Chapter 6. Risk and ReturnChapter 7. Corporate Valuati.docx

Chapter 6. Risk and Return
Chapter 7. Corporate Valuation and Stock Valuation
Finance – Week 4 LectureRisk and Return
Ever wish you could invest in the stock market and earn the
same kind of returns earned by big investors like Warren
Buffet? Much research has been done on the market in an
attempt to pinpoint a formula or magic theory that could explain
the behaviors of the market and capitalize on above average
returns. Several theories exist on how the market operates. One
such theory is the efficient market hypothesis.
Under the efficient market hypothesis there are three proposed
forms of the market: weak, semi-strong, and strong. A weak
market exists when all general market information is readily
available to everyone and functions on the assumption that we
cannot use past performance as an indicator of future
performance. The semi-strong market assumes the market to be
efficient, all public information is available to all investors, and
the average investor cannot beat the market rate of return.
Finally, the strong market proposes that all public and private

information is reflected in the price of stocks and no one could
earn anything better than the market rate of return. The
oversimplified difference between each type of market under
this theory is that stocks may or may not change in price
depending on the type of information available: market, private,
or public. While information is readily available due to
advances in technology, there is still the aspect of power.
Information is power and it's hard to believe that everyone
would be willing to give up or go public with all information,
for example, 'insider information'.
Keep in mind, this is only a hypothesis! There are several
market theories. It’s up to you to consider the theory and
critically reflect on your experiences, beliefs, and what you see
in the market around you to determine if you feel each theory is
valid or not.
Another highly debated financial concept is the Capital Asset
Pricing Model or CAPM for short. CAPM is a formula used to
estimate the relationship between risk and return. This formula
combines two key elements: risk and the time value of money.
Included in the formula is best, the expected market return, and
the risk free rate of return. The great debate, however, arises
when we acknowledge the many estimates upon which this
formula relies. Many feel that CAPM is not a reliable measure
of return.
I think the key here is that the system of evaluation we have is
flawed, but not completely worthless. It isn't without its faults,
but for all the criticism it receives, I haven't yet seen a new
model emerge to take its place. The general notion I hear in
industry is that, while not perfect, it is the best method we have
available. We must acknowledge that and use the data with a
grain of salt rather than using the CAPM estimation and
resulting NPV calculations as iron clad truths. It's a great tool
to use as a guide but can't be relied upon to be accurate to a
tenth of a penny. It’s also important to consider the risk
involved with trying out a new method of evaluation. While we
may be in need of something new, it does indeed carry some

risk if we are wrong! Small projects may not take us too far out
on a limb, but some investments require huge amounts of
resources. These are the ones we want to be sure we have done
the best job possible in assessing the possible return and of
course the ones we would be hesitant to evaluate using a new,
untested method.
CAPM is commonly used in the capital budgeting process which
you will learn more about next week. Many firm's use CAPM as
their general rule for cost of capital. When assessing projects,
the return must be greater than the firms CAPM. I found it
interesting that many feel the hurdle rate is arbitrary and weeds
out otherwise profitable projects. It does, indeed, weed out the
lower profit projects, but in my experience, that's the goal! We
normally have a set budget to spend but also have about four
times that amount of profitable projects we would like to do.
Regardless of the method we use to evaluate, there will likely
be profitable projects that do not get chosen. We simply can't do
them all!
There are several key issues here. First, we need something to
use for a rate, this provides us a good 'guestimate' for lack of a
better figure. Second, I appreciate the notion that this works
particularly well when we have a range of projects to consider
(aka - the capital budgeting process). When we have only one
project, however, it's less accurate. When working with only
one project could we go out on a limb and say it's just one - can
we infuse our own common sense, feel for the accuracy, and
consideration of other key factors to help us evaluate how
helpful the CAPM figures are and what, if any, adjustments we
need to make for risk and other factors? This would be nearly
impossible to do with a long line up of projects in the capital
budgeting process but if we are looking at just one special
project it may be possible.
As you move through the week keep your eyes and mind open.
You’ll learn lots of new information, theories, and concepts,
many of which are quite debatable. Keep your mind open and
question the theories you read. Do they seem valid? Which

theories do your beliefs and experiences support?
Remember, that this is the half-way point in the course and you
do have an assignment and the midterm to complete. Please
give yourself enough time to complete your homework and take
your exam. If you have any questions, please contact your
instructor for assistance.
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9-108-006
M A R C H 1 7 , 2 0 0 8
_____________________________________________________
_____________________________________________________
______
Professor Dennis Campbell and Research Associate Brent Kazan
prepared this case. HBS cases are developed solely as the basis
for class
discussion. Cases are not intended to serve as endorsements,
sources of primary data, or illustrations of effective or

ineffective management.
Copyright © 2008 President and Fellows of Harvard College.
To order copies or request permission to reproduce materials,
call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163,
or go to http://www.hbsp.harvard.edu. No part of this
publication may be
reproduced, stored in a retrieval system, used in a spreadsheet,
or transmitted in any form or by any means—electronic,
mechanical,
photocopying, recording, or otherwise—without the permission
of Harvard Business School.
D E N N I S C A M P B E L L
B R E N T K A Z A N
Shangri-La Hotels
In November 2006, Symon Bridle, the newly appointed chief
operating officer of Shangri-La
Hotels and Resorts, was reviewing the progress the Hong Kong-
based company had made over the
previous ten years as it grew from a regionally focused business
into a rapidly expanding
international deluxe hotel group. With 18,400 employees, 50
hotels, and $842 million in revenues,
Shangri-La Hotels and Resorts (Shangri-La) was a leading
player in the luxury hotel industry. The
company was growing rapidly to satisfy increased demand for

deluxe hotels and resorts in Asia,
Europe, and North America and Bridle was in charge of
ensuring that Shangri-La’s signature
standards of “Shangri-La Hospitality,” a service model based on
traditional Asian hospitality, were
maintained during this expansion.
For the past two weeks, Bridle and a task force of his top
managers had been discussing a number
of organizational issues that presented challenges to Shangri-
La’s rapid expansion strategy. There
were three major issues at hand: (1) the company was expanding
into high-wage economies in
Europe and North America; (2) the company was expanding its
presence in China—a country where
front-line employees were not used to exercising decision-
making authority; and (3) newcomers in
the Chinese hotel market were poaching Shangri-La’s staff and
driving up wages in historically low-
wage markets.
All of these issues weighed on Bridle’s mind as he wondered
what he should do next. “How do
you still articulate your brand in tight labor markets with these
pressure points?” he pondered.
Corporate Background
Shangri-La Hotels and Resorts, a deluxe Asian hotel chain, was
founded in 1971 in Singapore by
the Malaysian-Chinese tycoon Robert Kuok. Inspired by British
author James Hilton’s legendary
novel Lost Horizon, the name “Shangri-La” meant “eternal
youth, peace and tranquility” and
embodied the serenity and service for which the hotel chain was
renowned throughout the world.

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This document is authorized for educator review use only by
Alessandro Cavelzani, Danube University Krems until Jan 2022.
Copying or posting is an infringement of copyright.
[email protected] or 617.783.7860
108-006 Shangri-La Hotels
2
With its first and flagship hotel in Singapore, the company
quickly differentiated itself from the
competition and provided distinctive Asian standards of
hospitality and service. Within a decade,
Hong Kong-based Shangri-La established a world-class
reputation and became one of the world’s
finest hotel management companies, garnering international
awards and recognition from
prestigious publications and industry partners—”Best Business
Hotel Chain in Asia Pacific” by

Business Traveler (U.K. and Germany) and “Best Hotel Chain”
by Chinese Hurun Report (China)i—
along the way.
As of 2006, Shangri-La had four main business segments: hotel
ownership and operations,
property development including commercial buildings and
serviced apartments, hotel management
services to group-owned and third-party hotels, and spas.
Expansion History
In the early 1980s, Shangri-La went through a period of rapid
expansion in Asia and built 29
hotels over the next decade. The hotel chain continued to
prosper throughout the 1990s, in step with
Asia’s economic boom. By 1999, Shangri-La had a total of 35
hotels and resorts located in Asia’s most
sought-after leisure destinations. In the following years, the
company continued to grow. To raise
funds for expansion, Shangri-La subsidiaries in various
countries, including Malaysia and Thailand,
were incorporated and listed on local stock exchanges between
1982 and 2002, under Shangri-La
Asia.
In the early 2000s, Shangri-La began expanding beyond its core
Asian markets through both
management contracts and owner/operator developments. The
Shangri-La Dubai, in the United
Arab Emirates, opened in July 2003, followed a year later by
the Traders Hotel Dubai, and a
destination Shangri-La & Spa Resort in Muscat, Oman.
Opportunities were also taken in Sydney
(2003) and Cairns (2004) in Australia, while contracts were
signed for upcoming properties in North

America (Vancouver, Chicago, Las Vegas, Toronto, Miami,
New York) and Europe (London, Paris,
Vienna).
As of 2006, Shangri-La was the largest Asian-based deluxe
hotel group in Southeast Asia. The
company managed a total of 50 hotels under two brands: the
five-star Shangri-La and the four-star
Traders—a sister brand established in 1989 to deliver high
value, mid-range, quality accommodation
to the business traveler—with total inventory of over 23,000
rooms across 39 locations (see Exhibit 1
for locations).ii As of November 2006, the company still had
over 40 projects under development
worldwide (see Exhibit 2).
Despite its aggressive expansion elsewhere, the company
remained focused on business and
capital investments in the Asia-Pacific region, in particular
China. The primary reason for this
decision was the fact that China’s successive relaxation of
travel restrictions dating back to the late
1980s, coupled with rising urban incomes, had created a boom
in Chinese domestic and outbound
travel. In addition, inbound international travel was also
increasing. The country had recently
entered into the World Trade Organization and its capital,
Beijing, was selected as the host of the
2008 Olympics. With an additional role as the host of the World
Expo 2010, Shangri-La planned to
capitalize on China’s economic advancement and expand its
hotels in China from 17 to over 30 by
2008.iii
Financials

Shangri-La’s early focus on the Chinese market helped the
company shield itself from the worst of
the Asian economic crisis of 1997-98, which hit Southeast Asia
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3
unscathed. In 2005, the company benefited from continuing
robust travel demand in Hong Kong and
China to post revenues of $842 million (see Exhibit 3 and
Exhibit 4 for financials). Both room and
food and beverage revenues continued to improve and
occupancy rates of Shangri-La hotels
increased to 73% in 2005, compared with 71% for 2004 (see
Exhibit 5 for hotel operating statistics).

While hotel operating costs were market-specific, labor,
utilities, and maintenance costs together
accounted for approximately 32% of gross operating revenue in
a typical Shangri-La property in Asia
with 20% due to labor costs and the remaining 12% due to
utilities (7%) and maintenance (5%) costs.
Service Model: “Shangri-La Hospitality”
Starting with its first hotel, Shangri-La Hotel-Singapore,
Shangri-La built its brand on service
excellence with a stated mission to “delight customers each and
every time” (see Exhibit 6). The core
of the Shangri-La brand was steeped in offering customers an
unforgettable experience by blending
local cultures, exotic art, and lively ambience.
With its Asian foundations, Shangri-La’s service model of
“Shangri-La Hospitality” was built
around five core principles: respect, humility, courtesy,
helpfulness, and sincerity. With properties
spanning geographic and cultural boundaries, implementing
these principles consistently was
challenging and affected everything from staffing and amenities
to customer-employee interactions.
For example, certain service principles (i.e., respect) meant
different things to different customers in
different markets.
Greg Dogan, regional vice president, explained:
Shangri-La Hospitality basically covers what we do in Asia.
Within each country, you need
to adapt to the local requirements whether it is Myanmar,
Philippines, or Indonesia. In
Thailand it is very normal for a service employee to serve you

tea or coffee on one knee. In the
Philippines, this is a big no-no. Similarly, in most countries,
staff would normally walk in,
serve the tea, turn their back, and walk out. Japanese
expectations, however, are that you walk
in, serve the tea, and walk out facing the guest. It is the little
things like that you need to pick
up from each culture. In each country there is a different
expectation and we adapt to those
countries. The danger is to become a cookie-cutter company and
we cannot be. We have to be
individualistic in each of our cities but still maintain our strong
brand integrity.
For many years personalized guest service remained Shangri-
La’s main competitive advantage.
By the early 2000s, as more and more Asian hotel groups such
as Mandarin Oriental, Banyan Tree,
and others expanded around the world, creating a strong brand
and a tangible differentiation became
even more important for the company.
Delegation of Authority
To achieve exceptional customer service, Shangri-La used a 5-
level organizational design. The
company grouped its employees into five tiers: Level 1
(divisional managers), Level 2 (departmental
managers), Level 3 (sectional managers), Level 4 (front-line
supervisors), and Level 5 (front-line
employees). Each level had separate guidelines, discretion, and
a dollar amount they could use (Level
1-3: HK$500; Level 4-5: HK$100) without management’s
approval in handling customer requests that
were outside of normal operational guidelines.

Bridle explained: Do
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To deliver superior results, we believed in giving all front-line
personnel decision-making
power with respect to guest requests. For example, we allowed
cashiers to waive amounts up
to HK$100 without manager approval. Operationally, the system

looked great. Then we
realized, regardless of the amount, it was not always easy to get
some Asian cultures to
actually accept that they could make these decisions, on the
spot, and exercise authority.
Bridle had just discovered a new problem. Giving decision-
making power to the front-line
employees was not always effective in Shangri-La’s hotels in
China. Although fully authorized to
address guest requests, front-line employees in Shangri-La’s
China hotels appeared uncomfortable
making decisions, especially those involving small monetary
issues.
Chinese employees were very good at performing their duties in
strict accordance with
operational guidelines. However, the cultural predilection was
not to take initiative but to be told by
a superior how to handle a given situation. Once an order was
given to do a specific task, most
Chinese workers followed the instructions to the letter. While
this was an advantage in getting many
operational steps completed in the right order, it also meant that
small problems encountered by
guests took a long time to be corrected.
Bridle quickly found out that while the task-related skills such
as making a reservation could be
taught easily, it took time and practice to acquire judgment
skills such as letting a mini bar expense
go. “Decisions did not always involve money,” he added. “The
issue could be as simple as a guest
forgetting her passport at the airport. Our front-line employee
would think ‘It could be expensive to
take staff off duty to help the customer. What should I do?’

They would also think about operational
implications, as in who is going to cover me when I am gone.
And that made the decision-making
even harder for them.” “Even when they knew they had the
decision-making authority, they were
not using it effectively,” Dogan echoed Bridle’s concern. “I
remember, in the very early days, there
was a situation where we had a guest who had a very small
problem during check-in. The front-desk
was so eager to get rid of the problem; they gave away a bottle
of Dom Perignon to the guest.”
In some cases, Chinese employees hesitated because they were
simply not used to taking
initiative. In others, local Chinese managers were unwilling to
delegate and give up their perceived
authority. “All it took was for one person further up the chain to
say ‘don’t do that’ and our front-line
employees would not take another bite at the apple,” recalled
Tan Eng-Leong, Shangri-La’s group
director of human resources. Dogan agreed: “We introduced the
delegation of authority a number of
years ago and the culture that was being developed by us over
the years was to empower people.
Easily said, but very hard to implement. We tried to give our
staff the confidence to make decisions,
without any kickbacks or punishment. It was important that we
developed a management culture
and philosophy that brought that out.”
Bridle continued:
We knew that we could not deliver the desired standards of
service if our front-office
personnel in China were hesitant to take initiative. We had to
instill a level of confidence in the

employee that they could make those decisions. That required a
great deal of communication
and a need for continual training support to get the concepts
across.
Training and the Shangri-La Academy
Despite Shangri-La’s commitment to highly personalized guest
service, performance still varied
considerably from hotel to hotel. Much of this variation was
tied to hotel location and economics, but
some was also tied to hotel management capability, leadership,
and culture. In addition, the Do
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company’s research reports showed that Shangri-La’s
aggressive expansion in China required the
company’s current workforce to grow from nearly 10,000 to
approximately 19,000 employees—all of
whom needed to meet Shangri-La’s customer service standards.
Shangri-La had to think bigger.
Bridle explained:
Another one of our challenges was to ensure that there are
enough qualified people to fill
growing needs. This concerned all staff levels, from frontline
staff and mid-level managers to
senior leaders. We decided to invest heavily in training, both
onsite in hotels and also at a
brand new training academy near Beijing.
In 2004, the company opened its first training facility in China,
the Shangri-La Academy, in efforts
at standardizing the delivery of its brand promise throughout its
network of hotels worldwide. While
the academy was primarily set up to train employees in China to
maintain consistent service delivery
across Shangri-La’s China hotels, all other Shangri-La hotels
were also asked to allocate budget for
this training and to send their high-potential employees to
undergo the training modules offered by
the Academy.
The training facility had six training rooms, a library, a
computer lab, training and demonstration
kitchens, a training restaurant, a training lounge, and a

housekeeping practice suite. The Academy
offered five-week to three-month training programs in western
service operations, culinary arts
(western cuisine), housekeeping operations, front office
operations, and advanced hospitality
management. The goal was to develop a new breed of
hospitality professionals with enhanced skills
and a strong service orientation equipped to adopt innovative
approaches in tackling challenges at
work. The academy’s broad curriculum ensured that learners
left the academy with the breadth and
depth of knowledge and skill to thrive in their careers and
advance global hospitality trends. After
the training programs, participants were awarded certificates in
F&B service, Housekeeping
operations, Front Office operations, Culinary Arts and the
Diploma in Hotel Management for the
Advance Hospitality Management Course.
The training programs focused heavily on preparing employees
to more effectively utilize
decision-making authority through the use of progressive and
interactive instructional
methodologies, such as role playing, to create the circumstances
employees would face. “In our
training facility we tried to simulate interaction with customers.
For instance, in our training
lounge—used as a restaurant in our restaurant simulation—we
would have people pose as
customers. They would come as guests, order food and
beverages, and go through the whole service
sequence. And our employees would get a chance to interact
with them and practice what they
learned in the classroom,” said Perry, Director of the Room
programs at the Shangri-La Academy.

In these interactive modules, a work situation scenario was
taught with emphasis on common
mistakes and best practices, so that trainees would learn to
examine and question why “things were
done in a certain way.” Classes were often videotaped and
analyzed for employee body language
and manner with “customers”. “What was their body language?
Did they smile? Was the hand in the
pocket when they served the customers? We would look at
things like that,” added Perry.
Tay Beng Koon, Director of Academic Development, added:
One of our challenges was that our employees could see the
immediate costs, as in I am
giving up this room, but could not easily see the long-term
implications. The issue was very
tangible on one side and intangible on the other. To emphasize
the future benefits, we
developed and focused on company-wide guiding principles.
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Shangri-La Care
Shangri-La’s employee philosophy was to develop local talent
to world class expectations. The
company had already launched its culture training program,
Shangri-La Care, in 1996 to ensure that
each global employee delivered service “the Shangri-La Way”
(see Exhibit 7). Shangri-La Care 1
focused on the five core values of Shangri-La Hospitality:
respect, humility, courtesy, helpfulness and
sincerity. The program was strongly supported by the top
management and continuously cascaded
through the organization. All hotels were required to allocate a
specific budget for training and
development, and the general manager of each hotel was
personally responsible for ensuring that all
the allocated funds were spent year after year.
As the company grew, Shangri-La added new modules to its
culture program. In 1998, Shangri-La
Care 2 was launched. In Module 2, the company focused on
retention and guest loyalty. Going the
extra mile, pleasing guests not just the first time but every
single time, being flexible and never saying
no, anticipating and responding quickly to customer requests,
and recognizing the guest’s individual

needs were emphasized.
In 2003, the company launched Shangri-La Care 3 to emphasize
the importance of recovery when
a mistake was made. In Module 3, the company focused on the
five steps to recovery—Listen,
Apologize, Fix the Problem, Go the Extra Mile, and Follow Up.
In 2005, Shangri-La announced its
fourth Shangri-La Care module, addressing the need of
employees to take responsibility for customer
satisfaction.
Compensation and Career Growth
By investing heavily in employee development, the company
was not only making its employees
valuable to Shangri-La but also to its competitors. “Retention
became a big problem,” said Tan Eng-
Leong. “Traditionally, our turnover had always been low, 19%-
20%, compared to the industry norm,
27%-28%, but the competition was offering 35% to 50% higher
salaries.”
Shangri-La had a three-tier compensation system. The
company’s level 1 employee—typically
division heads and hotel general managers (GMs)—were paid a
base salary and a bonus based on the
hotel’s overall performance. Overall, GM compensation was
heavily geared towards the financial
results (Gross Operating Profit and Gross Operating Revenue
attainment)1. Compensation for level 2
and 3 employees (e.g. property line managers) was similar to
the level 1 structure—salary and a
bonus pay—with the exception that factors such as customer
loyalty and employee satisfaction scores
were also linked to employee’s bonus awards. Employees at

levels 4 and 5 typically enjoyed a
common bonus incentive which was linked to property overall
performance, but not to individual
goals.
Bridle explained Shangri-La’s compensation structure:
We almost have a three-tier type of approach to it. We award
our GMs very much based on
the financial results: against budget and last year’s financial
performance. And there is a
discretionary element based on their leadership competency.
Level 2-3 compensation is also
linked directly to GM’s financial goals—everyone’s
compensation is—but at that level bonus
numbers start breaking down to additional goals that reflect
customer loyalty and employee
satisfaction. All these things come in below the GM level. So, if
you are at a level 3, you have
1 RevPar (Revenue Per Available Room) = A (Average Price
Per Room) * O% (Rate of Occupancy) Do
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more of directly measurable items like customer loyalty, quality
standards, and audit
standards. As you move up to Level 1 and 2, the compensation
becomes more financial results
oriented. However, even though our GM compensation doesn’t
have a direct link to customer
satisfaction, they still have incentives to make sure that those
goals are met. I think our senior
management, as in level 1 and 2, sees this. They see that the
performance is bottom-up; they
know without customer satisfaction they would not achieve
financial results.
He continued:
It is becoming more transparent now. I think the important step
for us is to move customer
satisfaction, employee satisfaction and some compliance goals
into the performance review

scoring system, still with its key emphasis on financial results,
to allow bonus/incentive
numbers to move up and down. And indirectly it may influence
your salary increment
potential as well.
At individual properties, incentive pay did not typically vary
across employees within each level.
Increasingly, Shangri-La corporate executives moved to
standardize pay practices across properties.
Dogan elaborated:
In our old system, we had a lot of variation in compensation
across properties. For instance,
when people moved from one property to another, sometimes
their compensation went down.
That was not fair. We realized that we needed to reform our
incentive pay model immediately.
To retain its work-force, the company also focused on creating
transparent, well-defined career
paths (see Exhibit 8). “Employees felt that an opportunity for
professional growth was a key
motivator,” said Tan Eng-Leong. “So we created a lot of
opportunities for our staff. We were
expanding and we promoted from within. Our expansion gave
huge opportunities to a lot of young
people. People frequently got promoted to another property. We
wanted to give our employees
career paths and opportunities outside of their areas that other
companies could not provide.”
Shangri-La’s growth created a lot of opportunities for
advancement. Within one to two years, most
Shangri-La Service Associates were promoted to be Service
Leaders. Another two years on the job

would get them a managerial position and if they worked four
years as a Senior Service Manager
they became Service Executives.
Shangri-La staff could also move laterally from property to
property. “Our expansion gave huge
opportunities for our employees. Not only were there
opportunities to move up within the property,
there were also opportunities to transfer to other Shangri-La
properties in exotic locations like Dubai.
Basically, if our staff decided to stay with our company, we
gave them a future,” Dogan added.
The company also tried alternative methods, including non-pay
recognition (i.e., contests, awards,
etc.) to motivate employees. Dogan recalled: “When I had the
staff assembly with 2000 people in the
ballroom, I used to get out there with a $100 bill and say
‘Anybody who has the guts to come up here,
from each department, and recite the guiding principle and tell
me what it means, come up here.’
People would storm the stage. It was a lot of fun, everyone was
cheering for their department, and it
was a simple, non-stressful way of getting them to make sure
that they knew it, understood it, and
practiced it. It became a real culture.”
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Expansion to the East: China’s Hotel Market
As Shangri-La trained its employees, fixed cultural issues, and
expanded its operations in China,
the company faced additional challenges. After twenty years of
rapid economic growth, China in
2006 had become the world’s fourth largest economy and one of
the world’s most attractive
destinations for tourists, which meant significant opportunities
for hotel development.iv According to
industry analysts, China would be Asia’s hottest spot for hotel
development in 2006, accounting for
nearly half of all new projects in the region.v Of the 386 hotels
actively in development throughout
Asia in 2006, 188 were in China, and 134 of those were rated
four- or five-star.vi
Competition
With growth slowing in Europe and North America, hotel chains

were targeting Asia—China in
particular—for their new growth. Soon after the International
Olympic Committee announced Beijing
as the 2008 Olympics’ host, premium hotels started to pop up
all over Shanghai, Beijing and other
Chinese cities as Regent, Ritz-Carlton, Hyatt, Sheraton and
others poured billions of dollars into
expansion.vii
By 2001, the U.K-based InterContinental Hotel Group (IHG),
which also operated the Crowne
Plaza and Holiday Inn chains, was the most ambitious player in
the Chinese market. IHG had a
portfolio of 51 hotels in China and planned to develop an
additional 74 by 2008.viii The U.S.-based
Marriott chain, which operated the Ritz-Carlton, Renaissance,
and Courtyard brands, had 26 hotels in
China and planned to expand its portfolio to 100 by 2010.
France’s Accor had 30 hotels under
development in China, all scheduled to open before 2008.ix
Wyndham Hotel Group, which also
owned the Ramada and Wingate Inn brands, had a portfolio of
60 hotels in China in 2006 and
planned to expand its China business at an annual rate of 40%
in anticipation of the 2008 Olympics.x
Local Hotels
Local hotels had poor brand recognition relative to their
overseas rivals. Some thought that the
influx of foreign capital and brands would force the local hotels
to improve their establishments and
services. However, none of the Chinese hotel chains could
match the name recognition and service
standards of Hilton, Hyatt, InterContinental, or Marriott. Some
local hotel groups considered forming

alliances with international brands, in which the local partner
would be responsible for funding the
construction of the hotel, while the foreign partner took on the
management and operation of the
business.
Pressure on Wages
Asia’s low labor costs boosted hotel gross profits significantly.
In 2001, China’s average cost of
manual labor averaged less than $1 per hour, while the U.S.
averaged $16 per hour (see Exhibit 9). As
a result, the hotel industry was more profitable in Asia than in
the West. A typical four- or five-star
luxury hotel in Asia achieved gross profit margins of 35% to
45%, compared with 20% to 25% in the
West.xi
In 2001, several major international hotel chains entered the
Chinese deluxe (four- and five-star)
hotel market, creating sudden demand for skilled hotel workers.
Newcomers either poached Shangri-
La’s trained staff or offered higher than average industry wages
to attract their own. Shangri-La, the
only major player in China up until that point, found it difficult
to keep up with the competition. Do
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“Consider Beijing,” Bridle said. “A half-dozen five-star hotels
coming into the market... Our
reservation managers are being offered 35% higher salary by
our competitors. Our security managers
are being offered 50% higher!” Shangri-La’s low annual
turnover rates of 19% to 20%—versus 27%-
28% for the industry as a whole—were under threat.
Dogan commented:
With China coming onto the world stage, what I am finding out
is that some of our staff is
like ‘gold dust’ to outside industry. Our trained, English
speaking front office staff is whisked
away when the multinationals come in to set up their company.
That is our biggest challenge.
Expansion to the West
China was not Shangri-La’s only focus. The company was about
to launch multiple hotels in
Europe, Australia, and North America. These countries had

relatively more expensive labor markets,
where trained hotel staff was in short supply. In Sydney, for
instance, the typical staff-to-guest ratio
was 0.8 (compared to Shangri-La’s 1.5). Chicago, Miami, Las
Vegas, Vancouver, and Toronto—some
of the locations Shangri-La targeted for expansion—all had
similar labor markets. The only exception
was Paris, with a staff-to-guest ratio of 2.1 or higher, but this
was driven by Paris’ comparatively high
hotel prices. A typical five-star hotel room in Paris usually went
for �600 or �700. “Unfortunately, this
pricing strategy, cannot necessarily be translated into other
markets where new Shangri-La’s were
coming,” Bridle said. “Charging more for rooms could not
really be considered as an option in new
high-wage markets, since pricing is dictated by the market.”
He continued:
During our expansion, our main concern is to maintain
worldwide service quality
standards and deliver excellent service to customers. An
immediate, and long-term, challenge
is to ensure that signature Shangri-La quality and service
standards are translated to new
hotels in new markets. It’s been said that you only have one
chance to make a first impression
and guests must know they will experience the essence of
Shangri-La hospitality wherever one
of its hotels opens its doors. And when loyal Shangri-La guests
travel outside the region, they
must experience the same level and style of service they have
come to expect at Shangri-La
hotels and resorts in Asia-Pacific and the Middle East. We need
to maintain control and
translate our Asian service model into tighter labor markets in

the western world.
Superior customer care was typical of many luxury Asian hotels
and was definitely a standard at
Shangri-La and to deliver a consistent experience of Asian
grace, warmth, and care—what Shangri-La
called “Shangri-La Hospitality”—all of its hotels maintained a
high staff-to-guest ratio. In Hong Kong
and Singapore, for example, this ratio was close to 1.25 to 1.5
staff per guest. In developing countries
it could be as high as 2.5 to 3.0 staff per guest.xii Keeping a
high ratio of staff-to-guests, which ensured
better service and attention to detail, had never been an issue
for Shangri-La in low-wage countries
like Malaysia or China; however, the practice was not easily
transferable to high-wage countries such
as the U.S., Australia, or Canada—at least not without creating
unacceptably high payroll costs.
Looking Ahead
As Bridle grabbed the phone to call his assistant to schedule
another executive meeting, a stream
of questions rushed through his mind. Did Shangri-La need to
alter its strategy? Could they maintain Do
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their unique brand of Shangri-La Hospitality as they moved into
tighter labor markets? They were
battling high-end Western hotel chains at home and abroad and
needed to overcome wage and
cultural issues in their properties across the globe.
Bridle wanted to ensure that Shangri-La maintained its service
model as they continued to
expand. “We need to have a consistent platform and consistent
service quality,” thought Bridle. With
the first of the new slate of hotels scheduled to open in 2007,
time was running out.
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Exhibit 1 Shangri-La Hotels and Resorts Growth Timeline
1971 April Shangri-La Hotel, Singapore, opens (managed by
Westin until January 1983)
1979 Kuok Hotels established to manage three properties:-
Rasa Sayang (2004 November) temporarily closed for re-
development and
re-opened in September 2006
Golden Sands
The Fijian
1981 April Kowloon Shangri-La opens (managed by Westin
until April 1991)
1983 January Shangri-La International Hotel Management
Limited (management takeover
of Shangri-La Hotel, Singapore)

1984 November Shangri-La Hotel, Hangzhou (management
takeover of Hangzhou Hotel)
1985 April Shangri-La Hotel, Kuala Lumpur opens
1986 March Shangri-La Hotel, Bangkok opens
April Shangri-La Hotel, Penang opens
October Shangri-La Hotel, Beijing opens
1988 December Shangri-La’s Tanjung Aru Resort, Kota
Kinabalu (management takeover)
1989 December Traders Hotel, Beijing opens
1990 July China World Hotel, Beijing opens
1991 March Island Shangri-La, Hong Kong opens
April Kowloon Shangri-La, Hong Kong (Shangri-La assumes
management)
1992 August Edsa Shangri-La, Manila opens
September Shangri-La Hotel, Shenzhen opens
1993 March Rasa Sentosa Resort, Singapore opens
April Makati Shangri-La, Manila opens
June Shangri-La Golden Flower, Xian (management takeover)
October Shangri-La’s Mactan Island Resort & Spa, Cebu opens
1994 March Shangri-La Hotel, Jakarta opens
March Shangri-La’s Far Eastern Plaza Hotel, Taipei opens
1995 January Rebranding of Traders Hotel, Manila
January Shangri-La Hotel, Surabaya opens

April Traders Hotel, Singapore opens
1996 April Shangri-La Hotel, Beihai opens
June Shangri-La’s Rasa Ria Resort, Kota Kinabalu opens
August Traders Hotel, Shenyang opens
August Shangri-La Hotel, Changchun opens
November Traders Hotel, Yangon opens
1997 August Shangri-La Hotel, Qingdao opens
December Shangri-La Hotel, Dalian opens
1998 August Pudong Shangri-La, Shanghai opens
1999 April Shangri-La Hotel, Wuhan opens
April Shangri-La Hotel, Harbin opens
August The Kerry Centre Hotel, Beijing opens
2003 February Putrajaya Shangri-La Hotel opens
July ANA Harbour Grand Hotel rebrands as Shangri-La Hotel,
Sydney, Australia
July Shangri-La Hotel, Dubai opens
2004 January Shangri-La Hotel, Zhongshan opens Do
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July Traders Hotel, Dubai opens
August Shangri-La Hotel, The Marina, Cairns re-branding
2005 January Traders Hotel, Changzhou opens
January Shangri-La Hotel, Fuzhou opens
September Shangri-La Hotel, New Delhi opens
October Traders Hotel, Kunshan opens
2006 February Shangri-La’s Barr Al Jissah Resort and Spa,
Muscat opens
July Traders Hotel, Kuala Lumpur opens
Shangri-La Hotel, Suzhou opens
2007 January Shangri-La Hotel, Guangzhou opens
Source: Shangri-La Hotels and Resorts, http://www.shangri-
la.com/en/home.aspx, accessed February 5, 2007.

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Exhibit 2 Ongoing Shangri-La Developments
Hotel Name Hotel Location
Expected
Opening Date
Shangri-La Hotel, Chiang Mai Chiang Mai, Thailand 2007
Shangri-La Hotel, Xian Xian, China 2007

Shangri-La Hotel, Baotou Baotou, China 2007
Futian Shangri-La, Shenzhen Futian, China 2008
Shangri-La Hotel, Huhhot Huhhot, China 2007
Shangri-La Hotel, Chengdu Chengdu, China 2007
Shangri-La Hotel, Qaryat Al Beri, Abu Dhabi Abu Dhabi, UAE
2007
Shangri-La Hotel, Bangalore Bangalore, India 2008
Traders Hotel, Bangalore Bangalore, India 2009
Shangri-La’s Phuket Resort and Spa, Thailand Phuket, Thailand
2009
Shangri-La Hotel, Manzhouli Manzhouli, China 2008
Shangri-La Hotel, Doha Doha, Qatar 2008
Palm Retreat Shangri-La, Bangalore Bangalore, India 2008
Shangri-La Hotel, Ningbo Ningbo, China 2008
Shangri-La Hotel, Vancouver Vancouver, Canada 2009
Shangri-La Hotel, Wenzhou Wenzhou, China 2008
Shangri-La Hotel, Macau Macau 2009
Traders Hotel, Macau Macau 2009
Shangri-La’s Villingili Resort and Spa, Maldives Villingili
Island, Maldives 2008
Traders Hotel, Urumqi Urumqi, China 2009
Shangri-La’s Boracay Resort and Spa, Philippines Boracay,
Philippines 2008
Shangri-La Hotel, Palais d’Iena, Paris Paris, France 2009

Shangri-La Resort and Spa, Seychelles Mahe, Seychelles 2009
Shangri-La Hotel, Chicago Chicago, U.S. 2009
Shangri-La Hotel, Guilin Guilin, China 2009
Shangri-La Hotel, Tokyo Tokyo, Japan 2009
Shangri-La Hotel, Miami Miami, U.S. 2010
Shangri-La Hotel, Dongguan Dongguan, China 2009
Shangri-La Hotel, Las Vegas Las Vegas, U.S. 2010
Shangri-La West, Jingan, Shanghai Jingan, China 2010
Shangri-La Hotel, at London Bridge Tower, London London,
United Kingdom 2011
Shangri-La Vienna Vienna, Austria 2010
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Exhibit 3 Shangri-La Asia Ltd., Annual Income Statements,
2002–2006* (in USD millions)
2006 2005 2004 2003 2002
Filed Currency USD USD USD USD USD
Net Sales 1002.9 842 725.5 540.4 600.5
Revenue 1002.9 842 725.5 540.4 600.5
Total Revenue 1002.9 842 725.5 540.4 600.5
Cost of Revenue 408.8 345.6 308.5 234.4 248.8
Cost of Revenue, Total 408.8 345.6 308.5 234.4 248.8
Gross Profit 594.1 496.4 417 306 351.8
Selling/General/Administrative Expense 121.3 114.3 90.5 77.4
80.1
Total Selling/General/Administrative Expenses 121.3 114.3 90.5
77.4 80.1
Other Operating Expense 279.8 238.4 209.9 116.3 155.8

Other, Net -80.3 -44.7 -26 -23.7 -6.9
Other Operating Expenses, Total 199.5 193.7 183.8 92.6 149
Total Operating Expense 729.6 653.6 582.8 404.4 477.8
Operating Income 273.3 188.4 142.7 136 122.8
Interest Expense - Non-Operating -32.5 -39.9 -52.7 -48.6 -43.8
Interest Capitalized - Non-Operating - 7 4.4 2.3 1.7
Interest Expense, Net Non-Operating -32.5 -32.9 -48.3 -46.4
-42.1
Investment Income - Non-Operating 42 64.3 41 38.8 41.7
Interest/Investment Income - Non-Operating 42 64.3 41 38.8
41.7
Interest Income (Expense) - Net Non-Operating 9.5 31.5 -7.3 -
7.6 -0.4
Income Before Tax 282.8 219.8 135.4 128.4 122.4
Total Income Tax 63.5 52.3 12.9 46.4 49.7
Income After Tax 219.3 167.5 122.5 82 72.7
Minority Interest -17.2 -16.5 -9 -9.3 -9.3
Net Income Before Extraord Items 202.2 151 113.5 72.7 63.4
Net Income 202.2 151 113.5 72.7 63.4

*2006 projected
Source: Shangri-La Asia Ltd. Financial Report (Reuters), via
OneSource, accessed February 26, 2008.
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Exhibit 4 Shangri-La Asia Ltd., Summary of Balance Sheet,
2002–2006* (in USD millions)
2006 2005 2004 2003 2002
Cash and Short Term Investments 380.3 313.8 223.9 199.1

164.8
Total Receivables, Net 112 126.9 157.4 152.9 166
Total Inventory 22 20.7 18.9 17.4 15.7
Total Current Assets 627.6 492.1 417.2 369.4 346.4
Property/Plant/Equipment - Net 3045 2508.6 2393.7 3761.6
3605.1
Goodwill, Net 75.8 76.8 -109 -116.3 -122.1
Intangibles, Net 393.1 385 379.5 - -
Long Term Investments 925.7 790.5 626.4 723.4 725.5
Other Long Term Assets, Total 4.6 6.6 7.6 4.3 4.6
Total Assets 5075.7 4263.1 3720.1 4742.5 4559.5
Other Current liabilities, Total 248.3 205.2 169.1 1.7 4.9
Total Current Liabilities 355.4 418.4 320 333.2 271.4
Long Term Debt 1506.4 990.4 952.7 1037.2 1010.9
Total Long Term Debt 1506.4 990.4 952.7 1037.2 1010.9
Total Debt 1549.3 1143.3 1056.6 1215.2 1141
Deferred Income Tax 211.9 202.2 189.5 356.6 339.8
Other Liabilities, Total 26.6 21.8 92.5 - -
Total Liabilities 2376.5 1882 1742.4 2118.5 2004.4

Common Stock 330.7 326.4 310.6 282 281.8
Other Equity, Total 108.6 -39.6 -43.9 56.5 27.1
Total Equity 2699.2 2381 1977.7 2624 2555.1
Total Liabilities; Shareholders; Equity 5075.7 4263.1 3720.1
4742.5 4559.5
Total Common Shares Outstanding 2560.8 2527.4 2404.3 2181.3
2179.7
*2006 projected
Source: Shangri-La Asia Ltd. Financial Report (Reuters), via
OneSource, accessed February 26, 2008.
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Exhibit 6 Shangri-La Mission Statement
Our Philosophy
Shangri-La hospitality from caring people
Our Vision
The first choice for customers, employees, shareholders and
business partners
Our Mission
Delighting customers each and every time
Our Guiding Principles (Core Values)
We will ensure leadership drives for results.
We will make customer loyalty a key driver of our business.
We will enable decision making at customer contact point.
We will be committed to the financial success
of our own unit and of our company.

We will create an environment where our colleagues
may achieve their personal and career goals.
We will demonstrate honesty, care and integrity
in all our relationships.
We will ensure our policies and processes are customer
and employee friendly.
We will be environmentally conscientious and provide
safety and security for our customers and our colleagues.
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Exhibit 7 The Shangri-La Care (a.k.a. Shangri-La Way)
Care Module 1: Shangri-La Hospitality from Caring People
(Launched in 1996)
Addresses how to make our guests feel special and important by
focusing on the five core
values of Shangri-La Hospitality: Respect, Humility, Courtesy,
Helpfulness and Sincerity. It also
imbues the value of ‘Pride Without Arrogance’ as the service
hallmark.
Care Module 2: Delighting Customers (Launched in 1998)
Focuses on the importance of guest loyalty and how it can only
be achieved by delighting our
guests not just the first time but every single time. Employees
must be guest obsessed, doing
more for guests by ‘going the extra mile’, being flexible and
never saying no, anticipating and
responding quickly, and recognizing the guest’s individual
needs.

Care Module 3: Recover to Gain Loyalty (Launched in 2003)
Highlights the importance of recovery when a mistake is made.
When recovery is done well, it
may be an opportunity to gain further commitment and loyalty
but if there is no or poor recovery
the lifetime value of the guest is lost in addition to at least 25
others who may hear of the
incident through word of mouth. The module teaches the five
steps to recovery - Listen,
Apologize, Fix the Problem, Delight - the Extra Mile and
Follow Up.
Care Module 4: Take Ownership (Launched in 2005)
Addresses the importance of our employees taking ownership -
to show care for our customers,
colleagues and company. The driver of ownership is “SELF,”
which means S - Show
commitment, E - Eager to take initiative, L - Lead ourselves and
F - Filled with passion. This
module attempts to create in our employees the mind-set to live
in an environment that is filled
with Care for guests, Compassion for colleagues and Pride in
our Company.

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Exhibit 8 Career Path in Shangri-La
Source: Shangri-La Academy Beijing, http://www.shangri-la-
academy.com/careerpath/en/index.aspx, accessed January 21,
2008.
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Exhibit 9 Hourly Wages by Country
Country Dollars per Hour
Japan 16.46
United States 16.14
Europe 14.13
Singapore 6.72
Korea 5.69
Taiwan 5.18
Mexico 2.08
Brazil 2.04
China .61

Source: Bureau of Labor Statistics; China Statistical Yearbook,
http://www.bls.gov/opub/cwc/content/articles.stm, accessed
March 28, 2007.
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Endnotes
i “Shangri-La Hotels and Resorts,” http://www.shangri-
ii “Tej Company Profile - Shangri-La Asia Ltd,” Taiwan

Economic Journal, available via Factiva, accessed
February 2, 2007.
iii “Shangri-La Hotels Opens The Shangri-La Academy to
Provide Chinese Students Hospitality Tools and
Training,” http://www.hotel-
online.com/News/PR2004_4th/Dec04_ShangriLaAcademy.html,
accessed April
18, 2007.
iv “China, India to drive strong growth in emerging Asia: IMF,”
Agence France Presse, April 11, 2007, available
via Factiva, accessed April 11, 2007.
v “First-ever Lodging Development Pipeline for Asia Reveals
China as Having the World’s Largest
Development Activity Outside the U.S.,” Lodging
Econometrics, June 2, 2006, accessed April 18, 2007.
vi “InterContinental ramps up China growth pace,” Reuters
News, October 17, 2006, available via Factiva,
accessed March 12, 2007.
vii “China Hotel and Tourism News,”
http://www.chinaeconomicreview.com/hotels/2006/08/, accessed
April 10, 2007.
viii “Intercontinental Hotels Transcript of Preliminary Results
Conference,”
http://www.ihgplc.com/files/presentations/prelims05/conference
_call_transcription.pdf, accessed April 18,
2007.
ix “Competition heats up in hotel market,” China Daily,
September 27, 2006, available via Factiva, accessed

March 12, 2007.
x “Wyndham plans rapid China hotel growth, eyes India,” New
Zealand Press Association, October 12, 2006,
available via Factiva, accessed March 29, 2007.
xi “A tasteful host,” Forbes, July 28, 1997, available via
ProQuest, accessed April 10, 2007.
xii “Shangri-La Hotels to spread their allure to Vancouver,”
Sun, September 24, 2004, accessed April 12, 2007.
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9-601-163

R E V : S E P T E M B E R 3 0 , 2 0 0 5
_____________________________________________________
_____________________________________________________
______
Senior Lecturer Sandra J. Sucher and Research Associate Stacy
E. McManus prepared this case. HBS cases are developed solely
as the basis for
class discussion. Cases are not intended to serve as
endorsements, sources of primary data, or illustrations of
effective or ineffective
management.
Copyright © 2001 President and Fellows of Harvard College.
To order copies or request permission to reproduce materials,
call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163,
or go to http://www.hbsp.harvard.edu. No part of this
publication may be
reproduced, stored in a retrieval system, used in a spreadsheet,
or transmitted in any form or by any means—electronic,
mechanical,
photocopying, recording, or otherwise—without the permission
of Harvard Business School.
S A N D R A J . S U C H E R
S T A C Y E . M C M A N U S
The Ritz-Carlton Hotel Company
The Master said, Govern the people by regulations, keep order

among them by chastisements, and they will
flee from you, and lose all self-respect. Govern them by moral
force, keep order among them by ritual, and they
will keep their self-respect and come to you of their own
accord.
— The Analects of Confucius
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,
McBride’s most recent assignment was as the general manager
of the 248-room Ritz-Carlton in Kuala
Lumpur. Opened in 1998, the hotel was named “Best Hotel in
Asia-Pacific” in the eighth Business
Traveler Asia/Pacific magazine Travel Awards Subscribers’
Survey and, for two consecutive years,
“Best Business Hotel in Malaysia” by Business Asia and
Bloomberg Television.1 As Nikheel Advani,
food and beverage services director for the Washington hotel,
noted: “James is excellent—we have
opened many hotels together. In the place where you didn’t
think that it had a chance, he made it the
best hotel. That’s his talent. That’s what he can do really well.
It’s for the entrepreneurial person
who wants to get involved and who thinks they can make a
difference.”
But this was a new situation, even for McBride. 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-and-
a-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.
1 The Mystique: The Ritz-Carlton Hotel Company, L.L.C.
Employee Newsletter, Winter 2000.
For the exclusive use of P. OSSOLA, 2021.
This document is authorized for use only by PAOLA OSSOLA
in 2021.
601-163 The Ritz-Carlton Hotel Company

2
The Ritz-Carlton History
In 1898, Cesar Ritz saw his dream come true. Having left
behind his life as a shepherd in
Switzerland, he moved to Paris where he worked in some of the
finest hotels and restaurants in the
city before finally opening the grand hotel that bears his name.
One year later, he opened London’s
Carlton Hotel, setting the stage for what would ultimately
become The Ritz-Carlton Hotel Company.
Relying on the famous hotelier’s vision of excellent
personalized service that satisfied the most
discerning guests, The Ritz-Carlton expanded to North America.
One Great Depression and two
world wars later, many of the luxurious hotels had folded. By
1983, when the Atlanta-based Johnson
Company bought the North American rights to The Ritz-Carlton
name, only the hotel in Boston had
survived, thanks to the largesse of a wealthy property owner.
From 1983 until 1997, The Ritz-Carlton
expanded domestically and internationally under the Johnson
Company’s ownership.
In 1997, Marriott International purchased The Ritz-Carlton,
which operated as a wholly owned
subsidiary. By the end of 2000, The Ritz-Carlton was primarily
a management company operating 38
hotels and resorts across the globe (see Exhibit 1 for
comparisons between The Ritz-Carlton and Four
Seasons), with minority equity stakes in 10 properties and
outright ownership of 3 hotels. The
primary growth strategy for The Ritz-Carlton was to obtain
management contracts for new hotels

and resorts around the world (see Figure A).
Figure A Ritz-Carlton New-Hotel and Resort Openings Since
1983
0
1
2
3
4
5
6
19
83
19
84
19
85
19
86
19
87
19
88

19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00

Source: Company. Number of openings represent only those
that remained under the management of The Ritz-Carlton
Hotel Company through 2000.
Millennium Partners Overview
Millennium Partners was a New York-based real estate
development group founded in 1990 by
Christopher Jeffries, Philip Aarons, and Philip Lovett. The
principals initially set out to create high-
end luxury apartments that would command premium prices
from wealthy individuals looking for
second or third homes in world-class cities. Millennium’s
Lincoln Square four-building complex in
New York City was their first project, setting the tone for future
developments. The address for
celebrities such as Regis Philbin and Rosie O’Donnell also
included the renowned Reebok Sports
Club/NY, as well as the highest-grossing theater complex in the
United States—Sony’s 12-screen
Lincoln Square multiplex.
in 2021.
The Ritz-Carlton Hotel Company 601-163
3
Brian Collins joined Millennium Partners Management in

December 1996 as their CFO,
subsequently becoming the COO and a partner, as well as a
principal and the president of
Millennium Hospitality Partners. Collins explained how they
came to be hotel owners:
We are residential developers who ended up in the hotel
business. It was not our intention
to end up owning eight hotels, which is what we have under
construction today—six Ritz-
Carltons and two Four Seasons. Our intention was to create a
base for our luxury apartments.
Our vision is that apartments sell for a substantial premium if
they have height, light, and
views. The trick then was what to create below those
apartments, which is both economical
and adds to the residential experience, which also lifts it up in
the air. So you try to do it with
the best theater company, one who understands our vision.
Then we’re starting on the third
floor. And you try to do it with a Sports Club. Their box, their
basketball court, is about 29
feet, and that’s another three stories. So if we do nothing else
but have those two, we’re 60 feet
in the air. Washington’s a bad example, because we have a 110-
foot height limit. In San
Francisco, the hotel is 13 stories, so the apartments are starting
maybe 250 feet up in the air.
And now you don’t have any apartments that don’t have height,
light, and views.
The other thing that helps sell residential properties is services.
We said “Well, how can we
solve this service problem? How do we convince people that
they’re going to get great, great,
great service?” And Chris Jeffries hit on the idea of a luxury

hotel. At the high end of the
market, there’s really two choices: Ritz-Carlton and Four
Seasons. Ritz and Four Seasons are
clearly the best hotel operators. So we’ve approached both, and
we’re doing deals with both.
Business Model
Millennium Partners was one of the several hotel owners for
whom The Ritz-Carlton managed
properties. The Ritz-Carlton charged management fees that
were typically 3% of gross revenues,
augmenting their income stream with revenues from land rent,
resort timesharing, franchise fees,
management incentives, and profit sharing.2 While there were
many independently owned and
operated luxury hotels around the world, The Ritz-Carlton and
Four Seasons were the two most
internationally recognized chains serving the highest end of the
market.
Two key indicators of success in the hotel industry were the
average daily rate (ADR) and the
revenue per available room (RevPAR; see Exhibit 2). While the
ADR was bounded on the upper end
by what the local markets would bear, RevPAR was influenced
by both ADR and occupancy rates.
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.
Guests
Independent travelers, whether for business or pleasure, were
courted in a variety of ways. For

instance, when McBride was the general manager of The Ritz-
Carlton in Kuala Lumpur, he greeted
travelers at the airport with mimosas and discount coupons
presented on silver trays, serenaded
them with piano concertos, and even created a hotel room in the
airport, complete with an armoire,
bed, television, and other accoutrements representative of the
hotel’s furnishings. As he prepared for
the opening of the new hotel in Washington, D.C., McBride held
an afternoon tea in Washington
2 1999 Marriott Lodging Annual Report.
in 2021.
4
Circle, with 100 ambassadors, prominent citizens, and members
of the media enjoying the city’s
famed cherry blossoms as they rode to the tea in horse-drawn
carriages and open trolleys.
Additionally, McBride worked to attract business travelers to
The Ritz-Carlton. In Kuala Lumpur,
he introduced the “Technology Butler,” which comprised a staff
of technicians available 24 hours a
day to assist guests with computing problems and other
technological difficulties. In Washington,

McBride created a concierge desk at the Delta Shuttle at
National Airport, implementing airport
check-in procedures which provided customer convenience that
outpaced the competition.
Beyond the individual initiatives of general managers, The Ritz-
Carlton worldwide focused on the
role of meeting events in attracting independent business
travelers. The Ritz-Carlton recognized that
event attendees were previewing the hotel, making every
interaction they had during their stay
another step in a “progressive trial.” This perspective reflected
the organization’s recognition that
their product pipeline was different from those of many
others—the customers had to come to them.
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.
According to Patrick Mene, The Ritz-Carlton’s corporate vice
president of quality:
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—it’s an extremely perishable product.
That’s why the meeting business is
so desirable, because it is presold, it’s contracted, and it’s a
growing market. It’s a more
controllable segment of our business.

Management Contracts
Having a strong meeting events business helped The Ritz-
Carlton maintain profitability and
provided property owners with acceptable returns on their
investments (typically 10% to 12%,
unleveraged). Nevertheless, the expense involved in operating
luxury hotels (see Exhibit 3)
sometimes strained relations between the management company
and the property owners.
During the early 1980s when the hotel industry was growing at
a healthy pace, traditional
management contracts tended to meet the needs of both owners
and operators. However, owners
throughout the hotel industry had been agitating for more voice
in how their properties were
managed. A strong supply of management companies and a
sudden decline in hotel demand led to
owners gaining leverage in the management contract negotiation
process,3 a change that was
facilitated by the U.S. real estate crash of the late 1980s. Many
property owners lost their
investments, some of whom had contracted the services of The
Ritz-Carlton.
In fact, had it not been for such difficulties, The Ritz-Carlton
might never have been working with
Millennium Partners on the new Washington, D.C., multi-use
facility. The Ritz-Carlton had
previously operated a hotel in that city, but the owner, Saudi
Arabian sheik Abdul Aziz bin Ibrahim
al-Ibrahim, sued the company in 1995, alleging that The Ritz-
Carlton operated for its own profit to
the detriment of the property owner’s interest. Mene provided
his perspective on the situation:

3 James J. Eyster, “Hotel Management Contracts in the U.S.:
The Revolution Continues,” Cornell Hotel and Restaurant
Administration Quarterly 38 (3) (June 1997): 14–20.
in 2021.
5
The lawsuit involved four hotels located in New York,
Washington, Aspen, and Houston,
all owned by the same person. It made all the major business
publications. Quite frankly, the
owner just paid too much for these hotels. Our performance
was noble, but he wasn’t going to
get his return on investment for a while, and his advisors never
told him that. He just paid too
much for the hotels and wanted to shift the blame to us. It took
a little bit of luck, although we
did walk away from him. I don’t want to say the owner
relations are adversarial in a typical
hotel contract, but they can become strained.
Quality at The Ritz-Carlton
When Patrick Mene joined The Ritz-Carlton in 1990 as the chief
quality officer, his primary
mission was to integrate and prioritize the values and concepts

of the Malcolm Baldrige National
Quality Award criteria at all the company’s hotels around the
world. But before financial resources
could be allocated to operational process improvements, Mene
had to convince Horst Schulze, The
Ritz-Carlton’s president and COO since 1984 (see Exhibit 4 for
a partial organizational chart), of the
importance of system and process development. As Mene
recalled:
When I got here, human resources was literally the dominant
function in this company.
And I said, “Let’s take this—we hired the right person. They’re
a perfect Lady and Gentleman,
they went through orientation. Let’s put them at the front desk.
And the desk is too high to
work with, and the temperature is too hot, and the computer has
the wrong information
coming in from another department—they can’t function.”
So for the next few years, Schulze would say to me, “Pat, you
always try to take the human
element out of it.” And one day I was bold enough to say,
“Yeah, you’re right. Because you
know what? If there were better people out there, you’d have
found them by now. And I’m
going to show you that we can have a ham sandwich run a Ritz-
Carlton.” Well, the battle lines
were drawn.
While The Ritz-Carlton continued to maintain a heavy emphasis
on human resources, the total
quality management (TQM) philosophy began to permeate the
organization. Using the Malcolm
Baldrige National Quality Award criteria as a set of guidelines,
Schulze and Mene focused on a

variety of new activities and measures, including the cost of
poor quality, continuous improvement,
quality planning, benchmarking, supplier certification, and
quality audits. Other programs were
designed to meet specific customer needs, such as safety
protocols to protect the children of guests,
and the Service Quality Indicators (SQIs) were established (see
Exhibit 5).
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

in 2021.
6
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.
Even so, the standards The Ritz-Carlton had already established
were recognized as outstanding
(see Exhibit 6). The company applied for and won the Baldrige
Award in 1992, becoming the first
organization in the hospitality industry to receive the coveted
honor. The extensive feedback report
from the Baldrige evaluators identified an additional 75 areas
for improvement and, using those
suggestions as action guidelines, The Ritz-Carlton applied for
and won the award again in 1999,
becoming only the second American company to earn the
distinction more than once. Schulze
expressed his belief in TQM:
Winning this award confirms that quality is not a short-term
approach to doing business.
Instead, it is a road map that allows us to achieve the highest
customer and employee
satisfaction in the industry. Continuous improvement is
absolutely critical. If managers are
not improving something every day, they are on a death path.

Companies that are plateauing
because of traditional management will die. Period.
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 full-
time 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. For example, Kate Monahan
advanced from reservations manager
to general manager: “Fourteen years ago, I set out to find a
job—but what I began was a career.
Along the way, The Ritz-Carlton has nurtured and maximized
my talent.”4 Similarly, Alex Garza
began as a line cook and eventually became an executive sous
chef. As Garza stated:
4 As quoted in The Mystique: The Ritz-Carlton Hotel
Company, L.L.C. Employee Newsletter, Winter 2000.
in 2021.
7
The Ritz Carlton has been a kind and generous employer. I
have always been treated fairly

and as a gentleman, with the utmost respect for my talents.
Because this organization cared
about my career path and my goals from the outset, and because
it has demonstrated respect
for my talents along the way, I have been able to grow. At The
Ritz-Carlton, opportunities for
advancement are everywhere. It’s up to you how far you want
to go.5
Through the extensive formal and informal training offered by
The Ritz-Carlton (see Exhibit 7),
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.
Performance at The Ritz-Carlton was not only assessed against
the established Service Quality
Indicators but also managed by the employees themselves. As
Inghilleri explained:
We have created an environment where there is no fear of
retribution, an environment
where employees understand that their responsibility is not only
to fulfill functions but also to
have a purpose. One of their purposes is to improve the system.
When you have a good
person and you create a good environment for that person, he or
she doesn’t come to work to
do a bad job—they come to work to do a good job. So it
doesn’t make sense for us to punish
people if something goes wrong.
We verify whether the problem is a lack of resources or a lack

of training, and then we
address the problem accordingly. 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.
In addition to employees monitoring their own performance,
individuals were recognized for
outstanding work in a variety of ways, including small awards
given within departments, as well as
larger rewards that occurred at the hotel level. For instance,
each year every hotel identified
members of a “Five-Star Team,” each of whom received five
complimentary nights at a Ritz-Carlton
hotel of their choice, $500 to spend, and round-trip airfare for
two.
The Ritz-Carlton Hotel-Opening Process
According to one manager at The Ritz-Carlton, “Running an
ongoing operation is a very different
thing from opening a new hotel. They are actually two different
core competencies.” The processes
and focus of activity for creating new hotels were two-pronged:
one dealing with the development of
the site itself, the other involving the human resources
processes necessary to get the hotel up and
running. The entire hotel development process was assessed
against Performance Quality Indicators
(PQIs; see Exhibit 8), the 10 defects identified by The Ritz-
Carlton as most likely to lead to problems

with both quality and financial performance. Mene noted that
while developing a hotel was “a very
complex, cross-departmental, cross-functional, cross-company
process in general, the PQI represents
the key pitfalls.”
5 Ibid.
in 2021.
8
The Property
Many decisions had to be made when The Ritz-Carlton set out
to open any new hotel, including
site selection, concept/new-product development, feasibility
studies, and management contract
negotiation. When explaining the importance of site selection,
Mene succinctly stated, “I mean, let’s
just put it this way. What if we build a 300-room hotel where
there’s no hotel needed at all? You’re
dead. It’s done. It’s over.” The new Washington, D.C.,
location was desirable because of its
proximity to several sites of interest, such as the White House
and Capitol Hill, Embassy Row, and
the Foggy Bottom Historic District; Washington’s status as a
global destination; and the potentially

strong clientele base of foreign diplomats and local residents.
Feasibility studies were conducted that identified the primary
target customers, as well as their
wants, needs, and expectations. Then financial evaluations
determined the cost to the developer and
the price charged to the customers—two key issues for
consideration prior to moving ahead. All of
this activity was carried out in a time-pressured environment.
As Mene noted: “Late feasibility
studies are deadly, because the developers may be talking to our
foremost competitor and they may
be faster with the feasibility study than us. We’re really in
competition here.” Once a contract had
been signed, construction on the new property began, with both
The Ritz-Carlton and the owners
participating in decisions regarding the development.
Market Customization
In addition to general concerns about the property, The Ritz-
Carlton had to customize each hotel
to meet local market demands. As McBride elaborated, “There
is great credence given to the
importance of taking local information and then adapting to it.
That’s what we learned in Asia, and
that’s what I’ve been doing for six years—adapting locally to
do business there.” One of the
adaptations that occurred at the new Washington, D. C., hotel
involved the Secret Service walking the
site and discussing the planning of entrances and exits with the
developers. Given the likelihood of
foreign diplomats and ambassadors being guests of the hotel,
security design became an issue of
potential international importance.

Innovations for the savvy guests the hotel expected to attract
took more creative turns as well. For
example, McBride planned to link services provided by the
hotel’s main restaurant, Kobalt, to the
Internet. Customers would be able to go to KobaltExpress.com
where they could order their menus
ahead of time and select the table they would like to reserve,
while [email protected] would allow
condominium residents to order meals to their suites. McBride
also planned to incorporate an
exhibition kitchen into the Kobalt, explaining, “This restaurant
is not going to be a traditional Ritz-
Carlton restaurant.”
That was not the only aspect of the new hotel that broke with
tradition; according to Collins,
Millennium Partners took an active role in defining the interior
spaces: “We picked out all the art.
You won’t see one English hunting scene in this hotel—and it’s
been painful for the Ritz. Their
competition is the Four Seasons, and the Ritz has been resting
on its laurels—‘We’re an English kind
of hotel’—and that just is not going to get it done in the 2000s.
It’s just not what people want.”
Millennium Partners’ choices of artwork resulted in a collection
valued at about $2 million, including
hand-blown glass designs by Seattle’s Dale Chihuly. The
highest thread-count Egyptian cotton fabric
was used for all the linens, down comforters covered each bed,
and the bathrooms were tiled in beige
and white marble. Further breaking with traditional Ritz-
Carlton designs, the property contained a
34,000-square-foot Japanese garden complete with a cascading
waterfall, bamboo plants, and willow
trees.

in 2021.
9
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. In hotels that were
already operating, the selection process
was often inverted, with the line staff selecting their leaders
from a pool of candidates. Similarly,
line-staff applicants typically were selected and trained by
relevant team members, but for new-hotel
openings, the process was much more structured and
hierarchical.

Millennium Partners’ concerns regarding the hotel’s new staff
centered on the distinction between
effectively opening and running a hotel, as Collins explained:
I’ve got to tell you that I love James McBride. James McBride
is just fabulous. He’s
successfully opened up lots of Ritz-Carltons. But a year from
now? We’ll have done it for 365
days, and the edge will be off a little bit. The problem in the
hotel business is that you have to
fill it up every single day. So somehow you have to put your
game face on and be 99% every
single day. But even then, that means you’re ticking off a
customer every single day. I don’t
know how you do it a year out, two years out, five years out. I
don’t know how you keep it
sharp. And that’s the trick.
As The Ritz-Carlton’s president and COO, Schulze was all too
aware of the difficulty of keeping it
sharp. Having worked his way from a waiters’ apprentice and
dishwasher to the top of one of the
world’s best hotel companies, Schulze knew firsthand how hard
it could be for employees to
maintain their motivation to deliver exceptional service to
customers every single day, and how
difficult it could be for managers and leaders to keep morale up
after the fanfare of a new-hotel
opening. To help minimize failures in service delivery, Schulze
focused on key human resource
practices, particularly employee recruitment, selection, and
training.
Personnel recruitment A wide variety of tools was used to
attract applicants for the staff
positions at the new hotel. McBride was active in the

recruitment process, dining at The Ritz-
Carlton’s arch-competition and giving deserving servers cards
that read “The Service You Just
Provided Was First Class!” on one side and contained job-
application information on the other. More
traditionally, targeted ads for food and beverage personnel were
run in the newspapers of major cites
(e.g., New York and San Francisco), while the community
within Washington, D.C., also provided
fertile ground for potential employees. The first hospitality
high school in the United States was
located in the area, and The Ritz-Carlton also interviewed
individuals in welfare-to-work programs.
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. As Marie Minarich, the hotel’s
human resources director, said: “If they
have the talent, and if they want to serve people, we can train
them. We can teach them the skills
they need to perform any number of different functions. As
long as we make sure that we choose
people who fit our culture, we can work with them.”
Ritz-Carlton job fair A two-day mass recruitment occurred on
August 22 and 23, 2000, from
8:00 a.m. to 8:00 p.m. and was billed as a “Ritz-Carlton Job
Fair.” Individuals who had previously
applied, as well as those who had not, were invited to the site
(still under construction at the time)

in 2021.
10
where they went through the selection procedure. Throughout
both days, the goal was to treat
applicants to a personal demonstration of the service-oriented
culture that made The Ritz-Carlton
famous.
At the Foggy Bottom Metro stop, three uniformed Ritz-Carlton
representatives stood by large
placards advertising the job fair, ready to provide directions to
the site. The path between the Metro
and The Ritz-Carlton was marked with cobalt blue ribbons. Just
outside the entrance to the building,
applicants arrived at the “Warm Welcome” station, where they
were greeted at the door by one of
several employees who wished them luck and escorted them
past a violinist into the lower level of
the hotel where the meeting rooms had been outfitted. Greeters
then escorted applicants to the
registration area, where Claude Hedspeth provided
entertainment with his electric piano. Despite
performing for over 25 years, this was the first time he had ever
played at a job fair.
In the waiting room, where beverages and snacks were
available, a Ritz-Carlton video was
running in which Schulze talked about his early days as a
dishwasher and other Ritz-Carlton
employees described their experiences at the company. After

the applicants provided basic
employment information, they went through a standardized
selection procedure that first involved
the administration of a screening questionnaire. Those who
made it past the initial screening
proceeded on to a professionally developed and validated
structured interview. Each individual was
then personally escorted to “Fond Farewell,” where they were
thanked for applying, given miniature
Ritz-Carlton chocolates, and escorted out of the building.
By 2:00 p.m. on the first day, over 400 individuals had been
through the process, and everyone,
from McBride on down, pitched in to serve as escorts,
paperwork runners, and interviewers—and
that was before the local news media aired a blitz of stories
about the hotel. Over 10 years had
passed since a luxury hotel opened in Washington, D.C., and
television crews swarmed the job fair.
The aftershock was felt on the second day, when 1,500
individuals showed up to compete for
positions. By the time all was said and done, 2,300 people had
been through the selection process in
24 hours, while another 1,700 had already completed the
application process prior to the job fair.
These were impressive numbers, especially given the local
unemployment rate of only 5.4%.6 About
400 people were eventually hired, which made getting a job at
The Ritz-Carlton about as likely as
being accepted as a Harvard undergraduate.
Individuals who did not make the cut were treated the same as
everyone else during the job fair,
as Inghilleri explained:

We try to make sure that those we don’t hire are treated really
well. They may also be sons
and daughters of our customers, we don’t know. So why would
I mistreat them? If someone
is not hired and we just disregard them, what does that
accomplish? You create someone in
the community who looks at you and says, “Those guys are
morons. They are arrogant
imbeciles who don’t understand who I am, who didn’t value me
as a person.” We don’t want
that.
For the new hires, The Ritz-Carlton utilized a pre-employment
call-back process to reduce the
attrition that often occurred during the lag between the job offer
and the start date (see Exhibit 9).
During this phase of the employer-employee relationship, new
employees were treated as customers
with their own unique set of needs, and the hotel’s managers
were accountable for their satisfaction.
6 “Local Area Unemployment Statistics for the District of
Columbia,” Bureau of Labor Statistics, August 2000,
http://146.142.4.24/cgi-bin/surveymost.
in 2021.
11

The Seven Day Countdown
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. Standardization brought greater
efficiency and relieved some of the
burden placed on new managers and leaders responsible for
ultimately running the hotel.
Individuals’ first encounter with the organization as employees
occurred over a month after they
had been hired, when they showed up for the beginning of the
Seven Day Countdown prior to the
opening of the hotel. 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 fire-
alarm 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.
To help the new staff members navigate their way through the
demanding Seven Day

Countdown, The Ritz-Carlton provided each of them with a
“Paper Palm” (see Exhibit 10). Inghilleri
explained the rationale behind the countdown’s organization:
We have a very slow orientation process that aligns the worker
with the mission of the
company. The reality is that, as an adult, you only change your
behavior from a significant
emotional experience, and otherwise you don’t change. When
you hire someone to start a new
job, it is a significant emotional experience for them, so they
will be attentive and receptive to
behavioral changes.
But the size of the window of opportunity that the company has
to drive home new
concepts is limited. So if you waste the first few hours of the
first few days discussing
anything other than values, you’re wasting your opportunity.
That is why in our orientation,
the first thing we do is discuss values.
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.
Carrying signs and chanting (“House-
keep-ing, House-keep-ing”), each division vied to be the
loudest, most enthusiastic group of new
employees. The kitchen staff had the advantage, banging out
Stomp-worthy rhythms on their pots
and pans. At least one manager made a brave attempt at turning
cartwheels along the covered drive
leading to the entrance of the new hotel, while others ran from
one end of the line to the other,

encouraging more cheering.
After several rounds of “the wave” and chants of “D-C-Ritz, D-
C-Ritz,” the staff members
eventually entered the building. 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-
in 2021.
12
Carlton family by the scores of managers who smiled warmly
and said, “We’re so happy you’re
here,” “Welcome,” “I’m so glad you’ve come.”
Once inside, everyone gathered in the largest ballroom, where
video cameras were hooked up to
big-screen TVs providing a simulcast of all the activity.
Recordings of Sting singing “We’re starting
up a brand new day . . .,” Queen’s “Another One Bites the
Dust,” and the always-popular “We Are
the Champions” played as the employees congregated. Once
everyone was present, McBride

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