Re-evaluating Hospitality Leaders’ Key Performance Indicators – Human centred approach
Hospitality industry is vast, including lodging (different types of accommodation), food and beverage (restaurants, bars, cafes), events, travel and tourism and recreation. In the core of hospitality industry is people serving products and services to people. Therefore, hospitality industry is considered a service industry. A leader in hospitality is a person holding a senior position in various areas within the vast industry.
Typically, in hospitality Key Performance Indicators are roughly divided into two categories, financial indicators, and operational indicators. The latter includes labour, one of the most challenging costs to control. Therefore, the research questions of this thesis were:
- How do hospitality Key Performance Indicators impact leaders’ work performance evaluation?
- If labour can be an independent unit of measurement, separate from operational indicators, what kind of KPIs would that create to evaluate hospitality leaders’ performance?
The topic was approached by qualitative research methods: a survey to hospitality leaders, workshop facilitated with three participants and one-on-one interviews.
Based on the workshop and one-on-one interviews it is challenging to separate labour from operational indicators. Therefore, the results formed to be short-term indicators and long-term indicators.
Short-term indicators
In this context short-term refers to 6 months up to 2 years as figure below illustrates. Since gaining or measuring any results, it is important to allow time and resources for results. 6 months is enough for smaller steps or indicators for a leader to achieve and after 2 years they are either part of long-term indicators or not relevant anymore and should be removed or changed.
Customer objectives refers to measuring customer experience and satisfaction, for example setting targets to increase returning customer rate and creating feedback platform for customers. Satisfied customers will come back so it is crucial to understand customer experience.
Reputation and recruitment in this context mean that the leader is responsible of both. With a good reputation a company attracts the best possible employees and successful recruitments are key factors in company’s performance. Even though reputation is an abstract term it can be measured for example by measuring the number of applications received to an open position.
Development of an organization is based on both leaders and employees. Ideally an organization recognizes where they can do better and create development plans for all employees. Developing employees is beneficial also by enabling internal promotions which increases employee satisfaction and company reputation and decreases recruitment costs in terms of retaining employees instead of new hires.
Revenue and expenses are key indicators. Without revenue, there is no business and by controlling expenses the company stays afloat. Revenue as an indicator in this context means for example leaders’ efforts in increasing net profit. By developing employees in financial acumen organization develops them to become better in sales. As mentioned before in hospitality labour is categorized under operational costs. Therefore, part of Key Performance Indicators should also be controlling of resources, whether they are human related or material costs.
Figure also illustrates the correlation between all Key Performance Indicators, meaning everything is connected. Depending on results and achievements they can be changed or replaced. The indicators can be emphasized based on various circumstances. For example when revenue is decreasing focus of a leader should shift to understanding why and putting efforts into increasing revenue.
Long-term indicators
Reasonable and relevant long-term plan is 2-5 years as shows in figure below, long-term indicators. For any leaders to start in an organization it takes time to fully understand all aspects of the company and the business they operate in. Therefore, to really gain tangible, measurable results the timeline of 2-5 years should be long enough.
It is without a doubt that being successful a company needs to be profitable. Therefore, it is necessary to have EBITDA as a KPI to measure leaders’ performance. Acronym EBITDA stands for earnings before interest, tax depreciation, and amortization. This is a direct indicator how a company is performing, and a leader’s role is vital in delivering results.
Organizational well-being is a direct indicator of a company’s culture and values. This is the core of human centricity; how employees are feeling and do they find their work significant.
Corporate Social Responsibility indicates company’s’ values, views, and attitude towards their surroundings. With digitalization any data and information of any company are easily accessible to the public, governing in companies should be transparent, clear, and responsible to all stakeholders. This also includes sustainability and the efforts a company does towards sustainability for example by reducing waste and recycling. CSR is tied with company’s reputation as well, hence having it embedded in KPI’s.
Customer experience and satisfaction are in the core of any hospitality business and should not be underestimated. By improving customer satisfaction, a company attracts more customers, bringing more revenue. In log-term it directly affects to earnings, net profit and ultimately to balance sheet.
The correlation and intertwined connectedness of short-term indicators and long-term indicators is inevitable. Long-term indicators are references to aspired future, where the company wants to go and what to achieve when short-term indicators are smaller steps how to achieve the longer-term goals. In other words, they support each other as a roadmap for leaders work performance evaluation.
In recent years unforeseen circumstances around the world (COVID pandemic, war in Ukraine) change businesses and industries and even working environments and how work is done. Therefore, the indicators should be adjustable, flexible, and based on the organization’s strategy.
Master’s degree student in Service Design Programme Mia Jääskeläinen studied in her thesis the importance of KPI and especially human aspect in hospitality industry. As a result, she found out that ”separating labour from the operational indicators to its own entity was virtually impossible as everything is connected in terms of profit and loss and in balance sheet”. Instead of being able to show a KPI model, where the labor could be its own entity, Jääskeläinen developed short-term and long-term indicators for an ideal KPI.