The company
The Mandarin Oriental Hotel Group is an international hotel investment and management group operating 14 deluxe and first-class hotels worldwide, with a further hotel under development in Florida. The Group has equity interests in all but one of its hotels and employs approximately 6,000 staff in 12 countries. It aims to be recognized as one of the top luxury hotel groups in the world, providing exceptional customer satisfaction in each of its hotels through a strategy of investing in facilities and people while maximizing profitability and long-term shareholder value. The strategy is progress, year after year, towards doubling capacity to 10,000 rooms in major business centres and key leisure destinations worldwide.
The Group's main operations are in Southeast Asia, especially Hong Kong and Macao, with a smaller presence in North America and Europe. Like all the hospitality industry, it was affected by the downturn associated with the Asian financial crisis but continued to produce an operating profit, while most of the Group's hotels continued to increase their market share.
The Mandarin Group has been very successful in the East with its hotels in Hong Kong and Bangkok, widely regarded as the leaders at the top end of the market. Here it has a reputation for the quality of "Asian service". It now intends to promote that image throughout the world, especially in Europe and America, while consolidating it in the Asian region. Although the Group is only a small global player, its main competitors are the Sheraton, Ritz and Four Seasons hotels. One of the Group's hotels, the Oriental Bangkok, has been consistently voted the best hotel in the world.
The Group regularly receives recognition and awards for outstanding service and quality management. In 1998, it received over 50 prestigious awards from readers of leading worldwide publications and the travel trade. For example, for the third year in succession, the Far Eastern Economic Review's annual survey placed the Mandarin Oriental Hotel Group as the best company in Hong Kong for high-quality services and products, while Business Traveller UK voted the Mandarin Oriental Hotel in Hong Kong as the best individual hotel worldwide, with the Oriental Bangkok in second place.
The main driving forces are the push to provide the very best service and hospitality experience, while at the same time controlling costs. The emphasis is firmly on customer satisfaction. The Group has been successful and is in the process of undertaking significant investments in prime properties in different locations throughout the world. The aim is to be the best in the world. At the local level, each hotel is creating and executing plans specifically geared to its individual market. These are benchmarked against a targeted control group of local competitors, in terms of guest services and financial returns. Within the Group, decision-making is being decentralized, with each hotel general manager and senior executive being measured against a set of pre-agreed financial and non-financial indicators, aligned in each case to the Group's strategic objectives. The success of the expansion currently taking place is seen to be dependent on extending the brand image. Central to all this is the strengthening of the core competencies of headquarters, namely sales, marketing, technology, financial control and human resources.
Main managerial practices
Background: The hospitality industry
Traditionally, the hospitality industry has been very hierarchical in its organization, with command and control systems and top-down vertical communication, but often with little horizontal communication. The management structure typically consisted of many layers of authority, frequently as many as 25.
People with few skills and a low level of educational achievement were often recruited into the industry. It was characterized by low salaries, but it did offer the prospect of upward career progression. However, this progression was usually within a specific function such as catering, with some progression from waiter to general manager. Jobs were tightly demarcated, from the bellboy to the waiter to the receptionist. An employee's experience was frequently limited to just one functional area and then perhaps not include all the jobs within that area. Those who progressed, for example within the catering function, did not necessarily have business acumen. People who stayed in the industry had to be committed and ready to work the long hours demanded by systems which had to operate 24 hours per day, 365 days per year. Human resource practices were often rudimentary, for example with decisions about promotion and recruitment often made on the basis of subjective judgements and assumptions.
Senior management started to question the effectiveness of this structure in delivering improvements in productivity, efficiency and customer satisfaction. This change started in Australia in the late 1980s. Ideas for change came from SAS Airlines and from Blackmores' Australia, while the Sheraton in Singapore pioneered the concept of continuous improvement. The Sheraton was one of the leaders in the field, and it was there that Judy Varney, Group Director of Human Resources at the Mandarin Oriental Hotel Group, acquired a great deal of her formative experience.
The changes Ms. Varney witnessed were radical. They amounted to a re-engineering of the industry and the introduction of many high-performance work practices. Hotel management was delayered from 25 to ten levels. A fresh look was taken at the distribution of jobs. Rather than organizing work tasks in terms of functions, they were restructured in terms of bands. These bands consisted of jobs which were clustered in line with the customer skill set required. Those with the same customer skill set were clustered into broad bands with similar skill levels. This produced the ten levels from the entry jobs, Level 1, to the general manager at Level 10. Levels 8, 9 and 10 were all the decision-making grades; Levels 5, 6 and 7 were the trainee managers and department heads. Levels 1, 2, 3 and 4 were the operational levels, with the regular waiter at Level 2 and the supervisor at Level 4. Level 1 entry jobs consisted of those of the bellboy and the room attendant.
Once the bands were established, the next task was to focus on multi-skilling within each band. Employees were expected to master all the skills at their level. Training and job progression were then determined by the need for all the staff to become proficient in all the jobs within their band. This involved moving staff through all the jobs in their existing band. Once they were mutli-skilled within their band, having become proficient in three or four different jobs, they would then be ready for promotion to the next band, other things being equal. There the process would start again, and the person would be skilled in the tasks within that band before moving up to the next level. At department-head level, it meant that department heads were skilled in all functions from finance to HRD and that staff were not only more flexible in terms of the functions they could perform but that they were also more highly skilled in the sense that they had a much broader range of knowledge about the ways in which the organization operated.
Ideas of continuous improvement were taken from the Deming tradition, although Deming's ideas on statistical quality control could not be transferred into the hospitality industry very effectively. The basic idea of process mapping was applied within these broad bands. Using a consultative process and external consultants, the traditional triangle was effectively inverted putting the operation staff at the top, driving the process, as those with direct customer contact.
This process delivered a number of advantages. It made the jobs more demanding and satisfying for the employees. It provided all future managers with training in the full range of functions and ensured that they had a concrete knowledge of all aspects of the business, including the necessary business acumen. In addition, for those who moved up within the organization, who became "career spiralists", they achieved a considerable depth of knowledge, acquiring very high levels of skill, having knowledge in both breadth and depth. Of course, not all staff could be climbers, and in fact the ideal position is that about only 40 per cent are climbers and therefore motivated to move between bands, with the remaining 60 per cent of staff as clingers, i.e. content to remain within their band.
The other advantage of the process was that at each level staff were interchangeable. If there was a rush in the coffee shop and waiters were under pressure with the associated risk of a fall in customer service and individual productivity, then staff could be redeployed from another function and levels of customer service and satisfaction sustained. All the staff member had to do was to change his/her uniform. For the manager of the coffee shop, this would cost more, but for the organization as a whole, this was a far more productive and efficient use of staff resources.
Competencies were introduced for staff at all levels, and these were used to drive the training. Also, successful attempts were made to empower staff by giving them the right to make decisions and adopt courses of action which would enhance the quality of service provided. In the Australian experience, this empowerment was seen as an important reason for the success of the system. In terms of employee relations, this new system was consolidated through the Enterprise Agreement.
Implementation of practices
Having had this experience of change, Ms. Varney is now introducing similar changes to her present organization. This task is made more complex for a number of reasons. First, because the existing hotels have their own strong brand image, it could be dangerous to destabilize this through the introduction of rapid change. This brand image is an important competitive advantage, having been established over a period of years and anything which destabilizes it could cause serious damage to the performance of the Group.
Second, the senior managers have to be brought on board if the changes are to be effective throughout the organization. The Group Director of HR has therefore thought through her strategy very carefully and is applying it progressively throughout the Group, after securing the support of senior managers.
Third, because the company operates across the globe, different national contexts and institutional arrangements affect the ways in which the strategy may be implemented. These will be discussed later.
One of the main ways in which other companies have been able to introduce this type of new structure in the past is through the direction of a charismatic CEO. In many organizations, it has been the CEO who has driven the change. However, this runs the risk of the culture becoming too dependent on the CEO and collapsing if he or she should leave. The challenge at the Mandarin Group is to implement the culture change across all the hotels in such a way that it is deeply embedded in the organization so that, even if CEOs change, the culture would be sustained.
The strategy has five separate but related dimensions: recruitment and selection; training and development; succession planning; compensation and benefits; and employee relations. The Group Director of HR is currently working on all five areas, but progress has been more rapid in some than others. Once the strategy is in place, it is anticipated that all the hotels in the Group will have similar approaches and, crucially, a similar culture of commitment to customer satisfaction and high-performance working practices in place. The strategy is being implemented in a number of stages, with some of the dimensions in place before others, but with action taking place across all five dimensions. The Group Director of HR estimates that it will take three to four years for the culture change to be completed.
Recruitment and selection
The first stage of the strategy has been to tackle the recruitment and selection of personnel entering the management cluster. In the past, recruitment was done in a fairly ad-hoc manner with decisions often made on the basis of subjective criteria without reference to all the competencies required for the job. This has now been replaced with a structured process involving a full day's assessment, a redesigned, more sophisticated application form, a weighting index and a score for the interview process. The whole process now involves seven or eight managers from across the various functions. This has taken the subjectivity out of the process of management selection.
Central to the restructuring of the management cluster has been the introduction of core competencies for the Group as a whole. These took time to develop but were eventually derived directly from the company mission statement. A firm of consultants has been used to develop an assessment centre using these competencies as the base against which managers' strengths and areas of development could be identified.
Once the process has been embedded in the management team, the next task is to move down to the next level. The decision was taken not to rush the changes because of the fear of destabilizing the brand.
Training and development
Training and development are currently being tackled and are regarded in many ways as the essence of the project. The aim is to introduce a learning environment into the hotel, i.e. a university within the hotel. Each of the job bands has its own competencies and every job its own standards, and as the person acquires those competencies he/she will be certified not just by the company but by an external authority, either a college or university. The competencies at all levels throughout the Group are derived directly from the mission statement.
As the staff work long and unsociable hours, the aim is to bring the university to them. Certification is delivered at every stage. From the staff's point of view, as they acquire the competences and are certified they will build up credits for a certificate qualification, then a diploma and for some a Masters' qualification. The aim is to ensure that there is something in the process of learning for the staff, to encourage them to buy into it; this is the reason for incorporating some form of a recognized qualification. This requires negotiations with college and university providers, because not all universities are willing to provide accreditation for work-based learning. It is planned to make extensive use of development centres in implementing these changes. The approach will be piloted at one hotel in the year 2000 before being implemented throughout the Group. Development centres have already been established for senior executives, 20 of whom have been through them.
Succession planning
The next issue to be tackled is succession planning. At the moment, people are moved around to help broaden their experience, but no real structure has yet been put in place. Use is being made of external consultants to ensure that as much subjectivity as possible is taken out of the process, with the aim of demonstrating to senior staff how decisions can be made in a more objective manner.
Compensation and benefits
Over the last six months, the Group Director of HR has been looking for an appropriate structure. Part of the problem this industry faces is that the system has to accommodate the movement of people across countries with very different terms and conditions.
Employee relations
Employee relations are being transformed through the use of the profit chain. This takes the form of the equation:
A mechanism, in the form of a new monthly survey, has been put in place to track this through time. This survey is delivered to a sample of employees and provides a regular snapshot of the problems which have to be tackled. At the moment, the survey has revealed three areas where work is required: communication, recognition and reward, and leadership. The latter is being tackled though a leadership audit, although managers have encountered problems in using it. Once again, it has taken time to develop an instrument that is appropriate to the needs of the Group.
Part of the transformation of employee relations is to introduce a sense of empowerment to the staff, to ensure that they have the ability to take decisions and move beyond the call of immediate duty by providing the customer with that little bit of extra help.
National cultural and institutional factors
While the training system of the Hong Kong Special Administrative Region (SAR) does not impinge directly on the hotel industry, differences in national institutional structures do affect the introduction of this type of strategy. One factor which affects its introduction is the level of the employee's education and achievement in the English language. Thus, it is easier to introduce it into countries where the level of achievement is high because of the need for a high level of understanding to accompany the introduction of standards and associated competencies. A lack of understanding on the part of the staff is likely to be a major obstacle to the strategy's effective implementation. For this reason, the new competence-based system for the middle and lower levels will be piloted in a country where the level of English among the staff is high.
Similarly, differences in national industrial relations systems could impact on the ability of the company to introduce all of these changes.
