measuring benefits of six sigma at starwood

Measuring Benefits of Six Sigma at Starwood

Six Sigma Conference: Service and Transactional Environments

Scottsdale, AZ

October 21, 2005

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Six Sigma at Starwood: Measuring Benefits

Ying Shiau - introduction

Current responsibilities as VP, Global Six Sigma Provide and oversee Six Sigma support on corporate initiatives Improve credibility of Six Sigma financials via policy setting and project audits Provide management reporting on Six Sigma initiatives, benefits and costs Encourage coordination and best practice sharing between Six Sigma divisions Enhance Six Sigma perception via internal communication vehicles

Industry Experience Hospitality: Hyatt, Hilton International, Morgans Hotel Group, Citigroup Food

Services Consulting: Accenture Brand Management: Colgate-Palmolive, Accenture CRM

Functional Experience Strategic planning, business analysis Branding, marketing Operations: hospitality, food service

Contact Information [email protected] 914-640-4411

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Table of Contents

Overview of Starwood

Benefits Calculation

Looking Ahead

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Starwood owns and manages over 750 hotels and vacation ownership properties around the world.

Starwood’s Brands and Properties

• 389 hotels and resorts

• 57 Owned, 169 Managed

• 133,884 rooms

• 67 countries

• Well-known global brand

• 121 upper upscale hotels


• 51,579 rooms

• 27 countries

• “Modern Luxury” brand positioning

• 131 hotels


• 23,158 rooms

• 21 countries

• Full/Select Service



• 2,090 rooms

• 5 countries

• Ultimate luxury and customized experience


• 8 Owned, 19 managed

• 6,067 rooms

• 15 countries

• Historical or legendary landmarks

• 20 hotels

•12 Owned, 8 Managed

• 5,786 rooms

• 5 countries

• World’s first chain of designer boutique hotels

• 16 vacation ownership resorts

• 4,500 units

• 6 countries, plus Bahamas, US Virgin Islands and Mexico (under construction)

• One of top 5 US timeshare companies

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Why Six Sigma? Hospitality has many repetitive processes.

Common Hotel Processes

Reservations

SalesReception/Front Desk

Housekeeping

Engineering

Food and Beverage

Security/Safety

• Sales calls• Lead qualifications

• Meeting arrangements • Parking• Check in• Concierge• Check out

• Guest room cleaning• Meeting room cleaning• Public area cleaning• Laundry

• Repair• Maintenance

• Restaurants, lounges• Room service procedure• Receptions, meetings

• Call centers• Web sites

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Why Six Sigma? We as a company value innovation.

“The best way to predict the future is to invent it.” Alan Kay

Winning Starwood Innovations

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Why Six Sigma? We as a company seek to rebalance some long-established ways of thinking and working.

Growing Challenges in Hospitality Industry

• Issues more complex• Customer demands• Competitive pressure

Need for a Cultural and Mind Shift

Art

Knowledge and experience acquired from past roles

Gut, intuitive decisions

Quick decisions and actions

Science

Advanced management techniques applicable to any situation, new and familiar

Data-driven decisions

Structured problem-solving

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Since 2001, Starwood has continued to strengthen our Six Sigma program.

2002-3 2004-6

Six Sigma Journey at Starwood

Cha

lleng

es • Greater demand for Six Sigma involvement in major projects

• Six Sigma way of working advances at a different pace in different parts of the organization

• Strong alignment with senior leadership priorities

• Program delivers material impact to EBITDA margins –more ambitious stretch goals

• Growing number of Best Practices - Core processes redesigned - cross-divisional transfers

• Post Sept 11, Six Sigma associated with cost cutting

• Six Sigma perceived as separate group• Benefit calculation approach not well defined• Projects with limited transferability

• Projects launched and improvement tracked

• Greater focus on divisional and regional best practices

• Improved benefit calculations, dashboards in place

• Six Sigma experience viewed valuable

• Program launched - great talent in new roles

• People trained, processes mapped and measured

• First projects begin delivering benefits to P&L

Acc

ompl

ishm

ents

2001

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Table of Contents


Looking Ahead


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When Six Sigma was first launched, not all project teams applied rigor to benefit calculations.

Downward Trend of Financial Benefits Calculated

2002 2003 2004 2005-

20,000

40,000

60,000

80,000

100,000

120,000

1 2 3 4

$-

$10

$20

$30

$40

$50

$60

-

20,000

40,000

60,000

80,000

100,000

120,000

1 2 3 4

$-

$10

$20

$30

$40

$50

$60

Number of Projects

Benefit Calculations

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Questionable credibility of our financials undermined buy-in from our key leaders.

Spotty Credibility

Reduced confidence in

Six Sigma methodology

Difficult to get continuous

investment in the program

Difficult to tell a good story to investment community

Reduced willingness to

support Six Sigma projects

Difficult to recruit and keep Six Sigma team

Impact of Questionable Benefits

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In 2003, we put in place a new set of guidelines and support for benefit calculations.

Defi

nit

ion

s

Targ

ets

Dash

board

Ch

ecks &

Bala

nces

Six Sigma Benefit Calculations

Benefit Calculation Components

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Type 1 is our most tangible financial benefit from Six Sigma projects.

Tied directly to P&L

Quantifiable cause and effect between project deliverable and reduction increase in one or more GL during a specified period

Calculation inputs sources from accounting system

NO assumptions: If an assumption is needed to calculate the benefit, it is not considered Type 1

Project types

Revenue generation

Cost reduction

Cost avoidance

Target goal: Type 1 benefits to meet or exceed 1.5 times Six Sigma expenses

Type 1 Benefits Definition

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Type 1 Benefit Project Sample

Situation Hotels faced rising costs associated with laundering of linens and towels Rising trend in consumer concern over environmental issues

Green Room Solution Guests decide if they wanted bed linen and bathroom towels changed by

placing a gray card on their bed

Financial Benefits: Type 1, Cost Reduction

- Cost savings in laundry, with volume dropping 25% Additional benefits

- Maid productivity increased- Positive guest reaction to participation in environmental initiative

Green Room Program

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Type 2 is another financial benefit type, which is a secondary focus.

Have a financial impact but cannot be tied to P&L during a specified period

Most involve future focused revenue processes (e.g., group room conversions from tentative to definite vs. actualized bookings

Requires approval before project is tollgated to Control for baseline and financial benefit calculations

Type 2 Benefits Definition

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Type 2 Benefit Project Sample

Increase Sales Lead Conversion

Situation

Sales managers not able to quickly identify regional options for group booking leads

Solution: provide sales managers with the ability to cross-sell and book all participating properties in region in a live system

Financial Benefits:

Type 2, Revenue Enhancement

Higher rate of leads conversion: Increased bookings and market share for the region

Benefits are measured from revenues from group bookings turned “definite” rather from when they actually stay at the hotel.

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Non-financial benefits are tracked by project but not translated into financial benefits.

While improvements in non-financial measures are important, no attempt will be made to convert them into financial values

- Too many assumptions; quantification hard to prove

Types of non-financial projects Reduction of variability in processes, e.g., room check in and out,

room service, housekeeping, etc. Reduction of risk exposure Productivity improvements without headcount loss Guest satisfaction Employee satisfaction Increased yield and conversion

Non-Financial Benefits

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Non-Financial Project Sample

Situation High guest complaints due to room assignment issues

Solution Updated check-in procedures More accurate room scheduling Increased training

Non-Financial Benefits Increased guest satisfaction by reducing number of defects e.g.,

- “did not receive requested bed type or room type,” - “upgrade not available.”

Reduce Room Assignment Defects

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A standard automated dashboard was created to help track key measures and benefits.

Standardizes how we capture and track key measures and benefits

Reduces BB workload by providing standard dashboard template

Reinforces Six Sigma principles (tutorial, help application)

Provides clear benefits view for a range of interested parties Six Sigma leadership: VP, MBB, etc. Operations: General Manager, Regional VP, Process Owner,

Controller, etc.

Performs automatic functions Control charts of key measures Baseline and benefit calculations, means, standard deviation,

sigma levels, etc. Calculation of financial benefit entries into project database

Benefits of our Dashboard

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Sample Dashboard

Output and Financial Measures

Input and Process Measures

Operational Definitions

Universally applicable to all projects

Tutorial and help application

Statistical tools: control charts, sigma levels

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Sample Control Chart

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Key individuals throughout the organization ensure adherence to these financial guidelines.

Checks and Balances

Six Sigma Financial Analyst:

Monitors adherence

MBB/BB:

Guides on benefit

calculation formula

Process Owner:

Gathers data calculation

benefits

Hotel Controller:

Validates benefits

Auditor:

Monitors adherence

during audits

Divisional Controller:

Determines BP calculation

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Table of Contents

Looking Ahead



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We will continue to evolve Six Sigma at Starwood for continuous program improvement and alignment with company priorities.

Select Starwood Priorities

Continued focus on productivity and profitability

Building World Class Brands

Sales Capability Initiatives

Leaner corporate management team

Improved market share and EBITDA margins

Six Sigma Priorities

Continuing to do more projects on productivity and profitability

Brand and Sales initiatives managed with support from BBs globally

More Best Practices and cross-divisional transfers

Continue to train and grow Green Belt community throughout Starwood

Continue to refine guidelines, processes and tracking for benefits

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Q & A?

measuring benefits of six sigma at starwood

Documents

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