maverick case final (balanced scorecard system)

Maverick Lodging

Manages the hotel incompliance with thefranchiser’s policyand acts under hisSupervision.

Enters into contractwith franchiser and owns a hotel. Bears the capital

expenditures.

“Licenses” nameand concept toFranchisee

Structure of the Hotel industry:

Receives thefranchise fee androyalties based on %

of revenues.

Retains all the netprofits from the hotel.

Receives themanagement feeand an incentivemanagement feebased if a % of

house profit.

FRANCHISEE MANAGER D

esc

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tion

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no

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FRANCHISER

Offers a typical variety of hotel rooms, has a “gatehouse” area that serves complimentary breakfast.

Offers a typical variety of hotel rooms, has a restaurant.

Offers “suite arrangements” that include a kitchen, sitting room and one ore two bedrooms , has a “gatehouse” area that serves complimentary breakfast.

Structure of the Hotel industry:

- 15% annual compound growth in managed revenues

- $ 300 milion in managed revenues by 2004

- achieve annual budgets

- deliver a 15 % ROI to franchisees/owners

- retain mgmt employees by less than 20 % turnover

- retain 100 % of franchisees/owners

-Exceed brand average yield

- Grow RevPAR greater than local competitors

-Exceed the profitability level of Marriot-branded hotels owned and managed by Marriot

-Be in the top 20 % of brand in guest-satisfaction scores

-Retain non-management employees (i.e. associates) by achieving less than 60 % turnover

Regional manager# 2

Robert SandlinCEO

Regional manager# 1

Regional manager# 3

Hotel General Managers#1, #2…#13

FinanceVice-P

MarketingVice-P

MaintenanceVice-P

OperationsVice-P

Cindy BaumVice-P

Comparable U.S. Properties

1999 change vs. 1998

Residence Inn Occupancy 83.00% - 0.1% Average Daily Rate 99.03% + 0.9% REVPAR 82.23% + 0.8%

Courtyard Occupancy 79.30% - 0.1% Average Daily Rate 91.48% + 2.8% REVPAR 72.53% + 2.7%

Fairfield Inn Occupancy 71.00% - 2.2%

Average Daily Rate 58.87% + 3.3%

REVPAR 41.80% + 0.1%

Financial top-line yield

Color Ranking

Metric Platinum Gold Green Yellow Red

Top-line yield- 2 classifications of hotel performance:

(a) Top-line yieldabove brand average

6% increase or 110% of

brand average yield

4% increase or 105% of

brand average yield

0,1% increase or 100% of

brand average yield

2,5% decline in yield

>2,5% decline in yield

(b) Top-line yieldbelow brand average

12% increase in yield



1,5% increase in yield

<1,5 increase in yield

Financial top-line yield

1997 1998 1999

Top-Line Yield

Maverick Lodging yield vs. brand average yield = percentage of brand average yield; growth in Maverick Lodging yield

Maverick Courtyard vs. Average Courtyard

114.3% vs. 112.2% = 101.87%

116.7% vs. 113.3% = 103.00%; 2.10%

growth

121.1% vs. 116.5% = 103.95%; 3.77%

growthMaverick Fairfield Inn vs. Average Fairfield

Inn

110.1% vs. 111.3% = 98.92%

112.6% vs. 11.9% = 100.63%; 2.27%

growth

115.1% vs. 111.0% = 103.69%; 2.22%

growthMaverick Residence

Inn vs. Average Residence Inn

119.3% vs. 123.9% = 96.29%

122.7% vs. 123.5% = 99.35%; 2.85 growth

127.0% vs. 124.3% = 102.17%; 3.50%

growth

Competitive advantage

Value-added proposition -

through diversification of

its services

BSC: drawbacks

Balanced scorecard system:• was quite complicated and hard to understand• no customer growth rates are being measured

Bonus plan: drawbacks

1. was implemented only to hotel general manager level;

2. immediate implementation; 3. complicated and hard to understand

dependant on the color ranking and points which assign to each color not clear which of the points in each color must be completed to get it calculation of the weighted average score and the final performance score is not clear

Color Color rank Performance Points

Platinum Superior 10

Gold Above expectations 7.5

Green At expectations 5

Yellow Below expectations 2.5

Red Unacceptable 0

Color Color rank PerformanceWeighted

average overall point score

Performance factor

Platinum Superior 9.0-10.0 10

Gold Above expectations 7.5-8.9 7.5

Green At expectations 5.0-7.4 5

Yellow Below expectations 2.5-4.9 2.5

Red Unacceptable 0-2.4 0

Bonus plan: recommendations

1. All levels should be involved;2. Implementation after couple years

of testing the BSC; 3. Clear measurements

Strategy

BSC

Budget

Performance

Initiatives & programsInput (Resources) Output (Results)

Strategic Learning loop

Management Control Loop

Testing, learning & adapting:• Testing causal linkages• Dynamic Simulation• Emergent Strategy

Link strategy & budgeting• Stretch Targets• Strategic initiatives• Rolling forecasts

Closing the strategy loop • Strategic feedback• Managerial meeting• Accountability

Update the strategy

Funding Reporting

Test the hypotheses

Assume cleaning supply costs in the rooms:

Budget Actual VarianceOccupied Rooms 7,350 6,405 (945)Cleaning Supplies $6,528 $6,275 ($253)

Fixed: $1,750

Variable: $0.65 per occupied room

Complex

Confusin

g

Complex and confusing:

1-controllable profit relative to flexible (flowthrough) budget

- achieve budget targets

- obtain superior financial management of hotels

- outperform brand average profitability

- deliver high investment returns to owners


Color Ranking


Flowthrough-flexible-budget ratings-3 classifications of hotel performance:(a) Low

performers(house profit

under90% of budget)

106.0% of flexible budget

controllable profit


controllable profit


controllable profit


controllable profit

<99.0% of flexible budget

controllable profit

(b) Base performers

(house profit at90%-105% of

budget)


controllable profit


controllable profit


controllable profit


controllable profit


controllable profit

(c) High performers

(house profit >105% of budget)


controllable profit


controllable profit


controllable profit


controllable profit


controllable profit


1997 1998 1999

Flowthrough Flexible Budget

Actual house profit as a percentage of budget house profit; actual controllable profit as a percentage of flexible-budget controllable profit

Maverick Courtyard N/C (not calculated) N/C 107.1%; 100.9%

Maverick Fairfield Inn N/C N/C 88.5%; 101.1%

Maverick Residence Inn N/C N/C 100.7%; 101.1%

- the most satisfied guests across the brand

- internal consistency (no property scoring below brand average guest satisfaction)

Color Ranking


Customer Satisfaction:Guest-

satisfaction score

Increase by 80% or top

10% of brand


20% of brand


30% of brand


40% of brand

Increase by <20% or below

top 40% of brand

Customer satisfaction

Customer satisfaction

1997 1998 1999

Guest-Satisfaction Score

Maverick Lodging overall guest score vs. brand average guest score; change in Maverick Lodging guest score

Maverick Courtyard vs. Average Courtyard

82.1 vs. 83.0 (bottom 50%)

85.9 vs. 83.0 (top 30%) 4.63% increase

85.1 vs. 82.6 (top 40%) -0.93% decrease

Maverick Fairfield Inn vs. Average Fairfield

Inn

94.0 vs. 91.5 (top 30%)

89.2 vs. 86.2 (top 40%) -5.11% decrease

86.3 vs. 85.3 (top 50%) -3.25% decrease

Maverick Residence Inn vs. Average Residence Inn

90.2 vs. 84.6 (top 20%)

89.7 vs. 83.5 (top 20%) -0.55% decrease

87.0 vs. 82.8 (top 30%) -3.01% decrease

- ensure that hotel management addressed “the basics” of running the property

- audit conducted by a manager of Internal Audit and had a maximum score of 100 points

Уширова Махаббат

Уширова Махаббат

Color Ranking


Comprehensive process auditInternal-

process-audit score

at least 97,5 at least 95 at least 92,5 at least 90 below 90

Comprehensive Ranking

Comprehensive Ranking

1997 1998 1999

Comprehensive Audit PerformanceInternal-process-audit

score N/C 88.3 95.3

- identify the initiatives needed to provide the infrastructure for the organization’s future growth

- ensure that turnover of associates was minimized, as hotels with lower turnover generally performed better

Color Ranking


Employee retentionAnnual

associate turnover

30% or below or reduce by 75%




>60% or reduce

by <30%

Learning and growth – associate turnover

1997 1998 1999

Maverick Lodging TurnoverAssociate turnover; change in turnover 85.4% 69.9%; 18.15%

reduction61.3%; 12.3%

reduction

Learning and growth – associate turnover

Color Ranking

Metrics

Yield 5 5 5Budget 7,5 2,5 5

Customer satisfaction 2,5 0 5Internal audit 7,5 7,5 7,5

Associate turnover 0 0 0Weighted average 4,5 3 4,5Performance factor 50% 50% 50%

Use BSC to all levels of the hierarchy Communicate and educate the organization about the strategy Use the scorecards within the departments Adjust incentive compensation Coordination through teamwork Mobilization -> Governance

maverick case final (balanced scorecard system)

Business