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Puttin' on a new Ritz

In November 1999, the Ritz-Carlton Hotel Co. LLC won its second Malcolm Baldrige National Quality Award. The Atlanta-based company joins only one other American company to have earned this distinction more than once and remains the only company in the hotel industry to have received the honor.

While awards come to top companies in every industry, the Baldrige award holds special significance for Horst Schulze, president and CEO of Ritz-Carlton. The award represents the company's climb from one of the best service companies in an industry not that good at service to one of the best service companies in any industry.

Working his way up In 1983, William B. Johnson, a hospitality industry entrepreneur, purchased the Ritz-Carlton, Boston, and the rights to the Ritz-Carlton name. Johnson aspired to revitalize the Ritz-Carlton name and restore its reputation for unparalleled service. He then lured Schulze to his enterprise in 1983, promising that Schulze would be allowed to do his very best.

"The reason I came to Ritz-Carlton was the charge to do my best," says Schulze. "By 1986, we had five hotels that had been voted the best hotel in the country by various meeting-planner and travel groups. I'll never forget that year and those awards. We had a party to celebrate how good we were.

"The next morning, I opened my mail and found complaints from customers," adds Schulze. "They didn't think we were as great as we thought we were. In fact, we were good in some areas but not others. I remember thinking that maybe we were the best of a lousy lot. But we weren't good. Good means always good. It means reliable every time."

Schulze searched for a management philosophy that might help establish his concept of reliability within the Ritz-Carlton culture. He studied the history of the hospitality business and discovered that the strongest leaders only sustained their quality briefly, and then only in small organizations. By that time, Ritz-Carlton had seven hotels open - 10 under construction - and visions for future growth.

Schulze needed a hook. "I came across this idea of total quality team management," he says. "This idea focuses on continuous improvement throughout an organization by constantly searching for ways to do things cheaper and better. It was exactly what I wanted. We decided to pursue this idea and use the Baldrige criteria as our guide. In 1991, we applied for the award but didn't make it. But we learned a lot, and in 1992, we won."

Improvement across the board Schulze aims for continuous improvement in every management category, and he has been getting it. Monthly surveys conducted by a third-party research firm show improvements in a variety of categories. Failing to deliver messages to guests previously ranked eighth on the list of top complaints. Continuous improvement has driven it out of the top 10. Complaints about room temperatures during meetings used to rank fourth, but has fallen out of the top 10.

"Improving in one category helps you improve in others," says Schulze. "Lower employee turnover saves money and time and enables us to spend fewer hours per occupied room."

Continuous improvement has also proven to be a potent competitive weapon as well. Company research indicates that Ritz-Carlton holds a 25% premium in revenue per available room (RevPAR) over its direct competitors in the high-end hospitality market.

But Schulze isn't focusing on his competition as much as his quest for reliable perfection. He put the company through the rigors of applying for a second Baldrige award in 1999 to make sure the company remained on track. The award confirmed Ritz-Carlton's direction, but hasn't satisfied Schulze.

"In our type of hotel, there should be no defects, no complaints," says Schulze. "We're working toward zero defects, and we get closer every year."

For some companies, total quality management can become routine: Do the surveys, rank complaints, set up plans, talk to people, do it again next month. To Schulze, however, total quality management is everything. In 1997, he terminated management agreements with the owner of Ritz-Carlton hotels in Aspen, Colo., Houston, New York City and Washington, D.C., over quality issues.

"Guests were coming to our hotels but not receiving our standard of service," says Stephanie Platt, corporate director of communications for Ritz-Carlton. "There were holes in the upholstery in the New York hotel. It has been difficult for us not to be in New York for the past three years."

Ritz returns to major markets Along with new hotels, Ritz-Carlton has undertaken a series of three brand expansions into other kinds of businesses aimed at its small, but loyal, high-end market. The hotels now under construction in Grand Cayman Island, New York City, Sarasota, Fla., and Washington, D.C., for example, will include adjacent or attached condominium residences carrying the Ritz-Carlton name. Residents in these condominiums will receive Ritz-Carlton services: twice-daily housekeeping, 24-hour room service, concierge services, dry cleaning and laundry, catering, fitness services and facilities, and valet parking.

A second brand expansion will offer timeshare ownership in Ritz-Carlton properties at resort destinations. Once again, these properties will offer a full complement of Ritz-Carlton services. Initial timeshare offerings are planned for Aspen, Colo., and St. Thomas in the U.S. Virgin Islands.

Ritz-Carlton health spas will become a third brand expansion at some point in the future. "We're developing a plan to build our own stand-alone spas at locations adjacent to our hotel properties," says Platt.

Marketing experts of-ten point to brand expansions as a slippery slope that eventually leads to the degradation of the original brand. For example, won't a Ritz-Carlton spa eat away at the image of a Ritz-Carlton hotel?

"It would be a serious mistake if we developed a related product for a different market segment," says Schulze. "But we are not doing that. We're staying with the same market we have always served and providing Ritz-Carlton services in different kinds of locations. That's not cannibalizing the brand, that's giving our customers more opportunities to take advantage of our brand of service. Our customers have told us that if we offer a product, they would trust it.

"Our brand is not about fancy chandeliers and marble," adds Schulze. "That's the atmosphere that fits the customer. Our brand is about absolutely reliable service tailored to what our individual customers want. To step away from our customer would be a mistake, but we're not doing that."

It's taken nearly two decades, but William Johnson's 1983 vision of restoring the Ritz-Carlton name to its former glory has come to pass, thanks in large measure to Schulze, who probably remains unsatisfied. Chances are, he may never be satisfied. Chances are, he will continue to drive Ritz-Carlton toward excellence.

The right connection In addition to the brand expansion program, Ritz-Carlton also plans a major expansion of its core hotel business. Currently, there are 36 Ritz-Carlton hotels, 25 city hotels and 11 resorts in Australia, Canada, China, Germany, Indonesia, Japan, Korea, Malaysia, Mexico, Puerto Rico, Singapore, Spain, U.S. Virgin Islands, United Arab Emirates, and the United States.

Schulze's business plan calls for an expansion to 100 hotels. This includes new Ritz-Carltons in Sarasota, Fla., Houston, Las Vegas, New Orleans, Philadelphia, the Cayman Islands, Manila, Cabo San Lucas, Jamaica and the Middle East. The domestic and international expansion will follow Ritz-Carlton customers as their interests follow the emergence of the global economy.

"Our customers have changed dramatically since 1983," says Platt. "During the 1980s, our customers traveled regionally. Today, they travel globally, for both business and pleasure, to Asia, the Middle East and throughout Europe.

"Ten years ago, for example, the middle east would not have been an important market for us," adds Platt. "Many of our guests from the Middle East came to know us through their travels through Europe, Florida and the Caribbean. Today, we have three hotels serving those guests in the middle east. We need to be there to serve a market we built here."

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