The Portman Ritz Carlton, Shanghai

Resources & Capabilities

by Luca Drago - 22 November 2010
(Global Business Strategies - School of Management -
University of St Andrews)






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Contents
! The Ritz Carlton Hotel Company - The Portman Ritz Carlton, Shanghai
! What is the main source behind the Portman Ritz-Carltons performance?
! How valuable, rare, and hard-to-imitate are its human resources?
! How organizationally embedded are its capabilities?
! If you were the general manager of a rival hotel, how would you respond?
! The rethinking in the hospitality industry
! Bibliography


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The Ritz Carlton Hotel Company - The Portman Ritz Carlton, Shanghai

Named The New Gold Standard, Joseph A. Michelli recently published a book about the
Ritz Carlton Hotel Company based on their so-called golden standards, which Ritz
Carlton states, are the foundation of the company. The Ritz Carlton Hotel Chain has
always been within the top hotel chains worldwide and the title of the book indicates that
the company tries to continuously advance. The legacy of The Ritz-Carlton, Boston
begins with the celebrated hotelier Cesar Ritz, the king of hoteliers and hotelier to kings.
His philosophy of service and innovations redefined the luxury hotel experience in
Europe through his management of The Ritz Paris and The Carlton in London (The Ritz
Carlton, 2010). Today, 83 years after the first Ritz Carlton opened in Boston the company
is still continuously searching new methods to improve the customer experience in their
hotels. In his new book Joseph A. Michelli (2008) describes the leadership attitude that
makes Ritz Carlton so unique in dealing with corporate culture, their remarkable staff
empowerment as well as a result, its staff commitment towards the guests. The case
study used by Peng (2009) describes more specific how the Portman in Shanghai being
part of the Ritz Carlton chain is ahead of their competitors. Not only in Shanghai but
within China they have been rewarded for their excellent performance as a hotel but also
for being an outstanding employer. Moreover the case study shows some of the secrets
of their success. Especially the excellent use of their human capital and managerial
strategies stand out when reading it. According to Garavan, Morley, Gunnigle and Collins
(2001) human capital has been recognized to be one of the most important assets and
competencies of companies in todays daily fight in the markets throughout all
industries. Most of all in recent years this intangible capability has gained more and more
importance regarding the strategical planning and decision making of companies.
Particularly in the hospitality industry- where it is all about people- it is essential to have
access to human resources with high standards. In the following the case study, The
Portman Ritz Carlton, Shanghai will be analyzed as well as questions regarding the case
study will be discussed and findings will be presented. First of all, the analyses of the
main sources for the Portman performance will be shown.


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What is the main source behind the Portman Ritz-Carltons performance?

We are Ladies and Gentlemen serving Ladies and Gentlemen (The Ritz Carlton, 2010).
The above motto of Ritz Carlton probably describes best, the relationship of staff and
customers at the Ritz Carlton and gives an indication what is the main source of Portman
Ritz-Carltons performance. Simply said the main source behind the exceptional
performance of the hotel is its human resources, which will be shown more precisely in
the following. Through low employee turnover Ritz Carlton managed to keep its
experienced and well-trained staff and is continuously improving its skills and abilities by
offering them courses and training. The competitive strategy of the Portman is to
differentiate themselves from other hotels through better staff in order to have a
competitive advantage. According to Porter (1985) by using the differentiation strategy a
company tries to be sensational in its industry in different areas on a big scale, which are
valued by its customers. The Ritz Carlton has created a big competitive advantage by
having exceptional staff. This is also due too the relationship created in-between front
line staff and the managerial team from the beginning. It starts already with the GM
personally interviewing every employee and by doing so creating a personal relationship
with him or her. Also in general, the managerial style used by the GM and other heads in
the hotel play a big role in the success of the Portman. According to the GM De Cocinis
cited in Yeung (2006) empowerment plays a major role. By trusting the employees in
deciding what is best for the guest they are given much freedom in their working
environment, which leads to a much higher engagement and involvement then usual.
This managerial strategy, also called energizing individuals (Mintzberg, 2009) is very time
intensive but very effective and consists of the following. Persuading the staff, motivating
them, convincing them, supporting them, engaging them, encouraging them and lastly
empowering them. By adapting these strategies De Cocinis, helped to bring out the
energy that exists naturally within people (Mintzberg, 2009). Naturally the resource-
based view introduced by Barney in 1991 has to be mentioned in this context as well. It
has been perfectly recognized by Ritz Carlton that their main competitive edge
differentiating them from the other hotels are its human resources. They are therefore
adapting the resource-based view as their leading perspective of policy. Sustained
competitive advantage derives from the resources and capabilities a firm controls that are
valuable, rare, imperfectly imitable, and not substitutable. These resources and
capabilities can be viewed as bundles of tangible and intangible assets, including a firms
management skills, its organizational processes and routines, and the information and
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knowledge it controls (Barney, 1991). As mentioned above this strategy is perfectly
adapted in the managerial style and the advanced usage of their human resources to
gain competitive benefits. According to Peng (2009) the resource-based view focuses
mainly on the internal strength and weaknesses in contrast to the industry based view
emphasizing on the external opportunities and threads. The usage of internal strength
can be perfectly seen in the example of the SARS crisis given by De Cocinis cited in
Yeung (2006). Due to the high trust of staff in the company and managers giving good
examples in cutting their pays the Porters managed to fight through the difficult times of
low occupancy. By letting go people but ensuring them that their contracts would be
renewed after the crisis and then really doing so the loyalty to the company increased
enormously which led to even higher employee satisfaction. In the following it will be
examined if the first 3 aspects of the VRIO- Framework can be applied to the human
resources of the Portman.




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How valuable, rare, and hard-to-imitate are its human resources?

As already mentioned above The Portman Ritz Carlton bases its enormous success on
its human resources as well as their managerial strategies. According to Peng (2009)
capabilities as well as valuable and rare resources are only an origin of competitive
benefit once the rival has problems copying it. It is usually no problem copying other
companies tangible resources like plants though its even harder or almost impossible to
take over intangible capabilities such as the Portmans superior staff motivation and
managerial endowment. Individual HRM practices may be imitable but HRM systems
and routines, which develop over time, may be unique to a particular firm and contribute
to the creation of specific human capital skills (Barney, Wright & Ketchen, 2001). When
analyzing the history of Ritz Carlton it can be seen that the company is thinking long term
by having introduced their principles: 1. Define and Refine 2. Empower through Trust 3.
Its Not about You 4. Deliver Wow! 5. Leave a Lasting Footprint (Michelli, 2008). By
having introduced such principles and training every employee according to their
corporate culture, every single one in their workforce becomes part of a whole system
and can not just simply be removed out of this system (here hotel) and perform the same
way in another one. Another major aspect, which plays a particular role in the Chinese
market regarding human resources and their value, is culture. Especially one of the five
dimensions introduced by Geert Hofstede is important in this case. According to Hofstede
(1997) China is the country with the highest long-term orientation. This can of course also
be adapted to employees looking for long-term relationships with their employers, which
is very advantageous for the Portman as it makes it harder for competitors to headhunt
their staff. As De Concinis cited by Yeung (2006) mentioned, his hotel is of course as well
interested in long-term relationships with their staff and continuously try to stimulate their
work with potential promotions, which again fit to the Chinese culture of long-term
orientation. As per Mwaura, Sutton & Roberts (1998) another basic problem in China is
the adaptation of the Chinese culture to the corporate culture of western companies in
general. It would seem to be the case in Chinas hospitality industry that the prerequisite
service ethos for a successful hotel operation is in direct conflict with many local cultural
expectations which have been influenced by such factors as Confucianism, the modern
history of communism, the lack of recent experience in the service industries, the lack of
infrastructure and modern technology, and the apparent lack of management training and
expertise in providing what have become the internationally- expected standards of
hospitality in their hotel developments (Mwaura, Sutton & Roberts, 1998). That again
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shows how valuable the employees are. Every employee adopted and learned the
corporate culture of Ritz Carlton though it might have been very different to his or her
own. Since taking over the hotel in 1998 Ritz Carlton had to work on all the above-
mentioned problems and difficulties and obviously did a good job which is the general
outcome of the case study by Yeung. Though it shows that it takes quite an effort and the
right strategies and people, to reach where the Portman stands today. It can be said that
the HR of the Ritz Carlton in Shanghai are so valuable, rare, and hard-to-imitate for many
different reasons. There is not only one reason or secret, which makes it even more
difficult for competitors to achieve similar performance. Peng (2009) argues that imitation
of a companys performance, as it is case with the Portman is difficult because of causal
ambiguity. It is defined as the complexity of perceiving the main determinants of an
effective firm success. Last but not least even in their employee promise Ritz Carlton has
grounded how valuable their human resources are: At The Ritz-Carlton, our Ladies and
Gentlemen are the most important resource in our service commitment to our guests. By
applying the principles of trust, honesty, respect, integrity and commitment, we nurture
and maximize talent to the benefit of each individual and the company. The Ritz-Carlton
fosters a work environment where diversity is valued, quality of life is enhanced,
individual aspirations are fulfilled, and The Ritz-Carlton Mystique is strengthened (The
Ritz Carlton, 2010). In the next paragraph the last aspect of the VRIO- Framework,
namely the organizational aspect and its potential adaptation to the Ritz Carlton in
Shanghai will be evaluated.


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How organizationally embedded are its capabilities?

Talking about capabilities of a company there has generally to be made a differentiation.
According to Peng (2009) the best method is to separate capabilities or resources in
tangible and intangible ones. Investigating hotels capabilities, and in our case the
Portman in Shanghai, different aspects have to be taken into consideration. Like in any
other industry, tangible capabilities for example the equipment of the hotel, its building or
the property management systems used can be listed. They are all part of the
organization, but nonetheless not embedded in a strong way and could be replaced quite
easily. The intangible capabilities, namely the human resources with their managerial
endowment, the organizational culture as well as the reputation of the hotel as a good
employer with a superb customer service can be mentioned on the other hand side. They
are embedded vigorously in the organization, which will be shown more precisely in the
following (Peng, 2009). According to Hoetker (2006) there are various components in
every company that need to be combined by an organizational strategy in order to get
most out of their resources and capabilities. Peng (2009) suggests that complementary
assets play a major role when aiming for a successful strategy. In the Portman, examples
for these complementary assets are staff behind the scenes. Even the guest does not
have personal contact with any of him or her, they play a major role in making the stay of
each individual customer exceptional. As in the resource-based view, the firms crucial
task is to exploit its existing resources and capabilities while simultaneously developing
new corporate assets for future business opportunities (Stieglitz & Heine, 2007). The
Portman does that by continuous motivation not only of the front line staff but also the
mentioned workers behind the scenes. They encourage each staff member in coming up
with new ideas how upcoming goals can be met, so that everyone is involved and
therefore strongly embedded in the organization. To motivate every single employee
bonuses for everyone are based on improvements as Yeung (2006) reports. Another
crucial aspect, which probably exists in many corporations, is the corporate identity. By
treating every member of staff as part of a big family, in our case The Ritz Carlton,
Portman Family, a strong sense of community in-between the staff is created. Again the
SARS crisis can be mentioned here, that made all the staff move together to overcome
the times of bad economy. Happenings like this create as Peng (2009) says invisible
relationships that add value and can be counted as strong organizational capabilities.
After having analyzed the last attribute of the VRIO- Framework it can be seen that the
capabilities of the Ritz Carlton in Shanghai are deeply embedded, according to the
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frameworks substance. It is fair to say, that based on a definition of a successful VRIO-
Framework by Fahy, Hooley, Beracs, Fonfara & Gabrijan (2003), the Portman is having a
sustained competitive advantage and is continuously performing above the average.
Hereinafter it will be determined how competitors could potentially react to improve their
own operations and approach the remarkable success of the Ritz Carlton Portmans, in
Shanghai.
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If you were the general manager of a rival hotel, how would you respond?

Especially in new emerging markets for the hospitality industry like the Chinese market,
general managers together with their human resources departments are struggling in
finding qualified staff for their properties. Competitors of Ritz Carlton like the
Intercontinental Hotel Group for instance are planning to open 107 new hotels in-between
2008 and 2013. According to Winnie Ng, the InterContinental Hotels HR director in China
cited by Pollitt (2008) There is a skill and training gap in China among front-line hotel
workers such as front-desk and restaurant staff, as well as key executive positions in HR,
finance and sales. The talent pool of executives with experience of working in
multinational companies is small and highly sought after. As a general manager of a rival
hotel it would therefore be inevitable to first off all concentrate on staff training and think
ahead by training potential new employees, which looking at the growth of the Chinese
market would be definitely needed. As described by Pollitt (2008) Intercontinental
responded to the need of education in the hospitality field in China by launching its
InterContinental Hotels Academy in 2006. Since the launch 12 academies all over China
were opened to secure the demand of qualified staff for the coming years. Alternatively
by hiring more staff from other countries with more experienced human capital
improvements could be made. Organizations can increase their human capital levels
through selection and/or training (i.e., buy and/or make). Selection refers to an
organizations efforts to increase its human capital by hiring employees with high levels of
education and expertise from the external labor market (Skaggs & Youndt, 2004). That
shows that existing staff training should be improved and internal resources should be
identified and supported. As mentioned above, Mintzberg (2009) said that the energy
exist naturally in everyone. There is no difference between people working in Ritz Carlton
or their competitors in general. The difference is, that at the Ritz Carlton each individuals
energy is used and supported. As a GM of a competitor it would be essential to rethink if
the managerial strategies used, support every individual staff and if all the capabilities are
exploited. To improve strategies, managerial trainings should be introduced as well and
working conditions and working areas should be featured in a pleasant way to encourage
every single employee to do his or her best. Again as in the Ritz Carlton bonuses should
be based on improvements and every staff member should be involved in decision
making to improve operations. Generally said, GMs of competing hotels should improve
regarding all aspects of the VRIO- Framework as described by Peng (2009). Value of
resources should be increased by, briefly speaking, training staff. Rarity should be
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increased by coming up with new ideas that differ from competitors and create a
competitive edge. Imitability should be decreased by producing intangible resources as
for example high staff motivation. Lastly all previous aspects would have to be deeply
embedded in the organization. However every GM should realize that none of the above
mentioned processes would be able to change a Hotel from one day to the other. Long-
term preparation would be needed to eventually approach the results of Ritz Carlton. In
the last paragraph the author concludes with a summary of human resources in
hospitality and personal experiences made in this field.



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The rethinking in the hospitality industry

To sum it all up there can be said that Ritz Carlton has successfully understood what are
its capabilities compared to competitors and is trying to continuously redefine them in
order to always stay a step ahead. Particularly in the Portman it can be seen that the
company has a long tradition and is very experienced in its field. Being able to implement
all aspects of the VRIO- Framework in such an advanced manner is not an easy task and
requires experience and long-term strategy which cannot be boasted by many
companies. The case also showed that primarily in the hotel industry a resource based
view for companies is very adaptable. Nonetheless there has to be recognized as well
that other big hotel companies have understood their problems and advanced their
strategies as can be seen when looking at Intercontinental launching academies in China
to create valuable human resources as mentioned above. Based on the authors
experience having worked in competitors of Ritz Carlton in the European as well as in the
Asian market, it can be said that most companies have realized the demand to focus
more on their staff. An example is the Pan Pacific Hotels chain having recently changed
the name of their Human Resources Department to Human Capital and Development
Department and through this emphasizing on the will to focus on staff training as well as
enhancing the importance of staff as a pillar of the company. Moreover most international
hotel companies have started in the last years to invest in the education of potential staff
by offering special management training programmes, to graduates and trying to bind
them to the company by financing their education. Though all the mentioned strategies
should of course also be used in other industries to improve working environments for
staff as well as satisfying customers and ultimately increase profitability.
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Bibliography:

Books:

Hofstede, G. (1997) Cultures and Organizations: Software of the Mind.
New York: McGraw- Hill

Michelli, J. A. (2008) The New Gold Standard. USA: McGraw- Hill

Mintzberg, H. (2009) Managing. Harlow: Pearson Education Limited

Peng, M. W. (2009) Global Strategic Management 2
nd
ed. Canada: Cengage Learning

Porter, M. (1985) Competitive Advantage. New York: The Free Press


Journals:

Barney, J. B. (1991) Firm resources and sustained competitive advantage.
Journal of Management, 17: 99 - 120

Barney, J. B. Wright, M. & Ketchen, D. J. (2001) The resource-based view of the firm:
Ten years after 1991. Journal of Management, 27: 625 - 641

Fahy, J. Hooley, G. Beracs, J. Fonfara, K. & Gabrijan, V. (2003) Privatisation and
Sustainable Competitive Advantage in the Emerging Economies of Central Europe.
Management International Review, 43: 407 - 428

Garavan, T. N. Morley, M. Gunnigle, P. & Collins, E. (2001) Human capital accumulation:
the role of human resource development. Journal of European Industrial Training,
25/2/3/4: 48 68

Hoetker, G. (2006) Do Modular Products Lead To Modular Organizations. Strategic
Management Journal, 27: 501 - 518

Mwaura, G. Sutton, J. & Roberts, D. (1998) Corporate and national culture
an irreconcilable dilemma for the hospitality manager?.
International Journal of Contemporary Hospitality Management, 10/6: 212 - 220

Pollitt, D. (2008) Recruitment goes into overdrive as InterContinental Hotels battles for
talent. Human Resource Management International Digest, 16/5: 1 - 8

Skaggs, B. C. & Youndt, M. (2004) Strategic Positioning, Human capital and
Performance in service Organisations: A Customer Interaction Approach. Strategic
Management Journal, 25: 85 - 99

Stieglitz, N. & Heine, K. (2007) Innovations and the Role of Complementarities in a
Strategic Theory of the Firm. Strategic Management Journal, 28: 1 - 15

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Yeung, A. (2006) Setting people up for success: How The Portman Ritz- Carlton Hotel
gets the best from its people. Human Resource Management, 45/2: 267 - 275


Internet:

The Ritz Carlton, (2010) Our History. Available:
http://corporate.ritzcarlton.com/en/About/OurHistory.htm (Accessed: 2010, November 11)