Performance measurement and management in small companies of the service sector; evidence from a sample of Italian hotels

Abstract

Purpose This paper aims to examine how modern small-medium enterprises (SMEs) operating in the tourism industry perceive and define corporate performance, and how they measure and monitor businesses’ achievements. Actual performance measurement activities are expected to show how (and if) companies manage the key factors that drive value creation and value erosion processes. Are effective performance measurement activities aligned with main theoretical prescriptions? Design/methodology/approach Theory and previous empirical research on SMEs’ performance is instrumentally used to identify those key factors that are supposed to drive small/medium hotels’ business performance; building on a resource-based view (RBV) framework, which provides the theoretical perspective to link resources, capabilities and actions to firm performance, a model based on the financial, the operational and the organisational dimension of firm’s success is developed through the selection of a set of consistent financial and non-financial indicators. The balanced performance measurement model is then tested via a field research study based on a semi-structured questionnaire sent to 540 selected SMEs active in the tourism sector. Findings The results suggest that small-medium Italian hotels, typically family firms managed by owners, tend to adopt a balanced system of performance measurement that keeps track of the financial and non-financial dimensions of hotel’s performance; customer orientation proves to be an extremely important leading indicator of non-financial corporate performance. Amongst traditional financial indicators, net profits, profitability ratios such as return on investment and return on sales, revenues for available room, occupancy rate and some cost efficiency ratios are found to be relevant, whereas extensive use is made of non-financial metrics such as customer satisfaction, number of complaints, number of new and repeat customers, employee competencies and staff abilities. Furthermore, some interesting results about frequency of measurement and purpose of measurement are also presented. Research limitations/implications Data used in this study do not allow for a comprehensive analysis of the correlation between hotel performance and a specific measurement model implemented. Further future research that is meant to be developed will focus on the issue of addressing the nexus between firm performance and resource and capability used as strategic factors and monitored with an effective performance measurement system. The sample can also be expanded to carry out comparative analysis. Practical implications The results shed some further light on performance measurement activities actually implemented by Italian hotels. The evidence gives a contribution to understanding the relationship between critical resources and capabilities that need to be developed and effectively managed to reach superior business performance. Furthermore, the study highlights the need to design and implement a customised performance measurement model, which accounts for firm-specific resources and capabilities and sector-specific features for the hotel to properly manage those strategical success factors that can deliver sustained competitive advantage to the firm. Originality/value This research paper contributes to performance measurement literature, by suggesting that the development and the implementation of a simplified but structured and complete performance measurement system, designed on the specific needs and features of SMEs, seems to be a sensible way to improve resources and capabilities utilisation and to obtain a holistic understanding of the achievements of these organisations.