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The Future Of The Financial Controller Within Luxury Hotel Chains

Indispensable or Replaceable?

Bachelor Thesis 2011 50 Pages

Hotel Industry / Catering

Excerpt

List of Contents

Abstract

1. Thesis introduction
1.1. Introduction
1.2. Aims and objectives

2. Literature review
2.1. Financial management
2.2. Financial controlling
2.3. Characteristic and special attributes of hotels and hotel controlling
2.4. Current role of the financial controller within the luxury hospitality industry
2.5. Qualifications, skills and education
2.6. Challenges for the financial controller
2.6.1. New technology
2.6.2. Outsourcing and centralization
2.7. Conclusion from the literature

3. Methodology
3.1. Secondary research
3.2. Primary research

4. Analysis of the primary research
4.1. Current tasks of the hotel financial controller
4.2. Current requirement of an hotel financial controller
4.3. Current and potential future trends
4.4. Technology and the hotel financial controller
4.5. Outsourcing of the financial controller
4.6. Centralizing and clustering
4.7. Changing skills of the hotel financial controller

5. Conclusion

6. Bibliography

Abstract

The overall aim of the study was to examine the relevance of the hotel financial controllers’ role in luxury hotel chains today and especially in the future. The impact of new technology, as well as trends and new business approaches are general issues in the luxury hotel industry and affects the hotel financial controller as well. This thesis seeks to answer the question, if there is a requirement for hotel financial controller and which are potential mid-and long term threats for them. In addition, this work analyzed and identified which skills are necessary to manage the position as a hotel financial controller. The primary research approach, adopted in this dissertation, involves in- depth interviews with seven authorized professionals from the international luxury hotel industry. The conclusion of this study is that the hotel financial controller will be an indispensable manager for five star hotels in the future and will play a significant role for business success in international luxury hotel chains.

1. Thesis introduction

The first chapter introduces the reader to the thesis’ theme in general and will provide an explanation of the research’s purpose as well as the problem statement. Afterwards the methodology, which was used to generate the findings and the overall structure, will be presented.

1.1. Introduction

The times, in which hotels can control their business like pilots their planes on the early days of flight history, seems to be over. Everything that pilots needed besides their compass was a scarf, a tie and sunglasses. In the way the scarf flittered, they could appraise the speed and the cross of the wind. If the ties hang aslope, they have to correct the bank of the airplane. In addition, fogging of their glasses was an indicator for early rain or fog - and they had to land immediately (Von Freyberg, et al., 2010).

In the new globalized economy it is becoming increasingly difficult for hotels to ignore the competitive landscape and significant growth in emerging markets within the luxury hotel industry, which causes over capacity, changing from a domestic toward a more international environment as well as continuous entries of new sophisticated technologies and the rising importance of the sustainability programme and other trends (Deloitte, 2010). These rapid changes are having a serious effect on the management function in the hospitality industry and in particular on the hotel financial controller. Recently, the hotel financial controller has worked one’s way up from the merely accounting clerk sitting in an office all day long to a key figure within the company. Moreover, the financial controller is no longer called by its former nicknames like ‘bean counter’, ‘number cruncher’, ‘back- room boy’ or ‘policeman of a business’ and has taken a major part of the management team (Burgess, 1995; Hrisak, 1996; Deakins et al. 2001; Suder, 2006). Hence, they play a influential role not only in the everyday hotel operations but also in the strategic directions in the hospitality industry, especially within luxury hotel segments in which tracking of cost structures and management accounting is of utmost importance (Burgess, 2000; Countryman et al., 2005; Suder, 2006). Therefore, it might be logical to suppose that the above-mentioned developments have impacts on the hotel financial controller as well.

Based on those facts, the author of this thesis asks the question on how the future of management accounting will look like and what kind of development will affect the hotel financial controller’s position within luxury hotel chains.

Despite of the aforementioned development within the hotel sector, there has been little discussion about this topic so far. There have been only few studies which produced estimates and developed the current role as well as future approaches for the financial controller (Burgess, 2007; Gibson, 2002; Burgess, 2000, Burgess, 1996; Burgess in: Harris, 1995; Galler and Schmidgall, 1984), however, major limitations are given by the fact that this data neither not currently not up dated or refers only to particular geographical areas.

Geller and Schmidgall, for example, already performed one of the first key explorations about the hotel financial controller in 1984. But the results, which have been additionally updated in 1990, exclusively relate to hotel controllers in the USA. Moreover, Burgess investigated in Harris (1995) the role of the hotel financial controller as well. Nonetheless, that this study has been conducted approximately 15 years ago, during which time the hotel financial controllers’ environment as well as their tasks and responsibilities have changed altogether. Even though the work stresses interesting features about the hotel financial controller’s position within the luxury hotel industry, it can hardly be applied to the current industry standards. In 1996, Cathy Burgess published another research of the hotel financial controller’s profile. Together with Geller et al. and Chan, she compared the controllers’ role in the United Kingdom, the United States as well as in Hong Kong. The authors examined their characteristics, including gender and ages, as well as qualifications and responsibilities. The surveys have been conducted in different countries, as Burgess (1993) analyzed the controllers’ role in the United Kingdom, Geller et al. (1990) in the USA and Chan (1993) in Hong Kong. Nevertheless, when one refers to Burgess (1996), several limitations in this comparison of results can be identified.

Although literature relating to the hotel financial controller has been published, they generally present their subjective opinions instead of facts and focus on rather on the tasks and the accounting department itself, than on the individual and their corresponding responsibilities (Burgess, 1995; Burgess, 1996; Graham, 2009).

Finally, this thesis lays a focus on the following questions: Are there potential future requirement for hotel financial controllers within luxury hotel chains? Will the hotel financial controller be indispensable for self-sustaining success of the hotels’ business? Or will they be replaceable by new technologies, trends, programs or procedure? In the end, what kind of implications do these changes have on the finance and accounting department in luxury hotels and how could the financial account’s role be described in the future (Burgess, 2006).

1.2. Aims and objectives

The role of the financial controller has changed fundamentally during the last few years as already ascertain by Burgess in 1995. The overall aim of this dissertation is to examine and evaluate the current and future role of the financial controller within the context of technology and new management approaches in luxury hotel management. This dissertation concentrates on the objective to critically review relevant academic literature regarding current knowledge, skills and tasks of financial controllers as well as their contribution as a management function in luxury hotel management and possible threats for hotel financial controller in the luxury hotel segment. The major part of the dissertation deals with research, concerning the future challenges such as new technology’s impact on the role and skills of financial controllers. Further objectives are to analyze this qualitative research and the literature review, to finally draw conclusions and to make recommendations.

In general, the aim and objectives of this thesis will be achieved through both primary and secondary research. The first objective will be accomplished by secondary research within relevant and significant academic literature. Primary research in form of qualitative indepth interviews has been carried out with several professional sources from the hospitality industry. Finally, answers for objectives two and three will be supported by synthesized arguments and taken from the analysis of primary research’s results.

2. Literature review

In order to draw the readers’ attention to the related topic and in order to introduce and lead to the chosen theme of the thesis, the author will provide background information as well as define the major term, to convey a general overview and appropriate understanding of the given topic.

2.1. Financial management

While a variety of definitions of the term financial management have been suggested, this paper will use the definition suggested by Amstrong (2006, p. 291) who defines financial management ‘with all aspects of how a business deals with its financial resources in order to maximize profit over the long term.’ Whereas Van Horne and Wachowicz (1995) define that financial management encompasses as the acquisition, financing and management of assets with the overall goal in mind.

2.2. Financial controlling

While searching for a consistent, generally accepted definition for financial controlling or management control, it soon turns out that this term is not uniformly defined in the economic literature. Managers as well as academic writers define and interpret management controlling in numerous ways as the following definitions demonstrate.

In 1983, Flamholtz (p. 153), for instance, categorizes management control as ‘any actions or activities taken to influence the probability that people will behave in ways which lead to the attainment of organisational objectives.’ In 1986, Camillus (p. 11) defines control as ‘a behavioural process that involves measurement and evaluation of the performance of organizational units [...], the identification of deviations from planned performance, the initiation of appropriate responses to these deviations, and the monitoring of remedial actions, all done with the intent of ensuring that managers’ decisions and actions are consistent with planned organizational objectives.’

Horváth (1996) as well as Brown (1995) describe controlling as a function and refer to the most important components, which consist of planning, measuring, comparing, reporting and acting. Von Freyberg et al. (2010) citing Kuepper (2008, p. 14) gives an according definition of financial controlling, considering a basic investigation of the concept:

1. Management control can be limited in principle to the information system. This may in some way be seen as a further development of the traditional accounting.
2. The function of management control can also include the quantitative planning, control and monitoring.

In conclusion, there are numerous approaches to define financial controlling. Despite differing views of respective conceptual approaches, there is still consensus that controlling is an important part of business management.

Even more difficult is the definition of the hotel financial controller, because a generally, international accepted characterization of the hotel financial controller is not given by academic literature. Despite the existence of different opinions, an agreement could be identified which defines the hotel controller as the manager who runs the finance department of a hotel establishment and is responsible for all the internal and external reporting and for almost all of the controls (Graham, 2009).

2.3. Characteristic and special attributes of hotels and hotel controlling

The hotel’s performance is strongly influenced by a number of features that have various unique characteristics (Brotherton and Wood, 2008).

First of all, the hospitality industry is characterized by a 24/7/365 approach of operation hours. This mean that it is a 24-hour business that is always on the run, and therefore, it is neither comparable with a five-day-week, nor day off or annual closing. This causes enormous costs and even more challenges than a normal-five-day-company (Burgess, 2001). Another characteristic is that provided services, for example, hotel rooms cannot be sold at a later date. In practice, a hotel can only sell rooms for a night and cannot stock the service of offering rooms to clients or guests. This means hotel rooms are perishable, which could add up to a non-compensable loss for a hotel (Gardini, 2009; von Freyberg et al., 2010; Burgess, 2001). In business, if the hotel cannot sell a room, the hotel will sit on the fixed costs and thus means an economic loss. In addition, Tesone (2010) as well as Cooper et al. (2009) note in their work that the performance result of a hotel is intangible, because it is very difficult to measure quality, services and guest satisfaction. A practical example: Unpleasant stays in a hotel are hardly exchanged, whereas a product like a television or computer could easily be exchanged.

Furthermore, unpredictable and unmanageable situations, for instance, natural catastrophes, contagions or political imbalances as well as crisis have major influences on the hotels’ performances, because hotels react exceptionally sensitive to such incidences and the demand suffers (Brotherton and Wood, 2008). Another special attribute of hotels, mentions Duval (2004), that the dependency of hotel operations is limited by capacity. Many analysts, for instance, Schmidgall (1997), Gewald (2001) and Bruhn and Strauss (2006) describe some further characteristics of hotels: seasonality of business, location- bounded, short distribution chain and time span and high labour intensity:

Seasonality of a business can be understood as the reference to its fluctuation profit stability due to the different peak times as well as to the different occupancy depending on season, holiday times or weather conditions and so on. Furthermore, a hotel is immobile and cannot move from A to B, therefore it is location-bounded. The hospitality business is an industry with a short distribution chain and a short time span because of the occurrence of short production cycles. It is quite difficult to produce goods and services in advance and between the production, delivery and consumption are often only a few hours or even minutes. Equally, the hotel industry got a high reference to its employees, because the hotel industry is a ‘people-business’ and needs a human touch and therefore, staff cannot be replaced by machines (von Freyberg, 2010).

As synthesis for the chapter, the hotels’ financial management is also classified as a special industry in the service sector and cannot be compared to a ‘normal’ finance department in a manufacturing company or business. In contrast to other industries, the hotel finance department is generally very complex and handles with numerous difficulties.

2.4. Current role of the financial controller within the luxury hospitality industry

Recently, hotel financial controllers are a part of the management team and they have a wider responsibility in hotels than in the past. The range of tasks is enormous and therefore hard to define. The challenge for the controller is that each company outlines the limits of management control itself. While in a hotel chain ‘A’ the financial controller more or less takes over the accounts, his colleague of hotel another hotel chain ‘B’ has to undertake the accounts and financial statements, and additionally performs forecasts, creates budgets and cash flows, report and analyze strategic and operational processes as well as changes in place and monitors the output (Graham, 2009). Obviously, it depends on the type of hotel establishment for which the financial controller works for and what the organisational structure as well as the hierarchy looks like (Graham, 2009).

As aforementioned, preliminary work on the role of the hotel financial controller was undertaken, for instance, by Burgess, 1995 or Geller and Schmidgall, 1984. Until the mid of the nineties, some surveys have been carried out and published on the profile of the hotel financial controller. However, one major drawback and criticism is that these surveys are now out of date and does not represent the current role of hotel financial controllers due to environmental changes.

This change in the role of controllers occurs in line with developments in technology, including computer and data processing as well as development in new international environmental and the expansion of hotel chains abroad. Additionally, Rusell, et al. (1999) discover that there are changes in the role of the finance function, for instance, financial aspects are integrated within the core business activity as well as in the company’s term orientation. In other works the hotel financial controller is more involved in decision making process (Gibson, 2002). All this changes lead to an urgent requirement for a new role and image of the hotel financial controller (Smith and Briggs, 1999). Thus, the tendency that hotel controllers have an ‘evolutionary tendency towards strategic roles’ (Gibson, 2002, p. 11) and become an essential part of the management team in a hotel could be identified.

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Details

Pages
50
Year
2011
ISBN (eBook)
9783640976102
ISBN (Book)
9783640976218
File size
541 KB
Language
English
Catalog Number
v176182
Institution / College
University of Brighton
Grade
1,25
Tags
future financial controller within luxury hotel chains indispensable replaceable

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Title: The Future Of The Financial Controller Within Luxury Hotel Chains