A Productivity analysis of network hotels

Efficiency is defined as being the position of the hotel in the frontier of production possibilities. Some hotels are efficient and stay at the frontier, while others are inefficient and stay below the frontier. The only way to exit a position of inefficiency, below the frontier, is to implement adjustment measures in order to improve efficiency and thus avoid technical bankruptcy. Productivity is the rate at which goods or services are produced relative to the inputs used. A common measure of productivity is the ratio of output per unit of labour used for production (Barros, 2005a,b). Productivity change is the change in total output relative to the change in total inputs, and it is composed of technical efficiency change (managerial practices and scale effects) and technological change (innovation and investment in new technologies). The analysis of efficiency is common (Baker and Riley, 1994; Wijeysinghe, 1993; Brotherton and Mooney 1992; Donaghy et al., 1995), but the analysis of productivity is rare (Hu and Cai, 2004; Jones and Siag, 2009). The previous studies on ENATUR, which was formerly a public company, reported significant levels of inefficiency, suggesting that structural changes were needed to improve performance. It is worth noting that during the period of analysis of the study of Barros (2004), ENATUR was still a hotel chain operated by the State, but as from September 2003 it became a concession of the Pestana Hotels private hotel group, which is Portugal’s premier international tourism and leisure group, currently with a portfolio of nearly 95 four- and five-star hotels worldwide. The motivation of the present research is to analyse productivity in a chain of hotels, focusing again on ENATUR and the changes undertaken by incorporating it into the Pestana hotel chain. This chapter uses data envelopment analysis (DEA) and aims to calculate Malmquist indices for three measures of interest: productivity growth, technical progress (catch up), and efficiency change (innovation). Productivity growth is the overall measure of productivity, which is also referred to as the Malmquist index, and it is defined as being the sum of technical progress and efficiency change. Technical progress and efficiency change can be decomposed into their constituents and in the present case, efficiency change is decomposed into its constituents, namely: OBTECH (output-biased technological change), which is a measure of output changes caused by technological progress, IBTECH (input-biased technological change), which is a measure of input changes due to technological progress, and MATHECH (residual efficiency change), which is the residual change in technological progress, a change that is not attributed to inputs or output changes which is therefore a measure of innovation. These components of technological progress enable the capture of the causes of technological progress. Therefore, the methodology adopted in this context is generic and it permits the decomposition of the innovation that is measured by technological change, and also obtains a clear description of the ENATUR hotels, which are closer to the industry frontier, due to stiff competition. Finally, the increase in competition and globalisation among hotels signifies that this is an activity in a very competitive sector, and that productivity is a central issue in this context, as only efficient hotels can survive in a competitive environment, as they are the ones that capture a higher market share and have better financial results.