Personnel Management, considered for much of the post Second World War period to be a necessary, albeit uninspiring and rule bound administrative activity has in recent decades evolved into Human Resource Management, (HRM), a key function of modern day business organisations.

Enriched first by the work of seminal contributors like Maslow, Herzeberger, McGregor, and Kohn, and later by that of behavioural experts like Guest and Storey, the growth of HR Management has also been spurred by enormous environmental changes in areas of business ad economy. With the growth of the market economy, along with technological advances, instantaneous communication, economic liberalisation and globalisation having intensified local and global business competition manifold, there is widespread agreement on the criticality of HR in realising competitive advantage, market growth and financial success. The development of a knowledge based economy, as also the current economic crisis, is driving home the importance of HR quality in business survival and success.

Modern day HRM comprises of various functions like deciding upon staffing requirements, choosing between contracted or hired workforce to fill these needs, selecting and recruiting the most suitable candidates, training and developing employees to enhance their knowledge and skills, ensuring high performance, and motivating employees through a combination of practices, remuneration and rewards. Each of these areas comprises of numerous associated functions; staffing, for example incorporates workforce planning, job and role specification, selection and recruitment, and formulation of compensation.

This study attempts to investigate and analyse the need, utility and role of specific important aspects of HR, namely staffing (selection and recruitment), performance appraisal and management, and Compensation (remuneration and reward) in improving organisational performance and effectiveness; it is carried out with reference to the HR policies and practices of the Ritz-Carlton Group of Hotels, with approximately 38,000 employees, possibly the most successful and well regarded luxury hotel chain in the world.

The major strategic issue to be addressed is the “changes in competition”, that the luxury hotel market has virtually collapsed and the lower end accommodation is outperforming the upper end of the hotel sector. Where do we go from here?

Overview of Ritz Carlton

The Ritz Carlton Group, now a subsidiary of Marriott International, runs nearly 73 luxury hotels across the globe, with 30 more projects under development which includes fractional ownership, private residences and serviced apartments, diversifying into a different prospective that the traditional hotel. Having started in Boston in 1927 with the first Ritz, the group currently operates in 23 countries in North and South America, Asia, Africa and Europe.

Under the former leadership of one of the partners Mr. Horst Schulze who was President and Chief Operating Officer (COO) from 1983 to 2002, it was the only organisation in the service industry to win the prestigious Malcolm Baldridge National Quality Awards twice, the Ritz Carlton group is widely known for its focus on optimising its employee strengths, abilities, and skills, to increase market share, improve operational and financial results and achieve competitive advantage. A major factor in the attribution of this, was the launch of the “The Ritz-Carlton Leadership Centre” which has thousands of senior executives, line managers and all levels of leaders through their doors from every diverse industries (such as Finance, Food Services, Human Resources, Retail, Transportation, Automotive and Healthcare) which came to learn the Ritz-Carlton principles of service. The services of this centre are ideal if a company is looking to create a sustainable change, which is key to the future as stated by xxxxx (2008), having a major competitive advantage to outperform its competitor’s and to increase its customers and employee loyalty.

Believing in the criticality of skilled, trained, satisfied and motivated employees in achievement of customer satisfaction, the company has thoughtfully planned and skilfully implemented HR policies and practices that are essentially dynamic in nature and respond to environmental circumstances and needs. With the luxury hotel industry being intensely competitive and every major city in the world having a number of upper end hotels providing the same sort of rooms and other physical facilities, the management of the Ritz Carlton differentiates its offering chiefly through provisioning of superior service to its customers.

Known the world over as the ladies and gentlemen (who serve ladies and gentlemen) of the Ritz, the employees of the chain aim to provide customers with the ultimate Wow experience and retain 100 % of their existing clientele. The group’s philosophy has a real emphasis on customer and employee satisfaction which other organisations try to aspire too. In the words of Simon Cooper, the former President and COO of the company from 2002 to 2010;

“It is their commitment to always exceeding the expectations of our customers which insures that no matter how large our company may grow around the world, we will never forget service is what we built our reputation on as a hotel company, and our commitment is to grow the service quality along with the portfolio of hotels which should reach 103 by 2011.”

The organisation has been forced to take some drastic action of late due to the revenues at the five star group been diminished over the last number of years, reflecting the changes in the luxury hotel industry and on August 12, 2010, the Ritz-Carlton announced that their new President and COO to be Mr. Herve Humler in which the leadership change was effective from September 1, 2010. Mr. Humler is one of the original founders of the Ritz-Carlton Group in 1983 and has now responsibility for leading brand operations and global growth strategy.

Human Resource Policies and Practices

4.1 Staffing

Selection and recruitment practices at the Ritz Continental have been formulated with thought and care and aim to further the service quality and standards of the organisation. With the organisation being a quality and market leader in its area of activity, the hotel group is always assured of good response both to local advertisements and requests for staff for its central staff pool. The group seeks people with real Intensity, Energy and Purpose for all roles within the organisation.

The organisation is strict on recruiting appropriate people. Whilst candidates with the right qualifications are preferred, great emphasis is paid to selecting people who are considered capable of fitting in with the strong service culture of the group. The culture is of strategic importance and classed as “special”, in every location in the world, with excellent quality and service, customer and employee satisfaction is at the top of its priority.

Again whilst the group selects people with diverse talents and knowledge and teaches them the technical requirements of individual jobs, it essentially looks for people who are (a) high in work ethics, (b) detail oriented, and (c) relationship driven; the successful candidates are expected to genuinely care and respect guests and each other. Candidates must look people directly in the eye, be warm, friendly and capable of showing empathy. (Living Values)

“You have to make sure that you’re selecting for attitudes and values, not for skills and experience. You can’t train for attitudes and values, you can train for skills,” says Chi. If candidates have the right customer focus, values and a positive attitude, anyone can be trained to do anything in the hotel, Chi says”

The selection process is driven by customised and structured interviews, which have different approaches for different types of staff. “A manager would be tested for focus and sense of competition, while a recruiter needs to be caring, relationship oriented, business savvy, and able to see the talents of other people.” The division head and the General Manager of the individual hotels get involved in all selection processes so as to make a “group decision” and also to show the potential candidate the importance of the that individual is to the organisation.

The company has elaborate training and retraining systems. It has 20 basic standards that are constantly reinforced through training. Whilst every employee is provided with 120 hours, i.e. three weeks of training every year, new entrants are given a 2 day introduction before they come in contact with any potential guest or existing employee to understand the culture and philosophy and also 40 days of training in their first year to enhance this. The company has prepared extensive training material on all aspects of service delivery, including a list of more than a thousand customer problems, as also guidelines for solving them. Such problem solving is an integral portion of the training programme. Apart from such systematic training many individual hotels of the group have their in-house training programmes.

“At the Ritz Carlton, Hong Kong, the hotel has adopted a number of forward-looking practices. For example, all of the roughly 300 staff are expected to learn one new thing per day and time is specifically scheduled at the start of each shift to allow them to do so. This might be about the work of another department, the overall tourist industry, or new properties within the group.”

Generally all employees are permanent staff, this is to ensure that the culture and philosophy are kept at the highest standard, in contrast to this, some very minor positions are temporary wish are not directly related to the core business. (e.g. building maintenance can be sometimes outsourced etc.) As suggested by Mello (2006, page 336) specifically in the service sectors where higher turnover costs are common with the comparison of manufacturing, the organisation implementing a “strategic staffing initiatives” which are the key to retaining productive employees and in turn minimizing turnover/operating costs. To this the Ritz-Carlton Hotel Group is at the forefront of its sector ensuring that employee satisfaction remains high with 90 to 95% compliance. This employee’s satisfaction is one of the key areas that are worked on, day in day out and “involves trust, communication, involvement and engagement” as stated by Mark DeCocinis, Regional Vice President, Asia-Pacific of the Ritz-Carlton Hotel Company.

At management level within the Hotel Group, many senior positions are filled internally within the organization, approximately 70 to 80 % of the leadership positions states DeCocinis.

These individuals have proven skills, able to motivate and has capabilities to fit into the organisation’s culture. This is classed as a reward system for their previous performance and loyalty and promotes a positive promotional and development opportunities within the group, it also helps to serve international assignment roles.

4.2 Performance Management

The Ritz-Carlton Hotel Group has an elaborate performance appraisal programme that aims to regularly evaluate employee performance and provide employees with feedback about their performance. Performance Feedback is used as opposed to Performance Appraisal, in which the system is kept in line with the organisation’s strategic objectives and culture. Below is as outlined by Mello (2006 page 428) are the key differences between performance feedback versus performance appraisal. As can be seen from the exhibit below the feedback is more a two way exchange where employer and employee communication informally their performance and discuss jointly planning future work activities.

Performance Feedback

Performance Appraisal

Time Period

Past, present and future

Past

Focus

Link employee work activities to specific business objectives &strategy

Create records, document performance problems

Nature of communication

Two-way

One sided, downward, directive, “rebuttal” sometimes allowed

Employee role

Active Participant

Passive

Formality

Informal, Verbal

High formality, written forms

Timing

Spontaneous, ad hoc needed

As prescribed (usually annual)

Basis of relationship

Collegiality

Power

Role of Supervisor

Coach, motivator, partner

Authority figure

Outcomes

Participation, enhanced, targeted performance, improved relationship

Compensation decision; task directives

Mello (2006 page 428) Exhibit 10.1 Performance Feedback versus Performance Appraisal

The performance management system of the company works on a few specific principles, namely informing employees about their responsibilities, enabling them to master the requirements of their job, generating ideas on improving the quality of their output, informing them on how well they are doing in many ways and forms, and training them constantly through their managers and peers on different jobs and tasks.

Each employee gets a report everyday on his actions on the job. Apart from these reports, detailed personnel appraisals are carried out every six months. With managers providing employees with feedback, suggestions and corrective training on a daily basis, most employees improve so much by evaluation time that such occasions tend to become times for celebration rather than apprehension. Such assessment occasions are used to form action plans, establish future goals, and guide employees on their future responsibilities. (Let’s celebrate)

All of the Ritz-Carlton employee performance goals are aligned with the company goal, and from that to the hotel goal and in turn to the divisional goal, therefore involving everyone in part of the complete organisation. Each and every employee is encouraged to come up with a plan to reach their goal for the next year based on guest satisfaction, financial performance and employee satisfaction. The bonus or incentive at the end of the year is based on improvements if you increase the performance numbers you will be rewarded.

Communication according to the Ritz-Carlton is the key to maintaining consistence performance management. Each employee having interaction with the General Manager every day and speaking freely about “what we enjoy and how we can improve is important” says DeCocinis. All general managers has a policy of having a breakfast meeting with 10 to 15 employees from different departments once a month, in that speak openly and informally at this gathering for the purpose of what each employee is working on and what can be improved is a very positive management policy and everyone learns from the meeting.

Another important performance management system in place is that employees are encouraged to document either their own or another employees mistakes. It is very important when someone makes a mistake that the correct action is taken to resolve it as soon as possible, otherwise it could reoccur. The group recognises “people for taking ownership of a problem and being part of the solution to resolve it” Yeung (2006).

4.3 Compensation

Whilst the organisation has very strict recruitment policies, (20 people are, on an average, selected from 2000 applicants), it provides good remuneration and facilities. The company believes in maximising staff retention through a combination of good working atmosphere, excellent training, good career prospects, opportunity to travel, and good remuneration. Whilst the company does benchmark and attempts to keep its remuneration competitive, it is nevertheless overtaken occasionally in this area by other hospitality organisations.

Mark DeCocinis states “if you expect your people to be the best, you must pay at the top of the market”

“We do still benchmark on remuneration,” says Ms Lau, “but regard staff retention as something which depends more on other factors. These include training, creating long-term career opportunities, and helping employees to find the right work-life balance.”

Ritz-Carlton employees who can multi-task (i.e. stand in for others etc.) are recognised and rewarded accordingly. The group reward and motivate their employees who exceed their expectations through “The Ritz-Carlton Incentive Awards”. The organisation dispenses “Gold Standard Coupons” to those employees who exceed the hotel standards for quality and service, these coupons are then exchanged for weekend accommodations at the hotel group or at the hotel’s gift shop for merchandise. Additional to this is every quarter, a “Five Star Employee Award” is granted which entitles the winner to a five-night stay for two people at any Ritz-Carlton hotel in the world, and to supplement this, round trip flight tickets and US$500 spending money is given.

Strategic Organisational Performance

The Ritz-Carlton is considered to be one of the most successful organisations in the luxury hotel business. Globally known for the quality of its service and exceptional surroundings, the organisation has in recent years not preformed financially which diminishing revenues in the organisation. The intensifying competition in the hospitality sector notwithstanding, the organisation has grown sharply during the last decade; spurred by its entry into new markets, (especially in China), a change in orientation towards more casual elegance may be appropriate or not?. The introduction of spas that are operated by the best operators in the world, and the opening of restaurants run by celebrity chefs like Gordon Ramsay and Wolfgang Puck all strategically aligned to give the hotels unique character may be better suited in a more buoyant economic environment rather than today climate. With that in mind the real strategic issue, the change in competition within the hotel sector, i.e. the lower end accommodation outperforming the luxury end, with regards to staffing, will have an impact on a) downsizing of staff, b) other competitors depleting the staff pool of both permanent and temporary potential employees, c) potential loss of Ritz-Carlton valuable employees to competition, d) loss of “Branding” (culture, relationships etc.). In performance management the impact of the organisation not performing as measured on its outputs would directly affected employee performance as they are both aligned within the organisation HR strategy. With regards to compensation pay freezes, no bonuses or incentivises at the end of the year would be implemented, staff retention will be affected, less career prospects and less opportunities to travel within the organisation. The “The Ritz-Carlton Incentive Awards “and the “Five Star Employee Award” would be disbanded. All of the above would have a major impact on the current HR policies within the Ritz-Carlton organisation which the retention of the high performers being critical to the organisation also. What is to be done about this now?

Human Resource Management Analysis

The first thing to be completed is an Organisation-Level Diagnostic Model which will determine are the policies aligned with the organisational goals. This is a critical input which will help present problems and symptoms. The process of Diagnostic as stated by Cumming and Worley (2008 page 87) is that Diagnosis is a collaborative process between organizational members and the consultant to collect pertinent information, analyze it, and draw conclusions for action planning and intervention. This understanding and results of how the organisation is currently functioning provide valuable information to design change.

INPUTS DESIGN COMPONENTS OUTPUTS

Cumming and Worley (2008) Figure 5.2 (page 93)

INPUTS DESIGN COMPONENTS

Dramatic changing environment Strategy – keep quality and service at 5 star – Late bookings – discounted rooms?

Competitors Power Technology-SAP payroll systems, hand scanners etc.

Customers / Buyers Performance Management – outsource sales for rooms?

Treat of New Entries -alignment with Entertainment Company (MCD)

Ease of Choice Structure – Self Managing Teams, possible outsource sales

Health & Safety Measurement Sys.-customer satisfaction, occupancy rates,

Golf Courses / Academy – managing information systems, mystery customer

Culture- No.1 for service & quality, No.1 for employee &

Customer satisfaction, what do I achieve today?

From the above analysis and specifically with reference to the Human Resource Systems, the details for selecting, developing, appraising and rewarding organisation members, the organisation effectiveness is sufficient as there is good alignment between both with only minor changes to be investigated.

The second analysis that is to be implemented is to complete an “Organisational Development and Change Plan” based on the “Force Field Analysis” for normative planned change. Management is all about change and by using Lewin’s Change Model theory and using an incremental magnitude of change, the model below can be implemented.

FORCE FIELD ANALYSIS

Steps:

Identify a specific Change

Identify forces for and against change

Prioritise the forces

Develop strategies to overcome opposing and reinforce supporting forces

Implementing Recommendations

With the above information to hand and being more critical, the following

recommendations can be implemented to Senior Management within the organisation.

With reference to staffing a number of options are open to management for action. The selection and recruitment process is supportive of the HRM system with only a few weaknesses to be addressed. A bank of pre-approved potential employees should be developed for each and every hotel within the organisation, both permanent and temporary employees to cover sick days, holidays etc. as this would reduce the recruitment timeline. A recommendation to the HR Manager or General Manager for each hotel should be to do a backward strategy on the history of timelines of past recruitment drives as suggested by Mello (2006 page 339), work backwards from the time employees are required to start employment, which in turn will determine when recruiting begins. This bank of potential employees will eliminate any delays in time, replacing or commencing new employees with the organisation. As to keep the turnover of staff to a minimum (i.e. below 15% would be acceptable within the service industry for turnover, xxxxx(2008), the selection of candidates at recruitment stage should focus on a long-term relationship or career with the organisation. The selection process to focus on a potential person theme, what do they really enjoy? What is their purpose in life? What motivate them? The task is to look for personnel who genuinely enjoy contact with people and respect and care about others. This will benefit the organisation and the employee in the long run. All senior management positions should be filled in-house once the relevant experience and leadership training from “The Ritz-Carlton Leadership Centre” is obtained. It is important to protect the culture of the organisation from the top down as well from the bottom up. An “Empowerment” strategy should be implemented as soon as possible. This will involve flattening the organisation and creating “Self Managing Groups or Teams”. Reducing middle management (layoffs) or redeploying them elsewhere where required within the organisation will reduce overall costs and give real motivation to the current employees for self management. The one important point about his recommendation is to get consensus across the complete organisation for this process.

The Performance Management system is very much aligned with the organisational goals with the philosophy that employee satisfaction leads to guest satisfaction which in turn leads to good financial results. The real emphasis with is on outputs not inputs as detailed in Mello (2006 page xxxx) and needs to extremely well measured so that performance can be analysed in depth. A recommendation is for each employee to come up with a plan / set of targets to reach a goal for the next year, measured by guest satisfaction, employee satisfaction and financial performance. These goals or targets will be regularly monitored by the General Manager and HR Manager each month with informal lunch meetings with up to 10 people from different department attending. Here the employee can be openly praised in front of his colleagues based on improvements benchmarked on the individual goals. By using “Victor Vroom’s Expectancy Model”, this will give real “intrinsic motivation” to the employees, in return the employee will feel valued, recognised and perceive be involved with important aspects of the hotel. Ritz-Carlton Group using the “Expectancy Mode” outlined below will have valued satisfied employees and the performance measures will be completely aligned with the organisations needs as detailed by Mello (2006 page xxxx).

Assists managers to determine the outcomes that each employee values

Managers should define performance levels in measurable terms

Managers can determine if desired levels of performance are attainable

Managers can link desired performance to outcomes desired by employees

Clarifies that perceptions, not reality determine motivation

Clarifies that motivation will be highest when employees perceive many benefits, but not necessarily many rewards

Compensation being rewarded by respect, trust, loyalty and a greater sense of empowerment is the correct direction for the organisation. The ultimate strategy is to create an appropriate mix of financial and non-financial compensations systems. Direct compensation in salaries should be aligned with the best in class within the industry (fairness sliding scale salaries established by job classification) & increase incentives such as bonuses, commissions, training and development to “The Ritz-Carlton Leadership Centre” to attractive and retain the best performers. With regards to indirect compensation, apart from the legally required a full review should be undertaken for the indirect options such as retirement pension plans, life insurance, flexible working schemes etc. to ensure they are relative to the market place. The recommendation for the “Self Managing Teams” will complement the recommendation to utilise team based versus individual pay based on performance which will encourage flexibility and co-operation within the teams.

Contribution of HR Policies to Organisational Performance

The spectacular success of the hotel is attributed by many industry experts to its superior service quality and customer focus. Such a focus has helped the Ritz to constantly differentiate its products and services from the competition, enabled it to grow fast without compromising its commitment to its customers and allowed it to ride out bad years without losing business or compromising its operational and financial results.

Being a member of the service industry, the organisation is people driven and significantly dependent upon the quality and effectiveness of its workforce for the realisation of its strategic and business objectives.

The company has formulated its HRM policies in line with its strategic objectives and the complete HR system is geared to delivering of high quality standards. It has unilaterally adopted employee oriented and customer focussed HR policies and procedures that are essentially Best Practice in nature and designed to produce high levels of employee productivity. The Ritz treats its employees with the utmost dignity both within and outside the organisation and is publicly proud of their knowledge, skills, abilities and contribution to the organisation.

The company pays great attention to training, an activity that continues throughout the working life of all employees, increases their knowledge and skills and optimises their performance. Team spirit, corporate pride and human dignity are common to all employees; a General Manager is expected to pick up a burnt cigarette from the carpet, even as the junior most employees have the powers to spend considerable sums of money without having to take permission from their superiors, if it is to further guest satisfaction. Ritz employees are known to go to great lengths to ensure guest satisfaction, leading their guests to come again and again and increasing the hotel’s customer retention to dizzy levels. Such motivation is proof of the role of Human Resource Management in the remarkable success achieved by the organisation.

Conclusions

HR management practices have clearly come a long way since the days when the duties of personnel departments were restricted to recruiting people, maintaining leave records, and preparing salary sheets. HRM is now felt to be a critical management function that is instrumental in achieving the strategic objectives of business organisations.

Whilst organisations are still divided on the adoption of Best Fit or Best Practice strategies, or on switching over from Command and Control systems to ones that are most participative, there is little doubt over the importance of careful selection, good training, effective communication, performance appraisal and attractive compensation in increasing organisational performance and competitive advantage.

Greater numbers of organisations, especially those in the knowledge sector are also seeing the advantages of employee involvement and empowerment in improving organisational innovation and employee commitment and motivation; which in turn results in enhancement of competitive advantage and business success.

The Ritz Carlton is an important example of the brilliant operational and financial results that can be achieved by organisations in the service sector through well planned and efficiently implemented employee oriented HR practices on a consistent basis. The organisation’s commitment to its employees in good and bad times and its adoption of employee empowering HR policies and practices has enabled it to achieve startling levels of customer service and leadership in quality, market share, and reputation.