplan and Norton, 1996). It is an appropriate tool to arrive at the targets and measures that the organization needs to advocate in order to achieve its strategic vision. A Balanced Score card can be used for any organization, but it is particularly useful for service organizations where intangible compinents of operations and services need to be evaluated (Denton and White, 2000). In addition, a balanced score card lets the hotel assess the perceptions and expectations of the customers and hence make the relevant changes in its strategies (Denton and White, 2000).   It is also an exhaustive exercise for the same reason as it involves several steps like the Systems Mapping, the Objectives Mapping and the Strategy Mapping before the balance score card can be developed. Sytem Mapping A balanced score card is however developed on the basis of the information gathered about the financial systems, the customer related systems, the internal operational systems and the learnings and growth systems of the organization. It therefore relies on an exhaustive mapping of the organization in terms of its systems and the interlink between them (Kaplan and Norton, 1996). The following figure is a system map and it showcases the systems that are operational at Forester Hotel. Fig 1: Forestar System Mapping Government Legal system: Standards, Licensing Financial support system: Credit, Interets rates Forestar Hotel Operating Systens Restaurants (purchase, prepare, serve) Rooms Management (scheduling $ housekeeping) Activities (schedule, maintenance) Quality Planning Staff Training Food Standards Equipment Maintenance Financial Cost/ Resource Aquisition System Control Systems HR Logistics Purchase Income Generation Capacity Planning Number of Rooms Leisure activities Construction Activities Accomodation Staff Size Food Conferences /Parties Source: Author A system map is a detailed diagram showing the inter-linkages between different sub-systems within an organization and also highlighting the influence of external systems (customer, governmental, legal) on the internal sub systems. It is an exhaustive representation of how different processes related to each other and hence helps in identification of the impacts that any proposed changes in strategies may bring to the organization (Kaipa, 2000). The only disadvantage of using this technique is that it is time consuming and requires an in depth analysis of the organization. It is also resource intensive as it requires interviews with employees and managers (Kaipa, 2000). However, it is a good way to track the chain of processes that occur, and it is especially useful in non-manufacturing organizations where processes and flow of operations may not be already mapped or detailed (Denton and White, 2000). The above systems map in figure 1 shows how the customers, government and the external environment of Forester impacts and interacts with the internal systems. These external systems like the overall market, legal environment, and the government are selected for representation in the diagram as these determine the financial costs, the capacity and the acquisition of the resources. It also affects the quality of labour and the supplies and logistics that are involved in the hotel business. The operating system and the quality system are used as these determine the capacity and the quality of the hotel operations and hence determine its overall profitability. is tightly controlled by the financial ability of Forester but it can also be seen that both these are largely impacted by the customer care system. It is therefore evident from the systems mapping that Forester needs to focus on the customer needs and try and meet them within the constraints set by the financial capacity and governmental legislation.   Objective Tree Analysis Next step towards the development of the balanced score card is the development of the financial and operational objectives of the organization. For this, a the Objective Tree technique is used that presents an overview of how the corporate and strategic level objectives are broken down to the basic operational level objectives. In addition, this technique provides the explicit linkages between the external environmental constraints and the ground-level objectives of the organization. The Objectives Tree therefore provides the advantage of providing insights about  streamlining the objectives with the resources and constraints of the organization and hence making the objectives achievable  (Niven, 2006). This technique too suffers from the disadvantage that it requires exhaustive research into the organization’s objectives and how they are broken down in practical terms. It often has to rely on the interviews of the managers as no objective or records are normally maintained that breal down higher level objectives into lower level objectives and ultimately to the practical actions that are needed. However, it is a useful exercise for understanding the strategic level objectives in terms of what exactly is needed to be done to acheive them. This is also useful device in the case of hotel organization which is service intensive and where it is difficult to relate the intangible elements - like the impact of hiring of the right personnel on customer satisfaction (Kaplan and Nortan, 2004) .   The following figure provides the Objectives Tree analysis for Forestar Hotel. Fig 2: The Forestar Hotel Objectives Tree Operational efficiency SCM efficiency Low Labour Cost Efficient Purchasing and Inventory Management High Quality Staff Efficient Operations and Processes Customer Focus Strategy Map Next, the Strategy Map is used based on the above objective tree analysis. The strategy map is a way to project how the strategic vision of the organization is impacted upon by the operational and financial systems. It is a crucial step in the development of the balanced scorecard of a organization as it can be presented in terms of the four measures that the balanced score card consists of – financial, internal operational, learning and growth and customer measures (Niven, 2006). The strategy map shows the explicit relationship between the drivers of strategy and the strategic outcomes. The development of strategy maps is difficult as it requires brain storming sessions with business heads and also requires an intimate understanding of the hierarchical inter-linkages between the perspectives of finance, customer focus, learning or internal business processes. However, it is appropriate for service industry like hotels and restaurants as it provides tools for linking the intangible aspects like the learning and cultural impacts with concrete outcomes of market expansion or revenue generation (Butler, Letza and Neale, 1997). The following figure 3 shows the strategy map for Forester Hotel.     Fig 3: Stratey Map for Forestar Hotel Balanced Score Card The following table presents the final Balanced Score card for Forestor Hotel which was arrived at by using the strategy map developed in the previous figure 3. Figure 4: Balance Score Card for Forestor Hotel Attribute Objective Measures Targets Initiaives Finance Scorecard Large Customer Base maximise Direct measure Customers from Domestic and International Develop packages that are cost effective and attarctive to the customers Direct measure Customers from Personal and Business Same as above Direct measure Customers Going To Nearby Regions Same as above Low Costs Minimise Labour costs+consumable materials+equipment+personal and overheads Operations Costs Internal Business Process Efficiencies, CRM, employee effectiveness Supply Chain Management Same as above Purchase and Inventory Same as above Hiring, Training and Development Same as above Customer Scorecard Cuatomer Satisfaction maximise Qualitative opinion of customers, Number of complaints, speed of complain resolution process, packages that are attractive and cost effective High Quality Service, Emloyee attitude and better value for money Develop Employees and Internal processes efficiencies Customer Retention maximise Repeat purchases and pre-production orders Same as above Same as above Customer Service Maximise Feedback surveys, CRM effeciency Same as above Same as above Internal Business Process Operational Scheduling Optimise % of labour /capacity/ hours inactive Improve Managerial Decision making, staff efficiency and High Quality Equipment Staff training and development Purchase and Inventory Management optimise inventory costs Same as above Vendor Development Supply Chain Management maximise Lead times, cost savings Same as above Vendor and supply chain development Staff Skills and motivation maximise Qualifications of staff. Experience. Trainings, managerial leadership Learning and growth, HRM policies Quality of Equipment maximise Age. Technical specification. Managerial Decision making, Culture Learning and Growth Skills of Staff optimise Performance appraisals Training and Development Improve decision making Motivation maximise Productivity, employee satisfaction survey Organizational Culture, Managerial decision making and leadership People oriented culture Effectiveness of internal communications maximise Staff opinion , surveys. Organizational Culture and Leadership Organizational culture Managerial Decision Making maximise Operational Efficiencies Organizational culture Organizational culture Quality of staff selection maximise Recruitment policies HRM and organizational culture Organizational culture, Improve decision making Quality of staff development maximise Training and development activities HRM and organizational culture Improve decision making, rganizational culture Quality of team building maximise HRM policies, trainings HRM and organizational culture Improve decision making, rganizational culture The strategy of Forester Hotel is therefore best suited to focus on customers and to provide low cost service packages that are attractive and variable. In order to acheive this strategy, the internal systems and processes need to be streamlined and organizational learning and growth be enhanced. The hotel is basically a service organization but it relies on the use of equipment (towards facilities and housekeeping, food and leisure activities etc.) As such, the operations, supply chain management and purchase and inventory management systems need to be optimized so that maximum efficiency can be obtained at lower costs. Additionally, in a service industry it is essential that the staff and the employees be well trained and also have the customer focus. There is therefore a need to develop an organizational culture that is focused on customer relationship management and that encourages the employees to be responsive and sensitive to the needs of the customers (Buttle, 2008). Evaluation of “No Money System” The second aim of this report is to evaluate the decision of the Forester’s management about shifting to a ‘no-money system’, where all the food and beverages are to be charged per person per day. This means that guests would be free to avail of all the leisure activities and partake of food and drinks throughout the day in return of a lump-sum daily charge. This report will enable the management to project the scenarios related to both the tangible and intangible changes that may happen as a result of taking this step.         The following section presents the decision tree process for selecting the best alternative from among the two courses for the Forester Hotel. The decision tree is an effective tool that allows the management to chart out each possible or probable outcome of decision taken and thus prepares them to meet the challenges that may crop up during the implementation of the decision, (Cha and Tappert, 2009) High Avg consumption 0.25*0.5=0.125 per customer (0.5) HIGH COSTS/LESS PROFIT High Inventory costs Shortages Costs (0.25) 0.25*0.5 +0.75= 0.875 Low Avg Consumption (0.5) HIGH PROFIT MARGINS Inventory Costs Low Costs Due to Operational Efficiencies (0.75) Better Quality Food (0.25) Choice 1: no money system Customer Satisfaction 0.75*0.5+0.25*0.5=0.5 With greater Perceived Value (0.5) HIGH SALES (0.5) Less Variety of Food and Drinks (0.75) Customer Dissatisfaction 0.75*0.5=0.375 (0.5) LOW SALES (0.375) Choice 2: Per person per activity NO CHANGE IN SALES Fig 5: Decision Tree Analysis From the decision tree it can be seen that choosing no-money system may result in less variety of food (as this is the recommended cost cutting strategy). It is also presumed that the hotel will strive to better the quality of the food, but this outcome is dependent on the financial constraints and operational limitations. Hence, the probability value for better quality food outcome is less (0.25) when compared to that of less variety of food (0.75). Next, the less variety may either result in customer satisfaction or dissatisfaction, hence the 50% probability of each. The probability that there will be low sales as a result of dissatisfaction with the less variety is 0.375 = 0.75*0.5 (probability of less variety into probability of customer dissatisfaction. On the other hand, the probability of higher sales due to better quality food (0.25) and less variety of food (0.75) resulting in customer satisfaction (0.5) is 0.5 (0.25*0.5 +0.75*0.5) It can be seen from above that the chnaces of increased sale are more with the no-money system. Similarly, the no-money system is expected to affect the inventory costs. Either the costs will increase due to element of randomness in the total amounts needed, or these will be reduced due to operational efficiencies. However, the costs are expected to be controlled through standardization and better training of employees, hence a greater probability of 0.75 assigned to this outcome. On the other hand, high costs may be further affected by the level of consumption per customer. There is a 50-50% chance of high or low average consumption. A high consumption would increase the costs with a probability of 0.125 (probability of high inventory costs and high consumption costs). A low consumption may result in better profit margins with a probability of 0.125 = 0.25*0.5 (probability of high inventory costs into probability of low consumption cost). However, the probability that profit margins will increase is further enhanced by the probability of low costs due to operational efficiencies or 0.75. Hence the overall probability of higher profit margins with no-money system is 0.75 + 0.125 = 0.85 The above discussion shows that both the profit margins and customer satisfaction can improve with a greater probability when no-money system is implemented.  The no-money system can be ensured through undertaking some of the measures like: Accommodation: The hotel may need to increase  the number of rooms that are available to increase capacity. This is because the no-money system’s profitability is largely dependent on the total number of customers (and inversely to the amount each customer consumes per head)   Restaurant and Bar: The hotel can reduce the variety of the dishes that are available as a way of cost savings. Additionally, it can move from customized or a la carte food to standarsized servings – thus further reducing the cost of investments as well time of preparation and serving. It can also reduce the portion size while improving the quality of food.     Room Service: Rome service can be discontinued or the hours minimized. This will ensure that guests have to come down to the restaurant to eat and hence, it may increase the effort required to order. Room service may be too convenient and will lead to excessive ordering of food, thus undermining the profitability of the no-money system.     Leisure Activities: The total number of activities that the guests can avail of may be restricted, or the total amount of time they spend per each should be restricted.  Switching to the no money system will bring the following customer issues: 1.      The customers can avail of a large number of activities and take food and drinks at a fixed cost. This is expected to increase the value for money for the customers. 2.      The customers will get less variety in terms of foods and drinks and as such may find the package not good.  For the hotel, the following issues may arise: 1.      Keeping high level of preparedness for the customers demand as the customers can increase or decrease their demands as per their own requirement. This means a higher level of inventory and a smother supply chain management system for the hotel to cope with any demand fluctuations. The risk of shortages need to be balanced with the need for excessive demand. 2.      The hotel benefits from an assured some of money per person per day, hence leading to an increase revenue with increase in number of guests. 3.      Less ala carte service and more standardized products thus reducing operational costs 4.      Lower costs result due to better inventory management and greater operational efficiencies. 5.      Lower costs due to standardized services 6.      Employees need to be made aware of the underlying policy of the no-money system – which is to minimize consumption per person while maintaining quality and customer satisfaction.   It can be seen from the figure 5 given above that the two primary concerns that Forester Hotel should have regarding the decision about changing to no money model relate to the reduction in variety of food and drink and hence related customer dissatisfaction; and the costs related to the management of the fluctuating demands. It may be expected that the customers may want to eat and drink more when they are anyways paying a fixed amount, and hence, the pricing of the per day per person needs to be done with the consideration for profit margins. The package should be priced in a manner that it is still attractive to the customers and yet it results in costs savings. One way of saving costs is through operational efficiencies, staff effectiveness and better management of materials and supply chains. In case the operational efficiencies are not addressed, then Forester may have to price the package at a higher price and thus stands the risk of losing out on customers. In addition to the cost and revenue concerns, Forester needs to be aware of the customers expectations and perceptions from the package and the hotel. The change in the pricing module and the change in variety of food needs to be tested in terms of what customers may want or expect. As such, the above decision tree analysis needs to be further supported by SERVQUAL method of assessing the customers expectations and the gaps between their expectations and perceptions about the service delivery quality. The SERVQUAL method was developed to assess the quality of service, but it can be modified and adapted to any aspect of business and its factors (Reliability, Assurance, Tangibles, Empathy, and Responsiveness can be traced back to operational and internal processes of the business and learning and growth of the organization (Nyeck, Morales, Ladhari & Pons, 2002). However, it is found to have some limitations in terms of the validity of the constructs used and also in terms of the calculations of the scores for different sectors. Nevertheless it continues to have the advantage of using the customer perceptions and hence incorporating the specific changes that may be needed by the organization to meet the customer’s expectations. In the case of Forester, SERVQUAL can be used during a trial or pilot phase of the new no-money system, where the customers can be asked about their expectations and perceptions about the various aspects of the new package.   References Robert S. Kaplan (Author) › Visit Amazons Robert S. Kaplan Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central Buttle, F. (2008). Customer Relationship Management. London: Butterworth-Heinemann Butler, A., Letza, S. R. and Neale, B. (1997), "Linking the Balanced Scorecard to Strategy", International Journal of Strategic Management, 30 (2), p. 46 Cha, S-H, Tappert, C. C (2009). A Genetic Algorithm for Constructing Compact Binary Decision Trees. Journal of Pattern Recognition Research,4 (1): 1–13. Denton, G. A. and White, B. 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