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

Hokey Min (Department of Management, College of Business Administration, Bowling Green State University, Bowling Green, Ohio, USA)
Hyesung Min (Department of Tourism Management, Yuhan University, Bucheon, South Korea)
Seong‐Jong Joo (Department of Finance, Operations and Supply Chain Management, College of Business, Central Washington University, Ellensburg, Washington, USA)

International Journal of Quality & Reliability Management

ISSN: 0265-671X

Article publication date: 18 April 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.

Keywords

Citation

Min, H., Min, H. and Joo, S. (2008), "A data envelopment analysis‐based balanced scorecard for measuring the comparative efficiency of Korean luxury hotels", International Journal of Quality & Reliability Management, Vol. 25 No. 4, pp. 349-365. https://doi.org/10.1108/02656710810865249

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited