Performance Measurement in a Small Taiwanese Hotel Chain *

Abstract

Performance evaluation can be a challenge for a hotel firm with just a few business units. Data envelopment analysis (DEA) is one way to analyze each unit’s relative use of inputs and its relative production of outputs. To address the small sample size, DEA can apply slack analysis, which essentially compares each hotel’s inputs to the group’s mean and identifies where the slack—the extra input—occurs. Likewise, the analysis can identify the slack in terms of under-average outputs. A further approach is to use dual analysis, which accounts for the fact that variables have more than one facet. This DEA approach obtains specific factor targets on which the managers of the inefficient units can focus to improve their performance. As an illustration of this technique, the study evaluates the efficiency of a seven-unit Taiwanese hotel chain and highlights the slack in the less-efficient hotels’ operation. Thus, DEA with slack analysis can both evaluate current operations and provide goals for future improvement.