A survey of factors influencing cost structures in the Indian hotel sector

Abstract

PurposeThe purpose of this paper is to provide some empirical evidence of the current trends regarding cost structures in the hospitality industry and to help reveal the present practices on cost structures and management adopted by the Indian hospitality sector.Design/methodology/approachThe methodology employed was mainly survey based with the use of structured questions. Online surveys and interviews were carried out during 2012 with management accountants, chief accountants and finance directors of hotel companies.FindingsThe results of the study suggest that hotels are increasingly challenged to find ways to reduce costs without sacrificing quality. Most of the respondents believe that good management and cost accounting practices are associated with the financial success of hotels.Practical implicationsA study on cost structures will help to identify and focus on the innovative practices that the sector needs to adopt in order to manage costs in the coming years. The findings from this study suggest companies need to modernize their cost accounting systems by implementing activity based costing. Most of the managers surveyed were of the opinion that the traditional costing system does not accurately reflect customer profitability analysis.Originality/valueThe inspiration for this paper arises from the fact that there is little empirical work on cost structures and design in the hospitality industry. Intense competition is now affecting the industry and efforts need to be made to create a sustainable model for hotels that can be adapted to an evolving market scenario.