In: Operations Management
Case Study:
James McBride, general manager of the new Ritz-Carlton in
Washington, D.C., faced the largest
challenge of his successful career. A proven veteran of the luxury
hotel chain’s march across Asia, cBride’s most recent assignment
was as the general manager of the 248-room Ritz-Carlton in Kuala
Lumpur. For the first time, The Ritz-Carlton was opening a hotel
that was part of a multi-use facility. Owned by Millennium Partners
and located in the historic Foggy Bottom district of Washington,
D.C., the $225 million “hospitality complex” covered
two-anda-
half acres and included 162 luxury condominiums, a 100,000
square-foot Sports Club/LA, a Splash Spa, three restaurants, 40,000
square feet of street-level restaurants and retail shops featuring
the latest designs from Italy and other countries, as well as the
300-room hotel. While The Ritz-Carlton had already signed contracts
to manage five other hotels for Millennium Partners, the upscale
property developers had also inked deals with the Ritz’s foremost
competitor—the Four Seasons.
Brian Collins, manager of hotels for Millennium Partners, had his
own ideas about what constituted luxury service and how the hotel’s
general manager should approach the new-hotel opening. Under
pressure from Collins, McBride was reexamining the “Seven Day
Countdown,” a hallmark of The Ritz-Carlton’s well-defined
hotel-opening process. Any changes McBride made could not only
affect his company’s future relationship with Millennium Partners
but also the carefully guarded Ritz- Carlton brand.
Filling hotel rooms was crucial, and The Ritz-Carlton’s general
managers aggressively pursued their
two main customer groups: (1) independent travelers, and (2)
meeting event planners.
Because they attracted many individual guests at once, meeting
event planners were seen as “the
vital few” customers, representing a small number of organizations
that held many large meetings in various locations around the
world. These “vital few” accounted for 40% of annual sales
income.
"Our event business pays the mortgage. The individual traveler
helps us with our
profitability. The nature of our business is that a guest room and
space is the most perishable
product we have. An apple left unsold today can be sold tomorrow,
but a room night lost
today is lost forever."
One of the components of the SQIs involved guest-recognition
procedures. As an owner, Collins
wanted to see that improved for the new Washington, D.C.
hotel:
I pushed James [McBride] to hire more people than The Ritz-Carlton
staffing plan would
lead them to hire in Guest Recognition. I think it’s the single
most important thing we can do.
If a guest came in, got what they wanted, and were recognized, all
of a sudden that creates a
sticky relationship. It’s all about organizing your thoughts and
creating processes to recognize
the person coming in to the hotel.
So after a certain number of visits to one of our Ritz hotels,
guests will get a monogrammed
pillowcase. It will be in their room so that when they check in,
they’ll go to their room and say,
“Oh, my pillow’s here. Isn’t that great!” And no one expects it, so
the first time, it’s like
“Wow!” We’re doing something different from The Ritz-Carlton
standard—we’re clearly
exceeding the standard. But they don’t force every owner to abide
by that higher standard, so sometimes there is friction about
raising the standard outside of the Ritz program. I want to rethink
it, rethink it all from start to finish. And it just drives them
crazy.
Human Resources at The Ritz-Carlton
The way The Ritz-Carlton viewed its employees was a distinguishing
hallmark of the
organization. According to Leonardo Inghilleri, the corporate vice
president of human resources:
We respect our employees. The issue of respect is a philosophical
issue that is driven by
our leadership. You have to have a passion for people. If you have
an accounting approach to
human resources, then you’re bound to fail. If you look at an
employee and say, “He’s a fulltime
equivalent, he’s an FTE; he is eight hours of labor,” I think
that’s immoral. An employee
is a human being who doesn’t only fulfill a function but should
also have a purpose. So a
successful business is one that is capable of enlisting an employee
not only for his muscles and
his labor, but also for his brain, his heart, and his soul.
In hotels that were up and running for at least a year, The
Ritz-Carlton’s annual turnover rate was
only 20%, compared with the hotel industry average of 100%, while
new hotels experienced turnover rates between 20% and 25% during
the first 60 days. Inghilleri believed that it was his company’s
deep respect for its employees that led to their satisfaction with
and commitment to the organization.
The Ritz-Carlton was so intent on treating their employees well
that a “Day 21” event was held as a process check three weeks after
any new hire’s start date. During that session, the company
assessed the degree to which it had lived up to the promises it
made to its employees during orientation and initial
training.
One of those promises included opportunities for career
advancement, which were abundant at
The Ritz-Carlton. Corporatewide, 25% of the organization’s
managerial workforce began their
careers at The Ritz-Carlton as hourly employees, such as
dishwasher, housekeeper, and restaurant server, or as hourly
supervisors.
Through the extensive formal and informal training offered by
The Ritz-Carlton,
employees were prepared to fulfill their current obligations and to
accept positions of greater
responsibility and accountability in the future. Employees with
advancement ambitions were
encouraged to cross-train and learn about as many different aspects
of the organization as possible.
Our employees are taught from the very beginning that there is
nothing more exciting than fixing a mistake or defect. They want to
see the defects, they want to find out what they are, because once
that’s known, they can be corrected. We’ve never had a problem with
people hiding mistakes, because it’s just not the culture of the
company.
Staffing the New Hotel
The property owners had the right to approve the individuals
nominated by The Ritz-Carlton for
three executive positions: general manager, director of marketing,
and controller. Once McBride was selected as the general manager,
he was instrumental in choosing the additional members of the
hotel’s executive committee, almost all of whom had experience at
other Ritz-Carlton properties. These leaders were in place about
two and a half months prior to the scheduled hotel opening. The
executive committee then selected their functional managers, who
were, in turn, primarily responsible for hiring line-staff members.
For positions that required technical expertise or high-level
service delivery, individuals with significant prior experience
were hired. For more entry–level positions, novices to the
hospitality industry were acceptable.
The Seven Day Countdown was a result of the evolution and
refinement of the hotel-opening
process, which became more solidified in the late 1980s to early
1990s when the hotel chain was
opening many new properties. The first two days were devoted
entirely to orienting employees to The Ritz-Carlton culture and
values, while the remaining five days involved more specific skills
training and trial runs of service delivery. According to Collins,
ensuring that everything was perfect on opening day would be a
challenge:
There’s all this construction activity going on around here,
finishing floors, testing the firealarm
system. And they have 400 people they have to convert to
Ritz-Carlton employees in the
next seven days. They have to be trained and dipped into the
culture of The Ritz-Carlton so
that on day one when Ms. Jones checks in, she’s getting a true Ritz
experience. Seven days.
I’ve told James I just don’t know if that’s enough time.
Day One: Staff Orientation
On the first day of the countdown, new employees joined other
members of their divisions
outside the hotel for what can only be described as a pep rally. As
they slowly wound their way downstairs toward the ballrooms where
their first training sessions would occur, the employees heard the
sound of enthusiastic applause. It was coming from the hotel’s
managers, who lined both sides of the curved marble staircase. Many
times over, each employee was sincerely welcomed as a new member of
The Ritz-Carlton family.
Once everyone was present, McBride introduced the hotel’s
leadership team, followed by The Ritz-Carlton trainers, who had
come from 23 different countries around the world for the
countdown. Addressing all the employees of the new hotel, Schulze
explained his philosophy of being a high-quality service
organization:
You are not servants. We are not servants. Our profession is
service. We are Ladies and
Gentlemen, just as the guests are, who we respect as Ladies and
Gentlemen. We are Ladies
and Gentlemen and should be respected as such.
Day Two: Departmental Vision Sessions
On the second day of the Seven Day Countdown, employees in each
functional area met for an
introduction to their new departments. Group exercises were used to
help the employees learn more about one another, their likes and
dislikes, and how they could function together as an effective
unit.
For the next five days, the hotel’s leadership team, trainers, and
managers met each morning at
6:00 a.m. to review the day’s training activities and to resolve
any difficulties that had arisen.
The last three days of the Seven Day Countdown was when
departmental technical training
occurred. Employees learned the details involved in performing
their jobs to the standards set by
The Ritz-Carlton, and everyone was expected to master their
department’s key production processes. Employees arrived in two
shifts, dressed in their full uniforms, and every employee
practiced his or her job as if they were serving real
customers.
Recognizing that their standards of service were extremely high
and that their goal of opening as
a top-notch hotel right from the start was a tall order, The
Ritz-Carlton tried to protect their
employees from feeling overwhelmed by controlling the occupancy
rate. Inghilleri explained:
The first month of operations, we may open the hotel with 50%
occupancy. Then we’ll
increase occupancy monthly, so it takes us somewhere between three
and four months to reach
80%. But we hire, in the very beginning, as if we’re already
operating at 80% occupancy.
This allows us to reduce the number of tables a waiter has to
serve, or the number of rooms
a housekeeper has to clean. It is more important that we set the
standards immediately. They
have to do their jobs perfectly, even if it takes them longer;
productivity will increase as they
get more and more comfortable. Flawless execution is the goal, and
then speed will come.
On the day between the end of the Seven Day Countdown and the grand
opening, employees showed up in casual attire for The Ritz-Carlton
two-hour pep rally, marking the transition between practice runs
and real service delivery. The next day, on October 11, 2000, the
Washington, D.C., Ritz-Carlton Hotel opened for business.
Dilemma
McBride sat in his new office in Washington, reflecting on the
concerns that Collins had
expressed, with his usual blunt style and candor, about the Seven
Day Countdown. Collins
questioned whether the seven-day time frame limited the hotel’s
ability to open at a higher
occupancy rate and to reach 80% occupancy in a shorter amount of
time.
It was difficult to train new hires to meet the high expectations
of The Ritz-Carlton service
standards in only seven days, but that was how The Ritz-Carlton
worked. Maybe the training should be longer, but what would that
mean for The Ritz-Carlton? McBride would be responsible for opening
the second Millennium Partners-owned Ritz-Carlton hotel, in
Georgetown, at the end of 2001. Should he try changing the Seven
Day Countdown process, which was a worldwide best practice for the
company?
Questions:
In what may be a first for the hospitability industry, Brian Collins, hotel owner, has asked James McBride, Ritz-Carlton general manager, to lengthen the amount of time spent training hotel employees before hotel opening. For this assignment, you are taking the role of James McBride.
1) What is the context of the decision? What is dilemma faced by the Ritz-Carlton?
2) Analysis of the situation:
1. The context of the decision and the dilemma faced by Ritz-Carlton the customers’ strong preference is to treat them as individuals and not as a group. The secret of Ritz-Carlton is providing great customer experience which builds up the global capabilities eventually. These skills are necessary to satisfy the customer needs which is about 60% of the revenue for Ritz-Carlton. This is the context of the decision – investing in employees is pertinent for Ritz-Carlton success before its opening.
2. The monetary consequences of opening directly at 80% occupancy as requested by rather than ramping up from 50% to 80% over a four-month period of time is that there would be just minimal or optimum occupancy for 80% because Ritz-Carlton was just opened. There is no guarantee that there would be 80% occupancy rate directly after opening. This is not a wise decision. It is always better to ramp up from 50% to 80% over a four-month period of time because it is the time we establish the brand and the quality of the hotel which would definitely increase the occupancy rate to 80% by the end of the fourth month.
The key non-monetary factors/considerations that are going to drive your decision are:
- The morale of the new employees (there might be frustrated new employees as there is a high burden on them) is an important factor as they are the backbone of Ritz-Carlton.
- Leadership teams’ guidance of the employees such as training should be efficient and guide employees to do perform their tasks as expected.
- Return on Investment (ROI) on the training such as providing greater customer experience which eventually results in customer loyalty.
- The satisfaction of the employees- employees need to be recognized for their performance for employee engagement.
- Working atmosphere for the employees as there might be great stress to achieve the target of 80% occupancy rate as soon as possible.
Note- If you like the answer, please provide an up-vote as it would be quite encouraging for me. Thank you.