A data envelopment analysis‐based balanced scorecard for measuring the comparative efficiency of Korean luxury hotels

Document Type

Article

Department or Administrative Unit

Finance and Supply Chain Management

Publication Date

4-18-2008

Abstract

Purpose

This paper aims to develop a balanced scorecard for measuring the comparative efficiency of Korean luxury hotels and then set the benchmark of performance standards for Korean luxury hotels in the increasingly competitive hotel industry. It also aims to identify the root causes of inefficiencies and then propose ways to improve the competitiveness of Korean luxury hotels.

Design/methodology/approach

This paper proposes data envelopment analysis (DEA) to measure the comparative efficiency of six luxury hotel chains in Korea, relative to prior periods and their key competitors. In particular, this paper develops the Charnes, Cooper and Rhodes (CCR) model that is designed to derive weights without being fixed in advance. Also, the results of the CCR model with constant returns to scale were compared to those of the Banker, Charnes and Cooper (BCC) model with decreasing returns to scale.

Findings

The paper finds that the declining efficiency within some Korean luxury hotels coincides with more aggressive government crackdowns on bad bank loans in the wake of the International Monetary Fund (IMF) financial crisis and the slow adaptation of some hotels into ongoing hotel industry restructuring. The deep discount in hotel room rates did not necessarily lead to increased room occupancy. The revenue increase is not significantly correlated with the enhanced profitability of Korean luxury hotels. The Korean hotel industry reached the stage of market maturity and therefore the mere expansion of the hotel capacity would not necessarily enhance the hotel's profitability.

Originality/value

This paper uncovers the financial weaknesses and strengths of the Korean luxury hotels and identifies challenges and opportunities for the Korean hotel industry. In addition, it helps Korean hotels formulate the future survival strategies by providing the detailed picture of where they stand in terms of competitiveness. This paper is one of the first attempts to utilise DEA to develop performance measures for hotels under the balanced scorecard framework. The proposed DEA can be easily modified or extended to similar settings in other hotels such as budget hotels or other countries such as USA and Japan.

Comments

This article was originally published in International Journal of Quality & Reliability Management. The full-text article from the publisher can be found here.

Due to copyright restrictions, this article is not available for free download from ScholarWorks @ CWU.

Journal

International Journal of Quality & Reliability Management

Rights

Copyright © 2008, Emerald Group Publishing Limited

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