Competitive Advantage and the Value of Wow Stories at Ritz Carlton

Business

Ritz Carlton Case Study

Question 1; Competitiveness of Ritz Carlton

Ritz Carlton appears to compete extremely effective, with a high level of service that has created a strong reputation of the delivery of five star services. To appreciate how and why the firm has been successful it is beneficial to look at the concept of competitive advantage.

Michael Porter examined the ways that firms competed and argued that for firms to be successful they required a sustainable competitive advantage; something that would give them an advantage over their competition (Lynch, 2011). Porter identified four potential sources of competitive advantage; firms could seek a cost advantage or an advantage of differentiation, in turn they could aim to serve the mass market or a niche market for each of these approaches. Cost advantages are achieved when a firm is able to produce a good or provide a service at a cost lower than their competitors, resulting in a superior profit, which may then be used to support the competitive strategies if the firm (Lynch, 2011). As the Ritz Carlton makes heavy investments in staff and empowers them to spend up to $2,000 on a guest in order to deliver either a need or a desire.

If the Ritz Carlton is not competing with a cost advantage, this leaves the competitive advantage of differentiation. Differentiation is seen when a firm finds a way to make itself, or its products or services different from its competitors in a way that is valued by its customers (Lynch, 2011). Differentiation is achieved when there is a different and unique characteristic(s), which may be tangible or intangible, obtained by the firm that are not present in the competing firms, and are valued by customers who are willing to pay a premium for that differentiation (Huggins & Izushi, 2011). The premium collected by the firm should always be greater than the cost of providing that differentiation. For effective differentiation to enable a firm to compete successful against competing firms, they will need to identify opportunities where they can differentiate themselves (Huggins & Izushi, 2011).

Examining Ritz Carlton in this context it is possible to see how they have been able to differentiate themselves. The firm has developed an extremely strong reputation for high quality service, to the upper segment of the market. The first source of differentiation may be seen with the history of the hotel which gives the brand name increased credibility with a heritage that supports it quality differentiation. The hotel history dates back to the early twentieth century, at the time the hotel opened it offered a new form of luxury as it the first hotel to offer a private bathroom in each of the guests' rooms. The hotel also offered additional luxury in the form of fresh flowers throughout the hotel, and a staff that were dressed in formal wear. These were new ideas for a hotel at this time, and as well as creating along history of luxury in which the brand reputation has been built, it may be argued the hotel also benefits from a first makeover advantage. These services all made the guests feel special, which meant that they would want to return. The delivery of luxury has continued, but the advantages the firm once had are not longer unique, so the firm has had to evolve new sources of differentiation.

For service experiences Kotler & Armstrong (2013) have argued that to keep counters and create loyalty and advocatory it is essential that firms not only meet the expected service standards, but exceed them. It is in the standards of service and the way that employees are trained to provide extremely high service levels that there is differentiation. The hotel as an employer invests in the employees, and empowers them to make guests stay special. This investment and trust, along with the empowerment are all strategies that are aligned with the human relations school of thought, which support high levels of motivation in the employee base. The strategies help employees to enjoy their work, know they are appreciated in their jobs, and take pride in their work; where employees are happy and motivated they are also more likely to deliver excellent service (Cook, 2008).

The empowerment, including the $2,000 they are allowed to spend on a guest so employees can find opportunity to delight guests by going further than competing hotels would attempt has supported the premium reputation; a reputation that is very difficult for competing firm to match.

The differentiation is the reputation and the service that is experienced by guests, with a number of sources that all input into that experience. This places the firm in a strong position, as service levels can be difficult to emulate, and with several source of advantage, including the heritage, leading to the position, it will be difficult for any firm to successfully emulate.

Question 2 - Wow stories

The 'wow stories' play an extremely important role in the development and the maintenance of the organizational culture at Ritz Carlton, which a key element of the competitive advantage of differentiation. It is the culture than sets the standards and the norms, and ensures that they remain the same throughout the organization. It is these standards and norms that create the conditions for management and employees to provide such as uniquely high level of differentiated service.

Schein (2010) argues that there six steps in the way an organization creates and maintains its culture. These stages are the way staff are selected to ensure they are a fit with the existing staff and organizational values; the socialization that occurs through the induction process, the removing of deviant employees, the use of behavior and tools to reinforce desired behavior, and cultural communications. The ways 'wow stories' are used and communicated satisfy several of these stages of cultural development and reinforcement. A different wow story is communicated every day, to every single employee in the firm. This process shows employees the behavior and actions that the employer desires, supporting the value and reinforcing the idea that employees are expected to provide such high levels of service. The recognition of individual employees across all the 70 hotels in 24 countries also shows the employees that the employers value them as individuals. This is a reinforcement of beliefs within Schein's (2010) model of culture; it is also a reinforcement of beliefs. The meeting may also be seen as ne of the process of inducting employees into the culture, which is supported by the high level of training and the value cards the employees are given.