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Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with 1,134 properties in nearly 100 countries and 171,000 employees at its owned and managed properties. Starwood is a fully integrated owner, operator and franchisor of hotels, resorts and residences with the following internationally renowned brands: St. Regis®, The Luxury Collection®, W®, Westin®, Le Méridien®, Sheraton®, Four Points® by Sheraton, Aloft®, and ElementSM. Starwood’s strength lies in a diverse portfolio of nine distinct lifestyle brands and an award-winning loyalty program. In 2007 Frits van Paasschen took the reins with the goal of not only growing the portfolio, but making Starwood a truly international hotelier. Over the past six years, Starwood has executed against that plan, opening new properties in Dubai, Qatar, India and China; but international growth presents new risks.
Managing Risk on a Global Scale Opening hotels in emerging markets exposes Starwood to economic struggles, political turmoil and natural disasters. In operating on this new global scale, Starwood’s executives would need to manage unfamiliar challenges in information security, brand management and labor management.
Recognizing the growing exposure, Starwood established the Enterprise Risk Management (ERM) Group, and gave that group a mandate: Risk Management is not only about identifying and avoiding risks, but also understanding opportunity and, most importantly, knowing how much risk to accept in pursuit of those opportunities.
• What are the business functions that have the greatest effect on the performance of their hotels? • What impact do incidents such as security breaches and civil unrest have on the business? • What are the potential risks and opportunities involved in exploring new markets?
As the director of ERM, Mark Reiss recognized that these challenges requires a new approach to risk management—one based on truly understanding the particular economic levers within the Starwood business, and assessing the impact each lever has on shareholder value. Achieving this understanding demands a previously unfathomable breadth of data and a depth of analysis.
The team uncovered a number of important truths, some of which challenge standard corporate beliefs in the hotel industry.
Assessing the Elements of Shareholder Value ThoughtWorks’ Agile Analytics team partnered with Starwood to lay the groundwork for this new model of risk management. Rigorously analyzing all of the potential levers within the Starwood organization is a huge task, and most lines of inquiry have a high probability of leading to a dead end. ThoughtWorks provides the expertise and discipline to navigate this vast landscape by applying the Lean Learning principles and adaptive practices of Agile Analytics. In extremely short (sometimes daily) iterations, the team performed correlation analysis to assess the impact of internal and external factors such as proximity to airports, local affluence, brand recognition, customer satisfaction, security breaches and economic downturns. ThoughtWorks quickly ranked each line of inquiry by quantitative impact on shareholder value, and discarded those with no measurable impact. This enabled new insight on fundamental questions that directly impact Starwood’s business.
• Indicators of change in the global economy may be more subtle than those employed by Starwood for strategic planning. • Customer satisfaction is more than just a sound business principle—the ratings can be employed to predict success relative to competitors. • Due to the cyclical nature of the business, seasonally adjusted performance metrics provided a more accurate measure of a hotel’s performance year over year. And finally, using machine learning, the team tied it all together by combining the most important lines of inquiry into a single predictor for shareholder value. This allowed Starwood to use apparently disparate data sourced from previously isolated departments in a unified framework for understanding their business’s performance. In the space of three months, the ThoughtWorks team had worked through the value stream map, delivering valuable business insight along the way. Armed with this insight, Mark and his team are reshaping how Starwood manages risks as the company continues to expand its global footprint.
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I can’t believe the progress we’ve made already. I would have thought it would have taken many months to get this far.
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Mark Reiss , Director of ERM (Three weeks into the engagement)
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