How Important Is Strategic Management Accounting to Hotel Managers?
December 6, 2018 1:03pm
By Michael Turner and Demian Hodari
While hotels have long used traditional management accounting practices, their use of contemporary strategic management accounting (SMA) techniques has not been as widespread. As researchers, this intrigued us because studies conducted outside the hotel industry had found that the relationship between firm strategy and firm performance was significantly enhanced through the use of SMA techniques.
In our recent publication in the International Journal of Hospitality Management, we set out to determine which type(s) of hotel strategy act as the key precursor(s) of hotel property SMA use, and whether the use of SMA had a positive impact on hotel property performance.
So what exactly are Strategic Management Accounting (SMA) techniques?
At the hotel property level, they involve the collection of long-term, externally-focused and forward-looking information for the purpose of:
To conduct our study, we gathered data via a survey from 80 hotel properties.
Our primary finding was that the key precursor to hotel property SMA usage is a hotel property’s adoption of market orientation business strategy; and where this is the case, superior hotel property financial performance was in evidence.
So what exactly is a market orientation business strategy?
A hotel which adopts this type of business strategy will tend to operate in a highly competitive market, and therefore puts their customers at the center of their strategic and operational thinking. To implement this strategy, the hotel will need to gather market information related their target customers’ needs, as well as of their competitors’ capabilities, to deliver superior customer value. Knowing this will enable the property manager to discontinue product offerings that add no value, and to include only value-added services.
Realizing that in a competitive environment, competitors’ capabilities and target customers’ needs are in a constant state of flux, there is often a feedback loop and learning is essential. The focus is on offering only those products for which customers find value and are willing to pay. We find that the information generated through adoption of SMA techniques assists managers with these needs, and they enjoy superior hotel property performance.
Sales orientation business strategy
On the other side of the constellation is the sales orientation business strategy. A hotel which follows such a strategy will usually only do so where they compete in a market with a low level of competition. Hotel managers are able to offer their product to the market in way that is somewhat divorced from – or at least shows little correlation with – customer and competitor considerations. Management considers that there are few, if any, alternatives for customers in their market and so they see little merit in expending the resources and effort needed to gather competitor or customer information (e.g., through SMA). Instead they are able to set a price up to the maximum customers are willing to pay. Our findings suggest that the further a hotel moves away from a market orientation business strategy, the less benefit there will be from adopting SMA techniques.
Hospitality industry: highly competitive industry
In summary, while there may remain some locations globally where hotels operate in less competitive markets, the overarching trend is toward hotels facing higher levels of competition. Where there is greater competition, there will be a need for hotels to adopt a market orientation business strategy, and our findings highlight that such hotels will be unequivocally better off in terms of superior hotel property performance by adopting SMA.
This article is based on the following research paper:
Turner, M. J., Way, S. A., Hodari, D., & Witteman, W. (2017). Hotel property performance: The role of strategic management accounting. International Journal of Hospitality Management, 63(May), 33-43.
Access paper here
Tags: hospitality insights,
ecole hôtelière de lausanne,
Michael J. Turner, Ph.D, is a Senior Lecturer in Accounting at the UQ Business School, The University of Queensland in Brisbane, Australia. His research and teaching specialization is in hospitality managerial accounting focusing on capital expenditure decision-making, competition, strategy, and the strategic partnerships between hotel owners, management companies and general managers, and the ensuing performance implications.
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Demian Hodari, Ph.D, is an Associate Professor of strategic management at the Ecole Hôtelière Lausanne (EHL) - HES-SO// University of Applied Sciences Western Switzerland. Demian has won numerous research prizes in recent years for his work on the evolving relationship between hotel owners, operators and general managers, and for the performance implications of hotel management agreements. His academic research is regularly published in leading academic journals focused on the hospitality industry.
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