Performance measurement
systems and the financial crisis
Influences on performance measurement in the Dutch hotel
and restaurant industry
Performance measurement systems and the financial crisis:
Influences on performance measurement in the Dutch hotel and
restaurant industry
University of Groningen
Faculty of Economics and Business
Master of Science Business Administration
Specialization Organizational and Management Control
Author: Fu Qing Guan Student number: 1945483
Address: Dorpsstraat 52a Postal code: 5708 GJ
Place: Helmond
Phone number: +31(0)6 29 35 09 62 E-mail address: f.q.guan@student.rug.nl
fqguan@hotmail.com
A
CKNOWLEDGEMENTS
In front of you lies my thesis for the Master Organizational and Management Control of the study Business Administration at the Rijksuniversiteit Groningen. This is the final product to successfully finish the study after starting it in September 2009.
The subject of this thesis came to mind when I was brainstorming about interesting subjects. The first subject that came to mind was performance measurement, since I did my pre-MSc thesis also about this subject. After that, I figured that I have been active in the restaurant industry my whole life. That was the start of this research to combine an interesting subject with something that has been part of my whole life.
I would first like to thank my supervisor drs. M.M. Bergervoet for his useful comments and support during this period. He kept me on track and directed me towards the right way. His feedback provided suggestions and insights that I needed to finish this thesis. I also want to thank my girlfriend, my friends and family for their support and the great time I had during this study. They were always standing ready for me and supported me during this period. Finally I would like to thank Fonkei Chan for checking this thesis on spelling and grammar.
I wish the people who are interested a pleasant reading of this thesis.
A
BSTRACT
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ABLE OF CONTENTS
INTRODUCTION TO THE RESEARCH ... 7
1. THEORETICAL FRAMEWORK ... 10
1.1PERFORMANCE MEASUREMENT ... 10
1.1.1DEFINITION OF PERFORMANCE MEASUREMENT ... 10
1.1.2DIMENSIONS OF PERFORMANCE MEASURES ... 10
1.1.3TYPES OF PERFORMANCE MEASURES... 11
1.2PERFORMANCE MEASUREMENT SYSTEMS ... 12
1.2.1DEFINITION PERFORMANCE MEASUREMENT SYSTEMS... 12
1.2.2PERFORMANCE MEASUREMENT SYSTEMS IN SMES ... 12
1.3PERFORMANCE MEASUREMENT SYSTEMS AND ENVIRONMENT ... 14
1.3.1INTERNAL ENVIRONMENT ... 15
1.3.2EXTERNAL ENVIRONMENT ... 15
1.3.3INFLUENCES OF THE ENVIRONMENT ON PERFORMANCE MEASUREMENT SYSTEMS ... 15
1.4PERFORMANCE MEASUREMENT SYSTEMS FRAMEWORKS ... 16
1.4.1CONTINGENCY MODEL OF FISHER (1998) ... 16
1.4.2PMC FRAMEWORK OF FERREIRA AND OTLEY (2005) ... 17
1.5CONCLUSION OF THE THEORETICAL FRAMEWORK ... 18
1.6CONCEPTUAL MODEL ... 18 2. RESEARCH METHODS ... 21 2.1TYPE OF RESEARCH ... 21 2.2SAMPLE SELECTION ... 21 2.3DATA COLLECTION ... 22 2.4DATA ANALYSIS ... 23
2.5CONDITIONS OF THE RESEARCH ... 23
3. ANALYSIS AND RESULTS ... 25
3.1COMPANY A ... 25 3.2COMPANY B ... 27 3.3COMPANY C ... 28 3.4COMPANY D ... 30 3.5COMPANY E ... 31 3.6COMPANY F ... 33 3.7CONCLUSION OF RESULTS... 34 3.8DISCUSSION OF RESULTS ... 38
4. CONCLUSION AND RECOMMENDATIONS... 42
REFERENCES ... 46
APPENDIX 3:PUBLICATION FOODSERVICE INSTITUUT NEDERLAND ... 54
APPENDIX 4:PUBLICATION SAS ... 56
APPENDIX 5:TWELVE QUESTIONS PMCFRAMEWORK FERREIRA AND OTLEY (2005) ... 58
APPENDIX 6:QUESTIONNAIRE INTERVIEW... 60
APPENDIX 7:INTERVIEW COMPANY A ... 63
APPENDIX 8:INTERVIEW COMPANY B ... 70
APPENDIX 9:INTERVIEW COMPANY C ... 77
APPENDIX 10:INTERVIEW COMPANY D ... 84
APPENDIX 11:INTERVIEW COMPANY E ... 91
I
NTRODUCTION TO THE RESEARCH
The financial crisis has brought many global complications, causing major influences on almost all industries. This includes the hotel and restaurant industry. Recent sales figures of the Dutch hotel and restaurant industry published by Misset Horeca1 show that the Dutch hotel and restaurant industry has suffered significantly from the financial crisis of 2008. The industries show prospering figures in the first half of 2008, but plummets at the end. From there on till now, the industries have performed generally under the nominal (= 100) performance. The general manager of Koninklijk Horeca Nederland, a Dutch branch organization for hotel and restaurant owners, states in an article2 that the Dutch hotel and restaurant sector barely keeps up with the economic trend. Growth has been minimal and costs have been growing significantly. The profit has dropped 21 percent cumulative since 2007 till 2010 and the expectations are not prospering, since the cutbacks of citizens and companies are relatively easy made on expenditures in the hotel and restaurant sector.
The crisis has unquestionably had its effect on businesses in the hotel and restaurant industry. A publication of the Dutch CBS and Chamber of Commerce34 states that the hotel and restaurant industry has had a much higher bankruptcy rate in 2011, 28 percent higher compared to 2010, while the total amount of bankruptcies in the Netherlands stayed almost the same as 2010. From the point of the financial crisis, the total amount of bankruptcies reached historical numbers. In 2009, more than 10,000 bankruptcies have been noted, and in 2010 and 2011, the amount of bankruptcies has been slightly under 10,000. The numbers above indicates that the hotel and restaurant industry has suffered significantly from the financial crisis. A FoodService Instituut Nederland5 publication states disappointing sales turnover and that costs have increased with roughly 2.5 percent. After holding a survey on Dutch consumers, 58 percent of the respondents acknowledged personal effects of the financial crisis on their spending. This affects their spending in for instance booking a hotel or going out for a dinner.
a financial crisis. Even though the banks paid a lot of attention on risk management before the crisis, the importance of it has increased after the crisis. Paape et al. (2009) did a research concerning risk management in the Netherlands and investigated more than a thousand Dutch firms. In this research he concluded that about a fifth of the firms he investigated, changed their risk portfolio after the financial crisis and that the respondents are quite confident about their risk management. The researchers, however, come to the conclusion that in general the firms score well below their expectations.
These events caught my attention and became the main motive for this study. The above mentioned researches show the need for change in ways of management control and management control systems. This gave the indication that there might be a considerable influence by the financial crisis on management control as well in the Dutch hotel and restaurant industry. In this study I will focus primarily on the performance measurement systems (PMS), being a part of management control systems. The purpose of this study is to examine the influence of the recent financial crisis on the structure of PMS in the Dutch hotel and restaurant industry. This study could contribute to the current literature concerning external factors, especially economic environment that influence PMS. Previous studies mainly depicted influences in general on the use and adaption PMS. The results of this research could be of use for small and medium enterprises (SMEs) in the hotel and restaurant industry, but also for branch organizations like Koninklijk Horeca Nederland or Misset Horeca.
uncertainty is positively associated with the design of accounting control systems (Hoque, 2004). These studies, however, did not make a direct relation between a financial crisis and performance measurement, since a financial crisis has not only the influence on SMEs, but all its stakeholders. Predictions are that the financial crisis has a significant influence on the hotel and restaurant industry and their PMS.
The Dutch hotel and restaurant industry have, according to previous mentioned figures, suffered significantly from the recent financial crisis of 2008. The main objective of this study is to investigate what the influence is of this financial crisis on the structure of PMS in the Dutch hotel and restaurant industry. The findings of this thesis could be of use for organizations in these industries, but also branch organizations. They can use the information to their advantage for future decisions. A research question should be defined and needs to be answered in order to achieve the research objective. The research question formulated for this thesis is: “In which way is the structure of
performance measurement systems in Dutch hotel and restaurant firms changed as a result of the recent financial crisis?”
1.
T
HEORETICAL FRAMEWORK
In this chapter a literature review will be done concerning the topics of this research. First performance measurement on its own will be reviewed, followed by performance measurement systems (PMS). After that the influence of the environment on PMS will be reviewed and some frameworks will be discussed. At the end of this chapter a conceptual model will be developed that visually depicts the problem and also functions as guidance for this research.
1.1 Performance measurement
The first topic discussed is performance measurement. This will start by defining performance measurement, followed by discussing the dimensions and types of performance measurement.
1.1.1 Definition of performance measurement
To define performance measurement and PMS, it is important to first define what performance means. According to Lebas (1995), performance can be defined as the potential for future successful implementation of actions in order to reach the objectives and targets or an organization. Neely et al. (1995) defines performance measurement as the process of quantifying the efficiency and effectiveness of an action, while Pedersen and Sudzina (2012) define it as selecting and using indicators of organizational performance to assess how an organization is doing in order to identify room for improvement. Looking at the definitions, they both point towards the assessment of performance and search for improvement.
1.1.2 Dimensions of performance measures
Neely et al. (1995) categorizes the dimensions of performance in terms of quality, time, cost and flexibility. This is based on the manufacturing strategy literature. The reason for this is that performance measures need to be positioned in a strategy context, as they influence what people do. This also applies in the Dutch hotel and restaurant industry.
Quality-based measures have focused on issues such as number of defects produced or cost of quality. In terms of the hotel and restaurant industry, this could be measured by for instance the quality of the state of chambers or diners. The cost of quality is a function of prevention, appraisal and failure costs. Prevention costs are costs to prevent discrepancies, such as supplier quality surveys or training programs. Appraisal costs are costs for the evaluation of quality, such as costs of inspection. Failure costs are the costs as a result of discrepancies, such as refund or customer returns.
manufacturing and the whole process of producing. This dimension will not be taken into consideration, since no concrete measures with time can be made.
On the basis of costs, performance measures in this dimensions mostly concerns with the productivity of the inputs and outputs of an organization, however they should be quantified. Examples of measures relating to costs are: production costs, value added, running costs and service costs.
The concept of measures relating to flexibility can be seen as a measure of the efficiency with which processes can be changed. In the article of Neely et al. (1995) a reference is made to Cox who has investigated this dimension. He mentions that the focus primarily lies on product-mix and volume flexibility. In terms of the hotel and restaurant industry, other types of flexibility can be taken into consideration. Examples of measures relating to flexibility are: ability to change processes, ability to modify products and the ability to introduce new products.
1.1.3 Types of performance measures
Eccles (1991) predicted a shift from traditional financial information systems by non-financial information systems. This meant a shift in the use of the types of performance measures. Here, the several types of performance measures are described.
Traditional financial information systems are systems that use traditional performance measures or financial performance measures. These measures are developed from costing and accounting systems and have been seen as a meaning of quantifying the efficiency and effectiveness of action (Neely, 1997; Bourne et al., 2000). There is a difference between accounting (internal) and market (external) financial measures. Accounting measures are based on calculations and come in two basic forms: ratio measures and residual measures. Examples of ratio measures are: return on investment (ROI), return on equity (ROE) and return on assets (ROA). Some examples of residual measures are: net income, operating profit or EBIT. Market measures are based on changes in the market value of the firm. Examples of market measures are stock prices or dividends. Firms are increasingly supplementing internal financial measures with measures based on external financial measures (Bhimani et al. 2008; Merchant and van der Stede, 2007).
Examples of non-financial measures are: market share, customer satisfaction, service quality, new customers’ sales volume (Dossi and Patelli, 2010)
The rise of non-financial measures made it possible to combine multiple measures with each other. Perhaps the best known for this is the Balanced Scorecard, developed by Kaplan and Norton in the 1990s. It is a multi-dimensional approach to performance measurement and is linked to the organizational strategy, which is based on the principle to provide managers with sufficient information. The Balanced Scorecard consists of four dimensions, which permits a balance between short-term and long-term objectives and between performance drivers and those outcomes. The four dimensions used in the Balanced Scorecard are: (1) financial; (2) customer; (3) internal business process, and; (4) learning and growth. These dimensions are used to articulate the strategy to the business, to communicate the strategy of the business and to help align individual, organizational and cross-departmental initiatives to achieve a common goal (Kaplan and Norton, 1996; Otley, 1999).
1.2 Performance measurement systems
After discussing performance measurement on its own, the second topic that will be discussed is PMS. Here also a definition will be given, followed by reviewing the use of PMS in SMEs.
1.2.1 Definition performance measurement systems
Garengo et al. (2007) defines PMS as a balanced and dynamic system that supports the decision making process by gathering, elaborating and analysing information. Neely et al. (1995) defines it as a set of metrics used to quantify both the efficiency and effectiveness of actions. Both definitions point towards a systematic way to gather, measure and analyse information about the actions taken.
PMS provide organizations data that help them diagnose whether their company is performing to expectations. These systems are also called diagnostic control systems (Merchant and van der Stede, 2007). Diagnostic control systems are one of the four levers of control according to Simons (1995). The other three levers are: boundary system, beliefs system and interactive control systems. Boundary systems describe standards of ethical behaviour and codes of conduct expected of all employees. Beliefs systems articulate the missions, purpose and core values of a company. Interactive control systems are formal information systems that managers use to focus organization attention and learning on key strategic issues.
1.2.2 Performance measurement systems in SMEs
exceeding € 43 million7. The Dutch CBS8 shows that most hotels and restaurants, looking at the amount of employees, are SMEs, as shown in Table 1 and 2. The assumption is that the firms shown in the tables do not exceed the maximum amount of turnover and balance sheet total, since it is not likely to produce such amounts of turnover and/or balance sheet total with less than 250 employees.
Year Total firms 1 employee 2 employees 3 - 5 employees 5 - 10 employees 10 - 20 employees 20 - 50 employees 50 - 100 employees > 100 employees 2007 2 245 435 410 280 390 330 275 75 50 2008 2 315 515 455 275 375 325 250 70 50 2009 2 480 605 480 260 380 340 280 80 55 2010 2 565 680 520 270 365 330 270 80 50
Table 1: Dutch hotel firms. Source: CBS
Year Total firms 1 employee 2 employees 3 - 5 employees 5 - 10 employees 10 - 20 employees 20 - 50 employees 50 - 100 employees > 100 employees 2007 9 395 995 1 840 2 530 2 635 1 050 315 15 10 2008 9 550 1 335 2 125 2 310 2 470 1 000 275 20 5 2009 10 415 1 480 2 130 2 465 2 590 1 325 400 25 10 2010 10 245 1 545 2 190 2 375 2 470 1 250 385 20 10
Table 2: Dutch restaurant firms. Source: CBS
Garengo et al. (2005) compared studies concerning PMS and SMEs and identified five common characteristics. Firstly, SMEs have difficulties involving PMS projects. The companies that do take part in these projects rarely finish the project due to lack of time. Secondly, most SMEs either do not use PMS or use it incorrectly. Many companies often implement some parts of a model or modify the model without considering the changes made. Thirdly, PMS implemented in SMEs rarely has a ‘holistic approach’, meaning that most SMEs do not usually implement integrated PMS, and primarily focus on operational and financial measures. Fourthly, PMS in most SMEs are informal, not planned and not based on a predefined model. PMS are introduced to solve specific problems and grow out of the process rather than as a result of planning. Finally, most SMEs have limited resources for data analysis and analyse the gathered data in an imprecise way. SMEs mostly use tables rather than graphs, making it more difficult to interpret the information. Hudson et al. (2001) conducted a research concerning the PMS development processes in SMEs. After interviewing eight SME managers the researchers came to the conclusion that, even though the managers accepted the value of PMS, none of the managers had taken steps to redesign or update their current PMS. This indicates that there are barriers in the development process.
management information systems; (2) strategy; (3) organizational culture and management style; (4) external environment, and; (5) company size. This study shows that the design and development of a PMS is influenced by internal and external factors. This is in line with the study of Sousa and Aspinwall (2010), who depict the factors influencing the development and use of PMS in SMEs, as shown in Figure 1.
Figure 1: The development of a PMS from an SME perspective. Source: Sousa and Aspinwall (2010)
The factors in Figure 1 can be categorized in three different groups. The first group is inputs. This includes the knowledge, identification of requirements and resources that will be required to develop a PMS. The second group is the environment. This will be discussed in the next paragraph. The third group is reference/standard. The reference or standard is related to what the SME expects from the PMS.
1.3 Performance measurement systems and environment
1.3.1 Internal environment
Beginning with the internal environment, the organization itself, Neely et al. (1995) mentions that a PMS can be seen as a part of a wider system. An example of a wider system is a strategic control system and includes goal setting, feedback, and reward or sanction. The authors also state that the wider system has to match the business strategy and that strategy and culture should also be in line. This means that the PMS should also be consistent with the organization’s culture. This is also acknowledged by Pederson and Sudzina (2012). Many authors also emphasise the importance of the alignment of the business strategy with the PMS (Kaplan and Norton, 2006; Perego and Hartmann, 2009; Pederson and Sudzina, 2012). Pederson and Sudzina (2012) use the term organisational capabilities for structuring the analysis of the various internal factors that are likely to affect the adaption of PMS in organizations. The authors distinguish four capabilities dimensions: (1) skills and knowledge base; (2) technical systems; (3) managerial systems, and; (4) values and norms, as shown in Figure 2.
1.3.2 External environment
The external environment, the market where the organization competes in, is very broad and according to Pederson and Sudzina (2012) external factors are likely to affect the adaption of PMS. External factors cause certain uncertainties, because they are mostly out of the control of organizations (Sousa and Aspinwall, 2010). These uncertainties should be monitored, because they can influence the internal environment of the organization. Examples of external factors, as mentioned in Figure 2, are: new technology, economic development, legislation, political developments, intensified competition, market volatility, IT, labour supply, increasing customer bargaining power and quality of supplier deliveries. The financial crisis can be considered as an environmental uncertainty and is an economic development.
Studies concerning the impact of environmental uncertainty on management accounting system (MAS) show that financial measures for performance evaluation tend to be used to a lesser extent when uncertainty levels are relatively high. Studies also show that the non-financial MAS information are used to a greater extent to cope with external environmental uncertainty more effectively (Hoque, 2004).
1.3.3 Influences of the environment on performance measurement systems
use of comprehensive PMS. Only some aspects of the internal and external environment influence PMS adoption. The study found evidence that firms dominated by values of trust, participation and commitment are likely to adopt PMS. They also found evidence that firms with highly unpredictable competition are likely to adopt PMS. These results gave the conclusion that there is no clear relationship between organisational capabilities, environmental uncertainties and the adoption of PMS.
1.4 Performance measurement systems frameworks
The aim of this study is to depict whether or not the financial crisis has an influence on the structure of PMS in Dutch hotels and restaurants. In this paragraph some frameworks will be discussed concerning PMS and the external environment, in order to make a conceptual model to visually depict the problem of this research. The choice of frameworks is based on the paper of Paape (2008), because the author discusses the relevance of MCS and the usefulness of these frameworks.
1.4.1 Contingency model of Fisher (1998)
The first framework that will be discussed is the contingency model of Fisher (1998). This framework describes five contingency variables, which influence the design of informal control systems that depict the connection between control systems and variables. The five variables are:
1. Uncertainty (task, environmental)
2. Technology and interdependence (mass production, small production)
3. Industry, firm and unit variables (size, diversification, organizational structure) 4. Competitive strategy and mission (low-cost, differentiation, defender, prospector) 5. Observability factors (behaviour, outcome)
Figure 3: Contingency model. Source: Fisher (1998)
1.4.2 PMC framework of Ferreira and Otley (2005)
The second framework that will be discussed is the Performance Management and Control (PMC) framework of Ferreira and Otley (2005). Their framework is based on previous works of Simons (1995) and Otley (1999). They acknowledge the work of Simons (1995) for using management control systems (MCS) to implement strategy. The work of Otley (1999) is acknowledged by using its framework to define firm objectives, determining strategies and plans to achieve them, setting targets and rewards systems and monitor information flows. The framework of Ferreira and Otley (2005) consist of twelve question sets9, which form the framework as shown in Figure 4:
Two aspects are not explicitly addressed in the twelve questions: culture and organizational contextual factors. According to Simons (1995), and mentioned earlier, culture is considered as ´beliefs systems´. Paape (2008) discusses that culture is necessary for the design of MCS. He refers to the work of Ouchi (1979) who claims that clan control can be used in uncertain times, whereas other control mechanisms might not be appropriate.
Contextual factors, or the characteristics of the environment where the organization competes in, have a significant influence on organizations. This is also mentioned by Fisher (1998) and categorizes it as one of the five contingency variables. Paape (2008) refer to the work of Simons (1995) and states that organizations need ‘interactive control systems’ in uncertain times to point the organization towards the right direction. These systems combine and provide the several levels in an organization with information about the environment.
1.5 Conclusion of the theoretical framework
From the above parts the following interesting conclusions can be drawn. Firstly, performance measurement can be divided in two main types: financial and non-financial. Researchers have suggested that non-financial measures are used to a greater extent when environmental uncertainty levels are relatively high.
Secondly, studies concerning PMS and SMEs show that the use of PMS could use a lot of improvement. Many flaws are mentioned concerning the development, use and implementation of PMS. However, even though many managers do accept the value of PMS, few managers have taken steps to redesign or update their current PMS. This indicates that many organizations struggle with the development process.
Thirdly, according to the literature the structure of PMS is influenced by two environments: the internal and external environment. The internal environment is under direct control of the organization. The external environment is the market where the organization competes in and consists of factors that are mostly out of control of the organization and can cause certain uncertainties. However, researchers came to the conclusion that neither the organizational capabilities nor the predictability of the market predictability has uniform impact on the use of PMS.
1.6 Conceptual model
Figure 5: Conceptual model
Firstly, the internal environment will be considered as the organization itself, since it is under the direct control of the organization. This is based on the work of Fisher (1998) and Ferreira and Otley (2005). An organization has its mission and vision statement which defines the organizations’ strategy and objectives.
Secondly, the organizational mission and vision statement will result in defining the desired results. These results will contribute to the mission and vision of the organization. The organizational strategy and culture are based on the desired results and the mission and vision since they are adjusted to the most effective setting to achieve the desired results.
Thirdly, the organizational PMS is based upon the desired results and derived from the organizational strategy and culture. This is based on the work of Fisher (1998) and Sousa and Aspinwall (2010).
Fourthly, based on the work of Pederson and Sudzina (2012) the financial crisis can be considered as an economic development. Based on this work, the term financial crisis is used in this model. The financial crisis could have an influence on the eventually realized results, which is based on the work of Fisher (1998) and Sousa and Aspinwall (2010).
Fifthly, after the realized results are known the organization should consider whether or not changes are needed in their performance measurement due to the realized results and the economic development.
Finally, as last part of the conceptual model, if there are any changes made in the performance measurement, a company should consider whether or not to implement these changes as well in their PMS.
The conceptual model is used as guidance for the problem of this research. The conceptual
These questions are the sub-questions of this thesis and by answering the sub-questions, eventually the research question will be answered. The sub-questions are:
1. In what way is performance measurement in line with the organizational strategy and culture of Dutch hotels and restaurants?
2. In what way is performance measurement in line with the desired outputs of Dutch hotels and restaurants?
3. In what way does the financial crisis influence the realized outputs of Dutch hotels and restaurants?
4. In what way do Dutch hotels and restaurants change their performance measurement based on the realized outputs and the financial crisis?
2.
R
ESEARCH METHODS
In this chapter the research methods of this thesis will be described, which discusses what type of research will be done and how the sample is selected. This is followed by discussing how the data will be collected, analysed and what the necessary conditions are for this research.
2.1 Type of research
The purpose of this thesis is to describe in what way the structure of PMS in Dutch hotel and restaurant firms is changed as a result of the recent financial crisis. If the research is concerned with finding out why, what, where, when or how much, the study is descriptive. This thesis can therefore be considered as a descriptive study.
According to de Leeuw (1996) and Blumberg et al. (2008) this research can be defined as a field research. Using a field research, the researcher is able to find out how certain things are in practice. There are several ways to conduct a field research, while this research will make use of case studies. The topical scope is depth, according to Blumberg et al. (2008), by the use of case studies. Case studies place more emphasis on a full contextual analysis of fewer events or conditions and their relations. According to de Leeuw (1996) case studies are used to study one or a few cases to define general conclusions with the intention to generalize it to a larger group.
2.2 Sample selection
2.3 Data collection
Data can be collected by two techniques, qualitative and quantitative techniques. For this thesis, qualitative techniques were applied. Qualitative techniques allow the researcher to obtain more in-depth information of the situation, thus for this study qualitative interviews were held. Interviews are the most widely used source for collecting information for evidence (Blumberg et al., 2008). Case study interviews are often unstructured, or even in the form of quite informal discussions with a key informant for the case (Blumberg et al., 2008).
Baarda et al. (2005) states that before using interviews, it is necessary to make a choice among the different forms of interviews. First, the structure should be considered of the interview. For this study semi-structured interviews were done with managers of the investigated organizations. The use of semi-structured interviews provide the researcher the ability to decide the important topics, mention important questions, define the structure of the interview, but still provide openness by asking further on the answers of the interviewee. Second, the researcher should consider whether the interviews are held individually or with a group. In this research individual interviews were held with managers or owners, since they know the most important information concerning the topics of this study. Adding more people into the interview will not provide added value to the information from the interview.
conceptual model. Thirdly, the questions should be defined. Baarda et al. (2005 make a distinction between the following questions: opening questions, questions concerning personal information, probing questions and retrospective questions. Openings questions are mostly used in open interviews, therefore no openings questions are going to be used. Questions concerning personal information were used to describe the role of the interviewee in the organization. Probing questions were widely used in the questionnaire by the use of open questions. Open questions provide the researcher the ability to comment on the answers and continue asking other questions when the answer is not clear. Retrospective questions are questions that concern the past and were also used in the questionnaire since this research concerns the financial crisis of 2008. The relevancies of the questions concerning the certain topics are described in the questionnaire. Fourthly, the interview should be closed. In the closure of the interview, the researcher asks whether the interviewee has questions concerning the interview or questionnaire and should explain what will be done with the information.
2.4 Data analysis
According to Baarda et al. (2005) and Verhoeven (2007) the analysis of qualitative data as a result of qualitative interviews is by the use of labels. The use of labels means that certain text fragments in the interview are labelled with a name, description or other code. This gives the ability to look for certain terms in the answers of the interviewee, which can be a positive of negative answer on the question. The answers of the interviewee can therefore be analysed.
However, the authors do mention that classifying fragments is implicitly labelling. The choice of fragments is not made without thought and the topics and questions were made in a logical order. Therefore some questions will not need labelling since some fragments were chosen in advance. The answers of the questions that can be labelled can be compared with the other case answers, in order to make comparisons. However, questions that do not need labelling can also be compared to each other.
2.5 Conditions of the research
There are some conditions that are necessary for this research to guarantee the quality of this research. It is important to secure the validity of the information. It is therefore important to promise anonymity and privacy of the interviewees, but also to promise integrity.
Secondly, it is important to secure the anonymity and privacy of the interviewees. It should be clear that confidential information will not be presented into the public. The interviewees will be told that the information provided will only be used for the purpose of this thesis. This should make the information of the interviews more reliable.
3.
A
NALYSIS AND RESULTS
The data collected from the interviews will be analyzed and discussed to see whether Dutch hotels and restaurants have changed their PMS as a result of the financial crisis. As mentioned before, three hotels and three restaurants have been investigated. Each company will be analyzed separately to provide a clear analysis and the companies will be compared with each other to draw conclusions. At the end a discussion will take place where the results will be compared with the earlier mentioned literature.
3.1 Company A
The first company is a hotel that has been operational since 2002 with a sales turnover of 2.5 million Euro per year. There are 50 to 80 employees, depending on what season it is, good for 35 FTE.
Performance measurement and the internal environment
Company A makes use of both financial and non-financial performance measures. As financial measures the organization measures on the basis of budgets, sales and costs. Budgets are formulated at the beginning of the year defining the goals and the amount of money available. On the basis of sales and costs the manager mentioned: “The organization makes use of a reservation
system that registers every data of previous years. This way we register what the costs are per chamber, but also the turnover per chamber”. The non-financial measures are customer reviews and
the use of ‘Greenkey’, which is a sustainability label. The manager stated: “We regularly look at
reviews of customers to obtain their opinion. Some points are taken into account and implemented, but not every point is taken into account”. The reviews are being discussed within the organization
and important issues will be used to improve. Furthermore, company A will be tested if it is performing sustainable with the use of Greenkey. According to the manager: “This label is a mark of
sustainability where a lot of hotels are connected with. It drives us to perform sustainable”. The
measures are, according to the hotel manager, primarily focused on quality and are systematically measured with the use of a reservation system.
When looking at the internal environment, the manager mentioned: “We always set up a
business plan at the beginning of the year where we indicate what we want to achieve in that year and set up budgets for those goals.” The performance measurement is based on the goals of the
measurement is, according to the manager, linked with the strategy and culture of the organization. He stated that: “We nowadays have more conversations with our personnel to discuss the
organizational goals of the hotel”. Furthermore, the hotel manager made clear that no major
complications are foreseen if Company A needed to change the organization or performance measurement. Every month the budgets are discussed and can be adjusted when needed. Finally, the company consists of a small team so the company should be able to switch fast when there is a need for change.
Business results and financial crisis
After interviewing the hotel manager, it became clear that the development of the business results does not have a clear relationship with the financial crisis. As a coincidence the company made a large rebuilding of the hotel, which provided the hotel with more chambers. The manager stated:
“Compared with previous years, the occupation rate has remained the same. This means that more chambers have been sold, because we have obtained more chambers after the rebuilding. The sales turnover therefore has risen also”. However, the prices have decreased compared to the past. It is
therefore difficult to state whether the financial crisis has had a direct influence on the realized results of Company A. The crisis does influence the prices of the hotel and the hotel manager mentions: “It is more difficult to hold customers. Customers nowadays tend to be more price sensitive
and negotiate more.” The crisis also caused more uncertainty for the company. In the past the
company had more reservations in advance, while nowadays reservations are made at the last moment. As a result of the financial crisis, Company A hired more fulltime employees to provide more certainty of their personnel.
Performance measurement and the financial crisis
Company A has introduced the Greenkey performance measure as a result of the financial crisis, since the manager experienced “(…) that nowadays many organizations select on sustainability.
Companies want their employees, who need to sleep in a hotel, to search for a hotel with a sustainability mark”. These adjustments are also made in the PMS. The hotel manager, however,
mentions: “Greenkey has been introduced last year and will be inspected this year. We are not
certified yet, but hope that it will help contribute on our performance”. The company does not know
3.2 Company B
The second company is a hotel that was established over 25 years ago. The personnel of this hotel consist of six managers and around 20 other employees.
Performance measurement and the internal environment
Company B also makes use of both performance measures. The hotel is part of a group that formulates quota for every member in which the managers stated that: “It is the task of every
member to deliver performance and to comply with the quota”. The organization therefore has a high
need for measuring performance, since they use it for reporting. The manager also said: “(…) the
hotel uses measures for purchasing. We make use of budgets which are determined on the sold products of the previous week”. For non-financial measures the organization makes use of a
sustainability measure and use a system to determine how many hours are available to assign for personnel. The manager stated: “Our system keeps up what the sales are per chamber and how many
chambers are sold. An hour quote comes out on the basis of that data that we use to determine who we need to assign for the kitchen, breakfast and cleaning personnel”. The hotel therefore cannot
assign too many personnel, so they avoid unnecessary costs. The hotel is also working with the sustainability certificate Greenkey and tries to perform sustainable by the use if this mark. These measures are according to the hotel managers primarily focused on costs, especially the costs for purchasing and for personnel. However, the headquarters expects the hotel to perform quality as well.
The strategy of the organization is, according to the manager, based on the mission and vision of the organization: “(…) everything has to happen how the guest wants it to be. To realize this,
the strategy is determined to switch fast to comply with wishes of the guests. This is made possible with short lines between the management and the personnel, to directly solve things for guests.”
When looking at the organizational culture, it is expected of the personnel to be flexible. The manager mentioned: “The employees have an own module system to discuss their performance and
investments are made in external trainings. Like I said, everything is about what the guest wants”.
When looking at the performance measurement, it seems to be derived from the strategy and culture of the organization. The manager stated: “Within our group everything is about the guests.
We therefore are controlled on hospitality, product quality and tidiness and neatness”. This also
Business results and financial crisis
The hotel manager mentions that some hotels of the group have experienced an increase in results, some experienced a decrease and some have stayed stable. Company B has stayed quite stable after the financial crisis. The financial crisis, however, has had certain effects on the hotel. The manager said: “The organization notices that companies have fewer projects or let their employees drive
instead of sleeping at a hotel. Moreover, the sales department is more busy dealing with price agreements with customers or companies”. As a reaction to this, the organization changed their
pricing policies to cope with the need for price agreements. This is the main change in the organization as a result of the financial crisis.
Performance measurement and the financial crisis
Even though the organization has changed after the financial crisis, no adjustments were made in the performance measurement or PMS of the hotel. The hotel manager stated: “The hotel did not
implement extra measures as a result of the financial crisis. We did implement changes, but not in our performance measurement. And because we did not implement changes in our performance measurement, there was no influence on our PMS”. According to the manager it is therefore difficult
to state whether performance measurement has helped in times of economic uncertainty.
3.3 Company C
The third company is a hotel that was established in 1963, but was taken over by the current owner in 1985. There are 12 employees with an equivalent of 8 FTE.
Performance measurement and the internal environment
Company C makes use of both financial and non-financial measures. The use of financial measures is primarily accounting measures, such as sales, revenues, costs, and margins. The owner stated: “We
mainly look at figures of previous years and compare them with the achieved results”. Looking at
non-financial measures, the company was in the past part of a partnership that focused on a so called environmental barometer. The owner said: “With this environmental barometer the associated hotels
look for solutions to be more sustainable and work more efficiently (…)”. However, it is not subsidized
or quarter of a year, depending on the preference that moment. We measure our performance systematically”.
When looking at the internal environment of the organization, the company formulates at the beginning of each year what they would like to achieve and set up budgets for those goals. The manager said: “We determine every year which criteria the hotels wants to achieve. We then set up
budgets and plans to achieve those criteria”. The organizational culture is in line with the mission and
vision of the organization, since they involve the employees with the business by showing them the results of the hotel. The manager stated: “We have an informal sphere within the organization and
have a real co-operation relationship. We show the good, but also bad performances to our personnel. This gives our employees the feeling that they are part of the organization and that our performance is also dependent on them”. Performance measurement is used to see whether the organization is
performing the way they formulated it in the beginning of the year and can be easily adjusted in the system if there is a need for change. According to the owner, implementing changes should not provide any complications, however, they are sometimes dependent on the accountant or bank. They calculate whether it is possible or profitable to implement.
Business results and financial crisis
The owner of the hotel mentions that the hotel has experienced growth from 1985 till 2010, but experienced a fall in 2011. The results of 2012 so far are better compared to 2010. According to the owner: “The financial crisis has had its effect on the hotel. We see this in our occupation rate. Fewer
business projects are in the neighborhood and fewer activities take place, which has led to fewer businessmen and tourists”. Company C did not implement changes to react on the financial crisis.
Changes are made every year, but not specifically for the financial crisis.
Performance measurement and the financial crisis
As a result of the financial crisis, Company C has made more use of the questionnaires to obtain the opinions of their customers. Furthermore the owner mentioned: “Next to that we took trainings to
better cope with complaints of customers”. These adjustments are not made in the PMS, because the
organization prefers to decide whether or not the information is useful or not and do not need to be adjusted in the system. The financial crisis led to more focus on costs and quality and became more important in the organization. This is based on the following statement of the owner: “We are with
3.4 Company D
The fourth company is a restaurant that has been operational for over 9 years and has a sales turnover of 650.000 Euro per year. The restaurant has 16 employees that are good for 7 FTE.
Performance measurement and the internal environment
This company also makes use of both financial and non-financial measures. The use of financial measures is mainly concerned with sales turnover and quarterly figures. The owner said: “(…) we
keep good track of our purchases compared to sales. Next to that, he restaurant makes use of ratios.
According to the owner these ratios are used to control the purchasing costs compared to the sales. The owner stated: “These ratios are focused on general purchases, beverage purchases and personnel
costs”. As non-financial measure the restaurant makes use of questionnaires. The owner said: “Our restaurant makes use of questionnaires to investigate customer satisfaction. (…) we look per menu at customer satisfaction. This is to see how a certain menu was experienced”. The owner mentions that
in his opinion quality is the most important measure, but noticed that the organization lately focused more on costs to retain results. When looking at PMS the owner said: “We measure our performance
on a regular basis. This is mostly done monthly, quarterly or yearly, depending on the need of the organization”.
The owner mentions that at the beginning of each year the restaurant states what kind of performance it should deliver, however, the owner also mentions that they do not specifically formulate a strategy for it. The owner mentioned: “We do not formulate a strategy on paper and do
not work out of there. We do decide each year what we want to achieve and what we want to do”.
Mainly the goal of the restaurant is to book growth compared to the previous years and to deliver quality. When looking at the organizational culture, the objectives are communicated throughout the organization. The owner states: “We know where we want to go and communicate this with the
personnel. They then know what we expect of them and work into that direction and pay attention to that”. The desired performance is therefore communicated throughout the whole organization and
the performance measurement seems to be very focused on the quality of their products and the performance of their employees. The owner also mentioned that if the organization has a need for change, this mainly should not lead to any problems. The owner stated: “The restaurant is very
Business results and financial crisis
When asking about the business results, the owner tells: “I noticed a fall in sales turnover, however,
we do obtain the same profits as in the past. This is mainly by better controlling the costs. These costs are mainly purchasing costs and personnel costs”. The organization also noticed that the financial
crisis has had an influence on the customers of the restaurant. According to the owner: “We noticed
that guests are drinking less. (…) and that the occupation rate has fallen down, while some guests tend to order less”. This is shown in the sales turnover of the restaurant. When looking at the results
of Company D, they have been quite stable over the years but experienced a small fall after the financial crisis. This decrease, however, is not a large fall. The restaurant did not implement major changes as a result of the financial crisis, but the owner does mention: “(…) more control on quality.
That’s why I am more active in the kitchen to keep an eye on how our products are”.
Performance measurement and the financial crisis
Company D did not use specific performance measures to react on the financial crisis, but the manager stated: “(…) we pay more attention on quality and costs. Mainly personnel costs have been
cut down significantly”. Since the organization has not introduced new measures or changed the
measures, no changes were made in the system of the restaurant. When asking about the importance of the performance measurement, the owner replied: “I am of opinion that performance
measurement has contributed to our performance, but I think that this not only necessary in times of economic crisis, but is always necessary”. He also states that performance measurement has become
more important and that it helps controlling the costs. The administration is now done by the owner himself instead of an accountant, so the restaurant has information faster and can react faster if needed.
3.5 Company E
The fifth organization is a restaurant that has been operational for around 19 years. The restaurant has a sales turnover of 1.1 million Euro per year. There are around 40 employees, consisting of 9 fulltime employees.
Performance measurement and the internal environment
Company E mainly uses financial measures and does not make use of non-financial measures. The restaurant keeps track of all financial information. According to the manager of the restaurant: “We
each restaurant is being compared to each other on a quarterly basis. In the past a non-financial measure was in use, however, the manager stated: “(…) we let a student fill in questionnaires by our
customers for his research. Some interesting things were discovered, but this was a one-time thing”.
When asking on where the measures are mainly focused on, the manager replied: “(…) we are a
restaurant with high costs. We therefore keep a close eye on costs and try to reduce our costs as much as possible”. The organization does not make use of a specific PMS model, but do make use of
a system and measure their financial data systematically.
When looking at the internal environment the manager of the restaurant stated: “(…) the
restaurant does not have a specific formulated mission, vision or strategy. We just strive to perform better than the year before and do not formulate a strategy for that”. To perform better than the
year before, the organization keeps a close eye on its personnel and their performance. This can be seen in their organizational culture. The manager said: “We tell them what they should do in a direct
way and are quite strict to them. But in general there is an informal sphere within the organization”.
According to the manager their performance measurement is derived from their strategy by the following citation: “We try to perform as efficiently as possible and to keep an eye on costs and
quality. Our performance measurement is therefore connected with our strategy and culture and is necessary to keep up with our performances. (…) because we keep track of every financial data we can try to get the most out of it and handle the costs better”. The manager stated that if the
organization had to cope with changes, this should not be an issue for the restaurant. Company E consists of a small team, however, no major changes have been made over the past 15 years.
Business results and financial crisis
Company E has booked growth from the establishment till 2008, but had a fall in the year 2009. The manager stated that they were surprised by the fall and did not expect that the financial crisis would have had an influence on the results. In the year 2010 and 2011 the organization booked growth again compared to the year 2008. The manager continued with the following: “(…) in general we
notice that fewer reservations are made by businesses. Businesses nearby seem to have experienced effects of the financial crisis too”. As mentioned before the restaurant has booked constant growth
but had a decrease in sales in 20009. From 2010 on Company E started to book growth again and is of opinion that the financial crisis did not have major effects on the results or fluctuations of the results, despite the fall in 2009. The organization therefore did not implement new changes as a reaction to the financial crisis.
mentioned: “We are paying more attention on costs and therefore were able to put pressure on the
costs. Furthermore, we are more aware of everything we do”. The manager also stated that the
organization did not specifically pay more attention to performance measurement than it already did.
3.6 Company F
The sixth company is an organization that consists of three restaurants operating with the same name and concept. The total sales turnover per year is around 2.75 million Euro and has a total of 85 employees good for an equivalent of 30 FTE.
Performance measurement and the internal environment
This company makes use of both financial and non-financial measures. According to the owner, the restaurant makes use of the following financial measures: “(…) monthly reports concerning sales,
purchasing costs and personnel costs. These are delivered by each restaurant to the controller who gives an overview to me. These measures are than discussed with the managers of the restaurants”.
For the use of non-financial measures the organization firstly makes use of a so called evaluation and quality management. The owner said: “This is in fact a questionnaire that consists of 150 questions
that we check on each restaurant. This is like a checklist with questions concerning the entrance, toilets, posters and etcetera”. Secondly, each location can be tested by an independent party that
inspects on quality and food safety. They set up a report and will be sent to the owner. If a location does not pass, the owner will take steps and confront the location with the results. Finally, the organization makes use of an online service that stays in touch with our customers. According to the owner: “They send digital questionnaires to our customers to depict complaints and compliments.
Every complaint and compliment is than registered in the complaints and compliments registration and will be treated if necessary”. These measures were developed over the years and mainly
introduced by the owner. However, each location managers can propose new measures if they are necessary. When looking at the dimensions on which the measures can be focused, the owner mentioned: “I am of opinion that measuring performance is a combination of all three dimensions. I
would not say that we focus on one specific dimension, but all three because they are related to each other”. The restaurants are using a system that is simple and clear for the owner. The owner
mentions that he does not feel much for complicated models or systems, but a simple system that provides the information needed with a push of a button.
managers, we discuss what we want to do and the managers know what is expected of them. This way everyone knows what they should do and should be their own entrepreneur”. The culture
therefore is flat, strict and direct. Performance measurement is used to watch over the performance of their personnel, but also if the organization is making growth and profit. When looking at the possibilities to adjust as a reaction to change in the environment, the owner states that this has not led to any problems so far.
Business results and financial crisis
Looking at the sales of the restaurant, the results have been quite stable in overall. Two locations are performing very similar and most of the times do not differ more than a few percent. The third location has just been established for two years, and is performing a little below the level of the other locations. As a result of the financial crisis, the owner noticed: “(…) everything has stayed quite
stable and the same. However, I do notice that margins are getting smaller and the purchasing costs have risen. We are therefore also paying more attention on personnel costs”. Company F did not
implement any other changes than looking closer on the personnel costs. The owner, however, does mention: “We did implement changes and did investments, but these are done regularly and are not
a reaction on the financial crisis”.
Performance measurement and the financial crisis
As mentioned before, the financial crisis has had effect on the margins of the restaurants. The owner states that he therefore looks more at the liquidity of the organization. The owner said: “In the past
we did investments without too much hesitation. This was with the idea that everything will work out in the future. But nowadays we tend to look if investments are plausible and that we do not get in trouble by investing too much”. These changes have not led to a change in their system, since it was
already part of their current system. The owner is of opinion that performance measurement and the use of PMS has helped him in the period of the financial crisis. The owner followed up by stating: “I
am of opinion that performance measurement absolutely has contributed in our performance and not only in times of financial crisis. If you don’t know and measure what you perform, than you cannot function properly”.
3.7 Conclusion of results
By answering the sub-questions, an answer can be given on the research question, which is: “In
which way is the structure of performance measurement systems in Dutch hotel and restaurant firms changed as a result of the recent financial crisis?”
In order to answer the sub-questions matrices will be used to depict the answers of the interviewed organizations and to show similarities and differences. The matrix shown in Table 3 will be used to answer the first and second sub-question and concerns performance measurement and the link with strategy, culture and desired results of Dutch hotels and restaurants.
Company A B C D E F
Formulated mission and vision
Formulated strategy
Link mission and vision with strategy
Link mission and vision with culture
Link PM and strategy
Link PM and culture
Link PM and desired results
Table 3: PM and the link with mission, vision, strategy, culture and desired results
After holding the interviews with Dutch hotels and restaurants, it first became clear that not every company has a specific mission, vision or strategy formulated. Company A, B and C did have a formulated mission and vision and derived their strategy and culture based on that. Company D and E did not specifically formulate a mission and vision, but did know what they wanted to achieve. It is therefore difficult to state whether or not the strategy or culture is linked with their mission and vision. Because Company D and E do know what to achieve, they have a strategy to fulfil that achievement, however, the strategy is not formulated. Company F did have a formulated mission and vision, but did not formulate a strategy. Once again it cannot be stated that there is a link between
1. In what way is performance measurement in line with the organizational strategy and culture of Dutch hotels and restaurants?
2. In what way is performance measurement in line with the desired outputs of Dutch hotels and restaurants?
3. In what way does the financial crisis influence the realized outputs of Dutch hotels and restaurants?
4. In what way do Dutch hotels and restaurants change their performance measurement based on the realized outputs and the financial crisis?
to achieve per year. All the organizations involve their personnel with what they want to achieve and how they want to achieve it. This can be seen back in the working atmosphere where close attention is paid to the performance of the employees. When looking at the performance measurement and the link with the strategy and culture, there seems to be a clear relationship in all the organizations. It can be concluded that every interviewed organization has in some sort of way focused their performance measurement on what they want to achieve and is in line with the strategy of the organization.
Secondly, it became clear that every interviewed organization has a clear idea of what they want to achieve and what kind of results are necessary to obtain what they want to achieve. Therefore the desired results, e.g. profitability, sustainability, growth, etcetera, are derived from the mission and vision of the organization. As mentioned before, even though not every organization has a formulated mission and vision they did know what they wanted to achieve per year. When looking at the performance measurement and the relationship with the desired results of the organization, there seems to be a clear link. Performance measurement is used to measure the realized results to depict whether or not the organization performing the way it should be. It can be concluded that each interviewed organization has its performance measurement in line with their desired results.
The matrix shown in Table 4 will be used for answering the third question: In what way does the financial crisis influence the realized outputs of Dutch hotels and restaurants?
Company A B C D E F
Business results after financial crisis
2009 + 0 + - - 0
2010 + 0 + - + 0
2011 + 0 - - + 0
Experienced influence of financial
crisis
Implement changes as result of the
Financial crisis
Table 4: Influence of the financial crisis on organization and results
