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Submitted to:
Prof. Krishan Kumar
Submitted By:
Group 4
Awadhesh Yadav (PGP02.013)Manish Khattar (PGP02.027)Mohit Mehndiratta (PGP02.032)Sahil Wadhwa (PGP02.110)Samar Gulati (PGP02.111)
2012
ContentsEXECUTIVE SUMMARY.................................................................................................................................4
ITC LIMITED.................................................................................................................................................6
INTRODUCTION.......................................................................................................................................6
Organizational Structure..........................................................................................................................7
Chairman.............................................................................................................................................7
Executive Director...............................................................................................................................7
Non-Executive Director........................................................................................................................8
Divisional / SBU Chief Executive Officer (CEO).....................................................................................8
Control System........................................................................................................................................8
ROLES OF VARIOUS ENTITIES...............................................................................................................8
Advantage............................................................................................................................................9
Compensation Management and Remuneration System........................................................................9
Remuneration committee....................................................................................................................9
Composition......................................................................................................................................10
Remuneration of Directors................................................................................................................10
Employee Stock Option Schemes......................................................................................................10
Service Contracts, Severance Fee and Notice Period.........................................................................11
MANAGEMENT COMMUNICATION SYSTEM..........................................................................................12
Policies on human Rights...................................................................................................................12
Consideration of Human Rights Impacts Across the Supply Chain........................................................13
Policy to Ensure Respect for Human Rights Policy across the Supply Chain......................................13
Policy to Prevent Discrimination at Workplace..................................................................................14
Policy on Freedom of Association......................................................................................................15
Policy on Information and Consultation on Changes.........................................................................15
ITC HOTELS................................................................................................................................................16
STRATEGIC BUSINESS UNIT “ITC – FIVE BRANDS OF HOTELS”...............................................................16
ITC HOTELS- Luxury Collection, Organizational Structure......................................................................16
The organizational structure at ITC Hotels............................................................................................17
COMMUNICATION.................................................................................................................................18
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PERFORMANCE MANAGEMENT AT ITC HOTELS....................................................................................19
MANAGEMENT CONTROL IMPLICATIONS.............................................................................................21
MANAGEMENT STYLE AND SIX SIGMA CONTROL SYSTEMS..................................................................21
1) WOW Ratios..................................................................................................................................21
2) Model Areas..................................................................................................................................22
3) Process Line Charts........................................................................................................................22
Culture and the Management Style.......................................................................................................22
KPIs for ITC Hotels.....................................................................................................................................23
Planning and Budgeting.............................................................................................................................23
AWARDS................................................................................................................................................24
ITC Hotels balanced score card:.............................................................................................................26
Customer Perspective:.......................................................................................................................26
Internal Processes Perspective:.........................................................................................................26
Financial Perspective:........................................................................................................................26
Employee Perspective:......................................................................................................................26
Social Perspective:.............................................................................................................................26
CPM Model............................................................................................................................................30
Corporate Performance Management (CPM)....................................................................................30
Responsibility Centers of ITC Hotels......................................................................................................33
Responsibility Centre.........................................................................................................................33
Advantages of Responsibility Centers to ITC.............................................................................................35
Our Opinion – the Flip Side....................................................................................................................36
Controllability............................................................................................................................36
Involvement of management....................................................................................................36
Loss of ethical behavior.............................................................................................................36
CONCLUSION.............................................................................................................................................37
New KPIs............................................................................................................................................37
Budgeting Improvements..................................................................................................................37
Proposed Balanced Score Card for ITC Hotels.......................................................................................39
References.................................................................................................................................................41
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EXECUTIVE SUMMARY
Management Control System is the process of evaluating, monitoring and controlling the various sub-units of the organization so that there is effective and efficient allocation and utilization of resources in achieving the pre-determined goals.
ITC with its vision of sustaining its position as one of the India’s most valuable corporations through world-class performance and creating value for the Indian Economy and the company’s stakeholders, has a structured approach and practices that encompass well engineered management control systems
It currently follows a functional organizational structure with a two-way communication system. The Performance management system is specific to the hotel industry. It follows different parameters for different set of people based on their roles and responsibilities. It also has a separate six-sigma practice and has a participative style of management. Some of the important parameters are mentioned below:
WOW Ratios- Indicates the performance of each department on a likert scale as per the previous day
Model Areas- Each department chooses a specific area every month for the process of improvement
Process Line Charts- Defines the process flow of any department or function Culture and the Management Style- In line with ITC’s core values, promoting diversity,
offering equality of opportunity and fostering meritocracy in the organization.
For budget preparation, it follows a combination of bottom up and top down approach. The data from individual departments as well as the discretion of the senior management is involved in preparing the budget of the company.
The cost centers for the company are- Housekeeping, laundry, Engineering, Maintenance, Training and accounting.
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The Revenue centers are- Room, Reservation and Sales department Profit center: - F&B department/manager. Investment center – GM of an existing hotel if he oversees the investment decision of
building another hotel/restaurant or expanding the existing hotel
Through the above research done we can conclude that the organization needs to increase the list of Key performance indicators like F&B Revenue per night, Revenue per staff member, Debt per room, Expenditure per staff member and Energy expenditure per night.
Zero based budgeting to be done on a periodical basis of 2 years and incremental budgets to be prepared quarterly.
In addition, for a service-based industry it is important to factor individual contribution. It would be the right time for hotel departmental managers to be business partners instead of just being told how to run their operations and accountability should be a part of everyone’s performance.
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ITC LIMITED
INTRODUCTION
ITC is one of India's foremost private sector company. It is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today. ITC also ranks among India's top 10 `Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times.
The ancient Imperial Tobacco Company of India Limited is ITC Limited today, which was incorporated in August 24, 1910. The growth after long way in its journey, ITC posted its face as sector leader in its traditional businesses and spread over more than 60 locations across India. ITC has commitment with the business segments of
Cigarettes Hotels Paperboards & Specialty Papers Packaging, Agri-Business Packaged Foods & Confectionery Information Technology Branded Apparel Personal Care Stationery Safety Matches and Other FMCG products.
The Company's ownership progressively had more Indians and the name of the Company changed to I.T.C. Limited in 1974. As a strategic backward integration for ITC's Cigarettes business, the Packaging & Printing Business was set up in 1925. It is today India's most sophisticated packaging house. Spanning the network the company has 11 Subsidiaries, 3 JV Companies and 2 Associate Companies. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment.
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Organizational Structure
Board of Directors
Audit Committee Compensation Committee Nominations Committee
Investor Services Committee
Corporate Management Committee
Divisional/Strategic Business Unit (SBU) Management Committees, each headed by a Divisional/SBU Chief Executive
Corporate Functions, each headed by a HOD
Businesses include:FMCG, Hotels, Paperboards, Specialty Papers & Packaging and Agri-Business
Corporate Functions include:Planning and Treasury, Accounting, Legal, Secretarial, EHS, Human Resources, Communications, Internal Audit and Information Technology
Chairman The Chairman of ITC is the Chief Executive of the Company. He is the Chairman of the Board and the CMC. His primary role is to provide leadership to the Board and the CMC for realizing Company goals in accordance with the charter approved by the Board. He is responsible, inter alia, for the working of the Board and the CMC, for ensuring that all relevant issues are on the agenda and for ensuring that all Directors and CMC members are enabled and encouraged to play a full part in the activities of the Board and the CMC, respectively. He keeps the Board informed on all matters of importance. He is also responsible for the balance of membership of the Board, subject to Board and Shareholder approvals. He presides over General Meetings of Shareholders.
Executive Director The Executive Directors, as members of the CMC, contribute to the strategic management of the Company’s businesses within Board approved direction / framework. Executive Directors assume overall responsibility for the strategic management including governance processes and top management effectiveness for businesses / functions reporting
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to them. In the context of the multi-business character of the Company, an Executive Director is in the nature of a Managing Director for those businesses and functions reporting to him. As an Executive Director accountable to the Board for a wholly owned subsidiary or its wholly owned subsidiary, he acts as the custodian of ITC’s interests and is responsible for its governance in accordance with the charter approved by the Board.
Non-Executive Director Non-Executive Directors, including Independent Directors, play a critical role in imparting balance to the Board processes by bringing an independent judgment on issues of strategy, performance, resources, standards of Company conduct etc.
Divisional / SBU Chief Executive Officer (CEO) The Divisional / SBU CEO for a business has the overall executive responsibility for its day-to-day operations and provides leadership to the DMC / SBU MC in its task of executive management of the business.
Control System
ROLES OF VARIOUS ENTITIES
Board of Directors (Board) The primary role of the Board is that of trusteeship to protect and enhance shareholder value through strategic supervision of ITC, its wholly owned subsidiaries and their wholly owned subsidiaries. As trustees, the Board ensures that the Company has clear
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Executive management
Strategic management
Strategic supervision
BOARD OF DIRECTORS
Corporate Management Committee
Divisional / Strategic Business Unit (SBU) Chief
goals relating to shareholder value and its growth. The Board sets strategic goals and seeks accountability for their fulfillment. The Board also provides direction and exercises appropriate control to ensure that the Company is managed in a manner that fulfills stakeholders’ aspirations and societal expectations. The Board, as part and parcel of its functioning, also periodically reviews its role.
Corporate Management Committee (CMC) The primary role of the CMC is strategic management of the Company’s businesses within Board approved direction / framework. The CMC operates under the strategic supervision and control of the Board.
Divisional Management Committee (DMC) / SBUManagement Committee (SBU MC): The primary role of the DMC / SBU MC is executive management of the Divisional / SBU business to realize tactical and strategic objectives in accordance with Board approved plan.
AdvantageThe three-tier governance structure ensures that:
(a) Strategic supervision (on behalf of the shareholders), being free from involvement in the task of strategic management of the Company, can be conducted by the Board with objectivity, thereby sharpening accountability of management;
(b) Strategic management of the Company, uncluttered by the day-to-day tasks of executive management, remains focused and energized; and
(c) Executive management of a Division or Business, free from collective strategic responsibilities for ITC as a whole, focuses on enhancing the quality, efficiency and effectiveness of the business.
Compensation Management and Remuneration System
Remuneration committee
The Remuneration Committee of the Board, under the nomenclature 'Compensation Committee', inter alia, recommends to the Board the compensation terms of Executive Directors and the senior most level of management immediately below the Executive Directors. This Committee also has the responsibility for administering the Employee Stock Option Schemes of the Company.
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Composition
The Compensation Committee presently comprises five Non-Executive Directors, four of whom are Independent Directors. The Chairman of the Committee is an Independent Director. The names of the members of the Compensation Committee, including its Chairman, are provided under the section 'Board of Directors & Committees' in the Report and Accounts.
Remuneration of Directors
Remuneration of Chairman and other Executive Directors is determined by the Compensation Committee comprising only Non-Executive Directors. The recommendations of the Compensation Committee are considered and approved by the Board subject to the approval of the Shareholders. The Chairman and Executive Directors are entitled to Performance Bonus for each financial year up to a maximum of 200% and 150% of their consolidated salary, respectively, and as may be determined by the Board on the recommendation of the Compensation Committee, based on qualitative and quantitative assessment of Company performance.
Non-Executive Directors are entitled to remuneration by way of commission for each financial year, up to a maximum of 6, 00,000/- individually, as approved by the Shareholders. Non-Executive Directors' commission is determined by the Board based, inter alia, on Company performance and regulatory provisions and is payable on a uniform basis to reinforce the principle of collective responsibility. Non-Executive Directors are also entitled to sitting fees for attending meetings of the Board and Committees thereof, the quantum of which is determined by the Board, within the limit approved by the Shareholders. The sitting fees, as determined by the Board, are presently 20,000/- for attending each meeting of the Board, Audit Committee, Compensation Committee, Nominations Committee and Sustainability Committee and 5,000/- for each meeting of the Investor Services Committee. Non-Executive Directors are also entitled to coverage under Personal Accident Insurance.
Employee Stock Option Schemes
The Company granted 42,30,600 Options during the financial year to the eligible employees of the Company and some of its subsidiary companies. Pursuant to the Shareholders' approval on 23rd July, 2010 to the Bonus share issue, in the ratio of 1 Bonus share for every existing 1 Ordinary share, adjustment was made to the outstanding Options with respect to the number of Options and the exercise price, in accordance with the Employee Stock Option Schemes of the Company read with the Securities and Exchange Board of India (Employee Stock Option
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Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, consequent to which 1,92,80,432 Bonus Options were allocated during the year.
Service Contracts, Severance Fee and Notice Period
The appointment of the Executive Directors is governed by resolutions passed by the Board and the Shareholders of the Company, which cover the terms and conditions of such appointment read with the service rules of the Company. A separate Service Contract is not entered into by the Company with those elevated to the Board from the management cadre, since they already have a Service Contract with the Company.
There is no separate provision for payment of severance fee under the resolutions governing the appointment of Executive Directors who have all been drawn from amongst the management cadre. The statutory provisions will however apply. In terms of the Articles of Association of the Company, a notice of one month is required to be given by a Director seeking to vacate office and the resignation takes effect upon the expiration of such notice or its earlier acceptance by the Board.
ITC also empowers the employees with the following options like:
Gives them an option to switch division if the person can perform better in some other division.
Company also encourage cross business movements for the capable employee. A constant focus is given on the career development of the employees- the organization
provides opportunities for learning and growth, it is the individual's responsibility to ensure he/she enhances his/hers competencies to shoulder higher responsibilities.
There is no age barrier when it comes to growth. They have a proper performance system in place - The cornerstone of the performance
management system is the Appraisal System. The individual agrees to performance objectives at the beginning of the year with his/her superiors. These objectives naturally flow from the objectives of the unit/business. At the end of the year the individual's performance is assessed against the objectives set. The appraisal attaches as much importance to ''how'' results were achieved as to the results themselves. The rating is determined by the manager's boss and endorsed by his boss. Therefore, two individuals are involved in assessing a manager's performance. The appraisal process also gives the individual an opportunity to share in a formal manner his/her own career aspirations and what the individual needs from the organization to enhance.
Their compensation package is very comprehensive - Apart from the monetary component which comprises Consolidated Salary and Supplementary Allowance,
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managers are provided with quality accommodation, medical assistance for self and family, leave travel assistance, etc. At middle and senior levels, managers are provided with company maintained cars and the facility of a club membership for business purposes.
All managers are members of ITC's Retirement Funds, the Pension Scheme being one of the most attractive in the country. Other benefits include the facility of holiday homes, assistance for further education/self-development etc.
MANAGEMENT COMMUNICATION SYSTEM
ITC management communication system that it follows across the groups to avoid asymmetry of information within the group. This it has a very robust and a clear-cut defined communication strategy that it follows:
Policies on human Rights
ITC believes that all its employees must live with social and economic dignity and freedom, regardless of nationality, gender, race, economic status or religion. In the management of its businesses and operations therefore, ITC ensures that it upholds the spirit of human rights as enshrined in existing international standards such as the Universal Declaration and the Fundamental Human Rights Conventions of the ILO.
PolicyITC upholds international human rights standards, does not condone human rights abuses, and creates and nurtures a working environment where human rights are respected without prejudice.
ImplementationThe Corporate Human Resources function of ITC is responsible for the Human Rights Policy design, implementation and updating. The policy is implemented at all locations of ITC through a set of separate policies and procedures covering each of the main constituents of human rights applicable at the workplaces.
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Monitoring & AuditThe assessment procedures for different constituents of this policy are defined against each specific policy.
Consideration of Human Rights Impacts Across the Supply Chain
As a large and multi-product enterprise whose products are benchmarked nationally and internationally, ITC's main supply chains can be grouped as follows:
1. For all its operations, technology, machinery and equipment are sourced from reputed and globally benchmarked suppliers/vendors who are expected to follow internationally accepted norms and standards on human rights.
2. ITC's major businesses are vertically integrated across several Divisions. A substantial part of the supply chain is therefore internal through strategic backward linkages. Common values relating to human rights performance are shared across this supply chain.
3. Being a major agro-based company, the agriculture sector is a major supplier of inputs for its operations. The bulk of agricultural commodities are procured from state controlled trading platforms and the open market.
4. A very small proportion of ITC's business consists of supply chains comprising local vendors and suppliers. The policy framework for such entities is enunciated separately in 'Policy to Ensure Respect for Human Rights across the Supply Chain'.
Policy to Ensure Respect for Human Rights Policy across the Supply Chain
ITC provides products and services of superior quality and value by sourcing its technologies, equipment and inputs from reputed international and Indian manufacturers and suppliers. Common values, relating to human rights performance, are shared across the entire supply chain because ITC is committed to the importance of a socially responsible and accountable supply chain.
PolicyITC nurtures an internal working environment, which respects human rights without prejudice. Likewise, it expects its business partners to establish a human rights compliant business environment at the workplace.
ImplementationThe responsibility for implementation of this policy rests with the Divisional Chief Executive of
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the concerned business and the Unit Manager. The policy is communicated internally through policy manuals and intranet portals, and externally by the HR personnel of concerned units to vendors/suppliers.
Monitoring & AuditITC has established policy intent for mapping/monitoring progress and performance of existing and potential vendors/suppliers on human rights performance.
Policy to Prevent Discrimination at Workplace
ITC acknowledges that every individual brings a different and unique set of perspectives and capabilities to the team. A discrimination-free workplace for employees provides the environment in which diverse talents can bloom and be nurtured. This is achieved by ensuring that a non-discrimination policy and practice is embedded across the Company in line with corporate principles and benchmarked business practices.
PolicyITC's approach to its human resources is premised on the fundamental belief in fostering meritocracy in the organization which, promotes diversity and offers equality of opportunity to all employees. ITC does not engage in or support direct or indirect discrimination in recruitment, compensation, access to training, promotion, termination or retirement based on caste, religion, disability, gender, age, race, color, ancestry, marital status or affiliation with a political, religious, or union organization or minority group.
ImplementationThe policy is communicated to all employees through induction programs, policy manuals and intranet portals. The custodian of this policy is the head of each operational unit and Divisional Chief Executives of the respective business. ITC's complaints resolution procedure is premised on the freedom of employees to approach higher officials beyond his/her immediate superior. For the unionized employees, compliance of the policy is ensured through a robust grievance handling procedure and the presence of a union that brings violations to the notice of the unit HR head.
Monitoring & AuditingThe accountability for the application of the non-discrimination employment policy rests with the Unit Head who reviews anti-discriminatory complaints annually or on a case-by-case basis. The Corporate Human Resources function conducts non-discrimination reviews annually on a sample basis with unit heads and through on-site assessments.
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Policy on Freedom of Association
ITC's culture is characterized by cooperative relationships and high employee involvement that relies on building partnerships and interdependence. Adhering to these principles has helped build, sustain and strengthen harmonious employee relations in the organization.
PolicyITC respects the employees' right to organize themselves into interest groups as initiatives of the workers, independent from supervision by the management. In keeping with the spirit of this Policy, employees are not discriminated against for exercising this right.
ImplementationThe policy is communicated to all employees through induction programs, policy manuals and intranet portals. The custodian of this policy is the HR head of each operational unit who reports directly to Unit Head on such issues. The actualization of this policy is evident from the joint agreements and minutes that are signed between the union and the management.
Monitoring & Audit
Each ITC Unit has appropriate systems and checks to ensure compliance with the Policy and statutory provisions, including means for filing of grievances, collective bargaining agreements and minutes from worker meetings. Compliance with the Policy is regularly monitored by Divisional and Corporate HR.
Policy on Information and Consultation on Changes
ITC's core values support an employee engagement process that aligns its employees with a shared vision and purpose of the Company in the belief that every individual brings a different perspective and capability to the team. ITC thus harnesses the creative potential of all its employees by promoting a culture of partnerships to unleash relevant synergies between different groups of employees.
PolicyAll major changes in operations involving work processes, operating norms and other productivity-linked issues are carried out after discussions with the employees and the recognized unions at each location.
ImplementationBusiness plans is shared with employees at all units through a series of formal communication meetings, and through the intranet portals. Unionized employees at the concerned units are
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informed of all major changes well in advance through their representatives. The responsibility for the implementation of the policy rests with the Unit's HR Department in the case of unionized employees and with the concerned Divisional Management Committees for other employees. The employees are given enough time to consider the implications of change and an opportunity to discuss their apprehensions, if any, with the management. The Policy is actualized through consultative meetings with representatives of employees, culminating in joint minutes/agreements.
Monitoring & AuditingCompliance with the Policy is regularly monitored by the Unit Head.
ITC HOTELS
STRATEGIC BUSINESS UNIT “ITC – FIVE BRANDS OF HOTELS”
• ITC Hotels - Luxury Collection are super deluxe and premium hotels, located at strategic business and leisure locations.
• ITC-Welcomgroup Sheraton Hotels offer warm, comforting services to the global traveler and a chance to connect.
• WelcomHotels offer five-star hospitality for the discerning business and leisure traveler.
• Fortune Hotels offer full service properties all over India, including smaller towns and cities, ideal for the budget traveler.
• WelcomHeritage brings together a chain of palaces, forts, havelis and resorts that offer a unique experience.
ITC HOTELS- Luxury Collection, Organizational Structure
ITC Hotels follows a functional organizational structure. This type of structure involves a manager who brings specialized knowledge to bear on decisions related to a specific function, as contrasted with the general-purpose manager who lacks that specialized knowledge. A skilled marketing manager and a skilled production manager are likely to make better decisions in their fields than would a manager responsible for both functions. Moreover, the skilled specialist should be able to supervise workers in the same function better than the generalist would, just as skilled higher-level managers should be able to provide better supervision of
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lower-level managers in the same or similar function. Thus, an important advantage of a functional structure is efficiency.
There are even a few disadvantages attached to a functional structure. First, in a functional organization there is no unambiguous way of determining the effectiveness of the separate functional managers because each function contributes jointly to the organization’s final output. Therefore, there is no way of measuring what fraction of determining how much of the profit was earned respectively by the several production departments, the product-engineering department and the sales office.
Second, if the organization consists of managers in one function who report to higher-level managers in the same function who in turn, report to still high-level managers in that function, then a dispute between managers of different functions can be resolved only at the top, even though it may have originated at a much lower organizational level.
Thirdly, functional structures are inadequate for a firm with diversified products and markets.
Finally, functional structures prevent cross-functional coordination in areas such as new product development. However, this problem can be eliminated by supplementing the vertical functional structure with lateral cross-functional processes such as cross-functional job rotation and team-based rewards.
The organizational structure at ITC Hotels
The organizational structure at ITC Hotels consists of eight functional departments, namely:
1. Food and Beverages Production2. Food and Beverages Service3. Front Office4. Housekeeping5. Engineering’6. Sales7. Finance8. Human Resource
Every department has its respective head of the department (HOD) as shown in the chart below:
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Under every department, there are two to three executives who report to the supervisor above them and to the respective HODs and all the HODs report to the general manager, who is at the top of the hierarchy. Each department has a clearly defined responsibility and thereby accountability and authority attached to it.
COMMUNICATION
ITC Hotels follow a participative, two-way communication system where the flow of information is from top to bottom and from the bottom to top.
Since, it is a service industry where the organization delivers experience, there needs to be proper coordination and communication among all the departments, which is maintained through daily morning meetings among all the HODs and the general manager to discuss the guest feedback and daily issues.
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GENERAL MANAGER
F&B MANAGER
ASSISTANT F&B MANAGER
F&B EXECUTIVE
EXECUTIVE CHEF
SENIOR SOUS CHEF
JUNIOR SOUS CHEF
ASSISTANT MASTER CHEF
FRONT OFFICE MANAGER
ASSISTAN FRONT OFFICE MANAGER
FRONT OFFICE EXECUTIVE
EXECUTIVE HOUSEKEEPER
ASSISTANT HOUSEKEEPER
HOUSEKEEPING EXECUTIVE
CHIEF ENGINEER
ASSISTANT CHIEF ENGINEER
SALES MANAGER
ASSISTANT SALES MANAGER
SALES EXECUTIVE
UNIT FINANACIAL CONTROLLER
ASSISTANT FINANCIAL
CONTROLLER
HUMAN RESOURCE MANAGER
ASSISTANT HR MANAGER
HHR EXECUTIVE
MANAGER LEARNING SERVICES
PERFORMANCE MANAGEMENT AT ITC HOTELS
Every organization has goals. An important role of management control systems is to motivate organizational members to attain those goals.
Each organization has a strategy and the strategy’s success depends on its soundness. A performance management system is simply a mechanism that improves the likelihood that the organization will implement its strategies successfully. What needs to be done here, is designing a performance measurement system, that measures and rewards people to carry on tasks and targets that help the company achieve its strategy. Each professional working in the organization is a cost to company and return on this investment should be calculated wisely. This is taken care of by appraising every employee’s performance from time to time and making his contribution to the overall organization as objective as possible.
A doctor’s skill can be measured by the success ratio of operations, but in a service unit, where each guest is looking for a different experience, it is difficult to suggest the skills of people involved very objectively. The performances of employees who are in constant touch with the guests are more scrutinized in behavioral aspects while those involved in providing food and beverage have a lot to do with their skills and knowledge in their area.
The management realizes the importance of appraising and evaluating each employee’s contribution objectively and hence follows a yearly appraisal system.
The various attributes on which they are rated are:
1) JOB KNOWLEDGE2) SKILLS3) CO-OPERATION4) RESPONSIBILITY5) ATTITUDE TOWARDS WORK6) INITIATIVE7) EFFICIENCY8) ATTENDANCE9) PUNCTUALITY10) DISCIPLINE
Each of these attributes carries certain weight age depending upon their importance to the overall performance target of an individual.
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The employee is scored on a likert scale of 1 to 5, each level representing a certain level of behavior or skill. The score is further multiplied to the weights and scores for each attribute is finally added.
Score for each attribute : weight of attribute * score on likert scale Depending upon the overall score, there are various actions that are taken and ratings are
provided to the concerned employee. Such an appraisal system followed by ITC HOTELS is known as FACTOR RATING METHOD
For e.g.:
SCORE OBSERVATION RATING RECOMMENDATIONS0-25 Re Rating Poor Worker File needs to be built25-60 Needs further input Average Worker One increment60-80 Needs to be groomed Good Two increments80-100 Should be retained Excellent Three
increments/Promotion
The likert scale so developed is a modification of BARS, i.e. Behavioral Anchored Rating Scale.
Behaviorally anchored rating scales (BARS) are rating scales whose scale points are defined by statements of effective and ineffective behaviors. They are said to be behaviorally anchored in that the scales represent a continuum of descriptive statements of behaviors ranging from least to most effective. An evaluator must indicate which behavior on each scale best describes an employee's performance.
Each attribute in the appraisal tells about different levels of behaviors. For e.g.: CO-OPERATION.
ATTRIBUTE 0 1 2 3 4CO OPERATION Co-operates
grudgingly, inclined to be troublesome
Gives limited Co operation
Cooperates to an adequate degree
Cooperates willingly, fits easily to his group
Cooperates willingly and helps others fit into the group easily.
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MANAGEMENT CONTROL IMPLICATIONS
Following a strict and regular appraisal system helps the organization have a clear account of average, good and excellent performers and further helps in taking important decisions that involve considerable budget, time and other resources:
1) Training of individuals, deciding who needs to be trained and in which area. 2) Deciding on who needs what level of increments. 3) Understanding who needs to be retained in the organization and who needs to be laid
off. 4) Controlling employee’s behavior and check, its sync with the organization culture and
values.
MANAGEMENT STYLE AND SIX SIGMA CONTROL SYSTEMS
With over 100 hotels at more than 90 destinations across the country, ITC Hotels offers traditional Indian Hospitality combined with globally benchmarked services and sustainable business practices. A good indicator of this dedication to excellence is the fact that ITC Hotels have been regularly voted as amongst the best employers in Asia in the hospitality sector (latest being in 2009).
ITC Hotels is well known for its participative style of management. Every day the HOD’s and General Managers meet to discuss feedback on the previous day’s performance. Employees are constantly encouraged to recommend any process improvements and are regularly asked for recommendations.
In addition to this, the company is following the requirements of Six Sigma in order to ensure quality control. A separate department has been set up in each of its hotels called the six Sigma Assurance Department. This department is responsible for quality control and maintaining operational efficiency. The department comprises of 2 to 3 people and focuses on streamlining hotel processes. The following are a few examples of the work this department is responsible for:-
1) WOW RatiosAt the daily meetings, each department submits its WOW ratios. These ratios indicate the performance of each department on a likert scale as per the previous day. The performance of each department is compared on a monthly basis the best performing department is rewarded for their performance in the form of incentives and benefits.
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2) Model AreasEach month departments have to take up Model Areas. Each department has to choose a specific area within the organization, not necessarily relating to their functional area, for the purpose of improvement.
For example: Assuming the HR department decided to undertake improvement of the laundry room of the hotel. They would be required to submit their recommendations and costing to the senior management on how they can improve this space. Each of the hotels department then competes with each other based on the above-mentioned plans for improvement and the best recommendation is rewarded.
3) Process Line ChartsThe six Sigma Assurance departments also look at Process line charts. Which clearly defines the process flow of any department or function? The department looks into the old process charts and tries to make process improvements .Based on industry benchmarks and research it then goes ahead and creates a new improved process chart.
For example: The process of availing of a duplicate key in case an employee misplaced his/hers involved contacting an HR representative and gaining access to the duplicate. The problem with this process was that the HR representatives left the office at six every evening and in case of emergency duplicate keys were not available. The new process required two individuals who would be in charge of duplicate keys in two shifts i.e. one in the morning and one at night. Permission for access would be granted by an HR representative over the phone and this improved the efficiency of the process and saved time.
Thus, the Six Sigma Assurance Department plays a major role in controlling employee performance by motivating them through rewards and incentives. Moreover, constant involvement of employee in process improvements encourages a sense of loyalty and ensures that the hotel is adopting best practices.
Culture and the Management Style
The culture, as well as the management style, has been kept in line with ITC’s core values, promoting diversity and offering equality of opportunity to all employees fostering meritocracy in the organization. It acknowledges that every individual brings a different and unique set of perspectives and capabilities to the team. A discrimination-free workplace for employees provides the environment in which diverse talents can bloom and be nurtured. This is achieved by ensuring that a non-discrimination policy and practice is embedded across the Company in line with corporate principles and benchmarked business practices. There have been various examples to prove why the subsidiary is recognized and praised worldwide-
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KPIs for ITC Hotels
ITC Hotels use the following Key Performance Indicators under the management control system. Figures are compared with the previous period and analysed.
Hotels/rooms in operation
The number of hotels/rooms operating under any of ITC brands.
Hotels/rooms under development (pipeline)
The number of hotels/rooms officially signed with no condition precedent due to open within the next three to four years.
Occupancy
Number of rooms sold in relation to the number of rooms available for sale. Room occupancy = (Number of rooms let in hotel / Total rooms in hotel) x 100
RevPAR(Revenue Per Available Room )
Rooms revenue in relation to rooms available. Revpar = Total daily letting revenue / Total hotel rooms (both sold and unsold)
Service cost per room = Total daily room servicing costs / Number of rooms serviced in the day
Planning and Budgeting
The following business metrics drive the budget process at ITC:
Revenue Quotas Planned head count company wide Planned headcount by group/dept. Marketing spend Overhead rates Cost budget per dept. Fixed compensation plans Variable compensation plans Research and development investments
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The company follows a blend of the two approaches in formulating budgets which are mentioned below:
Bottom-up: This approach involves all the areas in the organization to prepare the budget. It is based on collection and analysis of actual performance data, calculation of next fiscal period budget from each dept. The process is iterated to the divisional level and eventually to the corporate level.
Top-down: An exercise that doesn’t involve all areas of the organization. Members of senior management involve in the budget creation based on set of goals and then communicated to the organization.
India’s best companies to work for 2009-2010
Rank: 14Gender Ratio (F: M): 1:11.8Employee Turnover: 9%Workplace Quotient: The hotel community works as one big family, serving dollops of commitment to a common goal.
Best Practices:
It is a never-ending engagement. There is postretirement counseling on health and finance matters for the retiree and spouse. They are also provided medical reimbursement as long as they live. With more than 200 associates/managers from the DAP (Differently-Abled People) category, the company conducts elaborate programs to educate all employees on disabilities and how to work with disabled people.
AWARDSITC Hotels awarded as Hewitt Best Employers in Asia for the Year
India’s management culture has been moving away from a traditional top-down culture where age equals seniority toward a merit-driven system that promotes young achievers and strives to bring out the best in employees. In the same regards, Hewitt produced a separate list of the five best hotel employers, the winners of this category being Four Seasons, Resort Langkawi, Malaysia, India’s ITC Hotels, JW Marriott Hotel Bangkok, The Conrad Bangkok and The Ritz-Carlton Millenia, Singapore.
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According to Hewitt’s research, Hotels as an industry understood very strongly the link between the employee, the interaction with the customers, and business results.
Government of India honored ITC Hotels with ‘Best Employer’ National Award for Empowerment of Persons with Disabilities
The Government of India, Ministry of Social Justice and Empowerment had conferred ITC Hotels with the 2011 ‘Best Employer’ National Award for Empowerment of Persons with Disabilities. The award was presented by Minister of Social Justice and Empowerment, Shri Mukul Wasnik, in recognition of ITC’s philosophy of an ‘equal opportunities’ employer in keeping with its policy to ensure respect for Human’s Rights and Prevention of Discrimination at Workplace. Dipak Haksar, COO, ITC Hotels, said, “The recognition further validated the fact that our company starts with the work culture and we’ve really focused on making ITC Welcomgroup an organization where employees grow beyond professionals.''
ITC Welcome group- empowering differently-abled people
-Everyone should be treated with sympathy and empathy.
-Opportunity to work and become self-sufficient
-People involved in Housekeeping, Teleworking, and Bakery and as Musicians.
How do they do it?
Over the years, ITC Hotels has been redefining standards, displaying the best from India to the world. There lies a spirit of excellence that pervades at all ITC Hotels in key business and leisure locations.ITC Hotels is the only hospitality chain, perhaps in the world to have a unique program like the "Welcom legionnaire". This competitive hotel management program, recruits students on their completion of class 12 for a 4-year course. The first two years are devoted to the basics in hotel industry, personality development, culture building, etc., along with bachelors in Tourism Administration. The remaining 2 years are spent as Hotel Executive Trainees in sync with in house Management Training Program, thus providing the students valuable hands on practical experiences with solid theoretical knowledge. The two institutes are-
The Welcomgroup Management Institute, Gurgaon
The Welcom legionnaire Program
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ITC Hotels balanced score card:
ITC hotels use a three year balanced score card i.e. last year score, current year score and next year score. In the balanced score card there are five perspectives and each has different weigts.
Customer Perspective:In customer perspective, score is made on the feedback provided by customers on two criteria-Service quality and quality standards. Service quality from a chief engineer’s point of view is how quick he/she is able to respond to the complaint lodged by customer, number of repeated complaints and total number of complaints lodged by the customer. Service standards include the facilities provided by ITC such as light in the room, television and other equipment provide in the room.
Internal Processes Perspective:Internal processes include audits on the safety, health, energy consumption, technology etc aspects. The critical component for audits is Preventive Maintenance, Statutory/Pollution Cont. Process, Water, Exhaust, Conservation Process, Creativity and Innovation, Critical Incidence Liaison with regulatory authority.
Financial Perspective:This is measured on the basis of various measured such as- efficiency in utilization of assets, inventory maintenance, relationship with suppliers, cost Vs. competition , cost Vs. revenue would be measured by various records and audit.
Employee Perspective:This is measured by the percentage turnover of staff, training and growth, total person-hours lost, critical incidence both positive and negative. Thus, this perspective includes all the soft aspect of human resource.
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Social Perspective:Social perspective measures the participation of staff in social welfare programs. The number of awareness program organized such as talks, camps etc come under this category.
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Chief Engineer Balanced Score Card
Measure 2010-11 2011-12 2012-13
Last Year This Year Targeted Year
Customer Perspective
Customer Satisfaction Ratioa)Service quality-Internal Customers-External Customersb)Quality StandardsInternal ProcessPreventive MaintenanceStatutory/Pollution Cont. Processa)ETP(Effluent Treatment plant)b)Waterc) Exhaust etc.Conservation ProcessCreativity and InnovationCritical IncidenceLiaison with regulatory authority
Chief Engineer Balanced Score Card
Measure 2010-11 2011-12 2012-13
Last Year This Year Targeted Year
Financial Perspective
Any premature write-off s of assets% Reduction in Store InventoryHLP(Heat , Light, Power calories consumed )a)K Cal consumedb) Cost per sq. ft.
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Cost Vs. CompetitionSWB % of revenue% Achievement of revenue
Employee Perspective
% turnover of specified staffWelcome lookLearning and GrowthMulti-taskingMan-Hours LostCritical Incidents
Chief Engineer Balanced Score Card
Measure 2010-11 2011-12 2012-13
Last Year This Year Targeted Year
Social Perspective
Welfare to societya)Talksb)Demosc)Participation
CPM Model
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Corporate Performance Management (CPM)
CPM model is an advancement of business intelligence (BI) model. The BI model includes sets of methodology, process and technology that convert the raw information into the meaningful information that help the managers to take better strategic decisions. It connects strategy, through planning, to sustained execution
• It connects people, processes, technology, and data
• It is built on connected process components including budgeting, planning & forecasting, financial consolidation, reporting & analysis, business intelligence, modeling, score carding, and master data management.
CMP model include the
– Methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise
– Brings in new methodologies such as Balanced Scorecards (BSC), Activity-Based Costing (ABC) and value-based management
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– Planning, budgeting, financial consolidation, reporting and strategy planning
– Corporate-level, strategic deployment of BI solutions
– Especially from the IT perspective, CPM represents an advancement of the BI
CPM model is divided in to three parts
Align Evaluate Sustain
Align: Align component is the alignment of organization’s strategy with the plan and available resources of the organization. It is divided into two parts –Strategy and Plan.
Strategy: The components of strategy are
Strategy Map- Strategy Map is a diagram to document the organization strategy.
Value Drivers- Value Drivers is any process or activity that adds value to the product or services of the organization. Example brand value, customer satisfaction, advances technology etc.
Scenario Modeling: It is a process of finding a best alternative business strategy. Other things are KPI development, stakeholder management.
Plan: The plan component includes the business planning, financial planning, budgeting, collaboration and the target setting for the business in terms of sale and profit.
Evaluate: Strategy’s effectiveness is evaluated based on two parameters - measure and insights.
1. Measure: Measure is done on the basis of four criteria Close & Consolidate: Accounting close is basically the end of an accounting period.
Usually an accounting close is calculated on a monthly, quarterly, and yearly basis for reporting purposes. These reports give valuable performance information regarding the total financial flow within a company to management, board members, and stockholders, allowing decisions based on these results to be made.
Statutory Reporting: It is mandatory for every organization to share financial and non-financial information to the government agency. Every do have their own sets of rules and law that mandate the statutory report.
Management Reporting: The management reporting is a provision to provide the business report to the decision makers to take them better strategic decision. Report can be in form of text, tables, and graphs.
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2. Insights: Insights includes the goal and performance tracking, demand forecasting, business activity monitoring, benchmarking and the analysis of customer profitability.
Sustain: Strategy execution is sustained through rewards. Rewards include both financial and non-financial aspects. Non-financial rewards include the learning and development through various training and development programs.
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Responsibility Centers of ITC Hotels
Responsibility CentreA responsibility center is an organization unit that is headed by a manager who is responsible for its activities. It is like a small business to achieve the objectives of a large organization. Responsibility centers are of four types. The diagram below describes in brief the basic concept of the four centers.
Cost (Expense centers) – Cost centers are responsibility centers whose inputs are measured in monetary terms, but whose outputs are not. In other words, a cost center refers to a responsibility center where the scope of the manager’s influence is limited to inputs. Cost centers are further divided into:
Engineered Cost Centre - An engineered cost center is a center where inputs are measured in monetary terms but whose outputs are not .There is a reasonably good understanding of the input/output relationship, i.e. the level of costs that should be incurred to achieve a specified level of output is known. Examples of engineered cost centers in hotels include housekeeping (the average cost of cleaning a room can be predetermined), and laundry the cost of processing a specified amount of laundry can be also predetermined).
Discretionary cost center – In a discretionary cost center, there is a not a definite relationship between inputs and outputs. Judgment that is more subjective is exercisedwhen budgeting. For example, as training results in no readily measurable output, setting the training budget is bound to involve a high degree of discretion. In discretionary cost centers, the primary role of the budget is to restrictexpenditure to a predetermined amount. This is a relatively incomplete form of
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control, however, as reference to the budget provides little insight as to whetherresources have been expended efficiently. In discretionary cost centers, the primary role of the budget is to restrict expenditure to a predetermined amount. Accordingly, a report comparing actual expenditure to budgeted expenditure in a discretionary cost center should be viewed differently from a report prepared for an engineered cost center. Discretionary cost centers in hotels can be human resources, legal, training, accounting departments/managers.
Briefly, expense centers in ITC hotels can be
Revenue Centers – In a revenue center, output is measured in monetary terms, but no formal attempt is made to relate input to output. Revenue centers may also take time to become profitable and recover the initial start-up expenses. For this reason, starting multiple revenue centers may exacerbate the potential downside to specially the new business operations. As a result, there are not many revenue centers in hotels and other service organizations for that matter. The most important revenue centers for ITC hotels or for that matter any hotel is
Rooms department/division – One of the major revenue centers is the room department as revenue is generated when people pay to stay in a hotel
Sales/Marketing departments – It is also usually a revenue center specially when sales quotas are set for staff
Reservation department – It is also considered a revenue center as it is considered a part of sales only.
Profit Centers – It is a responsibility center in which both revenues and expenses are measured in monetary terms. The General Manager /Head of ITC hotels would be a profit center as he is responsible for both revenue and costs. The most important profit center in a hotel or ITC hotels for that matter is Food and Beverages (F & B) department/manager. In addition, a hotel usually might add a snack bar or a coffee counter to generate extra sales/profitability for a profit center.
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HousekeepingLaundryEngineering & Maintenance
Engineered Cost Centres
Human Resources, LegalTraining, AccountingDiscretionary
Cost Centres
Some cost centers exert a degree of influence over revenues; however, it becomes ajudgment call as to whether this is sufficient to make them a profit center. Arestaurant kitchen (food production department) is a responsibility center where this dilemma arises frequently. Kitchen staff can affect the profitability of a restaurant due to the time taken to prepare a meal, the quality of food prepared, and willingness to extend and vary the menu. In order to motivate kitchen staff to act in a way that is consistent withincreasing revenue, consideration can be given to treating the kitchen as a profitcenter.
Investment Centre – It is defined as a profit center whose performance is measured by its return on capital employed. Thus, a responsibility center is an investment center where the manager is responsible for profits and also capital investment decisions related to working capital management, capital structure and capitalization. E.gif the General Manager of an existing ITC Maurya Sheraton hotel in Delhi oversees the investment decision for expanding the existing hotel or opening a new hotel, and then he becomes an investment center . This is because he is accountable for not only the profits of the existing hotel but also the investment decision of opening up a new hotel or increasing the capacity of the existing hotel.
Advantages of Responsibility Centers to ITC
The above-mentioned points are explained below
1. Responsibility for any adverse performance is clearly identified. As a result, the individual managers may find it tough to shift the responsibility to any other manager.
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Adverse performance
identifiedMorale is high
Greater job satisfaction
and motivation
Quick reporting of performance
Chance to gain mgmt
expertise
2. The morale of the managers is high because of their active participation in decision-making.
3. There is an increased job satisfaction and greater motivation to put in the best efforts to gain accolades and recognition.
4. It helps in quick reporting of performance-oriented results of management at various levels.
5. Managers of responsibility centers especially the profit and investment centers gain an opportunity to get valuable managerial skill.
6. It, more importantly, facilitates stricter control on costs and revenues.
All these advantages are actually reflected in ITC hotels’ style of working, management and policymaking.
Our Opinion – the Flip Side
However, the above approach comes with certain tradeoffs, which are often ignored. ITC hotels are not an exception in this regard. Some issues that can crop in the responsibility center approach are
Controllability – A major problem in responsibility center approach is establishing controllability. In the strict sense, a particular item of cost is controllable when it can be definitely influenced by a given manager within a given time span. However, the problem is that hardly any costs are clearly under the sole influence of only one person. Take the case of material costs. Material prices are influenced by the purchase manager while material quantities consumed are influenced by the food production manager.
Involvement of management - Responsibility center approach will only be successful if the management at every step and at every level is fully involved in it and fully understands it. Thus, responsibility center approach can never be a substitute of good management. It is simply a tool of management.
Loss of ethical behavior – If manager’s start colluding with one another or with suppliers etc. or indulge in malpractices like adulteration, corruption etc., and the above approach can backfire with not so pleasant repercussions.
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CONCLUSION
ITC Hotels is already implementing numerous control systems, which include measurement of behavioral aspects of employees, which is more significant in hotel industry. The company also has six-sigma assurance department, which looks after maintaining operational efficiency. The company follows Corporate Performance Measurement Model, which is comprehensive in itself. The company also follows standard KPIs. Our recommendation are divided into two parts
New KPIsApart from the existing KPIs, following can be used by ITC Hotels for a better performance management:
F&B Revenue per night Revenue per staff member Expenditure per staff member Debts per room Energy expenditure per night
In addition, the company must give special focus to guest satisfaction, staff efficiency and quality leisure services.
Budgeting Improvements In addition to the incremental budgeting being followed by ITC, we recommend the
introduction of Zero Based Budgeting (ZBB) in which budget figures are developed with zero as the base with all expenditures to be completely justified by the responsibility center manager.
Advantages of Zero-Based Budgeting -Results in efficient allocation of resources as it is based on needs and benefits. -Drives managers to find out cost effective ways to improve operations. -Detects inflated budgets. -Useful for service department where the output is difficult to identify. -Increases staff motivation by providing greater initiative and responsibility in decision-making. -Increases communication and coordination within the organization. Identifies and eliminates wastage and obsolete operations.
ZBB gives hotel operators the flexibility to create different scenarios and associate each expense as it relates to the business.
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General Managers must involve all departments when preparing monthly forecast and annual budgets.
Hotel owners are looking for detailed justification of how each dollar is spent and how well their asset is managed. The understanding of expenses and their relationship to the revenues, room nights, food covers and other business indicators that affect profitability is critical, and the lack of documentation explaining this relationship can make the process a very tedious one.
A good budget package should eliminate the old fashioned spreadsheet budgets and give operators the flexibility to create different scenarios and associate each expense as it relates to the business. This is necessary because in the hospitality industry, expenses are constantly increasing while the revenue streams are highly variable. Database budgets will not only facilitate the preparation of zero based budgets and forecasts, but also will assist operators with providing sufficient detailed information for the hotel owners and asset managers when reviewing the annual budgets and the monthly forecasts.
It is time for hotel companies and individual hotel operators to break the paradigm of budgeting by spreadsheets and seek for the technological help to get up to speed with the tools that will help provide accurate information.
A budget/forecast with sufficient supporting documentation will be most likely approved faster. The variances to actual would be then easier to explain and easier to manage than a budget prepared by simple marginal increases over prior years. It is time to make department managers part of the planning process and accountable for their budgets and forecast instead of the usual process where hotel controllers are expected to the do all of this alone.
General Managers must involve all departments when preparing monthly forecast and annual budgets. It is time for hotel departmental managers to be business partners instead of just being told how to run their operations and accountability should be part of everyone’s performance.
The Hospitality industry is behind time, behind the other industries and behind in technology when it comes to way of budget and forecast the future so is time to shift the paradigm and move to a better database solution. To end, we propose a new Balanced Scorecard which ITC Hotels can use
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Proposed Balanced Score Card for ITC Hotels
Perspective IndicatorWeight(x of 10) Description
Financial Perspective 3Wage Costs as a % of total sales 3
It refers to wage cost as a % of total sales of the hotel.
Annual operating profit per room 3
It refers to annual operating profit per room available in the hotel.
Food cost as a % of food sales 2% increase in labor costs 2
Customer Perspective 3Number of positive feedbacks 3
It refers to number of positive feedbacks received from the customers (on a scale of 1 to 10).
Number of complaints received 2
It refers to number of complaints received from the customers regarding the services provided by hotel (on a scale of 1 to 10).
Response rate 3Frequent customers as a % of total customers 2
Efficiency 2% of room booked through reservation
2 It refers to % of room booked through reservation channels maintained by the hotel.
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channelsInternet bookings 2
Indicates the % of bookings received through internet services.
Room occupancy 2Rate of sales inquiry conversion 2Average length of stay 2
Staff perspective 2
Staff turnover 3 It refers to staff turnover rate at the hotel.
Technological competence of staff 2
It means the competence of staff to accurately utilize technological equipment like POS, telephone, etc. (on a scale of 1 to 10).
Average length of employment 3Number of training sessions 2
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References
www.itcportal.com
ITC Annual Report 2011-12
http://hotel-online.com/News/PR2006_3rd/Aug06_ZeroBased.html
http://www.aeht.eu/en/higher-education/375-key-performance-indicators-kpis-for-hotels-in-austria-2010
http://www.youtube.com/watch?v=7kAj3hnoTtY
Management Control Systems by Robert N Anthony and Vijay Govindrajan
http://en.wikipedia.org/wiki/ITC_Limited
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