Kolmog Hotels’s Balanced Scorecard and Targets

Contents

I. Introduction:        

II. Characteristics differentiating service businesses from manufacturing ones        

III. Evaluation of current strategic performance report and the choice of performance metrics used        

a, Current strategic performance report        

b, Performance metrics used        

IV. Evaluation of Kolmog’s outline balanced scorecard and suggestion of suitable improvements        

V. Difficulties in implementing and using the BSC at Kolmog        

VI. Purpose of setting challenging targets        

VII. Hotel managers’ performance reward system        

VIII. Conclusion        

References        

Report to CEO

From: Cost Accountant

Subject: Kolmog Hotels’s balanced scorecard and targets

I. Introduction:        

This report firstly explains the differences between service businesses and manufacturing businesses using current performance information of Kolmog Hotel. Next, it evaluates Kolmog’s current strategic performance report and the choice of used performance metrics. After that, it evaluates the hotel’s outline balanced scorecard (BSC), suggests suitable improvements, and describes the difficulties in use and implementation. Finally, it explains the purpose of setting challenging targets and evaluates CEO requested standards and rewards system by using Fitzgerald and Moon’s block model.

II. Characteristics differentiating service businesses from manufacturing ones

• Intangible: unlike in manufacturing businesses where products are tangible, products offered by service businesses are intangible. Kolmog offers hospitality service with a wide range of buildings and locations serving different groups of customers. Since it is not physical products, the Kolmog’s cost of sale is relatively low (11.78% of the total revenue).
• Divergent:  unlike in manufacturing businesses where products can be standardized easily, service businesses’ products are varied from one another. In hotel business, every hotel has a unique way of performing service to its customers; therefore, the experiences customers get from one hotel cannot be exactly the same in another hotel.
• Simultaneous:  unlike in manufacturing businesses where products are normally created before selling; in service businesses, the service is created simultaneously with customers’ consumptions. In hotel business, the service is made during customer’s stay.
• Possessive: unlike in manufacturing businesses where products’ ownership is fully transferred from providers to buyers once the transaction is made; in service businesses, customers only have the right to use the service for a certain period of time. In hotel business such as Kolmog, customers can only use its facilities during their stay.
• Perishable:  unlike in manufacturing businesses where products can be store as inventory for later, services cannot be stored. In hotel business, for example, the experience a customer has at the hotel cannot be kept and taken with them once his/her stay is over.

III. Evaluation of current strategic performance report and the choice of performance metrics used

a, Current strategic performance report

Financial values

The current report covers Kolmog and shareholder financial improvements by providing the growth in capital employed, EPS, share price, and ROCE. However, it does not mention information which is related to the aim of becoming number one hotel chain. The missing information includes customer satisfaction, employee appreciation, innovative products/services, brand culture and brand loyalty.

Lack of commentary and external information

The current report merely provides a set of numbers that is related to the company’s financial performance but does not leave any comments or external information. External information such as the competitors’ costs and prices, sales volumes, market shares... will benefit the CEO in the process of developing strategy to make Kolmog the number 1 hotel in Ostland (Dury, 2007).