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Special Report August 30, 2007, 10:27AM EST

Six Sigma Kick-Starts Starwood

The hotel chain says Six Sigma doesn't have to stifle creativity, and points to its success in developing profitable new programs for guests

by Spencer E. Ante

In January, 2006, the Westin Chicago River North hotel was picked to pilot a project, dubbed Unwind, for the upscale hotel chain. The purpose: to imagine a set of nightly activities that would draw guests out of their rooms and into the lobby where they could meet, mingle, and develop a greater loyalty to the hotel group. Westin spied an opportunity with Unwind after a study it produced found 34% of frequent travelers feel lonely away from home.

Instead of hiring consultants or ethnographers, a common first step for a new initiative, the hotel chain relied on a seemingly stodgy process: Six Sigma. Originally developed by Motorola (MOT) in the 1980s as a quality-control mechanism, the program has become part of the fabric of Corporate America. With its focus on reducing defects and cutting business costs, the technique has spread from manufacturing to the services sector.

Overcoming Skepticism

Even 3M (MMM) has embraced it—with mixed results. The program hurt the inventive Minnesota company's creativity, which is precisely the rap it has among companies trying to innovate. So when Starwood Hotels & Resorts Worldwide (HOT), Westin's parent company, introduced Six Sigma in 2001, "there was tremendous skepticism," admits Geoff Ballotti, president of Starwood's North America Div.

Under Ballotti, however, Starwood has found Six Sigma's strengths can promote innovation, not stifle it. Combining creativity and efficiency, instead of pitting one against the other, is a delicate managerial maneuver that few service companies have been able to pull off. Starwood is one. Bank of America (BAC) is another.

Starwood has been successful, in part, because it began with a culture of creativity before introducing the management tool. Founder Barry Sternlicht relied heavily on design to distinguish the hospitality company's Sheraton and Westin hotel brands from the competition. He brought in noted architect David Rockwell to help create Starwood's hip W Hotels brand.

Quick Execution of Concepts

Today, by harnessing Six Sigma processes to the creativity that bubbles up from its hotel units, Starwood is able to quickly turn concepts into reality. Hundreds of projects have been done this way, including a "menu engineering" program that rejiggers the contents of an in-room refrigerator based on their popularity to drive higher profits, and the development several years ago of a pool concierge who helps guests in Latin American resorts book spa appointments and restaurant reservations. "Everybody admires them for how they do this," says Jeneanne Rae, president of Peer Insight, an innovation consulting firm based in Alexandria, Va.

Last year, according to Starwood management, programs developed under the famed management technique delivered more than $100 million in profit to its bottom line. As a result, the White Plains (N.Y.) company is one of the world's most profitable hotel operators: Its net margin is nearly 15%, higher than those of rivals Hilton Hotels (HLT) and Marriott International (MAR), as well as the industry average of 9%. "We have been driving our margin growth faster than our competitors," says Ballotti. "When people ask why, I point to Six Sigma."

The company's Six Sigma group is run by Brian Mayer, who claims the quirky title of vice-president of Six Sigma, Operation Innovation & Room Support. "I grew up in the hospitality industry," says Mayer, whose grandfather and father ran catering businesses. "The joke is that I was born in a chafing dish."

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