Abstract
This paper provides insightful and comprehensive information that appertains to the imperativeness of financial benchmarking in the restaurant sector and how financial analysis helps in promoting performance. The information focuses on revolutionizing operations in the restaurant sector that has been facing policy, economic and structural challenges especially after experiencing the effects of the recent financial crisis.
The researcher focused on restaurant sector because of its relevance in steering social and economic integration. Indeed, the sector has been instrumental in promoting performance in various settings. It has created jobs for various individuals, it has been contributing to GDP growth in diverse nations and it has promoted the provision of ready made food items to individuals globally. The researcher adopted Giang Nan restaurant that operates in US as the company under study.
The company has been operating in the restaurant industry since the year 2004 and it has recorded tremendous growth since then. This is evident since it has been able to expand its product portfolio, branches and business units. Currently, the company has over 12 dining tables and many guest rooms that enable it to serve more than 70 individuals without complications. The company focuses its potentials in providing quality restaurant and hotel services that include food items, drinks, dining services and interior decorations.
Despite its noble performance over the years, the company faced heavy challenges that threatened to paralyze its performance in the year 2007. The financial crisis that occurred during the year affected the company’s operations and income capacity. This prompted the need for the company to establish conventional and more resilient ways of mitigating the effects of non planned crisis of any nature.
This study was set with the purpose to equip various stakeholders in the restaurant industry with requisite information that would enable them enhance their performance. It also sought to equip the stakeholders with proper financial management techniques and viable strategies that they can use to measure performance at various levels of operation. In this regard, the paper gives in-depth discussion on benchmarking that is identified as an effective strategy that aids financial management and performance measurement that institutions should adopt. It covers key types of benchmarking that include internal benchmarking, competitive, functional and generic benchmarking. These types of benchmarking provide diverse performance standards and incentives that allow companies to execute credible comparisons in terms of performance with other companies.
They also foster sharing of multiple type of information on various tissues hat affect performance in the restaurant industry. Processes of benchmarking are also covered in the paper where detailed planning, analysis and information gathering are highlighted. Change and maturity are other key processes that are also highlighted. Similarly, the paper discusses the effects of the financial crisis that occurred between the years 2007 and 2009 that resulted into a sharp decline in performance in key institutions such as banks, stock markets and restaurants.
The institutions recorded dismal performance that has forced them to restructure their operations. In particular, restaurant service providers recorded low performance levels due to low consumer income levels that in turn led to low customer visits. This was evident because the sector recorded a drastic reduction in customer visits of about 74% in 2008. Financial performance of most corporations in the industry also declined from the year 2007 when the crisis started compared to the year 2006 figures.
Variably, the research adopted a purposive research technique that provided the researcher with essential incentives that enabled him to choose the right sample, sampling procedures and data collection techniques. Similarly, process benchmarking was adopted by the researcher to aid financial analysis. The research was conducted for a period of four weeks under which data gathering and analysis were executed.
Based on the results obtained, it was clear that companies that operate in the restaurant sector were among the first institutions to be affected by the crisis. This was because the companies were operating under inferior performance measurement and benchmarking strategies. This impeded their ability to identify evident performance gaps that was affecting their profitability and the development of viable solutions to the gaps. Therefore the study is bound to facilitate the integration of effective operating and financial strategies that are necessary towards the realization of exemplary performance.
Introduction
Background of the restaurant industry
Restaurant industry is a key sector that contributes in promoting economic performance in various nations. The industry has been recording tremendous growth over the years as evident by the high number of service providers who are joining the sector. Indeed, institutions that operate in the sector have been instrumental in steering exemplary economic performance in various nations despite the challenges that they have been facing. The institutions contribute significantly in ensuring economic enhancement through tax remittances. They also help in creating jobs for various individuals in the respective settings where they operate. Consequently, they provide market for locally produced products such as food items and drinks of diverse nature. The industry has recorded incredible growth because of the favorable business environment that is witnessed in most nations.
This is evident since authorities in various settings have been engaging in high powered deliberations to ensure that the sector is expanded to accommodate more willing entrants. They have crafted favorable polices and operating guidelines that are meant to encourage more investors to invest in the sector. The policies are also to stabilize operations in the sector that was greatly affected by the recent financial crisis and make it more competitive.
As noted by scholars, any nation that seeks to improve its GDP growth must consider transforming operations in the food and restaurant sector. They must ensure that the sector is driven under proper guidelines and that best practices such as benchmarking are adopted. They must also encourage the integration of conventional management styles and customer service processes. This is essential in ensuring that clients’ needs are provided under quality ideals and that they receive value for their money.
Evidently, quality service delivery is a key ingredient that fosters performance in this sector. It is significant since the nature of business that is executed in the sector requires high level of hospitality, hygiene and determination. These are important elements that define quality service delivery that advances the level of sales. In US, restaurant and food industry is regarded as a potential sector that requires heavy investment (Camp, 1999).
The sector is potential because of the rising demand for drinks and food items especially packed meals by most individuals in various settings. This is apparent since most individuals in the country prefer ready made food that does not give them much time to prepare. They affirm that their preference to ready made food items is informed by their busy schedules that cannot allow them to cook.
Therefore, companies that operate in the sector should streamline their operations and adopt modern systems of service delivery to tap into the emerging opportunities. They should focus their potentials in providing quality services, good food items, drinks and resting rooms for those who seek for accommodation. They should also ensure that they hire qualified staff members who can deliver services real time in an effective and efficient manner.
Restaurant companies and key services that they deliver
As noted by scholars, restaurant companies are key service providers that are instrumental in building strong economies. They specialize in providing wide range of services that include food, drinks and guest resting areas. The product portfolios that are provided by the institutions are geared towards satisfying consumer needs promptly. The companies require proper management under clear-cut operating guidelines and performance benchmarks (Garvey, Dismore & Dismore, 2011). This is vital in enabling them to provide services that are customer oriented and that uphold quality standards. Notably, operating guidelines and performance benchmarks are important since they give stakeholders clear directions on what is to be done and how activities should be executed.
They ensure that managers in various institutions acquire proper understanding on performance gaps and prepare adequately to counter the effects of any crisis such as the financial crisis that was witnessed in 2007 to 2009. Variably, they promote effective planning, execution of marketing activities, organizational restructuring and financial management. These elements help in enhancing customer satisfaction, quality of service delivery and contribute in improving organizational reputation and competiveness (Jungmann & Sagemann, 2011). Indeed, they are bound to help restaurant corporations to improve their performance that recorded immense decline during and after the financial crisis.
Purpose of the study
This study provides comprehensive and credible information pertaining to the importance of financial benchmarking in restaurant companies and how performance in the institutions can be enhanced. It focuses on the restaurant sector since the industry requires revolutionary strategies to facilitate its full recovery from the effects of financial crisis of 2007. Similarly, it is put under focus due to its growth potential that is evident by the increased demand for drinks, food and resting guest houses in various nations including US. Consequently, the study conveys basic information that touches on the imperativeness of benchmarking and integration of modern operating guidelines as key performance elements. That is it seeks to reaffirm the need for companies that operate in the sector to develop proper, viable and sustainable performance benchmarks.
The benchmarks must be economically viable, and socially acceptable to facilitate their acceptance by the stakeholders (Megginson, Smart & Lucey, 2008). Indeed, the study is purposely executed to enable key stakeholders in the institutions that operate in restaurant sector such as Giang Nan to adopt conventional systems of operation. It is bound to equip them with the understanding of major issues or complications that affect operations in the sector.
Conversely, it is set to enable them understand viable and credible solutions that can be executed to mitigate the evident complications that range from human resource to financial management. Further, the study is set to equip the stakeholders with requisite knowledge on why they need to design effective operating guidelines and performance benchmarks in diverse business units. The benchmarks must be performance oriented, attainable, measurable and specific to enable their actualization.
They must be well executed or developed to guarantee their effectiveness in supporting quality planning, marketing, financial management and restructuring. Stakeholders of Giang Nan Restaurant Company are bound to be the most beneficiaries of this study. This is evident since the company is the one that is adopted by the researcher as the institution under study. The institution that operates in the restaurant sector will achieve the best because the information provided will help in steering its performance development. The strategies provided will enable its managers to deal effectively with the major complications that have been impeding its performance such as financial management and provision of customized services especially after the financial crisis.
Statement of the problem of the selected restaurant
Indeed, there has lack of adequate information on the imperativeness of benchmarking in various facets of operation. Key business operators also lack information on how it promotes performance by enabling the development of ideal performance threshold (Megginson, Smart & Lucey, 2008). In particular, institutions that operate in the restaurant industry such as Giang Nan Restaurant have been loosing out or recording dismal performance since they do not have proper operating benchmarks that act as guiding principles. Firstly, the companies operate without setting proper performance benchmarks with which they use to measure the level of their operations.
Secondly, they lack proper customer management benchmarks that can enable them establish the satisfactory levels of their customers. Managers of Giang Nan Restaurant cited that their performance levels decreased drastically especially during the financial crisis period since they had inferior systems of operations.
They also had inferior performance benchmarks that could enable them measure or establish performance declines through comparison of financial reports. That is lack of proper operating benchmarks did not allow them to establish critical performance gaps such as financial management that contributed to the company’s down fall. It also contributed in compromising planning of activities, marketing, restructuring and adoption of best practices that could help in improving performance.
The company suffered huge loses due to poor benchmarking guidelines or policies that failed to provide rational platform for performance measurement (Megginson, Smart & Lucey, 2008). Thus, the study is of great relevance since it seeks to enhance performance in the restaurant sector by equipping stakeholders with the requisite performance drivers that ensures quality at all levels of operation.
Literature Review
Benchmarking
A benchmark is a standard or mark that can be used to measure and identify performance gaps in institutions (Codling, 1998). It has been widely used in various settings due to its appropriateness in enhancing performance. This is evident since it provides requisite incentives that enable mangers in institutions to identify performance gaps that impede productivity and design amicable solutions to the complications. It also provides incentives that aid financial management and execution of restructuring activities especially when a business entity is not able to cope with the competition. Indeed, benchmarking is a concept that is widely recognized as a continuous improvement tool.
This is because it provides credible guidelines through which performance in institutions is measured or judged (Codling, 1998). In particular, it has been instrumental in ensuring that managers in institutions especially restaurant companies set realistic performance threshold in terms of productivity, revenue collection and service delivery.
The thresholds are set every year to give clear guidelines on how things should be done, what needs to be done and how institutional goals are be attained. The performance standards give managers credible basis for performance evaluation at every level of operations (Kozak, 2004). This enables them to know performing and underproductive sectors, individuals and product portfolios. In most institutions, managers use previous performance levels as benchmarks especially when it comes to revenue collection. They consider the performance or profitability levels of the previous financial period before setting the current threshold.
This is essential since it gives them the opportunity of holding reliable comparison on whether a business has been able to record an increase or a decrease in profitability. The reason for using the previous performance levels as benchmarks is to establish whether a company has performed below par or above the expected level (Kozak, 2004).
That is when a company’s performance declines to a point that it records a lower income value compared to the previous period then there must be a strategic issue that requires proper mitigation. However, when a company reports an increase in its profit levels as compared to the previous period then such a company is said to be doing exceedingly well. For instance, financial process benchmarking enabled Giang Nan Restaurant Company to realize that its performance was in the decline during the financial crisis period in the year 2007 to 2009. This was evident since the company’s performance in 2007 was les compared to its profit levels in 2006.
Relevance of benchmarking in the current business environment
Indeed, the current competitive economic environment requires corporations to adopt effective performance strategies that are sustainable. This is critical since businesses that neglects best practices risks declaring they redundant or bankruptcy. Such businesses operate in the brinks of precipice and they may face a dead end. It is imperative for companies especially those that operate in the service industry to identify their potentials to enable them to embrace change (Camp, 1999).
They should change their operating strategies to conform to the environmental and consumer needs that are ever changing. Firstly, they should adopt credible business or performance benchmarks to enable them understand where they are in terms of profitability, where they are heading, new changes, how to integrate them and establish consumer needs. They should also develop performance thresholds to enable them understand market dynamics such as demographic settings and technological changes.
These aspects are significant in steering performance especially in the restaurant sector that has been facing expansion complications. They will enable restaurant corporations such as Giang Nan restaurant to refocus their synergies in embracing modern ways of operations to enable them enhance performance. Notably, the aspects will enable managers of Giang Nan Restaurant Company to align the company’s performance strategies with its mission (Camp, 1999).
The managers will also set viable operating standards that will ensure that customers receive quality food items and drinks at favorable costs. As noted, by scholars companies need to align their strategies to match the current needs of the market. The organizations should change their current direction of operation if they expect to achieve meaningful growth. They should also put in place effective logistical measures to facilitate holistic mitigation of effects of any crisis that may occur. In this regard, the scholars affirmed that the best strategy that suits companies that operate in the food and hotel industry is benchmarking.
The strategy that originated from Xerox Company helped in transforming its performance to higher levels in 1979. This was apparent since in 1670s, the strategy enabled the company to establish huge operational gaps that was impeding its competitiveness. Particularly, the company was facing financial management complication where it had difficulties in levying product prices and controlling the manufacturing cost (Sweeney, 2004).
They later adopted benchmarking as a cost control strategy. Surprisingly, the strategy contributed significantly in mitigating the company’s cash management complications by ensuring proper utilization of resources and accountability. Its successful application in the company made the concept to be widely accepted and practiced as a noble business best practice that promotes productivity. In the modern world, managers recommend the use of benchmarking as a viable performance tool that institutions are under obligation to adopt.
Definitions of benchmarking, when it should be applied and discussion on types of benchmarking
As noted by Wireman (2004), benchmarking has operational, structural and business definitions that are fronted by various scholars. The scholars hold diverse views when defining the concept. However, they all subscribe to the idea that it is a mark that facilitates performance measurement. In business terms, benchmarking is defined as a basis that institutions use in establishing rational performance goals through systematic search for applicable or best practices that can enhance productivity in a sector. In other words, it is a process that aids systematic evaluation of activities by comparing actual results with performance standards that are set.
Operationally, benchmarking is defined as the process of establishing and implementing best business practices that can promote financial management in companies (Sweeney, 2004). It ensures that customers are satisfied by setting quality standards that facilitates service delivery such as repairs, collection of payments etc.
Structurally, it is defined as a mark against which an activity can be measured or judged. These definitions depict benchmarking as a real performance measure that should not be neglected at any rate by managers especially in the restaurant sector. However, managers need to make certain considerations before adopting this technique. They should establish what they need to benchmark, why they want to apply the concept and how they plan to execute it in key units of operation. This is important in determining the type of benchmarking that is appropriate for an institution. The considerations are also significant since they aid choice making between various types of benchmarking that include internal benchmarking and competitive benchmarking. Others include functional or industry benchmarking and process or generic benchmarking (Vaughan, 2011).
In particular, internal benchmarking promotes setting of performance standards that allows large companies to share multitude type of information between various service centers. It aids comparison of performance practices between internal centers of operation with an aim of identifying productive service units (Wireman, 2004). Consequently, it enables organizations to set standards in recognition to internal capacity to facilitate systematic uplifting of underperforming service centers. Its aim is to elevate performance in all areas of operation and ensure that best practices are adopted. The technique can best suit Giang Nan Restaurant Company that needs to streamline its internal processes to steer the provision of quality catering services and enhance productivity.
Conversely, competitive benchmarking is a performance strategy that is usually used by direct competitors. It provides them with requisite incentives that propel the execution of their competitive goals and comparison of performance in the same market. The technique is instrumental in driving competitiveness in markets that have competing products, services including work processes (Wireman, 2004). Similarly, it is vital since it enables companies to establish the performance levels of their rivals in the market. This helps in facilitating the development of proper strategies to counter the influence of rival corporations. Its critics assert that it may not be effective especially when various corporations cannot obtain key information about their rivals.
Functional or industry benchmarking is a technique that is used by business partners who share similar technological and market characteristics that are set with an aim of countering the influence of market leaders (Grossbauer, 2002). The technique is vital in a business environment that denies small and medium size operators the opportunity to gain high level of competitiveness. That is they are overshadowed by large scale operators who operate as monopolies. This technique still remains relevant especially in the restaurant industry where large firms are gaining dominance, thus threatening to send small operators out of business.
It can enable medium size operators such as Giang Nan restaurant to form vibrant functional units as a competitive strategy to counter the influence of the established operators. Consequently, the company may consider adopting process or generic benchmarking. The strategy enables companies to use operating processes that hold the capacity to foster continuous improvement (Grossbauer, 2002). It also contributes in streamlining performance initiatives in institutions.
Benchmarking process
To ensure that benchmarking that remains a credible performance driver in most institutions produce quality results, managers must implement it holistically. They must ensure that all the steps necessary for its successful adoption are followed or adhered to effectively. This is essential since omission of any step may prove detrimental and may hinder the realization of best results. As cited by Grossbauer (2002), managers are expected to adhere to the five chronological steps that form part of the initial processes applied by Xerox Company in the ancient days. The five essential steps that must be followed include planning, analysis and information gathering.
Other steps are change and maturity and comparison of results. Firstly, planning step is essential since it involves proper identification of a firm’s strategic intent especially when adopting benchmarking. It requires deeper institutional understanding and designing of realistic action plans.
The step enables managers to develop clear operational guidelines and plan on how various activities are carried out. Conversely, it aids resource mobilization and distribution to various departments to enhance operations. Analysis and data collection forms the next step in the implementation sequence. The step involves gathering information pertaining to a company’s performance gaps, competitor’s activities and policy changes (Enz, 2010). The information gathered allow managers to establish the evident performance gaps and ensure that amicable solutions are developed to counter the effects of performance impediments such as financial crisis. The process is essential since it enables managers to identify their company’s potentials and design effective systems to improve product processing, service delivery including the adoption of best operating practices (Vaughan, 2011).
Change process that entails actualizing the decisions that are made forms the next step. The process ensures that decisions that are made are put into practice or acted upon to advance performance. Change process requires managers to establish and determine what is required, what should be done and how its execution should be to match the standards that are set (Enz, 2010).
This step is followed by maturity step that ensures that the identified practices are fully implemented and set goals are realized. Indeed, these steps are critical and managers of Giang Nan Restaurant Corporation should embrace them holistically. This is essential in ensuring that they make good benchmarking choices that can steer the institution to greater heights of performance especially after suffering huge loses due to the effects of the recent financial crisis.
Financial ratios and their definitions
Financial ratios are fundamental performance indicators that enable institutional managers and stakeholders to evaluate their company’s viability (Loth, 2010). They are instrumental in aiding decision making and policy formulation on issues that advances institutional performance. Indeed, their purpose is to enable companies to measure their liquidity capacity and financial strength. They also enable managers to execute periodic performance comparisons across industry level and internally. That is the ratios are used as benchmarks that ensures effective establishment of performance levels in institutions (Loth, 2010).
Key ratios that are adopted in this study are liquidity ratios, activity, debt, market and profitability ratios. Benchmarking institutions use these ratios to set performance standards at various levels of operation or business units. This is because they are categorized depending on the financial aspect that they measure in a business.
In particular, liquidity ratios are used to measure financial stability of various companies. The ratios show the level of performance in terms of cash inflows. They also measure the availability of cash in institutions and how they are used in settling debts. Secondly, activity ratios are used to measure the capacity of companies to convert non-cash assets to cash assets (Colombo & Stanca, 2006). The ratios give clear indication of how effective and efficient institutions are when it comes to cash conversion. This help investors and customers in developing quality purchasing and investment decisions.
Variably, debt ratios are performance indicators that enable firms to measure their capacity of repaying long term debt. The ratios provide effective benchmark that promotes the acquisition of sustainable loan amounts. The ratios show the period by which a company is able to settle its loans. As cited by Colombo & Stanca (2006), the shorter the period, the better for any institution that seeks to earn the confidence of financial institutions. Other important ratios include profitability and market ratios.
Profitability ratios measures how firms utilizes their assets and how they control expenditure towards achieving good results, while market ratios measures the level of investor response to the cost of issuing stock and other overheads (Megginson, Smart & Lucey, 2008). Indeed, Giang Nan restaurant recorded low figures or values in its financial ratios during the crisis period. The decline in value was evident as measured in 2007, 2008 and 2009 where figures obtained in previous accounting periods were used as benchmarks. In 2007, when the crisis started, the company recorded a decrease in virtually all of its ratios as compared to the reported figures of 2006. The decrease was more evident in 2008 and 2009 where it recorded a decline in performance of about 2% in all its financial ratios.
For instance, its current ratio dropped by 1.8% in 2009 compared to the figure reported in 2006 before the crisis. The company’s quick acid ratio also decreased by arrange of 2.0% in the same period. Likewise, other ratios such as gross profit margin, asset turnover, return on investment and earnings per share recorded huge declines in value. The huge loses were due to reduced activity and customer visits. Therefore, the company needs to develop proper benchmarks and operating policies that are economically viable to guarantee its success.
Financial Ratio evaluation
It is imperative to note that the strength of ratio evaluation is based on their flexibility. This explains why users of ratios should customize or identify essential ratios that they deem appropriate to facilitate their understanding of an institutional performance levels. They should consider their analytical needs and what they aim to achieve after their analysis (Megginson, Smart & Lucey, 2008). For instance, investors are under obligation to analyze ratios that relate to equity earnings and company profitability. This is important since the ratios that they focus on should be able to enable them make credible investment decisions. Other stakeholders such as suppliers, consumers and employees should also focus their potentials in analyzing ratios that give them clear information pertaining to performance of their respective areas of interest.
Most scholars have noted that institutions that seek to improve their performance capacities, should adopt financial benchmarking. This is because the ratios provide reliable and credible benchmarks that aid comparative analysis (Lasher, 2010). The ratios are appropriate since they also act as effective qualitative analysis tools that can be adopted in any sector and by any type of a business entity. The ratios should be used since they allow companies to compare their performance levels with other companies. They also enable managers to identify the prevailing operating gaps that may impede performance in their institutions and develop appropriate solutions real time.
Casual and full service restaurants
There are various types of restaurants that operate in the food and hotel industry. The restaurants fall into different industry classifications that depicts the kind of services that they offer (Parpal, 2012). This is apparent since the classifications are based on key aspects of service delivery that include the style of menu that they use, pricing strategy and how food is served. Other key elements include food preparation methods and serving procedures.
These elements enable industry operators to identify performance potentials of each institution and then classify them into appropriate category. Indeed, major categories under which they are classified include fast casual restaurant, fast food, family style and fine dining category. Full service restaurant also remains a credible category that most corporations fall into especially in the modern days.
In reality, full service restaurants operate under ancient or old fashioned idea that individuals normally go out to eat. The restaurants use an old fashioned strategy of attracting and serving customers. The strategy sees them invite guests or customers, make them seat at various decorated tables and give their orders to servers. The servers then serve them with food and drinks based on their order details at their convenience (Parpal, 2012).
This strategy of operation requires proper preparation financially and technically. This is because its actualization is based on the number of staff that a service provider is able to hire. Particularly, full-service restaurants should have many kitchen staff, employ many servers and bartenders. This is essential in promoting effective service delivery with an aim of satisfying customer needs promptly.
Most institutions that are classified as full-service providers in the restaurant sector faced immense challenges especially when the financial crisis occurred (Wilson, 2011). The restaurants had difficulties in sustaining their operations since they could not effectively match their cash inflows and outflows. Similarly, they could not meet consumer needs promptly due to low number of staff members. This is because the institutions had to streamline their activities and layoff some employees to enable them cope with competition in the sector. The structural decisions were executed since the crisis exposed the companies to low income levels and high cost of operation.
Variably, casual-dining restaurants focuses their incentives in providing moderately priced food items compared full-service restaurants.
The restaurants provide exceptional services to customers under casual atmosphere and ideals. The services include table decoration, buffet-foods and casual dining services. The services are provided at moderate prices to attract more customers and enable various categories of individuals to experience restaurant lifestyle without discrimination (Alexander & Britton, 2004). This explains why the restaurants target middle class and low income earners who may not have the opportunity to acquire services at high rank institutions. As noted, casual dining restaurants normally operate in a systematic manner where staff members are assigned distinct roles as compared to full service restaurants. They also operate in different areas of operation.
For instance, the restaurants have full bars with separate staff members, a detailed beer menu and a wine menu that is limited in scope. Notably, the flexibility nature of casual dinning restaurants enabled them to survive from experiencing severe effects of the financial crisis. The companies were able to deal with the challenges that they were facing more amicably as compared to full-service restaurants (Parpal, 2012). Based on the facts presented, it is imperative to state that the two categories of restaurants differ in terms of scope and strategy of operation. This is evident since full-service restaurants have been operating under old fashioned ideals while casual dining restaurants operate under casual systems or guidelines.
Casual dinning
This section focuses on the imperativeness of benchmarking and other factors that promote quality service delivery in casual dining segment of restaurant institutions. It is important since the restaurant sector especially in US, has gone through diverse phases of business restructuring in the 20th century (Morgan & Ruby, 2011). The phases have been instrumental in ensuring that companies that operate in the industry are able to meet consumers’ demands by enhancing efficiency and effectiveness in service delivery (Sweeney, 2004). This is noticeable since the first phase focuses on advancing full service delivery to families. The second phase that has been in operation since 1960s focuses in meeting customer demands in the fast food restaurant sector. These phases of growth are credited for enhancing the popularity of casual dining restaurant services since their inception in US in 1980.
As noted, the dining segment ensures that food menu scrip’s are prepared appropriately and services are delivered on time and at the right locations. It also ensures that proper dining decorations are done to make restaurants attractive or appealing to customers. The segmentation has enabled restaurant staffs in most settings to develop menu items that capture all the products and services that are provided including their cost. This has made customers to become more acquainted with various items that are provided by the company thus enables make good choices (Garvey, Dismore & Dismore, 2011).
It has also made selection and ordering of items very easy for customers. Evidently, the concept has contributed in advancing performance in most restaurants in US as cited by the restaurant association officials. They cited that the concept has made the average guest checks in certain restaurants to increase from 15% to 25%.
Benchmarking in the restaurant industry
Iversen (2007) indicated that, most companies that operate in the restaurant industry face strategic challenges that hinder their competitiveness and general performance. The challenges threaten to compromise their service delivery capacity that is dependent on quality processes of operation and effective financial management. The challenges have been in the increasing end since most institutions are deficient of the requisite tools and support incentives that can enable them evaluate their performance continuously. This has made the corporations to operate without having full knowledge of the performance gaps that are evident within their operating set ups.
Ideally, poor benchmarking strategies has made most companies that operate in the sector to make huge loses since they are not able to evaluate and manage their activities properly (Iversen, 2007). This has been happening due to lack of set standards of performance through which results are measured.
In particular, inferior benchmarking strategies have been exposing companies to huge financial loses, inferior identification of customer needs and poor service delivery. Likewise, it has led to poor menu development or structuring in most restaurants, poor dining decorations and serving styles. These aspects that make most restaurants to perform dismally can only be mitigated with the adoption of proper benchmarking strategies (Kirk, 2005).
In US, most institutions that provide restaurant services have embarked on adopting key performance strategies that include benchmarking to boost their competitiveness. They also embark on adopting the strategies to enable them evaluate and compare their performance levels within other key players. Their aim is to ensure that they utilize their resources well, provide quality food services and to meet customer needs without discrimination.
Due to this, corporations such as Microbill and Giang Nan restaurant are conducting information gathering on diverse issues to enable them adopt an effective benchmarking strategy that would help in mitigating their performance gaps adequately. Their financial managers have also resorted to execute periodic comparisons of financial performance through systematic computation and assessment of financial ratios (Thakur, Burton & Srivastava, 1997). They seek to use financial ratios since they are recognized as reliable performance indicators. Further, they give ideal performance levels and financial strength of companies. Therefore, financial ratio based benchmarking is very effective and essential in assessing performance.
Giang Nan restaurant
Giang Nan restaurant is a renowned institution that operates in the food and hospitality industry. It was started with a core mission to provide quality restaurant services that are tailor-made to satisfy customer needs adequately (Iversen, 2007). The company that was established in the year 2004 by Jane Kong started its operation with a hot pot restaurant where it served Chinese dishes. Indeed, the middle size company focuses its potentials in providing quality food items, drinks, dinning services and interior decorations. Currently, the company has expanded its operating capacity since it has over 12 different sized tables and a well decorated VIP section that can accommodate over 70 guests.
This shows how well the company is managing its activities and how its set strategies are contributing towards its success. Its exemplary performance or service delivery has enabled the company to be recognized as a100% shangai style food provider (Iversen, 2007). Likewise, it is recognized as the best provider of Asian and Chinese dishes that are highly in demand. Further, the company has been able to provide quality casual dining services that are integral for social integration. The company’s good performance is attributable to its dedicated and qualified staff members including infrastructural capacity that it boasts of (Gibson, 2010).
Based on its strengths, the company is currently embarking on a mission to expand its operation and market share. It seeks to open new branches and service centers in areas such as Los Angeles as a strategy to expand its network. The expansion processes are to be based on strong performance ideals and benchmarks.
Financial crisis
The financial crisis that was witnessed in 2007-2008 remains the worst financial crisis in the world whose effects have widely affected economic activities in various settings since the great depression of 1930s. The crisis that started as result of liquidity issues and other key environmental including economical factors, has forced institutions to re-engineer their business processes (Jungmann & Sagemann, 2011).
The institutions have embarked on developing viable and sustainable financial management guidelines especially to ensure that cash management is effective. This is done with an aim of eradicating the effects of liquidity complications and to ensure that liquidity crisis does not occur. The strategies are made as quality safeguards to boost proper utilization of resources. in reality, the financial crisis that is also known as the liquidity crisis started in 7 august 2007 due to termination of financial withdrawals from three key hedge fund institutions. The crisis presented far reaching effects in various economies and individual institutions (Jungmann & Sagemann, 2011). This was evident by the acute reduction of financial performance that institutions posted during the period and the preceding years.
Firstly, the crisis caused a huge decline in the consumer purchasing power that made most institutions to lose trillions of money during the period as compared to previous performances. It also affected institutional and national reserve accounts since the crisis weakened the strength of dollar which is the global reserve unit. Key institutions that were affected by the crisis include banks, stock markets, restaurants and credit markets (Lin, 2013).
The institutions recorded dismal performance that has forced them to restructure their operations. This has resulted to huge job loses since the institutions have resorted to reduce their wage bill to enable them cope with the effects of the crisis. This prompted the need for authorities to offer bailouts and other financial incentives to mitigate the effects of the crisis that include unemployment and production of substandard services (Sirkeci, Cohen & Ratha, 2011).
As reported by Chicago-based foodservice consultants (CBFSC), the crisis greatly affected operations in the restaurant and hotel industry especially during the years under consideration. The companies that operate in the sector were the first to experience the effects of the crisis and some had to close down. This was because customer visits to restaurant service providers dropped by over 74%.
The drop was attributable to low income levels and high cost of operations that led to the increase of commodity prices. Similarly, decline in performance levels in the industry was witnessed due to the evident huge losses in the value of stock portfolios, consumers’ home equity and credit card debt (Lin, 2013). In particular, Giang Nan restaurant recorded a drastic drop of 54% in its performance during the period. The 54% drop was in 2008 when its customer visits declined to 72%. In 2009, its performance further deepened as evident in its financial reports and liquidity ratios. The restaurant recorded further reduction of 9% in performance during the period.
Research Methodology
Methodology
The study adopted purposive research technique that enabled the researcher to achieve the objectives of the research with minimal complications. The research technique provided the researcher with relevant incentives that are necessary in conducting studies that are purposive in nature (Kothari, 2005). In particular, it enabled the researcher to choose a relevant sample based on his judgment about the sample’s appropriateness in driving the study. Due to this, the researcher chose Giang Nan restaurant that is located in California as the sample that was used in the study. The institution was adopted since obtaining key resources that includes financial statements that was used in the study was guaranteed.
Remarkably, the institution’s management provided the researcher with financial documents for a period of five years under which comparisons were based. The years whose financial statements were disclosed include 2007, 2008 and 2009 when the company experienced the worst effects of economic crisis that hit the world at the time. Results that were shown in the statements were used as evaluation benchmarks. They were used to evaluate the company’s performance for the entire period. That is they helped in executing comparison of best practices that the company has adopted and financial performance levels with other partners (Alexander & Britton, 2004).
Benchmarking technique under which the study was based and how data was collected
Indeed, the study was based squarely on the process benchmarking technique. The technique enabled the researcher to obtain relevant information through interviewing of the company officials, vouching of financial documents and observation. Conversely, the process enabled the researcher to receive credible answers on the question that sought to establish the average best practices in the dinning service center of the company (Kothari, 2005). Other questions that were answered adequately sought to establish where best practitioners are found in the industry, what Giang Company needs to do to enable it match its practices with the ones of the benchmarking partners.
To steer the achievement of best results, the researcher sought the services of one of the largest financial benchmarking data corporation to aid information gathering. The corporation that is known as Microbilt provides credible private and public company performance benchmarking incentives. It also provides financial benchmarking data and support elements. The company was selected since it offers reliable information that appertains to performance of specific institutions. Similarly, it offers reliable financial, accounting, marketing and consulting data of various institutions. Evidently, the company in support with Giang Nan restaurant management enabled the researcher to obtain reliable financial data of the company under study for a period of five years and focus was based on the period starting from 2007 to 2011.
Data collection techniques and schedule of the research
This study adopted effective secondary data collection techniques that were deemed appropriate by the researcher. The techniques aided in-depth acquisition of pertinent information that was instrumental in enabling the realization of credible results. Key data gathering techniques that were used include interviewing, observation and evaluation of financial reports. The techniques facilitated procedural acquisition of information and essential financial statements that comprises balance sheet, income statements and financial ratios by the researcher. This propelled the process of evaluating the institutions performance over the selected period and how the financial crisis affected its profitability.
The study was executed within a period of 28 days in which all the activities that include designing of research objectives, research methodology, data collection and data analysis approaches were undertaken. Imperatively, all the processes were executed within the set timelines that was objectively proposed as shown below.
Data analysis and results
Evidently, the ratios facilitated the realization of performance gaps that the restaurant was facing. The results highlights how benchmarking was executed within the five year period. Firstly, 2007 financial results and ratios were used as performance benchmark with which performance levels of the year 2008 was pegged. This enabled the company to identify key performance issues that promoted the development of viable solutions to the emerging problems with an aim to aid performance. Secondly, data for the year 2008 was used as a benchmark parameter for setting performance level for the year 2009. The results during this period showed an acute decline in profitability since this was the period that major financial crisis was witnessed globally.
The crisis severely affected performance in the restaurant industry since sales reduced due to low consumption propensity. For instance, consumption of food and drinks declined drastically as shown in the data. Eating habits of individuals also changed and the cost of producing food items also shot up due to low monetary value (Codling, 1998). Based on the performance levels, 2009 is the year when the company recorded a sharp decline in its profit levels. It is the year when the company faced the severe effects of the financial crisis that threatened to stall operations in various settings. Giang’s service units that were affected most include dining service sector, food and drink departments. This was evident by the low values of financial ratios that were recorded during the years.
Conclusion
Indeed, institutions that seek to improve their performance capacities, should adopt financial benchmarking. This is because the ratios provide reliable and credible benchmarks that aid comparative analysis. The ratios are appropriate since they also act as effective qualitative analysis tools that can be adopted in any sector and by any type of a business entity. The ratios should be used since they allow companies to compare their performance levels with other companies. They also enable managers to identify the prevailing operating gaps that may impede performance in their institutions and develop appropriate solutions real time.
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