Hotel Performance in the UK: The Role of Information Entropy in a Novel Slack-Based Data Envelopment Analysis

Abstract

Previous hotel performance studies neglected the role of information entropy in feedback processes between input and output management. This paper focuses on this gap by exploring the relationship between hotel performance at the industry level and the capability of learning by doing and adopting best practices using a sample of 153 UK hotels over a 10-year period between 2008–2017. Besides, this research also fills a literature gap by addressing the issues of measuring hotel performance in light of negative outputs. In order to achieve this, we apply a novel Modified slack-based model for the efficiency analysis and Least Absolute Shrinkage and Selection Operator to examine the influence of entropy related variable on efficiency score. The Results indicate that less can be learnt from inputs than from outputs to improve efficiency levels and resource allocation is more balanced than cash flow and liquidity. The findings suggest that market dynamics explains the cash flow generation potential and liquidity. We find that market conditions are increasingly offering the opportunities for learning and improving hotel efficiency. The results report that the distinctive characteristic of superior performance in hotel operations is the capability to match the cash flow generation potential with market opportunities.