What are the best KPIs for a hotel? How can one apply the Balanced Scorecard approach to hotel management? Find an example of a strategy map with objectives and KPIs for a hotel business.
Here are key topics of the article:
- Hotel KPIs
- Hotel Balanced Scorecard
- An Example of a Strategy Hypothesis
- Balanced Scorecard in Chained-Brand Hotels
- The Role of Strategy Execution Software
- 5 Hotel Performance Hacks
The best way to explain something is to come up with an example! In this case, we had an example of a generic strategy map for a hotel business, and I’d like to share this example with some comments.
Below, we will talk about formulating a strategy for a Hotel. A recommended approach is to articulate your strategy first and then start looking for the ways to measure it. However, there are standard KPIs that are relevant for most hospitality businesses.
- Room Occupancy Rate = Number of Occupied Rooms / Number of Available Rooms
- Market Penetration Index = Hotel occupancy % / Market occupancy %
- Total Revenue = Revenue from Accommodation + Breakfast + Bar + Parking + Other Revenue Sources
- Labor Costs as % of Revenue
- Cost per Occupied Room
- Profit per Available Room
Learn more about other KPIs for CEO.
- Average Room Rate = Total Revenue / Number of Rooms Sold
- Average Room Rate per Guest
- Total Revenue per Available Room = Total Rooms Revenue / Number of Available Rooms
- Net Revenue per Available Room = (Total Rooms Revenue – Distribution Costs) / Number of Available Rooms
- Cost per Occupied Room / Average Room Rate per Guest
- Average Length Of Stay
- Customer satisfaction rate
- Net Promoter Score
- Online rating score
- Energy Consumption
- Water Consumption
- CO2 Footprint
Learn more about formulating a sustainable strategy.
Strategy Scorecard for a Hotel
Some important notes before we start:
- Real strategy must be tailor-made according to the needs of the hotel;
- This example can be a base for a strategy analysis, but the end strategy of your hotel will be very different from what you see here;
- This is a top-level scorecard, as you will notice most objectives are general; in your business, they need to be cascaded down to the lower organizational levels.
- Whatever you do, don’t forget about the cause-and-effect connection, and particularly the connection to the customer value that you create, like those hotel performance hacks that we discussed.
On the top of the “Finance” perspective, we have Shareholders Interests. They might be formulated in various ways. As we agreed to discuss a generic strategy, we can simply use “Profit Growth.”
How can a hotel increase its profits? According to the generic strategies discussed before, a hotel might work on:
- Growing current productivity, which in the case of a hotel might be decreasing the operation costs and optimizing the usage of the resources.
- Increasing revenue, which can actually be achieved by improving current profitability or by developing new sources of revenue.
I would be great to have respective measures that would give us an idea about the inputs and outputs of these goals. For outputs in this example, we used two lagging indicators:
- Service Cost per Room, which is aligned with the “Decreasing costs” objective, and
- Average room rate, which is aligned with the “Improving current profitability” objective.
Here we’ve done the easiest part of the job by finding some lagging indicators. As for leading ones, I believe they need to be defined during strategy discussion between hotel management and their operational partners/employees.
As you can see objectives from the “Finance” perspective are linked to the objectives on the lower levels, so let’s discuss those objectives now.
As was explained in the previous article, customers are actually:
- The guests of the hotel and
- Various partners of the hotel.
For example, when we discuss the “Improving profitability” objective by improving customer value, we need to think about two types of customers – hotel guests and partners.
From the viewpoint of hotel guests, high profitability can be achieved by focusing on high-value customers and their needs. We formalize this on the strategy map with the objects “Add and retain high-value customers” and “Room excellence.” Basically, in this way, we focus on high-value customers, and we need to improve their hotel experience.
From the viewpoint of partners: the generic goal sounds like “Achieve and retain win-win partner relations.” One of the sub-goals might be “Improving hotel’s image on booking websites.”
Respective lagging metrics for these objectives are:
- Booking website score. A score that is based on user opinions that one can take directly from the booking websites.
- Room excellence score, % according to the experts opinion or room quality scorecard.
Two financial objectives – “Decrease costs” and “Develop new revenue sources” are tightly linked with current products and services provided to the hotel guests. That’s where the business genius of your team needs to start working, and hopefully after a discussion, you’ll come up with some strategic hypothesis that you will test in your hotel.
According to the goals discussed before, we can come up with some generic objectives for the “Internal processes” perspective.
- Implementing a customer relationship management system (or focusing it on the specific objectives) will help to understand the current value proposition and show you possible ways to improve it.
- Existing rooms need to be modified according to the established standards. A basic lagging indicator here is the percentage of the rooms according to the quality standards.
- The image of the hotel on booking websites can be addressed by some brand and quality programs. For example, when cascading this objective to the level of specific manager, we might want to formalize such goals as “Keeping information on booking sites up to date,” “Analyzing customer feedback” and so on.
Learning & Growth Perspective
Finally, the learning and growth perspective. According to the objectives specified before, our goals are to learn:
- What are the expectations of our guests from the room? (remember, we are focusing on those high-value guests).
- What additional service might our guests need?
- What are the factors of high or low scoring on booking websites?
The answers to these questions are not written in some user survey feedback form; these questions are the directions where you might want to focus your search. In some cases, you will need to improve your business systems in order to be able to answer them.
An Example of a Strategy Hypothesis
Let’s take a small piece of this generic strategy and see where one can use it.
According to the strategy map, one of the possibilities to increase revenue is to improve the room quality for high-value customers. In the Learning and Growth perspective, we have a focus on the analysis of the guests’ expectations from the room. What is the next step? Bring your team together and start brainstorming using this strategy map as a base for the discussion!
- I’m sure you are communicating with your guests in some way now, but what about those who did not stay in your hotel? You might want to reach those guests who canceled their room reservation for some reason. The idea is not to make them change their mind, but to understand what was the factor of their decision. You might find that just by adding a cheap coffee machine to the room, you might satisfy several expectations.
This is a hypothesis that you might have. Before implementing it, you might want to check if it disagrees with other goals. For example, if one of the ideas was to open a 24-hour bar downstairs, then this idea with coffee machines in each room might not be the best one.
- You might test it by asking your guests, or by placing some coffee machines into rooms and seeing how this will influence your costs, client scores in the surveys, and feedback on the booking websites.
Properly designed measures on the scorecard will tell you if you are on the right track. Make sure you have adequate metrics aligned with your goals.
- For example, a score on the booking website might be a good metric, but if it is not changing that fast; you might want to combine it with asking 2-3 key questions to the guests when they do a check-out.
Balanced Scorecard in Chained-Brand Hotels
Let’s review some famous hotel brands that use Balanced Scorecard. Studies presented by Huckstein and Duboff  in 1999 and by Denton and White in 2000 summarized some results of the Balanced Scorecard implementation in Hilton Hotels and Marriott franchisee White Lodging Services. According to these studies, Balance Scorecard helped management to focus on both long-term and short-term goals (and respective measures) and identify negative trends before they affected ultimate financial results.
Balanced Scorecard at Marriott International
In the official Marriott’s brochure, the Balanced Scorecard is mentioned not only as a tool for “reporting and measurement” but for “achieving Marriott’s vision.” It is also recognized as a means to incorporate goals related to the intangible assets.
Although Marriott doesn’t share their Balanced Scorecard with the public, one can deduce some general directions that the company has on it:
- Finance: Shareholders Interests; Cost-effective Business; Efficient Business;
- Customers: Providing High-quality Service; Achieving Customer Satisfaction, Achieving Partners Satisfaction
- Internal business processes: Standardized processes;
- Learning and growth: Motivation and Skill Development of Associates.
From the brochure, one can see that their strategy is divided into several strategic schemes, and some of them are mentioned by the authors:
- Marketing excellence. The Marriott’s marketing strategy is focused on finding, attracting, and retaining high-value clients.
- A separate theme is “Strategic Account Management,” the strategy that “deploys a proactive sales effort against top accounts.”
- Operational excellence. As explained in “Operations Planning,” Marriott’s provide each hotel with the resources in the diverse areas, such as room operations, engineering, food and beverage, spa, event management, and quality assurance.
I believe there are a few more themes related to the Construction, Franchise, and the extensive efforts to achieve excellence in the management of a multicultural workforce.
Balanced Scorecard and Management Compensation
In the annual report published in 2004,  it was mentioned that the leaders’ compensation is aligned with the balanced scorecard that took into account such factors as associates’ satisfaction, customer satisfaction, and profitability. In the annual report for 2013, scorecard is no longer mentioned as a tool for the calculation of compensation, which is probably now incorporated in “Stock and Cash Incentive Plan.”
Hilton Worldwide Quality Balanced Scorecard and Connie Award
According to the Hilton Worldwide, the Balanced Scorecard is used widely to reward teamwork and achieve customer service excellence. Based on the year-end evaluation best hotels are recognized with Connie Award.
The winners are selected according to:
- Total Quality Scorecard (TQS),
- Loyalty score according to SALT (Satisfaction and Loyalty Tracking)
- The quality assurance (QA) score.
The Role of Strategy Execution Software
For this example, we used BSC Designer to describe the strategy, formalize objectives, and align metrics with them. At the end of the article you will find a link to view and edit the scorecard discussed here. Feel free to modify it according to your needs.
Is using the specialized software a must? Well, it is not, but it saves your time and gives a framework for the discussion around the strategy!
- A similar strategy map can be designed in PowerPoint, but it won’t be so easy to maintain it or visualize up-to-date performance indicators on it.
- Metrics and KPIs can be managed in MS Excel, but when one has 15 metrics that are cascaded (multiply 15 by the number of levels) to the different levels, it might be a big challenge to maintain all this in order and be able to use it effectively.
- With professional strategy execution software, you can save a lot of time on visualization of the strategy and reporting of the progress. The software gives a framework that is easy to follow.
I invite all professionals from the hospitality industry to ask questions below and share their thoughts.
5 Hotel Performance Hacks Focused on the Value for the Guests
We are often asked about the best KPIs for a hotel. And the answer is always something like “You need to have a good strategy for your hotel first, and KPIs will come up naturally.” What is the best strategy for a hotel then? As for any business, we recommend for hoteliers to focus their strategy on providing more value for their customers.
The logic is simple: the higher value you provide, the higher are chances that your guests will return, will recommend your hotel to their friends, and so on and so forth. For sure, we still need to remember about financial efficiency, but the financial results are just outcomes of the excellent service to your clients. Provide high value at affordable price and you’ll get loyal clients!
We already discussed a formal approach to this challenge in the article “Balanced Scorecard Example for Hotel Top Management,” so what I want to do now is to give some quick hacks and to show how to focus the hotel scorecard on the value for the guests.
Guest Experience Hacks Need to Get Inside Your Business Systems
Let’s start with some hacks related to the guest experience. From the process view the whole stay looks like “booking stay” > “arriving to the hotel” > “check-in” > “getting things unpacked,” “laptop connected,” “making yourself comfortable” > “spending some time in hotel” > “check out.”
- What’s the difference between an average hotel and a hotel that has achieved excellence in the guest experience?
Average hotels know about all the best practices, and hotels that have achieved excellence have implemented a continuous system of providing guests with excellent service. And in most cases we are not talking about any financial investments. Let me share my personal findings and respective recommendations. I’m sure you also travel a lot and could share your own findings in the comment box.
Hack 1 – How Do I Open the Door?
I have not counted, but during my stays in about 5% of the hotels there were some issues with entering the room. The key card did not work, or there was some tricky way you had to use the key. During one of my stays I even found a man sleeping next to the door of his room, because he was not able to unlock the door and the reception desk was already closed… Some keys don’t work, some doors are hard to unlock… in any case this is a bad customer experience that sometimes happens.
Need a quick hack to avoid this bad experience?
One of the hotels in Perpignan, France applied a quick and effective hack. On the reception desk they have a display with a small part of a door with a lock. Once a guest got his keys they test the key right away and show their guest how to use the key. Needless to say the hack works!
Hack 2 – What Is the Wi-fi Password?
I’m not sure about you, but one of the first things that I do after checking in is try local Wi-Fi. Sometimes it is not protected with any password, but in most cases it is. After a long journey I might forget to ask about the Wi-Fi password at the reception. Not a big deal, but I then need to go downstairs and ask for a password. Hopefully reception is open 24 hours…
I believe most travelers use the Internet these days. Here are several hacks about Wi-Fi:
- Make sure you give Wi-Fi password to all guests (even if they forget to ask you about this; if it is written somewhere in the room, it is great, but don’t forget to mention this to the guest)
- Make sure that your password covers several devices (most of us travel with a smart phone, tablet, and probably a laptop)
- Make sure your Wi-Fi is fast enough, if not, you’ll be told by the guests that it is 2015, not 1995, and Wi-Fi should be free and fast.
- It’s really annoying when you need to enter the password every time you connect, so make sure your system asks for a login just once.
- Do you have a paid Wi-Fi? Most likely, I won’t shortlist your hotel when searching for an accommodation.
Hack 3 – Are You Listening to the Customers?
I could talk for hours on this topic. Most of the hoteliers will agree that it is important to listen to their guests. But what do they actually do? Nothing… or they ask you to fill in a questionnaire with a lot of fields or they don’t know the best time to ask for some feedback.
- I’d like to give some feedback, but I’m not patient enough to fill in the questionnaire with 20+ questions.
I was staying in one of the hotels in Spain, and I found a questionnaire in the room (good idea), but it was actually a scorecard with 15 different metrics to evaluate the hotel, hotel staff, hotel facility, cleanliest in the room, kitchen, check-in and check-out experience, and many other things that I have not even tried yet… This scorecard was overloaded (bad practice) and was given on the first days of the stay (bad practice as well). I had something to say, but there was just a small free space box for my comments (bad practice again).
Here is an improvement hack:
Traveling with family we stayed in one of the French “villas” decorated according to the 18th century style. The hotel was really nice, and one thing that I liked a lot was a small paper notebook (old fashioned style as well) on the table. It was something unusual, so I immediately checked it out… it was a collection of the feedbacks from the guests who had stayed in the room before. Written in different languages, the first comment was somewhat 2 years ago. There were no forms, no scorecards, just blank pages where one can write some ideas for improvement or just say “Thank you!”
Before implementing this across the hotel I would do a split test, but my guess is that this notebook provides managers with much more valuable ideas than a standard feedback form. It’s a great way to show your guests that you take their feedback seriously, and for sure, this idea might be converted into an excellent action plan for “Education and growth” perspective on your hotel scorecard.
Hack 4 -Put Yourself in a Client’s Shoes
This hack sounds like a truism – “imagine that you are a customer and stay in your hotel playing the role of a mystery shopper.” Well, it looks like most owners don’t really do this. Here are several typical pitfalls that I’ve found and some suggestions to fix them.
Experience for the Guests That Are Arriving by Car
Imagine that you are driving in the city that you don’t know well enough, you want to arrive at the hotel, but for some reason your GPS takes you to a different place and you don’t see any hotel. Then you finally find it, but what a surprise, you cannot enter the parking area without a key or card, so you need to stop for a while (you are lucky if you found a parking slot), and can rush to the reception desk, get a key, get back to the car, and only then be able to park it.
Bad guest experience! Needless to say that you can help your guest to avoid most of these problems: send an email with the details about how to find the hotel, send them detailed instructions about how to enter the parking area, or better yet, give your guess a code in advance.
Hack 4 – Pet Owners – Make Your Efforts Visible
During family journeys we have a small dog with us. Most hotels in Spain, and some hotels in France and Germany ask for a supplemental fee if you stay with a dog. I book hotels with booking.com and after a stay I get email from them asking to evaluate the hotel. One of the parameters to rate is “Facilities and service for pets.”
Unfortunately, in the most cases hotels don’t offer anything! For sure, we all understand that having a pet in the room implies some additional clearing efforts, but I’m afraid in most of the cases I have not noticed any!
Need a quick hack to improve experience of the pet owners?
We stayed in the hotel that actually provided some “tangible” services: a place where a dog could sleep and a bowl for food and water. These investments from their side paid back after just one stay, and we were happy to get a tangible service!
I’m not convincing all hoteliers to make their hotels pet-friendly (not a bad idea actually, as there are more people today who travel with their pets):
- The idea is that if you ask for some supplemental fee, make sure that you tell (at least) your clients what value you created for them, or better yet, show them this value with something tangible.
Hack 5 – Up-selling Things… Accor Group Experience
Business gurus will tell you that once you got a client you need to up-sell something. Sounds great, but you cannot up-sell another room or more nights to stay. I like what IBIS hotel chain does in this sense: they are up-selling their “sleeping experience” (their pillows). This works great for several reasons:
- Hotel is not annoying customers with some marketing offers that we all are tired of (like “Stay 49 nights and get 1 night free.”)
- Hotel is doing a soft marketing for their “pillow’s excellence.”
- Finally, they are doing extra-cash on this.
As far as I see, Accor team is on the right track in achieving and scaling excellence in many aspects. Their famous “Your problems resolved in 15 minutes” is a good verbalized slogan for a high quality excellence, and it works.
It’s not only about some big improvements; it is also really nice to find on the room door a note saying:
- We saw the “Not disturb” sign on your door, and we did not want to disturb you, but if you need to change towels, you can…
See the Big Picture
Sometimes when talking in the conferences about the alignment between a company’s performance and customer value I hear some “defeatist” comments. People agree that customer value is important, but they don’t believe that focusing on the customer value can change things – believe me, it can:
- Another positive review on a booking website will add a score to your hotel
- Another word-of-month mention of your hotel will work as a free advertisement
- Another happy client will choose your hotel again for the next stay
- Another proud employee will work harder because his/her results matter
- Finally, a pet owner will post in Facebook some pictures of how comfortable the hotel was for his dog or cat…
Things won’t change fast, but focusing on the customer value is a long term winning strategy.
Share Your Own Findings!
We all travel and stay in various hotels. I’m sure there are things which caught your attention during your stay. Feel free to share them in the comment box below.
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- ^ Hilton hotels: A comprehensive approach to 5 delivering value for all stakeholders. Huckstein, Duboff, 1999, Cornell Hotel and Restaurant Administration Quarterly.
- ^ Implementing a balanced-scorecard approach to managing hotel operations. Denton, White, 2000, Cornell Hotel and Restaurant Administration Quarterly.
- ^ The Power of Marriott International
- ^ Marriott International, Inc. 2004 Annual Report
- ^ Marriott International, Inc. 2013 Annual Report
- ^ Hampton Hotels Recognizes Top Performing Hotels with Connie Award, 2013, Hilton Worldwide