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(Solved) 407-082-1 Ritz-Carlton's Human Resource Management Practices and Work Culture: The Foundation of an Exceptional Service Organization This case was...


Based on the case study attached, please find the following question :


Question no. 1) How hard elements like recruitment and training and soft elements of empowerment and rituals contribute to shaping Ritz-Carlton's culture.


Question no. 2) Analyse how Ritz-Carlton's morale boosting effort and empowerment can also have downsides and affect its organizational culture negatively.

407-082-1 Ritz-Carlton’s Human Resource Management Practices and
Work Culture: The Foundation of an Exceptional Service
Organization
This case was written by Regani S, under the direction of George S, ICMR Center for
Management Research (ICMR). It was compiled from published sources, and is intended to be
used as a basis for class discussion rather than to illustrate either effective or ineffective
handling of a management situation.
2007, ICMR Center for Management Research
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e [email protected] Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA).
Taught by Michael Wooi, from 18-Feb-2017 to 25-Mar-2017. Order ref F290427.
Usage permitted only within these parameters otherwise contact [email protected] Educational material supplied by The Case Centre
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Order reference F290427 ICMR Center for Management Research 407-082-1 “We believe that to create pride and joy in the workplace, you must involve the employees. And
you create that pride and joy by making employees feel like they are a part of the Ritz-Carlton.
We’re here to provide service, but we’re not servants. We’re professionals in our field. Everything
happens because the employees are so committed.”
- Theo Gilbert-Jamison, Vice President of Leadership Development at the Ritz-Carlton,
in 20011 Educational material supplied by The Case Centre
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Order reference F290427 “It’s [Ritz Carlton’s culture] definitely a little cult-like. But that stuff stays behind the scenes.
Travelers just know they’re getting great service.”
- Laura Begley, Style Director at Travel + Leisure magazine, in 20042 RITZ-CARLTON TOPS IN TRAINING
The Ritz-Carlton Hotel Company LLC (Ritz-Carlton), the US-based parent company of the luxury
hotel chain of the same name, was ranked 1st in the „Training Top 125 Winners‟ list published by
Training magazine in February 2007. The company had received recognition for the
comprehensive training program that all its employees were made to undergo in its quest to
achieve service excellence.
Ritz-Carlton, a subsidiary of Marriott International Inc. (Marriot), one of the largest hotel groups
in the world, was known for the sophisticated and elegant ambience of its hotels and the exemplary
quality of the service provided (Refer to Exhibit I for a profile of the Marriott Group). The
company cultivated its reputation carefully, referring to its employees as „ladies and gentlemen,‟
and training them to provide high quality service conforming to the precise specifications and
standards laid out in the Ritz-Carlton Gold Standards.
The company invested sizeable resources in developing the potential of its employees (as of early
2007, the company invested ten percent of its total payroll expenses in employee training 3). In
addition, Ritz-Carlton had built a reputation as one of the best employers in the US. 4 The company
had a low rate of voluntary attrition, which, at 18 percent, was significantly lower than the rest of
the hospitality industry, where it approached 100 percent.5 1 2
3
4 5 “The Ritz-Carlton Company: How It Became a „Legend‟ in Service,” Corporate University Review,
January/February 2001.
Duff McDonald, “Roll Out the Blue Carpet,” Business 2.0, May 2004.
“Ritz-Carlton: Redefining Elegance,” Training, March 01, 2007.
Ritz-Carlton‟s parent Marriott was ranked as one of the „100 Best Companies to Work for in the US‟ by
Fortune magazine in 2007.
“Ritz-Carlton: Redefining Elegance,” Training, March 01, 2007.
2 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA).
Taught by Michael Wooi, from 18-Feb-2017 to 25-Mar-2017. Order ref F290427.
Usage permitted only within these parameters otherwise contact [email protected] Ritz-Carlton‟s Human Resource Management Practices
and Work Culture: The Foundation of an Exceptional
Service Organization 407-082-1 Ritz-Carlton was often cited as an example of a service company that had successfully leveraged
the potential of its human resources to achieve excellence. Although many of Ritz Carlton‟s
competitors, like the Four Seasons Hotels6 and the Mandarin Oriental,7 also provided great service,
analysts generally agreed that there were few hotels that could match the Ritz Carlton‟s level of
service. This is borne out by the fact that, as of 2007, Ritz-Carlton was the only hotel company to
have ever won the prestigious Malcolm Baldrige National Quality Award, 8 as well as the only
service company to have won it twice (in 1992 and 1999).9 Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I
Order reference F290427 Ritz-Carlton traces its history back to 1898, when Cesar Ritz, a Swiss hotelier, opened the first
Ritz hotel in Paris. During the course of his career, Cesar Ritz had worked in different positions at
several well-known hotels, and had definite ideas about what made a good hotel. In line with his
ideas, he designed the Ritz hotel in Paris to be one of the most elegant hotels of the time. The
hotel‟s design, furnishings and meticulous service made it a great favorite with the wealthy and
aristocratic members of society at that time.
In the early 1900s, Cesar Ritz opened the Carlton Hotel in London, in addition to other hotels
under the Ritz name across Europe. He also set up the Ritz-Carlton Management Corporation
(RCMC) to franchise the Ritz-Carlton name and logo to interested parties who wished to establish
hotels of their own. The franchisees were required to adhere strictly to the service and culinary
standards set by the RCMC. Under the direction of the RCMC, a Ritz-Carlton hotel was
established in New York in 1910. This was followed by several other hotels across the US and
Europe.
After Cesar Ritz died in 1918, his wife continued to franchise the Ritz-Carlton name and several
new hotels were set up. In the two decades between the late 1920s and the late 1940s, the luxury
hotel business suffered a downturn, affected first by the Great Depression10 and then by the Second
World War (1939-1945). By the time the war ended, most of the Ritz-Carlton hotels in the US had
become bankrupt and had closed down. The Boston Ritz-Carlton, set up in 1927, was the only
hotel of the name in the US that had managed to survive this period.
6 7 8 9
10 Four Seasons Hotels, founded in 1960, is a Canadian-based international five-star luxury hotel chain
serving the higher end of the hospitality market. As of mid-2007, the chain operated more than 70 hotels
in 31 countries.
The Mandarin Oriental Hotel Group is a part of Jardine Matheson Holdings Limited, an MNC
headquartered in Bermuda. The hotels are managed by the parent company, Mandarin Oriental
International Limited. As of mid-2007, Mandarin Oriental operated more than 35 hotels around the
world.
The Malcolm Baldrige Award is given by the President of the United States to businesses (manufacturing
and service) and to education, healthcare and nonprofit organizations that apply and are judged to be
outstanding in seven areas: leadership; strategic planning; customer and market focus; measurement,
analysis, and knowledge management; human resource focus; process management; and results. The
award is named after Malcolm Baldrige who was the Secretary of Commerce in the US from 1981 to
1987. Baldrige was a great proponent of the quality movement in the US. The US Congress created the
award in his name after his death in 1987. The Baldrige Award is often compared to the Deming Prize in
Japan.
Matt Damsker, “Fit for the Ritz,” www.talentplus.com, March 2004.
The Great Depression was the result of the economic downturn that started with the stock market crash
on October 29, 1929, known as Black Tuesday. It began in the United States and quickly spread to
Europe and other parts of the world, with devastating effects in industrialized countries as well as the less
developed nations which exported raw materials. International trade declined sharply, as did personal
incomes, tax revenues, prices and profits (www.wikipedia.org).
3 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA).
Taught by Michael Wooi, from 18-Feb-2017 to 25-Mar-2017. Order ref F290427.
Usage permitted only within these parameters otherwise contact [email protected] BACKGROUND 407-082-1 In the post-war period, the management of the RCMC passed on to Charles Ritz, Cesar Ritz‟s son,
who franchised the name to several new investors in Europe. (The European luxury hotel business
had recovered relatively quickly after the war, mainly because of an increase in the number of
business travelers on corporate expense accounts.) Eventually, in 1983, Johnson Properties (Johnson), a company owned by William B. Johnson (a real
estate businessman from Atlanta), purchased the Boston Ritz-Carlton and the US trademark for the
Ritz-Carlton name for $75.5 million. Johnson then incorporated its hotel business as the Ritz-Carlton
Hotel Company LLC, with headquarters in Atlanta. Johnson bought the global rights to the RitzCarlton name (except for the Hotel-Ritz Paris and the Ritz-Carlton in Montreal) in 1988. Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I
Order reference F290427 Johnson invested significant amounts in turning around the Boston Ritz-Carlton and in reviving
the hotel‟s reputation for service. In addition, the company built several new hotels under the RitzCarlton name in the US as well as in other parts of the world. Some of the new hotels were built in
partnership with other investors, while others were fully owned by Johnson. In the late 1980s,
Horst Schulze (Schulze), a highly experienced hospitality industry executive who had worked in
several renowned hotels, was appointed as the Vice President of Operations of Ritz-Carlton.
Under Schulze, Ritz-Carlton renewed its emphasis on providing an extraordinary level of service.
A conscious effort was made to ensure that the hotels projected an image of refined elegance. (By
this time, there were around 30 Ritz-Carlton hotels around the world.) In 1992, Ritz-Carlton
received the Malcolm Baldrige National Quality Award for the first time.
Despite its successes, Ritz-Carlton was heavily in debt by the mid 1990s. Analysts said that the
chain had expanded too rapidly, sometimes setting up hotels in cities that were too small to support
its luxury hotels. In addition, the emphasis on high quality service also resulted in higher costs.
In 1995, Marriott bought a 49 percent stake in Ritz-Carlton for a reported $200 million in cash and
assumed debt. The stake was increased to 99 percent in 1998. Marriott maintained an independent
brand identity for the Ritz-Carlton chain. In 1999, Ritz-Carlton received the Malcolm Baldrige
Award for the second time (companies that had won the award had to wait five years before they
could apply again for it). At this time, there were 35 Ritz-Carlton hotels around the world.
In the early 2000s, Ritz-Carlton embarked on a diversification program. The company set up
luxury residential condominiums, called the „Residences at the Ritz-Carlton,‟ at several locations.
Ritz-Carlton also started increasing its focus on the Ritz-Carlton Club, a timeshare business that it
had launched in 1999. In addition to this, Ritz-Carlton also opened spas and golf courses at some
of its properties, especially at its resort hotels.
Schulze retired in 2001 and was succeeded by Simon Cooper (Cooper) as the President and COO
of the company. In 2003, Ritz-Carlton shifted its headquarters from Atlanta to Chevy Chase in the
state of Maryland. This shift was made with the aim of improving operational efficiencies by
moving closer to Marriott‟s headquarters in Maryland.
As of 2007, Ritz-Carlton operated 63 hotels in 21 countries around the world (Bahrain, Canada,
Chile, China, Egypt, Germany, Grand Cayman, Indonesia, Italy, Jamaica, Japan, Korea, Malaysia,
Mexico, Portugal, Qatar, Singapore, Spain, Turkey, the United Arab Emirates and the United
States).11 The company employed around 35,000 people (Refer to Exhibit II for Ritz Carlton‟s
Key Numbers).
11 http://corporate.ritzcarlton.com
4 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA).
Taught by Michael Wooi, from 18-Feb-2017 to 25-Mar-2017. Order ref F290427.
Usage permitted only within these parameters otherwise contact [email protected] However, the American side of the business, which consisted of just one hotel in Boston,
continued to do poorly. Because of its lackluster financial performance and the difficulties
involved in operating a luxury hotel, the Boston Ritz-Carlton changed hands several times during
the second half of the 20th century. 407-082-1 THE QUEST FOR QUALITY IMPROVEMENT However, despite the success of the hotel chain, Schulze was of the opinion that Ritz-Carlton was
far from excellent in ensuring complete customer satisfaction. Not only was the service quite
erratic, but even the employees did not seem to be clear about what was expected of them.
Additionally, there was a distinct lack of uniformity and standardization in service between hotels
in the chain due to the fact that each location had its own sub-culture and norms. All this,
according to Schulze, made the Ritz-Carlton “the best of a poor lot, but clearly not good”12 in
terms of customer service and quality. Educational material supplied by The Case Centre
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Order reference F290427 In an effort to achieve standardization of service and improve the guest experience at the hotels,
Ritz-Carlton started implementing certain changes under Schulze‟s direction. This involved
developing strict standards for the service provided to the guests and establishing the behavior
expected from employees towards guests and among themselves.
To ensure that uniformity was maintained across the hotel chain, Ritz-Carlton formalized these
practices in the form of its Gold Standards, which laid out the company‟s “credo,” “motto,” “The
three steps of service,” “The employee promise” and “The 20 Basics” (Refer to Exhibit III for
Ritz-Carlton‟s Gold Standards). Ritz-Carlton also developed new human resource management
practices for recruiting the right kind of people, providing them with the necessary training and
orientation to perform their jobs well, and empowering them to go out of their way to ensure guest
satisfaction.
Ritz-Carlton also studied organizations like Xerox Corp.,13 Motorola Inc.,14 and Milliken & Co.,15
which were known for their quality management practices, in order to learn more about improving
quality. While this gave the company some insights, there were still many gaps in its
understanding of quality management, as the companies studied were manufacturing
organizations, unlike the Ritz-Carlton, which was a service company.
Schulze hired Brian Kaznova (Kaznova), a consultant who had helped IBM‟s Rochester office win
the Baldrige Award (Refer to Exhibit IV for the seven criteria of the Baldrige Award and to
Exhibit V for a list of companies that had won the Award until 2006), to guide Ritz-Carlton in
its quest for quality improvement. Kaznova was teamed with Pat Mene, Ritz-Carlton‟s Vice
President of Quality and Purchasing, with the mandate to steer Ritz-Carlton towards service
excellence.
Ritz Carlton applied for the Baldrige Award for the first time in 1991. It did not win the award that
year, but it made it to the list of finalists. According to the feedback provided by the awards
committee, although Ritz-Carlton had all the right processes in place, it fell short on the
measurement, analysis and knowledge management dimension.
12
13 14
15 Horst Schulze, “What makes the Ritz the Ritz?” Across the Board, May 1994.
Xerox Corp. is a global document management company that manufactures and sells a range of printers,
multifunction systems, photocopiers, digital production printing presses, and related consulting services
and supplies. The company is headquartered in Connecticut, USA.
Motorola Inc. is a major communications company based in Illinois, USA.
Milliken & Co. is a large privately held textile manufacturer based in the state of South Carolina in the
US. The company is known for its focus on R&D.
5 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA).
Taught by Michael Wooi, from 18-Feb-2017 to 25-Mar-2017. Order ref F290427.
Usage permitted only within these parameters otherwise contact [email protected] Although Ritz-Carlton had been known for high quality service since its early days, a systematic
approach towards quality management began only in the late 1980s, after Schulze became Vice
President of Operations. By this time, Johnson‟s investments in Ritz-Carlton had made it one of
the best hotel chains in the US and the company had started receiving honors from consumer
organizations and travel industry groups for its service and quality. 407-082-1 With the metrics in place, Ritz-Carlton won the Baldrige Award in 1992, becoming the first hotel
company to have ever done so. By the time it received the award, Ritz-Carlton‟s operations had
also seen significant improvement. Employee turnover, which was around 90 percent in the 1980s,
fell to around 30 percent. Customer satisfaction scores also rose from 91 percent to around 97
percent.16
After winning the award in 1992, Ritz-Carlton immediately started to work on the 75 possible
areas of improvement suggested by the judges on the award committee. In 1999, the company won
the Baldrige Award for the second time. This time, the „opportunities for improvement‟ cited in
the feedback provided by the awards committee had come down to 22. Educational material supplied by The Case Centre
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Order reference F290427 QUALITY AND SERVICE AT THE RITZ-CARLTON
Quality management was undertaken by the senior management at the Ritz-Carlton. The President
and other members of the top management formed the senior quality management team. This team
usually met every week to review product and service quality and guest satisfaction across the
chain, as well as to analyze factors like market growth and development, profitability, and
competitive status. This team played a dual role, and in its role as the corporate steering
committee, it was responsible for developing the overall strategic plan for the company every year,
as well as establishing and monitoring performance targets.
Each hotel had a quality leader who was responsible for directing the quality improvement efforts
at the location. The quality leader provided direction and guidance to the different work teams in
devising and implementing their quality plans. All the 720 work areas within the hotel system were
monitored daily, and the performance metrics were recorded in daily reports. These reports were
prepared to provide early warning of quality and service problems. Each hotel also measured and
recorded parameters like guest-room preventive-maintenance cycles per year, percentage of checkins without queuing, time spent cleaning a room and servicing an occupied guest room, etc.
Ritz-Carlton‟s quality management practices formed the foundation of the company‟s exceptional
service culture. The company‟s aim was not just to satisfy guests, but to exceed their expectations
in terms of the service provided. Ritz-Carlton also sought to provide a uniformly high level of
service at all its properties, so that guests always knew what to expect from the hotel, no matter
which Ritz-Carlton they stayed in. In order to ensure that the hotel continued to provide
exceptional service, Ritz-Carlton meticulously tracked customer data. The company called this
„customer customization,‟ and the objective of this exercise was to ensure that each customer
experienced exceptional service.
All the employees of Ritz-Carlton, no matter which part of the hotel they worked in, were expected
to note down the preferences specified by guests. For example, they could make a note of a guest‟s
allergies, preferred placement of guest room furniture, special favorites in food or beverages,
preferred newspapers etc. These preferences were then entered into a company wide database
called Customer Loyalty Anticipation Satisfaction System (CLASS), which was accessible to all
the hotels in the chain.
16 Horst Schulze, “What makes the Ritz the Ritz?” Across the Board, May 1994.
6 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA).
Taught by Michael Wooi, from 18-Feb-2017 to 25-Mar-2017. Order ref F290427.
Usage permitted only within these parameters otherwise contact [email protected] With the help of the feedback provided by the Baldrige judging committee, Ritz-Carlton set about
identifying the different individual work areas (specific activities like checking a guest in, making
a bed, etc.) across its operations, and focused on developing metrics to measure performance in all
these activities. The company started measuring everything: the average time it took for a guest to
check in; the time taken by the housekeeping staff to clean rooms; the amount of time spent
training employees, etc. 407-082-1 Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I
Order reference F290427 Ritz-Carlton took the concept a step further in 2005, when it launched a new system for tracking
customer data, called „Mystique.‟ Mystique had an advantage over CLASS in that it allowed the
company to track not just the expressed preferences of customers (information collected from
survey cards and special requests), but also employees‟ informal observations of guests. For
instance, if a bartender at a certain hotel observed that a guest ordered the same drink every time,
this preference would be entered in a Guest Preference Form and fed into the database. When that
guest went to stay at another Ritz-Carlton, the staff at the other hotel could surprise him/her by
providing the same drink as a compliment. Since it was tricky to note and act on unexpressed
preferences, the company instructed its employees to exercise discretion when providing data for
Mystique.
Ritz-Carlton also tried to track guest experience at its hotels through Mystique. If the airconditioning broke down in a certain guest‟s room during his/her stay at a hotel, this would be
noted on a Guest Incident Form and entered into the Mystique database. When the guest checked
in the next time, in either the same hotel or a different one, the staff would ensure that the airconditioning would work well this time round. HR PRACTICES AND WORK CULTURE
Ritz-Carlton regarded employees as the cornerstone of its exceptional service culture. The
company understood that, as a service organization, the quality of its end product was only as good
as the people providing it. Therefore it took care to see that it not only recruited the right kind of
employees, but also provided them with the necessary inputs to enable them to provide exceptional
service.
BENCHMARKING IN RECRUITMENT
According to Ritz-Carlton, the company did not „hire‟ its employees; it „selected‟ them. The
selection process was laid out very clearly, and Ritz-Carlton used what could be called
„benchmarking‟ in selecting ideal employees. The company studied top performers at different
positions in its hotel chain and in other comparable organizations to prepare the ideal profile for
each position. Based on the profile, the job description and detailed qualification requirements
were prepared. This not only ensured that the company got the people with the best qualifications,
but was also able to match personality traits with jobs to obtain the best fit. This was thought to be
one of the reasons for Ritz-Carlton‟s low attrition rate.
The selection process at Ritz-Carlton was rigorous, and usually consisted of several stages.
Typically, there were five to ten applicants for every post, and the company did a lot of initial
screening through telephonic interviews

 


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