Posted: March 12th, 2023

Leading Human Capital

All the requirements are in a word document. The case to be analyzed is the pdf file below.

Human Resource Management

Leading Human Capital:

COURSEWORK (CW1)

Summary of Assessment Method: Individual 2,000 words written report + a 500-word executive summary, evaluating a strategy for motivating and engaging workers in an organization, based on a global business case study.

Students will prepare an assignment that evaluates a strategy for motivating and engaging workers in an organization in the business case study assigned individually.

The Business Case Resolution (100% of total grade)

The Business Case Resolution should have no more than a 500-word executive summary and a 2’000-word main text.

It should comprise of the following key components:

I) A 500-word Executive Summary

II) Report:

Part 1. Selected HR practice related to leading success through human capital: critical literature review of a selected a selected Leadership topic, Organizational Behaviour (OB) aspect, a specific Human Resource (HR) management practice, for example Dysfunctional Leadership, such an OB aspect as Stress or Motivation, or such an HR practice as Recruitment, Selection, Training, Appraisal, Development, Compensation, Employee Relations, or alike (1’200 words minimum).

Part 2. Critical analysis of the business case (500 words minimum)

Part 2.a) Business case summary (200 words minimum).

Part 2.b) Identification of the strategy for motivating and engaging workers in an organization (50 words minimum).

Part 2.d) Description of a selected HR practice for leading success through human capital and evaluation of its relevance/effectiveness; justification of such evaluation by referring to the case study and the literature reviewed (250 words minimum).

Part 3: Global conclusion about the effectiveness of current strategy for motivating and engaging workers (300 words minimum)

d. Reference list, using at least 5 literature sources (using only English based literature from credible sources, such as a book chapter, a professional association review, or an academic journal article)

The coursework should follow the assessment brief. Please ensure that you do cite correctly the adequate number of references and follow the below guidelines in order not to lose any points for presentation elements unnecessarily:

1. Font size 12, Times New Roman

2. Spacing 1.5

3. Names of all the students including their student numbers need to appear on the cover page

4. Word count needs to appear on the cover page

5. A contents page also needs to be included

6. Main text pages need to be numbered and the topic also included in a footnote

7. Word count should not include cover page, contents’ page, appendices, reference list, only the main text

8. Use a variety of credible and academic references and strictly follow the Harvard referencing style

9. Ensure that you do utilize the e-resources available to you such as Emerald, EBSCO etc.

9-108-00

M A R C H 1 7 , 2 0 0 8

________________________________________________________________________________________________________________

Professor Dennis Campbell and Research Associate Brent Kazan prepared this case. HBS cases are developed solely as the basis for class
discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.

D E N N I S C A M P B E L L

B R E N T K A Z A N

Shangri-La Hotels

In November 2006, Symon Bridle, the newly appointed chief operating officer of Shangri-La
Hotels and Resorts, was reviewing the progress the Hong Kong-based company had made over the
previous ten years as it grew from a regionally focused business into a rapidly expanding
international deluxe hotel group. With 18,400 employees, 50 hotels, and $842 million in revenues,
Shangri-La Hotels and Resorts (Shangri-La) was a leading player in the luxury hotel industry. The
company was growing rapidly to satisfy increased demand for deluxe hotels and resorts in Asia,
Europe, and North America and Bridle was in charge of ensuring that Shangri-La’s signature
standards of “Shangri-La Hospitality,” a service model based on traditional Asian hospitality, were
maintained during this expansion.

For the past two weeks, Bridle and a task force of his top managers had been discussing a number
of organizational issues that presented challenges to Shangri-La’s rapid expansion strategy. There
were three major issues at hand: (1) the company was expanding into high-wage economies in
Europe and North America; (2) the company was expanding its presence in China—a country where
front-line employees were not used to exercising decision-making authority; and (3) newcomers in
the Chinese hotel market were poaching Shangri-La’s staff and driving up wages in historically low-
wage markets.

All of these issues weighed on Bridle’s mind as he wondered what he should do next. “How do
you still articulate your brand in tight labor markets with these pressure points?” he pondered.

Corporate Background

Shangri-La Hotels and Resorts, a deluxe Asian hotel chain, was founded in 1971 in Singapore by
the Malaysian-Chinese tycoon Robert Kuok. Inspired by British author James Hilton’s legendary
novel Lost Horizon, the name “Shangri-La” meant “eternal youth, peace and tranquility” and
embodied the serenity and service for which the hotel chain was renowned throughout the world.

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This document is authorized for educator review use only by Alessandro Cavelzani, Danube University Krems until Jan 2022. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860

108-006 Shangri-La Hotels

With its first and flagship hotel in Singapore, the company quickly differentiated itself from the
competition and provided distinctive Asian standards of hospitality and service. Within a decade,
Hong Kong-based Shangri-La established a world-class reputation and became one of the world’s
finest hotel management companies, garnering international awards and recognition from
prestigious publications and industry partners—”Best Business Hotel Chain in Asia Pacific” by
Business Traveler (U.K. and Germany) and “Best Hotel Chain” by Chinese Hurun Report (China)i—
along the way.

As of 2006, Shangri-La had four main business segments: hotel ownership and operations,
property development including commercial buildings and serviced apartments, hotel management
services to group-owned and third-party hotels, and spas.

Expansion History

In the early 1980s, Shangri-La went through a period of rapid expansion in Asia and built 2

hotels over the next decade. The hotel chain continued to prosper throughout the 1990s, in step with
Asia’s economic boom. By 1999, Shangri-La had a total of 35 hotels and resorts located in Asia’s most
sought-after leisure destinations. In the following years, the company continued to grow. To raise
funds for expansion, Shangri-La subsidiaries in various countries, including Malaysia and Thailand,
were incorporated and listed on local stock exchanges between 1982 and 2002, under Shangri-La
Asia.

In the early 2000s, Shangri-La began expanding beyond its core Asian markets through both
management contracts and owner/operator developments. The Shangri-La Dubai, in the United
Arab Emirates, opened in July 2003, followed a year later by the Traders Hotel Dubai, and a
destination Shangri-La & Spa Resort in Muscat, Oman. Opportunities were also taken in Sydney
(2003) and Cairns (2004) in Australia, while contracts were signed for upcoming properties in North
America (Vancouver, Chicago, Las Vegas, Toronto, Miami, New York) and Europe (London, Paris,
Vienna).

As of 2006, Shangri-La was the largest Asian-based deluxe hotel group in Southeast Asia. The
company managed a total of 50 hotels under two brands: the five-star Shangri-La and the four-star
Traders—a sister brand established in 1989 to deliver high value, mid-range, quality accommodation
to the business traveler—with total inventory of over 23,000 rooms across 39 locations (see Exhibit 1
for locations).ii As of November 2006, the company still had over 40 projects under development
worldwide (see Exhibit 2).

Despite its aggressive expansion elsewhere, the company remained focused on business and
capital investments in the Asia-Pacific region, in particular China. The primary reason for this
decision was the fact that China’s successive relaxation of travel restrictions dating back to the late
1980s, coupled with rising urban incomes, had created a boom in Chinese domestic and outbound
travel. In addition, inbound international travel was also increasing. The country had recently
entered into the World Trade Organization and its capital, Beijing, was selected as the host of the
2008 Olympics. With an additional role as the host of the World Expo 2010, Shangri-La planned to
capitalize on China’s economic advancement and expand its hotels in China from 17 to over 30 by
2008.iii

Financials

Shangri-La’s early focus on the Chinese market helped the company shield itself from the worst of
the Asian economic crisis of 1997-98, which hit Southeast Asia hard but left China relatively Do

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unscathed. In 2005, the company benefited from continuing robust travel demand in Hong Kong and
China to post revenues of $842 million (see Exhibit 3 and Exhibit 4 for financials). Both room and
food and beverage revenues continued to improve and occupancy rates of Shangri-La hotels
increased to 73% in 2005, compared with 71% for 2004 (see Exhibit 5 for hotel operating statistics).
While hotel operating costs were market-specific, labor, utilities, and maintenance costs together
accounted for approximately 32% of gross operating revenue in a typical Shangri-La property in Asia
with 20% due to labor costs and the remaining 12% due to utilities (7%) and maintenance (5%) costs.

Service Model: “Shangri-La Hospitality”

Starting with its first hotel, Shangri-La Hotel-Singapore, Shangri-La built its brand on service
excellence with a stated mission to “delight customers each and every time” (see Exhibit 6). The core
of the Shangri-La brand was steeped in offering customers an unforgettable experience by blending
local cultures, exotic art, and lively ambience.

With its Asian foundations, Shangri-La’s service model of “Shangri-La Hospitality” was built
around five core principles: respect, humility, courtesy, helpfulness, and sincerity. With properties
spanning geographic and cultural boundaries, implementing these principles consistently was
challenging and affected everything from staffing and amenities to customer-employee interactions.
For example, certain service principles (i.e., respect) meant different things to different customers in
different markets.

Greg Dogan, regional vice president, explained:

Shangri-La Hospitality basically covers what we do in Asia. Within each country, you need
to adapt to the local requirements whether it is Myanmar, Philippines, or Indonesia. In
Thailand it is very normal for a service employee to serve you tea or coffee on one knee. In the
Philippines, this is a big no-no. Similarly, in most countries, staff would normally walk in,
serve the tea, turn their back, and walk out. Japanese expectations, however, are that you walk
in, serve the tea, and walk out facing the guest. It is the little things like that you need to pick
up from each culture. In each country there is a different expectation and we adapt to those
countries. The danger is to become a cookie-cutter company and we cannot be. We have to be
individualistic in each of our cities but still maintain our strong brand integrity.

For many years personalized guest service remained Shangri-La’s main competitive advantage.
By the early 2000s, as more and more Asian hotel groups such as Mandarin Oriental, Banyan Tree,
and others expanded around the world, creating a strong brand and a tangible differentiation became
even more important for the company.

Delegation of Authority

To achieve exceptional customer service, Shangri-La used a 5-level organizational design. The
company grouped its employees into five tiers: Level 1 (divisional managers), Level 2 (departmental
managers), Level 3 (sectional managers), Level 4 (front-line supervisors), and Level 5 (front-line
employees). Each level had separate guidelines, discretion, and a dollar amount they could use (Level
1-3: HK$500; Level 4-5: HK$100) without management’s approval in handling customer requests that
were outside of normal operational guidelines.

Bridle explained:

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To deliver superior results, we believed in giving all front-line personnel decision-making
power with respect to guest requests. For example, we allowed cashiers to waive amounts up
to HK$100 without manager approval. Operationally, the system looked great. Then we
realized, regardless of the amount, it was not always easy to get some Asian cultures to
actually accept that they could make these decisions, on the spot, and exercise authority.

Bridle had just discovered a new problem. Giving decision-making power to the front-line
employees was not always effective in Shangri-La’s hotels in China. Although fully authorized to
address guest requests, front-line employees in Shangri-La’s China hotels appeared uncomfortable
making decisions, especially those involving small monetary issues.

Chinese employees were very good at performing their duties in strict accordance with
operational guidelines. However, the cultural predilection was not to take initiative but to be told by
a superior how to handle a given situation. Once an order was given to do a specific task, most
Chinese workers followed the instructions to the letter. While this was an advantage in getting many
operational steps completed in the right order, it also meant that small problems encountered by
guests took a long time to be corrected.

Bridle quickly found out that while the task-related skills such as making a reservation could be
taught easily, it took time and practice to acquire judgment skills such as letting a mini bar expense
go. “Decisions did not always involve money,” he added. “The issue could be as simple as a guest
forgetting her passport at the airport. Our front-line employee would think ‘It could be expensive to
take staff off duty to help the customer. What should I do?’ They would also think about operational
implications, as in who is going to cover me when I am gone. And that made the decision-making
even harder for them.” “Even when they knew they had the decision-making authority, they were
not using it effectively,” Dogan echoed Bridle’s concern. “I remember, in the very early days, there
was a situation where we had a guest who had a very small problem during check-in. The front-desk
was so eager to get rid of the problem; they gave away a bottle of Dom Perignon to the guest.”

In some cases, Chinese employees hesitated because they were simply not used to taking
initiative. In others, local Chinese managers were unwilling to delegate and give up their perceived
authority. “All it took was for one person further up the chain to say ‘don’t do that’ and our front-line
employees would not take another bite at the apple,” recalled Tan Eng-Leong, Shangri-La’s group
director of human resources. Dogan agreed: “We introduced the delegation of authority a number of
years ago and the culture that was being developed by us over the years was to empower people.
Easily said, but very hard to implement. We tried to give our staff the confidence to make decisions,
without any kickbacks or punishment. It was important that we developed a management culture
and philosophy that brought that out.”

Bridle continued:

We knew that we could not deliver the desired standards of service if our front-office
personnel in China were hesitant to take initiative. We had to instill a level of confidence in the
employee that they could make those decisions. That required a great deal of communication
and a need for continual training support to get the concepts across.

Training and the Shangri-La Academy

Despite Shangri-La’s commitment to highly personalized guest service, performance still varied
considerably from hotel to hotel. Much of this variation was tied to hotel location and economics, but
some was also tied to hotel management capability, leadership, and culture. In addition, the Do

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company’s research reports showed that Shangri-La’s aggressive expansion in China required the
company’s current workforce to grow from nearly 10,000 to approximately 19,000 employees—all of
whom needed to meet Shangri-La’s customer service standards. Shangri-La had to think bigger.

Bridle explained:

Another one of our challenges was to ensure that there are enough qualified people to fill
growing needs. This concerned all staff levels, from frontline staff and mid-level managers to
senior leaders. We decided to invest heavily in training, both onsite in hotels and also at a
brand new training academy near Beijing.

In 2004, the company opened its first training facility in China, the Shangri-La Academy, in efforts
at standardizing the delivery of its brand promise throughout its network of hotels worldwide. While
the academy was primarily set up to train employees in China to maintain consistent service delivery
across Shangri-La’s China hotels, all other Shangri-La hotels were also asked to allocate budget for
this training and to send their high-potential employees to undergo the training modules offered by
the Academy.

The training facility had six training rooms, a library, a computer lab, training and demonstration
kitchens, a training restaurant, a training lounge, and a housekeeping practice suite. The Academy
offered five-week to three-month training programs in western service operations, culinary arts
(western cuisine), housekeeping operations, front office operations, and advanced hospitality
management. The goal was to develop a new breed of hospitality professionals with enhanced skills
and a strong service orientation equipped to adopt innovative approaches in tackling challenges at
work. The academy’s broad curriculum ensured that learners left the academy with the breadth and
depth of knowledge and skill to thrive in their careers and advance global hospitality trends. After
the training programs, participants were awarded certificates in F&B service, Housekeeping
operations, Front Office operations, Culinary Arts and the Diploma in Hotel Management for the
Advance Hospitality Management Course.

The training programs focused heavily on preparing employees to more effectively utilize
decision-making authority through the use of progressive and interactive instructional
methodologies, such as role playing, to create the circumstances employees would face. “In our
training facility we tried to simulate interaction with customers. For instance, in our training
lounge—used as a restaurant in our restaurant simulation—we would have people pose as
customers. They would come as guests, order food and beverages, and go through the whole service
sequence. And our employees would get a chance to interact with them and practice what they
learned in the classroom,” said Perry, Director of the Room programs at the Shangri-La Academy.

In these interactive modules, a work situation scenario was taught with emphasis on common
mistakes and best practices, so that trainees would learn to examine and question why “things were
done in a certain way.” Classes were often videotaped and analyzed for employee body language
and manner with “customers”. “What was their body language? Did they smile? Was the hand in the
pocket when they served the customers? We would look at things like that,” added Perry.

Tay Beng Koon, Director of Academic Development, added:

One of our challenges was that our employees could see the immediate costs, as in I am
giving up this room, but could not easily see the long-term implications. The issue was very
tangible on one side and intangible on the other. To emphasize the future benefits, we
developed and focused on company-wide guiding principles. Do

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Shangri-La Care

Shangri-La’s employee philosophy was to develop local talent to world class expectations. The
company had already launched its culture training program, Shangri-La Care, in 1996 to ensure that
each global employee delivered service “the Shangri-La Way” (see Exhibit 7). Shangri-La Care 1
focused on the five core values of Shangri-La Hospitality: respect, humility, courtesy, helpfulness and
sincerity. The program was strongly supported by the top management and continuously cascaded
through the organization. All hotels were required to allocate a specific budget for training and
development, and the general manager of each hotel was personally responsible for ensuring that all
the allocated funds were spent year after year.

As the company grew, Shangri-La added new modules to its culture program. In 1998, Shangri-La
Care 2 was launched. In Module 2, the company focused on retention and guest loyalty. Going the
extra mile, pleasing guests not just the first time but every single time, being flexible and never saying
no, anticipating and responding quickly to customer requests, and recognizing the guest’s individual
needs were emphasized.

In 2003, the company launched Shangri-La Care 3 to emphasize the importance of recovery when
a mistake was made. In Module 3, the company focused on the five steps to recovery—Listen,
Apologize, Fix the Problem, Go the Extra Mile, and Follow Up. In 2005, Shangri-La announced its
fourth Shangri-La Care module, addressing the need of employees to take responsibility for customer
satisfaction.

Compensation and Career Growth

By investing heavily in employee development, the company was not only making its employees
valuable to Shangri-La but also to its competitors. “Retention became a big problem,” said Tan Eng-
Leong. “Traditionally, our turnover had always been low, 19%-20%, compared to the industry norm,
27%-28%, but the competition was offering 35% to 50% higher salaries.”

Shangri-La had a three-tier compensation system. The company’s level 1 employee—typically
division heads and hotel general managers (GMs)—were paid a base salary and a bonus based on the
hotel’s overall performance. Overall, GM compensation was heavily geared towards the financial
results (Gross Operating Profit and Gross Operating Revenue attainment)1. Compensation for level 2
and 3 employees (e.g. property line managers) was similar to the level 1 structure—salary and a
bonus pay—with the exception that factors such as customer loyalty and employee satisfaction scores
were also linked to employee’s bonus awards. Employees at levels 4 and 5 typically enjoyed a
common bonus incentive which was linked to property overall performance, but not to individual
goals.

Bridle explained Shangri-La’s compensation structure:

We almost have a three-tier type of approach to it. We award our GMs very much based on
the financial results: against budget and last year’s financial performance. And there is a
discretionary element based on their leadership competency. Level 2-3 compensation is also
linked directly to GM’s financial goals—everyone’s compensation is—but at that level bonus
numbers start breaking down to additional goals that reflect customer loyalty and employee
satisfaction. All these things come in below the GM level. So, if you are at a level 3, you have

1 RevPar (Revenue Per Available Room) = A (Average Price Per Room) * O% (Rate of Occupancy) Do

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more of directly measurable items like customer loyalty, quality standards, and audit
standards. As you move up to Level 1 and 2, the compensation becomes more financial results
oriented. However, even though our GM compensation doesn’t have a direct link to customer
satisfaction, they still have incentives to make sure that those goals are met. I think our senior
management, as in level 1 and 2, sees this. They see that the performance is bottom-up; they
know without customer satisfaction they would not achieve financial results.

He continued:

It is becoming more transparent now. I think the important step for us is to move customer
satisfaction, employee satisfaction and some compliance goals into the performance review
scoring system, still with its key emphasis on financial results, to allow bonus/incentive
numbers to move up and down. And indirectly it may influence your salary increment
potential as well.

At individual properties, incentive pay did not typically vary across employees within each level.
Increasingly, Shangri-La corporate executives moved to standardize pay practices across properties.

Dogan elaborated:

In our old system, we had a lot of variation in compensation across properties. For instance,
when people moved from one property to another, sometimes their compensation went down.
That was not fair. We realized that we needed to reform our incentive pay model immediately.

To retain its work-force, the company also focused on creating transparent, well-defined career
paths (see Exhibit 8). “Employees felt that an opportunity for professional growth was a key
motivator,” said Tan Eng-Leong. “So we created a lot of opportunities for our staff. We were
expanding and we promoted from within. Our expansion gave huge opportunities to a lot of young
people. People frequently got promoted to another property. We wanted to give our employees
career paths and opportunities outside of their areas that other companies could not provide.”
Shangri-La’s growth created a lot of opportunities for advancement. Within one to two years, most
Shangri-La Service Associates were promoted to be Service Leaders. Another two years on the job
would get them a managerial position and if they worked four years as a Senior Service Manager
they became Service Executives.

Shangri-La staff could also move laterally from property to property. “Our expansion gave huge
opportunities for our employees. Not only were there opportunities to move up within the property,
there were also opportunities to transfer to other Shangri-La properties in exotic locations like Dubai.
Basically, if our staff decided to stay with our company, we gave them a future,” Dogan added.

The company also tried alternative methods, including non-pay recognition (i.e., contests, awards,
etc.) to motivate employees. Dogan recalled: “When I had the staff assembly with 2000 people in the
ballroom, I used to get out there with a $100 bill and say ‘Anybody who has the guts to come up here,
from each department, and recite the guiding principle and tell me what it means, come up here.’
People would storm the stage. It was a lot of fun, everyone was cheering for their department, and it
was a simple, non-stressful way of getting them to make sure that they knew it, understood it, and
practiced it. It became a real culture.”

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Expansion to the East: China’s Hotel Market

As Shangri-La trained its employees, fixed cultural issues, and expanded its operations in China,
the company faced additional challenges. After twenty years of rapid economic growth, China in
2006 had become the world’s fourth largest economy and one of the world’s most attractive
destinations for tourists, which meant significant opportunities for hotel development.iv According to
industry analysts, China would be Asia’s hottest spot for hotel development in 2006, accounting for
nearly half of all new projects in the region.v Of the 386 hotels actively in development throughout
Asia in 2006, 188 were in China, and 134 of those were rated four- or five-star.vi

Competition

With growth slowing in Europe and North America, hotel chains were targeting Asia—China in
particular—for their new growth. Soon after the International Olympic Committee announced Beijing
as the 2008 Olympics’ host, premium hotels started to pop up all over Shanghai, Beijing and other
Chinese cities as Regent, Ritz-Carlton, Hyatt, Sheraton and others poured billions of dollars into
expansion.vii

By 2001, the U.K-based InterContinental Hotel Group (IHG), which also operated the Crowne
Plaza and Holiday Inn chains, was the most ambitious player in the Chinese market. IHG had a
portfolio of 51 hotels in China and planned to develop an additional 74 by 2008.viii The U.S.-based
Marriott chain, which operated the Ritz-Carlton, Renaissance, and Courtyard brands, had 26 hotels in
China and planned to expand its portfolio to 100 by 2010. France’s Accor had 30 hotels under
development in China, all scheduled to open before 2008.ix Wyndham Hotel Group, which also
owned the Ramada and Wingate Inn brands, had a portfolio of 60 hotels in China in 2006 and
planned to expand its China business at an annual rate of 40% in anticipation of the 2008 Olympics.x

Local Hotels

Local hotels had poor brand recognition relative to their overseas rivals. Some thought that the
influx of foreign capital and brands would force the local hotels to improve their establishments and
services. However, none of the Chinese hotel chains could match the name recognition and service
standards of Hilton, Hyatt, InterContinental, or Marriott. Some local hotel groups considered forming
alliances with international brands, in which the local partner would be responsible for funding the
construction of the hotel, while the foreign partner took on the management and operation of the
business.

Pressure on Wages

Asia’s low labor costs boosted hotel gross profits significantly. In 2001, China’s average cost of
manual labor averaged less than $1 per hour, while the U.S. averaged $16 per hour (see Exhibit 9). As
a result, the hotel industry was more profitable in Asia than in the West. A typical four- or five-star
luxury hotel in Asia achieved gross profit margins of 35% to 45%, compared with 20% to 25% in the
West.xi

In 2001, several major international hotel chains entered the Chinese deluxe (four- and five-star

)

hotel market, creating sudden demand for skilled hotel workers. Newcomers either poached Shangri-
La’s trained staff or offered higher than average industry wages to attract their own. Shangri-La, the
only major player in China up until that point, found it difficult to keep up with the competition. Do

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“Consider Beijing,” Bridle said. “A half-dozen five-star hotels coming into the market… Our
reservation managers are being offered 35% higher salary by our competitors. Our security managers
are being offered 50% higher!” Shangri-La’s low annual turnover rates of 19% to 20%—versus 27%-
28% for the industry as a whole—were under threat.

Dogan commented:

With China coming onto the world stage, what I am finding out is that some of our staff is
like ‘gold dust’ to outside industry. Our trained, English speaking front office staff is whisked
away when the multinationals come in to set up their company. That is our biggest challenge.

Expansion to the West

China was not Shangri-La’s only focus. The company was about to launch multiple hotels in
Europe, Australia, and North America. These countries had relatively more expensive labor markets,
where trained hotel staff was in short supply. In Sydney, for instance, the typical staff-to-guest ratio
was 0.8 (compared to Shangri-La’s 1.5). Chicago, Miami, Las Vegas, Vancouver, and Toronto—some
of the locations Shangri-La targeted for expansion—all had similar labor markets. The only exception
was Paris, with a staff-to-guest ratio of 2.1 or higher, but this was driven by Paris’ comparatively high
hotel prices. A typical five-star hotel room in Paris usually went for �600 or �700. “Unfortunately, this
pricing strategy, cannot necessarily be translated into other markets where new Shangri-La’s were
coming,” Bridle said. “Charging more for rooms could not really be considered as an option in new
high-wage markets, since pricing is dictated by the market.”

He continued:

During our expansion, our main concern is to maintain worldwide service quality
standards and deliver excellent service to customers. An immediate, and long-term, challenge
is to ensure that signature Shangri-La quality and service standards are translated to new
hotels in new markets. It’s been said that you only have one chance to make a first impression
and guests must know they will experience the essence of Shangri-La hospitality wherever one
of its hotels opens its doors. And when loyal Shangri-La guests travel outside the region, they
must experience the same level and style of service they have come to expect at Shangri-La
hotels and resorts in Asia-Pacific and the Middle East. We need to maintain control and
translate our Asian service model into tighter labor markets in the western world.

Superior customer care was typical of many luxury Asian hotels and was definitely a standard at
Shangri-La and to deliver a consistent experience of Asian grace, warmth, and care—what Shangri-La
called “Shangri-La Hospitality”—all of its hotels maintained a high staff-to-guest ratio. In Hong Kong
and Singapore, for example, this ratio was close to 1.25 to 1.5 staff per guest. In developing countries
it could be as high as 2.5 to 3.0 staff per guest.xii Keeping a high ratio of staff-to-guests, which ensured
better service and attention to detail, had never been an issue for Shangri-La in low-wage countries
like Malaysia or China; however, the practice was not easily transferable to high-wage countries such
as the U.S., Australia, or Canada—at least not without creating unacceptably high payroll costs.

Looking Ahead

As Bridle grabbed the phone to call his assistant to schedule another executive meeting, a stream
of questions rushed through his mind. Did Shangri-La need to alter its strategy? Could they maintain Do

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their unique brand of Shangri-La Hospitality as they moved into tighter labor markets? They were
battling high-end Western hotel chains at home and abroad and needed to overcome wage and
cultural issues in their properties across the globe.

Bridle wanted to ensure that Shangri-La maintained its service model as they continued to
expand. “We need to have a consistent platform and consistent service quality,” thought Bridle. With
the first of the new slate of hotels scheduled to open in 2007, time was running out.

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Exhibit 1 Shangri-La Hotels and Resorts Growth Timeline

1971 April Shangri-La Hotel, Singapore, opens (managed by Westin until January 1983)

1979 Kuok Hotels established to manage three properties:-
Rasa Sayang (2004 November) temporarily closed for re-development and

re-opened in September 2006
Golden Sands

The Fijian

1981 April Kowloon Shangri-La opens (managed by Westin until April 1991)
1983 January Shangri-La International Hotel Management Limited (management takeover

of Shangri-La Hotel, Singapore)
1984 November Shangri-La Hotel, Hangzhou (management takeover of Hangzhou Hotel)

1985 April Shangri-La Hotel, Kuala Lumpur opens

1986 March Shangri-La Hotel, Bangkok opens
April Shangri-La Hotel, Penang opens

October Shangri-La Hotel, Beijing opens

1988 December Shangri-La’s Tanjung Aru Resort, Kota Kinabalu (management takeover)
1989 December Traders Hotel, Beijing opens

1990 July China World Hotel, Beijing opens

1991 March Island Shangri-La, Hong Kong opens
April Kowloon Shangri-La, Hong Kong (Shangri-La assumes management)

1992 August Edsa Shangri-La, Manila opens

September Shangri-La Hotel, Shenzhen opens
1993 March Rasa Sentosa Resort, Singapore opens

April Makati Shangri-La, Manila opens

June Shangri-La Golden Flower, Xian (management takeover)
October Shangri-La’s Mactan Island Resort & Spa, Cebu opens

1994 March Shangri-La Hotel, Jakarta opens

March Shangri-La’s Far Eastern Plaza Hotel, Taipei opens
1995 January Rebranding of Traders Hotel, Manila

January Shangri-La Hotel, Surabaya opens

April Traders Hotel, Singapore opens
1996 April Shangri-La Hotel, Beihai opens

June Shangri-La’s Rasa Ria Resort, Kota Kinabalu opens

August Traders Hotel, Shenyang opens
August Shangri-La Hotel, Changchun opens

November Traders Hotel, Yangon opens

1997 August Shangri-La Hotel, Qingdao opens
December Shangri-La Hotel, Dalian opens

1998 August Pudong Shangri-La, Shanghai opens

1999 April Shangri-La Hotel, Wuhan opens
April Shangri-La Hotel, Harbin opens

August The Kerry Centre Hotel, Beijing opens

2003 February Putrajaya Shangri-La Hotel opens
July ANA Harbour Grand Hotel rebrands as Shangri-La Hotel, Sydney, Australia

July Shangri-La Hotel, Dubai opens

2004 January Shangri-La Hotel, Zhongshan opens Do
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July Traders Hotel, Dubai opens

August Shangri-La Hotel, The Marina, Cairns re-branding
2005 January Traders Hotel, Changzhou opens

January Shangri-La Hotel, Fuzhou opens

September Shangri-La Hotel, New Delhi opens
October Traders Hotel, Kunshan opens

2006 February Shangri-La’s Barr Al Jissah Resort and Spa, Muscat opens

July Traders Hotel, Kuala Lumpur opens
Shangri-La Hotel, Suzhou opens

2007 January Shangri-La Hotel, Guangzhou opens

Source: Shangri-La Hotels and Resorts, http://www.shangri-la.com/en/home.aspx, accessed February 5, 2007.

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Exhibit 2 Ongoing Shangri-La Developments

Hotel Name Hotel Location
Expected

Opening Date

Shangri-La Hotel, Chiang Mai Chiang Mai, Thailand 2007
Shangri-La Hotel, Xian Xian, China 2007

Shangri-La Hotel, Baotou Baotou, China 2007
Futian Shangri-La, Shenzhen Futian, China 2008

Shangri-La Hotel, Huhhot Huhhot, China 2007

Shangri-La Hotel, Chengdu Chengdu, China 2007
Shangri-La Hotel, Qaryat Al Beri, Abu Dhabi Abu Dhabi, UAE 2007

Shangri-La Hotel, Bangalore Bangalore, India 2008

Traders Hotel, Bangalore Bangalore, India 2009
Shangri-La’s Phuket Resort and Spa, Thailand Phuket, Thailand 2009

Shangri-La Hotel, Manzhouli Manzhouli, China 2008

Shangri-La Hotel, Doha Doha, Qatar 2008
Palm Retreat Shangri-La, Bangalore Bangalore, India 2008

Shangri-La Hotel, Ningbo Ningbo, China 2008

Shangri-La Hotel, Vancouver Vancouver, Canada 2009
Shangri-La Hotel, Wenzhou Wenzhou, China 2008

Shangri-La Hotel, Macau Macau 2009

Traders Hotel, Macau Macau 2009
Shangri-La’s Villingili Resort and Spa, Maldives Villingili Island, Maldives 2008

Traders Hotel, Urumqi Urumqi, China 2009

Shangri-La’s Boracay Resort and Spa, Philippines Boracay, Philippines 2008
Shangri-La Hotel, Palais d’Iena, Paris Paris, France 2009

Shangri-La Resort and Spa, Seychelles Mahe, Seychelles 2009

Shangri-La Hotel, Chicago Chicago, U.S. 2009
Shangri-La Hotel, Guilin Guilin, China 2009

Shangri-La Hotel, Tokyo Tokyo, Japan 2009

Shangri-La Hotel, Miami Miami, U.S. 2010
Shangri-La Hotel, Dongguan Dongguan, China 2009

Shangri-La Hotel, Las Vegas Las Vegas, U.S. 2010

Shangri-La West, Jingan, Shanghai Jingan, China 2010
Shangri-La Hotel, at London Bridge Tower, London London, United Kingdom 2011

Shangri-La Vienna Vienna, Austria 2010

Source: Shangri-La Hotels and Resorts, http://www.shangri-la.com/en/home.aspx, accessed February 5, 2007.

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Exhibit 3 Shangri-La Asia Ltd., Annual Income Statements, 2002–2006* (in USD millions)

2006 2005 2004 2003 2002
Filed Currency USD USD USD USD USD

Net Sales 1002.9 842 725.5 540.4 600.5

Revenue 1002.9 842 725.5 540.4 600.5
Total Revenue 1002.9 842 725.5 540.4 600.5

Cost of Revenue 408.8 345.6 308.5 234.4 248.8

Cost of Revenue, Total 408.8 345.6 308.5 234.4 248.8
Gross Profit 594.1 496.4 417 306 351.8

Selling/General/Administrative Expense 121.3 114.3 90.5 77.4 80.1

Total Selling/General/Administrative Expenses 121.3 114.3 90.5 77.4 80.1
Other Operating Expense 279.8 238.4 209.9 116.3 155.8

Other, Net -80.3 -44.7 -26 -23.7 -6.9

Other Operating Expenses, Total 199.5 193.7 183.8 92.6 149
Total Operating Expense 729.6 653.6 582.8 404.4 477.8

Operating Income 273.3 188.4 142.7 136 122.8

Interest Expense – Non-Operating -32.5 -39.9 -52.7 -48.6 -43.8

Interest Capitalized – Non-Operating – 7 4.4 2.3 1.7

Interest Expense, Net Non-Operating -32.5 -32.9 -48.3 -46.4 -42.1

Investment Income – Non-Operating 42 64.3 41 38.8 41.7

Interest/Investment Income – Non-Operating 42 64.3 41 38.8 41.7

Interest Income (Expense) – Net Non-Operating 9.5 31.5 -7.3 -7.6 -0.4
Income Before Tax 282.8 219.8 135.4 128.4 122.4

Total Income Tax 63.5 52.3 12.9 46.4 49.7

Income After Tax 219.3 167.5 122.5 82 72.7

Minority Interest -17.2 -16.5 -9 -9.3 -9.3

Net Income Before Extraord Items 202.2 151 113.5 72.7 63.4
Net Income 202.2 151 113.5 72.7 63.4

*2006 projected

Source: Shangri-La Asia Ltd. Financial Report (Reuters), via OneSource, accessed February 26, 2008.

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Exhibit 4 Shangri-La Asia Ltd., Summary of Balance Sheet, 2002–2006* (in USD millions)

2006 2005 2004 2003 2002
Cash and Short Term Investments 380.3 313.8 223.9 199.1 164.8

Total Receivables, Net 112 126.9 157.4 152.9 166

Total Inventory 22 20.7 18.9 17.4 15.7

Total Current Assets 627.6 492.1 417.2 369.4 346.4

Property/Plant/Equipment – Net 3045 2508.6 2393.7 3761.6 3605.1

Goodwill, Net 75.8 76.8 -109 -116.3 -122.1

Intangibles, Net 393.1 385 379.5 – –

Long Term Investments 925.7 790.5 626.4 723.4 725.5

Other Long Term Assets, Total 4.6 6.6 7.6 4.3 4.6

Total Assets 5075.7 4263.1 3720.1 4742.5 4559.5

Other Current liabilities, Total 248.3 205.2 169.1 1.7 4.9

Total Current Liabilities 355.4 418.4 320 333.2 271.4

Long Term Debt 1506.4 990.4 952.7 1037.2 1010.9

Total Long Term Debt 1506.4 990.4 952.7 1037.2 1010.9

Total Debt 1549.3 1143.3 1056.6 1215.2 1141

Deferred Income Tax 211.9 202.2 189.5 356.6 339.8

Other Liabilities, Total 26.6 21.8 92.5 – –

Total Liabilities 2376.5 1882 1742.4 2118.5 2004.4

Common Stock 330.7 326.4 310.6 282 281.8

Other Equity, Total 108.6 -39.6 -43.9 56.5 27.1

Total Equity 2699.2 2381 1977.7 2624 2555.1

Total Liabilities; Shareholders; Equity 5075.7 4263.1 3720.1 4742.5 4559.5

Total Common Shares Outstanding 2560.8 2527.4 2404.3 2181.3 2179.7

*2006 projected

Source: Shangri-La Asia Ltd. Financial Report (Reuters), via OneSource, accessed February 26, 2008.

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Exhibit 6 Shangri-La Mission Statement

Our Philosophy

Shangri-La hospitality from caring people

Our Vision
The first choice for customers, employees, shareholders and business partners

Our Mission
Delighting customers each and every time

Our Guiding Principles (Core Values)
We will ensure leadership drives for results.

We will make customer loyalty a key driver of our business.
We will enable decision making at customer contact point.

We will be committed to the financial success
of our own unit and of our company.

We will create an environment where our colleagues
may achieve their personal and career goals.

We will demonstrate honesty, care and integrity
in all our relationships.

We will ensure our policies and processes are customer
and employee friendly.

We will be environmentally conscientious and provide
safety and security for our customers and our colleagues.

Source: Shangri-La Hotels and Resorts, http://www.shangri-la.com/en/home.aspx, accessed February 6, 2007.

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Exhibit 7 The Shangri-La Care (a.k.a. Shangri-La Way)

Care Module 1: Shangri-La Hospitality from Caring People (Launched in 1996)

Addresses how to make our guests feel special and important by focusing on the five core
values of Shangri-La Hospitality: Respect, Humility, Courtesy, Helpfulness and Sincerity. It also
imbues the value of ‘Pride Without Arrogance’ as the service hallmark.

Care Module 2: Delighting Customers (Launched in 1998)

Focuses on the importance of guest loyalty and how it can only be achieved by delighting our

guests not just the first time but every single time. Employees must be guest obsessed, doing
more for guests by ‘going the extra mile’, being flexible and never saying no, anticipating and
responding quickly, and recognizing the guest’s individual needs.

Care Module 3: Recover to Gain Loyalty (Launched in 2003)

Highlights the importance of recovery when a mistake is made. When recovery is done well, it

may be an opportunity to gain further commitment and loyalty but if there is no or poor recovery
the lifetime value of the guest is lost in addition to at least 25 others who may hear of the
incident through word of mouth. The module teaches the five steps to recovery – Listen,
Apologize, Fix the Problem, Delight – the Extra Mile and Follow Up.

Care Module 4: Take Ownership (Launched in 2005)

Addresses the importance of our employees taking ownership – to show care for our customers,

colleagues and company. The driver of ownership is “SELF,” which means S – Show
commitment, E – Eager to take initiative, L – Lead ourselves and F – Filled with passion. This
module attempts to create in our employees the mind-set to live in an environment that is filled
with Care for guests, Compassion for colleagues and Pride in our Company.

Source: Shangri-La Hotels and Resorts, http://www.shangri-la.com/en/home.aspx, accessed February 5, 2007.

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Exhibit 8 Career Path in Shangri-La

Source: Shangri-La Academy Beijing, http://www.shangri-la-academy.com/careerpath/en/index.aspx, accessed January 21,
2008.

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Exhibit 9 Hourly Wages by Country

Country Dollars per Hour
Japan 16.46
United States 16.14
Europe 14.13
Singapore 6.72
Korea 5.69
Taiwan 5.18
Mexico 2.08
Brazil 2.04
China .61

Source: Bureau of Labor Statistics; China Statistical Yearbook, http://www.bls.gov/opub/cwc/content/articles.stm, accessed
March 28, 2007.

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Endnotes

i “Shangri-La Hotels and Resorts,” http://www.shangri-la.com/en/home.aspx, accessed February 5, 2007.
ii “Tej Company Profile – Shangri-La Asia Ltd,” Taiwan Economic Journal, available via Factiva, accessed

February 2, 2007.
iii “Shangri-La Hotels Opens The Shangri-La Academy to Provide Chinese Students Hospitality Tools and

Training,” http://www.hotel-online.com/News/PR2004_4th/Dec04_ShangriLaAcademy.html, accessed April
18, 2007.

iv “China, India to drive strong growth in emerging Asia: IMF,” Agence France Presse, April 11, 2007, available
via Factiva, accessed April 11, 2007.

v “First-ever Lodging Development Pipeline for Asia Reveals China as Having the World’s Largest
Development Activity Outside the U.S.,” Lodging Econometrics, June 2, 2006, accessed April 18, 2007.

vi “InterContinental ramps up China growth pace,” Reuters News, October 17, 2006, available via Factiva,
accessed March 12, 2007.

vii “China Hotel and Tourism News,” http://www.chinaeconomicreview.com/hotels/2006/08/, accessed
April 10, 2007.

viii “Intercontinental Hotels Transcript of Preliminary Results Conference,”
http://www.ihgplc.com/files/presentations/prelims05/conference_call_transcription , accessed April 18,
2007.

ix “Competition heats up in hotel market,” China Daily, September 27, 2006, available via Factiva, accessed
March 12, 2007.

x “Wyndham plans rapid China hotel growth, eyes India,” New Zealand Press Association, October 12, 2006,
available via Factiva, accessed March 29, 2007.

xi “A tasteful host,” Forbes, July 28, 1997, available via ProQuest, accessed April 10, 2007.

xii “Shangri-La Hotels to spread their allure to Vancouver,” Sun, September 24, 2004, accessed April 12, 2007.

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