Covering All the Angles

He considers himself a point guard. Sure, he stands not a whit above five feet, nine inches in wingtips, but basketball lover Barry Sternlicht knows, accepts, and mostly relishes the leadership responsibilities that come with the position so named. Indeed, as chairman and CEO of Starwood Hotels & Resorts Worldwide, the planet's biggest hotel company by revenue ($4.35 billion in 2000), Sternlicht leads an entity comprising about 120,000 people spread among more than 700 hotels, plus vacation ownership properties.

The term "coach" might seem a more apt description for the job of overseeing so monstrous an enterprise. Only it's not. A coach is someone who, after collecting bucketfuls of experience over decades, stands alongside the playing field, guiding others as they execute the game plan.

But consider this: Sternlicht, a 1986 Harvard Business School graduate, has been in the hotel business less than 10 years. In fact, it wasn't until the dawn of 1998 that he and Starwood became a major player, when Starwood bought first Westin and then ITT (owners of Sheraton) a few months apart. And while the 40-year-old sometimes sounds suspiciously like a coach—"If you define leadership as producing a strategy and a vision for the operation, I think I do that pretty well"—Sternlicht's actions repudiate the notion that he's primarily a coach.

In the past four years, he himself has created W Hotels (and even designed the grand staircase at the Los Angeles property), developed Westin's Heavenly Bed and Heavenly Shower, and brought the Six Sigma process improvement program (made famous by General Electric CEO Jack Welch) to Starwood, where it will be implemented right away in the convention services departments of its major meetings properties.

As an on-court strategist, "He reminds me of Magic Johnson or Larry Bird," says Steve Goldman, executive vice president of acquisition and development for Starwood, and a colleague of Sternlicht from the not-so-distant days when the company consisted of eight people in one Phoenix office. "Guys like those can see what's going to develop before anybody else does. Only in hindsight does it become apparent to others why these guys did what they did. More than once, Barry has had a vision that, in retrospect, seems simple or obvious. But nobody else saw it first."

So maybe one day Sternlicht will be a coach. Today, he's the point guard, and for a pretty successful team.

Upbeat in the Downturn

In the third line of Starwood's latest annual report, Sternlicht tells shareholders that "2000 was indeed an extraordinary year for our company." Unfortunately for them, 2001 likely won't follow suit, thanks to so many slashed corporate travel and meetings budgets. The situation has taken its toll not only on Starwood's revenues, but on Sternlicht himself. He works about nine hours each day at the firm's White Plains, New York, headquarters, then drives home with a briefcase full of items that require his attention. After an hour of dinner with his wife, Mimi, and some reading time with his three kids—Adrian, 9; James, 8; and William, 6—he settles into the home office for four more hours.

"These are unusual economic times, and there's a lot to do right now. We can't be stupid," Sternlicht says. "We're currently very focused on our overhead, our capital spending, and our marketing programs to drive revenue, so I've spent a lot of time" at both offices. But though the current situation is extracting virtually a pound of flesh from him, Sternlicht continues to attack, because he knows what the reward will be.

"Yes, people are cutting meetings budgets, so we have to respond by delivering what we did before for a lesser amount, for however long this climate lasts," he says. "If, by doing so, we build loyalty in customers, we'll see the payoff from that investment when business is better. Great companies use down times to build market share."

A critical component of generating loyalty, Sternlicht adds, is "being the easiest company for customers to do business with." By that he means having faster response times and more reliable products and services across every Starwood brand, which is the desired result from process improvements generated by Six Sigma.

What, exactly, is Six Sigma? It's a disciplined, data-driven approach for eliminating defects in any process; the name refers to a measure of quality that strives for near-perfection. Ideally, any process that's successfully reengineered by Six Sigma does not produce more than 3.4 incidents of customer dissatisfaction per one million opportunities. Besides GE, Motorola and several Japanese companies have used Six Sigma to considerable benefit.

Sternlicht knows, however, that Starwood faces a formidable task as it strives to reengineer. "By buying our hotels the way we did, we wound up with different facilities and services being offered to different Starwood clients," Sternlicht says. "We're now focused on improving in that area."

Select Starwood employees at all properties have recently undergone extensive training in order to analyze and rethink everyday processes at hotels. "The number of people who have a problem in a hotel—the phone doesn't ring enough times before going to voice mail, the water pressure isn't good, room service takes too long, whatever—is far too high right now," Sternlicht says. "And while these aren't major problems, they are things that aggravate guests. The idea is that Starwood's 450 Six Sigma specialists really are a human network, and will link up to share good ideas across all properties and get them implemented. Their job is very rigorous analytically. They literally map things out."

Of the 110 initial projects that have been slated to undergo scrutiny this year (including Sternlicht's personal peeve: "Hotel check-in; it's a total mess"), meeting services are at the fore. Bob Moore, senior VP of global sales for Starwood, says the goal is "that within each tier, our property is better than its competition."

Last year, Starwood hired a company-wide director of convention services, David Dvorak, to assist Moore in making sure the Six Sigma initiative produces the desired results. "Just by that simple act, we made a clear statement that we put a priority on the service of meetings," says Moore. "This initiative removes service inconsistencies as much as possible, which makes it perfect for use in convention services. (For specifics, see sidebar on page 50.)

Once the Six Sigma program gets off the ground, the economy stops its slide, and Sternlicht feels able to get away, he'll take his family on vacation to one of Starwood's properties. He likes to use his jaunts not only to spend concentrated time with his loved ones (whom he calls "my main hobby; they're pretty important to me") but also to see some of Starwood's farthest-flung products that he otherwise might never get to visit. Some recent trips have been to Egypt and to Hawaii, where Sternlicht saw 14 properties on three islands. Ouch.

Learning on the Fly

How does a young real-estate deal maker—who started at Chicago-based JMB Realty in 1986 and created Starwood with three partners and $60 million in venture capital in September 1991—end up as chief executive of a $12 billion hospitality enterprise? Luck, says Steve Goldman. When he first met Sternlicht in 1993, Starwood had eight employees, but Sternlicht told Goldman right then that his goal was to put together a major hotel company, "meaning one that would survive over the long term, throughout Barry's career and his children's lives," Goldman says. "I don't think anyone sat down at any time and said, 'Okay, let's become a real estate investment trust [REIT], then acquire Westin and Sheraton in the same quarter.' "

Goldman, however, isn't diminishing Sternlicht's achievement. "Barry set out to build a great company, and when I say that luck played a big role, that doesn't mean any of this was an accident," he adds. "One definition of luck is when preparation meets opportunity. That's the kind of luck we had."

When Starwood in 1995 sought to purchase a REIT named Hotel Investors Trust and become a bigger industry player, it wasn't alone. "Some other very smart industry people were looking at the trust as well," Goldman says. "But its assets were bad and its management was worse, and they all concluded that it wasn't worth anything."

Sternlicht, though, saw that the REIT's unique structure was grandfathered by law (a REIT avoids paying corporate income tax by passing along at least 90 percent of its income to shareholders through dividends), and thus offered a huge competitive advantage to whoever bought it. When other suitors backed off, "we were able to obtain the company on attractive terms, dump most of the assets, purge the management, and get into great position to acquire new assets," Goldman says. And when Westin and Sheraton became available, Sternlicht's luck was complete.

But several newspaper and magazine articles at that time questioned whether Sternlicht would be able to manage the new behemoth. After the Sheraton deal, he brought in old friend and former Disney prodigy Richard Nanula as Starwood's president; a little more than a year later, though, the friction between the two ended that arrangement.

Since May of 1999, Sternlicht has held the managerial reins; to this day, he still has less than five years of corporate experience under his belt. For him, the transition from deal maker to manager is ongoing. His philosophy, his framework for managing, is based on viewing the enterprise as a sports team. "You always continue to bring in talent to try to win the championship," Sternlicht says, "because people's priorities change; their desire and hunger to win changes. And if that happens, they should step aside."

One tactic that's helped Sternlicht adjust: adopting philosophical nuggets from Jack Welch. Sternlicht is relentless in the quest for performance improvement and efficiency, both in Starwood's product and its personnel.

"Yes, I am horribly impatient," he says. "An executive or manager can't report to me that he or she is 'working on it.' You have to tell me what exactly the goal is, and when it will be completed. If you want to give yourself two months of extra room, fine, but give me a date, and give me a target so I can measure your performance. This is the only way I can tell if you are an A player or a C player. I know that everybody works hard, but we don't get paid to work hard—we get paid for performance. I don't care if you leave work at four in the afternoon or four in the morning, as long as you get the job done."

Like General Electric, Starwood creates what Sternlicht calls a "vitality curve" among its employees. During evaluations, the top 20 percent of performers are regarded as A players; the middle 60 percent, B players; and the bottom 20 percent, C players. "We need to clear out our Cs, and teach our Bs to be As," Sternlicht says, sounding very much like Welch.

"The thing I admire most about Jack," he adds, "is that he's invested in training his people."

One aspect of Sternlicht's reputation that he himself finds overblown is that he's too "hands-on" as an executive. Yes, he designed Westin's beds, bathrooms, and showers based on the experiences he suffered through as a business traveler. Yes, he reads almost every complaint letter that comes to Starwood's headquarters. And yes, he looks at new property renderings and makes suggestions. But, "I don't know of anything more important I could do than those things," he says. "It's your product, and you look at everything you can to maintain quality. I haven't been doing this for thirty years like the Marriotts, so one thing I wish I could do is spend more time at our properties."

Sternlicht disputes the "hands-on" moniker because he recognizes that, as CEO, he's not in the best position to spot opportunities for improvement. "One thing I love about Six Sigma is that change doesn't come from the top, it bubbles up automatically from the property level," he says. "That's where the best ideas are. The people who touch the guests are the ones who know best how to fix processses. Yeah, I can redesign a bed, but I can't redesign what those people can."

So Barry Sternlicht presses on with Starwood, doing whatever is necessary to stay ahead of the competition, just as he does when he plays pickup basketball. "I play the game the same way I operate my business," he says. "I'm always the point guard, but I always look for the open man—I don't care about how many points I score. I'm a good shooter, but there are better shooters than me, so I get them the ball and they shoot. I do what I'm supposed to do in order to win. I lead the team."