Joseph A. Michelli asked:
Soaring gas prices and the US credit crunch have many business owners scurrying to reduce costs and “do more with less.” But this natural and reflexive approach to economic uncertainty is often the worst path a business leader can take. In fact, while researching my recently released book The New Gold Standard: 5 Principles for Creating a Legendary Customer Experience Courtesy of The Ritz-Carlton Hotel Company, Ed Staros, a founder of the modern-day Ritz-Carlton Hotel Company noted that during difficult economic times in the 1980’s many hotel chains were cutting back on flower arrangements in the lobby and not placing mouthwash in guest rooms. Ed shared. “We always believed that economic challenges didn’t mean that people didn’t need or want mouthwash. It meant we had to raise the standard in a quality efficient way.” So, how do business leaders decide when to pull-back products or service versus expanding them, particularly when business begins to slow? For example, many marketers suggest that the best time to advertise is in a tight market, namely because fewer people are doing so (allowing you to position your product with less clutter) and because it is the time when customers need most to be reminded that you are still there.
While cost cutting may be inevitable in tighter economic cycles, I gained key insights during my conversations with the leadership at The Ritz-Carlton Hotel Company about how to avoid a scarcity mentality in challenging times:
1) When consumers face economic challenges they often place a greater emphasis on value.  While many customers will “pinch pennies” and “clip coupons” to address financial hardships, they will still look for opportunities to “treat” themselves. When consumers do spend money freely they will want to experience true quality and not a watered-down or corporately scaled-back version of quality.
2) Focused excellence prevails. If cutbacks are necessary, companies can and should reallocate resources toward their core areas of excellence. To be “excellent” means resisting the urge to overreach into areas where your products or service will be mediocre. Doing a few things expertly beats doing many things adequately.
3) Inspire staff to focus on purpose and outcomes, not fulfillment and procedures. I have long believed that all business is personal. This is particularly clear in the world of luxury hotels and resorts. While most hotel companies that compete for this market segment have exquisitely clean and well-appointed facilities, the primary driver for guest loyalty emerges from the personal attention and caring of staff. From the onset of their employee selection process, leadership at Ritz-Carlton looks for underlying talent in service characteristics. They then train and certify the skills necessary for the new hires to do their jobs while constantly linking job function to the overarching purpose of the business — namely to provide for “the genuine care and comfort” of their guest.
4) Empowering the front-line saves money. While many business leaders talk about their empowered workforce, few put money behind the hype. At Ritz-Carlton, staff members (referred to as the Ladies and Gentlemen of The Ritz-Carlton) are given the authority to spend up to $2,000 per day per guest, without seeking the approval of their supervisors. This authority allows front-line workers to immediately resolve service breakdowns for guests or simply engage guests by doing something unexpected that will make the hotel stay memorable. The cost-saving nature of this seemingly risky level of financial empowerment is derived from the morale and loyalty of employees, the clear cost savings of resolving problems immediately, and the impact that this type of empowered workforce has on customers. Essentially, empowered employees consistently transform otherwise satisfied customers into fully-engaged brand loyalists that spend more and refer family and friends to the business.
In my book The New Gold Standard, I identify 5 key business principles that have allowed The Ritz-Carlton to continue to be a recognized leader in product quality and service excellence (two time winner of the Malcolm Baldridge award for service excellence). Rather than contracting or adopting a defensive posture during economic uncertainty, The Ritz-Carlton leadership stays the course with these five principles:
Define and Refine
Empower through Trust
It’s Not About You
Deliver Wow!
Leave a Lasting Footprint
While concepts like empower through trust have been alluded to earlier, concepts such as “define and refine” and “it’s not about you” warrant further exploration. By clearly “defining” the core components of the company’s values, quality standards, and service tradition, Ritz-Carlton constantly communicates the path by which a guest’s experience can be elevated, how the staff member can purposefully add value and the means by which the company will thrive. By having every staff member take time every day at every hotel worldwide to participate in a process called line-up, Ritz-Carlton leadership re-engages staff in a discussion of the overarching mission they all share. Further, by being attentive to the need to “refine” the brand so that it remains relevant in changing economic times, for evolving customer segments and in diverse international markets, leadership builds on their well-defined culture.
The “It’s not about you” principle reflects the disciplined practice of listening to staff, customers, vendors and all stakeholders to constantly assure that business does not principally serve the needs and preferences of leadership. By adopting a penchant for listening to stated and unstated needs while maintaining a passion for service, great leaders produce businesses that endure. From the customer’s perspective, these businesses are extensions of themselves and not commodities.
While none of us can control the winds of economic change, taking a few lessons from The Ritz-Carlton Hotel Company can help us adjust our sails to arrive at our desired destination. I welcome your thoughts about the journey…
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©2008 Joseph A. Michelli