Management Accounting in the Hospitality Industry:
Taiwan Hotel Case Studies
Kanitsorn Terddpaopong
Rangsit University, Pathumthani, 12000 Thailand
Keywords: Management Accountingtools, Hospitality, Hotel Industry, Competitive Market, RevPAR
Abstract: The enormous changes during the last ten years in service operations and information technology have
dramatically affected the environment of management accounting practices in the hospitality industry. The
objective of this study is to investigate the management accounting practices of medium and large-sized
hotel businesses in Taiwan. Five in-depth interviews of the Chief Financial Officers (CFOs) and senior
accounting managers in carefully selected hotels were conducted. The interviews were taken towards the
end of 2018. They focused on how management accounting tools/systems are implemented, including
obtaining information concerning cost structure analysis and measures of financial and non-financial
performance of the selected hotels.The five hotels are unique and representative of 3 – 5 star hotels in
Taiwan. The hotels chosen for the interviews represented three hypothetical operational situations: normal
operation, a temporary closure, and a permanent shut down. The information obtained from the interviews
proved to be helpful in better understanding whatmanagement accounting information essential for decision
are. This is especially for the sustainability of specialty hotels in a highly competitive environment.
1 INTRODUCTION
Hospitality is a general term that refers to a segment
of the service industry that includes hotels,
restaurants, entertainment, sporting events, cruises
and other tourism-related services. The hospitality
industry is essential not only to societies as a whole,
but also to a country’s economy as well as customers
and employees.
The hospitality industry generates revenue for
local economies directly when tourists spend money
on hotels, restaurants and entertainment venues. It
also helps economies of countries indirectly due to
tourist spending on retail goods, foods, souvenirs
and crafts. Besides, tourism can stimulate the
demand for services such as tour guides, translators,
and operators, restaurants and entertainment
services, and infrastructures such as airports, roads
and public transportation.
Also important are the jobs created by the
industry. World Travel and Tourism Council
recently published an article detailing the economic
impact of the tourism industry. In 2017 the
hospitality industry accounted for 313 million jobs
worldwide. This translates to 9.9% of total
employment and 20% of all global net jobs created
in the past decade(World Travel & Tourism Council,
2018). Hospitality also supports jobs in the arts and
culture industries, helping theaters and arts festivals
to thrive.
The hotel sector is another major beneficiary. In
the United States, for example, there has been a
significant rise in occupancy rates. Using statistics
from Smith Travel Research (STR), Sheel (2017)
reports that the year-to-date occupancy increased
0.6% to 67.4%, relative to 66.9% for the same
period in 2016. The year-to-date average daily rate,
or ADR (September), grew 2.0% to $127.14.
In IHG Annual Report and Form 20-F 2018
mentioned that in 2018, the global hotel industry is a
USD525bn industry. The 54% of rooms are
affiliated with a global or regional chain, up from
50% in 2012, and 46% are unaffiliated or
independent hotels. The top five hotel groups
namely IHG, Marriott, Hilton, Wyndham and Accor,
account for 25% of market share, rising from 19% in
2012, and 58% of the global development pipeline
of hotels in planning or under construction.
In a fragmented market, competitor pressures
among the leading brands are intensifying as all of
the major players pursue growth strategies through
business acquisitions, organic growth and
Terddpaopong, K.
Management Accounting in the Hospitality Industry: Taiwan Hotel Case Studies.
DOI: 10.5220/0009203003090323
In Proceedings of the 2nd Economics and Business International Conference (EBIC 2019) - Economics and Business in Industrial Revolution 4.0, pages 309-323
ISBN: 978-989-758-498-5
Copyright
c
 2021 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
309

diversification. In the digital era, consumer decisions
about where to stay and how to book hotels has
become a significant development. Hotel companies
must compete and try to survive in this increasingly
competitive environment by using online travel
intermediaries including peer-to-peer home rental
companies and serviced apartments.
There are several metrics for measuring hotel
industry performance. RevPARis an important
indicator of the value guests ascribe to a given hotel,
brand or market and increases when guests stay
more often or pay higher rates. Rooms supply is also
significant because it is reflective of the
attractiveness of investing in the hotel industryand
is influenced by the assumed profitability of a brand
or market. Driven by strong economic fundamentals,
the global hotel industry has seen growth in both
RevPARand rooms supply over the past decade. It
also plays a vital role economically, accounting for
every 1 in 10 jobs around the world (IHG, 2018,
p.
8
).
The hospitality industry is growing worldwide.
However, there are variations among countries.
Several researchers who studied hospitality industry
focused on the country context. For example,
Jeffrey, Barden, Buckley, and Hubbard (2002)
studied the hotel industry in England; Min & Min,
1997; Tsai, Song, and Wong (2009) studied in U.K.
hotel market; Briciu, Scorte and Mester (2013)
investigated the hospitality industry in Bihor
County, Romania; El-Shishini (2017) examined the
relationship between contextual variables and the
use of management accounting techniques in hotels
industry in Bahrain; Pavlatos (2011) conducted
research on 85 leading hotels in Greece;
Makrigiannakis and Soteriades (2015) investigated
48 four and five-star hotels in Greek; Yu and
Huimin (2007) analyzes and compares Chinese hotel
financial performances; Shieh (2012) using 68
international tourist hotels in Taiwan from 1997 to
2006 as samples of the study, are among many
others.
This present paper reports on a research project
that focused on the Taiwan hotel industry. Taiwan
has a dynamic capitalist-type economy with a semi-
presidential government. The country enjoys strong
growth sustained by the dynamism of the entire
region, a population with high purchasing power,
and an economy focused on technology. From the
statistics, Taiwan has one of the lowest fertility rates
in the world, which portends a looming labor
shortage soon. In an attempt to counter this, new
Taiwan regulations provide preferential tax
incentives to foreign professionals employed in
Taiwan. The goal is aimed at improving the overall
environment for recruiting and attracting
professionals from other countries.
There are major drawbacks, however, for
conducting business in Taiwan, the main one being
the lack of direct communication with China, and
another is a very limited domestic market.
Nonetheless, Taiwan is ranked very high because of
the ease of doing business and its strategic
geographical location which serves as an entryway
to China and the ASEAN markets. Despite these
drawbacks, with modern infrastructure and
innovation capabilities, Taiwan is an attractive
destination for investors (Market Entry, 2018).
Despite the conflict between the China and
Taiwan, the Peoples’ Republic of China (PRC) is
still the largest market for Taiwan businesses.
However, in 2018 the number of Chinese visitors
has dropped dramatically by 37.9%: from 974,000 to
605,000. Based on Market Entry (2018), the number
represents the lowest number since 2012. Decreasing
numbers of PRC visitors and tour groups have
caused the industry to focus on regional source
marketsto partially offset this trend. In the long-
term, Taiwan needs more innovation in its tourism
sector in order to capture higher-rated foreign
independent travelers (Voellm, 2017). Fulcoon was
somewhat pessimistic when he concluded that the
hospitality industry in Taiwan may not be expected
to return to normal or riseagain soon (2018).
2 LITERATURE REVIEW
The hospitality industry has been undergoing
tremendous changes and disruptions over the last
two decades. New challenges as well as new
opportunities makes the hospitality industry
attractive. New trends that have reshaped the
hospitality industry especially in hotel business are
such as virtual communities by which social
networks have had a profound impact on customers;
sharing economy like Airbnb represents a major
disruption in the hotel industry; and online travel
agents. These are a few new trends among several
others that have an impact on hotel industry and they
are making the competitive landscape even tougher
than ever (Masset and Weisskopf, 2019).This
contributes to the result that not all hotels have been
successful in this new trends. Some hotels are
successful even though in the highly competitive
environment, while others are bankrupt and close
down and make the end of their hospitality
businesses. The questions rise to both practitioners
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and scholars what makes for a successful hotel? The
research article by Jeffrey, Barden, Buckley, and
Hubbard (2002) give insights into hotel
management. They had followed 15 years of hotel
occupancy analysis in England. Using time-series
analyses of daily and monthly occupancy rates in
different samples of hotels in England for over 15
years, the result reveals consistent temporal
components of occupancy performance. These
differentiate hotels in terms of overall occupancy
levels, seasonality, length of a season, trend and
within-week variations. They concluded that the
components are related to the characteristics of
hotels and their management (Jeffrey, Barden,
Buckley and Hubbard, 2002).
The hospitality industry experienced a dynamic
growth. Challenges facing not only the global crisis
but also market changes, consumer behavior and
technological trends. With an increasing role of the
hospitality industry to the economy of the country,
research on hospitality has been conducted
worldwide. The aim of the studies in this field may
differ depending on each research initiative;
however, the ultimate goals of such research
contribute to improve and sustain the hospitality
industry. This will indirectly and relatively impact
the economy of the countries or region. Accounting,
the language of business, is therefore required to
keep up with changes made to each particular area or
industry, hospitality is no exception. The more
sophisticated the businesses environment is, the
increasing role of accounting, especially on
management accounting, to meet the demand of
management becomes.
In a situation where the competitiveness between
hotels is increasing, hotel managers increase the
focus on improving their performance as it can
become their advantage. With competitive
benchmarking these improvements must be
identified and made by the hotel management (Min
& Min, 1997; Tsai, Song, and Wong, 2009). The key
managerial competencies required and the
importance of hospitality experience of hotel
financial controllers are studied. Data from a
longitudinal study of the hotel financial controllers
have been analyzed. The same authors gathered
information using a content analysis of job
advertisements, a survey of U.K. hotel financial
controllers and interviews with key financial
managers in Burgess (2017) research. The findings
show that although there are many similarities with
the generic accounting profession, the hotel finance
role is unique. Their experience, combining with
hospitality management competencies can support
operational managers. Their understanding of the
complexity of the operation, in a dynamic and
perishable environment, enables hotel financial
controllers to act,on behalf of stakeholders,as
business advisors to other managers, thereby
enhancing profitability (Burgess, 2017).
Briciu, Scorte and Mester (2013) investigated the
hospitality industry in Bihor County, Romania
regarding the impact of accounting information on
the managerial decision. They conclude that 65.93%
of their surveyed managers believe that the
accounting information is very useful in decision
making, compared to 62.63% believe in financial
accounting. The most important factor influencing
the quality of management decision is the lack of
cost calculation system (88%) and the subjectivity of
the accountants (78%).
El-Shishini (2017) examined the relationship
between contextual variables and the use of
management accounting techniques in hotels
industry in Bahrain. He believes that the size of the
hotel, the intensity of competition and the quality
level of the hotel have a positive effect on the use of
management accounting techniques. He explored
these assumptions through the distribution of the
questionnaires to the 37 hotels in Bahrain and found
that benchmarking, absorption costing, budgeting for
organizational activities, in ranking order, are the
most use by the hotel managers, while activity-based
costing (ABC), activity-based management (ABM),
and long-range forecasting are the least used by the
hotel managers. He concluded that traditional
management accounting techniques were widely
used at hotels more than the recent management
accounting techniques. Also, his result indicated that
the intensity of competition has a significant positive
relationship with the use of management accounting
techniques, while the size and quality level of the
hotel does not have any relation with the use of
management accounting techniques. Part of this
finding, is contradict to the conclusion made by
Fathi, Dozdahiri (2015), which the authors stated
that advanced technologies are implemented in
hotels to lower their expenses. The same authors
used ABC implementation as a focus of their study
and concluded that organizational, technological,
individual and environmental factors influence on
ABC implementation in the hotel industry. Pavlatos
(2011) conducted research on 85 leading hotels in
Greece regarding the impact of strategic
management accounting and cost structure on ABC
system. The same author found that the adoption of
ABC system is positively associated with the extent
of use of strategic management accounting
Management Accounting in the Hospitality Industry: Taiwan Hotel Case Studies
311

techniques and with the cost structure while size of
the hotel has no relation to the adoption of ABC
system. In other words, no matter what size the hotel
is, the ABC system can be adopted. This finding,
again, contradicts with a result of Poldrugovac,
Tekavcic and Jankovic (2016) as they found that
there is a significant relationship between sizes and
hotel efficiency.
Management accounting is also studied in Greek
hotels. The majority of Greek hotels operate on a
seasonal basis for about six to seven months per
year. As a result, prices are heavily discounted and
contribution margins are low (Makrigiannakis and
Soteriades, 2015). The authors investigated 48 four
and five-star hotels in Greek and found that size and
sales mix structure have a positive impact on the
number of operational departments' analyses of
contribution margins. In other words, hotels with a
high sales volume are more sensitive to calculation
accuracy of profit sensitivity analyses and thus make
extensive use of cost information for pricing.
Not only the studies conducted in developed
countries, a developing country such as China is also
in the pace of changes. Current development of the
hotel industry in China, particularly the rapid growth
of Chinese hotel brands and international hotel
companies, is also concerned. The challenges facing
hotel financial management in China and the rapid
globalization of hotel development and operation
and financial performance are the concern of
researchers. The article by Yu and Huimin (2007)
analyzes and compares hotel financial performances
managed by international hotel companies, Chinese
hotel management companies, and Chinese
independently-managed hotels. They provided
recommendations for improving hotel financial
reporting and management for China's hotel
industry(Yu & Huimin, 2007). The link between
cost efficiency and financial performance as it
pertains to the hotel industry is studied by Shieh
(2012). This study employs the data envelopment
analysis approach to estimate cost efficiency and
uses three traditional financial indicators—the ratio
of net operating profit before taxes, the ratio of
earnings before taxes, and return on assets before
taxes—to measure financial performance. Using 68
international tourist hotels in Taiwan from 1997 to
2006 as samples of the study, the significant finding
indicates that cost efficiency is insignificantly
associated with the financial performance regardless
of the financial performance variable used (Shieh,
2012).
The optimal occupancy rate, operational, and
profitability efficiency of Taiwan's international
tourist hotels are studied by Chiu and Huang (2011).
They stated in their research that high performance
in operational effectiveness does not necessarily
ensure high profitability. The same study shows that
increasing sales is not the best way to improve
performance, actually better to decrease the
occupancy rate to enhance operational and
profitability efficiencies. Evidence from the same
authors concluded that the inconsistent occupancy
rate targets can be remedied through an empirical
model (Chiu & Huang, 2011).
Of course, both financial and non-financial
performance is of the management concerns. Recent
research on non-financial performance measurement
in Cape Town, South Africa hotel industry is studied
by Mjongwana and Kamala (2018). They found that
their 100 responding hotels use non-financial
performance measurement to improve the hotel
operation. Customer-oriented measures were the
most frequently used by the small and medium-sized
hotels in Cape Town – sales growth percentage, and
occupancy levels, guest satisfaction (with the results
of means of 4.77, 4.73, and 4.67 out of 5,
respectively). These non-financial performance
measurements provide businesses with feed-forward
information and are used for improving profitability,
productivity and effectiveness as well as improving
decision making (Mjongwana and Kamala, 2018).
The past literature gave heed on how the hotel
management use management accounting tools to
support their management decision. Due to a
different environment, different economic context,
competitive environment, technological
advancement, country development and culture, a
country context is commonly used as a subject of the
study. In this study, in-depth investigation of the use
of management accounting tools in Taiwan hotel
industry is studied. Like other hospitality industries
in other countries, Taiwan is facing great
competitive challenges. Taiwan tourism is an
essential component of Taiwan's economy, as well
as a significant source of foreign exchange revenues,
contributing 9.3% of the country's GDP (Mordor
Intelligence, 2018). The political issue between
Taiwan and mainland China that plays a vital role in
Taiwan hotel industry development. This article
does not touch on this topic instead on the
management accounting tools being used by the
management of Taiwan hotels.
This paper discusses Taiwan hotel industry, the
research method used for data collection, the
definition of critical terms regarding complexity and
findings of this research and conclusion and
suggestion in this order. The questions that will be
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addressed in this present paper are i) how is
management accounting implemented in the Taiwan
hotel industry?; ii) how advanced of technological-
based implemented in Taiwan hotel industry,
especially on complex hotels; iii) what are the
revenue and cost structures of the Taiwan hotels; iv)
what management accounting tools are being used
by the hotel executives in Taiwan?
The argument makes in this paper is the level of
management accounting tools used by the hotel
management depends on the “complexity” of the
hotels. The more complex either on the type of the
hotels as chain hotels, the multiple locations of the
hotels, the luxuries of the hotels which normally
classified by the number of stars, the more
sophisticated of management accounting tools would
have been used by the hotel management. The hotels
with such complexity will use more often and
sophisticated or advanced level of management
accounting tools to help in decision making. The
level of complexity of the hotels that the more
complex they are, the full range of management
accounting tools will be sought for by management
of the hotels.The proposition makes in this paper
does not directly relate to the size of the hotels.
However, there is a tendency that the larger hotels
will possibly use more often and more advanced in
management accounting tools due to the rising level
of issues to solve, and in the same time, larger hotels
would have a financial capacity to invest in
management systems to assist in their businesses.
3 METHOD
Much of the previous research surveyed in the
previous section did not use in-depth interviews,
while most of the researchers used questionnaires.
Thus, the findings of those earlier studies may be, to
some extent, less reliable due to such obstacles such
as questionnaire bias, including the way individual
questions were designed, and in the way the
questionnaires were administered. Additionally,
there may have been unanticipated communication
barriers between the investigator and the
respondents. Another perceived flaw in the previous
research related to the use of a predetermined list of
responses, rather than the use of open-ended
approaches (Choi and Pak, 2005). To overcome
theseissues, this present study used an in-depth
interview method to investigate and to understand
more deeply management accounting practices in
the hotel industry.
As the study aimed to gain knowledge from
those directly involved in the selection and
management of accounting tools, this present study
focused on five leading hotels in Taipei, the capital
city of Taiwan.The five wereselected because of
their unique qualities and were representative of 3 –
5 star hotels. Permission to carry out this study was
negotiated beforehand by an exchange of written and
verbal communication. In each case the Chief
Financial Officers (CFOs)agreed to collaborate.
Intensive individual in-depth interviews of the
CFOs of the fivehotels in Taipei were conducted
during November – December 2018. The interviews
were carried out mostly in English while certain
questions and responses needed an interpreter. The
interpreter worked in parallel with the researcher to
ensure understanding and accuracy of the exchanges.
Each of the in-depth interviews took place at the
respective hotel venues and were between 1.5 – 2.0
hours in length.
An interview protocol was used to ensure
consistency among the interviews, and thus increase
the reliability of the findings. Most of the questions
were open-ended. After each interview, the recorded
data were then transcribed and reviewed. Patterns or
themes among the participants were identifiedand
grouped. The data from the interview was labelled
‘Case 1’,‘Case 2’, and so on. The finding will be
presented according size – the number of hotel
rooms – beginning with the smallest and ending with
the largest.
4 FINDINGS
4.1 The Characteristics of the Selected
Hotels in Taiwan
The degree of complexity is the extent of variability
in the business environment. Awang, Ishak, Radzi
and Taha (2008) define the degree of environmental
complexity of the hotel industry according to 6
dimensions: 1) geographic concentration of
competitors; 2) geographic concentration of industry
sales; 3) geographic concentration of labor
availability; 4) level of products/services
differentiation; 5) geographic concentration of
customers; and 6) technological diversity used in the
industry.
The level of complexity of the hotel industry
also affects hotel classification. For example, one
classification system is based on size, star,
location/clientele, ownership, level of services. The
Institute of Hotel Management Bhubaneswar,
Management Accounting in the Hospitality Industry: Taiwan Hotel Case Studies
313

Ministry of Tourism, Government of India (2017),
for example,uses a classification system based on
size (small, medium, large, very large); on Star (1
star up to 5 stars); on location (downtown hotel, sub-
urban hotel, resort hotel, airport hotel, motel, floatels
and hotels); on clientele (business or commercial
hotels, transient hotels, boutique hotels, residential
hotels, suite hotels, bed & breakfast hotels, casino
hotels, conference centres, and green hotel); on
ownership (independent hotels, chains, management
contracts, franchise, referral groups, time-share
hotels, condominium); on level of services (upper-
market which are luxury, world-class services
hotels; mid-market; budget/economy hotels).
In this study, the level of complexity has three
levels: highly complex, complex, and less complex.
The level of complexity is determined by the
combination of at least three of the following: 1)
number of stars, 2) size according to the number of
rooms, 3) the number of employees, and 4)
ownership. Table 1 shows the classification of
complexity used in this present study.
Table 1: Complexity classification
Levels of complexity Star Room Employee Ownership Level of
services
Highly complex 4 – 5 Over 400 Over 500 Chains,
management
contracts,
franchises
Upper –
market
Complex 3 – 4 Over 100 Over 300 Chains,
management
contracts,
franchises
Upper –
mid-market
Less complex 2 – 1 Less than 100 Less than 300 Independent
hotels
Mid-market
– Budget
economy

Source: Compiled by the author
In this study, two of the five case studies are
classified as ‘complex’ hotels and the other three are
‘highly complex’. The specific features of each of
hotel classifications are shown in Table 2.
Case 1
The“Case 1” hotel was established in 1998 and has
been operational for 20 years. Being a small luxury
four-star hotel, it can provide high quality service. It
features a famous restaurant - the steakhouse, which
was recommended by Michelin. Even though the
hotel is quite small it boast a high standard of
service quality, and it is that which attracts its
customer-base.
Case 2
The "Case 2" hotel has been operating for 39 years
(since 1979) as a family business. The ownership
has now been transferred to the second generation.
The current Chief Executive Officer (CEO, a family
member, has an overseas education from the United
States of America and has lived there for more than
20 years.
Case 3
The Case 3hotel was established in 1999. It is a large
five-star hotel, under the Tourism Group of Taiwan,
and is located in a business area of Taipei. The
Group also operates other hotels as well as a theme
park and property residences. This hotel has been
financially supported by its group. In April 2018,
the hotel announced that it would close on 31
December 2018. Its occupancy rate was 70% in
2017, with an average daily room rate of NT$6,387
(US$209).
Case 4
The Case 4 hotel is a franchised luxury hotel under
the IHG (InterContinental Hotels Group PLC)
group. The IHG business modelpredominantly
franchises its brands and manages hotels on behalf
of third-party hotel owners. The hotel in Taipei is a
five-star hotel and has been in operation for more
than 20 years. It is a large hotel with over 500 rooms
and more than 1,000 employees. It is a highly
complex hotel.
Case 5
The ‘Case5” hotel was incorporated in 1962. Itwas
Taiwan’s first international standard luxury hotel in
Taipei’s city center, and in 1982 it was listed on the
Taiwan Stock Exchange. It is generally regarded as
one of Taiwan’s most respected and successful
companies. The company operates in two other
locations in Taiwan: Kaohsiung (1981) and Hsinchu
(2001). The company is owned by a group of
families. The owner of the Case 5 hotel is also the
CEO of the hotel. In addition to being an
international-standard luxury hotel in Taiwan, it has
become a ‘hallmark of residential luxury and
gracious Taiwanese hospitality, while continuing to
create new hospitality brands and services’. The
Case 5 hotel in Taipei is especially well-known for
its Michelin chef and restaurant, a steak house, and a
five-star bakery.
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Table 2: Characteristics of the five hotels
Case 1 Case 2 Case 3 Case 4 Case 5
Complexity
classification
Complex Complex Highly complex Highly complex Highly complex
Years of
establishment
until 2019
21 40 20 More than 20 55
Size Small Medium Lar
g
eLar
g
eLar
g
e
Stars **** *** ***** ***** ****
Number of Rooms 96 287 288 540 1,020
Number of
Em
p
lo
y
ees
300 200 500 1,000 1,200
Number of
Products/Services
1 Hotel in 1
location
Taipei
1 Hotel in 1 location
Taipei
1 Hotel under a business
group
Taipei
1 Hotel under
IHG Brand
Taipei
3 Hotel Locations
under the same
brand
Taipei
Kaohsiung
Hsinchu
Room rental
    
Restaurants &
Bakery &
Cafeteria
    
Sho
p
s
    
Total Revenue
(
TWD Million
)
700 330 1,300 Approximate
2,000
1,700
Total Assets
(TWD Million)
4000 700 n.a. n.a. 11,255.171
% Profit to total
revenue
17.5 5% Loss n.a. 25.81%
Ownership
structure
Family
Business
Family Business Listed Company +
Family Business
Listed Company
+
Family Business
Listed Company
+
Family Business
Interview date 20 December
2018
7 November 2018 18 December 2018 21 December
2018
6 December 2018
Remarks Temporarily close
and will be
reopening soon
Permanently close down
the business on 31
December 2018
Source: Compiled by the author
4.2 Trust of the President, the Chief
Executive Officer (CEO) towards
the Chief Financial Officer (CFO)
Who Controls Management
Accounting Implementation
For an independent and small to medium-sized
hotel, the implementation of management
accounting processes is likely to be different from a
dependent/branded and large hotel. For a small
hotel like Case 1 and also being a family business,
trust between the management and the owner of the
hotel is very important either in terms of
management or implementing new accounting and
managerial systems. For a medium-sized hotel like
Case 2, the trust between the two parties is the key
to implementing management accounting. In this
particular Case 2 hotel, the CFO is not new but has
had considerable experience in hotel management.
The CFO had been working with the prior president
of the hotel for more than 15 years. With the CFO’s
background of working as an auditor in a big
accounting firm in the past, the CFO has great
experience in both hotel management and
accounting, auditing and management. The CFO had
earned trust from both previous and current
presidents and has made a significant contributions
toward management changes and newly
implemented management accounting practices.
The CFO has received positive support from both
prior and current presidents on the implementation
of new management accounting reports, for
example. From the interview, the issue of the trust
Management Accounting in the Hospitality Industry: Taiwan Hotel Case Studies
315

was asked. The response from the Case 2 CFO is as
follows.
Regarding the support received from the
president and the CEO of the hotel, I
received a great support from them. The
previous president is a bit conservative,
however, the current president who is
also the CEO gave me a great support
regarding issues such as new
implementation of accounting report as
previously there was little reports
produced from accounting department.
(Excerpt from the interview on7
November 2018with the respondent
Case 2 Hotel)
The CFO was asked to rate the level of support
on a scale of 1 (lowest) to 10 (highest). The level of
9 point scale was the feedback as referring to the
support received. However, staff cooperation is also
a key to the success of the implementation. When
new management accounting tools were firstly
introduced, the CFO required further and detailed
information from the accounting department, as well
as from others.
The initial resistance from the related
stakeholders was rather high. I assumed
it was really high if you asked me,
probably at the 9-point scale out of 10.
However with the high support and
encouragement from the president and
the CEO, plus with thorough
explanations from me and my staff about
the benefits or advantages from having
such required information. The resistance
from the staff gradually reduced and at
the current stage, the resistance is
considerably low probably 3-point scale
(from the CFO's own assessment).
(Excerpt from the interview on 7
November 2018 with the
respondent Case 2 Hotel)
This data comes from CFO of a small/medium-
sized hotel with one owner. While in larger hotels,
the trust among executive management is managed
through the controlling system. Case 4, being a
chain hotel,and Case 5, being a listed company in
the stock exchange, the management and controlling
system for large hotelsis very clear and
decentralization of responsibility among several
departments of the Hotel. The CEO supports the
transparent synergy, whereas the CFO is the main
person in charge of the management accounting
practices of the Hotel.
The hotel uses the controlling system
such as the contracts with suppliers, the
management controlling system through
each department. Staff at the accounting
department work hard to keep up the
reports required by executives. Meetings
between executives of the hotels and
accounting department are conducted
regularly. Due to the fact that a hotel is in
a fast speeding industry, meetings are
done in a weekly basis.
Excerpt from the interview on21
December 2018 with the
respondent Case 4 Hotel)
The accounting department of the hotel is
a large department and consist of many
accounting senior, middle, and junior
staff. With the high requirement on
financial information – both on financial
accounting and managerial accounting,
accounting information for routine
reports is conducted in a professional
manners, while quite often that
managerial accounting information is
requested by the executives, but most of
the time they are on request.
(Excerpt from the interview on6
December 2018with the respondent
Case 5 Hotel)
For small hotels, the support from top
management is one of the crucial factors to the
success of new management accounting
implementation and new controlling initiatives. To
implement a new management system,
implementing a follow-up system, planning and
controlling system, the support from the president or
the CEO and the collective hard works of the CFO
and accountants are believed to be the main factors
leading to success. In a larger hotel, the management
accounting system is set and there are control
mechanisms.
4.3 Implementation of a Technological
BusinessModel
Sustainability in a highly competitive hotel business
environment requires effective business strategies
and tools. Technology, such as an online booking
system, including checking-in and check-out are
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316

typical in the modern-day hotel industry. However,
small hotels may still be reluctant to adopt such
time-saving and cost-saving tools. Larger hotels are
more likely to have such supporting tools in place
while small hotels may not. Data from the interview
with the CFO of the Case 2hotel revealed adopting
such technology would hurt an important customer
base, namely Japan. Such a tool would be unfamiliar
to that segment. Hence the old system which relied
on long-term relationships with travel agencies
continued. However, the new CEO dramatically
changed the business model as revealed in the
following excerpt from the interview.
Under the modern management of the
new CEO, instead of relying more on a
long-term relationship with travel
agencies, the new CEO has started a
business via an online travel agency
(OTA) such as Agoda, booking.com,
TripAdvisor, Priceline, Liberty Holidays,
Expedia and Hotel.com. With the new
media platform the hotel attracted a
broader range of customers from all over
the world. Even though the primary
customers are still from Japan (50%),
customer diversification has varied since
the new media platform was adopted.
The second group is Mainland China
customers, and the third is local
Taiwanese customers.
(Excerpt from the interview on7
November 2018with the respondent
Case 2 Hotel)
After the implementation of OTA, sales revenue
increased by about 15%. While this practice
appeared to be rather new for small hotels, it was
quite usual in larger hotels where major management
decisions in terms of technology adoption and
implementation are normally a headoffice decision.
4.4 Revenue and Cost Structures
In the hotel industry, RevPAR and KPI are standard
performance metrics. They provide important
financial information within a specific
period.Management can assess such data as room
occupancy and the price of the average room.
However, RevPAR alone, may not the only metric
which needs to be used. For example, it could be the
case that a hotel may have a low RevPAR but at the
same time having many rooms which would yield
higher revenues. Therefore, a hotel manager often
considers it together with average daily rate and
occupancy rate as performance measures. All the
hotels, of course, seek to increase the average daily
rate by focusing on pricing strategies, including
upselling, cross-sale promotions, and complimentary
offers such as free spa and dining service in the
hotel, while an overall economy is an additional
significant factor in price setting.
Cost classifications for hotels could be fixed
costs and variable costs. They could be labelled as
direct costs and indirect costs. The cost structure of
hotels varies. For example, in the Case 2 hotel,the
direct cost was the cost of goods/services sold with
an average of 56% of the hotel revenue, while the
indirect cost was about 20%. However, the most
profitable department was in the rental department,
which earned the highest contribution margin, while
the restaurant department did not do so well as the
rental department. In Case 5, the hotel’s restaurant
earneda major international award. Some 60% of the
total hotel revenue came from that restaurant
compared to 40% from the room rental division.
The RevPAR of Case 5was set at NTD 4,500 per
day (room rate of NTD 5,000 multiplied by 90% of
occupancy rate). The restaurant revenue last year
(2017) was NTD 1,200 million where the fixed
costswere 30 %, and the variable costs were 40 %
ofrevenue. As a result, the margin for the restaurant
was about 30 % of its income. What follows are
statements from the respondent:
For the room revenue, the hotel reported
its revenue last year of NTD 500 million,
with the fixed cost of 30 % and variable
cost of 10%, leaving the hotel margin
from this revenue at about 60% of its
revenue. The profit margin of room
revenue was 60%, while that of the
restaurant was 30%. The profit margin
of room revenue was double of the
restaurant revenue. This is due to the
cost structures of the Hotel, where room
revenue the cost is more on fixed, while
the restaurants are more on both variables
(40%) and fixed (30%).
(Excerpt from the interview on6
December 2018with the respondent
Case 5 Hotel)
4.5 Implementing Management
Accounting Practices
The accounting department regularly prepares
financial statements – basically the monthly income
Management Accounting in the Hospitality Industry: Taiwan Hotel Case Studies
317

statement. While other reports from each profit
department are prepared on a fortnight basis. The
contribution margin income statements are prepared
by each profit department and are monitored by the
CFO and CEO in the meeting normally held twice a
month for planning and decision making purposes.
The contribution margin income statement shows all
variable expenses deducted from sales and arrives at
a contribution margin. Fixed expenses are then
subtracted to arrive at the net profit or loss for the
period. The amounts remaining can be used to cover
fixed costs and contribute to operating profit.
Variance reports, budgeting reports, break-even-
point reports, together with RevPAR, are normally
reported on a regular basis.
Despite the highly competitive environment for
the hospitality industry, complex accounting tools
are not commonly used as in case of Case 2 hotel
management. Basic and less complicated
management accounting reports are more commonly
used. Complex accounting reports such as balanced
scorecard, activity-based costing, total quality
management report, lean or just in time report are
not practiced in that hotel.
There are other types of reports which are less
complicated and which seem to be more practical for
small specialized hotel such as the Case 2 hotel. For
example, total quality management (TQM) which is
commonly used in many industries, including, but
not limited to, manufacturing, banking and finance,
and medicine. It focuses on developing a work
culture that emphasizes customer satisfaction. All
members of the organization participate in
improving processes, products, and services. The
goal is to achieve continual improvement of business
operations.
The Case 2 hotel strives to ensure allemployees
work toward common goals of improving service
quality, as well as improving the procedures that are
already in place. Particular emphasis is put on fact-
based decision making, and using performance
metrics to monitor progress. High levels of
organizational communication are encouraged to
maintaining employee involvement and morale. The
CFO did not recognize the term ‘Total Quality
Management (TQM)', however from the interview,
all the process that the hotel practiced are those
embodied in the TQM concept, but in a simplified
version. And, the CFO’s office requires less time
consuming and less complicated reports.More
information comes from the interview.
For instance, the hotel has adopted the
system known as Hotel Housekeeping
Standard Procedures and Standard
Operating Procedure (SOP). The
housekeepers need to execute cleaning
and maintenance tasks at various places
in the hotel based on the set standards.
The housekeeping staff can contribute to
retaining guest satisfaction as well as to
generate new guests willing to repeat
their visits to the hotel. This will bringsin
more revenue to the hotel. What the hotel
performs towards guest satisfaction and
works productivity together, is an
integral part of total quality control. The
second example is on supply chain
management. Due to the restaurant and
cafeteria departments, ingredients
supplying to the Hotel are from
contracted suppliers. The hotel goals
when it comes to food and beverage
services is to provide the top quality food
and beverages. All cuisines and bakery
are in-house produced. The hotel keeps a
10-day delivery contract with its food
suppliers. With the software assisting in
the control stock and inventory, the
urgent purchase can be made. The hotel
has at least three potential suppliers at a
time. If one does not qualify either due
to price, quality, quantity, or delivery
schedule, the next potential supplier can
replace such purchasing orders.
(Excerpt from the interview on 7
November 2018 with the
respondent Case 2 Hotel)
The concept of ‘just in time (JIT) and lean’ has
often been employed in the manufacturing industry;
however, to the hotel industry, perhaps some
justification may be needed. The Hotel has
implemented the JIT and lean system by having a lot
size of ingredients such as food, to be delivered, and
a lead time (10 days in this case) that is adjusted to
consumption. These practices are similar to those
used in the manufacturing industry, but less
complicated.
As a standard practice, the accounting
department prepares the financial statements –
basically the income statement on a monthly basis.
In the Case 5 hotel, accounting software is used. The
operational accounting software – Oracle, Infrasys
(Infrasys Gourmate software for all Food and
Beverage Sectors in the hotel), and the Taiwan
Accounting System (ALL NEW GL) are being
used.As an example, Infrasys software can integrate
with external systems such as hotel property
EBIC 2019 - Economics and Business International Conference 2019
318

management systems, membership systems, catering
software, as well as accounting and inventory
management systems. The software can switch
ordering modes (fine dining / fast food) in real-time.
With the aid of accounting software, it usually takes
three business days to prepare and complete the
financial statements. The segment reports prepared
using the contribution income statement format.
Variance reports, budgeting reports, break-even-
point reports, together with RevPAR, are reported
regularly.
The CEO of the Case5hotel initiated the activity-
based costing (ABC) system some three years ago.
Each year, in the executive meeting, the topic of the
cost drives is the topic of discussion. Information on
the cost drivers is collected and presented for
discussion. Every department is represented at this
meeting and a decision is reached as to which are the
best cost drivers for their cost allocation. There were
28 cost drivers in 2018. Examples of the main cost
drivers are:
1. CEO expense → Budget revenue (TWD)
2. Human Resource expense →Employee number
3. MIS expense → Equipment quantity
4. Purchase expense → %Working hours
5. Banquet expense → Banquet revenue (TWD)
The cost allocation using ABC was about NTD$
300.00 million, which was 70% of total expenses.
The problem that the Case 2 Hotel experienced in
implementing ABC was an argument about the cost
drivers being used and allocated to the expenses of
related departments. Several departments tried to
negotiate about which costs would be allocated to
them.
Oracle Hospitality (OPERA Cloud Services) is
an enterprise platform for hotel operations and
distribution. It offers comprehensive, next-
generation capabilities hotels can use to enhance
guest experiences and improve operating
efficiency.It creates a platform for a hotel property-
management system and point-of-sale system. It
manages the hotel, food and beverage operations.
Integrated Oracle Hospitality hotel solutions
increase operating efficiency and enable better guest
experiences for independent hotels and hotel chains.
The top accounting programs used in the hotel
industry todayare i) FreshBooks, ii) Sage Intact, iii)
Inn-Flow, iv) Hotelogix, and v) M3AS software. To
supply quality materials to the hotel, the hotel
involves over 1,000 suppliers throughout the world.
The contracts with suppliers are renegotiated every
three months, based on quality and quantity
considerations.
4.6 Role of Accounting Tools in Senior
Management Hotel Decision
Making
Management accounting plays a significant role in
decision making. In the Case 2 hotel, which is
classified as a small hotel, management accounting
alone may not play a very large role without senior
management support. The CEO has taken the
initiative to make the hotel a five-star hotel and to
change it into a Green Building Hotel in the near
future. At the time of the interview (end of 2018),
the hotel was in a transitioning mode and would be
in less than a year temporarily closed. The
interviewee commented:
In this transitioning period, management
accounting tools are used due to the high
demand for decision making. The need
for management accounting tools such as
the report on costs during the period of
pausing the business, the budget for new
investment, the brake-even point, the
budget on reopening the business, the
budget on wages to keep permanent staff,
the comparative sources of finance report
and many more. These reports in a
normal situation may not be highly
required.
(Excerpt from the interview on 7
November 2018 with the
respondent Case 2 Hotel)
The situation on the importance of management
accounting reports is also found in the interview
with the Case 3 hotel interviewee. Due to a deficit,
the management made the decision to close down
the hotel. The interview took place just ten days
before its closing. Prior to that several reports had
been required from both the CFO and CEO for
making what was considered to be a very serious
decision. Interestingly the decision to close down the
business became a revenue-producing decision.
Together with the marketing department, the hotel
management launched an attractiveroom sales
promotion for customers who booked rooms prior to
December 31 (the last check out time was the
afternoon of 31 December).
This date coincided with the last date of
operation after which all the furniture and hotel
decorations would be removed. .In such a case,
Management Accounting in the Hospitality Industry: Taiwan Hotel Case Studies
319

accounting information was essential. The rooms
were sold out right awayand the hotel was able to
derive substantial revenue at the last minute. The
interviewee stated:
The selling price of the rooms on 31
December 2018 was set considering the
salvage value of the items in the guest
rooms. The Accounting department and
the Sales department were consulted in
regard to the price of the rooms to be
sold on this occasion. This revenue will
be considered a plus income to the hotel.
These selling last day rooms are actually
a selling gimmick of the hotel.
(Excerpt from the interview on18
December 2018with the respondent
Case 3 Hotel)
The interviewee was asked about the managerial
accounting information that was provided to the
hotel executives. Since the rent on the property is so
high, the revenue generated from the hotel business
was insufficient. What were the facts that led to the
decision to close the property? The interviewee
explained:
The hotel executives were informed all
along regarding the deficits of the hotel.
However, the executives believed that
they could overcome this situation by
either generating more income or
negotiating with the landlord. However,
generating new income could not
outweigh the high expense on rent. The
executives had tried to keep the hotel in
business for so many years. Every year
was just topping up on the existing loss.
(Excerpt from the interview on 18
December 2018 with the
respondent Case 3 Hotel)
4.7 Financial and Non-financial
Performance of the Hotels
Hotel management personnel routinely concern
themselves with financial performance
measurements. Most use financial ratios such as
return on assets (ROA), the return on equity (ROE),
percentage of the cost of goods sold to total revenue,
profit margin ratio, and net operating profit ratio.
Unlike financial performance measures, non-
financial performance measurements (NFPMs)
provide the hotel with feed-forward information, a
future-oriented measure. These are more relevant for
planning purposes and day-to-day operations.
Hotels have used non-financial measurements to
provide a closer link to long-term organizational
strategies, while financial performance measures
generally focus on annual or short-term performance
against accounting standards. NFPMs are also
progressive with regard to meeting and exceeding
customers' expectations as well as gaining and
maintaining a competitive advantage over
competitors. As mentioned by Micheli and Manzoni
(2010) non-financial performance measurements are
more critical to decisions that affect profitability and
other long-term strategic goals. Hotels also have
used several measures based on customer
perspectives such as.
- Guest complaints on employee helpfulness,
on facilities, on services standards and
other types of complaints
- Guest satisfaction surveys via online travel
agencies
- Percentage of sales growth on a monthly
period, quarterly period, and annually
- Room occupancy percentages
- Number of repeat customers
- Market share percentage
For the internal business operation, hotels also
use non-financial performance measurements such
as
- Ability to adjust, rectify, and respond to
guest’s complaints/requests
- Response time to guest requests
- Hotel supplies meeting the hotel purchasing
standards (time, quality, quantity, price)
- Training hours of the staff (for example,
training staff on work attitudes, how to deal
with customer complaints, restaurant
management, hospitality administration and
catering)
The CFO of the Case 2 hotel discussed the issue
of customer satisfaction:
Customer satisfaction is one of the main
non-financial indicators hotel
management uses to monitor
performance. For example, the hotel has
set the customer satisfaction score at least
8.5 from 10 point-scale which the survey
done via the online travel agencies.
Furthermore, the hotel will take
consideration of the customer complaints
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thoughtfully. The hotel has strategically
tiedthe employee's benefit or bonuses to
customer satisfaction. The hotel has
differentiated its strategy by building
customer experience as the culture of the
hotel. The bonuses to employees who
receive complaints and who do not show
improvement will be deducted according
to the hotel's criteria.
(Excerpt from the interview on 7
November 2018 with the
respondent Case 2 Hotel)
Case 2 interviewee stressed that the effort to
personalize the services to its customer will build,
retain and increase a strong relationship. Other hotel
financial managers also emphasized customer
relationships. This is especially true in the case of
the leading luxury hotel with its long history in the
hospitality industry. Valuing long-term customers is
important.
5 CONCLUSIONS AND
SUGGESTIONS
The hotel industry is facing the challenge of
reducing its costs significantly and to structure an
efficient internal processof it is to compete
successfully in a competitive market. Hotels in
Taiwan are no exception. Management accounting
reportsaretherefore of great importance to hotel
managers on a day-to-day and long-term basis.There
are a variety of factors which influence the usage of
management accounting practices in the hotel
industry. From the interviews, the main factors can
be categorized under three (3) labels.
Firstly, size. The size of the companyis
positively associated with management accounting
sophistication used by the hotels. Small hotels tend
to rely on trust between the owner/shareholder and
CFO, while larger hotels would set up a controlling
system by which management accounting reports are
put in place for management.
Secondly, sophistication. Modern-day tools are
sophisticated and require highly skilled personnel.
They may consider to be able to implementing
activity-based costing, and balanced scorecards, for
example. These implementations due to the
complication when implementing require to have
strong support from the high levels of management.
And, thirdly, complexity. The hospitality
industry, specifically hotels, to able to survive in
today’s highly competitive market, must adopt and
make use of management tools for making routine
decisions, and for the continuous management of
many critical operations. This research learned that
somehotels are still not generally using very
sophisticated management accounting practices.
Most of the hotels used tools relate to cost
determination and for controlling purposes.
The interview data revealed that many
sophisticated practices were not being used. Among
there are the following: the lean method in
warehouse management, reduction of movement of
housekeeping, supply chain management software,
just-in-time, and real-time information reports.
These tools were rarely mentioned by interviewees.
When compared to the manufacturing industry, for
example, where such sophisticated tools are
common, hotels continue using rather simple
management accounting practices. Even though the
hotel business is highly competitive, and becoming
more so, there seems to be a reluctance to consider
implementing practices which would improve the
precision of key decisions and increase
sustainability. Particularly owners of smaller hotels
are urged to consider adding more complex
management accounting tools to their operations.
Consumers are changing, too. Millennials are
increasingly looking for unique and authentic
experiences. They are today’s ‘baby boomers’. They
have money and time to travel, and they increasingly
expect technology to aid, inform and enrich their
travels. Several new ‘smart’ applications now
available include intuitive booking apps, chatbots,
and mobile check-in/check-out. Today’s and future
hotel customers expect technology to be integrated
into many areas of the travel experience. To meet
this trend, the ability of hotel companies to work in
partnership with technology providers has become
increasingly important. Hotel owners and investors
should take note.
In addition, another feature of today’s world has
to do with data generation, storage and use. Cloud
storage has further changed the game, giving
accommodation providers, such as hotels, easy
access to diverse real-time data. Such data enables a
more personalized and efficient service.
Operationally it allows providers to use data to tailor
guest experiences faster and create a more
personalized relationship with them. With this trend
comes a growing responsibility to handle data
responsibly, respecting consumer preferences
and rights.
Due to an increasing demand for branded
experiences, owners and investors are advised to
Management Accounting in the Hospitality Industry: Taiwan Hotel Case Studies
321

consider the merits of affiliating with a branded
hotel chain. The recent addition of multiple new
brands by big-branded players illustrates the level of
capacity in the hotel market. There is little doubt
that hotels need to have personnel who can assist
decision making in all levels of the hotel business.
It is hoped that this study fills a gap in the
literature by using an in-depth research methodology
that focused on how management accounting tools
and practices are being accepted and being
implemented. Of course, other aspects should be
further explored, too. The interaction of Information
Technology (IT) and contemporary management
accounting systems is an emerging research area.
Financial issues regarding hotel performance could
be further explored. Another important topic for
research could be identifying factors that affect the
improvement of hotel financial performance, for
example exploring the relationship between
Accounting Information Systems (AIS) user
satisfaction and activity-based costing(ABC) use
with respect to hotel financial performance, lean
management in the hotel industry, and sustainability
reporting of the hotel industry.
ACKNOWLEDGMENT
The author would like to thank the Ministry of
Foreign Affairs of the Republic of China (Taiwan)
for the support through the 2018 Taiwan Fellowship
Program (MOFATF201800090). In that connect,
thanks to Professor Hsuan-Lien Chu from
Department of Accountancy, College of Business,
National Taipei University. It was he who hosted
this Taiwan Fellowship Program. Also, to Assistant
Professor SheChih Chiu who accompanied the
author and assisted in the interviews as interpreter.
Finally, special thanks to the CFOs and senior
financial managers of the five hotels for their
cooperation and for providing such a wide range of
rich and insightful information.
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