A note on selecting balanced scorecard performance measures: on The Hongkong and Shanghai Hotels (HSH)

A note on selecting balanced scorecard performance measures: on The Hongkong and Shanghai Hotels (HSH)

 

Regarding the construction of a balanced scorecard for a company, e.g. The Hongkong and Shanghai Hotels listed in Hong Kong, should the preferred performance measures to use in the four dimensions be strategic in nature, tactical or operational?

The preferred measures in a corporate Balanced Scorecard should be strategic in purpose, but they will normally include both tactical and operational indicators—especially as leading measures that show whether the strategy is being implemented successfully.

Core principle

A Balanced Scorecard is not simply a list of operational KPIs. It translates the organisation’s vision and strategy into linked objectives, measures, targets and initiatives across the financial, customer, internal-process, and learning-and-growth perspectives. Kaplan and Norton describe it as balancing short-term and long-term objectives, outcome measures and performance drivers.

Therefore:

• Strategic measures should dominate the corporate scorecard.
• Tactical measures should explain how business units are progressing toward strategic objectives.
• Operational measures should be used selectively where they are important drivers of strategic outcomes.

The key test is not whether a measure is labelled “strategic,” “tactical” or “operational.” The test is whether it is causally connected to a strategic objective.

Application to HSH

For The Hongkong and Shanghai Hotels, the corporate scorecard should reflect major strategic priorities such as:

• improving the performance of the existing portfolio;
• strengthening luxury service and brand differentiation;
• improving revenue management, pricing, marketing and distribution;
• enhancing productivity and operating efficiency;
• developing people and organisational capabilities;
• pursuing long-term portfolio growth and value creation.

HSH’s reporting indicates that it adopted balanced scorecards to align and track operational and Head Office KPIs around financial and strategy, operation and efficiency, customer and brand, and people and Vision 2030. Its more recent strategic direction also emphasises operational excellence, selective growth and portfolio evolution.

This suggests that HSH’s scorecard should be strategic at the corporate level, while allowing operational indicators to support implementation at hotel, department and property levels.

Suitable hierarchy

Management level	Main purpose	Appropriate measures
Corporate or group scorecard	Monitor execution of corporate strategy	Strategic outcome and high-level driver measures
Hotel or business-unit scorecard	Translate group strategy into business-unit action	Tactical measures linked to property objectives
Departmental dashboard	Manage daily activities and service delivery	Detailed operational measures

For example, the Group scorecard might monitor brand strength and customer loyalty, whereas an individual hotel dashboard might monitor check-in waiting time, room-cleaning turnaround and complaint-resolution time.

Illustrative HSH scorecard

Perspective	Strategic objective	Preferred corporate measure	Possible operational driver
Financial	Improve portfolio performance	RevPAR growth, EBITDA margin, return on capital employed, free cash flow	Average daily rate, occupancy, labour cost per occupied room
Customer and brand	Strengthen luxury-brand differentiation	Customer satisfaction, repeat-guest rate, brand preference, Net Promoter Score	Complaint-resolution time, service-recovery rate, review ratings
Internal processes	Achieve operational excellence	Productivity improvement, digital distribution effectiveness, sustainability performance	Room turnaround time, energy use per occupied room, direct-booking rate
Learning and growth	Build distinctive capabilities	Employee engagement, retention of critical talent, leadership-pipeline strength	Training hours, internal promotion rate, completion of skills programmes

RevPAR is particularly relevant to a hotel group because it combines room occupancy and room pricing. However, it should not be used in isolation: a hotel could increase RevPAR through aggressive pricing while damaging guest satisfaction or long-term brand equity.

Strategic versus operational measures

A useful distinction is:

• Lagging measures: show the results of strategy, such as profit, RevPAR, cash flow, customer loyalty and employee retention.
• Leading measures: show the activities and capabilities likely to produce those results, such as training, service quality, direct-booking penetration, productivity and process reliability.

The Balanced Scorecard deliberately combines these categories. Financial measures often report the consequences of past actions, while customer, process, innovation and learning measures can act as drivers of future financial performance.

Thus, an HSH corporate scorecard could contain:

• approximately 50–70% strategic outcome measures;
• approximately 30–50% strategic driver measures;
• operational measures only where they have a clear connection to a strategic objective.

These percentages are design guidelines rather than universal rules.

Practical recommendation

For a dissertation or management report, I would recommend the following formulation:

The Balanced Scorecard should primarily consist of strategic performance measures derived from the organisation’s mission, strategic objectives and strategy map. Tactical and operational measures may be incorporated as leading indicators where they explain the mechanisms through which strategic objectives will be achieved. Measures should therefore be selected according to their strategic relevance and cause-and-effect relationships, rather than according to whether they are exclusively strategic, tactical or operational.

For HSH, the best approach would be a three-level performance-management architecture:

1.    Group Balanced Scorecard: strategic measures for portfolio value, brand, customers, efficiency and people.

2.    Property scorecards: tactical measures translating Group objectives into hotel-level priorities.

3.    Departmental dashboards: operational measures used for daily control and corrective action.

The corporate Balanced Scorecard should not become overloaded with measures such as every service-time, cost or transaction indicator. Those belong in supporting dashboards unless they are critical strategic drivers. A concise scorecard of around three to five objectives per perspective, with one or two carefully chosen measures for each objective, is generally more effective than a comprehensive operational database.