Total Quality Management at Ritz Carlton Final PDF

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Total Quality Management at Ritz Carlton

Maastricht University School of Business and Economics Maastricht, November 7, 2012 Altrock, Felix

I6011104

Overkamp, Sasha

I6001945

Study: Master IB Finance Course code: EBC 4107 Course Tutor: M. Peeters

Table of Contents I. RITZ CARLTON – THE LUXURY TOUCH II. CUSTOMERS AT RITZ CARLTON

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V. WHAT IS QUALITY – THEORY APPLIED

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IV. TOTAL QUALITY MANAGEMENT (TQM) AT RITZ CARLTON

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V. MOST IMPORTANT DEFECTS AT RITZ CARLTON 6 VI. CAUSES OF THE MOST IMPORTANT DEFECT

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VII. DASHBOARD DEVELOPMENT AT RITZ CARLTON REFERENCES APPENDIX

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I. Ritz Carlton – the Luxury Touch If you want to talk about a leader of the high-end hotel industry, you cannot avoid passing over the well-known name Ritz Carlton. The luxury touch, the superior comfort and unsurpassed service level are the key factors why the U.S. government has already honored the hotel chain with two Malcolm Baldridge National Quality Awards (1992,1999) which makes “The Ritz” the only service company in America having achieved this. About 30 years ago when William B. Johnson acquired the Ritz Carlton name and trademark a fundamental philosophy has been established which inevitably lasts until today and beyond that. These so called Gold Standards incorporate the foundation for the unique culture of the Ritz Carlton. The absolute commitment from the management team to the housekeeping enables the implementation of superior quality standards, beginning with the credo. The credo embodies the essential three fundamentals – location, product and people. The first item refers to the absolute best location where a luxury experience can be shaped. The second item concerns the creation of the right product for the guests of today, but also for the future which means investments between $500,000 and $1,000,000 per room according to Simon F. Cooper (2009), former longstanding President and CEO of Ritz Carlton. The last item directly represents the motto: "We are ladies and gentlemen serving ladies and gentlemen." The combination of all three fundamental elements forms and operates the platform needed in order to maintain the service quality and reputation of a successful superb brand. Besides the credo and the motto, the Ritz Carlton developed further important guidelines, namely, the three steps of service and the twenty Ritz Carlton basics. The former defines the basic rules for an employee towards a guest commencing with a greeting, followed by an anticipation of needs and a farewell after the service completion. The latter introduces the guest problemsolving process and includes the fundamental rules of conduct throughout the whole organization. This philosophy embeds the Gold Standards of the Ritz Carlton in the structure and daily operations of 73 hotel facilities in 24 countries and 38,000 employees providing superb services for ladies and gentlemen. In order to maintain the top position in the hospitality industry and ensure long-term quality control, the Ritz Carlton employs the Total Quality Management (TQM) approach. TQM

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supports managing employee selection, training and staffing as well as daily tasks and processes stipulating superior quality for customer satisfaction purposes.

II. Customers at Ritz Carlton The hospitality industry offers a vast number of different quality categories ranging from simple hostels via mid-price hotels to superior comfort hotel resorts. Therefore, the prices and especially the service quality vary significantly between these lodging choices. The Ritz Carlton group is associated with both high end prices and outstanding quality as mentioned above. Thus, only wealthy individuals from the upper middle and upper class are able to afford a stay in one of Ritz Carlton’s premises. However, this type of customer is willing to pay a premium price for the luxury touch, the genuine care, finest personal services and facilities which fulfill unexpressed wishes as it is stated in the company’s credo. Especially, executive business trips or honeymoons are frequently booked since the Ritz Carlton offers unique understanding for the need of its high class clientele. Specifically, every single staff member of the Ritz Carlton is allowed to spend up to $2,000 per customer incident. It might be a simple gift like a cake or a bottle of champagne, but also personally returning the cleaned favorite dress of one lady from Puerto Rico to New York. Hence, the customer loyalty is highly appreciated and remains an outstanding experience for a lifetime.

III. What is Quality? Theory applied. As already indicated in the first part of the paper, the Ritz’ philosophy and its Gold Standards are an important driver for the quality in the first-class hotel group. Besides that, topperforming luxury brands like the Ritz Carlton additionally take four basic principles into account. Firstly, create a customer-centered culture. Service is the primary value, which has to be identified, nurtured and reinforced throughout the whole organization. Secondly, superior staff members in all departments. Nevertheless, the generic impulse to comfortably accommodate customers has to be predisposed in each employee’s attitude. Thirdly, a high employee retention rate guarantees and especially confirms high organizational values attaining superior mastery of service quality and product management. Lastly, a system for means of measuring and rewards for a customer centric attitude helps to achieve organizational excellence enforcing high standards and customers adjusting their expectations upwards. Such a highly integrated business model creates a superior product with outstanding service quality.

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Generally, there are several theories for quality definition and application. According to Zeithaml, Parasuraman & Berry (1985), service marketing and customer satisfaction are dependent on 1

Table 1

Reliability Security Tangibles Understanding the Customer Responsivenes s

quality factors as illustrated in table 1.

Competence Access Courtesy Communication

Reliability Responsiveness Assurance Empathy Tangibles

Credibility

Table1

These dimensions are established in order to measure the gap between the customer’s expectation and experience. Apart from a modeled world, there should be differences in the perception of a service quality and the expectation, which is affected by word of mouth communication, personal needs and past experiences. Due to over-complexity, statistically unreliable outcomes and subjectivity, Zeithaml, Parasuraman & Berry (1990) simplified their model as presented in table 2. Reliability refers to an accurate and correct performance. Responsiveness measures the degree to which employees are ready to deliver services. Assurance conveys higher values like trust and respect towards the customer. Empathy assesses the capacity of understanding customer’s needs. Lastly, tangibles cover all physical features such as staff appearance, equipment and facilities that are surrounding the service. The new lean measurement structure is widely used in service companies in order to support the linking of the gap between perceived and expected service quality. The Ritz Carlton service quality can be easily mirrored on those five factors, which are all strongly executed throughout the whole luxury hotel chain. Besides the customer gap mentioned above, there are four more gaps that a service company has to manage and minimize. Figure 1 in Appendix illustrates the explanation of the following integrated Gaps Model of Service Quality. The first gap for the marketer lies between the customer expectation and the management perception of what the customer expects. The second gap applies the difference between the management’s perceptions of the customer’s expectation and translates these perceptions into a service quality specification inducing a management approach for the design of service quality. The third gap indicates the difference between the pre-determined specifications and standards for services and the actual service performance towards customers. The last gap shows the difference between the actual service performance towards the customers and the initial promise of the service company about its quality standards. The

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service gap model shows that quality is based on different subjective perceptions of the customer and the company; therefore, these numerous stages need to be aligned to a common goal which is reasonable for both affected parties. Concerning the Ritz Carlton, the gap model emphasizes on important possible weaknesses of a service quality firm. However, the Ritz strongly counteracts the negative effects by daily intensive communication, the willingness to develop new processes and set new trends instead of following other industry competitors’ service models. In addition to the RATER approach and the 5 gap model presented above, several big quality gurus like Deming (1950), Juran (1951), Ishikawa (1968) and Crosby (1980) contributed each their share to today’s total quality management and six sigma movements. Deming’s management lectures (after 1951) and Juran’s Quality Control Handbook (1951) mainly focused on the reconstruction of the Japanese economy after World War II developing the concept of TQM. Deming defines quality as the characteristics, which are important to the customer. Juran focuses on a so-called fitness for use that he considers universal. In his concept, fitness is interchangeable with quality and has to meet the needs of those who are actually using the service or product. Later then, Ishikawa integrated and elaborated on the concepts of the previous two authors in the Japanese economy. On top of that, he also developed the fishbone diagram, which will be shown in the remainder of the paper. According to him, the control of quality in its every manifestation should be the basic approach. Whereas the previous three authors mainly concentrated on highly technical aspects, Crosby published his book Quality is free (1980) defining a simple but powerful message that “quality is conformance to requirements.” He says that quality control has to be applied throughout the whole company and particularly the senior management needs to commit to quality changes and standards since doing things right the first time will not add anything to the cost of a service. The Ritz Carlton group exactly applies that. A more recent example for quality standards would be the International Standardization Organization (ISO) which terms “quality as the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.” Referring to the definitions of quality from above, the Ritz Carlton shows a strong compliance with those since each guest of the hotel is treated individually according to his personal needs. Therefore, this customer centric approach shows a high rate of success and positive customer satisfaction.

IV. Total Quality Management (TQM) at Ritz Carlton In order to continuously achieve high standards and deliver first-class services to its guests, the Ritz Carlton established quality departments in each hotel whose responsibility lies in the 6

application of Six Sigma. Six Sigma is one of the most common system improvement set of tools identifying and eliminating the root causes of errors and diminishing negative variations within the business processes. In order to apply the six sigma approach the quality department has to engage in TQM. Therefore, information about defects has to be gathered to determine potential causes and subsequently find solutions. Ritz Carlton uses opinion cards and telephone surveys to provide feedback for the hotel service and report perceived defects. These defects are then listed in the daily quality production report (DQPR). A drawback might be the self-indication of employees for defects which they might fix themselves without reporting. The data will be weekly transferred to the dynamic quality information system (DQIS) which is not just a warehouse for data, but a measurement tool for improvement. Consequently, recurring defects are analyzed and displayed in Pareto charts so that the affected departments with high ratios are able to take action. Luxury brands like Ritz Carlton continuously demand improvement ensuring service excellence which should trigger customer retention of 100% (six sigma quality). The complex structure of Six Sigma also includes other measurement tools like run charts, scatter plots, histograms or cause/effect diagrams. By today, the Ritz Carlton does not use any specific statistical tools for its quality management; however, we applied the Six Sigma method to the highest number of defects in the housekeeping department. In this case, we have chosen the defect “rm clean” since by far the most customer complaints (183 vs. 88, second position) have been about the room condition. In the time period between January and November 1997, the percentage mean defect rate results in a value of 0.039%. Using this number, the Six Sigma control limits can be calculated. Nevertheless, we have to make an assumption here since we only consider the upper control limit (UCL) because the lower boundary would be negative. Consequently, negative customer complaints would indicate a positive customer satisfaction, hence, inappropriate for a real life evaluation. By adding three standard deviations to the previously calculated mean, the UCL of the Ritz Carlton lies at 1.29%. Hypothetically, the LCL would be -0.51% if three standard deviations are subtracted from the mean percentage defects. Figure 2 in Appendix A illustrates the outcome of the Six Sigma analysis indicating two insufficient results exceeding the UCL each by 0.15%. Both occurrences happened on a Sunday. Concluding, Six Sigma is concentrating particularly on statistical tools and metrics, whereas TQM is a management style, which can benefit from those tools achieving maximum customer satisfaction.

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V. Most Important Defects at Ritz Carlton The daily quality production report (DQPR) is the main tool classifying different defects that might influence the quality of Ritz Carlton’s operations. Each employee is obliged to report the occurrence of any possible defect. In order to identify the most important defects we first look up the different defects reported in the Ritz Carlton “Defect Data” report which amounts to 12 different defect categories and are shown in the appendix in table 1. The defects reported can be used to identify the most important defects and thus helps to improve the processes that cause the defects. As a first step the most frequent defects have to be determined. One of the basic tools for quality management is the Pareto chart. With the help of the Pareto chart, figure 3 in the appendix it is relatively easy to highlight the most important among our sets of defects. The left y-axis of the Pareto chart in figure 3 measures the number of defects reported per category. The right y-axis measures the cumulative percentage of defects reported. From figure 3 it can be clearly seen that the most common sources of defects are “rm clean” , “rm assign”, “res incorrect”, and “ph not answr” accounting for roughly 75% of the total number of reported defects. Figure 4 enhances this defect behavior depicturing the percentages per defect category. Defect “rm clean” can be obviously perceived as being the most important defect accounting for more than a third of all defects.

VI. Causes of the Most Important Defect Section V identified “rm clean” as the most important defect. Knowing that, it is crucial to understand the causes for the defect. Without thoroughly examination of the causes the management of Ritz Carlton has little use of the information on the most important defect. In order to get to the bottom of that problem we make use of a powerful tool for quality management, the so-called fishbone diagram. Before we will look at the cause-and-effect diagram figure 5 helps to identify which department is most common causing the “rm clean” defect. Housekeeping is obviously causing the most defects reported, thus we assume that most of the defects are caused by human failure. With the help of the fishbone- or cause-and-effect diagram, figure 6 in the appendix, the causes for the defect will be visualized. We identify six major factors involved causing the problem “rm clean” including people, material, environment, measurement, equipment and process.

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People relates to the group of employees who is involved in the daily cleaning process. As the fishbone shows possible reasons for a problem can be the lack of training, a low motivation, absence of one employee or miscommunication. In order to improve on those points Ritz Carlton’s employees are required to follow the three steps of service. In order to guarantee the presence of the three steps in every employees mind the principle has to be communicated to the employees in a way that they know hoe to implement it in the daily customer service process. Furthermore, employee selection, training, and staffing should be improved to minimize defects produced by people involved in Ritz Carlton’s daily operations. Selecting the right employees will mitigate the problem of unmotivated employees, which might not have the willingness to stick to Ritz Carlton’s standards. Training will then demonstrate how the high standards can be implemented by simple “tell, show, do, review” approach. Prospective employees will thus actively learn how to perform their duties according to Ritz Carlton’s service excellence. Material relates to supplies such as bed sheets, towels, or paper. Cost inefficiency may arise because cost cuts cause lower quality of the material. Defect may also occur if the materials are not used in the right way of if not enough material is available. Hence, a common stock should always be available. The environment relates to conditions, such as location or time in which the defect occurs and which are not influenced by human behavior. For example a room might not be cleaned because the occupancy was to high to serve all rooms in time. This can be solved by a higher amount of stuff or by training the employee’s efficiency. The process relates to specific requirements, such as policies procedures, rules, regulations and laws. If the process is poorly defined they might be defects with the reservation process. Furthermore, a lack of cross checking can be the cause for a problem under this major problem. The measurement can be a cause of the notified defect. If the DQIS is not correctly applied there are defects in the data measurement what can lead to a defect. As a last point we mention equipment. Equipment includes computers or any kind of physical tool that might cause the defect. For example, a broken computer may influence the communication between departments and thus provoke a defect. In order to mitigate problems associated with equipment, enough working equipment must be available.

VII. Dashboard Development at Ritz Carlton The Dashboard should be a visual display of the most important information needed to achieve one or more objects consolidated and arranged on a single screen so the information can be monitored at a glance [ CITATION Ste06 \l 1031 ]. The dashboard might vary certain 9

aspects, for example in its, role, type of data, span of data, and update frequency. Dashboards can be used for strategically, analytical or operational role depicturing enterprise wide, departmental or individual data.

The Ritz Carlton company wide dashboard should include key metrics on a year to day (YTD) basis and they should be placed in the upper left corner of the screen giving them the most attention. Revenue, profit, average occupancy, new customers, market share can be visualized using bullet...