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Hotel Performance Evaluation

RESEARCH NOTES AND REPORTS This Department publishes research notes, conference reports, reports on the work of public agencies and associations, ? eld (industry) reports, and other relevant topics and timely issues. Contributions to this department are submitted to its two Associate Editors: Research Notes to Juergen Gnoth (Department of Marketing, University of Otago, Dunedin, New Zealand. Email ) and Conference Reports to Russell Smith (Hospitality and Tourism, Nanyang Technological University, Singapore 639798, Rep. of Singapore. Email ).

Unsolicited conference and agency reports will not be accepted. RESEARCH NOTES www. elsevier. com/locate/atoures Annals of Tourism Research, Vol. 31, No. 3, pp. 712–715, 2004 # 2004 Elsevier Ltd. All rights reserved. Printed in Great Britain 0160-7383/$30. 00 A DEA Evaluation of Taipei Hotels Wan-Erh Chiang Ming-Hone Tsai Li Shau-Mei Wang National Central University, Taiwan It is always a major concern for top management to measure ef? ciency. Data Envelopment Analysis (DEA) is an excellent tool for assessing the relative ef? ciency of decision-making units.

This research is aimed at measuring hotel performance by DEA under three operational styles of International Tourist Hotels (ITHs) commonly seen in Taiwan since 2000: Independently owned and operated, franchise licensed, and managed by international hotel operators. The results are expected to provide hoteliers with a basis for constructing strategies and promotion plans. With carefully selected indicators (input/output variables), DEA is able to locate and diagnose inef? ciencies, and to provide information for improvements. Several in-depth interviews were conducted with top managers of some Taipei ITHs for critical indicators.

Therefore, this study explored the operational ef? ciency of ITHs not only from a theoretical standpoint but also according to ideas and practical experiences of hoteliers. The data were obtained from the Annual Operation Report of the ITHs 2000, published by the Tourism Bureau of Taiwan. On the basis of market segmentation and geographical location variation 712 RESEARCH NOTES AND REPORTS 713 Table 1. Estimated Overall, Pure Technical, and Scale Ef? ciency Scores DMU Overall Ef? ciency Pure Technical Ef? ciency Scale Ef? ciency A. Franchise Licensed Hotel 16 0. 878 Hotel 18 1 Hotel 21 1 B.

Internationally Managed Hotel 6 1 Hotel 11 1 Hotel 12 0. 978 Hotel 15 0. 730 Hotel 25 1 C. Independently Hotel 1 Hotel 2 Hotel 3 Hotel 4 Hotel 5 Hotel 7 Hotel 8 Hotel 9 Hotel 10 Hotel 13 Hotel 14 Hotel 17 Hotel 19 Hotel 20 Hotel 22 Hotel 23 Hotel 24 0. 885 1 1 1 1 0. 984 0. 838 1 0. 992 1 1 1 1 0. 994 0. 872 1 0. 989 1 1 1 1 0. 885 1 0. 986 1 1 0. 985 0. 943 1 0. 887 0. 996 1 0. 942 Owned and Operated 0. 877 0. 886 1 1 1 1 1 1 1 1 0. 677 0. 765 1 1 0. 716 0. 726 1 1 1 1 0. 727 0. 738 0. 65 0. 69 1 1 0. 887 1 0. 711 0. 714 1 1 0. 942 1 (Ismail, Dalbor and Mills 2002), 25 four or ? e star hotels in Taipei were selected for evaluation. The four input variables chosen by the hoteliers were hotel rooms, food and beverage (F&B) capacity (area in pings, the total space utilized by all such outlets in a hotel), number of employees, and total cost of the hotel (including employee salaries, F&B costs, room costs, utilities, advertising, operational cost, maintenance fees, taxes, and miscellaneous costs). The three output variables were yielding index, F&B revenue (the total generated from such businesses), and miscellaneous revenue (the total excluding the room and F&B revenues).

The RevPar (revenue per available room) is the most universally accepted measure for overall hotel operating performance (Enz and Canina 2002). Yielding index (personal communication with R. Hanks in 1998, Cornell School of Hotel Administration) is used speci? cally to examine room performance (yielding index = RevPar of individual hotel/Market RevPar). If the yielding index for an individual hotel is greater than one, it means that its performance is better than market average. While the index has received much attention from hoteliers, it 714 RESEARCH NOTES AND REPORTS as been neglected in the literature. This study is the ? rst to adopt it for research. To ? nd the DEA results, a specialized computer package—DEAP 2. 1 was used to handle the data. The BCC model (named afer those who proposed it; Bank, Charnes and Cooper) is employed to evaluate the overall ef? ciency, the pure technical ef? ciency, and the scale ef? ciency (Overall ef? ciency = Technical ef? ciency A Scale ef? ciency; Banker, Charnes and Cooper 1984). Table 1 groups the DEA results by hotel operational styles. Of the 25 properties, 14 have an overall ef? ciency score of 1. , which is relatively ef? cient. Of the franchised hotels (Table 1. A), two are DEA ef? cient, while one is relatively inef? cient. The overall ef? ciency score of Hotel 16 is 0. 878, which means it has only attained about 88% ef? ciency. This is a result of the lower pure technical ef? ciency score. Of the ? ve internationally managed hotels (Table 1. B), numbers 12 and 15 are inef? cient, with an overall ef? ciency score of 0. 978 and 0. 73, respectively. The overall inef? ciency is mostly due to technical inef? ciency. Among the 17 independent hotels (Table 1.

C), 1, 9, 10, 13, 19, and 23 are members of several domestic chains holding multiple properties, with resources shared among properties. However, hotels 1 and 9 are not ef? cient overall, due to technical inef? ciency. It is also worth mentioning that number 10 signed a management contract with an international hotel operator for the ? rst couple of years. After becoming an independent hotel, it successfully transferred obtained know-how internally. The model by Charnes, Cooper and Rhodes (1978) is used to analyze slack. By examining the input/output variables, a number of suggestions can be made (Table 2).

For example, hotel 16 as the only inef? cient franchised property could cut the number of hotel rooms by 98. 15, the F&B space by 2613. 69 pings (1 ping Table 2. Amounts of Improvement/Slack of Inef? cient Hotels DMU Hotel Rooms F&B Capacitya Employees Total Number Costb Yielding F&B Misc. Index Revb Revb A. Franchise Licensed Hotel 16 A98. 151 A2613. 686 0 A10. 826 0. 311 0 0 A2. 599 0 0 0 0 0 0 0 0 0 0 0 0. 129 0 0. 082 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1. 539 0 0 3. 024 0 1. 938 0. 114 0 0. 067 0 0. 079 B. Internationally Managed Hotel 12 A122. 614 A466. 261 A58. 868 Hotel 15 A34. 5 A485. 299 0 C. Independently Owned and Operated Hotel 1 A91. 544 0 0 Hotel 7 A102. 645 A202. 989 A36. 234 Hotel 9 A61. 838 A1430. 368 0 Hotel 14 A24. 175 A74. 17 0 Hotel 17 A44. 84 A209. 873 A41. 936 Hotel 20 A71. 789 A297. 454 0 Hotel 22 A67. 277 A53. 55 A6. 923 Hotel 24 A101. 568 A95. 732 0 a b Area in pings, one ping equals 35. 583 square feet. In millions of US$. RESEARCH NOTES AND REPORTS 715 equals 35. 58 square feet), the total expenditures, by $10. 8 million, to increase the yielding index by 0. 311, as well as other revenues by $1. 5 million and reach overall ef? ciency.

As another example, of all hotels, number 12 is advised to cut the highest number of rooms (122. 614; Table 2. B). From the results obtained, it became clear that not all Taipei’s franchised or managed ITHs performed more ef? ciently than the independent ones. As to franchised hotels, number 16 did not perform well, and has encountered management problems in recent years. Keeping or dropping a franchise is always controversial. If managed by a well-known company at the expense of high expenditures, hotels that do not achieve productivity ef? ciency are of great concern. Hotel 12 was the ? st Taiwan property to sign a management contract, but it has not performed well for years. One of the advantages for independent hotels is that they can meet the needs of local customers in time. Some independent hotels focusing on local F&B business do have an outstanding performance (such as hotels 2, 4, and 13). By incorporating yielding indices and other indicators, DEA has provided Taiwan’s hotel operation with insights into resource allocation and competitive advantages. It also helps with strategic decision-making, especially regarding operational styles under intense competition through high hotel density.

This research indicates that future studies should include soft, market-oriented variables such as the hotel’s image, customer satisfaction, and service quality, to achieve a more complete DEA analysis. A _ Wan-Erh Chiang: Department of Business Administration, National Central University, Taiwan, Ming Chuan University, Taiwan, Chung Li, 320, Taiwan. Email REFERENCES Banker, R. , A. Charnes, and W. Cooper 2003 Some Models for Estimating Technical and Scale Inef? ciencies in Data Envelopment Analysis. Management Science 30:1078–1092. Charnes, A. , W. Cooper, and E.

Rhodes 1999 Measuring the Ef? ciency of Decision Making Units. European Journal of Operational Research 2:429–444. Enz, C. , and L. Canina 2002 Best of Times, The Worst of Times: Differences in Hotel Performance Following 9/11. Cornell Hotel and Restaurant Administration Quarterly 43(5):22–32. Ismail, J. , M. Dalbor, and J. Mills 1991 Using RevPar To Analyze Lodging- Segment Variability. Cornell Hotel and Restaurant Administration Quarterly 43(5):73–80. Submitted 4 April 2003. Resubmitted 4 July 2003. Accepted 10 July 2003. Final version 30 August 2003 doi:10. 1016/j. annals. 2003. 11. 001

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