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United Nations Development Program (UNDP), The World Bank, World Watch Institute,. International .... been the formulation of WTO's Global Code of Ethics for Tourism. The latter was ..... social accounting and auditing (Gray, 2001; Owen & Swift, 2001). Especially the ...... The CIB 2003 International Conference on Smart.
“DEFINING THE MODEL TO ASSESS THE PERFORMANCE OF SLOVENIAN HOTEL ENTERPRISES”

by

MIHA BRATEC

B.Sc Law and Legal Sciences

A MASTER DISSERTATION

submitted in partial fulfillment of the requirements for the degree M.Sc.

EUROPEAN MASTER IN TOURISM MANAGEMENT

1st Generation 2007 - 2009

UNIVERSITY OF SOUTHERN DENMARK UNIVERISTY OF LJUBLJANA UNIVERSITY OF GIRONA

Approved by: Supervisor Ljubica Knežević Cvelbar, Phd

Table of Contents CHAPTER 1 - INTRODUCTION ........................................................................................................................ 1 DISSERTATION’S AIM ................................................................................................................................. 2 STRUCTURE .................................................................................................................................................. 3 CHAPTER 2 - FRAMING THE THEORY PART 1 – CONCEPTUALIZING SUSTAINABILITY ................. 4 SUTAINABLE DEVELOPMENT .................................................................................................................. 4 Evolution of Sustainability Thought ............................................................................................................ 4 Where do we stand today? ........................................................................................................................... 5 Indicators of Sustainable Development ....................................................................................................... 7 SUSTAINABLE TOURISM ........................................................................................................................... 8 Conceptualizing Sustainability of Tourism ................................................................................................. 8 How do we understand it today? ............................................................................................................... 11 Sustainable Tourism – How to define it? .................................................................................................. 12 Attempting to measure Sustainable Tourism ............................................................................................. 15 CORPORATE SOCIAL RESPONSIBILITY (CSR)..................................................................................... 16 Where does it come from and what does it do? ......................................................................................... 16 What does it really stand for? .................................................................................................................... 19 CSR in Tourism and Hospitality ............................................................................................................... 21 CHAPTER 3 - FRAMING THE THEORY PART 2 – REVIEWING REPORTING & PERFORMANCE MEASURMENT FRAMEWORKS.................................................................................................................... 25 BUSINESS ACCOUNTING AND REPORTING......................................................................................... 25 Re-conceptualizing the field ...................................................................................................................... 25 From Social and Environmental toward Sustainability Accounting .......................................................... 26 TRIPLE BOTTOM LINE (TBL) APPROACH ........................................................................................ 28 Background ............................................................................................................................................... 28 The Concept .............................................................................................................................................. 29 Controversy ............................................................................................................................................... 31 TBL and Tourism ...................................................................................................................................... 32 BUSINESS PERFORMANCE MEASURMENT.......................................................................................... 33 BALANCED SCORECARD (BSC) .............................................................................................................. 35 Background ............................................................................................................................................... 35 The Concept .............................................................................................................................................. 35 Limitations................................................................................................................................................. 37 BSC in Tourism & Hospitality .................................................................................................................. 38 CONTEMPORARY “CROSSOVER” MODELS ......................................................................................... 38 General Characteristics .............................................................................................................................. 38 Sustainability Balanced Scorecards ........................................................................................................... 40 An Integrated Framework for the Financial Analysis of Sustainability (IFFAS) ...................................... 41

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Extended Performance Reporting Framework for Social and Environmental Accounting (EPRF) .......... 41 CHAPTER 4 - DEFINING THE MODEL ......................................................................................................... 45 OUTLINING THE FIELD ............................................................................................................................. 45 Hospitality and Hotel Industry within Tourism ......................................................................................... 45 Characteristics of Hotel Industry ............................................................................................................... 47 Performance Measurement in Hotel Industry ............................................................................................ 48 Characteristics of Slovenian Hotel Industry .............................................................................................. 49 APPROACHING THE WORK: FRAMING THE EXTERNAL STRUCTURE OF THE MODEL ............ 50 FILLING THE MODEL WITH CONTENT: REVIEWING THEORETICAL AND APPLICATIVE APPROACHES TO MEASURE PERFORMANCE OF HOTEL COMPANIES ......................................... 54 Financial Performance ............................................................................................................................... 54 Marketing Performance ............................................................................................................................. 58 Environmental Sustainability Performance ............................................................................................... 60 REFINED HHPM .......................................................................................................................................... 63 CHAPTER 5 - DESCRIBING THE METHODOLOGY.................................................................................... 65 PHILOSOPHY OF THE RESEARCH .......................................................................................................... 65 APPROACH .................................................................................................................................................. 66 RESEARCH GOAL, QUESTIONS AND HYPOTHESES ........................................................................... 67 RESEARCH METHOD ................................................................................................................................. 70 DATA COLLECTION................................................................................................................................... 71 Primary Data.............................................................................................................................................. 71 Secondary Data .......................................................................................................................................... 72 SAMPLE DESCRIPTION ............................................................................................................................. 73 CHAPTER 6 - PRESENTING THE RESULTS ................................................................................................. 75 DESCRIPTIVES ............................................................................................................................................ 75 Strategies ................................................................................................................................................... 75 Effective measuring and usefulness........................................................................................................... 76 General ................................................................................................................................................. 76 Financial Performance Indicators ......................................................................................................... 78 Marketing Performance Indicators ....................................................................................................... 80 Environmental Sustainability Performance Indicators ......................................................................... 83 Natural and cultural environment ...................................................................................... 83 Social and Political Environment ...................................................................................... 85 TESTING HYPOTHESES............................................................................................................................. 87 Hypothesis 1: ............................................................................................................................................. 87 Hypothesis 2: ............................................................................................................................................. 88 Hypothesis 3: ............................................................................................................................................. 89 Hypothesis 4: ............................................................................................................................................. 90 Hypothesis 5: ............................................................................................................................................. 91 Hypothesis 6: ............................................................................................................................................. 92 Hypothesis 7: ............................................................................................................................................. 93

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CHAPTER 7 - PROPOSING, EXPLAINING & DISCUSSING THE MODEL................................................ 96 “TOWARDS THE PROPOSAL OF THE FINAL MODEL” ........................................................................ 96 HOLISTIC HOTEL PERFORMANCE MODEL’S CONTRIBUTION ...................................................... 101 POLICY RECCOMENDATION ................................................................................................................. 102 LIMITATIONS AND FUTURE RESEARCH POTENTIAL ..................................................................... 103 CHAPTER 8 - CONCLUDING THE DISSERTATION.................................................................................. 105

REFERENCES ................................................................................................................................................. 107 APPENDIX -A SURVEY QUESTIONNAIRE ..................................................................................................... I APPENDIX -B STATISTICAL (SPSS) CALCULATIONS ............................................................................. VII DESCRIPTIVES.......................................................................................................................................... VII HYPOTHESES .......................................................................................................................................... XVI ADDITIONAL CALCULATIONS .......................................................................................................... XXX

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List of Figures Figure 1: Carroll’s 1991 CSR Pyramid ............................................................................................................ 21 Figure 2: Relationships between CSR activities and society in tourism .......................................................... 23 Figure 3: Google hits for term Triple Bottom Line .......................................................................................... 29 Figure 4: Four perspectives of BSC ................................................................................................................. 36 Figure 5: EPFR Framework ............................................................................................................................. 43 Figure 6: The relationship between the travel, tourism and hospitality industries ........................................... 45 Figure 7: HHPM (Stage 1-External Structure) ................................................................................................. 53 Figure 8: Characteristics of selected financial indicators measuring performance of hotel companies ........... 57 Figure 9: Refined HHTM-Stage 2.................................................................................................................... 64 Figure 10: Proposed final “Holistic Hotel Performance Model” (HHPM) .................................................... 100

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List of Tables Table 1: The “Old” vs. the “New” reporting system........................................................................................ 26 Table 2: Elements of existing reporting and performance management frameworks that are represented in Holistic Hotel Performance Model ......................................................................................................... 52 Table 3: Final set of indicators to measure financial performance .................................................................. 57 Table 4: Comprehensive set of indicators to measure marketing performance................................................ 60 Table 5: Comprehensive set of indicators to measure environmental sustainability performance................... 63 Table 6: Description of the sample .................................................................................................................. 73 Table 7: Distribution of enterprises forming the sample .................................................................................. 74 Table 8: Existence of formal strategies ............................................................................................................ 76 Table 9: Measuring practice and evaluation of usefulness for groups of indicators ........................................ 76 Table 10: Correlations between measurement and perceived usefulness......................................................... 78 Table 11: Financial Indicators – measuring vs. usefulness .............................................................................. 80 Table 12: Marketing indicators – measuring vs. usefulness ............................................................................ 82 Table 13: Indicators of natural and cultural environment – measuring vs. usefulness..................................... 85 Table 14: Indicators of social and political environment ................................................................................. 87 Table 15: ANOVA for measuring differences among the three main categories of performance indicators... 88 Table 16: T-tests for differences among measurement of traditional and hospitality specific financial performance indicators ........................................................................................................................... 89 Table 17: ANOVA for differences among relevance between three marketing performance indicators subgroups ..................................................................................................................................................... 90 Table 18: T-tests for differences between measuring of environmental sustainability indicators between micro and small enterprises & medium and larger enterprises groups ............................................................. 91 Table 19: T-tests for differences for perceived usefulness of environmental indicators with direct coast saving potential and the ones with no direct cost saving potential .................................................................... 91 Table 20: T-tests for differences between measuring indicators of natural and cultural environment & social and political environment .............................................................................................................................. 92 Table 21: Sample’s averages for selected financial ratios ............................................................................... 93 Table 22: T-tests for differences among the performance of companies with stated strategy of environmental sustainability and those without such strategy ........................................................................................ 94 Table 23: T-tests for differences among the performance of companies that measure environmental indicators better and worse than average ................................................................................................................ 95

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List of Acronyms and Abbreviations



AJPES – Agency of the Republic of Slovenia for Public Legal Records and Related Services



BPM – Business Performance Measurement



BSC – Balanced Score Card



CSR – Corporate Social Responsibility



DPPST – Development Plan and Policies of Slovene Tourism 2007-2011



EC – European Community



EMAS – Environmental Management and Audit Scheme



EMS – Environmental Management Systems



EPFR – Extended Performance Reporting Framework for Social and Environmental Accounting



EU– European Union



EVA – Economic Value Added



GRI – Global Reporting Initiative



GZS – Slovenian Chamber of Commerce



HHPM – Holistic Hotel Performance Model



IC – Intellectual Capital



IFFAS – An Integrated Framework for the Financial Analysis of Sustainability



IH&RA – International Hotel & Restaurant Association



IHEI – International Hotels Environmental Initiative



ISO – International Standardization Organization

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KPIs – Key Performance Indicators



MDGs – Millennium Development Goals



NGOs – Non Governmental Organizations



PM – Profit Margin



RevPAR – Revenue per available room



ROA – Return on Assets



SD – Sustainable Development



SRS – Slovenian accounting standards



ST – Sustainable Tourism



SURS – National Statistical Office



TBL – Triple Bottom Line



UNEP – United Nations Environmental Program



UNWTO – United Nations World Tourism Organization



USALI – Unified System of Accounts for the Lodging Industry



VADD – Value Added per Employee



VISIT – Voluntary Initiative for Sustainability in Tourism

Terminological Considerations



Terms Enterprise, Firm & Company are in inter-exchangeable use



Environmental Sustainability refers to Environment in its broader sense (i.g. natural, cultural, social, political, etc.)

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Preface “When you can measure what you are speaking about, and express it in numbers, you know something about it . . . [otherwise] your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in thought advanced to the stage of science.” (Lord Kelvin, 1824-1907) The citation of one of the most outstanding natural science researchers sets almost sarcastic initial lines to the thesis which covers extremely multidisciplinary material of an area of sheer size and growth, while trying to measure something as vague and controversial as sustainability itself…Nevertheless, the challenge has been taken and the results even though not perfect, certainly try to make a contribution.

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CHAPTER 1 - INTRODUCTION The sustainability debate has taken the world by storm ever since the publication of the (infamous) Brundtland report (WECD, 1987). Even though much theorizing and discussion has and still is taking place in the context of the global sustainability debate, the results of which are only partially visible, one can easily claim there has at least in western society been a growing concern with the of environmental and social aspects of business over the last couple of decades. Though reluctant at first, following pressures from various national governments, as well as international, national and local NGO’s, companies slowly started becoming aware of their impact on the natural, social and cultural environments that surround them. In order to address the concerns raised above, companies have increasingly started reporting the social and environmental impacts of their business activities to secure their right to operate from society (Yongvanich & Guthrie, 2006). This way, a new paradigm of business reporting was given place to, namely one that was trying to upgrade the traditional bottom line with the emerging thinking that economic activity produces considerable amount of social and environmental consequences (Gray et al., 1996, quoted in Yongvanich & Guthrie, 2006). Only this way real environmental progress can be made (Elkington, 2004: 1). Thus, a new generation of business reports started to spread around the business globe, often imprecisely referred to under the umbrella term "Triple Bottom Line (TBL) reports" as coined by Elkington in 1994 (Elkington, 2004). Further, in line with the new reporting standards, there has also been a rethinking of performance measurement. The exclusively “profit-based” financial performance measures, which were dominating the 80’s and early 90’s, have been altered. They have been substituted with new multidimensional approaches to performance measurement. The latter, in line with notions of firms’ extended accountability, take account of different aspects of business activities and therefore also rely on qualitative, non-financial measures (Bourne, Melnyik & Faull, 2005; Harris & Mongiello, 2001). Tourism as one of the fastest growing industries has naturally not remained immune to the changes occurring in the global business society. Quite to the contrary, due to its widespread presence and the fact that it is a resource industry, which is dependent on nature’s endowment and society’s heritage (Murphy 1985, quoted in Murphy & Price, 2005), tourism has become a major part of the discourse on sustainable development over the past 1

20 years. It is out of such recognitions that the nowadays much exposed, though nebulous, concept of sustainable tourism arouse. Unsurprisingly, as in many other countries, the concept of sustainable tourism is also at the center of attention within the Slovenian tourism policy. The Governmental Development Plan and Policies of Slovene Tourism 2007-2011 (DPPST), which is the key strategic document in the field of tourism development, lists sustainable development as its fundamental principle and simultaneously as the key paradigm of the Slovene tourism development. This also implicates the government to directly promote the development and monitoring of the sustainable development indicators in tourist destinations, and indirectly to encourage integration of sustainability into the tourism products through appropriate investment policy (DPPST, 2006). This generally seeks to establish a competitive business environment that would result in investments in innovation, quality and integral tourism products and infrastructure. Moreover, it also explicitly states the design and implementation of methodologies related to the internationally comparable monitoring of business operations and development of tourist activities to be one of the strategic priorities (DPPST, 2006). Within this strategic framework, the Directorate for Tourism at the Ministry of Economy, together with the Development Agency of Republic Slovenia, financed the national strategic research project entitled Defining the model to measure the performance of hotel enterprises implemented by the Institute for Tourism (ITEF) at the Faculty of Economics of University of Ljubljana, upon which this dissertation’s content is based on.

DISSERTATION’S AIM Dealing with Slovenian hospitality industry, a sector for which recent studies (Mihalič & Dmitrović, 2000; Kavčič et al., 2005; Knežević Cvelbar & Mihalič, 2007; Omerzelj Gomezelj & Mihalič, 2008) suggested to be performing financially and economically worse than other Slovenian industries and even poorer when compared to international hotel companies (Kavčič et al, 2005; Knežević Cvelbar & Mihalič, 2007), the thesis tries to propose an internationally comparable and practically applicable multidimensional model for measuring the (sustainable) performance of the Slovenian hotel enterprises. Such model should be based on established theory and international practice and should additionally be tailored according to the needs and specifics of the Slovenian hotel industry. In order to achieve this goal, the dissertation begins with an outline of the theoretical framework and a review of the relevant literature covering aspects of sustainable development, sustainable tourism, Corporate Social Responsibility (CSR), business 2

reporting, concepts of triple bottom line and sustainability reporting as well as various performance measurement models. Once the concepts are cleared and linked and the external structure related to the aim of the model is established, its main integral components need to be analyzed and sets of indicators elaborated. The comprehensive version of the model is then empirically verified in the industry. This step offers a valuable insight into the performance measurement characteristics and practices of Slovenian hotel enterprises. It also provides answers regarding the attitudes of hotel managers towards sustainability, as well as a new, broader and more integrated approach towards performance measurement. Based on the results of empirical testing, the final shorter version of the model is proposed and substantiated.

STRUCTURE Based on the above described content, the dissertation is divided into eight chapters, starting with introduction. The presentation of the theoretical framework in the second and third chapter covers the concepts of sustainability, sustainable tourism, CSR, corporate reporting and business performance measurement, all of which determine the model’s structure. The fourth chapter outlines the field in detail and proposes the foundation of the model’s external structure. Moreover it also reviews theoretical and applied approaches towards measuring financial, marketing and environmental performance, respectively, of a hotel enterprise. Once the comprehensive theoretical model, appropriate for empirical testing has been proposed, the fifth methodology related chapter explains the empirical research design. This is followed by a presentation and an analysis of the obtained results. Seventh chapter finally presents and discusses the proposed model leading to the last, eighth chapter which concludes the dissertation.

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CHAPTER 2 - FRAMING THE THEORY PART 1 – CONCEPTUALIZING SUSTAINABILITY SUTAINABLE DEVELOPMENT Evolution of Sustainability Thought Almost since the earliest writings of mankind, concern has been raised over aspects of conservation and resource usage. Nevertheless, the origins of the modern conservation movement appear to be more recent, stemming in part from 19th-century Europe, when the traditional ideas that humans have domination over nature were replaced by the “preservation ethic” (Hall, 1998; Western, 2000; quoted in Miller & Twinning-Ward, 2005: 5). Subsequently, with the assistance of international organizations such as the World Conservation Union and UNESCO, humans started to be seen as being a part of nature rather than being separate from it and antagonistic to it. Similar changes were occurring in the nascent environmental movement during the 1960s, which began to make the world aware of the disastrous environmental effects of uncontrolled human activities through the publications such as Carson’s 1962 Silent Spring, Hardin’s 1968 The Tragedy of the Commons and Meadows et al.’s 1972, Limits to growth (Miller & Twinning-Ward, 2005: 5). The later shook the world’s complacency by arguing that the Earth’s resources and ability to absorb pollution were finite, so that the world would face physical constraints within a century. After this first warning, more research and deliberation into the long-term consequences of continued industry and population expansion followed. This led to the publication of the World Conservation Strategy by the International Union for the Conservation of Nature and Natural Resources (IUCN, 1980), which was one of the first reports to include the concept of sustainable development. This was followed by the World Commission on Environment and Development (Brundtland Commission) Report in 1987, entitled “Our Common Future” (WCED, 1987) which placed the concept of sustainable development at the centre stage and promoted it as a vehicle for deliverance (Murphy & Price, 2005: 169). The sustainable development concept is not new, as Holden (2006) suggests it is just the epitomized form of linking human development with the conservation of natural resources. However, increasing pressures on the world’s finite resources and environmental 4

capacity have led to a more deliberate restatement of the philosophy, along with evolving guidelines to put it into practice. “Our Common Future” described sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987, quoted in Murphy & Price, 2005: 189). In the Brundtland report, the need for the integration of economic and environmental issues was brought dramatically to the forefront of the development debate, unfortunately with minimal guidance for making its ideas operational. The report made serious assertions, which warranted utmost emphasis: “Failure to manage the environment and to sustain development threatens to overwhelm all countries. Environment and development are not separate challenges, they are linked. Development can not subsist upon a deteriorating environmental resource base; the environment can not be protected when growth does not account for the cost of environmental destruction” (WCED, 1987: 37). Despite the now apparent flows in approach, however, it must also be acknowledged that as regards to international reports, few can match its immediate impact then, and its enduring effects on academic research now (Miller & Twinning-Ward, 2005: 7). Five years after the Brundtland Report, the United Nations Conference on Environment and Development (UNCED) in 1992, popularly known as the “Rio Earth Summit” marketed a significant change in direction for sustainable development debate with much wider participation of NGOs. The Rio Earth Summit succeeded in putting together five documents, one of which, Agenda 21, has, according to Miller & Twinning-Ward (2005: 7) proved particularly influential. It outlines a basis for implementing sustainable development on local, national and international level. However, the progress based on the said document was very limited, and efforts on many matters were still being made in the wrong direction. This led to the agreement on “Millennium Development Goals” (MDGs) in 2000, signed by all 191 United Nations. As Miller & Twinning-Ward (2005) suggest, the emphasis of the MDGs on poverty alleviation and human development rather than the environment is illustrative of the shift in focus of the sustainable debate.

Where do we stand today? The concept has evolved since the WCED (1987) definition, notably through Agenda 21, the plan of action which emerged from the UNCED, and the plan of implementation from the World Summit on Sustainable Development (Johannesburg, 2002). Therefore today sustainable development is often represented by three dimensions or ‘pillars’ of sustainable

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development that are now recognized and underlined. According to UNEP and UNWTO (2005: 72) these are the following: • Economic sustainability, which means generating prosperity at different levels of society and addressing the cost effectiveness of all economic activity. Crucially, it is about the viability of enterprises and activities and their ability to be maintained in the long term. • Social sustainability, which implies respecting human rights and equal opportunities of every member of society. It requires an equitable distribution of benefits, with a focus on alleviating poverty. There is an emphasis on local communities, maintaining and strengthening their life support systems, recognizing and respecting different cultures and avoiding any form of exploitation. • Environmental sustainability, which entails conserving and managing resources, especially those that are not renewable or are precious in terms of life support. It requires action aimed at minimizing air, land and water pollution, as well as conserving biological diversity and natural heritage.

Furthermore, as UNEP & UNWTO (2005) suggest, it is important to appreciate that the three pillars presented above are in many ways interdependent and can therefore be both mutually reinforcing and in competition. In order to deliver sustainable development, striking a balance between them is often required. Despite the progress made as a result of these international agreements, the gap between “developers”, “economists”, “politicians” and “environmentalists” in their different interpretations of the concept of sustainable development creates an unfortunate barrier to its effective implementation (Miller & Twinning-Ward, 2005: 8). In the similar sense Butler (1998: 26) argues that the overwhelming appeal of sustainable concepts lies in the generality of the concept and the fact that true costs of the implementation of the concept have never been spelt out. In this way it can be understood that the concept of sustainable development, emphasized by the Brundtland Report and continued by the MDGs and Rio+10 is a politically popular compromise (Miller & Twinning-Ward, 2005: 8), which naturally is not without its critics and skeptics: For instance Murphy & Price (2005: 172) state that it is such a fuzzy concept that it may be of little practical use in tackling emerging environmental issues.

They however mention that the short definition of sustainable development as

proposed by WCED (1987) should be viewed only as a summary goal, and that a series of more specific objectives and methodologies have evolved from it. Some authors have 6

criticized the fundamentals of the concept itself, claiming that “sustainable” (with its steadystate implications) and “development” (with its growth implications) are mutually exclusive (Page and Dowling, 2002, quoted in Murphy & Price, 2005: 172). Butler (1998: 26), on the other hand, doubts as to just how strongly the concept is supported, even in Western European countries, among the general public. Ultimately Sustainability Science, described by Miller & Twinning-Ward (2005) as a new multi(inter)-disciplinary approach to science that recognizes the limitations of traditional scientific inquiry in dealing with the complex reality of social institutions interacting with natural phenomena, has emerged and represents a step change in the way that sustainable development is conceptualized and managed. This requires a fundamental move away from the dogma of economic growth and stability, and towards the much more urgent issue of how to build system resilience and adaptive capacity. This shift requires the use of integrated and interdisciplinary research involving trial and error, and a degree of experimental testing known as adaptive management (Miller & Twinning-Ward, 2005).

Indicators of Sustainable Development The working definitions of sustainability have now been broadly accepted by governments, NGO’s and businesses (e.g. cast in terms of living within the finite limits of the planet, of meeting needs without compromising the ability of future generations to meet their needs, and of integrating environment and development). On that basis, there is now a growing impetus towards developing tools and approaches which can translate the goals of sustainability into specific actions and assess whether real progress is in fact being made towards achieving them (Macnaghten et al, 1995:149). According to Miller (2001: 351), the list of acronymic organizations involved in development of indicators of sustainable development (ISD) is long and impressive: The European Environment Agency (EEA), United Nations Environment Program (UNEP), United Nations Development Program (UNDP), The World Bank, World Watch Institute, International Institute of Sustainable Development (IISD), New Economics Foundation (NEF), United Nations Commission for Sustainable Development (UNCSD), WTO (World Tourism Organization) and British Department of Culture Media and Sport (DCMS) and Department for Environment Transport and the Regions (DETR, 1999) are just the main organizations. As Macnaghten et al (1995: 152) suggest, most approaches to developing indicators imply a three-stage process, in which:

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• The present unsustainable situation is defined (largely by »experts«, whether with government, NGO's, industry and/or academia); • New mechanisms and relations are generated (including indicators) to enable progress to be made towards improving matters; and • The desired state of sustainability is approached through such mechanisms and relationships.

Even though the path to sustainability might be never-ending, indicators, especially the sector specific ones among them, can show the right direction which the sector should follow. Therefore, the process is truly beneficial only if it evolves broad community participation. Indicators in tourism are discussed further in the following part of the dissertation dedicated to sustainable tourism.

SUSTAINABLE TOURISM Conceptualizing Sustainability of Tourism Tourism has been marked by extraordinary expansion over the past 50 years. In the 1950 there were 25 million international tourist arrivals recorded. By 2008, the United Nations World Tourism Organization (UNWTO, 2009) estimated that there were over 924 million of international tourist arrivals, up 16 million over 2007 and despite the fact that the global financial crisis caused downfall in the second half of the year, this figure still represented a growth of 2 percent. Similarly, tourism receipts accounted for US$ 944 billion last year and once the crisis is overcome, tourism is expected to continue to grow steadily (6,5 percent growth per year between 1950-2007) and it is predicted that by 2020, there will be 1,6 billion international tourist arrivals annually (UNWTO, 2008). Thus, although the tourism industry is regarded as being kinder to the environment in general than most other industries, its very size and widespread presence have created negative environmental impacts, both of a physical and social nature, in certain locations that have led to demands for a more sustainable approach to tourism (Murphy & Price, 2005: 174). Furthermore, Murphy (1985, quoted in Murphy & Price, 2005: 172) argues that tourism is an industry that should be involved in sustainable development, because it is a resource industry, one which is dependant on nature’s endowment and society’s heritage. Over the past 20 years or so tourism has become a major part of the discourse on sustainable development, which is not surprising given the magnitude and rate of expansion of the industry; the ecological, economic, social and cultural impacts of tourism; and as

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identified by 1992 Rio Earth Summit, the potential for tourism to help the transition to sustainable development (Murphy & Price, 2005: 174). However, according to Miller & Twinning-Ward (2005: 27) the literature on sustainable tourism has tended to avoid the sustainable development material and has instead concentrated on a more sector specific interpretation. It can be argued that the concept of sustainable tourism emerged from the recognition of the negative impacts of mass tourism and the subsequent birth of “green tourism” (Swanbrooke, 1999, quoted in Murphy & Price, 2005: 174). Yet the evolution of tourism’s sustainability thought is quite complex and can be best understood if presented from the historical point of view. In this context, perhaps the most notable historical overview is proposed by Jafari (1989, quoted in Miller & Twinning-Ward) who divides tourism literature into the following four main categories: advocacy, cautionary, alternative and knowledge based. The first one, advocacy was mainly present in the 1950s and 1960s, when the tourism industry was largely seen as being an economic panacea and one largely bereft of impact (Miller & Twinning-Ward, 2005: 28). Because it drew upon 'free' natural, historical, social and cultural resources it was thought to be less capital intensive in its requirements for development. Tourism was seen to have potential to be a major driving force for economic development in many less developed countries because of its large potential multiplier and spill-over effects on the rest of the economy and its generation of jobs for unskilled and semi-skilled workers (Berno & Bricker, 2001: 1). As early as 1973, the potential negative impacts of tourism were being considered. These early critiques of tourism as a development tool focused primarily on the negative socio-cultural impacts. On the other hand, as international tourism continued to grow exponentially, it became apparent that the environment and economies of less developed countries as well were being negatively affected (Berno & Bricker, 2001: 2). As the industry expanded, so concerns surfaced, at least amongst tourism academics, and the unquestioning acceptance of tourism as panacea was replaced in the 1970s and early 1980s by an era of great critique. The cautionary stance taken by the writings of the time was typified by Plog (1974, quoted in Miller & Twinning-Ward, 2005: 29) who famously observed: “destinations carry with them the potential seeds of their own destruction, as they allow themselves to become more commercialized and loose their qualities which originally attracted tourists”. The response adopted by the protagonists of the tourism industry during the mid1980s was described by Jafari (1989, quoted in Miller & Twinning-Ward, 2005: 31) as “adaptive”, although it was in fact dominated by the promulgations of alternative forms of 9

tourism, which gave rise to the widespread vilification of mass tourism. Although seldom precisely defined, alternative tourism can according to Miller & Twinning-Ward (2005) be interpreted as an umbrella term covering an array of new forms of tourism that emerged during 1980s and early 1990s in response to the perceived negative impacts associated with mass tourism. Alternative tourism has been described using varying terms including soft and educational tourism, co-operative tourism, appropriate tourism, special-interest tourism, the now popular term eco-tourism and the newly emerging pro-poor tourism. Tending to be predominantly small scale, these forms of tourism intend to benefit the local population, conserve the environment and treat the host culture with sensitivity. And as Weaver (1998, quoted in Miller & Twinning-Ward, 2005: 31) notes: “At the risk of oversimplification, a major distinction between “old” and “new” forms of tourism is the shift in focus from the well-being of the tourist industry to the well-being of the host community”. During the last decade, as well as receiving praise, alternative tourism has also been the subject of substantial critical debate. On the one hand it has been criticized as promoting distinct class prejudice, providing tourism for the affluent, well-educated and middle class, with the implication that elite travelers are preferable to the charter crowd. On the other hand, Butler (1998) suggests that alternative tourism, rather than a solution to mass tourism, may just be its vanguard, opening up new and potentially more sensitive destinations to the development of mass tourism. As a result of these difficulties, although alternative tourism has provoked some useful discussion and several small-scale success stories, it has done little to address the overall problem of mass tourism (Miller & Twinning-Ward, 2005: 3233). By the end of the 1980s Jafary, quoted in Miller & Twinning-Ward, 2005: 33) believed that the sustainable tourism debate entered a period typified by a need for knowledge about the different forms of tourism and their potential impacts. The position was achieved by recognizing that any type of tourism could potentially be more sustainable, giving rise to moves to develop indicators as a way to monitor progress towards sustainability, rather than adopting a more ideological view of what forms of tourism should be introduced. Moreover, the Lanzarote World Conference on Sustainable Tourism in 1995 went a step further on the basis of Agenda 21 and produced a Charter for Sustainable Tourism that has since been adopted by the UN General Assembly. The Charter identifies a number of principles and objectives for sustainable tourism including the need for integrated planning, consultation of stakeholders and improvement in the quality of life of host population. It stresses that sustainable tourism should be based on the diversity of 10

opportunities offered by the local economy and gives special attention to vulnerable and degraded areas, using such tools as impact assessment, feasibility studies and codes of conduct. The same trend as the one appearing in the sustainable development thinking at the time, can be traced also in the debate on sustainable tourism, i.e. a shift from the environmental leanings of the early years to greater focus on social issues and poverty alleviation with the emergence of pro-poor tourism. A further contribution in this area has been the formulation of WTO’s Global Code of Ethics for Tourism. The latter was referred to as “a blueprint” for ensuring the sustainability of the tourism sector and for minimizing negative impacts and it intends to be a regulatory mechanism, with a panel of experts to evaluate and settle disputes (Miller & Twinning-Ward, 2005: 33-34).

How do we understand it today? As far as the current conceptualization of sustainable tourism is concerned, an increasing number of authors have expressed a desire to move on from the semantics to practicalities. A key disagreement remaining within the literature is the conceptual question as to where to draw the sectorial borders of sustainable tourism. One view of sustainable tourism places the tourism industry at the centre of a narrow consideration, while another view sees sustainable development as the broader goal to which tourism should aspire (Miller & Twinning-Ward, 2005: 35). Another significant issue is the issue of scale. The Brundtland Report (WCED, 1987), for instance, stressed the importance of working at the global scale to tackle global problems. However, from a pragmatic and local community advocate’s position, the smaller the identifiable region, the simpler it may be to implement sustainable tourism strategies at that level. Thus, the Rio summit gave rise to Agenda 21 and to Local Agenda 21, which stressed the “think global, act local“ mantra (Miller & TwinningWard, 2005: 39). On the contrary, Butler (1998: 31) disagrees, stating: “Aiming that tourism in a specific location is sustainable is frequently misleading and optimistic at best. Tourism in a specific area may have moved some way towards being sustainable and in reality that may be the best that can be achieved.” However, there is an increasing consensus in sustainable development and tourism literature recommending a “place-based” approach to sustainable development. This includes the use of representative stakeholders in order to create a particular “place based” interpretation of sustainability and hence local-level efforts determine what sustainability means to the specific locality (Miller & Twinning-Ward, 2005: 40). Moreover, an issue somehow connected to the previous one is the dilemma of temporal scale. A key confusion with the problem of temporal scale lies in the fact that many 11

tourism scholars still view sustainability as a state that is achievable in a particular period of time rather than an ever evolving process or transition. As a matter of fact, sustainable tourism is not a static goal which can be achieved in a calculable number of years, but a process or journey which involves moving towards a more desirable future, with discernible changes appearing through time, instead of by a fixed time (NCR, 1999, quoted in Miller & Twinning-Ward, 2005: 41-42). Similarly, there will never be a particular moment in time when it would be possible to identify the achievement of sustainable development, partly because of data restrictions, but principally because the dynamic nature of the concept means that the goal posts are constantly moving (Miller & Twinning-Ward, 2005: 43). Due to the various contrasting views and a large number of unresolved issues, Miller & Twinning-Ward (2005: 43-49), when trying to reconceptualize sustainable tourism, emphasize that if tourism is to deliver the social and economic benefits its promoters frequently promise, then the discourse on sustainable tourism needs to reconnect with the material drawn from the wider interdisciplinary sustainable development literature as well as many other relevant sources. Furthermore, their concept of sustainable tourism integrates the knowledge of complex adoptive systems and applies non-linear science to the management of tourism, while calling for a comprehensive, stakeholder-driven, adaptive approach.

Sustainable Tourism – How to define it? After the concept of sustainable tourism has in the previous part been extensively presented in terms of academic discussion surrounding it, a definition of the concept can at least be attempted. Among many existing definitions ranging from simple to extremely complex it is perhaps the UNWTO’s one, which follows the structure of three pillars of sustainable development, the one that can claim the greatest and widest general acceptance. According to UNWTO (quoted in UNEP & UNWTO, 2005: 11) sustainable tourism should: • Make optimal use of environmental resources that constitute a key element in tourism development, maintaining essential ecological processes and helping to conserve natural resources and biodiversity. • Respect the socio-cultural authenticity of host communities, conserve their built and living cultural heritage and traditional values, and contribute to inter-cultural understanding and tolerance. • Ensure viable, long-term economic operations, providing socio-economic benefits to all stakeholders that are fairly distributed, including stable employment and income-

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earning opportunities and social services to host communities, and contributing to poverty alleviation. And additionally: • Sustainable tourism development requires informed participation of all relevant stakeholders, as well as strong political leadership to ensure wide participation and consensus building. Achieving sustainable tourism is a continuous process which requires constant monitoring of impacts, introducing the necessary preventive and/or corrective measures whenever necessary. • Sustainable tourism should also maintain a high level of tourist satisfaction and ensure a meaningful experience to the tourists, raising their awareness about sustainability issues and promoting sustainable tourism practices amongst them.

Apart from UNWTO, UNEP has also extensively contributed to the body of knowledge on sustainable tourism. In order to minimize the negative impacts of tourism on society and environment and to maximize tourism’s positive contribution to local economies, the conservation of natural and cultural heritage and the quality of life of hosts and visitors, UNEP proposed an agenda for sustainable tourism that is articulated in twelve equally important and inter dependent aims of sustainable tourism (UNEP & UNWTO, 2005: 19; Mihalič, 2006) following the three pillars of sustainable development that are the following: • 1) Economic Viability To ensure the viability and competitiveness of tourism destinations and enterprises, so that they are able to continue to prosper and deliver benefits in the long term • 2) Local Prosperity To maximize the contribution of tourism to the economic prosperity of the host destination, including the proportion of visitor spending that is retained locally • 3) Employment Quality To strengthen the number and quality of local jobs created and supported by tourism, including the level of pay, conditions of service and availability to all without discrimination by gender, race, disability or in other ways • 4) Social Equity To seek a widespread and fair distribution of economic and social benefits from tourism throughout the recipient community, including improving opportunities, income and services available to the poor • 5) Visitor Fulfillment

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To provide a safe, satisfying and fulfilling experience for visitors, available to all without discrimination by gender, race and disability or in other ways • 6) Local Control To engage and empower local communities in planning and decision making about the management and future development of tourism in their area, in consultation with other stakeholders • 7) Community Wellbeing To maintain and strengthen the quality of life in local communities, including social structures and access to resources, amenities and life support systems, avoiding any form of social degradation or exploitation • 8) Cultural Richness To respect and enhance the historic heritage, authentic culture, traditions and distinctiveness of host communities • 9) Physical Integrity To maintain and enhance the quality of landscapes, both urban and rural, and avoid the physical and visual degradation of the environment • 10) Biological Diversity To support the conservation of natural areas, habitats and wildlife, and minimize damage to them • 11) Resource Efficiency To minimize the use of scarce and non-renewable resources in the development and operation of tourism facilities and services • 12)Environmental Purity To minimize the pollution of air, water and land and the generation of waste by tourism enterprises and visitors

It is nowadays clear that the concept of sustainability has been applied in the tourism sector in many diverse ways, at various levels and across all areas. Yet, it was the last decade of 20th century which, according to Holden (2006: 123) saw an increased effort by some private sector tourism firms to make it evident that they were placing the environment in a more central position with regard to their operations and that they were attempting to become more sustainable. Yet, as Holden (2006) emphasizes, the extent to which this is a form of genuine concern for the environment, or just a business strategy in order to attract 14

more customers and an attempt to avoid the potential regulatory provisions being applied to the industry seems to remain a rhetoric question. A similar one that also resonates with regard to the concept of CSR presented in the following section.

Attempting to measure Sustainable Tourism As UNEP & UNWTO (2005) emphasize, attempting to make progress towards sustainability can be meaningless without some objective way of assessing whether its underlying principles are being respected or of measuring progress. Similarly, Miller & Twinning-Ward (2005) stress the importance of a detailed discussion of the monitoring processes, if efficient progress towards greater sustainability of tourism sector is ever to be made. According to Hart (1997, quoted in Miller & Twinning-Ward, 2005: 108) an indicator is s described as something that helps you understand where you are, which way you are going and how far you are from where you want to be. Yet the process of selecting the right indicators is far from a simple one. As Rutherford (1998, quoted in Miller 2001: 352) sarcastically depicts, on the one hand, the best indicators conceptually may not be available in practice, either because basic data are not selected or because the methodology to turn available data into indicators of the desired type is unavailable. On the other hand, indicators that really do catch the attention of policy and decision makers will be chosen not by those who advocate logical frameworks, but rather by the decision makers themselves because they are perceived to be useful for monitoring something that is important. As the indicators of sustainable development were gaining on importance, various sectors followed by developing specific sets of new multi-dimensional indicators in order to monitor their own sustainability. UNWTO has been systematically developing sustainable tourism development indicators mainly for destinations since 1992 and this culminated in its 2004 Guidebook entitled Indicators of Sustainable Development for Tourism Destinations that lists comprehensive set of indicators, while also providing guidelines for their practical implementation (Mihalič, 2006). According to UNWTO (2004), indicators make it possible to monitor changes over time in a constant and consistent manner. They can help to clarify goals and, most importantly, force them to be more precise. They can be very valuable in fostering greater accountability and in raising awareness of and support for actions. Indicators can be used to show (UNWTO, 2004): • The current state of the industry (e.g. occupancy rates, tourist satisfaction).

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• Stresses on the system (e.g. water shortages, crime levels). • The impact of tourism (e.g. changes in income levels in communities, rate of deforestation). • Management effort (e.g. funding of cleanups of coastal contamination). • The effect of management actions (e.g. changed pollution levels, number of returning tourists).

Indicators provide early warning of when a policy change or new action may be needed, as well as providing a basis for the long term planning and review of tourism (UNWTO, 2004). Mihalič (2006) classifies them either as impact indicators, which measure the impacts of tourism development on the environment, or environmental quality indicators which refer to the actual state of the environment. Moreover, after the extensive discussion that took place in the monitoring literature, Miller (2001) and Miller & Twinning-Ward (2005) suggest the sustainable tourism indicators’ nature to be either quantitative, or qualitative. As selecting the right indicator to monitor often appears problematic in practice, UNWTO (2004) identifies five criteria for the selection of appropriate indicators: • Relevance of the indicator to the selected issue. • Feasibility of obtaining and analyzing the information required. • Credibility of the information and reliability for users of the data. • Clarity and ease of understanding amongst users. • Comparability over time and across regions.

A regular review of indicators is required in order to see whether the information is making a difference, to determine whether the issues have changed, to consider any practical issues associated with the usability of specific indicators, and to consider whether new sources of data might permit alternative indicators to be used (UNEP & UNWTO, 2005: 85).

CORPORATE SOCIAL RESPONSIBILITY (CSR) Where does it come from and what does it do? CSR is a notion with similar philosophical underpinning as the sustainability concepts and is substantially correlated with the two previously presented concepts. As the principles of sustainable development have much in common with those of CSR, the terms are according to Henderson (2007: 231), sometimes used interchangeably. As such the CSR 16

concept is also referred to with several other names such as social responsibility, corporate citizenship and corporate sustainability (Holcomb et al, 2007). Under such name it is also notably defined by Dow Jones Sustainability Index (2009) which defines corporate sustainability as: “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. Corporate sustainability leaders achieve long-term shareholder value by gearing their strategies and management to harness the market's potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks. Corporate sustainability performance is an investable concept. This is a crucial driver o interest and investments in sustainability to the mutual benefit of companies and investors. As this benefit circle strengthens, it will have a positive effect on the societies and economies of both the developed and developing world.” Yet, as Henderson (2007) further argues, CSR indeed incorporates some of the fundamental tenets of sustainability, but on a more restricted, in economic terms micro, scale, as sustainable development is seeking to embrace all the participants in the development process and give equal weight to their voices, while CSR maintains a company perspective and questions of profitability remain at the forefront, not to be eclipsed by social and environmental agendas. In a simplified manner it can be claimed that SD implies a deeper and more holistic commitment and is part of a debate which is relevant to most areas of human endeavor and informs private and public sector actions, while in comparison, CSR pertains only to industry members and covers a particular and voluntary aspect of activity (Henderson, 2007). As Henderson (2007: 231) points out, CSR therefore occupies a position near the weaker pole of the sustainability spectrum and should be assessed within the context of that discourse. In line with the just described Henderson’s observation, much of the discussion on CSR is a function of the broader governance discussion (Hamers et al, 2005: 169). As a matter of fact, the focus on CSR has been in the media since the 1990s and as such has become a mainstay in many companies public relations campaign arsenal. However, the advocates of CSR, perhaps idyllically, claim the reasons for companies to act in a responsible manner to be the result of externally or internally motivated ethical obligations (Holcomb et al, 2007). These reasons have been heavily discussed and they range from increased economic profits, employee organizational commitment, public scrutiny, improved investor relations, the good of society as a whole, up to and including the general view that 17

CSR is the “right thing to do” (Holcomb et al, 2007: 461). As Hopkins (1999, quoted in Nicolau, 2008: 992) affirms, businesses nowadays have non-commercial responsibilities and must give serious consideration to the wellbeing of society. According to Henderson (2007: 229) arguments in favor of CSR have become linked to those advocating sustainable development and more recently calls by the UN have been made for a “global compact“ whereby “responsible corporate citizens” combine with other bodies to realize the vision of a “more sustainable and inclusive global economy”. Furthermore, an extremely interesting affirmation regarding the need for the corporations to act socially responsible has been proposed by Hamers et al (2005), who claim that the general trend of CSR practice, which is nowadays evidently demonstrated by companies on a global scale, should be understood as a consequence of recent “corporate scandals” such as Enron, and even more so as a consequence of governments being diluted from their leading position in providing guidance for civic values and normative behavior, as well as of the diminishing impact of the values of Christianity, which was traditionally providing a base for the norm of “proper behavior”, in the Western world in the nowadays increasingly multicultural composition of business society. In the apparent lack of clear normative standards and with the culturally diversified values and corporate standards of “proper behavior”, Hamers et al (2005) pose a question whether corporations in their CSR positions carry responsibility to fill the above mentioned gap and conclude that the definition of CSR policies indeed forms an important obligation for companies not only because it structures proper corporate behavior, but also because it forms a “gold mine” for civil behavior as such. Nevertheless, as Pearce and Doh (2005, quoted in Henderson, 2007: 229-230) argue, wealth creation and profitability remain the ultimate objectives and CSR is believed to have useful commercial and cost saving function in areas of staff recruitment and retention, image and brand building, advertising, differentiation and competition. Moreover, Henderson (2007) emphasizes an additional benefit of CSR, namely the pre-empting of government regulations which might prove more onerous and expensive than the ones that are agreed voluntarily. In the same direction, Bohdanowicz & Zientara (2008: 275) express the view that if holistically genuinely embraced, CSR contributes to producing “win-win” outcomes. Namely, it serves an organization’s self-interest in terms of profit interest since in the longer run it just pays off to behave ethically towards employees and to support local communities, as well as to care for the environment and to promote sustainability. On the contrary however, there is no explicit evidence that CSR will lead to enhance the economic and noeconomic rewards of the enterprise implementing it into its strategy and practice (Hamers et 18

al, 2005; Henderson, 2007; Nicolau, 2008). Furthermore, Nicolau (2008) points out the conflicting empirical evidence produced by studies exploring the relationship between adoption of CSR and firms’ performance which may be explained by the fact that most studies relate CSR to traditional, backward looking accounting based measures of profitability. Therefore, he suggest impacts of CSR to be examined from the forward looking point of view on firm’s performance such as the value of its stocks and furthermore manages to prove a positive correlation between announcement of CSR activities and the immediate positive reaction of companies’ market value in the Spanish hospitality sector (Nicolau, 2008).

What does it really stand for? The origins and applications of the CSR concept being established, it now seems appropriate to take a closer look on what the concept really stands for. Naturally, knowing that CSR shares its philosophical foundations with the sustainability concepts implies a certain amount of vagueness and ambiguity in precisely defining it and this is confirmed in various definitions of CSR. In the broadest sense, as already mentioned and according to Crook (2005, quoted in Bohdanowicz & Zientara, 2008: 274), CSR takes as its premise that companies ought to justify their existence in terms of service to the community rather than mere profit. However, from here on there are many perspectives and dimensions of corporate responsibility. On the one hand, it is concerned with dealing fairly with the employees, suppliers and customers often referred to as the company’s stakeholders. On the other hand, it is about contributions to society such as supporting local communities, promoting the environmentalism and helping charities (Holcomb et al, 2007; Bohdanowicz & Zientara, 2008). Even though such differences in focus exist, the commonality among the majority of CSR definitions is the notion that companies should engage in socially responsible behavior as part of their organizational strategy (Holcomb et al, 2007: 462). In this same context, Henderson (2007) emphasizes that requiring the businesses to meet all aspects of sustainable development might not be practical and therefore CSR should be deemed as less ambitious in its requirements and more compatible with the quest for profit as the only truly undisputable business reality. Furthermore, he summarizes the activities proposed in the literature that might reasonably be expected from the companies which adhere to the concept of CSR as the following (Henderson, 2007: 232): • Publication of meaningful and measurable social and environmental goals and regular reporting on progress towards achievement.

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• Formulation of policies to avoid damaging social and environmental impacts of operations. • Investment and involvement in social welfare and environmental conservation and upgrading programs. • Forging of partnerships with government and non-governmental organizations, including local community groups, in such programs. • Full compliance with official regulations and a willingness to exceed these. • Recruitment and training of local staff and purchase of goods and services from local suppliers. • Education and engagement of customers and staff about social and environmental issues of concern.

While there is no common agreement on appropriate indicators monitoring the company’s CSR performance, some of the proposed measures reflect those found in sustainable development audits (Henderson, 2007: 232) while others suggest the Triple Bottom Line (TBL-discussed in a separate section below) approach as a way of implementing and monitoring CSR by the companies (Nicolau, 2008). Contrary to the popular belief that (and occasionally not without understanding reasons) CSR is a product of new age corporate PR departments, it is clear that CSR is not a thing of fashion that comes and goes at the waves of modern likes and dislikes, as it appears to have existed for a long period of time and has met different challenges in history (Hamers et al, 2005). Arguably, the most cited among the numerous definitions of CSR stands as a proof of that. The impact of this definition has been demonstrated over the last 30 years. The definition is the one from Carroll who, as early as in 1979 (i.e. almost a decade prior to the publication of the Brundtland Report), stated that businesses that practice social responsibility attend to economic, legal, ethical and discretionally (philanthropic) expectations that society has of organizations at a given point in time (Carroll, 1979, quoted in Holcomb et al, 2007: 462). While this definition might not be the one that best sums up or even describes the CSR concept (Visser, 2006), the graphical representation of its four-part conceptualization in the form of pyramid (see Figure 1 on the next page) that Carroll proposed in 1991 certainly has the widespread appeal. According to CSR Quest (2009) the main reasons for that are the following: • The model is simple, easy to understand and has an intuitively appealing logic; • Over the twenty five years since Carroll first proposed the model, it has been

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frequently reproduced in top management and CSR journals, mostly by Carroll himself (Carroll, 1979, 1983, 1991, 1994, 1998, 2000, 2004); • Carroll has sought to assimilate various competing themes into his model, e.g. corporate citizenship (Carroll, 1998) and stakeholders (Carroll, 2004); • The model has been empirically tested and largely supported by the findings (Aupperle, Carroll, & Hatfield, 1985; Pinkston & Carroll, 1994); and • The model incorporates and gives top priority to the economic dimension as an aspect of CSR, which may endear business scholars and practitioners. In fact, Carroll (1991) goes so far as to point out how little his definition of CSR differs from Friedman’s (1970) view of the responsibilities of the firm.

Figure 1: Carroll’s 1991 CSR Pyramid

Source: Carroll 1991, quoted in Visser, 2006

CSR in Tourism and Hospitality Similarly to the general rationale of the reasoning about the need for sustainability of the tourism sector, Hamers et al (2005: 170) state that companies involved in the exploration of natural resources can in general be deemed to have a “Triple P bottom line strategy” as a matter of course. Since long term sustainability appears to be considered, also more in general, as a necessary corporate strategic element (Hamers et al, 2005: 170), it appears that tourism and hospitality companies should have distinct and serious obligations to be met concerning assorted aspects of (natural and socio-cultural) conditions at the places they are selling (Henderson, 2007). Furthermore, as Tilt (1997, quoted in Nicolau, 2008) suggests, 21

the CSR-performance relationship is likely to be deeper in consumer oriented firms, where social reputation has a greater potential to effect the firm’s sales. Thus, it seems natural that tourism industry’s characteristics add additional meaning to the CSR debate. As Holcomb et al (2007) argue, the general conclusions from tourism and hospitality literature review clearly indicate that behaving in a socially responsible manner has received increased attention over the last decade via public domain outlets as well as the implementation of socially responsible programs by the enterprises themselves. Among those, especially major hotel chains operating as transnational companies have played an important role with the proliferation of CSR reports which made a valuable contribution to the field (Bohdanowicz & Zientara, 2009). Moreover, as Franklin (2008, quoted in Bohdanowicz & Zientara, 2008: 272) argues, it would be a challenge to encounter a recent annual report issued by a big company that omits to mention its efforts to assist society and to support ecological thinking. This indeed holds true for the majority of international hospitality organizations. According to Nicolau (2008: 992), more and more companies have been proclaiming their “loyalty” to socially responsible principles, qualifying themselves as CSR-driven firms and showing their CSR reports together with their annual reports. Apart from the annual reports, extensive information on their environmental and social commitment can be found on their corporate websites, which also provide a deep insight into firm’s implemented CSR programs (Bohdanowicz & Zientara, 2008; Holcomb et al, 2007). Yet as Esrock & Leichty (1998, quoted in Holcomb et al, 2007: 472) assert, there may be little relationship between the reporting of a company’s CSR and their actual CSR performance. As already mentioned, since reporting of CSR activities is assumed to positively impact the market value of the firm (Nicolau, 2008), it has also become a popular PR practice which most companies use to improve their image (Holcomb et al, 2007). Nevertheless, some hospitality companies made a step further into committing themselves to CSR. Holcomb et al (2007) mention Accor, as the only hotel company to have signed to the United Nations Global Compact, and Hilton, as the only company performing both internal and external CSR audits, to be among the most progressive. The Indian based Taj Hotel Group with its long CSR history based on Mathmata Ghandi’s belief that the earth provides enough to satisfy every man’s need, but not every man’s greed, originating from long before the SD and CSR principles were formed in the western world (Houvre, 2008) provides a valuable example from the “third world” context. However, the global hospitality CSR pioneer, not surprisingly, comes from Scandinavia. Scandic, the northern region’s leading hotel group based in Stockholm, Sweden (Scandic, 2009) is frequently viewed as a 22

pioneer of sustainability work. This is due to the fact that it introduced an environmental program already in the early 1990’s and managed to put in place a formal CSR-based initiative entitled Omtanke which in Swedish means ‘caring for the environment and people around us’ (Bohdanowicz & Zientara, 2008; ibid, 2009). What is even more relevant is the fact that Scandic was the first and probably still is the only hotel group that successfully embedded CSR in the core of its operation, making it part of its corporate DNA so that it influences all decisions across the whole spectre of operations within the hotel group (Bohdanowicz & Zientara, 2009). Adding the fact that the manager responsible for sustainable business is also the member of the group’s executive team, Scandic could thus be held up as a model of CSR for hospitality and tourism sector (Bohdanowicz & Zientara, 2009). While various tourism and hospitality companies deal with their CSR practices with different degrees of commitment, another important notion to observe is how such initiatives, assumed that conducted properly and in a manner similar to the one exemplified by Scandic might contribute to the tourism’s social force. Nicolau (2008) for example suggests CSR practices to contribute by means of both, economic and non-economic mechanisms as represented by the figure 2 below:

Figure 2: Relationships between CSR activities and society in tourism

Source: Nicolau, 2008.

Arrow 1, representing the non-economic view suggests that tourism related CSR activities such as conservation and restoration of historic buildings or fund raising for charities and NGO’s positively contribute to society (Nicolau, 2008). Furthermore, as far as economic side is concerned, it primarily (Arrow 2) impacts firm’s performance and consequentially positive effects spill over to the society (Arrow 3). However, as previously noted, studies dealing with CSR impacts on corporate performance reveal contrasting conclusions and therefore Nicolau (2008) suggests the CSR should be viewed as a long term 23

investment incapable of producing immediate positive results. These will probably appear in long term (Dow Jones Sustainability Index, 2009) only after the demand side, i.e. the tourists embrace the CSR as a prerequisite for their informed selection and consequential satisfaction to be fulfilled (Arrow 4).

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CHAPTER 3 - FRAMING THE THEORY PART 2 – REVIEWING REPORTING & PERFORMANCE MEASURMENT FRAMEWORKS BUSINESS ACCOUNTING AND REPORTING Re-conceptualizing the field The concerns raised within the sustainability debate certainly affected the business world. Embracing the importance of stakeholder dialogue and becoming aware of their social and environmental impacts, the firms realized that the traditional financial reporting model that had been in place for many decades and which is based on compliance with accounting standards requiring historical cost accounting (Bray, 2002: 6), resulted inadequate. As Yongvanich & Guthrie (2006: 310) note, the traditional regulatory reporting model gives an incomplete account of business activities and it also fails to adequately present the economic performance and business value of the firm. Furthermore, Bray (2002) points out that the traditional reporting model fails to meet the decision making requirements of capital market participants and of the growing array of other stakeholders, as it only provides snapshots of past financial performance (Yongvanich & Guthrie, 2006: 310). Finally, Clarkson (1995, quoted in Perrini and Tencati, 2006: 297) argues that if the entire set of stakeholder relationships becomes strategic for the long-term success and survival of a company, the measurement of corporate success can not be limited to the creation of value for only one stakeholder group, i.e. the shareholders. The shift from the traditional reporting practices towards the new reporting model is best illustrated in Table 1.

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Table 1: The “Old” vs. the “New” reporting system The Old Reporting System

The New Reporting System

Shareholder focus Paper-based

Stakeholder focus Paper- and web-based

Standardized information Financial information Company-controlled information

Tailored stakeholder information Economic, social and environmental information Open and transparent approach including third party information

Periodic reporting

Continuous reporting

Distribution of information Technical features and past performance

Stakeholder dialogue Greater emphasis on strategy, future projects, risk management and sustainability

Historical cost Value-based assessments Audit of accounts Assurance of underlying system Source: Suggett and Goodsir (2002, quoted in Faux & Dwyer, 2009)

As numerous contemporary companies, especially the ones operating in service sector are nowadays required to report a range of other non-financial indicators such as client satisfaction, staff turnover and investment in training in order to provide precise information of company’s performance to key capital market stakeholders, new layers of information are being added to historical cost information report (Bray, 2002). As Gray (2002: 10) points out, law has steadily increased the areas of disclosure required of companies on such matters as employees, political and charitable donations and governance. At the same time, organizations have steadily increased their areas of voluntary disclosure, most obviously on environmental issues but also on matters such as consumers, product safety and interactions with the community.

From Social and Environmental toward Sustainability Accounting It is therefore understandable that the business society is currently witnessing a dramatic resurgence of academic, professional and corporate interest in environmental and social accounting and auditing (Gray, 2001; Owen & Swift, 2001). Especially the later, after it initially appeared in the 70’s, completely fell of the public agenda in the 80’s and early 90’s, when environmental reporting experienced a much overdue exposure, so that it was not until the new millennium that both environmental and social accounting became embedded in organizational convention, custom and law (Gray, 2001: 9). Yet, as Villiers (2006) argues, despite such attention, this aspect of public disclosure remains inadequately developed as there is still no clear definition of what social and environmental reports stand for, neither

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what should the required contents of social and environmental reports be. This is resulting in a generally poor standard of such published reports. The legislative framework does not really contribute to clarifying the role of social and environmental accounting and reporting. The legislative provisions of the EU, different from the highly regulated field of disclosure of financial statements, do not lay down the requirements for separate full reports on environmental or social impacts. These aspects are rather a part of general annual reports and accounts (Villiers, 2006). However, European legislation certainly stimulates the provision of social and environmental information. Since January 2005, the Directive 2003/51/EC of the European Parliament and of the Council requires large and medium sized companies to provide an enhanced view of their business performance in their directors’ reports including a fair review of the development and performance with an analysis that includes both financial and non-financial performance indicators, as well as information relating to the environment and employee matters (Directive 2003/51/EC, quoted in Villiers, 2006). Furthermore though with no legislative power, the European Commission’s Recommendation aims to make separate environmental reports and the annual accounts and reports more consistent, cohesive and closely associated (Villiers, 2006: 239). However, some countries, especially Scandinavian countries and the Netherlands even made a step forward with their environmental legislation. The Danish 1996 Environmental Protection Act makes it compulsory for relevant companies to produce “green accounts”, disclosing consumption of energy, water and raw materials, as well as the type and quantity of pollutants to the air, land and water (Villiers, 2006; Yongvanich & Guthrie, 2006). Nevertheless, it can be assumed that, in the light of the general lack of legislative and regulatory requirements, the biggest role in extending and reinventing the reporting framework has been played by various international voluntary awards and initiatives (such as Social Accountability 8000, OECD Principles of Corporate Governance, ISO 1400 standards) and especially the Global Reporting Initiative (GRI). The latter is self described as a network-based organization that has pioneered the development of the world’s most widely

used

sustainability

reporting

framework

and

is

committed

to

its

continuous improvement and application worldwide (GRI, 2009). Its Sustainability Reporting Guidelines, which were originally issued in 2000 and are now in its third edition, can indeed be considered the blueprint of sustainability reporting. According to GRI (2009), the Guidelines are the foundation upon which all other reporting guidance is based. They outline the core content for reporting that is broadly relevant to all organizations regardless 27

of size, sector, or location. The Guidelines contain principles of guidance as well as standard disclosures, including indicators, aimed at outlining a disclosure framework that organizations can voluntarily, flexibly, and incrementally, adopt. They also represent a good example of a recent shift from single areas such as separate environmental and social reporting towards the more holistic sustainability reporting. Moreover, the importance of the fact that GRI Guidelines encourage the coordination of the process of financial reporting and sustainability reporting, which anticipates that over time financial performance measurement increasingly will benefit from the measurement of economic, environmental and social performance, has been highlighted when European Commission made reference to them while giving support to TBL reporting (Villiers, 2006).

TRIPLE BOTTOM LINE (TBL) APPROACH Background According to Owen and Swift (2001), the argument that the economic, social and environmental dimensions of sustainable development are increasingly intertwined is echoed, and indeed particularly cogently stated, by John Elkington (1998) in his advocacy of 'triple bottom line' reporting. Significantly, Elkington's central thesis that social responsibility provides a major means of achieving long-term economic success, finds favor amongst many other influential commentators (Owen & Swift, 2001: 4) As previously mentioned, organizations such as AccountAbility and GRI have embraced and promoted the TBL concept for use in the corporate world, while the uptake of the concept by corporations, governments, and activist groups has been rapid (Norman & MacDonald, 2004). As figure 3 presenting the presence of TBL on the web shows, the notion of TBL accounting has become increasingly fashionable in management, consulting, investing, and NGO circles over the last few years (Norman & MacDonald, 2004: 1) as the use of the TBL in business world has grown almost exponentially.

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Figure 3: Google hits for term Triple Bottom Line

Source: Bussiness Ethics, 2009.

Given the rapid spread and use of the concept in the business world as well as the fact that it is becoming a synonym for sustainability reporting (Villiers, 2006; Perrini and Tencati, 2006), the academic world has been reluctant to accept the term. Norman & MacDonald (2004) observe that the paucity of academic analysis is both surprising and worrisome. Namely, the principal academic databases turn up only limited amount of articles that are mostly concentrated in journals dealing with the intersection of management and environmentalism.

The Concept The idea behind the TBL paradigm is that a corporation’s ultimate success or health can and should be measured not only by the traditional financial bottom line, but also, in line with the three pillars of sustainable development, by its social/ethical and environmental performance (Norman & MacDonald, 2004: 1, Dwyer, 2005). According to Mitchell, Curtis & Davidson (2008) the TBL emphasizes that the pursuit of sustainable development is more than just reconciling potential conflicts between economic growth and ecological sustainability and that there is also a social dimension to sustainability. Furthermore, given that sustainability should be seen as a journey rather than a destination, Dwyer (2005) argues that the TBL is the most comprehensive approach for companies for achieving sustainable operations. Ironically, although initially intended as a philosophy or a way of thinking about sustainability, akin to the concept of CSR, it has become a framework for accounting and reporting (Vanclay, 2004: 265) Elkington (2004), who allegedly invented the TBL term, claims the idea appeared when he had been looking for new language to express what was as an inevitable expansion of the environmental agenda following the Brundtland Report while consulting the business. 29

In order to better address the social and economic dimensions of the agenda, if relevant environmental progress was to be made, he was searching for a language that resonated with the business brains and therefore chose a reference to bottom line and accounting (Elkington, 2004). Elkington in his landmark book Cannibals with Forks: The Triple Bottom Line of 21st Century (1998) describes the TBL concept in two ways: At its narrowest, the term Triple Bottom Line is used as a framework for measuring and reporting corporate performance against economic, social and environmental parameters. At its broadest, the term is used to capture the whole set of values, issues and processes that companies must address in order to minimize any harm resulting from their activities and to create economic, social and environmental value. This involves being clear about the company’s purpose and taking into consideration the needs of all the company’s stakeholders (Elkington, 1998: 109). On a similar note, Dwyer (2005: 2) describes TBL as a planning and reporting mechanism and decision-making framework used to achieve sustainable development in both private and public sector organizations – an internal management tool as well as an external reporting framework. However, both generally and in practice, the term has tended to be more often embraced by its narrower meaning such as reporting that gives consideration to financial outcomes, environmental quality and social equity (Gilkinson, 1999: 2). On the other hand, Sauvante (2001, quoted in Dwyer, 2005: 2) defines it as a return on capital investment when evaluated and measured along financial, social and environmental dimensions. Though still lacking a generally accepted and precise definition, the TBL corporate reports seem to be taking the world by storm. Many organizations have followed the multinational giants such as Shell and BP who were among the first to embrace the TBL as their new format of their public reporting systems. Moreover, the concept of TBL reporting has been endorsed by The World Business Council for Sustainable Development (Vanclay, 2004; Mitchell, Curtis & Davidson, 2008). However, the apparent novelty of TBL lies in its supporters’ contention that the overall fulfillment of the obligations to communities, employees, customers, and suppliers (to name but four stakeholders) should be measured, calculated, audited and reported – just as the financial performance of public companies has been for more than a century (Norman & MacDonald, 2004: 1). Furthermore, Norman & Macdonald (2004: 1) argue that, if we believe that ethical business practices and social responsibility are important functions of corporate governance and management, we should welcome attempts to develop tools that make information about how well a firm is doing in 30

this regard more transparent to managers, shareholders and other stakeholders. (Norman & MacDonald, 2004: 1).

Controversy As already mentioned, the academic world seems to be reluctant to use the TBL concept and many of a handful of available articles try to spotlight its weaknesses instead of further developing and clarifying the concept. For instance, Vanclay (2004) notes that even though it might be a new buzzword and a current fad, the concept does not propose anything new and is generally consistent with ecologically sustainable development thinking that has been present ever since the Brundland Report (WCED, 1987). Further, Elkington himself in his book (1998) clearly states that nothing apart from the resonating terminology was new. Even recently, some argue, that the TBL can easily be synonymous to CSR (Norman & MacDonald, 2004), which is a corporate reflection of sustainability taught. The generally poor levels of TBL line reporting seem to be even more problematic than the term itself. While the emphasis on social and environmental reporting should be the real novelty of the concept (Norman & MacDonald, 2004), most corporate reporting on these issues is on a superficial level and often seems just as a function of the public relations management (Mitchell, Curtis & Davidson, 2008). Therefore, the concept of a Triple Bottom Line in fact turns out to be a “Good old-fashioned Single Bottom Line plus Vague Commitments to Social and Environmental Concerns” which proves to be extremely simple for almost any firm to embrace (Norman & MacDonald, 2004: 13) Norman & MacDonald, (2004: 11) can not help themselves but conclude that there is no meaningful sense in which TBL advocates can claim there is a social bottom line, given that the acceptable methodology to calculate it is still largely missing. Therefore, until this is achieved, the accounting and reporting of the three areas of TBL will continue to be measured and reported separately and against a variety of criteria (Dwyer, 2005: 10). Similarly, Vanclay (2003) accuses its advocates, to be busy developing sloppy sets of indicators and ad hoc reporting methodologies to asses the social and environmental bottom lines, being at the same time ignorant about the available body of knowledge and scientific achievements available from the established disciplines of social and environmental impact assessment.

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TBL and Tourism Interestingly, for an industry that, perhaps more than others, praises the virtues of sustainable development at all levels (firm, industry, region, country), there seems to be little awareness of the existence of TBL or its relevance to the achievement of sustainable tourism development (Dwyer, 2005: 2). Even though, the TBL concept is relatively young, the recent research on tourism management and sustainability continues to completely overlook the TBL literature (Dwyer, 2005). This is certainly regretful, as an integration of the two bodies of knowledge, namely the one on sustainable tourism and the one on TBL, may help to overcome the often incoherent discussion on separate environmental, economic and social aspects of sustainability in tourism, as well as help clarifying its meaning and enhance the ability to better apply the literature in practice (Hughes & Carlsen, 2007). Dwyer (2005) is among the first ones to discuss the relevance and role that TBL could play in achieving sustainable tourism operations. He builds on Sauvante's (2001, quoted in Dwyer, 2005: 4) position that a company that can meet needs of the presence in terms of social and environmental impacts, without compromising the needs of the future, is more likely to appeal to investors and customers alike, and thus be financially successful. His scoping study on potentials of TBL in tourism then identifies possible benefits that (tourism) businesses can derive from TBL. These are the following (Dwyer, 2005: 4-7): •

Efficiencies and Cost Savings (among those: Reduced operating costs, Potentially lower compliance costs, Attracting and retaining competent staff, Improved access to capital);



Improved Market Positioning;



Better Stakeholder Relationships;



Improved Strategic Decision Making;



Wider Destination Benefits.

Furthermore, Dwyer (2005) identifies challenges for tourism companies that need to be overcome before the concept can be integrated into the philosophies, values, and business and business planning of the organization. Among those, special attention is given to identifying and selecting indicators, developing the right measures and monitoring. Ultimately, Dwyer (2005: 13) concludes that TBL reporting is an important means by which both private sector and government bodies in tourism at all levels can demonstrate that they are assuming their part of the responsibility for sustainable development. He also adds that TBL is not about compartmentalizing activities/projects in the “three bottom lines”, 32

but rather about integrating core principles that reflect a commitment to a sustainable organization and society (Dwyer, 2005: 13).

BUSINESS PERFORMANCE MEASURMENT Schaltegger and Wagner (2006, quoted in Yongvanich & Guthrie: 310) have characterized the different approaches to performance management, measurement and reporting as: •

The »outside-inward« approach, which takes up issues from the public debate and defines measurement and management activities based on these issues, and



The »inside-outward« approach, which is based on the business strategy and the analysis of what issues are relevant for an effective implementation of the strategy.

The previous two parts on reporting and TBL focused on the first approach. The social and environmental performance information addressed the so-called “outside” issues of a company and the TBL approach was mainly being used as a framework for reporting. The present chapter, in turn, deals with the internal issues relevant for performance measurement. It needs to be highlighted that the two approaches until recently barely appeared in the same context, with the accounting and environmental literature being entirely focused on the “outside-inward” approach and the management publications covering the “inside-outward” one. What both approaches share is the fact they can both be seen to be born out of the initial dissatisfaction and criticism of almost exclusive use of financial performance measures that prevailed in the 80’s (Bourne, Melnyk & Faull, 2007). As a response to that, various multi-dimensional performance measurement systems build around a set of key performance indicators (KPIs) have been developed and proposed since the late 80’s. The results and determinants matrix, performance prism, intellectual capital and most famously the balanced scorecard represent some of these systems (Bourne, Melnyk & Faull, 2007). Due to the multi-disciplinarity of the research exploring the field, a clear and holistic definition of business performance management (BPM) has yet to be proposed. Neely et al. (1995, quoted in Franco-Santos et al, 2007; 784) describe it as a set of metrics that is used to quantify both the efficiency and effectiveness of actions, while Bititchi et al (1997, quoted in Franco-Santos et al, 2007: 784) see it as a reporting process that gives feedback to employees on the outcome of actions. Furthermore, Otley (1999, quoted in Franco-Santos et al, 2007: 784) tries to define BPM from a management accounting perspective and defines it as a system that is considered to be synonymous with management planning and budgeting. 33

It follows clearly from the above paragraph that the various definitions contain very different main components. Hence, it seems most appropriate to focus on BPM systems’ common features and roles. What many of them have in common is that they direct attention to such non-financial factors as service quality and customer satisfaction as the main drivers of performance that enable reaching the company’s strategic goals (Atkinson & Brender Brown, 2001). Similarly, Franco-Santos et al (2007) in their analysis of BPM definitions conclude that the two main features of the BPM systems are: •

performance measures, and



objectives/goals

Furthermore, they also extract the five different categories of BPM system roles from the existing definitions. These are: •

“measure performance” this category encompasses the role of monitoring progress and measuring performance/evaluating performance;



“strategy management” this category comprises the roles of planning, strategy formulation, strategy implementation/execution, and focus attention/provide alignment;



“communication”

which

comprises

the

roles

of

internal

and

external

communication, benchmarking and compliance with regulations; •

“influence behavior” this category encompasses the roles of rewarding or compensating behavior, managing relationships and control; and



“learning and improvement” that comprises the roles of feedback, double-loop learning and performance improvement (Franco-Santos et al, 2007).

Even though the body of knowledge in performance management is still far from being cohesive (Franco-Santos et al, 2007) it has been successful in proposing various performance measurement frameworks set to fill a multitude of roles described above. Even though the concepts vary, they are characterized by the use of quantitative and qualitative, broader focused and value based performance measures that are linked to strategic intent and competitive environment (Atkinson & Brender Brown, 2001; Philips & Louvieris, 2005; Bourne, Melnyik & Faull; 2007). Citation analysis of the BPM field performed my Marr & Schiuma (2003) shows that the Kaplan and Norton’s Balanced Scorecard (BSC) is the dominating and therefore most influential concept in the BPM field.

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BALANCED SCORECARD (BSC) Background BSC appeared out of the need of contemporary companies to transform themselves for competition which is based on information that gives them integral answers on where the company stands now, where it is going and how it is to get there (Sanger, 1998; Kaplan & Norton, 2007). Back in 1992, dissatisfied with the limits of traditional performance measures, the BSC concept’s creators Kaplan & Norton were looking for a more balanced overview of company’s performance and therefore proposed to supplement traditional financial measures with criteria that measured the performance from three additional perspectives – those of customers, internal business processes and learning and growth (Kaplan & Norton, 2007: 150). Thus a methodology that acknowledges the incompleteness of many BPM systems which rely on financial metrics tending to measure the easily measurable and past aspects of performance, while trying to overcome it with measuring and analyzing results across additional fields (Sanger, 1998: 197) was proposed.

The Concept BSC tends to be seen in many different aspects. Put most simply, the BSC is, according to Kaplan & Norton (1996), intended to provide organizations with a balanced list of financial and non-financial measures for tracking short-term and long-term performance and should not be seen as a replacement for financial measures, but rather their complement. The term BSC reflects the concept’s attempt to provide a monitoring system capable of providing managers with up-to date information enabling them to truly understand how their business is doing by combining lagging and leading indicators while addressing long and short term objectives of the company (Denton & White, 2000; Kaplan & Norton, 2007). According to Romero Castro & Pineiro Chousa (2006: 325) the BSC (as the Figure 4 shows) is based on the establishment of cause-effect relationships between key strategic indicators through four managerial perspectives within companies – financial, customer, learning and growth and internal business processes – with the financial perspective as the end point.

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Figure 4: Four perspectives of BSC FINANCIAL

“To succeed financially, how should we appear to our stakeholders?”

CUSTOMER

INTERNAL BUSINESS PROCESS

“To achieve our vision, how

VISION AND

“To satisfy our stakeholders

should we appear to our

STRATEGY

and customers, what business

customers?”

processes must we excel at?” LEARNING AND GROWTH

“To achieve our vision, how will we sustain our ability to change and improve?”

Source: Adapted from Kaplan & Norton, 1996.

At the time of its proposal the BSC was intended to be seen as a framework for selecting the right performance measures that would give a holistic picture of company’s performance. It then quickly evolved into something broader, namely a cornerstone for a new management system being capable of linking a company’s long term strategy with its short term actions (Kaplan & Norton, 2007). Moreover, Marr & Schiauma (2003) add that with the beginning of new millennium, BSC can already be understood as an organization and chain framework. Nevertheless, the general idea remains the same as coined by Kaplan & Norton in 1996, namely achieving and measuring organizational success by viewing it objectively from four perspectives. For each of these, coherent key performance indicators (KPIs) should be developed according to company’s strategy, which are closely linked to its short and long term objectives (Phillips & Louvieris, 2005; Kaplan & Norton, 2006). There has been an interesting discussion on the most suitable number of KPIs (Kaplan & Norton (1996) for instance suggest the number not to exceed 26). Brewer and Speh (2000, quoted in Phillips & Louvieris, 2005: 202) instead take a different approach and provide a model for developing the relevant KPIs across the four BSC’s perspectives: •

Financial Perspective: The most important lagging factor, which acts as a system of checks and balances.

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The Customer Perspective: What do customers think makes the business successful? This set of measures should capture customer opinion. They can be general (e.g., customer value and customer retention) or more specific (e.g., product/service quality, flexibility, cost, and response time).



Internal Business Processes: What must be done internally to meet and exceed customer needs? These are predominantly non financial measures (e.g., measures of quality that are time based and flexibility orientated).



Innovation and Learning: What needs to be done on a continuing basis to delight and retain customers? The focus should be on the future rather than current capabilities. Measures should relate to issues such as new product development, the percentage of sales from new products and process improvement rates. This can also relate to human resource measures.

If implemented successfully, the BSC allows the managers to introduce four new management processes, namely: •

translating the vision



communicating and linking



business planning, and



feedback and learning

that contribute to linking long-term strategic objectives with short term goals (Kaplan & Norton, 2007). Furthermore, the BSC can describe the vision of the future for the entire organization. It also shares the understanding regarding the strategy among the employees, focuses change efforts and permits organized learning at the executive level (Kaplan & Norton, 2007)

Limitations Despite the fact it can be considered as a major performance measurement framework of the last couple of decades, the BSC has also received some criticism. Marr and Schiuma (2003) comment that some scholars claim there is a lack of theoretical foundation of the BSC concept and that others criticize the implied casual relationships, or its usability and that the concept would therefore require some large-scale empirical testing. Furthermore, Bringall (2002, quoted in Romero Castro & Pineiro Chousa, 2006: 326) indicates two notable omissions within the BSC specifications, namely the environmental and social issues. As a consequence, the BSC concept seems to fail to address the question of

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general sustainability issues surrounding the business, as it is entirely focused on internal organizational processes.

BSC in Tourism & Hospitality BSC has also been widely discussed in tourism and hospitality. Denton & White (2000) for example analyzed the implementation of the BSC approach in an American limited service hotel chain that operates externally owned properties and came to the following conclusions: For hotel owners, the scorecard approach facilitates the cooperation needed to create the infrastructure that permits meeting long-term goals and ownership objectives. Moreover, apart from the primary objective of gaining alignment between the owners and the operators, the BSC also enables the owners to identify the negative trends in their early stages, long before financial performance deteriorates (Denton & White, 2000). Secondly, the BSC also gives them summary results for a large number of properties and so permits a quick focus on the key issues within the portfolio (Denton & White, 2000: 107). To sum up in a slightly overhyped and illustrious way, Denton & White (2000) conclude that the use of BSC in a hotel enterprise manages to establish common goals for all stakeholders involved and therefore unify all the involved parties in a quest for a favorable guest experience that consequentially leads to the positive financial bottom line of the enterprise. On this site of the Atlantic, Phillips & Louvieris (2005) analyzed the use of the BSC in small and medium sized (SMEs) UK Tourism & Hospitality establishments. Even though none of the analyzed companies had explicitly implemented the BSC, the majority of them included non financial measures in their performance measurement system. Furthermore, Phillips & Louvieris (2005) spotlighted the four key concepts that currently drive performance across the industry. These are: budgetary control, customer relationship management, strategic management and collaboration. Arguably, they are only slightly different from the four perspectives of BSC (see Figure 2) as proposed by Kaplan & Norton (1996), which leads Phillips & Louvieris (2005) to conclude that the traditional BSC model is in fact appropriate for the Tourism SMEs and also to propose a model of BSC together with KPIs tailored to the needs of hotel sector.

CONTEMPORARY “CROSSOVER” MODELS General Characteristics As previously noticed, it was not until recently that the fields of performance measurement and corporate reporting crossed each other’s roads. As the idea that 38

organizations have stakeholders, was becoming a commonplace in management literature (Donaldson & Preston, 1995), it became apparent that the sustainability of a firm depends on the sustainability of its stakeholder relationships (Perrini & Tencati, 2006: 298). Thus, a modern age company must consider and engage not only shareholders, employees and clients, but also suppliers, public authorities, the community in which it operates, the civil society, financial partners, etc., by simultaneously paying attention to their legitimate interests (Perrini & Tencati, 2006; Donaldson & Preston, 1995). In fact, according to Perrini & Tencati (2006: 298) sustainability of stakeholder relationships is becoming the guiding principle for managerial decision-making and the crucial pillar of a more comprehensive corporate strategy. This way the companies shift from creating the value for their shareholders, towards embracing the concept of creating the value for their stakeholders (Figge & Schaltegger, 2000, quoted in Perrini & Tencati, 2006) Arguably, such shift in strategy, apart from transparently reporting financial, environmental and social performance information of public concern across the TBL model, also requires the disclosure of aspects of “internal” issues, namely the market orientation and critical internal processes that can be identified by BSC (Yongvanich & Guthrie, 2008). As the success of managerial efforts can not be measured according to the shareholder perspective anymore, a more comprehensive and holistic stakeholder framework in which external reporting systems and performance measurement tools are properly balanced is needed (Perrini & Tencati, 2006; Yongvanich & Guthrie, 2008). As such, these contemporary multidimensional models built around the concept of extended enterprise go beyond the previous work on TBL and BSC (Post et al., 2002, quoted in Perrini & Tencati, 2006). Ultimately, although there is wide range of such evaluating and reporting frameworks basing on multitude of perspectives, they often result too complex and unclear to be capable of facilitating companies’ attitude towards sustainability, or providing clarity of information to various stakeholder groups (Perrini & Tencati, 2006). As Figge et al. (2002, quoted in Perrini & Tencati, 2006: 299) suggest, even the most advanced methodologies in the sustainability field are still not taking into account the different relationships that companies develop with their stakeholders. In order to be effective and reliable tools able to help companies to understand stakeholder requirements and assess their own performance, such models should according to Perrini & Tencati (2006: 305) aim to: •

aggregate different management tools (e.g. social reporting, environmental reporting and KPIs) into a comprehensive model – methodological integration

39



map and monitor the entire set of company's stakeholder relationships – integration of different perspectives in a sustainability accounting system leading to a »multiple bottom line« approach, and



supply information which can be qualitative, quantitative (physical and technical) and economic – monetary, through the performance – integration of data/information.

In line with the above paragraph and despite the still evident relative confusion in the field, three most interesting contemporary attempts in defining the appropriate eclectic framework that integrates previously presented separate reporting and performance evaluation models according to the author’s point of view are depicted below. These are: Sustainability Balanced Scorecards (Dias Sardinha et al, 2003), Romero Castro & Pineiro Chousa’s (2006) Integrated Framework for the Financial Analysis of Sustainability and Yongvanich & Guthrie’s (2006) Extended Performance Reporting Framework for Social and Environmental Accounting (EPFR).

Sustainability Balanced Scorecards Arguably, the first attempts to integrate the fields of social and environmental reporting with the performance measurement systems were the attempts to integrate the social and environmental perspectives into the traditional BSC, which was accused of omitting those two important areas (Bringall, 2002, quoted in Romero Castro & Pineiro Chousa, 2006: 326). The TBL “guru” Elkington was apparently the first to realize the potential of the application of the BSC approach to sustainability for the purpose of selecting and developing the appropriate social end environmental indicators (Elkington, 1998; Romero Castro & Pineiro Chousa, 2006). Mainly social and environmental aspects were proposed either to be integrated within one of the four standard perspectives, or by creating an additional separate sustainability perspective (Brignall, 2002 & Figge et al, 2002, quoted in Romero Castro & Pineiro Chousa, 2006; Epstein & Wiesner, 2001, quoted in Dias Sardinha et al, 2002). Furthermore, Figge et al. (2002, quoted in Romero Castro & Pineiro Chousa, 2006) even suggested that it would be possible to formulate a specific environmental and/or social scorecard. This however should be undertaken only after successfully developing at least one of the variants proposed above. This is done by Dias Sardinha et al (2002) who, in their proposed thematic cascading BSC substitute the customer perspective with the one of stakeholders and the financial one with the one of sustainability. Furthermore, they even connect the sustainability perspective with the strategic goals and

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objectives of the company, which are cascaded downwards from the corporate level to business units and departments (Dias Sardinha et al, 2002) Either way, the “sustainably” modified version of the BSC integrates the management of social and environmental issues into mainstream business activities and can therefore provide the information that enables stakeholders to envisage how the company conducts its activities (Yongvanich & Guthrie, 2006). Moreover, by doing so,

it also

provides a valuable point of reference for the disclosure of balanced performance evaluation, as Sustainability BSC according to Dias Sardinha et al (2002) reduces the gap between reported statements at the corporate level and reported performance of actual practice.

An Integrated Framework for the Financial Analysis of Sustainability (IFFAS) Romero Castro & Pineiro Chousa’s (2006) integrated model is based on the concern that even though a variety of recent studies examine the link between the financial performance of a company and its environmental and social performance, the absence of an adequate approach that links both financial and sustainability objectives in terms of profitability and risk, is still present (Romero Castro & Pineiro Chousa, 2006).. Considering financial analysis to be the only objective tool to measure performance, the model aims to integrate financial ratios with the sustainability balanced scorecards and environmental shareholder value concepts by basing them on the definition of cause-effect relationships between a series of relevant ratios that reflect the financial, environmental and social performance of the company (Romero Castro & Pineiro Chousa, 2006). Rather than adopting the BSC’s subjective approach, the ratios are linked by mathematical expressions. However, as the inclusion of social and environmental qualitative measures to the model is problematic, this aproach remains limited (Romero Castro & Pineiro Chousa, 2006).

Extended Performance Reporting Framework for Social and Environmental Accounting (EPRF) Yongvanich & Guthrie’s (2006) EPRF is perhaps one of the most comprehensive among the new integrated performance evaluation and reporting frameworks. Taking the claim that the existing reporting frameworks are incomplete as its starting point, it aims to integrate them into an extended performance reporting framework. Assuming that various reporting and performance measurement approaches could be complementary to one another, Yongvanich & Guthrie (2006: 310) suggest an extended framework such as EPRF is necessary in order to provide a more complete account of the management and performance of an organization. 41

The EPFR reporting combines elements of the two already presented approaches, namely social and environmental reporting and BSC, and additionally supplements them with the emerging aspect of Intellectual Capital (IC) reporting. In an era that is driven by knowledge and where innovation has become a key success factor for creating value of the firm, Hope & Hope (1998, quoted in Yongvanich & Guthrie: 313) suggest that 50 – 90 percent of the value created by the firm is estimated to come from the management of IC, rather than from the management of traditional physical assets. Though various conceptualizations of IC exist, Yongvanich & Guthrie (2006) and Nemec Rudež & Mihalič (2005) suggest that most models classify IC into three different aspects: •

external/customer capital



internal/infrastructure capital



human capital

As can be seen from the figure below this is also the external structure which Yongvanich & Guthrie (2006) attribute to their EPFR framework, arguing that such structure also represents

the customer,

internal business processes, and learning and growth

perspectives of the BSC concept.

42

Figure 5: EPFR Framework

Source: Yongvanich & Guthrie (2006)

As such, the EPRF designed by Yongvanich & Guthrie (2006: 314) draws together the strengths and avoids the limitations of the three methodologies it encompasses and integrates: while IC reporting identifies the important sources of company’s economic value and performance, the BSC helps identifying the critical internal processes and focuses on managing and implementing customer focused strategy. Yet, as the company’s performance 43

nowadays, apart from satisfying its customers, also depends on its relationship with its stakeholders, social and environmental reporting gives evidence on how the company is doing in terms of its impacts on social and natural environments and therefore also needs to be included into the EPRF (Yongvanich & Guthrie, 2006). This is achieved by extending the classical customer IC perspective into an external one that also takes into consideration the stakeholders in a form of society relations and is in a way similar to the conception of Dias Sardinha et al’ (2002) sustainability BSC, by defining the company’s society relations with the use of methodology of social and environmental performance indicators as proposed by the GRI’s (2000) Sustainability Reporting Guidelines. Furthermore, while EPRF’s internal structure entirely rests on the IC aspect of infrastructural capital and BSC’s aspects of internal business processes and learning and growth, a part of GRI’s social performance indicators dealing with quality of workplace is also integrated into EPRF’s human capital dimension. It has to be noted though that Yongvanich & Guthrie (2006: 317) consider that the information on IC enables better assessment of economic performance by financial information users and, as can be seen from the figure 5 above, therefore excludes the GRI’s economic performance indicators from integration to the model. This certainly seems a questionable proposition that would need further argumentation. Nevertheless, Yongvanich & Guthrie (2006) do not claim the EPRF to be exhaustive. Conversely, they leave the consideration of the exact elements of each category to the discretion of the companies wishing to employ it according to their needs and specifics of the sector in which they operate.

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CHAPTER 4 - DEFINING THE MODEL OUTLINING THE FIELD Hospitality and Hotel Industry within Tourism While in the previous parts words of tourism and hospitality have been used together and/or in an inter-exchangeable manner it certainly at this point seems appropriate to narrow them down one step in order to move towards the specific that this dissertation aims to study, namely the hospitality industry, within which hotel companies arguably represent the centerpiece of the sector. As there still seems to be a fair share of confusion among both practitioners and academics about the relationship between tourism and hospitality, the following figure, proposed by Pizam (2009), aims to contribute to clarifying the issue.

Figure 6: The relationship between the travel, tourism and hospitality industries

Source: Pizam, 2009.

As the figure 6 shows, Pizam (2009) believes the travel, tourism and hospitality industries to be separate, yet interrelated industries. The distinction between the travel and hospitality industries is relatively clear, with the former merely providing transport, while the latter's key feature is the provision of accommodation. Conversely, the border between tourism and hospitality is unfortunately not that clear. As Pizam (2009) argues, tourism and hospitality are neither identical nor interchangeable. While tourism comprises many goods 45

and services provided by hospitality enterprises, these hospitality businesses also provide goods and services to non-tourists and in certain cases provide goods and services exclusively to locals (e.g. assisted living facilities and institutional foodservice). Tourism, on the other hand, entails many non-hospitality businesses, tourist attractions and passenger transport companies. Therefore, the hospitality industry is at the same time wider and narrower than the tourism industry, with the two overlapping in numerous ways (Pizam, 2009: 184). Nevertheless, hospitality in its restricted meaning is often referred to as hotel or lodging industry and is in general practice understood and on the policy level organized (as in the case of Slovenia) in a way to form one of the sub sectors of tourism industry. Regardless of the difference between the notions of hospitality and tourism, it is believed that the principles of sustainable development and even more so the more specific ones of sustainable tourism should also be applied to the hospitality sector, due to the fact that the hotel sector constitutes one of the most resource-intensive branches within the tourism (Bohdanowicz & Martinac, 2003).. While many hotel companies have started to mention environmental concerns, corporate governance and social responsibility in their mission statements, few have integrated these principles into a holistic sustainable development strategy (Houdre, 2008). The findings of the previous part delaing with CSR should be reiterated at this point, including the proclamation set by Scandic, which has an extensive CSR strategy affecting the decisions throughout all of the departments of hotel groups operations (Bohdanowicz & Zientara, 2008) comes closest to the ideal entailed in the term “sustainable hospitality” as coined by Houdre (2008). Moreover, both the Intercontinental Hotel Group as well as Hilton Hotels have in 2008 set up ambitious long term goals and objectives towards building sustainability into the core fabric of their businesses worldwide and therefore making a shift towards a complete Sustainable development strategy with the prior company explicitly following Elkington’s TBL framework as a method of operationalizing sustainable development strategy (Houdre, 2008). Naturally, a successful implementation of more sustainable practices in the hotel industry is highly dependent on the active support and cooperation of all stakeholders involved and especially the willingness and ability of the management to advocate environmentally and socially responsible behavior (Bohdanowicz & Martinac, 2003). In line with this and as a prerequisite, Jurowsky & Liburd (2001: 2) argue that the sustainability of the hospitality and tourism industry is dependent upon managers who adopt sustainable development principles as part of their management philosophy. Therefore, they further 46

suggest that achieving this aim requires the integration of the principles of sustainable development into the curriculum of hospitality and tourism management courses (Jurowsky & Liburd, 2001: 1). While sustainability endeavors in the hospitality industry are becoming a hot topic at the moment, it is also natural that those recent developments have not yet produced long term results and as a consequence have not yet gained a significant space in academic literature. On the contrary, despite the earlier attempt to clarify the difference between tourism and hospitality, sustainable tourism literature that has expanded immensely in the last decade thus appears as a point of reference when incorporating principles of sustainability into the hospitality sector.

Characteristics of Hotel Industry As with other industries, the hotel industry possesses its own particular characteristics associated with the provision of the “hotel product” (Harris & Mongiello, 2001), which affect the nature of hotel enterprises’ business operations. In terms of industry context, even though hotels basically represent a service industry product, a closer examination, such as the one proposed by Harris & Mongiello (2001: 121), reveals that through the provision of an integrated rooms, food and beverage service, a hotel encapsulates three significantly different kinds of industrial activity within a single arena, namely: •

rooms (a near pure service product),



beverage (a retail product), and



food (comprising a production function).

This is reflected in specific characteristics of hotels’ economic operations. Romih (2005), after reviewing a multitude of authors, lists the following: •

above average elasticity of demand



characteristics of business efficiency



capital intensity due to high fixed cost structure



labor intensity leading to high stuff turnover



large number of small sized business entities with lack of knowledge



market orientation with dispersed sales channels



heterogeneity of target groups

47

In line with that, as Harris & Mongiello (2001) further argue, that even though from a consumer standpoint a hotel represents a total seamless product, the distinct nature underlying diversity of activities involved in the provision and the particulars of hotel companies’ business operations need to be recognized and addressed in the determination of compatible management strategies and performance measures.

Performance Measurement in Hotel Industry In line with the challenges deriving from the hotel sector’s specifics such as high fixed cost and others mentioned above as well as the increasingly competitive environment, it has been recognized that performance measurement systems need to enable mangers to effectively cope with organization’s characteristics and their emphasized market orientation (Atkinson & Brender Brown, 2001). As Banker et al (2005) suggest, many firms nowadays use nonfinancial measures, such as product quality, customer satisfaction, and market share to evaluate and reward company’s and managerial performance as these types of measures are better indicators of future financial performance than the traditional accounting measures. Furthermore, Banker et al (2005: 395) state that hospitality organizations were quick to adopt the idea of monitoring and reporting non-financial performance measures following the example of Hilton’s implementation of the BSC in 1999. According to Bergin-Seers & Jago (2007) firms now need to consider non-financial aspects such as quality, flexibility, and the implementation of new technologies, especially in order to remain competitive, since the limitations of using only financial measures of performance are significant. As a matter of fact, this is associated with a number of weaknesses. Some of them are; limitations of the accuracy and neutrality of the measures, a dominance of lag/result over lead/determinant measures as they only provide for feedback on actions taken, and emphasis on short term (Atkinson & Brender Brown, 2001: 128). As such, they are therefore not capable to provide relevant information for the development of hotel company’s strategy as a key success factor of the firm (Bergin-Seers & Jago, 2007; Harris & Mongiello, 2001). According to many authors, an appropriately balanced collection of quantitative and qualitative measures that combines financial and non-financial aspects of operation with more strategic and externally focused indicators (Atkinson & Brender Brown, 2001) better represents the “true” performance of the hotel company. Moreover, studies reveal the successful hospitality companies to be using a combination of qualitative and quantitative performance measures (Bergin-Seers & Jago, 2007), and that the implementation of such a combination shows positive effects on future performance of a company (Banker et al, 48

2005). Nevertheless Atkinson & Brender Brown (2001) raise the concern that UK hotel companies are still in big majority focusing on more traditional forms of performance measurement. Naturally, as the internal performance measurement systems of hotel companies are becoming more complex and balanced, the external reporting practices consequentially aim to expose the company’s balanced performance and overall strategy and to provide information on environmental and social issues. Thus, this becomes a standard practice either through the provision of information on the corporate websites, or through the publication of a company’s annual, CSR or Sustainability reports (Bohdanowicz & Zientara, 2007)

Characteristics of Slovenian Hotel Industry What has been said about the general characteristics of hotel industry is also applicable to Slovenian hotel industry. However, before starting to build a model to measure the performance of Slovenian hotel enterprises, a brief description of its particularities seems necessary. Historically, following Slovenia’s independence and coinciding with overall Balkan crisis, the number of international tourist arrivals and overnight stays drastically diminished. This is the reason behind the fact that accommodation capacities in Slovenia (apart from the increase in a number of smaller, family run establishments) have not increased significantly over the past 15 years (Knežević Cvelbar & Mihalič, 2007). In 2008 they accounted for 32.759 hotel beds with slightly more than 50 percent of them being in the four-star category (SURS, 2008) which would suggests an overall good and competitive standard of Slovenian accommodation facilities. However, as the majority of hotels in the beginning of the 90s were performing poorly, they shared the same fate with other nation’s poorly performing companies during the contemporary privatization processes. They mainly landed in the hands of state owned and quasi-state owned investment (development and restitution) funds. As such, they are in many cases still waiting for the so-called 'second round of the privatization processes' in which a greater share of ownership should concentrate in the hands of private (foreign and domestic) enterprises as well as management and employees (Knežević Cvelbar & Mihalič, 2007). Furthermore, recent studies (Knežević Cvelbar, 2006) show the state to be a passive owner with a passive investment policy, pursuing political interests and appointing passive managers, all of which results in poor economic performance (Knežević Cvelbar & Mihalič, 49

2007). In addition, Nemec-Rudež & Mihalič (2007) examined the intellectual capital in Slovenian hotel industry and concluded that there is an urgent need for improvement of IC by investment in human capital and information technology by hotel managers. Both of these findings are in line with studies that analyzed the economic performance and competitiveness of Slovenian tourism sector (Mihalič & Dmitrovič, 2000) and Omerzelj Gomezelj & Mihalič (2008), which show that the Slovenian accommodation sector is uncompetitive and performing worse than other Slovenian companies in general. Additionally, Kavčič et al (2005) emphasize the cost ineffectiveness as the major problem leading to poor financial and economic performance of Slovenian hotel companies. The latter perform significantly worse in terms of financial ratios such as return on assets (ROA) and profit margin (PM) compared to their competition in neighboring countries and even more so to international hotel companies. The performance measurement and reporting systems used by Slovenian hotel companies also seem to lay well behind the modern developments in the field. If account is taken of the problems surrounding poor and inefficient performance, corporate governance issues and the shortcomings in IC present within the Slovenian hotel companies, this is not very surprising. As Mihalič et al (2009: 9) suggest, the generally prevailing methods of measuring performance and development in Slovenia, in contrast with economically more advanced countries, rely heavily on traditional economic and financial sets of indicators, such as GDP and models of national accounts. The same goes for hotel companies, the majority of which have yet to embrace the use of non-financial qualitative measures and become aware of their broader accountability to stakeholders, society and environment surrounding them.

APPROACHING THE WORK: FRAMING THE EXTERNAL STRUCTURE OF THE MODEL Naturally, the theoretical frameworks presented in the second and third chapters provide the basis from which the model’s structure should be extracted. Furthermore, the expectations of the Ministry of Economy’s Directorate for Tourism, the project’s financer, should be met, especially the requirements that the proposed model be practically applicable, internationally comparable and last but not least, tailored according to business practice and needs of Slovenian hotel sector. In order to meet these requirements, the process of building up a model is divided into three stages. First, the external structure of the model, based on the proposed theoretical framework, is formed and explained in this part. Afterwards, the 50

model’s components are filled with content, more precisely with comprehensive sets of indicators that enable measuring the performance of hotel enterprises. Ultimately, such comprehensive model is empirically verified in practice. With regard to the external structure, it seems apparent that nowadays the creation of such framework needs to be guided by the sustainable (tourism) development paradigm. This is made even more apparent by the fact that the key strategic document in the field of Slovenian tourism, namely the Governmental DPPST, lists the sustainable development as its fundamental principle. Given the above, the model should be designed with reference to the UNWTO’s definition of sustainable tourism and thus assess the following main issues •

Economic viability,



Respect of the environment in its broadest sense (natural, cultural, social & political), and



Maintenance of a high level of tourist (guest) satisfaction

Logically transferring these three perspectives onto a corporate level, they require the company to focus on three main aspects of its operation, namely the financial perspective, the marketing perspective and on top of it, an outlined strategy of environmental sustainability. Having clearly outlined the core dimensions that the model should address, it is now necessary to define the appropriate framework for measuring and reporting them. Elkingtons’s TBL reporting approach, supported with Dwyer’s (2005) notion about its relevance for the achievement of sustainable transition, might appear as the obvious choice, since it is focuses on financial, social and environmental bottom-lines and is generally “much better digested” in corporate world than the term sustainability itself (Norman & McDonald, 2004). However, TBL fails to integrate the dimension of customer focus element which is of utmost importance in a market oriented sector such as hotel industry. The missing customer focus can be found in one of the four perspectives of the Kaplan & Norton’s (1996) BSC which links the customer perspective to company’s vision and strategy and is the dominant BPM concept. Nevertheless, BSC in its purest form omits social and environmental issues. Realizing the limits of the two dominant reporting and BPM frameworks, the appropriate form for the model aimed at measuring the performance of hotel companies can be found in the field of contemporary crossover models that integrate and properly balance the fields of external reporting and internal BPM and are thus capable of providing holistic 51

assessment of how the company is doing with regard to the interested stakeholder groups (Perrini & Tencati, 2006; Yongvanich & Guthrie, 2008). Following Yongvanich & Guthrie's (2006) idea that various reporting and performance measurement approaches can be complementary to one another, the proposed model for measuring the performance of hotel enterprises indeed encompasses and/or is influenced by frameworks presented in the third (and second) chapter. Given its holistic nature, the model will be referred to as the “Holistic Hotel Performance Model” (HHPM). Elements and aspects from the existing frameworks that are reflected in the Holistic model or which influenced it are represented in the table 2.

Table 2: Elements of existing reporting and performance management frameworks that are represented in Holistic Hotel Performance Model Existing Framework TBL (Elkington, 1998) BSC (Kaplan & Norton, 1996) SUST. BSC (Dias Sardinha et al, 2002) IFFAS (Romero Castro & Pineiro Chousa, 2006) EPRF (Yongvanich & Guthrie, 2006) ST INDICATORS (UNWTO, 2004)

HHPM Focus on Social & Environmental aspects Customer perspective (market orientation) Connection of sustainability with strategy Financial ratios as an objective tool to measure performance Comprehensiveness, multidimensionality Generally accepted and sector specific methodology to assess social and environmental issues

Source: Own synthesis, 2009.

This approach manages to satisfy the initial requirement that the holistic model should be based on theory. Moreover, it goes beyond this requirement, since it rests on the contemporary developments in science which manage to cross and integrate the traditionally divided fields of business reporting and performance management. As can be seen from the figure 7 below, the holistic model consists of three parts. Represented on the left side of the figure, the area of financial performance based on financial ratios gives an overview of the hotel companies' past achievements. This is also the part which has traditionally been publicly disclosed. Aiming toward future, the element of e marketing performance is introduced, consisting of qualitative measures which have the customer focus placed in the center. This is represented by the right part of the figure 7 below. It is this part of the model that provides information about future trends of hotel company’s performance and is characterized by internal processes of business activity that are less transparent and only slowly becoming part of the external disclosure of information. Finally, the sustainability part of the model (more exactly stated the environmental sustainability, referring to the environment in its broadest sense) assumes the double role of 52

the paradigm and final goal/general strategy of the enterprise and is represented graphically by arching over the other two elements of the model.

Figure 7: HHPM (Stage 1-External Structure)

Environmental Sustainability

Financial Perf.

Marketing Perf.

Past

Future

External

Internal

Source: Own contribution, 2009

In this way the external structure capable of fulfilling basic aims of the model has been outlined. This must now be followed by an elaboration of the contents of the model. .

53

FILLING THE MODEL WITH CONTENT: REVIEWING THEORETICAL AND APPLICATIVE APPROACHES TO MEASURE PERFORMANCE OF HOTEL COMPANIES The content with which the external structure of the model needs to be filled with, are several sets of indicators for the above mentioned subject areas comprised in the model. In order to propose the most appropriate set of indicators for each of the model’s subject areas, ITEF research group consisted of experts in the following three areas: •

business, finance, accounting,



marketing, and



environmental economics,

For the purposes of the research project, these experts reviewed the existing theoretical and applicative approaches for measuring financial, marketing and environmental sustainability performance of hotel enterprises present in the academic and professional literature as well as in international business practice. This was done with a view to define a comprehensive list of indicators for measuring performance that could later be empirically tested in the Slovenian hotel sector. This culminated in the publication of the project report entitled Oblikovanje modela merjenja uspešnosti poslovanja hotelskih podjetij, which is referred to as Mihalič et al (2009) and main findings of which are briefly summarized in the following review.

Financial Performance As already established, financial measures have been the traditional means of performance management, ever since business performance systems historically developed as a means of monitoring and maintaining organizational control (Bergin-Seers & Jago, 2007: 146. Even though it is now agreed that that financial measures are associated with a number of weaknesses, such as limitations in their accuracy and neutrality, the capability of only reflecting on past performance and the emphasis on the short term rather to the strategic issues (Atkinson & Brender Brown, 2001: 128; Harris & Monghiello, 2001; Kavčič & Ivankovič, 2003), they still arguably represent the most objective and generally accepted way of approaching the performance measurement of the company. Furthermore, despite the progress taking place with regard to the design of more modern and effective performance measurement systems, hotel managers and the hospitality industry in general still heavily

54

focus on performance measurement based on key financial and accounting measures (Atkinson & Brender Brown, 2001, Mihalič et al, 2009). Furthermore, the hospitality industry as a whole and more specifically the hotel sector are characterized by the fact of being the first sectors to develop industry specific accounting and reporting system, namely the Uniform System of Accounts for the Lodging Industry commonly known by its abbreviation USALI proposed by New York Hotel Association in 1926. USALI became the generally accepted reporting framework in western world and therefore presents one of the first successful examples of the transition towards a global unification of accounting standards (Di Piazza et al, 2005; Kavčič and Ivankovič, 2003; Romih, 2005, USALI, 2006). As such, the USALI standard and especially its industry specific measure ‘revenue per available room’ (RevPAR) ha become the most used and recognized model to internally assess and externally report the performance of hotel company. Further, because of its unified methodology, it is widely used in international hotel surveys, such as the well established Horwath’s Worldwide Hotel Industry Survey, which compares the performance of hotels in different countries (Kavčič & Ivankovič, 2003; Mihalič et al, 2009: 19) While the USALI standards, as suggested by Kavčič & Ivankovič (2003) are not directly applicable to Slovenian hotel industry due to their incompatibility with the Slovenian Accounting Standards (SRS) they should be progressively integrated into the accounting practice of Slovenian hotel companies as an additional category that would enable benchmarking their performance with reference to foreign and international competitors. This notion is supported by Romih (2005), who analyzes the possibility of the implementation of USUALI standards into one of the largest Slovenian hotel enterprises. Romih (2005) among other indicates the successful case of Radisson SAS hotel chain, which adheres to Danish Accounting Standards while additionally using the USALI methodology for internal controlling and for the analysis of single department’s performance, which also appears in the chain’s annual reports. In the situation of an only limited applicability of USALI standards in Slovenian hotel sector, Mihalič et al (2009) reviewed recent existing national studies dealing with financial indicators in the hotel industry in order to formulate the list of indicators that could be used to assess the financial performance of Slovenian hotel companies. On the one hand, Kavčič et al (2005) analyzed the performance of hotel companies based on a set of indicators in line with SRS that are generally applicable to all industries, such as groups of ratios explaining the degrees of profitability, financial liability, liquidity and investments. On the 55

other hand, Mihalič (2003) presents extensive list of indicators used to assess financial performance of hotel companies which significantly lean towards the ones proposed by USALI, yet are even broader and more detailed. Furthermore, Mihalič et al (2009) also analyzed annual reports of some of the biggest international hotel chains such as Accor, Wyndham, Marriott and Choice. The analysis revealed that the majority of international hotel chains use hospitality specific measures such as RevPAR, average room rate and room occupancy rate to asses their financial performance. The analysis also showed that among the traditional, generally applicable indicators, the most commonly used are the ones associated with the growth of revenue and profitability. While performance measurement of international hotel corporations certainly provides a valuable reference, it should not be strictly followed due to the fact that Slovenian hotel enterprises are significantly smaller in size.. Therefore, Mihalič et al (2009) also took a closer look at the methodology developed by the Austrian company MANOVA, whose project WEBMARK Hotels is an online management information system based on economic data and results of customer satisfaction and employee satisfaction surveys (MANOVA, 2009). Besides analyzing the performance of the individual hotel companies, hoteliers can anonymously compare their data with their competitors and hence learn from the industry´s best practices (MANOVA, 2009). Last but not least, Mihalič et al (2009) took a closer look at the methodology applied by a consulting company specialized in the hotel industry, namely Horwarth International, which has been measuring and benchmarking the performance of hotel enterprises in their yearly Hotel Industry Survey throughout the last three decades. More specifically, due to the similarities of business and cultural context, Mihalič et al (2009) focused on Horwath’s 2005 survey report for Montnegro, which assessed the physical condition, technical equipment, employment, as well as marketing and financial performance of Montenegrian hotels. Based on the reviewed literature and professional and consultancy business practices, Mihalič et al (2009: 37) propose a comprehensive set of financial indicators that should be used to assess the financial performance of hotel companies in such a way that they would also be internationally comparable. As the figure 8 below shows, they are divided into three levels, with first one being generally applicable to all companies, and the second and third one being specific to hotel industry, with both of them following the USALI principles: •

1st level contains traditional generally applicable financial indicators



2nd level consists of indicators related to hotel’s room division department as the

56

department that most characterizes the sector's specifics •

3rd level consists of indicators applicable to different single hotel departments (FB, Convention, Wellness, Casino, etc)

Figure 8: Characteristics of selected financial indicators measuring performance of hotel companies

Source: Mihalič et al (2009)

In line with that the different levels of indicators they are also grouped into three main areas/groups of indicators that form the comprehensive set of indicators evaluating financial performance as proposed by Mihalič et al (2009).

Table 3: Final set of indicators to measure financial performance Area

Nb.

Indicator

General Performance Indicators

1 2 3

Total revenue growth compared with previous year Profit growth compared with the previous year Profitability of assets (ROA) = Net income / asset Profitability of capital (ROIC) = operating profit after taxes / (equity + financial liability) Profit margin = operating profit / operating income EBITDAR margin = operating profit before interest, taxes, depreciation and rent / income from operations Debt = Financial liabilities / equity Solvency = short term assets / short term liabilities Cash flow = Cash flow from operating funds Economic value added (EVA) = Net income - capital costs Total revenue per employee Value added per employee Revenue per room available (room division revenue / number of available rooms) Average room rate Average occupancy rate The share of the division* costs in the division revenues Division revenue per guest Division revenue per m2

4 5 6 7 8 9 10

Hospitality Specific Indicators

11 12 13

14 15 Division’s Specific 16 Indicators 17 18 Source: Mihalič et al, 2009.

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Marketing Performance According to Shah et al (2006, quoted in O'Neill et al, 2008: 355) customer equity is now believed to be the key driver of a firm’s bottom line. Not only has research demonstrated that a marketing orientation promotes company performance, but service firms have increasingly turned away from short-term, transaction-based marketing in favor of customer-centered approaches, notably loyalty programs (Rust et al. 2004, quoted in O'Neill et al, 2008: 356). Furthermore, Kim & Kim (2005) note that building and managing brand equity is the primary driver of a hospitality firm’s success. Certainly, as Briggs et al (2007) observe, pure tangible ways of measuring the performance with financial indicators are not the most appropriate method for the service sector. This is confirmed in practice particularly for the hotel sector activity with the results of Bergin-Seers & Jago (2007) study. The latter reveals that among even the small motels, those that are most successful are using balanced qualitative and quantitative set of performance measures. It is the same notion of balance that underpins Kaplan & Norton’s (1996) BSC concept developed as a response to purely quantitative ways of assessing company’s performance, stressing that company’s ultimate success largely depends on its capacity to connect operational activities with its strategic objectives. Surprisingly enough, recent research on the performance of hotel companies in Slovenia (Mihalič and Dmitrović, 2000, Kavčič et al, 2005; Knežević Cvelbar and Mihalič, 2007) did not consider the marketing dimension of performance and instead remained focused on financial success. However, contrary to public disclosure of financial statements, which has a legislative basis, as Mihalič et al (2009: 39) suggest, marketing processes often remain internal processes of hotel companies,

not transparent to the outside world.

Therefore, it is difficult to speak of any sort of standardization or unification in terms of generally acceptable sets of marketing indicators to evaluate the marketing performance of the hotel enterprise. The approaches to measuring marketing performance are thus limited to the ones presented in professional and scientific literature. Certainly, the most traditional and heavily discussed marketing concept in hotel industry has been service quality. It is commonly defined as the gap between customers’ expectations and perceptions (Parasuraman et al, 1990, quoted in Briggs et al, 2007: 1008). A concept closely related to service quality is customer satisfaction. The concepts are different but inter-related, yet there is little agreement on the nature of their exact relationship (Tian–Cole & Crompton, 2003, quoted in Briggs et al, 2007: 1009). However, an interesting notion is proposed by Schneider & Brown (1999, quoted in Briggs et al, 2007: 58

1009), who suggest that satisfying customers is not enough to retain them and therefore future concern of the hoteliers should instead rather focus on achieving ‘customer delight’. Apart from the focus on the perception of the customer, Mihalič et al (2009) based on the reviewed literature also suggest that the marketing performance of hotel companies should be evaluated from the company’s own perspective. This should be done by reference to the contribution that marketing activities and processes make to the achievement of business results and objectives and, last but not least, in terms of the market and hotel company’s obtained position on the market when compared to its competitors (substitutes). In line with everything presented above, Mihalič et al (2009: 41) propose the measurement of marketing performance of hotel companies to be broken down into the subsections as represented in table below: • Indicators of marketing performance as perceived by guests of hotel companies, • Indicators of marketing performance as perceived by the hotel companies, ie. contribution of marketing activities and processes to the achievement of business results, • Indicators of marketing performance in terms of the market and hotel company’s obtained position on the market.

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Table 4: Comprehensive set of indicators to measure marketing performance Area

Nb.

Indicators based on the performance as perceived by the guest

1 2 3 4 5 6 7

Indicators based on the performance as perceived by the hotel enterprise

8 9 10 11 12

Indicators as perceived by the hotel enterprises' achieved position on the market

13 14 15 16 17 18 19 20

21 22 Source: Mihalič et al, 2009.

Indicator Share of guests who evaluate quality as very high Share of guests who evaluate quality vs. price ratio as very high Share of highly satisfied guests Share of highly satisfied guests by segments (individual, group, allotment) Share of guests who formally complain in written form Share of returning guests who have stayed at hotel at least three times Share of guests who would recommend the hotel to friends and acquaintances Number of web site visits Awareness/recognition of hotel enterprise’s brand in its key markets Number of innovative products or processes at the enterprise level Efficiency of advertising and promotion (costs of advertising and promotion of sales vs. operating income) Effectiveness of advertising and promotion (how were the goals achieved) Existence of a positioning strategy in the key markets Number of visitors in the destination by their origin Number of visitors in the destination by segments (individual, group, allotment) Number of rooms and/or beds in the destination Share of new guests Share of sales generated by the new guests Market shares in enterprises’ key markets Market shares achieved in the segments of guests (individual, group, allotment) Share of reservations within total demand/inquiries Share of cancellations within total reservations

Environmental Sustainability Performance On the contrary to the above presented marketing processes which often remain an internal corporate issue, external reporting of environmental performance has gained increased popularity, as indicated by more than one hundred environmental certifications and designations that nowadays exist for tourism and hospitality (Font, 2002: 198). However in line with great proliferation and diversity of environmental schemes and performance evaluation systems considering environmental sustainability, this also shows extensive diversity with regard to methodology and indicators employed in assessment (Bonilla Priego & Aviles Palacios, 2008). Probably because of that, and also due to the lack of regulation that would limit self proclamations of environmentally responsible performance, attempts to promoting sustainable, environmentally responsible tourism often fail to be perceived as something more than pure ‘green wash’ (Font, 2002). As Erdogan & Tosum (2009: 407) argue, accommodation and hospitality services continue to be the most criticized tourism component because of their potential negative 60

impacts on the natural and cultural environment. This is due to the fact that they constitute one of the most resource-intensive branches of the tourism industry (Bohdanowicz & Martinac, 2003: 1). While implementation of sustainable practices in hotels primarily occurs in areas that are linked to achievement of direct financial gains, general environmental sustainability response and interest in hospitality business and its related literature has been slow (Tzeschenke et al, 2008). Quite to the contrary, environmental sustainability has been heavily discussed in the context of tourism destinations and extensive sets of sustainability indicators have been developed, most notably the ones proposed by the UNWTO (Mihalič, 2006). These indicators may also represent the main point of reference for assessing the sustainability performance of hotel companies, as Mihalič et al (2009) review their applicability to hotel sector and propose a list of slightly modified UNTWO indicators that are appropriate for application in hotel companies. Similarly, the indicators proposed by TSG (2007) and those developed by Voluntary Initiative for Sustainability in Tourism (VISIT) are also reviewed and modified in such a

way that would allow them to be used in the assessment of

sustainable hotel performance by Mihalič et al (2009). Furthermore Mihalič et al (2009) take closer look at best environmental practices present in tourism industry. Among them, they spotlight the TUI’s environmental checklist, applied by the Europe’s largest tour operator to check the sustainability performance of the hotels that the tour operator works with. The list entirely focuses on indicators of natural environment. A further good example of environmental practice is found in Accor’s Environmental checklist listing numerous energy consumption related indicators. This is a tool that strengthens environmental awareness and responsibility and thereby facilitates the implementation of environmental management in each of the hotels affiliated with the French chain. In contrast with environmental checklists used in the industry which mostly relate to natural environment, Mihalič et al (2009) suggest the Environmental Codes of Conduct as the framework from which to abstract the indicators relating to the political implementation of sustainability concept. According to them, this is warranted by the fact that such Codes tend to be very popular and often result as the initial step towards the sustainability, preceding the formal legislative regulation. Among these, the UNWTO’s Global Code of Ethics for Tourism from 1999 occupies the central role. Various codes for the hotel sector have been designed on its basis, such as International Youth Hostel Federation’s

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Environmental Code of Conduct and the code proposed from International Hotels Environmental Initiative. A further step towards practical operationalization of sustainability can be achieved through implementation of environmental certification (ECO Labels) and environmental management systems (EMS). As Mihalič et al (2009: 68) argue, the criteria for environmental labeling (such as EU Flower and Horesta’s Green Key) refer to a variety of elements including the requirement for existence of environmental policy, waste treatment plans, environmentally friendly packaging, monitored levels of water consumption, etc. and can therefore be seen as useful guideline depicting various fields that sustainability indicators should encompass. Moreover EMS’s such as ISO 14001 (process based and therefore not the most appropriate basis for development of sustainability indicators) and Environmental Management and Auditing Scheme (EMAS) evolve requirement for creation of environmental strategy and development into operations. Especially the later has been embraced by a large number of important hotel companies such as Sol Melia, Accor, Garden Hotels and Spanish Paradores to name a few (Mihalič et al, 2009: 73). While not incorporated into any of the presented environmental sustainability frameworks, CO2 Footprint has been one of the more influential environmental methodologies ultimately gaining in popularity and use (already used within Inter Continental, Doubletree and Fairmont Hotel Groups) and should therefore also be considered as a sustainability indicator for use in hotel industry (Mihalič et al, 2009). While structuring the often overlapping environmental measures present in the above presented schemes into a list of sustainability indicators, there is an apparent lack of cultural dimensions of sustainability in the existing environmental frameworks. Therefore, due to the nature of hotel serving as a meeting point and often in smaller locations the centerpiece of the locality’s social and cultural scene, an indicator monitoring number of cultural events in the hotel company was added to the list. Similarly, the provision of accommodation often comes together with provision of food. According to Van Westerwig (1999), the latter represents a part of cultural heritage that can be internalized, and according to Bratec (2008) adds to the value of a tourist’s experience. Therefore an indicator monitoring the share of local dishes on offer has been added to the list. Following the structure of sustainable tourism concept and referring to the environment in its broadest sense, in order to design a more systematic approach, environmental sustainability indicators have been divided into two groups, the first one

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containing indicators of natural and cultural environment and the second one being formed of indicators covering social issues and the degree of the political support of the concept.

Table 5: Comprehensive set of indicators to measure environmental sustainability performance Area

Nb.

Natural and Cultural Environment

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Socio- Political Environment

15 16 1

2 3 4 5 6 7 8 9

Indicator Energy consumption Consumption of energy from renewable sources (eg. biomass, solar, geothermal, wind energy, photovoltaic, etc.) Water consumption Water recycling Selecting plants that are adapted to a particular environment (% of hotel establishments) Planting at least one tree per year (% of hotel establishments) Quantity of solid waste Recycling waste Environmental quality standards (ISO 14001 certificate) Number of other ecological quality labels (eg, Green Key, Green Dot, EU Flower, Blue Flag) Direct CO2 emissions Indirect CO2 emissions Environmental activities for the employees (eg. number of seminars or environmental education hours per employee) Environmental activities for guests (eg, workshops, information brochures) Number of cultural events in the hotel enterprise (local culture) The proportion of local dishes on offer Employee satisfaction (eg, the proportion of very satisfied employees in the comparable periods) Employee salaries (eg comparison with other hotels) Training of employees (eg. in hours per employee per year) Cooperation with the municipality (eg, the number of projects) Cooperation with local residents (eg, the number of joint activities in the comparable periods) Satisfaction of local residents with the development of tourism Cooperation with non-governmental environmental organizations Participation in the overall strategy of sustainable development of tourism in the destination Monitoring of the implementation of hotel’s sustainable/ecologic development strategy (eg, the realization of the objectives)

Source: Mihalič et al, 2009.

REFINED HHPM Once having the sets of indicators for potential inclusion to the final version of HHPM established, the model can be elaborated into the areas which the presented sets of indicators cover. These will later be filled with exact indicators that the empirical testing will reveal as the most appropriate. 63

Figure 9: Refined HHTM-Stage 2

Natural &

Social &

Cultural

Political

Environmental Sustainability

Department's

Based on

specific

Enterprise's position on the market

Hospitality Specific

Based on perception of the enterprise

Based on perception General

of the client

Financial Perf.

Marketing Perf.

Past

Future

External

Internal

Source: Own contribution 2009.

64

CHAPTER 5 - DESCRIBING THE METHODOLOGY Once the model has been built on relevant theory and international best practices, it needs to be empirically tested within the Slovenian hotel sector context in order to receive feedback as to what extent the proposed sets of indicators can be implemented in practice in order to form a model that will also be perceived of some practical validity to the sector itself. The present chapter therefore deals with the methodology associated with the empirical testing of the model. The chapter initially attempts to give an overview of the methodology employed in the research. Therefore, it begins by presenting the philosophical stances upon which the research is conducted. Then, the selected approach is justified and research goals, questions and hypotheses are formulated. Furthermore, the method is briefly explained and the data collection process is described. Ultimately, the obtained sample is described and commented.

PHILOSOPHY OF THE RESEARCH While tourism is a relatively new scientific field it is well influenced by the more traditional disciplines of social sciences that have been characterized by the “art” vs. “science” debate regarding the appropriateness of utilized research methods (Walle, 1997). While there is no doubt about the fact that both philosophical stances, more often referred to as positivism and interpretivism, contribute to valuable research results (Saunders et al, 2003), for the larger part tourism research is characterized by placing a high priority upon methodological exactness and a tendency to quantify (Walle, 1997: 531). Following this pattern, much of the research conducted for the purpose of this dissertation falls under the positivist paradigm basing on two main assumptions (Finn et al, 2003): •

The social world exists externally and should be measured using objective methods.



Knowledge is only significant if based on observations of this external validity.

Certainly, the nature of the topic itself, the requirements of the research project and the fact that an adequate amount of data could be collected called for quantitative analysis. In line with positivist tradition the author assumes the position of the objective analyst in the processes of data collection and analysis whereby treating them with scientific rigor and exactness making use of highly structured methodology (Walle, 1997; Saunders et al, 2003). 65

Yet realizing the complexity of the business and social phenomena that are being researched, while the positivist tradition excellently attacks the majority of research problems and manages to clarify the relevance of theory in the business practices of the observed population, a strictly scientific position needs to be supplemented with a certain degree of intuition and subjectivity when it comes to interpreting the obtained result and defining the final model buildup. This however should not be perceived as the departure from positivist tradition, yet more as informed decision of seeking advantage in combining theoretical stances in order to overcome tradeoffs associated with scientific rigor (Walle, 1997) and leaning towards the eclecticism of contemporary philosophical triangulation.

APPROACH In line with positivist tradition, a deductive approach dominant in natural sciences is adopted, meaning theorizing takes place prior to the research enquiry (Finn et al, 2000) Often referred to as the 'theory testing approach', such approach is usually and also in present case associated with quantitative data and involves the development of a theory that is subject to rigorous testing (Saunders et al, 2003: 86). In order to test the theory, the latter needs to be deducted into key concepts and, with further deduction, key concepts are operationalized in hypotheses that allow testing (Saunders et al, 2003: 86) Put even more simply, hypotheses that can be defined as propositions that are presented in testable form, are the main elements of deductive approach (Finn et al, 2003). As Finn et al (2003: 19) emphasize, such process of deduction clearly links theory with research, arguing that if hypotheses about an aspect of tourism and leisure, which are derived from theory, hold true then they must be substantiated by the data collected in the research process. Furthermore, according to Saunders et al (2003: 87) a significant characteristic of deductive approach is generalization: this means that special emphasis should be put on samples of appropriate numeric size that allow generalization of the findings to the broader population. The basic key rules of the deductive approach are strictly respected, as can be seen in the following parts dealing with formulation of the hypotheses, research method, data collection, sample’s characteristics and testing the hypotheses: nevertheless they are only slightly left aside towards the final phase of research once the results are revealed and additional and alternative explanations need to be formed in order to logically explain the complex and difficultly quantifiable hotel business reality that affects the proposition of the final holistic model.

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RESEARCH GOAL, QUESTIONS AND HYPOTHESES As the nature of the topic suggests, the aim of the dissertation is to propose a practically applicable, internationally comparable and theoretically sound model to measure the performance of hotel companies in a sustainable way. As a consequence, the research goal is apparent, namely the formation/design of such model. However, in order to reach that, the research questions need to answer which aspects of theory dealing with sustainability, CSR and performance measurement indicators should be included in the model. Therefore, in order to reach the research goal, or, put differently, in order to establish the core indicators that would be capable to give relevant information about how the hotel company is performing in each of the fields that form the model, the measurement practices and attitudes of Slovenian hotel enterprises need to be analyzed. Naturally, such a broad research goal leaves plenty of room to test the implications of the theory in practice within the Slovenian hotel industry context. Therefore, seven hypotheses related to the field are formed with the aim to clarify how the theoretical underpinnings presented in the above reviewed literature dealing with the field are echoed in practice. Once confirmed or rejected, they contribute to a better depiction of the performance reality within the Slovenian hotel sector. The formulated hypotheses are the following:

H1: Hotel companies tend to measure the financial performance indicators the most. As Mihalič et al (2009: 1) suggest the understanding of performance and development in Slovenia is still too often related to the traditional financial measures. While both theory and empirical evidence show the importance of balancing quantitative and qualitative indicators in order to successfully manage hotel enterprises (Banker et al, 2005; Bergin Seers & Jago, 2007), hotels still too often rely solely on financial measures as the most common measure of their performance (Atkinson & Brender Brown, 2001; Harris & Mongiello, 2001: 123).

H2: Traditional financial measures applicable to all industries tend to be more used in Slovenian hotels than contemporary hospitality specific financial measures Mihalič et al (2009) divide financial performance indicators in the hotel industry into the ones that are applicable to all industries and therefore enable comparison of hotel 67

companies with others operating in different sectors, and the USUALI proposed hospitality specific ones that refer to single a department of a hotel's operation. Being aware of the fact that in Slovenia hotel activity is often not the enterprises only/main activity which they perform and also considering the large amount of companies being governed by state owned investment funds that can be considered as passive owners (Kneževič-Cvelbar & Mihalič, 2007), often employing unqualified mangers (Kavčič & Ivankovič, 2003) raises questions to what extent such hospitality specific measures, as suggested by USUALI and used by international hotel chains and in various benchmarking surveys (Howarht, Manova, etc) are used in Slovenian hotel sector .

H3: Guest satisfaction (group of marketing indicators as perceived by the guest) is the most relevant marketing dimension among the Slovenian hotel enterprises As various studies suggest, major focus has been given to customer satisfaction within marketing activities conducted in hotel companies (Atkinson & Brender Brown, 2001: 130). Various studies suggest that marketing indicators, especially those related to guest’s satisfaction are a good predictor of future performance of the hotel company and should therefore be well monitored (Banker et al, 2005). Furthermore, Chi & Gursoy (2009) suggest customer satisfaction to have positive significant impact on financial performance of hospitality enterprise.

H4: Medium sized and large hotel enterprises are more likely to have the formal environmental sustainability strategy and better measure environmental performance as the small and micro sized enterprises. Kasim (2004, quoted in Bohdanowicz & Zientara; 2008) suggests that the incorporation of environmental and social measures as part of corporate strategy is more common among large hotel corporations. While small and family owned businesses with their cultural practice and family based values certainly contribute to making transformation towards social, environmental and cultural sustainability (Liburd, 2006; Liburd & Carlsen, 2007), their focus is the preservation of values rather than an enhanced reputation and profit seeking that underpins corporations’ endeavors for the creation of sustainability and CSR strategies (Liburd & Carlsen, 2007). Furthermore their lack of time, competences and financial resources makes them unlikely to go beyond operational issues and focus into implementation of formal sustainability strategies and public disclosure of such information (Alvarez et al, 2001, quoted in Bonilla Priego & Aviles Palacios, 2008: 384-5). 68

H5: Environmental indicators that are directly connected to cost savings tend to be perceived as the most useful by Slovenian hotel enterprises Kalisch (2002, quoted in Holcomb et al, 2007) emphasizes that since the early 1990s, the trend in hospitality and tourism industry has been to focus on environmental concerns, use of technology and efficient use of energy. Similarly, 1998 Horwath hotel industry survey confirmed using different quantitative measures of environmental performance, especially those relevant to energy use, water consumption, waste disposal, as well as volume and treatment of wastewater (Bohdanowicz & Martinac, 2003). Furthermore, as Mihalič’s (2004) research on state of environmental management in Slovenian hotels shows, managers need to see direct cost related benefits when deciding to implement environmental measures, which is in line with Kirk’s (1998, quoted in Tzechentke et al, 2008) conclusion that environmental action in hotels primarily occurs where direct financial gains can be achieved.

H6: Performance indicators of natural and cultural environment tend to be more measured in the Slovenian hotel enterprises than the indicators of social and political environment. As initial concerns regarding the sustainability were heavily oriented towards the preservation of environment, and the focus on social and political issues only joined the sustainability discussion with the creation of Agenda 21 and UNWTO’s Global Code of Ethics for Tourism in the mid 1990’s (Miller & Twinning-Ward, 2005) one would expect ecological issues be at the center of monitoring practices of hotel enterprises that heavily rely on the quality of environment surrounding them. Even more so, given the fact that these measures might result in energy savings and are less complex and easier to quantify than the still under-researched social measures (Romero Castro & Pineiro Chousa, 2006)

H7: Hotel enterprises that have formally stated a sustainable development strategy tend to perform better than the ones that do not have such a strategy. Applying to the general business world, Hamers et al (2005) suggest that it is not commonly acknowledged that sustainability oriented corporate strategy can only be implemented at the cost of profitability, as underperformance of companies with CSR strategy when benchmarked against those without it has not been confirmed. Henderson (2007: 230) notes potential tensions between commercial practices and a social and environmental orientation in tourism, targeting hotel industry in specifics. Bohdanowicz & 69

Martinac (2003) suggest that while the greatest barrier that prevents hotels to become greener is the widespread belief that environmental measures are expensive, it has been shown that initial investments in technology and management certainly require inputs, but result profitable in the longer perspective.

RESEARCH METHOD In line with the deductive approach, a common method of social survey was used which, according to Saunders et al (2003), is often associated with a research approach that strives to collect large amount of quantitative data from a sizeable population. The selection of the survey method is furthermore supported by the notion of Smith (1995, quoted in Finn et al, 2000: 86) claiming surveys to be the most important source of information for tourism analysis. More particularly, the questionnaire technique of social survey was selected as the most appropriate due to the nature and content of research. Bearing in mind the characteristics of respondents, namely the hotel managers, conducting the survey as a selfadministered web based on-line questionnaire that was delivered and returned electronically with the use of Questionpro software resulted as to be the most comfortable, economic and at the same time environmentally friendly option. Being fully aware of the importance of good questionnaire design and its effects on the reliability and validity of the data it wishes to collect (Saunders et al, 2003: 281), the ITEF research group, throughout multiple extensive meetings, carefully approached the task to achieve, to the greatest possible extent, a clear layout of the questionnaire form (see appendix for English translation of the questionnaire originally written and distributed in Slovenian), a clear explanation of the questionnaire’s purpose and a table-form design of individual questions that were grouped into the following categories of indicators: •

Financial



Marketing



Environmental Sustainability – Natural and Cultural



Environmental Sustainability – Social and Political

Before the questionnaire was sent out in the beginning of March it had been tested with two established hotel managers and revised following their constructive comments,

70

paying special attention to shortening the questionnaire and eliminating the unnecessary indicators that resulted to be only variations of the already carefully formed core ones. In the questionnaire, following the initial general questions on the characteristics of their enterprise, the respondents were asked (with a simple YES/NO option) to indicate which of the proposed sets of single indicators they measure in their enterprise, as well as potentially indicating additional indicators that they used but which were not listed on the questionnaire. Furthermore, they were asked to assess the usefulness of each proposed indicator even though they did not measure it in their enterprise. To measure their attitude with regard to this question, the classical Likert scale with a range from 1 to 5 (1 – not useful at all; 5 – very useful) was used.

DATA COLLECTION Data collection phase initiated already before the final version of the questionnaire was codified in order to create a comprehensive data-basis of the vast majority of hotel enterprises and was certainly the most time consuming process of work that needed to be fulfilled within the process of writing of this dissertation. There were various obstacles that needed to be overcome in both the collection of primary and secondary data.

Primary Data As indicated above, the process of primary data collection started in late February with creation of data-basis of potential respondents. The main problem behind this process was the fact that the official publication covering number all available hotels in the country ceased to exist in 2005. 2005 was also the last year for which National Statistical Office (SURS) listed the number of available hotels, while, for the following years, only data on number of hotel beds are available, thus only allowing assumptions on the number of existing hotels in Slovenia. Furthermore, as the object of the analysis of the ITEF research project and consequentially this thesis are not single hotels but hotel companies (or enterprises as also commonly referred to) further obstacle already observed by Kavčič & Ivankovič (2003: 111) when researching hotel sector, was present in the problem of registration of these companies in the official register. As activity of provision of hotels and other similar lodging operations is classified under code 55.100 in Slovenian Standard Classification of Activity (SKD) only companies that operate hotels should formally and theoretically speaking, also be registered for this specific activity. However, this is plainly not always the case in practice, since companies are typically registered for all of potential activities at the moment of enterprise’s 71

incorporation. The Agency of the Republic of Slovenia for Public Legal Records and Related Services (AJPES, 2009) provides an official list of 399 enterprises that ever registered for practicing under 55.100 activity, yet a closer examination reveals that almost one third of the listed enterprises already ceased to exist, while considerable share of others do not in reality operate hotels, Yet still, some larger companies that operate some of the larger hotel complexes but whose main activity is not provision of hotels (SKD 55.100) are not included in the list for unknown reasons. In a different direction, but in the same confusing manner, the list of companies registered for 55.100 activity with National Chamber of Commerce (GZS, 2009), which is usually the main point of reference for corporate research does not help a lot either, as it only lists 76 enterprises that actually exist and list 55.100 activity as their main activity. In order to overcome the lack of both official lists, the database of companies was created by using the data of GZS and supplementing them with the data available on the Slovenian Tourist Board (STB)’s website, surpassingly the source of the most up-to-date data on existing and operating hotels in Slovenia at the moment. This way a list of 124 companies that actually operate hotels was constructed. Though probably not 100 % exhaustive, it was assumed to be and was referred to as an effective population of Slovenian hotel Enterprises in February 2009. Following the above described phase, all of the 124 companies were contacted telephonically and presented with the scope of the survey. Also, the contact persons within each company were identified. The first email invitation for the participation in the survey containing a link to the on-line questionnaire was mailed to the contacts on March 10. The on-line questionnaire was active until June 13 and in the meantime the contact persons were given a weekly reminder and on average 2 telephone follow-up calls. By mid June, 67 questionnaires were returned, yet only 54 were considered appropriate for the analysis, still representing a relatively high response rate of 43,55 percent, especially considering the fact it was a web-based survey.

Secondary Data In order to see whether sustainability “pays of” within Slovenian Hotel companies secondary financial data was gathered from the 2008 annual reports of the participating companies as provided by commercial website Gvin (Gvin, 2009) that provides official financial data as collected by Agency of the Republic of Slovenia for Public Legal Records and Related Services (AJPES) in a more organized form. Financial indicators such as EBIT, ROA, revenue from sales, number of employees and value added per employee were 72

extracted from the annual reports and furthermore profit margin (PM) and overall standardized index of success have been calculated out of the gathered secondary financial data.

SAMPLE DESCRIPTION As previously mentioned the sample consists of 54 hotel enterprises which represents 43,55 percent of the assumed total population size. Furthermore, as can be seen in the table below, the sample covers even higher shares when it comes to number of available hotels (131 out of 186) and even more significantly, the number of available hotel beds in Slovenia, which among the three parameters is the only official data available at the National Statistical Office (SURS).

Table 6: Description of the sample Characteristic

Population

Sample

Representing Population’s share (%) Number of Hotel Enterprises 124 54 43,55 Number of Hotels 186 131 67,74 Number of Beds 32.759 18.341 55,99 Source: SURS, 2008; own calculations, 2009 ; ITEF Survey, 2009.

Even though Hackman’s test could not be performed due to the already explained confusion and unavailability/discrepancies in the population and sector’s average data, the high response rate and sample’s characteristic of covering a relatively large amount (more than a half) of existing hotel beds make it possible to assume the sample to be representative. Furthermore, in contrast with other recent surveys of Slovenian hotel sector (Kavčič & Ivankovič, 2003; Cvelbar Knežević & Mihalič, 2007), which focused entirely on medium and larger hotel enterprises, micro and small hotel enterprises that are a characteristic of the European hotel sector, are with almost 60 percent well represented in the sample. The classification of enterprises follows the EU definition based on numbers of employees, and is the one used in EU statistical releases and comparisons It specifically defines a small enterprise as one with fewer than 50 employees (with micro-enterprises having fewer than 10 employees). A medium enterprise is defined as one with 50 or more employees, but fewer than 250, and a large enterprise as one having 250 or more employees (EC, 2009). The distribution of companies according to the size present within the sample is shown in detail in the table and table 7 below.

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Table 7: Distribution of enterprises forming the sample Enterprises

Frequency

Micro 13 Small 19 Medium 14 Large 8 Total (N) 54 Source: ITEF Survey, 2009.

Share (%) 24,1 35,2 25,9 14,8 100,0

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CHAPTER 6 - PRESENTING THE RESULTS Having revealed the design of the research, the present chapter's function is to present the obtained results. The results of the questionnaire were analyzed with the help of SPSS (Statistical Package for Social Sciences). For a more systematic approach, prior to trying to confirm (or reject) the proposed hypotheses, the more general results aiming to give a good insight in the performance management and attitudes towards various categories of indicators in Slovenian hotel companies, will be presented.

DESCRIPTIVES Strategies Certainly a good starting point seems to be to first check how the companies are dealing on the strategic level, as it is clear that the content of performance measurement and reporting largely depends on the strategies pursued by the companies. Bearing these in mind, the first set of questions present in the questionnaire were the ones asking companies whether they possessed any formally stated strategies. As can be seen from the results presented in the table 8 below, almost 80 percent of companies possess a formally stated financial strategy which is not surprising and is in line with what was expected. What comes as a bit of surprise is the fact that even bigger share of companies have a formally stated marketing strategy (more than 90 percent). Even though not to a surprise, bearing in mind previous analyses of lacking attitudes of Slovenian hoteliers towards the environmental issues (Mihalič, 2007), only around one third of Slovenian hotel companies posses a sustainable development strategy. This means that the recent developments in CSR and the recent trends towards greater sustainability in international hospitality industry (Houvre, 2008; Bohdanowicz & Zientara, 2008) have not yet had a significant impact in Slovenia. While the lack of a sustainability strategy does not necessarily mean that hotel enterprises do not monitor (measure) the indicators of environmental sustainability in practice, the T-test (T = 3,022) revealed significantly different (p = 0,005) means (µ1= 0,62; µ2= 0,39) in average measuring of environmental sustainability indicators between the companies that do have a strategy of environmental sustainability and the ones that do not have such strategy. This could indicate that the lack of 75

strategy in this area also results in a less likely monitoring of indicators of environmental sustainability (for calculations see Appendix B, Additional Calculations Part).

Table 8: Existence of formal strategies Strategy Financial Marketing Sustainable development

Number of enterprises possessing a formal strategy 43 49 19

Share (%) of enterprises possessing a formal strategy 79,6 90,7 35,2

Source: ITEF Survey, 2009.

Effective measuring and usefulness General

While the existence of a strategy might be a good projector of how companies are doing in terms of monitoring their respective financial, marketing and sustainable performance, the averages for each category of indicators in terms of share of companies measuring specific categories of activity and the averages of usefulness they attribute to each of them, are the “real deal” when trying to provide relevant information regarding performance measurement and consequentially reporting in Slovenian hotel companies.

Table 9: Measuring practice and evaluation of usefulness for groups of indicators Indicators

Measuring (%)

Financial Marketing Environmental sustainability– natural and cultural Environmental sustainability – social and political Source: ITEF Survey, 2009.

73,26 62,19 40,56 57,54

Evaluation of Usefulness (from 1 to 5) 3,90 3,83 3,36 3,64

As the table 9 above shows, financial indicators are the most measured ones and at the same time also the ones that enterprises find to be the most useful in giving them the overview of how their business is doing. While this result is on one hand expected given the legislative background that traditionally makes it compulsory for them to report specific measures of financial performance, it is also surprising given the fact that more companies posses a marketing strategy than a financial one. In such circumstances, one would at least expect the marketing indicators to be evaluated as the most useful, yet this is also not the case. Namely, the mean of usefulness of marketing group of indicators is slightly lower than the evaluation of usefulness for financial indicators. Nevertheless, only slightly different 76

scores of usefulness of both categories are in line with theory that stresses out the importance of combining both, backward looking financial and forward looking marketing measures in hotel industry (Bergin-Seers & Jago, 2007; Harris & Mongiello, 2001). What is evident is the fact that as the lack of sustainability related strategies present in Slovenian hotel sector suggested, sustainability related indicators, especially the ones relating to natural and cultural environment, are on average only measured in 40 percent of companies and also perceived as the least useful category among all. This is an alarming information knowing that hotels rely heavily on the attractiveness of the environment surrounding them and the fact that greater environmental awareness is also reflected in consumer’s choices regarding environmental performance of hotels in which they consider staying (Mihalič, 2006). Fortunately, hotel companies tend to monitor the indicators of environmental sustainability that refer to social and political environments better and also evaluate their usefulness higher, though still lower than the usefulness of the marketing and financial categories of indicators. It can be assumed that this is a consequence of the omnipresent social discussions dealing with the low quality of employment in Slovenian hospitality sector and the social and political issues surrounding this permanent public debate. However, it must be noted that differences among various categories of indicators in terms of their attributed usefulness are not very significant. Namely, all categories’ means are between 3 and 4 on a 5 point Likert scale, suggesting no category being considered as only slightly or not at al not useful. Furthermore, as the table 10 below indicates, there are statistically significant (p = 0,000) relationships among the measurement of single indicators’ categories and the perceived usefulness of this categories’ indicators. These however differ among different categories. While measuring a certain indicator also suggests its usefulness and vice versa, these correlations are almost equally strong for marketing and financial categories, while correlations for both categories of indicators of environmental sustainability are slightly weaker with the one between measuring the environmental sustainability indicators dealing with social and political aspects and their usefulness being the weakest of the bunch (For calculations see Appendix B, Additional Calculations Part).

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Table 10: Correlations between measurement and perceived usefulness Indicators

Measuring

Usefulness

Significance

Pearson Correlation Financial Marketing Environmental sustainability- natural cultural Environmental sustainability- social political Source: ITEF Survey, 2009.

and

1 1 1

0,812 0,813 0,767

0,000 0,000 0,000

and

1

0,693

0,000

Financial Performance Indicators

As the previous section revealed, financial indicators are the category that is most measured and perceived as most useful in Slovenian hotel companies. The category consists of three subgroups, namely the general financial indicators that are used in all types of business that enable comparison of hotel enterprises’ performance with performance of other companies operating in different sectors, and the hospitality specific indicators proposed by USUALI that refer to performance of single department, either the one of room division or any other departments typical within the hotel (for example FB, beverage, casino, wellness, etc.) The results presented in table 11 below reveal that the indicators that hotel companies measure the most come mainly from the first sub-group, namely are the ones that can be used in any sector, which might indicate certain amount of conservatism and traditionalism present in Slovenian hotel companies. This could also indicate the lack of specifically hospitality educated management (Nemec-Rudež & Mihalič, 2005) and be understood as an answer to the fact that hotels are often just one of the activities the enterprise is operating. From the other perspective however, this could indicate the willingness of hotel companies to compete and benchmark their performance against successful companies operating in other sectors. Whatever the correct answer, the means for specific indicators show that the companies in greatest extent measure growth of revenue, growth of profit, profitability of assets (ROA), as well as their solvency and debt, as the means of this indicators range from 0,83 to 0,93. Similarly, the usefulness of these indicators is also rated highly, as all of the means surpass the value 4 on a 5 point Likert scale. Apart from that, the companies also often measure their cash flow and profit margin which is in line with the practice of international hotel companies (Mihalič et al, 2009). On the contrary with the use in international hotel companies and to the suggestions of USUALI, Horwath HTL and Manova is the relatively scarce use (µ = 0,70) and even more 78

relatively low attribution of usefulness (µ = 3,84) of the RevPAR indicator in the subgroup referring to the specific room division hotel department. This is surprising, as it is the indicator that has actually become the flagship one in hospitality as it is also the one that often serves for benchmarking purposes among the companies and is also present in annual reports of all multinational hotel chains. Instead of that, Slovenian hotel companies within this subgroup largely focus on the indicator of average occupancy rate, which is measured in 96 percent of the enterprises and is perceived as extremely useful (µ = 4,44), followed by the indicator of average room rate. Though simultaneous monitoring of both ultimately presented indicators provides similar information to the company as the indicator revenue per room available, this should be used more often if the sector aims to attract foreign investors. It also seems apparent that the management of Slovenian hotel enterprises has not yet embraced the idea that there is more to the hotel than just room division department. It is nowadays obvious that other departments largely contribute to the overall performance of hotel enterprise if run properly. Slovenian hotel managers seems to be more concerned with the costs of additional departments as the indicator they evaluate as most useful and measured in the subgroup of the ones referring to specific department is the share of the division’s costs in the division’s revenue. However, the indicators of division’s revenue per guest and division revenue per m2 are not widely accepted within Slovenian hotel industry, with the later one, especially appropriate when reviewing infrastructure investment potential being the less measured indicator in the financial category with only 12 percent of enterprises measuring it and its attributed perception of usefulness of only 2.

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Table 11: Financial Indicators – measuring vs. usefulness Nb.

Indicator

Measuring

Usefulness

Mean 1 2 3 4

5 6

7 8 9 10 11 12 13

14 15 16 17 18

Total revenue growth compared with previous year Profit growth compared with the previous year Profitability of assets (ROA) = Net income / asset Profitability of capital (ROIC) = operating profit after taxes / (equity + financial liability) Profit margin = operating profit / operating income EBITDAR margin = operating profit before interest, taxes, depreciation and rent / income from operations Debt = Financial liabilities / equity Solvency = short term assets / short term liabilities Cash flow = Cash flow from operating funds Economic value added (EVA) = Net income - capital costs Total revenue per employee Value added per employee Revenue per room available (room division revenue / number of available rooms) Average room rate Average occupancy rate The share of the division* costs in the division revenues Division revenue per guest Division revenue per m2 Source: ITEF Survey, 2009.

0,93

Standard Deviation 0,26

Mean 4,40

Standard Deviation 0,95

0,92

0,27

4,45

0,87

0,83

0,38

4,22

0,91

0,69

0,47

3,81

1,01

0,80

0,40

3,94

1,07

0,64

0,48

3,98

1,18

0,85

0,36

4,08

1,05

0,92

0,27

4,26

0,92

0,82

0,39

4,07

0,96

0,54

0,50

3,55

1,20

0,77 0,70 0,70

0,42 0,46 0,46

3,91 3,83 3,84

1,02 1,03 1,16

0,77 0,96 0,75

0,43 0,19 0,44

4,00 4,44 4,02

1,14 0,73 1,19

0,46 0,12

0,50 0,40

3,47 2,00

1,29 1,30

Marketing Performance Indicators

As marketing strategy was indicated as the one which is stated in the majority of hotel companies, it is not surprising that the evaluation of usefulness of marketing indicators by Slovenian hotel enterprises is, as presented in the table 12 relatively high, with values of each indicators surpassing the average value of 3 on a 5 point Likert scale. While in general they are measured less often than the financial indicators, measuring of specific indicators within the marketing group is more balanced with each indicator but two, respectively share of guests who would recommend the hotel to their friends and share of sales to new guests (µ = 0,47 and µ = 0,23) being measured in more than 50 percent of hotels.

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As previously mentioned, marketing indicators consist of three sub groups among which the indicators forming the sub group that is based on the performance as perceived by the guest are the ones that are most often measured in Slovenian hotel enterprises. This is specially true for the following indicators: share of returning guests who have stayed at the hotel at least three times which is also the indicator that is perceived as the most useful among all marketing indicators (µ = 4,44), share of guests who formally complain in written form, share of highly satisfied guests and number of website visits. While great use of indicator indicating the number of website visits is expected due to the very efficient and easily implementable IT technology that is not associated with significant costs, it is surprising that less companies measure the share of guests who evaluate quality vs. price ration as very high and that such indicator is also not perceived as one of the most useful, especially in light of Slovenia being an emerging destination focusing on good quality vs. price ratio of its tourism supply. The second sub group consists of indicators based on the performance as perceived by the hotel enterprise itself. Even though indicators such as efficiency and effectiveness of advertising and promotion and existence of positioning strategy in the key markets are perceived as quite useful they are only being measured in 49- to 75- percent of enterprises. What seems worrisome in this group is the fact that the indicator indicating number of innovations within the enterprises is perceived as least useful of the bunch and also being measured in only 42 percent of companies. This might confirm the notion of lack of focus on IC that is present in Slovenian hotel sector as suggested by Nemec Rudež & Mihalič (2005). The third and last marketing sub group is formed by the indicators that measure the performance related to hotel enterprises’ achieved position on the market. Among these the two indicators that are most often measured and also perceived as most useful are the number of visitors in the destination by their origin and number of visitors in the destination by segments, which indicates that hotel companies carefully follow in which markets and to what type of audience they need to employ their marketing forces. On the other hand hotels do not seem to be too concerned with share of new guests and sales generated by them, as especially the later indicator is perceived as the least useful among all marketing indicators (µ = 3,18) and also as the one being measured in the smallest number (only 23 percent) of hotel companies. Ultimately, share of reservations within total inquires and share of cancelations within total reservations are measured in just slightly above than 60 percent of hotel companies, which due to the nature of such indicators and their relatively uncomplicated monitoring, would also be expected to be measured more effectively. 81

Table 12: Marketing indicators – measuring vs. usefulness Nb .

Indicator

Measuring

Usefulness

Mean 1 2 3 4

5 6 7

8 9

10 11

12

13 14 15

16 17 18 19 20

21 22

Share of guests who evaluate quality as very high Share of guests who evaluate quality vs. price ratio as very high Share of highly satisfied guests Share of highly satisfied guests by segments (individual, group, allotment) Share of guests who formally complain in written form Share of returning guests who have stayed at hotel at least three times Share of guests who would recommend the hotel to friends and acquaintances Number of web site visits Awareness/recognition of hotel enterprise’s brand in its key markets Number of innovative products or processes at the enterprise level Efficiency of advertising and promotion (costs of advertising and promotion of sales vs. operating income) Effectiveness of advertising and promotion (how were the goals achieved) Existence of a positioning strategy in the key markets Number of visitors in the destination by their origin Number of visitors in the destination by segments (individual, group, allotment) Number of rooms and/or beds in the destination Share of new guests Share of sales generated by the new guests Market shares in enterprises’ key markets Market shares achieved in the segments of guests (individual, group, allotment) Share of reservations within total demand/inquiries Share of cancellations within total reservations Source: ITEF Survey, 2009.

0,60

Standard Deviation 0,49

3,94

Standard Deviation 1,11

0,60

0,50

3,69

1,15

0,77 0,55

0,42 0,50

4,14 3,71

1,02 1,29

0,81

0,40

4,28

0,97

0,87

0,34

4,44

0,86

0,47

0,50

3,78

1,23

0,83 0,49

0,38 0,50

4,08 3,64

0,99 1,25

0,42

0,50

3,24

1,20

0,70

0,46

3,98

1,11

0,75

0,43

3,90

1,10

0,49

0,50

3,81

1,26

0,81

0,40

4,15

1,05

0,68

0,47

4,10

1,13

0,55

0,50

3,70

1,16

0,58 0,23

0,50 0,43

3,80 3,18

1,17 1,36

0,61

0,49

3,76

1,28

0,60

0,49

3,74

1,29

0,64

0,48

3,76

1,11

0,62

0,49

3,57

1,19

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Mean

On the whole, as the measurement and perceived usefulness of proposed indicators suggest, Slovenian hotel companies on the marketing level seem to be more focused on retaining the loyal customer as attracting the new one or improving the quality of their offerings. Environmental Sustainability Performance Indicators Natural and cultural environment

Environmental sustainability indicators dealing with natural and cultural environment (see table 13 below) are the category that was perceived as the least useful by the companies participating in the survey and consequentially also result to be the ones that are also the least monitored by the companies. Such situation supports previous research findings on slow implementation of environmental management in Slovenian hotel sector (Mihalič, 2007) In line with the theory and certainly with what was expected when taking into account the business reality is the fact that big majority of companies measure their levels of energy and water consumption and also find them very useful. Naturally as these two areas represent some of the most significant costs, hoteliers have apparently realized the saving potentials of such monitoring practices, which seem even more significant bearing in mind the general cost ineffectiveness of Slovenian hotel companies that the study of Kavčič et al (2005) suggested. However, the saving potentials largely remain unexplored, as only about half of the companies monitor the quantity of solid waste and less than 30 percent of companies monitor the consumption of energy from renewable sources and water recycling. Even though the evaluation of usefulness for these indicators is well above average value, it is significantly lower compared to the attitudes towards measuring direct energy and water consumption. This could lead to the assumption that Slovenian hoteliers are slowly embracing the ideas of energy efficiency, yet still remain superficial and rarely look beyond the immediate cost saving potentials of monitoring such indicators and this way overlook potentially even bigger savings, not to mention their possible contribution to preservation of natural resources. Certainly the above mentioned facts and stances are further supported in the proclamation of apparent lack of environmental awareness and responsibility that bases on results produced by the survey that are presented in the following lines.

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Only about 20 percent of companies monitor presence of environmental quality standards such as ISO or presence of other environmental quality labels, which are a common practice and part of differentiation and overall quality strategy across Europe. As a matter of fact, there is only one hotel company in the whole country that has up to now implemented the EU-flower (Mihalič et al, 2009) despite the fact that this international ecolabel has been heavily promoted by the government. Nevertheless the perceived usefulness of such indicators is still above point 3 on a 5 point Likert scale which means it is not possible to claim hoteliers consider these indicators as irrelevant, yet aparent lack of concrete action is evident. Furthermore relatively high standard deviations indicate that perceived usefulness varies extensively among various companies. Furthermore, 30 percent of companies consider selecting plants that are adapted to hotel's particular environment, while only 23 percent of companies consider planting at least one tree per hotel each year as they find such indicator not to be particularly useful (mean below average of 3 on a Likert scale). Similarly, only a bit more than 20 percent of enterprises measure direct CO2 emissions and even less the indirect ones. And while one third of hotel companies monitor presence of environmental activities for their employees, only one quarter of them measures the offer of such activities that evolve guests. Certainly raising the environmental awareness and clarifying the assumption that environmentally responsible behavior does not necessary only come associated with higher costs (Bohdanowicz & Martinac, 2003) must be the next big challenge in Slovenian hotel industry. As the environmental awareness is raising among the tourists they will certainly over the time force the hotel operators to take care of the necessary provisions yet the extent, and even more so the time frame when this is to happen remains questionable. In the meantime therefore active role of government as policy maker and stimulator is necessary. Surprisingly though, as such issues are more recent and less represented in theoretical tourism sustainability discussion and in contrast with natural environment, cultural aspects of environmental sustainability are better taken care of in Slovenian hotel companies. More than half of hotel enterprises measure the proportion of authentic local dishes on offer and also, in line with the assumption that local gastronomy add to the overall quality of tourist’s experience as it literally represents the type of culture heritage that can be internalized and digested’ (van Westerwig 1999: 77), perceive such indicator as quite useful. Similarly above 60 percent of hotel companies monitor the number of conducted cultural events in their hotels.

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Table 13: Indicators of natural and cultural environment – measuring vs. usefulness Nb.

Indicator

Measuring Mean

1 2

3 4 5

6 7 8 9 10

11 12 13

14 15 16

Energy consumption Consumption of energy from renewable sources (eg. biomass, solar, geothermal, wind energy, photovoltaic, etc.) Water consumption Water recycling Selecting plants that are adapted to a particular environment (% of hotel establishments) Planting at least one tree per year (% of hotel establishments) Quantity of solid waste Recycling waste Environmental quality standards (ISO 14001 certificate) Number of other ecological quality labels (eg, Green Key, Green Dot, EU Flower, Blue Flag) Direct CO2 emissions Indirect CO2 emissions Environmental activities for the employees (eg. number of seminars or environmental education hours per employee) Environmental activities for guests (eg, workshops, information brochures) Number of cultural events in the hotel enterprise (local culture) The proportion of local dishes on offer Source: ITEF Survey, 2009.

Usefulness

0,90 0,29

Standard Deviation 0,30 0,46

Mean 4,24 3,41

Standard Deviation 1,08 1,37

0,85 0,29 0,31

0,36 0,46 0,47

4,15 3,24 3,09

1,12 1,39 1,27

0,23

0,43

2,67

1,22

0,54 0,54 0,23

0,50 0,50 0,43

3,53 3,55 3,26

1,25 1,13 1,50

0,19

0,40

3,11

1,26

0,22 0,15 0,33

0,42 0,36 0,47

3,07 2,96 3,24

1,36 1,29 1,17

0,25

0,44

3,03

1,23

0,62

0,49

3,56

1,05

0,56

0,50

3,69

1,17

Social and Political Environment

While the sub group of indicators dealing with social and political environment resulted to be better measured and perceived as more useful by Slovenian hotel enterprises than the sub group dealing with natural and cultural environment it was also the category of indicators with the lowest correlation between the effective measurement and perceived usefulness of the indicators. It might be surprising to see that the two indicators that are perceived as most useful are employee satisfaction and employees’ salaries as hotel companies in Slovenia have over the past decade (perhaps also due to their poor performance), with few striking exceptions become synonyms for employees offering less favorable working conditions and low enumerations. However, apparently public pressure supported by media bashing has taken its toll and companies have realized the importance of satisfied employees which has a proven impact on guest satisfaction and consequential performance of the hotel (Chi & Gursoy,

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2008), as almost 80 percent of companies monitor employees’ salaries. Similarly positive are the results for measuring the training of employees which is practiced by almost 70 percent of companies and also perceived as relatively useful. As embededdness in local environment and collaboration among stakeholders in the destination are a prerequisite for creating conditions that would allow sustainable management of tourism, cooperation of hotel companies with local residents and municipality is important. While both indicators are perceived as relatively useful, they are only monitored by slightly more than half of the companies. Slightly lower is the share of companies measuring the satisfaction of local residents with the development of tourism, while the cooperation with NGO is monitored in less than a third of companies. Similarly, around two thirds of hotel enterprises measure their participation in the overall destination’s strategy of sustainable development which once again indicates positive attitudes towards collaborations and sustainability. Yet only less 47 percent of hotels companies monitor their own implementation of hotel company’s sustainable development strategy. Still such share is surprising giving the fact that only 35 percent of companies stated to posses a formal strategy of sustainable development. So one possible explanation would be that the gap of 13 percent of companies that do not have a formal sustainability strategy, but do in fact monitor their realization of sustainable objectives are acting ad-hoc as they are only slowly embracing the idea of sustainability and have not yet developed competencies to implement it in the form of a strategy. Certainly this should be seen as an indicator of progress in this field that might increase the sustainability orientation of Slovenian hotel companies in the future.

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Table 14: Indicators of social and political environment Nb .

Indicator

Measuring Mean

1

2 3 4 5

6 7 8

9

Employee satisfaction (eg, the proportion of very satisfied employees in the comparable periods) Employee salaries (eg comparison with other hotels) Training of employees (eg. in hours per employee per year) Cooperation with the municipality (eg, the number of projects) Cooperation with local residents (eg, the number of joint activities in the comparable periods) Satisfaction of local residents with the development of tourism Cooperation with non-governmental environmental organizations Participation in the overall strategy of sustainable development of tourism in the destination Monitoring of the implementation of hotel’s sustainable/ecologic development strategy (eg, the realization of the objectives) Source: ITEF Survey, 2009.

Usefulness

0,65

Standard Deviation 0,48

Mean 4,12

Standard Deviation 1,14

0,78

0,42

3,82

1,13

0,69

0,47

3,74

1,15

0,59

0,50

3,35

1,19

0,56

0,50

3,50

1,13

0,49

0,50

3,45

0,99

0,30

0,46

3,24

1,25

0,65

0,48

3,70

1,10

0,47

0,50

3,80

1,14

TESTING HYPOTHESES Even though the results of descriptive statistics presented in the previous part give a good all around information regarding the performance measurement practices in Slovenian hotel companies, they do not provide exact answers to the research questions that were formed into hypotheses and presented in the chapter dedicated to methodology. Therefore this part of the dissertation reveals the results of statistical tests that were performed in order to confirm or reject the proposed alternative hypothesis and this way with statistic rigor answer to what extent selected theoretical formulations apply to Slovenian hotel industry. Tests were performed for confidence levels of 99, 95 and 90 percent respectively, assuming the 90 percent confidence level to be the last acceptable level of confidence to confirm the statistical significance of the outcomes. This way, the final decision on how and upon which criteria to build the final set of indicators forming the model will be have a sounder and certainly more scientific foundation.

Hypothesis 1: Hotel companies tend to measure the financial performance indicators the most.

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This hypothesis seeks to test whether among the three categories of indicators that represent various aspects of the model, namely the financial, marketing and those of environmental sustainability, the traditional financial measures are truly the ones hotel enterprises measure the most. In line with the fact that reporting of financial performance is legally required and the results of descriptive statistics, which revealed the highest mean score for financial group of indicators. They were also perceived as the most useful category. Performed ANOVA (F = 10,348) revealed statistically significant (p = 0.000) differences among the three groups, yet as indicated by Tukey HSD post-hoc test (see Appendix B, Hypothesis 1) these were only significant among financial and environmental sustainability groups. Furthermore, when contrasting coefficients in the test, it was statistically significantly (p = 0,001) confirmed that the mean of the first group (financial indicators) is higher than the average of means of second (marketing) and third (environmental sustainability) group. Therefore hypothesis that hotel enterprises measure financial indicators the most can be confirmed.

Table 15: ANOVA for measuring differences among the three main categories of performance indicators Sum of Squares

Mean Square

F-value (p value)

10,348 0,773 0,387 (0,000) Source: ITEF Survey, 2009.

Hypothesis 2: Traditional financial measures applicable to all industries tend to be more used in Slovenian-Hotels than contemporary hospitality specific financial measures. As already presented, category of financial indicators consists of three sub groups, namely the classical financial indicators that are used in all companies regardless the sector and two hospitality specific categories; indicators referring to room division department and indicators referring to any other department within the hotel. The hypotheses seeks to support the claim that Slovenian hotels have not yet embraced the two sector specific indicator sub groups that are proposed by USUALI, as this internationally accepted methodology is still not fully internalized in Slovenian hotel industry. For the purpose of analysis second and third sub groups of hospitality specific indicators were merged into single one, referred to as the contemporary indicators, as opposed to the traditional ones. 88

Independent sample T-test (t = 1,387) testing differences in means between both sub-groups revealed no statistically significant (p = 0,184) differences among both groups and therefore hypothesis suggesting hotels to give preference to traditional financial indicators, over the more contemporary hospitality specific ones, needs to be rejected.

Table 16: T-tests for differences among measurement of traditional and hospitality specific financial performance indicators Mean Diff.

St. Dev. Diff.

T-test (p value)

1,387 0,104951 0,075645 (0,184) Source: ITEF Survey, 2009.

Hypothesis 3: Guest satisfaction (sub group of marketing indicators that measure the performance as perceived by the guest) is the most relevant marketing category among the Slovenian hotel enterprises. While focus on guest satisfaction has been traditionally associated with hospitality industry, the model also consist of two additional sub-groups forming marketing category of indicators, which are the one that measures performance as perceived by the hotel enterprise itself, and the one evaluating marketing performance according to the position on the market the enterprise managed to achieve. The hypothesis therefore seeks out to confirm that the focus on marketing success as perceived by the client (i.e. guest satisfaction) is the aspect hotel companies still perceive as the most relevant (measure it most and also perceive it as most useful set of indicators) Once again ANOVA test (F1 = 1,210; F2 = 2,314) comparing means among the three above mentioned sub-group was utilized. As the results reveal no significant differences among the three groups representing sub-groups of marketing indicators in terms of both measurement (p1 = 0,320) as well as the perceived usefulness (p2 = 0,126) the hypothesis stating that hotel enterprises consider guest satisfaction as their key marketing category must be rejected.

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Table 17: ANOVA for differences among relevance between three marketing performance indicators sub-groups Aspect

Sum of Squares

Mean Square

F-value (p value)

Measurement

0,055

0,028

1,210 (0,320)

Usefulness 0,370 0,185 Source: ITEF Survey, 2009.

2,314 (0,126)

Hypothesis 4: Medium sized and large hotel enterprises are more likely to have the formal environmental sustainability strategy and better measure environmental performance as the small and micro sized enterprises. In order to analyze the impact of size on the probability of possessing the environmental sustainability strategy, companies were initially, based on the number of employees, grouped into two groups. First one consisting of micro and small enterprises (N = 32) and the second one containing medium sized and large ones (N = 22). Cross-tabulation procedure (see Appendix B, Hypothesis 4) among the two size groups and their relationship with the factor of possessing or not possessing the strategy of environmental sustainability was used. The result obtained in the Chi Square test reveals statistically significant (p = 0,083) result indicating measures of association among the size and possession of environmental sustainability strategy. To even further support and develop the assumption that acting environmentally responsible is positively correlated with the larger size of the enterprise, Independent Sample T-test was performed to reveal the differences in measuring of indicators of environmental sustainability between the two size groups. As expected, the T-test (t = -2,389) revealed statistically significant (p = 0,022) differences between measurement of environmental sustainability indicators, confirming the existing assumption present in literature which suggests that bigger companies generally measure environmental aspects of their activities more than the smaller ones. Bearing all these in mind, hypothesis 4 can be confirmed.

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Table 18: T-tests for differences between measuring of environmental sustainability indicators between micro and small enterprises & medium and larger enterprises groups Mean Diff.

St. Dev. Diff.

T-test (p value)

- 2,389 -0,16548 35,998 (0,022) Source: ITEF Survey, 2009.

Hypothesis 5: Environmental indicators that are directly connected to cost savings tend to be perceived as the most useful by Slovenian hotel enterprises. While it is natural that the companies first embrace aspects that might enhance their profitability by cutting their operational costs, such activity is also expected to be present in Slovenian hotel companies. Because of that this hypothesis aims to test whether the indicators of environmental sustainability that are directly related to cost savings are perceived to be more useful than the rest of indicators of the same category. Therefore key environmental indicators, namely energy consumption, water consumption and quantity of solid waste, that have proven direct effect on operational costs of hotel enterprise have been selected and their mean values compared to the mean values of the rest of the indicators in the group of natural and cultural environment. The results of such Independent sample T-test (t = 3, 914) revealed statistically significant (p = 0,002) differences in mean values among the two groups. Therefore conclusion indicating that those environmental indicators that are directly connected to reduction of costs indeed are perceived as more useful by hotel enterprises can be drawn and this way hypothesis 5 should be confirmed.

Table 19: T-tests for differences for perceived usefulness of environmental indicators with direct coast saving potential and the ones with no direct cost saving potential Mean Diff.

St. Dev. Diff.

T-test (p value)

3,914 0,750077 0,191660 (0,002) Source: ITEF Survey, 2009.

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Hypothesis 6: Performance indicators of natural and cultural environment tend to be more measured in the Slovenian hotel enterprises than the indicators of social and political environment. While the concern for environment has long been the dominating focus in sustainability debate, social and cultural issues still often remain in the background. However on the contrary to formulated hypotheses, the descriptive statistic analysis revealed the social and cultural indicators of environmental sustainability to be perceived as more useful than the ones concerned with natural and cultural environment. A potential explanation for such situation has been found in relatively lively discussion about the questionable quality of workplaces in Slovenian hospitality sector. Yet to clarify the contrasting theoretical and practical discrepancy with scientific rigor, once again Independent Sample T-test comparing the means for measurement of both groups of indicators in question has been applied. The obtained results clearly confirm the results of the descriptive statistics, as T-test (t = -1,973) reveals statistically significant differences (p = 0,061) between the measurement practice in two groups, with means of measuring social and political aspects of sustainability being significantly higher. Naturally as a consequence, the hypothesis assuming companies to be giving priority to measuring indicators of natural and cultural environment must be rejected.

Table 20: T-tests for differences between measuring indicators of natural and cultural environment & social and political environment Mean Diff.

St. Dev. Diff.

T-test (p value)

-1,973 -0,169768 0,086033 (0,061) Source: ITEF Survey, 2009.

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Hypothesis 7: Hotel enterprises that have formally stated strategy of sustainable development tend to perform better than the ones that do not have such strategy. While there has been, and still is a vivid discussion whether sustainability “pays of”, with mixed empirical results in various industry context, the generally accepted position is that in the long term companies acting sustainably should perform better. In order to verify, if the results of sustainable endeavors stated in companies’ strategies have started paying of, within this hypothesis, the impact of stated sustainable strategies on companies’ performance is tested. In order to be able to perform such analysis, secondary financial data needed to be collected, ratios calculated and companies ranked according to their above/below average performance. Based on data available from annual reports for year 2008 the following averages as presented in the table 21 below for four selected financial indicators have been calculated. Additionally, apart from separate financial indicators explaining different aspects of financial performance, standardized variable, meaningfully named index of financial success, has been created with merging separate financial ratios into single one.

Table 21: Sample’s averages for selected financial ratios Return on Assets (ROA) 0,0239

Value Added per Employee (VADD) 28.681

Profit Margin (PM) 0,033117

Standardized index of successfulness (STDS) -0,00019

Source: Gvin, 2009; Own calculations, 2009.

Subsequently Independent Sample T-tests were performed, and as can be seen from the table 22 below, results show no statistically significant differences in performance (no matter which financial indicator is taken for consideration) of companies that posses strategy of environmental sustainability, when compared to the ones that do not yet possess such strategy.

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Table 22: T-tests for differences among the performance of companies with stated strategy of environmental sustainability and those without such strategy Financial ratio

Mean Diff.

St. Dev. Diff.

T-test (p value)

STDS

-0,0039

0,24685

0,016 (0,988)

ROA

0,0607

0,04230

- 1,435 (0,157)

VADD

9281,987

6498,994

1,428 (0,159)

PM -0,0141 0,41839 Source: ITEF Survey, 2009.

- 0,34 (0,973)

Naturally, since the results do not show statistically significant differences between the performances of the companies that have formally stated sustainable strategy and those not possessing such strategy, the hypothesis suggesting better performance of the prior group needs to be rejected. Yet, an interesting notion is revealed in the descriptive analysis, the one regarding the differences in mean values and certainly needs to be noted. As in the case of determining the performance of the companies according to STDS and PM ratios, interestingly, the mean values for companies in possess of environmental strategy resulted lower in comparison to the mean values of the companies without such strategy. Furthermore, to come even closer to the answer on what kind of influence sustainably responsible behavior has on the performance of the companies, additional Independent Sample T-test were performed, this time verifying differences among the performance of the companies according to their effective measurement of indicators of environmental responsibility. Therefore companies were grouped into two groups, the first one containing companies that measure their environmental sustainability more extensively and the second one those that measure it less extensively than the average company does. Similarly to the previous test considering the possession of sustainable strategy, and as can be seen from the table 23 below, this once again did not reveal any statistically significant differences between the two groups.

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Table 23: T-tests for differences among the performance of companies that measure environmental indicators better and worse than average Financial ratio

Mean Diff.

St. Dev. Diff.

T-test (p value)

STDS

-0,45826

-0,50343

-0,910 (0,373)

ROA

-0,34462

7,90804

- 0,44 (0,966)

VADD

-14519,860

12155,115

-1,195 (0,245)

PM -1,04899 0,89299 Source: ITEF Survey, 2009.

-1,175 (0,253)

Obtained results further confirm the assumption that Slovenian hotel companies taking better care for the environment do not statistically significantly perform better than their competitors who do not behave in an environmentally responsible manner. Even clearer than in the case of possessing sustainability strategy, the descriptive results show, that as a matter of fact, mean values of all financial ratios are slightly lower in the group of companies that better monitor the indicators of environmental sustainability. A possible assumption explaining such outcome might be that the majority of enterprises only recently began implementing sustainability strategies and introducing environmental measures into their activities. Perhaps the increased initial costs of such activities are the ones affecting the lower mean values of financial performance ratios of the group containing companies devoted to sustainability.

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CHAPTER 7 - PROPOSING, EXPLAINING & DISCUSSING THE MODEL Based on the results obtained in the survey, this chapter contains the third and final step in the process of defining the HHPM, namely its proposition. While the whole research process, as well as the statistical analysis have been in line with positivist tradition and quantitative approach conducted with scientific rigor, the selection of measures to include into the final model, though based on the results of the empirical survey, leaves some room for subjectivity. Naturally, such selection of measures is associated with tradeoffs between, on the one hand, the actual business practices of Slovenian hoteliers as indicated in the survey, and the relevant academic literature on the other, with the aims of the project lying somewhere in between. Thus, striking the balance among the three, to at least try to fulfill project’s aim and propose a theoretically sound model, which stands a real chance for practical implementation, certainly requires some degree of intuitivism and logical argumentation involved.

“TOWARDS THE PROPOSAL OF THE FINAL MODEL” An initial issue that needs to be clarified is the fact that the analysis revealed statistically significant differences in measurement of each dimension of performance among the larger (medium & big) and smaller (micro & small) enterprises, confirming the larger ones to be more focused towards the performance measurement. Thus, an argument that two different models for differently sized companies would be needed could be made. Yet, as the project’s aim is to develop a unified framework to asses the performance of Slovenian hotel enterprises, the efforts of this work are also pointed towards this direction. In doing so, special attention will be given to selecting the indicators which are according to the results of the survey, well measured, provide clear signals and do not require complex methodology and elaborate skills to be measured, so that they do not exclude smaller companies from benefiting from the model. As the results presented in the previous chapter revealed, hotel firms still most commonly focus on monitoring their financial performance, followed by their marketing performance, while their sustainability connected issues certainly remain in the backstage, especially those dealing with natural environment. This is in line with the similar results found by Atkinson & Brender Brown (2001) when analyzing performance measures in the 96

UK hotel companies. Moreover, the obtained results are not unexpected, given the fact that performance measurement and reporting have until recently traditionally been associated with financial measures. Furthermore this might also indicate that while striving towards integrating sustainability into the corporate sector, the most that can be achieved is to make companies adhere to CSR principles. This is in line with Henderson’s (2007) observation that, in contrast with the general sustainability concept, the CSR concept is less ambitious and whilst it requires acting responsibly towards the society and the environment, profitability still comes at the forefront of business operations. Focusing more on the financial category of indicators, the performed T-tests did not reveal significant differences among measuring generally applicable indicators and those that are specific for hospitality (those referring to room division department & any other single department). Among the financial indicators, the analysis showed that the total revenue growth compared with previous year, profit growth compared with previous year, levels of solvency and debt, ROA and cash flow were the ones being monitored by the highest share of companies. Similarly, their perceived usefulness was in all cases above 4 on a 5 point Likert scale and therefore it is clear that these indicators should be included into the final model. Furthermore, even though perceived as slightly less useful, but still relatively well measured, PM is the last generally applicable indicator to be included in the model, as it is often used in international hotel companies. Regarding the indicators specific to the hospitality sector, the average occupancy rate appeared as being by far the most generally measured of the bunch, followed by average room occupancy. Not unexpectedly, knowing that USALI system has not yet been implemented in Slovenian hotel companies (Kavčič et al, 2003; Romih, 2005) the “true” KPI in international hotel industry, RevPAR only came third. However, if the model is to be internationally comparable, RevPAR must also be included in the final set of the proposed indicators, despite the fact that it is currently monitored only in 70 percent of the companies. Furthermore in order to assess the performance of a single department within the hotel, the selected indicator should be the share of division costs in division revenues. Namely, the latter results as the only generally measured indicator among the ones applicable to separate single departments. Moving on to the hotel companies’ marketing performance, it has been seen as an initial positive surprise that a bigger share of the enterprises possessed the marketing strategy than the financial one, which can be interpreted as meaning that the idea behind Kaplan & Norton’s (1996) BSC of balancing past and forward looking measures and integrating them 97

into company’s vision and strategy managed to break into the otherwise passive and slowly responding (Kneževič Cvelbar & Mihalič, 2008) Slovenian hotel sector. While guest satisfaction could not be confirmed as being perceived as the statistically most relevant aspect of marketing performance, it is the four indicators from this sub group that resulted to be the most widely monitored in Slovenian hotel sector. These are: share of returning guests who have stayed at the hotel at least three times, number of website hits, share of guests who formally complain, and share of highly satisfied guests. All of them were also perceived as very useful with mean values above 4 on a 5 point Likert scale and are thus selected for the inclusion to the final version of HHPM. Among the indicators that evaluate marketing performance from the point of view of the enterprise itself, efficiency and effectiveness of promotion and advertising stand out in terms of their broad use and perceived usefulness. Thus, both of them also find a place in the final model. Similarly, two indicators are also selected from the ones that measure the marketing performance from the perspective of company’s obtained position on the market. In this context the two indicators measuring the number of visitors in the destination by their origin and the number of visitors in the destination by segments resulted to be perceived as the most useful among those proposed in the questionnaire. Moving further towards the sustainability performance indicators, it first needs to be noted that only about a third of the hotel companies in Slovenia are in possession of a strategy of sustainable development, which could also explain the lower shares of companies monitoring these aspects of their performance, once knowing that having formally stated a sustainability strategy also enhances the effective monitoring of environmental sustainability indicators. While the companies monitor these aspects in smaller shares than they monitor their financial and marketing performance, the average perceived usefulness of these aspects is still above 3 on a 5 point Likert scale. While the indicators relating to the natural and cultural environment are the least monitored category among the four main categories of performance indicators tested in the survey, those with direct cost saving potential among them are the ones considered the most relevant. This is in line with the theory indicating that firms first embrace environmental management where immediate cost savings are evident (Mihalič, 2004; Kirk, 1998 (quoted in Tzetchenke et al, 2008), Bohdanowicz & Martinac, 2003). Accordingly, both energy and water consumption are being measured in almost every company and are also perceived as by far the most useful among the indicators relating to natural environment. Companies focus slightly less on monitoring the quantity of solid waste and the waste that is being 98

recycled, yet these two indicators are still being perceived as more useful than the rest of natural environment indicators and are therefore also included in the final model. Furthermore, though measured in only about one fifth of the hotel companies, the CO2 footprint as an emerging indicator with a potential to compare the environmental performance of the hotel companies with other sectors and internationally is added to the final model’s set of measures. Last but not least, two additional indicators relating to the cultural environment (share of local dishes on offer and number of cultural events in the hotel company) resulted being seen as more useful and being better measured than those related to natural environment and thus also found a way into the final version of HHPM. To conclude with, the area of social and political environment will now be discussed. Apparently concern for the wellbeing of employees is the dominant focus in Slovenian hotel industry in this respect: Namely, the indicators monitoring employee satisfaction, employees’ salaries and amount of training made available to them are the ones being either measured the most, or perceived as the most useful. Especially the later two seem important in tackling the issues of lack of human capital present in Slovenian hotel sector as identified by Nemec-Rudež and Mihalič (2007) and therefore all three indicators make their way to the final model. Furthermore, moving towards the issues of political implementation of the sustainability concept, hotel companies’ participation in the overall destination’s strategy of sustainable development resulted as the indicator that is measured in the biggest share of companies. This comes as a positive surprise given that the lack of appropriate destination management has traditionally been an issue in Slovenian tourism. Especially to stimulate the development of appropriate destination management, this indicator needs to be included into the final model. And to conclude the selection of the indicators of the final model, although not well measured by the companies, the indicator related to the monitoring of the implementation of hotel’s sustainable development strategy also needs to find place in the final model. In fact, Miller & Twinning Ward (2005) suggest that monitoring should be seen as the key element of achieving faster implementation of sustainability concept in tourism sector. Summing all up graphically, the final outline of the proposed HHPM is presented in the figure 10 below. Though not exhaustive by any means, at present this combination of the relevant measures seems to be the most appropriate for assessing the performance of hotel companies in a “holistic and sustainable way”. On

the one hand, it gives a balanced

overview of a hotel company’s performance, while, on the other hand, building upon those

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performance indicators that are in major part of the cases already monitored or at least known in hotel enterprises adds to its practical applicability. Furthermore, as such HHPM may also provide a point of reference for corporate disclosure of information; more precisely it could be used as a basis for structuring corporate reports and determining which aspects of performance and types of measures to include in annual and separate social and environmental reports in order to satisfy the requirements of present day stakeholders. Figure 10: Proposed final “Holistic Hotel Performance Model” (HHPM)

- Employee satisfaction - Employee salaries - Training of employees

- Energy consumption - Water consumption - Quantity of solid waste - Recycling waste - CO2 Footprint - Number of cultural activities in the hotel enterprise - Proportion of local dishes on offer

Natural &

Social &

Cultural

Political

Environmental Sustainability

- Share of division costs in division revenue

- Average occupancy rate - Average room rate - RevPAR

- Total revenue growth - Profit growth - ROA - Debt - Solvency - Cash Flow - PM

- Participation in destination's strategy of sustainable development - Monitoring of the implementation of hotel company's sustainable development strategy

- Number of visitors in destination by segment - Number of visitors in destination according to their origin

Department's specific

Based on Enterprise's position on the market

Hospitality Specific

Based on perception of the enterprise

- Efficiency of advertising and promotion - Effectiveness of advertising and promotion

Based on perception of the client

- Share of returning guests - Number of web site visits - Share of guests who formally complain - Share of highly satisfied guests

General

Financial Perf.

Marketing Perf.

Past

Future

External

Internal

Source: Own contribution, 2009.

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HOLISTIC HOTEL PERFORMANCE MODEL’S CONTRIBUTION HHPM as graphically depicted above should arguably be considered as representative of contemporary crossover models that integrate the knowledge created in the fields of BPM and corporate reporting. Drawing on contemporary methodologies, at the same time upgrading and tailoring them according to the hotel sector’s characteristics, the HHPM model resonates with current corporate trends striving towards greater transparency in reporting as well as to an extended and more balanced approach to performance measurement. Furthermore, in line with Yongvanich & Guthrie's (2006) argument that the shift in corporate strategy towards sustainability can not be achieved only by reporting environmental and social performance across the TBL model, the model extends well beyond the TBL model. As a matter of fact, it adopts the BSC’s customer perspective, which is reflected in the marketing performance part. Even more importantly, it connects the company’s vision and strategy with sustainability in line with Dias Sardinha et al’s (2002) Sustainability BSC. It could also be argued that the sustainability performance component of the model, which is intentionally placed between the backward looking financial performance and forward looking marketing performance, represented in the form of an arrow, assumes multiple roles, namely: •

it guides the whole company’s performance



it strikes a balance between forward and backward looking performance dimensions



it serves as a company’s long term strategy and goal, and



it should be perceived as the leading paradigm for any type of development within hotel company.

It has to be noted though that, if sustainability performance is to assume all of the above described roles, the proposed indicators relating to the natural & cultural, as well as the social & political environments that sustainability comprehends, should be seen as merely the minimum requirements and a starting point. In line with Butler (1998) and Miller & Twinning Ward (2005), sustainability performance should be seen as something dynamic that can never be reached, but should be nevertheless carefully monitored and heavily pursued. Thus, with the passing of the time and with some additional steps towards sustainability, or perhaps more likely, towards its corporate dimension, namely the CSR being made, additional sustainability indicators should be added.

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Furthermore, the HHPM is based on 30 KPIs which, in line with modern performance measurement systems, give a balanced overview of the company’s external and internal activities. In contrast with general performance measurement systems the KPI’s within the HHPM are very sector specific and have been carefully selected in a transparent process. As such, they ensure both a good overview of how a company is doing and are also commonly measured in practice. What is more, the problematic lack of methodological clarity in selecting the KPIs to report the social and natural performance extensively criticized in the TBL concept (Vanclay, 2003; Norman & MacDonald, 2004) is overcome with the use of generally accepted and due to the involvement of reputable organizations such as UNEP & UNWTO in its development, also highly credible, and last but not least, sector specific methodology of sustainable tourism indicators. When taking a closer look at the HHPM’s final structure it in fact, though it expresses it in different (and arguably in terms of the sector’s characteristics more appropriate) measures, encompasses the majority of aspects covered by Yongvanich & Guthrie’s (2006) EPRF (see Figure 5 in third chapter) framework and indeed covers a multitude of areas around which recent academic discussion has focused. As such, companies deciding to adopt the HHPM model would manage to assess and consequentially also report their performance in a more holistic and in Slovenia yet relatively unexplored way, that is characteristic of “new” corporate reporting systems as defined by Suggett & Goodsir (2202, quoted in Faux & Dwyer, 2009). Thus, by implementing HHPM for internal performance measurement and external reporting, market oriented companies, apart from providing themselves with more precise information oh how they are doing, could also become more appealing to the capital market investors, nowadays more and more concerned with the sustainability potential of the companies they consider investing in. As a consequence a shift towards such BPM and reporting practice may help certain Slovenian hotel enterprises that are still in the hands of a relatively passive state, or quasi state owned investment funds (Kneževič Cvelbar & Mihalič, 2007), to find new and more active (foreign) private owners and/or investors.

POLICY RECCOMENDATION Provided support from the policy makers is certainly the key aspect in light of the model’s practical implementation. It is not very likely that the companies would embrace the proposed HHPM without the appropriate incentives or legislative provisions, as sustainability and CSR do not seem to be at the frontline among their strategic priorities. The 102

practical implementation of the HHPM model might be even more problematic, since initial investments in sustainability (favored by HHPM) generally require some financial input (Bohdanowicz & Martinac, 2003). Furthermore, the research revealed that those Slovenian hotel companies which are more dedicated to monitoring the environmental aspects of their operations on average tend to perform slightly worse than those that are less dedicated to measuring their environmental impacts. In such circumstances, it is at least optimistic to expect that Elkington’s (1998) central thesis, namely that socially responsible corporate behavior provides major means of long term financial success, would be voluntarily embraced by Slovenian hotel companies. On the contrary, what would give the HHPM a better chance of practical implementation is the fact that with the obstacles for coherent implementation of USALI principles in Slovenian hotels’ accounting department due to their incompatibility with the national accounting standards (SRS), there is apparently no generally applicable methodology that would enable sector specific benchmarking among the enterprises. In line with that and in order to facilitate progressive integration of social and environmental aspects of performance into public disclosure of information before this is strictly being required in practice by the then unified EC’s accounting legislative provisions, the promotion of the herein proposed model by the Ministry for Economy’s Directorate for Tourism would seem reasonable. Regardless of what kind of policy support the HHPM might get, motivated by the desire to give the model a better chance of practical implementation, it would seem opportune to imprecisely refer to it under the common umbrella TBL terminology, even though HHPM actually goes beyond and deeper than the TBL concept. Namely, according to Norman & MacDonald (2004, 2009) the TBL talk is what currently resonates with corporate world and what business practice is ready to embrace.

LIMITATIONS AND FUTURE RESEARCH POTENTIAL Although the HHPM model in the form described herein arguably makes a valuable contribution to the hotel companies which are looking for new, extended and more balanced ways for assessing their performance, it calls for further quantification and econometrical refinement in order to become a tool capable of benchmarking the companies Naturally even at its present state, certain limitations deriving out of selected approach are evident. While the attitudes of hotel managers towards various performance issues have been measured in the survey, little is known what their real concerns are, or for 103

example how they perceive or what they really feel about the integration of sustainability principles into their operations. Furthermore, little is known about managers’ attitudes towards disclosure of internal processes such as the ones that occur in the marketing practice. All these would call for a qualitative approach in analyzing and testing aspects of proposed HHPM model. Arguably, indicators selected for the inclusion in the HHPM are most appropriate for Slovenian hotel sector at a given point in time, their appropriateness for hotel sectors of other, more or less developed economies with different accounting traditions might need further verification. Last but not least, as already indicated, there remains a dilemma as to whether such model is equally appropriate for the whole range of hotel companies, arching from the ones only employing a small number of people, to the ones with over one thousand employees. While the model, though intentionally limited to indicators that proved to be known and used in the Slovenian hotel sector, might be perceived as way too ambitions for the prior, it would actually reveal only few, if any novelty to the larger companies already practicing social and environmental reporting and disclosing CSR related information. Therefore, applying certain modifications to the proposed model and differentiating it for differently sized target companies seems reasonable. Although sacrificing its general applicability, these would significantly increase HHPM’s actual value as perceived from the enterprises’ perspective.

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CHAPTER 8 - CONCLUDING THE DISSERTATION Sustainability concepts are arguably dominating all segments of social and economic activity and a notion of sustainable tourism development is being present in almost every tourism related strategic development plan on the globe. In line with that, present dissertation tempted to make a contribution to the field, by trying to define the model capable of assessing performance of hotel enterprises in a broader than purely economic way. After critically assessing the various dimensions of sustainability, namely the sustainable tourism and CSR concepts and their practical relevance, the fields of corporate reporting and business performance measurement have been reviewed and linked. It was within the contemporary developments of this still very fragmented field that the reference for appropriate external structure of the aimed model was found in Yongvanich & Guthrie’s (2006) main thesis. This claims that in order for businesses to best account for sustainability, synergies between various reporting and BPM frameworks such as TBL and BSC need to be searched for, as well as the approaches being appropriately modified in order to encompass for specific characteristics of the sector in which being implemented (Yongvanich & Guthrie, 2006). According to the above notion and in line with the requirements extracted from the sustainable tourism concept, initial HHPM was structured by combining various components of BPM and reporting approaches in a way that it combines the financial, marketing and environmental sustainability aspects of hotel enterprise’s performance, while aiming to drive the enterprise towards adoption of sustainable corporate strategy. The structure of the HHPM was later in the second phase filled with extensive sets of indicators corresponding to each of the model’s perspectives (financial, marketing and sustainability) which had been collected within the process of reviewing the theoretical and applicative approaches to measure the three respective performances in hotel industry. Ultimately the comprehensive version of HHPM was empirically tested in order to indicate the most appropriate indicators to be included in the final and proposed HHPM’s version. As the empirical research revealed, on the contrary to the initial assumption that Slovenian hotel enterprises purely focus on financial performance, marketing performance revealed to be almost an equally important agenda among the hoteliers. Thus it can be 105

argued that notion of importance as regards to the balance between backward looking financial and forward looking marketing indicators in the hotel industry present in theory (Atkinson & Brender Brown, 2001; Banker et al, 2005; Bergin-Seers & Jago, 2007) has been accepted by the Slovenian hotel sector. In contrast, sustainability has not yet been significantly embraced as part of the hotel enterprises’ performance or strategy, as only about one third of the enterprises posses’ sustainable development related strategy. Even though larger companies are more likely to have sustainable strategic objectives and do monitor these aspects of their performance more often, as the empirical study revealed, committing business in sustainably responsible manner, does not positively affect the financial performance of the hotel companies in practice. Nevertheless, in line with the main research goal, proposed version of HHPM contains indicators relating to financial, marketing and sustainability performance that the empirical research revealed as being the most generally used in Slovenian hotel sector. Furthermore, additional generally accepted indicators from international practice were added in order to give the HHPM the required capacity to assess the performance in internationally comparable manner. As such, the defined model assesses the performance of hotel enterprise in a holistic way, apart from traditional bottom line, also taking into consideration the enterprises’ marketing and sustainability performance and thus stimulating the hotel companies to adhere to the principles of sustainability. Per se, HHPM can arguably also be used as a contemporary reporting framework, an extended and sector specific version of the popular TBL approach, stimulating the hotel enterprises to publicly disclose information relating to the social, environmental and additionally also marketing related internal processes, while on the way towards pursuing greater corporate sustainability of their operations. Ultimately, while the dissertation’s aim to propose the theoretically sound, internationally comparable and practically applicable model to assess the performance of hotel enterprises in sustainable way has been fulfilled, the practical implementation of proposed model, as with many other sustainability related aspects, deeply depends on its support by the policy makers.

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116

Appendix A - Survey Questionnaire

Dear Sir or Madame. We would kindly like to invite you to participate in the study dealing with performance measurement in Slovenian Hotel sector. We are sending you a questionnaire on measuring the performance of hotel enterprises in Slovenia. The questionnaire is part of a research project financed by the Ministry of Economy, Directorate for Tourism and Development Agency of RS and which is implemented by the Faculty of Economics, University of Ljubljana. The aim of the study is to propose an internationally comparable and practically applicable model for measuring the performance of the Slovenian hotel companies. The proposed model will be based on established theory and international practice and will be tailored according to the needs of the Slovenian hotel sector. The research will enable comparisons between Slovenian hotel enterprises and their foreign counterparts. We would greatly appreciate your participation in the survey and would like to ask you to spend a few minutes to fill out the questionnaire. The information provided with your answers will be used solely for the aggregate analysis. In doing so, we will adhere to privacy and assure data confidentiality by protecting respondents’ anonymity. We would be grateful, if you could fill out the questionnaire by May 25. In the hope of your much valued prompt reply, we would like to thank you in advance. In case you have any questions regarding the survey please contact prof. dr. Tanja Mihalič ([email protected]), doc. dr. Ljubica Knežević Cvelbar ([email protected]) or Miha Bratec ([email protected]). Once again we are thanking you for your understanding and willingness to cooperate with us.

The carrier (head) of the project: Prof.dr. Tanja Mihalič

Project’s supervisor on behalf of the contractor: mag. Mateja Tomin Vučkovič Directorate for Tourism

I

QUESTIONNAIRE – MEASURING PERFORMANCE OF HOTEL ENTERPRISES ENTERPRISES'S GENERAL INFORMATION Registration number Enterprise’s name and location: ___________________________________________________________________________ __________________________________________________________________________ Name and surname of the person filling out this questionnaire (optional):

___________________________________________________________________________ Phone number: Department/Sector:

________________________________ ____________________________________________________ 1&2*

3*

4*

5*

Number of hotels in the enterprise Number of rooms in the enterprise Number of beds in the enterprise

Does your enterprise have a stated financial strategy? YES

NO

Does your enterprise have a stated marketing strategy? YES

NO

Does your enterprise have a stated strategy of sustainable development? YES

NO

MEASURING THE EFFECTIVENESS OF OPERATIONS The questions below propose the indicators measuring the performance of hotel enterprises that are based on international theory and practice. The survey consists of four parts, as the indicators are divided in 4 areas: Economic; marketing; natural and cultural; and socio-political. Please indicate which of the indicators of ECONOMIC, marketing, natural and cultural and socio-POLITICAL AREAS your enterprise monitors (YES/NO). For each indicator assess on a scale 1-5 how useful it is, even if you do not monitor it (1 - not useful at all; 5 - very useful).

II

Economic Indicators Indicator Total revenue growth compared with previous year

Monitoring YES NO

Profit growth compared with the previous year

YES NO

Profitability of assets (ROA) =

YES

Net income / asset

NO

Profitability of capital (ROIC) = operating profit after taxes /

YES

(equity + financial liability) *

NO

Profit margin = operating profit / operating income

YES NO

EBITDAR margin = operating profit before interest, taxes,

YES

depreciation and rent / income from operations

NO

Debt = Financial liabilities / equity

YES NO

Solvency = short term assets / short term liabilities

YES NO

Cash flow = Cash flow from operating funds

YES NO

Economic value added (EVA) =

YES

Net income - capital costs

NO

Total revenue per employee

YES NO

Value added per employee

YES NO

Revenue per room available (room division revenue /

YES

number of available rooms)

NO

Average room rate

YES NO

Average occupancy rate

YES NO

The share of the division* costs in the division revenues

YES NO

Division revenue per guest

YES NO

Division revenue per m2

YES NO

Do you monitor any other indicator which you think should

YES

be included in the list of indicators?

NO

III

Usefulness of the Indicator (1 - not useful at all; 5 – very useful) 1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

Description:

Marketing indicators

Usefulness of the Indicator Indicator Share of guests who evaluate quality as very high

Monitoring YES NO

Share of guests who evaluate quality vs. price ratio as very

YES

high

NO

Share of highly satisfied guests

YES NO

Share of highly satisfied guests by segments (individual,

YES

group, allotment)

NO

Share of guests who formally complain in written form

YES NO

Share of returning guests who have stayed at hotel at least

YES

three times

NO

Share of guests who would recommend the hotel to

YES

friends and acquaintances

NO

Number of web site visits

YES NO

Awareness/recognition of hotel enterprise’s brand in its key

YES

markets

NO

Number of innovative products or processes at the

YES

enterprise level

NO

Efficiency of advertising and promotion (costs of

YES

advertising and promotion of sales vs. operating income)

NO

Effectiveness of advertising and promotion (how were the

YES

goals achieved)

NO

Existence of a positioning strategy in the key markets

YES NO

Number of visitors in the destination by their origin

YES NO

Number of visitors in the destination by segments

YES

(individual, group, allotment)

NO

Number of rooms and/or beds in the destination

YES NO

Share of new guests

YES NO

Share of sales generated by the new guests

YES NO

Market shares in enterprises’ key markets

YES NO

Market shares achieved in the segments of guests

YES

(individual, group, allotment)

NO

Share of reservations within total demand/inquiries

YES NO

Share of cancellations within total reservations

YES NO

Do you monitor any other indicator which you think should

YES

IV

(1 - not useful at all; 5 – very useful) 1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

Description:

be included in the list of indicators?

NO

NATURAL AND CULTURAL ENVIRONMENT INDICATORS Usefulness of the Indicator Indicator Energy consumption

Monitoring

(1 - not useful at all; 5 – very useful)

YES NO

Consumption of energy from renewable

YES

sources (eg. biomass, solar, geothermal,

NO

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

wind energy, photovoltaic, etc.) Water consumption

YES NO

Water recycling

YES NO

Selecting plants that are adapted to a

YES

particular environment (% of hotel

NO

establishments) Planting at least one tree per year (% of hotel

YES

establishments)

NO

Quantity of solid waste

YES NO

Recycling waste

YES NO

Environmental quality standards

YES

(ISO 14001 certificate)

NO

Number of other ecological quality labels (eg,

YES

Green Key, Green Dot, EU Flower, Blue Flag)

NO

Direct CO2 emissions

YES NO

Indirect CO2 emissions

YES NO

Environmental activities for the employees

YES

(eg. number of seminars or environmental

NO

education hours per employee) Environmental activities for guests

YES

(eg, workshops, information brochures)

NO

Number of cultural events in the hotel

YES

enterprise (local culture)

NO

The proportion of local dishes on offer

YES NO

Do you monitor any other indicator which you

YES

think should be included in the list of

NO

Description:

indicators?

V

SOCIO-POLITICAL ENVIRONMENT INDICATORS

Indicator

Monitoring

Usefulness of the Indicator (1 - not useful at all; 5 – very useful)

Employee satisfaction

YES

(eg, the proportion of very satisfied employees in

NO

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

the comparable periods) Employee salaries

YES

(eg comparison with other hotels)

NO

Training of employees (eg. in hours per employee

YES

per year)

NO

Cooperation with the municipality

YES

(eg, the number of projects)

NO

Cooperation with local residents (eg, the number of

YES

joint activities in the comparable periods)

NO

Satisfaction of local residents with the development

YES

of tourism

NO

Cooperation with non-governmental environmental

YES

organizations

NO

Participation in the overall strategy of sustainable

YES

development of tourism in the destination

NO

Monitoring of the implementation of hotel’s

YES

sustainable/ecologic development strategy (eg, the

NO

realization of the objectives) Do you monitor any other indicator which you think

YES

should be included in the list of indicators?

NO

VI

Description:

Appendix B - Statistical (SPSS) calculations

DESCRIPTIVES Strategies Fin. str.

Cumulative Frequency Valid

Percent

Valid Percent

Percent

0

11

20,4

20,4

20,4

1

43

79,6

79,6

100,0

Total

54

100,0

100,0

Market. str.

Cumulative Frequency Valid

Percent

Valid Percent

Percent

0

5

9,3

9,3

9,3

1

49

90,7

90,7

100,0

Total

54

100,0

100,0

Sust. str.

Cumulative Frequency Valid

Percent

Valid Percent

Percent

0

35

64,8

64,8

64,8

1

19

35,2

35,2

100,0

Total

54

100,0

100,0

VII

Separate Indicators Agenda: Indicator's name…Meassuring UIndicator's name…Perceived Usefulness

Financial Indicators

N

Mean

Std. Deviation

Total revenue growth 54

,9259

,26435

53

4,3962

,94746

53

,9245

,26668

53

4,4528

,86749

54

,8333

,37618

50

4,2200

,91003

52

,6923

,46604

43

3,8140

1,00607

Profit margin

51

,8039

,40098

UProfit margin

47

3,9362

1,07145

EBITDAR margin

53

,6415

,48415

UEBITDAR margin

42

3,9762

1,17884

Debt

53

,8491

,36142

UDebt

48

4,0833

1,04847

Solvency

52

,9231

,26907

USolvency

50

4,2600

,92162

Cash flow

51

,8235

,38501

UCash flow

45

4,0667

,96295

52

,5385

,50338

40

3,5500

1,19722

53

,7736

,42252

45

3,9111

1,01852

53

,6981

,46347

compared with previous year UTotal revenue growth compared with previous year Profit growth compared with the previous year UProfit growth compared with the previous year Profitability of assets ROA UProfitability of assets ROA Profitability of capital ROIC UProfitability of capital ROIC

Economic value added EVA UEconomic value added EVA Total revenue per employee UTotal revenue per employee Value added per employee

VIII

UValue added per employee Revenue per room available URevenue per room available

42

3,8333

1,03398

53

,6981

,46347

44

3,8409

1,16026

Average room rate

52

,7692

,42544

UAverage room rate

47

4,0000

1,14208

Average occupancy rate

53

,9623

,19238

UAverage occupancy rate

52

4,4423

,72527

52

,7500

,43724

48

4,0208

1,19377

52

,4615

,50338

38

3,4737

1,28897

Division revenue per m2

51

,1176

,32540

UDivision revenue per m2

32

2,0000

1,29515

Valid N (listwise)

21

The share of the division costs in the division revenues UThe share of the division costs in the division revenues Division revenue per guest UDivision revenue per guest

IX

X

Marketing Indicators N

Mean

Std. Deviation

Share of guests who evaluate quality as very high

53

,6038

,49379

47

3,9362

1,11129

52

,5962

,49545

48

3,6875

1,15143

53

,7736

,42252

49

4,1429

1,02062

53

,5472

,50253

41

3,7073

1,28926

52

,8077

,39796

47

4,2766

,97138

53

,8679

,34181

50

4,4400

,86094

53

,4717

,50398

40

3,7750

1,22971

53

,8302

,37906

50

4,0800

,98644

53

,4906

,50469

UShare of guests who evaluate quality as very high Share of guests who evaluate quality vs. price ratio as very high UShare of guests who evaluate quality vs. price ratio as very high Share of highly satisfied guests UShare of highly satisfied guests Share of highly satisfied guests by segments (individual, group, allotment) UShare of highly satisfied guests by segments (individual, group, allotment) Share of guests who formally complain in written form UShare of guests who formally complain in written form Share of returning guests who have stayed at hotel at least three times Ushare of returning guests who have stayed at hotel at least three times Share of guests who would recommend the hotel to friends and acquaintances UShare of guests who would recommend the hotel to friends and acquaintances Number of web site visits UNumber of web site visits Awareness/recognition of hotel enterprise’s brand in its key markets

XI

UAwareness/recognition of hotel enterprise’s brand in its

39

3,6410

1,24578

52

,4231

,49887

41

3,2439

1,19959

53

,6981

,46347

46

3,9783

1,10532

53

,7547

,43437

49

3,8980

1,10387

53

,4906

,50469

36

3,8056

1,26083

53

,8113

,39500

46

4,1522

1,05340

53

,6792

,47123

40

4,1000

1,12774

53

,5472

,50253

beds in the destination

40

3,7000

1,15913

Share of new guests

53

,5849

,49745

UShare of new guests

41

3,8049

1,16661

52

,2308

,42544

key markets Number of innovative products or processes at the enterprise level UNumber of innovative products or processes at the enterprise level Efficiency of advertising and promotion (costs of advertising and promotion of sales vs. operating income) UEfficiency of advertising and promotion (costs of advertising and promotion of sales vs. operating income) Effectiveness of advertising and promotion (how were the goals achieved) UEffectiveness of advertising and promotion (how were the goals achieved) Existence of a positioning strategy in the key markets UExistence of a positioning strategy in the key markets Number of visitors in the destination by their origin UNumber of visitors in the destination by their origin Number of visitors in the destination by segments (individual, group, allotment) UNumber of visitors in the destination by segments (individual, group, allotment) Number of rooms and/or beds in the destination UNumber of rooms and/or

Share of sales generated by the new guests

XII

UShare of sales generated by the new guests Market shares in enterprises’ key markets UMarket shares in enterprises’ key markets

33

3,1818

1,35680

51

,6078

,49309

41

3,7561

1,28024

50

,6000

,49487

39

3,7436

1,29204

53

,6415

,48415

45

3,7556

1,11101

53

,6226

,48936

44

3,5682

1,18905

Market shares achieved in the segments of guests (individual, group, allotment) UMarket shares achieved in the segments of guests (individual, group, allotment) Share of reservations within total demand/inquiries UShare of reservations within total demand/inquiries Share of cancellations within total reservations UShare of cancellations within total reservations Valid N (listwise)

22

XIII

Evironmental Sustainability: Natural and Cultural Environment N

Mean

Std. Deviation

Energy consumption

52

,9038

,29768

UEnergy consumption

50

4,2400

1,07968

52

,2885

,45747

34

3,4118

1,37329

Consumption of energy from renewable sources (eg. biomass, solar, geothermal, wind energy, photovoltaic, etc.) UConsumption of energy from renewable sources (eg. biomass, solar, geothermal, wind energy, photovoltaic, etc.) Water consumption

52

,8462

,36432

UWater consumption

47

4,1489

1,12247

Water recycling

49

,2857

,45644

UWater recycling

34

3,2353

1,39390

51

,3137

,46862

35

3,0857

1,26889

52

,2308

,42544

33

2,6667

1,21621

Selecting plants that are adapted to a particular environment (% of hotel establishments) USelecting plants that are adapted to a particular environment (% of hotel establishments) Planting at least one tree per year (% of hotel establishments) UPlanting at least one tree per year (% of hotel establishments) Quantity of solid waste

52

,5385

,50338

UQuantity of solid waste

38

3,5263

1,24633

Recycling waste

52

,5385

,50338

URecycling waste

38

3,5526

1,13179

52

,2308

,42544

31

3,2581

1,50483

52

,1923

,39796

28

3,1071

1,25725

Direct CO2 emissions

50

,2200

,41845

UDirect CO2 emissions

28

3,0714

1,35888

Environmental quality standards UEnvironmental quality standards Number of other ecological quality labels (eg, Green Key, Green Dot, EU Flower, Blue Flag) UNumber of other ecological quality labels (eg, Green Key, Green Dot, EU Flower, Blue Flag)

XIV

Indirect CO2 emissions

48

,1458

,35667

UIndirect CO2 emissions

27

2,9630

1,28547

52

,3269

,47367

33

3,2424

1,17341

51

,2549

,44014

32

3,0313

1,23090

52

,6154

,49125

39

3,5641

1,04617

52

,5577

,50151

39

3,6923

1,17325

Environmental activities for the employees (eg. number of seminars or environmental education hours per employee) UEnvironmental activities for the employees (eg. number of seminars or environmental education hours per employee) Environmental activities for guests UEnvironmental activities for guests Number of cultural events in the hotel enterprise (local culture) UNumber of cultural events in the hotel enterprise (local culture) Share of local dishes on offer UShare of local dishes on offer Valid N (listwise)

17

XV

Evironmental Sustainability: Social and Political Environment

N

Mean

Std. Deviation

Employee satisfaction

52

,6538

,48038

UEmployee satisfaction

41

4,1220

1,14445

Employee salaries

51

,7843

,41539

UEmployee salaries

45

3,8222

1,13396

Training of employees

51

,6863

,46862

UTraining of employees

42

3,7381

1,14890

51

,5882

,49705

43

3,3488

1,19291

52

,5577

,50151

40

3,5000

1,13228

51

,4902

,50488

42

3,4524

,99271

50

,3000

,46291

33

3,2424

1,25076

51

,6471

,48264

43

3,6977

1,10270

51

,4706

,50410

40

3,8000

1,13680

Cooperation with the municipality UCooperation with the municipality Cooperation with local residents UCooperation with local residents Satisfaction of local residents with the development of tourism USatisfaction of local residents with the development of tourism Cooperation with nongovernmental environmental organizations UCooperation with nongovernmental environmental organizations Participation in the overall strategy of sustainable development of tourism in the destination UParticipation in the overall strategy of sustainable development of tourism in the destination Monitoring of the implementation of hotel’s sustainable/ecologic development strategy UMonitoring of the implementation of hotel’s sustainable/ecologic development strategy Valid N (listwise)

27

XVI

HYPOTHESES Hypothesis 1: Descriptives

Mean

N

Fin

Mar

Mean

Std.

Std.

95% Confidence

Minimu

Maxim

Deviation

Error

Interval for Mean

m

um

18

,73264

,200221

22

,62185

,152475

25

,46670

,218573

65

,59314

,219711

En. Sus

,04719 3 ,03250 8 ,04371 5

t. Tot al

,02725 2

Lower

Upper

Bound

Bound

,63409

,83322

,137

,962

,55424

,68945

,231

,868

,37648

,55693

,146

,904

,53870

,64758

,137

,962

Test of Homogeneity of Variances

Mean

Levene Statistic 2,489

df1

df2 2

Sig. 62

,091

ANOVA

Mean

Sum of Squares Between Groups

df

Mean Square

,773

2

,387

Within Groups

2,316

62

,037

Total

3,089

64

XVII

F 10,348

Sig. ,000

Multiple Comparisons

Dependent Variable: Mean

Mean (I) GROUP

(J) GROUP

95% Confidence Interval

Difference (I-J)

Tukey HSD

1

2

3

Std. Error

Sig.

Upper Bound

Lower Bound

2

,111806

,061431

,171

-,03570

,25932

3

,266948(*)

,059749

,000

,12348

,41042

1

-,111806

,061431

,171

-,25932

,03570

3

,155142(*)

,056503

,021

,01946

,29082

1

-,266948(*)

,059749

,000

-,41042

-,12348

2

-,155142(*)

,056503

,021

-,29082

-,01946

* The mean difference is significant at the .05 level.

Contrast Coefficients

GROUP Contrast

1

2

3

1

2

-1

-1

2

0

1

-1

Contrast Tests

Value of Contrast Mean

Assume equal variances

1

Contrast

Std. Error

t

df

Sig. (2-tailed)

,37875

,107213

3,533

62

,001

,15514

,056503

2,746

62

,008

,37875

,108978

3,475

28,940

,002

,15514

,054477

2,848

42,893

,007

2 1 Does not assume equal variances

2

XVIII

0,750

0,700

Mean of Mean

0,650

0,600

0,550

0,500

0,450 1

2

3

GROUP

XIX

Hypotheses 2:

Descriptives

Std. Error N Mean

1 Traditional 2 Hospitality specific

Mean

Std. Deviation

Mean

12

,78561

,122219

,035282

6

,68066

,200951

,082038

Independent Samples Test

Levene's Test for Equality of Variances

t-test for Equality of Means 95%

F

Sig.

t

df

Mean

Std. Error

Confidence

Sig. (2-

Differen

Differenc

Interval of the

tailed)

ce

e

Difference Upper

Me

Equal

an

variances

1,707

,210

1,387

16

,184

,104951

,075645

assumed

10

Equal variances not

,0554

1,175

6,913

,279

,104951

,089303

,1067 57

assumed

XX

Lower ,2653 11

,3166 58

Hypothesis 3: a) Meassuring Descriptives

Mean

N as percieved by guests as percived by the enterprise as percived by the position on the market Total

95% Confidence Interval for Mean Lower Bound Upper Bound ,562314 ,812232

8

Mean Std. Deviation Std. Error ,687273 ,1494689 ,0528452

Minimum ,4717

Maximum ,8679

5

,571408

,1455415

,0650882

,390694

,752122

,4231

,7547

9

,591712

,1549054

,0516351

,472641

,710782

,2308

,8113

22

,621847

,1524748

,0325077

,554243

,689450

,2308

,8679

Test of Homogeneity of Variances

Mean

Levene Statistic

df1

,527

df2 2

Sig. 19

,599

ANOVA

Mean

Between Groups Within Groups Total

Sum of Squares ,055 ,433 ,488

df 2 19 21

Mean Square ,028 ,023

XXI

F 1,210

Sig. ,320

b) Usefullness Descriptives Mean

N as percieved by guests as percived by the enterprise as percived by the position on the market Total

95% Confidence Interval for Mean Lower Bound Upper Bound 3,774626 4,236734

8

Mean 4,005680

Std. Deviation ,2763730

Std. Error ,0977126

Minimum 3,6875

Maximum 4,4400

5

3,713341

,2908488

,1300715

3,352204

4,074477

3,2439

3,9783

9

3,751366

,2841074

,0947025

22

3,835202

,2999041

,0639398

3,532982

3,969750

3,1818

4,1522

3,702232

3,968172

3,1818

4,4400

Test of Homogeneity of Variances

Mean

Levene Statistic ,179

df1

df2 2

Sig. 19

,837

ANOVA

Mean

Sum of Squares Between Groups

df

Mean Square

,370

2

,185

Within Groups

1,519

19

,080

Total

1,889

21

XXII

F 2,314

Sig. ,126

Hypothesis 4: a) Size vs. Sustainaility Strtegy

Case Processing Summary Cases Valid N CompSize2Groups *

Missing Percent

54

Sust.str.

N

100,0%

Total

Percent 0

N

,0%

54

CompSize2Groups * Sust.str. Crosstabulation

Sust.str. 0 CompSize2

1,00

Groups

Count

24

8

32

11,3

32,0

75,0%

25,0%

100,0%

% within Sust.str.

68,6%

42,1%

59,3%

% of Total

44,4%

14,8%

59,3%

% within CompSize2Groups

Count

11

11

22

14,3

7,7

22,0

50,0%

50,0%

100,0%

% within Sust.str.

31,4%

57,9%

40,7%

% of Total

20,4%

20,4%

40,7%

35

19

54

35,0

19,0

54,0

64,8%

35,2%

100,0%

100,0%

100,0%

100,0%

64,8%

35,2%

100,0%

Expected Count % within CompSize2Groups

Total

0

20,7

Expected Count

2,00

Total 1

Count Expected Count % within CompSize2Groups % within Sust.str. % of Total

XXIII

Percent 100,0%

Chi-Square Tests

Value Pearson Chi-Square

df

Asymp. Sig. (2-

Exact Sig.

Exact Sig.

sided)

(2-sided)

(1-sided)

3,573(b)

1

,059

Continuity Correction(a)

2,561

1

,110

Likelihood Ratio

3,559

1

,059

Fisher's Exact Test Linear-by-Linear Association N of Valid Cases

,083 3,507

1

,061

54

a Computed only for a 2x2 table b 0 cells (,0%) have expected count less than 5. The minimum expected count is 7,74.

XXIV

,055

b) Size vs. Meassuring of Env.Sust.Indicators

Group Statistics Std. Error Zap2Grupi ENV_Average

N

Mean

Std. Deviation

Mean

1,00

24

,4117

,27193

,05551

2,00

14

,5771

,15509

,04145

Independent Sample Test

Levene's Test for Equality of Variances

ENV_ Average

F Equal variances 5,021 assumed Equal variances not assumed

Sig. ,031

t-test for Equality of Means

t

90% Confidence Interval of the Difference Mean Std. Error Sig. (2-tailed)DifferenceDifference Lower Upper

df

-2,081

36

,045

-,16548

,07953 -,29975 -,03120

-2,389

35,998

,022

-,16548

,06928 -,28243 -,04852

XXV

Hypothesis 5:

Group Statistics Std. Error GroupCOST Mean

N

Mean

1,00 Cost

Mean

3

3,97175

,388436

,224263

13

3,22167

,281627

,078109

saving 2,00 Rest

Std. Deviation

Independent Samples Test Levene's Test for Equality of Variances

F

Mea

Equal

n

variances

,584

t-test for Equality of Means

Sig.

,457

t

df

Mean

Std. Error

95% Confidence

Sig. (2-

Differenc

Differenc

Interval of the

tailed)

e

e

Difference

3,914

14

,002

,750077

,191660

3,159

2,509

,065

,750077

,237477

assumed Equal variances not

Upper

Lower

,33900

1,1611

8

46

-

assumed

,09676 3

XXVI

1,5969 18

Hypothesis 6:

Group Statistics Std. Error Group Mean

N

Mean

Std. Deviation

Mean

1 Natural&Cultur

16

,40559

,233633

,058408

9

,57536

,142213

,047404

al 2 Social&Politica l

Independent Samples Test Levene's Test for Equality of Variances

F

Sig.

t-test for Equality of Means

t

df

Mean

Std. Error

90% Confidence

Sig. (2-

Differenc

Differenc

Interval of the

tailed)

e

e

Difference Upper

Me

Equal

an

variances

3,938

,059

-1,973

23

,061

-,169768

,086033

assumed Equal variances not

-2,257

22,756

assumed

XXVII

,034

-,169768

,075224

Lower

-

-

,31721

,02231

7

9

-

-

,29875

,04078

1

6

Hypothesis 7:

Strategy vs. Performance a) STDS Group Statistics

Sust.str. 0 1

STDS

N 35 19

Mean ,0014 -,0025

Std. Deviation 1,02516 ,42735

Std. Error Mean ,17328 ,09804

Independent Samples Test

Levene's Test for Equality of Variances

F STDS

Sig.

Equal variances 1,310 assumed Equal variances not assumed

,258

t-test for Equality of Means

t

Mean Std. Error Sig. (2-tailed) Difference Difference

df

,016

52

,988

,00388

,24685

-,49145

,49922

,020

49,643

,985

,00388

,19910

-,39608

,40385

b) ROA

Group Statistics

ROA

Sust.str. 1 0

N 19 35

Mean -,0144053 ,0463143

95% Confidence Interval of the Difference Lower Upper

Std. Deviation ,11530031 ,16328839

XXVIII

Std. Error Mean ,02645170 ,02760078

Independent Samples Test Levene's Test for Equality of Variances

F ROA

c)

Equal variances assumed Equal variances not assumed

1,229

t-test for Equality of Means

Sig.

t

,273

Mean Std. Error Sig. (2-tailed) Difference Difference

df

90% Confidence Interval of the Difference Lower Upper

-1,435

52

,157 -,06071955 ,04230059

-,131560 ,01012079

-1,588

48,252

,119 -,06071955 ,03822951

-,124832 ,00339333

VAAD

Group Statistics

VAAD

Sust.str. 1 0

N

Mean 35128,58 25846,59

19 35

Std. Deviation 16273,083 25599,077

Std. Error Mean 3733,301 4327,034

Independent Samples Test Levene's Test for Equality of Variances

VAAD

d)

F Equal variances ,265 assumed Equal variances not assumed

Sig. ,609

t-test for Equality of Means

t

90% Confidence Interval of the Difference Mean Std. Error Sig. (2-tailed)Difference Difference Lower Upper

df

1,428

52

,159 9281,987 6498,994-1601,80720165,781

1,624

50,550

,111 9281,987 5714,959 -293,77618857,750

PM

Group Statistics

PM

Sust.str. 1 0

N 19 35

Mean ,0314616 ,0455636

Std. Deviation ,21113011 1,80926597

XXIX

Std. Error Mean ,04843657 ,30582177

Independent Samples Test

Levene's Test for Equality of Variances

F PM

Equal variances assumed Equal variances not assumed

1,165

t-test for Equality of Means

Sig.

t

,285

Sig. Mean Std. Error (2-tailed) Difference Difference

df

90% Confidence Interval of the Difference Lower Upper

-,034

52

,973 -,01410206 ,41839464 -,714783,68657890

-,046

35,685

,964 -,01410206 ,30963374 -,536978,50877386

Env. Sust. Measurement vs. Performance a) STDS Group Statistics

STDS

ENV_Grupa 1,00 ,00

N

Mean -,2849 ,1733

11 13

Std. Deviation 1,03598 1,36900

Std. Error Mean ,31236 ,37969

Independent Samples Test

Levene's Test for Equality of Variances

F STDS

Equal variances assumed Equal variances not assumed

,400

Sig. ,534

t-test for Equality of Means

t

95% Confidence Interval of the Difference Mean Std. Error Sig. (2-tailed)Difference Difference Lower Upper

df

-,910

22

,373

-,45826

,50343 -1,50231

,58580

-,932

21,772

,362

-,45826

,49167 -1,47853

,56202

b) ROA

XXX

Group Statistics

ENV_Grupa 1,00 ,00

ROA

N 11 13

Mean ,0338000 ,0372462

Std. Deviation ,09507191 ,24653768

Std. Error Mean ,02866526 ,06837725

Independent Samples Test

Levene's Test for Equality of Variances

F ROA

c)

Equal variances assumed Equal variances not assumed

Sig.

2,457

,131

t-test for Equality of Means 95% Confidence Interval of the Difference Lower Upper

Sig. (2-tailed)

Mean Difference

Std. Error Difference

22

,966

-,00344615

,07908038 -,167449 ,16055651

-,046 15,996

,964

-,00344615

,07414274 -,160625 ,15373285

t

df

-,044

VAAD

Group Statistics

ENV_Grupa 1,00 ,00

VAAD

N 11 13

Mean 17013,91 31533,77

Std. Deviation 32908,751 26672,844

Std. Error Mean 9922,362 7397,716

Independent Samples Test Levene's Test for Equality of Variances

F VADD

d)

Equal variances assumed Equal variances not assumed

,037

t-test for Equality of Means

df

Sig. (2-tai led)

Mean Difference

Std. Error Difference

95% Confidence Interval of the Difference Lower Upper

,850 -1,195

22

,245

-14519,860

12155,115

-39728,0 10688,306

-1,173

19,3

,255

-14519,860

12376,569

-40401,5 11361,814

Sig.

t

PM

Group Statistics

XXXI

Std. Error ENV_Grupa PM

N

Mean

Std. Deviation

Mean

1,00

11

-,5244381

1,88415758

,56809488

,00

13

,5245601

2,39842149

,66520244

Independent Samples Test

Levene's Test for Equality of Variances

F PM

Equal variances ,049 assumed Equal variances not assumed

Sig.

t-test for Equality of Means

t

,827 -1,175

df

Sig. Mean (2-tailed) Difference

Std. Error Difference

95% Confidence Interval of the Difference Lower Upper

22

,253-1,04899817 ,89298861 -2,90094,80294685

-1,199 21,905

,243-1,04899817 ,87477201 -2,86362,76562443

XXXII

ADDITIONAL CALCULATIONS Correlations between measurement and usefulness of indicator categories a) FINANCIAL INDICATORS Descriptive Statistics

Mean FIN_M_ Average FIN_U_ Average

Std. Deviation

N

,7474

,24882

42

3,8182

,81147

22

Correlations

FIN_M_Averag

Pearson Correlation

e

Sig. (2-tailed)

FIN_M_Averag

FIN_U_Averag

e

e 1

,812(**) ,000

N FIN_U_Averag

Pearson Correlation

e

Sig. (2-tailed)

42

21

,812(**)

1

,000

N

21

22

** Correlation is significant at the 0.01 level (2-tailed).

b)

MARKETING INDICATORS

Descriptive Statistics

Mean MKT_M_ Average MKT_U_ Average

Std. Deviation

N

,6131

,28758

45

3,7424

1,05232

24

Correlations

MKT_M_Averag

Pearson Correlation

e

Sig. (2-tailed)

MKT_M_Averag

MKT_U_Averag

e

e 1

,000

N MKT_U_Averag

Pearson Correlation

e

Sig. (2-tailed)

,813(**)

45

22

,813(**)

1

,000

N

22

** Correlation is significant at the 0.01 level (2-tailed).

XXXIII

24

c)

ENVIRONMENTAL SUSTAINABILITY: NATURAL & CULTURAL ENVIRONMENT

Descriptive Statistics

Mean NCE_M_ Average NCE_U_ Average

Std. Deviation

N

,3973

,24454

42

3,2118

1,03214

18

Correlations

NCE_M_Averag

Pearson Correlation

e

Sig. (2-tailed)

NCE_M_Averag

NCE_U_Averag

e

e 1

,767(**) ,000

N NCE_U_Averag

Pearson Correlation

e

Sig. (2-tailed)

42

17

,767(**)

1

,000

N

17

18

** Correlation is significant at the 0.01 level (2-tailed).

d)

ENVIRONMENTAL SUSTAINABILITY: SOCIAL AND POLITICAL ENVIRONMENT

Descriptive Statistics

Mean SPE_M_Avera ge SPE_U_Avera ge

Std. Deviation

N

,5949

,30963

48

3,7318

,99714

29

Correlations

SPE_M_Avera

Pearson Correlation

ge

Sig. (2-tailed)

SPE_M_Avera

SPE_U_Avera

ge

ge 1

,000

N SPE_U_Avera

Pearson Correlation

ge

Sig. (2-tailed)

,693(**)

48

27

,693(**)

1

,000

N

27

** Correlation is significant at the 0.01 level (2-tailed).

XXXIV

29

Relations between possessing sustainable strategy and measuring indicators of environmental sustainability

Group Statistics

Std. Error Sust.str. ENV_Average

N

Mean

Std. Deviation

Mean

1

13

,6246

,17779

,04931

0

25

,3936

,24322

,04864

Independent Sample Test Levene's Test for Equality of Variances

F ENV_ Average

Equal variances assumed Equal variances not assumed

1,546

Sig. ,222

t-test for Equality of Means

t

Sig. Mean Std. Error (2-tailed) Difference Difference

df

95% Confidence Interval of the Difference Lower Upper

3,022

36

,005

,23102

,07644

,07599

,38604

3,335

31,707

,002

,23102

,06927

,08987

,37216

XXXV