Measuring Efficiency of a Malaysian Hotel Chain using Data Envelopment Analysis

The expansion of the tourism industry in Malaysia, through its linkages, has contributed to growth in other related activities such as accommodation. With the aim to enhance Malaysia as one of the global tourism destinations, hotel sector needs to operate efficiently and provide comfortable accommodations for tourists. Existing studies on the hotel industry in Malaysia has been devoted to the aspects of service quality and customer satisfaction, very little is known about the efficiency of hotels in Malaysia. This study attempted to use Data Envelopment Analysis (DEA) method to measure efficiency in a case study of a Malaysian hotel chain. Panel data covering the observations on the input and output variables for hotels under the chain were collected through mail survey. The panel data was analyzed by the DEA – CCR model and Malmquist Total Factor Productivity (TFP) index to compute the relative efficiency score and Malmquist TFP index of the hotel chain. The results of the CCR model have shown that the hotel chain was not efficient in year 2006 to 2008 as mean efficiency score was less than one (0.984). Hotel C and Hotel L were found to be inefficient. The main sources of inefficiency were the shortfalls in all outputs and surpluses in inputs, number of full-time equivalent employees, employment costs and total operating costs. Based on the findings, recommendations for the inefficient hotels are to improve on the hotel operation, staffing management, cost cutting and resource allocation. As for the whole chain, TFP has increased by 0.8% and 0.7% for the period of 2002-2008 and 2004-2008 respectively, but TFP has decreased by 0.5% for the period 2006-2008. TFP change was mainly due to the technological change. These results showed that the hotel chain has potential to further increase TFP through improvement in technological advancement along with the constant upgrade of organizational factors. The technological advancement can also be associated with the investment in new methods, procedures and techniques in the hotel operation. Hotel A and Hotel D were the best performing hotels within the chain as they were in the first quadrant for all time periods. They are suggested to maintain their performance whereas other hotels under the chain are suggested to benchmark and adopt the best practices of these two hotels. The findings of this study have important implications to the Malaysian hotels chain. The findings served as an index for hotel management to further improve their establishment’s efficiency. The findings also provided hoteliers with a basis for constructing strategies and strategic decision making.

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