Ritz-Carlton Hotel Co. won the Malcolm Baldrige Quality Award. In the process, the company effected $50 million worth of savings. How did this service company do it? What are the lessons for our business?

The company set out to improve quality by affirming its commitment to customer-driven service. To do that, it went to the marketplace to identify guest preferences: fluffy towels, people available to direct visitors from the elevator to where they want to go, etc.

The Ritz-Carlton then restructured itself around meeting customers' wants. For example, guests wanted quick turnarounds at the reception desk. Front-desk employees are now empowered to make spending decisions up to $2000.

Keeping Workers Happy

Guests wanted employees, and the atmosphere in which they work, to be pleasant. The Ritz-Carlton reduced its employee turnover from 110% to 60% to achieve that objective. In addition, it invests $4,000 a year in training each employee.

The quality initiative was driven by the senior leaders of the company. The senior executive group doubled as the senior quality committee, which devised the company's two original quality strategies.

The first involved quality assurance at new hotels. As a facility opens, there is a concentrated and intense seven-day countdown for company's senior management to work side by side with the workers to instill the Ritz-Carlton "gold standards" -- three simple steps to service, which require 100% compliance with customer requirements.

President Sets Example

The president and chief operating officer communicates the Ritz-Carlton principles to all employees. He personally sets the standard for employee-guest interaction and facilitates development of a vision statement for each work area.

The second quality initiative was the establishment of corporate values and vision, embodied in a company credo, or vision statement; the Ritz-Carlton Basics, which are 20 critical success factors to achieve corporate objectives; and the corporate motto, which is more than just a phrase. It is designed to create a culture that is experienced by customers and employees alike.

The culture change was a success. In employee surveys, 96% say "excellence in guest services is a top priority," even though Ritz-Carlton has added 3,000 employees over the past three years. In other words, the employees know what the organization's principles and culture are all about.

To continue to understand customers' preferences, Ritz-Carlton uses three outside, national surveys a year as well as

Its own internal surveys. It has found that an improvement of 1% in the employee scores reduces customers' dissatisfaction by 22%. This proves that employee satisfaction is the key to guest satisfaction.

Accordingly, management meets with the employees on a regular basis to ensure that they are satisfied -- they get good parking spots, locker-room facilities, a security department, late-night escorts for safety, and other amenities -- and understand the corporate values.

Empowering people is an integral part of the quality initiatives. In a survey conducted recently by Xerox -- another Baldrige winner -- employees were asked to answer 100 questions; their answers matched managements' 97% of the time.

Same Wavelength

Empowerment makes sense since employees who are well educated know where management is coming from and will implement its policies day to day.

Ritz-Carlton also relies on specific measurements, for example, the $1-$10-$100 rule: If we get to a mistake before the guest does, it could cost $1. If we catch it after the guest does, but handle it properly through apologies, etc., it could cost 10 times as much.

But if a departing guest leaves a negative comment card behind, it could cost much more in lost business and bad word-of-mouth. The Ritz-Carlton shoots for 100% customer retention.

The hotel company has other rules that specify response times and handling standards for all employee activities. This way, measurement becomes more feasible. In one hotel, the company saved $750,000 by investing $52,000 in quality.

Out of "good idea boards" came ideas like recycling, which resulted in $62,000 of savings in the first year, or the wearing of weight-support belts, which reduced medical costs by $100,000 a year.

Finally, Ritz-Carlton uses a highly quantitative approach to measuring and monitoring quality. Each employee has specific performance goals, each activity is benchmarked, and all activities are incorporated into a detailed daily quality report for each hotel.

The process is eminently applicable to banking, particularly to service-oriented institutions. Corporate values and vision principles, the importance of customer satisfaction, empowerment of employees to make decisions, and an intense commitment by senior management are all clearly applicable to commercial banks.

Ritz-Carlton learned that when senior managers personally communicate a strong vision and set of principles to employees, and give them the confidence, freedom, and authority to act, workers take full responsibility and do what is necessary to satisfy customers.

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