Maverick Lodging Case
Professor Wu FROM: Minghao Tang, AE5 DATE: March 30, 2014 SUBJECT: MAVERICK LODGING CASE Year 1999 Analysis In 1999, the Maverick Lodging company implements balanced scorecard to establish a measurement system and control the hotel level management. The balanced scorecard has several attributes, such as tracking financial performance, tracking nonfinancial measures and communicating franchisees and owners objectives of growth. For financial performance, according to Exhibit 7, the Maverick Courtyard has 3. 77% growth rate, Maverick Fairfield Inn has 2.22% growth rate and Maverick Residence Inn has 3. 5% growth rate.
For flow-through flexible budget, both Maverick Courtyard and Maverick Residence Inn have good score while only Maverick Fairfield has unexpected score. As a result, the financial performance is generally good for the company. However, nonfinancial figures indicate the company’s customer service quality is declining. According to guest-satisfaction score in Exhibit 7, all three hotels’ scores are lower than market average scores. The company has higher comprehensive audit performance than last year’s and employee turnover is decreasing.
Although the company has some unexpected performances, it develops well in year 1999. Analysis of Maverick’s value-added proposition Maverick lodging company’s objectives are increasing operating profit and market shares by enhancing customer satisfaction. By implementing the balanced scorecard, the company is trying to increase financial yield, control profit and flexible budget, improve internal business control, stimulate performance of hotel management, facilitate communication between principals and agencies and start learning and growing processes.
However, the balanced scorecard has several problems and makes it hard for the company to reach its goals. The first problem is that the balanced scorecard is hard for hotel level managers to understand. Although Baum tried to make it easier to understand, the scorecard still has many elements and some of the financial figures and complicated measurements are hard for entry-level managers to understand. For example, the colors and points system is complex because it is difficult to connect colors and points to the bonus points and the 40% multiply factor may cause managers’ confusions.
Since it is hard to understand, the scorecard would have problems on acceptance and the implementation process would be difficult. As a result, the scorecard would not reach the maximum effectiveness and efficiency. The second problem is that the scorecard contains uncontrollable factors for managers. For example, managers’ performance will be measured by comparing the budgets and actual expenses. However, hotel level managers have no right to determine the budget and this measurement is unfair. As a result, many managers would be reluctant to accept the scorecard.
The third problem is that the scorecard is only implemented at the hotel-general-management level. As stated in the case, the hotel-general-management is the last level of the company management and they have no right to discuss the components of the scorecard. In addition, the implementation process lacks communication between different levels of managements. As a result, the scorecard represents the top managements’ thoughts and may not be suitable for the bottom level management. Also, the lack of communication may cause hindrance for accepting and implementing the scorecards. Flow-through Flexible Budget
The company applies the flexible budget in order to achieve target budget and generate high profit. The top management of the Maverick Lodging set the original budget at first. After one fiscal year of operating, the management gets the actual data of revenue and expense. The management would then make reforecast target, which is the flexible budget, to measure the performance of each hotel. For the variable costs and the variable revenues, the company uses drivers and actual quantity to determine the value of flexible budget. However, the fixed elements and the uncontrollable expenses stay the same as original budget.
After the calculations, the company can acquire controllable profits and house profits for both actual and flexible budgets. Based on the results, top management calculates the percentages of actual controllable profit divided by reforecast controllable profit. According to Exhibit 3, the company firstly determines whether the performance is low, base or high by viewing house profit percentage. House profit percentage that is lower than 90% indicates low performance, 90%-105% indicates basic performance and higher than 105% indicates high performance.
After determine level of performance, the company uses the flexible budget controllable profit percentages to determine the color rankings of managers. Changes for Balanced Scorecards According to the analysis above, the scorecard does not align with the company’s overall objectives. As a result, the company can make some changes to modify the scorecards. Firstly, the company should simplify the scorecards procedure to help managers understand and increase acceptance. For example, the company should delete the color and points system, and add some straightforward methods to determine the managers’ performances.
Secondly, the company should eliminate the uncontrollable factors in scorecards. For example, budget comparison should be deleted because bottom level managers have no right to determine the original budgets. Another way to solve this problem is to let bottom level managers plan for their own budgets so that they have the power to determine the original budget. In addition, since the customer survey is complicated and time-consuming for customer to fill in, many customers would not complete the survey.
As a result, the company should consider simplifying the guest-satisfaction survey in scorecards to attract more attendance for the survey. The third alternative the company can take to change the scorecards is to let all level managers discuss the properties of the scorecards and implement the scorecards measurements in all level managers. Since the bottom level managers cannot determine the components of the scorecards, the acceptance and implementation process would be difficult. The scorecards process would be fairer if all level managements apply the same measurements.