A Study of Management Efficiency for International Resort Hotels in Taiwan

1. A Study of Management Efficiency for International Resort Hotels in Taiwan

2. Outline • Introduction • Previous studies • DMU selection • Decision for Input/Output • Research Result Analysis • Efficiency Analysis and Scale Efficiency Analysis • Slack Variable Analysis • Sensitivity Analysis • Conclusion

3. Introduction • In recent years, globalization has increased and the barriers to travel gradually have disappeared, thus promoting rapid growth in tourism worldwide. • In 2002, the Taiwanese government began the “tourist double-up strategy” which drove up tourism. • Hotel enterprises expanded their branches and national/international foundations and organizations all came in for investment. • The doubling of the markets also increased competition..

4. Introduction • This paper endeavors to understand the business efficiency involved in operating resort hotels by reviewing related documents that comment on the advantages and disadvantages of recreational hotels, the relative cooperative efficiency of business types and analyzing the improvement measures of inefficient hotels.

5. Previous studies

6. DMU Selection • Golany and Roll (1989) believe when using DEA to evaluate economical benefits, the evaluated projects need to have the same characters of the following: • same aims, similar jobs; • under same market conditions; and • same inputs /outputs that affect the evaluated projects. • This paper considers international hotels in Hwalian and Taitung.

7. DMU Selection

8. Decision for Input/Output Items • The input items chosen are accommodation and food/beverage incomes because they comprise more than 80 percent of the total income. • The output items are salary and food/beverage cost as they account for more than 50 percent of the total output. • The number of rooms shows the scale of the hotel.

9. Decision for Input/Output Items • According to the experience rule of Golany and Roll (1989), the evaluated project numbers has to be twice or more the sum of input/output items. • The number of the evaluated projects for this paper is 13, which is more than twice the sum of input and output items, 5, and thus conforms to the experience rule.

10. Decision for Input/Output Items • After selecting the related input/output items, Pearson’s relativity test is done to examine if the choice conforms to the Isotonicity hypothesis, which is the rule of increase in input but no output reduction. • From Table 2, each correlation factor for input/output items is positive, meaning that there is enough isotonicity, and they can be used in DEA for relative analysis.

11. Decision for Input/Output Items

12. Research Result Analysis • The evaluated efficiency score from the DEA model is the relative efficiency score for DMU but not the absolute value. A value close to 1 means the relative efficiency score is accurate. • We used the DEA-SOLVER software and used the CCR-I constant return model to calculate the entire technical efficiency. • We also used the BCC-I variable return model to calculate pure technical efficiency and scale efficiency.

13. Research Result Analysis • Since the number obtained from pure technical efficiency multiplied by scale efficiency is the entire technical efficiency, we can use the pure technical efficiency to discuss whether the annual input is used efficiently and whether the input is the smallest with the output greatest, to understand the efficiency of the usage of the input factor. • Then, we can use the scale efficiency to discuss whether the input/output proportion is suitable and whether it had reached greatest output and analyze the relativity.

14. Efficiency Analysis and Scale Efficiency Analysis • After using CCR and BCC models to evaluate the efficiencies, the results are shown in the following table 3. The average value for entire technical efficiency of the hotels is 0.93414 with a standard deviation (SD) of 0.078133, which is a high efficiency score. This value shows that the market has intense competition and needs improvement.

15. Efficiency Analysis and Scale Efficiency Analysis

16. Slack Variable Analysis • Slack variable data provides the relatively inefficient hotels some information on ways to improve direction and changes in number of employees. • In other words, when the entire technical efficiency is not reached, the reduced value in input and increased value in output of the slack variables can be used to make adjustments to reach the management goal, which is improving the entire technical efficiency to 1.

17. Slack Variable Analysis • Table 4 provides the slack variable analysis.

18. Sensitivity Analysis • The aim of using the CCR model to perform sensitivity analysis on input/output items is to discuss how changing some factors of DEA would affect the entire technical efficiency. • The results of the sensitivity analysis are shown in Table 5. Every efficiency score represents the value after changing the input/output items of the original efficiency.

19. Sensitivity Analysis

20. Conclusion • The conclusions obtained from evaluating international resort hotels in Taiwan using DEA models are: • The result of using CCR and BBC models to evaluate efficiency is that the average value for entire technical efficiency of the hotels is 0.93414, with an SD of 0.078133, which is a high value. It shows that the market is competitive and needs improvement. The hotels with the highest total technical efficiency score are Astar hotel, Marshal hotel, Chinatrust hotel, Farglory hotel, The Lalu Sun Moon Lake, and Hotel Royal Chiao His.

21. Conclusion • The hotel types are divided into chain and independent. There are differences in efficiency scores for different operation types. The average values of technical efficiency and scale efficiency for independent hotels are better than chain hotels. But for pure technical efficiency, chain hotels are better than independent hotels, showing that the chain operations have advantages of technology importation and technology accumulation. But because of the greater scale of the chain hotels, the problem of management inefficiency may occur, which should be a problem to look into and discuss further.

22. Conclusion • As for area distribution, looking at the entire technical efficiency and scale efficiency score, The Lalu Sun Moon Lake and Hotel Royal Chiao His have the highest input efficiency score, followed by Hwalian, Kenting, and Taitung, with Cengwen last, with the difference for Hidiscus resort the greatest. For pure technical efficiency rank, Kenting and Hwalian area switched but the others stayed the same. For scale return, Kenting’s Howard Beach resort Kenting and Caesar Park hotel Kenting have reduced scale return.

23. Conclusion Kenting is the most popular tourist place, but with the market inflation and rapid growth of international non-resort hotels, scale return is reduced. On the other hand, there is a rise in scale return for CengwenHidiscus resort and Hotel Royal Chihpeng (chain operation). The others have fixed scale returns.

24. Conclusion • The improvements that should be made for the hotels that did not reach the entire technical efficiency goal are described in the following. • Grand Formosa Taroko and Formosa Narruwan hotel need to decrease the number of rooms and increase accommodation income. • Hotel Royal Chihpen should reduce personnel salary and increase accommodation income. • Howard Beach resort Kenting has to reduce food/beverage cost and increase food/beverage income. • Caesar Park hotel Kenting needs to increase food/beverage income.

25. Conclusion If all the improvement are made, the hotels will be totally technical efficient. This paper used three output items and two input items for slack variable values that offered adjustment numbers for input/ output items for the inefficient hotels.

26. Conclusion • Looking at the sensitivity efficiency analysis using the CCR model, the efficient projects, after excluding input/output items, that became inefficient are Marshal hotel and Chinatrust hotel (personnel salary and food /beverage income), Farglory hotel (food/beverage cost), and The Lalu Sun Moon Lake (personnel salary, etc). The input/output items in brackets are the advantages of the hotels. Other items are not useful in this matter. The important task for hotel management is to keep the advantages and improve the disadvantages to promote higher compatibility.